Navigating the Complexities of Investment Protection in the EU Single Market

This draft discusses the current debate over intra-EU bilateral investment treaties (intra-EU BITs). This is an esoteric issue for all who do not have some interest in EU and investment law. But the controversy over these agreements is likely to affect current conceptions of investment protection in trade agreements like the CETA as well as the future of the envisaged Multilateral Investment Court (MIC).

Are bilateral investment treaties between EU member states (intra-EU BITs) compatible with EU law and the rules of the Single Market? The case Slovak Republic v Achmea BV (C-284/16) represents the first opportunity for the Court of Justice of the European Union (CJEU) to examine this question and decide on the compatibility of intra-EU BITs with EU law. Even more important, its outcome will determine not only the uncertain future of the 196 intra-EU BITs that remain currently in force as well as ongoing disputes, but also address some of the controversies over the EU’s vision for a multilateral investment court.

Intra-EU BITs have only recently become popular with investors. Most of these treaties date back to the 1990s when one or both countries were not yet a member of the EU. However, the number of investor-state arbitrations based on these agreements has only risen significantly over the last few years: while we rarely saw more than two or three intra-EU arbitrations initiated in a single year before 2011, the number of new cases started to increase rapidly in 2012. In 2015 alone, out of a total of 74 new investment disputes worldwide, 28 were initiated between EU-based investors and EU member states. These figures are based on data in UNCTAD’s Investment Policy Hub. The darker section of each bar indicates the number of arbitrations in which the claimant is an investor based in the EU and the respondent is an EU member state; this includes cases under the multilateral Energy Charter Treaty.

Figure 1 – Number of Investor-State Arbitrations Initiated per Year

Arbitrations

EU member states are divided on the issue of intra-EU BITs, with some maintaining that intra-EU BITs are incompatible with the EU treaties and others arguing the opposite. According to the recent opinion in Slovak Republic v Achmea BV, delivered by Advocate General Wathelet on 19 September 2017, Germany, France, the Netherlands, Austria and Finland have all intervened on the side of the investor (Achmea BV). These are mostly home states of investors and have therefore never or rarely been respondents in arbitral proceedings launched by investors. In contrast, the Slovakian position has been supported by a larger group including the Czech Republic, Italy, Spain, Greece, Hungary and Poland, which have all repeatedly been respondents in arbitral proceedings relating to intra-EU investment.

Continue reading “Navigating the Complexities of Investment Protection in the EU Single Market”

Advertisements
Navigating the Complexities of Investment Protection in the EU Single Market

The Spaghetti Bowl: Visualising the Proliferation of Preferential Trade Agreements

DESTA_figure2.png

The world of preferential trade agreements (PTAs) is rapidly evolving: governments increasingly negotiate on the bilateral and regional level. This activity has created a complex web of PTAs spanning the globe. Economics professor Jagdish Baghwati likened the phenomenon to a “spaghetti bowl” in the early 1990s. Since then, new waves of preferential trade negotiations have swept over different regions, leading to a considerable increase in the overall number of treaties and the network’s density.

The figure above (Click here for a larger version) depicts the whole network of PTAs (a total of 910 treaties, including accessions to base treaties) for 203 countries/customs territories. It is based on the DESTA dataset, which I have visualised using a combination of R and Gephi.

How to read the figure:

  • Countries are depicted as circles, treaties are represented by rectangles; the size of the individual nodes is proportional to their respective number of connections.
  • Lines connect a country with a treaty: individually, they represent membership of a specific country in a PTA.
  • The colours depict geographical regions. Interestingly, the mapping algorithms automatically create regional clusters, which highlights the fact that many governments negotiated the majority of their agreements with states in their immediate neighbourhood.

A few months ago, I also created a dynamic version to visualise these treaty connections.

In comparison, this is how the network looked like in 1995 – when the World Trade Organization (WTO) was established and also approximately when Bhagwati made his observation of the spaghetti bowl: (Click here for the larger version)

DESTA_figure3.png

The figure above shows all treaties in the DESTA dataset that were concluded before 1996; note that the colouration differs slightly from figure 1.

The Spaghetti Bowl: Visualising the Proliferation of Preferential Trade Agreements

A very short outline for my PhD

Fabian’s PhD thesis examines how the debates between trade experts in Committees of the World Trade Organization (WTO) shape the interpretation of multilateral trade agreements and, therefore, Member States’ national regulatory autonomy. The project investigates empirically and theoretically how the discursive interactions between committee members can lead to the creation (and contestation) of shared ideas and common conceptual frameworks about the objectives and limits of the WTO’s agreements.

The project sheds new light on the roles that WTO administrative bodies play in regime maintenance, norm elaboration and the adaptation of the existing legal framework to new challenges. The thesis advances the argument that the contributions of WTO Committees to these crucial tasks, their internal functioning and the role of expert knowledge in international trade governance remain relatively under-explored. It argues that WTO Committee proceedings are more effective and have more profound implications on the operationalisation of WTO treaties and, by extension, member states’ domestic regulatory affairs, than is currently realised.

