What Can a Foreign Investor in a Future EU Member State Legitimately Expect?: Negotiating Legal Certainty and Regulatory Flexibility During EU Accession

by Sadie Blanchard

MPILux Working Paper 4 (2014)

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ABSTRACT: Accepting that there is no conflict in a formal sense (under the Vienna Convention on the Law of Treaties) between EU law and investment treaty law, this paper observes that the legal change and uncertainty inherent in the accession process are in tension with investment treaty protections, and that arbitral tribunals must navigate between the legal certainty protected by investment treaties and the regulatory flexibility required for a State to satisfy the acquis communautaire. Tribunals have faced this tension when applying the fair and equitable treatment standard, the investment treaty standard most frequently invoked in investor claims. Fair and equitable treatment has been held to encompass various requirements including good faith, due process, non-discrimination, and the protection of investors’ legitimate expectations. While tensions between EU law and investment protection obligations may be addressed through several of these branches of fair and equitable treatment, this paper focuses on one aspect—legitimate expectations—that is particularly pertinent to the tension between regulatory flexibility and legal certainty. The paper examines how arbitral tribunals hearing claims against newly acceded Member States have used the legitimate expectations doctrine to navigate investors’ claims to enforce pre-accession expectations throughout and beyond accession. It finds significant points of agreement and one major divergence of views. It supports an approach that properly accounts for the time at which and context in which an investor’s expectations are formed, as opposed to a blanket rule declining to protect expectations against State conduct required by EU law. It argues that such a blanket rule goes too far in undermining legal certainty, hampering the ability of candidate countries to attract investment by entering into long-term contracts or making specific assurances of regulatory stability.

KEYWORDS: fair and equitable treatment, investment treaty law, legitimate expectations, EU law, EU accession, policy space, regulatory flexibility, investment arbitration, Energy Charter Treaty, Micula, Electrabel, EU investment policy, BITs.