Commentary on the Energy Charter Treaty 9781788117494, 1788117492

Table of contents :
Front Matter
Copyright
CONTENTS
EXTENDED CONTENTS
CONTRIBUTORS
ACKNOWLEDGEMENTS
TABLE OF CASES
TABLE OF LEGISLATION
INTRODUCTION
PREAMBLE
Part I DEFINITION AND PURPOSE
ARTICLE 1 DEFINITIONS
ARTICLE 2 PURPOSE OF THE TREATY
Part II COMMERCE
ARTICLE 3 INTERNATIONAL MARKETS
ARTICLE 4 NON-DEROGATION FROM WTO AGREEMENT
ARTICLE 5 TRADE-RELATED INVESTMENT MEASURES
ARTICLE 6 COMPETITION
ARTICLE 7 TRANSIT
ARTICLE 8 TRANSFER OF TECHNOLOGY
ARTICLE 9 ACCESS TO CAPITAL
Part III INVESTMENT PROMOTION AND PROTECTION
ARTICLE 10 PROMOTION, PROTECTION AND TREATMENT OF INVESTMENTS
ARTICLE 11 KEY PERSONNEL
ARTICLE 12 COMPENSATION FOR LOSSES
ARTICLE 13 EXPROPRIATION
ARTICLE 14 TRANSFERS RELATED TO INVESTMENTS
ARTICLE 15 SUBROGATION
ARTICLE 16 RELATION TO OTHER AGREEMENTS
ARTICLE 17 NON-APPLICATION OF PART III IN CERTAIN CIRCUMSTANCES
Part IV MISCELLANEOUS PROVISIONS
ARTICLE 18 SOVEREIGNTY OVER ENERGY RESOURCES
ARTICLE 19 ENVIRONMENTAL ASPECTS
ARTICLE 20 TRANSPARENCY
ARTICLE 21 TAXATION
ARTICLE 22 STATE AND PRIVILEGED ENTERPRISES
ARTICLE 23 OBSERVANCE BY SUB-NATIONAL AUTHORITIES
ARTICLE 24 EXCEPTIONS
ARTICLE 25 ECONOMIC INTEGRATION AGREEMENTS
Part V DISPUTE SETTLEMENT
ARTICLE 26 SETTLEMENT OF DISPUTES BETWEEN AN INVESTOR AND A CONTRACTING PARTY
ARTICLE 27 SETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTIES
ARTICLE 28 EXCLUSION OF CERTAIN PROVISIONS OF THE ECT FROM THE SETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTIES
Part VI TRANSITIONAL PROVISIONS
ARTICLE 29 INTERIM PROVISIONS ON TRADE-RELATED MATTERS
ARTICLE 30 DEVELOPMENTS IN INTERNATIONAL TRADING ARRANGEMENTS
ARTICLE 31 ENERGY-RELATED EQUIPMENT
ARTICLE 32 TRANSITIONAL ARRANGEMENTS
Part VII STRUCTURE AND INSTITUTIONS
ARTICLE 33 ENERGY CHARTER PROTOCOLS AND DECLARATIONS
ARTICLE 34 ENERGY CHARTER CONFERENCE
ARTICLE 35 SECRETARIAT
ARTICLE 36 VOTING
ARTICLE 37 FUNDING PRINCIPLES
Part VIII FINAL PROVISIONS
ARTICLE 38 SIGNATURE
ARTICLE 39 RATIFICATION, ACCEPTANCE OR APPROVAL
ARTICLE 40 APPLICATION TO TERRITORIES
ARTICLE 41 ACCESSION
ARTICLE 42 AMENDMENTS
ARTICLE 43 ASSOCIATION AGREEMENTS
ARTICLE 44 ENTRY INTO FORCE
ARTICLE 45 PROVISIONAL APPLICATION
ARTICLE 46 RESERVATIONS
ARTICLE 47 WITHDRAWAL
ARTICLE 48 STATUS OF ANNEXES AND DECISIONS
ARTICLE 49 DEPOSITARY
ARTICLE 50 AUTHENTIC TEXTS
APPENDIX: GAS TRANSIT IN EURASIA: TRANSIT ISSUES BETWEEN RUSSIA AND THE EUROPEAN UNION AND THE ROLE OF THE ENERGY CHARTER
INDEX

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JOBNAME: Leal-Arcas PAGE: 1 SESS: 3 OUTPUT: Fri Nov 23 09:49:54 2018

COMMENTARY ON THE ENERGY CHARTER TREATY

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ELGAR COMMENTARIES Titles in the series include: Intellectual Property Enforcement A Commentary on the Anti-Counterfeiting Trade Agreement (ACTA) Michael Blakeney The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights A Commentary Justin Malbon, Charles Lawson and Mark Davison EU Copyright Law A Commentary Edited by Irini Stamatoudi and Paul Torremans European Competition Law A Case Commentary Edited by Weijer VerLoren van Themaat and Berend Reuder EU Regulation of E-Commerce A Commentary Edited by Arno R. Lodder and Andrew D. Murray European Competition Law A Case Commentary, Second Edition Edited by Weijer VerLoren van Themaat and Berend Reuder Commentary on the Energy Charter Treaty Edited by Rafael Leal-Arcas

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COMMENTARY ON THE ENERGY CHARTER TREATY

Edited by

RAFAEL LEAL-ARCAS Jean Monnet Chaired Professor of EU International Economic Law, Professor of European and International Economic Law and Director of Research, Queen Mary University of London, UK

ELGAR COMMENTARIES

Cheltenham, UK

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© The Editor and Contributors Severally 2018 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library

Library of Congress Control Number: 2018958444

This book is available electronically in the Law subject collection DOI 10.4337/9781788117494

ISBN 978 1 78811 748 7 (cased) ISBN 978 1 78811 749 4 (eBook)

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CONTENTS

Extended contents List of contributors Acknowledgements Table of cases Table of legislation

ix xvii xviii xix xxvi

Introduction Rafael Leal-Arcas

1

Preamble Antonio Morelli

6

PART I

DEFINITION AND PURPOSE

Article 1 Definitions Dylan Geraets and Leonie Reins

14

Article 2 Purpose of the Treaty Leonie Reins

49

PART II

COMMERCE

Article 3 International markets Pierre Serra

60

Article 4 Non-derogation from WTO Agreement Pierre Serra

64

Article 5 Trade-related investment measures Pierre Serra

70

Article 6 Competition Pierre Serra

87

Article 7 Transit Cătălin Gabriel Stănescu

95

Article 8 Transfer of technology Beatriz Huarte Melgar

114

Article 9 Access to capital Beatriz Huarte Melgar

132

PART III

INVESTMENT PROMOTION AND PROTECTION

Article 10 Promotion, protection and treatment of investments Diego Mejía-Lemos

150

Article 11 Key personnel Diego Mejía-Lemos

205

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COMMENTARY ON THE ENERGY CHARTER TREATY Article 12 Compensation for losses Diego Mejía-Lemos

209

Article 13 Expropriation Diego Mejía-Lemos

211

Article 14 Transfers related to investments Francesco Montanaro

233

Article 15 Subrogation Apurva Mudliar

242

Article 16 Relation to other agreements Francesco Montanaro

245

Article 17 Non-application of Part III in certain circumstances Apurva Mudliar

249

PART IV

MISCELLANEOUS PROVISIONS

Article 18 Sovereignty over energy resources Peter Vajda and Varvara Aleksic´ Tina Hunter

259

Article 19 Environmental aspects Peter Vajda and Varvara Aleksic´ Tina Hunter

269

Article 20 Transparency Gloria Alvarez

282

Article 21 Taxation Gloria Alvarez

288

Article 22 State and privileged enterprises Costantino Grasso Tina Hunter

299

Article 23 Observance by sub-national authorities Costantino Grasso

314

Article 24 Exceptions Costantino Grasso Gloria Alvarez

320

Article 25 Economic Integration Agreements Costantino Grasso Gloria Alvarez

330

PART V

DISPUTE SETTLEMENT

Article 26 Settlement of disputes between an investor and a contracting party Fernando Dias Simões

338

Article 27 Settlement of disputes between contracting parties Crina Baltag

359

Article 28 Exclusion of certain provisions of the ECT from the settlement of disputes between contracting parties Crina Baltag

371

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CONTENTS PART VI TRANSITIONAL PROVISIONS Article 29 Interim provisions on trade-related matters Max Baumgart

374

Article 30 Developments in international trading arrangements Silke Goldberg, Naomi Lisney and Anne Eckenroth

382

Article 31 Energy-related equipment Silke Goldberg, Naomi Lisney and Anne Eckenroth

385

Article 32 Transitional arrangements Silke Goldberg, Naomi Lisney and Anne Eckenroth

387

PART VII STRUCTURE AND INSTITUTIONS Article 33 Energy Charter Protocols and Declarations Silke Goldberg, Naomi Lisney and Anne Eckenroth

394

Article 34 Energy Charter Conference Cătălin Gabriel Stănescu

404

Article 35 Secretariat Cătălin Gabriel Stănescu

422

Article 36 Voting Cătălin Gabriel Stănescu

435

Article 37 Funding principles Cătălin Gabriel Stănescu

442

PART VIII FINAL PROVISIONS Article 38 Signature Odysseas G. Repousis

447

Article 39 Ratification, acceptance or approval Odysseas G. Repousis

450

Article 40 Application to territories Odysseas G. Repousis

452

Article 41 Accession Odysseas G. Repousis

467

Article 42 Amendments Antonio Morelli

469

Article 43 Association agreements Antonio Morelli

472

Article 44 Entry into force Antonio Morelli

474

Article 45 Provisional application Antonio Morelli

477

Article 46 Reservations Antonio Morelli

482

Article 47 Withdrawal Antonio Morelli

484

Article 48 Status of Annexes and Decisions Leonardo Borlini and Marina Petri

490

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COMMENTARY ON THE ENERGY CHARTER TREATY Article 49 Depositary Leonardo Borlini and Marina Petri

497

Article 50 Authentic texts Leonardo Borlini and Marina Petri

501

Appendix: Gas transit in Eurasia: transit issues between Russia and the European Union and the role of the Energy Charter Andrey A. Konoplyanik

504

Index

515

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EXTENDED CONTENTS

List of contributors Acknowledgements Table of cases Table of legislation

xvii xviii xix xxvi

Introduction Rafael Leal-Arcas

1

Preamble

6

COMMENTARY

P.01

Antonio Morelli PART I

DEFINITION AND PURPOSE

Article 1 Definitions Dylan Geraets and Leonie Reins COMMENTARY Introduction A. Part I: Definitions and Purpose

1.01 1.01 1.03

Article 2 Purpose of the Treaty Leonie Reins COMMENTARY A. ‘In accordance with the objectives and principles of the Charter’ B. ‘Complementarities and mutual benefits’ C. ‘Long-term cooperation in the energy field’ D. ‘A legal framework’

PART II

2.01 2.03 2.16 2.17 2.22

COMMERCE

Article 3 International markets Pierre Serra COMMENTRY A. Introduction B. ‘An open and competitive market’ C. ‘Energy Materials and Products and Energy-Related Equipment’

3.01 3.01 3.02 3.05

Article 4 Non-derogation from WTO Agreement Pierre Serra COMMENTARY A. Introduction

4.01 4.01

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COMMENTARY ON THE ENERGY CHARTER TREATY B. C.

