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Final Award

ABBREVIATIONS
Arbitration Rules ICSID Rules of Procedure for Arbitration Proceedings effective 1
BIT January 2003 Agreement between the Government of the Kingdom of Sweden
Claimant 1 and the Government of Romania on the Promotion and Reciprocal Protection of Investments dated April 1, 2003 Mr. Ioan Micula
Claimant 2 Mr. Viorel Micula
Claimant 3 European Food S.A
Claimant 4 Starmill S.R.L.
Claimant 5 Multipack S.R.L.
Commission European Commission
C-PHB Claimants' Post-Hearing Submission dated May 13, 2011
C-Reply Claimants' Reply dated December 22, 2009
C-SoC Claimants' Statement of Claim dated March 9, 2007
EC European Community
EC Treaty Treaty Establishing the European Community
ECHR European Court of Human Rights
ECJ European Court of Justice
Commission's Written Submission European Commission's Written Submission dated July 20, 2009
EFDG or EFDC European Food and Drinks Group (or European Food and Drinks
EGO Companies) Emergency Government Ordinance
ER Expert Report
Exh. C Claimants' Exhibits
Exh. EC European Commission's Exhibits
Exh. HEC Exhibits referred to at the Hearing on the merits and quantum
Exh. R Respondent's Exhibits
Exh. RB Exhibits filed with the Legal Opinion of F. Baias dated June 11,
Exh. RJ 2010 Exhibits filed with Expert Opinion of F. Jacobs dated June 11,
EU 2010 European Union
GD Government Decision
GO Government Ordinance
ICSID Convention Convention on the Settlement of Investment Disputes Between
ICSID or the Centre States and Nationals of Other States dated March 18, 1965 International Centre for the Settlement of Investment Disputes
ILC Articles The ILC Articles on State Responsibility
PIC Permanent Investor Certificate
R-CM Respondent's Counter-Memorial dated April 6, 2009
RFA Request for Arbitration dated July 28, 2005
RL or RLA Respondent's Legal Authorities
R-PHB Respondent's Post-Hearing Submission dated May 13, 2011
R-SPHB Respondent's Supplementary Post-Hearing Submission dated May 27, 2011
R-Rejoinder Respondent's Rejoinder dated June 11, 2010
TIC Temporary investment certificate
TGIE Transilvania General Import Export S.R.L.
Tr. Transcripts of the Hearing on the merits and quantum
Tr. Jur. Transcripts of the Hearing on jurisdiction
VCLT Vienna Convention on the Law of Treaties of 1969

I. INTRODUCTION

A. OVERVIEW OF THE DISPUTE

1.
The present dispute arises from Romania's introduction and subsequent revocation of certain economic incentives, contained in Emergency Government Ordinance 24/1998 ("EGO 24"), for the development of certain disfavored regions of Romania. The Claimants claim that, in reliance on those incentives, and in reliance on the expectation that these incentives would be maintained during a 10-year period, they made substantial investments in the Ştei-Nucet-Drâgâneşti disfavored region located in Bihor County in northwestern Romania. The Claimants further claim that Romania's premature revocation of these incentives was in breach of its obligations under the Agreement Between the Government of the Kingdom of Sweden and the Government of Romania on the Promotion and Reciprocal Protection of Investments (the "BIT" or the "Treaty"), which entered into force on 1 April 2003 (Exh. C-1), and caused damages to the Claimants, as described further below.

B. THE PARTIES

1. The Claimants

2. The Respondent

8.
The Respondent is Romania (the "Respondent" or "Romania").
9.
The Respondent is represented in this arbitration by H.E. Daniel Chitoiu, Minister of Public Finances and Messrs. Cipriam Badea and Mr. Bogdan Mirghiş, Legal Department of the Ministry of Public Finances; Messrs. D. Brian King, Georgios Petrochilos and Boris Kasolowsky of the law firm of Freshfields Bruckhaus Deringer, New York, Paris and Frankfurt, and Mmes. Adriana I. Gaspar, Ana Diculescu-Sova and Manuela M. Nestor of the law firm of Nestor Nestor Diculescu Kingston Petersen in Bucharest.

II. PROCEDURAL HISTORY

A. INITIAL PHASE

11.
On 3 August 2005, the Centre, in accordance with Rule 5 of the ICSID Rules of Procedure for the Institution of Conciliation and Arbitration Proceedings (the "Institution Rules"), acknowledged receipt and transmitted a copy of the Request to Romania.
12.
On 21 September 2005, the Request was supplemented by a statement concerning the entry into force of the BIT with accompanying exhibits C-15 to C-19.
13.
On 13 October 2005, the Acting Secretary-General of the Centre registered the Request as supplemented, pursuant to Article 36(3) of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the "ICSID Convention"). On the same date, in accordance with Institution Rule 7, the Acting Secretary-General notified the Parties of the registration of the Request as supplemented and invited them to proceed, as soon as possible, to constitute an Arbitral Tribunal.
14.
On 10 January 2006, in the absence of an agreement between the Parties, the Claimants elected to submit the arbitration to a Tribunal constituted of three arbitrators, as provided in Article 37(2)(b) of the ICSID Convention. On the same day they appointed Prof. Dr. Stanimir A. Alexandrov, a national of Bulgaria. On 7 February 2006, Romania appointed Dr. Claus-Dieter Ehlermann, a national of Germany. The Parties agreed to appoint Dr. Laurent Lévy, a national of Switzerland and Brazil, as the President of the Tribunal.
15.
On 12 September 2006, the Acting Secretary-General of ICSID, in accordance with Rule 6(1) of the ICSID Rules of Procedure for Arbitration Proceedings (the "Arbitration Rules"), notified the Parties that all three arbitrators had accepted their appointments and that the Tribunal was therefore deemed to be constituted and the proceedings to have begun on that date. The Parties were also informed that Mrs. Martina Polasek, ICSID Counsel, would serve as Secretary to the Tribunal.
16.
On 10 November 2006, the Tribunal held the first session of the Tribunal in Paris, France. At the outset of the session, the Parties expressed agreement that the Tribunal had been duly constituted (Arbitration Rule 6) and stated that they had no objections in this respect. It was agreed that the applicable ICSID Arbitration Rules were the ones that entered into force on 1 January 2003. The remainder of the procedural issues set forth in the agenda of the session were discussed and agreed upon. In particular, the Tribunal and the Parties agreed upon a timetable for the submissions on the merits and reserved provisional hearing dates. It was agreed that if Respondent decided to raise any objections to jurisdiction or admissibility before the filing of its Counter-Memorial, the schedule would be revisited. It was also decided that the language of the proceedings would be English, and that the place of arbitration would be Paris, France. The audio recording of the session was later distributed to the Parties. Minutes of the first session were drafted and signed by the President and the Secretary of the Tribunal, and sent to the Parties on 20 December 2006.

B. THE JURISDICTIONAL PHASE

17.
The proceedings in respect of the jurisdictional phase are described in detail in the Decision on Jurisdiction and Admissibility, which was notified to the Parties on 25 September 2008 and makes integral part of this Award.
18.
The Tribunal dismissed the Respondent's objections on jurisdiction and admissibility and concluded that it had jurisdiction over the claims asserted by the Claimants for breaches of the BIT. Specifically, the dispositive part of the Decision on Jurisdiction and Admissibility stated:

For the reasons set forth above,

• The objections of Respondent are dismissed.

• The Tribunal has jurisdiction over the dispute submitted to it in this arbitration and rejects any objections as to the admissibility of the claims.

• The decision on costs is deferred to the second phase of the arbitration on the merits.

(Decision on Jurisdiction and Admissibility, ¶ 170).

C. THE MERITS PHASE

1. Initial procedural steps

19.
By letter of 26 September 2008, the Tribunal invited the Parties to confer and revert to the Tribunal within six weeks from the date of notification of the Decision on Jurisdiction and Admissibility with joint or separate proposals concerning the timetable and other motions and suggestions for the proceedings on the merits.
20.
On 29 September 2008, Messrs. Zeiler and Schreuer resigned as counsel for Mr. Ioan Micula and the Corporate Claimants effective 26 September 2008. On 30 September 2008, the Tribunal was advised that Mr. Ioan Micula and the Corporate Claimants would be henceforth represented by Messrs. Kenneth R. Fleuriet, Reginald R. Smith and Craig S. Miles of the law firm of King & Spalding, London and Houston.
21.
By letters of 7 November 2008 (Claimants) and 13 November 2008 (Respondent), the Parties presented their proposals for the timetable on the merits. On the basis of the Parties' agreements and after considering their positions on the points in dispute, on 18 November 2008 the Tribunal fixed the procedural schedule for the merits phase. After further correspondence from the Parties, by letter of 2 December 2008 the Secretary confirmed the procedural schedule for the merits phase.
22.
By letter of 25 March 2009, the Respondent advised the Tribunal that the Parties had agreed on certain time extensions to the time limits set in the Secretary's letter of 2 December 2008. By letter of the Secretary of 27 March 2009, the Tribunal confirmed the time extensions agreed by the Parties and set out the amended procedural schedule as follows:

Respondent's Counter-Memorial - 6 April 2009

Claimants' Reply (including full case on quantum and any accompanying expert reports) - 20 August 2009

Respondent's Rejoinder (including any expert reports) - 27 November 2009

Pre-hearing Conference - 4 January 2010;

Claimants' Rebuttal Expert Reports on Quantum - 26 January 2010;

Respondent's Rebuttal Expert Reports on Quantum - 5 March 2010;

Hearing - 3-7 May 2010;

Hearing reserve days - 10-11 May 2010.

23.
On 2 April 2009, the European Community ("EC") requested that it be allowed to file a written submission as a non-disputing party in this arbitration. On 7 April 2009, the Tribunal invited the Parties to file their observations on the EC's request by 7 May 2009.

2. The written phase on the merits

24.
In accordance with the procedural schedule agreed by the Parties and confirmed in the Secretary's letter of 27 March 2009, the Respondent filed its Counter-Memorial on the merits ("R-CM") on 6 April 2009. The Counter-Memorial was accompanied by:

a. Expert Report of Professor Rudolf Streinz ("First ER of R. Streinz")

b. Exhibits R-59 through R-132

c. Legal authorities RL-177 through RL-273.

25.
On 7 May 2009, the Parties submitted their observations on the EC's request to file a written submission as a non-disputing party. The Claimants opposed that request. The Respondent submitted that the EC's request was one that could not be reasonably opposed, but in the event that the Claimants opposed that request, it requested the opportunity to provide a fuller response.
26.
Also on 7 May 2009, Mr. Viorel Micula advised that the law firm of Dewey & LeBoeuf would no longer be representing him, although the firm of Muşat & Asociaţii remained as his counsel.
27.
By letter of the Secretary of 15 May 2009, having considered the Parties' positions and the applicable procedural rules, the Tribunal decided that it would allow the participation of the EC as a non-disputing party in the present case. The Tribunal noted that:

In doing so, the Tribunal is particularly sensitive to the fact that the European Community may bring a factual or legal perspective that could assist the Tribunal in the adjudication of the Parties' rights. In granting leave to the European Community to participate as a non-disputing party, the Arbitral Tribunal is mindful of the need to preserve due process and the good order of the proceeding. In particular, the European Community shall act as amicus curiae and not as amicus actoris vel rei. In other words, the non-disputing party shall remain a friend of the court and not a friend of either Party.

28.
In light of this, the Tribunal invited the Parties to confer and agree on a procedure for the participation of the EC as a non-disputing party on or before 22 May 2009, and provided certain guidelines for that procedure. It also requested the Parties' comments on a draft letter to the EC by the same date.
29.
On 18 May 2009, Mr. Ioan Micula and the Corporate Claimants submitted a request for a site visit pursuant to Article 43(b) of the ICSID Convention and Rule 37 of the 2003 ICSID Arbitration Rules.
30.
On 22 May 2009, all Parties submitted their observations on the Tribunal's draft letter to the EC concerning its amicus participation and the proposed procedure for such participation. Mr. Ioan Micula and the Corporate Claimants also expressed a concern at certain communications that had taken place between the Respondent and the EC, and requested an instruction from the Tribunal that Romania, its counsel and its expert refrain from any further communications with the EC about this case until after the hearing and the closure of the proceedings.
31.
On 25 May 2009, the Respondent opposed Mr. Ioan Micula's and the Corporate Claimants' request for a site visit. It also argued that this request was being used to present an entirely new case on damages, which was impermissible at that stage of the proceedings.
32.
Also on 25 May 2009, Dr. Claus-Dieter Ehlermann submitted his resignation as an arbitrator to the other members of the Tribunal and to the Acting Secretary-General of ICSID and indicated his grounds of personal nature for such resignation. On 26 May 2009, pursuant to Arbitration Rule 8(2), the Tribunal consented to Dr. Ehlermann's resignation and on that day notified the Acting Secretary-General of its decision. On that same day, pursuant to Arbitration Rule 10(1) and (2) and on behalf of the Acting Secretary-General, the Secretary notified the Parties of Dr. Ehlermann's resignation and the Tribunal's consent thereto, and of the resulting vacancy on the Tribunal. In accordance with Arbitration Rule 11(1), the Respondent was invited to promptly appoint an arbitrator to fill that vacancy. Pursuant to Arbitration Rule 10(2), the arbitration proceedings were suspended until the vacancy created by Dr. Ehlermann's resignation had been filled. The Parties were also invited to inform the Tribunal, as soon as the vacancy had been filled, whether they would agree to maintain the existing procedural timetable.
33.
On 4 June 2009, the Respondent advised the Tribunal that it was in the process of identifying a new arbitrator and that it was committed to attempting to preserve the current procedural schedule. Given that the question of the modalities of the EC's participation as an amicus curiae was still pending before the Tribunal and would likely impact the procedural schedule, the Respondent invited the Claimants to agree, and the Tribunal to approve, that

(a) the stay on the proceedings be lifted insofar as the Tribunal's decision on the modalities of the European Community's participation as amicus curiae is concerned;

(b) the Tribunal render that decision in its present, provisionally truncated formation, by consent of the parties.

34.
At the invitation of the Tribunal, on 16 June 2009 Mr. Ioan Micula and the Corporate Claimants agreed with the Respondent's proposal that the Tribunal should proceed to rule on the modality of the EC's participation as an amicus curiae, notwithstanding the stay of the proceedings. The Claimants noted that they were not in a position to communicate their views as to the impact of the stay on the procedural timetable, but would do so once the Tribunal's vacancy was filled.
35.
On 19 June 2009, Mr. Viorel Micula advised that he had retained as new counsel Messrs. David Reed, Alex Bevan and Emmanuel Gaillard of the law firm of Shearman & Sterling LLP, London and Paris, and accepted the Respondent's request for a partial lift of the stay of the proceedings.
36.
By letter of the Secretary of 25 June 2009, the Tribunal approved the Parties' agreement to partially lift the stay of the proceedings concerning the modalities of the EC's amicus curiae participation and issued its decision on those modalities, as set forth below. On that same day, the Tribunal informed the EC that it would be allowed to participate as a non-disputing party in this arbitration, specifying that the purpose of such participation would be to assist the Tribunal in its adjudicatory work. The Tribunal set forth the following procedure for the EC's participation:

1. The European Community shall file a written submission on or before July 20, 2009. It shall send an electronic copy of the submission by e-mail to the Secretary of the Tribunal at mpolasek@worldbank.org and 15 (fifteen) hard copies of the submission by courier to the Secretary at ICSID, for transmission to the Tribunal and the Parties.

2. The European Community's written submission shall not respond or comment upon the Parties' prayers for relief, but shall be focused on assisting the Tribunal in the determination of factual or legal issues at stake in the present dispute. It is expected that the scope of the Community's input will be limited to facts within its own knowledge and to European law rather than to any other facts or legal matters at issue in this arbitration. The Community may within this scope decide which facts and laws are relevant to the dispute.

3. The European Community's written submission shall be limited in length (40 pages) and written in English.

4. The European Community may file any relevant exhibits with its written submission within the scope described under paragraph 2 above. Any exhibit for which the original language is not English shall be submitted in the original language accompanied by a translation into English. If the document is lengthy and relevant only in part, it is sufficient if only the relevant parts, which must be precisely specified, are translated.

5. The Tribunal may request the European Community to produce any document or evidentiary material that the Tribunal deems useful for the resolution of this dispute, or which has been requested by either Party.

6. The European Community shall have access to the Parties' pleadings in their entirety as existing at this juncture, except for materials that have been designated as commercially confidential or legally privileged. Should a disagreement arise as to whether such materials have been so designated, the Tribunal will resolve such disagreement. The Secretary of the Tribunal will transmit electronic copies of the materials to the European Community at the latest by July 6, 2009.

7. Any person who has participated in the elaboration of the European Community's written submission may be called to provide clarifications on that submission at the hearing, as may be required by the Tribunal of its own initiative or at the request of the Parties. Such clarifications will be given in the form directed by the Tribunal and under its control.

8. The European Community will bear its own costs incurred in connection with its participation in the proceeding, including any costs relating to any appearance by the Community's representative(s) for examination at the hearing.

9. The European Community shall indicate whether it had any direct contact with either Party to this arbitration concerning the subject matter of this arbitration and should as far as possible avoid any future contact in this respect.

37.
In its letter to the Parties of 25 June 2009, the Tribunal also invited the Parties to comment on the Commission's Written Submission within two months from the date of receipt of that submission.
38.
On 7 July 2009, the Secretary sent the EC two CD-ROMs containing the Parties' pleadings on the merits, including supporting documents, filed as of that date.
39.
On 16 July 2009, in accordance with Articles 56(1) and 37(2)(b) of the ICSID Convention and Arbitration Rule 11(1) and (3), the Respondent appointed as its arbitrator Professor Georges Abi-Saab, a national of the Arab Republic of Egypt. The Respondent also agreed to maintain the current procedural timetable.
40.
On 20 July 2009, the EC submitted its written submission as a non-disputing party, including 10 exhibits.
41.
On 22 July 2009, the Secretary informed the Parties that the Tribunal had been reconstituted and the proceedings resumed. On 24 July 2009, the Tribunal proposed to the Parties that, subject to their reasoned objection by 7 August 2009, the acts accomplished by the Tribunal regarding the modalities of the EC's participation as a non-disputing party while the suspension of the proceeding was partially lifted were validated. In that same letter, the Tribunal also invited the Parties to state their views on the procedural timetable in consideration of the suspension of the proceedings.
42.
By letters of 30 and 31 July 2009, all Claimants agreed to the validation of the acts taken by the Tribunal during the suspension of the proceedings with respect to the EC's amicus curiae submission and submitted their views on the procedural timetable. Specifically, the Claimants stated that they would require an extension of the time limits set out in the procedural timetable as a result of the suspension of the proceedings. On 7 August 2009, the Respondent submitted its comments on the new procedural timetable suggested by the Claimants.
43.
On 7 September 2009 the Respondent informed the Tribunal that the Parties had reached an agreement on the procedural timetable. By letter of 14 September 2009, the Tribunal confirmed the procedural timetable agreed by the Parties, as follows:

Parties' responses to EC amicus brief - 16 November 2009

Claimants' Reply - 14 December 2009

Respondent's Rejoinder - 12 April 2010

Claimants' Rebuttal Expert Reports on Quantum - 10 June 2010

Respondent's Rebuttal Expert Reports on Quantum - 19 July 2010

44.
After consultation between the Parties and the Tribunal, on 19 October 2009 the Tribunal confirmed that the hearing on the merits would take place between 8 and 19 November 2010, excluding the weekend.
45.
On 16 November 2009, the Parties submitted their comments to the EC's amicus curiae submission. In addition, the Claimants expressed their concern that there may have been improper contact between the EC and the Respondent or its counsel, in violation of the Tribunal's instructions of 25 June 2009, and requested the Tribunal to order the Respondent to produce copies of all records of communications between the Respondent or any of the Respondent's legal counsel and the EC since 1 January 2009 related to the subject matter of this arbitration.
46.
On 23 November 2009, the Tribunal invited the Respondent to provide its comments to the Claimants' request for production of documents by 11 December 2009. This deadline was subsequently extended by agreement of the Parties to 16 December 2009.
47.
On 4 December 2009, counsel for Mr. Ioan Micula and the Corporate Claimants informed the Tribunal that all Parties had agreed to extend the deadlines for their upcoming briefs. On 14 December 2009, the Secretary confirmed the amended procedural timetable as follows:

Respondent's Reply to the Claimants' request for production of documents - 16 December 2009

Claimants' Reply - 22 December 2009

Respondent's Rejoinder - 28 April 2010

Claimants' Rebuttal Expert Reports on Quantum - 25 June 2010

Respondent's Rebuttal Expert Reports on Quantum - 4 August 2010

Hearing on the Merits - 8-19 November 2010

48.
On 16 December 2009, the Respondent submitted its objections to the Claimants' request for the production of communications between the EC and the Respondent or its counsel.
49.
On 22 December 2009, the Claimants submitted their Reply on the Merits ("C-Reply"), which was accompanied by the following evidence:

a. Third Witness Statement of Mr. Ioan Micula ("Third WS of I. Micula")

b. Third Witness Statement of Mr. VioreI Micula ("Third WS of V. Micula)

c. Witness Statement of Mr. Sorin Baciu ("First WS of S. Baciu")

d. Witness Statement of Mr. Moisa Ban ("First WS of M. Ban")

e. Witness Statement of Mr. Mircea Halbac ("First WS of M. Halbac")

f. Witness Statement of Mr. Christian Balog ("First WS of C. Balog")

g. Witness Statement of Mr. Neculai-Liviu Marcu ("WS of N. Marcu)

h. Witness Statement of Mr. Nicolae Staiculescu ("WS of N. Staiculescu")

i. Expert Report of Professor Donald L. Lessard ("First ER of D. Lessard")

j. Expert Report of Professor Alan Dashwood ("First ER of A. Dashwood")

k. Expert Report of Professor David Caron ("ER of D. Caron")

l. Expert Report of Professor Lucian Mihai ("ER of L. Mihai")

m. Expert Report of Professor Jan-Benedict Steenkamp ("First ER of J. Steenkamp")

n. Expert Report of Mr. Chris Osborne (FTI) ("First ER of C. Osborne")

o. Expert Report of Dr. James Fry (LMC) ("First ER of J. Fry")

p. Boston Consulting Group Report, originally filed as Exh. C-655 ("First ER of BCG")

q. Claimants' Exhibits and Legal Authorities 271 to 675

50.
By means of Procedural Order dated 8 January 2010, the Tribunal rejected the Claimants' request for the production of correspondence between the EC and the Respondent or its counsel. Specifically, the Tribunal found:

6. That after deliberating on the arguments advanced by the Parties, the Tribunal is not persuaded that the documents requested by the Claimants are necessary or useful for the determination of the outcome of the dispute in this arbitration;

7. That even if, for the sake of argument, the Tribunal were to accept the Claimants' allegations and find that the European Community cooperated with the Respondent in preparing its Submission, which the Respondent denies, such finding would not affect the Tribunal's conclusion that the requested documents lack relevance;

8. That to the extent that the requested documents might be relevant for the purposes of establishing the objectivity of the arguments advanced by the non-disputing party in its Submission and the weight to be given to them by the Tribunal, this matter has already been adequately addressed in the Tribunal's letter of 25 June 2009, which, if necessary, provides the Claimants with the opportunity to examine at the hearing any person who has participated in the preparation of the Submission.

