EXPLANATORY MEMORANDUM

1. CONTEXT OF THE PROPOSAL

Traditionally, investor-state dispute settlement has been conducted on the basis of commercial arbitration rules, which do not provide for transparency. Greater transparency in investor-state dispute settlement is an important objective, as it aims at providing maximum access of the public to documents and hearings, as well as allowing interested third parties to make submissions. This is important as Investor-State dispute settlement may concern disputes raising questions relating to public policies or impact public finances.

The Commission has since 2010 focussed on improving transparency for investor-state dispute settlement.[1] This was explicitly requested by the European Parliament in its resolution on the future European Investment Policy. [2]At the same time as ensuring that future EU agreements provide for a high degree of transparency, the Commission has been instrumental in pushing in the United Nations Commission on International Trade Law (UNCITRAL) for global transparency rules for investor-state dispute settlement and to develop mechanisms to apply these improved transparency rules to the 3,000 existing investment treaties. The present proposal delivers on the policy objectives set in 2010 and the European Parliament’s request of 2011, demonstrates the Commission’s determination to reform and improve the investor-state dispute settlement system as a whole and is tangible proof of the benefits of a common EU external investment policy – such a result would have been highly unlikely without such a common EU external investment policy.

UNCITRAL adopted on 10 July 2013 rules on transparency for investor-state dispute settlement (“the Transparency Rules”), which were in turn endorsed by the United Nations General Assembly on 16 December 2013.[3] These provide for all documents to be made public (both decisions of the tribunal and submissions of the parties), for hearings to be open to the public and for interested parties (civil society) to make submissions to the tribunal. Appropriate protections for confidential information are provided, but these do not go beyond comparable protections in domestic courts. The Union will use these rules as the basis for the provisions on transparency on investor-state dispute settlement in all agreements currently under negotiations and has included them or comparable rules and indeed gone further in the draft Comprehensive Economic and Trade Agreement (CETA) with Canada and the draft EU-Singapore FTA.

The rules became effective on 1 April 2014. They apply automatically to investor-state dispute settlement arising on the basis of treaties concluded after 1 April 2014 where a reference was made therein to UNCITRAL Arbitration rules. At the same time, the Transparency Rules do not apply to treaties concluded prior to that date. Given the very high number of existing investment agreements concluded prior to 1 April 2014, it is important to ensure the application of the Transparency Rules to those agreements. The European Union is a party to one such agreement - the Energy Charter Treaty - and the Member States of the European Union are parties to around 1,400 such agreements with third countries.

As a consequence, together with other UNCITRAL Members, the Union has pushed for the negotiation of a multilateral convention which would facilitate the application of the UNCITRAL Transparency Rules to existing investment treaties. On 10 February 2014, the Council authorised the Commission to negotiate such a convention under the auspices of UNCITRAL (The Convention) and the Union, represented by the Commission has actively participated in the negotiation of the Convention. The negotiations were concluded on 9 July 2014 and the Convention adopted by the United Nations General Assembly on 10 December 2014[4]. The Convention will be open for signature on 17 March 2015 in Port Louis, Mauritius and thereafter at the United Nations Headquarters in New York.

The Convention applies to investment treaties concluded before 1 April 2014 and establishes a mechanism allowing countries and regional economic integration organisations to agree between themselves to apply the UNCITRAL Transparency Rules in disputes covered by investment treaties to which they are parties. It permits both the Union and the Member States to adhere to the Convention and to apply the Transparency Rules to their existing investment treaties. By signing the Convention, the European Union could become a party to the Convention in respect of the Energy Charter Treaty and the Member States could become a party to the Convention in respect of their existing agreements. The Convention provides for a negative list approach, i.e. the Transparency Rules will apply unless a signatory lists particular agreements as not being subject to the Convention by making a reservation under Article 3.

