The Court of Justice condemns two Member States for maintaining in force international agreements which are incompatible with Community law, entered into prior to their accession to the European Union.
Prior to their accession to the European Union, Austria and Sweden had entered into bilateral investment agreements with several third countries. These agreements contained a clause guaranteeing to the investors of the States concerned the free transfer, in freely convertible currency, of payments connected with an investment, without undue delay.
In the Commission’s view, these agreements could impede the application of certain provisions of the EC Treaty relating to restrictions on movements of capital between Member States and third countries. According to the second paragraph of Article 307 EC, Austria and Sweden had to take all appropriate steps to eliminate these incompatibilities with Community law. Since no action was taken, the Commission brought proceedings against these two Member States before the Court of Justice for failure to fulfil their obligations. The Court firstly declares that several provisions of the EC Treaty – and more specifically Articles 57(2), 59 and 60(1) – confer on the Council the power to restrict, in certain specific circumstances, movements of capital and payments between Member States and third countries. In order to ensure the effectiveness of these provisions, the Council measures restricting the free movement of capital must be capable of being applied immediately, including with regard to the States with which Austria and Sweden are bound by the agreements in question.
The Court points out in this respect that these agreements contain no provision which would allow compliance with the obligations under the EC Treaty to be ensured.
Furthermore, this result could not be achieved either by any international-law mechanism. In particular, the possibilities offered by international law for renegotiation of the agreements at issue or their suspension or denunciation are too uncertain to guarantee the effectiveness of any measures adopted by the Council under the aforementioned provisions of the EC Treaty.
The Court concludes from this that an incompatibility does exist between these
agreements and Community law. Consequently, it declares that Austria and Sweden have in fact breached the second paragraph of Article 307 EC.