the united states, european union, and international investment

8/6/2019 The United States, European Union, and International Investment

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Economic Policy Program

legislation erupted under NAFA. Although in the end the

investor’s claim against the legislation was rejected, thesegroups argued the MAI could somehow stop governmentsrom taking steps needed to protect consumers and theenvironment.6 Te MAI died in large part under the weighto the protests, and ever since international investment trea-ties have come under intense political scrutiny. As a result,or years the United States has been unable to revise its“model” investment treaty, used as the template or negotia-tions with individual countries. Tis is unortunate, as theopposition to international investment treaties derives roma misunderstanding — and exaggeration — o their mainprovisions.

International investment treaties — some 2,500 o whichare in orce today — have one key purpose: to encourageinows o the capital and technology needed or economicgrowth by reducing legal and political risk.7 Especially indeveloping countries, domestic resources cannot generatethe growth they need to improve the lives o their people;oreign capital is required as well. Tese countries recog-nize, however, that oreigners may be wary o puttingmoney into countries about which they know little, andwill do so only i they get a high enough rate o return tocover the perceived risks — including the possibility they may never see their money again. Investment agreements

provide guarantees to help assuage investors’ concerns, and

6 Ironically, the EU itself, which could be considered the rst multilateral investment

agreement, has never shied away from adopting stringent environmental and consumer

protection legislation. Note that intra-EU foreign direct investment shot from $500 billion

in 1994 to $9.7 trillion by 2009.7 For more detailed elaboration on the legal provisions of investment treaties, and

particularly those of the United States, see for example Kenneth J. Vandevelde, Bilateral

Investment Treaties: History, Policy and Interpretation, Oxford University Press, March

2010.

tiation that could raise acrimony rather than the amity it’s

meant to create.But a ransatlantic Investment Agreement, if done properly,would be useul as it could remove lingering — and evenincreasing — doubts about U.S. and EU openness to oreigninvestment, liberalize new areas or investment betweenthem, and strengthen international investment law, thushelping improve business climates in other countries.

Whether such an agreement could be “done properly” isopen to question: the EU is still debating how it should useits new powers, and increasing deensiveness about inwardinvestment rom third countries — in particular China —

could lead both the United States and EU to adopt policiesthat would also aect investment ows between them. Tisdeensiveness is exacerbated by a misunderstanding aboutthe key provisions o investment treaties, which could leadboth Washington and Brussels to avor provisions thatundermine rather than promote investment ows.

Tis paper lays out a path or the United States and Euro-pean Union to recognize, consecrate, and even celebratetheir unique economic relationship. It does so by providingan overview o international investment treaties; by detailing the background to and changes in the Lisbon

reaty; by discussing the issues the EU aces as it developsits approach in this new policy area, including in negotia-tions now underway with Canada, India, and Singapore;and by suggesting a way orward or the transatlantic invest-ment relationship.

I. International Investment Treaties

wenty years ago, a “proper” ransatlantic InvestmentAgreement would have been airly simple to negotiate— investment treaties were largely seen as technical andnoncontroversial. Tat is no longer true, or investment

agreements have become highly politicized since the NorthAmerican Free rade Agreement (NAFA) and the OECDMultilateral Agreement on Investment (MAI) negotiationsin the mid-1990s.

Nongovernmental organizations, long concerned about thepower o multinational corporations, became anxious aboutthe constraints investment treaties could put on domesticlegislation aer a dispute over Caliornia environmental

Twenty years ago, investment

treaties were largely seen as

technical and noncontroversial.

That is no longer true.



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reduce the need or tax holidays and other inducements to

attract oreign capital.Developing countries also enter into investment agreementsbecause the obligations are not onerous. As detailed below,U.S. and EU investment agreements (and most others) havecentered on three main provisions on national and most-

favored-nation (MFN) treatment, expropriation and transfers, enorced by state-to-state and investor-to-state disputesettlement mechanisms.