51.
On 14 January 2010, the Claimants advised that they had found inadvertent errors and omissions in their Reply submission, and submitted corrected versions of their Reply Memorial, three witness statements and 29 exhibits, together with an errata sheet.
52.
By letter of 5 February 2010, the Respondent notified the Tribunal that, in accordance with its obligations under the Treaty of Lisbon, it proposed to make available to the EC the Claimants' Reply and its annexes. The Respondent alleged that the Claimants' Reply represented a fundamentally new case, and that, as an EU Member State, it is obliged under the Treaty of Lisbon to notify the EU of any pending international litigation threatening to jeopardize a state's EU law obligations. By letters of 9 February 2010, the Claimants objected to the proposed disclosure, alleging, inter alia, that the amicus curiae phase of the arbitration had been concluded, that the Reply did not present a fundamentally new case, that such disclosure would violate the Tribunal's order of 25 June 2009, and that the Reply contained material that was commercially confidential to the Claimants.
53.
Considering that the Respondent's proposed disclosure could raise issues of confidentiality and privilege, on 10 February 2011 the Tribunal invited the Parties to make brief submissions addressing (i) the content and scope of Respondent's legal obligation under the Treaty of Lisbon to notify the EU of any pending international litigation threatening to jeopardize a state's EU law obligations; (ii) whether the disclosure would possibly aggravate the dispute and/or adversely affect the conduct of the proceedings, and (iii) whether the disclosure would violate the Claimants' rights to confidentiality and/or privilege. The Parties filed their submissions on 19 February 2010. An additional submission was made by Mr. Viorel Micula on 22 February 2010.
54.
By means of a Procedural Order issued on 3 March 2010 and pursuant to Article 47 of the ICSID Convention and Arbitration Rule 39, the Tribunal recommended that the Respondent refrain from providing the EC with the full text of the Claimants' Reply and its exhibits, inviting it instead to provide the EC with the text of the Claimants' amended request for relief, as set forth in the Reply. In making its decision, the Tribunal took into consideration the role of the EC as an amicus curiae, the fact that the Claimants had withdrawn a claim and amended their prayers for relief, and issues of confidentiality, privilege, and possible aggravation of the dispute.
55.
On 8 April 2010, following the Tribunal's recommendation, the Respondent notified the EC that the Claimants had withdrawn their request for restitution of the legal framework in force at the time of approval of EGO 24/1998.
56.
On 19 March 2010, the Respondent requested an extension of its time limit to file its Rejoinder on the merits, alleging, inter alia, that the Claimants' Reply was incomplete. On 25 March 2010, the Claimants objected to that request. After further correspondence among the Parties and a proposal from the Tribunal, the Parties and the Tribunal finally agreed on the following procedural calendar, as confirmed by the Secretary's letter of 12 April 2010:

Respondent's Rejoinder - 11 June 2010

Claimants' Rebuttal Expert Reports on Quantum - 30 July 2010

Respondent's Rebuttal Expert Reports on Quantum - 10 September 2010

Hearing on the Merits and Quantum - 8-19 November 2010

57.
On 9 April 2010, the Respondent made an application for production of documents. The Claimants objected to that request by letters of 19 and 26 April 2010. After further comments from the Parties (Respondent's letter of 27 April 2010 and Claimants' submissions of 29 April and 10 May 2010), on 27 May 2010 the Tribunal issued a Procedural Order ruling on the Respondent's request. The Parties further agreed on the timing for the Parties' comments on the documents produced (Respondent's letter of 3 June 2010). The Tribunal approved the Parties' agreement by letter of 7 June 2010 and invited the Parties to report on the production progress (which they did through the Claimants' letter of 10 June 2010).
58.
On 13 April 2010, Ioan Micula and the Corporate Claimants renewed their request for a site visit. The Respondent objected to that request on 22 April 2010, and the Claimants submitted further comments on 26 and 28 April 2010. On 5 May 2010, having considered the Parties' submissions, the Tribunal concluded that a site visit would not enlighten the Tribunal at that stage in the proceedings, as any information gleaned from such visit would be either irrelevant for the resolution of the dispute or unnecessary given that the record supplied sufficient evidence, at least at that juncture. However, the Tribunal invited the Parties to renew the application for a site visit after the hearing on the merits if they continued to wish for one.
59.
On 28 May 2010, Mr. Viorel Micula advised that Muşat & Asociatii no longer represented him as counsel.
60.
On 11 June 2010, the Respondent submitted its Rejoinder ("R-Rejoinder"), which was accompanied by the following evidence:

a. Expert Report of Professor Flavius Baias ("ER of F. Baias")

b. Expert Report of Sir Francis Jacobs ("ER of F. Jacobs")

c. Expert Report of Mr. Asger Petersen ("ER of A. Petersen")

d. Rebuttal Expert Report of Professor Dr. Rudolf Streinz ("Second ER of R. Streinz")

e. Expert Report of Agra CEAS Consulting, Mr. Conrad Caspari, in conjunction with F.O. Licht ("ER of C. Caspari")

f. Expert Report of KPMG, Mr. John Ellison ("First ER of J. Ellison")1

g. Expert Report of Dr. Bill Robinson ("First ER of B. Robinson")

h. Witness Statements of Mr. Leonard Orban ("WS of L. Orban")

i. Witness Statement of Professor Mihai Berinde ("WS of M. Berinde")

j. Documentary evidence (Exhibits R-134 through R-203)

k. Legal authorities (Exhibits RL-284 through RL-336).

61.
On 22 July 2010, the Respondent submitted its comments on the documents produced by the Claimants in response to the Procedural Order of 27 May 2010. The Claimants submitted their comments on 3 September 2010. In the interim, the Parties further corresponded on the production of specific documents.
62.
On 21 July 2011, Ioan Micula and the Corporate Claimants requested permission to submit four additional witness statements that would be relied upon by the Claimants' damages experts in their rebuttal expert reports due on 30 July 2010. On 22 July 2010, the Respondent objected to that request. The Parties submitted further comments (Claimants' letters of 23 and 26 July 2010 and Respondent's letter of 26 July 2010). After considering the Parties' submissions and in the exercise of the discretion granted to it under paragraphs 14(II)(c) and (e) of the Minutes of the First Session, by letter of 28 July 2010 the Tribunal granted the Claimants permission to submit, by 30 July 2010, new witness statements from the following persons: Messrs. Juan Gamecho, Mircea Halbac, Sorin Baciu and Cristian Balog. The Tribunal specified that these witness statements should be strictly limited to factual allegations that will be relied upon by the Claimants' damages experts in their rebuttal expert reports, and that the Claimants should make these witnesses available for crossexamination at the hearing.
63.
On 30 July 2010 (by separate letters sent by counsel to Mr. Ioan Micula and the Corporate Claimants, on one hand, and counsel to Mr. Viorel Micula, on the other), the Claimants submitted the following rebuttal expert reports on quantum and additional witness statements:

a. Expert Reply Report of Professor Donald R. Lessard ("Second ER of D. Lessard")

b. Expert Reply Report of Professor Jean-Benedict Steenkamp ("Second ER of J. Steenkamp")

c. Expert Opinion of Professor Georghe Piperea ("ER of G. Piperea")

d. Rebuttal Expert Report of Dr. James Fry of LMC International ("Second ER of J. Fry")

e. Expert Report of Mr. Richard Boulton of LECG ("ER of R. Boulton")

f. Rebuttal Expert Report of BCG ("Second ER of BCG")

g. Witness Statement of Mr. Juan Gamecho ("WS of J. Gamecho")

h. Second Witness Statement of Mr. Mircea Halbac ("Second WS of M. Halbac")

i. Second Witness Statement of Mr. Sorin Baciu ("Second WS of S. Baciu")

j. Second Witness Statement of Mr. Christian Balog ("Second WS of C. Balog")

k. Exhibits and Legal Authorities C-680 to C-1034

64.
On 2 August 2010, the Claimants submitted the rebuttal expert report of Mr. Chris Osborne of FTI Consulting.
65.
In their letter of 30 July 2010, Mr. Ioan Micula and the Corporate Claimants also noted that the Claimants continued to suffer from acts of the Romanian state, including the initiation of forced execution proceedings against companies of the EFDG, that directly threatened their ability to continue their business activities and reserved their right to request interim relief from the Tribunal. The Claimants also objected to Section VI.G of the Respondent's Rejoinder, entitled "Any Compensation Must Be Reduced by the Value of Benefits Received as a Result of Romania's EU Accession." The Claimants argued that this defense constituted a new legal theory that had been raised in the Respondent's Counter-Memorial and was thus untimely. In the event that the Tribunal was minded to accept it, the Claimants alleged that it should be rejected on the substantive grounds described in their letter.
66.
By letter of 10 August 2010, the Respondent requested the Tribunal to (i) strike certain new evidence (specifically, certain expert reports or relevant parts of them, and new factual exhibits) filed by the Claimants with their rebuttal expert reports submitted on 30 July 2010 and 2 August 2010, as well as certain new legal submissions and allegations made by the Claimants in their letters accompanying such reports; (ii) grant it a four week extension to submit its rebuttal expert reports on quantum; and (iii) grant it the opportunity to comment on the Claimants' new evidence and allegations, to the extent that they are not stricken and, if necessary, to adduce responsive evidence. At the Tribunal's invitation, all Claimants commented on these requests by letters of 19 August 2010. The Respondent submitted further comments on 24 August 2010.
67.
By means of a Procedural Order issued on 24 August 2010 and in accordance with ICSID Arbitration Rule 34, the Tribunal declined to strike any evidence filed by the Parties at this stage of the proceeding, stating that it would decide in due time what weight to give to any such evidence. The Tribunal also granted the Respondent a two-week extension (until 24 September 2010) to submit rebuttal expert reports on quantum, and invited the Respondent to produce in advance of the new time limit whatever written evidence they were able to produce without disruption of their work. The Tribunal also ruled that, if the Respondent wished to present new witness statements, it should file a formal application pursuant to Paragraph 14(II)(c) and (e) of the Minutes of the First Session. The scope of any such witness statements would in any event be strictly limited to the factual allegations relied upon by the Respondent's damages experts in their rebuttal expert reports. Finally, the Tribunal ruled that the Respondent should respond to the new documents submitted by the Claimants together with its rebuttal expert reports on damages.
68.
By letter of 14 September 2010, the Tribunal asked the Parties if they would be agreeable to the appointment of Ms. Sabina Sacco of the law firm of Lévy Kaufmann-Kohler as Assistant to the Tribunal, which the Parties accepted.
69.
On 24 September 2010, the Respondent submitted its Observations on Claimants' Additional Evidence, together with the following evidence and rebuttal expert reports:

a. Factual Exhibits R-210 through R-229

b. Legal Authorities RLA-337 through 346

c. Reply Expert Report of Mr. Conrad Caspari ("Second ER of C. Caspari")

d. Reply Expert Report of Mr. John Ellison ("Second ER of J. Ellison")

e. Reply Expert Report of Dr. Bill Robinson ("Second ER of B. Robinson")

3. Procedural steps predating the hearing on the merits

70.
On 30 September 2010, the President of the Tribunal and the Parties held a prehearing telephone conference to discuss all outstanding matters with respect to the organization of the hearing on the merits and quantum. During that telephone conference, the Parties reached an agreement with respect to certain issues, but maintained disagreement on others (in particular the sequestration of the Messrs. Micula and the modality for the examination of certain witnesses and experts). In addition, the Respondent requested clarification from the Claimants with respect to their quantum case.
71.
On 8 October 2011, all Parties identified the witnesses and experts they would call for cross-examination at the hearing and provided further comments on outstanding issues with respect to the hearing. After further correspondence from the Parties, the Tribunal ruled on these issues by means of a Procedural Order of 13 October 2010.
72.
By letters of 15 October 2010, the Parties submitted proposed hearing schedules and discussed the need for oral closing submissions. The Claimants also requested that the Tribunal, of its own initiative, call Professor David Caron, Claimants' international law expert, to appear at the hearing for examination despite the fact that the Respondent did not call him for cross-examination. The Respondent provided further comments on 20 October 2010. The Tribunal ruled on these issues by letter of 22 October 2010. By letter of 28 October 2010, the Respondent expressed concerns with respect to the time allocation during the hearing and reserved its rights. On 1 November 2010, the Tribunal clarified that the ruling of 22 October 2010 contained a clerical error, and issued a corrected time allocation.
73.
On 5 October 2010, the Secretary invited the representatives of the EC who had drafted the EC's amicus brief to provide clarifications on that submission at the hearing. On 13 October 2010, the relevant EC representatives confirmed they would attend the hearing. On 15 October 2010, the Tribunal informed the Parties of the EC representatives' attendance and invited the Parties to confer in view of reaching an agreement with respect to the timing, scope and form of the EC's testimony. The Parties provided their comments on 22 and 25 October 2010. On 27 October 2010 the Tribunal issued directions with respect to the EC's participation at the hearing, which were communicated to the EC on 28 October 2010. On 3 November 2010, the Claimants [Viorel Micula] advised the Tribunal that due process required that the EC be treated as a hostile witness vis-à-vis the Claimants, and required more time for their cross-examination. After hearing the Respondent's position, the Tribunal ruled on this matter during the hearing.
74.
By letter of 1 November 2010, the Claimants alleged that Romanian tax enforcement officials had seized significant assets of the EFDG necessary for the continuation of the Claimants' business (in particular, production equipment and machinery) and were threatening to commence the forced sale of these assets as early as 8 November 2010. The Claimants advised that they would shortly file an application for provisional measures and for a temporary "standstill" order, and requested that their applications be heard during the first day of the hearing. After an invitation from the Tribunal, on 3 November 2010 the Respondent submitted preliminary comments on the Claimants' letter, to which the Claimants responded on the same date.
75.
On 3 November 2010, the Claimants submitted an Application for Provisional Measures ("Claimants' Application for Provisional Measures") pursuant to Article 47 of the ICSID Convention and Arbitration Rule 39, together with a request for an emergency temporary order.
76.
On 5 November 2010, at the invitation of the Tribunal, the Respondent submitted its comments on the Claimants' request for an emergency temporary order, requesting that it should be dismissed for the reasons stated in that submission. In that same letter, the Respondent proposed that the Claimants' Application for Provisional Measures be addressed following, rather than during, the evidentiary hearing, preferably in December 2010, noting that there was no need to disrupt the hearing due to the Claimants' Application for Provisional Measures.
77.
On 5 November 2010, the Tribunal issued a Procedural Order in which it (i) denied the Claimants' request for an emergency temporary order, without prejudice to the Tribunal's authority to issue a different determination at a later stage in the proceedings if the circumstances should change; (ii) determined that it would address the Claimants' Application for Provisional Measures after the hearing on the merits; and (iii) gave instructions with respect to briefing by the Parties.

4. The hearing on the merits and quantum

78.
From 8 to 19 November 2010, the Tribunal and the Parties held a hearing on the merits and quantum in Paris, France. During the course of the hearing, the Parties made oral arguments regarding their merits and quantum cases, had the opportunity to examine the witnesses and experts that had been called to testify, and addressed several evidentiary and procedural issues. The EC representatives invited by the Tribunal provided clarifications to their written submission and answered the Parties' questions. The Tribunal was addressed by Messrs. Eric A. Schwartz, Reginald R. Smith and Kenneth R. Fleuriet and Ms. Amy R. Frey on behalf of Mr. Ioan Micula and the Corporate Claimants; by Messrs. Emmanuel Galliard and David Reed on behalf of Mr. Viorel Micula, and by Messrs. D. Brian King, Georgios Petrochilos, Noah Rubins, Boris Kasalowsky and Ben Juratowitch on behalf of the Respondent.
79.
The following persons participated in the hearing:

On behalf of Mr. Ioan Micula and the Corporate Claimants :

Mr. Ioan Micula
Mr. Eric Schwartz, King & Spalding
Mr. Reggie Smith, King & Spalding
Mr. Ken Fleuriet, King & Spalding
Mr. Ric Toher, King & Spalding
Mrs. Amy R. Frey, King & Spalding
Ms. Jamie Miller, King & Spalding
Ms. Catalina Constantina, King & Spalding
Mrs. Eva Micula
Ms. Natalie Micula
Ms. Olivia Micula
Mrs. Oana Popa
Mrs. Diana Radu
Mr. Vasile Popa-Bota
Mr. Traian Bulzan

On behalf of Mr. Viorel Micula :

Mr. Viorel Micula
Mr. Emmanuel Gaillard, Shearman & Sterling
Mr. David Reed, Shearman & Sterling
Mr. Robert Williams, Shearman & Sterling
Ms. Veronika Korum, Shearman & Sterling
Mr. Henry Ovens, Shearman & Sterling
Ms. Valerie Ollivier, Shearman & Sterling
Ms. Ioana Aron Blahuta
Ms. Medora Purle
Mr. Cristian Flora
Mr. Calin Vidican
Ms. Eva Fogarassy
Mr. Adrian Rotar
Ms. Alexandra Gheorghe-Duca
Mr. Mihai Clepce

On behalf of the Respondent :

HE Minister Gheorghe lalomiţianu, Ministry of Public Finance
Ms. Manuela Nestor, Nestor Nestor Diculescu Kingston Petersen
Ms. Georgeta Harapcea, Nestor Nestor Diculescu Kingston Petersen
Mr. D. Brian King, Freshfields Bruckhaus Deringer LLP
Mr. Georgios Petrochilos, Freshfields Bruckhaus Deringer LLP
Mr. Noah Rubins, Freshfields Bruckhaus Deringer LLP
Mr. Boris Kasolowsky, Freshfields Bruckhaus Deringer LLP
Mr. Jonathan J Gass, Freshfields Bruckhaus Deringer LLP
Mr. Ben Juratowitch, Freshfields Bruckhaus Deringer LLP
Mr. Sami Tannous, Freshfields Bruckhaus Deringer LLP
Ms. Evgeniya Rubinina, Freshfields Bruckhaus Deringer LLP
Mr. Moritz Keller, Freshfields Bruckhaus Deringer LLP
Mr. Marcus Benzing, Freshfields Bruckhaus Deringer LLP
Mr. Ignacio Stratta, Freshfields Bruckhaus Deringer LLP
Ms. Victoria Bokelmann, Freshfields Bruckhaus Deringer LLP
Ms. Rebecca Smith, Freshfields Bruckhaus Deringer LLP
Ms. Lauren Henschke, Freshfields Bruckhaus Deringer LLP
Ms. Smaranda Miron, Freshfields Bruckhaus Deringer LLP
Ms. Eleonore Gleitz, Freshfields Bruckhaus Deringer LLP

80.
The Tribunal heard oral testimony from the following persons:

Claimants' witnesses and experts

Mr. Ioan Micula Claimant
Mr. Viorel Micula Claimant
Professor Lucian Mihai Expert Witness, University of Bucharest
Professor Alan Dashwood QC Expert Witness, Henderson Chambers
Professor David Caron Expert Witness, University of California at Berkeley
Mr. Liviu Marcu Witness
Mr. Nicolae Staiculescu Witness
Mr. Mircea Halbac Witness
Mr. Moisa Ban Witness
Mr. Sorin Baciu Witness
Mr. Jaun Gamecho Witness
Professor Don Lessard Expert Witness, MIT, The Brattle Group
Mr. Alexis Maniatis Expert Witness, The Brattle Group
Ms. Natasha Dupont Expert Witness, The Brattle Group
Mr. Chris Osborne Expert Witness, FTI Consulting
Mr. Richard Edwards Expert Witness, FTI Consulting
Mr. Richard Boulton Expert Witness, LECG
Mr. Ian Clemmence Expert Witness, LECG
Dr. James Fry Expert Witness, LMC
Mr. Laszlo Juhasz Expert Witness, BCG

Respondent's witnesses

Mr. Leonard Orban Fact Witness, Office of the President of Romania
Professor Mihai Berinde Witness
Sir Francis Jacobs QC Expert Witness, Fountain Court Chambers
Mr. Alexander Milner Expert Witness, Fountain Court Chambers
Professor Flavius Baias Expert Witness, Bucharest Public University
Professor Dr. Rudolf Streinz Expert Witness, University of Munich
Professor Dr. Christoph Herrmann Expert Witness, University of Passau
Mr. John Ellison Expert Witness, KPMG
Dr. Bill Robinson Expert Witness, KPMG
Mr. Nishad Morjaria Expert Witness, KPMG
Mr. Dan Aylward Expert Witness, KPMG
Mr. Conrad Caspari Expert Witness, Agra CEAS
Mr. Asger Petersen Expert Witness, Cleary Gottlieb Steen & Hamilton

Non-disputing Parties (EC)

Mr. Bernd Martenczuk, Legal Representative, European Commission
Mr. Frank Hoffmeister, Legal Representative, European Commission
Mr. Ion Rogalski, Legal Representative, European Commission

81.
A transcript of the hearing was distributed among the Parties. An audio recording was made in English and Romanian and also distributed among the Parties.

5. Procedural matters following the hearing

82.
By the end of the hearing, the following evidentiary and procedural issues remained outstanding: (i) the Claimants requested that Mr. Mihai Berinde, who had to leave the hearing early, be made available for cross-examination at a later date, whether in person or via videoconference; (ii) the Claimants confirmed that their (or rather Mr. Ioan Micula's) application for a site visit was still in place; (iii) the form and time of the Parties' closing arguments remained outstanding, and (iv) the Respondent requested that the Claimants reformulate their request for relief in such a way that it identified each breach alleged and the specific relief requested on the basis of such breaches.
83.
On 25 November 2010, the Tribunal issued a Procedural Order ruling on the evidentiary and procedural matters that remained outstanding. Specifically, the Tribunal (i) decided that Mr. Berinde would not be called for oral examination, but specified that this would not prevent the Parties or the Tribunal from relying on Mr. Berinde's written testimony (and that the same would apply to the other called witnesses/experts that the Parties did not cross-examine at the hearing); (ii) gave instructions on further briefing with respect to the Claimants' application for a site visit; (iii) determined that the Parties should present oral closing arguments and gave instructions for a future hearing in that respect, but also invited the Parties to submit voluntary post-hearing briefs; and (iv) gave directions to the Claimants with respect to the submission of their amended request for relief. The Tribunal also gave further instructions to the Parties with respect to the review of the hearing transcript and audio tapes, and with respect to the Parties' briefs on provisional measures.
84.
The Tribunal will address the more relevant procedural matters separately below.

a. The Claimants' Applications for Provisional Measures and the Respondent's Application for Revocation of Provisional Measures

85.
As noted in para. 75 above, on 3 November 2010 the Claimants submitted an Application for Provisional Measures, as well as a request for an emergency temporary order. Specifically, the Claimants requested (Claimants' Application for Provisional Measures, ¶ 43):

a. "an Order preserving the status quo ante by instructing Respondent to withdraw or otherwise cease and desist from enforcing the abovedescribed seizure orders, or from implementing any new such orders against any of the EFDG companies, prior to the Tribunal's issuance of its final award (and that the award itself deal with the matter as appropriate at that time, such as by maintaining the Order in place until Romania has satisfied the terms of the award in full); and

b. an Order that Respondent refrain from taking any other measure against any of the EFDG companies that would aggravate or extend the existing dispute prior to the Tribunal's issuance of its final award."

