On 18 June 2015 the European Commission issued a press release stating that they had “initiated proceedings against five Member States today requesting them to terminate intra-EU bilateral investment treaties between them“, and were launching a campaign to wipe out the broader intra-EU BIT regime. Lord Jonathan Hill, European Commissioner for Financial Services, said that intra-EU BITs are “outdated and… no longer necessary“.

The Member States targeted by the Commission are: Austria, the Netherlands, Romania, Slovakia and Sweden.

Background

BITs are agreements between states that establish the terms and conditions for investment by private investors (both individuals and companies) between the two states. Intra-EU BITs are those agreed between Member States. According to data from the Commission there exist some 200 intra-EU BITs. The proliferation of these BITs occurred in the 1990s, before the EU enlargement programmes of 2004, 2007 and 2013. They were principally set up between existing Member States and those Eastern European countries who would later join the EU as a way of encouraging and securing EU-based investment into Eastern Europe ahead of their accession into the EU.

The Commission’s Position

In its submission to the Eureko Tribunal of 7 July 2010[1] the Commission previously voiced concern that intra-EU BITs are incompatible with EU law and should be terminated. It its latest statement on the subject, the Commission expressed its view is that there is no longer a need for intra-EU BITs as all Member States are subject to the same EU rules in the single market, which cover the protection of cross-border investments. As such, given that intra-EU BITs purport to confer “extra” rights on a bilateral basis they are, in the Commission’s opinion, incompatible with EU law, which prevents discrimination on the basis of nationality between Member States.

The Commission emphasised that their action in seeking to terminate intra-EU BITs is not an academic exercise, but a reaction to a string of recent decisions that have seen investors seeking to rely on provisions within intra-EU BITs to receive remedies for investments-gone-awry that they would not have otherwise received. The Commission targeted the five Member States listed above because they are signatories to intra-EU BITs that have all been relied upon in arbitration proceedings which, in the Commission’s opinion, have led to decisions the compatibility of which with EU law is highly questionable. In light of the Commission’s stated priority of promoting investment within the EU, the aim is to bolster legal certainty.

Current Legal Uncertainty

A recent example of the tension between EU law and intra-EU BITS is evidenced by an arbitration between Romania and a number of Swedish investors. The tribunal ordered Romania to pay USD 250 million to the investors, but the Commission ordered Romania not to pay the award as to do so would breach EU state aid rules. The Commission’s ban is being challenged at the European Court of Justice in Luxembourg.

The Investor Angle

This latest move by the Commission will be received with some dismay by many members of the European business community who previously lobbied to preserve the intra-EU BIT regime following criticism from the Commission. It is widely felt by many sections of the European business community that intra-EU BITs grant a higher level of investor protection for investments within the EU, compared with the domestic law of an EU host state or EU law itself. For example, many argue that neither domestic systems nor EU law include an obligation as detailed, broad and comprehensive as the fair and equitable treatment protection found in most intra-EU BITs.

Furthermore, the automatic right to resolve disputes by way of arbitration, favoured by many in the business community and which is contained in most intra-EU BITs, would be lost in favour of litigation in the national courts of the host state if the Commission terminates the intra-EU BIT regime.

What Does This Mean?

Investors should take particular note of the Commission’s stance and actions in this space. The effect of the Commission’s clamp down on intra-EU BITs means that when a dispute arises some caution should be taken when assessing whether to utilise legal rights arising under an intra-EU BIT as opposed to EU law. The outcomes of current appeals involving intra-EU BITs are eagerly awaited and will be very instructive in respect of future intra-EU investor-state claims.

[1] Eureko BV v The Slovak Republic, PCA Case No. 2008-13, para 177