THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 207(2) thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Acting in accordance with the ordinary legislative procedure(1),
Whereas:
(1) With 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 point (e) of Article 3(1) of the Treaty on the Functioning of the European Union (TFEU), the Union has exclusive competence with respect to the common commercial policy and may be a party to international agreements covering provisions on foreign direct investment.
(2) Agreements providing for investment protection may include an investor-to-state dispute settlement mechanism, which allows an investor from a third country to bring a claim against a state in which it has made an investment. Investor-to-state dispute settlement can result in awards for monetary compensation. Furthermore, significant costs for administering the arbitration as well as costs relating to the defence of a case will inevitably be incurred in any such case.
(3) International responsibility for treatment subject to dispute settlement follows the division of competences between the Union and the Member States. As a consequence, the Union will in principle be responsible for defending any claims alleging a violation of rules included in an agreement which fall within the Union’s exclusive competence, irrespective of whether the treatment at issue is afforded by the Union itself or by a Member State.
(4) Union agreements should afford foreign investors the same high level of protection as Union law and the general principles common to the laws of the Member States grant to investors from within the Union, but not a higher level of protection. Union agreements should ensure that the Union’s legislative powers and right to regulate are respected and safeguarded.
(5) Where the Union, as an entity having legal personality, has international responsibility for the treatment afforded, it will be expected, as a matter of international law, to pay any adverse award and bear the costs of any dispute. However, an adverse award may potentially flow either from treatment afforded by the Union itself or from treatment afforded by a Member State. It would as a consequence be inequitable if awards and the costs of arbitration were to be paid from the budget of the Union where the treatment was afforded by a Member State, unless the treatment in question is required by Union law. It is therefore necessary that financial responsibility be allocated, as a matter of Union law, between the Union itself and the Member State responsible for the treatment afforded on the basis of criteria established by this Regulation.
(6) In its resolution of 6 April 2011 on the future European international investment policy, the European Parliament explicitly called for the creation of the mechanism provided for in this Regulation. Furthermore, in its Conclusions of 25 October 2010 on a Comprehensive international investment policy, the Council requested the Commission to study the matter.
(7) Financial responsibility should be allocated to the entity responsible for the treatment found to be inconsistent with the relevant provisions of the agreement. Therefore the Union itself should bear the financial responsibility where the treatment concerned is afforded by an institution, body, office or agency of the Union. The Member State concerned should bear the financial responsibility where the treatment concerned is afforded by that Member State. However, where the Member State acts in a manner required by Union law, for example in transposing a directive adopted by the Union, the Union itself should bear financial responsibility in so far as the treatment concerned is required by Union law. This Regulation should also provide for the possibility that individual cases concern both treatment afforded by a Member State and treatment required by Union law and should cover all actions taken by Member States and by the Union. In such cases, the Member States and the Union should bear financial responsibility for the specific treatment afforded by either of them.
(8) The Union should always act as the respondent where a dispute exclusively concerns treatment afforded by the institutions, bodies, offices or agencies of the Union, so that the Union bears the potential financial responsibility arising from the dispute in accordance with the above criteria.
(9) Where a Member State would bear the potential financial responsibility arising from a dispute, it is equitable and appropriate that such Member State acts as a respondent in order to defend the treatment which it has afforded to the investor. The arrangements laid down in this Regulation are aimed at ensuring that the budget of the Union and Union non-financial resources are not burdened, even temporarily, by either the costs of litigation or any award made against the Member State concerned.
(10) Member States may, nevertheless, prefer that the Union act as the respondent in this type of dispute, for example for reasons of technical expertise. Member States should, therefore, have the possibility to decline to act as the respondent, without prejudice to their financial responsibility.
(11) In order to ensure that the interests of the Union can be appropriately safeguarded, it is essential that, in exceptional circumstances, the Union itself act as the respondent in disputes involving treatment afforded by a Member State. Those circumstances are limited to cases where the dispute also involves treatment afforded by the Union, where it appears that the treatment afforded by a Member State is required by Union law and where similar treatment is being challenged in a related claim against the Union in the World Trade Organisation (WTO), where a panel has been established and the claim concerns the same specific legal issue and where it is necessary to ensure a consistent argumentation in the WTO case.
(12) Where the Union acts as the respondent in cases involving Member State measures, the Commission should conduct its defence in a manner which protects the financial interests of the Member State concerned.
(13) Decisions on whether the Union or a Member State should act as the respondent should be taken within the framework laid down in this Regulation. It is appropriate that the Commission immediately informs the European Parliament and the Council about the manner in which this framework is applied.
(14) This Regulation should provide for some practical arrangements for the conduct of arbitration proceedings in disputes concerning treatment afforded by a Member State. Those arrangements should aim for the best possible management of the dispute whilst ensuring compliance with the duty of sincere cooperation referred to in Article 4(3) of the Treaty on European Union (TEU) and the defence and protection of the interests of the Member State concerned.