With respect to the Energy Charter Treaty, the European Union would become a party to the Convention in order to extend the scope of application of the Transparency Rules to investor-State disputes under the Energy Charter Treaty in which the Union is a respondent and the claimant is of a non-EU State that that has not excluded the application of the convention to disputes arising under the Energy Charter Treaty.

Having regard to the Treaty of the Functioning of the European Union (TFEU) and in particular of Article 207 and Articles 63 to 66, in conjunction with Article 3(2), the conclusion of international agreements in the field of foreign investments is part of the Union's exclusive competence since the entry into force of the Lisbon Treaty. It is the Commission's view that the Union's exclusive competence to adopt legally binding acts in the field of foreign investment covers all matters relating to foreign investment (foreign direct investment and portfolio investment), including matters relating to the settlement of investment disputes.

As a result, the maintenance in force of bilateral investment treaties signed by Member States with third countries before 1 December 2009 has been authorized pursuant to Article 3 of Regulation (EU) No 1219/2012 of 12 December 2012[5] and the signing and conclusion of bilateral investment treaties between Member States and third countries after 1 December 2009 must be authorized pursuant to Articles 11 or 12 of Regulation (EU) No 1219/2012. The signing and conclusion of this Convention also falls into the ambit of the European Union's exclusive competence and, in accordance with Article 2(1) TFEU, Member States may adopt legally binding acts within this area only if so empowered to do so by the Union. Therefore, the Union should empower Member States to become parties to the Convention to allow them to extend the application of the Transparency Rules to their bilateral investment agreements with non-EU countries concluded prior to 1 April 2014 and which are maintained in force pursuant to Article 3 of Regulation (EU) No 1219/2012. This empowerment also covers Member States when they act as respondents pursuant to the Energy Charter Treaty in respect of cases brought by non-EU investors.[6] The Commission, consistent with the objective of increasing transparency of the investor-state dispute settlement system considers that Member States should provide for the application of the Transparency Rules to all of the aforementioned treaties, i.e. by ratifying the Convention without carving out its application to any of them.

Finally it should be noted that the Commission plans to provide funding for the website upon which all documents subject to the Transparency Rules will be provided.

The Commission herewith submits a proposal for a Council Decision on the signature of the Convention by the European Union and on the empowerment of Member States to individually adhere to the Convention.

In parallel, the Commission submits a proposal for a Council Decision on the conclusion of the said Convention.

2. RESULTS OF CONSULTATIONS WITH THE INTERESTED PARTIES AND IMPACT ASSESSMENTS

The UNCITRAL Convention on transparency in treaty-based investor-State arbitration allows for the extension of the application of the UNCITRAL Rules on Transparency. Observers and civil society have participated in the negotiation of the Convention. They had the opportunity to make their views known.

3. LEGAL ELEMENTS OF THE PROPOSAL

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 207(4), 1st subparagraph in conjunction with Article 218(5) thereof, the Commission is submitting a proposal to the Council for a decision on the signing, on behalf of the European Union, of the United Nations Commission on International Trade Law Convention on transparency in treaty-based investor-State arbitration.

Having regard to the Treaty on the Functioning of the European Union and in particular Article 2(1), this proposal also includes an empowerment of Member States to sign the United Nations Commission on International Trade Law Convention on transparency in treaty-based investor-State arbitration.

4. BUDGETARY IMPLICATION

There are no budgetary implications.

2015/0013 (NLE)

Proposal for a

COUNCIL DECISION

on the signing, on behalf of the European Union, of the United Nations Convention on transparency in treaty-based investor-State arbitration

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the Functioning of the European Union, and in particular Article 207(4), 1st subparagraph in conjunction with Article 218(5) thereof,

Having regard to the proposal from the European Commission,

Whereas:

(1) Following the entry into force of the Treaty of Lisbon, foreign direct investment is included in the list of matters falling under the common commercial policy. In accordance with Article 3(1)(e) of the Treaty on the Functioning of the European Union (‘TFEU’), the European Union has exclusive competence with respect to the common commercial policy. Accordingly, only the Union may legislate and adopt legally binding acts within that area. The Member States are able to do so themselves only if so empowered by the Union, in accordance with Article 2(1) TFEU.

