Images are still loading please cancel your preview and try again shortly.
Accessibility tools

The protection of investments in the energy sector

Recent developments with the Energy Charter Treaty

In recent years, the Energy Charter Treaty (“ECT”) has been under increasing scrutiny, given concerns that the treaty is no longer fit to facilitate changes necessary to effectively combat climate change. ECT Contracting Parties, with the European Union (“EU”) and the United Kingdom in the lead, have been pushing for a modernisation of the treaty to address these concerns. In June 2022, an agreement on the ECT’s modernisation was reached, including a “flexibility mechanism”, which would allow contracting parties to exclude investment protection for fossil fuels in their territories, affecting existing investments after ten years from the entry into force of the relevant provisions as well as new investments made after 15 August 2023.

However, as these reform efforts drew to a close in late 2022, some EU Member States expressed dissatisfaction with the agreed revisions, finding them insufficient to effectively tackle climate change. A cascade of EU Member States, starting with Poland, Spain and the Netherlands, followed by France, Belgium, Germany, Slovenia and Luxembourg announced their intention to withdraw from the ECT. Most recently, Austria also stated that it was considering withdrawal. Italy has already withdrawn from the ECT in 2016.

It was planned to confirm the final text for the modernisation of the ECT, which would have required a unanimous vote, during the Energy Charter Conference on 22 November 2022. However, the EU Commission, which had negotiated the modernised provisions on behalf of the EU and EU Member States with the objective to bring the treaty in line with the 2015 Paris Agreement and which had attempted to stop the exodus of EU members from the treaty in the days before the scheduled vote, failed to procure a mandate from EU Member States to vote in favour of the reform.

The EU Commission therefore had to propose postponing the vote shortly before the Conference. The Energy Charter Conference is now expected to meet ad hoc in April 2023 to continue discussions on adopting the proposed amendments.

On 24 November 2022, the European Parliament passed a resolution, welcoming the withdrawals by some EU Member States’ governments from the ECT and underlining “the need to act in a coordinated manner in order to be stronger in the withdrawal negotiations” and urging “the Commission to initiate immediately the process towards a coordinated exit of the EU from the ECT“. It remains to be seen if a majority of EU governments will assent to this position.

Many will regret the cascade of withdrawals from the ECT, highlighting that the ECT had proved useful in promoting long-term cooperation between states to ensure energy security and noting that a reformed treaty could have been an instrument to promote climate action. Others will welcome the more drastic step away from the treaty, now taken by some of its Contracting Parties. In any event, the exodus and the delayed reforms will fragment and complicate the landscape of protections investors can rely on when making cross-border investments in the energy sector.

There are a number of questions which investors are advised to consider in this changing environment. This Guide first addresses these key legal issues before presenting an overview of the status of the ECT and available remedies for investors investing in or coming from each of the countries that have announced their withdrawal from the ECT. 

Key legal issues

What is the Energy Charter Treaty?

The ECT, signed in 1994 and having entered into force in 1998, is a multilateral framework intended to, as per its stated objectives in Title I, promote “sustainable energy development, improving energy security and maximising the efficiency of production, conversion, transport, distribution and use of energy, to enhance safety in a manner which would be socially acceptable, economically viable, and environmentally sound”.

Part III of the ECT provides a multilateral investment protection regime that has emerged as the most prolific basis for investment treaty claims against European states. The treaty provides protection e.g. against expropriation without appropriate compensation, discrimination and violation of a fair and equitable treatment standard.

Modernisation of the Energy Charter Treaty

On 24 June 2022, the ECT Contracting Parties reached an agreement in principle regarding its modernisation towards a greater alignment with clean energy transition goals. Although the modernised text of the ECT has not been published, the public communication of the Ad Hoc meeting of the Energy Charter Conference has shed some light on the forthcoming amendments.

One of the key amendments relates to a novel “flexibility mechanism” allowing contracting parties to exclude investment protection for fossil fuels in their territories. This flexibility mechanism should apply to: (i) existing investments (which should also cover projects in the exploration phase and their potential future exploitation) after 10 years from the entry into force of the new provisions - a period that would begin on 15 August 2023 if contracting parties were to agree to provisionally apply the agreement or, otherwise, after ratification by three quarters of contracting parties; (ii) new investments made after that date (with limited exceptions).

The EU and the UK, for example, have already indicated their intention to use this flexibility mechanism and exclude investment protection for fossil fuels in their territories, including for existing investments - which should also cover projects in the exploration phase and their potential future exploitation - after 10 years as of 15 August 2023 and for new investments made after 15 August 2023 (with limited exceptions). 

Other main features of the modernised ECT relate to (i) the exclusion of intra-EU arbitrations (arbitrations filed by investors from one EU Member State against another Member State); (ii) the revisions of the list of materials and products covered by the ECT, as well as of the requirements for an “investor” and “investment” to benefit from Treaty protection and (iii) amendments to the definitions of some of the substantive protections accorded to investors. 
The modernised text of the ECT is currently scheduled to be voted in April 2023. 

Click here for a commentary on the modernisation of the ECT.

Remedies available for foreign investors under the ECT

The ECT provides for various wide-ranging substantive protections to investors from the ECT Contracting Parties, including fair and equitable treatment, full protection and security, the prohibition of expropriation without appropriate compensation, and non-discriminatory conditions for trade in energy materials, products and energy-related equipment. The ECT also contains a general umbrella clause with respect to contractual engagements of an ECT Member State towards an investor, providing that such state must honour the contractual obligations it has specifically undertaken with the investors, in addition to the substantive protection contained in the treaty.

Investors from one of the ECT Contracting Parties alleging a breach of these substantive protections by another ECT Contracting Party may refer their disputes to investment arbitration (under the arbitration rules of ICSID, UNCITRAL or the Stockholm Chamber of Commerce). 

Sunset clauses

So-called “sunset clauses” are provisions typical to international agreement and especially investment treaties, intended to regulate transitory issues by extending the time of expiration of some or all clauses of a treaty beyond the point in time that the treaty is terminated.

The ECT contains a sunset clause in Article 47 ECT:  Article 47(2) ECT states that an ECT Contracting Party’s withdrawal from the treaty takes effect upon the expiry of one year after the date of receipt of the notification of a Member State’s withdrawal from the treaty. Article 47(3) ECT extends the treaty’s protections for investments already made as of the time the withdrawal takes effect for 20 years from such date.

In this regard, the so-called flexibility mechanism (see Modernisation of the Energy Charter Treaty for more information) would allow contracting parties to the modernised ECT to exclude investment protection for fossil fuels in their territories after 10 years as of 15 August 2023 and for new investments made after 15 August 2023. As withdrawal from the ECT, prior to its modernisation, would mean that the ECT would apply for another 20 years vis-à-vis existing investments, one may question whether this plan would prevent withdrawing Member States from achieving their initial goals (which could be arguably better served by subscribing to the flexibility mechanism of the modernised ECT).