Treatment: Foreign investors are always subject to thelaws o the country in which they operate, and nothing ininvestment treaties circumscribes the ability o govern-

ments to adopt laws and regulations. (Te U.S. Senate wouldsurely never ratiy them i they did!) Te treaties merely require that, in adopting laws and regulations, signatory governments will not treat oreign investors dierently than domestic citizens just because of their nationality. TeUnited States and EU governments accept such “nationaltreatment” constraints because in general both opposediscrimination based on nationality, and believe laws andregulations that apply equally to all achieve the greatestpublic good.

One o the main dierences between U.S. and European

investment agreements is that U.S. treaties allow an investorto establish a business in the other country on the samebasis as any citizen in it. I or some reason a governmentchooses to circumscribe this “right o establishment,” itspells out those exceptions. EU member state InvestmentPromotion and Protection Agreements (IPPAs), on theother hand, traditionally stipulate that in establishing abusiness, an investor rom the other country only has thesame rights as all other foreign investors, thus grantingso-called “most avored nation” (MFN) treatment. Tecomplications this raises or the EU will be discussed below.

Expropriation: All governments have the right o publicdomain to take private property. Investment treaties do notpreclude expropriation, but they generally do guarantee thatexpropriations will be or a public purpose (or instance,acquiring rights o way or public inrastructure) and thatthe expropriating government will compensate the ownero the property. In particular, in its BIs, the United Statesseeks or its investors — and provides investors o the other

country — “prompt, adequate, and eective” compensa-tion so that payments are made without undue delay, reectthe ull market value o the investment,8 and can be easily remitted to the investor. EU member state agreements havethe same intent, i slightly dierent wording. In both cases,the widest possible denition o “investment” — to includeintangible property such as intellectual property rights,rights under licensing agreements and good will — is used

to ensure compensation o the ull value o the investmentexpropriated.

Transfers: o attract investment, countries also promise ininvestment agreements that the investor will always be ableto repatriate the investment and any earnings rom it. Tetransers provision also allows the investor to put additionalmoney into the investment to maintain and grow its value.

All U.S. and EU member state investment agreementscenter on these three main obligations; the remainder o the treaties are the ne print clariying and limiting them(increasingly so, in the case o the United States). But the

treaties also include dispute settlement mechanisms toenorce the obligations, both between the governmentsthat sign the treaties and between the host country and theinvestor.

Te investor-to-state mechanism is oen controversial, butagain unnecessarily so. Investors can and do go to domestic

8 What a willing buyer and seller would agree to.

One of the main differences

between U.S. and European

investment agreements is that

U.S. treaties allow an investor to

establish a business in the other

country on the same basis as any

citizen in it.



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court to enorce their legal rights. But the investor-to-state

mechanism in investment agreements has three distinctpurposes. It addresses the international obligations o thehost government under the treaty, when steps taken legally under domestic law allegedly violate the treaty guaranteeson discrimination, expropriation, or obstruction o transer.It ensures a neutral venue to hear the complaint whendomestic courts may have difculty dealing with dierencesbetween domestic law and international obligation. And itdepoliticizes the conict, so the government o the investordoes not have to decide whether to sue the host country,and investors need not depend on their own governmentsto undertake what is oen a diplomatically sensitive step to

protect their investments. U.S. and EU member state invest-ment agreements reer disputes to the World Bank’s Inter-national Center or the Settlement o Investment Disputes(ICSID) or provide alternative means o arbitration.

II. The Evolution of EU Law on Investment Policy

While EU member state investment treaties contain allthese provisions (except, as noted, on national treatmenton establishment), the EU itsel, and specically the tradenegotiators in the European Commission, had only limitedengagement with international investment agreementsbeore the Lisbon reaty entered into orce at the end o 2009. Put simply, prior to Lisbon, member states couldpromote their rms’ external trade and investment activitiesas long as they did not implicate the EU internal market,customs union or trade policy. Given this limitation,member state Investment Promotion and Protection Agree-ments allowed third country investors to establish invest-

ments only on a most avored nation basis because this did

not undermine EU measures related to the internal market.Further, until Lisbon, the EU treaties reserved expropriationto the member states, so the EU would not have been ableto include this critical provision in any EU-level agreement.

