Article on Investment Protection in “The Parliament” Magazine

Silvana Koch-Mehrin contributed the following article on investment protection to the December-issue of “The Parliament” magazine:

The EU institutions and member states must agree on investment protection legislation that ensures high standards, writes Silvana Koch-Mehrin

If you ask any trade policy expert in the European institutions about the hot topics in international trade policy at the moment, chances are high that investment protection will be one of the first to be mentioned, and rightly so. The EU’s investment policy regulates, facilitates and protects the foreign direct investments (FDI) of the world’s most important trading block, which represents a stock of €3.3 trillion in FDI.

A solid international legal framework is essential for investors to improve the business climate and to reduce the perceived risk to invest. This is why EU member states have concluded more than 1200 bilateral investment treaties, which aim to protect the FDI of European companies in third countries.

With their signature of the Lisbon treaty, the member states of the EU decided with that the exclusive competence for FDI should be transferred from national to EU level. In retrospect, one gets the impression that some member states regret this decision. However, for the newer EU member states, as well as for the EU’s trading partners, it means a significant simplification of access to, and governing of, the international investment framework.

This shift in competence has led to an intensified debate about the future of a European investment protection policy. The European parliament has been heavily involved in this process and passed a resolution in April 2011 on the ‘future European international investment policy’. It discussed different aspects from investor protection, to protecting the right to regulate, the inclusion of sustainability criteria, and dispute settlement. Since then we have moved on and started looking at the details.

Parliament has just concluded negotiations with the member states on transitional arrangements for the current stock of 1200 bilateral investment agreements, which have to be transposed into Union law in order to be in line with the provisions of the treaty. The next dossier in parliament is about the ‘financial responsibility between member states and the EU’, and basically finding an answer to the question ‘Who pays if a foreign investor finds their investments being endangered by EU or member state regulations?’ Soon parliament will scrutinise the investment chapters in free trade agreements, such as with Canada, Singapore and five other trading partners. Meanwhile, discussions about the start of negotiations of a fully fledged EU-China investment agreement, including investment protection, are well advanced and expected to be launched soon.

At a recent seminar in the European parliament, we discussed the consequences of this paradigm shift in investment policy. All parties involved – European commission, member states and third countries – are entering new territory. The commission has never negotiated investment agreements. Member states have never seen investment protection provisions being negotiated on their behalf by the commission and third countries for the first time are dealing with the commission rather than with individual member states to find a deal on investment protection.

This being said, this December is the third anniversary of the entry into force of the Lisbon treaty and in many areas, such as investment, the legislative framework still has to be adapted to the word of the treaty. Competences in the field of investment protection policy have shifted and both member states and the commission have to assume their new responsibilities. The time for trial and error is over.

For the next few years, the investment policy agenda is heavily charged and parliament, commission and member states have to agree on solid legislation so that European investments continue to be protected to the highest standard.