Matters have finally come to a head in Europe over the fate of dozens of treaties that added layers of legal protection for crossborder investments flows, especially from western Europe into eastern Europe.

The European Commission (EC) insists that such treaties have outlived their usefulness now that countries such as Poland, the Czech Republic, Hungary and others have joined the EU family. Moreover, Brussels frets that these legacy treaties – and their offer of international arbitration to aggrieved foreign investors – are circumventing the proper role of the judicial system in resolving FDI disputes. The EC has complained that investors from western Europe use them to litigate against host government actions that comply with EU law, but arguably in breach of the treaty, thereby threatening to result in legal confusion and an uneven regulatory playing field.

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In mid-June, the EC initiated 'infringement proceedings' against five EU member states (the Netherlands, Slovakia, Austria, Sweden and Romania) in order to push for these countries to terminate bilateral treaties between them. While only five countries are in the crosshairs for now, the infringement proceedings are a test case that could affect the fate of similar treaties that link countries such as the UK, France and Germany with eastern European counterparts.

These intra-EU investment treaties do have their fans. Many multinational law firms have done brisk business in recent years advising and representing western EU investors with disputes in eastern Europe.

If these treaties are torn up, lawyers worry that this work would evaporate, and that clients would be left with fewer legal remedies. Indeed, the fight over these treaties has ignited fresh debate about the quality of justice in EU countries such as Hungary or Bulgaria, though the EC counters that any shortcomings in the rule of law, should they arise, could be addressed thanks to the supervision of existing EU-level courts and institutions.

Somewhat ironically, Brussels is not always opposed to these international investment treaties. In fact, the EC has conceded that investment protection treaties play an important role in protecting EU investors doing business outside the EU. That is why it has continued to champion the treaties in the context of EU trade talks with the US, China, Canada and others.

For the moment, the EC is hoping that it can oversee the dismantling of such treaties within the EU, while maintaining public support for them in other contexts.

However, the latter may not be easy. Activists and non-governmental groups are putting pressure on Brussels, as well as the European Parliament, to rethink the role of investment treaty protection, and whether existing courts are sufficient – perhaps with further improvements – to resolve FDI disputes around the globe.

Luke Eric Peterson is the publisher of InvestmentArbitrationReporter.com, an online news service tracking and analysing legal disputes between foreign investors and host governments: http://www.iareporter.com