“Eastern Europe proves risky for investors”. So ran a recent headline in The Wall Street Journal above an article about the rise of investment disputes throughout Central and Eastern Europe. The Economist tackled the same matter, noting that “of 942 investor-state disputes worldwide since 1987, a disproportionally high number involved post-communist countries that joined the European Union 15 years ago. The Czech Republic (38 cases) and Poland (30) are the worst offenders. By comparison, Germany and France, much bigger economies with more inward investments, have four cases between them.”
The Internationl Centre for the Settlment of Investment Disputes (ICSID), part of the World Bank, is one of several international arbitration fora for settling claims against sovereign states by private investors brought under Bilaterlal Investment Protection Treaties (BITS). Last year, disputes involving Central and Eastern Europe accounted for 32% of ICSID’s case load. That is half as many again as the next naughtiest region, South America.
Interest in investment disputes in Central and Eastern Europe, and their just settlement, has flared up due to a 2018 ruling by the Court of Justice of the European Union in a spat between a Dutch investor and Slovakia. The Court upheld Slovakia’s claim that EU law takes precedence over BITS. That ruling received the backing of the European Commission, which now wants to do away with BITS on the theoretically correct but in practice dubious grounds that the legal systems in all 28 EU member countries are equally free, fair and professionally independent of political interference. EU member countries are divided. “Germany, France and Austria—all countries whose firms have big investments in central Europe—are opposed to the abolition of intra-EU BITS, whereas Poland, the Czech Republic and Hungary are all for it,” wrote The Economist in a must-read leader on the topic.