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ECJ on the duty of Member States to eliminate incompatibilities of investment agreements with the EC Treaty

Today the ECJ issued two judgments on the failure of Member States to adopt appropriate measures to eliminate incompatibilities of bilateral investment agreements  which they entered into with third countries prior to their accession to the EU.  The Court ruled that Austria (Case C-205/06) and Sweden (C-249/06) have failed to fulfil their obligations according to second paragraph of article 307 EC by abstaining from taking the appropriate steps to eliminate incompatibilities concerning the provisions of capital contained in the respective investment agreements.

According to the Commission, the agreements at stake include provisions that could impede the application of restrictions on movements of capital and on payments (areas of shared competence) which the Council is authorized to adopt under articles 57(2) EC, 59 EC and 60(1) EC. However, so far the Council has not adopted any such measures, as the Advocate General Poiares Maduro took into account in his opinion. Whereas from this fact the Advocate General drew the conclusion that conflict between obligations of investment treaties on one side and EC Treaty on the other side can only be claimed by applying the duty of loyal cooperation of article 10 EC, since provisions of 57(2), 59, 60(1) EC only bind the legislator, the Court did not see the need to explicitly differentiate but has made use of the argument that  the effectiveness of those provisions would have been potentially infringed if the Member States had not yet eliminated the incompatibilites when/if measures foreseen under EC Treaty are finally adopted.

The two judgments further clarifiy the duties of Member States regarding their pre-accession agreements with third states. According to article 307 EC the rights and obligations arising from pre-Community or pre-accession agreements of the Member States shall not be affected by the provisions of the Treaty. However, as laid down in second paragraph, the Member States shall take all apropriate steps to eliminate possible incompatibilities of such treaties with the EC Treaty. By claiming that article 307 is applicable already in case of mere possibility that eventual Community measures might conflict Member States obligations towards third states the Court has chosen the broadest possible interpretation of this provision.

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