In May 2020, 23 EU Member States signed an Agreement for the Termination of all Intra-EU Bilateral
Investment Treaties ("Agreement").
The Agreement is likely to be unsettling for intra-EU investors with ongoing arbitrations under intra-EU Bilateral Investment Treaties (BITs). Yet the good news is that tribunals assess the legal effects of the Agreement based on well-settled public international law principles. The Agreement does not take effect retroactively; a tribunal's jurisdiction is determined at the time of the institution of proceedings. Thus, if the tribunal had jurisdiction on that date, this will remain so regardless of subsequent events, including the termination of a BIT.
The Agreement may also be unsettling for intra-EU investors who have serious qualms about the quality of the judicial system of a host State and do not trust that domestic courts will uphold due process rights if and when a dispute over host State measures arises in the future. The orthodox response is to restructure the investment to benefit from the substantive and procedural protections of an extra-EU BIT.
For some intra-EU investments, though, restructuring does not work as nimbly as for others. Yet, intra-EU investors falling into this category shall not be left in the cold, corralled into domestic law systems. The EU Commission and many Member States accept that it is critical to provide intra-EU investors with substantive and procedural investment protection against the vagaries of host States. This, to maintain a level playing field vis-à-vis investors from third countries whose investments are protected either by EU trade and investment agreements or by extra-EU BITs (which continue to be in force).
Indeed, it is the need to avoid asymmetry between extra-EU and intra-EU investment protection that caused the EU Commission to launch an initiative to improve intra-EU investment protection. To this end, the EU Commission is contemplating the adoption of a proposal for a new "investment protection and facilitation framework" in the second quarter of 2021.
To satisfy the overriding objective of putting intra EU investors on an equal footing with extra-EU investors, the EU Commission's "investment protection and facilitation framework" will need to design a system that (i) clearly defines substantive rules guaranteeing the protection of intra-EU investments, and (ii) devises a binding and enforceable investment dispute settlement mechanism beyond domestic court systems.
Substantive protection standards
EU rules protecting intra-EU investments against unlawful State measures are scattered in various different legal instruments. The new "intra-EU investment protection and facilitation framework" will need to remedy this fragmentation. But it will be equally necessary to adopt the substantive protection standards the EU is willing to agree to in the trade and investment agreements it concludes with third countries (e.g. with Singapore or Canada).
The trade and investment agreements the EU enters into with third countries afford extra-EU investors rights not otherwise available in EU law. The EU-Singapore FTA, to give but one example, incorporates the fair and equitable treatment standard; this is a right commonly embodied in BITs and frequently at the fore of investment disputes.
The new "investment protection and facilitation framework" must model the protection standards incorporated in EU trade and investment agreements. Otherwise, the very asymmetry between extra-EU and intra-EU investment protection that the EU Commission is seeking to weed out will persist.
Effective procedural mechanism
However, adopting new substantive protection standards will hardly be sufficient to afford intra-EU investors effective protection. Regrettably, it is trite to observe that the rule of law is in a veritable crisis in many EU Member States. Therefore, at a procedural level, the "investment protection and facilitation framework" must afford intra-EU investors direct access to a judicial body other than the host State's domestic courts.
The EU Commission has many options to devise an effective procedural mechanism. The key requirement is to establish an independent judicial body (i) composed of adjudicators experienced in EU and international investment law, (ii) vested with flexible case management powers, and (iii) whose decisions (including orders for interim measures) are enforceable. At the same time, the EU Commission must pay heed not to establish a judicial body which calls into question the prerogative of the Court of Justice under the EU treaties to interpret EU law and the EU's autonomy.
In this regard, the "safest" way would be to integrate the judicial body resolving investment disputes into the EU legal system. For instance, one such option would be to create a specialised investment court or tribunal with the power to make preliminary reference to the Court of Justice. Another would be to establish a specialised investment court or tribunal whose decisions may be appealed to the EU's General Court. A third option would be to create a specialised investment chamber within the EU's General Court whose decisions may be appealed to the Court of Justice.
Confidence in the substantive and procedural rules protecting intra-EU investments is key to mobilise investments and make full use of the economic opportunities of the EU single market, especially in (post-) Covid-19 times. The termination of BITs discomforts many businesses with intra-EU investments. The good news is that businesses have options to respond. Businesses with intra-EU investments can adapt, for example by restructuring their investments. Intra-EU investors will further benefit from the new intra-EU investment protection framework that the EU is in the process of designing. And once this new framework enters into force, intra-EU investors may well say that all's well that ends well.