Tis division began eroding with the 1992 Maastrichtreaty, which or the rst time included reedom o nan-cial ows to and rom third countries in the chapter onFreedom o Capital Movements. All member state excep-tions to such external ree ows o capital were rozen aso December 31, 1993,9 and while the EU could liberalizethese restrictions by a qualied majority vote o the member

states in Council, they could only increase restrictions oncapital movements by unanimous vote. Te WO GeneralAgreement on rade in Services also strengthened EUcompetence on international investment, since the EU as awhole committed to permitting “establishment” o oreignservice providers on a national treatment basis in speciedservice sectors/activities. Member states were comortablewith this “positive list” approach as they could control itand as it added to, rather than overlapped with, their IPPAs.Subsequent EU trade agreements also included positive listprovisions on establishment o investments in the servicessector.

The Lisbon Treaty and its Implications for IPPAs

Te Lisbon reaty changed all this. It gave the EuropeanUnion itsel legal personality,10 signicantly broadeningthe range o issues or which the EU could enter intointernational obligations, whereas the predecessor Euro-pean Community’s remit had been generally limited tothe economic eld. Te Lisbon reaty made the CommonCommercial Policy the exclusive competence o the EU,11 eectively precluding member states rom engaging inanything related to this area. And it added “Foreign DirectInvestment” to the Common Commercial Policy.12

In retrospect, member states may not have ully realized theimplications o these changes — certainly the negotiators o

9 See the Treaty of the European Union (Maastricht), Articles 56 and 57, found for

instance at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:12006E/

TXT:EN:HTML.10 Treaty on the European Union (TEU), Article 1.11 Treaty on the Functioning of the European Union (TFEU), Art. 6.12 TFEU Art. 207.

Prior to Lisbon, member states

could promote their rms’ external

trade and investment activities as

long as they did not implicate the

EU internal market, customs union

or trade policy.



5


investment agreements in member state capitals appear tohave missed them.

Te rst implication is that all IPPAs concluded by any member state aer it entered the EU13 became immediately inconsistent with EU law because by denition they containprovisions aecting the EU’s now redened commoncommercial policy and because there was no transitionperiod. o address this, the EU Commission in July 2010proposed a regulation14 to provide a transition or phasingout member state IPPAs.15 Having nally won control

over investment negotiations aer ten years o trying, theCommission could aord a so line. Acknowledging theimportance o legal stability to long-term investments,the Commission said it would not orce member states toterminate IPPAs. Instead, it reserved the right to ask orchanges in provisions otherwise inconsistent with the EUreaty (as it legally had to), but said those agreements couldremain in orce until an EU-level agreement substituted orthe IPPAs member states might have with a country. TeCommission even indicated that under certain circum-stances, member states would be allowed to conclude addi-tional bilateral investment agreements. In the meantime, as

13 International agreements entered into prior to entry into the EU benet from grandfa-

thering in TFEU Art. 351.14 “Commission Proposal for a Regulation of the European Parliament and of the Council

establishing transitional arrangements for bilateral investment agreements between

member states and third countries,” COM(2010) 344, July 7, 2010, found at http://trade.

ec.europa.eu/doclib/docs/2010/july/tradoc_146308.pdf .15 While IPPAs became illegal under EU law, they could remain in force unless the Com-

mission sued the member state(s) to terminate them, or the member state(s) did so

voluntarily.

discussed below, the Commission oered thoughts about

what EU-level agreements should look like.Perhaps understandably, many member state investmentnegotiators — especially rom Germany and the Neth-erlands — reacted strongly against the proposed regula-tion, arguing that the Commission undermined the legalcertainty o the agreements simply by oering the proposal.Tey clearly elt that the Commission had done so mainly to underscore that it holds legal leverage as it seeks memberstate agreement to enter into negotiations on new EU-levelinvestment treaties. For its part, in May 2011, the EuropeanParliament16 argued that the Commission should not seek

changes to existing agreements absent a “serious” inconsis-tency with EU law, but that the Commission should seek tonegotiate EU-level agreements quickly.

