In a press release issued yesterday, the European Commission announced that it has ordered Romania to recover compensation paid pursuant to an ICSID award, concluding that the grant of such compensation is incompatible with EU State Aid rules.

This latest development raises interesting questions regarding the overlap of EU law with international treaty obligations in the context of intra-EU investment treaty disputes.


In December 2013, an ICSID Tribunal ruled by majority that Romania had breached the fair and equitable treatment standard in the Sweden-Romania bilateral investment treaty (the “BIT”) by revoking certain tax incentives aimed at the development of its disadvantaged regions. As part of the process of accession to the EU and in order to align its state aid schemes with EU State Aid rules, Romania had abolished the scheme in 2005, four years prior to its scheduled expiry in 2009.

In its defence of the claim, Romania argued that the BIT had to be interpreted consistently with EU law and that the treatment of foreign investors could not be separated from Romania’s EU law obligations. The European Commission also made representations in support of Romania’s arguments.

The Tribunal observed that Romania was not a party to the EU when the BIT was negotiated and concluded in 2003. There was therefore “no real conflict of treaties”. Each treaty shall be interpreted having due regard to the other applicable treaties, assuming that the parties entered into each of them in full awareness of their legal obligations under all of them. In other words, the Tribunal must interpret each treaty – in particular the BIT- according to the intent of the parties not to defeat their obligations under any other applicable treaty. Furthermore, the Tribunal noted EU law would be part of the factual background to the case. Having this in mind, the Tribunal found that the repeal of the tax incentives was motivated by concerns arising from Romania’s accession to the EU. The Tribunal therefore considered that Romania’s decision to revoke the tax incentives was reasonable tailored to the pursuit of a rational policy (specifically EU accession) and there was an appropriate correlation between that objective and the measure adopted to achieve it. However, the fact that Romania phased out the tax incentives but kept some of the claimants’ related obligations (which was not the result of EU pressure) led to a majority finding that Romania acted unreasonably and therefore breach the BIT.

That was not the end of the matter, however. In May 2014, the European Commission issued a suspension injunction against Romania preventing its compliance with the ICSID award until the Commission had taken a decision as to the award’s compatibility with the common market. Its view was that the implementation of the award would effectively constitute new state aid, lending an unfair advantage to the Claimants and distorting competition in the market. In November 2014, the Commission launched an in-depth state aid investigation into the implementation by Romania of an arbitral award, inviting comments from interested parties. Following that investigation, the Commission has now concluded that Romania must recover from the Claimants all amounts paid pursuant to the ICSID award.


This case raises interesting questions regarding the role of EU law in respect of intra-EU investment treaty disputes. If Romania complies with the Commission’s decision, this will contravene its international law obligations as determined by the ICSID Tribunal. The European Commission’s proactive intervention here raises practical questions as to the enforceability of arbitral awards rendered in respect of intra-EU BITs.

As in this case, ICSID awards against Member States which overlap with issues of EU law could be challenged or contradicted by the European Commission, leaving a Member State trapped between a proverbial rock and a hard place. For Romania, failure to comply with the Commission’s order raises the risk of sanctions against it by the Court of Justice of the European Union. However, on a purely practical level, it is difficult to see how Romania will go about the task of reclaiming the sums already paid to the Claimants.

The matter is equally complex for non-ICSID awards such as the Eureko one, which must be enforced by national courts. Given that Member States are under a duty to eliminate any incompatibility between prior international obligations and investment governed by EU law, such awards could be subject to challenge (under the public policy exception contained in Article V of the New York Convention for example) and/or referred to the Court of Justice of the European Union for a preliminary reference.

At this stage, the long-term implications of this development are uncertain. However, it could lead to reluctance on the part of investors to pursue proceedings before an arbitral tribunal if they anticipate uncertainty surrounding the enforcement of a favourable award. They may seek to circumvent the reach of the EU by choosing a seat of arbitration outside of the EU and commencing enforcement proceedings outside of Member State courts where possible.

These issues serve to add to the increasing uncertainty surrounding the future of intra-EU claims under investment treaties. In particular, since the Treaty of Lisbon came into force in 2009, there is ongoing debate as to whether individual BITs have been superseded by EU law and if a refusal to terminate them infringes Member States’ duty of loyal co-operation. This latest development also demonstrates the Commission’s consistent stance that investment issues fall within the competence of the EU as opposed to that of individual Member States.

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