The non-derogatory provision The non-derogatory provision and secondary rules

4.04 4.11

Article 5 Trade-related investment measures Pierre Serra COMMENTARY A. Introduction B. Trade-related investment measures: basic elements and the WTO approach C. Article 5 on TRIMs, a provision-by-provision analysis D. The Australian Declaration: exceptions and jurisdictional issues

5.01 5.01 5.02 5.10 5.23

Article 6 Competition Pierre Serra COMMENTARY A. Introduction B. The obligation of alleviation – Article 6(1) C. Enforcement of competition provisions by the Contracting Parties – Article 6(2) D. Obligation of cooperation between Contracting Parties and between national competition authorities – Article 6(3), (4) and (6) E. Infringement, cooperation and dispute resolution – Article 6(5) and (7)

6.01 6.01 6.04 6.11 6.14 6.15

Article 7 Transit Cătălin Gabriel Stănescu COMMENTARY

7.01

Article 8 Transfer of technology Beatriz Huarte Melgar COMMENTARY A. Introduction B. Transfer of technology C. Context of Article 8 D. Article 8, Paragraph 1 E. Article 8, Paragraph 2 F. Conclusions

8.01 8.01 8.08 8.12 8.23 8.47 8.56

Article 9 Access to capital Beatriz Huarte Melgar COMMENTARY A. Introduction B. Context of ECT Article 9 C. ECT Article 9, Paragraph 1 D. ECT Article 9, Paragraph 2: Facilities to have access to funds for facilitating trade or investment abroad E. ECT Article 9, Paragraph 3: Implementation of programmes in Economic Activity in the Energy Sector F. ECT Article 9, Paragraph 4: ‘Nothing in this Article shall prevent […]’ G. Conclusions

9.01 9.01 9.04 9.20 9.31 9.35 9.38 9.41

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EXTENDED CONTENTS

PART III

INVESTMENT PROMOTION AND PROTECTION

Article 10 Promotion, protection and treatment of investments Diego Mejía-Lemos COMMENTARY A. Part III B. Article 10

10.01 10.04 10.22

Article 11 Key personnel Diego Mejía-Lemos COMMENTARY

11.01

Article 12 Compensation for losses Diego Mejía-Lemos COMMENTARY

12.01

Article 13 Expropriation Diego Mejía-Lemos COMMENTARY

13.01

Article 14 Transfers related to investments Francesco Montanaro COMMENTARY A. Introduction B. The monetary transfer clause in the Energy Charter Treaty in light of the investment treaty practice

14.01 14.01 14.04

Article 15 Subrogation Apurva Mudliar COMMENTARY

15.01

Article 16 Relation to other agreements Francesco Montanaro COMMENTARY A. Introduction B. Clauses governing conflicts with other treaties in the IIAs and in the ECT

16.01 16.01 16.03

Article 17 Non-application of Part III in certain circumstances Apurva Mudliar COMMENTARY A. Introduction B. Title: Non-application of Part III in certain circumstances C. Application of Article 17(1) of the ECT D. Denial of benefits to an investment under Article 17(2) E. Conclusion

17.01 17.01 17.04 17.08 17.22 17.24

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COMMENTARY ON THE ENERGY CHARTER TREATY

PART IV

MISCELLANEOUS PROVISIONS

Article 18 Sovereignty over energy resources Peter Vajda and Varvara Aleksic´ Tina Hunter COMMENTARY COMMENTARY

18.01 18.08

Article 19 Environmental aspects Peter Vajda and Varvara Aleksic´ Tina Hunter COMMENTARY COMMENTARY

19.01 19.22

Article 20 Transparency Gloria Alvarez COMMENTARY A. Structure and scope B. Notion of transparency in the ECT C. Transparency in ECT Secretariat Model Agreements

20.01 20.01 20.02 20.09

Article 21 Taxation Gloria Alvarez COMMENTARY A. Introduction, structure and scope B. Bona fide taxation measures according to the ECT C. Structure and the general rule on Article 21 D. Exceptions to the general rule on Article 21 E. Article 21 in practice and jurisdictional issues

21.01 21.01 21.02 21.05 21.07 21.14

Article 22 State and privileged enterprises Costantino Grasso Tina Hunter COMMENTARY COMMENTARY

22.01 22.25

Article 23 Observance by sub-national authorities Costantino Grasso COMMENTARY

23.01

Article 24 Exceptions Costantino Grasso Gloria Alvarez COMMENTARY COMMENTARY

24.01 24.14

Article 25 Economic Integration Agreements Costantino Grasso Gloria Alvarez COMMENTARY COMMENTARY

25.01 25.13

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EXTENDED CONTENTS

PART V

DISPUTE SETTLEMENT

Article 26 Settlement of disputes between an investor and a contracting party Fernando Dias Simões COMMENTARY A. Article 26(1) B. Article 26(2) C. Article 26(3) D. Article 26(4) E. Article 26(5) F. Article 26(6) G. Article 26(7) H. Article 26(8)

26.01 26.01 26.10 26.14 26.23 26.31 26.34 26.37 26.38

Article 27 Settlement of disputes between contracting parties Crina Baltag COMMENTARY

27.01

Article 28 Exclusion of certain provisions of the ECT from the settlement of disputes between contracting parties Crina Baltag COMMENTARY

PART VI

28.01

TRANSITIONAL PROVISIONS

Article 29 Interim provisions on trade-related matters Max Baumgart COMMENTARY A. Introduction B. Temporal scope of application (para 1) C. Incorporation of the WTO Agreement’s rights and obligations (para 2) D. Full transparency obligation (para 3) E. Best-endeavour commitment (paras 4 and 5) F. Stand still clause (paras 6, 7 and 8) G. Dispute settlement (para 9)

29.01 29.01 29.03 29.05 29.09 29.11 29.12 29.17

Article 30 Developments in international trading arrangements Silke Goldberg, Naomi Lisney and Anne Eckenroth COMMENTARY

30.01

Article 31 Energy-related equipment Silke Goldberg, Naomi Lisney and Anne Eckenroth COMMENTARY

31.01

Article 32 Transitional arrangements Silke Goldberg, Naomi Lisney and Anne Eckenroth COMMENTARY A. Review of the transitional arrangements B. The AES Corporation and Tau Power B.V. v. Republic of Kazakhstan (ICSID Case No. ARB/10/16)

32.01 32.04 32.09

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COMMENTARY ON THE ENERGY CHARTER TREATY

PART VII

STRUCTURE AND INSTITUTIONS

Article 33 Energy Charter Protocols and Declarations Silke Goldberg, Naomi Lisney and Anne Eckenroth COMMENTARY A. The PEEREA B. The Transit Protocol

33.01 33.05 33.12

Article 34 Energy Charter Conference Cătălin Gabriel Stănescu COMMENTARY A. Members and observers B. Meetings of the Charter Conference C. The powers and functions of the Charter Conference D. Subsidiary bodies E. Conclusions

34.01 34.02 34.04 34.05 34.38 34.42

Article 35 Secretariat Cătălin Gabriel Stănescu COMMENTARY A. The staff of the Secretariat B. The role and functions of the Secretariat C. The appointment of the Secretary General D. The Secretary General's role in ECT's Dispute Resolution Mechanisms E. Conclusions

35.01 35.02 35.05 35.17 35.22 35.29

Article 36 Voting Cătălin Gabriel Stănescu COMMENTARY A. Who can vote B. Exercising the right to vote – voting by correspondence C. Voting rules D. Conclusions

36.01 36.02 36.03 36.06 36.10

Article 37 Funding principles Cătălin Gabriel Stănescu COMMENTARY A. Types of costs B. Determination of financial contributions C. Voluntary contributions D. Conclusions

PART VIII

37.01 37.02 37.04 37.06 37.07

FINAL PROVISIONS

Article 38 Signature Odysseas G. Repousis COMMENTARY A. Introduction B. Scope C. Eligibility and temporal issues D. State practice E. Succession cases

38.01 38.01 38.02 38.03 38.05 38.07

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EXTENDED CONTENTS

Article 39 Ratification, acceptance or approval Odysseas G. Repousis COMMENTARY A. Introduction B. State practice

39.01 39.01 39.03

Article 40 Application to territories Odysseas G. Repousis COMMENTARY A. Introduction B. Territories for the international relations of which a contracting party is responsible C. Territorial declarations and the ECT ‘Area’ D. Temporal issues E. State practice F. Territorial declarations and provisional application

40.01 40.01 40.03 40.06 40.09 40.14 40.17

Article 41 Accession Odysseas G. Repousis COMMENTARY A. Introduction B. Scope C. State practice

41.01 41.01 41.03 41.04

Article 42 Amendments Antonio Morelli COMMENTARY

42.01

Article 43 Association agreements Antonio Morelli COMMENTARY

43.01

Article 44 Entry into force Antonio Morelli COMMENTARY

44.01

Article 45 Provisional application Antonio Morelli COMMENTARY

45.01

Article 46 Reservations Antonio Morelli COMMENTARY

46.01

Article 47 Withdrawal Antonio Morelli COMMENTARY

47.01

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COMMENTARY ON THE ENERGY CHARTER TREATY

