The Role of Sub-Regional Systems in Shaping International Investment Law-Making: The Case of the Visegrád Group

Abstract

The present chapter focuses on the role of the Visegrád group (or V4, comprising Slovakia, Hungary, Poland and the Czech Republic) in international investment law-making. The chapter starts with a brief overview of the V4 group as a sub-regional system in Europe, including its modus operandi and main achievements in the field of economic cooperation. Subsequently, it turns to the regulation of foreign direct investment (FDI), both at the level of each V4 state and at EU level—with particular regard to the implication of the EU’s exclusive competence on FDI. Special attention is paid to the approach of the V4 countries towards the question of termination of intra-EU bilateral investment treaties (BITs)—including an overview of the related objections to jurisdiction that the four countries have raised over the years in investor-state arbitrations based on intra-EU BITs—and to the relationship of the V4 group with non-EU countries—especially with (selected) East Asian countries. The main question is whether—and to what extent—the V4 group as a sub-regional system has a role to play in international investment law-making. The chapter highlights the proactive and advocacy role that the V4 group has traditionally played in manifold subject-matters, including the promotion and protection of FDI, and supports the positive “soft power” the V4 may exercise in this respect.

1 Sub-regional Systems in Europe: The Case of the Visegrád Group and Its Role in International Investment Law-Making

Sub-regional formations among states geographically close to each other and with similar political, social, economic, cultural, and historical experiences have become more common since the late 1980s.¹ Within the European context, a number of sub-regional groupings of states exist, such as Benelux,² the Nordic Council,³ the Central European Initiative⁴ and the Baltic cooperation,⁵ to name just a few.⁶ Especially in Central and Eastern Europe, almost every country is involved in at least one sub-regional grouping; one of the most significant examples in this respect is the Visegrád group (or V4, among the Czech Republic, Slovakia, Hungary and Poland).⁷

This chapter focuses on the role of the V4 in the context of international investment law-making. The relevance of this topic is twofold: on the one hand, the four Visegrád countries attract foreign investments from around the world and, accordingly, it is important to understand how they shape their relationship with the home countries of their foreign investors; on the other hand, the four countries are also members of the European Union. Since the Treaty of Lisbon has included foreign direct investment (FDI) within the exclusive competence of the EU and the latter can now conclude international investment-related agreements with third countries,⁸ it is worth questioning whether the V4, as a sub-regional formation, may have—and to what extent—a role to play in this respect. Interestingly enough, while the V4 group tends to speak with one voice when promoting FDI from non-EU countries in the region, the four countries seem to adopt a member-specific approach on issues related to intra-EU FDI—as in the case of the question of the termination of intra-EU bilateral investment agreements (BITs).

The following paragraphs start with a brief overview of the modus operandi of the V4, which has a long-lasting tradition of cooperation in manifold topics, and examine its approach to economic cooperation (Sect. 2) and investment promotion and protection (Sect. 3) both within the EU (Sect. 3.1) and in the relations of V4 members with third countries (Sect. 3.2). Finally, the chapter offers some concluding remarks (Sect. 4).

2 Economic Cooperation in the V4: An Overview

On 15 February 1991, the heads of government of Czechoslovakia (now the Czech Republic and Slovakia), Hungary and Poland signed the Declaration of Visegrád, which marked the establishment of the Visegrád group as a forum for sub-regional cooperation.⁹ One of the first aims of the V4 was “full involvement in the European political and economic system”.¹⁰ The V4 is not institutionalised¹¹ but works according to the principle of cooperation through high-level political summits, expert and diplomatic meetings, activities of non-governmental associations in the region, think-tanks and research bodies.¹² Each V4 country holds the presidency for one year and prepares a one-year plan of action.¹³

V4 meetings may also take the form of the V4+ formula, when the V4 countries meet with representatives from other EU states and/or EU institutions,¹⁴ as well as from non-EU states.¹⁵ Moreover, the V4 cooperates with other sub-regional bodies, such as Benelux and the Nordic Council.¹⁶ The outcomes of these meetings can be political documents including remarks and reflections on EU legislative acts and proposals, joint declarations or other political statements¹⁷—like the common positions of the V4 on the issue of the Western Balkans¹⁸ or the Eastern Partnership.¹⁹ Worth recalling are also the joint declarations of the ministers of V4 countries on European Commission communications,²⁰ EU proposals for regulations,²¹ or EU directives.²² The V4 has also addressed letters to the European Commission.²³ The topics covered during meetings may range from agriculture and renewable energy, to migration, financial and labour issues, to name a few.²⁴

