EU Investment Agreements: A New Model for the Future · future of international investment law as a whole. The development of EU IIAs has been heavily influenced by the EU’s constitu-

EU Investment Agreements: A New Modelfor the Future

Angelos Dimopoulos

ContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2The Evolution of EU Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Shaping EU Investment Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Investment Liberalization as a Key Component of EU IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Curtailing Investment Protection in EU IIAs: The Right to Regulate . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Toward the Judicialization of ISDS Under EU IIAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

AbstractThis chapter explores the development of EU investment agreements as a newparadigm of international investment agreements. It argues that on the one hand,the EU has gradually become an assertive global actor in the field of foreigninvestment: Firstly, EU agreements aim to restore the lost legitimacy of invest-ment protection by offering innovative substantive rules on foreign investmentprotection that provide a clearer balance between investors’ rights and recipientcountries’ public policies. Moreover, the EU pioneers a radical approach towardthe preservation of a strong dispute settlement system for investment disputes,offering changes to its nature that aim to address its legitimacy and transparencyshortcomings. Secondly, EU agreements enhance the scope and extent of invest-ment liberalization, address the key concerns of foreign investors in the modernera, and shape the future of investment liberalization norms. On the other hand, itis argued that there are constraints to the EU’s ambition to lead the debate toward

A. Dimopoulos (*)Queen Mary University of London, London, UKe-mail: [email protected]

© Springer Nature Singapore Pte Ltd. 2019J. Chaisse et al. (eds.), Handbook of International Investment Law and Policy,https://doi.org/10.1007/978-981-13-5744-2_30-1

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the transformation of international investment law. The most important one stemsfrom the EU’s own constitutional framework. By looking into the effects ofOpinions 2/15 and 1/17, it is argued that the expansive understanding of theprinciple of autonomy of EU law results in reduced jurisdiction of arbitral tri-bunals in a manner that is both inefficient and patronizing.

KeywordsEU · CETA · Investment Court System · Autonomy of EU law · Investmentliberalization

Introduction

This chapter explores the development of EU investment agreements (henceforth EUIIAs) as a new paradigm of international investment agreements. It was only after2009 when the Lisbon Treaty entered into force that the EU asserted a proactive rolein this field. Its path has not been easy so far, as the EU stepped into a policy area thatwas dominated by Member States’ long-established practices and entered into apolicy field that was, and still is, subject to fundamental challenges regarding itsobjectives and content. Yet, in the past couple of years, the EU has managed to assertitself as a powerful and influential global actor, shaping the future of internationalinvestment agreements. As Member State bilateral investment treaties (BITs)account for more than 1400, which is slightly less than half of all existing BITsworldwide, it becomes imminently apparent how the EU can influence and shape thefuture of international investment law as a whole.

The development of EU IIAs has been heavily influenced by the EU’s constitu-tional framework. The scope and nature of EU competence as well as the principle ofautonomy of EU law have influenced the choices made with regard to the content ofEU investment agreements. At the same time, the EU’s external relations objectiveson the protection of rights of economic actors and their balancing against otherconstitutional values have influenced the content of investment protection offeredunder EU IIAs. The distinctive approach to EU investment policy has resulted in theconclusion of EU IIAs that differ from other investment agreements, even those“new-generation” BITs concluded in the last decade by other countries. Suchdifferences are especially present as regards investment liberalization, the limitationof substantive standards of investment protection and their balancing with the rightto regulate, and the development of an entirely new system for investor-state disputesettlement (ISDS).

In this context, this contribution aims to identify the key novelties that EU IIAspresent in relation to investment agreements adopted by other international actorsand identify the factors that explain EU priorities. In that regard, it offers firstly abrief overview of the evolution of EU investment policy, explaining how the EU hasgradually become an assertive global actor in the field of foreign investment.Secondly, this contribution aims to identify the constraints that EU law poses onthe content of EU investment policy. It looks into the institutional and constitutional

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factors that influence and shape the content of EU investment agreements. Thirdly,this chapter examines key EU IIA provisions that differ from “traditional” invest-ment treaties. It focuses on the key innovations that they offer, in particular asregards liberalization, the right to regulate, and ISDS, and explains how they canshape the future of foreign investment regulation.

The Evolution of EU Investment Policy

The evolution of EU investment policy in the past 10 years has been marked by anumber of milestones. Although foreign investment was not a field entirely new tothe EU, it was only in 2009 when the Lisbon Treaty entered into force and endowedthe EU with exclusive competence over foreign direct investment (FDI)1 that theemergence of an autonomous and comprehensive EU investment policy became apolicy priority. This was manifested early on, as EU institutions started debatingtheir vision of the EU’s role in foreign investment regulation. Already in 2010 theCommission made explicit its intention to create a comprehensive EU investmentpolicy by gradually taking over this field from EU Member States.2 The Commis-sion’s vision of EU investment policy was not necessarily shared with other EUinstitutions or with Member States, which had differing opinions not only on thescope of EU investment policy but also on its content and policy orientation.3

Already since 2010 the Commission explained that the EU purports to develop aninvestment policy that would be distinctive. The Commission emphasized alreadyfrom the beginning that it will “seek to integrate investment liberalization andinvestment protection” while it will be “inspired by best practices that MemberStates have developed.”4 In that regard, the EU has since formulated a new invest-ment standard, setting a new agenda for investment protection and ISDS.

Considering that Member States had been the primary international actors in thefield of foreign investment, one of the first steps taken was to ensure a smoothtransition from Member State BITs to future EU IIAs. The development of anappropriate legal framework was necessary in order to preserve European investors’

1Article 207 TFEU together with Article 3(1)(e) TFEU confer exclusive competence to the EU inthe field of the Common Commercial Policy, which since 2009 covers also FDI. For an early andvisionary analysis, see Chaisse J (2012) Promises and pitfalls of the European Union policy onforeign investment – how will the new EU competence on FDI affect the emerging global regime. JInt Econ Law 15(1):51–84.2Commission, “Communication from the Commission to the Council, the European Parliament, theEuropean Economic and Social Committee and the Committee of the Regions: Towards a Com-prehensive European International Investment Policy” (Investment Policy Communication) Brus-sels 7 July 2010, COM (2010) 343 http://trade.ec.europa.eu/doclib/docs/2010/july/tradoc_146307.pdf3European Parliament Resolution of 6 April 2011 on the Future European International InvestmentPolicy (2010/2203IINI); Council of the European Union, Conclusions On A ComprehensiveEuropean International Investment Policy, Luxembourg, 25 October 20104Investment Policy Communication (n 2) 5

EU Investment Agreements: A New Model for the Future 3

interests and rights and to alleviate the concerns of third countries. In that context,the EU adopted Regulation 1219/2012,5 which sets out transitional arrangements forMember State BITs until their eventual replacement by EU investment agreements.

