The Court of Justice has handed down a ruling against Finland, finding that a set of bilateral investment agreements concluded by the country with Russia, Belarus, China, Malaysia, Sri Lanka and Uzbekistan are likely to affect the application of powers reserved for the EU Council of Ministers in the area of restrictions on the free movement of capital (case C-118/07).

The agreements were concluded between 1986 and 1994, before Finland joined the EU. They «guarantee to investors of each contracting party freedom of transfer of payments relating to an investment in freely convertible currency».

The European Commission launched an infringement procedure in May 2004. It argued that the disputed investment agreements could hinder the application of EU restrictive measures decided by the Council or that could be decided by the Council, since the third-country nationals and companies concerned could invoke the rights established under these international agreements before the country became a member of the EU.

The Court of Justice sided with the Commission on 19 November. It pointed out that Article 307 of the EC Treaty obliges the member states «to adopt all appropriate steps to eliminate incompatibilities between bilateral agreements concluded prior to their accession and Community law».

EC treaty rules provide for wide-ranging freedom of capital movements and payments to and from non-EU countries. However, there are a limited number of exceptions.

In exceptional circumstances, where movements of capital to or from third countries cause, or threaten to cause, serious difficulties for the operation of economic and monetary union, the Council of Ministers may, under Article 59 of the EC Treaty, take safeguard measures with regard to non-EU countries for a period not exceeding six months.

Article 60 of the EC Treaty entitles the Council to take measures restricting capital movements and payments towards non-EU countries on grounds linked to the common foreign and security policy. This article is, for example, the legal basis for EU financial sanctions against several countries, regimes and terrorist groups and entities.

Article 57.2 of the treaty entitles the Council, under certain conditions, to restrict some types of capital movements, including direct investment, to and from non-EU countries. Restrictions in Community law (e.g. reciprocity conditions, performance requirements, Community ownership conditions in a limited number of areas) governing the treatment of investment from non-EU countries in specific economic sectors may be based on this article.

Member states must «adopt all appropriate steps to eliminate incompatibilities»