Position Pa
per
February 2020
EUROCHAMBRES position on Investment protection in the Single
Market after the termination of Intra-EU Bilateral Investment
Treaties
The Need of an Easily Accessible and Enforceable Mechanism for EU Investors
RECOMMENDATIONS
- Set up a binding and enforceable dispute settlement mechanism which is simple, fast,
effective, cost-efficient and SME-friendly, in conformity with EU law and which facilitates
access for all investors from the EU Member States
- Introduce national contact points as supporting structures, including best practices from
existing support services (e.g. SOLVIT, EEN, investment agencies)
- Strengthen cost-effective amicable dispute resolution mechanisms such as negotiation,
conciliation, mediation and make them more accessible
- Improve the investment climate and the implementation of EU law on establishment and
free movement of capital, e.g. via more cooperation and exchange of Best Practices on
effective judicial protection as well as strengthening the Rule of Law and infringement
proceedings
- Pending procedures must find an appropriate completion granting investors effective
protection against unfair treatment and expropriation and compensation of damages
- EU investors must not be disadvantaged when it comes to legal protection compared to
investors from third countries: investments that are not made within the EU due to non-
conducive conditions are very likely to go elsewhere
In order to improve the enforcement of EU Single Market law and in order to improve the protection
of investors against discrimination and unfair treatment a binding and enforceable dispute
settlement mechanism is urgently necessary. National courts, unfortunately, do not provide
sufficient protection in many EU Member States. Furthermore, EU investors must not be
disadvantaged when it comes to legal protection compared to investors from third countries:
investments that are not made within the EU due to non-conducive conditions are very likely to go
elsewhere. The new mechanism must be simple, fast, effective, cost-efficient and SME-friendly, in
conformity with EU law and facilitate access for all investors from the EU Member States.
The need of better investment protection after terminating the intra-EU BITs
Freedom of establishment and free movement of capital are key features of the European Single
Market. Next to the fundamental freedoms foreseen in the EU Treaties and the fundamental rights
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EUROCHAMBRES – The Association of European Chambers of Commerce and Industry represents over 20 million
enterprises in Europe – 98% of which are SMEs – through 45 members and a European network of 1700 regional and
local Chambers.
Collective Redress – EUROCHAMBRES Reaction
of the Charter of the EU, Intra-EU bilateral investment treaties (intra-EU BITs) have been playing
an
important role over years, promoting and offering legal protection for direct investment by
foreign natural or legal persons in a number of Member States via an alternative binding dispute
settlement mechanism through Investor-State arbitration tribunals (ISDS).
Figures underpin this: the total number of all known treaty related arbitration proceedings
commenced by an investor from one EU Member State against another one ("intra-EU" arbitration
proceedings) amounted to a total of 174 cases in mid-2018. This represents approximately 20
percent of the 904 known cases of investor-state disputes worldwide (cf. Fact Sheet on Intra-
European Union Investor-State Arbitration Cases by the United Nations UNCTAD, December
2018).
Nevertheless, after the
Achmea ruling of the European Court of Justice (ECJ)
, the EU Member
States committed to terminate their intra-EU BITs in a coordinated manner by means of a
plurilateral treaty in 2020. According to the judgment a clause in an intra-EU BIT offering ISDS
violated EU law.
Investors and also some Member States expressed their doubts about the termination of the
system: the judgement has a major impact on current and future cross-border investments in the
Single Market, implying that this
efficient remedy to resolve disputes outside the domestic
courts wil not be available anymore. New procedures in case of upcoming disputes cannot be
initiated and ongoing ones must be terminated and solved via mediation (the termination
agreement of the Member States talks about a “structured dialogue”) or before national courts.
As a result, in the future European investors can only turn to
domestic courts through a lawsuit,
when seeking for compensation e.g. for unfair treatment or expropriation. National tribunals are
urged to decide about such claims respecting not only national legislation but also EU secondary
law, freedom of establishment, free movement of capital as well as fundamental rights, e.g. the
right to property, the freedom to conduct a business and the right to an effective remedy and a fair
trial.
However, it is a fact that
deficiencies remain concerning the implementation of EU law as well
as judicial protection in a number of Member States. There are problems e.g. with legal certainty
because of sudden and unexpected legal changes, sometimes deliberately directed against
companies from other Member States, breaches of national and EU law, as well as direct and
indirect expropriation, discrimination and bureaucracy that do not meet the requirements of EU or
international law. Furthermore, investors face lengthy administrative and judicial proceedings while
dealing with politically driven courts, whereas corruption cannot be excluded.
According to the EUROCHAMBRES Single Market Survey 2019 60.5% of
businesses are
concerned about resolving commercial or administrative disputes, also because of deficits in legal
protection before national or European authorities and courts. 81.6% request better legal protection
before national and European authorities and courts in case of breaches of EU rules.
The
Commission confirms these deficits concerning the implementation of EU Law and judicial
protection in several Member States in its EU Justice Scoreboard, in many of its country-specific
recommendations as well as in infringement and recent Rule of Law proceedings.