In the meantime, the European Commission succeeded in convincing the Councilto provide it with a mandate to negotiate EU IIAs. As the EU was already negotiatingfree trade agreements (FTAs) with a number of third countries in the early 2010s, theEU expanded the scope of its negotiations with key trading partners, such as Canada,and Singapore, to include investment alongside trade matters.6 Taking cautioussteps, the Commission started negotiating only a handful of EU investment agree-ments while considering in the meantime its policy objectives and priorities. As EUinstitutions and Member States had different visions on what investment treatiesshould include, it was initially unclear whether the EU would promote the insertionof more “traditional” BIT-oriented provisions found in Member State BITs, whichfocus on high levels of investment protection and investor-state dispute settlement(ISDS), or whether the EU would approach foreign investment from a differentperspective. The content of EU investment agreements and in particular theirchapters on ISDS became the subject matter of heated public debate. This wasillustrated, for example, by the fact that the EU opened public consultations regard-ing investment protection under its investment agreement negotiations with theUSA,7 which resulted in the highest ever number of responses received by an EUpublic consultation.

Indeed, one of the most controversial aspects of EU investment policy concernedthe involvement of the EU in ISDS. ISDS presents an indispensable characteristic ofBITs, which has contributed to their success but also resulted in its growingcriticism.8 As ISDS presents the backbone of international investment law, thedegree to which the EU and/or its Member States can be involved in ISDS and inwhat way is a question of immense doctrinal and practical significance. Yet, themultifaceted nature of EU involvement in investment arbitration created uncer-tainties for foreign investors, who need to know when and what type of ISDS isavailable and who can act as the respondent party in ISDS. Aiming to clarify thesequestions, the EU has taken significant initiatives to establish a general frameworkregarding its involvement in ISDS. In August 2014 and after 2 years of negotiations,the Council and the Parliament adopted Regulation 912/2014, which presents amilestone toward demarcating the roles to be assigned to the EU and its Member

5Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December2012 establishing transitional arrangements for bilateral investment agreements between MemberStates and third countries, OJ2012, L351/406EU Council, 3109th General Affairs Council Meeting, Press Release (12 September 2011) 137Commission Press Release, “European Commission Launches Public Online Consultation onInvestor Protection in TTIP” (27 March 2014)8On criticism of ISDS, see indicatively Hachez N, Wouters J (2013) International investmentdispute settlement in the twenty-first century: does the preservation of the public interest requirean alternative to the arbitral model? In: Baetens F (ed) Investment law within international law.Cambridge University Press, pp 417–449.

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States in ISDS under future EU investment agreements.9 More specifically, thisRegulation determines when and based on what criteria the EU or its Member Statescan act as respondents in dispute settlement under EU investment agreements andhow financial responsibility is allocated between them.10

Following Regulation 912/2014 and the clarification it brought regarding thescope for EU and Member State responsibility under ISDS, the negotiations of thefirst EU investment agreements with Canada (CETA), Singapore, and Vietnam werecompleted in 2015. The texts of these agreements, which presented significantnovelties in comparison to Member State BITs, have since been the subject matterof increasing debate.11 Since then, the EU has completed negotiations on investmentliberalization and protection with a number of significant treaty partners as well. Inaddition to its IIAs with Canada,12 Singapore,13 and Vietnam,14 the EU has alsoconcluded IIAs with Mexico15 and includes investment liberalization in its FTAswith Japan16 and Mercosur.17

Yet, the content of EU investment agreements has not been the only matteraffecting the shape and content of EU investment policy. Soon after these investmentagreements were finalized, their conclusion became complicated due to internal EUpolitical and legal hurdles regarding the role of Member States in their conclusion.On the one hand, the conclusion of CETA as a mixed agreement that is signed andratified both by the EU and its Member States stumbled upon the refusal of a regionalparliament to provide their assent and was only concluded in October 2016.18 On theother hand, the Commission requested the Court of Justice of the EU (CJEU) toprovide its Opinion on whether the EU-Singapore FTA could be concluded only by

9Regulation No 912/2014 of the European Parliament and of the Council Establishing a Frameworkfor Managing Financial Responsibility Linked to Investor-State Dispute Settlement TribunalsEstablished by International Agreements to Which the European Union Is Party, OJ L257/121, 28August 201410See Dimopoulos A (2014) The involvement of the EU in investor state dispute settlement: aquestion of responsibilities. Common Mark Law Rev 51:1671.11See, for example, the contributions to the special issue of Transnational Dispute Management 1(2016), which is devoted to CETA; Reinisch A (2014) The EU on the investment path – Quo VadisEurope? The future of EU BITs and other investment agreements. Santa Clara J Int Law 12:111.12The Comprehensive and Economic Trade Agreement (CETA), available at http://ec.europa.eu/trade/policy/in-focus/ceta/ceta-chapter-by-chapter/13EU-Singapore FTA and Investment Protection Agreement, available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=96114EU-Vietnam FTA and Investment Protection agreement, available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=143715EU- Mexico FTA, text available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=183316EU-Japan FTA, text available at http://trade.ec.europa.eu/doclib/press/index.cfm?id=168417The EU-Mercosur FTA has not yet been public, but the content of the agreement in principle canbe found at http://trade.ec.europa.eu/doclib/press/index.cfm?id=183318On the political difficulties concerning the conclusion of CETA, due to its initial rejection by theWaloon regional parliament, see EU and Canada to sign trade pact after Belgians strike key deal,available at http://www.reuters.com/article/us-eu-canada-trade-idUSKCN12S1RR

EU Investment Agreements: A New Model for the Future 5

the EU or require Member State involvement. In its Opinion 2/15,19 which came outin May 2017, the Court gave a landmark judgment, demarcating EU and MemberStates’ powers over the different forms of foreign investment, holding that the EU-Singapore FTA should be concluded as a mixed agreement. As a consequence ofOpinion 2/15, the EU-Singapore FTA and the EU-Vietnam FTA split into two legalagreements, one covering the parts of the agreement that the EU holds exclusivecompetence, which was concluded only by the EU, and one covering the foreigninvestment protection and dispute settlement chapter, called an Investment Protec-tion Agreement (IPA) that was concluded as a mixed agreement. Although the EUIPAs are organically linked with the comprehensive FTAs, in order to avoid futureobstacles to their conclusion, such as the ones raised in the context of CETA, the EUopted for the concluding them as separate international treaties.

Although the question of competence was decided, the compatibility of these newEU investment agreements with EU law remained a controversial question. InSeptember 2017, Belgium asked the CJEU for an opinion in order to assess thecompatibility of CETA and in particular its dispute settlement provisions, with theprinciple of autonomy of EU law.20 The Court delivered its ruling in April 2019,21

following the opinion of AG Bot,22 which on the one hand confirmed that CETA iscompatible with the principle of autonomy yet poses significant limits to the abilityof the EU and its Member States to be parties to ISDS.

Shaping EU Investment Policy

In order to understand how and why the EU developed its EU IIAs, it is worthinvestigating the reasons that have enabled the EU to shape investment standardsdifferent from its Member States and other countries. A number of constitutional andinstitutional constraints have influenced the content of EU investment agreements.

