by Emanuela Matei, Associate Researcher – CELS*
This article represents Part 2/2 of a larger material regarding the interaction of EU state aid rules and international investment law in the context of recent EC Decisions. Part 1/2 was published earlier this week.
B. Selectivity
Whether a regulatory measure is selective shall be examined within the context of the particular legal system by verifying whether the measure constitutes an advantage for certain undertakings in comparison with others, which are in a comparable legal and factual situation. Since the present case concerns a regional scheme, the financial autonomy of that region may justify a differentiation[i]. However, the mere fact of acting on the basis of a regional development or social cohesion policy would be insufficient in itself to justify a measure adopted within the framework of that policy[ii]. The disfavoured regions do not enjoy fiscal autonomy, thus the regional character of the measure would be sufficient to prove the selectivity of the aid. The Commission chose nonetheless a different line of argumentation.
‘…compensation for damages will not selectively benefit an individual undertaking only insofar as that compensation follows from the application of a general rule of law for government liability which every individual can invoke, so that it excludes that any compensation granted confers a selective benefit on certain groups in society’.
The Commission affirms that the compensation does not follow from the application of a general rule of law for government liability, since the access to justice is restricted to certain groups of individuals, i.e. foreign investors covered by the BITs. It concludes that to the extent that paying compensation awarded to an investor pursuant to a BIT amounts to granting an advantage, the advantage is selective.
In my view, first and most important, it is not necessary to go so long in order to prove the selectivity of the measure, since the scheme is regional and the award does nothing more than re-establishing the facilities granted by that scheme.
Secondly, if such definition of selectivity were admitted by the CJEU, the scope of the State aid would go beyond ‘wide’. It would potentially cover all situations, where a conflict between a State and an undertaking can be solved by arbitration. It would outlaw investor-State arbitration as such. The current solution for investor protection is based on a network of BIT-agreements including an ISDS-clause together with a worldwide affiliation to the ICSID Convention. The complexity of this structure consists in its apparent bilateralism and inward transnationalism. The Micula dispute may appear to be an issue between Romania and two associated Swedish investors, but in reality, it concerns the reliability of the current system of investor protection.
Thirdly, concerning the ‘selective’ access to justice examined vis-à-vis the matter of State aid control, there is no difference between intra- and extra-EU BITs. There is nothing in the State aid law that stipulates that the prohibition of State aid only applies, if the investor-beneficiary is national of a Member State. If the definition of selectivity is derived from the application of an exceptional rule of government liability, which not every individual can invoke, the extra-EU BITs would also be deemed illegal, unless they could qualify for an exemption as stated by Article 351 TFEU.
C. Upon an undertaking
An investor can be involved in FDI or could act as a portfolio investor. Micula brothers are direct investors with a long-term strategical approach, so normally, no distinction can be made between the legal situations of a direct investor, who is a natural person and a legal person as vehicle of direct investment[iii]. I agree with the Commission that in the present case no difference can be made depending on whether the compensation collectively awarded to all five claimants by the Tribunal is paid out to the shareholders or to the companies owned by them.
However, I must point out, an important factor. A distinction must be made between the grant upon an undertaking i.e. a single economic unit and the recovery of State aid that obviously must be applied in relation to a person. A shareholder, who is directly involved in the day-by-day management of fully owned companies will be covered by the notion of undertaking[iv]. In the present case, it is the award that states who is entitled to payment and the recovery of aid shall follow the same assessment, as long as the award does nothing more than restoring the fiscal facilities put in place by EGO 24.
The previously distinct line between the grant of aid to an undertaking as element of State aid definition, which is an abstract concept and the matter of recovery, which is a concrete device, a legal remedy, has been blurred by a recent CJEU ruling[v]. This new theory of a maintained separate legal personality of the State aid beneficiary in relation to its controlling shareholder – even if it appears to be inconsistent with the usual understanding of the doctrine of single economic unit – could support the argumentation claiming that the shareholders’ interests as natural persons would depart from the interests of the three corporate claimants[vi].
D. Imputability
The question of imputability is theoretically the most interesting. The initial advantage is granted by Romania to investors established in a certain disfavoured region, but the enforcement of the award may be ordered by any of the ICSID-members, inside and outside the EU. Would such a payment still be imputable to Romania?
