Post-Lisbon Framework: the role of the European Commission in transposing EU principles and objectives in future investment agreements with third countries

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Post-Lisbon Framework: the role of the European

Commission in transposing EU principles and

objec-tives in future investment agreements with third

countries

International and European Law: Public International Law

MASTER THESIS

AUTHOR:

DARTA TENTERE

LLM 2016/2017 year student

SUPERVISOR:

Dr. Hege E. Kjos

DECLARATION OF HONOUR: I declare that this thesis is my own work, and that all refer-ences to, or quotations from, the work of others are fully and correctly cited.

AMSTERDAM, 2017

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ABSTRACT

The European Union is the world's biggest source and recipient of investment. However, a number of third states are becoming increasingly sceptical of the present investment regime as investors and the Union itself have allegedly failed to uphold and enforce principles that it itself values so highly. Thus, the aim of this thesis is to determine whether the European Commission is capable to eradicate this perception by effectively transposing European prin-ciples and objectives in future investment agreements. Accordingly, the analysis of primary and secondary law determines the Commission’s role in the post-Lisbon framework. An as-sessment of reports and communications of European institutions provide the necessary in-sights into considerations made when the Commission authorises envisaged investment agreements. It is concluded that the Commission plays a prominent role in the future of Euro-pean investment policy: It is capable to not only authorise negotiations and conclusion of en-visaged agreements but, more importantly, determine their content by including or excluding particular clauses. The analysis of reports and communications revealed that principles and objectives embedded in primary law closely correlates with the considerations that the Com-mission regards as an essential part of future investment policy. Accordingly, the ComCom-mission is not only legally capable to influence future investment agreements, but such scrutiny im-plies a dedication to transpose European principles and objectives. Thus, it is within the Commission’s capabilities to ensure that economic development and boosted investment flows are not at the expense of European values but rather in their support.

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LIST OF ABBREVIATIONS

BIT Bilateral investment treaty

CIA Committee for Investment Agreements CCP Common Commercial Policy

CFSP Common Foreign and Security Policy EU European Union

GATT General Agreement on Trade and Tariffs FDI Foreign direct investment

IIA International investment agreement

INTA European Parliament Committee on International Trade ISDS Investor-state dispute settlement

OECD Organisation for Economic Co-operation and Development TEU Treaty on European Union

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1. INTRODUCTION

The European Union (EU or Union) is a market leader in the field of foreign direct investment (FDI), meaning that it is the world’s biggest recipient and source of it.1 The Organisation for Economic Co-operation and Development (OECD) reported that in 2016 the FDI inward flows in the EU reached USD 582 billion, while the outward flows amounted to USD 475 bil-lion.2_{Currently, worldwide there are 2953 Bilateral Investment Treaties (BITs) and another}

373 Treaties containing investment provisions.3_{Nearly half of these agreements are}

conclud-ed by EU Member States.4_{There is an ongoing discussion whether conclusion of new BITs}

correlate with increased FDI flows.5 However, notwithstanding this academic debate and per-sistently inconsistent results, investment is one of the cornerstones of growth and economic development. A successful and tangible example of managing considerable investment flows is the Netherlands, which is among the largest sources of FDI worldwide.6 The OECD report-ed that in 2016 the FDI outflows from the Netherlands peakreport-ed to USD 173 billion and the FDI inflows amounted for USD 92 billion.7 This affirms the importance of FDI and the fact that its attractiveness has real consequences on state’s economy.

Up until recently, managing investment flows from and investment relations with third countries was a competence of EU Member States. However, in 2009 the Treaty of Lisbon

1_{European Commission Communication COM (2010) 343 to the Council, the European Parliament, the}

Europe-an Economic Europe-and Social Committee of the Regions, 'Towards a comprehensive EuropeEurope-an Investment Policy’ [2010] Brussels (2010 Commission’s Investment Policy Communication)

2_{Organisation for Economic Co-operation and Development (OECD), ‘FDI in figures’ (April 2017)} 3_{United Nations Conference on Trade and Development (UNCTAD), ‘Investment Policy Hub’}

<http://investmentpolicyhub.unctad.org/IIA> accessed 11 July 2017

4_{See for detailed figures: UNCTAD, ‘UNCTAD Investment Report 2017’}

<http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf> accessed 21 July 2017

5_{The academic debate on whether conclusion of BITs correlate with increased investment flows has been}

exten-sive and the results have been diametrically opposite. For instance the following studies have shown respectively (i) that ratified BITs have a positive and significant impact on FDI flows and (ii) that BITs increase FDI flows from developed to developing states. See Peter Egger and Michael Pfaffermayr, ‘The impact of bilateral invest-ment treaties on foreign direct investinvest-ment’ (2004) 32(4) Journal of Comparative Economics, 801

<http://www.sciencedirect.com/science/article/pii/S0147596704000526> accessed 10 July 2017 and Mathias Busse, Jens Koniger and Peter Nunnenkamp, ‘FDI promotion through bilateral investment treaties: more than a bit?’ (2010) 146(1) Review of World Economics, 171 < https://link.springer.com/article/10.1007/s10290-009-0046-x> accessed 10 July 2017.

On the contrary, the following articles argues respectively (i) that there is no evidence that concluding a BIT with France positively affects host state’s share of French FDI and (ii) that there is little evidence that BITs in-crease FDI flows from developed to developing countries. See Jason Webb Yackee, ‘Do BITs “Work”? Empiri-cal Evidence from France’ (2016) 7(1) J Int Disp Settlement

<https://academic.oup.com/jids/article/7/1/55/2357924/Do-BITs-Work-Empirical-Evidence-from-France> ac-cessed 10 July 2017 and Emma Aisbett, ‘Bilateral Investment Treaties and Foreign Direct Investment: Correla-tion versus CausaCorrela-tion’ (2007) Munich Personal RePEc Archive <https://mpra.ub.uni-muenchen.de/2255/> ac-cessed 10 July 2017.

6_{In 2016 the United States remained by far the largest source of FDI worldwide, followed by China, the}

Nether-lands and Japan.

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introduced legal changes in the field of FDI.8 It was a crucial turning point for the allocation of competences between Member States and EU, providing that matters of FDI shall be in-cluded into the Common Commercial Policy (CCP). Article 3(1) of the Treaty on the Func-tioning of the European Union (TFEU) implies that FDI as a part of the CCP has become an exclusive competence of the EU.9_{Accordingly, under primary EU law, Member States are no}

longer capable to act in this field.

Notwithstanding these changes in primary law, Regulation (EU) No 1219/2012 ena-bles Member States to negotiate, conclude or amend investment agreements with third coun-tries, provided that the European Commission has empowered them.10 The Commission’s role in this framework cannot be overemphasised. It is the EU institution responsible for overlook-ing, scrutinising and determining content of future international investment agreements (IIAs). However, the role of other EU institutions should not be neglected. Namely, Article 218(6) TFEU provides that the European Parliament has a final say in regard to conclusion of IIAs. Moreover, Regulation 1219/2012 prescribes an advisory committee procedure, which should be consulted by the Commission.11 Thus, while the Commission plays the central role, its decision-making is influenced by the opinion of other EU institutions.