First and foremost, the content of EU IIAs is shaped by constitutional constraintsresulting from the nature of the EU as a distinct supranational international organi-zation. In that context, the question of the delimitation of EU from Member Statecompetences and its ability to conclude investment agreements on its own has been akey factor influencing the content of EU IIAs. The broad or narrow scope of EUpowers bears a tremendous impact on identifying the actors who can have a say inthe formation of EU IIAs and shape their content. The struggle for identifying thescope of EU competences, which was resolved as mentioned above by the CJEU in

19Opinion 2/15, ECLI:EU:C:2017:37620Belgium is asking the CJEU to assess the compatibility of the ICS with (1) the exclusivecompetence of the CJEU to provide the definitive interpretation of European Union law, (2) thegeneral principle of equality and the “practical effect” requirement of European Union law, (3) theright of access to the courts, and (4) the right to an independent and impartial judiciary. See https://diplomatie.belgium.be/sites/default/files/downloads/ceta_summary.pdf21Opinion 1/17, ECLI:EU:C:2019:34122Opinion procedure 1–17 [2019] ECLI:EU:C:2019:72, Opinion of AG Bot

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its Opinion 2/15,23 gave a significant, yet qualified boost to the EU to shape its IIAsindependently from Member State interferences. Without entering into a detailedanalysis of Opinion 2/15,24 suffice it to stress that the CJEU identified that the EUholds exclusive competence regarding all aspects of foreign direct investment, whilenon-direct investment falls under shared competence, which can be exercised bothby the EU and its Member States, while the competence to include ISDS provisionsbelongs both to the EU and its Member States.Opinion 2/15 implicated the necessityto conclude investment agreements as mixed agreements, thus giving Member Statesa powerful role in the negotiating table.

Despite the recognition of an explicit role for Member States in the conclusion ofEU IIAs, this does not mean that past Member States’ practices were kept. This hasbeen particularly reflected in the dilution of the importance attributed to existingMember State BIT practice and the initial belief that EU investment policy wouldreflect and incorporate Member States’ “best practices.” As EU Member State BITswere largely based on the OECD and the Abs-Shawcross model BITs,25 theyreflected a general tendency toward establishing high standards for investor protec-tion, with little account taken of other public policy objectives, accompanied byprovisions allowing for different types of ISDS, ranging from ICSID to commercialarbitration.26 Although EU institutions have repeatedly referred to Member States’best practices, EU institutions have gradually departed from equating best practiceswith the highest levels of investment protection or the “gold standard” that MemberState BITs incorporated. Member State BITs become only a source of inspiration foridentifying what were the best practices serving the objectives of EU investmentpolicy.27

A second important constitutional constraint on the content of EU IIAs, inparticular as regards ISDS, arises from the principle of autonomy of EU law. Theinfluence that the principle of autonomy can exert on the inclusion of ISDS in EUIIAs has acquired an entirely new and important dimension in the aftermath of theCJEU’s judgment in Opinion 1/17.28 Although the Court acknowledged ISDS underCETA does not conflict with the principle of autonomy, its ruling was based on adetailed analysis of specific provisions and characteristics of ISDS under CETA,which allowed for such conclusion to be drawn. As the Court clearly indicated, ISDSdoes not conflict with the principle of autonomy only if an invest protection treaty:

23Opinion 2/15, above note 1924See Dimopoulos A (2019) European Union. In: Krajewski, Hoffmann (eds) Research handbookon foreign direct investment. Edward Elgar, Chap 14.25Draft Convention on the protection of Foreign Property 1967, OECD. (1960) Draft convention oninvestments abroad. J Public Law 9:11626On the evolution of ISDS mechanisms, see Juillard P (1994) L’evolution des sources du droit desinvestissements. Recueil des Cours de l’Academie de droit international de la Haye 250:9.27See European Parliament Resolution 2013/2674 of 9 October 2013; Lavranos N (2013) In defenceof member states BITs gold standard: the regulation 1219/2012 establishing a transitional regime forexisting extra-EU BITs: a member state’s perspective. Transnational Dispute Settlement 128Opinion1/17, above note 14

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does not confer on the envisaged tribunals any power to interpret or apply EU law other thanthe power to interpret and apply the provisions of that agreement having regard to the rulesand principles of international law applicable between the Parties”; and secondly “does notstructure the powers of those tribunals in such a way that, while not themselves engaging inthe interpretation or application of rules of EU law other than those of that agreement, theymay issue awards which have the effect of preventing the EU institutions from operating inaccordance with the EU constitutional framework”.29

Without entering into a detailed review of the CJEU’s ruling in Opinion 1/17,30

suffice it to focus on the implications of Opinion 1/17 regarding ISDS under EUIIAs. As regards the first condition set by the CJEU, autonomy requires that ISDSunder EU IIAs have a narrow jurisdiction, excluding EU (and national) law fromtheir applicable law. Aiming to protect the exclusive jurisdiction of the CJEU todetermine the validity and the interpretation of EU law, the CJEU stressed theimportance of Article 8.31 CETA which provides that EU law can only be consid-ered as facts by arbitral tribunals, and thus any interpretations given by EU courts toEU internal law should be fully respected.31 In that respect, EU IIAs are precludedfrom offering any opportunity to investment tribunals to apply or interpret EU law inorder to exercise their jurisdiction. However, excluding EU and national law fromthe jurisdiction of investment tribunals can pose a significant impediment to theirproper functioning. Domestic law and thus EU law play a significant role in thedetermination of the content of the scope of investment treaty standards, includingthe rights that qualify as an investment, and the existence of a breach of importantinvestment treaty standards, such as FET and indirect expropriation.32 Although thetreatment of domestic law as fact is well known in international law,33 investmenttribunals cannot escape from considering questions of domestic law. For example, inthe context of NAFTA, whereby domestic law is excluded from the purview ofapplicable law, tribunals on a number of occasions had to engage with domestic lawquestions in order to apply correctly NAFTA provisions.34

As regards the second constraint posed by the CJEU on ISDS, the principle ofautonomy curtails significantly the jurisdiction of investment tribunals to assess theconformity of EUmeasures with EU IIA standards and ultimately offer an independentinterpretation of EU IIA investment treaty standards. The CJEU ruled that investment

29Opinion 1/17, para 11930See Dimopoulos in Schill.31Opinion 1/17, para 130–132. See also AG Bot, Opinion 1/17, paras 136–141.32Hepburn J (2017) Domestic law in international investment arbitration. OUP, Chaps 2 and 333See, for example, the PCIJ judgment in Certain German Interests in Polish Upper Silecia(Germany v Poland), Series A No 7 (1926) 19. In the context of investment law, see indicativelyElectrabel SA v Hungary, (ICSID Case No ARB07/19) Decision on Jurisdiction, Applicable Lawand Liability, 30 November 2012, p. 4.129.34E.g., Bayview v Mexico (ICSID Case No ARB (AF)/05/01, Award 19 June 2007, para 109–118;Mobil Investments Canada v Canada (ICSID Case No ARB(AF)/07/04) Decision on Liability andon Principles of Quantum, 22 May 2012, para 354. See also Douglas Z (2003) The hybridfoundations of investment treaty arbitration. Br Yearb Int Law 74:151, at 194–196

