eu investments in lisbon treaty era

8/12/2019 EU Investments in Lisbon Treaty Era

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Reclaiming Public Interestin Europes International Investment Policy

EU INVESTMENT AGREEMENTSIN THE LISBON TREATY ERA: A Reader

Seattle to Brussels Network

CONTRIBUTORS

TNI . CEO . 11.11.11 . SOMO . M.A.I.S. . CRBM . Both ENDS . WEED


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Reclaiming Public Interest

in Europes International Investment PolicyEU INVESTMENT AGREEMENTSIN THE LISBON TREATY ERA: A Reader

Seattle to Brussels Network

CONTRIBUTORS

TNI . CEO . 11.11.11 . SOMO . M.A.I.S. . CRBM . Both ENDS . WEED


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Published by: the ransnational Institute on behal o theInvestment Working Group o the Seattle to Brussels Network

S2B Working Group authors: Marc Maes, Ross Eventon, Myriam Vander Stichele,Antonio ricarico, Roberto Sensi, Roos van Os,Pia Eberhardt, Cecilia Olivet

Guest authors: Julio C. Gambina, Manuel Prez-RochaEditor: Ross Eventon

Translator: Kate Wilson

Design: Ricardo Santos

Cover photo: PCOM (www.flickr.com/photos/tpcom/)

Contents o this Report may be quoted or reproduced, provided that the sourceo inormation is acknowledged. he publisher would like to receive a copy othe document in which this report is used or quoted.

Amsterdam, July 2010


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Table of Contents

Preface 7

Introduction: 50 years of BITs is enough 9

Section 1 Europes current and future investment policy

1. The Lisbon Treaty and the new EU investment competence 12

2. The Corporate Investment Agenda 14

3. European investment policies: 20 years constructing an architecture

of protection for TNCs 16

4. Pre-Lisbon external investment policy of the EU 19

5. Future forms of EU investment competence

The German model BIT as a minimum level of protection 22

Section 2 Whats wrong with the current investment regime?

6. BITs, FDI and Development 25

7. NAFTAs investment chapter and Mexicos economic downturn 27

8. How BITs restrict policy space to prevent or alleviate financial crises 29

9. Argentina and Bilateral Investment Agreements (BITs) 31

10. Vattenfall vs Germany: A troubling precedent 33

11. Bolivia resisting the global investment agenda 35

12. Violations of peoples rights by European TNCs: the cases in Latin America

presented to the Permanent Peoples Tribunal 37

Section 3 Resistance and alternatives to the current EUs investment paradigm

13. Belgian regional governments suspend ratification of Colombia BIT 41

14. Civil society protests prevent Norway from joining the BITs race 43

15. Alternatives to the BIT Framework 44

16. Bi-regional proposals for regulation of TNCs: towards and International Tribunal on

Economic Crimes 46

Civil society statement on the future of Europes international investment policy:Reclaiming public interest in Europes international investment policy 49


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| Reclaiming Public Interest i n Europes International Investment Policy6


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Eu Investment Agreements In The Lisbon Treaty Era: A Reader | 7

Tis publication comes at a crucial time. Te Lisbon reatyhas given the European Commission added clout; it can now

negotiate trade and investment treaties by itsel, on behal

o all 27 members States. Tanks to Lisbon, an already

undemocratic Europe has become even less so and is using its

broad mandate to inflict as yet untold damage on the rest o

the world through a series o apparently technical trade and

investment treaties to pry open the markets o poorer, more

vulnerable countries.

At home, as well-inormed Europeans can tell you, theCommission governs on behal o a tiny minority and above

all on behal o transnational corporations and banks whose

innumerable lobbyists in Brussels are well paid to make sure

things stay that way. Te quite different interests o small and

medium sized enterprises that provide 90 percent o European

employment are disregarded; popular sovereignty is an

outdated myth and European citizens are reduced to the status

o consumers in an evermore market-oriented, neoliberal

space about which they have little to say.

A geopolitical entityin this case the European Union-

-unwilling to deend the interests o the vast majority o its

own people, one which is busy actively downgrading their

public services and hard-won rights, can hardly be expected

to care anything about the rights o people elsewhere. Every

Bilateral Investment reaty, every Economic Partnership

Agreement that the EU has drawn up with a weaker country

has proclaimed this truth anew. All the rights are on the side

o the corporations, all the obligations all upon the treatys

victims. Heads I win, tails you lose. Te goal is to satisy thedemands o transnational business to be given everywhere an

absolutely ree hand.

Tis business agenda has not changed since the late 1990s

when the Multilateral Agreement on Investment, secretly

negotiated inside the OECD, was deeated by citizen action.

Similar action is required now, jointly undertaken, shared

and coordinated by European citizens with those o the target

States. Te social, labour and environmental rights o citizens

everywhere are jeopardised by treaties imposing total reedomor investors and zero protection or their captive partners.

Te valiant example o Bolivia shows it is possible to resist.

Do not be put off by the apparent complexity o the issue.

Trowing up a smokescreen o complexity is another

Commission specialty along with communications and

inormation barriers nearly as difficult to penetrate as the

vaults o the European Central Bank. Te basics are simple;

those who have written or this publication know them inside

out and have explained them here in clear language.

Everything you need is in these pages: the best way to

undermine a system that has only contempt or democracy is

to read, learn, share the knowledge and act.

Susan George, June 2010

President o the Board o NI and honorary president

o AAC-France [Association or axation o Financial

ransaction to Aid Citizens]


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Introduction: 50 years of BITs is enoughTe S2B Investment Working Group

1 December 2009 was a remarkable day. In Geneva, the WO

organised its 7th Ministerial Conerence to examine its role,or lack thereo, in the global crises and discuss the ailed Doha

Round negotiations. Meanwhile, in Frankurt, a conerence

celebrated the 50th anniversary o the worlds first Bilateral

Investment reaty (BI), signed on 25 November 1959

between the Federal Republic o Germany and the Islamic

Republic o Pakistan1. Finally, the day marked the entry into

orce o the Lisbon reaty, taking competence on oreign direct

investment (FDI) away rom the European Member States and

incorporating it into the common commercial policy o the

European Union.

Tat transer o competence is the latest episode in the European

Commissions struggle to obtain a larger role in investment

policy (see chapters 5 and 7). It has already been the subject

o numerous discussions and speculations in past months, and

will become even more hotly debated in the coming weeks

when the European Commission produces proposals on how

to put this competency shi into practice. As the Commission

and Member States continue to wrangle about who gets what,

and the business groups strive to make sure their interests are

secured (see chapters 2 and 3), the Seattle to Brussels network

wants to open up the debate and call or a thorough overhaulo current BI practice (see the S2B statement). Tis reader is

hopeully a valuable contribution to that debate.

Since 1959 more than 3000 BIs have been signed, mostly

in the past 15 years and mostly between developed and

developing countries. BIs originated rom the desire o

developed countries to secure financial and legal protection or

their investors, and their investments, in developing countries.

In order to persuade developing countries BIs are oen

presented as development instruments: because they offer

protection to investors, they will attract investments. However,there is little proo that this is indeed the case, let alone that

BIs promote productive and sustainable investments (see

chapters 4 and 6).

A corner stone o the protection offered by BIs is the

possibility or investors to sue governments beore

international arbitration panels. Since the first such case in

1990, more then 300 cases have ollowed, oen resulting in

governments paying enormous amounts o compensation

(see chapters 11 and 13). Tis has not only attracted

international law firms, responding to the prospectivebusiness opportunities, but has also made some governments

more cautious about what rights and obligations BIs should

contain and how they should be ormulated. Tere is a

growing realisation that investment protection should notundermine the rights o governments to regulate and design

policies to urther public interests, to protect human rights

and to oster sustainable development.

Important in this new consciousness is the act that developing

countries have become a source o oreign investments.

Countries exporting investments (home countries) have

become importers (or host countries) too and, since BIs are

reciprocal, developed countries have recently ound themselves

subject to legal challenges by oreign investors. So ar the

(Western) European countries, in contrast with the USA andCanada, have largely been spared such challenges and have

consequently not elt the need to redra their model texts or

negotiating BIs. However, that may change in the uture in

response to actions such as the case brought by the Swedish

investor Vattenall against Germany, seeking compensation o

more than 1.4 billion Euros, (see chapter 12).

Te main bone o contention surrounding BIs is the so-

called investor-to-state dispute settlement mechanism. Its

very existence is exceptional since international agreements

in general only contain provisions pertaining to state-to-state dispute settlement. Within BIs, investors are allowed

to completely by-pass the domestic legal system and go

straight to international arbitration; a highly opaque process,

to the extent that even the exact number o cases cannot be

established.

