The Inevitable Convergence of the US and the EU on the Protection of Foreign Investments – BITs, PTAs, and Incomplete Contracts

Abstract

This paper deals with the evolution of investment chapters of Preferential Trade Agreements (PTAs). These separate chapters are comparable to self-standing Bilateral Investment Treaties (BITs), and can include both rules on investment liberalisation (non-discrimination safeguards) and on investment protection (standards of treatment afforded by the host State to the foreign investor/investment). The objective is to observe the structure and recurrent patterns of these chapters in order to detect and analyse certain normative trends. The sample of agreements reviewed is limited to the investment agreements concluded (or about to be concluded, when sufficient information is available) by the two major importers and exporters of Foreign Direct Investments (FDIs) – the United States of America and the European Union.

After sketching the history and layout of the EU and US systems of investment protection (section 2), section 3 offers a breakdown of the provisions that most effectively illustrates the divide between the two models. In section 4, we examine the current impasse in the new EU’s centralised management of investment policies. Our central claim is then illustrated in section 5: in the long term, the US (NAFTA-like) template is likely to prevail over the European one, because it satisfies the need to fill the gaps in incomplete treaty regimes like those of European BITs. The Canada-EU Trade Agreement (CETA) seems to confirm this trend. In light of these remarks, we observe that future pluri- and multilateral negotiations will increasingly lean towards the NAFTA-model and gradually distance themselves from the European BIT standard (section 6).

Keywords: Preferential Trade Agreements, PTA, investment, Bilateral Investment Treaties, BIT, European Union, United States of America, North Atlantic Free Trade Agreement, NAFTA, Canada-European Union Trade Agreement, CETA, convergence, incomplete contracting