European Commission Discovers The Hard Way That Corporate Sovereignty Provisions And EU Laws Are Incompatible

from the we-did-warn-you dept

Thu, Apr 2nd 2015 1:12am — Glyn Moody

The US government and European Commission insist that the inclusion of a corporate sovereignty chapter in the TAFTA/TTIP treaty will not in any way diminish the ability of nations to pass laws as they wish. A fascinating case involving an investment in Romania shows why that's just not true. It concerns a state aid scheme instituted by Romania to attract investments in the country, which offered tax breaks or refunds of customs duties on raw materials. The scheme was supposed to remain in place for 10 years. But as part of Romania's accession to the EU, it was required to cancel this scheme, which was regarded by the European Commission as providing unfair state aid. So, obediently, Romania abolished the scheme in 2005, some years earlier than it had promised.

That didn't go down too well with investors. Two of them were able to use the investor-state dispute settlement (ISDS) clauses of a bilateral treaty between Sweden and Romania to sue the latter. Here's what happened next, as described in the European Commission's press release:

An arbitral award of December 2013 found that by revoking an investment incentive scheme in 2005, four years prior to its scheduled expiry in 2009, Romania had infringed a bilateral investment treaty between Romania and Sweden. The arbitral tribunal ordered Romania to compensate the claimants, two investors with Swedish citizenship, for not having benefitted in full from the scheme.

Just part of the price of joining the European Union, you might think. But the European Commission is unhappy that compensation has been paid: By paying the compensation awarded to the claimants, Romania actually grants them advantages equivalent to those provided for by the abolished aid scheme. The Commission has therefore concluded that this compensation amounts to incompatible state aid and has to be paid back by the beneficiaries.
That is, both the original state aid and the subsequent compensation for not providing that aid for the full term of the agreement are regarded as forbidden under EU law. So the European Commission is ordering Romania somehow to pull back from the Swedish investors the compensation awarded by the ISDS tribunal. Leaving aside the difficulty of doing so, even if Romania manages that, it will then be in breach of the corporate sovereignty tribunal ruling, which could leave it open to further legal action, and further awards against it. On the other hand, if it doesn't rescind the compensation, it will be fined by the European Commission.

This provides a perfect demonstration of how corporate sovereignty provisions in treaties take away the ability of national governments to act freely. Moreover, in this particular case, whatever Romania chooses to do, its people will suffer financially.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: corporate sovereignty, eu, eu commission, isds, romania, sweden, tafta, ttip

25 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

toyotabedzrock (profile), 2 Apr 2015 @ 1:32am

Wait, could the treaty be used to stop tax schemes in the US? Or just make them legal when they want to sell in Europe
[ link to this | view in thread ]
eaving (profile), 2 Apr 2015 @ 2:12am

Obvious solution, lock some EU representatives and the investors in a room with half a brick in a sock each. Romania follows the wishes of whomever makes it out of the room.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 2:19am

wut
[ link to this | view in thread ]
This comment has been flagged by the community. Click here to show it

Anonymous Coward, 2 Apr 2015 @ 2:38am

This is the craziest thing I've ever seen on the internet.

What you are saying is this:

"I like that enough to download it-

But not enough to care if it sounds good"

This same mentality has existed since the invention of the cassette.

No one that actually gave a fuck about a song they really wanted would ever get it from a pirate site.

Prove me wrong.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 2:45am

Sounds like they need to pay both the investor and the EU. Romania just decided to double fine itself.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 3:32am

Re:
First off, wrong article?
Second, to deal with your ignorance I'm going to quickly list some reasons a music fan may download:
1) Lost CD
2) Unreleased tracks (ie publisher hiding tracks for decades after an artist has passed)
3) Format shifting
4) Convenience

No-one that actually gave a fuck about music would try to paint fans as stealing scum.
Prove me wrong.
[ link to this | view in thread ]
blademan9999 (profile), 2 Apr 2015 @ 3:41am

Re:
First WRONG FUCKING THREAD.
Second, If I pirate, I don't even up with restrictive DRM.
Which means sometimes the value of the pirated stuff can be HIGHER if the legal version has DRM.
[ link to this | view in thread ]
Yes, I know I'm commenting anonymously, 2 Apr 2015 @ 3:50am

Just one little addition to add to ISDS
Brilliant!
I've long held the view that allowing these tribunals to take place and convict nations is a perfect way to keep those lawyers and lobbyists busy. It is better than having them free to do other, more disastrous, things. The only thing that has to be added to the ISDS provisions is allowing nations the choice to pay or not pay as the country itself sees fit...
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 3:59am

The EU rules should automatically overrule any previous treaties between EU countries, if they are incompatible. If EU didn't make this mandatory from the beginning, then they should pass a new law to state that.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 4:20am

But in the end the people writing the treaties will benefit the most as they are designed to enrich a few at the expense of the many.
[ link to this | view in thread ]
an-other-onymous, 2 Apr 2015 @ 4:37am

Haven't had chance to listen, so don't know the verdict, but this sounds on-topic ...