Article 48 Status of Annexes and Decisions Leonardo Borlini and Marina Petri COMMENTARY A. Purpose and function B. Relevance of the article

48.01 48.01 48.03

Article 49 Depositary Leonardo Borlini and Marina Petri COMMENTARY A. Purpose and function B. Content of the article

49.01 49.01 49.04

Article 50 Authentic texts Leonardo Borlini and Marina Petri COMMENTARY A. Purpose and function B. Content and interpretative implications of the article

50.01 50.01 50.03

Appendix: Gas transit in Eurasia: transit issues between Russia and the European Union and the role of the Energy Charter Andrey A. Konoplyanik Index

504

515

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CONTRIBUTORS

Varvara Aleksic´, Energy Community Secretariat, Austria. Gloria Alvarez, University of Aberdeen, UK. Crina Baltag, University of Bedfordshire, UK. Max Baumgart, University of Cologne, Germany. Leonardo Borlini, Bocconi University, Italy. Fernando Dias Simões, Chinese University of Hong Kong. Anne Eckenroth, Herbert Smith Freehills LLP, London, UK. Dylan Geraets, KU Leuven, Belgium. Silke Goldberg, Herbert Smith Freehills LLP, London, UK. Costantino Grasso, Coventry University, UK. Beatriz Huarte Melgar, LENER and European Fisheries Control Agency (external expert), Spain. Tina Hunter, University of Aberdeen, UK. Andrey A. Konoplyanik, Russian State Gubkin Oil & Gas University, JSC “Gazprom export”, Russia. Rafael Leal-Arcas, Queen Mary University of London, UK. Naomi Lisney, Herbert Smith Freehills LLP, London, UK. Diego Mejía-Lemos, National University of Singapore. Francesco Montanaro, Bocconi University, Italy. Antonio Morelli, American University, USA. Apurva Mudliar, University of Barcelona, Spain. Marina Petri, Bocconi University, Italy. Leonie Reins, Tilburg University, Netherlands. Odysseas G. Repousis, Quinn Emanuel Urquhart & Sullivan, LLP, London, UK. Pierre Serra, The London School of Economics, UK. Cătălin Gabriel Stănescu, University of Copenhagen, Denmark. Peter Vajda, Energy Community Secretariat, Austria.

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ACKNOWLEDGEMENTS

The financial help from two European Union grants is greatly acknowledged: Jean Monnet Chair in EU International Economic Law (project number 575061-EPP-1–2016–1-UKEPPJMO-CHAIR) and the WiseGRID project (number 731205), funded by the European Commission’s Horizon 2020. Both grants have been awarded to Professor Dr. Rafael Leal-Arcas. Rafael Leal-Arcas March 2018

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TABLE OF CASES

ADF Group Inc v. United States of America, Award, 9 January 2003 (ADF) .............. 10.42 AES Corporation and Tau Power BV v. Republic of Albania (ICSID ARB/10/16), Award, 1 November 2013 (AES & Tau) ......... 10.01, 10.24, 10.36, 10.39, 32.09–32.16 AES Summit Generation Ltd, AES-Tisza Erömü Kft v. The Republic of Hungary (ICSID ARB/07/22), Award, 23 September 2010 (AES) ...... 1.31, 10.01, 10.12, 10.13, 10.14, 10.15, 10.22, 10.41, 10.50 Al-Bahloul (Mohammad Ammar) v. The Republic of Tajikistan (SCC V(064/2008)), Partial Award on Jurisdiction and Liability, 2 September 2009 (Al-Bahloul Jurisdiction and Liability) ..... 1.42, 1.52, 1.77, 10.01, 10.05, 10.12, 10.13, 10.15, 10.18, 10.20, 10.27, 10.28, 10.44, 13.13, 13.19, 27.17 Al-Bahloul (Mohammad Ammar) v. The Republic of Tajikistan (SCC V(064/2008)), Final Award, 8 June 2010 (Al-Bahloul) ............................................ 10.01, 13.01, 26.41 Alapli Elektrik BV v. Republic of Turkey (ICSID ARB/08/13), Award, 16 July 2012 (Alapli) ............................................................................... 1.32, 1.38, 1.59, 10.01, 10.09 American Manufacturing & Trading v. Republic of Zaire, Award of 21 February 1997, ICSID Case No. ARl93/1 ........................................................................................ 10.41 AMTO, Ltd Liability Company v. Ukraine (SCC 080/2005), Award, 26 March 2008 (AMTO) ........ 1.26, 1.55, 1.61, 10.01, 10.05, 10.12, 10.18, 10.24, 10.25, 10.29, 10.42, 10.44, 10.55, 17.14, 17.15, 17.18, 17.20, 26.29, 26.30, 40.32 Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Trading Ltd v. Republic of Kazakhstan see Stati Antaris Solar and Dr Michael Göde v. The Czech Republic (PCA 2014–01), Award, 2 May 2018 (Antaris) [Dissenting Opinion of Mr Gary Born (Antaris Dissenting Opinion), Declaration of Judge Tomka (Antaris Declaration) ........ 10.01, 10.34, 10.36, 10.42 Antin Infrastructure Services Luxembourg Sàrl and Antin Energia Termosolar BV v. The Kingdom of Spain (ICSID ARB/13/31), Award, 15 June 2018 (Antin) ...... 10.01, 10.05, 10.15, 10.16, 10.18, 10.21, 10.24, 10.31, 10.33, 10.34, 10.37 Asian Agricultural Products, Ltd v. Republic of Sri Lanka (ICSID 1991) ..................... 10.41 Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. v. The Republic of Azerbaijan (ICSID case no. ARB/06/15, Award of 8 September 2009 ................................................................................................. 26.02 Azurix Corp v. The Argentine Republic, Award, 14 July 2006 (Azurix)..............10.17, 10.33, 10.41, 10.42, 13.18, 27.05 Barcelona Traction, Light and Power Co, Ltd (Belgium v. Spain), Judgment of 5 February 1970, ICJ Reports (1970) ....................................................................... 27.03 Belilos v. Switzerland, Application No. 10328/83, Judgment of 29 April 1988, ECHR ....................................................................................................................... 46.02 Belenergia S.A. v. Italian Republic (ICSID Case No. ARB/15/40) ................................ 47.08

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COMMENTARY ON THE ENERGY CHARTER TREATY Biwater Gauff Ltd v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3 (29 September 2006) ......................................................... 20.03 Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008) .......................................................................... 14.04 Blue Ridge Investments, L.L.C. v. Republic of Argentina, United States Court of Appeals for the Second Circuit, Docket No. 12–4139-cv (original proceedings, CMS Gas Transmission Company v. The Republic of Argentina, ICSID Case No. ARB/01/8) ......................................................................................................... 27.05 Blusun SA, Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID ARB/14/03), Award, 27 December 2016 (Blusun) .... 1.07. 1.08, 1.14, 1.16, 1.25, 1.72, 1.79, 10.01, 10.16, 10.20, 10.24, 10.30, 10.31, 10.32, 10.33, 10.34, 10.36, 47.08 Bogdanov (Iurii), Agurdino-Invest Ltd and Agurdino-Chimia JSC v. Republic of Moldova, Award, 22 September 2005 (Bogdanov) .................................................. 10.44 Border Timbers Ltd, Border Timbers International (Private) Ltd and Hangani Development Co. (Private) Ltd v Republic of Zimbabwe, ICSID Case No. ARB/10/25, Decision on Application for Provisional Measures (17 March 2016) ......................................................................................................................... 20.03 Case concerning Oil Platforms (Islamic Republic of Iran v. United States of America), 1996, ICJ Reports 803, at 810 ................................................................................. 10.12 Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Award on Respondent Bifurcated Preliminary Objection, 20 April 2016 ...... 1.62, 1.65, 2.01, 2.14 Charanne BV Construction Investments Sàrl v. Kingdom of Spain (062/2012), Final Award, 21 January 2016 (Charanne) ............................. 1.79, 10.01, 10.34, 10.36, 13.19 Charanne BV Construction Investments Sàrl v. Kingdom of Spain (062/2012), (Dissenting Opinion of Tawil of 21 December 2015, in Spanish) (Charanne Dissenting Opinion) ........................................................................... 10.01, 10.35, 13.01 Chile –Price band system WTO Appellate Body WT/DS207/AB/R (2002) ................. 50.02 CME (2001) ...................................................................................................................... 13.18 CMS Gas Transmission Co v. Argentina, Award, 12 May 2005 (CMS) .......... 10.33, 10.42, 10.44, 13.18 Conocophillips Petrozuata B.V., Conocophillips Hamaca B.V. and Conocophillips Gulf of Paria B.V. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and the Merits (3 September 2013) ............ 21.07 Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008) ............................................. 14.04, 14.08, 24.04 Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries, Decision 28 November 1979 (L/4903) (World Trade Organization 1979) ..................................................................................................... 5.18 EDF see Republic of Hungary v EDF International SA Eiser Infrastructure Ltd and Energia Solar Luxembourg Sàrl v. Kingdom of Spain (ICSID ARB/13/36), Award, 4 May 2017 (Eiser) .......... 1.16, 2.01, 2.07, 10.01, 10.05, 10.14, 10.21, 10.31, 10.33, 10.34, 10.36, 10.39, 10.42, 13.01, 13.15, 13.43, 13.44, 21.02, 21.13, 21.14, 21.15, 25.14 El Paso Energy International Co. v. Argentina, ICSID Case No. ARB/03/15, Award, 31 October 2011 ................................................................................. 2.13, 10.16 Electrabel SA v The Republic of Hungary (ICSID ARB/07/19), Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012 (Electrabel

