Politico | 29 September 2016

Commission boosts infringement procedures against five countries

By Hans von der Burchard

The European Commission today ramped up infringement procedures against Austria, the Netherlands, Romania, Slovakia and Sweden to push them toward scraping their bilateral investment treaties with other EU nations.

Over 200 such treaties have been signed since the 1990s with the aim of reassuring investors about doing business in new EU markets, particularly those in Eastern Europe. Such treaties give foreign investors the right to sue governments for compensation if they can claim discrimination.

“Following the EU enlargement, such additional reassurances should no longer be necessary, as all member states are subject to the same EU rules in the single market,” Commission spokesperson Vanessa Mock said.

Focus on scrapping bilateral investment treaties has increased of late in negotiations for trade deals with the U.S. and Canada in which the EU wants to establish an international court to handle such disputes.

The infringement procedure against the five countries started in June last year. But as no action was taken the EU’s executive decided to increase pressure by asking the countries for a so-called “reasoned opinion” on why they had failed to rectify the problem.

The countries now have two months to reply with a justification, before the Commission could take them to the European Court of Justice. The court has repeatedly ruled that such bilateral agreements “are incompatible with EU law,” Mock said.

To avoid further confrontation with the Commission, Romanian President Klaus Iohannis and Prime Minister Dacian Cioloș issued a decree on Wednesday ordering the cancellation of the country’s bilateral investment treaties. The decision now goes to the Romanian parliament for approval.

Although the spotlight is currently on five EU countries, the Commission has also engaged in talks with 21 other EU countries that possess such treaties. Only Italy and Ireland have scrapped all their bilateral investment treaties.

Brussels specifically targeted Austria, the Netherlands, Romania, Slovakia and Sweden with the infringement procedure as they were all engaged in investor disputes under bilateral investor-state dispute settlement procedures, the existence of which are threatening cohesion within the single market.

Germany is also involved in an investment dispute with the Swedish energy giant Vattenfall that sued the country in 2012 for alleged expropriation, following Berlin’s hasty decision to shut down nuclear energy plants after the 2011 Fukushima accident. However, the Commission has refrained from approaching Germany with infringement at this stage.

In April this year, Germany, France, Austria, Finland and the Netherlands distributed a non-paper in the Council’s trade policy committee, suggesting the phasing out of bilateral investment treaties while demanding “an alternative dispute settlement scheme” to avoid “creating any gaps in the protection of cross-border investments within the EU.”