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14th Apr 2024

Investor rights at risk in EU, member states warn

  • Bucharest: Romania signed up to bilateral investor protection treaties (Photo: Nico Trinkhaus)

A group of member states want the European Commission to set up a mechanism strengthening investor rights inside the EU.

Five countries - Austria, Finland, France, Germany and the Netherlands - have said there should be an EU mechanism that reinforces the protection regime for investors in the bloc.

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  • Bilateral treaties date back to before EU enlargement (Photo: ec.europa.eu)

They detailed their ideas in a an informal proposal that warned of a legal void that could occur after some current rules protecting cross-border investments are scrapped.

The European Commission, last year, launched infringement proceedings against five member states - Austria, the Netherlands, Romania, Slovakia and Sweden - telling them to end their various bilateral investment treaties them ("intra-EU BITs").

”Many of these intra-EU BITs were agreed in the 1990s, before the EU enlargements of 2004 and 2007,” a commission spokeswoman told EUobserver.

”They were aimed at reassuring investors who, sometimes for historical and political reasons, might have felt wary about investing in countries that have since become the ’new’ member states.”

The commission said that “extra” protection should be disposed of, as it risks creating double legal standards in the internal market.

Austria, Finland, France, Germany and the Netherlands agree that the situation is "highly detrimental" to both member states and European investors.

But they want the termination of intra-EU BITs to be followed up by a European mechanism.

Businesseurope, the umbrella lobby group for European business, shares their concerns.

”Stopping one system and not replacing it by something else would be the worst possible message to give to a company”, Luisa Santos, the group's director for international relations, told EUobserver.

She referred to the commission's ambitions to strengthen investment in Europe and said that strong investor rights should be part of that effort.

When he launched the infringement procedures in June 2015, the EU commissioner for financial services, Jonathan Hill, said that he was "ready to explore the possibility of a mechanism for the quick and efficient mediation of investment disputes”.

But the commission's spokeswoman declined to say what such a system would look like, or what progress had been made on the issue.

She said that the commission was aware of the five countries' “non-paper” and was studying the proposal. It wasn't clear if a mechanism would be put in place before the infringement cases are concluded, avoiding the legal void.

"Just to be clear, the termination of illegal treaties cannot be made conditional on other decisions," the spokeswoman said.

'Outrageous attack'

”In all member states, there are legal remedies available against wrongdoings by public authorities,” she added.

The non-paper was leaked by the Seattle to Brussels Network, which gathers NGOs, trade unions and social movements.

The network condemned the plans and called it an "outrageous attack on the European domestic legal system as yet another example of sacrificing democracy and the rights of citizens to please corporate interests."

It said the governments were trying to install an investor-state dispute settlement (ISDS) throughout the EU, creating a parallel legal system for business interests.

The ISDS, which would allow companies to take national governments to private courts, has been one of the most controversial parts of the EU-US free trade agreement TTIP.

To alleviate criticism, the commission proposed an alternative scheme, called investor court system (ICS). The ICS would be made of a permanent panel of judges and have an arbitration tribunal.

Green members of the European Parliament were also concerned.

"Despite uproar in Austria, Germany and France in particular about investor privileges in EU-Canada and EU-US trade deals, these governments seem to be proposing a further expansion of such discriminatory rights for foreign investors operating across borders in Europe," said French MEP Yannick Jadot, a Green group trade spokesman.

Confusion

"Just as there is no way such provisions should be included in international trade agreements, we should not be creating EU mechanisms that distort the market, undermine our judicial systems and undermine the democratic law-making process," he added.

The commission’s spokeswoman said: “We should not confuse the intra-EU BITs issue with ISDS for agreements with countries outside the EU".

But the Dutch government, which has a leading role in the negotiations, has suggested that the newly developed investment court system should set the standards for the EU mechanism.

Businesseurope's Luisa Santos said that companies only sue states in extreme cases.

”Once they do that, they can rarely continue operating in the country. But states sometimes adopt legislation that heavily discriminates against foreign companies. In that case, the company should be able to apply for compensation”, she said.

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