The project reflects the turn towards social constructivist theorising in International Political Economy and International Economic Law research. It is supervised by Dr Valbona Muzaka at King’s Department of European and International Studies and Dr James Scott at the Department of Political Economy.

A very short outline for my PhD

New Article on the Future of Global Trade

Liberia joins World Trade Organization

The current issue of Nueva Sociedad contains our new article titled “Malestar en el libre comercio: Un nuevo rol para la OMC“, which was jointly written with Clara Weinhardt. A shorter and more pointed version of our argument in English is available in International Politics and Society. Find the full text of the Spanish version below.

Malestar en el libre comercio:

Un nuevo rol para la OMC

Cuando se creó la Organización Mundial del Comercio (OMC) hace más de dos décadas, muchos dieron por hecho que las promesas de la globalización económica avanzarían de manera irresistible y que, como consecuencia de ellas, vendría naturalmente la liberalización comercial. No obstante, la política comercial sigue siendo una cuestión en disputa, con importantes consecuencias distributivas en los ámbitos nacional e internacional. Es por ello que es necesario redefinir el papel de la omc: el libre comercio debe complementarse con políticas distributivas justas en el plano nacional, que limiten su potencial disruptivo y debiliten el giro al nacionalismo económico.

 

Continue reading “New Article on the Future of Global Trade”

New Article on the Future of Global Trade

Britain’s ambitious trade plans are barely off the drawing board

united-kingdom-2405963_1920

What can we glean about the government’s plans from its new white paper on trade? Not much, says Fabian Bohnenberger (King’s College London). The paper is frustratingly short on detail and suggests plans are still in their early stages. While the commitment to give developing countries preferential access to the UK market is commendable, the sections on establishing the terms for Britain’s independent membership of the World Trade Organisation and transitioning EU Free Trade Agreements remain flimsy. This comment was originally published on the LSE Brexit blog.

Preparing for our future UK trade policy’, the Government’s new white paper, offers a glimpse of what it calls the “emerging approach to establishing an independent international trade policy as we exit the EU”.

As one of the more open-ended challenges of the Brexit process, this task requires both long-term thinking and close attention to the many technical and legal problems that are involved in disentangling existing and creating new commercial arrangements with the rest of the world. It promises a “truly Global Britain” whose people “have decided to be a global, free trading nation [that is] more outward-looking than ever before”. Yet only few paragraphs go beyond the use of generic terms, offer concrete examples of what needs to be done or engage with the technical aspects of making an independent trade policy work in practice. While certain parts of this policy will depend on the UK’s future relationship with Europe, the overall lack of detail suggests that planning and policy coordination across government on this issue is still at an early stage.

The key points with important implications for trade policy are:

  • The UK seeks “a strictly time-limited implementation period with the EU” with market access on current terms.
  • During the implementation period, the UK would be allowed to negotiate new trade agreements on its own – but not bring them into effect if they are inconsistent with the current UK-EU terms.
  • The paper puts an increasing focus on no-deal preparations, stating multiple times that “the UK needs to prepare ahead of its exit from the EU for all possible outcomes of the negotiations”.
  • The UK “will seek to transition all existing EU trade agreements and other EU preferential arrangements” – without elaborating how that could work.
  • To support developing countries, the UK “is ready to put in place a trade preferences scheme, which will, as a minimum, provide the same level of access as the current EU trade preference scheme”.
  • In a first step towards establishing an independent trade remedies framework, the UK government will begin to identify “EU measures which are essential to UK business and will need to be carried forward”.
  • To establish the necessary domestic powers, the government will introduce legislation, including a trade bill, a customs bill and a sanctions bill.

The UK economy has become increasingly connected to, and interdependent with, the outside world. This is the main point of the paper’s first part, which otherwise dryly narrates the evolution of global trade over the last decades. The development of cross-border supply chains and the associated rise in the trade in intermediate products, which today accounts for over 70 percent of global trade, is particularly highlighted. In addition, the authors carefully show that UK services exports, which have grown fast and already account for 45 percent of total UK exports in 2016, are also an increasingly “important, and growing, component of supply chains”.

The second section covers five broadly-worded principles: (i) transparent and inclusive trade policy making, (ii) supporting a rules-based multilateral trade system, (iii) securing and seeking market access, (iv) supporting developing countries through trade, and (v) ensuring a global level playing field.

However, it is not always explained what these principles mean in practice. For example, the UK pledges to work within the WTO to “cut red tape across borders, phase out distortive subsidies, scrap tariffs […] and work to ensure the rule book stays relevant as patterns of trade change”. But the policy paper offers little assurances on the more immediate challenges facing the UK in the WTO: the crucial task of establishing UK-only tariff schedules and separating agricultural import quotas between the UK and EU is barely acknowledged. What is more, in light of recent objections by a group of major agricultural exporters including the US, Argentina, Brazil and New Zealand to a preliminary plan agreed by Brussels and London over how to split the EU’s existing tariff rate quotas, the reaffirmation of the government’s intention to largely replicate its existing commitments and “keep changes to a technical nature” seems woefully out of date.