If some of the ECT Contracting Parties follow through on their announcements to withdraw from the treaty, investors will face the virulent question on whether these temporal affordances regarding the ECT’s applicability will continue to apply to investments that have already been made. It has been put forth that withdrawing Member States could, as part of a coordinated withdrawal, conclude agreements between each other (so-called inter se agreements), providing for the elimination of the ECT’s sunset clauses between the withdrawing Contracting Parties. Such inter se agreements would not have any effects vis-à-vis remaining ECT Contracting Parties. Further, relying on Article 16 ECT on “subsequent international agreement[s]” between ECT Contracting Parties and Article 41(1)(b) of the Vienna Convention on the Law of Treaties regarding the modification of multilateral treaties, it has also been questioned whether such an agreement between withdrawing Contracting Parties could impede the application of sunset clauses at all. The issue is hotly debated. It remains to be seen how international tribunals will decide in case a coordinated withdrawal goes ahead.

In any case, if a coordinated withdrawal including inter se revocation of the ECT’s sunset clauses is agreed, affected investors who pursue arbitration on the basis of the ECT may expect vigorous defence by states on the basis of the withdrawal. As currently only EU Member States have announced their withdrawal from the ECT, the issue will coincide with the implications of the Court of Justice of the European Union’s (“CJEU”) Komstroy judgment for intra-EU investment arbitrations under the ECT.

Investment protection under other treaties

Where the ECT no longer applies (or in addition to the ECT), investors may turn to the network of more than 2,000 bilateral investment treaties (“BITs”) between states across the globe, which typically contain protections broadly similar to those available under the ECT for all kinds of investments, including those in the energy sector. The level of protection and the availability of investor-state dispute settlement (e.g. international arbitration) under those BITs varies in detail and requires a case-by-case analysis. Treaty protections under BITs may also be among the considerations when planning new investments, opting for a structure that attracts sound treaty protections.

Where investments between EU Member States are concerned (so-called “intra-EU” BITs) – e.g. those most directly affected by the current exodus from the ECT – it should be noted that the CJEU in its Achmea judgment in 2018 found arbitration provisions in intra-EU BITs to be incompatible with EU law. While arbitral tribunals have been undeterred to continue to assert jurisdiction and decide disputes under such intra-EU treaties, most EU Member States have now concluded a treaty to terminate their intra-EU BITs (such terminations raise similar questions as to the fate of the BIT’s sunset clauses as discussed above).

The EU has concluded, on behalf of its Member States, a number of free trade agreements (“FTAs”) with third states. As opposed to older EU FTAs, the new generation of EU FTAs, such as those with Canada, Singapore and Vietnam, generally includes investment protection provisions and corresponding dispute resolution mechanisms (permanent institutional investment courts to be established for each FTA, which the EU hopes to replace by a single multilateral investment court). The investment protection in these new EU FTAs will come into force once all EU Member States have ratified them according to their own national procedures. (read more)

State-investor contracts

Prior to the proliferation of investment treaties containing investor-state dispute settlement mechanisms, it was more common for investors to conclude individualized state-investor contracts with the relevant host state in order to safeguard their investments. It has been suggested that greater fragmentation of the investment treaty landscape may result in a resurgence of this instrument. Successfully concluding such an agreement would require sufficient bargaining power on part of the investor to negotiate directly with the state in question. State-investor contracts are thus not effectively available to all investors but may be considered in case of sufficiently large and significant investments.

It is nevertheless advisable to consider whether protections may be included in any contracts concluded between an investor and a host state or state-adjacent entities in the course of making a foreign investment. To anticipate changes in the treaty landscape, states and investors may also wish to draft arbitration clauses and substantive provisions in such contracts with a view to the ECT or other investment treaties potentially falling away, over the lifetime of the investment.

Foreign investment disputes and the European Court for Human Rights

Several of the rights and freedoms enshrined in the European Convention on Human Rights (“ECHR”) and its additional protocols, such as the right to property, the right to a fair trial and the provisions on protection from discrimination, may be triggered in case of excessive State intervention. State measures restricting those rights must be necessary to achieve a legitimate aim, proportionate and non-discriminatory. 

The ECHR is applicable in the 46 Council of Europe Member States. Russia ceased to be a Party to the ECHR on 16 September 2022, following its expulsion from the Council of Europe. In many of these Contracting States, the ECHR is directly applicable before domestic courts and has precedence over national law. Before lodging a complaint with the European Court of Human Rights (“ECtHR”), the applicant must first exhaust domestic remedies. If the EctHR finds that there has been a violation of the ECHR, and if the internal law of the State concerned does not allow full reparation to be made, the EctHR can afford a ‘just satisfaction’ to the injured investor. The most prominent example of such a ruling is Yukos v. Russia, where the EctHR awarded the record amount of almost EUR2 billion to the companies’ former shareholders on the basis of a violation of the rights to a fair hearing and the protection of property.

Resolving energy disputes within the European Union

Measures adverse to foreign investments may illegally impede the fundamental freedoms on which the EU’s internal market is based: the free movement of goods, persons and, in particular, capital and services. National measures that may impede these freedoms must (i) be applied in a non-discriminatory manner; (ii) be justified by imperative requirements in the general interest; (iii) be necessary and proportionate to these requirements; and (iv) be compatible with the fundamental rights, in particular the Charter of Fundamental Rights of the European Union and the ECHR. Adverse state measures may also breach sectorial legislation (in the energy sector for instance), while certain discriminatory treatment may trigger EU state aid rules.

Investors do not have legal standing before the Court of Justice of the European Union (“CJEU”). However, EU law is directly applicable before domestic courts and has precedence over domestic law. In the course of domestic proceedings, domestic courts may refer questions related to EU law to the CJEU by way of a preliminary reference. Additionally, the European Commission may pursue infringement proceedings against a Member State before the CJEU. The CJEU cannot award compensation directly but may order Member States to take steps to remedy a breach.

Focus on remedies by jurisdiction


Countries that have withdrawn/announced their withdrawal from the ECT, or are potentially affected by recent developments.

Belgium

1.What is the status of the ECT in Belgium?

Belgium is a party to the ECT (at the time these questions were answered), in force since 6 August 1998. However, the Belgian government has recently voiced its intent to withdraw from the ECT.

2. How are foreign investments in Belgium or made by investors protected under other bilateral and multilateral investment treaties?

Belgium is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 26 September 1970.

Belgium concluded approximately 100 bilateral investment treaties ("BITs") between 1964 and 2010, most of which were signed within the framework of the Belgo–Luxembourg Economic Union ("BLEU"). These BITs have mainly been concluded with countries that are not members of the Organisation for Economic Cooperation and Development (OECD). While most of the BITs remain in force today, nearly 20 have not entered into force and a further 10 were terminated (and sometimes replaced).

