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Part of the book series: Studies in European Economic Law and Regulation ((SEELR,volume 23))

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Abstract

This chapter analyses the dilemma of Extra-EU BITS regarding ‘adjusting to a new reality or being phased out’. Its question is, ‘Is there really a problem? And if yes, can this problem be solved?’ With the aim of providing some legal certainty, this chapter adds another global perspective by looking at how the situation of intra-EU BITs has affected and will affect the extra-EU BITs of the EU’s Member States and third countries. In particular, the reform of Member States’ model BITs will be analysed by studying and assessing ongoing reform of the subject matter. Furthermore, the enforceability of extra EU-BIT claims/awards stemming from illegal state aid will be focused on to identify which judicial forum would be optimal for disputes between investors and states in claims of which the EU or an EU Member State is part.

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Notes

  1. 1.

    For a list of these agreements see EUR-Lex at https://eur-lex.europa.eu/legal-content/EN/TXT/?qid=1556809379390&uri=CELEX:52017XC0511(04).

  2. 2.

    The first part of Article 351 contains a grandfathering clause, which stipulates that international agreements concluded before 1 January 1958 or by acceding states ‘shall not be affected by the provisions of the Treaties’. However, where such agreements are not compatible with EU law, these must be eliminated.

  3. 3.

    Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries (Grandfathering Regulation).

  4. 4.

    Authors such as Kleinheisterkamp (2011, 2012a, b), Lavranos (2013) and Niemelä (2017) have discussed extra EU BITs. Kleinheisterkamp discusses the internal power struggle that went on during the negotiations for the Grandfathering Regulation. He examines extra-EU BITs in light of the autonomy of EU law, the scope of Article 351 TFEU ( which is a standstill provision for pre-accession extra-EU BITs) and Article 4(3) TEU (which stands for loyalty and the general duty to cooperate with the EU) and finds several issues regarding extra-EU BITs and the EU’s legal order, concluding that the incompabilities must be renogotiated. Niemelä (2017) explains the current status of extra-EU BITs, namely protected by article 351 TFEU and the Grandfathering Regulations, but under conditionality. He also pinpoints ‘that the discrimination and autonomy concerns are equally relevant in respect of extra-EU and intra-EU BITs’. However, despite the Commission having the competence to pressure the member states to renegotiate these BITs (by initiating infringement proceedings), he finds it unlikely that the Commission will do so for a number of reasons. Lavranos (2013) rejects any issues concerning extra-EU BITs and adopts a highly critical perspective on the Grandfathering Regulation. According to him, it is a purely EU internal political paper meant to ‘power grab’ all competences from the Member States regarding their existing extra-EU BITs—namely, wrongly attempting to replicate the de facto succession of the Member States by the E(E)C with regard to the old GATT 1947. Lavranos argues that while Article 351 TFEU remains ’the only correct route to follow’, it also applies by analogy to the Member States’ existing BITs. Indeed, Lavranos’s view of the immunity of extra-EU BITs from EU law is broader than that of the other authors. However, he concludes that the final version of Grandfathring Regulation establishes the method categorising pre-accession and other existing extra-EU BITs as well as their eventual replacement, which he sees as being due to the Council (representing the Member States) being forced to compromise as the European Parliament adopted an extremely cautious approach on IDSD, which was ‘allied’ with the Commission exploring the extent of the EU’s CPP being extended to include FDI.

  5. 5.

    For more details on this, see Sect. 2.4.5 in Chap. 2. See Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries (Grandfathering Regulation), OJ 2015 C135, p. 1 (EP and Council 2010, Article 3).

  6. 6.

    To mention a few, TTIP information available at Commission (EC 2017); EU–Canada Comprehensive Economic and Trade Agreement (CETA) text available at EU and Canada (2016) and EU–Singapore Free Trade Agreement (EUSFTA) text available at EU and Singapore (2017). For a list of all EU existing trade agreements and those under negotiation, see the Commission’s web page at https://ec.europa.eu/trade/policy/countries-and-regions/negotiations-and-agreements.

  7. 7.

    Proposal for a Regulation of the European Parliament and of the Council establishing transitional arrangements for bilateral investment agreements between Member States and third countries COM (2010), 344 final: Kleinheisterkamp (2012a), p. 9. In the Commission’s original draft, these BITs would have been terminated unless expressly authorised by the Commission, under certain conditions.

  8. 8.

    Grandfathering Regulation Articles 2–6. For extra-EU BITs in force post-Lisbon treaty see Articles 2–6. For extra-EU BITs signed from December 2009 until the entry into force of the Grandfathering Regulation on 9 January 2013, see Articles 12–15.

  9. 9.

    European Commission (2017) and the Grandfathering Regulation Articles 7–11: EP and Council (2010).

  10. 10.

