Ministry of Finance CZECH REPUBLIC

The Czech Republic’s Experience with Bilateral Investment Treaties (BITs) Eliška Německá International Investment Law and Foreign Claims Department Ministry of Finance

October 2013

Ministry of Finance of the Czech Republic, Letenská 15, 118 10 Praha 1, +420 257 041 111

Ministry of Finance CZECH REPUBLIC

General information • Over 90 Bilateral Investment Agreements in force • 23 Amending Protocols • Termination of 6 BITs with EU Member States • More than 20 investment disputes

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Ministry of Finance CZECH REPUBLIC

Before accession to the EU in 2004

• First BIT signed in 1989 with Belgium – Luxembourg Economic Union • BITs concluded primarily with developed countries • Main aim to attract foreign investors

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Ministry of Finance CZECH REPUBLIC

After accession to the EU in 2004 I. Obligation to renegotiate existing BITs incompatible with EU Law II. Termination of BITs concluded with other EU Member States (Intra EU BITs)

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Ministry of Finance CZECH REPUBLIC

I. Renegotiation of existing BITs • Renegotiation of National Treatment and MostFavoured Treatment clauses • Renegotiation of Transfer clause • Renegotiation of article on Performance Requirements • New article on Essential Security Interests

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Ministry of Finance CZECH REPUBLIC

II. Termination of Intra EU BITs • Two main reasons for termination as expressed by the European Commission: • Intra EU BITs are breaching EU law because they create discrimination between EU investors (framework of BITs concluded between EU Member States is incomplete). • Intra EU BITs could lead to arbitration taking place without relevant questions of EU law being submitted to the European Court of Justice.

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Ministry of Finance CZECH REPUBLIC

II. Termination of Intra EU BITs • The Czech Republic's approach • Termination by mutual consent of the parties - termination agreement concluded by an exchange of verbal notes • No longer residual protection to existing investments • Termination of Intra EU BITs with Denmark, Estonia, Ireland, Italy, Malta, Slovakia, Slovenia

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Treaty of Lisbon • Signed on 13 December 2007 and came into legal force on 1 December 2009

• Amends the two treaties (Maastricht Treaty and Treaty of Rome) which form the constitutional basis of the European Union • Crucial impact on investment agreements

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Ministry of Finance CZECH REPUBLIC

Treaty of Lisbon and investment protection

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Foreign direct investments became exclusive competence of the European Union

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Two types of investment agreement (protection) with third countries I.

Investment agreements concluded on EU level

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Investment agreements of the Member States

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Ministry of Finance CZECH REPUBLIC

I. EU investment agreements • Free Trade Agreements with investment protection chapter or stand-alone investment agreements • Strategic economic partners of the European Union or countries with special interest of the EU and Member States • Crucial role of the European Commission as a negotiator of the European Union 9.10.2013

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Ministry of Finance CZECH REPUBLIC

I. EU investment agreements

• Negotiating directives (mandate) for investment protection in agreements with Canada, Singapore, India, Egypt, Jordan, Morocco, Tunisia, Japan, USA • Considering mandate for investment protection with China and ASEAN

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Ministry of Finance CZECH REPUBLIC

II. Member states BITs • Regulation No 1219/2012 of the European Parliament and of the Council establishing transitional arrangements for bilateral investment agreements between Member States and third countries • Regulation empowers Member States - under certain condition - to negotiate bilateral investment agreements with third countries not immediately scheduled from EU-wide investment negotiation

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Ministry of Finance CZECH REPUBLIC

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Current situation • Renegotiation of BITs inconsistent with EU law • 31 BITs to be renegotiated • Amending protocol to existing BIT or new BIT replacing existing BIT

• Termination of Intra EU BITs • Still 18 Intra EU BITs to be terminated

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Current situation

• Concluding new BITs • Aim to protect Czech investors abroad • Mainly with developing countries • More than 30 ongoing negotiations

• Over 10 new negotiations to be authorized by European Commission

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Ministry of Finance CZECH REPUBLIC

New Czech model BITs • Last model BIT approved by the Czech Government in 1999 • Experience with international investment arbitrations under BITs (5th place in the world)

• Regulation (EU) No 1219/2012

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Ministry of Finance CZECH REPUBLIC

New Czech model BIT • Precise definition of investment • The criteria of the Salini test • Every kind of asset invested directly

• Precise definition of investor • Dual citizenship (Natural Person) • Substantive business operations of company (Juridical Person)

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Ministry of Finance CZECH REPUBLIC

New Czech model BIT • National Treatment and MFN • MFN clause shall not apply to investor-state dispute settlement

• Right to regulate • Measures necessary to pursue legitimate public policy objectives, such as social, environmental, security, cultural diversity, public health and safety

• Expropriation • Definition of indirect expropriation

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Ministry of Finance CZECH REPUBLIC

New Czech model BIT • Transfers • Restriction of transfers in case of a balance-of-payments difficulty

• Investor-State Dispute Settlement • Time limits • Rules on cost allocation

• Normative sources which the tribunal shall apply • Rules on third party funding

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Ministry of Finance CZECH REPUBLIC

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Thank you for your attention! [email protected]

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