The European Court of Justice © BDI

ECJ Declares Investor Protection within the EU Unlawful

On 6 March, the European Court of Justice (ECJ) delivered its verdict in the case of Achmea versus the Slovakian Republic. Among others, the proceedings concerned the question of compatibility between the bilateral investment treaty (BIT) between the Slovak Republic and the Netherlands, and EU law. The ECJ came to the conclusion that the BIT clauses under investigation did indeed have a detrimental effect on the autonomy of EU law and are therefore incompatible with it.

Foreign Investment in the EU is Very Important for German Business

More than half of German foreign investment (2015: 55.1%, or €578.8 billion FDI stock) goes to Member States of the European Union. Through investments in around 18,480 firms abroad, German companies are responsible for over 3 million jobs in European neighbor states. The foreign sales generated in these countries by such investments (2015: €1.2 trillion) far exceed exports to these countries (2015: €0.9 trillion). Because of high legal standards within the European Union, German business is able to enjoy a comparatively high level of protection for our crucial investments. A minimum of legal certainty is guaranteed by the bilateral investment treaties (BITs).

Far-Reaching Consequences for Investment Protection within the EU

The ECJ decision is likely to impact all 196 existing intra-EU BITs. It is feared that these will have to be terminated by the Member States – this would lower the level of protection on German foreign investment in 14 countries, with whom such bilateral treaties are established. Termination would be particularly significant regarding treaties with Southern and Eastern European states, for whom legal action is less efficient.

Whether or not the decision will impact the legal effectiveness of European or national BITs with third countries remains to be seen. The ECJ decision summary, the interpretation and the derivation of legal consequences could take up to several months. Furthermore, the consequences and impact of the decision essentially depend on policy reactions to the ruling.

The Federal Government and the EU Must Act

Already last year, the European Union considered setting up a new dispute settlement procedure to settle intra-European investor-state dispute settlements as an alternative to intra-EU BITs. The BDI commented critically on these plans, as a dispute settlement procedure would be unlikely to provide comparable legal protection to BITs. Particularly the enforceability of ISDS rulings is a specific advantage of BITs, which another dispute settlement procedure would lack.

The European Union needs to establish an instrument to effectively protect German investments in other European countries against discrimination and expropriation without compensation. Together with our European umbrella organization BusinessEurope, we will carefully observe the developments and engage in the surrounding discussion about how German investments in other European countries can continue to be effectively protected.