The 2002 BLEU Model BIT is usually offered by the Belgo–Luxembourg Economic Union to the prospective third state for approval. This model was replaced in 2019, but Belgium has not concluded any BITs since 2010 (as external trade policy became an exclusive competence of the European Union). The new model text fits in with the transition policy towards a European and multilateral approach to investment protection. The text lists the principles of the reformed European investment protection policy, strengthens the sustainability principles and reinstates the phased-out provisions for the dispute settlement mechanism based on arbitration, thereby supporting the establishment of a Multilateral Investment Court.

Almost every BIT contains a specific investor-state dispute settlement mechanism, usually providing for international arbitration:

  • before an ad-hoc arbitral tribunal sitting under the United Nations Commission on International Trade Law (UNCITRAL) Rules;
  • before the International Centre for Settlement of Investment Disputes (ICSID), Belgium having ratified the ICSID Convention;
  • under the Arbitration Rules of the International Chamber of Commerce; or
  • under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce.

As an EU Member State, Belgium is also bound by investment treaties concluded by the EU on behalf of its member states, such as the Comprehensive Economic and Trade Agreement with Canada (ratification pending).

3. Does Belgium have domestic legislation dedicated to protection of foreign investments?

Belgium does not have domestic legislation specifically dedicated to the protection of foreign investments. However, Belgium adopted a foreign investment control mechanism for non-EU investment which should be applicable as from 1 January 2023.

4. Does Belgium enter into investment agreements with foreign investors offering specific protections?

Belgium has entered into a number of investment agreements, for instance with nuclear energy operators. The specific provisions of such agreements are covered by confidentiality clauses. 

Belgium has no special economic zones. 

5. Does Belgium have any sector-specific foreign investment incentive laws that offer additional protections?

No, Belgium has no sector-specific foreign investment incentive laws that offer additional protections. 

6. What kind of protections foreign investments can benefit from under the general principles of law?

Investors may rely on a range of protections not specific to foreign direct investments, but generally available under domestic Belgian law.

This includes Article 16 of the Belgian constitution and the corresponding jurisprudence, affording protections in case of expropriation or actions tantamount to expropriation. Such actions must be in the public interest, must be proportionate and there must be appropriate compensation. These protections also apply to non-Belgian legal entities.

Articles 10 and 11 of the Belgian Constitution also protects investors from discrimination.

Remedy may also be available under domestic law on governmental liability. State action can be challenged before domestic courts. Constitutional review is ultimately provided by the Constitutional Court. 

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in Belgium.

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

A foreign investor can expect to be given treatment no different than the one afforded to local investors before national courts.

Belgium adopted a foreign investment control mechanism for non-EU investment, which should be applicable as from 1 January 2023.

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a host State? 

Belgium recognises international arbitration as a form of dispute resolution between the foreign investor and the host State, as can be seen from the BITs in force. Belgium is also party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention.

Article 1676(3) of the Belgian Judicial Code prohibits public law legal persons to arbitrate disputes which do not relate to an agreement.

France

1. What is the status of the ECT in France?

France is a party to the ECT (at the time these questions were answered), ratified on 1 September 1999 and in force since 27 December 1999. France has not formulated any declaration under Article 40 of the ECT, which is therefore binding in all its territories.

On 21 October 2022, French President Emmanuel Macron announced France’s decision to withdraw from the ECT, on the ground of environmental concerns. According to the French President, such exit is coherent with the State’s climate strategy (i.e., aiming to foster investments in renewable energies) and the Paris Agreement on Climate Change. 

France is not believed to have yet notified its withdrawal to Portugal, the depositary of the treaty. Its withdrawal would become effective no less than one year after notification to the depositary.

2. How are foreign investments in France or made by French investors protected under other bilateral and multilateral investment treaties? 

France is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 20 September 1967.

France has signed approximately 190 treaties containing investment-related provisions, amongst which around 115 bilateral investment treaties ("BITs") were signed since 1963. Over 80 of these BITs remain in force today and are entered into with non-EU member States. 

BITs to which France is a party usually contain typical substantive protection provisions such as fair and equitable treatment, full protection and security, most-favoured nation treatment and protection against expropriation. French BITs also often include the following key procedural features: a six-month cooling-off period between notice of a dispute and commencement of proceedings, and a clause providing for Investor State Dispute Settlement (“ISDS”) via arbitration of investor claims for violation of rights protected under the BIT. For instance, the France-Colombia BIT, the latest BIT to have been signed by France in 2014, allows for arbitration pursuant to the ICSID Rules or on in ad hoc proceedings, where a dispute between an investor of a contracting state and the host contracting state is not amicably settled at the expiration of a six-month period from the notification of the dispute.

As an EU member state, France is also bound by investment treaties concluded by the EU on behalf of its member states, such as the Comprehensive Economic and Trade Agreement (CETA) with Canada and the EU-Viet Nam Investment Protection Agreement.

BITs between France and other EU Member States ("intra-EU BITs") are no longer in place: following the Court of Justice of the European Union ("CJEU")’s Achmea decision, France signed the multilateral Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union, which entered into force in France on 28 August 2021. Consequently, all intra-EU BITs formerly in force between France and other EU member states have been terminated.

3. Does France have domestic legislation dedicated to protection of foreign investments? 

France does not have domestic legislation specifically dedicated to the protection of foreign investments. 

France’s foreign investment policy is based on the principle that financial dealings between France and foreign countries are unrestricted (see Article L.151-1 of the French Monetary and Financial Code), and as such, foreign direct investments can freely be made in France. 

However, France has established a screening regime for the entry and establishment of foreign direct investments (FDIs) which relate to sensitive activities (e.g., investments which may have an impact on public order, national security or on the national defence sector; investments in activities essential to guarantee the supply of water, energy, gas and electricity, in the transportation network, in media and press activities, AI, robotics, food safety, etc). Foreign investors who want to invest in such activities must obtain prior authorisation from the Minister of Economy and Finance. This screening regime is detailed in the French Monetary and Financial Code (see Articles L.151-1 to L.153-1). On 8 September 2022, France issued a set of guidelines seeking to clarify and enhance the transparency of its screening process. 

4. Does France enter into investment agreements with foreign investors offering specific protections? 

It is not publicly known whether France has entered into tailor-made agreements extending de-facto investment protections to foreign investors. However, specific investment agreements are not unknown to France, which has shown a willingness to conclude administrative contracts with foreign actors and to even go so far as to adapt its domestic legal framework to welcome specific foreign operations. For instance, in the context of the conclusion of the agreement between French authorities and the Walt Disney Productions company for the development and exploitation of the EuroDisneyland theme park in Paris, the French parliament adopted a law  specifically allowing the State, local authorities and public establishments to enter into arbitration clauses with foreign companies, for the realization of operations of national interest.  This allowed for the inclusion of an ICC arbitration clause in the agreement.  

France has established a regime for urban tax-free zones ("ZFUs") in sensitive and disadvantaged geographical areas. To foster the economic development of these zones, companies, including foreign companies, wishing to establish themselves in these zones benefit from a tax exemption scheme for a period of 5 years. 

