The European Parliament (EP), on 11 December 2012, approved without further amendments in second reading under the ordinary legislative procedure the Council position at first reading on a draft Regulation of the EP and of the Council establishing transitional arrangements for bilateral investment agreements between member states and third countries.

The Council adopted its first reading position on 4 October 2012 (see Legal update, Bilateral investment treaties: Council adopts Regulation establishing transitional arrangements).

The European Commission presented the draft Regulation on 7 July 2010, together with a Communication on a comprehensive European international investment policy (see Legal update, Commission publishes EU investment policy and sets its approach to bilateral investment agreements between member states and third countries).

The draft Regulation is aimed at ensuring a smooth transition from the current system of bilateral investment treaties (BITs) between member states and third countries to a system whereby EU BITs are negotiated by the Commission, now that Article 207 of the Lisbon Treaty has made foreign direct investment part of the EU's common commercial policy.

The "Grandfathering Regulation" seeks to clarify the status of more than 1,000 BITs concluded between EU member states and third countries, making a distinction between BITs signed before or after 1 December 2009.

It sets the conditions for continued application of investment agreements currently in force, as well as the conditions for member states to modify existing agreements and negotiate and conclude new or similar ones.

The BITs concluded by member states will remain valid under international law. As their existence may raise a question of compatibility with EU law, the Regulation makes it fully clear that the benefits and rights available under those agreements cannot be denied even with the development of a comprehensive EU-level policy role on investment.

See also Intra-EU bilateral investment treaties: tracker.

Next steps: After signature by the President of the EP, the President of the Council, and the Secretaries-General of the two Institutions, the new Regulation will be published in the Official Journal. It will enter into force 20 days later. It will be binding in its entirety and directly applicable in all member states.

Background: A bilateral investment agreement or treaty is an agreement establishing the terms and conditions for investment by nationals and companies of one country in another country. It establishes a legally binding level of protection in order to encourage investment flows between the two countries. It grants investors a number of guarantees, which typically include fair and equitable and non-discriminatory treatment, protection from unlawful expropriation, free transfer of funds and full protection and security.

In addition, the majority of BITs also offer investors direct recourse to international arbitration against the country concerned when their rights under the treaty have been violated.

There are more than 1,200 BITs concluded by EU member states with third countries.

At the same time the EU is in the process of developing and implementing its own comprehensive investment policy. Negotiations on investment protection with Singapore, Canada, and India are being held in the context of wider trade negotiations with these countries. With Canada and Singapore they are close to being finalised.

In December 2011 the Council authorised the Commission to negotiate deep and comprehensive free trade agreements with four Southern Mediterranean countries (Morocco, Tunisia, Jordan, Egypt), and to include in these negotiations provisions on investment protection.

Also in November 2012, the Council authorised the Commission to engage in trade and investment negotiations with Japan.

Finally, the Commission is exploring negotiating opportunities with other important investment partners, such as China.

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