III. Shaping the EU’s New Approach

to International Investment

On the day it proposed the regulation to grandathermember state IPPAs, the Commission also oered a“Communication”17 on the EU and international invest-ment. In the Communication, the Commission again brieyexplained its approach to member state agreements, under-scored the importance o oreign investment to developing

countries, and discussed why any EU-level agreementshould provide or nondiscrimination (national and MFNtreatment), ree transers, guarantees on expropriation, andinvestor-state dispute settlement — all generally consistentwith previous member state approaches. It also suggestedthat the Commission would look rst to conclude invest-ment agreements with countries with which the EU hason-going trade agreement negotiations — including inparticular Canada, India, and Singapore.

Te devil, as always, is in the details. A number o memberstates, including in particular Germany, the United

Kingdom, and the Netherlands, insist that any EU-levelagreement must provide protections at least as strong as

16 “European Parliament legislative resolution of 10 May 2011 on the proposal for a regu

lation of the European Parliament and of the Council establishing transitional arrange-

ments for bilateral investment agreements between Member States and third countries,”

found at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-

TA-2011-0206+0+DOC+XML+V0//EN .17 Communication from the Commission to the Council, the European Parliament, the

European Economic and Social Committee and the Committee of the Regions, “Toward a

Comprehensive European International Investment Policy,” COM(2010) 343, July 7, 2010

The Lisbon Treaty made the

Common Commercial Policy the

exclusive competence of the EU,

effectively precluding member

states from engaging in anything

related to this area.



6


their IPPAs; the European Parliament, in its response to the

Commission’s Communication,18

called or robust protec-tions, but added that the agreements should also enshrinethe government’s right to regulate19 and that the Commis-sion should consult regularly with the European Parliamentduring any negotiations (reecting some pique that theParliament’s only real involvement in negotiations is at the very end o the process, when it must consent to an agree-ment beore it can enter into orce).

Prior to entering into negotiations, the Commission mustreceive member state approval or its proposed negotiatingapproach. It proposed three mandates to open investment

talks with Canada, India, and Singapore in January 2010.Tese are normally condential, but the proposal or Indiahas been published by bilaterals.org;20 the others presum-ably ollow similar lines.

And, unortunately, the dra mandate is ambiguous in toomany areas, including, importantly, about the Commis-sion’s proposed approach to establishment o investments,ree transers, and investor-state dispute settlement. Whilesome o the ambiguity is intended to preserve exibility orCommission negotiators, these issues should be reviewedcareully i the member states and European businessestruly want the highest possible level o protection or theirinvestments.

Establishment: While the right o establishment will becovered, the dra negotiating mandate does not speciy whether the Commission will use a “positive” or “nega-tive” approach, with the rst allowing establishment o investments in explicitly listed sectors (the WO servicesapproach) and the latter permitting all investments on anational treatment basis unless explicitly excepted. Tedierent approaches result in very real practical, economic,and legal implications. Practically, listing all possible sectorsin which investment can come in without discrimination isdifcult. reaties last a long time,21 and, as the last decadehas shown, new technology can develop new industries

18 European Parliament resolution of 6 April 2011 on the future European international

investment policy, found at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//

EP//TEXT+TA+P7-TA-2011-0141+0+DOC+XML+V0//EN 19 Ibid, para 6.20 See bilaterals.org, http://bilaterals.org/spip.php?article18960, posted February 14,

2011.21 The relevant U.S.-UK agreement, the Convention to Regulate Commerce, dates from

1815.

