Provisional application of the EU-Peru FTA from 1 March 2013 announced, by José Ángel Rueda

On 28 February 2013 the European Commission announced the provisional application as of 1 March 2013 of the free trade agreement (the “FTA”) signed by the EU (and its 27 Member States) and Peru on 26 June 2012.[1] Although the FTA was also signed by Colombia it will not be provisionally applicable with this country until Colombia ratifies it later this year. 

Estimates indicate that the FTA will help boost trade between Europe and Peru, which is commonly regarded to be an emerging market and an interesting place for trade and investment. According to the EU, “The Agreement will open up markets for both EU and Peruvian exporters eventually bringing annual savings of more than €500m. But it is the improved, more stable conditions for trade and investment that are expected to bring the biggest gains.”[2] It is reported that trade between the EU and Peru reached €9.2bn in 2011.[3]

The FTA has a content similar to other free trade agreements: Initial Provisions (Title I), Institutional Provisions (Title II), Trade in Goods (Title III), Trade in Services, Establishment and Electronic Commerce (Title IV), Current Payments and Movement of Capital (Title V), Government Procurement (Title VI), Intellectual Property (Title VII), Competition (Title VIII), Trade and Sustainable Development (Title IX), Transparency and Administrative Proceedings (Title X), General Exceptions (Title XI), Dispute Settlement (Title XII), Technical Assistance and Trade-Capacity Building (Title XIII) and Final Provisions (Title XIV), as well as 14 Annexes and 2 Declarations.[4] According to best practices, the EU has underlined that the FTA “includes far-reaching provisions on the protection of human rights and the rule of law, as well as commitments to effectively implement international conventions on labour rights and environmental protection. Civil society organisations will be systematically involved in the work to monitor the implementation of these commitments.[5] (see Title IX).

It is important to note that, although “liberalising and expanding trade and investment between their territories [of the signatory parties]” are mentioned as means for achieving major objectives of the FTA, the agreement does not contain an investment chapter similar to NAFTA Chapter XI. In fact, the agreement establishes at footnote 22 that “For greater certainty, and without prejudice to the obligations set out therein, this Chapter [Chapter 2, Establishment, under Title IV, Trade in Services, Establishment and Electronic Commerce] does not cover provisions on investment protection, such as provisions specifically relating to expropriation and fair and equitable treatment, nor does it cover investor-State dispute settlement procedures.”

We have to recall, that at the time of signature of the FTA in 2012, the Lisbon Treaty had already entered into force and, as a result, the EU did have competence on foreign direct investment under Article 207(1) of the TFEU. However, the EU declined to use it in this case.

What we find in the FTA is just a couple of provisions for the “promotion of investment”. First, Article 116(1): “With a view to a progressive liberalisation of investments, the European Union and the signatory Andean Countries shall seek to promote an environment attractive for reciprocal investment within their respective spheres of competence.” And, second, Article 116(2): “The promotion referred to in paragraph 1 shall lead to cooperation that shall include, among others, the review of the investment legal framework, the investment environment and the flow of investments between the Parties, consistent with their commitments under international agreements. Such review shall take place no later than five years following the entry into force of this Agreement and subsequently at regular intervals.”

Furthermore, compatibility between the FTA and existing or future investment agreements is granted by Article 115(1): “Nothing in this Title shall be construed as limiting the rights and obligations of the Parties and of their investors established in any existing or future international agreement relating to investment to which a Member State of the European Union and a signatory Andean Country [Colombia and Peru] are parties.” And, for the sake of clarity, in the event of future disputes regarding this FTA Article 115(2) thereof states: “Notwithstanding paragraph 1, any dispute settlement mechanism established under any existing or future international agreement relating to investment to which the European Union, a Member State of the European Union or a signatory Andean Country [Colombia and Peru] is a party shall not be applicable to alleged breaches of this Chapter.”

Notwithstanding the former quotations, it is not completely true that this FTA does not contain provisions for the protection of foreign direct investment. If we turn to Article 169 (“Capital Account”) we can see that it refers to the free transfer of capital related to direct investments, albeit in a fashion less exhaustive than ordinary BITs: “With regard to transactions on the capital and financial account of balance of payments, following the entry into force of this Agreement, the Parties shall ensure the free movement of capital relating to direct investments made in juridical persons constituted in accordance with the laws of the host country and investments and other transactions made in accordance with the provisions of Title IV (Trade in Services, Establishment, and Electronic Commerce), as well as the liquidation and repatriation of these investments and of any profit stemming therefrom.” (footnotes omitted) As a result, we can guess that any future investment treaty signed by the EU will include provisions on the free transfer of capitals related to investment (which was the subject of an angry dispute between the European Commission and some EU Member States in connection with existing BITs.)

Finally, it is remarkable to see an exception that may be relevant to understand EU’s investment policy ahead of negotiations of BITs with developed and developing countries. Footnote 56 of the FTA (commenting Article 169 referred to above) excludes portfolio investment and public debt from the definition of “direct investment”: “For greater certainty, “direct investment” does not mean credits related to foreign trade, portfolio investment according to domestic legislation, public debt and related credit.”

[1] “EU trade agreement with Peru goes live – Colombia’s next in line”, 28 February 2013, available at

[2] Ibidem.

[3] Ibidem.

[5] See footnote 1 supra.