International arbitration clause – incompatible with the EU!

In the past, we talked about the international arbitration clause, stating it was an additional mechanism invented to prevent multinational companies from being affected by policies defending the environment and human rights. Now, the European Court of Justice (EUCJ) has ruled that such a procedure is incompatible with EU law ().

According to the ruling handed down on 6 March 2018, “the arbitration clause in the bilateral investment treaty has an adverse effect on EU law and is therefore not compatible with it”. This marks the first time that the EUCJ issues a ruling on the regulatory procedure of dispute settlements between investing undertakings and States.

The subject matter of this reference for a preliminary ruling goes back to 1991. The Netherlands and what was then Czechoslovakia negotiated an agreement to protect investments, with a provision enabling an investor to bring proceedings before an arbitral tribunal. Once Slovakia became independent and separated from the Czech Republic, it inherited the agreement. In 2004, it liberalised its healthcare insurance services. In 2006 however, it imposed constraints on the distribution of profits generated by private sickness insurance activities. Achmea, an undertaking belonging to a Netherlands insurance group, claimed injury, and therefore obtained 22 million euros through this arbitration procedure. Slovakia deemed this sanction unjustified and therefore appealed to German courts, which in turn directly referred it to the EUCJ.

The aforementioned means two things for EU member states:

  • They should not resort to arbitration since this would entail foregoing the existing EU verified and verifiable rules of equity and justice that are already in place.

  • If already concluded, the arbitration agreements have to be renegotiated, setting them back within existing law and protected by independent national or European courts.

In any case, this ruling illustrates how the various civil society organisations have managed to assert themselves against the international EU trade treaties such as TTIP, CETA, CESA, etc.

The EUCJ press statement can be viewed here