Bilateral Investment Treaties: Protecting Investors Instead of the State

If Montenegro continues to conclude agreements that circumvent the public procurement system, it risks losing credibility, delaying EU accession, and undermining its own legal framework, thereby directly endangering its position, reputation, and economic security, experts warn.

By Đurđa Radulović / Predrag Nikolić

The conclusion of bilateral agreements on economic cooperation, such as those in the fields of infrastructure development, real estate, tourism, telecommunications, e-governance, and healthcare investments, must comply with EU regulations and national legislation that uphold the principles of transparency, free competition, non-discrimination, and level ground for bidders, said Gordana Đurović, Professor at the Faculty of Economics (University of Montenegro), in an interview with the Centre for Investigative Journalism of Montenegro (CIN-CG).

According to CIN-CG sources, the newly planned agreements could cause serious harm through provisions that fail to protect Montenegro’s interests and instead serve only those of investors, similar to the Agreement with the United Arab Emirates (UAE) on cooperation in tourism and real estate development.

During the summer, following the signing of the controversial agreement with the UAE, the Government of Montenegro prepared four additional draft agreements. In June and July, it drafted two agreements with the Government of Hungary, one on cooperation in infrastructure development and another on telecommunications. In June, it also prepared a draft agreement with Ukraine on e-government services, as well as a draft framework for negotiations and the conclusion of an agreement with the Government of France on the implementation of priority projects in Montenegro. None of these drafts have yet been signed.

The planned agreements reportedly contain problematic provisions similar to those found in the UAE deal, effectively overriding domestic and EU laws on competition and transparent processes. The Montenegrin Parliament recently concluded discussions on granting consent for two intergovernmental agreements with Hungary and France. Critics have raised concerns that these agreements would allow companies from France and Hungary to carry out some of Montenegro’s key capital projects without open tenders.

The agreement with Hungary, related to railway and highway infrastructure development, contains a clause, mirroring the UAE agreement, that allows Hungarian companies to be directly engaged as primary contractors and operators “without the need for public procurement procedures in accordance with Montenegro’s national legislation.”

The agreement with Ukraine also states that there will be no need for public procurement or tenders for e-government services. According to the draft, “the e-government project shall not, for either party, and in particular not for Montenegro, be subject to any public procurement, tender, public competition, or any other procedure defined under the national legislation of Ukraine or Montenegro following ratification of the Agreement.”

The proposed agreement with France concerns the implementation of priority projects, including the design and construction of a new university clinical center in Podgorica, as well as other healthcare, energy, digital, and transport infrastructure projects. The future agreement would also regulate sources of financing to be provided by France and its institutions, such as the French Development Agency (AFD).

Any international agreement that provides for direct contracting with foreign companies without applying public procurement procedures established by domestic law and EU legal standards is inconsistent with Montenegro’s obligations as an EU candidate country, Đurović stressed. She added that Montenegro should conclude all international agreements in the fields of tourism, real estate, and infrastructure strictly within the existing legal framework, fully respecting the principles of public accountability, transparency, and market competition.

EU May Penalize Montenegro for Unlawful State Aid

Montenegro has signed 27 bilateral investment treaties to date. However, the practice of bypassing tenders and ignoring competition law was not typical of earlier agreements, explained Maja Kostić-Mandić, Professor of International Law at the University of Montenegro.
“This is definitely not standard practice for the treaties Montenegro has signed so far. Nor have I encountered such provisions in UAE agreements with other countries. On the contrary, their recent agreements, such as the one with India, contain no references to the abolition of competition,” said Kostić-Mandić.

Granting special privileges to investors may constitute a form of prohibited state aid under the EU Stabilisation and Association Agreement, Kostić-Mandić explained. She referred to the well-known Micula case, in which the General Court of the European Union ruled that Romania had breached its obligations under a bilateral investment treaty with Swedish investors of Romanian origin. Romania was found responsible both for withdrawing promised state aid upon joining the EU and for subsequently compensating the investors under an arbitration award, prompting the European Commission to initiate proceedings against Romania for violating EU state aid rules.
“A similar scenario could befall Montenegro after joining the EU,” Kostić-Mandić warned, “having to pay both the investor and the EU for breaching its rules.”

According to her, the Montenegro - UAE agreement on tourism and real estate development is atypical because it creates a fundamental imbalance in the obligations of the contracting parties, which is detrimental to Montenegro’s interests. “The provisions effectively transfer part of national sovereignty to a foreign government, granting it significant influence in identifying and classifying projects as strategic and of public interest,” she said.

The legal scholar further emphasized that, due to the economic asymmetry between the contracting parties, the UAE Government does not assume binding obligations that would make it legally accountable in case of non-performance. “The UAE is merely obliged to ‘encourage investors,’ while Montenegro undertakes substantial international obligations toward an undefined investor, obligations which, if unfulfilled, often lead to investor–state arbitration claims,” Kostić-Mandić explained.