There are also two free port zones, where goods are regarded, insofar as import duties and taxes are concerned, as being outside the customs territory of France: the freeport of Verdon and the regional free zone of Guyana.

5. Does France have any sector-specific foreign investment incentive laws that offer additional protections? 

France has no sector-specific foreign investment incentive laws that offer additional protections.

However, France has engaged in support schemes to encourage investments in specific sectors, such as renewable energy.

6. What kind of protections foreign investments can benefit from under the general principles of law?

Investors may rely on a range of protections not specific to foreign direct investments, but generally available under domestic French law. The following general principles of French law are likely to offer protection to foreign investments: 

  • The right to property is enshrined in the French Déclaration des droits de l’Homme et du citoyen (1789) which forms part of the French constitutional framework. Article 545 of the French Civil Code also grants protection against expropriation, in that it provides that no one shall be compelled by the State to surrender his or her property, except in the public interest and in return for fair and prior compensation. 
  • French domestic law protects investors from discrimination.
  • Foreign investors might also find protection under the general principles of French law applicable to contracts and particularly Article 1134 of the French Civil Code, under which legally formed agreements are binding on those who made them and should be performed in good faith. 

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in France. For instance, investors will be protected under the principle of non-discrimination found in Article 14 of the ECHR. In France, investors can expect a fair trial and effective remedy in accordance with Article 6 and Article 13 of the ECHR.

State actions can be challenged before domestic administrative courts. The Conseil d’Etat acts as the Supreme Court in the administrative judicial system. 

Constitutional review is ultimately provided by the French Conseil constitutionnel. Any person who is a party to a trial before domestic courts can claim that a law promulgated by the French Parliament is unconstitutional by triggering a Question Prioritaire de Constitutionnalité ("QPC").

7. Are foreign investors and foreign investments subject to different treatment before national courts?

Foreign investors and foreign investments are not subject to being treated differently from local investors and their investments before French courts. 

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a State in France? 

France recognises international arbitration as a form of dispute resolution between the foreign investor and the host State, as can be seen from the fact that it is a party to the ICSID Convention and from its agreement to ISDS in the BITs in force. 

France is also party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York). Foreign arbitral awards may be recognised and enforced in France provided that their existence is established by the party seeking recognition and such recognition is not patently contrary to international public policy (see Article 1514 of the French Code of Civil Procedure). Furthermore, international awards rendered by arbitral tribunals seated in France are only subject to the five limited annulment grounds listed under Article 1520 of the French Code of Civil Procedure. 

It should be noted that France is generally known to be an arbitration-friendly jurisdiction. Indeed, despite its intensified control of foreign awards’ conformity with international public policy in cases involving corruption and money laundering issues, the Paris Court of Appeal - whose International Chamber now reviews all setting aside proceedings against international awards - has generally adopted a pro-arbitration stance.

Germany

1. What is the status of the ECT in Germany?

As of now, Germany remains a party to the ECT (at the time these questions were answered), having ratified the treaty on 14 March 1997. However, in November 2022, Robert Habeck, German Minister for Economic Affairs, announced that the German cabinet had decided that Germany would withdraw from the ECT. The German Federal Ministry for Economic Affairs and Climate Action has stated that withdrawal from the treaty will be communicated to Portugal, the depositary of the treaty, before the end of 2022.

2. How are foreign investments in Germany protected under other bilateral and multilateral investment treaties?

Germany is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 18 May 1969.

Germany has signed 155 bilateral investment treaties (“BITs”) between 1959 and 2010, with 114 treaties between Germany and non-EU Member States currently in force.

BITs between Germany and other EU Member States (“intra-EU BITs”) are no longer in place: Following the Court of Justice of the European Union (“CJEU”)’s Achmea-judgment, Germany signed the multilateral Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union, which entered into force on 29 August 2020. Consequently all intra-EU BITs formerly in force between Germany and other EU Member States have been terminated.

As an EU Member State, Germany is also bound by investment treaties concluded by the EU on behalf of its member states, such as the Comprehensive Economic and Trade Agreement (CETA) with Canada. The German legislature ratified the CETA in December 2022.

3. Does Germany have domestic legislation dedicated to protection of foreign investments?

Germany does not have domestic legislation specifically dedicated to the protection of foreign investments. Foreign investment is subject to screening under the Foreign Trade and Payments Act and the Foreign Trade and Payments Ordinance.

4. Does Germany enter into investment agreements with foreign investors offering specific protections? 

It is not publicly known whether Germany has entered into tailor-made agreements extending de-facto investment protections to foreign investors.

However, administrative contracts are frequently utilised to regulate rights and obligations between the public and private sector. For example, in 2021 Germany entered into an administrative contract with the operators of coal-fired powerplants to regulate the phase-out of coal as a source of energy in Germany. That contract contains detailed provisions on compensation.

Germany has no special economic zones. However, there remain two free zones, where goods are regarded, insofar as import duties and taxes are concerned, as being outside the customs territory of Germany – the Freeport of Bremerhaven and the Freeport of Cuxhaven. 

5. Does Germany have any sector-specific foreign investment incentive laws that offer additional protections?

No, Germany has no sector-specific foreign investment incentive laws that offer additional protections. 

6. What kind of protections foreign investments can benefit from under the general principles of law?

Investors may rely on a range of protections not specific to foreign direct investments, but generally available under domestic German law.

This includes Article 14(3) of the German Basic Law – the German constitution – and the corresponding jurisprudence, affording protections in case of expropriation or actions tantamount to expropriation. Such actions must be in the public interest, must be proportionate and there must be appropriate compensation. These protections also apply to non-German legal entities.

Remedy may also be available under domestic law on governmental liability. State action can be challenged in administrative proceedings and administrative courts. Constitutional review is ultimately provided by the Federal Constitutional Court. 

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in Germany.

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

A foreign investor can expect to be given treatment no different than the one afforded to local investors before national courts. Foreign investments are subject to investment screening (see above).

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a host State? 

Germany recognises international arbitration as a form of dispute resolution between non-EU foreign investors and a State, as can be seen from the large number of BITs in force. Germany is also party to Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention. 

Italy

1. What is the status of the ECT in Italy?

Italy signed the European Energy Charter on 17 December 1991. Following this first initiative, Italy (alongside other members of the European Community), signed the Energy Charter Treaty on 17 December 1994 and ratified it on 5 December 1997. The ECT came into force in Italy on 16 April 1998.

On 30 December 2014, Italy notified to the Treaty’s Depository (Portugal) its decision to withdraw from the ECT. Pursuant to article 47(2) of the ECT, Italy’s withdrawal took effect upon the expiry of one year after the date of notification, i.e. on 1st January 2016. The provisions of the ECT will continue to apply to investments made in Italy before such date for a further 20-year period.

2. How are foreign investments in Italy or made by Italian investors protected under other bilateral and multilateral investment treaties?

