LEGAL PROTECTION OF FRENCH INVESTORS BY THE ACTUAL INVESTMENT LAW REGIME - Lucia Miklankova, mai 2015

The Investment Law is a field of law, undergoing a relevant transformation. The traditional regime of investors' legal protection is changing and french investors should be aware of this change in order to properly adjust. The aim of this article is to provide a basic analyse of the above-mentioned transformation of the Investment Law from a french perspective.

The Energy Charter Treaty (ECT), which has now been ratified by 49 subjects of International Law, including France and the European Union (EU)1, and the US Model Bilateral Investment Treaty (BIT) of 1987, which inspired a generation of highly protective BITs, include a number of similar guarantees. These guarantees can be now found throughout many of the nearly 3000 existing BITs. Even though these BITs vary in terms of specific rights conferred to investors, they usually all offer the following well-known guarantees : national and most-favoured-nation treatment (NT and MFN), fair and equitable treatment (FET), full protection and security, guarantees against arbitrary and/or discriminatory treatment and prompt, adequate and effective compensation upon expropriation and rights to transfer profits abroad. Some of these BITs include even another guarantee, known as the umbrella clause, which elevates a breach of contract signed between an investor and a host State to a treaty breach.2

Notwithstanding the above-mentioned guarantees, the legal regime governing international investment has been criticized. Many scholars and politicians criticize the fact that a substantial part of international “law-making” takes place in fact during the investor-State arbitration. In their opinion, this law-making is not democratic and legitimate. Critics contend that obligations created by BITs raise important public policy issues not addressed during their ratification. This might be because the actual restrictions created by BITs have only become evident throughout the investor-State arbitration. For the critics, BITs threaten governments' capacity to assure the rights of their citizens3, they weaken the rule of law in developing countries and “retard the development of certain regulatory initiatives”.4 Another sort of criticism invokes the old North vs South conflict. For some, BITs continue to reward mainly the capital exporting countries whose investors are the beneficiaries of their protection. Discussion about whether investor-State arbitration benefits more the countries of North or South underlies worries whether this arbitration does not disregard the principle of “equality of arms”, which is considered as essential to any international dispute settlement.5 

  This article will first examine the protection of french investors provided by the European Investment Law (I) and then we will briefly analyse the general transformation of the International Investment Law (II).

1. THE EUROPEAN INVESTMENT LAW

We will first analyze the basic legal regime governing investment flows between the EU Member States (A) and later we will examine the changes of the legal regime governing investments between the EU Member States and third countries (B).

A. Investments  between the EU Member States 

Rules granting legal protection to investments realised between the Member State of the EU are mainly contained in the EU founding treaties.6 In fact, these investments are protected by the rules creating the EU internal market and, know as the freedom of establishment, the free movement of goods, services and capitals.7 

Nevertheless, the European Commission (Commission) did not request from the Member States to denounce BITs they had concluded with other Member States before these entered into the EU.8 Therefore, there still exist some BITs concluded between Member States that are in force. For example, France is still a party to valid BITs signed with Bulgaria, Czech Republic, Croatia, Estonia, Latvia, Lithuania, Malta, Poland, Romania and Slovak Republic.9 But when it comes to those BITs, some questions arise. The European law guarantees the non-discrimination of all EU investors but does not organise the legal protection of European investments itself. The matter of legal protection remains therefore in the exclusive competence of the Member States. This legal regime - coexistence of the European law and BITs – may create a potential discrimination between Member States of the EU.10

All of the above-mentioned french BITs confer to french investors more or less the same protection. They differ however in terms of the investor-State dispute settlement. The majority of these BITs confers the jurisdiction over investment disputes to the International Center for Settlement of Investment Disputes (ICSID) under the condition that the other signatory State is also a party to the Washington Convention of 196511. In this matter, it should be noted that only Poland has not ratified the Washington Convention12 and in such  case potential investment disputes between french investors and Poland are supposed to be decided by and ad hoc arbitration administrated under the UNICTRAL Rules.13 The exceptions are the BITs concluded with Bulgaria and Malta. Firstly, the France – Bulgaria BIT confers the jurisdiction to the national courts of the Host State, with the exception of disputes over expropriation which can be submitted to and ad hoc arbitration administrated under the UNCITRAL Rules.14 Secondly, the France – Malta BIT confers the jurisdiction to an ad hoc arbitration and describes its own detailed rules of administration.15 Nevertheless, if a dispute arises out of a violation of a BIT concluded between two Member States and the violation is based on the European Law, it may happen that the ICSID will be seized of a dispute concerning the interpretation and the application of the European Law. Such a situation is however in contradiction with the exclusive competence of the European Court of Justice (ECJ).16