Within these arbitration panels, the oen vague BIs

provisions are consistently interpreted in avour o private

investors. Tis is somewhat unsurprising, given that most

BIs have the protection o the interests o investors as their

sole stated objective. In order to avoid the hollowing out o therights o governments to regulate and act to serve the public

good, and in order to create more balance between rights and

obligations, it is thereore necessary to broaden the objectives,

make provisions more precise, build in limitations and add

obligations or investors and home country governments too.

o this end, many various organisations have proposed viable

alternatives to the BI agreement inrastructure (outlined

in chapter 15); all that remains is the political will to adopt

these proposals, laying the oundations or a airer system o

international trade.

Most o the BIs are made up o the ollowing standard

provisions2:


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- A preamble with objectiveso the agreement: mostly limited

to investor protection, sometimes accompanied by investment

promotion.

- Definitionso investors and investment: oen very broad,

including portolio investments and intellectual propriety

rights, expanding the coverage o the protection offered.

- Pre-establishment rights or market access (MA): gives

investors the same rights to make investments as domestic or

other oreign investors. Usually BIs do not offer much market

access but rather ocus on protecting investments that have

already been allowed to enter into the country.

- National reatment (N): gives oreign investors at least

the same treatment and protection as domestic investors.

- Most Favoured Nation(MFN): guarantees the signatories,

and their investors, treatment equal to the country with which

the host has the most avourable terms.

- Fair and Equitable reatment(FE): while N and MFN

take the treatment o domestic or other oreign investors as

a reerence point, FE offers a minimum or specific level o

protection. In the past this has been interpreted very broadly

by arbitration panels.

- Full protection and security: offers protection against

damage caused by third parties.

- Restrictions on expropriation: limits the possibilities or

public authorities to expropriate oreign investors and obliges

to pay ull and prompt compensation.- Indirect expropriation or regulatory takings:

controversial notion that expropriation can also be an indirect

result o a government action. Tis opens the door or

challenges against all kinds o government policies; or instance

protection measures that increase the costs o environmental

exploitation and thereore reduce expected profits.

- Free ransfer of Funds: allows investors to repatriate

unds related to investments (profits, interests, ees and other

earnings).

-Limits on local content requirements: bans or limits the

possibility o governments to require that oreign investors use

local contents, such as inputs and staff.

- State-to-state dispute settlement: creates a mechanism to

solve disputes between the countries (parties) arising rom

the agreement; usually starts with consultation and mediation

beore moving to arbitration.

- Investor-to-state dispute settlement: unique provision that

gives investors the right to challenge the government o thehost state beore international tribunals such as ICSID (World

Bank), UNCIRAL (United Nations) or the International

Court o Arbitration in Paris.

On the other hand there are a number o provisions that rarely

show up in BIs:

- Broader objectives:including sustainable investment

- ransparency: especially with regard to the dispute

settlement mechanism

- Obligations on the home country: to promote sustainable

investments, transer technology, fight corruption, etc

- Obligations on the investors: to respect the law, humanrights, labour rights, corporate social responsibility rules (see

Chapter xyy Obligations o corporations)

- Obligations to exhaust domestic remedies: obligates

investors to first seek redress beore domestic administrativeand legal procedures and courts beore turning to international

arbitration

- Obligations o the host country to respect and implement

international labour conventions and environmental

agreements, supplemented with enorcement mechanisms

involving trade union and civil society consultation.

Te Lisbon reaty has not only put FDI within the common

trade policy o the European Union, but has also placedcommon trade policy within the Unions broader oreign

policy; and that oreign policy within the overall objectives

o the Union, which include poverty eradication, respect orhuman rights and a commitment to sustainable development.

Regardless o whether the European Union returns the

competence on FDI to Member States or the EuropeanCommission takes over BI negotiations, never again should

BIs be allowed to exclusively serve the interests o investors.

Te S2B Investment Working Group

June 2010

1 http://www.50yearsoBIs.com

2 See some general introduction to BIs such as Peterson, L. E., May 2005, TeGlobal Govenance o FDI: Madly off in all directions , FES OccasionalPapers, Geneva, N19. Available online at http://library.es.de/pd-files/iez/global/50084.pd; Cotula, L., August 2007, Investment reaties, IIED

Sustainable markets Investment briefings, N2., Available online at http://www.iied.org/pubs/pds/17013IIED.pd
http://www.50yearsofbits.com/http://library.fes.de/pdf-files/iez/global/50084.pdfhttp://www.iied.org/pubs/pdfs/17013IIED.pdfhttp://www.iied.org/pubs/pdfs/17013IIED.pdfhttp://library.fes.de/pdf-files/iez/global/50084.pdfhttp://www.50yearsofbits.com/


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Section 1 Europes current and future investment policy


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1. The Lisbon Treaty and the new EU investment competenceMarc Maes, 11.11.11

With the coming into orce o the Lisbon reaty on 1 December

2009, oreign direct investment (FDI) has been added to thelist o issues belonging to the exclusive EU common trade

policy1. Tis implies that EU Member States cannot continue

concluding BIs and that the Commission will take over their

competences.

Prior to the Lisbon reaty, very ew preparations had been

made to fill the vacuum it created. No transition mechanism

was created or the Member States, nor were any guidelines or

the way the Commission would deal with FDI outlined. Also,

no common interpretation was agreed or the exact meaning

and implications o the new treaty text.

Nevertheless, the DG rade did create a new Investment

Policy Unit led by Jean-Franois Brakeland, who has since

been briefing various stakeholders o the Commissions

proposed approach. Te issue has also been discussed in the

EU Councils rade Policy Committee (PC) which is the

working party o the Council that deals with the EUs trade

policy. Te PC is composed o trade experts and diplomats

rom the EU Member States and was until 30 November 2009

known as Committee 133.

Scholars continue to debate the possible interpretations

o the Lisbon reaty, but it is the decisions taken by the EU

institutions that will determine the new investment policy

ramework o the EU, and there is no doubt that it is the

European Commission which will propose the way orward.

From the Commissions briefings and inormation circulating

among the Member States and in the Parliament, the ollowing

two-step approach has become clear:

Te Commission will come out by the end o June with two

proposals

1- a dra regulation to fix the vacuum created by transerring

FDI competence to the EU-level

2- a communication proposing the new EU investment policy

which eeds into negotiating mandates or EU investment

agreements (or investment chapters within trade agreements)

THETEMPORARYREGULATION

Te Commission will produce a dra regulation which will be

submitted to both the Council and the European Parliament(as the Lisbon treaty has given the EP legislative powers in the

field o the common trade policy).

Te regulation will do two things: recognise or grandather

the existing BIs and delegate the newly obtained EU powersback to the Member States. Te dra is ready but the rade

Commissioner has insisted that it be released together with

the Communication.

- Grandfatheringthe existing BIs: this will allow the Member

States to maintain their existing agreements. Te regulation

will recognise all Member States BIs that are in orce on the

day the regulation becomes active; including Member States

BIs ratified aer the Lisbon reaty came into effect. Te

regulation may set an end date on the validity o the Member

States BIs and the Commission is also expected to attachcertain conditions to this temporary situation. One condition

is certain: the BIs must comply with EU law, which implies

that some states will have to renegotiate existing agreements to

make them compliant2.

- Delegation of competence or empowerment. Tis may

seem quite peculiar, but the act that the Lisbon reaty has

handed competence to the Union does not prevent the Union

rom delegating it back to Member States, something which

has been done beore. Te delegation will allow the Member

States to re-negotiate their BIs, but also, it seems, to negotiate

new BIs. Te immediate questions arise: How long will it

last? And what conditions will be attached to this delegation?.

Conditions could include: Member States having to notiy

the Commission or ask permission; the Commission sending

an observer to the negotiations; new BIs having to contain

certain provisions; and new BIs contributing to the broad

policy objectives o the Lisbon reaty including sustainable

development, poverty eradication and the respect or human

rights.

It is clear that the dra regulation will lead to long discussions

in the Councils PC as well as in the Parliament. It will be one

o the first major pieces o trade legislation that the Parliament

will have to deal with. Tis o course will open opportunities

or civil society organisations to voice their concerns and

present proposals.

THETEMPORARYSITUATION

Since the co-decision procedure (or ordinary legislative

procedure as it is now called) can take as much as 18 months,

it will take some time beore the current vacuum is filled. TeCommission has admitted the vacuum exists and that this is a

delicate legal situation, leaving the door open or challenges. In


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response, they have not issued any ormal recommendations

but have allegedly made the inormal suggestion that Member

States can continue to ratiy BIs they have signed and sign

the BIs they have initialled. Tey may also be allowed to

round off ongoing negotiations depending on how ar they

have progressed. Tey should, however not launch any new

negotiations. Te Commission is also said to have indicatedthat Member States should terminate their BIs with other

Member States, because these BIs have created inequality

between EU investors within the EU (this is actually one o

the problems o BIs, not just within the EU but also between

oreign investors and local investors in all the countries that

have signed BI agreements).