The Commission shall shape the future European investment policy in a manner that reflects the principles and objectives of the Union itself.12 The deep commitments towards values based on which the EU was founded shall not be neglected while striving towards eco-nomic development.13 Thus, such principles as rule of law, democracy, environmental, human and social rights protection should retain a pivotal place in the Commission’s considera-tions.14

8_{Treaty of Lisbon, Amending the Treaty on European Union and the Treaty Establishing the European}

Commu-nity [2007] OJ 306/01 (Treaty of Lisbon)

9_{Consolidated Version of the Treaty on the Functioning of the European Union [2007] OJ C 326/47 (TFEU)} 10_{European Parliament and Council Regulation (EU) No 1219/2012 of 12 December 2012 establishing}

transi-tional arrangements for bilateral investment agreements between Member States and third countries [2012] OJ L351/41 (Regulation 1219/2012)

11_{Regulation 1219/2012, art 16(1)}

12_{Consolidated Version of the Treaty on European Union [2008] OJ 115/01 (TEU). Art 21(3) provides that}

‘The Union shall respect the principles and pursue the objectives set out in paragraphs 1 and 2 in the develop-ment and impledevelop-mentation of the different areas of the Union’s external action covered by this Title and by part Five of the Treaty on the Functioning of the European Union’.

13_{European Commission Communication COM(2015) 497 to the European Parliament, the Council, the}

Europe-an Economic Europe-and Social Committee Europe-and the Committee of the Regions, 'Trade for All: Towards a more respon-sible trade and investment policy’ [2015] Brussels (2015 Commission’s Responrespon-sible Trade and Investment Poli-cy Communication), 15.

14_{TEU, art. 21(1) provides that ‘the Union’s action on the international scene shall be guided by the principles}

which have inspired its own creation, development and enlargement, and which it seeks to advance in the wider world […]’. Art. 21(2) further elaborates on these principles and include democracy, rule of law and human rights (lit. b) and the need to foster sustainable economic, social and environmental development of developing countries with a primary aim to eradicate poverty (lit. d)

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The future European investment policy is not isolated from other developments in in-ternational law and politics. On the contrary, it depends on them. Therefore, the Commis-sion’s ability to exercise an unprecedented scrutiny over future Member State’s IIAs with third countries implies that it shall respond to the developments in the global investment agenda. Therefore, the relevance of this thesis lays in increasing dissatisfaction with current investor-state dispute settlement (ISDS) mechanism. Some countries have started to doubt and even terminate their investment commitments with European states. 15 This is largely influ-enced by a perception that investors tend to exploit investment protection treaties, resulting in costly proceedings against developing states, disrupting environment and failing to observe social and human rights. Thus, it is alleged that IIAs mostly protect investors and neglect oth-er value-based factors.16 However, as the International Bar Association has pointed out - some of these perceptions are not fact-based.17 Thus, yet another debate has evolved as to whether ISDS mechanisms are in fact damaging to host state. One of the perceptions is that ISDS mechanisms mainly protect investors and that they always win. However, in 2014 approxi-mately 37% of ISDS cases were favourable to the State, while only 25% resulted in a mone-tary compensation in favour of the investor.18 Another allegation asserts that awards that de-veloping states are ordered to pay can considerably damage their economy.19 However, Franck’s critical analysis shows that in less than half of the cases tribunals have awarded in-vestors damages.20 Therefore, even though there is and should be some concern as to whether certain value-based considerations are observed, there is no fact-based evidence that would suggest that ISDS mechanisms are designed to just protect investors.

15_{According to India’s Department of Industrial Policy & Promotion, the Government of India has sent notices}

to terminate BITs with 58 countries, including 22 EU states and BIT between the Netherlands and India has al-ready been terminated from December 2016. Moreover, such countries as Indonesia, South Africa, Venezuela, Ecuador and Bolivia have announced their intentions to terminate some or all of their BITs. See Herbert Smith Freehills Dispute Resolution, ‘Mixed messages to investor as India quietly terminates bilateral investment trea-ties with 58 countries’ (2017) < http://hsfnotes.com/arbitration/2017/03/16/mixed-messages-to-investors-as-india-quietly-terminates-bilateral-investment-treaties-with-58-countries/>

16_{See for instance Christina Bodea and Fangjin Ye, ‘Bilateral Investment Treaties (BITs): The Global}

Invest-ment Regime and Human Rights’ (2016) where the authors conclude that ‘countries that ratify a greater number of BITs have worse human rights practices [and that] BITs are more likely to result in human rights violations in non-democracies. Moreover, authors stress that ‘locked-in low standards (aimed at attracting foreign investment in developing states) for environmental protection or labour rights and constrained policies are important sources of popular grievance in host states’.

17_{International Bar Association, ‘IBA issues fact-correcting statement on ISDS’ (2015)}

<https://www.ibanet.org/Article/NewDetail.aspx?ArticleUid=1DFF6284-E074-40EA-BF0C-F19949340B2F> accessed 11 June 2017

18_{UNCTAD, 'Recent Trends in IIAs and ISDS' IIA Issue Note No 1 (2015),}

UNCTAD/WEB/DIAE/PCB/2015/1, 8

19_{The highest monetary compensation claimed was in Generation Ukraine v. Ukraine, ICSID Case No.}

ARB/00/9, Award (16 September 2003), 44 I.L.M. 404, para. 1.1 (2005)

20_{Susan D. Franck, ‘Empirically Evaluating Claims about Investment Treaty Arbitration’ (2007) 86(1) North}

Carolina Law Review, 58 <http://scholarship.law.unc.edu/cgi/viewcontent.cgi?article=4291&context=nclr> ac-cessed 11 July 2017

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Exactly these value-based concerns are reflected in principles and objectives guiding the EU in its external action. Therefore, the aim of this research is to determine whether the Commission is able to eradicate these perceptions and effectively transpose EU values in fu-ture IIAs. It can be argued that by making these agreements more overarching, the Union it-self would benefit, as it would restore trust in the investment protection treaties and investors as such. This is particularly important, as investment is essential for economic growth and de-velopment.21 Therefore, the main research question is:

What role does the European Commission play in transposing principles and objectives of the European Union in International Investment Agreements concluded by Member States post

Lisbon?

In order to answer this question, this thesis is structured as follows. Sections 2 and 3 analyses positive law from an internal perspective. Section 2 is dedicated to the relevant EU primary law. Firstly, it addresses the legal effects of Article 207 TFEU and the role of the Commission. Further, the legal basis that empowers Member States to act in areas of EU ex-clusive competence is assessed. Moreover, the principles and objectives that shall guide the EU’s actions are analysed. Section 3 considers secondary law, which enables Member States to act provided that the Commission has empowered them. Here it is essential to determine the Commission’s ability to influence future agreements and whether it can transpose certain values into them. Section 4 applies primary and secondary law to the Commission’s commu-nications and reports of other EU bodies. Thus, author turns away from describing and analys-ing Union’s positive law from an internal perspective and turns to non-legal documents in or-der to assess whether the Union’s principles and objectives are consior-dered to be crucial com-ponents of future investment agreements and what are the implications of the allocation of competences on future investment policy. The aim is to determine how these principles and objectives are spelled out and whether primary law correlates with the considerations and de-bates occurring in Brussels. Finally, Section 5 draws general conclusions in regard to the Commission’s ability to influence future Member States’ IIAs.