• B.  The changes of the legal regime governing investments between the EU Member States and third countries

Since the Lisbon Treaty, in force since December 2009, the EU has a new exclusive competence dealing with foreign investment. This competence makes part of the common commercial policy of the EU.17 Therefore, it is the EU who negotiates instead of the Member States who renounced to their sovereignty in investment matters. The aim of the exclusive competence was to create a stronger block of States that would be in a better position in investment agreements' negotiations. In addition, the measure contributes to a legal security for European investors and creates an identical treatment for all investors from third countries who want to invest within the EU.18

On 9 January 2013, a new European regulation dealing with the status of BITs concluded between EU Member States and third countries (Extra-EU BITs) comes into force - Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries (the Regulation 2012). The Regulation 2012 confirms that the existing Extra-EU BITs remain in force and continue to apply till the moment when the EU conclude new investment treaties.19 The Member States must notify their Extra-EU BITs signed prior to December 2009 to the Commission20 and those BITs  have been placed under the control of the EU. If one or more provision(s) of an Extra-EU BIT are considered as problematic and a ‘serious obstacle’ to the EU’s negotiation of a future investment treaty with a particular third country, the concerned Member State has an obligation to enter into consultations with the Commission and "cooperate with a view to identifying the appropriate actions to resolve the matter".21 The aim of such consultations is to determine whether the Member State needs to renegotiate or terminate its problematic Extra-EU BIT.22 The Regulation 2012 overlooks, however, the clauses included in most BITs that guarantee investors protection for their existing investments for a certain period of time after termination of the BIT. Therefore, any termination of Extra-EU BITs would be also affected by these "survival clauses".23 

For the Extra-EU BITs signed in the period of 2009-2013, there has been a system empowering the Commission to authorize or not the treaties.24 Finally, the Extra-EU BITs concluded since the Regulation 2012 came into force are placed under a strict control of the Commission who participates in negotiations and approves or denies their signature.25 This means that the EU Member States are still authorized to conclude new BITs.26

Since the EU has its new exclusive competence, the Commission has been negotiating with the United States the well famous treaty know as the Transatlantic Trade and Investment Partnership (TTIP). During a press conference of 13 January 2015 on the results of the public consultation on investment protection and investor-State dispute settlement in TTIP, Cecilia Malmström, the European commissioner for commerce, admitted that old Extra-EU BITs do not foresee guarantees the EU is looking for.27

When it comes to investor-State dispute settlement, Cecilia Malmström recognized that there have been some abuses of arbitration tribunals and that the EU must be very careful with this question. Nevertheless, she added that it would be too early to say the EU will not provide these instances in the TTIP.28 However, any discussions over investment protection and investor-State dispute settlement in TTIP have been suspended. Ignacio Garcia Bercero, the EU Chief Negotiator, stated in his latest comments to the negotiations that the discussions with the United States continue in nearly all the areas covered by the TTIP, except notably for the discussions on the Investor-State dispute settlement and investment protection.29 Nonetheless, as the EU is not a state it cannot sign the Washington Convention of 1965. Therefore, french investors will not be able to benefit from the jurisdiction of the ICSID and new European investment agreements will necessarily have to designate another competent jurisdiction to settle investor-State disputes.30

1. THE GENERAL TRANSFORMATION OF THE INTERNATIONAL INVESTMENT LAW

In the second part, the article will conclude the re-enforcement of the State sovereignty as the main feature of the transformation of the international investment legal regime (A) and then we will shortly summarise the future of International Investment Law as it is seen by some scholars (B).

A. The re-enforcement of the State sovereignty in international investment law

The North/South perspective on BITs mentioned in the introduction does not correspond anymore for the actual legal regime of investment protection. Transnational companies (TNCs) of developing countries are now influential players and among the most dynamic ones count the TNCs from the Chinese mainland31. During the ongoing global financial crisis, while the overall flow of foreign investment fell by about 20%, China's external flow of foreign investment has actually almost doubled over the past few years.32 The later Chinese BITs resemble more to US Model BIT of 1987, known as highly investor protective. In addition, they are not limited to treaties concluded with other less developed countries (LDCs) but include also BITs with traditionally capital exporting European States33, including France (France – China BIT of 2007)34. 