almost overnight. Amending a treaty to cover those new

sectors is difcult, requiring, among other things, reratica-tion. A negative list approach avoids these pitalls. Further, anegative list makes more economic sense, because it allowsan investor in a permitted area to engage in associated activ-ities that the negotiators may not have thought o listing.One example could be an investor who would like to estab-lish a trucking company to deliver the goods produced inits actory. I that activity has not been explicitly permitted,then a nal potential legal problem arises: in the event o anexpropriation, is the part o the investment (here, trucking)ully included in the valuation? Unortunately, indicationsare the Commission will use a “positive” list approach, at

least in the case o Canada, with the provisions on establish-ment in a separate chapter rom those governing the protec-tion o investments.

Expropriation: Te Commission’s approach to expropria-tion, and indeed the broad denition o investment whichhelps dene the value, appears to careully track memberstate traditions.22

Transfers: While the Commission states in its proposedmandate that it will ensure the right o ree transers inagreements it negotiates, the problem lies in what it doesn’tsay. In 2007, the Commission brought the BIs o Austria

and Sweden beore the European Court o Justice (ECJ),arguing that the ree transers obligations in them wereinconsistent with the capital movements provisions o the reaty o European Union (EU). In March 2009, theECJ sided with the Commission, stating that because theEU permits the Council to adopt restrictions on capital

22 Curiously, in its Communication (see note 20), the Commission refers to “prompt,

adequate, and effective” compensation for expropriation, the standard U.S. language; in

the mandate, it refers to “payment of adequate compensation,” supra at note 23.

Treaties last a long time, and,

as the last decade has shown,

new technology can develop new

industries almost overnight.



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movements (albeit only with unanimity), member state

BIs must also allow restrictions. Te Court then explic-itly extended this ruling to the transers provisions o all member state investment agreements.23 Te Commissionhas not yet insisted that the member states conorm theiragreements to the ruling, perhaps because it does not wantto urther roil the waters. But, in addition, there seems tobe some disagreement about the meaning o the ruling. I,as some Commission policy ofcials argue, the ECJ merely intended to say that member states cannot prejudge Councildecisions, that might be acceptable. However, i, as someCommission lawyers insist, the ECJ ruling means thateven EU-level agreements must include a clause allowing a

government “in exceptional circumstances” to block inves-tors’ access to their capital and earnings, this decision wouldseverely weaken a cornerstone o international investmentlaw.

Investor-State: Te Commission in both its Communica-tion and in its proposed mandate or the Indian invest-ment agreement clearly intends to include investor-statedispute settlement. wo complications arise, however: oneconcerning how the EU and its member states are covered,and one concerning the EU’s membership in ICSID and theConvention on the Recognition and Enorcement o Arbi-

tral Awards (the “New York Convention”).24

23 See European Court of Justice judgments of 3 March 2009 in Commission v Austria

(Case C-205/06) and of 3 March 2009 in Commission v Sweden (Case C-249/06).24 http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html

Te question o liability stems rom the nature o invest-

ment agreements, which cover all measures a governmentmight take that aect investments. Tis encompassesmeasures adopted by local, regional, and member stategovernments as well as by the EU. Some o these may wellall into the exclusive competence o the member statesand their constituent governments. Parties entering intosuch agreements with the EU will want to ensure suchmeasures are covered, especially since the Lisbon Agree-ment is so clear in stating that the EU only has powers thatare explicitly conerred on it by the reaties. Te clearestway to address this would be to have the member statesalso sign and ratiy any investment agreement other nations

make with the EU, although the need or each governmentto ratiy would delay implementation o such accords.Te EU should also consider including an article explic-itly providing or “joint and several” liability on its side,so the other party and its investors do not need to worry which level o government is liable or an inringement o rights under the agreement. 25 EU lawyers contend this isnot necessary, and that decisions by the European Courto Justice make clear that the EU as such can enter intointernational agreements on behal o the member statesor issues within those governments’ remit, but an explicitprovision, even in the orm o a protocol, would be useul

or investor certainty.