In the field of economic cooperation at the sub-regional level, it is worth recalling that the V4 countries signed the Central European Free Trade Agreement (CEFTA) on 21 December 1991, which came into force on 1 March 1993.²⁵ CEFTA aimed to create a free trade area in the region and to prepare the countries for their accession to the EU.²⁶ The EU has generally adopted a positive approach to this form of economic sub-regional integration: indeed, good relations among neighbouring countries are a positive precondition to accession.²⁷ CEFTA has also served as a model of economic cooperation at the sub-regional level in order to prepare other states for accession to the EU;²⁸ after 1991, other Southeastern European countries acceded to the Agreement.²⁹ Upon accession to the EU on 1 May 2004, the V4 countries, along with Slovenia, withdrew from CEFTA, followed by Bulgaria and Romania (2007) and by Croatia (2013), when the latter acceded to the EU—and became bound to the EU common commercial policy.³⁰

At the international level, the V4 countries interact with other countries in international fora and have acceded to international economic organisations and treaties, like the Organisation for Economic Co-operation and Development (OECD),³¹ the International Monetary Fund (IMF),³² the World Bank³³ and the World Trade Organization (WTO)³⁴ and are all parties to the Energy Charter Treaty,³⁵ the Multilateral Investment Guarantee Agency,³⁶ and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards,³⁷ while all V4 countries, with the exception of Poland, are parties to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).³⁸

3 The V4 Countries and V4 Group’s Approach to FDI

The V4 countries attract foreign investments worldwide According to Ernst & Young’s 2018 European attractiveness survey, Central and Eastern Europe is perceived as the second most attractive region for foreign investors worldwide, right after Western Europe.³⁹ The V4 countries have concluded manifold international investment-related agreements (almost the 18% of the international investment-related agreements that are currently in force worldwide) and are often involved in investor-state dispute settlement (almost 12% of the currently known treaty-based investor-state arbitrations have involved either Slovakia, Hungary, Poland or the Czech Republic as respondents).⁴⁰

Nevertheless, V4 countries cannot be considered as a homogenous group in terms of their economic environment and attractiveness for FDI. There are still considerable differences among them. Suffice it to recall, for example, that Slovakia introduced the euro in 2009 and has been a member of the euro zone since then, while the three remaining V4 countries are still outside the euro zone.⁴¹

As already recalled, the introduction of the exclusive competence of the EU over FDI has reduced the leading and exclusive role of member states in this respect. Still, V4 countries play an active role, both at the national and at the sub-regional level: first, at the national level, each and every one of the V4 countries has its own national regulation of FDI;⁴² moreover, there have been actions to terminate intra-EU BITs, as detailed in the next paragraph, while there are still many BITs with non-EU third countries in force;⁴³ at the sub-regional level, the V4 group has issued political statements on FDI.

At the national level, each V4 country has developed its own investment promotion policy and the four countries appear quite diverse in this respect; the only common feature seems the willingness to attract FDI. Indeed, in recent years, the four countries have adopted policies aimed at increasing FDI in the region: Slovakia adopted the Act on Regional Investment Aid in 2018, providing new aids and incentives to investors;⁴⁴ the Czech Republic introduced in 2015 a new amendment law on investment incentives;⁴⁵ Poland adopted a new law on the promotion of investment in 2018;⁴⁶ while in 2014 Hungary established an institutional triangle—comprising the Hungarian Investment Promotion Agency, the Hungarian Export Promotion Agency and EXIM Bank—in order to support the foreign trade-focused policy of the Hungarian Government, covering the fields of investment promotion, trade development and export financing.⁴⁷ Furthermore, Poland and the Czech Republic have created state-owned special economic zones, which are customs-free and offer fiscal incentives to foreign investors;⁴⁸ in 2018, Poland adopted a new law on the promotion of investment that extended the fiscal incentives of the special economic zones to its entire territory.⁴⁹ Both Poland and Hungary had also adopted FDI national review mechanisms⁵⁰ before the introduction at EU level in 2019 of Regulation 2019/452 establishing a framework for the screening of foreign direct investments into the Union.⁵¹