21_{Maryann Feldman and others, ‘The logic of economic development: a definition and model for investment’}

(2016) 35(1) Environment and Planning C: Politics and Space, 8

<http://journals.sagepub.com/doi/pdf/10.1177/0263774X15614653> accessed 10 June 2017. Also, in 2010 Commission’s Investment Policy Communication it was acknowledged that both inward and outward investment is crucial for the Union thereby eradicating the long-standing perception that the EU is only exporting invest-ment to developing states. Thus, the Commission acknowledged that inward investinvest-ment is essential for the de-velopment of the Union itself and its relations with third countries.

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2. LEGAL ANALYSIS OF EU PRIMARY LAW

The EU possesses international legal personality; hence it can act on the international stage and enter into international agreements with other entities.22 Moreover, the EU has its own legal order meaning that it is separate from international law and is based on primary and sec-ondary legislation.23_{Treaty on European Union (TEU)}24_{and TFEU}25_{are EU primary}

legisla-tion and form the constitulegisla-tional basis of the Union. This Seclegisla-tion examines EU primary law, which takes the top position in the hierarchy of Union law. For the purposes of this research, three aspects of Union’s primary law as it stands after the entry into force of Lisbon Treaty are analysed. Sub-section 2.1. considers Article 207 TFEU, its implications for the allocation of competences and the Commission’s role in the field of FDI. Sub-Section 2.2. determines the legal basis that enables Member States to act in fields of Union’s exclusive competence. Finally, sub-section 2.3. analyses the TEU as it sets forth values, principles and objectives that shall guide the EU in its external action.

2.1. Post-Lisbon: FDI an exclusive competence of the EU

The Treaty of Lisbon entered into force in 2009 and amended constitutional basis of the EU. It was as a crucial turning point for the allocation of competences between Member States and the EU in the field of FDI as the CCP was considerably expanded. According to Article 207(1) TFEU, FDI now forms a part of the CCP.26 Hence, it is removed from the list of Member States’ competences and, pursuant to Article 3(1) TFEU, is an exclusive competence of the Union. A crucial point that clarified how overarching is the EU’s exclusive competence in the field of the FDI was in May 2017, when the Court of Justice delivered the long-awaited Opinion 2/15 on the EU’s ability to conclude a Free Trade Agreement with Singapore.27

22_{See International Court of Justice, Reparations for Injuries Suffered in the Services of the United Nations, ICJ}

Reports (1949) 173, 179; the Court concluded that the United Nations has an international legal personality meaning that ‘it is a subject of international law and capable of possessing international rights and duties, and that it has capacity to maintain its rights by bringing international claims’.

23_{European Parliament, ‘Fact Sheets on the European Union’ (2017)}

<http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId=FTU_1.2.1.html> accessed 6 June 2017.

24_{Consolidated Version of the Treaty on European Union [2008] OJ 115/01 (TEU)}

25_{Consolidated Version of the Treaty on the Functioning of the European Union [2007] OJ C 326/47 (TFEU)} 26_{For the purposes of the Union law, TFEU and the position of the Commission, foreign direct investment (FDI)}

shall be understood as a term capturing foreign investors’ acquisition of control over a company - by means of acquiring either the necessary majority of shares or the company as such - with the intention to exercise at least significant influence over it. Moreover, direct investments shall be distinguished from portfolio investments, which are solely aimed at the increase in value of dividends yielded by the acquired shares.

27_{European Court of Justice, Opinion 2/15 on EU-Singapore Free Trade Agreement [2017]}

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While it is clear that pursuant to Article 207 TFEU matters of FDI should be exclusively with-in Union’s competence, the Court needed to determwith-ine how broad is Commission’s negotia-tion mandate and whether matters of ISDS and non-direct investment falls within Union’s ex-clusive competence. Accordingly, the Court found that while the majority of the agreement is within the Union’s exclusive competence, matters of ISDS and non-direct investment cannot be approved by the EU alone and that this competence should be shared.28

Prior to the entry into force of the Lisbon Treaty, ‘the exact delineation of EU compe-tence [was] complex and ambiguous’ as the EC Treaty did not mention foreign investment as such.29 This ambiguity was evidenced in practice as a struggle between the EU and Member States as to the exact allocation and scope of competences was on-going.30 Thus, one of the main aims for including the FDI in the list of Union’s exclusive competences was to establish a comprehensive and uniform investment policy by empowering the Commission to conclude a new generation of IIAs.31 In the 2010 Investment Policy Communication, the Commission stressed that ‘the European Union is both the world’s leading host and source of FDI’,32 thus making it a market leader. The Commission emphasised the necessity to create a uniform in-vestment policy as ‘not all Member States have concluded [IIAs], and not all agreements pro-vide for the same high standards [therefore leading] to an uneven playing field for EU com-panies investing abroad’.33 Thus, it was argued that the competitiveness of Union’s companies is ‘best served by cooperation and by negotiations at the level of the Union’.34

Title II of Part V TFEU sets forth the objectives and principles of the CCP. Article 206 TFEU lists the objectives and ‘contains a declaration of principles of the Union’s CCP’.35 However, Article 207 TFEU is more important for the present purposes as it spells out these principles. Thus, sub-section 2.1.1. determines what are the practical implications of including

28_{In Opinion 2/15 para. 305 the Court of Justice concluded that the envisaged agreement falls within the}

exclu-sive competence of the European Union, with the exception of the following provisions, which fall within a competence shared between the European Union and the Member States: (i) the provisions in so far as they re-late to non-direct investment between the European Union and the Republic of Singapore and (ii) the provisions on Investor-State Dispute Settlement.

29_{Angelos Dimopoulos, EU Foreign Investment Law (Oxford University Press, 2011) 66.}

30_{There have been number of cases in which the EU and Member States have disputed who has had a}

compe-tence to act. For instance, Case C-22/70, Council v. Commission (ERTA case) concerned an arrangement arrived at, not by the Council, but by the Member States meeting in the margin of Council, to the effect that they all would conclude the European Road Transport Agreement (ERTA). The Commission appealed this ‘decision’ to the European Court of Justice arguing that the Community should have concluded this agreement and not the Member States.

31_{2010 Commission’s Investment Policy Communication (n 1) 5-6.} 32_{ibid 3.}

33_{ibid 5.} 34_ibid.

35_{Rudolf Geiger, Daniel-Erasmus Kahn and Markus Kotzur (eds), European Union treaties: A Commentary.} Treaty on European Union, Treaty on Functioning of European Union, (Hart, 2015) 755.

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matters of FDI in the CCP pursuant to Article 207 TFEU and what does it mean for future extra-EU BITs.36 Sub-section 2.1.2. analyses the Commission’s role within this framework.

2.1.1. Article 207 TFEU: practical implications of including matters of FDI in the CCP

Article 207(1) TFEU explicitly states that FDI forms a part of the CCP. Moreover, the fact that matters of FDI are included in the CCP also means that the treaty-making powers for BITs are transferred from the Member States to the Union.37_{Thus, this provision and}

con-cepts it encompass are central for this thesis, and should be shortly addressed.