According to the Commission, the answer is affirmative, since the voluntary agreement of Romania to enter into the BIT created the conditions for the selective advantage resulting from the award. Is the act of signing a BIT five years before the accession to the EU illegal under EU law? Is there a direct causal relation between this act and the grant of State aid? If the act were illegal would the culpability be attributed to Romania alone? If Romania had chosen to terminate the BIT in January 2007, the BIT sunset clause would have nonetheless maintained the protection for investments already in place until 2027. It would not have changed anything with regard to the Micula dispute.
The adoption of EGO 24 is definitely an act of State, but the enforced payment of the award by means of seizing assets abroad ordered by foreign courts or bailiffs cannot be attributed to Romania based on the simple observation that Romania did not terminate its BIT in 2007 or because it entered into a BIT agreement in 2002. The question of imputability is extremely complex and the State aid instrument is in my opinion too blunt to be able to cope with this complexity. While a payment ordered by a Romanian court or bailiff is imputable to the Member State in line with the obligations assumed according to the Treaties, a payment ordered by a Belgian or an U.S. federal court cannot be imputable to Romania, unless it can be substantiated that the act of engaging in BIT agreements is illegal per se under EU law.
III. Conclusions
According to the available information, the adoption of EGO 24 established a derogation from the regime of ‘normal taxation’ implying an economic advantage. This advantage is selective due to its regional character and as any other regulatory measure is imputable to the state. It is supported by state resources, as a negative advantage that consists in a derogation from generally applicable fiscal obligations. The measure has not been notified to the Commission and it has been found illegal by the Romanian Council of Competition in May 2000. According to Atzeni a compensation that restores an illegal State aid cannot be allowed under EU law, therefore the Asteris exemption is not applicable.
The Commission tries instead to prove that the enforcement of the award issued in 2013 would in itself constitute unlawful State aid. I disagree with this line of argumentation. First, it would be redundant to prove a distinct aid entailed by the enforcement of the award and secondly, it would lead to unreasonable implications. The fact that Romania signed the BIT five years before its accession to the EU and three years before even becoming an acceding country, supports the idea that Romania cannot be held culpable under EU law for the decision to engage in such agreements. If the signing of a BIT had been forbidden under EU law, the attention of the Commission should have been directed towards the other party of the agreement, Sweden, a Member State with full rights and obligations at the relevant time.
Concerning the allegeable obligation to terminate the BIT, it must be said, first that the measure would have no effect on present investments and secondly, that Romania cannot be held as solely responsible for the maintaining of a parallel system of protection that potentially could threaten the autonomy of the Union legal order. The legality of the BIT in question should not be examined in isolation, since the practicability of the present system of investor protection relies on a network structure and the privileged access to arbitration of foreign investors. By disconnecting one node from the network, the problems indicated by the Commission in its decision at point 66, namely, the fact that the current system of State liability is not applicable to any investor, will not be solved.
The applicants in the present case personify the global community of foreign investors and represent the interests pleading in favour of maintaining the system of protection that pre-existed the EU law. State aid control is the appropriate tool for treating bi-dimensional relations between States and undertakings, but it does not seem to be adequate for dealing with triangular relations between a State and the community of foreign investors represented by the web of transnational institutions established under international law. Such matters of incompatibility between the pre- and post-Lisbon system of investor protection or between pre- and post-accession State aid measures should have been addressed by making use of other more appropriate instruments.
[i] Case C-88/03, Portugal/Commission [2006] ECR I-07115 [67].
[ii] Idem [82].
[iii] Case C-222/04 Cassa di Risparmio di Firenze SpA and Others [2006] ECR I-00289 [112].
[iv] Case C-170/83 Hydrotherm [1984] ECR I-2999 [11].
[v] Case C‑357/14 P Dunamenti v Commission, not yet reported [115].
[vi] Commission Decision (EU) 2015/1470 of 30 March 2015 on State aid SA.38517 (2014/C) (ex 2014/NN) implemented by Romania, OJ L 232, 4.9.2015, p. 43–70 [59].
Emanuela Matei, Associate Researcher at the Centre of European Legal Studies, Bucharest. Juris Master in European Business Law (Lund University, June 2012), Magister legum (Lund University, June 2010), BSc in Economics & Business Administration (Lund University, June 2009).