Testing the EU’s Blocking Statute in investment arbitration: failure to protect the investor against secondary sanctions as a violation of legitimate expectations?

Purpose: This article aims to demonstrate that in certain circumstances investors may legitimately expect protection from the host state against secondary sanctions imposed by a third state. Failure to meet those expectations by the host state may lead to a violation of the fair and equitable treatment (FET) found in various applicable investment treaties. Design/methodology/approach: This article is based on a doctrinal analysis of various provisions contained in investment treaties, which guarantee the fair and equitable treatment of the foreign investor and its investment. It also involves an analysis of the EU’s Blocking Statute and how it influences the application of international (investment) law in the specific context of the research question. Findings: Such a form of protection, however, is highly contingent on the existence of a domestic legislative framework that can create specific legitimate expectations. Applying this to the EU’s Blocking Statute (designed to protect EU operators from the extraterritorial application of a third state’s laws), foreign investors in the Union who are affected by secondary sanctions may only expect protection once the specific sanctions regimes are listed in the Annex to the Blocking Statute. Before the EU amends the Annex, no legitimate expectations that protection against secondary sanctions may be formed. Nonetheless, the complexity of the Blocking Statute, especially in terms of the protected interests, could have an impact on the formation of any expectations that would eventually be protected under international investment law. Originality/value: This article assesses when, and how, the EU’s failure (or the failure of one Member State) to protect the foreign investor against secondary sanctions can amount to a violation of the FET in various applicable investment treaties. The main contribution of the present analysis is that it engages with a broadly under-researched area of international investment law – the extent to which it offers protection against economic sanctions. In addition, it zooms in on an instance of inaction that can amount to a violation of the host state’s obligations.