(2) In addition, Chapter 4 of Title IV of Part Three TFEU lays down common rules on the movement of capital between Member States and third countries, including in respect of capital movements involving investments. Those rules can be affected by international agreements relating to foreign investment concluded by Member States with third countries.

(3) On 10 February 2014, the Council authorised the Commission to negotiate a convention on the application of rules on transparency for investor-state dispute settlement under the auspices of the United Nations Commission on International Trade (UNCITRAL).

(4) The negotiations were successfully concluded on 9 July 2014 by the adoption of the text of the Convention by the United Nations Commission on International Trade Law and the Convention will be open for signature on 17 March 2015 in Port Louis, Mauritius and thereafter at the United Nations Headquarters in New York.

(5) It is desirable to apply transparency rules to investor-State dispute settlement to the greatest extent possible. As regards the European Union, the transparency rules should apply to the Energy Charter Treaty. It is desirable that the Member States sign the Convention, and apply it to existing bilateral investment treaties with third countries.

(6) The Convention should be signed on behalf of the European Union. Member States should be empowered to sign the Convention and apply it to existing bilateral investment treaties with third countries as well as to disputes under the Energy Charter Treaty with investors of third countries,

HAS ADOPTED THIS DECISION:

Article 1

The Commission is hereby authorised to sign, on behalf of the Union, the Convention on transparency in treaty-based investor-State arbitration elaborated under the auspices of the United Nations Commission on International Trade Law.

The text of the Convention to be signed is attached to this Decision.

Article 2

Member States are empowered to individually sign the Convention in relation to their bilateral investment agreements with third countries and authorised in application of Regulation (EU) No 1219/2012 of 12 December 2012 and in relation to the possible application of the Energy Charter Treaty in disputes between the Member States and investors of third countries as provided for in the context of the Energy Charter Treaty[7].

Article 3

The Council Secretariat General shall establish the instrument of full powers to sign the Convention on behalf of the Union, subject to its conclusion, for the person(s) indicated by the negotiator of the Agreement.

Article 4

This Decision shall enter into force on […].

Done at Brussels,

For the Council

The President

[1] Commission Communication 'Towards a comprehensive European international investment policy' (COM (2010)343 final); For the Commission's commitment on transparency, page 10.

[2] Report on the future European International investment policy (A7-0070/2011), para. 31.

[3] Resolution adopted by the UN General Assembly on 16 December 2013, Sixty-eighth session.

[4] Resolution A/RES/69/116.

[5] Regulation (EU) No 1219/2012 of the European Parliament and of the Council of 12 December 2012 establishing transitional arrangements for bilateral investment agreements between Member States and third countries (OJ L 351, 20.12.2012, p. 40).

[6] See Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Article 26(3)(b)(ii) of the Energy Charter Treaty (OJ L 69, 9.3.98, p. 115).

[7] See Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Article 26(3)(b)(ii) of the Energy Charter Treaty (OJ L 69, 9.3.98,p. 115).

ANNEX

Convention on transparency in treaty-based investor-State arbitration

Preamble

The Parties to this Convention,

Recognizing the value of arbitration as a method of settling disputes that may arise in the context of international relations, and the extensive and wide-ranging use of arbitration for the settlement of investor-State disputes,

Also recognizing the need for provisions on transparency in the settlement of treaty-based investor-State disputes to take account of the public interest involved in such arbitrations,

Believing that the Rules on Transparency in Treaty-based Investor-State Arbitration adopted by the United Nations Commission on International Trade Law on 11 July 2013 (“UNCITRAL Rules on Transparency”), effective as of 1 April 2014, would contribute significantly to the establishment of a harmonized legal framework for a fair and efficient settlement of international investment disputes,

Noting the great number of treaties providing for the protection of investments or investors already in force, and the practical importance of promoting the application of the UNCITRAL Rules on Transparency to arbitration under those already concluded investment treaties,

Noting also article 1(2) and (9) of the UNCITRAL Rules on Transparency,

Have agreed as follows:

Scope of application

Article 1

1. This Convention applies to arbitration between an investor and a State or a regional economic integration organization conducted on the basis of an investment treaty concluded before 1 April 2014 (“investor-State arbitration”).