86.
By Procedural Orders of 5 and 25 November 2010, the Tribunal gave instructions with respect to briefing by the Parties. In accordance with these instructions, on 30 November 2010, the Respondent submitted its observations on the Claimants' Application for Provisional Measures. After further correspondence from the Parties and leave from the Tribunal, on 20 December 2010 the Claimants submitted a reply in support of their Application for Provisional Measures, and the Respondent submitted a rejoinder on 17 January 2011. At the invitation of the Tribunal, the Parties submitted further comments on 9 February 2011.
87.
On March 2, 2011, the Tribunal issued a Decision on the Claimants' Application for Provisional Measures (the "Decision on Provisional Measures"). In that Decision, the Tribunal recommended that the Respondent "inform the Claimants, with a copy to the Tribunal, if it intends to proceed with the seal or forced sale of the seized assets or take any other tax collection measure that could have a similar effect, two months prior to the date in which it intends to implement such seal, sale or other measure, until this arbitration is completed or until reconsideration of this Decision." The Tribunal denied at that stage the remaining requests for provisional measures brought by the Claimants, and invited either Party to apply to the Tribunal for a reconsideration of the Decision if it should consider that the circumstances under which the Decision was made had changed (Decision on Provisional Measures, ¶ 98).
88.
On 4 March 2011, the Claimants informed the Tribunal that the Romanian government had garnished Starmill's bank accounts to satisfy the payment of overdue taxes and associated penalties, in violation of "the spirit, if not the letter, of the Tribunal's Decision [on Provisional Measures]" (Claimants' letter of 4 March 2011, p. 1, or "Claimants' Second Application for Provisional Measures"). The Claimants requested the Tribunal to order the Respondent to (i) lift the current garnishment of Starmill's accounts; (ii) replenish those accounts with any funds that have been transferred to the Government's accounts; (iii) refrain from garnishing the bank accounts of any of Claimants' companies in relation to the taxes and penalties covered by the Decision on Provisional Measures unless it provides the two months' advance notice required by the Decision, and (iv) clarify its position on the impending sale of Starmill's (and the other companies') seized physical assets (Second Application, pp. 3-4). By letter of 7 March 2011, the Tribunal stated that it understood this letter to be a new request for provisional measures, and invited the Respondent to comment.
89.
By letter of 11 March 2011, the Respondent submitted its comments to the Claimants' letter of 4 March 2011, noting that it also considered the letter to be a new application for provisional measures and requesting that Claimants' request be denied with a full award of costs. The Claimants replied by letter of 17 March 2011, reiterating their first three requests for relief but denying that the 4 March letter constituted a new request for provisional measures. The Parties exchanged further correspondence setting out their positions (Respondent's letters of 23 and 31 March 2011, and Claimants' letters of 28 March and 13 and 22 April 2011).
90.
On 27 May 2011, the Tribunal issued a Supplemental Decision on Provisional Measures (the "Supplemental Decision on Provisional Measures") in which it confirmed its Decision on Provisional Measures, with certain amendments. Specifically, the Tribunal recommended that the Respondent inform the Claimants, with a copy to the Tribunal, if it intended to proceed with the seal or forced sale of the seized assets or take any other tax collection measure (including garnishments of bank accounts) that could have a similar effect, two months prior to the date in which it intends to implement such seal, sale or other measure, until this arbitration is completed or until reconsideration of the Supplemental Decision. The Tribunal also recommended that the Parties seek to reach an agreement on a mutually acceptable security or assurance to be provided by the Claimants and that, conditioned upon that agreement, the Respondent should lift the current garnishments over Starmill's accounts. The Tribunal denied the Claimants' request that the garnished accounts be replenished. Once again, the Tribunal invited either Party to apply to the Tribunal for a reconsideration of this Decision if it should consider that the circumstances under which this Decision was made changed (Supplemental Decision on Provisional Measures, ¶ 80).
91.
On 5 July 2011, the Claimants informed the Tribunal of further enforcement actions taken by the Respondent with respect to the Claimants' assets, and requested the Tribunal to confirm that the Supplemental Decision on Provisional Measures covered all assets of the EFDG companies seized by the Respondent at any time until the completion of the arbitration. In a letter of 12 July 2011, the Respondent agreed with the Claimants' interpretation. By letter of 22 July 2011, the Tribunal confirmed that the parties' interpretation concerning the scope of the Supplemental Decision was correct.
92.
On 13 September 2011, the Respondent notified the Tribunal and the Claimants that it intended to take enforcement measures with respect to three EFDG companies: European Food, European Drinks S.A. ("European Drinks") and Transilvania General Import Export SRL ("TGIE"). The enforcement measures consisted of the seizure of further movable and immovable property of the three companies and the garnishment of their bank accounts for approximately EUR 55 million. The Respondent advised that the seized property would remain in the companies' control, to be used in their business. The Respondent attached the notices in respect of the enforcement measures to each of the three EFDG companies ("Garnishment Notices").
93.
On 12 October 2011, the Respondent notified the Tribunal and the Claimants that, pursuant to Romanian tax law, two EFDG companies had been denied renewal of certain authorisations which enabled the companies to postpone the payment of customs and excise duties for goods imported into or manufactured in the EU if the goods were stored in "fiscal warehouses". The Respondent did not consider that the decisions to repeal and deny renewal of the authorisations were within the scope of the provisional measures recommended by the Tribunal, but advised that it would voluntarily refrain from giving effect to the decisions until two months from the date of their communication.
94.
On 14 October 2011, the Claimants submitted an Emergency Supplement to their Application for Provisional Measures ("Claimants' Third Application"), seeking the following emergency interim relief:

a. "preventing the Respondent from proceeding with the garnishments of the bank accounts of European Food, European Drinks and TGIE as set out in the [Garnishment] Notices;

b. ordering the Respondent to refrain from garnishing the accounts of any other EFDC company until the Tribunal issues its Final Award (collectively, the ‘Garnishment Application'); and

c. ordering the Respondent to refrain from repealing the fiscal warehouse authorizations of European Food and Scandic Distilleries until the Parties have fully briefed that issue and the Tribunal issues a decision with respect to it (‘Fiscal Warehouse Application').

d. Insofar as any further briefing may be required on any of these issues or the Tribunal is not able to take up this application immediately, the Claimants further request that the Tribunal issue a temporary emergency order instructing the Respondent to refrain from the acts cited in the preceding paragraph until such time as the Tribunal is able rule upon this application."

95.
The Claimants clarified that they "do not in this application request an order preventing the seizure orders as announced in the [Garnishment] Notices over additional assets up to an aggregate value of €55 million, provided that Romania continues to abide by the existing orders of the Tribunal regarding the seal and forced sale of those assets" (Claimants' Third Application, ¶ 25). The Claimants' Third Application was divided into two applications with separate briefing schedules: the Garnishment Application and the Fiscal Warehouse Application.
96.
On 1 November 2011, the Claimants supplemented their Fiscal Warehouse Application, requesting the Tribunal to order the Respondent to refrain from repealing the fiscal warehouse authorizations until the final award.
97.
The Parties and the Tribunal exchanged correspondence with respect to the briefing schedule and the timing of the enforcement measures. At the invitation of the Tribunal, the Respondent represented that the garnishments would not take effect before 25 November 2011, and that the decision regarding fiscal warehouse authorizations would not take effect before 12 December 2011 (Respondent's letter of 20 October 2011).
98.
On 11 November 2011, in accordance with the agreed briefing schedule, the Respondent submitted its observations on the Claimants' Garnishment Application. On 16 November 2011, the Claimants wrote to rebut certain allegations made by the Respondent with respect to the Garnishment Application, and offered to produce the documentation supporting these allegations at the Tribunal's request. On 18 November 2011, the Tribunal requested the Claimants to produce such supporting documentation and also invited the Respondent to submit any documentation it deemed relevant. The Claimants produced the requested documentation to the Tribunal on 21 November 2011.
99.
On 22 November 2011, the Respondent submitted its comments on the Claimants' letter of 16 November 2011, requesting the Tribunal to dismiss the Claimants' Garnishment Application.
101.
Following a further exchange of correspondence (Respondent's letters of 29 and 30 November and 8 December 2011, and Claimants' letter of 5 December 2011) on the Garnishment and Fiscal Warehouse Applications, on 16 December 2011 the Tribunal issued a Third Decision on Provisional Measures ("Third Decision"). The Tribunal made the following recommendations (Third Decision, ¶ 109):

a. "The Respondent shall refrain from proceeding with the garnishments of the bank accounts of European Food, European Drinks and TGIE as set out in the [Garnishment] Notices.

b. The Respondent shall refrain from repealing the fiscal warehouse authorizations of European Food and Scandic Distilleries until the Tribunal issues its Final Award.

c. The Tribunal otherwise confirms its (First) Decision on Provisional Measures of 2 March 2011. Accordingly, the Respondent shall inform the Claimants, with a copy to the Tribunal, if it intends to proceed with the seal or forced sale of the seized assets or take any other tax collection measure (including garnishments of bank accounts) that could have a similar effect, two months prior to the date in which it intends to implement such seal, sale or other measure, until this arbitration is completed or this Decision is reconsidered.

d. The Parties shall continue to seek to reach an agreement on a mutually acceptable security or assurance to be provided by the Claimants.

e. If either Party considers that the circumstances under which this Decision is made have changed, either Party may apply to the Tribunal for reconsideration of this Decision.

f. The other prayers are dismissed.

g. Costs are reserved for a later decision or award."

102.
The Tribunal noted in its Third Decision that no additional security had been provided by the Claimants in respect of the lifting of the garnishment on Starmill's accounts, a condition that was imposed by the Tribunal in its Supplemental Decision. It did, however, note that the Micula brothers made a good faith offer of certain properties to satisfy their debts, and requested that the Claimants submit a formal valuation of these properties as soon as it was finalized. Although the Tribunal granted the Claimants' Garnishment Application, it repeated that it expected the Claimants to supply some form of security and recommended that the Parties continue to seek to reach an agreement on a mutually acceptable security or assurance.
103.
On 14 March 2012, the Respondent asked the Claimants to produce the valuation report pursuant to the Tribunal's instructions in the Third Decision. On 30 March 2012, the Respondent repeated its request. Following further exchanges of correspondence (Claimants' letters of 17 April, 7 June and 11 July 2012 and Respondent's letters of 18 May, 21 June, 19 and 20 July 2012), the parties failed to reach a mutual agreement on security to be provided by the Claimants.
104.
On 1 August 2012, the Respondent filed an Application to Revoke Provisional Measures ("Respondent's Revocation Application") seeking the revocation of the provisional measures recommended by the Tribunal, or, in the alternative, the suspension of the provisional measures until the Claimants had posted security adequate to protect the Respondent's right to collect taxes owed by the eleven EFDG companies. The Respondent also requested that the Tribunal's Award provide that any amount awarded to any of the Claimants (whether as damages or costs) be subject to set-off against the EFDG companies' tax debts, including lawful interest and penalties. At the Tribunal's invitation, the Parties consulted and agreed on a briefing schedule to submit their comments on the Respondent's Revocation Application. The Parties informed the Tribunal of this briefing schedule on 17 August 2012.
105.
On 28 September 2012, the Claimants submitted their observations on Respondent's Revocation Application. The Claimants opposed the Respondent's Application in its entirety and requested that the provisional measures remain in force until the date of the Award. In addition, the Claimants made three requests of their own: (i) that the Award provide that the Respondent be enjoined from any further tax collection measures until full payment of any damages awarded to the Claimants by the Tribunal, (ii) that the Tribunal declare that the Respondent cannot set-off tax debts as requested, and (iii) that the Respondent is ordered to pay all the Claimants' costs in relation to Respondent's Application.
106.
On 8 October 2012, the Respondent submitted a request for production of the valuation reports in regard to the properties which the Claimants had offered to the Respondent as payment in kind to extinguish their existing tax debts. On 18 October 2012, the Claimants opposed production of the valuation reports, stating that the arbitral proceedings were not the appropriate forum to negotiate the details of a proposed payment in kind and that they were prepared to make the reports available to the Romanian authorities in direct meetings.
107.
On 30 October 2012, the Tribunal issued a Procedural Order in which it ordered the production of the valuation reports, if the Claimants confirmed that the relevant properties were offered as security for their tax debts owed to the Respondent, rather than as payment in kind. The Tribunal found that the reports were relevant and material to its assessment of the Claimants' good faith efforts to provide additional security to meet the requirement of proportionality, so that they were thus necessary for the determination of the Respondent's Revocation Application. On 9 November 2012, the Claimants confirmed that the properties were offered as payment in kind and not as security, but produced the valuation reports nonetheless. They also mentioned additional assets as potential security. Valuation reports concerning these additional assets were submitted on 23 November 2012.
108.
On 21 December 2012, the Respondent filed its reply concerning its Revocation Application and, on 15 February 2013, the Claimants filed their rejoinder.
109.
On 5 March 2013, the Claimants submitted their Fourth Application for Provisional Measures ("Claimants' Fourth Application"). The Claimants informed the Tribunal that, on 5 March 2013, Romania had seized brewery-related assets belonging to European Food and requested that the Tribunal order provisional relief to stop the seizure and forced execution of assets. The Claimants argued that the seizure violated the existing provisional measures because Romania had given no notice of the measures and planned a forced sale if the Claimants' tax debt was not paid within 15 days.
110.
At the invitation of the Tribunal, the Respondent submitted its response to the Claimants' Fourth Application on 8 March 2013. It argued that the seizure of assets belonging to European Food did not constitute a violation of the provisional measures in place because no notice requirement applied to the seizure of assets and Romania did not intend to proceed with a forced sale of the assets. The Respondent contended that the seizure was justified because of time limitations on debt collection efforts under Romanian law. The Parties filed further comments by letters of 14 March 2013 (Claimants) and 21 March 2013 (Respondent).
111.
On 27 March 2013, the Tribunal issued its Fourth Decision on Provisional Measures ("Fourth Decision") concerning the Respondent's Revocation Application. The Tribunal concluded that the Claimants had made good faith attempts to reach an agreement with the Respondent regarding a mutually acceptable security and that the provisional measures preventing garnishment of the bank accounts of European Food, European Drinks and TGIE remained proportional. It further considered that the circumstances surrounding the fiscal warehouse authorizations had not changed to such an extent as to warrant the revocation, suspension or modification of the provisional measures in question. The Tribunal thus confirmed the existing provisional measures and dismissed Romania's request for revocation or suspension of those measures (Fourth Decision, ¶ 119). It further ruled that the Claimants' request for post-award injunctive relief concerning Romania's tax debt collection measures, as well as the Parties' requests with respect to the set-off of tax debts against a pecuniary award in favor of the Claimants, would be deferred for determination in the Award.2
112.
On 5 April 2013, the Tribunal issued its Fifth Decision on Provisional Measures ("Fifth Decision") concerning Claimants' Fourth Application. The Tribunal found that the mere seizure of assets without providing any notice that did not prevent the Claimants from continuing to use those assets did not, in and of itself, violate the provisional measures recommended by the Tribunal. The Tribunal thus dismissed Claimants' Fourth Application and all other prayers for relief (Fifth Decision, ¶ 39). The Tribunal also urged the parties to continue seeking a mutually acceptable agreement on security, as previously recommended (Fifth Decision, ¶ 38).

b. The Claimants' Renewed Application for a Site Visit

113.
On 9 December 2010, the Claimants submitted a renewed application for a site visit, specifying which allegations a site visit would help prove or disprove and commenting on the Tribunal's authority to order it. On 17 December 2010, the Respondent objected to Claimants' application, stating that a site visit was unnecessary and would be procedurally unfair.
114.
After careful consideration of each Party's position and a review of the evidence in the record, the Tribunal concluded that a site visit was neither necessary nor useful for the resolution of the dispute. Accordingly, by Procedural Order of 20 January 2011 the Tribunal denied the Claimants' application for a site visit. In that same Procedural Order, the Tribunal gave further directions to the Parties with respect to oral closing arguments.

c. The Claimants' Revised Request for Relief

115.
On 20 December 2010, the Claimants submitted a revised request for relief (the "Revised Request for Relief").3 On 10 January 2011, the Respondent objected to the procedural propriety and content of the Revised Request for Relief and requested that the Tribunal reject specific evidence. The Parties exchanged further submissions on this matter (Claimants' letters of 31 January 2011 and 9 February 2011, and the Respondent's letter of 2 February 2011).
116.
The Tribunal ruled on this matter by means of a Procedural Order issued on 6 April 2011. With respect to the procedural propriety of the Revised Request for Relief, the Tribunal declined to reject any evidence submitted by the Claimants, but found that the Claimants' reliance on certain quantum experts was new, and thus invited the Respondent to rebut these testimonies in writing or by further examination of those experts.
117.
The Tribunal also found that there had been no prejudice to the Respondent as a result of the reformulation of the Claimants' expropriation case or of their claim for interest. However, it found that the Claimants' request that any damages be awarded to the Individual Claimants on a 50/50 basis, and in the alternative that any damages be awarded to all five Claimants, was a reformulation of the Claimants' case that raised several issues of procedure and merits. The Tribunal also requested the Parties to address the merits of the Claimants' damages case in their post-hearing briefs and gave further directions with respect to briefing. The Tribunal also noted that the Claimants' reformulation of their damages case could affect the procedural schedule for closing arguments. It thus invited the Claimants to confirm if they wished to maintain their request for an award of damages to be distributed to the Individual Claimants on a 50/50 basis. The Claimants provided this confirmation on 15 April 2011.

d. Post-hearing briefs and oral closing arguments

118.
The Tribunal's Procedural Order of 25 November 2010 provided that the Parties would present oral closing arguments, setting as a tentative date 1-2 March 2011. It also provided that the Parties could submit voluntary post-hearing briefs.
119.
On 25 January 2011, the Respondent informed the Tribunal that its Romanian counsel would not be available for a hearing on 1-2 March 2011. After consulting with the Parties, on 3 February 2011 the Tribunal determined that the hearing for the Parties' closing arguments would take place on 6 and 7 June 2011.
120.
As mentioned in paragraph 116 above, on 6 April 2011 the Tribunal issued a Procedural Order that ruled on the Claimants' Revised Request for Relief and gave directions to the Parties with respect to further briefing. Following the Claimants' confirmation that they wished to maintain their reformulated damages case, at the Tribunal's invitation the Parties consulted on the next procedural steps. On 4 May 2011 they informed the Tribunal that they had reached an agreement with respect to post-hearing briefs, additional submissions on damages, the hearing schedule and cross-examination of experts.
121.
On 12 April 2011, the Respondent requested leave to submit three new fact exhibits. After hearing both Parties' positions, on 29 April 2011 the Tribunal determined that the record was sufficiently complete on the subject matters of those documents insofar as such matters were relevant to the outcome of the dispute, and denied the Respondent's request.
122.
On 6 May 2011, in accordance with its Procedural Order of 25 November 2010, the Tribunal submitted to the Parties a list of questions to be addressed in their closing arguments.
123.
On 13 May 2011, the Parties submitted their written post-hearing briefs. On 27 May 2011, the Respondent submitted an additional submission with respect to the Claimants' Revised Request for Relief in accordance with the Tribunal's Procedural Order of 6 April 2011.
124.
On 6 and 7 June 2011, the Parties and the Tribunal held a hearing in Paris. During the course of the hearing, the Parties presented their oral closing arguments and responded to questions from the Tribunal. The Tribunal was addressed by Messrs. Fleuriet, Gaillard, Reed and Schwartz, on behalf of the Claimants, and by Messrs. King, Petrochilos and Rubins, on behalf of the Respondent.
125.
The following persons participated in the hearing:

On behalf of Mr. Ioan Micula and the Corporate Claimants :

Mr. Eric Schwartz King & Spalding
Mr. Ken Fleuriet King & Spalding
Mr. Ric Toher King & Spalding
Ms. Amy R. Frey King & Spalding
Mr. Ioan Micula Claimant
Ms. Nathalie Micula Representative for Ioan Micula, European Food, Starmill, and Multipack
Ms. Olivia Micula Representative for Ioan Micula, European Food, Starmill, and Multipack
Ms. Dorin Floruta Representative for Ioan Micula, European Food, Starmill, and Multipack
Mr. Vasile Popa-Bota Representative for Ioan Micula, European Food, Starmill, and Multipack
Mr. Mircea Halbac Representative for Ioan Micula, European Food, Starmill, and Multipack
Mrs. Oana Popa Representative for Ioan Micula, European Food, Starmill, and Multipack
Mr. Ciprian Popa Representative for Ioan Micula, European Food, Starmill, and Multipack

On behalf of Mr. Viorel Micula :

Prof. Emmanuel Gaillard Shearman & Sterling
Mr. David Reed Shearman & Sterling
Mr. Robert Williams Shearman & Sterling
Ms. Veronika Korom Shearman & Sterling
Mr. Richard Kiveal Shearman & Sterling
Ms. Gresa Matoshi Shearman & Sterling
Mr. Viorel Micula Claimant
Ms. Doina Micula Representing Mr Viorel Micula
Mr. Victor Micula Representing Mr Viorel Micula
Ms. Ioana Aron Blahuta Representing Mr Viorel Micula
Ms. Medora Purle Representing Mr Viorel Micula
Mr. Calin Vidican Representing Mr Viorel Micula
Mr. Cristian Flora Representing Mr Viorel Micula
Ms. Eva Fogarassy Representing Mr Viorel Micula

On behalf of the Respondent :

Ms. Georgeta Harapcea Nestor Nestor Diculescu Kingston Petersen
Mr. D. Brian King Freshfields Bruckhaus Deringer LLP
Mr. Georgios Petrochilos Freshfields Bruckhaus Deringer LLP
Mr. Boris Kasolowsky Freshfields Bruckhaus Deringer LLP
Mr. Noah Rubins Freshfields Bruckhaus Deringer LLP
Mr. Jonathan J. Gass Freshfields Bruckhaus Deringer LLP
Mr. Ben Juratowitch Freshfields Bruckhaus Deringer LLP
Mr. Sami Tannous Freshfields Bruckhaus Deringer LLP
Ms. Evgeniya Rubinina Freshfields Bruckhaus Deringer LLP
Mr. Moritz Keller Freshfields Bruckhaus Deringer LLP
Ms. Smaranda Miron Freshfields Bruckhaus Deringer LLP
Mr. Tunde Oyewole Freshfields Bruckhaus Deringer LLP
Mr. Ignacio Stratta Freshfields Bruckhaus Deringer LLP
Ms. Kate Bousfield Freshfields Bruckhaus Deringer LLP
Mr. Nishad Morjaria KPMG

126.
A transcript of the hearing was distributed among the Parties.

e. Closure of the Proceeding and Submissions on Costs

127.
On 14 June 2013, in accordance with ICSID Arbitration Rule 28(2), the Tribunal invited the Parties to file statements of costs by 12 July 2013, and their comments on the other Parties' statements of costs by 2 August 2013. The Parties were given the opportunity to inform the Tribunal if they saw a need for submissions on costs, rather than statements. By the same letter, the Tribunal declared the proceeding closed pursuant to Rule 38(1) of the ICSID Arbitration Rules. The Parties subsequently agreed that they would file submissions on costs, but that they would not file any reply submissions.
128.
On 19 July 2013, the Parties submitted their respective submission of costs, each requesting an award requiring the other party to bear the entirety of the expenses incurred by the parties, the fees and expenses of the members of the Tribunal, and the charges for the use of ICSID's facilities. The Claimants also requested compound interest on a costs award. The Claimants' submission was accompanied by an Annex and Exhibits C-1035 to C-1044. The Respondent's submission was accompanied by two declarations of co-counsel Nestor Nestor Diculescu Kingston Petersen and Freshfields Bruckhaus Deringer LLP, Exhibits R-245 to R-268 and Legal Authorities RL-375 and RL-376.
129.
On 7 October 2013, the period of 120 days for the rendering of the award was extended pursuant to Rule 46 of the Arbitration Rules.

III. FACTUAL BACKGROUND

A. OVERVIEW

130.
The present dispute arises from Romania's introduction of certain economic incentives for the development of disfavored regions of Romania, and their subsequent revocation in the context of Romania's accession to the European Union ("EU").
131.
Specifically, in 1998, Romania enacted Emergency Government Ordinance 24/1998 ("EGO 24/1998" or "EGO 24"), which made available certain tax incentives, including customs duties exemptions (called alternatively by the Parties the "Incentives" or the "Facilities"), to investors in certain disfavored regions who met the requirements set out in EGO 24/1998 and its implementing legislation. The Claimants claim that, in reliance on those incentives, and in reliance on the expectation that they would be maintained for a 10-year period, they made substantial investments in the Ştei-Nucet-Drâgâneşti disfavored region located in Bihor County, northwestern Romania. The Claimants further claim that Romania's revocation of these incentives (effective 22 February 2005) was in breach of its obligations under the BIT and caused damages to the Claimants, as described further below.
132.
Romania does not dispute that in 1998 it passed EGO 24, which offered tax incentives to investors investing in disfavored regions, nor does it dispute that, effective 22 February 2005, it repealed most of the tax incentives offered under EGO 24, with the exception of a profit tax incentive. However, it denies that this revocation breached any of its obligations under the BIT. In addition, it argues that this revocation was necessary to comply with EU state aid obligations, which in turn was necessary for Romania to complete its accession to the EU.
133.
The Claimants began to invest in Romania in 1991, and continued investing throughout the next two decades. During this time, Romania was undergoing its economic transition from communism to a market economy. As stated by the Respondent, during this time "the factual record [...] portrays a government trying to pursue two policies that came into increasing conflict" (R-Rejoinder, ¶ 103): one directed to the development of its disfavored regions, and another directed to obtaining accession to the EU.
134.
There are, therefore, three main areas of factual inquiry for the Tribunal: the evolution of Romania's policy for the development of disfavored areas, the history of the Claimants' investments, and Romania's EU accession process.
135.
The Tribunal will first describe the evolution of Romania's policy for the development of disfavored areas, in particular the EGO 24 framework, up to the point at which the Claimants allege that they began investing in reliance on it (Section B). The Tribunal will then describe the Claimants' investments (Section C). It will then describe the main facts surrounding Romania's accession process, together with related events affecting the EGO 24 framework as that process developed (Section D).
136.
Sections B, C and D are meant to give a general overview of the facts of the present dispute. They do not include all factual aspects which may be of relevance, particularly as they emerged from the extensive testimony of witnesses and experts at the hearing. The latter, as far as is relevant, will be discussed in the context of the Tribunal's analysis of the disputed issues.