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tribunals are barred from assessing whether the level of protection of a public interestthat led to the introduction of a measure by the Union is compatible with investmentprotection standards.35 The Court found that given that ISDS offer a remedy that islegally binding under international law and is not “soft,” like under WTO law wherethe parties have leeway to adopt negotiated positions to respond to dispute settlementrulings,36 compliance with international law can undermine the substantive validity ofEU acts, by de facto resulting in EU institutions having to withdraw or amend ameasure. The Court ruled that such a limitation is unacceptable from the perspective ofthe principle of autonomy of EU law, because it would challenge the ability of EUinstitutions to set the appropriate level of protection of public interests in accordancewith EU law. In order to ensure that CETA does not violate the principle of autonomy,the Court then engaged with a review of the provisions that establish the right toregulate, FET, indirect expropriation, and exceptions to investment protection. TheCourt opined that these provisions cannot call into question the level of protection ofpublic interest adopted by EU institutions, and as a result CETA substantive provisionsare compatible with EU law.37

The ruling of the CJEU in Opinion 1/17 raises thus significant concerns regardingthe jurisdiction of investment tribunals under EU IIAs and the interpretation of EUIIA investment treaty standards. On the one hand, the CJEU explicitly limits thematerial jurisdiction of investment tribunals, as it excludes certain aspects of EU orMember State measures from review. Arbitral tribunals under CETA and EU IIAsare not expected to review whether the level of protection of public interest pursuedby EU measures is compatible with EU IIAs. At the same time, the CJEU offersinterpretative guidelines to arbitral tribunals as to how different investment treatystandards should be interpreted. In essence, the Court warns arbitral tribunals that ifthey interpret CETA provisions in any manner different than that offered by theCJEU and in any way limit the discretion of EU institutions to set the level ofprotection of public interest, then their rulings will be annulled. Irrespective ofwhether the CJEU is right in its analysis of CETA investment law provisions andwhether they guarantee the right of EU institutions to set the level of protection ofpublic interest as they deem fit, by precluding investment tribunals from exercisingtheir rightful jurisdiction, the CJEU assumes a hegemonic role38 over internationaltribunals that is neither contributing to international law nor necessary to protect theautonomy of the EU legal order.

Finally, the distinctiveness of EU investment policy standards can be explainedby the new mix of institutional actors involved in its making. EU investment policy

35Opinion 1/17, para 145–15036Ibid., paras 145–14637Ibid., paras 152–15938On how autonomy is used by the CJEU to assert a hegemonic role over international courts, see deWitte B (2014) A selfish court? The court of justice and the design of international disputesettlement beyond the European Union. In: Cremona M, Thies A (eds) The European court ofjustice and external relations law, constitutional challenges. Hart, p 33

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has been shaped at a time when the European Parliament acquired a much strongervoice in international affairs. In addition to exclusive competence over FDI, the othermajor change that the Lisbon Treaty brought to the EU Common Commercial Policywas the empowerment of the European Parliament in trade and investment matters.By enabling it for the first time to have a final say on the conclusion of tradeagreements,39 the European Parliament has been a very proactive institutionalactor on investment matters, voicing its concerns and priorities regarding the futurecontent of EU investment agreements. Indeed, since 2011 and the Parliament’sresolution on the orientation of EU investment policy,40 the Parliament has repeat-edly expressed its position that departed from established rules and principles ofinternational investment agreements.

The inclusion of the European Parliament in investment policy making hassignificantly influenced the content of substantive EU standards. In terms of sub-stantive rights, the European Parliament has been a strong advocate of the right toregulate that aims to increase the policy scope given to investment recipient coun-tries to adopt measures according to their determination of public interest. In terms ofdispute settlement, the European Parliament has long advocated and supported EUinitiatives to increase the legitimacy and transparency of ISDS. As explained below,the European Parliament has been a driving force behind the gradual judicializationof investment arbitration, whether as part of individual IIAs or as part of a globalconcerted effort to change ISDS.

Investment Liberalization as a Key Component of EU IIAs

A key feature of EU IIAs is the emphasis that they place on investment liberalization.Unlike Member State BITs that did not contain provisions on investment liberaliza-tion, EU IIAs aim to integrate investment protection with investment liberalization,highlighting the growing significance of investment liberalization in global FDIregulation.

The significance attributed to investment liberalization can be firstly traced backto the familiarity and the growing expertise that the EU has gained in this field evenbefore the adoption of its FDI competence. EU investment policy has been premisedon pre-existing EU policy priorities and experiences. Even before 2009, the EU hadsome limited competences on investment, in particular as regards admission andestablishment of FDI.41 As Member State BITs did not include pre-establishmentprovisions, the EU engaged gradually with the negotiation and conclusion of FTAscovering the establishment of foreign investments. As early as 2000, the EU had

39Krajewski M (2013) New functions and new powers for the European Parliament: assessing thechanges of the common commercial policy from the perspective of democratic legitimacy. In:Bungeberg M, Hermann C (eds) Common commercial policy after Lisbon. Springer, p 6740Above note 341Dimopoulos A (2011) EU foreign investment law. Oxford University Press, pp 85–94

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negotiated an FTA with Chile, including provisions on investment liberalization.42

Since then, the EU developed a fully fledged investment liberalization agenda,which was reflected in the so-called EU Minimum Platform on Investment,43

which was used as a starting point for all future EU FTA negotiations. In that respect,it comes as no surprise that in 2011, when the EU started negotiating comprehensiveinvestment agreements, the European Commission insisted on incorporating theprinciples and objectives that have guided its FTA negotiations in the past. Takinginto account the need for coherence and consistency in EU external (economic)action, the EU has favored the absorption and inclusion of investment policy withinthe existing framework of EU FTAs. Following its past practice, as reflected in itsagreements with CARIFORUM States and Korea,44 the EU followed an adaptedGATS model to regulate admission and establishment of FDI. The emphasis givenon competitiveness and growth allows the EU to address the interests of EUinvestors in third countries. In addition to best practices, investment liberalizationhas obtained a key role in EU IIAs, as it is essential in order to advance EU trade andinvestment objectives. As admission of foreign investment has been traditionally leftoutside the scope of investment agreements,45 EU IIAs serve the interests of EUbusinesses to gain market access to third countries, reduce the constraints on foreigninvestment that exist under national laws, and enable EU companies to becomeglobally competitive. As the EU is a major capital exporting bloc, investmentliberalization can ensure that EU companies can grow and achieve the broadertrade goals of the EU.46

In that respect, EU IIAs have an explicit chapter or section devoted to FDIliberalization, which is separate from investment protection, such as Chap.8 CETA.47 Following upon earlier EU treaty practice, EU IIAs offer first all relativestandards of treatment to foreign investors at the pre-establishment phase. Morespecifically, they extend the scope of the most-favored nation (MFN) and nationaltreatment, requiring that foreign investors are treated no less favorably than investorsfrom third countries or domestic investors. Of course, MFN and national treatmentare hardly ever absolute. First of all, EU IIAs include qualified MFN and NTstandards, opting in most instances for a positive list to liberalization. Following