The CCP primarily concerns the EU’s external trade relations with third countries. However, ‘a measure is to be qualified as a commercial policy measure […] if it serves as a typical instrument to influence trading volumes and trade flows [and this is also the case] if measures are expressly enumerated in Article 207 TFEU’.38 Hence, as provided in Article 207(1) TFEU, matters of FDI are expressly included in the Union’s CCP. Moreover, the CCP ‘is shaped by the Union's uniform principles, whereas the principles of world trade friendli-ness arising from Article 206 TFEU and the general objectives of the external action of the Union are to be considered’.39

As concerns implications of Article 207 TFEU on future IIAs, it is important to note that, as a rule, only the Union can negotiate and conclude them. According to primary law, Member States can no longer enter into negotiations and conclude investment agreements with third states. In this regard, Opinion 1/94 of the Court of Justice is recalled as the Court held that parallel activities of the Member States in fields of Union's exclusive competence are not permissible.40 Nevertheless, under certain circumstances, Member States may act in fields of Union’s exclusive competence, provided that they have been legally empowered to do so.41 Such a ‘re-empowerment’ in regard to FDI and Member States' investment agree-ments with third countries can be found in EU secondary law. Furthermore, it is noted that Article 207 TFEU does not deal with the destiny of pre-existing IIAs between Member States and third countries. This issue is also addressed in Regulation 1219/2012, which will be ana-lysed in Section 3.

36_{For the purposes of this research term ‘extra-EU BIT’ means a bilateral investment treaty that has been signed}

between a EU Member State and a third country.

37_{Geiger, Kahn and Kotzur (n 35) 758.} 38_{ibid 759.}

39_{ibid 757.}

40_{European Court of Justice, Opinion 1/94 on the competence of the Community to conclude international}

agreements concerning services and the protection of intellectual property [1994] ECR I-5267

41_{Article 2(1) TFEU states that ‘when the Treaties confer on the Union exclusive competence in a specific area,}

only the Union may legislate and adopt legally bidding acts, the Member States being able to do so themselves only if so empowered by the Union or for the implementation of Union acts’.

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The following sub-section assesses the Commission’s role in the post-Lisbon frame-work and the degree to which it can influence future European investment policy. It is crucial to analyse it as the main research question seeks to determine the extent to which the Com-mission can influence the content of future IIAs

2.1.2. Post-Lisbon: The Commission’s role in the new framework of FDI

As established above, Article 3(1) TFEU read in conjunction with Article 207 TFEU provides that the Union has exclusive competence in the field of FDI and without specific empower-ment, Member States no longer have a capacity to enter into investment agreements with third countries. The initial steps of this analysis already showed that the Commission plays a role in this new framework. However, it remains necessary to assess what does it mean in practice and how overarching is the influence possessed by the Commission.

Regarding the Commission’s role in the post-Lisbon framework, the following obser-vations are of importance. When considering the commercial measures taken within the Un-ion, a distinction should be made between ‘internal regulations (“autonomous” commercial policy) and internationally binding acts of the Union vis-à-vis third countries and in the framework of international organisations (“contractual” commercial policy)’.42 For the pur-poses of this research and, in particular, the Commission’s role in this framework, the second category applies. The Commission’s role in negotiating with third countries was already em-phasised in the predecessor provisions of Article 207 TFEU. Namely, Article 133(3) of the Treaty of Rome stated that the Commission should be empowered by the Council to negotiate with third countries.43 The same was repeated and, in fact, elaborated upon in the Treaty of Nice.44 Now pursuant to the Lisbon Treaty, Article 207(3) TFEU provides that where an in-ternational agreement with third country is envisaged, ‘Article 218 TFEU shall apply, subject to the special provisions of this Article’.45 Article 218(3) TFEU provides that the Commission shall submit recommendation to the Council, which in turn shall authorise it to negotiate.46 The special provisions are enlisted in paragraphs 3 and 4 of Article 207 TFEU, stating that

42_{Geiger, Kahn and Kotzur (n 35) 760.}

43_{Consolidated Version of the Treaty Establishing the European Economic Community [1957], art 133(3):}

'where agreements with third countries need to be negotiated, the Commission shall make recommendation to the Council which shall authorise the Commission to open the necessary negotiations’.

44_{Treaty of Nice, Amending the Treaty on European Union, the Treaties Establishing the European}

Communi-ties and Certain Related Acts [2001] OJ 80/1

45_{TFEU, art 207(3)}

46_{TFEU, art 218(3) states: 'The Commission, or the High Representative of the Union for Foreign Affairs and}

Security Policy where the agreement envisaged relates exclusively or principally to the Common Foreign and Security Policy (CFSP), shall submit recommendations to the Council, which shall adopt a decision a authorising the opening of negotiations and, depending on the subject of the agreement envisaged, nominating the Union negotiator or the head of the Union’s negotiating team’.

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internationally binding acts shall be negotiated by the Commission (para. 3) and concluded by the Council (para. 4). Thus, the Commission is clearly the sole EU institution that is empow-ered to conduct negotiations with third countries in the field of FDI. However, while the Commission is the sole negotiator, the role of other EU institutions should not be neglected. The Council shall appoint a special committee that consults the Commission in the course of negotiations and ‘the Commission shall report regularly to the special committee and to the European Parliament’.47 Moreover, the European Parliament possesses a co-decision powers meaning that it has a final say in conclusion of international agreements.48

This sub-section shows the central role of the Commission in the field of FDI, mean-ing that it shall be the main negotiator in regard to internationally bindmean-ing acts in the field of the CCP.49 Moreover, the role of other EU institutions, especially the European Parliament, should be kept in mind as they might influence the Commission in its work of transposing EU principles and objectives. However, Article 207 TFEU remains silent of the considerations that the Commission shall take into account or its ability to scrutinise the content of pre-existing and envisaged Member States IIAs. These aspects are dealt with in the Regulation 1219/2012, which will be analysed in Section 3. As mentioned previously, Opinion 1/94 indi-cates that Member States can no longer act in fields where the Union has acquired an exclu-sive competence. Nevertheless, Member States are still entering into IIAs with third countries. Thus, the following sub-section aims to determine the fate of already existing IIAs and what is the legal basis for Member States to conclude new agreements.

2.2. Agreements between Member States and third states

The previous sub-section showed that due to the amendments introduced by the Treaty of Lisbon, FDI falls within the list of Union’s exclusive competences. However, Article 207 TFEU is silent of the fate of already existing extra-EU BITs, meaning that it does not provide with any transitional arrangements or how to replace them. Moreover, as Article 2(1) TFEU states that Member States can act in areas of Union’s exclusive competence only if so

47_{TFEU, art. 207(3)} 48_{TFEU, art. 218(6)}

49_{TEU, art. 18(2) provides that the High Representative of the Union for Foreign Affairs and Security Policy}

shall conduct the Union’s CFSP. Accordingly, while the High Representative is responsible for conducting and negotiating matters of CFSP, the Commission is responsible for legally binding acts in other areas of external action that has been transferred to Union’s exclusive competence, including the CCP.

