Intra-EU BITs Arbitration Clause Ruled to Be Against EU Law by the Court of Justice of the European

A recent decision (1) of the Court of Justice of the European Union (CJEU) ruled that the arbitration clause contained in Bilateral Investments Treaties (BITs) concluded between Member States (MS) is not compatible with European Union (EU) law. BITs are agreements between two countries affording protection to investments made by investors from one contracting state in the territory of the other. One of the main features of such a regime of protection is to be found in the recourse to international arbitration given to the investors against state expropriation.

The first BIT dates back to 1959. After two decades there were already hundreds of BITs, and the current number of BITs in force is estimated to be around 3,000. BITs have proven to be effective instruments in fostering foreign investments. Just two years before the first BIT appeared, several European Countries (Belgium, France, Italy, Luxembourg, the Netherlands and West Germany) signed the Treaty of Rome creating the European Economic Community (ECC). It was indeed the first step toward an ongoing complex process of integration that today includes 28 Member States (27 at the end of Brexit) under the name of the EU.

BITs and the EU are diverse phenomena. The former are two-party treaties aiming at fostering international investments in the territories of contracting states. The latter is something far more ambitious, which cannot be adequately defined in just a few sentences. However, the institution of a single market within the EU borders, where investors can operate under a common framework of rules, certainly shares something with the BIT phenomenon. In other words, both the BIT and the EU are aimed at fostering international investments. But, while the EU has a much broader scope, the aforementioned aspect is indeed the sole purpose of the BIT.

Even the way in which that aim is pursued differs significantly. BITs are rather simple instruments, which contain just a few provisions. In contrast, the EU is based on two primary treaties: The Treaty on the European Union (TEU) and the Treaty on the Functioning of the European Union (TFEU). The relevant principles of the internal market are contained in the latter treaty, but they are enriched by a whole bunch of different sources such as EU regulations, directives transposed into national laws by member states and decisions. The internal market is based on the principles of free movement of goods (Part. 3, Title II, TFEU) persons, services, and capital (Part. 3, Title IV, TFEU). It also includes, amongst many other things, the principle of non-discrimination (article 18, TFEU) and a common set of rules provided on competition (Part. 3, Title VII, TFEU).

When compared to the structure of BITs, the architecture set up by the EU appears to be extremely sophisticated. Regardless, and despite all of the aforementioned differences, is it possible for BITs to coexist with the EU? More precisely, are BITs concluded between member states (intra-EU BITs) compatible with EU law?

Although there is no shared view about it, the preponderance of evidence indicate that they are not. Supporting this view is the fact that the EU Commission took a stand against their compatibility. Further, the opinion of the Advocate General who argued for their compatibility was recently overturned by the CJEU. (2) But what are the grounds for the inconsistency of BITs with EU law?

The position of the EU Commission dates back to 2015. (3) Over the years it raised various grounds that support incompatibility. These are summarized as follows:

• The principle of lex posterior derogate priori contained in article 59 of the 1969 Vienna Convention on the Law of Treaties; (4) 

• Article 351 of TFEU requiring member states to undertake actions against any inconsistencies arising concerning EU law and previous treaties; (5) 

• EU law primacy over national laws.6 Since international treaties enter into force through ratification of national laws, EU law shall also prevail over international treaties; (6)

• The principle of non-discrimination pursuant to article 18 of TFEU; (7)

• The fact that BITs may be interpreted as being a violation of state aid rules under EU law; (8) and

• BITs conflict with the exclusive jurisdiction the CJEU has in interpreting EU law. In fact, no preliminary ruling from the CJEU can be sought by arbitral tribunals. (9) 

It has also been argued that EU law provides investors with protection that ought to be considered equivalent to the one afforded by BITs. (10) Consequently, there would be no need for intra-EU BITs. However, such grounds conflict with the assumption that intra-EU BITs violate the principle of non-discrimination contained in article 18 TFEU. Only one of these assumptions can be true. In other words, if it is true that the recourse to arbitration provided under BITs represents an advantage susceptible to violate the EU principle of non-discrimination, then the degree of protection EU law affords investors has to be lower than the one provided by BITs.