It is clear that the Commissions inormal advice signifies it is

not intending to stop Member States rom rounding off their

BI-negotiations or ratification procedures. But this does not

seem to shield any member state government rom legal actionby its citizens or illegally negotiating investment agreements.

THENEWEU INVESTMENTPOLICY

ogether with the dra regulation, the Commission is

preparing a Communication on the content o the new EU

investment policy which it will present at the same time.

Te Commission has indicated it does not intend to negotiate

BIs with all possible countries, but that it wants to concentrate

on the large trading partners like India, Canada, Russia,

China and Mercosur. Te Commission also preers to includeinvestment provisions in the Free rade Agreements (FAs)

rather than to negotiate stand alone investment agreements,

although it may negotiate these with countries that it is not

negotiating FAs with (like China). It seems that some o these

trading partners, like Canada, are themselves demanding

an investment protection chapter in their FA with the EU,

which probably explains why the Commission decided not

to wait until autumn to present its communication, as it had

announced earlier.

With regard to content, the main concern o the Commission

is to achieve legal certainty and maximum protection or

EU Investors3. Te Commission also said it is not seeking

a detailed template but rather a list o principles which can

be reerred to or each particular negotiation. o this end,

Member States have been invited to make suggestions,

including whether they, or instance, want to include certain

clauses (labour, environment etc.), or want to exclude certain

sectors (culture, agriculture, etc.).

REMAININGISSUES

In the meantime the discussion regarding the definition o

FDI is not solved, meaning the scope o the EUs competenceremains an open question. Regardless, it will be difficult to

maintain that FDI includes portolio investment, which will

thereore probably remain a member state competence. But in

that case, EU BIs including portolio investment would be

mixed agreements (involving competences orm the EU and

the Member States). Such agreements would not only require

a consensus in the Council but also ratification by all Member

States.

Conclusion: the EUs new investment competence will lead

to important and lengthy discussions in and among MemberStates, the Commission and the Parliament. Tese discussions

will not only open up opportunities to call or a new EU

approach but also or a thorough revision o the BIs-practice

o EU Member States.

1 Art.207 o the reaty on the Functioning o the EU (FEU).

2 Note that besides the coming into orce o the Lisbon reaty another important event occurred in 2009 affecting the EU Member States BIs- practice.On 3 March 2009 the European Court o Justice ruled against Sweden, Austria and Finland or their ailure to adapt their BIs to the EU competenceon transer o capita. Te Court ruled that these countries had to renegotiate all their BIs containing non compliant articles. Tis ruling implied thatall other EU Member States having BIs with such articles would have to renegotiate their BIs. Te Commission estimates that about 300 BIs mustbe renegotiated. Te ruling was repeated on 19 November with regard to Finland. See: http://internationallawobserver.eu/2009/03/03/ecj-on-the-duty-o-member-states-to-eliminate-incompatibilities-o-their-BIs-with/ and http://ec.europa.eu/internal_market/capital/ramework/court_en.htm

3 Quoted rom the public part o the highly censored EU document [5667/10 WO 25] : Outcome o proceedings o the rade Policy Committee (FullMembers) meeting on 22 January 2010. http://register.consilium.europa.eu/pd/en/10/st05/st05667.en10.pd
http://internationallawobserver.eu/2009/03/03/ecj-on-the-duty-of-member-states-to-eliminate-incompatibilities-of-their-bits-with/http://internationallawobserver.eu/2009/03/03/ecj-on-the-duty-of-member-states-to-eliminate-incompatibilities-of-their-bits-with/http://ec.europa.eu/internal_market/capital/framework/court_en.htmhttp://ec.europa.eu/internal_market/capital/framework/court_en.htmhttp://register.consilium.europa.eu/pdf/en/10/st05/st05667.en10.pdfhttp://register.consilium.europa.eu/pdf/en/10/st05/st05667.en10.pdfhttp://ec.europa.eu/internal_market/capital/framework/court_en.htmhttp://ec.europa.eu/internal_market/capital/framework/court_en.htmhttp://internationallawobserver.eu/2009/03/03/ecj-on-the-duty-of-member-states-to-eliminate-incompatibilities-of-their-bits-with/http://internationallawobserver.eu/2009/03/03/ecj-on-the-duty-of-member-states-to-eliminate-incompatibilities-of-their-bits-with/


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2. The corporate investment agendaPia Eberhardt, Corporate Europe Observatory (CEO)

Now that the Lisbon reaty is set to enter into orce, the

Commission will have new tools to oster the interests oEuropeans doing business abroad. Te new competences on

investment should be used to improve the capacities or our

companies to invest in a more legally secure environment.

European Services Forum (ESF) in a letter to Commission

President Barroso, November 2009

ransnational corporations and their lobby groups have long

been actively involved in the global crusade or investment

liberalisation and the protection o their property rights

abroad. But or now, Europes corporate lobby still seems to

be analysing the implications o, and establishing its positionon, the EU Commissions new investment powers. However,

past business campaigns on investment, industrys aggressive

agenda in the EUs trade talks and some o the initial corporate

reactions to Brussels new powers are reason enough to be

worried about a renewed push or handcuffing states and

societies through a new corporate investment regime.

FROMTHEMAI TOTHEWTO TOTHEFTAS

In the 1990s coalitions including the International Chamber

o Commerce (ICC) and the European Roundtable oIndustrialists (ER) everishly campaigned or the inamous

Multilateral Agreement on Investment (MAI) in the OECD.

Aer the collapse o the MAI talks, European industry in

particular pushed hard or an investment agreement in the

WO. While this campaign also ailed, business does not

seem to have given up on the idea o a multilateral investment

agreement. Just recently, the American Chamber o Commerce

to the EU stated that the WO should be the orum... to find

common ground on FDI [oreign direct investment]1.

But in recent years, pending a multilateral initiative, corporatelobbying around investment has mainly targeted bilateral

and regional ree trade agreements (FAs). Here, the EU

Commissions trade department works hand in hand with

big business. Long beore FA talks start, DG rade sends

detailed questionnaires to key industry groups asking or their

input and specific interests. During negotiations, high-level

officials have monthly exclusive meetings with lobby groups

like the European employers ederation BusinessEurope,

in which they share sensitive negotiation details and receive

concrete examples o the investment barriers industry wants

them to remove. Big business is also represented in the EUsmarket access teams, working in Brussels and on the ground

in 30 countries outside the EU to identiy and get rid off any

investment regulations that stand in their way.What BusinessEurope and others want rom the FA-

negotiations copies their MAI and WO investment

liberalisation agenda:

the removal of all conditions and regulations for foreigninvestment which could be used to maximise benefits or

host societies. Tese regulations range rom limiting oreign

ownership o European companies to preventing so-called

perormance requirements; including, or example, an

obligation or oreign banks to lend to small and medium

enterprises (SMEs).

equal treatment of all foreign and domestic companies,which prohiBIs governments rom giving special support

to domestic companies or those rom other countries in the

region.

unfettered repatriation of profits from foreign subsidiar-ies, irrespective o any potential balance o payment problems

and the nature o the companies contribution to the host state

economy.

Te investment provisions in the recently concluded FAs with

Korea, Peru and Colombia serve as examples in illustrating how

the EU serves as a willing executioner or these interests. Te

agreement with Peru and Colombia, or instance, guarantees

European investors access to the manuacturing sector in

those countries. In regard to Korea, the FA has liberalised

investment in nearly all service and non-service sectors.

THECORPORATEWISH-LISTFORTHECOMMISSIONSNEW

INVESTMENTPOWERS

Tere is one thing that business does not yet get rom the EUsFAs: legal protection or oreign investment. Until now, the

Commission could negotiate investment liberalisation, but

simply did not have the power to ask or investor protection.

Tis changes under the Lisbon reaty, which grants ull

investment powers to the EU.

While BusinessEurope has seen this as the reatys key trade

policy change, the corporate investment lobby has not yet

declared its hand. However, a number o key corporate

interests are emerging in the debate.

o start with, industry craves legal security or the 1,700 or soBIs o EU Member States. EU members have lost their power


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to negotiate and implement these deals meaning that, at the

moment, any arbitration panel could question their legality,

which BusinessEurope warns would leave the EU company

concerned with no legal deence o its rights2. No wonder

corporate lobby groups want to see current BIs integrated

into EU law ideally without prior time-consuming

examinations as the German government demanded, echoingGerman business demands3. Such an examination could raise

uncomortable questions about the lack o environmental

and labour clauses in BIs and their built-in investor-to-state

dispute settlement.

But European business wants more than just to secure the

status quo, as legalising existing BIs will be o little benefit

to corporations rom EU countries which only have a ew o

these treaties. And it will take too long until a ully fledged

EU level investment policy will fill that vacuum. So industry

wants to see legislation introduced that not only grandathersexisting treaties, but also enables Member States to update

them and negotiate new ones4.

