EXPERT ANALYSIS
TTIP On the European side, EU member states are party to approximately
1,200 BITs with countries throughout the world. As a result, EU countries have significant experience with investment treaties. But the EU’s experience is not a collective experience, because the EU did not have the authority to negotiate investment rules on behalf of its member states until conclusion of the Lisbon Treaty in 2009. Thus, the Ceta being negotiated between the EU and Canada, which was originally limited to trade, and which was later expanded to include investment, is the first EU-wide effort to conclude a comprehensive investment treaty. As a result, the Ceta is likely to be an im- portant precedent for the EU’s negotiations with the US.
Since it negotiated Nafta, the US has changed its model BIT twice, in
2004 and 2012. The 2004 changes were motivated by the concern that in- vestment protections in Nafta had been drafted too broadly, and that foreign investors might receive greater protections than US investors. Accordingly, the 2004 model BIT narrowed the protections afforded to foreign investors. The US business community opposed changes that would weaken investor protections in the US, because it was simultaneously advocating increased investor protections in foreign countries.
tion initiated a review of the US model BIT to ensure that it was consistent with the public interest and the Administration’s overall economic agenda. The Administration sought and received extensive input from Congress, the business community, labour groups, environmental and other non-govern- mental organisations, and academics. The Administration released a new model BIT in 2012. It retains language from the 2004 model BIT, but it also made changes to improve protections for American firms, promote transparency, and strengthen the protection of labour rights and the envi- ronment. The 2012 model BIT reflects the US position on investment treaties entering negotiation with the EU.
“ The Shared Principles are:
• open and non-discriminatory investment climates; • a level playing field; • strong protection for investors and investments; • fair and binding dispute settlement; • robust transparency and public participation rules; • responsible business conduct; • narrowly tailored reviews of national security considerations.
Examination of the Shared Principles reveals a strong correlation with
the US 2012 model BIT. Moreover, the EU appears to have incorporated many of these general principles in the investment provisions of the Ceta. On October 18 2013, Canada and the EU announced the conclusion of the Ceta negotiations and the achievement of an agreement in principle. Although the text of the Ceta will not be finalised for several months, a ne- gotiating draft of the investment chapter and other internal documents have
14 IFLR REPORT | FOREIGN DIRECT INVESTMENT 2014 The likely outlines of the investment negotiations between the US and
EU are foreshadowed in the Statement of the European Union and the United States on Shared Principles for International Investment, which the parties announced on April 10 2012. The Shared Principles articulate meas- ures that ‘governments can fully implement . . . while still preserving the authority to adopt and maintain the measures necessary to regulate in the public interest to pursue certain public policies’.
been leaked to the public and provide some insight on the direction of the negotiations and the EU’s negotiating positions.
In previewing some of the likely issues that may emerge during the TTIP
negotiations, the Shared Principles provide a useful framework for compar- ing approaches taken in the US model BIT and the Ceta, to the extent that such positions are known or ascertainable through leaked texts and pub- lished reports.
A successful agreement could have a tremendous impact on transatlantic investment
Shortly after President Obama took office in 2009, the new Administra-
Open and non-discriminatory investment climates The principle of non-discrimination, including during the pre-establishment phase, is a hallmark of the US model BIT. A leaked Ceta negotiating draft suggests that Canada and the EU have agreed to provide national and most- favoured-nation treatment as well as pre-establishment commitments to in- vestors. A leaked memo from the EU side, however, reportedly indicates that pre-establishment commitments will not be subject to investor-state dispute settlement under the Ceta. The EU’s negotiating mandate for TTIP is consistent with this position. Thus, the EU appears to be departing from the Shared Principles and adopting a position that is inconsistent with the US model BIT. It has also been reported that the EU has agreed in the Ceta not to subject commitments nor to impose performance requirements such as local content rules to investor-state dispute settlement. This, too, would be in conflict with the Shared Principles and the US model BIT.
Subjecting pre-establishment commitments to dispute settlement is a key
issue for the US. The US envisions future investment negotiations with China and India, and it does not want to create a precedent that would make agreements with those countries unenforceable in certain respects. Similarly, exempting commitments not to impose performance require- ments from dispute settlement would be very difficult for the US to accept. There is speculation among investment experts that Canada’s apparent con- cessions to the EU on these points is unlikely to affect the US negotiating position in TTIP, but it certainly appears to be a key issue in the upcoming negotiations.
A level playing field The US 2012 model BIT contains provisions specifying that non-discrim- ination obligations apply to state-owned enterprises (SOEs), which often have special privileges in a national economy, such as preferential govern- ment financing or privileges that are not available to foreign investors. The Shared Principles similarly emphasise that SOEs and private enterprises must be subject to the same regulations and compete under the same con- ditions. Although it is unclear whether the Ceta will address SOEs specifi- cally, early Canadian commentary on the agreement indicates concern that the agreement will interfere with the function of Crown corporations in favour of private interests. Although Canada may not like strict disciplines on favouritism to SOEs, the US and the EU appear to be aligned in this regard.
Strong protection for investors and investments The US model BIT provides for clear limits on either direct or indirect ex- propriation but nonetheless requires prompt, adequate, and effective com- pensation when actual expropriation takes place. The Shared Principles also include this protection. According to the leaked Ceta text, the EU and Canada have also taken an approach that is in synch with the US model BIT with respect to limiting the types of government measures that can be considered indirect expropriation, and therefore actionable and remediable. The Ceta reportedly states that measures designed to protect legitimate pub- lic welfare objectives that are applied in a non-discriminatory way do not constitute expropriation. The US model BIT contains similar language in Article 6. Thus, in the TTIP negotiations, it appears that the US and EU will begin from a position of basic agreement.
Fair and binding dispute settlement The availability of investor-state arbitration to settle investment disputes is a hallmark of US BITs and FTAs. Article 29 of the 2012 model BIT contains additional measures intended to increase the transparency of the dispute set-
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