The Court of Justice has handed down an interesting judgment in Case C-118/07 Commission v Finland on the need to amend existing bilateral agreements with non member countries concluded by a member State before it acceded to the EU.
The Court held that Finland had failed to comply with Article 351 §2 TFEU (ex Article 307 §2 EC) because it had not amended the bilateral investment treaties it had concluded with the Russian Federation, the Republic of Belarus, the People’s Republic of China, Malaysia, the Democratic Socialist Republic of Sri Lanka and the Republic of Uzbekistan.
What had Finland not done ? It had failed amend those agreements to include stipulations to include possible exceptions, as required by Articles 64 §2 TFEU (ex Article 57 §2 EC), 66 TFEU (ex Article 59 EC) and 75 §1 TFEU (ex Article 60 §1 EC). Those provisions confer on the Council (and European Parliament now) the power to restrict in certain circumstances movements of capital and payments between the member States and non member countries.
That’s right. The Commission was reproaching Finland not for maintaining a restriction but for not providing for the possibility of a future restriction to be decided by the Council and Parliament. All of the agreements, apart from the one concluded with Russia, contained a clause which guarantees the protection of investments within the limits authorized by the laws of the Contracting Party. For example, the agreement concluded with Sri Lanka stipulates: ‘Every contracting party guarantees under all circumstances, within the limits authorized by its own laws and decrees and in conformity with international law, a reasonable and appropriate treatment of investments made by citizens or companies of the other Contracting Party."
The Commission brought infringement proceedings against Finland for failing to adapt those agreements. Article 351 TFEU obliges the member States to take all appropriate steps to eliminate incompatibilities with EU law which have been established in agreements concluded prior to their accession. Under that provision, the member States are required, where appropriate, to assist each other to that end and, where appropriate, to adopt a common attitude. Finland had done nothing and claimed it need not do anything because the Council (and Parliament) had as yet taken no measures restricting the free movement of capital.
The Court of Justice agreed with the Commission.
It recalled that, as it had held in Case C-205/06 Commission v Austria  ECR I-0000, paragraph 37, and Case C-249/06 Commission v Sweden  ECR I-0000, paragraph 38, those powers of the Council, which consist in the unilateral adoption of restrictive measures with regard to non member countries on a matter which is identical to or connected with that covered by an earlier agreement concluded between a member State and a non member country, reveal an incompatibility with that agreement where, first, the agreement does not contain a provision allowing the Member State concerned to exercise its rights and to fulfill its obligations as a member of the EU and, second, there is also no international-law mechanism which makes that possible.
The agreement with Russia in particular, without any clause allowing for restrictive measures, was incompatible with the Treaty.
As for the other agreements, which contained the clause quoted above or similar, the Court held that they too were incompatible with the Treaty. It held that the aim of the provisions of the bilateral agreements at issue, challenged by the Commission in its infringement action, is to ensure freedom of payments in respect of investments. The Court found it debatable whether the provision which guarantees the protection of investments within the limits authorized by the laws of the Contracting Party contained in the bilateral agreements concerned would allow either party to limit payment entitlement pursuant to decisions – whether national or otherwise – taken after the entry into force of the agreements, especially as in some agreements it is also stated that each Contracting Party is required to act ‘in accordance with international law’.
One last point is worth noting. Germany and Hungary, intervening in Finland's support, criticized the Commission for being selective in bringing an action against Finland and not against other member States with similar agreements.
The Court dismissed that argument. It recalled that a member State may not rely on the fact that other member States have also failed to perform their obligations in order to justify its own failure to fulfill its obligations under the Treaty. In the EU legal order established, the implementation of EU law by the member States cannot be made subject to a condition of reciprocity. Articles 258 TFEU (ex Article 226 EC) and 260 TFEU (ex Article 227 EC) provide the appropriate remedies in cases where member States fail to fulfil their obligations under the Treaty (Case C-38/89 Blanguernon  ECR I-83, paragraph 7, and Case C-163/99 Portugal v Commission  ECR I-2613, paragraph 22).