The end of an era: termination of intra-EU BITs

"Intra-EU bilateral investment treaties are outdated and as Italy and Ireland have shown by already terminating their intra-EU BITs, no longer necessary in a single market of 28 Member States. We must all act together to make sure that the regulatory framework for cross-border investment in the single market works effectively. In that context, the Commission is ready to explore the possibility of a mechanism for the quick and efficient mediation of investment disputes."––– This statement by Jonathan Hill, EU Commissioner for Financial Services, Stability and Capital Markets Union, marked the beginning of the infringement proceedings initiated by the European Commission (“the Commission”) against five Member states requesting them to terminate intra-EU Bilateral Investment Treaties between them (“intra-EU BITs”).

Even though the Commission has initiated those actions in 2015, the “conflict” between intra-EU BITs and EU law as alleged by the Commission, must be understood in light of the history of the European Union (“EU”) and its enlargement through the years. In particular, back in the 1990s when there were only a number of Western European EU Member States, a lot of BITs were concluded among them and Central and Eastern European countries. The purpose of those agreements was to strengthen investor protection and provide for appropriate means of settling potential investment disputes such as arbitration. At that time, these countries were, for the purpose of the EU, “third countries” and as such there was no problem in concluding such agreements. However, once those same Central and Eastern European countries joined the EU a few years later, the aforementioned BITs became “internal” rather than “external” agreements. As such, the Commission stated that there is no need for them since “all Member States are subject to the same EU rules in the single market, including those on cross-border investments” and therefore all investors benefit from the same protection. Consequently, according to the Commission, the intra-EU BITs had a discriminatory nature, since they conferred rights on a bilateral basis to investors from some Member States only and not to others, which makes them incompatible with EU law.

Another major problem was the outcome of a recent arbitration case based on intra-EU BIT, which the Commission considered to be incompatible with EU law, as the arbitral award constituted illegal state aid. For these reasons, the Commission decided to request the termination of all intra-EU BITs, by beginning with infringement proceedings against Netherlands, Romania, Slovakia, Sweden and Austria to terminate their intra-EU BITs. As far as the remaining EU Member States are concerned, including Bulgaria, the Commission stated that it continues to request information and conduct dialogues regarding the status of the intra-EU BITs that are still in force. It shall be noted, however, that the initiation of these infringement proceedings is not as sudden as it may seem to some. In fact, the Commission has regularly informed all Member States that their intra-EU BITs are incompatible with EU law and something must be done about it. Following their lack of action has led to the current situation.

The reactions of the EU Member States have been quite diverse. Poland has announced that it considers terminating its intra-EU BITs, yet no concrete measures have been adopted. Denmark has already proposed to other EU Member States to mutually terminate their BITs. Other countries like Austria, Finland, France, Germany, and the Netherlands issued a non-paper proposing the conclusion of an EU-wide agreement that would replace pre-existing intra-EU BITs. So far, Romania is the only country (from those against whom infringement proceedings are initiated) which has agreed to submit a draft legislation and terminate its intra-EU BITs.

Overall, it can be seen that the pressure posed by the European Commission upon the Member States gives its results and the end of the intra-EU BITs is coming close. The only institution which can put an end to this legal uncertainty and provide some guidance on the compatibility of intra-EU BITs with the EU law is the Court of Justice of the European Union, which has not rendered its decision yet.