The European Commission proposed on 29 January to allow UN rules on transparency for Investor-to-State Dispute Settlement (ISDS) to apply also to existing investment treaties that the EU and Member States have in place.
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The Commission says these rules represent an important change in giving the public access to documents submitted in ISDS cases, making hearings open to the public, and allowing interested parties to make submissions to the proceedings.
So far, these UN rules on transparency are only used in new investment treaties. The Commission has integrated them in all of the EUs completed and on-going ISDS negotiations.
The new proposals, when adopted by the Council, will enable the EU and its Member States to adhere to the new UN Convention on Transparency. This will make it legally and technically possible to extend these transparency rules to existing treaties. There are 3000 such treaties in force worldwide and EU Member States account for around half of these.
The EU was instrumental in drawing up both the UN transparency rules and the new UN Convention on Transparency. The Convention allows countries, and regional economic integration organizations like the EU, to declare their willingness to apply the UN transparency rules to cases brought under their existing investment treaties.
Thus, in practice, the transparency rules could be applied to the more than 1400 bilateral investment treaties concluded by EU Member States and to the Energy Charter Treaty to which the EU has been a party since 1998.
The more countries and organizations adhere to the UN Convention, the more the rules will apply to the 3000+ investment agreements currently in force worldwide. This means the Convention will make it faster and easier to improve transparency of investor-state arbitration than a one-by-one renegotiation of the existing investment treaties.
The Commission says it is now up to the Council to approve the Commission’s proposals. The UN Convention will be open for signature as of 17 March 2015 in Port Louis, Mauritius and then with the United Nations in New York.
Background
In 2013 rules on transparency in ISDS cases were adopted under the auspices of the United Nations Commission on International Trade Law (UNCITRAL transparency rules). These rules, which entered into force on 1 April 2014, provide for a maximum access of the public to documents and hearings, as well as allowing interested third parties to make submissions. The European Union has included these or equivalent wide-ranging rules in the finalized free trade agreements with Singapore and with Canada. These rules will also be an integral part of any future negotiations on trade agreements that contain ISDS provisions.
The transparency rules however do not apply to disputes based on investment agreements concluded prior to 1 April 2014. The Commission has therefore pushed strongly for a multilateral Convention to allow these UN transparency rules to be extended to the 3000 investment treaties in force worldwide. The new proposals will make it possible for the EU and its Member States to adhere to this Convention thus making possible the application of these transparency rules to the EU Member States existing 1400 treaties and the Energy Charter Treaty.
The UN Convention on transparency
The UN Convention was drawn up by a special working group composed of representatives of a large number of countries that have investment treaties with ISDS. The Convention was adopted on 10 December 2014 by the UN General Assembly.
The Convention makes it possible for both individual states and organisations like the EU to agree to apply the UNCITRAL Transparency Rules in investment treaties that are already in effect and to which they are parties. It would therefore permit the EU Member States to apply the Transparency Rules to their 1400 existing treaties concluded with third countries. In the case of the EU, this would mean that the Convention would apply to the Energy Charter Treaty to which the EU is a party since 1998.
If adhered to, the Convention would apply automatically to all treaties that a country has signed, unless the country specifically lists investment agreements where it does not want the Transparency Rules to apply (a so-called negative list).
Content of the draft proposals Council decisions
Under the Lisbon Treaty, foreign direct investment has become a part of the Unions exclusive competence. Practically, it means that only the Union can adopt legally binding acts in this area and that Member States may no longer do so without being empowered by the European Union.
Therefore, when adopted, the Commission’s proposals would have two effects. First, the EU as a legal entity would be able to accede to the UN Convention. Second, Member States will be empowered also to accede to the UN Convention so that they could apply the Transparency Rules to their existing bilateral investment agreements with third countries (i.e. those concluded before 1 April 2014).