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powered, the legal basis for future investment agreements concluded by Member States shall be determined.50

2.2.1. Fate of already existing investment agreements

The future European investment policy provides that existing BITs concluded between Mem-ber States and third countries will be gradually replaced by EU-wide agreements.51 Moreover, primary law clearly shows that future investment policy is in the hands of the Commission. This sub-section shortly addresses the fate of already existing Member States agreements be-fore determining the legal basis of future investment agreements concluded by Member States.

Article 351 TFEU applies to the agreements that Member States have concluded prior to the accession to the EU and implies that such agreements shall not be affected by the sub-sequent provisions of EU Treaties.52 Further, Burgstaller notes that ‘these BITs are compati-ble with EU law since they were concluded before the new EU competence for FDI entered into force and thus do not violate the vertical allocation of competences’.53 Thus, ‘the prior agreements between a Member State and a third country continues to be valid and applicable under international law irrespective of possible incompatibilities between it and EU law’.54 However, Article 351(2) TFEU additionally provides that Member States are under a positive duty to remove any possible incompatibilities between prior commitments made towards third countries and EU law as it is now.55_{Therefore, there is an interaction, although an asymmetric}

one, between international investment law and the EU law.56

50_{According to the European Commission, Directorate General for Trade, personal communication dating back}

to 1 July 2016, by mid-2016, the Commission had given 93 authorisations to open new negotiations and 41 au-thorisations to re-open negotiations. Moreover, it has granted 16 auau-thorisations to conclude new agreements as well as 21 authorisations to conclude protocols for existing BITs with third countries.

51_{At the outset of Regulation 1219/2012 it is explicitly stated that ‘bilateral investment agreements remain}

bind-ing on the Member States under public international law and will be progressively replaced by agreements of the Union relating to the same subject matter’ and that such agreements ‘should be maintained in force and progres-sively replaced by investment agreement of the Union’.

52_{TFEU, art 351(1) provides that such prior agreements shall not be affected by the provisions of the Treaties. It}

reflects art 34 of the 1969 Vienna Convention on the Law of Treaties according to which a treaty - in this regard TEU and TFEU - cannot create rights and obligations for third states which are not party to it.

53_{Markus Burgstaller, ‘The Future of Bilateral Investment Treaties of EU Member States’ in Marc Bungenberg,}

Jorn Griebel and Steffen Hindelang (eds), International Investment Law and EU Law (Springer 2011) 66.

54_{Pieter J. Kuijper and others, The Law of EU External Relations: Cases, Materials, and Commentary on the EU} as an International Legal Actor (2nd edn, Oxford University Press 2015) 797.

55_{This was also affirmed in Case C-170/98 Commission of the European Communities v. Kingdom of Belgium}

[1999] ECR I-5493, para 43.

56_{Nikos Lavranos, ‘New Developments in the Interaction between International Investment Law and EU Law’}

(2010) 9 The Law and Practice of International Courts and Tribunals, 409-441

<http://booksandjournals.brillonline.com/docserver/15691853/v9n3_s3.pdf?expires=1500471192&id=id&accna me=id23355&checksum=8DC0072E06D7AC4B491A980CDD301383> accessed 17 June 2017. The author con-tends that this interaction is asymmetric in a sense that the EU law ’claims supremacy over BITs and public in-ternational rules and principles. Accordingly, the interaction between inin-ternational investment law and

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Commu-EU primary law is silent regarding the agreements between Member States and third countries that are concluded post-Lisbon and while being a EU member. Thus, the following sub-section aims to determine what this silence means in terms of present day reality that Member States, provided that certain conditions are fulfilled, still can negotiate and enter into IIAs with third states.

2.2.2. No legal basis for Member States concluding new agreements in primary law

For the purposes of this research it is crucial to assess under what circumstances a Member State can negotiate an agreement with a third country in the field of FDI. As just mentioned, primary Union law does not contain any specific provisions dealing with future Member States’ IIAs as matters of FDI have been transferred to Union’s competence.

The reason why there are no special provisions is that any international agreement shall be subject to general principles of Union law, meaning that ‘Member States may not conclude agreements in areas for which the Union has acquired an exclusive competence’.57

Accordingly, IIAs concluded by Member States would be in principle internationally valid but contrary to Union law, as they would disregard the allocation of competences. However, as Kuijper et al note, under exceptional circumstances, ‘it may also be in the interest of the Union that Member States conclude agreements in areas of [EU] competence’.58 This possi-bility is also expressed in Article 2(1) TFEU. Accordingly, the EU has accepted a possipossi-bility that Member States may still be empowered to amend, negotiate and conclude investment agreements with third countries if certain conditions are met. Such an empowerment is ex-pressed in Regulation 1219/2012. This is of particular importance, as the aim of this study is to determine what kind of influence the Commission possesses and which considerations play a role when Member States are empowered to negotiate external investment agreements. It is crucial to keep in mind that the EU will not have the capacity and interest to replace com-pletely all IIAs between Member States and third countries. Hence, some will remain in force, and thus the importance of them being in line with European principles and objectives is an essential consideration that the Commission will keep in mind when overlooking these nego-tiations.

It follows that despite the fact that there is no legal basis in Union’s primary law ena-bling Member States to conclude IIAs, the Commission can nevertheless empower them to nity law is marked by a struggle of supremacy between these two legal orders. This struggle over the hierarchy of norms is similar to the one regarding UN law and Community law, which the ECJ decided in Kadi to be in favour of Community law’.

57_{Kuijper and others (n 54) 806.} 58_ibid.

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act. Prior to analysing Union’s secondary law, the next sub-section analyses the principles and objectives that guide the EU in its external relations as the aim of this research is to determine the Commission’s ability to influence future IIAs and to transpose Union’s principles and ob-jectives in them.

2.3. Legal principles that guide EU in its external relations

It should be recalled at the outset of this sub-section that Article 207(1) TFEU explicitly states ‘the [CCP] shall be conducted in the context of the principles and objectives of the Union’s external action’.59 As the main aim of this research is to determine whether the Commission can transpose these principles and objectives and influence Member States’ agreements with third countries, it is essential to determine what exactly are these ‘principles and objectives’ that shall guide Union in its external action.

The Preamble of the TEU already mentions values that are essential for the Union both internally and externally. While the Preamble does not impose strict treaty obligations that can be legally enforced, it provides with a moral basis and is legally significant.60 This legal significance is embedded in Article 31(2) of the Vienna Convention on the Law of Trea-ties, which states that preamble contributes to the context for the purposes of interpreting a treaty.61 Thus, the fact that the Preamble of the TEU affirms such principles as sustainable development, environmental protection and respect for fundamental rights and freedoms is crucial when further interpreting and analysing the Treaty. Moreover, while Article 3 TEU establishes the aims of the Union and thus will be analysed in detail in the following sub-section, Article 2 TEU stipulates common values. These common values of respect for human dignity, freedom, democracy, equality, the rule of law and respect for human rights are the foundation of the Union and imposes a legal obligation on the EU to respect and promote them.