Italy is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 28 April 1971.

Italy has signed a total of 179 treaties containing investment related provisions, amongst which 102 bilateral investment treaties ("BITs"). Out of these 102 BITs, 54 are currently in force and entered into with non-EU Member States including China, the United Arab Emirates and Russia. The last BITs concluded by Italy were with Turkmenistan (25 November 2009) and Panama (6 February 2009).

BITs to which Italy is a party contain typical substantive protection provisions such as fair and equitable treatment (even though in some BITs reference is made to “just and fair treatment” or to “equitable” and “reasonable” treatment), most-favoured nation treatment and protection against expropriation. Only a limited number of such BITs contain a protection and security guarantee. Italian BITs also often show the following key procedural features: a six-month cooling-off period and an arbitration clause.

Italy has recently published a new version of its Model BIT (denominated “MODEL BIT Italy – August 2022”). The Model BIT aims at harmonising Italian and EU policies on foreign investments, also in light of the provisions of Regulation (EU) No 1219/2012 establishing transitional arrangements for BITs between EU Member States and third countries. In doing so, the new Model BIT seeks to establish a better balance between investor rights and public prerogatives of the State and incorporates significant novelties in terms of investors’ corporate social responsibility, as well as a code of conduct for arbitrators.

As an EU Member State, Italy is also bound by investment treaties concluded by the EU on behalf of its member states, such as the Comprehensive Economic and Trade Agreement (CETA) with Canada and the EU-Viet Nam Investment Protection Agreement.

3. Does Italy have domestic legislation dedicated to protection of foreign investments?

Italy does not have domestic legislation specifically dedicated to the protection of foreign investments. However, Italy’s foreign investment policy is based on the general principle that financial dealings between Italy and foreign countries are unrestricted, and as such, foreign direct investments (FDIs) can freely be made in Italy.

Still, the entry and establishment of FDIs which relate to certain sensitive activities (e.g., strategic investments in the defence, national security, telecommunications, energy, transport, high-tech and 5G sectors) is subject to prior notification and/or authorisation requirements, and/or to the State’s veto power. In such respect, a particular screening regime (commonly known as “Golden Power” regime) was established by Law Decree No 21/2012 (converted into law by Law No 56/2012 and subsequently amended, as supplemented by various implementing regulations enacted by the government). One of the peculiar features of this regime is that investments by non-EU investors, in addition to being subject to the abovementioned investment review, are also subject to a reciprocity principle. This principle does not apply to citizens or entities of non-EU or non-European Economic Area (EEA) Member States, with which Italy has special bilateral conventions in place for the mutual protection and promotion of investments (e.g., BITs).

4. Does Italy enter into investment agreements with foreign investors offering specific protections?

It is not publicly known whether Italy has entered into tailor-made agreements extending de-facto investment protections to foreign investors. However, administrative contracts are frequently utilised to regulate rights and obligations between the public and private sector.  

By Law Decree No 91/2017, Italy established a regime for special economic zones ("SEZs"), to be created in its Southern regions in order to attract investments from national and international investors in these less economically developed areas of the country. In these Italian SEZs (eight at the date hereof) investors may, inter alia, benefit from simplified bureaucracy and administrative procedures, a favourable tax regime and export tax exemptions.

In addition, there are six free zones (in Trieste, Venice, Portovesme, Taranto, North Brindisi and Brindisi - Capobianco), where goods are regarded, insofar as import duties and taxes are concerned, as being outside the customs territory of Italy.

5. Does Italy have any sector-specific foreign investment incentive laws that offer additional protections?

Italy does not have any sector-specific foreign investment incentive laws which offer additional protections to investors.

6. What kind of protections foreign investments can benefit from under the general principles of law?

Various general principles of Italian law are likely to offer protection to foreign investments.

The right to property is enshrined in Article 42 of the Italian Constitution which, together with Article 834 of the Italian Civil Code, grants protection against expropriation, in that it provides that no one shall be compelled to surrender his or her property, except in the public interest and in return for a fair indemnification.

In addition, the Italian Constitution stipulates, among others, that private economic initiative is free and can be subjected to restrictions only if in contrast with social utility or prejudicial to health, environment, security, liberty and/or human dignity (see Article 41).

Foreign investors might also find protection within the general principles of Italian law applicable to contracts and particularly Articles 1321 and 1375 of the Italian Civil Code under which legally formed agreements are binding on those who made them and should be performed in good faith.

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in Italy.

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

A foreign investor can expect to be given treatment no different than the one afforded to local investors before domestic courts. 

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a State in Italy?

Italy recognises international arbitration as a form of dispute resolution between a foreign investor and a State in Italy. Italy is also party to Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and – as already noted above – to the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention. 

Foreign awards are recognised and enforced in Italy provided that (i) their existence is established by the party seeking recognition; (ii) the subject-matter of the adjudicated dispute is suitable to be submitted to arbitration under Italian law; and/or (ii) the award is not – totally or partially – contrary to public policy (see Article 839 of the Italian Code of Civil Procedure). Furthermore, international awards rendered by arbitral tribunals seating in Italy are only subject to the limited annulment grounds listed under Article 840 of the Italian Code of Civil Procedure (which are substantially the same provided for under Article V of the abovementioned 1958 New York Convention). 

Luxembourg

1. What is the status of the ECT in Luxembourg?

As of now, Luxembourg remains a party to the ECT, having ratified the treaty on 7 February 1997. Following earlier calls to withdraw from the ECT in 2021, the Luxembourg government adopted a decision to withdraw from the Energy Charter Treaty on 18 November 2022. 

2. How are foreign investments in Luxembourg or made by Luxembourg investors protected under other bilateral and multilateral investment treaties?

Luxembourg is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 29 August 1970.

Luxembourg concluded approximately 100 bilateral investment treaties (“BITs”) between 1964 and 2010, most of which were signed within the framework of the Belgo–Luxembourg Economic Union (“BLEU”).

Luxembourg is a party to 78 BITs, of which 23 have not entered into force. 

The 2002 BLEU Model BIT is usually offered by the Belgo-Luxembourg Economic Union to the prospective third state for approval. This model was replaced in 2019. The new model text fits in with the transition policy towards a European and multilateral approach to investment protection. The text lists the principles of the reformed European investment protection policy, strengthens the sustainability principles and reinstates the phased-out provisions for the dispute settlement mechanism based on arbitration, thereby supporting the establishment of a Multilateral Investment Court.

BITs between Luxembourg and other EU Member States (“intra-EU BITs”) are no longer in place: Following the Court of Justice of the European Union ("CJEU")’s Achmea-judgment, Luxembourg signed the multilateral Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union, which entered into force on 29 August 2020. Consequently, all intra-EU BITs formerly in force between Luxembourg and other EU Member States have been terminated.

To date, Luxembourg has not been a defendant in a BIT proceeding. 

3. Does Luxembourg have domestic legislation dedicated to protection of foreign investments?

Luxembourg does not have domestic legislation specifically dedicated to the protection of foreign investments.