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TABLE OF CASES Jurisdiction, Applicable Law and Liability) ... 1.15, 1.23, 1.43, 1.45, 1.51, 10.01, 10.04, 10.05, 10.12, 10.20, 10.21, 10.24, 10.26, 10.31, 10.40, 10.41, 10.43, 10.50, 13.15, 13.16, 13.17, 13.18 Electrabel SA v. The Republic of Hungary (ICSID ARB/07/19), Award, 25 November 2015 (Electrabel) .......................................................... 10.01, 13.01, 13.12, 13.15, 16.05 Elettronica Sicula SpA (ELSI) (United States of America v. Italy), Judgment, ICJ Reports 1989, p 15 ................................................................................................................. 10.41 Emilio Agustín Maffezini v. The Kingdom of Spain, Argentine-Spain BIT, Award on the Merits, Case No. ARB/97/7, 13 November 2000 ........................................ 22.05, 22.06 EnCana Corporation v. Ecuador (LCIA UN3481), Award, 3 February 2006 (EnCana) ................................................................................................................... 13.04 Energoalliance Ltd v. The Republic of Moldova (UNCITRAL, Ad Hoc), Arbitral Award, 23 October 2013 (Energoalliance) .......................................... 10.01, 10.14, 10.26, 10.39 Energorynok see State Enterprise Energorynok v. The Republic of Moldova Enron Corporation Ponderosa Assets L.P. v. Argentine Republic (ICSID ARB/01l3), Award of 22 May 2007 (Enron) ................................................................... 10.34, 10.44 Eritrea Ethiopia Claims Commission, Partial Award, 1 July 2003 .................................. 10.08 Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Respondent’s Application Under Rule 41(5), 20 March 2017 .................. 1.56, 47.06 Eureko BV v. Poland, Partial Award, 19 August 2005 (Eureko) .................................... 10.41 Europe Cement Investment & Trade SA v. Republic of Turkey (ICSI ARB(AF)/07/2) Award, 13 August 2009 (Europe Cement) ........................................ 10.01, 10.12, 26.30 European Union and certain Members States – Certain Measures Affecting the Renewable Energy Generation Sector, Case DS452 .................................................................... 5.05 Factory at Chorzów (Germany v. Poland), Judgment, Claim for Indemnity, Merits, (1928) PCIJ Series A No 1 ...................................................................................... 10.21 Feldman v. United Mexican States, ICSID ARB(AF)/99/1, Award, 16 December 2002 ........................................................................................................................... 10.42 GAMI (2004) .................................................................................................................... 13.18 Genin, Eastern Credit Ltd Inc and AS Baltoil v. Republic of Estonia, Award, 25 June 2001 (Genin) .................................................................................................... 10.42 Golder v United Kingdom App no 4451/70 (ECtHR 1975) .......................................... 50.02 Gradinger v. Austria, Application No. 1 5963/90, Judgment of 23 October 1995, ECHR ....................................................................................................................... 46.02 Greentech Energy Systems and Novenergia v. Italy (Stockholm Chamber of Commerce (SCC) registered 7 July 2015) .................................................................................. 47.08 Hulley Enterprises Ltd (Cyprus) v. The Russian Federation (PCA AA 226), Interim Award on Jurisdiction and Admissibility, 30 November 2009 (Hulley Jurisdiction and Admissibility) ....... 10.01, 10.04, 10.05, 10.09, 10.10, 10.22, 13.05, 13.06, 13.07, 13.08, 13.09, 13.10, 13.11, 13.12, 13.20, 20.05, 40.31, 40.32, 40.33 Hulley Enterprises Ltd (Cyprus) v. The Russian Federation (PCA AA 226), Final Award, 18 July 2014 (Hulley) ........................... 10.01, 10.13, 10.16, 13.01, 13.03, 13.05, 13.20, 13.21, 13.22, 13.24, 13.25, 13.27, 13.28, 13.29, 13.30, 13.31, 13.32, 13.33, 13.34, 13.35, 13.36, 13.37, 13.38, 13.39, 13.40, 13.41, 13.42, 13.47, 21.02 Hrvatska Elektroprivreda (HEP) DD v. Republic of Slovenia (ICSID ARB/05/24), Award, 17 December 2015 (HEP) ............................................................... 10.01, 10.39

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COMMENTARY ON THE ENERGY CHARTER TREATY Impregilo SpA v. Islamic Republic of Pakistan, Decision on Jurisdiction, 22 April 2005, ICSID Case No. ARB/02/2 (Impregilo) ...................................................... 10.42, 10.44 India – Certain Measures Relating to Solar Cells and Solar Modules, Case DS456 ........ 5.07 Indonesia – Certain Measures Affecting the Automobile Industry Report of the Panel (98–2505) [1998] World Trade Organization, §6.6 ......................................... 5.02, 5.12 Ioan Micula, Viorel Micula, SC European Food SA, SC Starmill SRL and SC Multipack SRL v. Romania (ICSID ARB/05/20), Award, 11 December 2013 ... 10.34, 10.39 Ioannis Kardassopoulos v. Georgia see Kardassopoulos (Ioannis) v. Georgia Isolux Infrastructure Netherlands, BV v. Kingdom of Spain (SCC V2013/153), Award, 12 July 2016 (Isolux) .............................. 10.01, 10.31, 10.35, 13.01, 13.19, 25.13, 25.14 Isolux Infrastructure Netherlands, BV v. Kingdom of Spain (SCC V2013/153), Dissenting Opinion of Tawil of 6 July 2016 (in Spanish) (Isolux Dissenting Opinion) ......................................................................................................... 10.01, 10.35 Italian Republic v. Republic of Cuba, Final Award of 1 January 2008 ........................... 27.09 Kardassopoulos (Ioannis) v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007 .............................................................. 1.39, 1.54, 26.03, 40.47 Kardassopoulos (Ioannis) and Ron Fuchs v. The Republic of Georgia (ICSID ARB/05/18 and ARB/07/15), Award, 3 March 2010 (Kardassopoulos) .... 10.01, 10.31, 13.28 Kasikili/Sededu Island (1999) ICJ Rep 1045 .................................................................... 50.02 Kennedy (Rawle) (represented by Simons Muirhead & Burton) v. Trinidad and Tobago, Communication No. 845, UN Doc. CCPR/C/67/D/845/1999 (31 December 1999) ......................................................................................................................... 46.02 Khan Resources Inc, Khan Resources BV, CAUC Holding Company Ltd v. The Government of Mongolia, MonAtom LLC (PCA 2011–09), Decision on Jurisdiction, 25 July 2012 (Khan Jurisdiction) ......... 1.58, 2.16, 2.2010.01, 10.04, 10.09, 10.10, 10.31, 27.17 Khan Resources Inc, Khan Resources BV, CAUC Holding Company Ltd v. The Government of Mongolia, MonAtom LLC (PCA 2011–09), Award on the Merits, 2 March 2015 (Khan Merits) ............................................................. 10.01, 10.12, 10.44 Konle v Austria, Case C-302/97, [1999] ECR I-003099 ................................................ 18.25 LaGrand (2001) ICJ Rep 466 ........................................................................................... 50.02 Land Oberösterreich v ČEZ, Case C-115/08 .................................................................. 19.15 Lauder (Ronald S) v. The Czech Republic, Award, 3 September 2001 (Lauder) ......... 10.39, 10.42, 13.18 LG&E v. Argentina, Decision on Liability, 3 October 2006 (LG&E) ............... 10.34, 10.42 Libananco Holdings Co Ltd v. Republic of Turkey (ICSID ARB/06/8), Award, 2 September 2011 (Libananco) ................................................... 1.69, 1.77, 10.01, 40.32 Liman Caspian Oil (LCO) BV and NCL Dutch Investment BV v Republic of Kazakhstan (ICSID ARB/07/14), Award, 22 June 2010 (LCO) ...... 2.19, 10.01, 10.09, 10.33, 10.37 Loewen Group Inc and Raymond L Loewen v. United States of America, Award, 26 June 2003 (Loewen) ............................................................................................ 10.42 Ltd Liability Company AMTO v. Ukraine (SCC 080/2005) see AMTO Lucchetti (Empresas), S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, ICSID Case No. ARB/03/4, Award of 7 February 2005 ....................................... 27.09

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TABLE OF CASES Mamidoil Jetoil Greek Petroleum Products Société SA v. Republic of Albania (ICSID ARB/11/24), Award, 30 March 2015 (Mamidoil) ................. 10.01, 10.16, 10.32, 10.33 Masdar Solar & Wind Cooperatief UA v. Kingdom of Spain (ICSID ARB/14/1), Award, 16 May 2018 (Masdar) ............ 10.01, 10.08, 10.14, 10.16, 10.18, 10.21, 10.34, 10.35, 10.39 Metalclad ..................................................................................................... 10.39, 13.17, 13.18 Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award (6 June 2008) ............................................................................. 14.04 Mondev Intl Ltd v. United States of America, Award, 11 October 2002 (Mondev) .... 10.42, 10.44 Mox Plant, Provisional Order, ITLOS, 30 December 2001 ............................................ 10.08 MTD Equity Sdn Bhd and MTD Chile SA v. Republic of Chile, Award, 25 May 2004 (MTD) ....................................................................................... 10.16, 10.33, 10.42 Noble Ventures Inc. v. Romania, Award, 12 October 2005 (Noble Ventures) ... 10.25, 10.41, 10.42, 10.44 Novenergia II – Energy & Environment (SCA) SICAR v. The Kingdom of Spain (SCC 2015/063), Final Arbitral Award, 15 February 2018 (Novenergia II) ......... 10.01, 10.18, 10.21, 10.31, 10.34, 10.36, 10.37, 10.39, 13.44 Nykomb Synergetics Technology Holding AB v. The Republic of Latvia (SCC), Award, 16 December 2003 (Nykomb) ............ 10.01, 10.12, 10.21, 10.39, 10.42, 13.01, 13.16, 13.19, 13.43, 22.19, 22.28 Occidental Exploration and Production Co v. Ecuador, Award, 1 July 2004 (Occidental) ........................................................................................ 10.33, 10.41, 10.42 Opinion 2/15 of the Court (Full Court), ECJ, 16 May 2017 ......................................... 40.44 Parkerings-Compagniet AS v. Lithuania (ICSID ARB/05/8), Award, 11 September 2007 (Parkerings) ................................................................................ 10.34, 10.35, 13.18 Petrobart Ltd v. The Kyrgyz Republic (SCC 126/2003), Award, 29 March 2005 (Petrobart) .... 1.44, 1.45, 10.01, 10.10, 10.20, 10.21, 10.25, 10.26, 10.28, 10.37, 10.39, 10.55, 13.01, 13.16, 13.19, 22.20, 22.22, 22.28, 26.03, 40.34, 40.35, 40.37, 40.38, 40.39, 40.40, 40.42 Plama Consortium Ltd v. Republic of Bulgaria (ICSID ARB/03/24), Decision on Jurisdiction, 8 February 2005 (Plama Jurisdiction) ............ 1.30, 1.50, 1.70, 1.71, 10.01, 10.04, 10.05, 10.09, 10.10, 10.11, 10.12, 10.16, 17.12, 17.13, 17.19, 17.20, 21.12, 21.15, 26.03, 40.31, 40.32 Plama Consortium Ltd v. Republic of Bulgaria (ICSID ARB/03/24), Award, 27 August 2008 (Plama) .......... 2.13, 2.19, 10.01, 10.14, 10.16, 10.17, 10.26, 10.28, 10.30, 10.31, 10.32, 10.34, 10.40, 10.41, 10.42, 10.44, 13.01, 13.17, 13.19, 17.02, 17.05, 17.10, 20.05, 21.06, 26.35, 40.32 Pope & Talbot v. Canada, Award in Respect of Damages, 31 May 2002 (Pope & Talbot) ........................................................................................................... 10.42, 13.18 PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, Award, 19 January 2007 (PSEG) .......................... 1.73, 10.33, 10.41, 13.12 Quasar de Valores SICAV SA, Orgor de Valores SICAV SA, GBI 9000 SICAV SA, ALOS 34 SL v. Russian Federation (SCC 24/2007), Award, 20 July 2012 (Quasar de Valores) ................................................................................................... 13.10