B. LEGAL FRAMEWORK FOR THE DISFAVORED REGIONS

1. Romania's efforts to attract investment in the early 1990s

139.
This Decree Law was replaced a year later by Law 35/1991 on foreign investment ("Law 35", enacted on 3 April 1991 and effective 10 April 1991, Exh. C-275). To "induce foreign investment in Romania", this law offered the following incentives for new investments made by foreign investors [later amended to include domestic investors] (Arts. 12-15):

a. An exemption from customs duties related to certain types of imported machinery, equipment and means of transportation;

b. A two-year exemption from customs duties on imported raw materials;

c. A profit-tax exemption ranging from 2 to 5 years, depending on the type of investment; and

d. A profit-tax reduction for certain investments following the expiration of the profit-tax exemption.

140.
On 5 August 1996, Romania passed Government Ordinance No. 27/1996 ("GO 27/1996", Exh. C-276), which offered certain benefits to individuals domiciled or working in some localities from the Apuseni Mountains and the Biosphere Reserve (also known as "the Danube Delta"). These benefits included a corporate profit tax incentive for investors ranging from 5 to 10 years, depending on the location of the investment.
141.
In the following years, Romania began serious efforts to promote regional development, which was identified as "one of the essential elements of the general strategy reform of Romania" in Romania's Government Program for 1998-2000. One of the objectives of this regional development was "[s]trengthening the ability of Romania to undertake responsibilities as a future member of the European Union." The program also stated that the Government defined a minimum set of priorities, "achievement of which is in full compliance with the criteria and objectives of the National Program on the Accession of Romania to the European Union." (Annex 2 to Government Decision 6 issued 15 April 1998, Exh. C-567).
142.
In this context, on 16 July 1998, Romania passed Law 151/1998 on Regional Development (the "Regional Development Law", Exh. C-392). Among its objectives was the "diminution of existing regional imbalances by stimulation of a balanced development, by accelerated recovery of delays in the development of deprived zones as a result of some historical, geographic, economic, social, and political conditions, and prevention of the production of new imbalances." (Art. 1(a)). The methodological norms issued for Law 151 (Exh. C-392) stated that the objective of regional development was the improvement of the economic performance of certain development regions, and that such objective had the support of the Government and the EU (Art. 1).
143.
The Regional Development Law divided the country into 8 development regions. The area in which the Claimants invested (the Ştei-Nucet-Drâgâneşti region in Bihor County) is located in the North West Regional Development Area, and was managed by the NW-Regional Development Agency (NW-RDA). A key objective of the NW-RDA was to "increase[e] the living standard and long-lasting social-economic development of the region within a European context", by inter alia increasing the attractiveness of the region, establishing a business environment and promoting longlasting development (Exh. C-393, Section III.2).
144.
At the time of these reforms, unemployment levels in Bihor County were high. In its effort to restructure the mining industry, between 1997 and 2005 the Romanian government closed down over 500 uneconomic mines. By the end of 1998, approximately 100,000 miners were out of work. Unemployment was felt strongly in Bihor County, which had been dependent on mining for many years (Exh. C-319, C-320, C-321, C-325, C-566).

2. EGO 24/1998

145.
It was in this context that on 30 September 1998 (effective 2 October 1998), Romania adopted Emergency Government Ordinance No. 24/1998 ("EGO 24/1998" or "EGO 24", Exh. R-5 or C-38). EGO 24/1998 established the legislative framework for the granting of certain incentives to investors investing in certain "disfavored" regions.
146.
EGO 24/1998 was subsequently approved and amended by Law No. 20/1999 of 15 January 1999 (effective 19 January 1999) (Exh. C-39), and a renumbered version containing the amendments made by Law 20 was republished on 8 November 1999 (Exh. R-68). It is on this republished version that the Claimants claim they relied. As a result, for the sake of simplicity, henceforth all references to EGO 24/1998 will refer to its reformulated version republished on 8 November 1999 (Exh. R-68).
147.
EGO 24/1998 provided that the Government could declare the creation of certain "disadvantaged areas", in response to proposals of the National Council for Regional Development (Art. 3). This declaration would be done by means of a "government decision", which would also approve (a) the period for which a geographical area would be declared a disadvantaged region, (b) the fields of interest for investments, and (c) "the required financing and advantages provided by law, and granted to the investors" (Art. 4). Article 5 provided that "[a] geographical area may be declared a disadvantaged area for a period of at least 3 years, but for not more than 10 years, with possibility for extension, under the conditions of this Emergency Ordinance."
148.
Article 6(1) went on to say that investors meeting certain requirements "will be granted the following advantages for their new investments in these regions", and proceeded to list the incentives:

Art. 6. - (1) Privately held companies, Romanian legal entities, as well as small or family businesses, authorized pursuant to the Decree-Law no. 54/1990 concerning the organization and operation of free initiative-based economic activities that are headquartered and conduct business within the disadvantaged region, will be granted the following advantages for their new investments in these regions:

(a) exemptions from payment of:

- customs duties and value added tax on machinery, tools, installations, equipment, means of transportation, other goods subject to depreciation which are imported for the purpose of making investments in that region;

- value added tax on machinery, tools, installations, equipment, means of transportation, other goods subject to depreciation manufactured domestically with the purpose of making investments in that region;

[the " Machinery Incentive " or " Machinery Facility "]

(b) refunds of customs duties on raw materials, spare parts and/or components necessary for achieving the investor's own production in that region. The refunds will be made based on the approval by the regional development agencies of the companies' production sales documents. The funds necessary for the refund of the customs duties will be provided to the Agency for Regional Development from the Regional Development Fund. In case [of] unprivileged regions belonging to two or more administrative-territorial units, the funds necessary for the refund of the customs duties will be provided by the National Agency for Regional Development from the National Development Fund [the " Raw Materials Incentive " or " Raw Materials Facility "];

(c) exemptions from payment of the profit tax during the existence of the disadvantaged region [the " Profit Tax Incentive " or " Profit Tax Facility "];

(d) exemptions from payment of the taxes collected for the changes of the destination of the land or for the removal from the agricultural use of some plots of land that had been earmarked for the fulfillment of the investment [the " Agricultural Land Incentive " or " Agricultural Land Facility "][;]

(e) preferred payments from the Special Development Fund of the Romanian Government, which was established pursuant to the Emergency Government Ordinance no. 59/1997 concerning the purpose of the funds collected by the State Property Fund during the privatization process of the companies where the State is a shareholder, with the purpose of:

- encouraging the exports of the final products and/or for the industrial services, as the case may be;

- guaranteeing external credits, within the annual limit set by the Ministry of Finance;

- financing special programs, approved by Government Decision;

- financing investment projects for companies through the state's participation in the share capital.

[the " Subsidies "]

2) The advantages and the financing stipulated in paragraph (1) letter e) is established through a Government Decision.

149.
Article 8 provided the requirements for investors to qualify for the incentives: "[t]he advantages stipulated in the present Emergency Ordinance are granted to businesses, privately held Romanian legal entities, as well as to small and family businesses, authorized according to Decree-Law No. 54/1990, who have their headquarters and conduct business in this area, if the investment made yields new jobs for the unemployed or for their family members who live in the disadvantaged area."
150.
Articles 7 and 9 set out investors' obligation to stay in the disadvantaged area for twice the period they received the incentives, as follows:

Art. 7. - If an investment which is benefiting from the provisions of the present Emergency Ordinance is voluntarily liquidated in a period of time shorter than twice the period of time in which they enjoyed the advantages granted through the Government Decision to create the underprivileged area, the liquidator(s) is/are obligated first to pay the funds related to the advantages granted in accordance with the provisions of the present Emergency Ordinance, to the State Budget, the State Social Insurance Budget and the Special Funds Budgets from the funds resulting from the liquidation procedure.

[...]

Art. 9. - Businesses established in a disadvantaged area may voluntarily cease to operate in the respective area, and those opening subsidiaries as legal entities in such an area may close them or move the location of their headquarters out of the disadvantaged area in a period shorter than the one provided in Art. 7 only if they pay the funds they owe to the State Budget, the State Social Insurance Budget and the Special Funds Budgets related to the advantages granted in accordance with the provisions of the present Emergency Ordinance.

151.
Finally, Article 15 provided that "the Government will approve, through a decision, the methodological standards to be used for the implementation of this Emergency Ordinance."

3. Government Decision 194/1999 and the 1999 Methodological Norms

152.
By means of Government Decision 194/1999, dated 25 March 1999 (Exh. C-31, also C-280), Romania designated the Ştei-Nucet region as a disfavored region for a period of ten years, starting on 1 April 1999. The Ştei-Nucet region is located in Bihor County in the northwestern part of Romania, and its primary industry at the time was the mining and oil industry. GD 194/1999 also stipulated that all six incentives offered under EGO 24/1998 would be available to investors in the Ştei-Nucet region while that region was designated disfavored, and set out the types of investments that could benefit from the incentives. Specifically, GD 194/1999 provided:

Art. 1. - The mining area of Ştei-Nucet, Bihor county, is established as a disfavoured region.

Art. 2. - The geographical boundaries of the mining area of Ştei-Nucet, Bihor county are represented by Ştei and Nucet, as administrative-territorial units having a surface of 4,678 ha, according to annex no. 1.

Art. 3. - The mining area referred to in art. 1 will be established as a disfavoured region for a period of 10 years.

Art. 4. - During the existence of the disfavoured region, established according to this decision, the facilities under annex no. 2*) will be granted . ["se acordâ" in the Romanian original]

153.
In turn, Annex 2 of GD 194/1999 listed all of the incentives provided under Article 6(1) of EGO 24, with slightly amended language. Specifically, it stated:

Companies the majority of the share capital of which is privately owned, Romanian legal entities, as well as the private investors or family associations authorized pursuant to the "Decree-Law no. 54/1990 on the organization and operation of economic activities based on free initiative" that were set up after the date of establishment of the disfavoured region and have their registered seat and operate in the disfavoured region, will be granted the following facilities for new investments in these regions:

(a) an exemption from payment of:

- custom duties and value added tax on machinery, tools, installations, equipment, means of transportation, other goods subject to depreciation which are imported with a view to performing and conducting investments in that region;

- value added tax on machinery, tools, installations, equipment, means of transportation, other goods subject to depreciation manufactured in the country with a view to performing and conducting investments in that region;

(b) refund of custom duties on raw materials, spare parts and/or components necessary for achieving the investor's own production in that region;

(c) an exemption from payment of profit tax during the existence of the disfavoured region;

(d) an exemption from payment of taxes collected for changes in the nature of land or for conversion of agricultural plots of land into industrial land for the implementation of the investment;

(e) preferred payment of amounts available from the Special Development Fund at the disposal of the Romanian Government that was established pursuant to the "Emergency Government Ordinance no. 59/1997 on the amounts collected by the State Property Fund during the privatization process of the companies in which the State is shareholder" to - encourage the export activities for the final products and/or for the industrial services, as the case may be;

- guarantee the external credits within the annual limit set by the Ministry of Finance;

- finance special programs approved by Government Decision;

- finance investment projects for companies through the state's participation in the share capital.

154.
On 29 June 1999, Romania issued Government Decision No. 525/1999, which set out the methodological norms for the application of EGO 24/1998 (the "1999 Methodological Norms", Exh. R-6). (The 1999 Methodological Norms repealed a previous version issued in December 1998 which has not been relied upon in this arbitration).
155.
With respect to the requirements for granting the incentives, Article 5 of the 1999 Methodological Norms provided:

(1) The incentives provided by the law shall be granted [in Romanian, "se acorda"] pursuant to the certificate of investor in a disfavored area, which is issued, upon the business entity's request, by the Regional Development Agency under the jurisdiction of which the head office of such business entity is located.

[…]

(3) Business entities requesting the issuance of the certificate of investor in a disfavored area shall prove they meet the requirements set forth by the [EGO].

(4) Emerging business entities, unable to produce evidence regarding the investment, the commissioning of the operations and the creation of new jobs, may request the issuance of a temporary certificate of investor in a disfavored area, for a maximum of 3 months. In case they do not bring, during this period, evidence of having met the requirements set forth by the [EGO], they shall be compelled to pay and return, respectively the equivalent value of all the incentives they have benefited of.

(5) The temporary certificate shall be issued pursuant to the business entity's commitment regarding the investment and the creation of new jobs.

[...]

C. THE CLAIMANTS' INVESTMENTS

156.
The Individual Claimants claim to be the majority shareholders of a group of companies (the European Food and Drinks Group or "EFDG") engaged in food and beverage production in the disfavored region of Ştei-Nucet-Drâgâneşti, Bihor County. The Corporate Claimants (European Food, Starmill and Multipack) are part of the EFDG, and are thus owned directly or indirectly by the Individual Claimants.
157.
The evolution of the Claimants' investments can be separated in two phases: their initial investments (principally in the beverage production business), allegedly made in reliance on the incentive programs that predated EGO 24, and their investments (in the food and beverage production business), allegedly made in reliance on the EGO 24 incentives.

1. The Claimants' initial investments in reliance on previous incentive regimes

158.
The Individual Claimants allege that their beverage business was initially developed in reliance on the incentive programs established by Law 35 and GO 27, predecessors to EGO 24. (C-Reply, ¶¶ 62-124; Third WS of I. Micula ¶¶ 10-27). Law 35 (C-275) was enacted in 1991 to attract foreign investors to Romania by offering the incentives for new investments, including customs duties and profit tax exemptions (see ¶ 139 above). GO 27/1996 (Exh. C-276) was enacted in 1996 to attract investments in Bihor County and other disadvantaged regions, and provided a corporate profit tax incentive ranging from 5 to 10 years, depending on the location of the investment (see ¶ 140 above).
159.
The Claimants claim that these incentives allowed them to produce a wide variety of beverages at a low cost. Law 35's encouragement of additional production activities and the Claimants' knowledge of advanced technologies enabled them to sell their beverages in a variety of different packages, including TetraPak and PET packaging. Capitalizing on this expertise, they began to produce intermediate products related to packaging (C-Reply, ¶¶ 81-96, Third WS of I. Micula, ¶¶ 10-24).
160.
After the success of their initial investments, Messrs. Micula expanded their beverage production business, building what would become an integrated system of production companies. All of the core companies, with the exception of the Corporate Claimants and Scandic Distilleries, were established under Law 35 (C-Reply, ¶¶ 77, 81-96; Third WS of I. Micula, ¶ 29).4
161.
The Claimants claim that their business model was premised on the existence and specific form of the incentives. Because an investor could benefit from Law 35 incentives each time he created a new company, the Law 35 incentives encouraged the establishment of an expanding group of companies. New companies, and thus the expansion of Claimants' production business, were planned and created to coincide with the expiration of the incentives for older companies. The new companies and investments were integrated into the existing companies and investments, so that all companies functioned cooperatively to create, manufacture, package, and distribute products efficiently (C-Reply, ¶¶ 77-80; Third WS of I. Micula, ¶¶ 26-27; WS of M. Ban, ¶ 27).
162.
The Claimants allege that this integration allowed them to realize an increased level of profit. They also state that profits were consistently re-invested to support the expansion of the business and to take advantage of the tax profit exemption under Law 35. Moreover, the raw materials customs duty exemption in Law 35 encouraged production activities, because it only applied to raw materials used to produce new end-products. It thus encouraged a proliferation of businesses that worked together to produce a variety of products, and provided a competitive advantage because the incentives allowed the companies to keep product prices low (C-Reply, ¶¶ 80-81, Third WS of I. Micula, ¶ 25).
163.
The Claimants claim that they were able to successfully expand their production activities by using savings from the incentives programs and their profits, which they consistently reinvested in the business. The Claimants claim that they followed this approach throughout the years: using the realized savings during the time in which the incentives were offered to reinvest and build facilities that were functional and profit-producing by the time the incentives expired. (C-Reply, ¶ 96).

a. On 19 October 1990, Messrs. Micula allegedly incorporated the Romanian company Transilvania General Import Export S.R.L ("TGIE") (Claimants' "Correct Timeline of Messrs. Micula's Investments", C-Reply at page 25). The Claimants allege that this company was set up to benefit from Law 35/1991, as it was originally set up for the five years for which Law 35 granted corporate profit tax exemptions (C-Reply, Note 102). The Tribunal notes however that Law 35 was enacted after TGIE's stated date of incorporation, so it understands the Claimants to be saying that TGIE was established to benefit from the earlier Decree Law 96/1990, which was later replaced by Law 35. That being said, the Tribunal also notes that, according to the information provided by the Bihor Trade Register Office (Exh. R-60) and TGIE's 1993 Fiscal Report (Exh. C-356), TGIE was assigned its trade register reference number in May 1991. TGIE's date of incorporation is therefore not established with certainty.

b. From June 1993 to April 1995, Messrs. Micula incorporated or acquired an interest in ten Romanian companies, including European Drinks S.A. and Rieni Drinks S.A. (Claimants' "Correct Timeline of Messrs. Micula's Investments", C-Reply at page 25; R-CM, Figure 1, p. 7; Exh. R-60 and R-61).

c. From November 1996 to July 1998, the Claimants incorporated or acquired an interest in three additional Romanian companies (Claimants' "Correct Timeline of Messrs. Micula's Investments", C-Reply at page 25; R-CM, Figure 1, p. 7; Exh. R-60 and R-61.)

d. On 8 July 1997, the Claimants, through their company Edri Trading SRL purchased shares in SC Ipic Bucaresti S.A., a previously state-owned company which owned 88,000 square meters of land in Bucharest (Third WS of I. Micula, ¶¶ 31-36; Tr., Day 2, 211, Day 3, 133,141,145-150 (I.Micula); Exh. C-346; C-439).

164.
In turn, the GO 27 incentives motivated the Claimants to relocate certain projects to Drâgâneşti (in the Apuseni region of Bihor County, which was expressly covered by GO 27). In particular, the Miculas relocated the distillery for what would eventually become Scandic Distilleries from the Madaras region to Drâgâneşti (C-Reply, ¶¶ 105110). Other companies developed new projects in Bihor County to realize GO 27 benefits (C-Reply, ¶¶ 111-118).
165.
The Claimants claim that their beverage business was very successful. By 2001, they state that European Drinks held an estimated 55% of the total carbonated drink market in Romania and a 51% share of the bottled mineral water market (C-Reply, ¶ 87).

2. The Claimants' investments in reliance on the EGO 24 incentives

166.
After Romania's introduction of the EGO 24 incentives, the Claimants allege that they built a large, highly integrated food production platform in reliance on these incentives, in particular the Raw Materials Incentive. The Respondent disputes this reliance, the Claimants' description of their business plan and the Claimants' intention to build certain parts of the platform.
167.
Specifically, the Claimants allege that, starting in 1998, they expanded their business under a ten-year plan to capitalize on the EGO 24 incentives with the objective of building an integrated food platform, incorporating several companies in the process.5 In 1999 they incorporated European Food (Claimant 3), which as explained below was the first Corporate Claimant to benefit from the EGO 24 program (see paragraph 174 below). The Claimants state that they imported the majority of their raw material products through European Food, which brought them customs duties savings and allowed them to pursue a two-phase expansion plan (C-Reply, ¶¶ 161-170).
168.
The first phase consisted in production of fast-moving consumer products new to the Romanian market, which had significant market potential and would generate quick cash flow. Together with the incentive savings, this approach would allow the companies to integrate vertically and achieve economies of scale. The companies could thereby save on operational costs and minimize waste and energy consumption.
169.
In this context, in February 2002 the Claimants incorporated Starmill and Multipack (Claimants 4 and 5):6

a. Starmill was incorporated to establish integrated in-house grain milling facilities. It was designed to provide the milling capacity necessary for the planned brewery, but started as a corn mill which provided raw materials for the distillery. It was also responsible for the production of flour for several food products. According to the Claimants, through the use of the Raw Materials Incentive, Starmill would create cost efficiencies to help carry the businesses forward after the incentives expired. The Claimants claim that they made substantial investments for Starmill, including the purchase of land and construction (C-Reply, ¶¶ 197-200).

b. Multipack was incorporated to carry out the packaging and labeling for nearly all of the companies' products. The Claimants also allege that it relied heavily on the Raw Materials Incentive, and required substantial investments and created over 200 new jobs (C-Reply, ¶¶ 201-204).

170.
The second phase of the Claimants' alleged expansion plan was to build a brewery, the core capital expenditure for which would be funded by the profits from the other investments. According to the Claimants, the construction and integration of the brewery consisted of 4 components:

a. A state-of-the-art brewery with an initial capacity for 2M hectoliters/year, expandable to 6M.

b. A malt plant, which would reduce the cost of malt by in-house manufacture;

c. A canning plant, which would reduce packaging costs;

d. A co-generation plant, which would use the biomass by-products of the brewery and other food and beverage production, and would save costs and produce revenue through sales back to the state of excess electricity.

171.
The Claimants allege that in 2001 they started construction of the brewery (component (a) of paragraph 170 above), which was integrated into the other facilities of the companies. The first phase of construction was com pleted in 2003 and the second in 2006. (C-Reply, ¶¶ 205-207).
172.
The Claimants claim that they had plans to build the components identified in letters (b) through (d) of paragraph 170 above, but their completion was thwarted by cash-constraints caused by the revocation of the incentives. The Claimants further claim that the construction of these components began prior to the revocation of the incentives, but that none of these components was ever completed. The Respondent disputes all of these assertions (See Section VII below on Damages).

3. Permanent Investor Certificates

173.
In order to benefit from EGO 24, the Claimants allege that the three Corporate Claimants were required to obtain Permanent Investor Certificates ("PICs"), all of which were issued by the North-West Regional Development Agency. Prior to their issuance, the Claimants state that the Corporate Claimants could operate on the basis of a Temporary Investor Certificate ("TIC") for a period of 3 months (C-Reply, ¶¶ 156-160; WS of M. Ban, ¶¶ 41-46).
174.
European Food (Claimant 3) obtained its Temporary Investor Certificate on 9 December 1999 (Exh. C-442). It was then issued PIC No. 524 on 1 June 2000 (Exh. C-42, Exh. C-638), which stated that European Food

is the beneficiary of the facilities under Government Decision no. 194/1999, in accordance with the provisions of Emergency Government Ordinance no. 24/1998, republished and subsequently amended, and in accordance with the provisions of Government Decision no. 728/2001 on the approval of the methodological norms for the application of Emergency Government Ordinance no. 24/1998 on the disfavoured regions regime.

The present certificate is valid until 01.04.2009.7

175.
Starmill (Claimant 4) was issued PIC No. 1664 on 17 May 2002 (Exh. C-43), which stated that Starmill

is the beneficiary of the facilities under Government Decision no. 194/1999, in accordance with the provisions of Emergency Government Ordinance no. 24/1998, approved and amended by Law no. 20/1999 and in accordance with the provisions of Government Decision no. 525/1999 on the approval of the methodological norms for application of Emergency Government Ordinance no. 24/1998 on the disfavoured regions regime.

The present certificate is valid until 4/1/09

176.
Multipack (Claimant 5) holds PIC No. 1663 issued on 17 May 2002 (Exh. C-44), which stated that Multipack

is the beneficiary of the facilities under Government Decision no. 194/1999, in accordance with the provisions of Emergency Government Ordinance no. 24/1998, republished and subsequently amended, and in accordance with the provisions of Government Decision no. 728/2001 on the approval of the methodological norms for application of Emergency Government Ordinance no. 24/1998 on the disfavoured regions regime.

The present certificate is valid until 01.04.2009.