BBC Radio 4 - Company vs Country
www.bbc.co.uk/programmes/b05ntj

"Inside the booming and lucrative business of multinational companies suing governments. The strangely-named investor state dispute settlement (ISDS)
system ...

Are these little-known lawsuits threatening the democratic process?"

(I think BBC radio is availble outside the UK)
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 4:48am

Re:
http://www.bbc.co.uk/programmes/b05ntj7p is the correct link (you truncated the 7p).
[ link to this | view in thread ]
an-other-onymous, 2 Apr 2015 @ 4:56am

Re: Re:
(Thanks)
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 4:59am

Re:
You mean things like the Double Irish With A Dutch Sandwich?
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 5:00am

You can listen to bbc radio in any country,

as long as you can reach bbc.co.uk
bbc tv is limited to the uk.
ISDS is incompatible with eu law as it limits how much
countrys can pass laws to regulate health ,food quality,
patent laws ,as any of these could limit a companys
ability to make profits .
SO its a direct threat to democracy ,
as it put s the interests of any corporation
above those of the consumer and the taxpayers in the eu.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 5:01am

Re:
I think you posting to the wrong article is proof enough.
[ link to this | view in thread ]
beech, 2 Apr 2015 @ 5:25am

Response to: Anonymous Coward on Apr 2nd, 2015 @ 2:38am
I personally like how this argument is a set up for the "No True Scotsman" fallacy.

"No music fan would pirate"
"I am a music fan and i pirate"
"No TRUE music fan would pirate!"
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 6:50am

Re:
Privatized profits, socialized losses.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 7:07am

Re:
As far as I know ISDS is supposed to only represent a judial settlement institution where no legal authority is present. In this case, EU should be such a legal authority, making the acceptance of this case, a massive judicial overreach from the tribunals side. Without knowing the specifics in this ISDS it may be reasonable to assume that (a) European cooperation treaties would have to be considered and weighed in it, (b) There are clear delineations on the tribunals judicial reach to avoid the possible future problems or (c) When Romania joined EU, the bilateral trade agreement would be annulled.

Irregardless, the problem here is a tribunal that is way out of line. Whether it is the treaty that is utter garbage or the tribunal reaching far beyond its grasp is the only question here. If you are against such provisions in the first place it is kind of unimportant.
[ link to this | view in thread ]
Anon, 2 Apr 2015 @ 7:31am

What's the problem
The treaty says the Swedes get money for cancelling the trade incentive. The treaty does not say the Romanians cannot take it back afterwards... :)
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 7:33am

Can the investors and the tribune be convicted of conspiracy in absentia. It probably wouldn't be worth trying to extradite them, but as you start having warrants out in multiple countries you may have to alter future travel plans.
[ link to this | view in thread ]
Anonymous Coward, 2 Apr 2015 @ 8:41am

What if every Romanian citizen incorporated?
[ link to this | view in thread ]
Sheogorath (profile), 3 Apr 2015 @ 2:44am

Re:
Well, there's the time I wanted to listen to tracks from Linkin Park's album A Thousand Suns because I was unsure if I would like the music after the change in the band's style. So I went online and downloaded two or three tracks illegally to have a listen, then deleted them a couple of days later after I went out and purchased the album on CD. Those tracks are now on my hard drive along with all the others; at least, legal copies of them are.
[ link to this | view in thread ]
Anonymous Coward, 3 Apr 2015 @ 3:21am

Re:
So, western politics as usual.
>we make big money
>you lose
>we make up some bullshit about someone far away to keep your attention away from our hand thats in your pocket
[ link to this | view in thread ]
Sheogorath (profile), 3 Apr 2015 @ 3:37am

Re:
No, BBC TV is not limited to the UK. However, if you want to watch it outside of the UK, then you have put up with the cunts double dipping (fees and adverts. That's part of the reason I deleted the visual channels of the EPG on my TV, so I don't have to pay the TV Tax and can still listen to the radio in the manner of my choosing.
[ link to this | view in thread ]