And what is the corporate vision or the uture EU-level

investment policy? European business wants treaties that

provide at least as many investment rights as currently

provided by member state BIs5. Tis includes the above

mentioned corporate shopping list o one-sided investment

liberalisation plus investor protection, particularly against

expropriation, as well as investor-to-state on top o state-to-

state dispute settlement.Whether these elements should make up a model EU BI or

simply guide case-by-case negotiations with third countries

seems to be a contentious issue within the business community.

Te German industry ederation (BDI) in particular is

engaged in a campaign or a model treaty based on the tough

German standard enshrined in the countrys existing 120

plus BIs6(see article xxsee chapter 3). o back this agenda,

the BDI together with the German government conducted a

study o German firms experience with BIs. It praises the

current system, warns o the danger o weaker standards andreduced attention to corporate needs as possible consequences

o Brussels new powers, and calls or joint action rom the

German government and industry to ensure German style

investor protection at the EU level7.

BusinessEurope, on the other hand, argues against a model

investment treaty and wants to see a more flexible approach,

addressing specific corporate concerns on a country-by-

country basis8. Tis seems to be in line with the Commission,

which has already stated its reluctance to go or an investment

template. But the Commission has assured industry thatmaintaining current BIs as avourable standards will be one

o its mantras9.

Most likely, the EU will start to apply these standards to

large markets, either in stand alone investment treaties or

in investment chapters o FAs. I BusinessEurope has its

way, Russia and India will be test cases10 in which the rights

o European companies will be strengthened and the space

o governments and societies limited through Europes new

corporate investment regime. Tey will definitely have enough

opportunities in meetings with the Commission to put theirpoints across, but civil society and a hopeully watchul

European Parliament will be ollowing them closely.

1 AmCham, EU Position Statement on Investment, 25 September, 2009. http://www.amchameu.eu/Documents/DMXHome/tabid/165/Deault.aspx?Command=Core_Download&EntryId=4548

2 BusinessEurope Inormation Note: Foreign Direct Investment under the Lisbon reaty, 12 January 2010. http://www.spcr.cz/files/bjakubcova/

inormation_note_FDI_Lisbon_reaty.doc3 BmWi Pressemitteilung, Bundeswirtschasminister Brderle tri EU-Handelskommissar De Gucht, 15 April 2010. http://www.bmwi.de/BMWi/Navigation/Presse/pressemitteilungen,did=338628.html?view=renderPrint

4 Interview with Pascal Kerneis, Managing Director o the European Services Forum, Brussels, 25 March 2010.

5 BusinessEurope Note: Te Lisbon reaty and EU External rade Policy, 26 November 2009, http://www.ierc.bia-bg.com/language/en/uploads/files/news__0/news__30757785447e374762be51ed5de97ae.doc.

6 Adrian van den Hoven, Director o BusinessEuropes International Relations department, interview, Brussels, 31 March 2010. He stated, Germanyhas like 200 BIs. Tey are the ones who push the model, because this German model is all encompassing, no flexibility.

7 BMWi/BDI/PriceWaterhouseCoopers (2010): Unternehmensberagung zum Tema: Investitionsschutz nach Lissabon. http://www.agaportal.de/pd/dia_uf/presse/dia_unternehmensberagung_lissabon.pd

8 Interview with Adrian van den Hoven, 31 March 2010.

9 Email rom DG rades Lucas Lenchant to DG rade colleagues containing a report about a meeting with BusinessEurope on the Lisbon reaty, 26

November 2009, dated 1 December 2009. Obtained through access to documents requests under the inormation disclosure regulation.10 European Commission, Report rom the meeting with BusinessEurope on investment 06/01/2010, dated 8 January 2010. Obtained through accessto documents requested under the inormation disclosure regulation.
http://www.spcr.cz/files/bjakubcova/information_note_FDI_Lisbon_Treaty.dochttp://www.spcr.cz/files/bjakubcova/information_note_FDI_Lisbon_Treaty.dochttp://www.bmwi.de/BMWi/Navigation/Presse/pressemitteilungen,did=338628.html?view=renderPrinthttp://www.bmwi.de/BMWi/Navigation/Presse/pressemitteilungen,did=338628.html?view=renderPrinthttp://www.ierc.bia-bg.com/language/en/uploads/files/news__0/news__f30757785447e374762be51ed5de97ae.dochttp://www.ierc.bia-bg.com/language/en/uploads/files/news__0/news__f30757785447e374762be51ed5de97ae.dochttp://www.agaportal.de/pdf/dia_ufk/presse/dia_unternehmensbefragung_lissabon.pdfhttp://www.agaportal.de/pdf/dia_ufk/presse/dia_unternehmensbefragung_lissabon.pdfhttp://www.agaportal.de/pdf/dia_ufk/presse/dia_unternehmensbefragung_lissabon.pdfhttp://www.agaportal.de/pdf/dia_ufk/presse/dia_unternehmensbefragung_lissabon.pdfhttp://www.ierc.bia-bg.com/language/en/uploads/files/news__0/news__f30757785447e374762be51ed5de97ae.dochttp://www.ierc.bia-bg.com/language/en/uploads/files/news__0/news__f30757785447e374762be51ed5de97ae.dochttp://www.bmwi.de/BMWi/Navigation/Presse/pressemitteilungen,did=338628.html?view=renderPrinthttp://www.bmwi.de/BMWi/Navigation/Presse/pressemitteilungen,did=338628.html?view=renderPrinthttp://www.spcr.cz/files/bjakubcova/information_note_FDI_Lisbon_Treaty.dochttp://www.spcr.cz/files/bjakubcova/information_note_FDI_Lisbon_Treaty.doc


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3. European investment policies: 20 years constructing

an architecture of protection for TNCsCecilia Olivet, NI

In 1988, with the launching o the EC-International Invest-

ment Partners (EC-IIP), the European Commission (EC) be-

gan promoting European investment in developing countries,

particularly Latin America, Asia and the Mediterranean, by

financing the expansion o joint ventures with businesses

operating in the regions.1Tese initial efforts were ollowed,

progressively over the years, by more aggressive strategies and

policy instruments designed to, on the one hand, promote

the rise o European multinational corporations and, on the

other, create a political, economic and juridical architecture

based on the norms and regulations o, among others, theWorld rade Organisation (WO), Free rade Agreements

(FAs), Bilateral Investment reaties (BIs), the Internatio-

nal Monetary Fund (IMF), and the World Bank (WB), which

constitute the core elements o the Lex Mercatoria. Tis juri-

dical ramework would allow European ransnational Cor-

porations (NCs) to penetrate key sectors o the economy in

developing countries and simultaneously to operate under

an architecture o impunity2. Revisiting some o these early

documents is instructive; then, in contrast with today, the EC

was more rank in describing their objectives and did not eel

obliged to disguise their aims with development language.

In 1995, the EC released a communication titled, A Level

Playing Field or Direct Investment World-Wide,in which they

raised concerns that Bilateral Investment reaties (BIs) and

Regional rade Agreements (such as NAFA) were creating

a non-transparent and discriminatory regime or European

investment. Tey described what they called the principal

rules o the game, which included: ree access or investors

and investments, national treatment or investors and their

investments and accompanying measures to uphold andenorce commitments made to oreign investors3. However, in

a clear display o double standards, the same Communication

noted, In any case, it is in the Communitys interest to retain

under any international agreement on investment the right to

advance its regional integration without necessarily being orced

to extend de jure such mutual liberalisation measures to third

countries4.

Tey go on to identiy two spaces where efforts could be

concentrated to advance a multilateral ramework or

investment protection: the World rade Organisation (WO)and the OECD, based on their proposal or a Multilateral

Agreement on Investment (MAI)5, adding that a parallel

strategy should aim or the conclusion o bilateral EC-third

country investment treaties6. Te essential eatures o the

EC proposal were expressed in a comment by Sir Leon

Brittan, then Commissioner or external economic relations:

Investment should be the next great boost to the world economy,

ollowing the powerul impulse given by the removal o trade

barriers in the Uruguay Round. o make this a reality we

need to tear down existing obstacles to investment and stop

new hurdles being thrown up in its way. Nothing short o a

comprehensive set o binding international rules will open up

areas or investment which are currently closed and create alevel playing field or international investors, which is so vital

or the European economy7.Tis influential Communication

set the stage or the uture o EUs strategy towards investment

liberalisation.

