Article 351 TFEU: The Principle of Loyalty and the Future Role of the Member States' Bilateral Investment Treaties

European Yearbook for International Economic Law, January 2010

13 Pages Posted: 11 Jul 2010

See all articles by Prof. Dr. Jörg Philipp Terhechte

Prof. Dr. Jörg Philipp Terhechte

Leuphana University Lüneburg, Competition & Regulation Institute

Date Written: January 10, 2010


Several changes to the Common Commercial Policy (CCP) effectuated by the Treaty of Lisbon extend the competences of the Union and are thus in line with this development. According to Art. 207(1) S. 1 TFEU, the CCP is to be “based on uniform principles,” including but not limited to the sector of “foreign direct investment.” The regulation of this sector is novel to the TFEU, as the corresponding stipulation of the TEC (Art. 133 [1]) made no mention of it at all. The Treaty has thus extended the scope of application of the CCP by including foreign direct investment. Admittedly, the transfer of competences between the Union and Member States are not new to the process of European Integration - if anything, the issue of correctly allocating responsibilities to Union or State level has always dominated this process. Nonetheless, the development of foreign direct investment is of utmost importance at the moment, due to the following reasons: 1. On the one hand, following the Treaty of Lisbon's implementation, several hundred Bilateral Investment Treaties remain in force between Member States and Third Party States. This can be seen as a direct consequence of the Union's former lack of competences in this policy area, which only allowed for the regulation of a limited field, including, for example, questions of market access. Given the new competency of the Union, one is faced with the fate of these treaties. This paper seeks to focus on this issue. As a first step towards a viable solution, one has to identify the extent of the Union's new competence. This is an endeavour which is complicated by the ambiguous wording of Art. 207(1) 1TFEU with regard to “foreign direct investment.” As a matter of fact, a heated debate has developed over the wording in question. Does Art. 207(1) 1 TFEU apply to all kinds of foreign direct investment or only to such investment that leads to the acquisition of control of undertakings? This question must not be taken seriously, for it determines whether the Union can act independently in the area of foreign direct investment or is forced to act in conjunction with the Member States, by means of so-called mixed agreements. The future fate of national Bilateral In-vestment Treaties also hinges on the interpretation of Art. 207 TFEU, as modifications based on Art. 351(2) TFEU (ex-Art. 307(2) TEC) will only be possible if the Union's competences regarding the CCP cover this area. 2. A much more general issue of equal importance is the overall relationship between Union law and those obligations of Member States that are derived from public international law. Namely, are the Member States required to amend or even withdraw from treaties that interfere with the newly extended competences of the Union? How far does the proverbial “new legal order of international law” have to commit to the principle of “commitment to international law” (Völker-rechtsfreundlichkeit) without neglecting its own statutes? 3. This leads to the question of which principles of Union law could be used to resolve the arising issues. Here, Art. 351(2) TFEU and its previous incarnations have constituted the main focus of discussion in recent years. It must not be over-looked though that this stipulation and its application to specific cases are heavily influenced by the fundamental aims and principles of the Union Treaty, especially comprised of the principle of effet utile, the principle of union loyalty, the principle of uniform application, as well as the general aims and values of the Union (Art. 2 TEU). 4. An interpretation of Art. 351 TFEU cannot be undertaken without at least a look at three (nearly identical) recent judgments of the Court of the European Un-ion on the topic of Bilateral Investment Treaties, which focused on Art. 307 TEC (the pre-Lisbon Art. 351 TFEU) and solved many persistent issues regarding the stipulation. 5. Last but not least, the German Federal Constitutional Court's (FCC) famous Lisbon judgment of June 2009 must not go unmentioned, for it thoroughly discussed - among many other things - the extension of CCP.

If the judgments of the CEU represent the Union's side of the coin, the judgment of the FCC represents the Member States'. Both of the sides’ exact influence on the future application of the newly extended Union competences and the fate of the Member States' BITs is closely related to the issues covered here.

Suggested Citation

Terhechte, Prof. Dr. Jörg Philipp, Article 351 TFEU: The Principle of Loyalty and the Future Role of the Member States' Bilateral Investment Treaties (January 10, 2010). European Yearbook for International Economic Law, January 2010, Available at SSRN:

Prof. Dr. Jörg Philipp Terhechte (Contact Author)

Leuphana University Lüneburg, Competition & Regulation Institute ( email )

Scharnhorststraße 1
Lüneburg, 21335

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