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Romania to terminate its intra-EU Bilateral Investment Treaties

On 8 September 2016, the President of Romania agreed to submit to the Romanian Parliament draft legislation approving termination of 22 bilateral investment treaties that Romania concluded with other EU Member States (“intra-EU BITs”).  The draft legislation had been initiated on 10 August 2016 by the Romanian Government in an expedited legislative procedure.

The explanatory note to the draft legislation quotes the European Commission’s view that intra-EU BITs are incompatible with EU law and refers to the infringement proceedings initiated on 18 June 2015 against five EU Member States, including Romania, requesting them to terminate their intra-EU BITs.  The note further explains that since 2011 Romania has approached a number of EU Member States with a view to terminate intra-EU BITs by consent.  However, the responses were not favorable.  Therefore, the Romanian Government considered it appropriate to proceed with terminating all of its intra-EU BITs.

Romania’s initiative comes against the background of an ongoing discussion on the future of BITs in the EU.  To date only three EU Member States (the Czech Republic, Ireland, and Italy) decided to terminate all or selected intra-EU BITs.  However, in 2016 a number of developments took place:

  • In February, Poland announced that it considers terminating its BITs (see our blog entry here).  An inter-departmental team created in May 2016 is charged with reviewing and analyzing Polish BITs (including 23 Polish intra-EU BITs).  It is expected to issue a recommendation to the Council of Ministers.
  • In April, Austria, Finland, France, Germany, and the Netherlands issued a non-paper proposing the conclusion of an EU-wide agreement that would replace pre-existing intra-EU BITs.
  • In May, Denmark was reported to propose to its counterparts terminating existing Danish intra-EU BITs.
  • Also in May, it was announced that the Court of Justice of the European Union was seized with a request for a preliminary ruling from the German Federal Court of Justice to decide whether arbitration under an intra-EU BIT runs counter to EU law.

If and when the law on termination of Romanian intra-EU BITs is adopted and enters into force, it is unlikely that any subsequent termination of BITs will have immediate effect.  Unless Romania’s counterparts consent to terminate the BITs in question, Romania will have to comply with the termination provisions provided therein.  Romania’s BITs such as, for example, those with Germany, the UK, and France would continue to remain in force until the expiration of 12 months from the date of the notice of termination.  Further, most BITs contain so-called “sunset clauses” which guarantee investment protection for several years after the treaty’s termination – 20 years in the case of Romania’s BIT with Germany, the UK, and France.  Although Romania may seek to shorten the length of post-termination investment protection, it cannot do so unilaterally, but would need to obtain the consent of the other contracting party to the BIT.

Investors in Romania should follow the events closely and ensure that their investments continue to be covered by investment protection guarantees, including, where possible, by investment treaties that will not be subject to termination.