Lithuania is preparing to terminate investment promotion and protection agreements with aggressor countries Russia and Belarus

The Ministry of Foreign Affairs has drafted and this week submitted legislation for further coordination with the Government, the President and the Parliament (Seimas) aimed at terminating Lithuania’s bilateral investment promotion and protection agreements with Russia and Belarus. These draft laws are expected to be adopted in the current session of the Seimas, i.e. by the end of June.

The purpose of both these treaties, when they were concluded back in 1999, was to promote investment by Lithuanian investors in Russia and Belarus (as well as by investors from these countries in Lithuania) and to ensure a favourable investment environment. Moreover, in the event that foreign investment is undermined by the State’s actions in violation of the treaties, both treaties provide investors with one of the oldest and most reliable legal instruments against the State – the possibility to bring claims against the State in an impartial international arbitration for treaty breaches, such as, for example, expropriation of assets or discrimination.

Given the current geopolitical situation, the proposal from the Ministry of Foreign Affairs to terminate the treaties is motivated by the continued unprecedented military aggression by Russia and its accomplice Belarus against Ukraine and the serious violations of international law by these states. Moreover, the draft legislative documents point out that, in practice, cross-border economic cooperation between Lithuania and these aggressor states has already been completely suspended. Therefore, business investment in Lithuania by these countries should not be encouraged, and Lithuanian businesses investing in these countries or considering doing so should assess the riskiness of the Russian and Belarusian markets.

If Lithuania were to adopt the proposed draft laws, the termination of both treaties would take effect 12 months after Lithuania’s termination notifications to Russia and Belarus. Incidentally, such a step by Lithuania would follow the example of the other Baltic States: Latvia initiated the termination of a similar treaty with Belarus at the end of 2022, while Estonia’s investment promotion and protection treaty with Belarus has not entered into force. Moreover, neither Latvia nor Estonia has concluded a similar agreement with Russia.

What does this mean for Lithuanian investors?

With Russia’s continued military aggression against Ukraine and Belarus’ collaboration with the Russian regime, the vast majority of Lithuanian investors have already taken steps to sever their business ties with these countries and withdraw their investments from these markets. However, due to the unpredictable actions of the Russian and Belarusian regimes, such withdrawals may provoke actions by the Russian and Belarusian states to expropriate, take over or otherwise damage foreign investments and the assets of Lithuanian investors.

Therefore, even before the military aggression, Lithuanian investors in the Russian and Belarusian markets who were presently withdrawn from the military aggression remain able to pursue their claims against the aggressor states and their unlawful expropriatory or discriminatory actions in impartial arbitration.

In the event of the termination of bilateral investment protection treaties, Lithuanian investors deciding to invest in Russia or Belarus in the future would no longer be able to defend themselves against unpredictable regimes by resorting to international arbitration, and could only defend their violated rights in national courts or through diplomatic means. However, the situation is not so pessimistic for investors who have recently withdrawn from these markets or for existing investors: under the so-called “sunset clauses” of the treaties, even after the termination of these investment protection treaties, existing investors will retain the ability to defend their rights for 10 years after the termination of the treaties, including the ability to initiate a dispute in an international arbitration against the state that has breached its obligations.