Between 1995 and 2003, the European Union, with the

EC an active member o the WO Working Group on the

Relationship between rade and Investment, put all its weight

behind the proposal to include investment as part o the

WO Doha Development Agenda8. Over those nine years,

the European Union ought hard to convince WO members

to agree to a multilateral investment ramework that would

assure investors rights and not allow discriminatory measures

against oreign capital. Te key line o argument presented by

the Commission against states having the right to discriminate

was that they, remain unconvinced o the benefits to the general

good, as opposed to private interests9 Furthermore, the EC

stated we do not see the reason or additional, discriminatory

regulation on FDI. Any given policy on investment should be

applied to all investors, domestic and oreign10.

However, developing countries were also part o this WO

working group, and they had expressed concerns that

multilateral rules o investment would curtail developing

countries required flexibility to regulate oreign direct

investment and NCs operations. Tey also argued that FDI

can produce negative effects on the host countrys economy

and that there is no guarantee that multilateral rules on

investment would enhance investment flows.

Te arguments presented by the EC - that FDI is key to

promoting development, as well as economic and socialgrowth did not prove convincing and the idea o including

investment rules under the WO was dropped in 2003. Te


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opinion o the EC did not match the evidence that an investment

ramework based on investors rights without obligations does

not contribute to development. Furthermore, their arguments

ignore the act that governments should have the flexibility

to discriminate between investors in order to regulate in the

public interest. Tis is how Western European countries, or

example, developed; under restrictions o investors rights andtight capital control.

Aer the MAI was deeated (1998) and investment issues

were thrown out o the WO agenda by developing countries

(2003), the European Union continued to pursue its objectives

through a third channel: bilateral investment treaties. Between

2000 and 2010, the European Union Member States signed

hundreds o BIs, all containing the same type o provisions

that the EC could not enorce through multilateral means.

While the EC has consistently pursued a binding investorprotection ramework, when it comes to investors obligations

the EC suggests corporations will voluntarily take their

responsibilities as good corporate citizensand that a voluntary

code o conduct is sufficient.11 Te double standards are

another proo that at the heart o these proposals lies the

interest o European business.12

With the entry into orce o the Lisbon reaty, the European

Commission acquired its long awaited ull competences

to negotiate comprehensive investment protection and

liberalisation measures with third countries. In line with thesechanges, the EU is developing a new EU investment policy,

which will be the basis or negotiations o uture EU BIs

and investment chapters in EU FAs. It is expected that an

EU model investment agreement, whatever orm it eventually

comes to take, will be as ar reaching (i not more) in terms o

investment protection as the current EU members states BIs.

It is also expected that, at the same time, the EC will continue

to promote a voluntary code o conduct or its own NCs and

avoid creating any type o compulsory regulations relating to

investor obligations.

wenty years ago, when the EC first developed its investment

strategy, there was widespread belie, with little room or

dissenting voices, in two key assumptions: a) to sign to a

regulatory ramework that protects corporations is a condition

sine qua non or a country to receive oreign investment; and

b) investment flows are the answer to oster development, job

creation and technology transer. However, today, there is

significant evidence that corporations are still willing to invest

in countries run by governments that demand obligations

rom NCs; e.g. aer the re-nationalisation o the natural gas

industry in Bolivia in 2006, Repsol and otal (among others)

decided to remain in Bolivia and to accept an increased

government share o revenues as well as new conditions in the

contract.Finally, FDI, under a ramework o deregulation and

protection or NCs, has not contributed to development and

decent job creation.

Reviewing the ECs demands and ambitions or investment

liberalisation and investor protection over the past 20

years, we see that the Commission has been, and continues,

dogmatically promoting the same rules with the same

arguments; always in spite o the strong evidence available

that significantly undermines their undamental assertions

regarding the nature o oreign direct investment and NCs.

It is no longer believable that companies will behave as good

corporate citizens without any binding regulation, or that

development in third world countries is not dependent on

governments capacities to maintain policy space that allows

them to deend their peoples interests and basic needs. Neither

is it credible that corporations can be trusted to replace therole o the government on certain key areas related to basic

public services and human rights such as health, education,

energy, telecommunications, among others. Moreover, it

can not be reasonably maintained that BIs have not harmed

third world countries development. Especially considering the

enormous damage caused by corporations taking governments

to international tribunals such as ICSID, particularly ollowing

the economic crisis, as governments sought to use policy to

alleviate recession and encourage domestic growth.

Te current situation presents a real challenge or socialmovements, civil society and progressive orces in Europe and

the rest o the world. Tere is now an opportunity to try to

influence the debate on how the new EU investment policy

and uture investment agreement will look. However, it is

important to recognise that the European Commission are

ully aware o whom they represent and the consequences

o the EU demands on third countries. Many observers have

already pointed out that what is lacking is not evidence, but

political will. One thing is clear, the correlation o power

is in avour o NCs13. Will their power still prevail in the

renewed EU investment ramework? Inverting the prevalent

logic in order to give priority to the rights o the majority, by

promoting mechanisms to control multinationals activities,

remains the challenge or social movements and civil society

campaigns across Europe and the Global South.


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1 Commission o the European Communities (1991) EC-International Investment Partners Facility or Latin America, Asia, and the Mediterraneanregion. COM (90) 575 final, 7 March Available online athttp://aei.pitt.edu/4933/01/003167_1.pd

2 Permanent Peoples ribunal (2010) Veredict o the Session Te European Union and ransnational Corporations in Latin America: policies,instruments and actors complicit in the violations o peoples rights, Madrid 14-15 May. http://www.enlazandoalternativas.org/IMG/pd/PP_MADRID_2010_ES.pd

3 Commission o the European Communities (1995) A Level Playing Field or Direct Investment World-Wide. Communication rom the Commission.COM (95) 42 final, 1 March. Available online at: http://aei.pitt.edu/6195/01/003345_1.pd

4 ibid

5 Te Multilateral Agreement on Investment (MAI) was draed by members o the OECD between 19951998. A strong campaign by civil societygroups and the criticism o developing countries led to Frances announcement in October 1998 that it would not support the agreement, effectivelykilling the proposal.

6 Commission rom the European Communities, 1995

7 Brittan, Leon (1996) Investment liberalisation: a new issue or WO Cologne, 11 June - SPEECH/96/154 Available online athttp://europa.eu/rapid/pressReleasesAction.do?reerence=SPEECH/96/154&ormat=HML&aged=1&language=EN&guiLanguage=en

8 Investment was together with competition policy, government procurement and trade acilitation one o the so-called Singapore issues thatdeveloping countries, supported by civil society, stopped rom being included under WO negotiations during the 2003 WO Cancun MinisterialConerence. For a details analysis, see: Khor, Martin (2004) Te Singapore Issues in the WO: Implications and Recent Developments, Tird WorldNetwork. Available online at: http://www.policyinnovations.org/ideas/policy_library/data/01284/_res/id=sa_File1/

9 WO - World rade Organisation (2000b) Communication rom the European Community and its Member States, W/WGI/W/89, October.Available online at: http://docsonline.wto.org/DDFDocuments/t/W/WGI/W89.doc

10 WO - World rade Organisation (2000) Communication rom the European Community and its Member States, W/WGI/W/84, June.Available online at: http://docsonline.wto.org/DDFDocuments/t/W/WGI/W84.doc

11 WO, 2000: 6

12 An example o the influence exerted by business interest groups on the draing o the EUs investment strategy can be ound at a leaked document,prepared by DG1 (External Relations: Commercial Policy and Relations with North America, the Far East, Australia and New Zealand) o the EuropeanCommission or a meeting o the EU Councils Article 113 Committee in December 1998, published by Corporate Europe Observatory. Tis documentreveals not only the mindset o the Commission but also the substantial influence o business interest groups on the draing o this strategy (seeEuropean Commission (1998) WO New Round: rade and Investment, Discussion Paper, (I/M/2) 15th December. Available online at: http://archive.corporateeurope.org/mai/eu/113invest.html

