Commission of the European Communities v. Sweden (2009) (C-249/06) & Commission of the European Communities v. Austria (2009) (C-205/06).

• Author: Anagnostou, Peter
• Position: Failure to adopt appropriate legal measures to eliminate incompatibilities with European Union law arising out of bilateral investment treaties

Introduction

On 3 March 2009, the European Court of Justice ('ECJ') issued two separate judgments against Sweden and Austria. The cases dealt with their alleged continuous failure to adopt appropriate legal measures to eliminate incompatibilities with European Union ('EU') law arising out of bilateral investment treaties ('BITs'), which they entered into with third countries prior to their accession to the EU. The Court ruled that Austria and Sweden had breached obligations under article 307 of the Treaty Establishing the European Community ('EC Treaty') (1) by maintaining, with third countries, BITs that could interfere with the EU's powers to restrict capital movements. (2)

This was the ECJ's first venture into the booming international investment law field and is significant because it represents a substantial expansion of European Community competence and reflects the intentions of the Treaty of Lisbon (3) to expand the scope of the EU's common commercial policy to matters of 'foreign direct investment'. (4) The judgments' significance is also reflected in the number of other European countries intervening in support of Austria and Sweden, including Finland, Germany, Hungary and Lithuania. As noted by the Advocate General:

[A]s some of the intervening Member States have pointed out, to impose an obligation on Member States to refrain from legislating, whether by national measures or international instruments, to prevent any potential conflict with future Community legislation would turn the free movement of capital to and from third countries into an area of exclusive competence. In fact, any area of shared competence would be liable to suffer the same fate. (5) 1. The facts

Both Austria and Sweden, prior to their accession to the EC Treaty, had concluded several BITs with third countries, such as China, Vietnam, Egypt, Pakistan, Argentina, and Korea. The BITs contained:

[A] clause under which each party guarantees to the investors of the other party, without undue delay, the free transfer, in freely convertible currency, of payments connected with an investment. (6) Essentially, these so-called 'transfer clauses' were comparable to the free movement of capital provisions contained in the EC Treaty. Under EU law, the European Community is authorised to regulate the movement of capital between EU Member States and third countries, including restricting capital flows in exceptional circumstances.

Therefore, upon accession in 2004, both countries received letters from the European Commission asking that they modify their BITs, noting that Member States are required to amend agreements that are incompatible with the EC Treaty:

[B]ilateral agreements could impede the application of restrictions on movements of capital and on payments which the Council of the European Union might adopt under articles 57(2) EC, 59 EC and 60(1) EC [Treaty]. (7) In particular, article 56 of the EC Treaty prohibits any restrictions on the movement of capital as well as any restrictions on payments between Member States to and from third countries. (8) Nevertheless, according to the Commission, neither Sweden nor Austria took steps to implement appropriate legal remedies for the possible impediment.

2. Opinion of the Advocate General

   Prior to the hearing, in an opinion issued on 10 July 2008, (9) the ECJ's Advocate General, Poiares Maduro, argued that provisions guaranteeing the free movement of capital in some of...