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Treaty to terminate intra-EU BITs enters into force
Treaty to terminate intra-EU BITs enters into force
10 September 2020
Series
Blogs
10 September 2020
On 29 August 2020, the multilateral treaty concluded by a majority of European Union (“EU”) Member States to terminate the bilateral investment treaties concluded between them (“intra-EU BITs”) entered into force for the first time.
As reported earlier, on 5 May 2020, twenty three EU Member States – all but Austria, Finland, Sweden and Ireland (which is not party to any active BITs) as well as the UK – signed the Agreement for the Termination of Bilateral Investment Treaties Between the Member States of the European Union (the “Agreement”). The Agreement followed the Court of Justice of the European Union’s (“CJEU”) 2018 Achmea judgment, which had found the arbitration provision of the BIT between the Netherlands and Slovakia to be incompatible with EU law (see our analysis of the judgment here).
While Austria and Sweden have committed to terminating their BITs bilaterally, the Commission has issued formal infringement notices to Finland as well as to the UK (to which, under the Withdrawal Agreement, EU law continues to apply during the transition period until 31 December 2020), urging them “to take all necessary actions to urgently remove the intra-EU BITs from their legal order, bearing in mind their incompatibility with Union law.” However, it may well be that the UK intends to retain its BITs until 2021, when they become extra-EU BITs.
The termination Agreement enters into force
As per Article 16(1) of the Agreement, it shall “enter into force 30 calendar days after the date on which the Depositary receives the second instrument of ratification, approval or acceptance”. Denmark and Hungary are the first two Member States to now have ratified the Agreement, triggering Article 16(1). It thus entered into force in respect of those two Member States on 29 August 2020. For other Member States, it will now enter into force 30 calendar days after the date of deposit by such a state of its instrument of ratification, approval or acceptance (Article 16(2)). The ratification status of the Agreement can be tracked here.
Three Member States have so far made official declarations in respect of the Agreement:
Practical effects of the Agreement
As we discussed when the Agreement was signed, it remains to be seen how arbitral tribunals in pending and future arbitrations under intra-EU BITs will react to the Agreement in practice. The decision whether or not investors can still rely on the protection afforded by intra-EU BITs in the future will be affected by Art. 54(b) and 70 of the Vienna Convention on the Law of Treaties as well as by the Agreement’s relationship to the ICISD Convention. It will also be interesting to see if investors and States make use of the “structured dialogue” to settle pending cases, as envisioned in Article 9 of the Agreement. Lastly, one can expect significant debate about the termination of the BIT’s sunset clauses in the Agreement. The effects of the Agreement will now slowly be felt, and it will be worth watching the next steps of investors, States and arbitral tribunals in intra-EU investment disputes.
It should be noted that the Agreement does not apply to claims and proceedings under the Energy Charter Treaty (“ECT”), with discussions on an ECT reform still ongoing.
Outlook
In parallel, and as stressed by Luxembourg and Portugal in their declarations, investors will be keen to see the outcomes of Member States’ and the European Commission’s promise to review and revise protection mechanisms for intra-EU cross-border investments (see here for more on the state of investment protection under EU law and the European Convention on Human Rights). As part of that process, the European Commission has been conducting a public consultation over the summer, asking stakeholders to express their views on the existing intra-EU system of investment protections, as well as possible ideas and options to improve it. The Agreement itself seems to admit that the national and EU law protection of investors is often not (yet) equivalent to the typical rights and protections under BITs, and that their enforcement is in many cases still cumbersome, if not impossible. Particularly in these uncertain times, it is important that the efforts to ensure a favourable intra-EU investment environment quickly bear fruit, with effective legal protection of investors’ rights and a level playing field for intra-EU and extra-EU investors.