13 Wahl, Asbjorn (2002) Labour and investment, in Investment and competition negotiations in the WO Whats wrong with it and what arethe alternatives?, Seattle to Brussels. Available online at: http://www.s2bnetwork.org/s2bnetwork/download/S2B-InvestmentWO-Brochurefinal.pd?id=31
http://aei.pitt.edu/4933/01/003167_1.pdfhttp://www.enlazandoalternativas.org/IMG/pdf/TPP_MADRID_2010_ES.pdfhttp://www.enlazandoalternativas.org/IMG/pdf/TPP_MADRID_2010_ES.pdfhttp://aei.pitt.edu/6195/01/003345_1.pdfhttp://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/96/154&format=HTML&aged=1&language=EN&guiLanguage=enhttp://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/96/154&format=HTML&aged=1&language=EN&guiLanguage=enhttp://www.policyinnovations.org/ideas/policy_library/data/01284/_res/id=sa_File1/http://docsonline.wto.org/DDFDocuments/t/WT/WGTI/W89.dochttp://docsonline.wto.org/DDFDocuments/t/WT/WGTI/W84.dochttp://www.s2bnetwork.org/s2bnetwork/download/S2B-InvestmentWTO-Brochurefinal.pdf?id=31http://www.s2bnetwork.org/s2bnetwork/download/S2B-InvestmentWTO-Brochurefinal.pdf?id=31http://www.s2bnetwork.org/s2bnetwork/download/S2B-InvestmentWTO-Brochurefinal.pdf?id=31http://www.s2bnetwork.org/s2bnetwork/download/S2B-InvestmentWTO-Brochurefinal.pdf?id=31http://docsonline.wto.org/DDFDocuments/t/WT/WGTI/W84.dochttp://docsonline.wto.org/DDFDocuments/t/WT/WGTI/W89.dochttp://www.policyinnovations.org/ideas/policy_library/data/01284/_res/id=sa_File1/http://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/96/154&format=HTML&aged=1&language=EN&guiLanguage=enhttp://europa.eu/rapid/pressReleasesAction.do?reference=SPEECH/96/154&format=HTML&aged=1&language=EN&guiLanguage=enhttp://aei.pitt.edu/6195/01/003345_1.pdfhttp://www.enlazandoalternativas.org/IMG/pdf/TPP_MADRID_2010_ES.pdfhttp://www.enlazandoalternativas.org/IMG/pdf/TPP_MADRID_2010_ES.pdfhttp://aei.pitt.edu/4933/01/003167_1.pdf


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4. Pre-Lisbon external investment policy of the EURoos Van Os, SOMO

INTRODUCTION

From its outset, the Common Commercial Policy (CCP) has

been a crucial aspect o the European Economic Community,

granting exclusive competence to the EU on trade matters.

However, prior to the Lisbon reaty, this competence did not

include oreign direct investment (FDI), and when it did the

EU ocussed on issues o market access and liberalization (i.e.

opening markets or European direct investors) and not on the

protection o oreign investment.

FORMERJUDICIALBASEOFTHEEU WITHREGARD

TOFOREIGNINVESTMENT

Te ormer EC reaty did not contain an explicit legal oun-

dation that enabled the EC to initiate action on oreign in-

vestment. Beore the entry into orce o the Lisbon reaty,

the competence on FDI had been mixed; liberalisation and

protection were divided up between the EC and its Member

States. wo layers o rules with regard to FDI co-existed.1First,

Member States had concluded numerous bilateral investment

treaties (BIs). Tese treaties conventionally apply to the pro-tection o established investments against expropriation and

discrimination, with enorcement mechanisms through State-

to-State and Investor-to-State arbitration, but do not contain

provisions on market access. Second, the trade agreements

o the EU with third countries ocused on market access and

non-discrimination or committed investments, with enorce-

ment mechanisms through a State-to-State dispute settlement

mechanism that applied to the whole agreement.

Tis dual EC approach stemmed rom articles and provisions

in the ormer EC reaty such as Article 56 EC on capital move-

ments and provisions on the reedom o establishment and

the CCP, which grant arguably some competence to the EC

with regard to the entry and operation o oreign investment.2

Leal-Arcas argues that the undefined scope o provisions on

harmonizing the internal market could provide the EC with

the mandate to regulate protection o oreign investment rom

expropriation. Furthermore, articles on development coop-

eration could add another legal basis or inserting investment

promotion provisions into international agreements, with an

investment component, concluded by the EC.3

Member States(MS) had several times rejected proposals o the Commission

to widen EU competence regarding the expansion o the CCP

to FDI at the international conerences in Maastricht and Am-sterdam.4Te internal strie between the MS and the EC re-

sulted in proceedings against individual Member States who

concluded BIs that were incompatible with the EC reaty.5

GLOBALEUROPEANDTHEMINIMUMPLATFORMONINVESTMENT

In 2006, the European Commission published its Communi-

cation Global Europe: Competing in the World. Global Eu-

rope emphasized the need to pursue a ar-reaching liberaliza-

tion o services and investment6.Te European Commission

explicitly stated that it aims or WO-plus commitments in

FAs, by going urther and aster in promoting openness and

integration, by tackling issues which are not ready or multilat-

eral discussion and by preparing the ground or the next level

o multilateral liberalisation. Many key issues, including invest-

ment, public procurement, competition, other regulatory issues

and IPR enorcement, which remain outside the WO at this

time can be addressed through FAs.7

Following the ECs unsuccessul search, overall several years,

to upgrade its external investment mandate, it began to lookor alternative ways to include oreign investment provisions

in negotiations. Te European Commission observed in 2006:

In comparison to NAFA countries` agreements EU agree-

ments and achievements in the area o investment lag behind

because o their narrow content. As a result, European Inves-

tors are discriminated vis--vis their oreign competitors and the

EU is loosing market shares.8In November that same year, the

Council adopted the Minimum Platorm on Investment or

EU FAs, a template or uture investment FA negotiations.

It placed emphasis on services and investment liberalization

within the context o the Global Europe strategy. Te Mini-

mum Platorm is used as a basis or negotiations on trade in

services and establishment (i.e. investment) in practically all

EU FAs,9with the objective o strengthening EC enterprises

access to oreign markets. Te negotiating mandates author-

ising the Commission to negotiate with third parties contain

clear reerences to the Platorm reflected in, amongst others,

theEU Cariorum European Partnership Agreement (EPA),

the EU-Korea FA and the negotiating mandate o the agree-

ment between the EU and India.10Without discussing all pro-

visions o the mandate, some illustrative elements are pointedout in the ollowing section, especially ocusing on the EU-

Cariorum EPA.11


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CONTENTOFINVESTMENTPROVISIONSINTRADEAGREEMENTS

National reatment indicates that the oreign investor must

be given rights to be treated no less avourably than local in-

vestors. Te national treatment provision in the Minimum

Platorm ollows GAS Article XVII, applying to pre as well

as post-establishment. However, instead o reerring to ser-vice suppliers, it reers to investors and, instead o reerring to

measures affecting the supply o a service, it reers to measures

affecting establishment. In this way the commission expands

its negotiating competence or mode 3 (commercial presence)

services delivery to cover establishment in all sectors.12Te

EPA Cariorum investment discipline resembles this compo-

nent rom the Minimum Platorm (see article 68),13while the

EU-Korea agreement ollows the GAS discipline.14

Another significant element in the template was the proposal

or a Most-Favored-Nation (MFN) clause or services cover-ing establishment provisions.15Te rationale behind this pro-

posal is to ensure investors rom the EU are offered the same

terms as any preerred partner. Looking at the India-EU and

the Asean-EU negotiating mandate, the Commission seems to

mirror the Minimum Platorm mandate on the MFN clause

quite closely, with no exception or regional economic integra-

tion agreements.16In the Cariorum EPA, however, the EC has

made a concession on this point. Article 70 provides a MFN

clause or services and investment. With respect to measures

affecting commercial presence, Cariorum states shall accord

to EU investors and commercial presences MFN treatment,

i.e. similar to that given to any major trading economy.17Tis

means that when a Cariorum country signs an agreement

with a major (developing) country, all the terms o the EPA

apply to the EU.

Tird, on non-trade concerns, the Minimum Platorm in-

cludes a non-lowering o standards clause to be included in

the preamble, thereby alling outside the scope o the dispute

settlement mechanism. As an example, chapter 13 o the FA

with Korea deals with labour rights and the environment, theKorea-EU FA calls or both parties to enorce their laws and

to not weaken them to encourage trade and investment, how-

ever, there provisions are not covered by the agreements dis-

pute settlement mechanism. Non-rade Concerns appear to

orm a huge obstacle in the EU-India FA negotiations, where

the EU insists on including them in the agreement and India,

reused to go ahead with the negotiations i such clauses are

made part o the agreement. In the Cariorum EPA, Article72 deals with investors behaviour. It includes obligations on

the signing parties to take necessary measures to ensure that

investors:

do not make use o bribes or other kinds o corruption;

act in compliance with the core labour standards the parties

have ratified;

do not circumvent international environmental or labour

agreements o which the parties are members;

and establish and maintain, where appropriate, local commu-

nity liaison processes.18

Furthermore Article 73 states that that the parties shall ensure

that oreign direct investment is not encouraged by lowering

domestic environmental, labour or occupational health and

saety legislation standards, or by relaxing core labour stand-

ards or laws aimed at protecting and promoting cultural diver-

sity. Te provisions o Articles 72 and 73 are subject to dispute

settlement, which is very rare in EU FAs.

CONCLUDINGREMARKS

Te Pre-Lisbon situation, with regard to external investment

rules and practices within the EU, has shown a movement

rom a clear absence o any explicit legal mandate on FDI, to

FDI slowly moving into negotiations with external partners.

Tis trend has been motivated by considerations o competi-

tiveness and ear o losing market share mainly to US inves-

tors. In general, it appears the EC was, beore it was officiallymandated to act on FDI, anticipating a uture in Lisbon terms.

