What does the future hold for intra-EU investment protection?

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24 September 2018

Investment protection

What does the future hold for intra-EU investment protection? – Termination of intra-EU bilateral investment treaties (intra-EU BITs)

The Achmea ruling of the European Court of Justice (ECJ) caused a stir in trade policy in March 2018. Taking into account the roughly 200 bilateral intra-EU BITs in force among European countries, the ECJ used the BIT in question, between Slovakia and the Netherlands, to make a general statement on the matter: Although BITs typically designate arbitration as a means for dispute resolution, the court declared that this procedure is not in line with EU law and further clarified that disputes in matters of this kind are to be brought before the defendant’s national court system.

TThis ruling underscored what Jonathan Hill, EU Commissioner for Financial Services, Financial Stability and Capital Markets Union, had already stated back in 2015: “Intra-EU bilateral investment treaties are outdated and as Italy and Ireland have shown by already terminating their intra-EU BITs, no longer necessary in a single market of 28 member states.” The EU Commission’s position has since been clear cut: all EU states should terminate their intra-EU BITs as quickly as possible. The Commission’s rationale is that the treaties’ main authority ends when a state accedes to the EU because it is then subject to superseding investment protection legislation.

This is a call for action in view of the 196 intra-EU BITs currently in force. Many of these date back to the end of the Cold War, and particularly include agreements signed with Eastern European countries, in many cases prior to EU membership, to create a secure framework for investments.

With that in mind, in July 2018 the Commission issued a guidance document to help EU investors invoke their rights before national administrative bodies and courts, and to provide support to states with protecting public interest in compliance with EU law.

There is no place in the Single Market for bilateral investment treaties between member states,” said EC Vice-President Valdis Dombrovskis. “Today’s communication sends a strong signal that EU law already protects investors. They can therefore remain confident when investing within the EU.

The future of intra-EU investment protection

In practice, the member states’ actions were inconsistent. While the Czech Republic, Ireland and Italy have terminated their intra-EU BITs unilaterally, other member states have expressed the intention of following suit. On the other hand, Germany, Finland, the Netherlands, Austria and France have proposed a system for multilateral termination of intra-EU BITs. The ECJ’s ruling could now put the entire investment protection arbitration tribunal system to the test.

According to the Commission, the ECJ ruling only concerns disputes within the EU. Agreements with third countries outside the EU, such as Ceta or TTIP, are not affected by the judgment – at least for now.

The Commission position on intra-EU BITs

The European Commission has consistently taken the view that intra-EU BITs are incompatible with EU law and that the Energy Charter Treaty does not apply between EU Member States.

Intra-EU BITs constitute a parallel system overlapping with Single Market rules. In addition, intra-EU BITs conflict with the principle of non-discrimination among EU investors within the Single Market by conferring rights on a bilateral basis to investors from some Member States only. Furthermore, intra-EU BITs may constitute the basis for the award of unlawful state aid in violation of the level playing field in the single market.

Finally, intra-EU BITs entrust disputes dealing with EU law to non-permanent and private arbitral tribunals who are not State organs. They are thus outside the mechanisms of dispute resolution which is laid down in the Treaty. They are unable to ensure the correct and uniform application of EU law, in the absence of the judicial dialogue with the ECJ.

The Commission has launched infringement procedures against 5 Member States for failure to terminate intra-EU BITs. Following the Achmea judgment, the Commission has intensified its work with the Member States concerned in order to ensure that the judgment is fully implemented.

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