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Andrés Delgado Casteleiro – Four cases for 2015 (III): Case T-646/14, Micula v Commission – State aids and International Dispute Settlement Systems

  1. Introduction

If you read the Daily Mail, you might know the Micula family from the stories about their extravagant way of life. Yet, for EU and international lawyers alike, the Micula surname has the potential of becoming as infamous as the Kadi surname. In case T-646/14 Micula v Commission the General Court is being asked to rule on whether an arbitral award against Romania can be considered an illegal State aid. In other words, if Romania complies with the arbitral award and compensates the Micula brothers for the damages they suffered, would it be violating EU law, and more specifically the provisions on State aids?

  1. Background

During the 90’s, Romania as well as many other Central and Eastern European States, implemented very aggressive foreign investment attraction policies as a method to foster their development and transformation into a market economy system. Among these policies there were those designed to attract foreign investment to less favoured regions. By virtue of these policies companies investing in these regions would benefit from exemptions on customs duties, taxes, and received preferential subsidies. However, in 2005, prior to its accession to the EU, Romania withdrew the legislation covering these investment incentives. According to Romania, these modifications were done in order to adapt its legislation to the EU acquis. Romania considered that the withdrawal of those benefits was a necessary step towards EU accession, regardless of the fact that the EU back in 2004 had accepted to establish transitional arrangements with respect to less favoured areas. By virtue of these transitional arrangements investors such as Micula could have continued to benefit from the tax incentives as long as the less favoured areas continued to exist under certain conditions. Yet, these transitional arrangements did not stop the Romanian government from withdrawing the incentives granted to Micula. The Micula brothers, taking advantage of their double nationality (Swedish Romanian), brought an action against Romania to the ICSID arguing that the withdrawal of those incentives was a breach of the Romania-Sweden Bilateral Investment Treaty (BIT). The ICSID arbitral tribunal sided with them and awarded them around 82 million Euros in damages. During the ICSID proceedings, in an amicus curiae brief, the European Commission raised the issue that any award requiring Romania to reestablish investment schemes can not take place if it would contradict the rules of EU State aid policy. Consequently, after the ICSID tribunal established that Romania had to compensate Micula, the Commission opened a formal investigation and ordered the Romanian government to suspend any action which may lead to the execution or implementation of the part of the Award.

  1. The case in the General Court

Now the Micula brothers are challenging the Commission’s decision to suspend the implementation of the award. According to them, “the Commission’s decision fails to acknowledge that Romania is obligated by international law to execute the ICSID award without delay and that Romania’s international law obligations take primacy over EU law. The Commission’s decision infringes Article 351(1) TFEU and Article 4(3) TEU, which recognise and protect Romania’s obligations under the ICSID Convention and under the Sweden-Romania Bilateral Investment Treaty.”   The Micula brothers have framed the case as conflict between international law and EU law and argue that the latter establishes that the former should prevail. However, that solution is not as straightforward as they argue to be. Even though the ICSID Convention is binding on Romania but not on the EU (since it cannot accede it: it is only open to States), and article 54 of the ICSID Convention establishes that: “Each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State,” EU law would still have primacy over the ICSID award on Micula v Romania. Even if the GC rightly understands that the award in Micula v Romania amounts to a final judgment of a Romanian Court by virtue of article 54 of the ICSID Convention, it would not take precedence over EU law. In fact, it would be the contrary. The primacy of EU law entails that EU law takes precedence over any national rule regardless of its nature. Therefore, if Romania disregarded the Commission decision to suspend the implementation of the ICSID award, it would be breaching its obligations under EU law. The Micula brothers also argue that the Commission’s decision would infringe article 351 TFEU, which establishes that the EU Treaties shall not affect international obligations of Member States (the Sweden – Romania BIT, and the ICSID Convention) pre-dating their accession to the EU. However, the applicability of article 351 TFEU is not clear either. Since this provision does not apply to agreements concluded between EU Member States, as it is a specific manifestation of the primacy principle, it is difficult to see how it would apply to the Sweden-Romania BIT. Secondly, it is unclear whether article 351(1) TFEU would apply to the ICSID Convention. While it is true that formally the ICSID Convention is an international agreement concluded with other States besides the EU ones, the rights and obligations stemming from that international agreement in this particular case are not between an EU Member State and a third State, but between two EU Member States. In substance, there would not be an international element that would trigger the application of article 351(1) TFEU.

  1. Conclusions

This case has all the elements to spark once again the debates on the relationship between EU and International law: it underpins such basic and polemic issues like the autonomy of the EU legal order, the fragmentation of international law, all recovered by the dualism/monism rhetoric. On one hand, the ICSID Convention provides that its awards shall be recognized automatically with no possible exception, (Romania must implement the ICSID award). On the other, EU law considers that an arbitral award like that in Micula v Romania can breach the rules of State aids and therefore cannot be implemented in the EU, (Romania cannot implement the ICSID award). All in all, Romania is put in quite a difficult situation in which either it faces breaching EU law and complying with the ICSID, or complying with EU law and breaching international law. In a conference in January 2015, practitioners in the field of International Investment Law voiced their concerns about how EU law leaves little room for international arbitral tribunals. Cases such as Micula v Commission add to the restrictive approach towards international courts adopted by the CJEU in Opinion 2/13 and have the potential of reducing the effects of decisions of international arbitral tribunals in the EU. While this restrictive stance can be criticised as parochial, as undermining access to justice in the EU, as the worst kind of dualism, it can also be framed within the debates on the legitimacy of Investor-State Dispute Settlement and their inclusion in agreements like the TTIP, or CETA. Regardless of whether by virtue of these new agreements, multinational corporations will be able to sue EU Member States in secret international tribunals, EU law will have the last say about whether those awards will have any effects whatsoever in the EU.

 Andrés Delgado Casteleiro

Lecturer in Law, Durham Law School

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