1 European Commission, 2006,IssuesPaper: Upgrading the EU Investment Policy. 268/06, Brussels. http://www.iisd.org/pd/2006/tas_upgrading_eu.pd

2 Raael, L.A., 2009 , owards the Multilateralization o International Investment Law, Te Journal o World Investment and rade, Vol. 10, issue 6, p. 865-919.

3 ibid

4 Burgstaller, M., June 2009, Vertical Allocation o Competences or Investment reaties, EU, AIELN Inaugural Conerence. http://aieln1.web.c2.com/

Burgstaller_panel3.pd5 Brugge, G.S., 2010, Te Global Europe Services and Investment Agenda: Bringing Politics Back Into the Study o EU rade Policy Investment provisionsin current EU FAs, Paper presented at the EU in International Affairs Conerence, Brussels, 22-24 April
http://www.iisd.org/pdf/2006/tas_upgrading_eu.pdfhttp://aieln1.web.fc2.com/Burgstaller_panel3.pdfhttp://aieln1.web.fc2.com/Burgstaller_panel3.pdfhttp://aieln1.web.fc2.com/Burgstaller_panel3.pdfhttp://aieln1.web.fc2.com/Burgstaller_panel3.pdfhttp://www.iisd.org/pdf/2006/tas_upgrading_eu.pdf


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6 European Commission, Competing in the World, 2006 External rade Communications. http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pd

7 ibid

8 EC, Minimum platorm on investment or EU FAs Provisions on establishment in template or a itle on Establishment, trade in services ande-commerce. European Commission 38/06. http://www.iisd.org/pd/2006/itn_ecom.pd

9 See DG rade issues note dated 31 May 2006: Upgrading the EU policy and Global Europe competitiveness strategy. http://register.consilium.europa.eu/pd/r/10/st06/st06456.r10.pd

10 Ibid and Brugge, G.S., 2010

11 Bungenberg, M., 2008, Centralizing European BI Making under the Lisbon reaty, Paper (dra version) to be presented at the 2008 Biennial InterestGroup Conerence in Washington, D.C., November 13 15. http://www.asil.org/files/ielconerencepapers/bungenberg.pd

12 European Commission, 2006

13 Economic Partnership Agreement between the CARIFORUM States and the EU, Dec. 17, 2007. http://trade.ec.europa.eu/doclib/docs/2008/ebruary/tradoc_137971.pd.

14 FA between Korea and EU, CHAPER SEVEN RADE IN SERVICES, ESABLISHMEN AND ELECRONIC COMMERCE. http://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145166.pd

15 Te text reads With respect to any matters affecting establishmentshall accord to the Communitys establishments and investors a treatment no lessavourable than that they may accord to any third country with whom they conclude an economic integration agreement afer the signature o this Agreement.

16 Brugge, G.S., 2010

17 Economic Partnership Agreement Between the CARIFORUM States and the EU

18 ibid
http://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pdfhttp://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pdfhttp://www.iisd.org/pdf/2006/itn_ecom.pdfhttp://register.consilium.europa.eu/pdf/fr/10/st06/st06456.fr10.pdfhttp://register.consilium.europa.eu/pdf/fr/10/st06/st06456.fr10.pdfhttp://www.asil.org/files/ielconferencepapers/bungenberg.pdfhttp://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137971.pdfhttp://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137971.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145166.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145166.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145166.pdfhttp://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145166.pdfhttp://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137971.pdfhttp://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137971.pdfhttp://www.asil.org/files/ielconferencepapers/bungenberg.pdfhttp://register.consilium.europa.eu/pdf/fr/10/st06/st06456.fr10.pdfhttp://register.consilium.europa.eu/pdf/fr/10/st06/st06456.fr10.pdfhttp://www.iisd.org/pdf/2006/itn_ecom.pdfhttp://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pdfhttp://trade.ec.europa.eu/doclib/docs/2006/october/tradoc_130376.pdf


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5. Future forms of EU investment competenceThe German model BIT as a minimum level of protectionRoss Eventon, NI

GOALSOFTHEBUSINESSCOMMUNITY

A recent BusinessEurope inormation note stated,

[Te EU should seek to] maintain an equally high level o pro-tection o investors: In line with the objective o maintaining le-gal certainty, the EU can be expected to pursue as high a levelo protection or investors as Member States have done to datethrough BIs. Tis would mean that the EU would try to emu-late the rights provided to investors ound in existing MemberState BIs in its uture treaties.1

Te statement suggests the business community aims to ob-tain, at the very least, a level o investor protection equal totheir current BI ramework. We can assume that BI agree-ments offering the highest level o investor protection willbe considered the most desirable as a baseline or any utureEU competence mechanism. Germany, the most economi-cally powerul nation in Europe, has pushed or an EU ModelBI text to be created, based on its current model treaty. TeGerman Model BI, created in 2005, updated in 2009, andrarely varying rom the final signed agreement, grants exten-sive rights to investors and provides a guide to the baseline

o investor protection desired by business and lobby groups.Notably, many EU states, including large capital exporters likethe UK, have similar provisions in their existing treaties.2

THEGERMANMODELBIT3

A number o aspects o the German model can be briefly out-lined here:

-Te preamble has barely altered since Germany signed thefirst ever BI with Pakistan in 1959. Te introductory text

erroneously assumes a strong correlation between the signingo a BI and FDI, and there isno ocus on the need to attractquality FDI to support sustainable development.

-Te agreement contains an obligation or international arbi-tration allowing private oreign investors to bypass domesticcourts to sue governments directly in opaque internationaltribunals.

- As is common amongst EU and North American BIs, thetext uses a very broad definition o investment, includingclaims to any perormance that have an economic valueandclaims to money or any perormance having an economic val-ue. Te latter could cover a variety o commercial contractsand transactions not commonly associated with FDI.

- Te BI covers Intellectual Property Rights (IPR) per se,without requiring those Intellectual Property Rights to be con-nected to an investment operating in the host state. Also cov-ered are intangible rights such as good will and know-how.

- Te Umbrella Clause broadens the scope o the treaty to in-clude other private commercial contracts, taking arbitrationout o hands o the domestic state even in the case whereseparate agreements state domestic methods should be used.

- Te National reatment and Most Favoured Nation provi-

sions restrict states rom taking measures to enhance localproduction or enterprise or ear o breaking this provision.Tere are no exceptions allowed or national treatment stan-dards,where the state may be attempting, or example, to de-velop local industry or empower marginalised groups.

Assessing the individual articles o this agreement rom a de-velopment perspective, the International Institute or Sustain-able Development (IISD) ound a range o problems with theGerman model:

Te German Model reaty and German BIs have negative im-plications or host state governments, insoar as they restrict theability o developing state governments to take policy measuresdesigned to promote development objectives.

Tey go on to note, some o the international law obligationsagreed by developing states under the German BI program canin act impact negatively on their sustainable development as-pirations. Tereore the German BI Model, considering thestated commitments o the EU, does not constitute a suitablebaseline o parameters or any uture mechanism.


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1 Business Europe Inormation Note, Foreign Direct Investment Under the Lisbon reaty,12 Jan 2010

2 German and UK BI agreements with the Pacific Island states, or example, show consistent themes even though they cut across civil and commonlaw legal systems...and different time spans.See Malik, M., April 2006, Report on Bilateral Investment reaties between European Union Member Statesand Pacific Countries. Te report concludes Te Pacific-EU [UK and Germany] BIs reflect the same situation common to other regions,they containbroad definitions and scope or uncertainty which makes it more difficult or states to take measures or the public good as they risk being in breach otheir obligations under a BI and thereore attracting claims or compensation by investors. Tey also containew exceptions that allow states to takemeasures to serve their development needs.

3 Te ollowing is a summary o Malik, M., Nov 2006, ime or a Change: Germanys Bilateral Investment reaty Programme and Development Policy,Dialogue on Globalization, Occasional Papers, No.27. Te IISD analysis concerns the original 2005 Model BI, which has since been superseded by a2009 Model. Te provisions discussed here, however, remain in the updated version.


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Section 2 Whats wrong with the current investment regime?


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6. BITs, FDI and DevelopmentMyriam Vander Stichele, SOMO

Ross Eventon, NI

DOBILATERALINVESTMENTTREATIESATTRACTFDI?

Te effect o ratiying a BI on the allocation o oreign direct

investment is a relatively neglected area o study. Where the

relationship has been examined, the evidence suggests BIs

have a negligible effect on FDI. A 1998 UNCAD analysis

ound a weak correlation between the signing o BIs and

changes in FDI flows.1A more thorough World Bank report

in 20032, which empirically tested whether BIs have had

an important role in increasing the FDI flows to signatorycountries over the period 1980 to 2000, ound, such

treaties act more as complements than as substitutes or good

institutional quality and local property rights. Te World Bank

report particularly highlights recent high profile legal cases,

which demonstrate that the rights given to oreign investors

not only exceed those enjoyed by domestic investors, but expose

policy makers to potentially large scale liabilities and curtail the

easibility o different reorm options.

