No. 59/03
September 23, 2003

The European Commission, the United States and eight countries preparing to join the European Union have signed a Memorandum of Understanding (MoU) which will ensure a favorable environment for investors in acceding countries while making existing Bilateral Investment Treaties (BITs) between acceding countries and the US compatible with the European Union's laws and regulations. A number of provisions in the BITs were contrary to the existing EU legislation and needed to be amended prior to accession. The acceding countries concerned are Bulgaria, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovakia. The European Commission is pleased that a satisfactory solution has been found, showing that EU enlargement can be beneficial to third countries.

The Memorandum of Understanding (MoU) concluded between the European Commission, acceding and candidate countries and the US remedies the incompatibilities with EU law arising from the BITs between the accession countries and the United States. It is the result of a dialogue started a year ago between acceding countries and the US under the auspices of the Commission. The MoU will now guide the process of amendment of the individual BITs.

The MoU contains solutions ensuring that the “acquis communautaire,” the full body of EU laws and regulations, will be fully applied as from the date of accession to the EU to the most sensitive sectors. This would exclude from the scope of the BITs agriculture and audiovisual, but also transports, financial services, fisheries, energy, etc.

The MoU also contains solutions ensuring that the EU will be able to take measures to limit capital movements and payments destined or coming from third countries in accordance with articles 57.2 and 60 of the EC Treaty.

The MoU does not settle however the issue of the adoption by the Council of eventual safeguard measures to preserve the functioning of the economic and monetary union (article 59 of the EC Treaty). For example, in cases of pressures exercised on the currency of one of the new member states, at the time this member state is preparing its entry into the Euro zone.

The MoU foresees the continuation of the bilateral discussions to solve this remaining issue and is without prejudice to its further amendment following progress on capital movements, or, failing that, any other action deemed necessary by the Commission.

Beyond this particular issue, the agreement concluded proves again that openness and non-discrimination are among the key pillars of the EU. The positive contribution of foreign investments to the economic development of Europe is recognised.

Enlargement of the EU will bring a range of immediate and tangible economic benefits to third countries’ investors, arising out of the acceding and candidate countries adopting the same high standards of treatment of third countries which the EU currently applies.

Bilateral Investment Treaties (BITs)

Bilateral Investment Treaties between acceding and candidate countries and the US contain commitments on the protection and access to the market for foreign direct investments of their contracting parties. In particular, they contain the principles of National Treatment (NT) and Most Favoured Nation (MFN) at pre- and post-establishment phases. This would lead a future member state party to these agreements to treat American investors in the same manner as domestic investors, without any discrimination.

A number of clauses in these BITs as they stand are incompatible with EU law in areas such as agriculture and audiovisual. If the BITs were not amended, a US investor could circumvent current EU rules, which give a preferential treatment only to community operators. Regarding the Common Agricultural Policy, these investors could benefit from a host of Community subsidies, which are currently reserved to EU farmers. US investors could also benefit, in the audiovisual sector, from subsidies and quotas for the production and broadcast of European works.

For more information:

http://europa.eu.int/comm/trade/issues/bilateral/
regions/candidates/index_en.htm  

BITs between EU Acceding Countries and the United States

At the expiry date of BITs, they are tacitly renewed, but can be denounced every year with one year prior notification. However, the acquired rights of established investors still remain for ten years after the denunciation.