Similarly, the government is “seeking continuity in its current trade and investment relationships, including those covered by EU third country [Free Trade Agreements] FTAs” and aims to negotiate new trade agreements on its own. However, by focusing entirely on the domestic legislative process and ignoring the many complexities involved in actually transitioning EU trade agreements with third countries, the authors seem to suggest that these problems are not really worth thinking about. Instead, they merely promise “measures through legislation which will allow the Government to fully implement any EU third country and other EU preferential arrangements which we transition”. Only the Treasury’s white paper on customs contains some ideas, including “a new customs partnership” that would force the UK to mirror most of the EU’s tariffs and customs processes. Considering the technical and economic hurdles of transferring EU FTAs, some of which are summarised here, the available level of detail will do little to reassure anyone of a smooth transition.

On how to negotiate future trade agreements, the trade paper remains equally reticent: highlighting the need for consultations, it envisions “a legislative framework that will enable future trade agreements with partner countries to move quickly from signing to implementation and then to ratification, whilst respecting due process in Parliament”. The only country that is specifically named as a candidate with which to potentially strengthen trade relations is India – an interesting choice, given India’s priority of increasing worker mobility.

The paper is much more forthcoming on the subject of plurilateral trade agreements, which the government seems to wholeheartedly support. It explains that the UK wishes to remain part of the Government Procurement Agreement, to finalise the Environmental Goods Agreement and to resume the negotiations on the Trade in Services Agreement.

Specific priorities for future trade negotiations are rarely mentioned, but the paper highlights the UK’s interest to “push for greater liberalisation of global services, investment and procurement markets” as well as to “seek ambitious digital trade packages”. On the other hand, it emphasises the need to avoid any ‘race to the bottom’ and retain control over ‘behind-the-border’ policy issues, namely decisions about public services as well as the “protection of intellectual property, consumers, the environment, and employees”.

Overall, the paper adds few new ideas and is particularly sketchy on the principles’ real world application. While the specifics may depend on the UK’s future relationship with Europe, the lack of any clear policy options or timeline to establish the many interlinking pieces of an independent trade policy indicates that planning is still at a very early stage. More positively, it explicitly invites stakeholders to give their views on inclusiveness and transparency, trade preferences for developing countries, and trade remedies. Also commendable is the government’s unilateral commitment to guarantee the preferential market access that developing countries currently enjoy to the UK. But this document indicates that the UK has a long, arduous way to go before it regains an independent trade policy.

Britain’s ambitious trade plans are barely off the drawing board

Starting my PhD on International Trade Governance

KCL_Red_Logo

This week I am officially starting my PhD in International Political Economy research at King’s College London. I am really happy that the application process has worked out so well and that I am also part of the 1st cohort of the London Interdisciplinary Social Science Doctoral Training Partnership (LISS DTP) with funding by the Economic and Social Research Council (ESRC)!

LISSDTP-Logo-banner-1200x300

My PhD project will examine the role of trade experts and expert knowledge in WTO proceedings with a particular focus on the question how the content and contestation of this ‘trade expertise’ has affected the development and interpretation of the concept of national regulatory autonomy in the international trade system. Despite its importance for policy-making, multilateral negotiations and regime maintenance, this question has remained under-explored in academic research. More information on my project coming soon! I will set up a dedicated page on this blog explaining my PhD topic and aim to publish regular updates on my research progress.Esrc_logo

 

Starting my PhD on International Trade Governance

Inclusive and fair trade, not protectionism, will restore trust in global trade

In our most recent comment in International Politics and Society, Clara Weinhardt and I argue that institutional reform at the WTO level and fair distributional policies on the domestic level are crucial to reduce income inequality and restore trust in global trade. Read the full article below. A longer version of our argument will soon be published in the Spanish edition of Nueva Sociedad.

container-2568204_1920

Why Trump’s anti-globalism is wrong

Inclusive and fair trade, not protectionism, will close the gap between rich and poor

By Fabian BohnenbergerClara Weinhardt | 26.09.2017

When the World Trade Organisation (WTO) was created in 1995, many assumed the promises of open international markets would prove irresistible. Two decades later, the consensus behind the idea of free trade seems to be crumbling. Those on both the left and right are increasingly questioning the benefits of our current approach to economic globalisation.

The WTO’s declining importance in an ever more fragmented global trade system makes it particularly difficult to withstand the strengthening winds of economic nationalism. To restore trust in the global trading system, governments need to make global trade more inclusive and narrow the gap between rich and poor.

The global financial crisis, coupled with increasing inequality, has made people sceptical of globalisation. WTO members are disappointed that after 16 years of negotiations they have still not managed to conclude the Doha Round – which aims to reform the international trading system through the introduction of lower trade barriers and revised trade rules.

Bigger trading nations including the US, the EU, Canada, Japan and China are now turning their attention to bilateral and regional free trade agreements, such as the much-touted CETA agreement between the EU and Canada, and the China-led Regional Comprehensive Economic Partnership (RCEP) between 16 Asian-Pacific countries currently under negotiation.

Continue reading “Inclusive and fair trade, not protectionism, will restore trust in global trade”

Inclusive and fair trade, not protectionism, will restore trust in global trade