2. The term “investment treaty” means any bilateral or multilateral treaty, including any treaty commonly referred to as a free trade agreement, economic integration agreement, trade and investment framework or cooperation agreement, or bilateral investment treaty, which contains provisions on the protection of investments or investors and a right for investors to resort to arbitration against contracting parties to that investment treaty.

Application of the UNCITRAL Rules on Transparency

Article 2

Bilateral or multilateral application

1. The UNCITRAL Rules on Transparency shall apply to any investor-State arbitration, whether or not initiated under the UNCITRAL Arbitration Rules, in which the respondent is a Party that has not made a relevant reservation under article 3(1)(a) or (b), and the claimant is of a State that is a Party that has not made a relevant reservation under article 3(1)(a).

Unilateral offer of application

2. Where the UNCITRAL Rules on Transparency do not apply pursuant to paragraph 1, the UNCITRAL Rules on Transparency shall apply to an investor-State arbitration, whether or not initiated under the UNCITRAL Arbitration Rules, in which the respondent is a Party that has not made a reservation relevant to that investor-State arbitration under article 3(1), and the claimant agrees to the application of the UNCITRAL Rules on Transparency.

Applicable version of the UNCITRAL Rules on Transparency

3. Where the UNCITRAL Rules on Transparency apply pursuant to paragraph 1 or 2, the most recent version of those Rules as to which the respondent has not made a reservation pursuant to article 3(2) shall apply.

Article 1(7) of the UNCITRAL Rules on Transparency

4. The final sentence of article 1(7) of the UNCITRAL Rules on Transparency shall not apply to investor-State arbitrations under paragraph 1.

Most favored nation provision in an investment treaty

5. The Parties to this Convention agree that a claimant may not invoke a most favored nation provision to seek to apply, or avoid the application of, the UNCITRAL Rules on Transparency under this Convention.

Reservations

Article 3

1. A Party may declare that:

(a) It shall not apply this Convention to investor-State arbitration under a specific investment treaty, identified by title and name of the contracting parties to that investment treaty;

(b) Article 2(1) and (2) shall not apply to investor-State arbitration conducted using a specific set of arbitration rules or procedures other than the UNCITRAL Arbitration Rules, and in which it is a respondent;

(c) Article 2(2) shall not apply in investor-State arbitration in which it is a respondent.

2. In the event of a revision of the UNCITRAL Rules on Transparency, a Party may, within six months of the adoption of such revision, declare that it shall not apply that revised version of the Rules.

3. Parties may make multiple reservations in a single instrument. In such an instrument, each declaration made:

(a) In respect of a specific investment treaty under paragraph (1)(a);

(b) In respect of a specific set of arbitration rules or procedures under paragraph (1)(b);

(c) Under paragraph (1)(c); or

(d) Under paragraph (2);

shall constitute a separate reservation capable of separate withdrawal under article 4(6).

4. No reservations are permitted except those expressly authorised in this article.

Formulation of reservations

Article 4

1. Reservations may be made by a Party at any time, save for a reservation under article 3(2).

2. Reservations made at the time of signature shall be subject to confirmation upon ratification, acceptance or approval. Such reservations shall take effect simultaneously with the entry into force of this Convention in respect of the Party concerned.

3. Reservations made at the time of ratification, acceptance or approval of this Convention or accession thereto shall take effect simultaneously with the entry into force of this Convention in respect of the Party concerned.

4. Except for a reservation made by a Party under article 3(2), which shall take effect immediately upon deposit, a reservation deposited after the entry into force of the Convention for that Party shall take effect twelve months after the date of its deposit.

