Leiden Law Blog

The Same, only Different: The recent Czech and Dutch Model BITs

Posted on by Ondřej Svoboda in Public Law
The Same, only Different: The recent Czech and Dutch Model BITs

The investment policy of the European Union needs no extensive introduction. The EU gained competence in this field based on Article 207 of the Treaty on the Functioning of the European Union. Since then, the policy went through several stages of development and attracted wide public attention in the context of the Transatlantic Trade and Investment Partnership (“TTIP”) and the Comprehensive Economic and Trade Agreement (“CETA”) negotiations before reaching stabilisation in its approach. It is the investment chapter in CETA which should serve as a reference point for all further investment negotiations conducted by the EU. CETA can therefore be regarded as the de facto model for EU bilateral investment treaties (such as with China or Myanmar) or investment chapters under the framework of comprehensive free trade agreements (such as Vietnam or Mexico).

The EU investment policy however is not entirely in the exclusive competence of the Union (see CJEU’s Opinion 2/15 on EU-Singapore Free Trade Agreement) and before the Lisbon Treaty Member States entered into approximately 1200 bilateral investment treaties (BITs) with non-EU countries providing for divergent standards of treatment. Although there is an assumption that Member States’ BITs will eventually be replaced by agreements of the Union, the conditions for their interim existence and their relationship with the EU’s investment policy had to be introduced for a transitional period. This is one purpose of  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.

The Regulation provides legal certainty for Member States’ BITs signed before 9 January 2013, the day when the Regulation entered into force. Moreover, it lays down the conditions under which Member States are empowered by the Commission to amend or conclude bilateral investment agreements with third countries after this date. Subject to the conditions stipulated in Articles 8 to 11 of the Regulation, the Member States must notify the Commission before signing a bilateral investment agreement of the outcome of negotiations and must transmit the text of the agreement to the Commission in order to be assessed whether the negotiated bilateral investment agreement conflicts with Union law or Union principles and objectives for external action. The same applies to the situation for authorisation to sign and conclude such an agreement. The role of the Commission in the overall supervision of the Member States’ BITs is thus crucial as it may require the Member State to include or remove any clauses where necessary to ensure consistency with the Union’s investment policy or compatibility with Union law. The Commission must also be kept informed of the progress and results of the negotiations and may even request to directly participate in the negotiations.

It is noteworthy that the Regulation does not harmonise nor even refer to Member States’ model BITs. This notable omission has become more evident in light of the model BIT of the Czech Republic adopted by the Czech Government in December 2016 (“Czech Model”) and the draft model BIT of the Netherlands released for public consultation in May 2018 (“Dutch Model”). The differences are obvious at first sight.

The Czech Model overlooks the current developments in a couple of important points. It contains the old-fashioned unqualified fair and equitable treatment standard (“FET”), the core protection provision, which under the current circumstances in the EU is rather an exception. This formulation does not provide for anything more than an obligation of the Host State to treat the protected investment and investors fairly and equitably in the dispute settlement part. The dispute settlement mechanism is based on the conventional means of international arbitration between investor and state (“ISDS”). For instance, a code of conduct for arbitrators is missing as well as a roster of arbitrators. The selection of arbitrators is thus made by the parties to the dispute, the claimant and the responding State. Despite this main traditional feature, ISDS is regulated extensively and in detail and the drafters incorporated several progressive elements which are worth pointing out. These are for example transparency obligations, consolidation of proceedings, a mechanism against frivolous claims, or security of costs.

In contrast, the Dutch Model follows in general the CETA approach in FET with a closed list of elements constituting its breach, an umbrella clause limited to written commitment(s) in exercising governmental authority. Regarding ISDS, all arbitrators are to be appointed by an appointing authority (the Secretary-General of ICSID or the Secretary-General of the Permanent Court of Arbitration), must possess the required qualifications in their respective countries for appointment to judicial office, or be jurists of recognised competence. They are also forbidden from having acted as legal counsel for the last five years in investment arbitrations. In addition, the Dutch Model also includes numerous references to traditionally non-investment objectives - obligations in the fields of environment, labour standards and human rights protection or underlying the importance of various corporate social responsibility guidelines.

Nevertheless, comparing the Czech Model, the Dutch Model and the CETA, there are also a number of similarities such as definitions of covered investors and investments, clarification regarding the scope of treatment under clauses of national treatment and most favoured nation treatment, delineation between compensable and non-compensable measures and full-fledged transparency in arbitration proceedings.

Regulation No 1219/2012 presented a major step towards establishing and enforcing a uniform EU investment policy. The contrast with the current practice of Member States in developing their model BITs could not be starker though. The Member States are individually searching for the right balance between their offensive and defensive interests. Negotiations initiated with third countries based on their model BITs can subsequently lead to diverse results and thus undermine the Commission’s efforts to achieve coherency in the EU investment policy. Moreover, the different approaches of individual Member States demonstrate that while the Commission has one model for the EU negotiations, the Member States have not accepted this as their own model in various aspects and instead promote their specific interests vis-à-vis negotiating partners.

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