International Investment Law and Competition Law

Competition (policy) rules are ubiquitous as well as an essential element of the legal and institutional framework for the global economy. It is widely recognized that, linked to inclusive and sustainable development, they can best harness foreign direct investment (FDI)’s potential benefits as drivers of economic transformation. Against the background of politically regressive skepticism and growing protectionist retreat from the institutionalized and rule-based liberal practice initiated after the Second World War, this article seeks to retrace the role, utility, design, and interface of the legal regimes governing trade, investment and competition, at the national level and as main pillars and governance ideas of global economic law. It also documents international cooperation in the field of competition policy, as well as proposals for and failed attempts to establish multilateral rules, for trade and FDI. The article concludes with a plea for such rules in an effort to redress existing worldwide inequalities.

Public procurement law inter alia provides a means to foster competition in the purchasing of goods and services by governments. For tenderers incurring significant expenditures during the procurement procedure, legal remedies are of vital importance. Since these are not equally guaranteed by all states, the issue occurs as to whether international investment law can serve as a gap-filling regime to protect foreign tenderers against harmful state conduct during procurement proceedings. The chapter therefore examines the applicability of international investment agreements (IIAs) to the procurement procedure and, hence, the qualification of a tender and the pre-award expenditure as protected investments. However, the question is neither regulated adequately in most IIAs, nor has a definite approach developed in arbitral practice so far. While successful bidders can claim compensation for damages arising from the pre-award phase, the protection of unsuccessful bidders must be answered in a differentiated manner. The chapter argues that a distinction has to be made between an open and a pre-elective award procedure. In the latter case, the host state invites the foreign tenderer to participate in the procurement proceeding and thus provides the consent to admit the investment in its territory. Moreover, foreign tenders increase competition within the award procedure, fostering competition in the host state’s procurement market. Assuming that the IIA is applicable, the chapter argues that the ordinary business risks of participating in a tender procedure can be sufficiently taken into account when assessing liability.

In international investment law, local equity requirements are often provided in domestic investment laws and compel foreign investors to enter the market of the host state by joining forces with a local partner. Further, local equity requirements generally guarantee that control over the domestic entity rests with the local partner by prohibiting foreign investors from acquiring a majority stake in the local entity. In past eras with priority given to state planning, such requirements were explained by the dominance of the state in all aspects of the domestic economy. In the current era of privatization, they have been justified on different grounds. However, one key element that is often absent from the debate surrounding local equity requirements is their far-reaching, and possibly negative, impacts on the competitive state of markets.

State enterprises (SEs) are playing an increasingly important role in cross-border mergers and acquisitions (M&A). Due to their special relationship with the government, SEs often have undue competitive advantages over their private competitors. SEs may leverage these undue competitive advantages in cross-border M&A to outbid private investors. This results in an inefficient allocation of production resources and prevents private competitors from reaching their full potential of economic efficiency. Although this problem is accentuated in the context of Chinese SEs, it is also of general importance, as SEs in numerous countries benefit from undue competitive advantages. However, the current national competition laws, international investment agreements (IIAs) and domestic investment screening regimes inadequately address this concern. In particular, international investment agreements traditionally focus on investor protection and less on achieving competitive neutrality. Even the provisions on competitive neutrality contained in recently concluded international investment and trade agreements do not apply to cross-border M&A. Investment screening regimes, on the other hand, primarily assess foreign acquisitions with regard to national security. Merger control under competition law also has a limited focus. It deals with the impact of M&A on the relevant markets and does not assess whether the acquisition itself is in accordance with the principle of competitive neutrality. Regulatory reform proposals in this regard are largely missing. A three-pillar approach, focusing on international investment principles, international investment agreements and domestic investment screening and competition law regimes, may prove useful for further regulatory attempts to ensure competitive neutrality in cross-border M&A.

This chapter explores what could be an appropriate standard of review that investment arbitrators could use to evaluate the lawfulness of acts of national competition authorities in the context of “economic lawfare”. The interest in international investment arbitration and competition law adjudicators is justified since both are empowered with effective coercion mechanisms. Also, both fields have developed a highly specialized legal vocabulary to codify economic transactions. Therefore, in the context of current developments especially with the intervention of state-owned enterprises in the markets of other states, it is possible that these two fields could be used (or abused) by the states involved in an international conflict. These dynamics are explored with reference to the arbitration case between Gazprom, the state-owned enterprise of Russia and the Ukrainian competition authority. The chapter argues in general for the need of a three-principles standard of review to examine the acts of national competition authorities in light of the current standards of treatment contained in international investment agreements (IIAs).

The chapter explores the interface between international investment law and EU competition law in the realm of renewable energy disputes. It underscores recent developments in the configuration of European Union (EU) investment policy and unveils the intricacies of the EU state aid regime. At the centre of this critical analysis lies the legal nature of the Energy Charter Treaty (ECT) as an international investment agreement. Whereas the Commission’s role in international investment law has increased over the last years, internal factors impede the development of an authentic EU investment policy. The chapter examines jointly the evolution of the case law of arbitral investment tribunals, the Court of Justice of the European Union (CJEU) and the European Commission’s position on intra-EU investment treaties and state aid in the energy sector.