42Agreement establishing an association between the European Community and its Member States,of the one Part, and the Republic of Chile, of the other part, [2002] OJ L35243Maydell N (2007) The European community’s minimum platform on investment or the Trojanhorse of investment competence. In: Reinisch A, Knahr C (eds) International investment law andcontext. Eleven, p 7544Economic Partnership Agreement between the CARIFORUM States, of the one part, and theEuropean Community and its Member States, of the other Part, [2008] OJ L289/345De Mestral A (2015) Pre-entry obligations under international law. In: Bungeberg et al. (ed)International Investment Law – a handbook. Hart Nomos, p 68546EU Trade Strategy, “Trade for all, Towards a more responsible trade and investment policy”,available at http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf47Investment liberalization is also dealt with separately in the IIAs with Singapore (Chap. 8),Vietnam (Chap. 8) and Mexico (Chap. XX, section A)

EU Investment Agreements: A New Model for the Future 11

the GATS approach to liberalization, EU IIAs give the opportunity to the parties tomake specific commitments for the establishment of foreign investment in specificsectors. It adopts a “bottom-up” or “positive list” approach on liberalization, whereeach party indicates in its schedule of commitments the level of liberalizationdesired.48 However, certain EU IIAs, such as CETA,49 adopt a negative listapproach, thus liberalizing all sectors except for those that a party has stated anexpress reservation. The adoption of both negative and positive list approaches inEU IIAs illustrates the flexibility that the EU approaches the question depending onits trading partner. Considering Canada’s familiarity with a negative list approachunder NAFTA, the EU had been eager to accommodate this model for liberalizationin CETAwhile promoting a positive list approach in negotiations with countries thatare less experienced or open to investment liberalization.

A second important characteristic of EU IIAs is that they include market accessprovisions.50 Commitments made by the parties under market access provisions seekto identify and limit any restrictions that countries place on foreign investment, suchas on the number of foreign investment, ownership caps, authorization subject to aneconomic needs test, etc.51 Although market access provisions have been usedextensively in trade agreements, their use in investment agreements has been limited.Unlike other countries that include investment liberalization provisions in their IIAs,like the USA and Canada, the EU is pioneering the inclusion of market accessprovisions in investment agreements. In that context, the EU is showcasing thesignificance it attributes to investment liberalization, as it does not only aim foreign

48The EU agreements with Mexico, Vietnam and Singapore adopt a positive list approach.49Article 8.15 CETA. A negative list approach is also adopted in the recent EU-Japan FTA thatincludes commitments only on investment liberalization and not on investment protection (Article8.12 of EU-Japan FTA).50E.g., Article 8.4 CETA; Article 8.10 EU-Singapore FTA51Article 17.6 of EU-Mexico FTA provides thatIn the sectors or subsectors where market access commitments are undertaken, neither Party shall

adopt or maintain, with respect to market access through establishment or operation by investors ofthe other Party or by enterprises constituting covered investments, either on the basis of its entireterritory or on the basis of a territorial subdivision, a measure that:

(a) limits the number of enterprises that may carry out a specific economic activity, whether in theform of numerical quotas, monopolies, exclusive rights or the requirements of an economicneeds test;

(b) limits the total value of transactions or assets in the form of numerical quotas or the requirementof an economic needs test;

(c) limits the total number of operations or on the total quantity of output expressed in terms ofdesignated numerical units in the form of quotas or the requirement of an economic needs test;

(d) restricts or requires specific types of legal entity or joint venture through which an investor ofthe other Party may carry out an economic activity;

(e) limits the total number of natural persons that may be employed in a particular sector or that anenterprise may employ and who are necessary for, and directly related to, the performance ofeconomic activity in the form of numerical quotas or the requirement of an economic needs test.

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investors to be treated like domestic or other third country investors, but goes onestep further by requiring states to abolish specific regulatory constraints that canhinder investment opportunities.

A third important characteristic of EU investment agreements is that they offerspecific exceptions to liberalization commitments, both on market access and onrelative standards. EU IIAs subject MFN and national treatment at the pre-estab-lishment phase to general exceptions, as well as to specific exceptions that applyonly with regard to MFN or national treatment.

For example, CETA offers in Article 8.15 general and specific exceptions fromthe scope of application of these standards, excluding, for example, public procure-ment and subsidies from the scope of application of liberalization provisions. Inaddition, liberalization is subject to general exceptions that aim to preserve thepursuance of public interest. Article 28.3 CETA clearly stipulates that investmentliberalization is subject to general exceptions mirroring those embodied in ArticleXX GATT. In that regard, GATT Article XX gains particular importance for theinterpretation of these provisions.52 The establishment of specific exceptions toMFN and NT commitments offers additional clarity as regards the scope of invest-ment agreements.

In addition, the explicit reference to GATT and the distinction between invest-ment liberalization and investment protection identify a fourth important innovationof EU IIAs. Unlike most BITs and IIAs which have been interpreted to incorporatepublic policy considerations in the concept of “like circumstances,” EU IIAs adopt amore trade-influenced approach to the scope and content of investment liberalizationprovisions. As the MFN and national treatment standards are subject to differentinterpretations and exceptions under investment protection and investment liberali-zation agreements,53 the policy choices incorporated in EU IIAs tend to indicate thedistinctiveness of investment liberalization chapters.

Fourthly, this approach is further enhanced by the fact that liberalization com-mitments are in most instances excluded from the scope of ISDS. Disputesconcerning investment liberalization are only subject to state-to-state arbitration,following the general rules for resolution of trade disputes under those agreements.54

The only exception to this rule is CETA and the EU-Mexico FTAs, which allowISDS for disputes concerning the application of MFN and national treatment (but notmarket access) at the pre-establishment phase.55 Such distinction again illustrates theflexibility of the EU to accommodate the interests of third parties that are familiarwith ISDS applying to investment liberalization, such as Canada and Mexico that are

52On the interpretation of Art XX GATT, see indicatively Mavroidis P (2007) Trade in goods. pp254–286.53Lévesque C (2013) The challenges of ‘Marrying’ investment liberalisation and protection in theCanada-EU CETA. In: Bungenberg M, Reinisch A, Tietje C (eds) EU and investment agreements.Nomos, pp 121–14454Article 29.2 EU-Singapore FTA; Article 15.2 EU-Vietnam FTA55Article 8.18 CETA; Article 19.2 EU-Mexico FTA

EU Investment Agreements: A New Model for the Future 13

parties to NAFTA. Yet, the avoidance of such practice in the remaining EU IIAsindicates the unwillingness of the EU to commit to ISDS regarding investmentliberalization.

As a result, investment liberalization remains a key component of EU investmentpolicy, but its structure, nature, and content depart from typical investment agree-ments, such as NAFTA, which contain liberalization commitments.

