Roberts Basedow
A legal history of the EU’s international
investment policy
Article (Accepted version)
(Refereed)
Original citation:
Basedow, Robert (2016) A legal history of the EU’s international investment policy. Journal of
World Investment and Trade, 17 (5). pp. 743-772. ISSN 1660-7112
DOI: 10.1163/22119000-12340011
© 2016 Koninklijke Brill NV
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1
A Legal History of the EU’s International Investment Policy
Roberts Basedow
European University Institute
jrb@posteo.net
Abstract
The article traces the evolution of the legal competences of the European Union (EU) in international investment
regulation from the Spaak Report (1956) to the Lisbon Treaty (2009). It focuses on the question why and how
the EU gradually acquired legal competences in this key domain of global economic governance. The analysis
suggests that Commission entrepreneurship and spill-overs from other EU policies were the most important
factors fuelling the extension of the EU’s legal competences. The Member States, on the other hand, sought to
prevent a competence transfer. European business – arguably the main stakeholder – was mostly uninterested or
divided regarding the EU’s role in international investment policy. The findings have implications for our
perception of business lobbying in international investment policy and potentially for the legal interpretation and
delimitation of the EU’s new competences.
Keywords
European Union, Lisbon Treaty, European Integration, Commission entrepreneurship
1. Introduction
The entry into force of the Treaty of Lisbon on 1 December 2009 brought the regulation of foreign
direct investment (FDI) under the scope of the Common Commercial Policy (CCP). The European
Union (EU)
1
is now exclusively competent to regulate FDI. The Member States have by and large lost
the necessary competences to pursue their own international investment policies. Hence, international
investment policy-making now takes place at the EU level. International investment policy is here
defined to encompass the regulation of investment liberalisation, post-establishment treatment
standards and investment protection through international investment agreements (IIAs). The EU’s
role and competences in international investment policy have been a controversial topic for many
decades. While the Commission persistently pushed for an extension of the EU’s role and
competences in this key domain of global economic governance since the 1970s, the Member States
have constantly sought to resist such calls.
This article traces these debates and the evolution of the EU’s legal competences in international
investment policy-making from the Spaak Report (1956) until the Treaty of Lisbon (2009) in order to
explain how and why the EU acquired the exclusive competence over FDI regulation. The analysis
focuses on four factors, which are likely to have shaped the EU’s competences in international
1
For the sake of clarity, the article refers to today’s EU and all its precursor organisations such as the European
Economic Communities or the European Communities as EU. It is not assumed that these organizations had the
same legal and political attributes as today’s EU.
2
investment policy: 1) Commission preferences, 2) Member State preferences, 3) business preferences,
and 4) spill-overs from other EU policies. It finds that policy entrepreneurship by the Commission as
well as spill-overs were the main factors shaping the EU’s legal competences in this domain. While
business was little interested in debates on the distribution of competences, the Member States mostly
opposed an extension of Union competences in this domain. This article is primarily of empirical
ambition. From a political science perspective, the findings nonetheless clearly lend support to neo-
functional and institutionalist thinking on European Integration.
The article uses analytical process tracing as its main method. It builds on archival research, secondary
literature and 42 anonymised interviews with European and national officials as well as business
representatives. The article reconstructs policy debates in the context of intergovernmental
conferences (IGCs) and proceedings in front of the Court of Justice of the European Union (CJEU) to
assess why the EU gradually acquired legal competences to regulate international investment flows.
The article intends to make a threefold contribution. First, it closes an empirical gap in the literature on
the EU’s political and legal genesis as an actor in the international investment regime. Second, the
article contributes to better delimit the exact scope of the EU’s new exclusive competences by
shedding some light on the rationale behind the competence transfer. Finally, it shows that business
may be less of driver of international investment policy-making than conventionally thought.
2. First Steps – The EU and International Investment Regulation from the 1950s to the 1980s
It was only in the 1980s that international investment became an important economic phenomenon.
Hence, it was only at that point that intense policy debates on the role and competences of the EU and
the Member States in this domain started. It is, however, worth mentioning that European policy-
makers touched twice on this issue in the early years of European Integration when preparing the
Treaty of Rome and in discussions on Opinion 1/75 on the need to harmonise Member States’ export
policies.
2.1 The Treaty of Rome
The Treaty of Rome did not provide the EU with legal competences in the regulation of international
investment flows. The preparatory debates and the so-called Spaak Report
2
of April 1956 nevertheless
touched on the EU’s role in regulating FDI flows. Intergovernmental discussions did not touch on the
EU’s role in this domain when evaluating the future CCP but the free movement of capital. According
to the Spaak Report, the envisaged Common Market should inter alia provide for the free movement
of capital. The report cautioned that the liberalisation of capital movements among the Member States
would, however, require the establishment of a common external capital regime dealing with extra-EU
2
Comité intergouvernemental créé par la conférence de Messine, MAE 120 f/56, 1956,
<http://www.unizar.es/euroconstitucion/library/historic%20documents/Rome/preparation/Spaak%20report%20fr
.pdf.> accessed on 4 June 2016.