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COMMENTARY ON THE ENERGY CHARTER TREATY Renta 4 SVSA, Ahorro Corporación Emergentes FI, Ahorro Corporación Eurofondo FI, Rovime Inversiones SICAV SA, Orgor de Valores SICAV SA, GBI 9000 SICAV SA v. Russian Federation (SCC 24/2007), Award, 20 July 2012 (Renta) .............. 10.37 Republic of Hungary v EDF International SA, Decision on Annulment (4A34/2015), 6 October 2015, Swiss Federal Tribunal, First Civil Law Court, (EDF Decision on Annulment) .................................................. 10.04, 10.16, 10.17, 10.26, 10.42, 10.44 Republique de Moldavie v. Société Komstroy (Cour d’Appel de Paris, RG N°13/22531), Arrêt, 12 Avril 2016 ................................................................................................. 10.12 Reservations to the Convention on the Prevention and Punishment of the Crime of Genocide, ICJ, Advisory Opinion, 1951 ICJ 15, 28 May 1951 .............................. 46.01 RosInvestCo UK Ltd v. Russian Federation (SCC 79/2005), Final Award, 12 September 2010 (RosInvestCo) ................................................................ 10.37, 13.10 RREEF Infrastructure (GP) Ltd and RREEF Pan-European Infrastructure Two Lux Sàrl v. Kingdom of Spain (ICSID ARB/13/30), Decision on Jurisdiction, 6 June 2016 (RREEF Jurisdiction) ............................................. 1.37, 1.60, 10.01, 10.53 Russian Federation v. Veteran Petroleum Ltd, The Russian Federation v. Yukos Universal Ltd, The Russian Federation v. Hulley Enterprises Ltd (The Hague District Court Chamber for Commercial Affairs) ................................................... 10.11 Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom of Morocco, Italy-Morocco BIT, Award on the Merits, Case No. ARB/OO/4, 13 July 2001 .......................... 22.06 Saluka Investments BV (The Netherlands) v. The Czech Republic, Partial Award, 17 March 2006 (Saluka) ..................................................................... 10.33, 10.41, 10.42 SD Myers v. Canada, Award on Liability, 13 November 2000, 8 ICSID Reports 18 (SD Myers) .................................................................................................... 10.42, 13.18 Sempra (2007) .................................................................................................................... 13.18 SGS v Philippines, Decision on Jurisdiction, 29 January 2004 (SGS) ............................ 10.44 SGS Société Générale v. Paraguay .................................................................................... 10.39 Siemens v. Argentina, Award, 6 February 2007 (Siemens) ................................... 10.33, 10.42 Slovak Republic v. Achmea BV (Case C-284/16), Judgment, 6 March 2018 (Achmea) ............................................................................................ 10.08, 26.22, 27.14 Spanish Supreme Court, Contentious-Administrative Chamber, 3rd Section, Judgment 1265/ 2017, 14 July 2017, Case 749/2014 (Judgment 1265/2017) ......................... 13.15 Starrett Housing Corp v. Islamic Republic of Iran, Case No. 24, Interlocutory Award No. ITL 32–24–1, 19 December 1983, 4 Iran-US CTR 122, p.l54 .............................. 13.18 State Enterprise Energorynok v. The Republic of Moldova (SCC V (2012/175)), Final Award, 29 January 2015 (Energorynok) ............................ 1.45, 1.67, 10.01, 10.12 Stati (Anatolie), Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Trading Ltd v. Republic of Kazakhstan, SCC Case No. V116/2010, Dissenting Opinion of Judge Magnus Ulriksson, 9 December 2016 ............................................................... 2.01, 2.26 Stati (Anatolie), Gabriel Stati, Ascom Group SA, Terra Raf Trans Trading Ltd v. The Republic of Kazakhstan (SCC V (116/2010)), Award, 19 December 2013 (Stati) ... 1.33, 1.68, 1.76, 10.01, 10.14, 10.27, 10.32, 10.38, 10.41, 10.42, 11.01, 13.01, 13.43, 40.41, 40.42, 40.43 Técnicas Medioambientales TECMED SA v. The United Mexican States, Award, 29 May 2003 (TECMED) ..................................................... 10.41, 10.42, 13.17, 13.18 Telenor (2006) ................................................................................................................... 13.18

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TABLE OF CASES Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. the Government of the Libyan Arab Republic, 17 ILM 1(1978) ....................................................... 18.16 Trail Smelter Arbitration (United States v Canada) Arbitral Trib., 3 U.N. Rep. Int’l Arb. Awards 1905 (1941) ......................................................................................... 19.23 Ulysseas Inc v. Ecuador (Interim Award) (PCA 2009–19 (2010) ................................... 10.09 United Parcel Service of America v. Government of Canada, NAFTA/UNICTRAL, Award on the Merits, Case No. UNCT/02/1, 11 June 2007 ................................. 22.17 United States Nationals in Morocco, ICJ Reports, 183, 184 (1952) ................................. P.03 US – Softwood lumber IV WTO Appellate Body WT/DS257/AB/R (2004) ............... 50.02 United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v Republic of Estonia, ICSID Case No. ARB/14/24, Decision on Respondent Application for Provisional Measures (12 May 2016) .......................................................................................... 20.03 Veteran Petroleum Ltd (Cyprus) v. The Russian Federation (PCA AA 228), Interim Award On Jurisdiction and Admissibility, 30 November 2009 (Veteran Jurisdiction and Admissibility) ............ 1.35, 1.40, 1.66, 10.01, 10.04, 10.05, 10.09, 10.10, 10.22, 13.05, 13.06, 13.07, 13.08, 13.09, 13.10, 13.11, 13.12, 13.20, 13.21, 20.05, 40.31, 40.32, 40.33 Veteran Petroleum Ltd (Cyprus) v. The Russian Federation (PCA AA 228), Final Award, 18 July 2014 (Veteran) ............. 10.01, 10.13, 10.16, 13.01, 13.03, 13.05, 13.20, 13.22, 13.24, 13.25, 13.27, 13.28, 13.29, 13.30, 13.31, 13.32, 13.33, 13.34, 13.35, 13.36, 13.37, 13.38, 13.39, 13.40, 13.41, 13.42, 13.47, 21.02 Waste Management, Inc v. United Mexican States, Award, 30 April 2004 (Waste Management) ................................................................................................. 10.42, 10.44 Weber v. Switzerland, May 22, 1990 Series A, No. 177, 12 E.H.R.R., 508, Judgment of 22 May 1990, ECHR .......................................................................................... 46.02 Wena Hotels Ltd v. Arab Republic of Egypt, Award on the Merits of 8 December 2000, ICSID Case No. ARB/98/4 (Wena Hotels) ................................................. 10.41 Yukos Universal Ltd (Isle of Man) v. The Russian Federation (PCA AA 227), Interim Award on Jurisdiction and Admissibility, 30 November 2009 (Yukos Jurisdiction and Admissibility) ............. 1.13, 10.01, 10.04, 10.05, 10.09, 10.10, 10.22, 13.05, 13.06, 13.07, 13.08, 13.09, 13.10, 13.11, 13.12, 13.20, 20.05, 21.14, 26.03, 26.18, 40.31, 40.32, 40.33 Yukos Universal Ltd (Isle of Man) v. The Russian Federation (PCA AA 227), Final Award, 18 July 2014 (Yukos) .... 10.01, 10.13, 10.14, 10.16, 10.37, 13.01, 13.03, 13.05, 13.20, 13.21, 13.22, 13.24, 13.25, 13.27, 13.28, 13.29, 13.30, 13.31, 13.32, 13.33, 13.34, 13.35, 13.36, 13.37, 13.38, 13.39, 13.40, 13.41, 13.42, 13.47, 17.05, 17.10, 17.14, 21.02, 21.06, 21.13, 21.14, 21.15, 21.17, 21.18

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JOBNAME: Leal-Arcas PAGE: 1 SESS: 2 OUTPUT: Fri Nov 23 09:49:54 2018

