Public and political controversies over Investor–State Dispute Settlement (ISDS) have prompted reform processes at international and regional levels. As an emerging actor in this field, the European Union (EU) has been particularly active in shaping new developments, within and outside the EU, and proposing the establishment of a Multilateral Investment Court (MIC). This research examines the underlying reasons and ways in which the EU has been shaping the field of international investment law (IIL) in order to address its own and global ISDS problems. The analysis of EU law and policy solutions envisioned to reform investment law in this book is undertaken in light of the IIL controversies, the EU constitutional and legal framework and the rule of law and legitimacy, as the normative goals of the ISDS reforms. In doing so, this book evaluates the contribution of the EU to the development of international law in the field of investment.

In this introductory chapter to Part II, we will examine the key specifics of the EU legal order and investment protection mechanisms under EU law, with a view to expose systemic similarities and differences between the EU legal order and international investment law (IIL). First, we will explain the basic features of the EU legal order. Second, we will expose the modus operandi of the EU judicial system and the Court of Justice of the European Union (CJEU) as its integral part. Finally, we will explain the scope of investment issues in the EU legal order to understand the reasons which render IIL more attractive to intra-EU investors than EU law. This chapter thus provides the context to the discussion on intra-EU dispute settlement in the next chapter. The divergent approaches to intra-EU ISDS between investment tribunals and the CJEU epitomise the fundamental differences of the two legal orders discussed in this chapter. The tensions between these two legal orders can only be understood in light of the constitutionalisation of the EU legal order, the process in which the CJEU plays the key role.

With the foreign investment competence in the Lisbon Treaty, the EU has set an objective to develop a coherent international investment policy. This policy is now being implemented through EU (mixed) international investment agreements and the Member States’ extra-EU BITs concluded with third countries in the post-Lisbon period. Both set of agreements serve to replace or supplement the existing extensive network of pre-Lisbon extra-EU BITs of Member States. As a matter of principle, a coherent EU policy could ensure the same level of protection for all EU economic operators investing abroad, contributing to the uniformity of the Common Commercial Policy. Further, it supports the EU in the global reform of international investment governance. Ultimately, a coherent external approach of the EU and its Member States could improve consistency between the regulation of investment internally and externally, thus endorsing the EU vision of constitutionalism in international law. In this chapter we examine the extent to which the EU has achieved coherence between EU’s and Member States’ investment agreements. We analyse substantive and procedural provisions of pre- and post-Lisbon Member States’ extra-EU BITs and EU international investment agreements in light of primary EU law, the existing transitional arrangements in EU secondary law and the CJEU case-law.

In this introductory chapter to Part III, we examine the context of EU international investment regulation. We will analyse the objectives of EU trade and investment strategy, and shifts between multilateralism, bilateralism and unilateralism, effectively endorsing pragmatic-lateralism. First, EU values, objectives and principles are briefly introduced, to the extent to which they shape and define the EU’s international action. This is followed by the examination of EU strategy for its integration with the wider world through trade and investment agreements, and the consideration of circumstances which led to the EU’s international investment policy reform. The aim of this chapter is to provide the political background of EU international investment regulatory framework, which is analysed in Chapters 8 and 9.

In Part I of this study we undertook a historical overview of IIL and its institutions and examined the core substantive and procedural rules (Chapter 1), mapped tensions (Chapter 2) and normatively conceptualised the reform challenges (Chapter 3). The complexity of this field of international law is magnified by its internal fragmentation – the large number of different legal instruments and their mixed private–public nature. The manner in which the field operates autonomously from other areas of international law supports the wider phenomenon of fragmentation in international law. Finally, the high financial stakes involved in investment have led to further politicisation of this already politicised field of international law.

The constitutional character of the Lisbon Treaty signalled a new phase of EU engagement with ‘the wider world’. With the foreign direct investment (FDI) competence, EU institutions have assumed the leading role in designing the EU international investment policy (IIP) and the EU has emerged as a new actor in the field of international investment regulation (IIR). The EU IIP and its improved investment standards are implemented in EU international investment agreements (IIAs), post-Lisbon Member States’ bilateral investment treaties (BITs) and the EU proposal for a new Multilateral Investment Court (MIC) in the United Nations Commission on International Trade Law (UNCITRAL).

As analysed in Part I, international investment law (IIL) and its tribunals have been established with a view to overcoming distrust of investors in national courts, providing investors from developed States with protections against political risks in unpredictable markets of host, usually developing, States. In the EU context, a mutatis mutandi constellation of these relations was evident in the period after the fall of communism and before the accession of Central and Eastern European (CEE) States to the EU. In the post-enlargement context that emerged, investor mistrust in the courts of the (Eastern) Member States and the recourse to private arbitrators through investment treaty arbitration (ITA) has become politically inappropriate and contrary to the principles on which the EU is founded.

The legitimacy crisis of ISDS in Europe has prompted the EU – an emerging actor in international investment law – to reform this field. In particular, the EU reform was designed to enhance the rule of law in international investment law, as a means of legitimising the field. However, the reform of international investment law has ultimately exposed the clash of different visions of the rule of law in international law and the multifaceted nature of this concept. The purpose of this book was to evaluate the EU’s vision and its contribution to the development of international law in the field of investment. In particular, the book sought to assess whether the EU reform addresses the key international investment law problems and in doing so contributes to the achievement of the rule of law and legitimacy. To answer this question, a substantial analysis was undertaken of EU investment law and policy in both its internal dimension (Part II) and external relations (Part III), and placed in the broader context of international investment law and its reform (Part I). As many scholars have written about international investment law, what value does this book add? The following observations encapsulate the findings of this research and attest to its relevance and contribution to the international investment law reform debate.

The EU proposal for investor-State dispute settlement (ISDS) reform introduces a shift from an ad hoc investment arbitration to a permanent court-type adjudication in order to address the legitimacy and rule of law concerns about the current international investment regulation (IIR). This paradigmatic shift at the EU level has been triggered by political controversies within the EU, emerging primarily from public reaction against ISDS. At the same time, the proposal has been shaped by the EU’s own normative and institutional framework, based on the rule of law in which a court plays the central role. In Part III we will explore why old ISDS is ‘dead’ for the EU and what its envisaged replacement in EU external investment relations would be, both bilaterally and multilaterally.

In this chapter we examine how international investment law in relations between the Member States poses a challenge to EU law and its autonomy, hindering internal market integration as one of the core EU objectives, and the rule of law in the EU as its core value. We analyse tensions between international investment law and EU law, focusing first on intra-EU international investment agreements and the objectives of EU integration, and second on intra-EU investment treaty arbitration and the autonomy of the EU legal order. The Achmea judgment of the CJEU is the apotheosis of these tensions, and it has been endorsed in subsequent CJEU judgments. In the final part of this chapter, we analyse legal and policy implications of this jurisprudence, in the broader context of EU integration and the rule of law in the EU.