Curtailing Investment Protection in EU IIAs: The Right to Regulate

Next to investment liberalization, EU IIAs tend to adopt a distinct approach asregards substantive protection of foreign investments. EU IIAs contain provisionsthat are similar to the standards of investment protection offered under BITs,including the right to fair and equitable treatment and the right to receive compen-sation in case of expropriation. Yet, in accordance with the call by the EuropeanParliament for protecting the EU’s right to regulate and promote legal certainty,56 EUIIAs introduce novelties regarding the scope and content of investors’ rights. EUIIAs aim to offer a more nuanced balance between investors’ rights and the right ofhost states to regulate, and to that extent contain new language, including on the onehand new provisions that exist in very few investment treaties and on the other handoffering detailed definitions of well-known investment protection standards, such asfair and equitable treatment (FET) and expropriation.57

In that respect, it is important to note firstly that EU IIAs contain an explicitreference to the right to regulate.58 This general provision is usually accompanied byan additional provision that confirms that the adoption or the modification of nationallaws “in a manner which negatively affects an investment or interferes with aninvestor’s expectations [. . .] does not amount to a breach of an obligation under[investment protection]”.59 Introducing a general provision on the right to regulateoffers primarily the general context for interpreting investment protection standards.As the European Commission puts it, such provision “allows setting the right contextin which investment protection standards are applied.”60 In addition, the explicit

56Parliament Investment Resolution (n 3) paras 24–2557Henckels C (2016) Protecting regulatory autonomy through greater precision in investmenttreaties: the TPP, CETA, and TTIP. J Int Econ Law 19:2558Art 8.9 CETA; Article 17.1 EU-Mexico FTA, 17.1; Article 2.2 EU Singapore FTA; Article 2.2.EU-Vietnam FTA. For example, Article 8.9 CETA provides that “the Parties reaffirm their right toregulate within their territories to achieve legitimate policy objectives, such as the protection ofpublic health, safety, the environment or public morals, social or consumer protection or thepromotion and protection of cultural diversity.”59For example, Article 2.2.2 EU- Vietnam FTA60European Commission Communication, “Trade for All – Towards a more responsible trade andinvestment policy”, COM(2015) 497 final; European Commission, “Concept Paper: Investment inTTIP and beyond – The Path for Reform Enhancing the Right to Regulate andMoving from Currentad hoc Arbitration towards and Investment Court”

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reference that the right to regulate does not amount to a violation of investmentprotection standards offers a direct link between the right to regulate and investmentprotection. Rather than being viewed as an exception or limitation to the scope ofinvestment protection, the language used enables a clearer demarcation of the natureand aspects of public policy measures that cannot by definition result in a violation ofinvestment protection standards.61 Such broader reading of the right to regulate isfurther enhanced by its explicit mention in preambular language of EU IIAs, whichexplicitly acknowledge the right of host states to regulate.62

Of course the introduction of an explicit reference to the right to regulate is not aunique feature of EU IIAs. A number of BITs and IIAs include similar provisions,reaffirming the importance and legal significance of the right to regulate.63 Byinsisting on its use in its IIAs, the EU signals the importance that it attributes tothe right to regulate as well as its legal significance. As regards the latter, it is notablethat, on the hand, the EU definition is quite broad and offers only an indicative list ofpublic interest objectives that amount to the right to regulate. On the other hand, theuse of mandatory language requires rather than simply enables future tribunals totake it into consideration when determining alleged violations of investment protec-tion standards.

The aim to redraw the balance between investment protection and the right toregulate is further illustrated by the language used to identify the content of the FETstandard. Under traditional BITs, FET is a vague standard that provides protectionagainst a broad spectrum of national measures.64 Departing from established prac-tice, EU IIAs aim to contain it by offering greater precision as to what would actually

61Titi C (2019) The right to regulate. In: Mbengue, Schacherer (eds) Foreign investment under theComprehensive Economic and Trade Agreement (CETA). Springer International Publishing, p 17162The Preamble to CETA provides among others that “. . . the provisions of this Agreement preservethe right of the Parties to regulate within their territories and the Parties’ flexibility to achievelegitimate policy objectives, such as public health, safety, environment, public morals and thepromotion and protection of cultural diversity”63For example, Article G-1(3) Canada-Chile FTA; Article 9 Switzerland-Georgia BIT64De Brabandere E (2017) “States” Reassertion of control over international investment law (Re)Defining “Fair and Equitable Treatment and Indirect Expropriation”. In: Kulick (ed) Reassertion ofcontrol over the investment treaty regime. CUP, p 288. See also Kläger, above note 32, 246–249.Cross reference to other relevant chapters in the book?

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breach investors’ rights.65 Aiming to offer additional guidance to investment tri-bunals as to what amounts to an FET violation and ultimately to safeguard regulatoryspace, EU IIAs offer an exclusive list of what actions fall short of the FET standard.More specifically, FET can be violated when a measure constitutes denial of justice,a fundamental breach of due process, including a breach of transparency obligations,manifest arbitrariness or discrimination, or abusive treatment of investors, such ascoercion. Of course, this list reflects the broader types of conduct that have beenrecognized in arbitral jurisprudence to fall under the scope of FET. Yet, the estab-lishment of an exclusive list of conduct that violates FET introduces a unique EUapproach to the scope and content of this investment protection standard. In thatrespect, it is noteworthy that EU IIAs do not entrust investment tribunals with theduty to develop the content of the standard as they deem fit. Rather, they reserve thisright explicitly for themselves, as only the contracting parties have the authority toadd additional elements to the exclusive list, in accordance with procedures referringto political and institutional cooperation.66

It is also striking that the FET standard is not linked to the minimum standardunder international law. Unlike many other IIAs, most notably NAFTA, FET underEU IIAs aims to break the link between the international minimum standard andFET.67 In order to avoid expansive interpretations of FET68 and delineate withclarity and certainty the types of conduct that violate FET, EU IIAs insist on theinclusion of an exclusive list of conducts that violate the standard, thus aiming topreserve the host state’s right to regulate.

In addition, a key difference between other IIAs and EU IIAs relates to the roleattributed to investors’ legitimate expectations. Legitimate expectations have not

65For example, Article 8.10.2 CETA provides that

1. Each Party shall accord in its territory to covered investments of the other Party and to investorswith respect to their covered investments fair and equitable treatment and full protection andsecurity in accordance with paragraphs 2 through 6.

2. A Party breaches the obligation of fair and equitable treatment referenced in paragraph 1 if ameasure or series of measures constitutes:(a) denial of justice in criminal, civil or administrative proceedings;(b) fundamental breach of due process, including a fundamental breach of transparency, injudicial and administrative proceedings;(c) manifest arbitrariness;(d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religiousbelief;(e) abusive treatment of investors, such as coercion, duress and harassment; or(f) a breach of any further elements of the fair and equitable treatment obligation adopted by theParties in accordance with paragraph 3 of this Article.