TABLE OF LEGISLATION

Energy Charter Treaty (ECT) Preamble ....... P.01-P.13, 3.05, 4.10, 8.52, 8.53, 10.16, 19.01, 42.06 Part I ................................................ 10.17 Part II ........... 3.01, 4.03, 7.13, 8.07, 8.32, 9.02, 10.12, 23.06, 26.04 Part III ... 2.20, 7.13, 10.01, 10.02, 10.03, 10.04, 10.05, 10.06, 10.08, 10.09, 10.10, 10.11, 10.12, 10.13, 10.16, 10.18, 10.19, 10.22, 10.48, 10.50, 10.54, 12.03, 13.10, 13.13, 17.04–17.07, 17.08, 17.09, 17.10, 17.21, 17.22, 17.23, 17.24, 22.19, 22.20, 22.22, 24.15, 26.02, 26.03, 26.04, 26.05, 26.06, 26.07, 26.18, 26.21, 27.01, 33.01, 40.31 Part IV .............. 8.32, 22.19, 23.06, 26.04 Part V ..... 2.26, 9.27, 10.06, 10.10, 23.06, 26.03 Part VII ................................... 2.25, 34.17 Part VIII .......................................... 38.01 Art 1 ....................... 1.01–1.93, 2.04, 7.01 Art 1(1) ..................................... 1.04, 2.04 Art 1(2) ................................... 1.10, 26.02 Art 1(3) ................................... 1.14, 33.02 Art 1(4) ........ 1.17, 3.05, 4.09, 6.05, 7.01, 8.14, 34.34, 48.06 Art 1(4bis) ........... 1.19, 3.05, 4.09, 34.34, 48.06 Art 1(5) ........ 1.22, 1.23, 1.25, 3.07, 4.10, 6.05, 48.06 Art 1(6) ........ 1.25, 1.27, 1.28, 1.35, 1.36, 1.38, 1.43, 1.46, 1.53, 1.54, 1.55, 1.56, 1.75, 17.16, 26.02, 26.07 Art 1(6)(a) .......................................... 1.38 Art 1(6)(b) ................................ 1.39, 1.40 Art 1(6)(c) ........................ 1.42, 1.46, 1.52 Art 1(6)(d) ................................ 1.48, 1.86

Art 1(6)(e) .......................................... 1.49 Art 1(6)(f) .... 1.44, 1.50, 1.51, 1.52, 10.12 Art 1(7) ........ 1.28, 1.57, 1.58, 1.61, 1.66, 1.67, 10.48, 17.15, 26.02 Art 1(7)(a)(i) .................... 1.57, 1.62, 1.63 Art 1(7)(a)(ii) ............................ 1.57, 1.66 Art 1(7)(b) .......................................... 1.69 Art 1(8) .......................... 1.70, 1.73, 26.04 Art 1(9) ..................................... 1.49, 1.75 Art 1(10) ............ 1.77, 1.79, 19.24, 40.01, 40.06, 40.07, 40.08 Art 1(10)(a) ........................................ 1.79 Art 1(11) ............................................ 1.81 Art 1(11)(a) ........................................ 1.81 Art 1(11)(c) ........................................ 1.83 Art 1(12) .......................... 1.48, 1.86, 1.87 Art 1(13) ............................................ 1.89 Art 1(13)(a) .................. 1.89, 33.02, 34.17 Art 1(13)(b) ................. 1.92, 33.02, 34.20 Art 1(14) ................................... 1.76, 1.93 Art 2 ............ 2.01–2.26, 8.03, 8.57, 17.13 Art 3 ................................. 3.01–3.08, 5.18 Art 3(2) .............................................. 3.03 Art 4 ............. 4.01–4.11, 5.14, 5.29, 8.32, 22.24, 23.16, 24.13 Art 5 ......... 4.06, 5.01–5.31, 10.54, 27.12, 27.13, 28.01, 28.02, 28.03, 35.14, 35.27 Art 5(1) ........ 5.11, 5.13, 5.14, 5.16, 5.27, 5.29, 10.54, 26.34 Art 5(2) .......................... 5.15, 5.16, 10.54 Art 5(3) ........ 5.16, 5.18, 5.23, 5.24, 5.29, 10.54 Art 5(4) ............... 5.19, 5.21, 10.54, 48.06 Art 6 .......... 6.01–6.17, 9.02, 27.19, 32.12 Art 6(1) ............................ 6.04–6.10, 6.11 Art 6(2) .... 6.11–6.13, 32.07, 32.09, 32.10 Art 6(3) .............................................. 6.14

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Job: Leal-Arcas-Commentary_on_the_energy_charter_treaty

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Division: ToL

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Date: 19/11

JOBNAME: Leal-Arcas PAGE: 2 SESS: 2 OUTPUT: Fri Nov 23 09:49:54 2018

TABLE OF LEGISLATION Art 6(4) .............................................. 6.14 Art 6(5) ..... 6.03, 6.15–6.17, 27.02, 32.04, 32.05, 32.09, 32.10 Art 6(6) .............................................. 6.14 Art 6(7) ............................ 6.03, 6.15–6.17 Art 7 ........... 1.91, 7.01–7.42, 8.14, 21.08, 24.05, 26.05, 33.12, 33.13 Art 7(1) ........ 7.01, 7.03, 7.04, 7.07, 7.09, 7.13, 7.16, 7.20, 7.42 Art 7(2) ............................ 7.06, 7.07, 7.10 Art 7(2)(c) .......................................... 7.26 Art 7(3) ........ 7.09, 7.10, 7.13, 7.14, 7.15, 21.09 Art 7(4) ........ 7.07, 7.16, 7.18, 7.20, 7.42, 32.07 Art 7(5) ........ 7.07, 7.20, 7.21, 7.23, 7.25, 7.26, 7.42 Art 7(6) ........ 7.21, 7.25, 7.28, 7.29, 7.30, 7.31, 7.37 Art 7(7) ........ 7.21, 7.25, 7.28, 7.31, 7.32, 7.33, 27.02, 35.22 Art 7(7)(a) ............................... 7.34, 35.23 Art 7(7)(c) .......................................... 7.37 Art 7(7)(d) .......................................... 7.38 Art 7(7)(f) ............................... 7.32, 34.10 Art 7(8) ..................................... 7.40, 7.41 Art 7(9) ............................ 7.07, 7.20, 7.42 Art 7(10) .......................... 7.02, 7.42, 8.14 Art 7(10)(b) ..................... 7.08, 7.21, 8.14 Art 7(10)(ii) ...................................... 35.14 Art 8 ..... 8.01–8.57, 9.01, 9.02, 9.03, 9.41 Art 8(1) .......... 1.86, 8.23–8.30, 8.31, 8.41 Art 8(2) ..................................... 8.47–8.55 Art 9 .......................................... 9.01–9.41 Art 9(1) ..................................... 9.20–9.30 Art 9(2) ................... 9.31–9.34, 9.35, 9.36 Art 9(3) ..................................... 9.35–9.37 Art 9(4) ..................................... 9.38–9.40 Arts 10–16 ............................ 17.04, 17.06 Arts 10–17 ....................................... 22.25 Art 10 ........... 1.71, 8.33, 8.35, 8.43, 9.27, 9.29, 10.01–10.55, 13.12, 13.43, 18.26, 21.08, 22.19, 22.25, 26.05 Art 10(1) .... 1.71, 1.72, 7.03, 9.28, 10.03, 10.05, 10.14, 10.16, 10.20, 10.21, 10.22, 10.23, 10.24, 10.25, 10.26, 10.27, 10.28, 10.29–10.44, 10.48,

10.50, 10.55, 11.11, 13.19, 13.43, 13.44, 18.22, 22.10, 22.20, 22.21, 26.04, 26.07, 26.08, 26.12, 26.21, 26.34, 26.35, 26.36, 27.19, 32.11 Arts 10(2)-10(12) ....... 10.23, 10.45–10.55 Art 10(2) .............. 7.12, 7.13, 9.28, 10.45, 10.48, 10.51, 10.52, 21.10 Art 10(3) .... 7.12, 7.13, 7.14, 9.28, 10.45, 10.46, 10.47, 10.48, 10.49, 10.52, 10.53, 17.15, 35.14 Art 10(4) ............ 8.36, 9.28, 10.47, 10.48, 10.51, 35.12 Art 10(5) ................................. 9.28, 10.48 Art 10(5)(a) ...................................... 10.48 Art 10(5)(b) ...................................... 10.48 Art 10(6) ................................. 9.28, 10.49 Art 10(6)(a) ........................... 10.49, 35.14 Art 10(6)(b) .......................... 10.49, 35.14 Art 10(7) .............. 8.33, 8.36, 8.37, 10.50, 10.51, 10.53, 17.15, 21.10, 32.07 Art 10(8) ...................... 8.36, 10.51, 10.52 Art 10(9) .................... 10.52, 34.10, 35.14 Art 10(9)(a) ...................................... 10.52 Art 10(9)(b) ...................................... 10.52 Art 10(10) ...................... 8.36, 8.43, 10.53 Art 10(11) ........ 5.23, 10.05, 10.48, 10.54, 26.34 Art 10(12) .................. 10.05, 10.38, 10.55 Art 11 ......................... 10.08, 11.01–11.11 Art 11(1) ........ 11.04, 11.05, 11.06, 11.07, 11.08, 11.09 Art 11(2) ............................... 10.38, 11.11 Art 12 .............. 12.01–12.06, 24.10, 24.14 Art 12(1) .......................................... 12.05 Art 12(2) .......................................... 12.06 Art 13 .............. 1.93, 10.36, 10.38, 10.39, 13.01–13.47, 18.16, 21.06, 21.08, 21.11, 21.14, 22.19, 24.10, 24.11, 24.14 Art 13(1) ........ 10.21, 13.14, 13.15, 13.18, 13.19, 13.20, 13.43, 13.45 Art 13(1)(a) ...................................... 13.21 Art 13(1)(b) ...................................... 13.22 Art 13(1)(c) ...................................... 13.23 Art 13(1)(d) ...................................... 13.24 Art 13(2) .......................................... 13.45 Art 13(3) .......................................... 13.46

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Job: Leal-Arcas-Commentary_on_the_energy_charter_treaty

