EU initiates second dispute settlement procedure with Algeria over trade restrictions – with implications for potential investment arbitrations

The European Commission announced in June 2024 that it has started a dispute settlement procedure with Algeria under the 2002 EU-Algeria Association Agreement (which entered into force in 2005). The dispute concerns several restrictions imposed by Algeria since 2021 on EU exports to, and investments in, Algeria. Since official complaints by the EU and negotiations with Algeria were unsuccessful in resolving the matter, the EU initiated formal consultations before the EU-Algeria Association Council. In the event the parties are unable to reach a settlement, the dispute may be brought before an arbitral tribunal, which will then decide whether Algeria has breached its obligations under the Association Agreement.

This is the second time that the EU has initiated such proceedings against Algeria under the Association Agreement. Four years ago, in June 2020, the EU brought a similar dispute to the EU-Algeria Association Council for consultations over Algeria’s measures between 2015 and 2019 restricting trade with the EU. These consultations failed and the EU started arbitration proceedings in March 2021. There is no publicly available report on the outcome of this arbitration.

The 2002 Association Agreement

The EU (and its Member States) concluded an Association Agreement with Algeria in 2002, replacing old cooperation agreements between Algeria and the European Economic Community and the Member States of the European Coal and Steel Community. The 2002 Association Agreement’s aim is, among other things, to “promote trade and the expansion of harmonious economic and social relations between the Parties and establish the conditions for the gradual liberalisation of trade in goods, services and capital” (Article 1(2)). It therefore contains typical provisions on free trade of goods, services and capital as well as broader provisions on economic, social, cultural and judicial cooperation. This is in line with the EU’s policy aim to facilitate the trade and social-economic development of African States.

Algeria’s trade-restricting measures since 2015

Overall, trade between the EU and Algeria remains at important levels. Algeria is the EU’s 19^th biggest trade partner, and the EU is Algeria’s biggest trade partner (around 50% in 2021). However, there has been a steady decline in EU exports to Algeria since 2015, with the value of total EU exports to Algeria dropping from €22.3 billion in 2015 to €14.9 billion in 2023.

In 2020, the EU initiated its first dispute settlement procedure under the 2002 Association Agreement pertaining to measures adopted between 2015 and 2019. EU’s Note Verbale from June 2020 references trade-adverse measures such as import bans covering cars, introducing automatic and non-automatic import and export licenses, additional customs on a number of agricultural and processed agricultural products, consumer goods, telecommunications components, modems, cables and electrical appliances as well as various trade-restricting measures targeting cell phones and household products.

The new dispute between the EU and Algeria relates to further trade-restricting measures adopted since 2021. EU’s Note Verbale of 14 June 2024 to the EU-Algeria Association Council includes references to the following measures:

• In 2021, Algeria started requiring companies that were importing raw materials, products and goods intended for resale in Algeria to re-register in order to continue operating in Algeria. The re-registration restricts the types of economic activities that importing companies can engage in, making it necessary to split up importing companies into smaller units. 
• In the same year, Algeria increased the mandatory minimum threshold for resident shareholders to 51% for certain importing companies.
• Since 2022, Algeria has required importing companies to obtain a certificate for each direct debit transaction associated with an import. The EU views the issuance process for these certificates as non-transparent and often subject to refusal by the authorities. 
• In 2022, Algeria froze direct debits for trade operations with Spain – which had significant repercussions on Spanish companies. 
• Since 2022, foreign companies in Algeria must use a higher quota of local products for their production of vehicles (of up to 30% after five years since the start of production in Algeria). 
• Since January 2024, Algerian banks can no longer accept direct debit requests for the import of marble and ceramic products in their final form.

The EU views these measures, inter alia, as a violation of Article 17(2) (no new quantitative or equivalent restrictions on imports or exports) and Article 37(1) (no measures further restricting establishment and operations of each other’s companies) of the Association Agreement.

Potential investment arbitration claims

The European Commission has publicly announced that it has initiated the new dispute settlement proceedings against Algeria “to defend European companies”. It is important to note that an EU investor in Algeria has no direct rights under the Association Agreement, insofar as it does not contain specific obligations towards investors. The cooperation agreement is rather aimed more broadly at “create[ing] a favourable climate for investment flows” (Article 54).

However, foreign investors in Algeria can avail themselves of specific investment protection rules, if they originate from a State that has a bilateral investment treaty (BIT) in place with Algeria. Such BITs are in force with many European States, notably Austria, Bulgaria, Denmark, Finland, France, Germany, Italy, The Netherlands, Greece, Belgium-Luxembourg, Portugal, Romania, Serbia, Spain, Sweden and Finland. In total, there are 29 BITs in force with Algeria, which has also ratified the ICSID Convention.

Algeria has faced several investment claims, with 13 known cases, including three pending. So far, there is no publicly available report of a claim by an EU investor in relation to the above‑mentioned trade-restricting measures. However, in 2022, an Egyptian car manufacturer initiated a claim under the Algeria-Egypt BIT in relation to measures affecting the Algerian automotive industry including a cap on the import of new cars and car parts to promote local production. The outcome of the case has not yet been made publicly available.

The trade-adverse measures mentioned above may breach a number of investment protection obligations under BITs, including (indirect) expropriation, fair and equitable treatment and free transfer of payments. If the measures did affect a foreign investor protected by a BIT, the investor could claim monetary compensation from Algeria. A finding by the EU-Algeria Association Council or an arbitral tribunal that Algeria has breached the Association Agreement by implementation of these measures may potentially weaken Algeria’s defense against an investment claim. Conversely, a negative finding may provide Algeria with arguments to defend a claim brought against it by an investor. Either way, the implications would depend on the reasoning behind the decision and the specific claims in, and circumstances of, the investment case. It is important to note that claims under the Association Agreement and those brought by foreign investors under a BIT are legally independent from one another, even though they may be rooted in the same facts. Thus, investors may bring claims against Algeria regardless of the parallel endeavors by the European Commission to protect EU companies under the Association Agreement.