Unfair Treaty-ment

What’s going on here?

The UK may be sued by international investors over the EU withdrawal deal.

What does this mean?

Many bilateral investment treaties (agreements between countries regulating international investment by companies) contain arbitration clauses, allowing companies to sue governments to protect their investments. These clauses have their origins in undeveloped nations trying to encourage international investment from the West; they are a way to assure companies’ fears of corruption and underdeveloped legal systems. These arbitration clauses offered strong protection to investors, however in recent years there has been much controversy around them, such as the numerous cases Australia faced from tobacco companies when the government restricted cigarette advertising. As the UK leaves the EU, these investment treaties may be a weapon to companies who relied on the UK’s access to the single market

Why should firms care?

As the UK leaves the EU and loses its access to the single market, this may result in an avalanche of claims against the UK from companies who have entered into investment treaties. Many of the UK’s international investment treaties require the government to create “stable conditions” and to not undertake fundamental change without regard for investors. Many international investors chose to invest in the UK due to its place in the European Union, with access to the single market, and ‘passporting rights’ allowing services firms to operate across the whole of the EU. 

Whether or not an investor could actually win a case is a difficult question, with a few key factors that need to be considered. Britain’s membership of the EU must have been a deciding factor in an investors decision to invest, and the investor would need to be taking significant advantage of that fact. The investment must have come at a time when Britain’s EU membership was used as a way to attract investors, and that the UK exiting the EU must have had a huge impact on the investment. This is a very high threshold for an investor to reach, and there are likely to be two types of investors with a reasonable chance of success. The first would be manufacturers, who rely upon the single market for their just in time supply chain and to sell many of their products. The second would be financial services firms, who rely upon ‘passporting rights’ to sell their services across the EU. 

This highlights the complex realities facing governments across the world seeking to make major changes to economic and public policy, and is yet another element of Britain’s exit from the EU which may remain unresolved for years to come.

Report written by Harry B.

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