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Division: ToL

/Pg. Position: 2 /

Date: 19/11

JOBNAME: Leal-Arcas PAGE: 3 SESS: 2 OUTPUT: Fri Nov 23 09:49:54 2018

COMMENTARY ON THE ENERGY CHARTER TREATY Art 13(5) ............................................ 1.89 Art 14 ... 1.93, 10.08, 10.38, 14.01–14.10, 16.01, 34.10 Art 14(1) ............................................ 1.76 Art 14(1)(b) ........................................ 1.76 Art 14(2) ............................................ 1.76 Art 15 .................................... 15.01–15.05 Art 15(1) ............................... 15.02, 15.03 Art 15(2) .......................................... 15.04 Art 15(3) ............................... 15.05, 26.30 Art 16 ............ 10.06, 10.07, 10.08, 14.09, 16.01–16.05 Art 17 ....................... 10.09, 10.10, 10.31, 17.01–17.24, 40.31, 40.32, 40.33 Art 17(1) .... 1.58, 2.19, 2.20, 2.21, 10.09, 10.10, 17.04, 17.07, 17.08–17.21, 17.23, 40.31 Art 17(2) ................... 17.04, 17.07, 17.13, 17.22–17.23 Art 18 ..... 2.11, 8.02, 18.01–18.28, 19.22, 26.05 Art 18(1) ......... 18.02, 18.08, 18.13, 18.26 Art 18(2) ........ 10.14, 18.05, 18.06, 18.09, 18.23, 18.24 Art 18(3) ........ 18.06, 18.07, 18.10, 18.21, 18.28 Art 18(4) .......... 9.28, 10.48, 18.07, 18.11, 18.26, 18.28 Art 19 ........... 1.90, 8.19, 8.26, 8.27, 8.28, 8.29, 8.42, 19.01–19.26, 26.05, 27.19, 48.08, 48.09 Art 19(1) ........ 19.01, 19.04, 19.06, 19.07, 19.08, 19.10, 19.19, 19.20, 19.21, 19.22, 19.24, 19.25 Art 19(2) ........ 19.11, 19.12, 19.15, 19.26, 34.07 Art 19(3) ........ 10.47, 19.17, 19.18, 19.19, 19.20, 19.21 Art 19(3)(d) ........................................ 8.13 Art 20 ......................... 20.01–20.10, 26.05 Art 20(1) .................... 20.01, 20.06, 20.07 Art 20(2) ............................... 20.01, 20.07 Art 20(3) ........ 20.01, 20.08, 32.04, 32.05, 32.07 Art 21 ... 8.37, 10.16, 13.03, 13.04, 13.05, 13.08, 21.01–21.18, 24.14

Art 21(1) ........ 10.16, 10.53, 13.04, 13.07, 13.08, 13.10, 13.11, 21.02, 21.13, 21.14, 21.16, 21.17 Art 21(1)(7) ...................................... 21.05 Art 21(2) .......................................... 21.08 Art 21(2)(b) ...................................... 21.08 Art 21(3) .......................................... 21.10 Art 21(4) .......................................... 21.09 Art 21(5) ........ 13.03, 13.03, 13.05, 13.07, 13.08, 21.06, 21.11, 21.12, 21.14, 21.15, 21.17, 21.18 Art 21(5)(a) ........................... 13.09, 21.02 Art 21(5)(b) ... 13.09, 21.01, 21.12, 21.13, 21.15 Art 21(5)(b)(i) ....................... 13.03, 13.09 Art 21(5)(b)(ii) ................................. 21.11 Art 21(7)(a) ...................................... 21.17 Art 21(7)(a)(ii) ................................. 21.08 Art 21(7) ............................... 13.08, 21.16 Art 22 ....................... 10.12, 10.18, 18.10, 22.01–22.28, 23.01, 26.05, 26.07 Art 22(1) ........ 10.18, 10.44, 22.19, 22.20, 22.22, 22.25 Art 22(2) .......................................... 22.25 Art 22(3) .................... 10.18, 22.19, 22.25 Art 22(4) ............................... 22.19, 22.25 Art 23 ............. 10.18, 23.01–23.16, 26.05, 26.07 Art 23(2) .......................................... 23.06 Art 24 ........... 2.11, 8.32, 8.38, 8.54, 9.21, 24.01–24.16 Art 24(1) .......................................... 24.10 Art 24(2) ............................... 24.04, 24.15 Art 24(2)(b) ...................................... 24.15 Art 24(2)(i) ....................................... 24.01 Art 24(2)(ii) ...................................... 24.02 Art 24(2)(iii) ......................... 24.03, 35.14 Art 24(3) .................... 24.04, 24.05, 24.16 Art 24(4) ................................. 8.38, 24.16 Art 24(4)(a) ... 24.06, 24.07, 24.09, 25.06, 25.09 Art 24(4)(b) ...................................... 24.08 Art 25 ......................... 10.50, 25.01–25.14 Art 25(1) ............................... 10.50, 25.04 Art 25(2) .......................................... 25.02 Art 25(3) .......................................... 25.05 Art 25(5)(b)(iii) ................................ 13.09

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Job: Leal-Arcas-Commentary_on_the_energy_charter_treaty

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Division: ToL

/Pg. Position: 3 /

Date: 19/11

JOBNAME: Leal-Arcas PAGE: 4 SESS: 2 OUTPUT: Fri Nov 23 09:49:54 2018

TABLE OF LEGISLATION Art 26 ... 1.65, 10.08, 10.11, 10.12, 10.18, 10.45, 10.48, 15.05, 17.05, 22.19, 22.27, 23.03, 26.01–26.42, 27.01, 27.02, 27.16, 35.15, 45.04, 47.08 Art 26(1) ....................... 1.64, 1.79, 10.12, 26.01–26.09, 26.18 Art 26(2) ......... 26.10–26.13, 26.20, 27.17 Art 26(2)(a) ...................................... 26.11 Art 26(3) ......... 18.22, 26.14–26.22, 26.29 Art 26(3)(a) .... 26.15, 26.31, 45.04, 47.08 Art 26(3)(b) ...................................... 26.20 Art 26(3)(b)(i) ....................... 26.17, 26.19 Art 26(3)(b)(ii) ...................... 26.02, 26.19 Art 26(3)(b)(iii) ................................ 35.15 Art 26(3)(c) ...................................... 26.21 Art 26(4) ............................... 26.23–26.30 Art 26(5) ............................... 26.31–26.33 Art 26(5)(a) ...................................... 26.31 Art 26(6) ........ 10.13, 10.14, 10.15, 22.19, 26.34–26.36, 27.23 Art 26(7) ............................... 26.02, 26.37 Art 26(8) .................... 10.18, 26.38–26.42 Art 27 ......... 2.26, 4.11, 5.30, 5.31, 10.11, 19.11, 19.26, 25.07, 26.05, 26.42, 27.01–27.25, 28.01, 28.02 Art 27(1) .......................... 4.11, 6.03, 6.17 Art 27(2) ...................... 4.11, 27.18, 27.19 Art 27(3) ............................................ 4.11 Art 27(3)(g) ...................................... 27.23 Art 27(3)(k) ...................................... 27.22 Art 27(3)(l) ....................................... 35.16 Art 27(6)(d) ...................................... 35.16 Art 28 ....... 4.11, 5.30, 5.31, 25.09, 27.01, 27.12, 28.01–28.04 Art 29 ....... 5.13, 5.27, 5.31, 10.05, 14.10, 21.08, 22.23, 23.15, 24.10, 24.12, 24.14, 25.05, 27.12, 27.13, 28.01, 28.02, 29.01–29.18, 35.27 Art 29(1) ............................... 29.03–29.04 Arts 29(2)-29(6) ............................... 21.09 Art 29(2) ............................... 29.05–29.08 Art 29(2)(a) ........... 4.03, 4.04, 4.05, 4.06, 5.14, 5.18, 5.26, 29.05, 29.06, 29.09, 34.11 Art 29(2)(b) .......................... 29.08, 48.06 Art 29(2)(c) ...................................... 29.06 Art 29(3) ............................... 29.09–29.10

Art Art Art Art Art Art

29(3)(a) ...................................... 35.13 29(3)(b) ...................................... 35.13 29(4) .......................................... 29.11 29(5) .......................................... 29.11 29(5)(b) ...................................... 35.15 29(6) ........ 10.47, 29.11, 29.12–29.16, 30.03 Art 29(7) ......... 29.11, 29.12–29.16, 34.32 Art 29(8) ............................... 29.12–29.16 Art 29(9) ...................... 5.31, 29.17–29.18 Arts 30–33 ............................ 30.01, 30.02 Art 30 .................................... 30.01–30.07 Art 31 ............. 30.02, 30.06, 31.01–31.04, 35.12 Art 32 ................ 9.21, 30.02, 32.01–32.16 Art 32(1) ... 6.01, 7.01, 9.21, 20.08, 32.02 Art 32(3) ............................... 32.02, 34.30 Art 32(4) .................... 35.08, 35.14, 35.15 Art 32(5) .......................................... 35.14 Art 32(5)(a) ...................................... 35.08 Art 32(5)(b) ...................................... 35.08 Art 32(6) .................... 32.04, 34.07, 34.10 Art 33 ... 1.89, 26.36, 30.02, 33.01–33.35, 34.17, 34.21 Art 33(1) ............. 1.89, 2.25, 33.01, 34.17 Art 33(2) .................... 33.02, 34.17, 34.22 Art 33(3) .................... 33.02, 34.17, 34.22 Art 33(5) ............................... 33.02, 34.17 Art 33(6) .......................................... 33.03 Art 33(6)(a) ........................... 34.08, 35.05 Art 33(6)(b) ...................................... 34.08 Art 34 .............. 10.45, 34.01–34.43, 42.03 Art 34(1) .......... 2.25, 19.12, 34.02, 34.04, 34.05 Art 34(2) .......................................... 34.04 Art 34(3) .......................................... 26.42 Art 34(3)(a) ...................................... 34.02 Art 34(3)(b) ...................................... 34.02 Art 34(3)(d) ...................................... 34.19 Art 34(3)(e) ........................... 35.02, 36.09 Art 34(3)(h) .......................... 34.02, 34.17 Art 34(3)(i) ....................................... 10.16 Art 34(3)(n) ...................................... 29.15 Art 34(3)(p) .... 34.05, 35.01, 35.02, 35.17 Art 34(5) .......................................... 34.05 Art 34(6) ............................... 34.05, 35.17 Art 34(7) .................... 34.05, 35.05, 36.09

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Job: Leal-Arcas-Commentary_on_the_energy_charter_treaty

