The European Union (EU) investment policy is a model that many other countries have viewed as a standard or best practice in investment governance and have thus sought to emulate. Most of the traditional bilateral investment treaties are based on the European model. However, in recent years, there have been developments in the EU’s investment policy, particularly related to dispute resolution. These developments have significant implications for the EU’s trade and investment partners. The EU is negotiating or has concluded numerous trade agreements with third parties containing investment provisions. African countries should observe these developments.

There are many reasons why African countries should closely monitor these developments. The EU countries are among the main sources and destinations for African investments, products and services. Most EU countries have signed bilateral investment treaties (BITs) with some African countries as a legal commitment to protect and promote their foreign investments and investors. Many investment disputes under these BITs have been settled in international arbitration. The EU is currently negotiating or provisionally implementing Economic Partnership Agreements (EPAs) with many African regional groupings. Investment issues are on the agenda of these EPAs. Further, the United Kingdom (UK) is withdrawing from the EU and negotiating similar agreements (referred to as Continuity Agreements) with African (SADC-EPA & ESA EPA) states to maintain or foster trade and investment relations. The EU is increasingly seeking to tighten trade and investment relations with Africa through different initiatives and European institutions. For example, the European Commission (EC) is promising investments in transport, road infrastructure and energy. The European Investment Bank (EIB) poured €3 billion of new investment across Africa in 2019 and is promising more investments in transport, renewable energy and agriculture projects.

New EU approach to international investment policy

The EU adopted a new approach to international investment law policy in 2010 following the entry into force of the Lisbon Treaty in 2009. The EU now has exclusive competence with respect to the common investment policies of the member states (Art 3(1)(e) of the Treaty on the Functioning of the European Union (TFEU)). That is, only the EU may legislate and adopt legally binding acts within investment policy. The EU negotiates investment agreements collectively except where member states are empowered to negotiate individually by the EU in terms of Art. 2(1) of the TFEU.

The European Commission, Council and Parliament (Court) oversee the formulation or implementation of the EU investment policy. The institutions have recently revamped the content and direction of the EU investment regime to focus on attracting investments that support sustainable development and create quality jobs, respect human rights, labour and environmental standards while protecting the EU’s essential interests and the governments’ right to regulate in the public interest or public policy space. The incorporation of the non-investment issues (human rights, environment and labour standards) into the realm of investment policy resulted from the criticism that traditional investment regimes (dominated by traditional BITs) threatened public interest and the host governments’ right to regulate. This is not restricted to the EU. Some governments (e.g. South Africa and Tanzania) are adopting investment policies aimed at protecting investor rights and government interests.

Intra-EU investment governance developments

In March 2019, the EU adopted a Regulation establishing a legal framework for the screening of foreign direct investments into the EU to protect the EU’s security or public order. The Regulation entered into force in April 2019. It creates a cooperation mechanism where EU member states and the EC exchange information and raise concerns related to the entry of specific investments. The EC will be able to issue non-binding opinions when an investment poses a threat to the EU security or public order, or when an investment could undermine an EU project or programme. Member states retain their autonomy to decide whether a specific investment should operate in their territories. With this Regulation, investments posing a threat to EU security or public order are highly unlikely to be admitted into the region.

In December 2019, following the decision of the European Union Court of Justice in the Achmea case that an investment arbitration clause in intra-EU BITs is incompatible with EU law, member states agreed to terminate BITs between EU member states through a plurilateral treaty. On 5 May 2020, 23 EU member states (excluding Austria, Finland, Ireland, Sweden & UK) signed the Agreement for the Termination of Intra-EU BITs. The Agreement will enter into force 30 days after the deposit of the second instrument of ratification. No country had ratified the Agreement at the time of writing this blog.

EU investment relations with third parties

EU member states concluded BITs with third parties before the Lisbon Treaty. The TFEU does not provide any express transitional provisions for such BITs which have now come under the EU’s competence. These BITs are in force and have been viewed as incompatible with the current EU investment policy. As a result, the EU adopted a Regulation in 2012, establishing transitional arrangements for BITs between member states and third countries. The Regulation entered into force on 9 January 2013. It aims to ensure that BITs between EU members and third parties are consistent with EU law and investment policy. It sets out conditions and procedures for EU members to amend existing investment agreements with third parties and to negotiate or conclude new ones. The conditions and procedures are designed to ensure that the treaties are compatible with the EU law, principles and objectives, and do not create serious obstacles to the EU negotiating BITs with third parties. The EC will authorise EU member states to negotiate, sign, or conclude BITs with third parties.

The Energy Charter Treaty (ECT) is an international agreement for energy cooperation. The EU (in its own right), EU member states (excluding Italy) as individuals and several European countries are party to the ECT. The ECT is being extended beyond Europe to Africa (as well as Asia and Latin America): Burundi, Eswatini and Mauritania are in the process of ratifying the Charter; Chad, Gambia, Niger, Nigeria and Senegal are preparing for accession; and Uganda is waiting for a formal accession invitation.

The ECT, inter alia, protects foreign investments in the energy industry against discrimination, expropriation, breach of investment contracts, or unjustified restrictions on the transfer of funds. The ECT is the most invoked treaty in investment arbitration, sometimes invoked along with BITs. As of 19 June 2020, there are 130 known investment arbitration cases filed under the ECT. There are concerns that the ECT undermines host governments’ rights to adopt sustainable, environment- and climate-friendly energy policies. Discussions are ongoing to renegotiate and modernise the trade and investment provisions of the ECT. In July 2019, the European Council adopted negotiating directives for modernising the ECT. The directives call for the investment protection standards under the modernised ECT to be in line with the standards of the agreements recently concluded by the EU, and ensure ‘a high level of investment protection, with provisions affording legal certainty for investors and investments of parties in each other’s market’.

The EU is also taking a radical approach to investment dispute resolution. In accordance with its internal investor-state dispute settlement (ISDS) perspectives and reforms, the EU is proposing the establishment of a multilateral investment court to settle investment disputes. For instance, the EU-Canada Comprehensive and Economic Trade Agreement (CETA) provides for the establishment of a multilateral investment tribunal and appellate mechanism:

The Parties shall pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes. Upon establishment of such a multilateral mechanism, the CETA Joint Committee shall adopt a decision providing that investment disputes under this Section will be decided pursuant to the multilateral mechanism and make appropriate transitional arrangements.

The CETA does not privilege recourse to the investment court system; investors may choose to pursue available recourse in domestic courts instead. The European Commission had proposed the same in the draft text of the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the United States. The TTIP negotiations were launched in 2013 and ended without a conclusion in 2016.

The EU is encouraging investment facilitation provisions in investment treaties through, inter alia, provision of investment rules and related information, reduction of red tape in investment entry or permit approvals, and the establishment of one-stop investment services.

The EU is also actively participating or leading in many investment related discussions including the UNCITRAL Working Group III on ISDS Reform, the WTO Structured Discussions on a Multilateral Investment Facilitation Framework, and UNCTAD Investment for Sustainable Development, among others.[1]

African countries must monitor and understand the new approach and developments in the EU’s international investment policy as they pertain to Africa-EU investment relations.

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[1] The EU has played a lead role in the WTO with respect to the development of a multi-party interim appeal arbitration based on Art. 25 of the WTO Dispute Settlement Understanding. See https://europeansting.com/2020/01/24/trade-eu-and-16-wto-members-agree-to-work-together-on-an-interim-appeal-arbitration-arrangement/