The preliminary reference procedure does not help where national courts do not respect EU law
and do not refer the cases to the ECJ, whereas infringement proceedings do not offer
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EUROCHAMBRES – The Association of European Chambers of Commerce and Industry represents over 20 million
enterprises in Europe – 98% of which are SMEs – through 45 members and a European network of 1700 regional and
local Chambers.
Collective Redress – EUROCHAMBRES Reaction
compensation for investors in the specific case. Furthermore, they often take years and the
Commission decides politically which cases to pursue and which not.
The conclusion to be drawn from this is that
European law alone does not guarantee sufficient
EU-wide protection of investments. Consequently, a mere phasing out of the intra-EU BITs
without an effective replacement of the dispute settlement mechanism risks to undermine the
Single Market.
The ruling would lead to a fundamental reduction of legal protection for EU investors whereas
foreign investors from third countries are still benefiting from ISDS in EU agreements or BITs with
Member States. Also a
relocation of investment activities to non-EU countries, with negative
effects on the investment climate within the EU Single Market, cannot be excluded. The
consequences could be significant: if an investor leaves a country, not only the investment is lost
but also innovation, technology and, particularly, jobs. Also suppliers wil be affected.
Proposals for investment protection after termination of intra-EU BITs
EUROCHAMBRES welcomes the Commission`s guidance to help EU investors invoking their
rights before national administrations and courts as well as to support Member States in the correct
application of EU law. However, this is not sufficient to keep up with the protection standards
provided under the BITs, for the abovementioned reasons and, particularly, the deficits of domestic
courts. The EU needs a more predictable, stable and clear regulatory environment that helps
protecting and promoting investments in the Single Market. This is one of the cornerstones of the
Commission`s Investment Plan 2014 and is also mentioned in the Commission’s working
programme 2020.
EUROCHAMBRES believes that these goals cannot be reached without a rapid establishment of
an
effective replacement mechanism.
This is of particular relevance for
SMEs, which do not have the financial means and manpower for
lengthy judicial proceedings nor the market power in order to request commercial arbitration in their
contracts. A new system could contribute to a better implementation of existing EU and national
law, greater legal security and strengthening of the Single Market for investments.
The replacement mechanisms could be based on
several pillars, however chambers believe that
the main pil ar of the system should be a binding instrument in order to enforce investors
rights before an independent and effective court. Only such a mechanism guarantees effective
legal protection and compensation of damages in case of violations of EU law. Furthermore, only
a binding instrument as a last resort creates the incentive for Member States to implement EU law
appropriately and to respect the investor’s rights. A mere reference to domestic judicial protection
is not enough because of the persisting deficits in many national systems and would implicate
serious negative effects on the investment climate. The focus should be on a
simple, fast,
effective, cost-efficient and SME-friendly system, in conformity with EU law and facilitating
access for investors from all EU Member States. Al possible options according to the EU Treaties
should be taken into consideration.
As an additional option for companies to supplement, an easy-accessible
cost-efficient amicable
dispute resolution mechanism can be further developed. A
network of national contact
points, supported by the EU Commission, could inform investors, particularly SMEs, of their rights
and the available procedures and support the dialogue with the host State. Such a structured
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EUROCHAMBRES – The Association of European Chambers of Commerce and Industry represents over 20 million
enterprises in Europe – 98% of which are SMEs – through 45 members and a European network of 1700 regional and
local Chambers.
Collective Redress – EUROCHAMBRES Reaction
exchange between investors and authorities helps the parties to better understand the specific
circumstances of the case and make the interests at stake more tangible. The mechanism could
include best practices from existing support services (e.g. investment agencies, SOLVIT, the
Enterprise Europe Network EEN, the Chambers network). It must be well equipped and have
sufficient and well-trained staff in order to deal with these complex cases.
Furthermore, voluntary
negotiations, mediation or conciliation should be promoted in order to
resolve the dispute before the company initiates arbitration or legal proceedings and to avoid the
investor leaving the host State. If successful, they could reduce costs and the duration of
proceedings and reduce the number of cases in which a court or conciliation procedure becomes
necessary.
Moreover, the
national judicial systems should be improved in order to strengthen the Rule of
Law and the implementation of EU Law in the EU to protect cross-border economic activities and
investments more efficiently.
Last but not least: the Commission needs to ensure proper implementation of EU Law via
infringement proceedings.
Nevertheless, the implementation of all these proposals should not incur major and inadequate
costs, e.g. by the creation of new institutions at European or national level, which would then be
borne by entrepreneurs in their role as taxpayers.
With regard to
pending proceedings initiated under existing intra-EU BITs agreements,
EUROCHAMBRES asks for appropriate provisions which ensure an appropriate completion
granting investors effective protection against unfair treatment, expropriation and compensation of
damages.
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Page 4 of 4
EUROCHAMBRES – The Association of European Chambers of Commerce and Industry represents over 20 million
enterprises in Europe – 98% of which are SMEs – through 45 members and a European network of 1700 regional and
local Chambers.