News: ECJ advocate general argues some Austrian and Swedish BITs are incompatible with EU law

By Damon Vis-Dunbar
17 July 2008

The ECJ advocate general sides with the European Commission in arguing that Austria and Sweden should have amended some of the pre-accession BITs with non-EU countries.

In an opinion issued on 10 July 2008, the European Court of Justice’s advocate general argues that provisions guaranteeing the free movement of capital in some of Austria and Sweden’s bilateral investment treaties (BIT) clash with European Community law.

The European Commission brought Austria and Sweden to the ECJ after they refused to amend pre-accession BITs with third countries that allegedly disagree with the EU Community law. A similar case has been launched by the Commission against Finland, although it is behind the Austria and Swedish cases in procedure.

The BITs in question contain ‘transfer clauses’ that guarantee investors the right to move investment-related capital without undue delay. Such provisions are common to BITs; however, under EU law, the European Community is allowed to regulate the movement of capital between EU Member States and third countries, including restricting capital flows in exceptional circumstances.

In 2004 the European Commission asked Austria, Sweden and Finland to modify the offending treaties, noting that Member States are required to amend agreements that are incompatible with the EU Treaty.  But Sweden and Austria refused, countering that the European Community has never acted on its right to restrict capital flow, and therefore any incompatibility is “hypothetical.”

The advocate general, Poiares Maduro, did find that Austria and Sweden’s international obligations with regard to the free transfer of capital were incompatible with the EU Treaty. For example, Article 59 allows the European Community to enact safeguard measures against third countries for up to six months. “It is difficult to envisage how such measures could be adopted and imposed in time upon the countries that are parties to the agreements entered into by Austria and Sweden,” writes Mr. Maduro.

Thus the advocate general concludes that Austria and Sweden did have an obligation to eliminate incompatibilities between their bilateral investment treaties and the EU Treaty.

The opinion of the advocate general provides guidance but is not binding on the full court.  A decision from the court could still be several months away.

The ECJ decision could have wider ramifications for who holds responsibility for legislation related to international investment.  Currently, international investment is characterized as having “mixed-competence”, meaning that it is a shared responsibility between the European Community and individual Member States.

Some European Member States have feared that the European Community is moving to grab exclusive competence over investment agreements with non-EU countries. A number of other European countries intervened in support of Austria and Sweden, including Finland, Germany, Hungary and Lithuania.

“As some of the intervening Member States have pointed out, to impose an obligation on Member States to refrain from legislating, whether by national measures or international instruments, to prevent any potential conflict with future Community legislation would turn the free movement of capital to and from third countries into an area of exclusive competence.  In fact, any area of shared competence would be liable to suffer the same fate,” explained the advocate general.

In coming to his opinion, Mr. Maduro agreed that Austria and Sweden could not be expected to change the treaties because of the “potential” for conflict with the EU Treaty.  “Only if the agreements are liable seriously to compromise the exercise of a Community competence will there be an incompatibility,” wrote Mr. Maduro.

Opinion of Advocate General Poiares Maduro in Case C-205/06 Commission of the European Communities v Republic of Austria and Case C-249/06 Commission of the European Communities v Kingdom of Sweden is available on-line:$docrequire=alldocs&numaff=C-249/06&datefs=&datefe=&nomusuel=&domaine=&mots=&resmax=100