While the EU is not a member o ICSID — and cannot bea member as long as it is not a member o the World Bank — this is not an important problem. Investment agree-ments requently provide or alternative ora or disputesettlement, including through ICSID’s “Additional Facility”(or complaints when one party to the agreement is not inICSID) and ad hoc arbitration.26 Tat said, ICSID is well-known as an independent and respected orum or hearinginvestment disputes, and other countries that might enterinto an investment agreement with the EU might well

consider supporting its membership. Tis would entail

25 The Commission recognizes the importance of this, noting in its Communication on a

future EU investment policy (supra, page 10), “Given the exclusive external competence,

the Commission takes the view that the European Union will also be the sole defendant

regarding any measure taken by a Member State which affects investments by third

country nationals or companies falling within the scope of the agreement concerned.”

The EU is apparently adopting this approach in its accession to the European Convention

on Human Rights; see Art. 4 of draft accession agreement, CDDH-UE(2001)10, available

on COE website.26 This was the approach taken in the European Energy Charter Treaty, to which the EU

is a party.

Having the EU join the World

Bank’s International Center for

the Settlement of Investment

Disputes makes sense, since the

EU is the world’s largest provider

of development assistance.



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amending the underlying charter to the World Bank, which

currently allows only or the membership o “sovereignnation states.” Having the EU join ICSID (and the WorldBank) makes sense, since the EU is the world’s largestprovider o development assistance. Tat the EU is not aparty to the New York Convention is potentially more prob-lematic, as this convention is crucial to ensuring investorsare able to get ull recompense.

IV. Implications for the Transatlantic Relationship —

A U.S.-EU Investment Agreement?

Te United States has three major equities in the EU’s newpowers on investment. Washington has long strived to

construct a strong “common law” to protect internationalinvestment, and it is important that the EU, as the world’slargest home and host o oreign investment, also pressesor strong protections. Further, U.S. subsidiaries in Europerequently invest under the cover o the EU member stateinvestment treaties (which cover ar more countries thanthe U.S. BIs).27 And Washington may well want to considerwhether to enter into a “modern” investment relationshipwith the EU to update our older FCNs and BIs.28

Te United States should be talking intensively to the EUand the member states about the approach the EU intends

to take in its international investment agreements. o date,however, this has not happened in any coherent manner.Te U.S.-EU Investment Dialogue, established in 2007and the appropriate orum or such discussions, has laindormant since the Obama Administration entered ofce inJanuary 2009. Although the cabinet-level U.S.-EU ransat-lantic Economic Council (EC) agreed in December 2010to reinvigorate these discussions, dierences in Washingtonover which U.S. agency should lead the talks have conspiredagainst scheduling a meeting. Inormal discussions withCommission ofcials and with member state governmentsare important, but lack the orce o a “whole o government”approach under the ormal Dialogue. In such a meeting,the U.S. side should be able to clearly explain why a broaddenition o investment is necessary; the dangers o the

27 The United States has 40 BITs in force, including with eight EU member states — Bul-

garia, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania, and Slovakia, see

http://tcc.export.gov/Trade_Agreements/Bilateral_Investment_Treaties/index.asp.28 In addition to the BITs cited, above, the U.S. has treaties of friendship, commerce,

and navigation with 12 member states, but has no investment treaty relationship with

Portugal, Spain, or Sweden.

unneeded social, environmental, and “right to regulate”

provisions the European Parliament seeks; the benets o a negative list on establishment; the critical necessity o having an uninhibited right to ree transers; and the impor-tance o clarity on how obligations attach to the EU andmember states. Te two sides should also begin discussingwhether and how to address the question o the EU’s lack omembership in ICSID and the New York Convention.