(15) Where the Union acts as the respondent such arrangements should provide for very close cooperation including the prompt notification of any significant procedural steps, the provision of relevant documents, frequent consultations and participation in the delegation to the proceedings.
(16) Where a Member State acts as the respondent, it is appropriate that, in accordance with the duty of sincere cooperation referred to in Article 4(3) of the TEU, it keeps the Commission informed of developments in the case and in particular ensures timely information of any significant procedural steps, the provision of relevant documents, frequent consultations and participation in the delegation to the proceedings. It is also appropriate that the Commission is provided with adequate opportunity to identify any point of law or any other element of Union interest raised by the dispute.
(17) Without prejudice to the outcome of the arbitration proceedings, a Member State should be able at any time to accept that it would be financially responsible in the event that compensation is to be paid. In such a case, the Member State and the Commission should be able to enter into arrangements for the periodic payment of costs and for the payment of any compensation. Such acceptance does not imply that the Member State accepts that the claim under dispute is well founded. The Commission should be able in such a case to adopt a decision requiring the Member State to make provision for such costs. In the event that the tribunal awards costs to the Union, the Commission should ensure that any advance payment of costs is immediately reimbursed to the Member State concerned.
(18) In some cases, it may be appropriate to reach a settlement in order to avoid costly and unnecessary arbitration. It is necessary to lay down a procedure for making such settlements. Such a procedure should permit the Commission, acting in accordance with the examination procedure, to settle a case involving the financial responsibility of the Union, where this would be in the interests of the Union. Where the case also concerns treatment afforded by a Member State, it is appropriate that the Union would only be able to settle a dispute if the settlement would not have any financial or budgetary implications for the Member State concerned. In such cases, it is appropriate that there should be close cooperation and consultations between the Commission and the Member State concerned. The Member State should remain free to settle the case at all times, provided that it accepts full financial responsibility and that any such settlement is consistent with Union law.
(19) Where an award has been rendered against the Union, that award should be paid without delay. The Commission should make arrangements for the payment of such awards, unless a Member State has already accepted financial responsibility.
(20) The Commission should consult closely with the Member State concerned in order to reach agreement on the apportionment of financial responsibility. Where the Commission determines that a Member State is responsible, and the Member State does not accept that determination, the Commission should pay the award, but should also address a decision to the Member State requesting it to provide the amounts concerned to the budget of the Union, together with applicable interest. The interest payable should be that laid down pursuant to Article 78(4) of Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council(2). Article 263 TFEU is available in cases where a Member State considers that the decision falls short of the criteria set out in this Regulation.
(21) The budget of the Union should provide coverage of the expenditure resulting from agreements covering provisions on foreign direct investment to which the Union is a party and which provide for investor-to-state dispute settlement. Where Member States have financial responsibility pursuant to this Regulation, the Union should be able to either accumulate the contributions of the Member State concerned first before implementing the relevant expenditure or implement the relevant expenditure first and be reimbursed by the Member State concerned after. Use of both of these mechanisms of budgetary treatment should be possible, depending on what is feasible, in particular in terms of timing. For both mechanisms, the contributions or reimbursements paid by the Member State concerned should be treated as internal assigned revenue of the budget of the Union. The appropriations arising from this internal assigned revenue should not only cover the relevant expenditure but they should also be eligible for replenishment of other parts of the budget of the Union which provided the initial appropriations to implement the relevant expenditure under the second mechanism.
(22) In order to ensure uniform conditions for the implementation of this Regulation implementing powers should be conferred on the Commission.
(23) The implementing powers relating to Article 9(2) and (3), Article 13(1), Article 14(8), Article 15(3) and Article 16(3) should be exercised in accordance with Regulation (EU) No 182/2011 of the European Parliament and of the Council(3).
(24) The advisory procedure should be used for the adoption of decisions providing that the Union act as the respondent pursuant to Article 9(2), given that it is necessary for the Union to take over the defence in such cases, but that this should still be subject to control by the Member States. The advisory procedure should be used for the adoption of decisions on settlement of disputes pursuant to Article 15(3) given that those decisions will have at most a merely temporary impact on the budget of the Union, since the Member State concerned will be required to assume any financial responsibility arising from the dispute, and because of the detailed criteria laid down in this Regulation for acceptability of such settlements,
HAVE ADOPTED THIS REGULATION:
Position of the European Parliament of 16 April 2014 (not yet published in the Official Journal) and decision of the Council of 23 July 2014.
Regulation (EU, Euratom) No 966/2012 of the European Parliament and of the Council of 25 October 2012 on the financial rules applicable to the general budget of the Union and repealing Council Regulation (EC, Euratom) No 1605/2002 (OJ L 298, 26.10.2012, p. 1).
Regulation (EU) No 182/2011 of the European Parliament and of the Council of 16 February 2011 laying down the rules and general principles concerning mechanisms for control by Member States of the Commission’s exercise of implementing powers (OJ L 55, 28.2.2011, p. 13).