Vol. 39 Notes Editor
The exit of the UK from the EU has raised concerns amongst foreign investors amid the uncertainty of the future of the UK’s investment relationships. The UK maintains one of the largest bilateral investment treaty (BIT) networks in the world—the international community is interested in the UK’s position on the possible continuation, modification, suspension, or termination of these treaties. Although the UK has not stated its official position, it is likely that the UK will maintain its current foreign investment relationships with the EU and other non-member states, including international arbitration as the dispute settlement mechanism.
Foreign investment is an important part of the UK’s economy as there is an estimated £1 trillion in foreign direct investment in the country. A reason why investors are attracted to the UK is that investing in the UK brings access to the EU’s single market. Some argue that if the UK leaves the EU, the decrease in trade and increase in investment costs are likely to have an adverse impact on investors debating whether to choose to invest in the UK. Additionally, foreign investors might claim that Brexit frustrates their “legitimate expectations” as they no longer would continue to enjoy the benefits provided by EU law.
However, the UK will recover its autonomy in these matters, and it will have strong incentives to reconsider and maintain its investment relationships on good terms. The Centre for Economic Performance of the London School of Economics has stated that it is likely that Brexit will have a negative impact on the UK’s FDI. The empirical analysis of the study shows that “leaving the EU will reduce FDI inflows to the UK by around 22%.” The importance of foreign investment for the UK’s economy coupled with this kind of projections will serve as a strong incentive for state officials to enter talks with both EU and non-member states.
As for current BIT’s between the UK and EU member states (intra-EU BITs), it bears noting that they became problematic after the entry into force of the Lisbon Treaty. On September 2016, the European Commission (EC) instituted infringement proceedings against Austria, the Netherlands, Romania, Slovakia, and Sweden, requiring them to “terminate” their “intra-EU BITs. The EC’s position is that that these BITs are “likely to create scenarios of illegal state aid under EU law, given the special bilateral protections enjoyed by the citizens and companies of the signatory states.”
Nonetheless, for obvious reasons, the BIT’s between the UK and EU member states will no longer raise EU law issues after Brexit. Because these BITs will cease to be intra-EU BITs, investors will also be able to bring claims against EU Member States without the risk of the respondent states successfully raising the EU defense in arbitration, annulment or enforcement proceedings.
A separate concern for investors is the maintenance of international investment arbitration as the preferred mechanism for settlement of disputes. Despite skepticism, Brexit is probably going to foster international investment arbitration in the UK.In 2015, the EC finalized a proposal on investment protection and investment dispute resolution which will replace the existing investor-to-state dispute settlement mechanism for the Transatlantic Trade and Investment Partnership and in “all ongoing and future EU trade and investment negotiations.” However, given that the UK will be free from interference from the EC, it will avoid the uncertainty of the EU’s proposed dispute settlement mechanism, which may encourage BIT negotiations with the UK.
Yet, after analyzing the dynamics of the EU, some experts have challenged the notion of the UK as a “safe harbor.” One of the main arguments is that the “sanctity” of the BITs of the UK with EU Member States could be compromised if the EC requests Member States to take “appropriate measures” after determining that these BITs are a “serious obstacle to the negotiation of the EU’s investment agreements.” These measures could include the termination of the BITs with the UK.
Although there is still uncertainty about whether Brexit would be beneficial for foreign investment in the UK in the long term, there seems to be a consensus that investors will not be left without protection. Further, international investment arbitration will likely be kept as the preferred dispute settlement mechanism, which might be appealing for investors wanting to invest in Europe, but unsure about the EU’s proposed mechanism.
 Crowell & Moring LLP, Legal Considerations for the UKs Investment and Trade Treaties After Brexit (, All Alerts & Newsletters (May 20, 2017), https://www.crowell.com/NewsEvents/AlertsNewsletters/all/Legal-Considerations-for-the-UKs-Investment-and-Trade-Treaties-After-Brexit.
 Columbia Center on Sustainable Investment, Beyond Trade Deals Charting a Post Brexit Course for UK Investment Treaties, Briefing (May 19, 2017), http://ccsi.columbia.edu/files/2016/12/Beyond-trade-deals-charting-a-post-Brexit-course-for-UK-investment-treaties-Dec-2016.pdf.
 Centre for Economic Performance, The Impact of Brexit on Foreign Investment in the UK, Swati Dhingra et al. (May 15, 2017), http://cep.lse.ac.uk/pubs/download/brexit03.pdf.
 K&L Gates, Brexit and Investment Treaty Arbitration, Stay Informed (May 20, 2017), http://www.klgates.com/brexit-and-investment-treaty-arbitration-09-01-2016/.
 Dechert LLP, Why Brexit is Not Bad News for UK Based Litigation, On Point (April 1, 2014), https://info.dechert.com/10/7821/december-2016/why-brexit-is-not-bad-news-for-uk-based-arbitration-and-litigation.asp.
 Crowell & Moring LLP, Legal Considerations for the U.K.’s Investment and Trade Treaties After Brexit, Lexology (May 20, 2014), http://www.lexology.com/library/detail.aspx?g=b6bb459f-332a-4b4a-b2e4-8cc68ddf9ae4.
 Jiries Saadeh, The European Union, Investment Treaties and Investment Arbitration Post Brexit, http://arbitrationblog.practicallaw.com/the-european-union-investment-treaties-and-investment-arbitration-post-brexit/.
 Crowell & Moring LLP, supra note 1.
 Dechert LLP, supra note 7.
 Shearman & Sterling LLP, Brexit Potential Implications for International for International Arbitration in London, News Insights (April 1, 2017), http://www.shearman.com/~/media/Files/NewsInsights/Publications/2016/10/Brexit-Potential-Implications-for-International-Arbitration-in-London-IA-10182016.pdf.
 European Commission, EU Finalises Proposal for Investment Protection and Court System, Press Release Database (May 20, 2017), http://europa.eu/rapid/press-release_IP-15-6059_en.htm.
 Enyo Law, The EU, Brexit and Investor-State Disputes, English Blog Posts, http://www.enyolaw.com/blog/the-eu-brexit-and-investor-state-disputes.
 Stephan Wilske & Laura Brauninger, Getting the Deal Through, The Effects on Brexit on Investment Treaty Arbitration: ‘safe harbor’, ‘spending isolation’ or ‘and now for something completely different’?, Practice Areas, https://gettingthedealthrough.com/area/60/article/29044/investment-treaty-arbitration-2017-effects-brexit-investment-treaty-arbitration-safe-harbour-splendid-isolation-and-something-completely-different/