Conflict between State Aid Regulation and Foreign Investment Protection

Author Name TAMADA Dai (Kobe University)
Creation Date/NO. September 2016 16-J-051
Research Project Comprehensive Research on the Current International Trade/Investment System (pt.III)
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This paper examines the issue of conflict between the State aid regulation and the protection of foreign investment. Certain kinds of incentives provided by the former East European countries were regarded as illegal "State aid" and thus were terminated. This resulted in allegations of a breach of "fair and equitable treatment" (FET) contained in international investment agreements. Here we can find a conflict between competition law and investment law.

From the Investor-State dispute settlement (ISDS) cases, if there was "specific commitment" or "specific entitlement" given by the host State, there can be "legitimate expectation" by the investor and consequently is a breach of the FET clause. In this context, if a foreign investor engages in investment activities, relying on some kind of "aid" from the host State, there must be "specific" assurance or commitment, especially with regard to the content and duration of that aid. Second, there still remains a conflict between the two laws, in the sense that the compensation awarded in ISDS cannot be enforced in the EU countries as it is regarded as "new State aid" by the European Commission. Accordingly, at the time of initial investment, investors should take into consideration of the high risk of subsidies being cut by the host State.