Te Dialogue would also be the natural place to discussbroader investment policy issues, including those o concern to the EU. One o these is U.S.-EU collaboration onimproving the investment climate in third countries. Both

U.S. and EU companies, or example, ace arguably unaircompetition rom state-owned enterprises rom third coun-tries, both in those countries and in investments elsewhere.Te Dialogue could begin developing language to use intheir investment agreements to help discipline such avoredenterprises.

U.S. rms that now benet rom EU member state invest-ment protection agreements obviously should also weighinto the debate on these issues. Tey rightly consider them-selves “European rms o American parentage,” employingover 5 million Europeans in generally high-paying jobs, andas such have standing to be heard.

Whether the U.S. and EU should enter into an investmentagreement is less clear. Te tremendous volume o transat-lantic investment — over $1 trillion both ways — suggeststhat investors see little political or legal risk that such anagreement is meant to reduce. And given their exposure toinvestment rom the other side, both governments couldwell take a deensive approach — in particular against

Only an agreement that enshrines

the highest level of protection and

that strengthens our economic

relationship makes sense.



9


investor-state dispute settlement — that would weaken

investment protections rather than strengthen them.Tat would be a mistake. Only an agreement that enshrinesthe highest level o protection — that the United States andEU would seek rom any other government — and thatstrengthens our economic relationship makes sense.

We have three good reasons to conclude such a high-levelagreement. Te Lisbon reaty changes and the EuropeanCourt o Justice rulings against the transers provisions inEU member state investment agreements both aect thelegal ramework o BIs and FCN treaties that has guidedthe transatlantic investment relationship until now. In

addition, as unortunate as it is to say, both have reason orconcern about the openness to investment on the other sideo the pond, so there is a risk to address. Finally, both cangain substantially in terms o growth and jobs rom moreinvestment ows and greater integration.

Te United States and EU are by ar the world’s top twosources and destinations or oreign investment. Tisreects both our levels o development and our traditionalopenness to capital rom abroad, which in turn reects ourshared values about a rules-based market economy, nondis-crimination, and the sanctity o private property. We have

always welcomed, and should always welcome, additionalengagement with our transatlantic partner.

Yet concerns in both Europe and in the United States aboutoreign investment in general — and in particular romChina and Russia — have caused some o our politiciansto question our traditional openness to oreign investment.Such concerns are not merited: direct investment alwaysbrings in capital and boosts growth. More signicantly, itties companies and countries together, giving them perma-nent equities that can only be positive. Further, any measuremeant to restrict capital ows rom one country could all

too easily aect ows rom others. Tis was immediately clear in the initial dra o the “Gazprom” clause29 in theEU’s Tird Energy package, which ironically would havehad precisely the opposite o the intended eect, protecting

29 See “Proposal for a Directive of the European Parliament and of the Council amending

Directive 2003/55/EC concerning common rules for the internal market in natural gas,”

COM(2007) 529 of September 19, 2007, Explanatory Memorandum para 1.3, page 7,

and Article 1, paragraph (5), proposed a new Article 7(a), page 30.

Gazprom while adversely aecting the United States.30 Te

same is true o the recent suggestion by two powerul Euro-pean Commissioners, Commissioner or Enterprise andIndustry Antonio ajani and Commissioner or the InternalMarket Michel Barnier, that the EU should considerestablishing a process or screening oreign acquisitionso European rms.31 While their concern was about thepossibility o Europe losing “competitiveness” as China buysup European rms and their technology, such economicsecurity considerations could all too easily be appliedto U.S. acquisitions. Te ajani/Barnier call or the EUCommissioners to debate this issue has been delayed untilthe autumn, but it reects a very real political sentiment in

Europe, as does the recent debate in the United States aboutsome potential Chinese acquisitions o U.S. rms. Howevermisdirected these concerns are, a ransatlantic InvestmentAgreement would protect investments rom unintendedconsequences.32

But urther, both the United States and Europe havebarriers to oreign investment that make little economicsense in general, and no sense at all in the particular caseo the transatlantic relationship. Te single best example