These values are not created by the Treaty, meaning that “the Union has rather been founded on these pre-existing principles.”62 Thus, Article 2 TEU clearly imposes an obliga-tion on the Union to respect and promote these values, including in its external relaobliga-tions. The following sub-section aims to determine where in the TEU the principles and objectives of the

59_{TFEU, art 207(1)}

60_{Geiger, Kahn and Kotzur (n 35) 3.}

61_{Vienna Convention on the Law of Treaties between States and International Organisations or between}

Interna-tional organisations, [1969] 1155 UNTS 331 (VCLT). The importance of preamble when interpreting a treaty has also bee affirmed by the Court of Justice in such cases as Case C-26/62 Van Gend&Loos [1963] ECR 24 and Case C-136/79 National Panasonic v. Commission [1980] ECR 02033.

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Union are spelled out and how exactly they apply to the EU's external action. Moreover, their bindingness shall be assessed in order to further analyse their role in Commission’s considera-tions when it empowers Member States to act in the field of FDI.

2.3.1. Article 3(5) TEU: principles and objectives guiding Union’s external action

Article 3(5) TEU is the general provision providing principles and objectives applicable to the Union’s external action. As noted by Geiger et al, the objectives listed in Article 3 TEU ‘do not just formulate a general programme; they are legally binding’.63_{Even though they do not}

impose specific obligations and allocation of competences, ‘they show direction and the frames for the Union’s activities and they are decisive guides for interpreting the TEU’.64 In Article 3(1) TEU the general aim of promoting peace, the Union’s values and the well-being of its people is established. The following paragraphs crystallise the general tasks that shall be attained in order to achieve the overall aim contained in Article 3(1) TEU.65 For the purposes of this research, Article 3(5) TEU is essential as it formulates the principles and objectives applicable to the Union’s external relations.

The wording used in Article 3(5) TEU is worth some attention. Namely, the phraseol-ogy ‘[the Union] in its relations with wider world’ is used thus indicating that this provision applies altogether to third countries, non-state actors and international organisations. Hence, Article 3(5) TEU spells out the general aims that shall be attained in the Union’s external rela-tions and these are further elaborated on in Title V Chapter 1 TEU, which will be analysed in the following sub-section. In the first sentence of Article 3(5) TEU a reference to the Union's values embedded in Article 2 TEU is made, meaning that they need to be upheld in the rela-tions with the ‘wider world’. Further on, the provision stresses that the EU shall contribute to peace, security as well as sustainable development of the Earth, implying that environmental protection stands among these objectives.66 Moreover, the provision affirms that the princi-ples of the United Nations Charter shall be respected.

It follows that Article 3(5) TEU promotes values of the EU as well as stresses certain contributions that shall be observed in the Union's external action. This provision imposes a legally binding obligation on the part of the Union. It does not create any competence alloca-tion or specific orders. Rather, it ‘determines the political discrealloca-tion of the Union institualloca-tions

63_{ibid 18.} 64_ibid. 65_ibid.

66_{TEU, art. 3(5) provides with a general obligation to ensure a sustainable development of Earth, while art 21(2)}

TEU provides in more detail that Union’s action on international scene shall also aim to foster altogether sus-tainable economic, social and environmental development of developing countries.

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within the limits of their competence’.67 It should be emphasised that pursuant to Article 3(6) TEU ‘the aims listed there are on their own not sufficient for authorising acts of the Union [meaning that] the aims must be pursued by appropriate means according to the competences which have been transferred to the Union’.68_{As already established, FDI is an exclusive}

com-petence of the Union. Accordingly, the EU, and the Commission in particular, is obliged to promote and implement these principles and objectives both when concluding IIAs with third states as well as when empowering Member States to engage in such commitments. Further, Title V Chapter 1 TEU should be analysed, as it further elaborates upon the principles and objectives that shall be respected in Union’s external action.

2.3.2. Title V Chapter 1 TEU: general provisions on EU external action

Title V TEU is divided into two chapters. The first one deals with the general provisions that are applicable to the Union’s external action and the second concerns the Common Foreign and Security Policy. For the purposes if this research, only Chapter 1 is relevant as it applies to the CCP. Article 21 TEU is particularly important as it sets forth the principles of Europe-an external policy.

Similarly, as in the case of Article 3 TEU, the first paragraph of Article 21 TEU re-calls the values embedded in Article 2 TEU that shall guide the Union. The first sentence of Article 21 ‘expressly points out that these are the principles that has been substantial for Un-ion’s own creation, development and enlargement’.69 These principles shall not be regarded merely as internally binding. ‘They are supposed to be carried into the wider world and set a motivating example’.70 Thus, they also apply to IIAs that the Union itself enters into or em-powers Member States to engage in. Article 21 TEU spells out both general and particular objectives. Among the general ones are, for instance, the values embedded in Article 2 TEU, as well as determination to preserve peace and prevent conflicts.

For the purposes of this research, the particular aims are more relevant as they are more likely to be affected by IIAs. The particular aims embedded in Article 21(2) TEU are concerned with assisting developing countries in (primarily) eradicating poverty; preventing conflicts; encouraging the integration of all countries into the world economy; supporting de-mocracy, the rule of law and human rights; fostering sustainable economic, social and

67

Geiger, Kahn and Kotzur (n 35) 18. See also ECJ Case C-141/78 France v UK [1979] ECR 2940.

68_{Geiger, Kahn and Kotzur (n 35) 21.} 69_{ibid 120.}

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ronmental development and sustainable management of natural resources, as well as provid-ing assistance in case of natural or man-made disasters.

Concerning the scope of application, Article 21(3) TEU provides that the provision covers all fields of external action in which the EU engages. Thus, one of the categories to which it applies is Part V of the TFEU, namely, the CCP, including FDI. Furthermore, Article 21(3) TEU requires coherence, meaning that ‘all of the measures of the Union must comply with its position in its external affairs and vice versa’.71 Thus, both the Council and the Com-mission are responsible for ensuring such coherence as well as for implementing principles and objectives that have been spelled out in the relevant provisions applicable to the external action of the Union.

Principles and objectives enlisted in Article 21 TEU shall guide the external actions of EU institutions, including the European Commission. Moreover, pursuant to Article 21(3) TEU, the Council and Commission are responsible to ensure consistency and apply this pro-vision to Union’s external action. Thus, the Commission shall be guided by these principles and, in fact implement them, when empowering Member States to enter into BITs with third states. The future EU investment agenda foresees that considerable part of extra-EU BITs concluded by Member States will be replaced by EU-wide agreements. However, part of Member States’ BITs will remain in force as the EU will not have legal, economic and politi-cal capacity to re-negotiate new agreements with all third countries. It means that it is crucial for the Commission to ensure that BITs that will remain in force are reflecting the principles and objectives embedded in the TEU. This aspect shall be kept in mind as later on, it will be assessed to what extent these principles and objectives are figuring in considerations of the Commission.

It follows that all of the values, principles and objectives that are embedded in the pre-viously analysed provisions are directed to the institutions of the Union. This is essential for the following sections, as the Commission’s role in implementing these principles in Member States’ IIAs is prominent in order to keep them in line with the obligations that are applicable to the institutions of the EU. Section 4 of this thesis discusses whether these particular aims are central in the Commission’s consideration in regard to future investment policy and whether they have played a role in the assessments of other EU institutions. However, Section 3 firstly turns to analyse EU secondary law - Regulation 1219/2012, which is a transitional arrangement aimed at re-empowering Member States to act in field of Union’s exclusive competence.