Over a twenty year period o analysis, the report ound little

evidence that BIs stimulated investment. Te empiricalevidence especially highlighted how countries with weak

domestic institutions had not received significant benefits

ollowing the signing o a BI. Rather, countries with strong

domestic institutions had the most to gain, with the BI acting

as a complement to, as oppose to a substitute or, broader

domestic reorm. Consequently, those that are benefiting rom

them are arguably the least in need o a BI to signal the quality

o their property rights.

Despite the BI granting rights to investors rom both

countries, in practice there is usually tremendous asymmetryas almost all the FDI flows covered by BIs are in act in one

direction.In those cases where FDI did flow in both directions,

they noted a reluctance to sign BIs; while OECD governments

are keen to secure such rights or their companies overseas, they

balk at granting such rights to MNCs within their own borders.

Tis is seen most clearly in the number o countries with

substantial FDI who do not hold BI agreements. Japan, the

second largest source o FDI in the world, has only 4 BIs.

Te US does not hold a BI with China, despite the latter

being the largest developing country destination or US FDI.Brazil, a receiver o substantial FDI, does not hold any ratified

BI agreements. Similarly, numerous countries that have

ratified BI agreements are having difficulties attracting FDI,

particularly sub-saharan Arica. In the case o Cuba, 60% o

the countries with which they hold a BI have no oreign

investments in the country. Recognising the significance o

these trends, the report concludes, a BI is not a necessary

condition to receive FDI.

ISFOREIGNINVESTMENTGOODFORDEVELOPMENT?

Te impact o oreign direct investment (FDI) on development

is a much debated topic. Whilst International Financial

Institutions, such as the World Bank and the IMF, as well as

the OECD and its Member States, have increasingly promoted

FDI, many NGOs, labour unions and civil society groups have

emphasised the negative effects - illustrated by case studies

documenting human rights violations, harmul environmental

practices, and tax evasion by ransnational Companies

(NCs) in developing countries.

Most o the investment promotion mechanisms, investmentriendly regulations or treaties that countries enter in to are

based on the assumption that oreign investors need to be

attracted through measures that protect them or provide them

with financial benefits. Very ew to no instruments or criteria

have been built into any such instruments to assess their impact

on economic and social development, the environment, and

the welare o the stakeholders - such as the labour conditions

o the workers.

Despite the pursuance o these policies, and their being

advocated by the International Financial Institutions, thehistorical evidence suggests FDI needs to be extensively

managed by the host nation in order to encourage a developed

domestic economy. South Korea and aiwan are considered

success stories o industrial development in the post World

War wo period. In less than thirty years, both countries

managed to increase their per-capita income rom a level

similar to Ghana and Nigeria in 1960 to a level on a par with

Spain and Portugal today. Teir experiences with FDI, and

how it contributed to economic growth, thereore provide

important lessons or todays developing economies. Both

countries used extensive controls on oreign investment interms o ownership, entry and perormance requirements,


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as well as tax incentives to promote spillovers rom FDI. Te

Korean government, or example, actively encouraged joint

ventures with oreign companies to promote the transer

o technology and management skills, and screened FDI to

ensure that the right kind o technology was acquired and the

royalties charged were not too excessive. In aiwan, investment

approvals were only given on the condition that NCs helpeddomestic suppliers to upgrade their technology. Moreover, it is

crucial to recognise that every developed economy, including

the USA, Japan and the UK, used similar strategies to benefit

rom FDI in times o industrialisation.

Te empirical findings contradict the national investment

promotion policies and the prolieration o trade and investment

agreements aimed at the liberalisation o FDI that have been

advocated by the World Bank, the IMF and the OECD and

its member countries. Under these arrangements, developing

countries are severely restrained rom using industrial policies

or other regulations that have been successully applied in the

past by the Asian iger economies and rich Western countries

to reap the benefits o oreign investment.

Development can only be acilitated by oreign investment

when the right policies are in place. Investment treaties and

investment promotion initiatives should not be uni-vocally

directed at investment liberalisation and protection, but

created with specific social, economic and environmental

development targets in mind that need to be regularly assessed

and reviewed. In addition, governments should retain (in trade

and investment agreements) reedom o regulation and policy,

especially to achieve poverty eradication, technology transer,

respect or human rights and environmental protection.

Where enorcement o national labour and environmental

laws is lacking, and international standards are not respected,

international initiatives to ensure enorcement by NCs

should become part o investment promotion mechanisms.

1 UNCAD, 1998, Bilateral Investment reaties in the Mid-1990s, United Nations, New York.

2 Hallward-Driemeier, M., 2003, Do Bilateral Investment reaties Attract FDI? Only a bitand they could bite , Policy Research Working Paper Series

3121, Te World Bank.


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7. NAFTAs investment chapter and Mexicos economic downturnManuel Prez-Rocha1, Institute or Policy Studies

Shortly aer the European Union concluded its Free rade

Agreement (FA) with Mexico in 2000, Pascal Lamy, then

EU rade Commissioner, explained that, From an EU

perspective, it provided NAFA parity (Mexico gave us more

than 90 per cent o what it had given the US, and in some areas

more - e.g., such as goods, services and intellectual property).2

oday the EU is going aer the 10% it did not get with Mexico

through FAs with other countries aiming to include NAFA

style investment chapters.3Tese investment chapters would

bundle together at the EU level numerous Bilateral Investment

reaties (BIs) that individual EU Member States have with

third countries (including those with Mexico).

Aer 15 years o implementation, NAFA has not produced

the spill over effects promised by its promoters; on the

contrary, poverty, joblessness4and the concentration o wealth

have steadily increased.5 oday, deenders o NAFA simply

point to purely quantitative effects - increased trade and oreign

direct investment - to try to demonstrate its success. However,

Mexico has not been able to profit rom these increased

levels o FDI. Tis is due largely to the severe limits placed

by NAFAs Chapter XI on the governments ability to design

and implement policies that could make FDI beneficial to

endogenous economic growth, as well as implement measures

designed to protect the public interest and the environment.

EXAMPLESOFTHEIMPACTSOFNAFTA SINVESTMENTRULESIN

MEXICO

Foreign Investors Obtain Millions of Dollars in

Foreign ribunals. Under NAFA rules, US and Canadian

corporations have sought millions o dollars in compensation

or indirect expropriations in supranational tribunals, such asthe World Banks ICSID.

Mediocre Economic Growth. Since 1994 Mexico has

experienced paltry growth levels. Until 2006 the average

yearly GDP growth per habitant was merely 1.58%.6 Tis is

explained by both the lack o endogenous growth,and Mexicos

economic dependence on the US (80% o Mexicos exports are

to the US, a figure that has remained unchanged since 1994).

Great Profits by Foreign Banks in Mexico.Since NAFA,

about a quarter o FDI in Mexico has been concentrated in

the acquisition o the assets o its banking system. In 2009,

just three oreign banks (Citicorp o the U.S. and BBVA and

Santander rom Spain) concentrated 71.18% o the sectors

profits, which increased 11% as compared to 2008, despite the

serious economic downturn in Mexico.7

Lack of Credit for Production. Banks in Mexico have

reduced to a minimum the level o credit to productive

activities and in particular to small and medium companies

that generate hal o the countrys GDP and most o the jobs.8

Te slump o credit began precisely with the implementation

o NAFA and oreign banks taking over the banking system;

in 1994 credit in Mexico represented 37% o GDP.9

Te concentration of FDI following NAFA.10 Under

NAFA, 90% o FDI has targeted the manuacturing and

financial sectors, both located in a ew areas o industrial and

urban development. In contrast, rural areas receive scant FDI;

the five states with the highest levels o marginalization receive

only 0.60% o FDI.

Repatriation of Profit. Prohibition o capital controls

under NAFA and BIs permit oreign companies to repatriate

their profits without any conditions (like reinvestment o a

certain percentage). In 2009, while Mexicos economy sank,

the three largest oreign banks -Citicorp, BBVA, Santander-

saw their profits increase to almost $4 billion USD.

Increased FDI has not contributed to higher living

standards in Mexico. During NAFA, labor costs in the

manuacturing sector, which represent 51% o Mexican

exports and receives 51% o FDI, decreased by 46.2%, while

workers productivity increased 76.1%.11Te minimum wage

in Mexico ell by 20.45% o its purchasing power rom 1994 to2006. During the first our years o the Calderon presidency

(2006 2010) the purchasing power or minimum wages has

slipped a urther 47.1%12

INCONCLUSION

Mexicos economic downturn reflected ultimately in the

growth o poverty on the one hand and increased concentration

o wealth o