EUROPEAN UNION’S NEW COMPETENCES ON FOREIGN DIRECT INVESTMENT AFTER THE LISBON TREATY

1. EUROPEAN UNION’S NEW COMPETENCES ON FOREIGN DIRECT INVESTMENT AFTER THE LISBON TREATY Maria João Palma Legal Advisor

2. Introduction The enlargement of the scope of the Common Commercial Policy (CCP) started with the coming into force of the TREATY OF NICE, in 2003. From that date new domains where covered by the EU exclusive competence, namely: the conclusion of agreements relating to trade of services; the commercial aspects of intellectual property rights. A new step was taken with the Treaty of Lisbon, in force since December, 1st 2009: The exclusive competence of the EU was extended to Foreign Direct Investment involving third countries.

3. The implications of this enlargement of competences are evident: member states lost their power to celebrate international agreements in the areas covered by the CCP

4. CCP – a general overview According to article 5 TEU, the Union can only act within the limits of the powers conferred upon it and within the scope of the objectives of the Treaty. In the external sphere such powers can be: Expressly conferred; Implied powers – Case AETR, 1971 – External competences are parallel to internal competences: parallelism principle. Concerning international commercial relations – article 133 EC (207 TFEU- Lisbon Treaty) – lays down an explicit and exclusive competence to negotiate and celebrate agreements.

5. The rationale of the CCP is to form the external dimension of the creation of a common market. In its initial version, article 133 listed several examples of commercial policy issues, such as tariff changes, liberalisation measures, dumping. Most were covered by the GATT, 1947 (General Agreement on Tariffs and Trade).

6. This initial version remains unchanged after: The Single European Act (1987) And the Maastricht Treaty (1993) However, pending the negotiation of the World Trade Organization Agreement (WTO) there was a big discussion about the competence to celebrate the said Agreement. Exclusive competence of the EC: Commission thesis Share competence of the EC and the member states: Council thesis

7. Opinion 1/94 of the European Community Court of Justice (ECCJ): The domains covered by the WTO Agreements: GATT; TRIPS and GATS The position of the ECCJ: WTO – a mixed agreement

8. The Treaty of Amsterdam: new 133, 5 A decision that was never taken The Treaty of Nice: the opinion of the ECCJ was reviewed by the force of the Treaty The big changes: The scope of the CCP was enlarged: the trade on services and the commercial aspects of the intellectual property were covered by the exclusive commercial policy; Some domains remained of share competence (mixed agreement): cultural, social and educational services, and decided by the unanimous rule; The new domains are now decided by the Council by the majority rule.

9. THE LISBON TREATY Substantial changes: The scope of the CPP is enlarged: it will include Foreign Direct Investment (FDI), as well. Implication: the competence become exclusive of the EU; Cultural, audiovisual, social, educational and health services become of exclusive competence instead of share competence.

10. Controversial issues: Will it be possible any sort of participation on the celebration of international agreements by the member states? Will it be possible to continue to celebrate Bilateral International Trade Agreements (BITS)? Controversial answers: Some aspects of the FDI remain of national competence, such as expropriation and compensation of damages: defensible understanding - celebration of mixedagreements; BITS have a fundamental importance to Member State´s economies - possible transposition of the solution contained in Regulation 847/2004 (air transportation) – empowerment – art. 2º TFUE.

11. Presentlythe EU ispromotingtwoexercisesinparallel: 1) Theconceptionofthe EU Model BIT – orientedbytheprincipleofmaintenanceoftheprotection standard containedwithinthenationalsBITsofthememberstates; On-goingnegotiations: Singapura, Canada andIndia 2) Thediscussionof a Regulationwhichaimis to establishthe regime applicable to: - ExistingBITs - theBITsin force beforethecominginto force oftheTreatyofLisbonthat are supposed to beprotectedby a “grandfatherclause” – untilthecominginto force of a BIT EU; - Future BITs – celebratedbymemberstatesunderthe EU supervision – “empowerment” – article 2º ofthe TFUE. - Thespecial case oftheBITscelebratedinthemean time

12. Formal changes: Concerning the European Parliament: Measures defining the framework for implementing CCP: 133 TCE – Commission and Council; 207 TL – Co-decision; International Commercial Agreements: The opinion of the Parliament is always needed (207, 3,1& and 218, 6, b); Before the Treaty of Lisbon: the opinion of the Parliament was needed only when the agreement had serious budgetary implications, or when it created an institutional entity; After the Treaty of Lisbon: the opinion of the Parliament is also needed whenever the internal matter is decided by the co-decision procedure.

13. To summarize: The opinion of the Parliament is always needed for CCP agreements (218, 6 b) ), and it must be a favourable opinion in the 218, 6 a) cases.

14. The voting rule in the Council: The majority rule is applicable concerning all issues previously covered as well as the FDI. Emphasis: no transitional rule for FDI - no unanimous rule or shared competence are previewed. The majority rule is applicable to the new services covered: cultural, audiovisual, education, social and health. Emphasis: This was a domain of shared competence and where the unanimous rule prevailed.

15. With the Treaty of Lisbon, the unanimous rule will be exceptionally applicable: In the field of trade in cultural and audiovisual services, when these risk prejudicing the Union´s cultural and linguistic diversity. In the field of trade in social, education and health services, where these risk seriously disturbing the national organization of such services and prejudicing the responsibility of Member States to deliver them.

16. Final conclusions: The balance between the external national powers and the EU external dimension is significantly changed. Whenever the EU gains powers, member states loose their autonomy. The objectives of these new steps should be, hopefully to contribute to enhancing the EU internal integration and to strengthening its role in international investment-related politics.

17. Directorate-General for Economic Activities Ministry of the Economy and Employment of Portugal Maria João Palma e-mail: mjoao.palma@dgae.pt