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3. LEGAL ANALYSIS OF EU SECONDARY LAW

Secondary law is hierarchically the lowest source of EU law. Moreover, secondary legislation is only valid if it is consistent with higher-ranking sources of law.72 There are two types of secondary legislation - regulations and directives. For the purposes of this research only Regulation 1219/2012 is analysed as it can empower Member States to conclude investment agreements, which according to the Union’s primary law is an exclusive competence of the EU. Regulations are binding in their entirety and are “directly applicable in all the Member States as soon as they enter into force.”73_{Their main aim is to ensure a uniform application of}

Union law. This section analyses legal effects of Regulation 1219/2012, determines Commis-sion’s abilities under it and assesses the degree to which the Commission can influence the content of envisaged investment agreements with third countries.

3.1. Regulation (EU) No 1219/2012: a tool of re-empowerment

Adoption of Regulation 1219/2012 established a transitional arrangement for already existing and future BITs between Member States and third countries.74_{Thus, it addresses changes in}

the allocation of competences introduced by the Treaty of Lisbon. Regulation 1219/2012 closely resembles the transitional arrangements from 1960s used for Member States’ com-mercial agreements after introducing the CCP.75 However, so far there is little case law clari-fying legal implications of the post-Lisbon framework and the competence shift.76

Regulation 1219/2012 addresses both (i) the status of pre-existing extra-EU BITs and (ii) foresees that the Commission can empower Member States to amend existing investment

72_{European Parliament, ‘Fact Sheets on the European Union’ (2017)}

<http://www.europarl.europa.eu/atyourservice/en/displayFtu.html?ftuId=FTU_1.2.1.html> accessed 1 May 2017.

73_ibid.

74_{Regulation 1219/2012 is specifically designed to establish transitional arrangements for bilateral investment}

agreements between Member States and third countries. While the term 'International Investment Agreement’ (IIA) covers BITs, it may also include multilateral treaties, which can also relate to trade agreements. However, Regulation 1219/2012 does not provide with transitional arrangements for multilateral trade agreements. Thus, in the context of Section 3, the term ‘BIT' is more appropriate to use.

75_{Philip Strik, Shaping the Single European Market in the Field of Foreign Direct Investment (Bloomsbury}

Pub-lishing 2014)

76_{See Case C-466/08, Commission v. United Kingdom, Opinion of AG Tizzano [2002], ECR I 9427, para 113.}

The issue of the effect of supervening exclusivity on existing Member State agreements with third countries came up in the Open Skies cases, where AG Tizzano considered that: 'the issue of compatibility with EU law cannot arise because the supervening external competence of the Community in matters previously regulated by agreements of the Member States does not suffice in itself to render those agreements incompatible with the rules and principles governing the division of powers.' The most recent judgement is previously discussed

Opin-ion 2/15, which clarified the extent to which the EU has an exclusive competence to a act in the field of FDI and

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agreements and/or conclude new ones.77 It is expressly stipulated that 'this Regulation is without prejudice to the allocation of competences between the Union and its Member States',78 meaning that it shall be regarded as a transitional instead of a permanent arrange-ment. In any event, for now Regulation 1219/2012 is a tool that can re-empower Member States to negotiate, conclude and amend investment agreements provided that strict criteria are fulfilled.

3.1.1. Legal Effects of Regulation 1219/2012 and role of the Commission

Regulation 1219/2012 provides, in essence, that the Commission can authorise a Member State to open negotiations and conclude a BIT with a third country, provided that certain strict criteria are met. This authorisation regime thus clearly restricts Member States in the field of investment as the Commission is empowered to scrutinise all existing and envisaged agree-ments.

The central role of the Commission is emphasised in Article 2 Regulation 1219/2012, which provides that Member States shall notify the Commission of all BITs that already ex-isted at the time of the entry in force of this Regulation. However, more relevant for the pre-sent purposes is Article 8 stating that in cases when a Member State intends to open negotia-tions with a third country with an aim to amend a pre-existing agreement or to conclude a new one, 'it shall notify the Commission of its intentions in writing'.79 After such notification is made, pursuant to Article 9 Regulation 1219/2012, the Commission shall authorise a Member State to negotiate unless it considers that such negotiations are either (i) conflicting with Un-ion’s law; (ii) are superfluous; (iii) are inconsistent with the UnUn-ion’s principles and objectives or (iv) constitute an obstacle to the negotiation or conclusion of a EU-wide BIT.80 Thus, the Commission clearly is the driving actor and can decide unilaterally whether to authorise an agreement or not. However, as Lavranos has argued, these conditions are somewhat vague and the Commission could easily find, if so inclined, that a Member State’s BIT is to some extent impairing one of these conditions.81

While the EU primary law does not deal with transitional arrangements for Member States’ BITs, Regulation 1219/2012 serves a twofold purpose. It allows Member States to

77_{Stefanie Schacherer, ‘Can EU Member States Still Negotiate BITs with Third Countries?’(2016) International}

Institute for Sustainable Development < https://www.iisd.org/itn/2016/08/10/can-eu-member-states-still-negotiate-bits-with-third-countries-stefanie-schacherer/> accessed 15 May 2017

78_{Regulation 1219/2012, Preamble} 79_{Regulation 1219/2012, art 8(1)}

80_{Regulation 1219/2012, art 9(1) (emphasis added)}

81_{Nikos Lavranos, 'In Defence of Member States' BITs Gold Standard: The Regulation 1219/2012 Establishing}

a Transitional Regime for Existing Extra-EU BITs - A Member State's Perspective’ (2013) 10(2) Transnational Dispute Management, 7 <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2226979> accessed 22 June 2017.

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temporarily maintain certain capabilities in the field of FDI in order to ensure a successful transition period.82 At the same time, it re-affirms and stabilises the central role of the Com-mission, emphasising the competence shift and Union’s exclusive position. This duality of Regulation 1219/2012 did not come easy and is a result of extensive negotiations among dia-metrically opposed positions.83_{Accordingly, a conditional authorisation system based on}

strict criteria applies to all BITs that Member States intend to negotiate and conclude post-Lisbon.84 By emphasising the central role of the Commission, this Regulation clearly envis-ages the ambition that in the future, the majority of extra-EU BITs will be replaced by EU-negotiated IIAs.

As was mentioned before, Regulation 1219/2012 closely resembles arrangements made pursuant to the Treaty of Rome, which gave the Community an exclusive competence in the area of external trade. However, some differences shall be observed. Firstly, and as not-ed by Strik, the Treaty of Rome ‘explicitly providnot-ed for a transitional period […] by the end of which the gradual convergence of the Member States’ commercial policy was to be achieved’.85 The Treaty of Lisbon, however, merely assigned the EU an exclusive compe-tence in the field of FDI without further specifying any transitional period within which the competence shall be completely transferred. Secondly, ‘unlike Regulation 1219/2012 […] the 1961 Decision did not contain a replacement mechanism for existing Member State commer-cial agreements’.86 Hence, while Regulation 1219/2012 does not provide any time limit for the transfer of competence, it provides with a replacement mechanism.