66Article 8.10.3 CETA67On the scope of International minimum standard, see Kläger R (2011) Fair and equitable treatmentin international investment law. Cambridge University Press, esp., pp 53–78.68For example, Occidental Exploration and Prod. Co. v Republic of Ecuador, UNCITRAL, LCIACase No UN3467, Final Award, 1 July 2004

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been included into the list of elements that constitute a breach of the FET standardunder EU IIAs. EU IIAs provide that a tribunal “may take into account” that a partymade “a specific representation to an investor to induce a covered investment, thatcreated a legitimate expectation, and upon which the investor relied in deciding tomake or maintain the covered investment, but that the Party subsequently frus-trated.”69 The language used marks a significant departure from earlier arbitraljurisprudence on FET. First of all, EU IIAs clarify that the frustration of legitimateexpectations cannot constitute per se a breach of FET. Only to the extent that it islinked to a manifest breach of due process, manifest arbitrariness, targeted discrim-ination, etc. can it result in a violation of the FET standard. Secondly, arbitraltribunals are allowed, but not required to take investors’ legitimate expectationsinto consideration. Thirdly, EU IIAs clarify when investors’ expectations are legit-imate requiring that they are based explicitly on the existence of “specific represen-tations” made to an investor in order to induce an investment. The language usedexcludes thus instances whereby legitimate expectations were found to be violatedeven if investors relied on general or vague promises given by state actors.70 As aresult, EU IIAs aim to increase the deference paid to the right to regulate.

Turning to protection against expropriation, EU investment agreements aim toclarify the circumstances under which a regulatory measure can amount to expro-priation, thus aiming to provide clarity to the concept of indirect expropriation,which has been highly controversial in arbitral jurisprudence.71 The existence ofindirect expropriation depends on whether a State measure could benefit from theregulatory exception freeing a State from having to pay compensation. EU IIAs aimto safeguard the right to regulate and to avoid unwarranted interpretations of whatconstitutes an indirect expropriation by offering detailed language as to what mea-sures amount to an indirect expropriation and when the regulatory exception applies.Both elements are set out in specific annexes on expropriation that are attached to EUIIAs.72 Under EU IIAs, “indirect expropriation occurs if a measure or series ofmeasures of a Party has an effect equivalent to direct expropriation, in that itsubstantially deprives the investor of the fundamental attributes of property in itsinvestment, including the right to use, enjoy and dispose of its investment, withoutformal transfer of title or outright seizure.”73

More specifically, EU IIAs follow well-established US and Canadian IIA prac-tice. EU IIA language follows North American practice in terms of determining boththe factors that need to be taken into consideration when explaining whether ameasure amounts to indirect expropriation as well as reiterating that measures

69For example, Article 9.4.2(e) of EU-Singapore FTA70For a detailed analysis of the law on legitimate expectations, see Wongkaew T (2019) Protectionof legitimate expectations in investment treaty arbitration: a theory of detrimental reliance. CUP.71See chapter (cross reference).72Annex 8-A CETA; ‘Annex on Expropriation’ EU Mexico FTA; Annex 4 EU Vietnam FTA;Annex 1 EU Singapore FTA73Annex 8-A, article 2 CETA

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taken to pursue a public interest do not amount to indirect expropriation but for “rarecircumstances.” EU IIAs indicate that the existence of regulatory expropriationdepends not only on the effect of the measure but also on its “object, context, andintent.”74 More importantly, they clearly state that regulatory measures taken inorder to protect legitimate public objectives, such as health and the environment, donot constitute indirect expropriation, unless they are manifestly excessive anddiscriminatory.75 The strong emphasis placed on the objectives and nature ofregulatory measures aims to guarantee a higher level of autonomy for recipientcountries’ right to regulate.

Without entering into a deeper analysis of each individual factor that the deter-mination of indirect expropriation requires, it is worth pointing out that EU IIAs didnot avoid the criticism that North American investment treaty provisions haveattracted.76 For example, the reference to rare circumstances where a regulatorymeasure can amount to expropriation without explaining what such circumstancesare and when they can arise retains the discretion of arbitral tribunals to shift thebalance between investment protection and the right to regulate. Besides, the factthat the listed factors are non-exhaustive (“among other factors”), which is in sharpcontrast to the FET provision, leaves ample space for adjudicators to add additionalconsiderations.

In that regard, it can be argued that unlike the provision on the right to regulateand FET, the scope and content of the provisions on expropriation of EU IIAs followrecent practices of other countries. Yet, the lack of a pioneering role for the EU doesin no way undermine the importance and the value of the Annex to expropriation as apositive step toward demarcating the balance between investment protection and theright to regulate. Considering that very few of Member State BITs included similarprovisions, EU IIAs offer a marked shift in the scope of investment protectionoffered to EU investors and foreign investors in EU Member States.

Toward the Judicialization of ISDS Under EU IIAs

The third and most important novelty introduced by EU investment agreementsrelates to the complete transformation of ISDS. ISDS has been criticized for anumber of years, with international debates on reform ranging from abandoningISDS altogether to the establishment of a multilateral investment court.77 Within thisbroader debate, the EU has taken a leading role in promoting its own vision of ISDS.

74For example, Annex 8-A, article 2(d) of CETA75For example, Annex 9-A, article 2 of EU-Singapore FTA76For a broader review of expropriation provisions under EU IIAs, see De Nanteuil A (2019)Expropriation. In: Mbengue, Schacherer (eds) Foreign investment under the Comprehensive Eco-nomic and Trade Agreement (CETA). Springer International Publishing.77For a detailed review of ISDS criticism, see Bungenberg M, Reinisch A (2018) From bilateralarbitral tribunals and investment courts to a multilateral investment court. Springer.

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Instead of abolishing investment arbitration, the EU has been attempting to trans-form ISDS, aiming toward its judicialization. Intending to enhance the legitimacy ofISDS and address the shortcomings of arbitration, the EU has been promoting thereform of ISDS toward a more judicialized system for international dispute settle-ment. In that context, the EU launched in 2015 its position for substituting arbitrationwith an Investment Court System (ICS),78 with the aim of establishing a legitimate,neutral, and transparent framework for the settlement of investment disputes. TheEU has indicated that the ICS will be a permanent feature of all future EU investmentagreements and so far has been an integral element of all concluded EU IIAs.Moreover, the EU’s ambitious ICS proposal aims to eventually substitute investmentarbitration “as we know it” and become a multilateral framework for investmentdispute resolution.79 In that context, the EU has assumed a protagonistic role in thecontext of UNCITRAL aiming toward the establishment of a multilateral investmentcourt.

