Reforming Intra-EU Investment Protection
| Author | Dominik Moskvan |
| Published date | 01 October 2015 |
| Date | 01 October 2015 |
| DOI | http://doi.org/10.1177/1023263X1502200505 |
| Subject Matter | Article |
732 22 MJ 5 (2015)
REFORMING
INTRA-EU INVESTMENT PROTECTION
Amid a Running Battle of Interests
D M*
ABSTRACT
is article scr utinizes the positions of stakeholders in the light of the arguments of
incompatibility of the intra-EU BITs with EU law. Whereas the interest of the Commission
and some EU Member States was to protect the legal certainty of EU law and budgetary
expenditures, the selective short-term interest of deliberately invoking compliance with EU
law con icts w ith the long-term interests of the Union, the EU Member States, an d investors,
including enterprises wholly-owned by the national governments of EU Member State.
While waiting for the Commission to come up w ith a solution to the issue of incompatibility,
EU Member States might nd themselves ex posed to a substantial degree of moral hazard
since Member States’ courts should set aside the e nforcement of arbitral awards that ignore
the primacy of EU law. It is suggested that the te nsion between di erent interests may
impact the competitiveness of the invest ment environment of the EU as a whole.
Keywords: bilateral i nvestment treaties; investment arbitration; investor interest ; moral
hazard; public interest
§1. IN TRODUC TION
Bilateral investment t reaties (BITs) have been marked by a precipitously rising popu larity
in the second half of the 20th centur y and the main inst igators were the Western European
countries, wit h the Germany-Pakistan Treaty historically being the rst BIT1 in 1959.2
* Ph.D. Candidate at t he Faculty of Law – Universit y of Antwerp, Belgiu m.
1 A. Law and L. Par adell, Practice of Invest ment Treaties: Standards of Treatment (KL L, 2009), p.42.
2 e treaty was renegotiated a nd at the end replaced by the A greement on the Encour agement and
Reciprocal Protection of Investments. A er Pakistani rati cation, Ger many signed the t reaty on
Reforming Intra-EU Investment Protection
22 MJ 5 (2015) 733
Over the years, bilatera l investment treaties have created the most comprehensive
investment platform both for states as well as investors. Increased articulation of
principles by arbitration courts a er AAPL v. Sri Lanka3 con rmed the unique status of
foreign direct investments (FDIs) in international law.4
e popular ity of BITs has spread to all the continents and 2,495 BITs were signed as
of 2005.5 Politica l changes in Central a nd Eastern Europe (CEE) a er 1989 brought ab out
a vigorous adoption of free market economic policies. As a resu lt, CEE states developed
an impressive bilateral investment framework. Out of the total of 2,495 BITs, the CEE
region accounts for 716 treaties.6 FDIs protected by BITs were seen as a means to ensure
economic progress of the region. For instance, in Hungary alone, the FDIs rose from
$570 mi llion i n 1990 to $2 48 bill ion in 20 09.7 e i ncrease is commonly attributed to the
help of BITs to alleviate investors’ concerns about the risk s associated with investment.8
Before ten CEE states joined the Europea n Union in 2004, only two BITs between the EU
Member States had been in e ect.9 A er the enlargement, this number grew sig ni cantly
to 150 BITs. e 2007 accession increas ed the total to 191 intra-European Union BITs.10
is article ai ms to analyse the positions of sta keholders, either directly involved (EU
and EU Member States) or a e cted (investors) by the reform of the intra-EU invest ment
policy by the EU. Firstly, the claim of incompatibility of intra-EU BITs with EU law is
introduced in Section 2. e validity of the legal framework for investment protection,
following the accession to European Union, is brought into doubt by the European
Commission as well as, opportunistically, by the states themselves if it serves their
defence in investment arbitration. A lthough both extra-EU and intra-EU BITs had been
in alleged con ict since their respect ive contractors became EU Member States, the legal
8th July 2011, www.pak istan.diplo.de/ Vertretung/pak istan/en/05_ _Business __Economy/1_ _Exter
nalEconomicPromotion/Invest__Schutz __Abk__ Seite.html.
3 Asian Agricu ltural Products Ltd . v. Republic of Sri Lan ka (AAPL v. Sri Lanka), ICSID Ca se No. ARB/87/3.
4 AAPL v. Sri Lanka upheld a u nilateral rec ourse to arbitrat ion and other substant ive standards of
investment protect ion. M. Sornaraja h, e Internatio nal Law on Foreign Direc t Investment (CUP, 2010),
p.3.
5 UNCTAD, ‘ e Entry into Force of Bilatera l Investment Treaties (BITs)’, p.1, ww w.unctad.org/en/
docs/webiteiia20069_ en.pdf.
6 D. Gory unov, ‘ e E ectiveness of FDI Promotion in Tra nsition Economies’, UNCTAD (2004), http ://
citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.495.3902&rep=rep1&ty pe=pdf, p.7.
7 e United Nations Con ference on Trade and Development, ‘World Investme nt Report 2010’, UNCTAD
Webs ite (2010), www.unctad.org/en/docs/wi r2010_en.pdf, p.172.
8 Neve rthe less , the debat e weig hin g the p osit ive a s well as ne gativ e e e cts of BITs has not been concluded
yet. M. Carkovic a nd R. Levine , ‘Does Foreign Direc t Investment Accelerate E conomic Growth?’,
Universit y of Minnesota (2002), p.2; S. Ros e-Ackerman and J. Tobin, ‘Foreign Direct Invest ment and
the Business Env ironment in Developin g Countries: e Imp act of Bilateral I nvestment Treaties’,
Center for Law, Economic s and Public Policy Develop ing Countries Yale Law School Rese arch Paper No.
293, http://papers.ssrn.com /sol3/papers.cfm?abstract_ id=557121, p.2.
9 BIT between Ger many and Greece (1981), and the Germany-Port ugal BIT (1980).
10 W. Shan and S. Zhang, ‘ e Treaty of Lisbon: Hal fway Toward a Common Investment Polic y’, 21 EJIL
(2011), p.4.
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