On January 9, 2013, a new European Regulation entered into force which clarifies the legal status of bilateral investment treaties concluded between EU member states and non-EU countries (“extra-EU BITs”) and the role of the European Commission (the “Commission”) in such agreements. Regulation (EU) No. 1219/2012 (the “Regulation”), issued on December 12, 2012, eliminates some of the confusion that arose after the Lisbon Treaty entered into force on December 1, 2009. The Lisbon Treaty conferred exclusive competence on the European Union over its member states regarding foreign direct investment, including extra-EU BITs. As a result, the status of the extra-EU BITs already in existence at that time was uncertain.

The Regulation governs extra-EU BITs signed both before and after the Lisbon Treaty. Extra-EU BITs signed prior to the effective date of the Lisbon Treaty on December 1, 2009, remain in force until the EU concludes replacement BITs with the non-EU countries. For extra-EU BITs signed between December 1, 2009, and the effective date of the Regulation on January 9, 2013, the Commission will authorize the maintenance or entry into force of such agreements so long as it finds that (i) the extra-EU BIT does not conflict with EU law or policies; (ii) the EU has not already decided to initiate negotiations with the non-EU country; and (iii) the extra-EU BIT will not “constitute a serious obstacle” to the EU’s negotiation or conclusion of a BIT with the non-EU country. After January 9, 2013, EU member states may enter into negotiations with a non-EU country to amend existing BITs or to enter into new BITs only after notifying and receiving approval from the Commission. If approval for negotiations is granted, the member state must keep the Commission updated on the progress of the negotiations, and the Commission may request to participate in the negotiations. Before signing a new extra-EU BIT, the member state must transmit the text of the proposed BIT to the Commission, which will authorize the signature of the BIT if conditions (i) through (iii) described above are satisfied.

Any extra-EU BITs signed after the Lisbon Treaty took effect are still valid only until the EU concludes a replacement BIT with the non-EU country. If the Commission determines that either an existing or a newly made extra-EU BIT constitutes “a serious obstacle to the negotiation or conclusion” by the EU of a replacement BIT, then the member state party to that agreement and the Commission must “enter into consultations” and identify “appropriate actions to resolve the matter”. The Regulation also provides for ongoing involvement of the Commission in matters relating to extra-EU BITs, and contains specific provisions regarding disputes arising under them. The member states must inform the Commission of any request for dispute resolution, and must seek the agreement of the Commission before activating any mechanism for dispute resolution, under an extra-EU BIT.

Once a dispute resolution procedure has been initiated, the member state and the Commission must fully cooperate in the conduct of that procedure, which may include active participation of the Commission.

The implementation of the Regulation means that investors can now confidently rely on extra-EU BITs, but should monitor EU countries’ efforts to enter into replacement BITs. In addition, investors can expect increasing participation by the Commission in any disputes arising under extra-EU BITs.