EUROPE: EU Takes Key Step to Provide Legal Certainty for EU Foreign Investors

Friday June 22 2012

The European Commission has taken an important step to protect EU foreign investors at the EU level, thereby ensuring that Europe continues to be a safe and attractive place for investment by foreign companies. The proposal establishes a legal and financial framework for “investor to state dispute settlement” as part of a broad investment policy which has become an exclusive EU competence under the Lisbon Treaty. It is a further step in the creation of a comprehensive EU investment policy which will allow the EU to negotiate investment protection agreements at the European level. The decision will ensure the EU has the right system in place so that international investment rules can be managed effectively in cases disputes arise between foreign investors and the EU and its Member States.

A key element of investment protection is the possibility of dispute settlement between an investor and a state, a provision currently included in the more than 1,000 bilateral investment protection agreements concluded between EU Member States and countries outside the EU. Once investment agreements will be concluded at the EU level, foreign businesses investing in the EU may, for the first time, bring claims against the EU alleging that investment protection obligations have been breached. The proposal clarifies who would bear the financial responsibility when compensation has to be paid – Member States or the EU. It ensures that foreign investors in the EU are not affected by this allocation of responsibility.

The proposed regulation will provide legal certainty and predictability for foreign investors, which will help keeping the EU open for investment and create jobs.
The Regulation proposes a mechanism whereby financial responsibility for the costs of investor-to-state dispute settlement and the right to defend such a case are allocated between the EU and the Member States on the basis of whose actions caused the investor to bring a claim:

• Where the measure which is alleged to be in breach of the agreement is a Member State measure, which was not required by EU law, the Member State would bear the financial responsibility flowing from the dispute and may in principle also act to defend the claim.
• Conversely, if the measure at issue is an EU measure or a Member State measure mandated by EU law, the EU would bear the financial responsibility and could act as defendant.
• The regulation permits the Member States to defend their own measures where they would ultimately have to bear the costs, unless it is in the interest of the Union to act as defendant, on the basis of the conditions set down in the proposal.

In all cases, there should be very close cooperation between the EU and Member States in order to ensure the best possible defence of any claims alleging a breach of the investment protection agreements negotiated by the EU.

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