A Legal History of the EU’s International Investment Policy
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.
Summary (4 min read)
- 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).
- 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.
- The article intends to make a threefold contribution.
- 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 policymakers 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 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.
- The governments of Belgium, France, Germany, Italy, Luxemburg and the Netherlands convened between June 1956 and March 1957 to draft the Treaty of Rome.
- 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.
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.
- The investment guarantees should insure European investors against non-commercial investment risks in third countries.
- The EU was entitled to harmonise national policies, but did not hold the necessary competences to become a proper actor in this domain.
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.
- The Member States convened for the IGC on the Treaty of Maastricht between December 1991 and February 1992.
- Hence, the scope of the CCP – as intermediary between the Single Market and the GATT regime – had to evolve in line with the agenda of GATT negotiations.
- The consecutively discussed draft treaties illustrate the Member States’ opposition to the Commission’s proposal and in particular to an extension of the CCP to international investment regulation.
3.2 Competence by Spill-Over – A Common External Capital Regime and Investment Market
- Access The Treaty of Maastricht did not reform the CCP.
- The Treaty of Maastricht, however, established a common external capital regime governing capital flows between the Member State and third countries.
- As part of its Single Market Program, it managed to convince the Member States to enact the milestone directive 88/361/EEC 18 in 1988, which instantaneously liberalised all capital movements within the Single Market.
- While it had not been the intention of the Member States, the creation of an external capital regime inevitably gave the EU a role in regulating investment market access.
4. Court Battles over the Scope of the Common Commercial Policy
- During the IGC on the Maastricht Treaty, the Member States had brushed off the Commission’s attempt to ‘clarify’ the allegedly highly comprehensive scope of the CCP.
- As the following section shows, the Commission remained determined to have the Member States recognise the EU’s exclusive competence under the CCP to regulate all new trade issues of the Uruguay Round, including international investment.
- The Commission sought to enforce its views through legal review in Opinions 1/94 and 2/92.
- The Commission’s strategic recourse to the CJEU was, however, only little successful as the Court was unwilling to override the opposition of the Member States.
4.1 Opinion 1/94 – The Commission Seeks to Revisit the Maastricht Failure
- Opinion 1/9422 was, in essence, a continuation of the IGC debates on the CCP.
- The WTO Agreement and its annexes covered investment liberalisation (GATS) and post-establishment treatment (GATS, TRIMs & TRIPs Agreements), which accordingly had to fall under exclusive Union competence.
- Free trade agreements (FTAs), moreover, gradually came to include ambitious investment chapters since the 1990s.
- Community …The Community was to be exclusively represented by the Commission in its relations with non-member countries and international organizations and at international conferences ….
- The CJEU ruling did not examine in detail the Union’s competences in international investment policy, but it advanced a literal, narrow interpretation of the CCP.
4.2 Opinion 2/92 – The Commission Claims Competence over Post-Establishment Treatment
- The Commission and the Member States disagreed over the competence basis for the EU’s adhesion to the Third Revised Decision.30 27 CJEU (n 22) I-15306.
- Since the main purpose of the CCP arguably was to ensure the effective international representation of European interests and the Single Market at the international level, the scope of the CCP had to evolve in line with trade-related negotiations in the GATT or OECD.
- Their submissions complement in many regards missing information on detailed Member State positions from the IGC on the Maastricht Treaty.
- Second, it found that the Third Revised Decision was a measure affecting intra-EU trade and investment as regards the participation of foreign-owned enterprises in trade and investment within the internal market.
5. The Treaty of Amsterdam
- The debates on the scope of the EU’s legal competences in international investment policy continued in the IGC on the so-called Treaty of Amsterdam.
- The Commission problematized once again the EU’s legal competences in foreign economic relations, in general, and in international investment policy, in particular.
- The Member States possessed the necessary legal competences to negotiate NAFTA-like state-of-theart international investment agreements covering investment liberalisation, post-establishment treatment and protection.
- The Member States showed only marginal interest in a reform of the CCP during the IGC debates in 1996 and early 1997.
- Drawing on the above-examined Opinions 1/94 and 2/92, one may safely conclude that most Member States met the Commission’s proposal to extend the scope of the CCP to investment regulation with considerable hesitation.
6. The Treaty of Nice
- But despite the Member States’ opposition to extend the EU’s competence in the realm of international investment regulation, the Treaty of Nice, nevertheless, provided the EU with first exclusive legal competences under the CCP to regulate certain aspects of international investment activities.
- Soon after the conclusion of the IGC on the Treaty of Nice, academics46 started discussing whether the notion of trade in services in the revised Treaty provisions was congruent with the notion of trade in services under the General Agreement on Trade in Services (GATS).
- 43 Conference of the representatives of the governments of the Member States, ‘Progress Report on the Intergovernmental Conference on Institutional Reform (CONFER 4790/00)’ 2000, 39-42.
7. The Treaty of Lisbon
- The Treaty of Nice, much like the Treaty of Amsterdam, was considered a failure.
- It decided to use the so-called ‘Convention method’ to revise the European Treaties.
- As the following Section demonstrates, the procedural particularities of the Convention method decisively facilitated the Commission’s long-standing policy entrepreneurship to extend the CCP to international investment regulation.
- It then assesses how the Member States unsuccessfully opposed these developments and how European business was divided over the merits of a EU international investment policy.
7.1 Commission Entrepreneurship in the Open and Behind the Scenes of the Convention
- The Praesidium proposed in its draft CCP articles to extend Union competences and qualified majority voting to the regulation of ‘FDI’.
- 2 The Member State Delegates Seek the Deletion of the ‘FDI’ Reference Following the drafting exercise of the Praesidium, the delegates of the Convention reconvened for plenary sessions to discuss the Praesidium’s draft text of the ‘external action’ chapter.
- The large number of amendments on the ‘external action’ chapter overwhelmed the Praesidium.
7.3 Business Preferences – Ambivalent and Divided
- European business seemed generally little interested in the debates on a reform of the CCP.
- Many national member federations seemed much less interested and partly even opposed 58 Interview with Convention participant, Brussels, 12 October 2011. 59 ibid. 60 Union des Industries de la Communauté Européenne , ‘Commission White Paper on European Governance - position’ 2002, 6. the proposed extension of the CCP to FDI regulation.
- The UNICE Secretariat understood that the shifting of international investment policy-making from the national to the European level would strengthen its position and influence vis-à-vis member federations.
- 68 Interview with business representative, Brussels, 25 September 2013.
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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 ). 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 findings have implications for their perception of business lobbying in international investment policy and potentially for the legal interpretation and delimitation of the EU ’ s new competences.