Turning to the role of the V4 group, it should be noted that, in general, the V4 has always supported the promotion and protection of FDI in the region, as testified by relevant references in V4 Presidency programmes.⁵² There is also an official record of meetings that have been held at V4 level on the need for cooperation to exchange data on foreign investments⁵³ and to attract foreign investors in the region.⁵⁴ Some V4 Presidency programmes have also emphasised the need to present a common position with regard to negotiations of international investment agreements at EU level and at the bilateral level (among V4 countries) with non-EU third countries.⁵⁵ Finally, it is worth noting the advocacy role of the V4+ meetings in relation to non-EU third countries, aimed at, among others, reinforcing cooperation in trade and the promotion of investment. The following sections investigate in more detail the approach of the V4 countries to the question of termination of intra-EU BITs and their relationship with non-EU countries, in particular with (some selected) East Asian countries.

3.1 A Focus on the Question of Termination of Intra-EU BITs

In the aftermath of the introduction of the exclusive competence over FDI for the EU with the Lisbon Treaty, one of the debates has concerned the question of termination of BITs between member states (intra-EU BITs).⁵⁶ While it is beyond the scope of this chapter to enter into the details of the debate, it is worth recalling the milestone judgment that the Court of Justice of the European Union (CJEU) issued on 6 March 2018 in the Achmea case,⁵⁷ where the Court found that “the arbitration clause in the [intra-EU The Netherlands-Slovakia] BIT has an adverse effect on the autonomy of EU law, and is therefore incompatible with EU law”.⁵⁸ This judgement was followed by Declarations of EU member states in January 2019.⁵⁹ All V4 countries signed the above mentioned Declarations and started to take actions in order to terminate their intra-EU BITs, even before the Declarations, also pushing for the conclusion of a multilateral agreement on the termination of intra-EU BITs.⁶⁰ In Hungary, the Prime Minister adopted a decision in December 2018 authorising the conclusion of an agreement to terminate intra-EU BITs;⁶¹ Poland also started to terminate its intra-EU BITs in April 2018;⁶² Slovakia supported the conclusion of a multilateral termination agreement in the immediate aftermath of the Declaration of January 2019,⁶³ while the Czech Republic had already started to request of its EU member state investment treaty partners to terminate their BITs since 2009.⁶⁴

However, the V4 countries have not had the same approach to the question of the termination of intra-EU BITs. And indeed, while we can find an official record of meetings that were held at V4 level on the issue,⁶⁵ no official declaration has been issued at the V4 group level so far.

Confronting the objections to jurisdiction that the V4 countries have raised during the years in investment arbitration proceedings based on intra-EU BITs, it is possible to have a general idea of their approach to this issue. The Czech Republic, Poland and Slovakia⁶⁶ had questioned several times the validity of intra-EU BITs. In particular—and in some cases also before the Achmea judgment was issued—, objections to the jurisdiction of investment arbitral tribunals were raised not by virtue of the new exclusive competence of the EU on FDI after the entry into force of the Lisbon Treaty; rather, the argument had been that intra-EU BITs should be considered no more in existence after the countries’ accession to the EU in 2004. Even though arbitral tribunals have always rejected such kind of objections to their jurisdiction, it is worth recalling the main arguments that the Czech Republic, Poland and Slovakia—as respondent states in the relevant investment arbitral proceedings—had made before arbitral tribunals.

The claims were generally grounded on the application of the Vienna Convention on the Law of Treaties (VCLT), on the one hand, and on the Treaty on the Functioning of the European Union (TFEU), on the other. More particularly, the respondent states objected to the jurisdiction of arbitral tribunals on the ground that: (1) the relevant intra-EU BIT had been implicitly terminated according to Article 59 of the VCLT⁶⁷—according to which the Accession Treaty to the EU had superseded earlier BITs; and/or (2) the relevant intra-EU BITs have become incompatible with EU law—given that several provisions included in the EU Treaties have the same subject-matter as those of the relevant BITs—and, accordingly, they were no longer applicable under Article 30(3) of the VCLT;⁶⁸ and/or (3) according to Article 344 of the TFEU, the European judiciary has exclusive authority to adjudicate the disputes concerning the interpretation or application of EU law;⁶⁹ and Article 18 of the TFEU prohibits any form of discrimination between nationals of member states based on their nationality⁷⁰—and indeed, the relevant BITs would provide the right to arbitration only to investors from a particular member state, but not from other member states.

