Investment | Brussels, 11 February 2013
EU backs new transparency standards for investor-state dispute settlement
The European Union supported new United Nations rules for greater transparency in disputes between investors and host countries. On Friday 8 February a United Nations Working Group agreed the new rules which will make such dispute settlement procedures much more transparent. The public will have access to the documents submitted, hearings will be open to the public, and interested parties will be able to make submissions to the proceedings.
Under its competence for investment acquired under the Lisbon Treaty in 2009, the EU has played a key role in the UN Working Group for international trade law, where it has pushed for greater transparency in investment disputes. Transparency and accountability are key objectives of the new EU investment policy and are also pursued in the negotiation of EU investment agreements.
Welcoming the development, EU Trade Spokesman John Clancy said: “The protection of investment and the availability of Investor-State Dispute settlement mechanisms play a key role in attracting investors and encouraging economic growth. Having these new transparency rules in place will set a benchmark for all future EU investment treaties. Improving transparency in investor-state dispute settlement is essential. The success of the UN Working Group shows that the EU has a key role to play in the world of international investment policy making.”
International investment agreements permit investors to sue the countries where they have invested in the event that the country is alleged to have breached the agreement's rules. Many such cases take place behind closed doors, with no or limited information being provided to the public. After almost three years of discussions, delegates to the United Nations Working Group finally gave the thumbs up to the new rules on 8 February 2013. The rules will now go for final approval within the UN system
The Working Group is responsible for the development of the Arbitration Rules of the United Nations Commission for International Trade Law (UNCITRAL). The UNCITRAL Arbitration Rules are the second most frequently used rules for investor-state dispute settlement. The UNCITRAL Arbitration Rules are used for commercial arbitration, and so all documents submitted to the arbitrators have so far been confidential, hearings have been closed to the public and sometimes the public did not even know of the existence of such cases.
Since 2010, the Working Group has been developing rules on transparency for investor-state arbitration. The rules as adopted are the most advanced in ensuring a high degree of openness of proceedings, in terms of making documents available to the public, access to hearings and in allowing interested parties (like environmental NGOs) to make submissions. These rules will set the standard for transparency. The rules now need to be approved by the UNCITRAL Commission in June/July 2013 and then by the UN General Assembly in September 2013. They will apply automatically to all treaties concluded after their adoption, and work will continue in the Working Group on a system to permit the application of these rules on transparency to existing treaties.
The EU is currently negotiating investment agreements including investor-state provisions with Canada, Singapore and India. In these negotiations, the European Union is seeking to address some of the concerns raised by investor-state dispute settlement. The lack of transparency is often cited as an example of such concerns. The newly agreed UNCITRAL rules will form the basis of the transparency provisions in future EU investment treaties.
What is Investor-State Dispute Settlement?
It is a form of dispute settlement included in international treaties by which an investor can sue a country in which it has made an investment. Such cases concern alleged breaches of the agreement by the country hosting the investment. For example, if an investor’s factory was expropriated and compensation paid were felt to be insufficient.
What is the role of the EU?
Since 2009 the EU has exclusive competence for investment matters. This means that it represents the Member States on the international stage. The European Commission has played a key role in representing the views of the Union and co-ordinating the views of the EU's Member States.
What is the EU doing on investment?
Since 2011 the EU has been negotiating provisions on investment protection with Canada, India and Singapore. These provisions concern both the protection of investment and investor-state dispute settlement. They will form part of larger free trade agreements.
The EU's investment policy after the Lisbon Treaty
Foreign direct investment (FDI) is a main contributor to economic growth. Outward FDI offers access to markets, technologies and resources, has a positive effect on the competitiveness of EU firms by reducing costs and creating economies of scale. Inward FDI enhances the EU's competitiveness by bringing in foreign capital, technologies, management expertise, and often boosts exports.
The EU is the world's leading host of foreign direct investment, attracting investments worth €225 billion from the rest of the world in 2011 alone. By 2010 outward stocks of FDI amounted to €4.2 trillion (26.4% of the global FDI stock in FDI) while EU inward stocks accounted for €3 trillion (19.7% of the global total).
Those investments are secured via Bilateral Investment Treaties (BITs), concluded between individual EU Member States and non-EU countries. They establish the terms and conditions for investment by nationals and companies of one country in another and set up a legally binding level of protection in order to encourage investment flows between two countries. Amongst other things BITs grant investors fair, equitable and non-discriminatory treatment, protection from unlawful expropriation and direct recourse to international arbitration. EU countries are the main users of BITs globally, with a total number of about 1,200 bilateral treaties already concluded.
Foreign direct investment became the exclusive competence of the EU under the Lisbon Treaty (Article 207 TFEU).