177.
The legal nature and relevance of the PICs are disputed by the Parties.

D. ROMANIA'S ACCESSION PROCESS

1. Early steps: the Europe Agreement and Romania's application for EU membership

179.
On 1 February 1993, Romania signed the Europe Agreement with the predecessor of the EU (the "European Community"8) and its Member States (Exh. R-10, C-565). The Europe Agreement, which was to enter into force on 1 February 1995, established an association between the European Community, its existing Member States and Romania and provided the legal framework for the accession process. Among its objectives was the promotion of Romania's economic development and its gradual integration into the European Community, in exchange for which Romania would have to work towards fulfilling certain conditions (Europe Agreement, Article 1).
180.
The Europe Agreement covered many different areas of governance, including competition. With respect to state aid, Article 64 of the Europe Agreement provided:

Article 64

1. The following are incompatible with the proper functioning of this Agreement, in so far as they may affect trade between the Community and Romania: [...] (iii) any public aid which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods.

2. Any practices contrary to this Article shall be assessed on the basis of criteria arising from the application of the rules of Articles 85, 86, and 929 of the Treaty establishing the European Economic Community.

3. The Association Council shall, within three years of the entry into force of the Agreement, adopt the necessary rules for the implementation of paragraphs 1 and 2.

4. (a) For the purposes of applying the provisions of paragraph 1, point (iii), the Parties recognize that during the first five years after the entry into force of the Agreement, any public aid granted by Romania shall be assessed taking into account the fact that Romania shall be regarded as an area identical to those areas of the Community described in Article 92(3)(a) of the Treaty establishing the European Economic Community. The Association Council shall, taking into account the economic situation of Romania, decide whether that period should be extended by further periods of five years. [...]

181.
In turn, Article 87(3)(a) of the EC Treaty (which replaced Article 92(3)(a) of the Treaty establishing the European Economic Community) (Exh. RL-177; C-583) provided:

The following may be considered to be compatible with the common market: (a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; […]

182.
Another of the aims of the Europe Agreement was to promote economic cooperation between Romania and the EC Member States. In this context, Article 74 of the Europe Agreement on investment promotion and protection provided:

Article 74 - Investment promotion and protection

1. Cooperation shall aim to establish a favourable climate for private investment, both domestic and foreign, which is essential to the economic and industrial reconstruction of Romania.

2. The particular aims of the cooperation shall be:

- for Romania to establish and improve a legal framework which favours and protects investment;

- the conclusion by the Member States and Romania of Agreements for the promotion and protection of investment [...]

183.
In addition to establishing principles and rules of governance, the Europe Agreement provided that Romania would have to harmonize its existing and future legislation with that of the Community:

Article 69 - The Parties recognize that an important condition for Romania's economic integration into the Community is the approximation of

1. Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

2. The following shall be compatible with the common market:

[…]

3. The following may be considered to be compatible with the common market:

(a) aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment; […]

Romania's existing and future legislation to that of the Community.

Romania shall endeavour to ensure that its legislation will be gradually made compatible with that of the Community.

Article 70 - The approximation of laws shall extend to the following areas in particular: [...] rules on competition [...].

184.
On 21-22 June 1993, the European Council concluded at its meeting in Copenhagen that countries from Central and Eastern Europe which wished to become members of the European Union would have to satisfy the economic and political conditions required for membership (known as the "Copenhagen criteria"), including "the existence of a functioning market economy as well as the capacity to cope with competitive pressure and market forces within the Union." The European Council also "underlined the importance of approximation of laws in the associated countries to those applicable in the Community, in the first instance with regard to distortion of competition [...]" (Exh. R-62).
185.
On 1 February 1995, the Europe Agreement entered into force.
186.
On 22 June 1995, Romania presented its application for EU membership. On 17 July 1995, Romania's application was submitted to the Commission, which pursuant to [the EC Treaty] was required to give a favorable opinion for accession negotiations to begin (Exh. C-317).
187.
In its December 1995 meeting in Madrid, the European Council referred to the need, in the context of the pre-accession strategy, "to create the conditions for the gradual, harmonious integration of the applicant countries, particularly through: the development of the market economy, the adjustment of their administrative structure, [and] the creation of a stable economic and monetary environment" (Exh. C-317).
188.
The European Commission, in an opinion dated 15 July 1997 (Exh. C-317), summarized the state of Romania's economy in 1995 as follows:

Romania, with a population of 22.6 million, had in 1995 a gross domestic product (GDP) of ECU 93 billion (expressed in purchasing power parity); its population was about 6.5% of the Union's, while its economy was only about 1.5%. Per capita GDP is about 24% of the Union average.

189.
On 10 April 1996 (effective 30 April 1996), Romania passed Law No. 21/1996 on competition (Exh. R-73). The purpose of this law was to "protect, sustain and stimulate competition and a normal competitive environment in order to promote the interests of consumers." This law created the Competition Office and the Competition Council, which were tasked with overseeing the implementation of the law.
190.
On 15 July 1997, the European Commission issued its Opinion on Romania's Application for Membership of the European Union (Exh. C-317). That Opinion concluded that, despite its post-communist reforms, Romania did not meet the Copenhagen criteria and thus was not yet ready to initiate accession talks. Specifically, the European Commission concluded that:

- Romania has made considerable progress in the creation of a market economy, but it would still face serious difficulties to cope with competitive pressure and market forces within the Union in the medium term;

- despite the progress that has been made, Romania has neither transposed nor taken on the essential elements of the acquis, particularly as regards the internal market. It is therefore uncertain whether Romania will be in a position to assume the obligations of membership in the medium term. […]

191.
The European Commission described Romania's economic situation in the preaccession context as follows (Section 2.2):

Romania has made enormous progress since the beginning of the transition, although it cannot be considered, as yet, to be a functioning market economy. […]

Policy-making on economic issues has not always been coherent. As a result, progress towards macroeconomic stability has not been steady: recent years have been characterised by widely fluctuating performances in term of growth, inflation and unemployment. Economic agents do not necessarily perceive the macroeconomic environment to be stable enough to promote the necessary level of savings and investment (both domestic and foreign).

If fully implemented, the comprehensive programme of macroeconomic stabilisation and structural reforms announced by the authorities in early 1997 should radically transform Romania's economy and lay the foundations for healthy growth in the years ahead. But the implementation of the basic features of the programme, especially with regard to restructuring, will take many years. It is yet too early to assess whether the programme will be implemented fully and successfully. […]

In order to complete its transformation process successfully and prepare for EU membership, the country still needs to implement many, detailed and complex measures. […]

In the past, foreign investors have singled out the unpredictable evolution of the legal system and the different interpretation of double taxation treaties as obstacles to doing business in Romania. […]

[T]he ability to withstand competitive pressure depends not only on the current structure of the economy, but also on the way in which it will develop in the near to medium-term future. In this respect, Romania offers a contrasted situation: the existing economic structure points to very important structural weaknesses, while the reforms that have been announced at the beginning of 1997 could have a very positive impact in a relatively short period of time, especially if rapid privatisation is achieved and foreign direct investment is forthcoming. However, in order to withstand competition within the Union both the industrial and agricultural sectors would need to undergo major structural transformation.

[…]

The current production base in industry relies to a large extent, although not exclusively, on sectors with very high energy intensity, or which are strongly dependent on imported raw materials, or have been the object of exercises of capacity reduction within the Union. […] The current structural reforms should aim at the restructuring of the very large state-owned combinats, which, in their present condition, would face strong competitive pressures from their western competitors.

A diversification of the industrial base towards lighter industries, entailing the creation of a large number of new, small and medium-sized enterprises, and increased participation of foreign capital and know-how, will help Romania adjust to the restructuring of the large enterprises. Light industry is already well-developed in some sectors (wood products, leather, textiles) and has achieved good performances on exports markets.

Although agriculture has been neglected in the last decades, it represents a potentially important source of comparative advantage for Romania […]. But the process of modernisation of the agricultural sector has just begun and will require a policy aiming at stimulating investments both in the farming sector and in the food industry.

Foreign direct investment has been low for a country the size of Romania: at the end of 1996 cumulative FDI per capita stood at ECU 50. With a few notable exceptions, FDI has not made a significant contribution to the modernisation of either industry or agriculture. This means that production in many sectors still relies on old and obsolete technologies. Increasing the chances that Romanian producers will be able to withstand competition of high-quality, high-standards EU goods, and improving the level of skills in the economy calls for much bigger inflows of FDI.

[…]

Romania possesses a number of key advantages: its geographical location at the cross-roads of many trade routes and in particular as the sea-gate for accessing central European markets; the size of its population which will attract industries with economies of scale; the relatively young population which points to vast needs for durable goods; and its low level of labour costs. All these factors could make Romania a strong export base for accessing markets of smaller neighbours, especially for consumer goods.

[…]

The relative success which Romania achieved in macroeconomic stabilisation during 1995 and 1996 rested on very fragile foundations. In fact, given the very slow progress in structural reforms, the high growth rates of this period were not sustainable, and not compatible with the aim of integrating Romania in the European and world economy. This diagnosis was at the heart of the economic and social programme of the new government elected in November 1996.

The programme of macroeconomic stabilisation and structural reforms announced in February 1997 represents a very ambitious attempt to radically transform, in a relatively short period of time, the old economic structures and lay the foundations for a fully-functioning market economy. However, this is only a first step in the right direction and much remains to be done.

A stable and predictable macroeconomic framework is the first key condition for laying the foundations of sustainable growth and modernisation of the microeconomic side of the economy. […]

The new Romanian authorities have already recognised the crucial role that foreign investors and international financial institutions will play in the success of their reform efforts. Restoring confidence among international investors and lenders and securing their medium-term investment in Romania calls for a stable macroeconomic framework, a sustained and credible commitment to structural reforms, a clear and broad political consensus over a medium-term strategy and the continuing legitimacy of reforms among the population. These conditions are indispensable to reduce political and economic uncertainty and so lay the foundations for successful investment planning.

192.
The Commission concluded with respect to the economic conditions for accession (Section 2.3):

Romania has made considerable progress in the creation of a market economy. The reorientation of economic policy since the recent change of government marks a change for the better, but much still needs to be done. While prices have been almost fully liberalised, property rights are not yet fully assured for land, the legal system is still fragile and policy-making on economic issues has not always been coherent. Further efforts to consolidate the legal and administrative framework, and to address persistent macroeconomic imbalances, are required to ensure a stable environment.

Romania would face serious difficulties coping with competitive pressure and market forces within the Union in the medium term. It has recently made progress towards improving the competitive capacity of its economy, notably by addressing major distortions such as low energy prices, accelerating privatisation and beginning to wind up large loss-making state-owned firms. However, much of Romania's industry is obsolete, and agriculture needs to be modernised. The low levels of research and development, and of skills among the workforce also suggest that the economy needs a number of years of sustained structural reform.

2. Romania's initial efforts to align its state aid laws

193.
On 10 March 1998, the European Commission issued its Guidelines on Regional Aid, a set of criteria for assessing whether to allow regional aid under Article 87(3) of the EC Treaty (previously Article 92(3) of the Treaty establishing the ECC) (Exh. RJ-9). These Guidelines stated:

1. Introduction […]

Regional aid is designed to develop the less-favoured regions by supporting investment and job creation in a sustainable context. It promotes the expansion, modernisation and diversification of the activities of establishments located in those regions and encourages new firms to settle there. In order to foster this development and reduce the potential negative effects of any relocation, it is necessary to make the granting of such aid conditional on the maintenance of the investment and the jobs created during a minimum period in the less favoured region.

In exceptional cases, such aid may not be enough to trigger a process of regional development, if the structural handicaps of the region concerned are too great. Only in such cases may regional aid be supplemented by operating aid.

[…]

2. Scope

A derogation from the incompatibility principle established by Article 92(1) of the Treaty may be granted in respect of regional aid only if the equilibrium between the resulting distortions of competition and the advantages of the aid in terms of the development of a less-favoured region (6) can be guaranteed. The weight given to the advantages of the aid is likely to vary according to the derogation applied, having a more adverse effect on competition in the situations described in Article 92(3)(a) than in those described in Article 92(3)(c) (7).

3. Demarcation of regions

[...]

The derogation in Article 92(3)(a)

3.5. Article 92(3)(a) provides that aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment may be considered compatible with the common market. As the Court of Justice of the European Communities has held, 'the use of the words "abnormally" and "serious" in the exemption contained in Article 92(3)(a) shows that it concerns only areas where the economic situation is extremely unfavourable in relation to the Community as a whole' (12).

The Commission accordingly considers, following a tried and tested approach, that the conditions laid down are fulfilled if the region, being a NUTS (13) level II geographical unit, has a per capita gross domestic product (GDP), measured in purchasing power standards (PPS), of less than 75,0 % of the Community average (14). The GDP/PPS of each region and the Community average to be used in the analysis must relate to the average of the last three years for which statistics are available. These amounts are calculated on the basis of data furnished by the Statistical Office for the European Communities.

[…]

4. Object, form and level of aid

4.1. The object of regional aid is to secure either productive investment (initial investment) or job creation which is linked to investment. Thus this method favours neither the capital factor nor the labour factor.

4.2. To ensure that the productive investment aided is viable and sound, the recipient's contribution (20) to its financing must be at least 25 %.

The form of the aid is variable: grant, low-interest loan or interest rebate, government guarantee or purchase of a State shareholding on favourable terms, tax exemption, reduction in social security contributions, supply of goods and services at a concessionary price, etc.

In addition, aid schemes must lay down that an application for aid must be submitted before work is started on the projects.

[…]

Operating aid

4.15. Regional aid aimed at reducing a firm's current expenses (operating aid) is normally prohibited. Exceptionally, however, such aid may be granted in regions eligible under the derogation in Article 92(3)(a) provided that (i) it is justified in terms of its contribution to regional development and its nature and (ii) its level is proportional to the handicaps it seeks to alleviate (36). It is for the Member State to demonstrate the existence of any handicaps and gauge their importance.

4.16. In the outermost regions qualifying for exemption under Article 92(3)(a) and (c), and in the regions of low population density qualifying either for exemption under Article 92(3)(a) or under 92(3)(c) on the basis of the population density test referred to at point 3.10.4, aid intended partly to offset additional transport costs (37) may be authorised under special conditions (38). It is up to the Member State to prove that such additional costs exist and to determine their amount.

4.17. With the exception of the cases mentioned in point 4.16, operating aid must be both limited in time and progressively reduced. In addition, operating aid intended to promote exports (39) between Member States is ruled out.

(Emphasis added).

194.
In its Annual Report of 1998 regarding PHARE Program10 (Exh. C-391), the European Commission concluded:

Romania meets the Copenhagen political criteria. Much remains to be done in rooting out corruption, improving the working of the courts and protecting individual liberties and the rights of the Roma. Priority should also be given to reform of the public administration.

Romania has made very little progress in the creation of a market economy and its capacity to cope with competitive pressure and market forces has worsened.

Despite progress made in transposition of key parts of the acquis, Romania has a long way to go in terms of additional legislative transposition, implementation and enforcement before the country will be able to assume the obligations of membership. (p. 61).

195.
The EC's 1998 Annual Report also highlighted the importance of regional development in Romania (p. 63):

Case study: regional development in Romania

Through a series of projects beginning in 1994, Phare is contributing to the creation of the institutional and legal framework for the development of regional policy in Romania, and to preparations for programmes to be implemented along the lines of the EU structural funds.

Under a 1994 Phare budget, EU and Romanian experts prepared an analysis of regional disparities in Romania, and drew up proposals for a legal and institutional framework for the development of regional policy.

In 1997, the conclusions of a Phare-financed study were published as a Green Paper on Regional Development, which proposed the establishment of a number of macro regions as planning units, based on associations of elected county councils. The Green Paper also defined a national framework for the development of regional policy and the financing of programmes.

The government adopted the main points of the Green Paper as its policy on regional development; consequently, a 1997 Phare budget was approved, providing support for institution building at national and regional level.

In 1998 a Law on Regional Development was passed, creating an appropriate institutional framework and establishing a National Agency for Regional Development and a National Fund for Regional Development.

A 1998 Phare budget was approved, providing preliminary financial support for projects which would be proposed by the regions and financed out of the National Fund for Regional Development. Linked to this is technical assistance under the Special Preparatory Programme for Structural Funds, which provides further support and training to relevant institutions at regional and national level.

196.
It is in this context that Romania adopted EGO 24/1998, which established the legislative framework for the incentives at issue in this arbitration. As noted in paragraph 145 above, the original version of EGO 24/1998 was passed on 30 September 1998 and entered into force on 2 October 1998.
197.
On 22 March 1999, the Council of the EU issued Council Regulation (EC) No. 659/1999, which set out detailed rules for the application of Article 93 of the EC Treaty with respect to the implementation of state aid measures and recovery of unlawful and incompatible state aid (Exh. R-128).11 Article 1 of this Regulation provided the following definitions:

(b) "existing aid" shall mean: (i) all aid which existed prior to the entry into force of the Treaty in the respective Member States, that is to say, aid schemes and individual aid which were put into effect before, and are still applicable after, the entry into force of the Treaty; […]

(c) 'new aid' shall mean all aid, that is to say, aid schemes and individual aid, which is not existing aid, including alterations to existing aid; […]

(f) 'unlawful aid' shall mean new aid put into effect in contravention of Article 93(3) of the Treaty;

198.
Under the Regulation, if the Commission considered that an existing aid scheme was not, or was no longer, compatible with the common market, it would consult with the Member State and issue a recommendation, which could consist in a substantive amendment of the aid scheme, the introduction of procedural requirements, or the abolition of the aid scheme. If the Member State did not accept the proposed measures, the Commission could initiate a formal investigation procedure (Articles 17-19, 4(4), 6-9 of the Regulation).
199.
On 27 July 1999, Romania passed Law No. 142/1999 on state aid (the "State Aid Law", Exh. R-75), which granted the Competition Council a wide range of powers to regulate state aid in Romania, including the power to authorize or forbid the granting of state aid.
200.
In its composite paper "Reports on Progress towards Accession by each of the Candidate Countries" dated 13 October 1999 (Exh. R-76), the EC noted that Romania had made "some progress" in aligning state aid laws.
201.
For context, the Tribunal recalls that, during 1999, the following events relating to the EGO 24 framework and the Claimants' investments took place:

a. On 25 March 1999, by means of Government Decision No. 194/1999 ("GD 194/1999", Exh. C-31), Romania designated the Ştei-Nucet region as a disfavored region for a period of ten years, starting on 1 April 1999, and stipulated that all six incentives offered under EGO 24/1998 would be available to investors in the Ştei-Nucet region while that region was designated disfavored.

b. As noted in paragraph 146 above, on 8 November 1999, Romania republished a renumbered version of EGO 24/1998 (Exh. R-68).

c. On 9 December 1999, European Food obtained its Temporary Investor Certificate (Exh. C-442).

3. Romania and the EU begin formal accession negotiations

202.
On 10 and 11 December 1999, the European Council met in Helsinki to take a series of decisions related to the EU's enlargement process. As reflected in the Presidency's Conclusions (Exh. R-11, C-318), the European Council decided to convene bilateral intergovernmental conferences in February 2000 to begin accession negotiations with Romania and other countries.
203.
In February 2000, Romania began its formal accession negotiations with the EU. Chapter 6 was dedicated to competition policy.
204.
The Respondent's expert Prof. Streinz notes that in July 2000, "[i]n accordance with its mandate under Article 106 of the Europe Agreement, the Association Council determined [...] to extend retroactively the application of Art. 87(3)(a) of the EC Treaty to Romania for an additional period of five years." (First ER of R. Streinz, p. 7, note 22). According to Prof. Dashwood, this was done in Decision 4/2000 published in April 2001 (Exh. R-65; C-579).

4. The Decision of the Romanian Competition Council and amendments to the EGO 24 regime

205.
On 15 May 2000, the Romanian Competition Council, in the context of reviewing proposed amendments to EGO 24/1998, issued Decision No. 244/2000 (Exh. R-78), in which it determined, inter alia, that certain facilities provided under EGO 24/1998 distorted competition (specifically, the Raw Materials Incentive and the Components Incentive) and had to be eliminated. It stated:

Whereas:

3. Exemption from customs duties. on raw materials are deemed State aid for operating purposes and goes beyond the purpose of Emergency Government Ordinance No 24/1998 on Less-Favoured Areas, leading to distortion of competition. The granting of such facilities, subject to the conditions set forth in the Ordinance, solely to economic operators who make and register new investments puts the economic operators already in the market at a disadvantage, as was alleged before the Competition Council by both the Milling and Baking Industry Employers' Association and the Romanian Meat Association. Exemption from paying customs duties effectively stimulates imports to the detriment of domestic producers. Largescale importing of live pigs from Hungary and the mere slaughtering of these animals in Less Favoured Areas have occurred, with the meat being sold in the form of carcases and no significant degree of processing occurring. The cost of these products, which were subsidised in their country of origin and also benefited from the facilities provided by Emergency Government Ordinance No 24/1998, is lower and they are penetrating neighbouring markets, with the result that they are in competition with products produced outside Less Favoured Areas.

The Competition Council takes the view that the granting of these facilities is distorting competition within the market, and has also expressed this opinion in other similar cases.

[...]

On the basis of Article 12(2) [unclear letter - possibly "c" or "e"], the Competition Council hereby takes the following.

DECISION

Article 1. The aid scheme set forth in Article 6 of Emergency Government Ordinance No 24/1998 is authorised subject to the following conditions:

a) the provisions of Article 6(1)(b) of Emergency Government Ordinance No 24/1998 republished, concerning the reimbursement of customs duties on imported raw materials, spare parts and/or components necessary for own production purposes within an area, and consequently, the proposed amendment concerning exemption from customs duties on raw materials shall be deleted;

[…]

d) the methodological standards for the application of Emergency Government Ordinance No 24/1998 on Less Favoured Areas are to be submitted to the Competition Council for approval, in accordance with the provisions of Article 27(j) of Law No 21/1996.

Article 2. Pursuant to Article 13(2) of Law No 143/1999, the Competition Council may decide to suspend the State aid scheme if the aid provider fails to take the steps referred to in Article 1 of this Decision.

[…]

206.
It was in this context that, on 1 June 2000, European Food was issued its PIC (see paragraph 174 above).
207.
On 16 June 2000 (effective 1 July 2000), Romania passed Emergency Government Ordinance No. 75/2000 ("EGO 75/2000", Exh. C-45, R-81), which amended EGO 24/1998 in the following ways: (a) it provided for an exemption (rather than the refund originally contemplated) on customs duties on imported raw materials; (b) it excluded spare parts and components from the customs duty exemption, and (c) it amended the provisions regarding the award of funds under the Special Development Fund. It did not eliminate the Raw Materials Incentive and the Components Incentive, as recommended by the Competition Council.

5. Romania's progress towards accession in the period 2000-2001

208.
On 1 August 2000, the Romanian government presented a Position Paper on Chapter 6 (Competition Policy) (Exh. EC-1), in which Romania "accepts the entire acquis communautaire in force on 31 December 1999, does not request transition periods or derogations and declares that it will be able to entirely implement it upon accession." However, Romania added that:

Regarding the state aid rules and agreeing to the principles provided for in Art. 87 and 88 of the Treaty establishing the European Community, it is necessary to grant state aids to the sensitive sectors of economy and the deprived areas due to the difficulties confronting the Romanian economy during the transition to a market economy.

It is also obvious that, after accession, Romania's development level will not exceed the EU average, and, consequently, the whole territory of Romania will comply with the conditions laid down in Art. 87(3) of the Treaty establishing the European Community.

209.
In this Position Paper, Romania gave a detailed description of EGO 24/1998, as amended by EGO 75/2000:

Regional development. Deprived areas

Based on the Romanian legislation, namely the Law on Regional Development no. 151/1998, eight development regions were established. Those regions correspond to the NUTS II level of the European classification. At that level, the programs and projects of regional development are funded through the National Fund for Regional Development that was established according to the Law no. 151/1998. The funds for these programmes are yearly allocated through the state budget as distinct item [sic] for the policy on regional development and also from other domestic and foreign resources. The National Agency for Regional Development administers, as provided for in the law, the National Fund for Regional Development by annual allocations of funds to the eight Funds for Regional Developments that were established in accordance to same law and are managed by eight Agencies for Regional Development. The funds allocated in this manner are granted to the recipients on competitive basis, such as tendering for regional development projects.

The Government Emergency Ordinance no. 24/1998 on the deprived areas (D areas) ensures a framework for granting state aid for the NUTS IV (villages) to NUTS III (counties) areas. Since July 1999 the majority of facilities granted to the investors within those areas became applicable after the Methodological Rules which were authorised by Government Decision no. 525/1999, came into effect.