There is no better indication of the changing legal regime of international investment than the changes made to the US Model BIT over the time. While, the Chinese BITs seem to evolve towards larger acceptance of the predominant standards of investment protection35, the US Model BITs have been going in the opposite direction. Most US investment protection treaties concluded since 2004 narrow the definition of covered investments, narrow the scope of NT and MFN, eliminate the umbrella clause, narrow the scope of FET and full protection and security to the protection provided to aliens under customary international law, reduce investors' rights to due process, reduce the scope of indirect expropriation, limit expropriation claims based on tax measures and include explicit recognition of States' rights to regulate to protect health, safety and the environment and impose new restrictions on investor-State dispute settlement.36 The new generation of US BITs are much longer than the Model of 1987 in order to better preserve the rights of the States as sovereigns. Other countries introduced, for instance, explicit public interest safeguards.37

B. The future of International Investment Law

Generally, in reaction to the restrictions created by BITs and mentioned in the introduction of this article, governments seem to sympathize now with the theory that foreign investors should get only national treatment.38 Another type of “backlash” against the existing legal regime governing international investment is a reduced number of new BITs and a rise in national laws that States adopted and that degrade foreign investors' rights.39 Even more evident markers are Bolivia's withdraw from the ICSID Convention (May 2007), Venezuela's threats to limit the jurisdiction of the ICSID, Ecuador's denunciation of some of its own BITs and its withdraw from the ICSID Convention.40 Explanations for the current regime's difficult situation flourish. There exist growing doubts about the regime's elemental assumption that investment flows “raise all boats”. There are different views about the relative advantages of investment flows in some particular contexts. In additions, studies have not proven without any doubts the premise that investment agreements encourage greater investment flows than would otherwise take place.41 

BIBLIOGRAPHY

ALVAREZ J. E., The Public International Law Regime Governing International Investment, Pocketbooks of The Hague Academy of International Law, 2011 ;

ALVAREZ J. E and SAUVANT K. P., "International Investment Law in Transition", in K. P. Sauvant and J. E. Alvarez with K. G. Ahmed and G. Del P. Vizcamno (eds.), The Evolving International Investment Regime : Expectations, Realities, Options (Oxford University Press, 2011) ;

AYKUT D. and RATHA D., "South-South FDI Flows: How Big Are They ?", 13 Transnational Corparations 149 (2003), p. 149 ;

DAVIES K., "While Global FDI Falls, China's Outward FDI Doubles", Columbia FDI Perspectives, No. 5 (2009) :

GARDINER J. L. et al., "Ecuador Moves to Denounce and Leave the ICSID Convention, Attempts to Curtail Investor-State Arbitration Rights", Skadden, Arps, Slate, Meagher and Flom LLP (17 June 2009) ;

NEWCOMBE A., "Sustainable Development and Investment Treaty Law", 8 Journal of World Investment & Trade 357 (2007), p. 394 ;

SAUVANT K. P., "Driving and Countervailing Force : A Rebalancing of National FDI Policies", in K. P. Sauvant (ed.), Yearbook on International Investment Law & Policy 2008-2009 (New York, Oxford University Press, 2009) ;

SCHILL S. W., "Tearing Down the Great Wall : The New Generation Investment Treaties if the People's Republic of China", 15 Cardozo Journal of International and Comparative Law 73 (2007), pp. 89-113 :

Office of the High Commissioner of Human Rights, Human Rights, Trade and Investment, UN doc. E/CN.4/Sub.2/2003/9 (2003), p. 17 ;

UNCTAD, latest Developments in Investor-State Dispute Settlement, IIA Monitor No. 4 (2005), WEB/ITE/IIT/2005/2 :

GARCIA BERCERO I., Comments to the TTIP Round 8 - final day press conference, Brussels, 5 February 2015 ;

DUCOURTIEUX C., "La future commissaire au commerce s'emploie à déminer le traité transatlantique", Le Monde, 29 September 2014 ;

Live press conference of the Commissioner Cecilia MALMSTRÖM, 13 July 2015 ;

NITSCH C. and TURNER P., Freshfields Bruckhaus Deringer LLP, Brief « EU reveals the future of BITs between European States and the rest of the world », January 2013, 35091_c, p.2 ;

The lecture of Professor Franck Latty given at the Paris Ouest Nanterre La Defense University, Master in International Commercial Law 2015 ;

Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries ,

Article 206 of the Treaty on functioning of the European Union ;

Article 8 of the France – Bulgaria BIT signed the 4^th April, 1989 ;

Article 9 of the France – Malta BIT signed the 11^th August, 1976 ;

Article 8.2 of the France – Poland BIT signed the 14^th February, 1989.