Investments and property are protected in Luxembourg pursuant to the provisions of Luxembourg law, regardless of their origin.

4. Does Luxembourg enter into investment agreements with foreign investors offering specific protections? 

Information about specific investment agreements with foreign investors are not made public. Luxembourg law provides for a VAT suspension regime for goods introduced into a free zone or free warehouse. 

5. Does Luxembourg have any sector-specific foreign investment incentive laws that offer additional protections?

Luxembourg has sector-specific investment incentive laws, which provide for a legal framework aimed at attracting investors, including the funds industry but also in the aerospace and maritime sectors.

Generally, Luxembourg is a party to a long list of double-tax treaties. Luxembourg's tax legislation also provides for a series of incentives, including tax credits for investment, tax schemes for IP assets (the so-called “IP Box”), financial aid for research and development projects (R&D), a series of tax legislation aimed at its financial sector, with Luxembourg being home to the global fund industry and continuing to be an international finance hub.

In addition to its tax schemes, Luxembourg offers a large panel of investment vehicles and attractive legislation for investors, such as its financial collateral arrangements law of 2005.

6. What kind of protections foreign investments can benefit from under the general principles of law?

Investors may rely on a range of protections not specific to foreign direct investments, but generally available under domestic Luxembourg law. 
This includes Article 16 of the Luxembourg constitution and the corresponding jurisprudence, affording protections in case of expropriation. Such actions must be in the public interest, must have a legal basis and there must be appropriate compensation. These protections also apply to non-Luxembourg legal entities.

Remedy may also be available under domestic law on governmental liability. State action can be challenged in administrative proceedings and administrative courts. Constitutional review is ultimately provided by the Constitutional Court. 

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in Luxembourg.

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

As Luxembourg largely depends on foreign investments, foreign investors can expect to be given treatment no different than the one afforded to local investors before national courts. 

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a State in Luxembourg? 

Luxembourg recognises international arbitration as a form of dispute resolution between the foreign investor and a State, as can be seen from the BITs in force.

However, to the best of our knowledge, Luxembourg has never been a respondent to an investment treaty claim. Therefore, there is no relevant government practice. 

Luxembourg is also party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention.

The Netherlands

1. What is the status of the ECT in the Netherlands?

The Netherlands is party to the ECT (at the time these questions were answered), having ratified the treaty on 11 December 1997. However, the Dutch government has recently voiced its intent to withdraw from the ECT.

2. How are foreign investments in the Netherlands or made by (UAE, China, Ukraine, Russian Federation, Turkey) investors protected under other bilateral and multilateral investment treaties?

The Netherlands is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 14 October 1966.

The Netherlands is party to 80 bilteral investment treaties ("BITs"), five of which have not entered into force, with, inter alia, states like Korea, China, Ukraine, Turkey, and the Russian Federation. The most recent BIT concluded by the Netherlands was with the United Arab Emirates (not yet in force).

Following the Court of Justice of the European Union ("CJEU")’s Achmea-judgment, The Netherlands signed the multilateral Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union, which entered into force on 29 August 2020. 

The Netherlands has recently updated its model BIT. Amongst other things, the Dutch model BIT incorporates provisions regarding corporate social responsibility with an aim to contribute to sustainable development. 

The Netherlands has been a defendant in ICSID arbitration proceedings brought forward against it by the German energy companies RWE v Kingdom of the Netherlands (ICSID Case No. ARB/21/4) and Uniper v Kingdom of the Netherlands (ICSID Case No. ARB/21/22) under the ECT.

3. Does the Netherlands have domestic legislation dedicated to protection of foreign investments?

No, there is no domestic legislation dedicated to the protection of foreign investments. 

4. Does the Netherlands enter into investment agreements with foreign investors offering specific protections?

We are not aware of investment agreements offering specific protections to foreign investors. 

The Netherlands has no special economic zones. 

5. Does the Netherlands have any sector-specific foreign investment incentive laws that offer additional protections?

The Netherlands has a so-called Energy Investment Allowance, in which companies pay less tax if they invest in energy-efficient technologies and sustainable energy. 

In the past, the Netherlands has also engaged in other schemes to encourage investors. For example, in 2022 the Dutch government instituted a subsidy encouraging the stimulation of sustainable energy production and climate transition (also called SDE++). This subsidy was meant for companies that intended to produce renewable energy or to apply CO2-reducing techniques. 

Pursuant to Regulation 2019/452, applicable from 11 October 2020, the EU has introduced a general screening mechanism regarding foreign direct investments into the EU likely to affect security or public order of an EU member state or of the EU, and a mechanism for cooperation between EU member states on the one hand, and between EU member states and the European Commission on the other. In light of the above, the Foreign Direct Investments Screening Regulation Act entered into force in the Netherlands on 4 December 2020. 

7. What kind of protections foreign investments can benefit from under the general principles of law?

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in The Netherlands.

As indicated under “Foreign investment disputes and the European Court for Human Rights”, Article 1 of Protocol No. 1 of the ECHR is applicable, meaning property rights are protected within the Dutch legal order. All this is also in line with Article 14 of the Dutch Constitution, which envisions a similar protection. Secondly, investors will be protected under the principle of non-discrimination found in Article 14 of the ECHR.  A stand-alone prohibition of discrimination is also enshrined in Article 1 of Protocol No. 12 to the ECHR, which has been ratified by the Netherlands. Thirdly, investors are protected under the principle of legal certainty. 

Furthermore, the Dutch government can be held liable for damages if it commits an unlawful act. 

In these cases, investors can expect a fair trial and an effective remedy in accordance with Article 6 and Article 13 ECHR.

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

A foreign investor can expect to be given treatment no different than the one afforded to local investors before national courts. It is important to note in this regard that the Netherlands ranks number five worldwide in the Rule of Law Index, which measures among other indicators the accessibility, effectiveness, enforceability, and efficiency of the judicial system (read more). 

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a State? 

The Netherlands recognises international arbitration as a form of dispute resolution between the foreign investor and a State, as can be seen from the BITs it has concluded throughout the years.

In general, the Netherlands is an arbitration-friendly jurisdiction and it is familiar with investment arbitration proceedings. As a matter of fact, the Hague is home to the Permanent Court of Arbitration and is selected as the seat for several investment arbitration proceedings. Moreover, the Dutch courts are very familiar with investment arbitration and are frequently seized to hear cases in relation to investment arbitration (e.g., setting aside applications and enforcement requests). 

The Netherlands is also party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention.

Portugal

1. What is the status of the ECT in Portugal?

As of today, Portugal remains a party to the ECT, having ratified the treaty on 17 December 1997. However, in November 2022, the Portuguese Minister for the Environment, announced in Parliament that Portugal’s potential withdrawal from the ECT was being discussed. 

2. How are foreign investments in Portugal protected under other bilateral and multilateral investment treaties?

Portugal is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 1 August 1984.