3
capital flows including FDI. Otherwise a regulatory gap would emerge since capital could enter and
leave the Common Market through Member States with liberal capital regimes and then flow into
Member States with more protectionist capital regimes. As the Spaak Report stated:
Le… obstacle, c’est la possibilité que les capitaux passent d’un pays vers un autre, non
pour s’y investir mais pour échapper vers l’extérieur au bénéfice d’une inégalité dans la
rigueur des contrôles. La liberté de la circulation des capitaux à l’intérieur du marché
commun appelle donc dans les relations avec les pays tiers à une certaine attitude
commune qui … au stade finale, aboutirait à une égale liberté ou à un dégrée de contrôle
équivalent.
3
The governments of Belgium, France, Germany, Italy, Luxemburg and the Netherlands convened
between June 1956 and March 1957 to draft the Treaty of Rome. Despite the Spaak Report’s
recommendation to liberalise intra-EU capital movements, they adopted a cautious approach. Article
69 EEC
4
stated that the free movement of capital was only a subordinate treaty freedom. The
liberalisation of capital movements should only proceed through secondary legislation and to the
extent necessary for the functioning of the Common Market for goods and services.
5
In consequence,
the need for a common external capital regime did not arise. As explained in Section 3.2, it was only
with the demise of Keynesianism and the emergence of the neoliberal paradigm in the 1980s that the
Member States started advancing the free movement of capital within the Common Market.
Keynesianism postulated far-reaching state intervention in the economy and in particular control over
cross-border capital flows to enable governments to use monetary policy and interest rates for
macroeconomic steering. Only when policy-makers turned toward neo-liberalism in the 1980s, which
foresaw the strengthening of market mechanisms for an efficient allocation of resources within and
across economies, they showed willing to dismantle capital controls within the Common Market.
2.2 Opinion 1/75 – the Commission Pushes for a European BIT Program
The EU’s role in the regulation of international investment policy became again the subject of debates
in the 1970s. In late 1972 and 1975, the Commission published two draft regulations, which sought to
establish a European export policy as an integral part of the CCP.
6
One draft regulation foresaw the
3
ibid 93–94.
4
Treaty Establishing the European Economic Communities (EEC) [1957] Eur-lex 11957E.
5
Age Bakker, The Liberalization of Capital Movements in Europe - The Monetary Committee and Financial
Integration, 1958-1994 (Kluwer 1996) 42-44; Christoph Ohler, Europäische Kapital- und
Zahlungsverkehrsfreiheit: Kommentar zu den Artikeln 56 bis 60 EGV, der Geldwäscherichtlinie und
Überweisungsrichtlinie (Springer 2002) 1-3; Johan Usher, ‘Capital Movements and the Treaty on European
Union’ (1992) 12 Yearbook of European Law 35–57.
6
Deutscher Bundestag, Unterrichtung durch die Bundesregierung “Vorschlag einer Verordnung (EWG) des
Rates zur Errichtung einer Europäischen Ausfuhrbank“ (Drucksache 7/4882 1976); Leif Johannsen, ‘Die
4
creation of a European investment guarantee agency. The investment guarantees should insure
European investors against non-commercial investment risks in third countries. Access to common
investment guarantees should be conditional on the existence or conclusion of bilateral investment
treaties (BITs) between the EU and the concerned third countries.
7
The Commission’s draft regulation
referred to Article 113 EEC
8
as the competence basis for the creation of the EU investment guarantee
agency and the conclusion of EU BITs.
The Member States met the draft regulations with great hesitation.
9
The Council criticised that the
harmonisation of national export policy had priority over the creation of a complementary EU policy.
The German government stressed that national export policies provided sufficient coverage to all
European investment and export projects. The German Bundestag warned that the creation of a EU
investment guarantee scheme would bear incalculable financial risks for German taxpayers. The
French government sought to protect its competences and sovereignty. The EU was entitled to
harmonise national policies, but did not hold the necessary competences to become a proper actor in
this domain. In order to force the Member States to accept its draft regulations, the Commission had
recourse to legal review in Opinion 1/75.
10
The Opinion examined and recognised the EU’s legal
competence to harmonise national export policies. The Opinion did not, however, provide a basis to
push for a European BIT program.
3. The Treaty of Maastricht
Lasting in-depth debates on the EU’s competences in international investment policy began with the
Uruguay Round in the GATT and the IGC on the Maastricht Treaty. The Maastricht IGC touched on
the EU’s legal competences in international investment policy in the context of the negotiations on the
Treaty chapters on the CCP and the free movement of capital. While the Commission was
unsuccessful in its attempt to assert competences over international investment regulation in
negotiations about the CCP, the EU accidentally acquired legal fringe competences regarding
investment liberalisation under the revised chapter on capital movements.
3.1 The Commission Fails to ‘Update’ the Common Commercial Policy
Kompetenz der Europäischen Union für ausländische Direktinvestitionen nach dem Vertrag von Lissabon‘
(2009) 90 Beiträge zum Transnationalem Wirtschaftsrecht 5-6; Ignaz Seidl-Hohenveldern, Versicherung
nichtkommerzieller Risiken und die Europäische Gemeinschaft (Carl Heymanns 1977) 54-59.
7
Johannsen (n 6) 5-6; Seidl-Hohenveldern (n 6) 54-59.
8
Treaty Establishing the European Economic Communities (n 4).
9
For this and the following see Johannsen (n 6) 5-6 and Seidl-Hohenveldern (n 6) 56 -59.
10
CJEU, Opinion 1/75, Opinion of the Court of 11 November 1975 Given Pursuant to Article 228 (6) of the EEC
Treaty [1975] ECR 1355.