The Treaty on the Functioning of the European Union (hereafter: "the TFEU") establishes the European Union's exclusive competence on foreign direct investment, as part of the common commercial policy (Article 207(1) and Article 3(1)(e). In accordance with Article 2(1) of the TFEU, only the Union may legislate and adopt legally binding acts in an area where exclusive competence is conferred upon the Union.
Prior to the entry into force of the TFEU, Member States concluded more than 1000 bilateral agreements relating to investment with third countries, which relate in part or in full to foreign direct investment. Such agreements include Bilateral Investment Treaties (BITs) which provide inter alia guarantees on the conditions of investment in Member States and in third countries, in the form of specific commitments that are binding under international law.
Although agreements remain binding on the Member States as a matter of public international law, in the light of the entry into force of the TFEU the existence of Member States' agreements relating to investment and the commitments undertaken therein should be addressed from the perspective of the EU's exclusive competence on foreign direct investment.
In the absence of an explicit transitional regime in the TFEU clarifying the status of Member States' agreements, the present proposal for a Council and Parliament Regulation will authorise the continued existence of all investment agreements currently in force between Member States and third countries. As such, this proposal provides for an explicit guarantee of legal certainty as regards the conditions under which investors operate.
This approach, which reflects an evolutionary handling of the entry into force of the TFEU, much like the introduction of the common commercial policy in the 1960s,1 allows for the gradual formulation and elaboration of an EU investment policy, which is to serve all investors and investments equally.
In recognition of the fact that Member States may be required or may find it necessary to amend or modify investment agreements, in particular to bring them in compliance with Treaty obligations, this proposal also establishes a framework and conditions to empower Member States to enter into negotiations with a third country with a view to modifying an existing bilateral agreement relating to investment. This framework is equally available to allow Member States to negotiate and conclude, under certain conditions set out by this proposal, a new bilateral agreement with third countries relating to investment. Given that the Union is exclusively competent for foreign direct investment, and that an EU investment policy will be gradually developed, the procedure established by this proposal must be regarded as an exceptional transitional measure.
This Regulation only addresses the transitional aspects of the management of the new EU competence on investment. The objectives, criteria and content of the new EU investment policy, to be developed on the basis of the newly-gained exclusive competence on foreign direct investment, is not addressed by this Regulation and is addressed in a separate Communication from the Commission to the European Parliament and the Council, adopted simultaneously with this proposal for a Regulation.