Portugal has signed 61 bilateral investment treaties (“BITs”) between 1980 and 2019, with 33 treaties currently in force.

In broad terms, these BITs contain typical substantive protection provisions such as fair and equitable treatment, full protection and security, most-favoured nation treatment and protection against expropriation. 

Moreover, most of these BITs contain a specific investor-state dispute settlement mechanism, usually providing for a six-month cooling-off period and the possibility for investors to resolve investment disputes before national courts or through international arbitration: 

  1. before an ad hoc arbitral tribunal sitting under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL); or
  2. before the International Centre for Settlement of Investment Disputes (ICSID). 

As an EU Member State, Portugal is also bound by investment treaties concluded by the EU on behalf of its member states.

BITs between Portugal and other EU Member States (“intra-EU BITs”) are no longer in place: following the Court of Justice of the European Union ("CJEU")’s Achmea-judgment, Portugal signed the multilateral Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union, which entered into force on 29 August 2020. Consequently, all intra-EU BITs formerly in force between Portugal and other EU Member States have been terminated.

3. Does Portugal have domestic legislation dedicated to protection of foreign investments?

Portugal does not have domestic legislation specifically dedicated to the protection of foreign investments. 

4. Does Portugal enter into investment agreements with foreign investors offering specific protections?

Portugal has entered into several investment agreements with investors from a range of different sectors. However, the specific provisions of such agreements are not available to the public. 

5. Does Portugal have any sector-specific foreign investment incentive laws that offer additional protections?

No, Portugal does not have sector-specific foreign investment incentive laws that offer additional protections. 

However, Portugal’s Tax Investment Code provides for the possibility of contractual benefits being agreed with foreign investors in sectors including, but not limited to, energy, tourism, agriculture and information technologies. 

6. What kind of protections foreign investments can benefit from under the general principles of law?

A range of protections generally available under domestic Portuguese law can be relied on by foreign investors.  

In fact, Article 1 of the Portuguese Expropriations Code affords protections in case of expropriation or actions tantamount to expropriation. Indeed, all expropriation must be made in the public interest, proportionate and there must be appropriate compensation. These protections are entirely applicable to foreign legal entities.

An investor may also seek remedy under domestic law on governmental liability. State action, such as that amounting to expropriation, can be challenged in administrative proceedings before administrative courts. 

Further, being an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR are entirely applicable in Portugal. 

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

A foreign investor can expect to be given treatment no different than the one afforded to local investors before national courts. 

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a host State?

Portugal recognises international arbitration as a form of dispute resolution between foreign investors and a State, as demonstrated by the multitude of BITs in force. In addition, Portugal is also party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention. 

Spain

1. What is the status of the ECT in Spain?

Spain is a party to the ECT, in force since 16 April 1998. On 12 October 2022, Spanish Minister for Energy and Ecological Transition, Teresa Ribera, announced Spain’s decision to withdraw from the ECT, citing climate concerns. According to the Spanish Minister, this decision was made because the process to reform the treaty had led to “no improvements” when it comes to reducing the protections extended to fossil fuel investments. 

2. How are foreign investments in Spain or made by Spanish investors protected under other bilateral and multilateral investment treaties? 

Spain is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 17 September 1994. 

Spain has signed a total of 77 treaties containing investment related provisions. Spain also concluded 89 bilateral investment treaties ("BITs"), of which 60 are currently in force. and entered with non-EU Member States including Ukraine, Turkey, Armenia, Russia and Georgia.

BITs to which Spain is a party contain typical substantive protection provisions such as fair and equitable treatment, full protection and security, most-favoured nation treatment and protection against expropriation. Spanish BITs also often show the following key procedural features: a six-month cooling-off period and an arbitration clause. For instance, there are usually two international arbitration options available to the investor: (i) ad hoc arbitration under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) and (ii) institutional arbitration under the Arbitration Rules of the International Chamber of Commerce (ICC) or before the International Centre for Settlement of Investment Disputes (ICSID).

3. Does Spain have domestic legislation dedicated to protection of foreign investments? 

Spain has a favourable legal framework for foreign investor applying the principle of freedom of establishment and non-discrimination. Spanish law adapted its foreign investment rules to a system of general liberalisation, without distinguishing between European Union residents and non- EU residents.

The general regime for foreign investments is regulated by the Royal Decree 664/1999 of 23 April 1999 on foreign investments. All non-resident investors must declare their investments to the Investment Registry of the Ministry of Economy, Industry and Competitiveness: (i) an ex ante declaration applicable only to investments made from a country or territory identified as a tax heaven; and (ii) an ex post declaration regime applicable to all foreign investors, for administrative, statistical, and economic purposes only.

In addition to the general regime, Law 18/1992 of 1 July 1992, establishing rules on foreign investments in Spain, provides a specific framework for non-EU persons investing in certain sectors: national defence-related activities, gambling, television, radio and air transportation. For EU residents, the only sectors with specific rules are the manufacturing and trade of weapons or national defence-related activities.

Regarding the energy sector, under Law 3/2013 of 4 June 2013, creating the National Commission on Markets and Competition, the Ministry of Energy may supervise acquisitions of shares of (or by) companies undertaking regulated energy activities or owners of certain types of key energy assets.

4. Does Spain enter into investment agreements with foreign investors offering specific protections? 

It is not publicly known whether Spain has entered into tailor-made agreements extending de-facto investment protections to foreign investors. However, administrative contracts are frequently utilised to regulate rights and obligations between the public and private sector. 

The Spanish government has created four “free zones” in Ceuta and Melilla, Cadiz, Vigo and the Canary Islands. The special economic zones offer several benefits to investors registered in these free zones such as a reduced corporate tax rate of 4%, a reduced VAT rate of 7%, a tax exemption on transfers, and no custom duties on imports and exports. 

In addition to the above, Spain also has seven free zone ports located in Vigo, Cadiz, Barcelona, Santander, Seville, Las Palmas de Gran Canaria and Santa Cruz de Tenerife. Goods transiting through these ports are exempt of custom duties and VAT. 

Spanish authorities offer companies a broad range of financial aid and incentives to promote investment, competitiveness, and economic growth.These incentives are designed to foster productive investment, research, development, and innovation, that includes incentives for specific industrial sectors which depends largely on the specific characteristics of each investment project. Special subsidies are also available to companies investing in regions with lower economic development. The main kind of incentives are employment aid, special government subsidies and credits. In addition to government aid, each of the 17 regions has its own system of incentives. Investors can approach the regional authorities of the place where they intend to establish themselves to take advantage of both these aids and those of the region (especially for depressed areas).

5. Does Spain have any sector-specific foreign investment incentive laws that offer additional protections? 

Privilege areas or sector for investment aid in Spain are those with capacity to improve job occupation, knowledge, research, investigation and development, renewable energies, tourism, radio and television. Preferred sectors are information technologies, renewable energies and those related to environmental protection.