On 16 June 2000, the Government Emergency Ordinance no. 75 amending the Government Emergency Ordinance no. 24/1998 was adopted, the main facilities granted to the investors acting within the D areas being the following:

- customs duty and VAT exemptions for machinery, equipment, motor-vehicles, other capital assets which are imported for making investments within the area;

- VAT exemption for the domestic machinery, equipment, motor-vehicles, other capital assets which are used for making investments within the area;

- customs duty exemption for the raw materials imported for producing within the area; profit tax exemption during the existence of the 0 area;

- fee exemption for the alteration of destination or driving out from agricultural use of lands necessary for the investment.

In accordance to the legislation in force, the terms under which the investors are deemed to benefit of the mentioned facilities are the following:

- the facilities are granted only to the companies where the majority is owned by private shareholders, Romanian legal persons; to private undertakings or family associations which are licensed in accordance to the Law no. 54/1990;

- the companies must have their headquarters and act within the D area;

- the new investment to be made and registered within the financial records of the undertaking, after the qualification of [sic] as a D area;

- the investment to be made within the interest fields which are covered by the Government Decision qualifying the area as D area;

- through investment new jobs must be created for the unemployed people which live within the D area;

- the goods for which facilities, such as fee exemption, must be used for investments/production within the D area;

- the investment within the D area must be in function for a period twice as long as the period when the facilities were granted, otherwise, the investor is held to reimburse the amounts granted as facilities.

210.
On 31 October 2000, at an Accession Conference with Romania, fifteen EU Member States and Romania adopted the first European Union Common Position on Competition Policy ("EU Common Position 2000", Exh. EC-2). In this Common Position, the EU stated:

The EU underlines the particular importance of the "acquis" under chapter 6 for the proper functioning of the internal market, including the creation of a level playing field for investment. The significance of the "acquis" is such that Romania has undertaken, under the Europe Agreement, to comply with the Community rules on competition. Thus, while welcoming Romania's statement that it accepts the "acquis" and will apply it as from the accession, the EU underlines that the "acquis" under chapter 6, in accordance with the Europe Agreement, has to be applied by Romania already now. In this context, the EU also underlines the importance of reinforcing the administrative capacity for effective implementation and enforcement of the "acquis". Therefore, the EU will conduct a general assessment of whether Romania has set up effective structures to enforce and apply the relevant substantive rules of the "acquis". Moreover, the full and immediate application of the "acquis" is also necessary in order to adapt companies well before the date of accession to be able to withstand the competitive pressures of the internal market resulting from the full and direct application of the competition "acquis" upon accession. It is inconceivable that the Romanian economy would be able to support the switching from one day to the next to the full and correct application of the "acquis".

211.
With respect to the timely implementation of the Europe Agreement and the fulfillment of accession criteria in the state aid field, the EU invited Romania, inter alia, to

- provide details regarding existing aid measures (i.e. those programs on the basis of which aid continues to be granted and which existed already before the entry into force of the present state aid law). In particular, Romania should explain which measures are envisaged for bringing such aid into line with the EU "acquis";

- provide a more detailed analysis of the aid facilities in the so-called D areas of the country. In particular, Romania should explain what action, in light of the Community Guidelines on Regional Aid, the Competition Council has taken with regard to the Government Ordinances providing for these aid facilities.

212.
In its Regular Report on Romania's progress towards accession dated 8 November 2000, the EC noted that:

Romania has made further progress in the transposition in the acquis in this chapter.

Further alignment with the EC competition legislation and the improvement of the administrative capacity in this field is a short-term priority in the Accession Partnership.

Romania's anti-trust legislation is largely in line with the acquis. During the period under consideration the legislative framework for anti-trust has been developed further by the adoption of secondary legislation. The anti-trust enforcement authorities have dealt with an increasing number of cases. The main challenge is now to ensure that the application and enforcement of the anti-trust rules is effective and that priority is given to such cases that concern the most serious distortions of competition. In order to achieve this, the administrative capacity of the Romanian Competition Council and Competition Office will need to be reinforced.

As concerns state aid the entry into force of the new state aid law on 1 January 2000 and the subsequent adoption of secondary legislation is an important step forward. However, the major challenge is to ensure that the legislation will be properly implemented and enforced. The recent adoption of the law on ‘industrial parks' is a major concern.

State aid reports have still to be submitted for the years 1998 and 1999. The latest report broadly follows the methodology and the presentation of the Community's Survey on State Aid. Additional work is needed in order to finalise a comprehensive state aid inventory covering all aid measures in operation in Romania.

In order to ensure a differentiation of maximum aid intensities in assisted areas, Romania still has to prepare a regional aid map in consultation with the Commission.

213.
On 28 February 2001, Romania issued its Complementary Position Paper on Chapter 6 (Competition Policy) (Exh. EC-3). In this Complementary Position Paper, Romania explained the EGO 24/1998 incentive regime as follows:

Through the Emergency Ordinance no. 75/2000 modifying the Emergency Ordinance no. 24/1998 on the deprived areas, the following facilities may be granted to the investors within D areas:

- customs duty and VAT exemptions for machinery, equipment, installations, motor-vehicles, other capital assets which are imported for making investments within the area;

- VAT exemption for the domestic machinery, equipment, installations, motor vehicles, other capital assets, which are used for making investments within the area;

- customs duty exemption for the raw materials imported for the own production within the area;

- profit tax exemption during the existence of D area;

- fee exemption for the alteration of destination or driving out from agricultural use of lands necessary for the investment.

Facilities provided for by Government Emergency Ordinance (GEO) no. 24/1998, amended by GEO no. 75/2000, are granted to undertakings operating within deprived areas, mention being made that in the deprived area co financing is approved only for projects selected by the National Agency for Regional Development (NARD) through public tender, nationwide, and within "Special Programs", as approved by decision of the Government, programs which have been notified to the Competition Council.

[The] Competition Council analyzed the existing state aid scheme provided in GEO no. 24/1998; it found out that it seriously distorts competition, and thus issued Decision no. 244/15.05.2000 whereby it authorized with conditions the state aid scheme as contained in art. 6 of the GEO no. 24/1998. Providing for the elimination of art. 6 (I)(b) referring to refunding of customs duties for imported raw materials, spare parts and/or components dedicated to the own production in the deprived area, and for modification of art..6 (I)(c), mainly, the exemption from profit tax payment during the existence of the deprived area shall be done only for plowed-back profit. The modification of the existing state aid scheme contained in 311.6 of the GED no. 24/1998, referring to exemption from customs duty payment for imported raw materials, notified by NARD, has not been authorized by the Competition Council.

GEO no. 75/2000 amending GED no. 24/1998 overlooked the conditions set by the Competition Council through Decision no. 244/15.05.2000, and maintained the facilities in art. 6 (l)(b) and (c) of GEO no. 24/1998. Although the Competition Council did not authorize the modification of the state aid scheme, GEO no. 75/2000 provides for exemption from payment of custom duties for imported raw materials for the own production in the deprived area.

In December 2000, the Competition Council has brought action at the Court of Appeals alleging failure to comply with Competition Council's Decision no. 244/15.05.2000 by the Government, which authorized, with conditions, the modification of the state aid scheme within GEO no. 24/1998, modification made through GEO 00.75/2000.

The request was made in front of the Court of Appeals to cancel GED no. 75/2000 and to recover the state aid.

The Government will made [sic] a study in order to assess the effects of enforcing this Ordinance, and further takes necessary measures.

214.
On 10 April 2001, the EU-Romania Association Council adopted Decision 4/2000 (the "Implementing Rules", Exh. R-65), which prescribed the manner in which Article 64 of the Europe Agreement would be implemented by Romania.
215.
In its Regular Report on Romania's progress towards accession dated 13 November 2001 (Exh. R-141), the EC provided the following assessment of Romania's competition policy:

Romania has made considerable progress in creating a legal framework in this area that is broadly aligned with the Community acquis. However, additional efforts are necessary to complete the legal framework and ensure its adequate enforcement.

As regards anti-trust, Romania's legislation is largely in line with, and covers most of, the acquis provisions. However, further secondary legislation still needs to be adopted, to take account of the Commission's new vertical restraints policy and its policy on horizontal cooperation agreements. The Competition Council has broad powers to enforce competition rules but will need further reinforcements- especially in the form of training and IT equipment, in order to fulfil the tasks assigned to it. It is essential that the Competition Council could focus its resources more effectively on cases with most serious distortions to competition. A more deterrent sanctioning policy will also be required. Finally, general transparency, including an improved access of the public to relevant documents should be increased.

As regards state aids, the existing legislation covers the basic principles of state aid control. However, the field of application of this law is not comprehensive and numerous state aid measures are not notified to the competition authorities. Romania should rapidly adopt the required secondary legislation on state aids, which is currently being prepared. This is a precondition to any effective enforcement activities. A significant number of unaligned aid schemes remains such as the profit tax rate 5% on export earnings and the law on direct investment promotion. Moreover, implementation of state aid policy in sensitive sectors is still at an early stage. There are continuous problems with the monitoring of frequent waivers by public bodies of the accumulated debt.

Romania has now formally adopted state aid reports for the period 1996 -1999 but has yet to finalise the state aid inventory. In addition, Romania's recent proposal for the regional aid map would allow aid intensities for regional investment aid of up to 50% net grant equivalent. In the area of state aids, both the Competition Office and the Competition Council require further strengthening in terms of human resources and training.

In addition to strengthening administrative capacity within the competition authorities, particular attention should also be given to intensifying the training of the judiciary in the specific fields of anti-trust and state aid. There is also a need to raise awareness amongst all market participants, and especially amongst administrations granting state aids, of the policy and legislative provisions in this area.

216.
The EU Common Position issued on 21 November 2001 (the "2001 EU Common Position", Exh. EC-5) once again stressed "the particular importance of the acquis under chapter 6 for the proper functioning of the internal market, including the creation of a level playing field for investment", and reminded Romania that "the acquis under chapter 6, in accordance with the Europe Agreement, has to be applied by Romania already now." The EU Common Position also stated:

The EU further notes that there are a number of existing as well as new incompatible aid schemes which have not been brought into line with the acquis. The EU notes that such schemes include in particular the new draft law on industrial parks, the fiscal facilities offered in the free areas which are set up under Law No. 84/1992, the reduced rate of corporate income tax of 5% for income from exports, and facilities provided under Emergency Ordinances no. 24/1998 and 75/2000 in the so-called "D-areas". The EU urges Romania to align the existing incompatible aid schemes without delay. (2001 EU Common Position, p. 4)

217.
However, the 2001 EU Common Position also stated:

With regard to aid which Romania wishes to operate beyond the date of accession, the EU invites Romania to draw up a list of those existing aid measures which the Competition Council considers as compatible with the acquis. The EU invites Romania to transmit this list to the Commission; Romania may continue to operate any aid which is included in the list and against which the Commission has not objected for the period for which the aid was approved by the Competition Council. A reference to the existing aid list and to the procedure for its establishment will be included in the Accession Treaty. (2001 EU Common Position, p. 4)

6. Further amendments to the EGO 24 Regime (2000-2001)

218.
On 29 November 2000, by means of Government Decision No. 1199/2000 (Exh. C-32) Romania extended the boundaries of the Ştei-Nucet disfavored region to include Draganeşti, and specified that the entire region would remain disfavored until 31 March 2009.
219.
On 26 January 2001, by means of Civil Decision No. 26 (Exh. C-582, R-140), the Bucharest Court of Appeals dismissed the Competition Council's application for the partial annulment of EGO 75/2000.
220.
On 26 April 2001, Government Decision No. 728/2001 repealed the earlier methodological norms [for the implementation of] EGO 24/1998 and provided new methodological norms (the "2001 Methodological Norms", Exh. R-69, R-35).
221.
In August 2001, Prime Minister Nastase announced a new policy in relation to the establishment of new disfavored regions and the time periods for which the zones would be declared disfavored. As reported by the press, he stated that "for the existing zones, the current law shall be maintained", although "the economic and social status of the area shall be considered when allotting budgetary funds, with a view to balance facilities through the level of budgetary allotments" (Exh. C-630).
222.
On 7 November 2001, Romania passed Law No. 621/2001 (Exh. R-33, R-129), which amended EGO 75/2000 by, among others, reinstating the customs duties exemption on imported components.

7. Parallel developments in the EU and EGO 24 fronts (2002)

223.
In its Regular Report on Romania's progress towards accession dated 9 October 2002, the EC noted that "there are still a large number of incompatible fiscal aid schemes which need to be aligned" (Exh. R-109).
224.
On 19 February 2002, the High Court of Cassation of Justice of Romania rejected, on admissibility grounds, the lawsuit brought by the Competition Council for the partial annulment of EGO 75/2000 (Exh. C-643).
225.
On 17 May 2002, Multipack and Starmill were issued their PICs (see paragraphs 175-176 above). Both PICs stated that they would be valid until 1 April 2009.
226.
On 29 May 2002, Romania and Sweden signed the Bilateral Investment Treaty under which this arbitration is brought (Exh. C-1). Romania ratified the BIT through Law No. 651/2002 (Exh. C-15) enacted on 7 December 2002. The BIT entered into force on 1 April 2003.
227.
On 1 June 2002, Romania passed Law No. 345/2002 (Exh. R-90), which abolished two of the incentives contemplated under EGO 24/1998, the Machinery Incentive and the VAT Incentive.
228.
In June 2002, the Romanian Government issued a "Report on the progress in preparing for the accession to the European Union September 2001-May 2002", dated June 2002 (Exh. HEC-6), which stated that:

All existing State aid measures will be assessed, establishing their compatibility with the acquis in order to suggest measures eliminating or transforming the incompatible ones in compatibles [sic] aids, taking into account the legal and economic implication of the modification of any incompatible schemes on the already granted specific allocations.

This approach will be made according to the European Commission recommendation and will take into consideration [sic] following three steps: (i) closing the incompatibles [sic] schemes in order to stop potential future allocations; (ii) the modification of these scheme to reach the compatibility with the acquis; (iii) the identification of the solutions for the economic agents that received the State aid under the present schemes (e.g. Free areas, deprived areas etc). [...] (p. 132)

229.
More specifically with respect to EGO 24, it stated that:

Regarding the "D areas", the State aid granted in the present must [] be converted into a compatible State aid. The Ministry of Development and Prognosis started the technical debates with the beneficiary associations in order to identify solutions and to make, in 2 months, proposals for alteration of the present system of facilities. (p. 133)

230.
At the same time, Romania's "National Programme for Accession of Romania to the European Union" dated June 2002 (Exh. HEC-7) stated that "[t]he provisions of the normative acts on facilities granted for 'D areas' will be maintained till the moment of Romania's accession to the European Union" (p. 148).
231.
On 1 July 2002, Romania passed Law No. 414/2002 (Exh. C-48), which repealed the Profit Tax Incentive but grandfathered it for investors who held a PIC prior to the date in which this law entered into force. The Profit Tax Incentive was later reintroduced on 1 January 2004 by Law No. 507/2004 (Exh. C-52).
232.
On 7 November 2002, Romania provided the EC with Additional Information on Chapter 6 - Competition Policy (Exh. EC-6). With respect to EGO 24, Romania merely informed the Commission that state aid for the D-areas was regulated by Law 621/2001, which approved EGO 75/2000, and informed the Commission of the amendment to the VAT and the repeal of the profit tax incentive (noting that it had been grandfathered for PIC holders).

"D area" granted facilities

Presently in Romania D areas are regulated by Law no. 621/2001 on the approval of Government Emergency Ordinance (GEO) no. 75/2000 for the alteration of Government Emergency Ordinance no. 24/1998, republished, on deprived area (OG no. 737 of 19th November 2001), GEO no. 75/2000 for the alteration of GEO no. 24/1998, republished and GEO no. 24/1998 on deprived areas, approved and modified by Law no. 20/1999.

The regime of the facilities granted in '"D" areas was changed by the recent entering into force of the law on VAT and of the law on profit tax.

The Law 345/2002 on VAT entered into force on 01.06.2002 and abrogated the facility of exempting from VAT payment granted for machines, outfits, installations, equipments, means of transport, other depreciable goods imported or produced in the country that were necessary for the investments in a D area. This facility was stipulated in Art. 6(1) of the GEO no. 24/1998 regarding the regime of the deprived areas.

The Law no. 414/2002 (OG no. 456/27.06.2002) on profit tax abrogated the facility of exempting undertakings acting in "D" areas from the payment of the profit tax. This facility was stipulated in Art. 6(1), let. c) of the GEO no. 24/1998 regarding the regime of the deprived areas.

For ensuring the legislative continuity, the legal persons that had obtained the permanent certificate of investor in "D" area before the Law no. 414/2002 entered into force, will further benefit from the profit tax exemption on the whole duration of existence of the deprived area, according to Art. 35, par. 3.

233.
On 19 November 2002, Romania passed Law No. 678/2002 (Exh. C-49) which amended the Raw Materials Incentive by excluding from the customs duties exemption raw materials for the production, processing and preservation of meat.

8. Events leading up to the revocation of EGO 24

234.
On 7 April 2003, the Mission of Romania to the EU sent a communication to the Romanian Minister for European Integration and other state officials, including Mr. Orban and Mr. Berinde (Communication No. 1480, Exh. R-93). It stated:

Community officials stated clearly that the negotiations on this chapter may be closed if, and only if, the following conditions (relating primarily to State aid, which was found to have the highest potential to distort the Internal Market) are met: new aid must comply strictly with the acquis, existing aid must be aligned or in the process of being aligned (including in terms of duration; the granting of transition periods may be considered depending on the outcomes of discussions between the competent institutions in Romania and the relevant operators), and ALL cases of non-notified State aid must be analysed and resolved.

[...]

The Commission stated that it had asked all of the candidate countries to bring their tax breaks into line with the acquis communautaire, including those granted in Free Zones or Less Favoured Areas, which entails either their withdrawal or their conversion into compatible aid. In the latter case, negotiations with a view to converting them into compatible schemes must be pursued directly by the Competition Council with the economic operators concerned. Only once this has occurred can the companies for which transition periods may be negotiated with the EU be identified.

(Emphasis added)

235.
In its Common Position dated 28 May 2003 (Exh. EC-8), the EU invited Romania to provide information on benefits granted in disfavored regions and urged Romania to close "incompatible aid schemes for new entrants with immediate effect." More specifically:

The EU recalls that all fiscal aid provisions, (for example those included in the VAT Law; the Law on customs duties exemptions - including benefits for transactions undertaken by firms located in industrial parks, free zones and disadvantaged areas […]) should be subject to the approval by the Competition Council. In cases where the Competition Council assesses the respective measures to be incompatible with the State aid rules, the EU invites Romania to either end the measures or to align them with the acquis.

The EU invites Romania to bring all incompatible aid measures in line with the acquis without delay and to continue to provide information on the progress made towards this goal. […]

The EU moreover invites Romania to provide information on individual benefits granted in the free zones and the disadvantaged areas and on any other individual tax benefits that have already been granted and which provide for tax benefits beyond Romania's target date for accession. The EU urges Romania to close incompatible aid schemes for new entrants with immediate effect.

In this context Romania is further invited to present a plan outlining how it intends to convert the benefits that are incompatible with the acquis and to hold further technical consultations with the Commission to explore the possibilities for this conversion.

[…]

With regard to aid which Romania wishes to operate beyond the date of accession, the EU recalls it's invitation to Romania to draw up a list of those existing aid measures which the Competition Council considers as compatible with the acquis and to transmit this list to the Commission. The EU recalls that Romania may continue to operate any aid which is included in the list and against which the Commission has not objected for the period for which the aid was approved by the Competition Council. A reference to the existing aid list and to the procedure for its establishment will be included in the Accession Treaty.

The EU recalls that the existing aid measures are subject in accordance with Article 88(1) of the EC Treaty to the appropriate measures procedure, under which the Commission can, in cooperation with the (future) Member State, propose changes to an aid measure for the future. To the extent that Romania wishes to benefit from this mechanism, the EU invites Romania to present the following to the Commission, every six months as from 1 January 2002, and up until the date of accession:

(a) a list of all existing aid measures (both schemes and ad hoc aid) (i) which have been assessed by the Competition Council and (ii) which it found to be compatible with the acquis ; (b) any other information which is essential for the assessment of the compatibility of the aid measures referred to under (a).

Details on the precise format for this reporting have been provided by the Commission.

The EU underlines that all aid measures in Romania which are considered State aid according to the acquis and which are not included in this list shall be considered as new aid upon Romania's accession. After that date, application of such an aid measure will be conditional upon Romania's notification of it pursuant to Article 88 of the EC Treaty, and a decision of the Commission that the aid measure in question is compatible with the Common Market. As regards individual aid, no measures which continue to have effects after accession and which are incompatible will be acceptable.

(Emphasis added)

236.
On 23 December 2003, Law No. 571/2003 on the Fiscal Code (Exh. R-37) revoked Law 345/2002, thus reinstating the Machinery Incentive and the VAT Incentive.
237.
In an interview on national TV conducted on 12 January 2004, Prime Minister Nastase indicated that the incentives regime provided by EGO 24/1998 could be terminated due to EU requirements. However, he also stated that the Government was examining whether some of the incentives would remain in place until 2007, noting that the Government had negotiated some transition periods with the EU and that they were trying to find "elegant solutions" (Exh. C-651). When asked to confirm if certain investors could benefit from the program until 2007, Minister Nastase stated that they would try to negotiate an extension that would allow the incentives to remain in place until that time. When asked what would happen to investors who had invested large amounts of money, the Minister stated that the Government was negotiating with each investor.
238.
On 24 March 2004, Romania issued its Complementary Position Paper III on Chapter 6 - Competition Policy (Exh. EC-9). With respect to EGO 24/1998, Romania noted:

The Ministry of Administration and Interior elaborated a draft law for completing the Government Emergency Ordinance no. 24/1998 on the regime of deprived areas. The draft provides that the facilities the undertakings that have an investor certificate and operate in deprived areas benefit from, will be granted below the maximum admitted intensity foreseen in the Regulation on regional aid. At present, the draft normative act is under inter-ministerial endorsement procedure.

By entering into force of the Fiscal Code, the fiscal facilities have been significantly diminished. In fact, the undertakings with investor certificate in the deprived areas will benefit from the exemption from the payment of the taxes perceived for changing the destination or removing from the agrarian circuit of certain fields designated to achieving the investment as well as the exemption from the custom duties payment for raw materials and imported components, excepting the import of the raw material for meat production, processing and preserving. Also the undertakings that obtained before 1 July 2003 the permanent certificate of investor in the deprived area, will benefit from exemption from the profit tax payment related to the new investment, during the whole existing duration of the deprived area.

(Emphasis added).

239.
In May 2004, in an interview in Oradea, Bihor County (Exh. C-652), Prime Minister Nastase indicated that "[s]ubsequent to 2007, when we want to be accepted in the European Union, these disfavored areas will no longer exist in Romania." When asked about compensation to investors in those areas, the Prime Minister answered that Romania would discuss these matters during its negotiations with the European Union and they would see if Romania was "able to obtain some transition periods for them." The Prime Minister specified that "there will be no fiscal incentives, there will be some compensation packages, established during direct negotiations." The Prime Minister also stated that the government would talk to the investors, and "based on the conclusions of the negotiations of the Competition Chapter, we will negotiate with those who initially obtained these fiscal incentives" (Exh. C-652, pp. 7-9 of translation).
240.
On 7 June 2004, Romania passed Law No. 239/2004 to supplement EGO 24/1998 (Exh. R-147). This law subjected all state aid to a maximum intensity requirement.12 In other words, it provided that the EGO 24/1998 facilities could not exceed the thresholds of permissible state aid approved by the Competition Council. If investors exceeded the maximum permitted intensity, the facilities would cease to be granted.
241.
On 31 August 2004, by means of Government Ordinance No. 94/2004 ("GO 94/2004", Exh. R-94), Romania repealed Article 6(1)b)d) and e) of EGO 24/1998, thus repealing/revoking the incentives provided under EGO 24/1998, including the Raw Materials Incentive, with the exception of the Tax Profit Incentive. The repeal was originally to become effective 90 days from the date of entry into force of GO 94/2004 (that is, on 3 December 2004). However, the date of repeal was subsequently extended to 22 February 2005 by means of Law No. 507/2004 of 22 November 2004 (Exh. C-52), which approved and amended GO 94/2004 to that effect. The substantiation report accompanying GO 94/2004 stated:

In order to meet the criteria in the Community rules on state aid, and also to complete the negotiations under Chapter No. 6 - Policy it is necessary to eliminate all forms of State aid in national legislation incompatible with the acquis communautaire in this area and, in this respect, it is proposed to repeal […] the provisions of Article 6 paragraph (1), letter (b), letter (d) and letter (e) of the Emergency Government Ordinance no. 24/1998 on the disadvantaged areas […]

(Substantiation Report accompanying EGO 94/2004, 26 August 2004, Exh. R-95, pp. 12-13).

