The continued lack of adequate investment protection in Europe

Nikos Lavranos, Secretary General, EFILA

Recently, the UNCTAD Investment Division announced that it had “completed its regular semi-annual update of the Investment Dispute Settlement Navigator, which is now up-to-date as of 1 January 2017”.

The Navigator is a useful web-based search tool containing information regarding pending and closed investor-State disputes based on the thousands of investment treaties.

According to UNCTAD, the key findings of this update are as follows:

“In 2016, investors initiated 62 known ISDS cases pursuant to international investment agreements (IIAs). This number is lower than in the preceding year (74 cases in 2015), but higher than the 10-year average of 49 cases (2006-2015).

The new ISDS cases were brought against a total of 41 countries. With four cases each, Colombia, India and Spain were the most frequent respondents in 2016.

Developed-country investors brought most of the 62 known cases. Dutch and United States investors initiated the highest number of cases with 10 cases each, followed by investors from the United Kingdom with 7 cases.

About two thirds of investment arbitrations in 2016 were brought under bilateral investment treaties (BITs), most of them dating back to the 1980s and 1990s. The remaining cases were based on treaties with investment provisions (TIPs).

The most frequently invoked IIAs in 2016 were the Energy Charter Treaty (with 10 cases), NAFTA and the Russian Federation-Ukraine BIT (three cases each).

The total number of publicly known arbitrations against host countries has reached 767.”

Some of these above key findings are of particular interest and should be put into a broader perspective.

First, it is interesting to note that the number of new ISDS cases has fallen. This is a trend that can also be seen for example in the ICSID statistics, which show that the number of ICSID cases has been falling as well (in 2015 52 new cases were registered, while in 2016 48 new cases were registered).

UNCTAD does not give any explanation as to the possible reasons for the fall in cases. One could of course think of several reasons: the States have improved their behaviour vis-à-vis foreign investors or investors consider the use of investment treaty arbitration as a less attractive option for dispute resolution and instead prefer to use other options. In this context, it is interesting to note that according to the same UNCTAD Navigator, States continue to win more cases (36.4%) than investors (26.7%), while 24.4% of the cases are settled. Investors/Claimants could perceive this as not such an attractive option to resolve a dispute with a State, in particular in conjunction with the high costs associated with the proceedings.

Second, it is noticeable that the Energy Charter Treaty (ECT) is the most frequently invoked investment treaty in 2016. This has been a trend of the past years with the explosion of disputes in the renewable energy sector, mainly against Spain but also against several other European States. Moreover, in the past 3 months it has been reported that investment arbitration proceedings – not only based on the ECT – have been initiated against Italy, Croatia, Bosnia-Herzegovina, Latvia, Greece and Serbia.

This suggests that European States have a poor track record when it comes to the protection of foreign investors and their investments. Again, one wonders what the reasons are for the fact that the ECT is so popular and why European States face some many disputes. Whatever the reasons may be, the fact that the ECT and BITs are used so frequently against European States underlines the continued lack of adequate investment protection in Europe, which in turn confirms the necessity of investment treaties.

In fact, the World Rule of Law index 2016 indicates very clearly the stark differences among European States regarding their Rule of Law track record. This index ranks Denmark (1), Norway (2), Finland (3), Sweden (4), Netherlands (5), Austria (6), Czech Republic (17), France (21), Spain (24), Romania (32), Italy (35) and Bulgaria (53) out of 113 countries.

The Corruption Transparency index 2016 of Transparency International ranks Denmark (1), Finland (3), Sweden (4), Switzerland (5), Norway (6), Netherlands (8), Germany (10), Poland (29), Lithuania (38) Czech Republic (47), Croatia (55), Romania (57), Italy (60), Greece (69) out of 176 countries.

The Doing Business Report 2017 ranks Denmark (3), Norway (6), UK (7), Sweden (9), Finland (13), Germany (17), Lithuania (21), Bulgaria (39) and Malta (76) out of 190 countries.

Obviously, these rankings have their limitations and must be treated with caution but the emerging general picture is nonetheless very clear. The “Nordic” European countries simply have a better track record than the “Southern” and “Eastern” European countries. In other words, they not only treat foreign investors better but they also have less perceived corruption and less red tape for doing business.

It is about time that this reality is generally accepted also in the European institutions living in the “Schuman bubble”.

These obvious conclusion from this is that – contrary to UNCTAD’s and European Commission’s repeated call for “reforming” the current system by inter alia also terminating investment treaties – all efforts should be focused on improving the Rule of Law track record in those European countries which clearly show deficiencies.

However, in the past decades little progress has been made and there is no reason to believe that things will improve very soon. Consequently, in these circumstance investment treaties are still very much needed – in particular in Europe.

 

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