Why?
Investment arbitration has become a weapon of mass deterrence. Foreign investors — multinationals or ultra-wealthy individuals — use it to prevent States from adopting ambitious laws, especially on climate or public health.
Fossil fuel companies are the primary users of these secret special tribunals. They demand, and sometimes obtain, exorbitant compensation whenever a State adopts a law that threatens their profits.
Today, the system is also used by Russian companies and oligarchs to challenge the international sanctions they face.
Investment treaties undermine our environmental commitments and our human rights obligations. Besides, most of these treaties were signed by EU Member States more than 20 years ago and do not contain any safeguards preventing arbitral tribunal from interpreting and interfering with national law. Thus, these obsolete treaties are also incompatible with EU law.
In 2020, EU Member States terminated more than a hundred treaties among themselves.
Since 2022, 10 EU Member States and the European Union have withdrawn from the Energy Charter Treaty.
Around 1,400 investment treaties between EU Member States and third countries still remain.
They must urgently be abolished or fundamentally reformed.
Many trade and investment treaties include investor–state dispute settlement (ISDS) clauses. These give international investors the right to sue host States and demand enormous financial compensation if governments adopt new regulations that could limit company profits — even when those regulations serve the public interest.
ISDS allows foreign investors to bypass national courts and directly bring claims against the host State before an international arbitral tribunal. Only foreign companies can sue States — never the reverse. These investors can claim, and obtain, damages amounting to millions or even billions, far beyond what national courts would award.
An international arbitral tribunal is usually composed of three individuals, most often private legal practitioners. One arbitrator is appointed by the investor, the second by the host State, and the presiding arbitrator is appointed either by the two others or by a third party. The arbitral tribunal’s decisions are binding and enforceable and cannot be appealed. They may be annulled only on very limited grounds. Arbitration procedure is very opaque: most of the time, investors can impose confidentiality obligations on States, pleadings are not disclosed and the public cannot participate. In some instances, the mere existence of an arbitration case can be kept secret.
Who is initiating this action?
The Veblen Institute in France, Powershift in Germany, Attac Austria, and Friends of the Earth Sweden, with the support of Friends of the Earth Europe and the European Trade Justice Coalition are submitting the complaint.
These organisations have worked together for many years on the major obstacles that investment protection agreements (and investment protection provisions in trade agreements) pose to climate action and other public-interest policies. Their past actions have notably targeted TTIP (EU–US negotiations), CETA (EU–Canada agreement), and the Energy Charter Treaty. They also recently published an investigation into the use of investment treaties by sanctioned Russian oligarchs to challenge measures adopted by States in response to Russia’s invasion of Ukraine.
Which States are targeted?
This legal action targets four EU Member States: France, Germany, Austria, and Sweden.
France and Germany are the EU Member States that have the largest number of investment protection treaties. Most of these treaties were concluded at a time where treaty provisions were sparse and rudimentary, lacking the safeguards now required under EU law.
Austria and Sweden have already been condemned by the CJEU for failing to eliminate incompatibilities of their old pre-accession BITs with EU law. To date, none of these four countries has brought their BITs into compliance with EU law. Sweden even explicitly acknowledged in 2024 that it still had not taken the necessary steps to comply with the ruling concerning it.
If the European Commission takes action concerning these Member States’ old investment treaties, the procedure could have consequences for all investment treaties concluded by other EU Member States, as they present similar features.
What is the procedure?
This is an infringement procedure — meaning a formal complaint to the Commission asking it to act against Member States that are violating EU law.
It targets these States’ maintenance of investment protection treaties with third countries that are incompatible with EU law.
With the filing of this complaint, we expect the Commission to require Member States to eliminate these incompatibilities. The simplest way to achieve this would certainly be to terminate these treaties, as Member States have already done among themselves and by withdrawing from the Energy Charter Treaty (ECT).
In the Achmea (2018) and Komstroy (2021) judgments, the CJEU held that intra-EU ISDS mechanisms are incompatible with the principles of autonomy of the EU legal order and mutual trust between Member States. This means that interpreting and applying EU law is exclusively the role of the CJEU, and that Member States must comply with it and trust each other to respect their obligations under EU law.
In its 2019 Opinion 1/17 on CETA, the CJEU confirmed that although extra-EU ISDS is in principle possible, any international agreement concluded by the EU is compatible only if it does not undermine the autonomy of the EU legal order. In the same opinion, the Court made clear that an agreement containing ISDS would have such an adverse effect if the tribunals created under it could:
• interpret or apply provisions of EU law, or
• issue decisions preventing EU institutions from operating within the constitutional framework of the Union (for example, by finding that a public-interest measure compliant with EU rules constitutes unfair treatment of investors).
Notes
- Ursula von der Leyen suggested in November that Belgium withdraw from the treaty signed in 1989 with Russia to mitigate the risk of claims by Russian investors (the BLEU–Russia BIT, i.e., between Belgium and Luxembourg and Russia).
- Inconsistency between Article 2 of the Council Regulation adopted on 12 December, which prohibits capital transfers to the Russian Central Bank, and the BITs (including those of the targeted countries).