The ‘Mixed’ Future of the EU’s Investment Law and Arbitration Policy

by Nikos Lavranos, Secretary General of EFILA*

The year 2016 must be considered a real “annus horribilis” for the EU’s investment law and arbitration policy. The following list is just an incomplete overview of the failures of the European Commission to deliver any positive results:

  • TTIP was not concluded within the presidency of the Obama Administration and seems to be put in the freezer by President-elect Trump;
  • Even after Wallonia has been appeased, CETA is still not certain of being actually ratified by all Member States and enter fully into force, since the Court of Justice of the EU (CJEU) is going to opine on the compatibility of the investment court system (ICS) with EU law;
  • AG Sharpston recently delivered her opinion on the EU-Singapore FTA, arguing that this FTA must be concluded as a “mixed” agreement, i.e., signed and ratified by all Member States and the EU. Consequently, also this FTA will most likely face similar difficulties as CETA, in particular since it still contains the ostracized “old school” ISDS provisions.
  • The European Commission intensified its efforts of destroying the intra-EU BITs by mounting infringement proceedings against 5 Member States and by prohibiting Romania to pay out the $ 250 million Micula award and thereby fulfilling its international.
  • Similarly, the European Commission continues to intervene in all intra-EU BITs and intra-ECT disputes, trying to prevent European investors to rely on the rights granted to them by these treaties, which are still valid and in force.

In short, after 7 years since the EU obtained exclusive competence for “foreign direct investments”, the EU’s investment policy is not only practically absent but has – more importantly – created legal uncertainty and cast doubt as to the investment climate and the rule of law within the EU. This is even more disappointing in light of the unprecedented financial and economic crisis, which has hit most of the EU Member States and continues to smoulder beneath the surface. Instead of attracting new foreign direct investments, which would create jobs, the European Commission has been financing anti-ISDS, anti-investment and anti-globalization groups to scare the general public and media about something that has been in place for more than 50 years.

Looking ahead, the year 2017 should be used for pause and reflection, and ultimately, change of the chosen path.

After the CETA-drama and the Opinion of the CJEU on the EU-Singapore FTA, which will most likely follow AG Sharpeston’s analysis, the European Commission should – for a start –

accept and embrace “mixity” as the new reality. This would be a very important move by the European Commission because it could allow her to stop fighting with the Member States about competences, thereby enabling it to spend her resources on more relevant issues.

As the CETA-drama has aptly demonstrated, involving the Member States – including their regional parliaments – is a necessity in order to create any sufficient level of support for FTAs. In other words, “mixity” is a tool for increasing democratic involvement and control by the Member States and their voters. In light of the rising populism in Europe – and in light of the upcoming elections in France, Germany and Netherlands which all will take place in 2017 – this point should not to be underestimated.

In this connection, it may be advisable if the European Commission would apply the motto “less is more”. Currently, the European Commission is negotiating more than a dozen FTAs ranging from China to Tunisia. Considering the efforts, time and resources necessary for negotiating and concluding just one FTA, a prioritization of all these FTA-negotiations is essential.

In the second place, the European Commission and the European Parliament should stop stirring up the hysteria again investors, investment protection and arbitration. Investment protection and arbitration have been important and necessary elements for the promotion and protection of European investments and investors investing abroad and thereby creating jobs in Europe as well as improving the economic development in the countries of their investment destinations. Moreover, investment treaties continue to have an important role as a tool for improving the rule of law situation in many countries in the world.

Therefore, in the third place, the discourse has to change towards how investment treaties can be used as a tool for improving the functioning, efficiency and transparency of state organs across the board, in particular with the aim of eradicating corruption. This would not only benefit foreign investors but – more importantly – domestic investors and the general public.

In sum, 2017 should be the year in which the demonization of investment treaties, investment protection and arbitration has to end. Instead of spreading myths and hysteria, all relevant stakeholders should calm down and return to a fact- and merit based discourse.

As in the past years, EFILA will continue to exactly do that.

Starting with our 3rd Annual Conference on 23 February in Vienna.

At the same time calling for submissions of papers for the European Investment Law and Arbitration Review.

By requesting blogpost submssions for the EFILAblog.

By submitting its views to the public consultation on the investment court system.

Finally, by hosting the next Annual Lecture, which will be delivered by a well-known arbitration expert, sometime in the fall of 2017.

With this hopeful outlook, I wish you all a very peaceful new year.


* Nikos Lavranos, Secretary General of EFILA, visiting professor Verona University, Fellow at the WTI.