5. Reservations and their confirmations shall be deposited with the depositary.

6. Any Party that makes a reservation under this Convention may withdraw it at any time. Such withdrawals are to be deposited with the depositary, and shall take effect upon deposit.

Application to investor-State arbitrations

Article 5

This Convention and any reservation, or withdrawal of a reservation, shall apply only to investor-State arbitrations that are commenced after the date when the Convention, reservation, or withdrawal of a reservation, enters into force or takes effect in respect of each Party concerned.

Depositary

Article 6

The Secretary-General of the United Nations is hereby designated as the depositary of this Convention.

Signature, ratification, acceptance, approval, accession

Article 7

1. This Convention is open for signature in Port Louis, Mauritius, on 17 March 2015, and thereafter at the United Nations Headquarters in New York by any (a) State; or (b) regional economic integration organization that is constituted by States and is a contracting party to an investment treaty.

2. This Convention is subject to ratification, acceptance or approval by the signatories to this Convention.

3. This Convention is open for accession by all States or regional economic integration organizations referred to in paragraph 1 which are not signatories as from the date it is open for signature.

4. Instruments of ratification, acceptance, approval or accession are to be deposited with the depositary.

Participation by regional economic integration organizations

Article 8

1. When depositing an instrument of ratification, acceptance, approval or accession, a regional economic integration organization shall inform the depositary of a specific investment treaty to which it is a contracting party, identified by title and name of the contracting parties to that investment treaty.

2. When the number of Parties is relevant in this Convention, a regional economic integration organization does not count as a Party in addition to its member States which are Parties.

Entry into force

Article 9

1. This Convention shall enter into force six months after the date of deposit of the third instrument of ratification, acceptance, approval or accession.

2. When a State or a regional economic integration organization ratifies, accepts, approves or accedes to this Convention after the deposit of the third instrument of ratification, acceptance, approval or accession, this Convention enters into force in respect of that State or regional economic integration organization six months after the date of the deposit of its instrument of ratification, acceptance, approval or accession.

Amendment

Article 10

1. Any Party may propose an amendment to the present Convention by submitting it to the Secretary-General of the United Nations. The Secretary-General shall thereupon communicate the proposed amendment to the Parties to this Convention with a request that they indicate whether they favour a conference of Parties for the purpose of considering and voting upon the proposal. In the event that within four months from the date of such communication at least one third of the Parties favour such a conference, the Secretary-General shall convene the conference under the auspices of the United Nations.

2. The conference of Parties shall make every effort to achieve consensus on each amendment. If all efforts at consensus are exhausted and no consensus is reached, the amendment shall, as a last resort, require for its adoption a two-thirds majority vote of the Parties present and voting at the conference.

3. An adopted amendment shall be submitted by the Secretary-General of the United Nations to all the Parties for ratification, acceptance or approval.

4. An adopted amendment enters into force six months after the date of deposit of the third instrument of ratification, acceptance or approval. When an amendment enters into force, it shall be binding on those Parties which have expressed consent to be bound by it.

5. When a State or a regional economic integration organization ratifies, accepts or approves an amendment that has already entered into force, the amendment enters into force in respect of that State or that regional economic integration organization six months after the date of the deposit of its instrument of ratification, acceptance or approval.

6. Any State or regional economic integration organization which becomes a Party to the Convention after the entry into force of the amendment shall be considered as a Party to the Convention as amended.

Denunciation of this Convention

Article 11

1. A Party may denounce this Convention at any time by means of a formal notification addressed to the depositary. The denunciation shall take effect twelve months after the notification is received by the depositary.

2. This Convention shall continue to apply to investor-State arbitrations commenced before the denunciation takes effect.

DONE in a single original, of which the Arabic, Chinese, English, French, Russian and Spanish texts are equally authentic.

IN WITNESS WHEREOF, the undersigned plenipotentiaries, being duly authorised by their respective Governments, have signed the present Convention.