The development of the ICS has been premised on the idea of creating a “hybrid”system in the form of an international court, minimizing the elements of arbitrationthat are linked to private disputes and emphasizing the characteristics of a publiccourt system. Without entering into an analysis and review of the features of the ICSand whether it manages to address the shortcomings of ISDS that it was expected toaddress, it is necessary to highlight its key characteristics.80 In that context, a keyinnovation introduced by the ICS in comparison to investment arbitration is thecreation of a permanent two-tier adjudication mechanism. More specifically, the ICSprovides for investment disputes to be resolved by arbitration panels, whose selec-tion and appointment follow specific rules. It requires from the contracting parties toset up a pool of potential arbitrators, determining who can sit as an arbitrator, whattheir duties are, and what their role should be. The procedures resemble more theprocedures followed in WTO dispute settlement, thus departing from the practice ofcommercial arbitration whereby arbitrators are chosen by the parties. Such changesaim to address criticisms concerning the impartiality of arbitral tribunals that all toooften have been criticized for not being favorable toward host states. More

78European Commission, Concept Paper, Investment in TTIP – the path for reform, 5 May 2015,available at http://trade.ec.europa.eu/doclib/docs/2015/may/tradoc_153408.PDF79The European Commission commenced a new public consultation on possible options formultilateral reform of investment dispute resolution, including the possible establishment of apermanent Multilateral Investment Court. European Commission, Impact Assessment on theEstablishment of a Multilateral Investment Court for investment dispute resolution, 1 August2016, available at http://trade.ec.europa.eu/doclib/docs/2016/october/tradoc. For a critical review,see Chaisse J, Vaccaro-Incisa M (2018) The EU investment court: challenges on the path ahead.Columbia FDI Perspect 218:1–3.80For a critical review of the ICS, see Baetens F (2016) The European Union’s proposed investmentcourt system: addressing criticisms of investor-state arbitration while raising new challenges. LegIssues Econ Integr 43(4):367–384; Schill S (2017) Authority, legitimacy, and fragmentation in the(envisaged) dispute settlement disciplines in mega-regionals. In: Griller S, Obwexer W, Vranes E(eds) Mega-regional agreements: TTIP, CETA, TiSA. New orientations for EU external economicrelations. OUP, pp 112–150.

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importantly, the ICS creates a permanent appeal mechanism, thus introducing a newlevel for adjudicating complex legal questions, which can contribute toward greaterconsistency in investment law jurisprudence and enhanced legitimacy of investmentdecisions.81

Finally, following recent developments aiming to enhance transparency in invest-ment arbitration, such as the creation of the new UNCITRAL rules on transparencyin investment arbitration, the ICS and EU investment agreements create rules thataim to enhance the public nature and broader participation of interested parties ininvestor-state dispute settlement.82 The inclusion of transparency provisions in IIAsis not of course a unique characteristic of EU IIAs. In the past decade, a number ofIIAs have been amended to introduce transparency provisions, culminating to theadoption of the UNCITRAL Rules on Transparency in Treaty-based Investor-StateArbitration as well as the related United Nations Convention on Transparency inTreaty-based Investor-State Arbitration, referred to as the Mauritius Convention.83

In that respect, EU IIAs build upon existing initiatives contributing toward furtherlegitimacy and public participation, by enabling public access to all documentsrelated to proceedings, requiring hearings to be public, and finally allowing thirdparties to submit amicus curiae briefs.84 As a result EU IIAs are thus not onlyreflecting global trends but furthering the scope of transparency in ISDS.

Conclusions

EU investment policy has entered a dynamic stage that can shape the future of globalrules on investment law. Despite being subject to strong criticism from MemberStates, EU institutions, and the civil society, the EU has managed to develop a policyframework for foreign investment that presents significant innovations in compari-son to existing IIAs. The EU managed to redraft substantive rules on foreigninvestment protection, providing a clearer balance between investors’ rights andrecipient countries’ public policies; it intends to increase legitimacy of the institu-tional framework on dispute settlement and enhance the scope of investment liber-alization, which is of importance to European investors.

Assessing the significance of EU’s contribution toward the future of IIAs, onecannot escape the fact that investment liberalization becomes equal if not moreimportant than investment protection within investment agreements. Althoughinvestment admission does not feature much and will probably continue not to

81Schill S (2017) Reforming investor–state dispute settlement: a (comparative and international)constitutional law framework. J Int Econ Law 20:649, 660–66182Schacherer S (2016) TPP, CETA and TTIP between innovation and consolidation – resolvinginvestor–state disputes under mega-regionals. J Int Dispute Settlement 62883United Nations Convention on Transparency in Treaty-based Investor-State Arbitration (“Mau-ritius Convention”), UN General Assembly, [2014] Res A/69/11684For example, Article 8.36 CETA

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feature in investment arbitration, the EU’s push for including investment liberaliza-tion in all its IIAs illustrates how the EU addresses the key concerns of foreigninvestors and drives the future regulatory agenda. Considering that market access isaccording to investors a key investment determinant,85 the EU IIA chapters oninvestment liberalization offer a model for future development of IIAs in the field.Based upon the EU’s experience and record in this field, EU IIA chapters oninvestment admission offer the framework for the development of the law in thisfield.

At the same time, the significant changes that EU IIAs introduce regarding thebalancing of investment protection and the right to regulate, as well as ISDS, aim torestore the lost legitimacy of investment protection. In an era where investmenttreaties and arbitration have been heavily attacked for their “pro-investor” bias, EUIIAs aim to restore the belief in their value, by offering additional clarity andtransparency as to when and under what condition investors are protected. Therecognition of the right to regulate and the explanatory language regarding FETand indirect expropriation aim to remove the potential for investment tribunals toreach overtly investor-friendly interpretations of these standards. Although suchinterpretations were rather uncommon, EU IIAs aim to enhance the legitimacy ofinvestment protection by clarifying and thus ensuring balance with the right of hoststates to regulate. The preservation of the investment treaty protection regime ismore evident in light of the innovative model for ISDS that EU IIAs include. TheICS and the move toward the judicialization of ISDS come at a moment where civilsociety and many developing countries have openly questioned whether investmentarbitration should be at all offered under investment treaties. Understanding the needfor change, the EU pioneers a radical approach toward the preservation of a strongdispute settlement system for investment disputes, offering changes to its nature thataim to address its legitimacy and transparency shortcomings.

However, the contribution of the EU toward the future of investment treaty law isnot straightforward. The biggest threat to fulfilling its ambition to lead the debatetoward the transformation of international investment law and arbitration comesfrom the EU itself. In Opinions 2/15 and 1/17, the CJEU has effectively constrainedthe ability of the EU to lead. On the one hand, the conclusion reached in Opinion 2/15 that EU IIAs should be concluded as investment agreements places additionalprocedural hurdles on the EU, as CETA’s ratification in Belgium proves. At the sametime, and perhaps more importantly, it results in a radical shift in the EU’s vision ofinvestment law as part of a broader, comprehensive framework on economic rela-tions: the split between an FTA and the Investment Protection Agreements withSingapore and Vietnam place an obstacle to the EU’s vision. At the same time,Opinion 1/17 confirms the value that the CJEU attaches to the autonomy of EU lawand its own role as the guardian of the autonomy principle. However, such a broadreading of autonomy limits the ability of the EU to conclude international agreement

85Bonnitcha J, Pauulsen L, Waibel M (2017) The political economy of the investment treaty regime.OUP, pp 172–178

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with effective ISDS mechanisms: protecting the autonomy of EU law results inreduced jurisdiction of arbitral tribunals in a manner that is both inefficient, such aswhere consideration of domestic law matters is essential for determining the scopeand content of investment protection, as well as patronizing, given that the CJEU hasengaged in its own interpretation of CETA standards. Whether the EU (and theCJEU) will be able to convince third countries to accept ISDS with limited jurisdic-tion remains to be seen.

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