October 2, 2009
Correction: The original version of this article indicated that thehad rendered a decision in the case Finland. In fact, an Advocate General has issued an opinion, which is not binding on the Court. The article has been revised accordingly.
An Advocate General of the European Court of Justice (ECJ) has opined that some of Finland’s bilateral investment treaties (BITs) with non-European countries are incompatible with European Community () law. The opinion comes six months after the ECJ rendered a decision with respect to a number of Sweden’s and Austria’s BITs.
An opinion of an Advocate General provides guidance but is not binding on the full court. An ECJ ruling could still be several months away.
The case against Finland—as with Sweden and Austria—was led by the European Commission, which argues thatclauses that protect non-European investors’ freedom to transfer investment-related capital out of the are incompatible with the European Council’s legal right to restrict capital transfers in exceptional circumstances.
Finland, along with Sweden, Austria and a number of other EU countries that intervened, maintain that the Commission’s concern is hypothetical until the point that the European Council decides to restrict capital flows. In the judgment involving Sweden and Austria, this line of argument was dismissed by the ECJ, which stressed that the European Council must be able to act immediately to restrict capital flows if deemed necessary. That opinion has been affirmed by an advocate general in the case against Finland.
But Finland also introduced a new argument, which hinged on the following clause in Finland’s BITs:
“Every contracting party guarantees under all circumstances, within the limits authorised by its own laws and decrees and in conformity with international law, a reasonable and appropriate treatment of investments made by citizens or companies of the other contracting party.”
Finland argued that the “limits authorised by its own laws and decrees” includes the constraints set by European Community law, given that EC law forms an integral part of its domestic law. As such, Finland maintained that its treaties protect the right of the European Council to intervene to restrict capital flows.
However, the ECJ Advocate General countered that Finland could not guarantee that an arbitral tribunal would agree with this line of thinking. “The mere possibility that an international court or an arbitral tribunal might interpret the contested clause in that way does not suffice to discharge Finland’s obligations,” writes the ECJ Advocate General, Eleanor Sharpston.
Having arrived at the conclusion that BIT clauses that guarantee free movement of capital are incompatible with European Community law, the opinion recommends Finland “to take all appropriate steps to eliminate the incompatibilities …” Similar instructions were left with Sweden and Austria, in the March 3rd ruling involving certain of their bilateral investment treaties.
The Swedish Ministry of Foreign Affairs tellsthat it is working with its treaty partners to insert new text on capital transfers into the relevant bilateral investment treaties. Repeated queries to the Austrian Ministry of Finance, asking whether it was taking steps to address the ECJ judgment, were not returned.
The ECJ cases involving Austria, Sweden and Finland mark just one point of tension between the European Commission and EU member states over international investment agreements. While the ECJ cases center on BITs between EU member states and non-European countries, the Commission has also raised concern over the 150 or so BITs that exist between European countries.
A central concern of the Commission stems from the fact that BITs allow investors to settle disputes through international arbitration, rather than through domestic courts or the ECJ. The Commission warned in 2006: “This could lead to BIT arbitration taking place without relevant questions of EC law being submitted to the ECJ, with unequal treatment of investors among Member States a possible outcome.”
However, according to a recent memo from the EU’s Economic and Financial Committee (EFC), most EU countries do not share this concern. After consulting with member states, the EFC concluded that the “clear majority of Member States preferred to maintain the existing agreements.”
The Opinion of Advocate General Sharpston, Case C‑118/07, Commission of the European Communities v Republic of Finland is available from the website of the ECJ: