It is well known that there was a transfer of competences of foreign direct investment to the EU when the Lisbon Treaty entered into force in December 2009. The TFEU has established the EU's exclusive competence on foreign direct investment, as part of the common commercial policy. The European Commission used to ask permission from the EU Member States to include provisions on investment in its free trade agreements, but the positions have now been inverted. The competence to negotiate international agreements concerning foreign direct investments has shifted from member states to the EU. Having international investment agreements under the scope of the common commercial policy means that Member States have lost their ability to negotiate and conclude such agreements, as they are solely allowed to conclude agreements in this area if authorised by the European Commission. Hence, the Commission would be the main actor in the negotiation of new BITs and trade agreements. This would have serious implications on the investment policy instruments of the Member States, as they would no longer be allowed to pursue their individual interests.
Since the entry into force of the Lisbon Treaty, the European Commission has been preparing a new European policy regarding foreign direct investments. In July 2010, the Commission took two steps towards this aim. It adopted a Communication Towards a comprehensive European international investment policy and a proposal for a Regulation establishing transitional arrangements relating to investment agreements between Member States and third countries.
The most noticeable materialization of the EU Member States’ policies on investment is the so-called Bilateral Investment Treaties. The Commission has pointed out that there around 1200 bilateral investment treaties concluded by EU Member States with third countries, covering all forms of investment. There is no transitional regime in the TFEU clarifying the status of Member States' agreements, or transitional provisions for such agreements, which have now come under the EU exclusive competence. Hence, the Commission proposed a draft regulation establishing transitional arrangements for bilateral investment agreements between Member States and third countries, subject to the ordinary legislative procedure.
Those Bilateral Investment Treaties concluded by Member states are valid and legally biding under international law, however they will be progressively replaced by future EU agreements relating to the same subject matter. The European Commission intends to gradually replace the numerous BITs previously concluded by individual Member States with EU-wide BITs. The draft regulation provides, therefore, a transitory solution by authorising the continued existence of bilateral agreements relating to investment concluded between EU Member States and third countries.
Following an agreement with the European Parliament, the Council has recently adopted its position at first reading on a draft regulation introducing transitional rules
on bilateral investment treaties. The MEPs are now expected to adopt the text at
second reading without amendments.
The draft proposal lays down the terms, conditions and the procedure under which Member States, for the time being, are authorised to maintain in force, amend or conclude bilateral agreements with third countries relating to investment. The Commission would be able to review the agreements which have been notified, in order to assess whether they conflict with EU law. Under the original draft proposal, the Commission would have been able to withdraw an authorisation if an agreement conflicts with the EU law, for instance, it provides for transfer clauses that would hinder the implementation of EU financial restrictions against a certain third country, as well as if the agreement undermines negotiations or agreements of the EU in force with third countries, basically, if it contains investment provisions similar to those of an EU agreement and such overlap is not addressed. Moreover, an authorisation could also be withdrawn if the Member States agreements constitute an obstacle to the development and implementation of the EU’s policies relating to investment, particularly the common commercial policy, for instance, “where the existence of agreements undermines the willingness of a third country to negotiate with the Union.” Member States would have been required to enter into negotiations with a third country to amend or modify existing bilateral agreement relating to investment, in order to bring them in compliance with EU law.
Hence, the European Commission would have had broad scope to remove authorisation for existing investment agreements, which would have been a threat to the legal security of these existing agreements. In fact, the European Commission would have been able to arbitrarily rescind a bilateral Investment treaty. The European Parliament and the Council have agreed to water down the Commission's proposal. They agreed to limit the Commission's powers of review as well as the reasons for which the Commission can withdraw authorisation from BITs.
Norman Lamb said to the European Scrutiny Committee that “the UK red line has been met by the current wording, which only requires Member States to take measures where the provisions in their bilateral investment treaties constitute "a serious obstacle to the negotiation or conclusion" of EU-wide treaties with third countries.” Moreover, he explained that, under the compromise deal, it is unlikely “that a Commission attempt to remove provision constituting such an obstacle would succeed, because the negotiation mandate and final agreement are subject to qualified majority voting, and the vast majority of Member States, and especially the larger vote holders, have existing bilateral investment treaties.” Then, he noted that “It is likely, therefore, that, if one of these was deemed to have provisions constituting a serious obstacle, this would be true of all the others, making it likely that any proposed agreement which fell short of the existing protection provided by Member States' treaties would be rejected by the Council with ease.”
