European Court of Justice rules that certain Swedish and Austrian BITs are incompatible with the EC Treaty

The European Commission brought Sweden and Austria to the ECJ in 2006, after these countries refused to eliminate ‘transfer clauses’ in BITs signed with non-European countries. A similar case has been launched by the Commission against Finland, although it is behind the Austria and Swedish cases in procedure.

According to the Commission, these clauses, which guarantee investors the right to move investment-related capital without undue delay, cannot be reconciled with the European Community’s right to regulate the movement of capital between EU Member States and third countries, including restricting capital flows in exceptional circumstances.

For their part, Sweden and Austria argued that until measures to restrict capital flows have been enacted, there was no incapability between their bilateral investment treaties and the EC Treaty.

In a 3 March 2009 ruling, the ECJ has sided with the Commission. The ECJ argues that should the European Community decided to restrict capital flows, it would be impractical for Sweden and Austria to quickly resolve the conflict that would arise with respect to the commitments made to foreign investors under their bilateral investment treaties.

As such, the ECJ ruling finds that Austria and Sweden have not fulfilled their obligations under article 307 EC, which obliges Member States to take appropriate steps to eliminate incompatibilities between their pre-accession agreements and the EC Treaty.

While the ECJ ruling concerns bilateral investment treaties between European Member States and non-European countries, the European Commission has also raised concerns over BITs between European Member States (intra-European BITs) on the grounds that they overlap with EC law. However, as ITN reported on 10 February 2009 (“EU Member States reject the call to terminate intra-EU BITS” ) the majority of EU Member States prefer to maintain their network on intra-EU BITs.

The ECJ rulings are available online.