EU-Singapore free trade agreement: the missing chapter
International Law Office | November 22 2013
EU-Singapore Free Trade Agreement: the missing chapter
The European Union and Singapore initialled a free trade agreement on September 20 2013. It is expected to enter into force in late 2014 or early 2015. The agreement establishes a free trade area between the European Union and Singapore. The parties have agreed to eliminate virtually all tariffs within five years of the agreement’s entry into force. The agreement also includes an investment chapter,(1) although it is still under negotiation and thus missing from the text of the signed agreement.
Why is the chapter missing?
With the entry into force of the Lisbon Treaty,(2) EU member states were no longer allowed to enter into bilateral investment treaties (BITs), as this became the exclusive competence of the European Union. Before the treaty, BITs were individually concluded by EU member states; the European Commission therefore has the challenging task of developing a model EU BIT combining the investment protection rules contained in the various individual BITs. Since the BITs concluded individually by EU member states constitute over half of the investment agreements presently in force,(3) the development of the model EU BIT is expected to have major implications on the future of the investment protection regime worldwide. As such, it is no surprise that to date,(4) no model EU BIT has been announced – most likely one of the main reasons why the text of Chapter 9 (covering investment protection) has not been finalised.
What will be covered in the missing chapter?
The investment protection chapter of the agreement will stipulate which investments are protected. The investment chapter is also expected to include provisions on fair and equitable treatment and most-favoured nation treatment, as well an umbrella clause. With regard to dispute settlement, direct investor-state arbitration is expected, although the precise contours are still open.(5)
Investments
It will be interesting to see whether the scope of the free trade agreement will be extended to include not only foreign direct investment, but also portfolio investments. The definition will be crucial, since it will determine which investments benefit from the protections in the other parts of the agreement.
Fair and equitable treatment
The chapter may include a list of situations that would result in a breach of fair and equitable treatment, such as:
– denial of justice;
– fundamental breach of due process;
– manifest arbitrariness;
– targeted discrimination; and
– abusive treatment.(6)
Most-favoured nation treatment
It is uncertain whether future national treatment and most-favoured nation clauses will be limited to the post-establishment phase or extended to the admission phase. This would affect the obligations of host states with respect to prospective investors before the investment has been made.
Umbrella clause
The European Union is likely to propose an umbrella clause, which allows investors to claim a breach of contract or other agreement as violation of the treaty itself.
Dispute resolution
It will also be interesting to see which venue will be designated for resolution of inter-state investment disputes. Should parties opt for inter-state dispute resolution, several issues regarding the available arbitration venues will need to be resolved. Since the International Centre for Settlement of Investment Disputes (ICSID) convention(7) states that investor-state arbitration and conciliation are available only to states and nationals of states that are party to the convention,(8) statehood is clearly a requirement for adherence to the convention. This would clearly prevent the European Union in its present form from becoming a party. Opening ICSID dispute settlement to the European Union would thus require a treaty revision. Alternatively, the European Union could adopt investor-state dispute settlement clauses providing for investment arbitration to be conducted under United Nations Commission on International Trade Law(9) or other arbitration rules.
Going forward
Although the chapter on investment protection in the EU-Singapore Free Trade Agreement is still under negotiation, the aim is to integrate the chapter into the rest of the text before its adoption. Under the EU BITs Directive,(10) existing bilateral agreements must be terminated once an EU free trade agreement enters into force. Until this point, existing BITs remain in full force. Singapore has standing bilateral investment treaties with several EU member states.(11) As such, these standing bilateral investment treaties will continue to be valid until the free trade agreement enters into force.
It will be interesting to see what happens in a scenario whereby the missing chapter cannot be added to the free trade agreement before the anticipated date of its entry into force. Will this delay the entry into force of the entire agreement or will the agreement enter into force without the investment chapter? Does this imply that existing BITs still need to be terminated or will the standing BITs continue to apply until completion of the investment chapter? Time will tell.
For further information on this topic please contact Barbara Voskamp at VoskampLawyers by telephone (+65 64 630 535) or email (barbara.voskamp@voskamplawyers.com). The VoskampLawyers website can be accessed at www.voskamplawyers.com.
Endnotes
(1) Chapter 9: Investment protection.
(2) Treaty of Lisbon Amending the Treaty on European Union and the Treaty Establishing the European Community, December 13 2007, 2007/C 306/01.
(3) Julien Chaisse, "Promises and pitfalls of the European Union Policy on Foreign investment – how will the new EU competence on FDI affect the Emerging Global Regime?", (2012) 15 (1) EJIL.
(4) November 11 2013.
(5) Council negotiating directives (Canada, India and Singapore), September 12 2011.
(6) This list was initially proposed by Canada in the negotiations on the investment chapter in the Canada-EU Free Trade Agreement.
(7) Convention on the Settlement of Investment Disputes between States and Nationals of Other States, March 18 1965, 575 UNTS 159.
(8) Id, Article 25(1).
(9) United Nations Commission on International Trade Law Arbitration Rules, UN GAOR, 31st Sess, suppl 17, ch V, sec CUN Doc A/31/17 (December15 1976), 15 ILM 701 (1976).
(10) Article 3 of EU Regulation 1219/2012 establishing transitional arrangements for bilateral investment agreements between member states and third countries.
(11) Belgium, Luxemburg, Bulgaria, Czech Republic, Germany, France, Latvia, Hungary, Netherlands, Slovenia, Slovakia, the United Kingdom and Ireland.
