The Polish Government’s announcement that it would consider terminating its bilateral investments treaties (BITs) with other countries1 has been the focus of a great deal of attention in the last few weeks.

What are BITs?

BITs are international agreements between states providing protection for foreign investors. The treaties give citizens and companies from a contracting state the right to bring a direct claim against the other state for breaches of international standards established by these agreements, in particular for expropriating assets without providing adequate and prompt compensation, and also for arbitrary and discriminatory measures adopted by a state.

Today there are around 3,200 international investment agreements signed worldwide (but not all of them are actually in force). Poland is currently a party to approximately 60 BITs, including treaties with almost all EU Member States (except for Ireland, Italy and Malta) and with global economic powers such as the United States, Canada and China.

Why now?

Poland’s arguments for considering such a harsh step include that the BITs are archaic and unnecessary given the quality of legal protection offered to foreign investors by the Polish legal system, and that Poland is incurring high legal costs to defend itself in investment treaty arbitrations.

While it is true that there is an ongoing debate whether the BITs should be upheld within the EU, with the EU Commission urging the Member States to terminate the intra-EU BITs, Poland’s proposal goes further - proposing the termination of all its BITs, both with EU and other countries. More fundamentally, this initiative has opened a flood of questions as to whether the new Government intends to carry out far-reaching reforms that might be at odds with the BITs.

What would be the effect of the termination of the BITs by Poland?

Should Poland decide to terminate the BITs, its effect on existing investments would be marginal, if any. This is due to the “sunset clauses” that extend the BITs’ protection to existing investments for an additional period of time, typically from 10 to 20 years. While Poland has also announced that it could seek to reduce or even cancel the “sunset clauses”, it is doubtful how effective this process would be given that it would require the consent of the other contracting states, including developed countries such as France, Germany, Netherlands and the like, which are unlikely to agree to such changes.

On the other hand “new” investments made after the date of the termination of the relevant treaty, would not enjoy protection available under the BITs and would be subject to Polish law only.

Clarifications

It remains to be seen whether the Polish Government will decide to terminate BITs. Interestingly, the initial release was almost immediately followed by an official statement that the termination of BITs is only being considered, and that no decisions have yet been made in this respect. Moreover, the Ministry of State Treasury now asserts that the termination would be considered for intra-EU treaties only.