    For example, see the Colombia–France BIT signed on 10 July 2014 at https://investmentpolicy.unctad.org/international-investment-agreements/countries/72/france. Compare this with the France–Mauritius BIT signed on 8 March 2010. See also Sect. 7.4 in this chapter for the new Dutch model bit compared with the old one. The other Benelux countries, Belgium and Luxembourg, are also in the process of renewing their extra-EU BITs. See the Belgian Government’s report, the Voortgangsrapport 2019 inzake handelsverdragen (Volkvertegenwoordigers 2019) at https://diplomatie.belgium.be/sites/default/files/downloads/54k1806007.pdf.

  11. 11.

    Titi (2013). This is because the capital-exporting countries, namely the Western Member States of the EU in the past mostly entered into IIAs with developing countries (see Sect. 2.3.3 in Chap. 2). For example, see the Dutch, German and French Model BITs at UNCTAD’s Investment Policy Hub at https://investmentpolicy.unctad.org/country-navigator.

  12. 12.

    Juillard (2001), p. 5 point out that this includes the 1967 OECD Draft Convention on the Protection of Foreign Property; see also von Walter (2011), p. 141.

  13. 13.

    See Chaps. 4 and 5.

  14. 14.

    Such as the Subsidies Agreement.

  15. 15.

    The EU aims to protect the right and obligations of the Member States concerning third countries.

  16. 16.

    Meaning BITs concluded by a Member State, before accession to the EU, with a third country.

  17. 17.

    See Sect. 7.3 below for C-264/09 – Commission v Slovakia (2011a) and AG Opinion Jääskeläinen in C-264/09 – Commission v Slovakia (AG) (2011) para 10.

  18. 18.

    MoU EC & US on Certain BITs.

  19. 19.

    Other such measures were, for example, infringement proceedings against Romania, Sweden, Austria, the Netherlands and the Slovak Republic in 2015 (EC 2015).

  20. 20.

    Eco Swiss China Time Ltd v Benetton International NV.92, C-126/97.

  21. 21.

    Eco Swiss was prohibited from selling these watches, marked as ‘Benetton by Bulova’, in Italy. Benetton also failed to notify the Commission ex-ante about these measures: Bermann (2012), p. 411.

  22. 22.

    Bermann (2012), pp. 411–412.

  23. 23.

    As established in Sect. 3.5.1 in Chap. 3. See also cases such as C-8/08-T-Mobile Netherlands BV v Raad van beestuur van de Nederlandse Mededingingsautoriteit (2009) and C-295/04-Manfredi (2006).

  24. 24.

    Kleinheisterkamp (2012a), p. 11. European Commissioner for Trade Karel De Gucht noted that ‘Articles 5 and 6 would still leave the Commission the power to review investment agreements and withdraw authorisation in case these agreements create major problems’: Gucht (2011).

  25. 25.

    Opinion 1/17 (2019).

  26. 26.

    See (‘C-264/09 - Commission v Slovakia’) for a IIA between Slovakia and Switzerland.

  27. 27.

    The Grandfathering Regulation (European Parliament (EP) & (Council) 2010), Arts 7–13.

  28. 28.

    See e.g. Commission press release Air transport: Infringements concerning bilateral aviation agreements with Russia available at https://europa.eu/rapid/press-release_MEMO-11-167_en.htm (EC 2011).

  29. 29.

    See Chap. 5 above.

  30. 30.

    Article 263(4) TFEU. The CJEU has clarified what type of EU measures can be challenged in, for example, Judgment of the Court (Grand Chamber), 3 October 2013, Inuit Tapiriit Kanatami and Others v European Parliament and Council of the European Union Case (C-583/11 P Inuit, 2013); (C-274/12 P – Telefónica v Commission, 2013), para.27; (C-456/13 P - T & L Sugars v Commission, 2015), para 31.

  31. 31.

    GBM Global, Sociedad Anònima de Capital Variable, Fondo de Inversiòn de Renta Variable, et al., Claimants vs. Kingdom of Spain, ICSID Case 1:18, para 120.

  32. 32.

    Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (SRM Regulation), 15 July 2014, Official Journal of the European Union (EP and Council 2014).

  33. 33.

    Decision to take resolution action in respect of Banco Popular Español, SA (2017/C 222/05) on 7 June 2017 (SRB 2017).

  34. 34.

    Commission Decision (EU) 2017/1246 of 7 June 2017 endorsing the resolution scheme for Banco Popular Español S.A.

  35. 35.

    RFA-ICSID 1:18 (2018), para 5.

  36. 36.

    Exhibit A, GBM Global, Sociedad Anònima de Capital Variable, Fondo de Inversiòn de Renta Variable, et al., ICSID Case 1:18, Para 120; and Exhibit B GBM Global, Sociedad Anònima de Capital Variable, Fondo de Inversiòn de Renta Variable, et al., Claimants v Kingdom of Spain, UNICTRAL Case 1:18, para 120. These claims were initiated under both the ICSID and UNICTRAL conventions because some of the investors were dual citizens (ICSID does not accept claims from dual citizens).

  37. 37.