Before the entry into force of the Lisbon Treaty, these objections were raised by the Czech Republic in Eastern Sugar v. Czech Republic—commenced in 2004 on the basis of the Czech Republic-Netherlands BIT—and in Binder v. Czech Republic—commenced in 2005 on the basis of the Czech Republic-Germany BIT;⁷¹ by Poland in PL Holdings v. Poland—commenced in 2014 on the basis of the Belgium-Luxembourg Economic Union (BLEU)-Poland BIT;⁷² and by Slovakia in Oostergetel v. Slovakia—commenced in 2006 on the basis of the Netherlands-Slovakia BIT;⁷³ in Achmea v. Slovakia—commenced in 2008 on the basis of the Netherlands-Slovakia BIT,⁷⁴ and in EURAM Bank v. Slovakia—commenced in 2009 on the basis of the Austria-Slovakia BIT.⁷⁵

After the entry into force of the Lisbon Treaty, the same objections were raised by the Czech Republic in WNC v. Czech Republic⁷⁶ and A11Y v. Czech Republic⁷⁷—both commenced in 2014 on the basis of the Czech Republic-United Kingdom BIT. As regards Hungary, it is interesting to note that, while before Achmea it had not contested the validity or application of intra-EU BITs in investor-state arbitral proceedings in which it appeared as respondent, after the Achmea judgment, it started to invoke the non-applicability of arbitration clauses included in intra-EU BITs as an objection to the jurisdiction of the investment arbitral tribunals.⁷⁸

After the Achmea judgment, parties to intra-EU BITs started to respond to invitations for submission by arbitral tribunals regarding the relevance of the Achmea case in the proceedings at stake. V4 countries had a similar approach in claiming that the Achmea judgment was applicable; accordingly, they requested the arbitral tribunals to declare that they lacked jurisdiction or, at least, that they should decline to exercise jurisdiction in the cases at hand.⁷⁹

Most recently, an investment arbitrator has upheld—for the first time—the intra-EU jurisdictional objection in his dissenting opinion⁸⁰ attached to the jurisdictional decision in the Adamakopoulos et al. v. Cyprus case,⁸¹ disagreeing with the majority’s conclusion that EU law and the BITs did not have the same subject-matter; he recalled the Achmea judgment, reaffirming that intra-EU BITs are incompatible with EU law and finding unconvincing the conclusions reached by other arbitral tribunals—in the Wirtgen et al. v. Czech Republic⁸² or Magyar et al. v. Hungary⁸³ cases—according to which BITs are more favourable than EU law and, in any case, they are not conflicting with each other.⁸⁴

However, the situation is now set to change. On 5 May 2020, 23 EU member states, including all V4 countries, signed an agreement for the termination of intra-EU bilateral investment treaties.⁸⁵ V4 countries are still respondents in a number of pending investment arbitral proceedings.⁸⁶ It would be very interesting to follow their development also in light of the Achmea judgment and the multilateral agreement for the termination of intra-EU BITs.

3.2 Forms of Economic Cooperation with Non-EU Countries: The Case of East Asia

Over the years, the V4 group has developed significant relationships with non-EU countries.⁸⁷ The forms of cooperation of the V4 group with East Asia are particularly interesting, taking into account that the V4 region has hosted East Asian investment since the 1990s, e.g. the Japanese Suzuki in Hungary,⁸⁸ and have been shaped through the above mentioned V4+ meeting formula, as in the case of Japan and South Korea, or the 16+1 cooperation formula with China.⁸⁹

The V4+Japan meetings have covered various issues including security, development assistance for third countries, climate change and new energy, science and innovation, culture, and tourism. Top-level meetings of the leaders of the V4 countries and Japan were held, together with regular meetings at the level of Ministers of Foreign Affairs and Political Directors, working groups were constituted and seminars took place in selected areas of cooperation.⁹⁰ As regards South Korea, the V4+ South Korea meetings have increased more recently,⁹¹ with regular contacts especially at the level of Political Directors. They have also covered a wide range of issues, such as the North Korean nuclear programme and human rights situation, security issues, cybersecurity, development assistance for third countries, research and innovation, science and technology.⁹²

