EU in battle with its own states as it threatens countries with court over bilateral deals

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The EU executive threatened Austria, Sweden, Belgium, Luxembourg, Portugal, Romania and Italy to take them before the European Court of Justice unless they end their respective so-called intra-EU Bilateral Investment Treaties (BITs).

In 2020, EU member states agreed to terminate all BITs as they were deemed incompatible with EU law.

In its warning to the seven member states, the EU Commission wrote: “The Commission has decided to open infringement proceedings against Austria, Sweden, Belgium, Luxembourg, Portugal, Romania and Italy for failing to effectively remove from their legal orders the intra-EU Bilateral Investment Treaties (BITs) to which they are contracting parties, so that they cease to produce any legal effects.

“It has been the Commission’s long-standing position that BITs between EU Member States constitute a parallel treaty system overlapping and conflicting with Union law, thereby preventing its full application.”

It continued: “The Commission notes that Austria and Sweden did not sign the plurilateral agreement with other Member States and have not finalised the bilateral termination of their intra-EU BITs.

“Meanwhile, Belgium, Luxembourg, Portugal, Romania and Italy signed the plurilateral agreement in May 2020, but have not yet completed its ratification process, necessary to ensure legal certainty for investors and businesses.

“The Commission urges the above mentioned Member States to urgently take all necessary action to remove the intra-EU BITs from their legal order, bearing in mind their incompatibility with Union law.

“Without a satisfactory response from them within two months, the Commission may decide to address reasoned opinions.”

The letter continued with a direct warning for Sweden, whose case will be referred to the European Court of Justice if they fail to reply within two months.

It said: “In addition, today, the Commission has sent a complementary reasoned opinion to Sweden for failing effectively to ensure that its Bilateral Investment Treaty (BIT) with Romania ceases to produce legal effects.

“Although Sweden removed the BIT from its legal order formally and unambiguously via mutual agreement with Romania, it has failed to ensure the required degree of legal certainty for investors and businesses, as it did not eliminate in practice all legal effects that the BIT had produced since its incompatibility with Union law first arose.

“This has enabled arbitral tribunals to take their own view as to the validity of the BIT, so far upholding its applicability and accepting jurisdiction based on its provisions.

“The Commission urges Sweden to take all necessary actions to ensure that its BIT with Romania ceases to produce legal effects, bearing in mind the incompatibility of the BIT with Union law.

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“Without a satisfactory response from Sweden within the next two months, the Commission may decide to refer the case to the Court of Justice of the European Union.”

Most of the BITs affected by this agreement were signed between Eastern and Western European States before the former became members of the EU.

The termination of intra-EU BITs has seen the end of an era for investor-State dispute settlement (“ISDS”) and foreclosed a significant number of future claims against sovereigns.

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