242.
On 13 September 2004, the Claimants requested Romania to restore the tax incentive regime (Exh. C-8, ER of G. Piperea, ¶ 5.3).
243.
On 8 December 2004, the EU issued a Common Position ("2004 EU Common Position", Exh. EC-10), in which it welcomed the amendments to the regimes related to Free Trade Areas and Deprived Areas. In this context, the EU noted that Romania had requested two transitional periods, one with respect to the Profit Tax Incentive under EGO 24/1998 and another with respect to a royalty exemption under Law No. 84/1992. The EU accepted both transitional arrangements proposed by Romania. With respect to the Deprived Areas, this meant that investors holding a PIC granted prior to 1 July 2003 could continue to benefit from the Profit Tax Incentive for as long as the Deprived Areas continued to exist, under certain conditions (limited to 2008, 2009 or 2010, depending on the deprived area; net intensity of aid granted must remain below certain specified aid ceilings and the eligible costs must be defined in accordance with the Regional Aid Guidelines).
244.
On 22 February 2005, the revocation of the EGO 24/1998 incentives (with the exception of the Profit Tax Incentive) became effective.
245.
Also on 22 February 2005, the EC issued its Opinion on Romania's EU application (Exh. R-50) where it stated:

(7) In joining the European Union, the Republic of Bulgaria and Romania accept, without reserve, the Treaty establishing a Constitution for Europe, and until its entry into force, the Treaty on European Union and the Treaties establishing the European Communities including all their objectives and all decisions taken since their entry into force, and the options taken in respect of the development and strengthening of those Communities and of the Union.

(8) It is an essential feature of the legal order introduced by the Treaties establishing the European Communities and, at its entry into force, the Treaty establishing a Constitution for Europe that certain of their provisions and certain acts adopted by the institutions are directly applicable, that the law of the Union takes precedence over any national provisions which might conflict with it, and that procedures exist for ensuring the uniform interpretation of the law of the Union; accession to the European Union implies recognition of the binding nature of these rules, observance of which is indispensable to guarantee the effectiveness and unity of the law of the Union.

9. Subsequent events

246.
On 25 April 2005, the Member States of the EU signed the Accession Treaty with Romania and Bulgaria (the "Accession Treaty", Exh. R-27). The Treaty was to enter into force on 1 January 2007 [i.e., this would be the date of accession]. However, pursuant to Article 4(3), the institutions of the EU could adopt before accession certain measures specified in the Protocol annexed to the Accession Treaty, which set out the conditions and arrangements for admission. Annex VII to the Accession Protocol (Exh. R-52, R-98), Section 4 on Competition Policy, subsection A on Fiscal Aid, set out the transitional period with respect to the Profit Tax Incentive referred to in the 2004 EU Common Position. With respect to the Ştei-Nucet disfavored regions, it stated that Romania could continue granting the Profit Tax Exemption until 31 December 2009, subject to certain state aid intensity requirements and other conditions.
247.
On 28 July 2005, the Claimants filed their Request for Arbitration.
248.
On 4 March 2006, the EC issued the Guidelines on National Regional Aid for 20072013 (Exh. C-298), which set out the principles according to which EU Member States could grant regional aid to disadvantaged areas. With respect to operating aid, the Guidelines provided:

Regional aid aimed at reducing a firm's current expenses (operating aid) is normally prohibited. Exceptionally, however, such aid may be granted in regions eligible under the derogation in Article 87(3)(a) provided that (i) it is justified in terms of its contribution to regional development and its nature and (ii) its level is proportional to the handicaps it seeks to alleviate (69). It is for the Member State to demonstrate the existence and importance of any handicaps (70). In addition, certain specific forms of operating aid can be accepted in the low population density regions and the least populated areas.

249.
On 1 January 2007, the Accession Treaty entered into force and Romania became a Member State of the EU.

IV. SUMMARY OF THE PARTIES' POSITIONS

250.
The purpose of this section is to provide an overview of the Parties' positions. The Parties' detailed positions with respect to each claim are described in Section VI below (Analysis of the Claimants' Treaty Claims).

A. THE CLAIMANTS' POSITION

251.
The Claimants' case has evolved over time. Although its core elements remain unchanged, the focus of the Claimants' arguments has shifted, as has the structure of these arguments.
252.
The Claimants contend that "[i]n the course of enacting, promoting and implementing the EGO 24 regime, the Respondent made unambiguous and binding commitments to foreign investors, the Micula brothers, that they would be granted a number of incentives for a 10 year period in return for making certain large investments in one of the poorest and least developed regions of Romania" (C-PHB, ¶ 1). The Claimants claim that, in specific reliance on these commitments, and in particular in reliance on the expectation that the incentives would last through the entire 10 year period, the Claimants invested massively in the Ştei-Nucet-Drâgâneşti area, one of Romania's most remote and disfavored regions.
253.
In the latest formulation of their case, the Claimants argue that Romania entered into these binding commitments through EGO 24; its implementing legislation, in particular GD 194/1999; and the issuance of Permanent Investor Certificates (PICs) to the three Corporate Claimants. The Claimants submit that these PICs certified that the Claimants had the right to receive the incentives until 1 April 2009, which was also the date in which Ştei-Nucet-Drâgâneşti would cease to be considered a disfavored region.
254.
The Claimants argue that Romania's binding commitment to provide the incentives to the Claimants until 1 April 2009 gave rise to a right to receive those incentives until that date, or at least generated a legitimate expectation that they would benefit from those incentives until that date. The Claimants contend that Romania's revocation of these incentives effective 22 February 2005 (approximately 4 years before they were set to expire) breached that commitment or undermined that legitimate expectation.
255.
The Claimants contend that Romania's premature revocation of the incentives was unfair and unlawful. While Romania argues that it was forced to revoke the incentives to comply with EU requirements, the Claimants assert that the incentives were in fact compatible with EU law, and no competent authority had issued a decision requiring Romania to terminate the incentives. The Claimants also complain that Romania did not attempt to negotiate with either the EU or the Claimants to find a solution that would mitigate the adverse effects on their business of the premature revocation of the incentives. The Claimants argue that, most egregiously, Romania revoked only the provisions of EGO 24 that established the incentives, while retaining those that set out the Claimants' obligations to remain invested in the Ştei-Nucet- Drâgâneşti region for twice the time they received the incentives.
256.
In view of the above, the Claimants argue that Romania has breached the Claimants' rights under the Sweden-Romania BIT and under international law. Specifically, they contend that the premature revocation of the EGO 24 incentives:

a. Breached a clear commitment undertaken by Romania vis-à-vis the Claimants, and therefore breached the BIT's umbrella clause contained in Article 2(4) of the BIT;

b. Undermined the Claimants' legitimate expectations, upset the stability of the regulatory regime, lacked transparency and consistency, and was taken in bad faith, and therefore breached Romania's obligation under Article 2(3) of the BIT to afford the Claimants fair and equitable treatment;

c. Impaired by unreasonable measures the management, maintenance, use, enjoyment and disposal of the Claimants' investments, and therefore breached Article 2(3) of the BIT; and

d. Expropriated without compensation the Claimants' right to receive the incentives and substantially deprived their entire investment of value, and therefore breached Article 4(1) of the BIT.

257.
The Claimants claim that, because the early revocation of these incentives violated an obligation entered into by Romania vis-à-vis the investors (and thus breached the BIT's umbrella clause), the revocation also undermined the Claimants' legitimate expectations (and consequently breached the BIT's fair and equitable treatment standard). However, in the Claimants' view, even if the premature revocation of the incentives does not breach the umbrella clause (e.g., because the promise allegedly made by the Respondent does not rise to the level of an obligation protected by the umbrella clause), the Tribunal could still find a violation of the fair and equitable treatment standard because the revocation upset the Claimants' legitimate expectations (Tr., Day 12, 126:22-128:6 (Reed)).
258.
The Claimants deny that the termination of the incentives was required under EU law. The Claimants allege that, to the contrary, the incentives were one of the factors that allowed Romania to accede to the EU in the first place. Indeed, the Claimants argue that Romania desperately needed economic development, particularly in certain distressed regions, to be able to join the EU. In their view, incentive programs such as EGO 24 greatly contributed to this development.
259.
The Claimants argue that Romania has failed to show how the EGO 24 incentives conflicted with EU law and that Romania has not provided evidence that the EU required the termination of the incentives in order to obtain accession.
260.
The Claimants specific arguments with respect to the alleged treaty breaches are discussed in Section VI below (Analysis of the Claimants' Treaty Claims).
261.
The Claimants argue that these breaches caused substantial damage to the Claimants, as set out in Section VII below (Damages).
262.
On the basis of the foregoing, the Claimants request the following relief:

The Claimants request an award be made granting the relief set out in paragraphs 1 to 6 below.

Any damages payable, including interest and costs, should be awarded to the individual Claimants, Ioan Micula and Viorel Micula, to be divided between them on a 50:50 basis.

In the alternative, any damages payable, including interest and costs, should be awarded to all five Claimants.

1. A declaration that Romania has violated the Sweden-Romania Bilateral Investment Treaty ("Treaty") and customary international law by:

1.1 failing to ensure fair and equitable treatment of the Claimants' investments (Article 2(3) of the Treaty) by treating the Claimants' investments in a manner that was inconsistent, ambiguous, and not transparent;

1.2 failing to ensure fair and equitable treatment of the Claimants' investments (Article 2(3) of the Treaty) by violating the Claimants' legitimate expectations regarding their investments;

1.3 impairing the Claimants' investments through unreasonable and discriminatory measures (Article 2(3) of the Treaty);

1.4 failing to observe obligations entered into with the Claimants with regard to their investments (Article 2(4) of the Treaty); and

1.5 expropriating the Claimants' investments without the payment of prompt, adequate, and effective compensation (Article 4(1) of the Treaty).

2. Damages for the following losses suffered by the Claimants:

A. Expectation losses

2.1 Losses suffered as a result of the increased cost of raw materials following revocation of the incentives provided by Emergency Government Ordinance 24/1998 ("Incentives") and the lost opportunity to build a sugar stockpile in 2009, comprising:

(a) increased costs of sugar in the amount of RON 85.1 million;

(b) increased costs of PET in the amount of RON 6.3 million;

(c) increased costs of raw materials other than sugar and PET in the amount of RON 17.5 million; and

(d) lost opportunity to stockpile sugar in 2009 in the amount of RON 62.5 million.

2.2 Financial penalties incurred but not yet paid as a result of the Claimants being financially constrained due to the losses incurred as a result of the revocation of the Incentives in the amount of RON 63.65 million as 30 September 2010 unless these financial penalties are waived by the Respondent and a declaration that the Respondent shall waive or reimburse all additional financial penalties imposed or assessed until the date of Romania's full and final satisfaction of the award.

2.2A Financial penalties paid by the Micula brothers' companies in the period 1 April 2005 to 30 September 2010 in the amount of RON 40 million.

2.3 Lost profits on sales of finished goods following revocation of the Incentives of no less than RON 427 million.

2.4 Lost profits on sales of Sugar Containing Products ("SCPs") following revocation of the Incentives in the amount of RON 492.3 million.

2.5 Lost profits incurred as a result of the Claimants' inability to complete their incremental investments following revocation of the Incentives comprising:

(a) a malt plant in the amount of RON 28 million;

(b) a cogeneration [p]lant in the amount of RON 712.6 million; and

(c) a canning [p]lant and subsequent sales of private label beer in the amount of RON 720.4 million.

2.6 In the alternative to paragraphs 2.3, 2.4 and 2.5 above, lost profits on sales of finished goods following revocation of the Incentives in the amount of RON 2423.2 million.

B. Reliance losses

2.7 In the alternative to the losses described in paragraphs 2.1, 2.2A, and 2.3 to 2.6 above, but not 2.2, the amounts lost by the Claimants as a result of investing in reliance on the Incentives in the amount of RON 811 million.

3. An award of interest on the damages payable pursuant to paragraph 2 above calculated in the following manner:

3.1 For losses as described in paragraphs 2.1(a) to (c) above, interest compounded on a quarterly basis at a rate of 3 month ROBOR (Romanian Interbank Offer Rate) plus 5% from 1 March 2007 until the date of Romania's full and final satisfaction of the award.

3.2 For losses as described in paragraph 2.1(d) above, interest compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 1 July 2010 until the date of Romania's full and final satisfaction of the award.

3.3 For penalties as described in paragraph 2.2A above, interest compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 1 July 2007 until the date of Romania's full and final satisfaction of the award.

3.4 For losses as described in paragraph 2.3 above, interest compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 1 May 2008 until the date of Romania's full and final satisfaction of the award.

3.5 For losses as described in paragraph 2.4 above, interest compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 1 March 2007 until the date of Romania's full and final satisfaction of the award.

3.6 For losses as described in paragraph 2.5 above, interest compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 30 September 2009 until the date of Romania's full and final satisfaction of the award.

3.7 For losses as described in paragraph 2.6 above, interest compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 15 August 2007 until the date of Romania's full and final satisfaction of the award.

3.8 For the amounts lost by the Claimants as a result of investing in reliance on the Incentives as described in paragraph 2.7 above, interest to be applied compounded on a quarterly basis at a rate of 3 month ROBOR plus 5% from 1 January 2002 until the date of Romania's full and final satisfaction of the award.

3.9 The ROBOR rate to be applied in relation to paragraphs 3.1 to 3.8 above is to be the average annual rate for each year or part thereof.

4. The total amount of damages payable by the Respondent comprising the amounts set out in paragraphs 2, 3 and 5 to be received net of any tax obligations imposed by Romania on the proceeds.

5. All costs incurred by the Claimants in relation to these proceedings, including but not limited to the Claimants' lawyers' fees and expenses, experts' fees and expenses, and all costs of ICSID and the Tribunal.

6. Any further relief that the Tribunal may deem fit and proper.

(Claimants' Revised Request for Relief, footnotes omitted)

263.
In addition, the Claimants request that the Tribunal:13

[...]

b. provide in the Award that Romania is enjoined from any further tax collection measures of any kind in respect of the Claimants and the EFDC until such a time as the damages awarded by the Tribunal have been paid in full, and include a pecuniary alternative in case of nonperformance;

c. issue a declaration that Romania is not entitled to set-off tax debts of the EFDC against an Award in favor of Claimants;

d. order Romania to pay all of Claimants' costs in responding to this Application, including reasonable lawyers' fees and other costs; and

e. grant any other relief that the Tribunal may deem fit and proper in these proceedings.

(Claimants' Rejoinder on the Respondent's Revocation Application, ¶ 75).

B. THE RESPONDENT'S POSITION

264.
The Respondent rejects each of the Claimants' claims under the BIT.
265.
The Respondent argues that the key question in this case is "who bore the risk of regulatory change: the state or the investors who benefitted from the existing regulatory regime" (R-Rejoinder, ¶ 9).
266.
The Respondent contends that the BIT does not require the Contracting States to tailor their laws and regulations to the preference of foreign investors, nor does it establish liability for every regulatory change that has a negative impact on the foreign investors' businesses. To the contrary, investment protection treaties accord host states considerable deference in relation to regulatory policy. As a result, the Respondent argues that where a state has exercised its sovereign powers to regulate in a general, non-discriminatory way to advance public welfare (including by legislative changes), such conduct is not an "expropriation", "unfair and inequitable treatment", or otherwise in breach of the provisions of an investment protection treaty. Absent a clear commitment from the state to stabilize a regulatory framework, states are usually free to change their laws.
267.
Indeed, the Respondent argues that businessmen know this, and factor regulatory risk into their business plans. According to the Respondent, the Claimants did not do so because they thought they had a special status that protected them from any regulatory changes.
268.
In the present case, the Respondent notes that it is undisputed that the modification of the facilities that had been granted pursuant to EGO 24/1998 was a generally applicable act. The Respondent also argues that it was compelled to curtail the facilities as an essential precondition to accession to the EU. Accordingly, the Tribunal should give deference to Romania's action when applying the substantive provisions of the BIT (R-CM, ¶ 92).
269.
Building on this fundamental premise, the Respondent makes four main arguments.
270.
The Respondent’s first line of argument is that three (and possibly four) of the Claimants' claims fail because the Claimants have not proven that Romania made a binding promise to the Claimants that the facilities under EGO 24, either in their totality or the Raw Materials Facility individually, would remain unchanged until 2009. The Respondent argues that the Claimants' ability to establish the existence, terms and duration of this promise is an essential condition for the following three claims (although it is not a sufficient condition for the success of any of them) (Tr., Day 13, 60:2-65-7; 73:3-83-25 (Petrochilos)):

a. First, the existence of such a promise is the basis for the Claimants' assertions regarding their legitimate expectations, including their expectation of legal stability, and is therefore necessary for proving this aspect of the Claimants' fair and equitable treatment claim.

b. Second, the existence of such a promise is necessary to establish the existence and scope of an obligation under Romanian law, the breach of which could result in the breach of the umbrella clause.

c. Third, the existence of such a promise is allegedly what gave rise to the Claimants' right to the facilities, which Claimants assert has been expropriated.

271.
In addition, the Respondent contends that the Claimants' claims relating to an asserted lack of transparency and consistency in the regulatory regime are based on the notion that the Claimants were entitled to receive some kind of an advance notice or warning from Romania that the Raw Materials Incentive would change, because Romania had allegedly promised that the incentive would remain in place until 2009.
272.
The Respondent argues that the Claimants must prove two distinct components of this promise: (i) that the EGO 24 facilities would remain unchanged until 2009, and (ii) that the promise was contained in an instrument which either conferred individual rights on them, or was otherwise one on which they could legitimately rely as securing some form of entitlement that was specific to them and that would remain in place even in the case of a general legislative or regulatory change.
273.
The Respondent further contends that, to establish any of these claims, the Claimants must prove that Romania's promise was binding under Romanian law:

a. With respect to the fair and equitable treatment claim, the Respondent argues that the Claimants must show that, after exercising due diligence, they legitimately and reasonably relied on an instrument which a reasonable investor, properly advised by Romanian lawyers, would have understood as an assurance of the immutability of the EGO 24 facilities.

b. With respect to the umbrella clause and expropriation claims, the Respondent argues that the Claimants must show that they had an actionable vested right existing under Romanian law which was breached or expropriated.

274.
According to the Respondent, the Claimants' claims fail because they have failed to establish the existence of a binding promise under Romanian law.
275.
The Respondent's second line of argument is that, regardless of the existence of a promise, either the Claimants did not rely on the existence of that promise to make their investments, or any such reliance was unreasonable. The Respondent argues that, given the lack of reliance, the Claimants' fair and equitable treatment claim fails, even if a promise existed. In this respect (and as noted below), the Respondent argues that the Claimants' case hinges on the credibility of their witnesses, and their testimony is neither credible nor reliable (Tr., Day 13:19-43 (King)).
276.
The Respondent’s third line of argument is that the remaining claims (namely, the Claimants' other fair and equitable treatment claims and their claims that Romania impaired the Claimants' investments through unreasonable measures) fail because Romania's actions were reasonably related to a rational policy, which was EU accession. The Respondent also argues that the actions giving rise to the Claimants' assertions of lack of transparency and inconsistency in the regulatory regime were, in fact, reasonable and consistent with the BIT.
277.
The Respondent advances further arguments with respect to each of the Claimants' claims, which will be addressed in the specific analysis of each of the Claimants' claims in Chapter VI.
278.
Finally, as discussed in Section VII below, the Respondent challenges the Claimants’ case on quantum.
279.
In addition to these four main arguments, the Respondent challenges the credibility and reliability of the Claimants’ witnesses. The Respondent argues that this lack of credibility and reliability was exposed during the November 2010 hearing on the merits, and that this is the reason why the Claimants shifted the focus of their case. Specifically, the Respondent argues that while the Claimants originally focused on their legitimate expectations claim (which requires proof of the Claimants’ subjective reliance on their alleged expectations and of the reasonableness of that reliance), after the hearing on the merits the Claimants shifted their focus to their claims related to the umbrella clause, expropriation and transparency. According to the Respondent, these are "claims that have nothing to do with the Claimants in particular", and the Claimants shifted their focus to them because they believe that "these are claims that might survive without the need to rely on the doubtful words of the Miculas and their employee witnesses" (Tr., Day 13, 30:21-31:2 (King)).
280.
The Respondent has stated that its challenge to the credibility and reliability of the Claimants’ witnesses extends to "all aspects that the Claimants have asserted" (Tr., Day 13, 62:6-8). However, given that the Respondent acknowledges that the umbrella clause, expropriation and transparency claims are premised on objective rather than subjective factors, it seems that the Respondent’s challenge to the credibility and reliability of the Claimants’ witnesses is directed principally to the Claimants’ legitimate expectations claim and their damages case.
281.
The Respondent also argues that, despite the Claimants’ shift in focus, this is not and has never been a case about transparency; it has only become so because the hearing undermined the Claimants’ previous case theory (Tr., Day 13, 19-43 (King)).
282.
For the foregoing reasons, the Respondent requests the Tribunal to:

"(a) DISMISS the Claimants' claims in their entirety; and

(b) ORDER the Claimants to pay in their entirety the costs of this arbitration, including the fees and expenses of the Tribunal and the Centre and the reasonable fees and expenses incurred by Romania in defending against the Claimants' claims."

(Respondent's Post-Hearing Brief, ¶ 354).

283.
In addition, the Respondent requests the Tribunal to:14

"[...]

c. if any amount is awarded to any of the Claimants, whether as damages, arbitration costs, or otherwise, explicitly provide in the award that the amount awarded is subject to set-off against the tax debts of all eleven EFDG companies, including lawful interest and penalties;

d. grant any other relief the Tribunal considers just and proper."

(Respondent's Reply regarding its Revocation Application, ¶ 41)

V. PRELIMINARY MATTERS

A. THE TRIBUNAL'S JURISDICTION

284.
The Tribunal’s jurisdiction over this dispute was addressed in the Decision on Jurisdiction and Admissibility, which makes integral part of this Award. In that Decision, the Tribunal found that it had jurisdiction over the dispute submitted to it in this arbitration and rejected any objections as to the admissibility of the claims (Decision on Jurisdiction and Admissibility, ¶ 170).
285.
Specifically, in the Decision on Jurisdiction and Admissibility the Tribunal found that:

a. The Tribunal's jurisdiction is determined by Article 25 of the ICSID Convention and Article 7 of the BIT.

b. Regarding jurisdiction ratione personae, the Tribunal rejected Romania's argument that the Individual Claimants’ Swedish nationality could not be opposed to Romania because of purported tenuous links with Sweden. Accordingly, the Tribunal concluded that Messrs. Micula are and have been Swedish nationals at all times relevant to the Tribunal's jurisdiction. As for the three Corporate Claimants, the Tribunal resolved that they were held by nationals of another Contracting State at the time of consent to arbitration, in accordance with the requirements of Article 25(2)(b) of the ICSID Convention and Article 7(3) of the BIT.

c. Regarding jurisdiction ratione materiae, the Tribunal found that the investments made by the Corporate Claimants qualified as such for the purposes of the ICSID Convention. In the same vein, the Tribunal was satisfied that the shareholding of Messrs. Micula qualified as an investment under the ICSID Convention. The Tribunal also held that there was an investment for the purposes of the BIT. Further, the Tribunal expressed no doubt that the dispute was of a legal nature, arising directly out of an investment, for the purposes of Article 25 of the ICSID Convention. Moreover, the Tribunal understood that the dispute was not merely hypothetical and that the Claimants had made a prima facie case of entitlement.

d. Regarding jurisdiction ratione temporis, the Tribunal found that the dispute arose after the entry into force of the BIT and therefore fell within the scope of application of the BIT ratione temporis.

e. The Tribunal also rejected the Respondent's objection related to the remedy of restitution sought by the Claimants, ruling that the Tribunal had powers to order restitution both under the ICSID Convention and the BIT.