As regards economic cooperation, in some cases, the outcomes of the V4+ meetings have called for further promotion of the economic relationship with the EU, as in the case of the V4+ Japan Joint Statement of 2013, where

[t]he V4 and Japan reaffirmed that a comprehensive Japan-EU Economic Partnership Agreement (EPA) / Free Trade Agreement (FTA) would improve access to markets for Japanese and V4’s companies and thus strengthen economic relations between both sides.⁹³

In other cases, the V4+ has served as an opportunity to define the best conditions for implementing existing EU international trade agreements, as in the case of the Joint Statement during the First Summit with South Korea of 2015, according to which

The V4 and the ROK acknowledged the economic effects of the EU–Korea Free Trade Agreement (FTA) and affirmed their readiness to create favorable conditions for the economic development under the framework of the EU–Korea FTA.⁹⁴

In the East Asian context, it is also worth mentioning the relationship of the V4 group with China, which has not been developed through the V4+ formula but has been mainstreamed within the framework of the 16+1 cooperation and China’s Belt and Road Initiative (BRI) project. Indeed, China has developed a strong economic relationship with Central and European Countries (CEE).⁹⁵ In the aftermath of the global financial crisis, China put in place the so-called 16+1 cooperation format,⁹⁶ with the first Economic and Trade Forum between China and CEE countries held in Budapest in 2011. Since then, the 16+1 cooperation developed through several economic projects and major investments from China in CEE countries. The 16+1 cooperation developed according to the Budapest Guidelines for Cooperation between China and Central and Eastern European countries of 28 November 2017⁹⁷ and the subsequent Sofia Guidelines of 9 July 2018,⁹⁸ which reiterated the willingness of participant states to develop a “cross-regional cooperation platform”.

Moreover, in 2013 China put in place the so-called BRI project, which is aimed to connect 71 countries in Asia, Africa and Europe. The BRI is expected to cost more than $1tn and it has raised a number of concerns as regards both the economic and political implications.⁹⁹ The BRI includes infrastructure projects (e.g. railways, energy pipelines or highways), as well as the establishment of commercial courts—in Shenzhen and Xi’an—that would deal with commercial disputes related to the BRI—ideally based on the model of the Dubai International Financial Centre Courts and the International Commercial Court in Singapore.¹⁰⁰

China has encouraged strong economic relationships with V4 countries,¹⁰¹ including by sending so-called “investment promotion delegations” to V4 countries and inviting officials in charge of foreign investment in V4 to China for exchanges and training.¹⁰² In March 2018, during a meeting with vice foreign ministers of the V4 countries in China, the Chinese State Councillor restated that “Visegrád countries are representatives of European emerging market countries and the most dynamic force within the EU”.¹⁰³ It is worth noting that, according to some scholars, this kind of cooperation between China and sub-regional groups could be regarded as a “testing ground” for further cooperation between China and the EU.¹⁰⁴

4 Concluding Remarks

As members of the EU, and thus subject to the EU common commercial policy, V4 countries have had to face several challenges in the management of investment regulation, with special regard to the question of the termination of intra-EU BITs—in relation to which each V4 country seemed to have had its own approach, at least until the Achmea judgment—and the regulation of economic interests with non-EU countries, where instead the V4 group more often acts as a “solo” actor in promoting economic cooperation with third economic partners, as in the case of Japan, Korea and China. The V4 documents that have been examined in this chapter show that the V4 countries have a deep interest in FDI promotion and protection. And indeed, the V4 has played a proactive role in this regard, serving as a platform that has enabled the countries to cooperate¹⁰⁵ and also to express their concerns. In this respect, the V4 can act as an amplifier in reinforcing national positions at EU level. Today, the V4 has become a “recognised” voice in international fora: the Slovak Prime Minister Robert Fico in 2012 highlighted that the V4 had “become a trademark known in Europe, North Atlantic and beyond”.¹⁰⁶ Also EU institutions tend to mention increasingly the V4 countries in press releases that report some of their meetings.¹⁰⁷ The ability to talk with one voice through the V4 platform has been labelled the “soft power” of the V4;¹⁰⁸ also in the field of FDI regulation, the V4 may use its soft power to advocate sub-regional interests at EU level, as well as at the international level, in order to influence future international investment law-making in a way that takes (increasingly) into account (also) national concerns.