30 The proposed language was: “’Article 7a -Control over transmission system owners and

transmission system operators’ 1. Without prejudice to the international obligations of

the Community, transmission systems or transmission system operators shall not be con- trolled by a person or persons from third countries. 2. An agreement concluded with one

or several third countries to which the Community is a party may allow for a derogation

from paragraph 1.” The Russian Federation would arguably have beneted from subpara-

graph 2, as it was a signatory to the European Energy Charter Treaty; the United States

is not. The paragraph was modied signicantly to establish a process for an “energy

security review” by the member states and the Commission in the event a company from

a third country gains control over a natural gas transmission network.31 This letter is not public, but has been circulated in Brussels.32 While the rights and obligations under the existing network of FCNs and BITs between

the United States and European member states might mitigate these adverse effects,

these treaties are, as noted, weaker than desired and may not apply to EU-level measures

in any event.

Any measure meant to restrict

capital ows from one country

could all too easily affect owsfrom others.



10


About the Author

Peter H. Chase, a nonresident ellow o the German Marshall Fund,

is now senior European representative or the U.S. Chamber o Com-

merce. As the director o investment at the Ofce o the U.S. rade

Representative rom 1990-1992, he negotiated investment treaties and

was involved in negotiating the investment provisions in the WO’s

Agreement on rade-Related Investment Measures, the North Ameri-

can Free rade Agreement, and the European Energy Charter reaty.

He was engaged in EU economic policy issues or the last 18 o his 30

years with the U.S. Department o State. Te views expressed in this

paper are his own, and do not necessarily reect those o either the

German Marshall Fund or the U.S. Chamber o Commerce.

About GMF

Te German Marshall Fund o the United States (GMF) is a non-par-

tisan American public policy and grantmaking institution dedicated

to promoting better understanding and cooperation between North

America and Europe on transatlantic and global issues.

GMF does this by supporting individuals and institutions working

in the transatlantic sphere, by convening leaders and members o the

policy and business communities, by contributing research and analy-

sis on transatlantic topics, and by providing exchange opportunities to

oster renewed commitment to the transatlantic relationship. In addi-tion, GMF supports a number o initiatives to strengthen democracies.

Founded in 1972 through a gi rom Germany as a permanent memo-

rial to Marshall Plan assistance, GMF maintains a strong presence on

both sides o the Atlantic. In addition to its headquarters in Wash-

ington, DC, GMF has seven ofces in Europe: Berlin, Paris, Brussels,

Belgrade, Ankara, Bucharest, and Warsaw. GMF also has smaller

representations in Bratislava, urin, and Stockholm.

o this is the limit both sides place on oreign ownership

and control o their airlines. Tese controls are a relic o a distant mercantilist era. Te EU has moved ar beyondthe national ag carrier concept that underlies the 1947Chicago Convention on International Civil Aviation, andthe damage o maintaining this approach is obvious in thecontortions airlines go through to establish internationalcode-sharing relationships. A U.S.-EU agreement could beused to eliminate such unnecessary restrictions on invest-ment between us, without being subject to “ree rider”considerations through most avored nation obligations inthe WO services agreement or investment agreements weboth have with third countries.

It is time or the United States and European Union toseriously consider taking their economic relationship toanother level. Te ransatlantic Economic Council, whichis meant to provide strategic guidance to the bilateralrelationship, should take this up and recommend it to thenext U.S.-EU Summit, tentatively scheduled or November.Should it do so, it would nally have ullled its promiseo injecting real ambition into the transatlantic economicspace.

But i we do enter into negotiations on a ransatlanticInvestment Agreement, the EC will need to monitor the

negotiations to make sure our ofcials stay ocused oncreating the best possible investment agreement between us.I we can do this, we should be willing to open the agree-ment to other signatories that are willing to accept the samehigh level o ambition. And in so doing, we can bring tointernational investment the rules our governments, andour rms, have always sought.

It is time for the United States

and European Union to seriously

consider taking their economic

relationship to another level.

the united states, european union, and international investment

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