For many years arbitration under investment protection

agreements between Member States of the European Union (the

“EU”)1 and non-EU States posed no specific issues. Most Member

States concluded bilateral investment treaties (“BITs”) with non-

Member States, including some that subsequently became members

of the EU.2 Those BITs were broadly similar to the classic model of

such treaties. They dealt exclusively with the protection of foreign

investments on a national and most-favored-nation basis, and

absolute standards of protection such as fair and equitable

treatment, full protection and security, prohibition of arbitrary and

discriminatory measures and guarantees in case of expropriation.

Also, similarly to most BITs, they provided for an arbitral mechanism

for the direct settlement of disputes between investors and the host

State, normally without the requirement of prior exhaustion of local

remedies.3

 

 

During that initial period the EU remained indifferent to the

conclusion of BITs by Member States with third States and did not

seek itself to enter into similar treaties. The bilateral and multilateral

treaties it did enter into—defined as free trade agreements,

economic partnership agreements, partnership and cooperation

agreements, stability and association agreements—aimed essentially

at providing free access to the markets of goods and services, whilst

investment protection remained ancillary to the EU’s aims. Those

agreements took the form of “mixed agreements”, i.e. agreements

negotiated by the European Commission (the “Commission”) and

entered into both by the EU itself (represented by the Council (the

“Council”) and by the Member States, since they related to matters

within the shared competences of the EU and Member States.4 They

did not focus specifically on the protection of private investments,

nor did they provide for any procedural mechanism directly

available to the investors for the safeguard of their rights against

breaches by the host State. Their principal purpose was to provide

free access to the markets of goods and services. The substantive

protection of investments was usually limited to national and mostfavored-

nation treatment, with respect to the establishment and

maintenance of investments and free capital movements.5

 

 

Thus, for a long time international investment protection law

embodied principally in the network of BITs, on the one hand, and

EU law, on the other hand, lived separate existences. In the words of

one commentator they were “distant worlds”.6 The contact between

the two “distant worlds” came about as a result of two sets of

circumstances. These relate respectively to BITs amongst Member

States (“intra-EU BITs”) and BITs between Member States and non-

Member States (“extra-EU BITs”), the compatibility of both of which

with EU law was called into question. This inevitably sparked a debate
also on the arbitral mechanisms provided for under those BITs.