For example, Royal Decree-law 18/2022 introduced new incentives for investments in renewable energies, permitting unrestricted depreciation/amortization, for corporate income tax purposes, for investment in facilities intended for self-consumption of electricity from renewable sources. 

6. What kind of protections foreign investments can benefit from under the general principles of law?

Investors may rely on a range of protections not specific to foreign direct investments, but generally available under domestic Spanish law. 

This includes various articles of the Spanish Basic Law – the Spanish constitution – and the corresponding jurisprudence, affording protections in case of expropriation or actions tantamount to expropriation. Such actions must be in the public interest, must be proportionate and there must be appropriate compensation. These protections also apply to non-Spanish legal entities.

Remedy may also be available under domestic law on governmental liability. State action can be challenged in administrative proceedings and administrative courts. Constitutional review is ultimately provided by the Constitutional Court. 

As an EU Member State and member of the Council of Europe, the protections available within the EU framework and under the ECHR, both described above, are available in Spain.

7. Are foreign investors and foreign investments subject to different treatment before national courts? 

A foreign investor can expect to be given treatment no different than the one afforded to local investors before domestic courts. Foreign investments are subject to investment screening (see above).

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a State in Spain? 

Spain recognises international arbitration as a form of dispute resolution between a foreign investor and a State. Spain is also party to Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention. 

Additionally, it should be noted that Spain has become an arbitration-friendly jurisdiction. Indeed, during 2021 and 2022 the Spanish Constitutional Court has limited the scope of the “public order” / “public policy” exception as a ground for annulment of awards. The Court unanimously established that the notion of public policy should be interpreted in a very restrictive manner, making the annulment of awards rather exceptional under Spanish law. This ruling limits the judicial court’s ability to review the merits of the case, strengthening the use of international arbitration in Spain.

United Kingdom

1. What is the status of the ECT in the United Kingdom of Great Britain and Northern Ireland ("UK")?

The UK is a party to the ECT, in force since 16 April 1998, independently of its former membership of the EU. There is no public indication that it intends to withdraw from the treaty, and the government has publicly welcomed the proposed reforms to phase out protection for fossil fuel investments. 

2. How are foreign investments in the UK or made by UK investors protected under other bilateral and multilateral investment treaties?

At the time of writing the UK is party to over 100 bilateral and multilateral investment treaties. The UK is a Contracting State of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington), known as the ICSID or Washington Convention, in force since 26 September 1970.The ICSID Convention has been part of UK law since 1967. The UK is currently in the process of replacing trade and investment arrangements from which it previously benefitted by virtue of its EU membership. This includes a new treaty with the EU – the EU-UK Trade and Cooperation Agreement – which contains basic investment protection provisions but no mechanism for investor-state dispute resolution. 

3. Does the UK have domestic legislation dedicated to protection of foreign investments?

The UK does not have any specific domestic legislation dedicated to protection of foreign investors. UK law typically does not distinguish between domestic and foreign investors. Both domestic and foreign investors may rely on general provisions in UK law to protect their investments (e.g. judicial review and human rights legislation). 

4. Does the UK enter into investment agreements with foreign investors offering specific protections?

The UK government does not typically enter into investor-specific investment agreements. 

However, the use of special economic zones has increased markedly over the past ten years in the UK, partly as a mechanism to attract foreign investment after the UK’s departure from the European Union. There are three main types of special economic zone in the UK, as set out below. UK law applies in these jurisdictions, as elsewhere in the UK, but is sometimes subject to certain tax exemptions or simplified regulation. The three types of special economic zone which are either in operation or proposed:

  • Enterprise Zones: There are currently 48 Enterprise Zones established across the UK. The concept was first announced in 2011, and the zones have proliferated largely as a result of bids from “local enterprise partnerships”, as well as in response to specific economic circumstances (e.g. job losses at a particular facility). The main benefits conferred on investors are lower level of municipal tax rates and simplified planning regulation. They also aim to foster clusters of businesses in the same sector in one area
  • Freeports: The UK now has four “freeports” in operation, which have been established since the UK’s exit from the European Union, and a further four areas have been designated as future freeports. The ports receive government funding for infrastructure improvements and benefit from certain tax breaks and simpler customs controls.
  • Investment Zones: The UK government is currently seeking expressions of interest in new “Investment Zones” where certain (yet to be determined) tax and regulatory benefits would apply.  

5. Does the UK have any sector-specific foreign investment incentive laws that offer additional protections?

There are no sector-specific foreign investment incentive laws in the UK that offer additional protections. 

6. What kind of protections foreign investments can benefit from under the general principles of law?

The UK legal system has well-established principles of judicial review, which allow individuals (including foreign investors) to challenge the way in which a decision has been made by public authorities. It is, at least in theory, focussed on the process by which a decision is reached rather than its merits. It includes, for example, government decisions which have been subject to an unfair procedure (e.g. bias or a lack of a hearing); decisions which are contrary to the law; irrational decisions and, on occasion, decisions which breach a legitimate expectation. These categories are neither exhaustive nor mutually exclusive. 

The UK has also signed and ratified the European Convention of Human Rights (the “ECHR”). The Human Rights Act 1998 (the “HRA”) incorporates the rights set out in ECHR, including the right to property, into domestic UK law. Section 6(1) of HRA makes it unlawful for a public authority to act in a way that is incompatible with a right under the ECHR. Individuals can also approach European Court of Human Rights, but only after exhausting remedies before national courts. 

7. Are foreign investors and foreign investments subject to different treatment before the national courts?

No, there is no distinction under UK laws between domestic and foreign investors and investments. A foreign investor can therefore expect to be given treatment no different than the one afforded to local investors before national courts.

8. Is international arbitration a recognised form of dispute resolution between the foreign investor and a State in the UK? 

The UK is widely renowned as a pro-arbitration jurisdiction and is a commonly selected seat of arbitration, as well as frequently an important jurisdiction for enforcement of awards. UK courts generally have a pro-arbitration approach and do not seek to frustrate the decisions of arbitral tribunals, regardless of whether one of the parties to the dispute is a state. 

The UK is also party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958, New York) and the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (1965, Washington). Foreign awards are frequently enforced in UK courts pursuant to those instruments. 

The UK has continued to support investor-state arbitration provisions in new free trade and investment agreements (though less frequently so with other developed countries). 

Recent updates

Modernising the ECT: Stalemate whilst EU prepares to withdraw

Close X

Was the Micula Award State Aid? Back to the EU General Court

Close X

We contributed to the fourth edition of the Investor-State Arbitration 2022 – International Comparative Legal Guide

Close X

Investment Arbitration Considerations For Project Finance In The Energy Sector

Close X

The CJEU extends Achmea to intra-EU Energy Charter Treaty arbitrations and interprets the term “investment”

Close X

CJEU Advocate General Szpunar reasons against intra-EU claims under the ECT

Close X
   
Key Contacts
Speak to one of our key contacts

x Find a Lawyer