She also noted that many regional legal experts have informally expressed concerns over the lack of protection for Montenegro’s interests in the agreement. “It is questionable whether any independent legal expert, unaffiliated with UAE interests, had the opportunity to review the text before signing,” she added.

Unlike Montenegro’s earlier bilateral investment treaties (BITs), the recent and planned agreements do not include the Most-Favoured-Nation (MFN) clause, which allows investors to claim equal treatment if another foreign investor receives more favourable conditions. Montenegro currently has 15 active BITs containing the MFN clause, meaning that investors from those countries could initiate disputes if investors from the UAE or Hungary are granted preferential treatment, such as exemption from tenders. “Montenegro could face multimillion-euro liabilities and costly legal defences, regardless of the outcome,” Kostić-Mandić warned.

Absence of the “Denial of Benefits” Clause

According to Časlav Pejović, Professor at Kyushu University (Japan) and an expert in international investment law, none of Montenegro’s agreements contain a Denial of Benefits Clause, a provision that allows a state to deny treaty protections to investors who do not have genuine links to the contracting country.

Pejović explained that many companies use countries like the Netherlands, one of the states with the most BITs, to set up shell subsidiaries solely to gain access to investor–state arbitration. He cited the example of a U.S. water infrastructure company that sued Bolivia through its Dutch subsidiary because the U.S. and Bolivia had no bilateral investment treaty.

“Bilateral treaties are, in fact, a form of soft power,” Pejović noted. “Today, power relations are established through this kind of ‘force in gloves’ rather than cannons and weapons.” He added that poor countries often bear the brunt of massive compensation claims, for instance, Ecuador was ordered to pay over one billion dollars to a U.S. company under such a treaty.

Pejović questioned why Montenegro’s government has repeatedly violated the constitutional principle of competitiveness in its recent agreements. “This is entirely inconsistent with the Constitution,” he said.

The Government insists that the agreements are fully aligned with Montenegro’s Constitution and its obligations under the EU Stabilisation and Association Agreement. However, the EU Delegation in Montenegro warned that, “under EU and Montenegrin public procurement legislation, as well as the Reform Agenda, Montenegro must fully apply the principles of equal treatment, non-discrimination, and transparency in implementing all contracts concluded under cooperation agreements with the UAE.”

Pejović further explained that the mere signing of such treaties does not guarantee economic benefits. “Countries without BITs can still attract high levels of foreign investment. Brazil, for example, the world’s fifth-largest recipient of foreign investment, has only a handful of such treaties. Montenegro, on the other hand, has 27, but little to show for it,” he concluded.

Historical and Structural Context

The first intergovernmental investment agreement was signed between Pakistan and West Germany in 1959, followed by the 1964 Convention on the Settlement of Investment Disputes. Until the 1990s, fewer than 500 BITs existed worldwide. The collapse of the Berlin Wall triggered an explosion of neoliberal investment policies, encouraged by the World Bank and IMF, which promoted BITs as a “passport to prosperity.”

By 2008, there were nearly 3,000 BITs worldwide, though the trend has since declined as many countries recognized the risks of surrendering sovereignty and facing costly arbitration. “Some states, such as the U.S., have since introduced ‘regulatory power’ clauses protecting their right to regulate in areas such as the environment, health, and safety,” Pejović said. The EU is likewise developing mechanisms for a dedicated investment court system.

Public Procurement Red Flags

Professor Đurović emphasized that identifying “red flags” in public procurement is crucial to preventing corruption and protecting public funds. Common indicators include single-bid procedures, unusually short deadlines, inflated prices, frequent contract amendments, overly restrictive qualification criteria, and repetitive awards to the same bidders, all of which undermine transparency and fair competition.

The European Union uses a multi-level “red flag system” to detect irregularities, integrating data analysis and e-procurement tools. North Macedonia has already implemented an automated version of this system, developed with international partners such as SIGMA, the Open Contracting Partnership, and the European Bank for Reconstruction and Development (EBRD).

The EU has formally urged Montenegro to ensure the timely and consistent implementation of procurement reforms and will closely monitor compliance.

Conclusion

As economic analyst Miloš Vuković noted, “The UAE Agreement effectively excludes the application of Montenegro’s public procurement framework, bypassing mandatory tenders for projects worth billions of euros. This undermines equal market access and creates serious risks of abuse and mismanagement of public funds.”
He added, “If purchases as small as €8,000 require publication and a minimum three-day bidding period, it is incomprehensible that multi-billion-euro projects should be exempt from any procurement oversight.”

Experts agree that Montenegro’s recent agreements signal a troubling shift toward investor dominance at the expense of state sovereignty, legal integrity, and alignment with European standards.