Accordingly, the post-Lisbon framework acknowledges that the transfer of compe-tences is not going to be complete, meaning that part of Member States’ BITs will stay in force. Thus, Regulation 1219/2012 ‘grants legal security to the existing [BITs] between

82_{Strik (n 75)}

83_{Lavranos, 'In Defence of Member States' BITs Gold Standard’ (n 81); In this article the author shows the}

pow-er struggle between the European Commission, the Council and the European Parliament. He highlights how different were the perceptions and mindsets in regard to fundamental questions and, in fact, the necessity of Regulation 1219/2012. For the Commission and the Parliament Regulation 1219/2012 was perceived as an op-portunity to put a mark on future European investment policy by regulating Member States’ existing BITs before embarking on new EU investment treaties. On the contrary, for the Council the only reason for accepting the transitional arrangement in form of Regulation 1219/2012 was to ensure legal certainty towards other Contract-ing parties to the Member States’ already existContract-ing BITs as well as to protect the legal expectations of the inves-tors. Thus, the Council always insisted on ‘replacement’ system, meaning that Member States’ BITs would re-main in force until replaced by EU-wide agreements, while the Commission and Parliament argued for ‘authori-sation’ system. Accordingly, Regulation 1219/2012 can be seen as a compromise between the opposing sides as the ‘replacement system’ is applicable to all BITs that have been concluded before 1 December 2009 (i.e. before the entering into force of the Lisbon Treaty), while the ‘authorisation system’ applies to all BITs post-Lisbon that Member States may wish to negotiate and conclude.

84_{Lavranos, ‘New Developments in the Interaction between International Investment Law and EU Law’ (n 56)}

425.

85_{Strik (n 75)}

86_{Strik (n 75); in this context with ‘the 1961 Decision’ should be understood The Council Decision of 1961 on}

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Member States and third countries until they are replaced by EU-wide investment deals’.87 This security is crucial for investors from both the EU and third countries as the protection provided by BITs is reciprocal.88 As the EU will not necessarily be inclined to conclude an investment agreement with every third country, it is crucial for the interests of the Union to overlook BITs with third countries closely and apply the strict condition so that they are in line with Union's external principles and objectives.

Thus, the main legal effect of the Regulation 1219/2012 is that the Commission can re-empower Member States to negotiate and conclude investment agreements despite the fact that FDI is within the EU’s exclusive competence. Although there is some resemblance be-tween the current situation and the 1960s when the Community acquired an exclusive compe-tence over external trade, it shall be stressed that in regard to present amendments there is no explicit transitional period within which competence shall be completely transferred.

The following sub-sections determine the exact grounds based on which the Commis-sion can refuse to authorise a Member State to negotiate an envisaged BIT. Also to be as-sessed is the extent to which the Commission can exercise scrutiny over future investment agreements. This will also contribute to answering the main research question as the scope of the influence possessed by the Commission will become clearer.

3.1.2. The Commission’s ability to refuse authorisation and influence the content

Pursuant to Article 9(1) Regulation 1219/2012, the Commission can refuse to authorise a Member State’s negotiations to amend pre-existing or to conclude a new BIT based on four alternative grounds: if the envisaged agreement (i) is in conflict with EU law; (ii) conflicts with already intended EU-led negotiations; (iii) is not consistent with EU principles and ob-jectives or (iv) creates serious obstacles to EU-led negotiations. Moreover, not only can the Commission refuse to authorise negotiations, it can also influence and determine the content of envisaged agreement.89 Thus this sub-section analyse the extent to which the Commission can scrutinise Member States’ agreements and alter their content.

87_{European Commission, ‘Investment in a nutshell’ (2017) <} http://ec.europa.eu/trade/policy/accessing-markets/investment/> accessed 17 June, 2017

88_{Jeswald W. Salacuse and Nicholas P. Sullivan, ‘Do BITs Really Work?: An Evaluation of Bilateral}

Invest-ment Treaties and Their Grand Bargain’(2005) 46(1) Harvard International Law Journal, 77

<http://heinonline.org/HOL/Page?handle=hein.journals/hilj46&div=7&g_sent=1&collection=journals> accessed 17 June 2017. Authors stated that: 'Concluding and maintaining a treaty requires a bargain from which both par-ties believe they will derive benefits. An investment treaty between two developed states, both of whose nation-als expect to invest in the territory of the other, would be based on the notion of reciprocity and mutual protec-tion.'

89_{It shall be stressed that even in cases when Member States are authorised to enter into a BIT pursuant to}

Reg-ulation 1219/2012, such agreements nevertheless are subject to the replacement mechanism of Chapter 2 of the Regulation and subject to advisory procedure of Article 16(2). Moreover, the principle of sincere cooperation is

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Importantly, Article 13(a) Regulation 1219/2012 provides that when negotiations are authorised, the Commission may nevertheless request further information where the negotia-tions may touch upon implementation of the Union’s policies.90 It goes even further and states that the Commission may require Member State to take a particular position in the course of negotiations.91_{Moreover, the Commission ‘may require the Member State to include or}

re-move in [investment agreement] negotiations any clauses where necessary to ensure con-sistency with the Union’s investment policy or compatibility with EU law’.92 This is signifi-cant, as it implies that the Commission can influence and determine the content of the envis-aged agreement. In addition to that, Article 10 Regulation 1219/2012 provides that the Com-mission shall be properly informed regarding the progress and content of the on-going negoti-ations. It implies that the Commission can request to participate in negotiations and thus more closely overlook the content of the envisaged agreement and the extent to which it complies with European international investment policy.

If the envisaged agreement either intervenes with EU-led negotiations or creates seri-ous obstacles to such negotiations, the Commission’s refusal to authorise further action is less complex. Namely, as the TFEU provides that investment matters are Union’s exclusive com-petence, the Commission is empowered to dictate investment agenda and decide whether it is interested in negotiating new IIAs itself. However, a more interesting situation arises when authorisation is refused either because the envisaged agreement conflicts with the EU law or is not consistent with the principles and objectives of the EU. These grounds for refusal are especially relevant for this research, as they potentially allow the Commission to scrutinise envisaged agreements from value-based perspective. Thus, they will be addressed in more detail in the following sub-sections.

3.1.2.1. Conflict with EU law

Member States as well as EU institutions and third countries ‘have indicated that the applica-tion of Member State BITs can result in a violaapplica-tion of EU rules’.93 Therefore, the first ground

applicable both to already existing BITs and authorisation mechanism for amending existing agreements and concluding new ones.

90_{Regulation 1219/2012, art 13(a)}

91_{Regulation 1219/2012, art 13(a) states that where the envisaged agreement 'might affect the implementation of}

the Union’s policies relating to investment, including in particular the CCP, the Commission may require the Member State concerned to take a particular position’.

92_{Strik (n 75). See also Regulation 1219/2012 art 9(2) stating 'the Commission may require the Member State to}

include or remove from such negotiations and prospective [BIT] any clauses where necessary to ensure con-sistency with the Union's investment policy or compatibility with Union law’.

Post-Lisbon Framework: the role of the European Commission in transposing EU principles and objectives in future investment agreements with third countries