Umbrella Clause and Transfer Provision: Why the Trade Agreement with Canada Counts
European Union and Canada are currently negotiating a Comprehensive Economic and Trade Agreement (CETA), whose draft Investment Chapter is of particular importance since it is one of the first EU international investment agreements. Furthermore, it represents an important step forward also in the ongoing process of definition of the content of the future EU Model BIT (i.e. Bilateral Investment Treaty).
Anna De Luca (Department of legal Studies) analyzed some of the most interesting provisions of such draft Investment Chapter, stirring a lively debate in occasion of the second Vienna conference on the European Union and international investment law, held at Vienna University on 25-26 November 2013, where she delivered a speech. De Luca recently published on The Journal of World Investment and Trade an article on the same matter, entitled "Umbrella Clauses and Transfer Provisions in the (Invisible) EU Model BIT".
The first issue addressed by De Luca is the inclusion of an "umbrella clause" in the Investment Chapter of CETA. To understand the importance of a such a clause it has to be kept in mind that, in principle, only acts which are expression of the authoritative power of a State are relevant under International Law and could amount to a breach of a BIT. Therefore, BIT provisions (e.g. investment arbitration) usually apply only to authoritative acts and not in case of State conducts of a private-law nature, such as a breach of contract. Umbrella clauses, instead, oblige the host State to respect tout court its specific undertakings vis-à-vis investors of the other State, therefore making also contractual undertakings of the host State relevant under the BIT.
The Author explains that umbrella clauses are one of the most debated issues in investment practice, their effects and scope of application being unclear, and that the inclusion of an umbrella clause in the final text CETA is at least uncertain since, on the one hand, Canada has never included umbrella clauses in its BITs and, on the other hand, EU has not a settled position on this matter. In any case, the possible negative consequences of the absence of an umbrella clause in the CETA do not appear to be so serious, considering that EU Member States' and Canada's judiciaries offer comparable guarantees.
The second issue examined by De Luca is the possible inclusion of a "transfer provision" in the CETA. Such clause is aimed at reducing, or eliminating, restrictions on funds transfers arising in connection with foreign investments. Actually, transfer provisions are truly standard clauses of all EU Members States' BITs and there is no doubt that a clause of that kind will be included in the future EU Model BIT as well as in the CETA.
Nonetheless, De Luca points out that, in the aftermath of the 2008 financial crisis, there is an ongoing discussion about the possible introduction of derogations to the free movement of capital as safeguards in case of serious difficulties in the operation of monetary policy or of exchange rate policy in a contracting party, even if a coordination of restrictions on current transactions with the International Monetary Fund regulations is necessary.
Lastly, the Author reports also of recent developments in EU investment policy, specifically in the perspective of the future EU-US CETA, concerning the opposition of some Member States (such as Germany) to the provision for investment arbitration. This is a position which, if upheld, would submit to national courts the possible investment disputes, thus further increasing the complexity of the matter.