In Issue 8 of the International arbitration report (“Brexit and investor-state dispute settlement”), we also discuss the impact of the UK’s withdrawal from the EU (so-called Brexit) on the protections afforded to foreign direct investors in the UK and overseas through investment treaties. As noted in that article, part of the uncertainty arises from the lack of clarity over the EU’s powers.
The CJEU’s recent opinion goes some way towards clarifying matters. For instance, it was not clear whether the EU had the power to terminate bilateral investment treaties (BITs) made between EU Member States and non-EU states when agreeing new EU agreements with those non-EU states. This is an issue on which the CJEU has now taken a different view to the Advocate-General. The Advocate-General opined that “the European Union may not…decide alone on the termination of agreements concluded by the Member States with Singapore” and that the competence belonged exclusively to the EU Member States. The CJEU however found that provisions in the EUSFTA terminating pre-existing EU Member State BITs do not encroach on EU Member States’ competence in so far as the provisions relate to an area of EU Member State competence. It found that the EU takes the place of EU Member States when negotiating and concluding agreements with non-EU states in areas of EU exclusive competence and therefore has competence to approve, by itself, provisions in agreements with non-EU states that replace commitments contained in BITs previously concluded between EU Member States and those non-EU states.
The CJEU’s opinion has not resolved all uncertainties. It has not answered whether, following Brexit, the UK will automatically cease to be a party to all or parts of EU negotiated trade and investment agreements. Nor has it resolved whether intra-EU BITs are compatible with EU law. To resolve these matters, we will need to wait for determination of further references to the CJEU.
A question many are discussing is whether the CJEU’s opinion will benefit the UK post-Brexit. The jury appears to be out on this. On the one hand, a “mixed agreement” UK-EU FTA, requiring EU Member State participation, would necessarily entail more difficult, time-consuming negotiations. However, the CJEU’s opinion has helpfully clarified the areas within the EU’s exclusive competence. Therefore, the EU may seek to negotiate narrower trade agreements, fully within its competence. While this would negate some of the concerns addressed in this article, the exclusion of matters of shared competence (for example, indirect investment and direct investment ISDS regimes) may lead to a less beneficial agreement for all. On the other hand, the UK may profit from difficulties the EU is now likely to face in efficiently and effectively negotiating free trade agreements that offer adequate protections to foreign investors. The UK’s ability to more swiftly negotiate and enter into BITs – importantly, containing ISDS provisions – with non-EU Member States could further promote the UK as a favourable jurisdiction for foreign direct investment.