This chapter approaches the regulatory option of integrating provisions of competition law into the normative structure of international investment agreements (IIAs). Grounded in the growing trend to include investors’ obligations in the new generation of IIAs, the analysis attempts to assess the feasibility and potential benefits of this regulatory approach as a means to prevent and remedy anti-competitive behaviour by foreign investors. By identifying three main types of obligations currently integrated into agreements, including direct obligations, indirect obligations, and commitments to corporate social responsibility, the chapter pushes forward the proposition of including obligations aimed at promoting and protecting market competition. The similarities between the policy aims of competition law and international investment law, among them the protection of human rights and the environment, the promotion of core labour and social standards as well as the prevention of corruption, create an opening for cooperation. Further legitimizing the integration between the two spheres, foreign investors have the potential to interfere with the free play of market forces and thus contravene the aims pursued by competition policy. The chapter illustrates the potential applicability and extension of incorporating investors’ obligations designed to prevent and remedy anti-competitive behaviour into IIAs. The chapter concludes by addressing the underlying burdens of enforcement and implementation with regard to any inclusion of such obligations for the investors.

Anti-competitive behaviour on the part of investors can lead to breaches of the host state legal order and cause market distortions. This chapter discusses the legal consequences of such behaviour within the framework of investment treaty arbitration and aims to show that anti-competitive strategies may lead to breaches not only of competition law, but also of a variety of host state national laws and regulations. It consequently proposes the adoption of a functional definition of anti-competitive actions that taint investments with illegality and explores the ways in which such investments may be excluded from the protection offered by bilateral investment treaties (BITs). The study of recent case law tends to show that investors are likely to face the consequences of their anti-competitive conduct in investment treaty arbitration. Two main hypotheses are explored: first, the issue of illegality when the BIT in question contains a specific legality requirement, and second, the possibility for states to rely on international law when challenging investors’ anti-competitive behaviour.

This chapter examines the overlap between European Union (EU) state aid law and international investment law and arbitration. First, it enquires whether there is a systemic incompatibility between the fair and equitable treatment (FET) standard and EU state aid law. This chapter focuses in particular on the principle of legitimate expectations and the manner that it was applied by several arbitral tribunals in relation to state aid measures. For the purposes of this enquiry, this chapter sets out the basic components of the notion of state aid under EU law and points out the severely restrictive application by the Court of Justice of the European Union (CJEU) of the principle of legitimate expectations in the field of state aid. Second, this chapter examines whether arbitral awards granting damages to an investor can constitute, as such, incompatible and unlawful state aid. The chapter focuses on two key questions, namely whether arbitral awards can constitute an economic advantage and whether they are attributable to the member state in question. Third, this chapter looks at the issue of the fate of arbitral awards granting damages to investors in state aid matters. It examines what remedies are available to member states against such awards. In doing so, it takes into account the different legal regimes applicable to awards issued under the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) and non-ICSID awards. It also examines the possibility of safeguarding the enforcement of ICSID awards that may be incompatible with EU law under Article 351 TFEU.

In recent years several European investors have initiated investor-state arbitration against Spain under the Energy Charter Treaty (ECT) as a result of the radical changes adopted by the Spanish authorities in the regulatory framework of the renewable energy sector. The Novenergía arbitration highlights the complex relationship between competition law and investment arbitration, especially in intra-EU investment disputes. This type of dispute has caused much controversy because EU competition law often plays a central role in investment arbitration. According to Spain’s position, arbitral tribunals are jurisdictionally not competent to render an award since the power to authorize state aid falls within the exclusive competence of the European Commission (EC). When an arbitral tribunal orders the payment of compensation to an investor, that tribunal could act ultra vires, deciding a matter that EU competition law (state aid regime) establishes as beyond any submission to arbitration. But the new scenario opened by Achmea can allow Spain to challenge the jurisdiction of the arbitral tribunal created on the basis of the ECT, request the set-aside of the award issued and oppose recognition and enforcement, at least before the courts of the member states. The EC has underlined the public order nature of the EU competition rules, already established by the Court of Justice of European Union (CJEU) in Eco Swiss, and has pointed out the difficulties that US courts would face when asked to recognize and enforce the international awards. However, in the recent Micula judgment, the General Court of the EU observed that compensation for damage suffered did not constitute state aid unless it represented compensation for the withdrawal of aid that was unlawful, since the EC had no power to review Romanian conduct prior to Romania’s accession to the EU. However, while Micula appears to be closely related to measures taken by Romania prior to its accession to the EU in 2007, other cases seem to relate only to incentive schemes (cuts to renewable energies) implemented after EU accession, thus giving the EC a clearer path to intervene. Finally, the Novenergía arbitration, highlights the difficulties for the recognition and enforcement of the awards issued in the saga of renewable energy arbitrations against Spain, especially where that award is issued under arbitration rules other than the International Centre for Settlement of Invesment Disputes Convention.

This chapter explores the use of evidence obtained by states in investment arbitration. In particular, it examines whether a state may use information it obtains through special powers of supervision, investigation and seizure granted to the antitrust agency, to defend itself against an investor’s claim in an investment arbitration. The chapter finds that such use of a state’s special powers constitutes a misuse of power under domestic law and a violation of due process in investment arbitration. Further, the treatment of a state as a single body for the purpose of establishing standing for international claims, does not entitle the state to blur domestic divisions of state powers to allow a special power to be used in a way that would contradict its intended purpose under domestic law. States should use the proper procedure for obtaining documents in an international arbitration: document production.

This chapter expounds on the close relationship of trade regulation, competition and investment law. Taking stock of current linkages, it argues in favour of integrating the three areas within the law of the World Trade Organization (WTO) and thus returning to conceptual foundations laid out the Havana Charter at the outset of the Post World War II international economic order but ever since forgotten in a history of fragmentation. Future integration of the three areas is argued on the factual basis of global value chains, predominant trade in components and thus an increasing need to address what are called behind-the-border issues calling for enhanced common and approximated rules in international economic law. Accordingly, the chapter also argues in favour of an integrated system of dispute settlement within the WTO for trade, investment and competition based upon rules which could be modelled after the approach of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), setting out standards which members are obliged to implement in domestic law.