Romania set to terminate its intra-EU BITs

On 8 March 2017, the Romanian Parliament approved and referred for promulgation to the Romanian President a law approving the termination of the 22 bilateral investment treaties that Romania currently has in place with other Member States of the European Union (the “intra-EU BITs”).

Romania will be the third country to terminate its intra-EU BITs, following Italy in 2012 and Ireland in 2013.  According to the Romanian Government’s explanatory memorandum, the law approves the termination of intra-EU BITs because they are “outdated” and no longer necessary in a single market of 28 EU Member States.

The European Commission has exerted considerable pressure on EU Member States to terminate intra-EU BITs, on the basis that they conflict with EU law and result in illegal state aid.  On 18 June 2015, the European Commission initiated infringement proceedings against five Member States (Austria, the Netherlands, Romania, Slovakia and Sweden) requesting them to terminate intra-EU BITs.  The Court of Justice of the European Union is expected to rule on the compatibility of intra-EU BITs with EU law later in 2017, following a request for a preliminary ruling by the Federal Court of Justice of Germany.

Following Romania’s decision, each treaty will be terminated in accordance with its own terms.  Notably, some of Romania’s intra-EU BITs contain “sunset clauses”, which provide for continuing effect up to 10 or 20 years after their termination.  EU investors operating in Romania and currently protected by an intra-EU BIT normally will have some time to make the necessary arrangements to protect their investments.  However, both the European Commission and some Member States have expressed their intention to neutralise sunset clauses, by removing these provisions prior to the denunciation of the treaty, in order to terminate intra-EU BITs with an immediate effect.

If an intra-EU BIT does not provide for a special termination clause, then Article 56(2) of the Vienna Convention on the Law of Treaties provides that the BIT may be terminated only twelve months after Romania has notified the other EU Member State of its intention to denounce the BIT between them.

In light of these developments, EU investors operating in Romania will presumably consider restructuring their investments through a non-EU country that has a BIT with Romania, in order to maintain the same level of investment protection.