Proposal to expand investors’ rights for all intra-EU investment will be the next nail in the coffin of European integration
Representatives of the governments of Austria, France, Finland, Germany and the Netherlands (AFFGN) tabled a proposal, in April, to establish “a multilateral agreement among the [EU] Member States […] which would replace and supersede pre-existing intra-EU BITs”. With this proposal, all EU investors would effectively be able to sue any member state at an international tribunal when they feel government regulations have undermined their (future) profits. This proposal undercuts the very basis of the European Union and is the best example of how the EU has become a vehicle for business rights at the expense of democracy.
What are intra-EU BITs and why are they problematic?
Intra-EU Bilateral Investment Treaties (BITs) are agreements signed between most Western European Union Member States and many Central and Eastern European (CEE) governments during the 1990s. At that time they were simply BITs between EU Member States and third countries. But, with the accession of 12 new countries to the EU (the majority from Central and Eastern Europei) in 2004 and 2007, a vast web of BITs suddenly emerged between EU Member States ("Intra-EU BITs").
All these treaties grant investors ample protection and all include an investor-state dispute settlement mechanism (ISDS), which gives companies the right to directly file lawsuits at international tribunals, bypassing the national justice system, when they feel that their profits (or expectation of future profits) have been affected.
There are 198 intra-EU BITs in force. EU Member States have been sued a total of 117 times, and three quarters (88) of those cases were “intra-EU” disputes based on intra-EU BITs or the Energy Charter Treatyii.
The main target of Intra-EU BIT claims are Central and Eastern European countries who have been regularly sued by investors from fellow European countriesiii.
The European Commission claims Intra-EU BITs incompatible with EU law
Since 2004, the European Commission has repeatedly argued that bilateral investment treaties between EU Member States are in conflict with EU law, incompatible with the EU single market, create discrimination between investors in EU member states and, therefore, should be terminatediv. The EC understands that the European Court of Justice, and not ad-hoc private tribunals, is the forum to resolve issues of EU law involving an EU Member Statev.
“Intra-EU BITs amount to an anomaly within the EU internal market” [...] “Eventually, all intra-EU BITs will have to be terminated”, the European Commissionvi.
In 2015, the EC moved away from soft diplomacy and launched infringement procedures against five countriesvii demanding the termination of their intra EU-BITs. The Netherlands and Austria are two of the countries under scrutiny by the Commission. Unsurprisingly they are also two of the countries behind this new proposal.
What is AFFGN really proposing and why is it an attack on Europe’s democracy?
The aim of AFFGN is to create a plurilateral treaty that would grant all EU investors wide privileges and the right to sue any EU government from countries where they operate at international arbitration tribunals. These five countries specify in their proposal that they want “guarantees that an appropriate level of substantive and procedural protection would continue to be afforded to European investors operating within the internal market even after the termination of intra-EU BITs”.
The AFFGN is proposing to take investors rights to the next level to preserve business interests at the expense of people’s rights and democracy, using the need to phase out intra-EU BITs as a smokescreen.
In concrete terms, AFFGN propose an agreement that follows “the EU investment policy developed for TTIP”. However, they favour a “binding and enforceable settlement mechanism for investment disputes” that is “ad hoc”, instead of the permanent one currently promoted by the European Commissionviii. Their preference would be for all investment disputes to be decided in the Permanent Court of Arbitration (PCA). It is worth clarifying that even though it is called a court, it is not a “court” in the judicial sense of the termix. The PCA is just a centre that administers ad-hoc investor-State disputes – similar to the World Bank International Centre for Settlement of Investment Disputes (ICSID). In fact, after ICSID, the PCA administers the most ISDS disputesx. This would effectively be a continuation of the current system.
If this proposal is approved, they would institutionalise the infamous “investor-state dispute settlement”- rejected by millions of European citizens- for all cross-border investments within the EU.
AFFGN accepts that the current intra-EU BITs are detrimental to the single market and discriminate between foreign and national investors, but instead of avoiding that discrimination by accepting these treaties should be terminated immediately, they want to greatly expand ISDS coverage to all intra-EU cross border investments. This will inevitably lead to a surge in investment arbitration lawsuits against EU member states.
EU Member States the voice of Business Europe
The proposal tabled by AFFGN closely resembles a call by the EU business association Business Europexi. This is no coincidence. It shows once more how the interest of business and governments are taken as one and the same.
For a more detailed analysis of the AFFGN-proposal see the Seattle to Brussels (S2B) note: “The AFFGN non-paper” and the S2B statement: “Shameless attempt to quietly institutionalise ISDS throughout Europe”.
i Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Romania and Bulgaria.
iv Most of the European Commission observations were made in the context of several arbitration cases: AES v Hungary ; Achmea (at that time Eureko) vs Slovakia (PCA Case No. 2008-13), Award on Jurisdiction, 26 http://italaw.com/documents/EurekovSlovakRepublicAwardonJurisdiction.pdf ; Eastern Sugar B.V. vs The Czech Republic (SCC No. 088/2004) http://italaw.com/sites/default/files/case-documents/ita0259_0.pdf ;
v European Commission (2012) Commission staff working document Capital Movements and Investment in the EU Commission Services Paper on Market Monitoring, SWD(2012)6 final. http://ec.europa.eu/internal_market/capital/docs/20120203_market-monitoring_en.pdf [4/12/2012]