B. APPLICABLE LAW

286.
Article 42(1) of the ICSID Convention provides that:

The Tribunal shall decide a dispute in accordance with such rules of law as may be agreed by the parties. In the absence of such agreement, the Tribunal shall apply the law of the Contracting State party to the dispute (including its rules on the conflict of laws) and such rules of international law as may be applicable.

287.
The Parties note that the BIT does not contain a choice of law clause (C-SoC, ¶ 170; R-CM, ¶ 72; R-Rejoinder, ¶ 230). Accordingly, Article 42(1) of the ICSID Convention directs the Tribunal to apply the host state's law (here, Romanian law) and "such rules of international law as may be applicable." The Parties agree that, in the case of conflict between Romanian law and international law, international law should take precedence (C-SoC, ¶¶ 172; R-CM, ¶ 72).15
288.
The Claimants submit that "where the basis of jurisdiction is a BIT and the claims put forward are based on the BIT, it is established practice to accept the BIT's substantive rules as the applicable law" (C-SoC, ¶ 170). The Respondent appears to agree, noting that "the interpretation of the BIT must be guided by relevant principles of international law", and adding that "[i]ts actual text is of course the starting point" (RCM, ¶ 73;). Indeed, the Respondent contends that the rule of international law of primary significance to the Claimants' case is Article 2(3) of the BIT (R-Rejoinder, ¶ 230).
289.
The Parties disagree however on the role of other rules of international law in this dispute. The Claimants contend that no international law principle displaces the terms of the BIT or otherwise excuses Romania's treaty breaches. In turn, the Respondent argues that the BIT must be interpreted in light of the context in which it was concluded, and should be consistent with Romania's and Sweden's other relevant international law obligations, including in particular Romania's obligations under the Europe Agreement and the EC Treaty. Romania argues that, in any event, the Parties intended EU law to prevail.
290.
The Tribunal addresses the Parties' positions below, as well as comments made by the European Commission in its capacity as amicus curiae.

1. The Claimants' position

291.
The Claimants contend that EU law does not displace the terms of the BIT (C-Reply, ¶¶ 515-555; ER of D. Caron; C-PHB, ¶¶ 86-95). The Claimants argue that there is no conflict of treaties that could make EU law prevail over the BIT, but even if there were, the BIT should prevail (Section (a) below). The Claimants further contend that the Respondent’s attempts to interpret the BIT in accordance with EU law should be rejected (Section (b) below). In any event, the Claimants contend that EU law requirements would not justify or excuse breaches of the BIT (Section (c) below).

a. There is no conflict of treaties, and even if there were, the BIT should prevail

292.
The Claimants submit that there is no conflict of treaties in this case because the Accession Treaty and the EC Treaty were not in force vis-à-vis Romania at the time it entered into the BIT, or at the time when the breaches of the BIT occurred. Thus, the Claimants assert that:

Everything here in this case is crystallised prior to the accession of Romania to the EU. The BIT was entered in force before, the breach predates the accession and hence the right to be compensated predates accession. [...] [T]he only element which postdates accession is the payment: the payment of a sum of money which represents the consequences of the breach which predates accession (Tr., Day 12, 141 (Gaillard)).

293.
The Claimants also note that the Commission expressly concludes that the BIT has been neither superseded nor terminated by Romania’s accession to the EU pursuant to Article 59 of the Vienna Convention.
294.
In the Claimants’ view, the only treaty with which the BIT could be deemed to be in conflict is the Europe Agreement. The Claimants deny that such a conflict exists, but if such a conflict were deemed to exist, they submit that the BIT should prevail:

a. First, under the preservation of rights provision in Article 9(2) of the BIT, the BIT prevails over external provisions, except to the extent that the latter would be more favorable to the investor than the provisions of the BIT.

b. Second, the BIT prevails as lex posterior pursuant to Article 30(3) of the Vienna Convention on the Law of Treaties of 1969 (the "VCLT")16 because none of the requirements for Article 30(3) to apply is met (in particular, the Europe Agreement and the BIT were not entered into between the same parties, nor do they have the same subject matter).

c. Third, the BIT prevails as lex specialis, because it is the treaty with a more precisely delimited scope of application. In addition, the Claimants argue that there is no evidence of Romania's and Sweden's common intention to give precedence to EU law and subordinate the BIT to it. Indeed, the Claimants note that, in the few instances where Romania has intended to give precedence over a BIT to a particular source of law, it has done so expressly.

b. Romania's interpretation of the provisions of the BIT is flawed

295.
The Claimants further argue that Romania misapplies Article 31(3)(c) of the VCLT in an attempt to supplant the BIT with EU law. Article 31(3)(c) of the VCLT provides: "There shall be taken into account, together with the context: […] (c) any relevant rules of international law applicable in the relations between the parties." According to the Claimants, Romania's attempt to "interpret" the BIT by taking into account EU law as part of the "relevant rules of international law applicable in the relations between the parties" is an improper attempt to displace the BIT and apply EU law instead. Relying on Prof. Caron's expert opinion, the Claimants argue that:

a. An "interpretation" cannot be construed to abrogate express language in the BIT;

b. The meaning of the terms "shall be taken into account" should be understood to mean that an interpreter of the treaty has the discretion to consider relevant rules of international law, not that such rules must be incorporated into the treaty, and

c. The "relevant rules of international law" are only those that are in place at the time of the violation.

296.
As a result, the Claimants argue that, for purposes of Article 31(3)(c) of the VCLT, the Tribunal could "take into account" the Europe Agreement, which existed at the time the BIT entered into force and at the time Romania breached the BIT's provisions (subject to the additional requirement of the Europe Agreement being "between the parties", which the Claimants deny). However, the Tribunal cannot take into account the Accession Agreement or the EC Treaty, as Romania had not entered into either at the time it concluded the BIT. Therefore, in the view of the Claimants, if the Tribunal seeks to determine the relevant state aid requirements that applied to Romania, the Tribunal should refer to the regime existing under the Europe Agreement, rather than the post-accession regime.

c. EU law requirements would not justify or excuse breaches of the BIT or international law

297.
The Claimants submit that even if Romania was required by EU law to repeal the EGO 24 incentives prior to their planned expiration in 2009, this would not justify or excuse breaches of the BIT and international law.
298.
The Claimants note that, according to Art. 12 of the ILC Articles on State Responsibility (the "ILC Articles"),17 "[t]here is a breach of an international obligation by a State when an act of that State is not in conformity with what is required of it by that obligation, regardless of its origin or character." In the Claimants’ submission, the relevant international obligations here are those contained in the BIT. Romania would breach those obligations even if its actions were required by EU law. Pursuant to Article 31(1) of the ILC Articles, "[t]he responsible State is under an obligation to make full reparation for the injury caused by the internationally wrongful act."
299.
The Claimants submit that, for all of their claims except their fair and equitable treatment claim, the obligation to compensate arises irrespective of the rationale for the adoption of the internationally wrongful act. In their view, Romania’s reasons for adopting the measure could only be relevant if Romania were trying to avail itself of one of the circumstances precluding wrongfulness described in Chapter V of the ILC Articles, i.e., force majeure (Article 23), duress (Article 24), or necessity (Article 25). Thus, for their expropriation and umbrella clause claims, the Claimants argue that Romania’s "EU law defense" should be assessed after the Tribunal has decided whether there is liability under the BIT, to determine if the reasons for Romania’s actions qualify as a circumstance precluding wrongfulness.
300.
The Claimants note that Romania has not expressly invoked Articles 23-25 of the ILC Articles, but in any event the Claimants submit that none of them applies. In particular, Romania has not proven the "necessity" of its alleged compliance with its EU law obligations in the terms of Article 25.
301.
Even if the doctrine of "necessity" applied, the Claimants contend that Romania would still be required to compensate them. Article 25 only provides an excuse for an act by a state; it does not affect a state’s obligation to pay compensation for damages caused by that act (even if excused). Indeed, according to the Claimants ILC Article 27(b) leaves open whether a state relying on a circumstance precluding wrongfulness should nonetheless be expected to make good any material loss suffered.
302.
In contrast, the Claimants submit that Romania’s EU law defense is relevant to the determination of whether Romania has breached the fair and equitable treatment standard. As explained in further detail below, the Claimants argue that EU law is part of the factual matrix against which the Tribunal must determine whether the Claimants’ expectations were legitimate and, specifically, whether they were reasonable (Tr., Day 1, 159-164, 170-177 (Gaillard)). Thus, the Tribunal must assess Romania’s EU law defense during the Tribunal’s analysis of whether Romania has breached the fair and equitable treatment standard.

2. The Respondent's position

303.
The Respondent argues that the BIT must be interpreted in light of the context in which it was concluded, and should be consistent with Romania's and Sweden's other relevant international law obligations, including in particular Romania's obligations under the Europe Agreement and the EC Treaty. Romania argues that, in any event, the Parties intended EU law to prevail (R-CM, ¶¶ 72-84; R-Rejoinder, ¶¶ 226-258; Tr. Day 13, 50:18-51:24 (King)).

a. The BIT must be interpreted consistently with EU law

304.
As noted above, the Respondent does not dispute that the substantive rules of international law applicable to this dispute are those contained in the BIT. However, it argues that the BIT cannot be interpreted in a vacuum. Citing AAPL v. Sri Lanka, the Respondent argues that an investment protection treaty "is not a self-contained closed legal system limited to provide for substantive material rules of direct applicability, but it has to be envisaged within a wider juridical context [...]."18 In this respect, the Respondent argues that the BIT must be interpreted in light of the context in which it was negotiated and concluded between Romania and Sweden. In Romania's submission, this context should take into account the purpose for which it was concluded (Article 31(1) of the VLCT), as well as the circumstances of its conclusion (Article 32 of the VCLT). Romania argues that the conclusion of the BIT was a direct consequence of the Europe Agreement, in the context of Romania's accession to the EU and adoption of the acquis.
305.
The Respondent also argues that, pursuant to Article 31(3)(c) of the VCLT, when interpreting a treaty, the "relevant rules of international law applicable in the relations between the parties" must also be taken into account. According to Romania, this includes the rules of international law existing at the time the BIT is being interpreted (that is, today). Thus, in Romania's submission, the Europe Agreement and the EC Treaty fall under the category of relevant rules of international law that should be considered when construing the BIT. In this respect, Romania notes that the ILC has stated that "[i]t is a generally accepted principle that when several norms bear on a single issue they should, to the extent possible, be interpreted so as to give rise to a single set of compatible obligations."19
306.
Specifically, Romania claims that "the BIT should be interpreted as part of a harmonious set of treaty obligations that Romania and Sweden have entered into, starting with the 1993 Europe Agreement and continuing, all pursuant to that same initial instrument with the BIT and the accession treaty [...] [T]he Europe Agreement indeed called on Romania to negotiate BITs with EU countries" (Tr., Day 13, 51 (King)). The Respondent submits that, if the BIT is construed in that light, no conflict between the various instruments arises.
307.
Romania contends that, in the present case, such a "systemic" interpretation of the BIT is of special importance. It submits that the treatment of foreign investors that Sweden and Romania intended to mandate through the BIT cannot be divorced from Romania’s obligations under the Europe Agreement and the EC Treaty. The Respondent argues that Sweden, together with the other EU Member States, expected Romania to take all reasonable measures to comply with the EU treaties, and in particular expected Romania to abolish EGO 24.
308.
In view of the above, the Respondent contends that all substantive obligations contained in the BIT must be interpreted in a manner consistent with EU law. This includes in particular Article 64 of the Europe Agreement and Article 87 of the EC Treaty.

b. In any event, the Contracting Parties to the BIT intended European law to prevail

309.
The Respondent further submits that, in the unlikely event that the Tribunal should find Romania’s obligations under EU law and the BIT impossible to reconcile, any conflict ought to be resolved in favor of EU law.
310.
In this respect, the Respondent argues that where conflicts arise between competing rules of international law which cannot be resolved by systemic interpretation, the intention of the relevant States determines which of the competing rules takes precedence. According to the Respondent, in the present case the common intention of Romania and Sweden is clear: they intended the BIT to be subordinated to EU law. As EU law contains more specific rules on state aid, EU law should prevail by application of the principle lex specialis derogat generali.
311.
In addition, the Respondent argues that it concluded the BIT with Sweden precisely in furtherance of its obligations to the EU and the EU Member States. It would thus be irrational to suppose that Sweden and Romania intended the BIT to circumvent or otherwise weaken EU law. Indeed, for Sweden this would mean breaching the EC Treaty.
312.
Finally, the Respondent notes that the European Court of Justice ("ECJ") has ruled that EU law takes precedence over all pre-accession bilateral treaties concluded between Member States (Exh. RL-197 to RL-200).

c. EU law is relevant to the determination of wrongfulness

313.
The Respondent asserts that, contrary to the Claimants' contentions, EU law is relevant to the determination of whether it breached the BIT.
314.
Specifically, Romania argues that the rights and obligations of Romania and Sweden under the Europe Agreement and, eventually, the Accession Treaty, are not only rules of international law that the Tribunal should take into account when interpreting the BIT, but are relevant in at least three ways: (i) as the factual motivation for the change in Romanian law that is the basis of the Claimants' allegations; (ii) as binding rules of Romanian law, having been incorporated into Romanian law, and (iii) as factual circumstances to take into account as part of the consideration of what would have constituted fair and equitable treatment (R-Rejoinder, ¶ 227).
315.
The Respondent further submits that it was indeed "necessary" for Romania to repeal EGO 98 in order to either comply with EU law or accede to the EU. However, the Respondent submits that "necessity" is not the test; the question is whether Romania's course of action was reasonable (R-Rejoinder, ¶ 99). The Tribunal understands Romania's position to be that the requirements of EU law play a role in determining whether Romania breached the standards of the BIT that require the state to act reasonably, in particular, the fair and equitable treatment obligation and the obligation not to impair the Claimants' investments by unreasonable or discriminatory measures. The Tribunal also understands that Romania is not invoking Articles 23, 24 or 25 of the ILC Articles to plead that there are circumstances precluding wrongfulness that would excuse any liability under the BIT.

3. The Commission's position

316.
In its capacity as amicus curiae, the European Commission submitted comments on the law applicable to this dispute.
317.
The Commission's position in this respect is similar to that of the Respondent. The Commission submits that the interpretation of the BIT should take into account the BIT's European context and origin. It notes that the ECJ has recommended interpreting intra-EU BITs in the light of EU law (ECJ Case 26/62, Van Gend en Loos [1963], ECR 3). The Commission also submits that the parties to the Europe Agreement intended that any future BIT should subscribe to the same logic regarding state aid law. Therefore, the Tribunal should take into account the EU's state aid rules when interpreting specific BIT provisions. The Commission further contends that Article 30(3) of the VCLT directs the Tribunal to apply the EU's state aid law rather than provisions of the BIT that would prove incompatible with the EC Treaty.

4. The Tribunal's analysis

318.
There is no dispute among the Parties that the primary source of law for this Tribunal is the BIT itself. The disagreements lie in the role of other rules of international law, in particular rules arising from treaties established under EU law to which Romania and Sweden are parties.
320.
The relevant question then becomes whether EU law plays a role in the interpretation of the BIT. To answer that question, the Tribunal needs to address three points.
322.
Second, Article 31(1) of the VCLT provides that "[a] treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose." Article 31(2) expressly notes that such context comprises, inter alia, the text of the treaty, including its preamble and annexes. The Preamble of the BIT states that the Contracting Parties have agreed on the terms of the BIT:

desiring to intensify economic cooperation to the mutual benefit of both States and to maintain fair and equitable conditions for investments by investors of one Contracting Party in the territory of the other Contracting Party,

recognizing that the promotion and protection of such investments favour the expansion of the economic relations between the two Contracting Parties and stimulate investment initiatives [...]

323.
The Tribunal must interpret the BIT in light of these overarching goals, which the Parties do not dispute.
324.
Likewise, it is undisputed that one of the goals of the Europe Agreement, which predated the BIT, was to promote economic cooperation between Romania and the EC Member States. In this context, Article 74 of the Europe Agreement on investment promotion and protection provided:

Article 74 - Investment promotion and protection

1. Cooperation shall aim to establish a favourable climate for private investment, both domestic and foreign, which is essential to the economic and industrial reconstruction of Romania.

2. The particular aims of the cooperation shall be:

- for Romania to establish and improve a legal framework which favours and protects investment;

- the conclusion by the Member States and Romania of Agreements for the promotion and protection of investment [...]

325.
This suggests that the BIT was part of Romania's strategy to develop economically in order to obtain accession.
327.
The Tribunal finds that, factually, the general context of EU accession must be taken into account when interpreting the BIT. In particular, the overall circumstances of EU accession may play a role in determining whether the Respondent has breached some of its obligations under the BIT.
328.
The Tribunal notes in this regard that the Parties appear to agree that EU law forms part of the "factual matrix" of the case. In particular, the Parties agree that the question of EU law may be relevant to determining whether Romania acted fairly and equitably with respect to the Claimants' investments in accordance with Article 2(3) of the BIT. The Tribunal concurs. The overall context of EU accession in general and the pertinent provisions of EU law in particular may be relevant to the determination of whether, inter alia, Romania's actions were reasonable in light of all the circumstances, or whether Claimants' expectations were legitimate.
329.
The Tribunal also sees merit in the Claimants' suggestion that, in theory, EU law could also possibly come into play as a circumstance precluding wrongfulness under ILC Articles 23, 24 or 25. However, as noted above, the Respondent has not put forth a case of force majeure, duress or necessity. Accordingly, the Tribunal does not address the relevance of EU law in this context.

C. THE ENFORCEMENT OF THE ARBITRAL AWARD AND EU LAW

1. The Respondent's position

331.
The Respondent contends that an award of damages in the present case would constitute impermissible state aid (R-CM, ¶ 78 (note 142); First ER of R. Streinz, ¶¶ 29-34; Second ER of R. Streinz, ¶¶ 21-24; ER of F. Jacobs, ¶¶ 45-49; 50(4) and (5); Respondent's observations on Commission’s Submission, ¶ 3).
332.
Relying on Professor Streinz’s expert opinion, the Respondent argues that an award of damages for the abolition of the EGO 24 regime would amount to the granting of new state aid by Romania to the Claimants. For such new state aid to be granted, Romania must first seek and obtain prior approval from the Commission, which in the opinion of the expert would most likely be denied.
333.
Professor Jacobs, another of the Respondent’s experts, confirms that the payment of compensation in lieu of aid must be regarded as equivalent to a payment of the relevant aid itself. Such a payment in this case would amount to a payment of new state aid and could not be made without the European Commission being informed pursuant to Article 88(3) of the EC Treaty. Prof. Jacobs also states that, as a matter of EU law, an award of compensation in lieu of aid in respect of the period 2007-2009, and possibly in respect of earlier years as well, may be denied enforcement in the EU on grounds of public policy.

2. The European Commission's position

334.
The Commission submits that "[i]f the Tribunal rendered an award that is contrary to obligations binding on Romania as an EU Member State, such award could not be implemented in Romania by virtue of the supremacy of EC law, and in particular State aid rules" (Commission’s Written Submission, ¶ 125(4)).
335.
In particular, the Commission submits that "any award requiring Romania to reestablish investment schemes which have been found incompatible with the internal market during accession negotiations, is subject to EU State aid rules", and "[t]he execution of such award can thus not take place if it would contradict the rules of EU State aid policy." The Commission notes that in the Eco Swiss case,20 the ECJ held that the competition rules of the EC Treaty are part of the public order which national courts must take into account when they review the legality of arbitral awards under the public policy exception recognized by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (Commission’s Written Submission, ¶ 121).
336.
The Commission acknowledges that Article 54(1) of the ICSID Convention provides that each Contracting State shall automatically recognize and enforce an ICSID award within its territory as if it were a final judgment of a court in that State. However, it contends that if a national court in the EU were asked to enforce an ICSID award that is contrary to EU law and EU state aid policy rules, the proceedings would have to be stayed under the conditions of Article 234 of the EC Treaty so that the ECJ may decide on the applicability of Article 54 of the ICSID Convention, as transposed into the national law of the referring judge. The Commission notes that "the ICSID Convention is not binding on the EC under Article 300(7) EC, as the terms of the Convention do not allow the EC to become a Contracting Party to it" and concludes that, "[a]ccordingly, the ICSID Convention does not form part of the EC legal order." However, the Commission adds that it "sincerely believes that such a conflict between the BIT, the ICSID Convention, and EC law can be avoided through a contextual interpretation of the BIT or the application of Article 30(3) of the Vienna Convention, as the case may be" (Commission's Written Submission, ¶¶ 122-124).

3. The Claimants' position

337.
The Claimants argue that issues regarding enforcement of an award are irrelevant to the Tribunal's decision on the substance of the Claimants' claims. In particular, the Claimants deny that considerations relating to the enforcement of the Award should affect the interpretation of the BIT or the Tribunal's decision as to whether Romania has breached certain provisions of the BIT (Claimants' comments on the Commission's submission, ¶¶ 167-170; C-PHB, ¶¶ 270-278; ER of A. Dashwood, ¶¶ 92-100).
338.
In any event, the Claimants submit that, contrary to the Respondent's and the Commission's contention, an award of damages in the present arbitration could not be characterized as a grant of state aid, since the payment of damages would result from the Tribunal's determination that Romania breached the BIT. The Claimants rely on the opinion of Prof. Dashwood, who asserts that an award of damages cannot be equated with the granting of state aid and consequently would not involve any conflict between Romania's obligations under the BIT and its present obligations as a Member State of the EU.
339.
The Claimants further contend that Romania was not bound by EU state aid laws when it breached the BIT. The purpose of any award of damages would be to compensate the Claimants for the harm resulting from the Respondent's unlawful conduct, which occurred before Romania joined the EU and became bound by EU law. According to the Claimants, a payment for a breach that predates Romania's EU accession cannot violate EU law.

4. The Tribunal's analysis

VI. ANALYSIS OF THE CLAIMANTS' TREATY CLAIMS

342.
In the latest presentation of their argument, the Claimants contend in the first place that, by revoking the EGO 24 incentives before they were due to expire, Romania violated an obligation entered into by Romania vis-à-vis the Claimants and thus breached the BIT's umbrella clause. However, even if the premature revocation of the incentives does not breach the umbrella clause (e.g., because the promise allegedly made by the Respondent does not rise to the level of an obligation protected by the umbrella clause), the Claimants argue that the Tribunal could still find a violation of the fair and equitable treatment standard because the revocation undermined the Claimants' legitimate expectations (Tr., Day 12, 126:22-128:6 (Reed)). In view of this alternative argument, the Tribunal will first address the Claimants' umbrella clause claim. If necessary, it will then move on to the Claimants' remaining claims.

A. UMBRELLA CLAUSE

343.
Article 2(4) of the BIT provides in relevant part:

Each Contracting Party shall observe any obligation it has entered into with an investor of the other Contracting Party with regard to his or her investment.

1. The Claimants' position

344.
The Claimants contend that through the EGO 24 framework and the related PICs, Romania entered into an obligation with the Claimants with regard to their investment. As a result, they argue that, by revoking the Raw Materials Incentive before it was due to expire, the Respondent breached the BIT's umbrella clause, contained in Article 2(4) of the BIT.
345.
Section (a) below addresses the Claimants' position with respect to the nature and scope of the BIT's umbrella clause. Section (b) sets out the Claimants' position with respect to the existence of a specific obligation vis-à-vis the Claimants. Section (c) sets out the Claimants' arguments with respect to the Respondent's alleged breach of that umbrella clause.

a. Nature and scope of the BIT's umbrella clause

346.
The Claimants submit that the purpose of umbrella clauses (such as Article 2(4) of the BIT, also called "undertakings clauses") is to put the host state's compliance with commitments assumed vis-à-vis investors under the protective "umbrella" of the relevant treaty. This protection is extended to the state's commitments vis-à-vis the investor independently of whether a violation of the other provisions of the treaty has occurred, with the result that any violation of an assurance