    In June 2019, 87 individual cases had been initiated following the resolution of Banco Popular Español SA. Mostly, these cases—such as T-484/17 Fidesban and Others v SRB (pending) and T-512/17 OCU and Others v SRB (pending), ask for annulment of the Decisions of the SRB Decision or the Commission, or both. Some cases, such as T-515/17 – Sánchez Valverde e Hijos v SRB (pending) and T-482/17 Comercial Vascongada Recalde v Commission and SRB (pending), also include a request for compensation of damages. For a full list of these cases, see European Banking Institute, The Banking Union and Union Courts overview of cases as at 14 June 2019 (EBI 2019) at https://ebi-europa.eu/publications/eu-cases-or-jurisprudence.

  38. 38.

    This type of arrangement would also be appropriate for the many intra-EU BITs proceedings under the ECT. See Sect. 6.5.2 in Chap. 6 and Chap. 5.

  39. 39.

    The Grandfathering Regulation shares the logic of Article 351 TFEU. It emphasises that FDI is now of exclusive competence of the EU, and hence, according to Article 2(1) TFEU, the Member States can no longer ‘legislate and adopt legally binding acts’ unless authorised by the EU. It also upholds pre-accession extra-EU BITs under certain conditions. See the Preamble of the Grandfathering Regulation and Sect. 7.2.2 above. The analogous applicability of Article 351 TFEU post-accession agreements, before the exercise of EU powers in the area covered by those agreements, has not been examined by the CJEU. Only AG Kokott in C-188/07 – Commune de Mesquer v Total France (AG) (2008) paras 94 et seq. and some scholarly literature, such as Lavranos (2013) and Pantaleo (2014), have toyed with this notion. Lavranos (2013) finds support for analogous applicability of Article 351 TFEU while Pantaleo (2014) and Kokott and Sobotta (2016) arrive at the opposite conclusion.

  40. 40.

    C-203/03 – Commission v Austria (2005) para 61. See also Kleinheisterkamp (2012b).

  41. 41.

    Pantaleo (2014), p. 312; Niemelä (2017), pp. 29–30; Kleinheisterkamp (2012a), pp. 11–13.

  42. 42.

    Pantaleo (2014), p. 312; Niemelä (2017), pp. 29–30; Kleinheisterkamp (2012a), pp. 11–13.

  43. 43.

    Pantaleo (2014), p. 312; Niemelä (2017), pp. 29–30; Kleinheisterkamp (2012a), pp. 11–13.

  44. 44.

    Van Rossem (2009), p. 16.

  45. 45.

    For primacy of EU law in agreements concluded by EC Member States, see Ravil, C-469-00, EU:C:2003:295, para 37.

  46. 46.

    Both the old and the new model BIT can be found on the Netherlands government website at https://www.rijksoverheid.nl/ministeries/ministerie-van-buitenlandse-zaken/documenten/publicaties/2019/03/22/nieuwe-modeltekst-investeringsakkoorden.

  47. 47.

    Dutch new BIT Article 1(b)(ii) sets that only legal persons with ‘substantial business activities’ in the Netherlands (or is a subsidiary which is controlled by a Dutch company with substantial business activities in the Netherlands) are protected under the BIT. A letterbox company, which has no substantial commercial or operational presence in the country in which it is officially established, is established to avoid stricter legal, social and fiscal obligations in countries where the company is commercially active.

  48. 48.

    Treaty-based ISDS cases brought under Dutch IIAs: An overview study by UNCTAD/DIAE, commissioned by the DG Foreign Economic Relations, Ministry of Foreign Affairs, the Netherlands: UNCTAD (2014); Roos van Os and Knottnerus (2011). According the IMF, the Netherlands is the world’s leading country in terms of inward-bound FDI and the world’s second biggest in terms of outward-bound FDI investment. See IMF database at http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482247616261. According to Knottnerus et al. (2018) only 13 per cent of these investors are Dutch. Indeed, the Centre for Research on Multinational Corporations (SOMO) report found that the Netherlands had been the home base for ISA claims amounting to US$100 billion.

  49. 49.

    Such as Article 5, Protection Against Business-related Human Rights Abuse, and Article 7, Corporate Environmental and Social Responsibility Regarding the Investment.

  50. 50.

    This list is not exhaustive.

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Authors and Affiliations

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Cases

Cases

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  • Commission of the European Communities v Republic of Austria C-205/06, ECLI:EU:C:2009:118 (European Court of Justice (Grand Chamber), 2009)

  • Commission of the European Communities v Republic of Austria, case C-203/03, EU:C:2005:76 (European Court of Justice (Grand Chamber), 2005)

  • Commission of the European Communities v Republic of Finland, ECLI:EU:C:2009:715 (European Court of Justice, 2009)

  • Commune de Mesquer v Total France SA and Total International Ltd., case C-188/07 (AG Kokott), ECLI:EU:C:2008:174 (AG Opinion, 2008)

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Finckenberg-Broman, P. (2022). Extra-EU BITS: Adjusting to a New Reality or Being Phased Out. In: Weaponizing EU State Aid Law to Impact the Future of EU Investment Policy in the Global Context. Studies in European Economic Law and Regulation, vol 23. Springer, Cham. https://doi.org/10.1007/978-3-031-10108-3_7

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