A recent decision by a panel of international arbitrators appears likely to intensify scrutiny of bilateral investment treaties that criss-cross the EU, and which offer (at least some) European investors an alternative legal means of resolving disputes with their European host countries.

In December 2013, arbitrators operating under the auspices of the World Bank weighed in with their final decision in a claim brought by a group of Swedish investors against Romania, ordering upwards of $250m in compensation.


The claimants filed suit in 2005, complaining that Romania had prematurely withdrawn various subsidies and incentives that had induced them to invest in food and drinks production in a disadvantaged corner of Romania. Romania argued that the elimination of such market-distorting subsidies was necessary in the run-up to its joining the EU, which happened in 2007. The Swedish investors countered that the subsidies could not be removed, without compensation, and that the Sweden-Romania treaty was designed to protect investors' interests in such cases. 

Ultimately, arbitrators sided with the investors, finding that Romania had given the Swedes a "legitimate expectation" that the relevant subsidies would run for 10 years. Romania's premature removal of those subsidies, even if done at the urging of the European Commission, ran afoul of the investment treaty and warranted the payment of compensation. 

While seemingly great news for the investors, the arbitral ruling could spur Brussels to push harder for the termination of any investment treaties that remain in place between EU member states. Such treaties are a vestige of a time when the EU was a smaller club, and investments made into eastern Europe faced considerable political risk. But, now that the EU is a big tent, reaching well into Eastern Europe, the European Commission insists that intra-EU investment flows are adequately protected by EU law. 

On this view, the hundreds of bilateral investment treaties, and their offer to resolve disputes via binding international arbitration, merely muddy the legal waters in Europe. The treaties have been criticised by Brussels bureaucrats for destabilising a level EU playing field, and giving some investors, such as the Swedes in this particular case, legal rights and protections that are not  available to other EU nationals operating within Romania's borders. (Basically, if your home country happens to have a treaty in place with your host country, you can detour around local courts and EU law; if not, you are relegated to resolving disputes through those latter channels.)

Matters could come to a head if Romania fails to overturn the recent arbitral ruling – it can be subjected to a limited form of quasi-appeal – but then refuses to pay the ordered damages. The Swedes might need to ask a European court to force Romania to pay. This could open the door for that court to assess whether a ruling such as this one – which arguably puts Romania afoul of EU laws prohibiting hand-outs to investors – deserves to be upheld.

Luke Eric Peterson is the editor of InvestmentArbitrationReporter.com, an online reporting service tracking FDI disputes between foreign investors and states.