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Division: ToL

/Pg. Position: 4 /

Date: 19/11

JOBNAME: Leal-Arcas PAGE: 5 SESS: 3 OUTPUT: Fri Nov 23 09:49:54 2018

COMMENTARY ON THE ENERGY CHARTER TREATY Art 35 .............. 10.45, 34.27, 35.01–35.29 Art 35(1) ........ 34.05, 34.12, 34.36, 35.01, 35.02, 35.05 Art 35(2) .................... 34.36, 35.01, 35.17 Art 35(3) ............................... 34.12, 35.05 Art 35(4) .................... 34.12, 34.19, 35.05 Art 35(5) .......................................... 34.12 Art 36 ....................... 34.13, 34.24, 35.17, 36.01–36.10, 43.03 Art 36(1) .................... 35.17, 36.06, 36.08 Art 36(1)(a) ........................... 34.27, 34.30 Art 36(1)(b) .......................... 34.24, 34.26 Art 36(1)(c) ...................................... 34.26 Art 36(1)(g) ........................... 29.13, 34.35 Art 36(2) ......... 34.13, 34.27, 36.04, 36.09 Art 36(3) .......................................... 34.27 Art 36(4) ........ 34.13, 34.24, 34.27, 34.30, 36.04, 36.09 Art 36(5) ............................... 36.03, 36.07 Art 36(6) .................... 34.13, 34.27, 36.07 Art 36(7) .......................................... 36.02 Art 36(8) .................... 35.17, 36.02, 37.05 Art 37 ......................... 34.13, 37.01–37.07 Art 37(1) .......................................... 37.02 Art 37(2) .......................................... 37.02 Art 37(3) ............................... 34.13, 37.03 Art 37(5) .......................................... 37.06 Art 38 ......................... 38.01–38.07, 41.01 Art 39 .............. 38.01, 38.02, 39.01–39.03 Art 40 ....................... 34.20, 38.01, 39.02, 40.01–40.47 Art 40(1) .................... 40.05, 40.09, 40.22 Art 40(2) .......................................... 40.12 Art 40(3) .......................................... 40.13 Art 40(4) ............................... 40.06, 40.08 Art 41 ............ 34.23, 38.01, 38.02, 38.04, 39.01, 41.01–41.04 Art 42 .............. 38.01, 42.01–42.06, 43.03 Art 42(1)-(3) .................................... 34.28 Art 42(1)(2) ...................................... 42.02 Art 42(2) .......................................... 35.07 Art 42(3) .......................................... 35.07 Art 42(4) .......................................... 42.04 Art 43 ......................... 38.01, 43.01–43.03 Art 43(1) .......................................... 34.25 Art 44 ... 38.01, 38.02, 39.01, 40.20, 40.21, 40.22, 40.46, 44.01–44.06, 47.05

Art 44(1) .......................................... 44.03 Art 45 ............ 38.01, 38.02, 39.02, 40.02, 40.17–40.22, 45.01–45.04 Art 45(1) ........ 26.03, 40.19, 40.21, 40.22, 40.24, 40.34, 40.36, 40.41 Art 45(2) ............................... 38.02, 40.18 Art 45(2)(a) ...................................... 26.03 Art 45(3) ........ 40.22, 40.24, 40.34, 40.36, 40.45, 40.46, 45.04 Art 45(3)(a) ........................... 26.03, 40.35 Art 45(3)(b) ............... 26.03, 40.40, 40.47 Art 45(3)(c) ...................................... 26.03 Art 46 .............. 34.20, 38.01, 46.01–46.02 Art 47 .............. 38.01, 39.02, 47.01–47.10 Art 47(1) .......................................... 47.04 Art 47(2) ................................. 1.11, 47.06 Art 47(3) .................... 26.15, 40.13, 47.08 Art 47(4) .......................................... 37.05 Art 48 ......................... 38.01, 48.01–48.14 Art 49 .............. 38.01, 39.01, 49.01–49.10 Art 50 ......................... 38.01, 50.01–50.06 Annex B ......... 34.13, 36.08, 36.09, 37.03, 37.04 Annex BR ....... 29.15, 34.32–34.33, 48.06 Annex BRQ ............... 29.15, 34.32–34.33 Annex D .......... 5.31, 27.02, 29.17, 35.16, 35.27, 35.28, 36.08, 48.06 Annex EM I .......... 1.17, 1.18, 3.05, 4.09, 4.10, 6.05, 7.01, 8.14, 29.05, 29.13, 34.33, 34.34, 34.35, 36.08, 48.06 Annex EM I107 ........ 22.23, 23.15, 24.12 Annex EM II ........ 1.17, 1.18, 3.05, 4.09, 4.10, 6.05, 7.01, 8.14, 29.12, 29.13, 29.16, 34.10, 34.34, 34.35, 36.08 Annex EQ I .......... 1.19, 1.20, 3.05, 4.09, 4.10, 22.23, 23.15, 24.12, 29.05, 29.13, 31.02, 34.33, 34.34, 34.35, 36.08, 48.06 Annex EQ II ......... 1.19, 1.20, 3.05, 4.09, 4.10, 29.12, 29.13, 29.16, 34.10, 34.34, 34.35, 36.08 Annex EQ II.16 ................................. 1.19 Annex IA ................... 26.21, 27.19, 48.06 Annex ID ........ 26.17, 26.20, 35.15, 48.06 Annex N ...................... 7.02, 34.31, 48.06 Annex N1 ........... 1.22, 1.23, 36.08, 48.06 Annex PA ............................. 26.03, 40.18

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Job: Leal-Arcas-Commentary_on_the_energy_charter_treaty

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Division: ToL

/Pg. Position: 5 /

Date: 20/11

JOBNAME: Leal-Arcas PAGE: 6 SESS: 3 OUTPUT: Fri Nov 23 09:49:54 2018

TABLE OF LEGISLATION Annex T ....... 6.01, 7.01, 8.33, 9.21, 9.22, 32.02, 32.04, 32.09, 32.10, 32.11, 32.13, 34.27, 34.30, 35.08 Annex TFU ...................................... 48.06 Annex TRM .......... 5.19, 5.20, 5.21, 5.22, 35.14, 48.06 Annex V ........................................... 10.49 Annex VC ............................. 34.31, 35.14 Annex W ...... 4.04, 4.06, 5.14, 5.18, 5.26, 5.27, 34.11, 35.15, 36.08, 48.06 Annex W(B)(5) ................................ 29.16 Annex WB(10)(a) .............................. 5.31 Protocol on Energy Efficiency and Related Environmental Aspects (‘PEEREA’) ... 1.90, 1.91, 8.28, 8.29, 9.30, 9.36, 9.37, 19.08, 19.20, 30.02, 33.04, 33.05–33.11, 33.17, 34.20, 35.05, 36.02, 36.06, 36.07, 36.08, 36.09, 48.04, 48.08–48.14, 50.02 Transit Protocol (Draft) .................... 1.91, 33.12–33.35 Amendment to the Trade-Related Provisions of the ECT (Trade Amendment (TA)) 1998 .... P.07, 1.18, 1.21, 1.85, 1.88, 3.04, 4.06, 5.26, 5.28, 8.22, 29.01, 29.02, 29.05, 29.07, 29.10, 29.10, 29.11, 29.12, 29.13, 29.14, 30.02, 30.03, 30.05, 31.02, 31.03, 34.32, 34.33, 35.08, 42.05, 42.06, 48.01 Rules Concerning the Conduct of Conciliation of Transit Disputes under Art 7 of the Energy Charter Treaty (Conciliation Rules) 2002 ... 7.32, 7.33, 7.34, 7.35, 7.36, 7.37, 7.38, 7.39, 35.22 r 1(1) ....................................... 7.33, 35.22 r 1(3) ....................................... 7.33, 35.22 r 1(4) ....................................... 7.33, 35.22 r 2(1) ................... 7.34, 7.35, 35.23, 35.24 r 2(2) ....................................... 7.35, 35.24 r 2(7) ....................................... 7.34, 35.23 r 3(1) ....................................... 7.36, 35.25 r 3(2) ....................................... 7.36, 35.25 r 3(4) ....................................... 7.36, 35.25 r 4 ............................................ 7.35, 35.24 r 4(1) ....................................... 7.36, 35.25

r 4(4) ................................................ 35.25 r 9 ....................................................... 7.38 r 10 ..................................................... 7.37 r 11 ..................................................... 7.37 r 12 ..................................................... 7.37 r 12(2) ..................................... 7.39, 35.26 r 12(3) ..................................... 7.39, 35.26 r 13(2)(a) ................................. 7.39, 35.26 r 15 ..................................................... 7.37 r 16 .......................................... 7.39, 35.26 Rules of Procedure of the Energy Charter Treaty ............................... 34.01, 34.24 r 1(a) ................................................. 34.04 r 1(b) ................................................ 34.04 r 1(e) ................................................. 34.40 r 3(a) ................................................. 34.04 r 3(b) ................................................ 35.09 r 3(c) ................................................. 35.09 r 4 ..................................................... 35.09 r 8 ..................................................... 34.02 r 13(a) ............................................... 34.02 r 7(a) ................................................. 34.03 r 7(b) ................................................ 34.03 r 7(c) ................................................. 34.03 r 7(d) ................................................ 34.03 r 8 ..................................................... 35.09 r 9(a) ................................................. 34.38 r 10 ................................................... 34.38 r 11 ................................................... 34.40 r 12 ................................................... 34.41 r 13B(a) ............................................ 34.39 r 13B(b) ............................................ 34.39 r 13B(c) ............................................ 34.39 r 14 ................................................... 34.39 r 15 ................................................... 34.39 r 16 ................................................... 36.01 r 16(a) .................................... 34.40, 36.06 r 16(b) ................................... 34.40, 36.06 r 16(c) ............................................... 36.02 r 16(d) .............................................. 36.02 r 18(a) .................................... 34.04, 34.38 r 19 ............................. 34.24, 36.01, 36.03 r 19(a) ............................................... 36.04 r 19(b) .............................................. 36.05 r 19(c) ............................................... 36.05 r 19(d) .............................................. 36.03 r 20 ................................................... 35.01

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COMMENTARY ON THE ENERGY CHARTER TREATY r 20(1)(c) .......................................... 35.17 r 20.2(a) ................................. 35.01, 35.17 r 20.2(b) ................................ 35.01, 35.17 r 20.2(c) ................................. 35.01, 35.17 r 20.2(d) ........................................... 35.01 r 20.3(b) ........................................... 35.18 r 20.3(d) ........................................... 35.19 r 20.4 ................................................ 37.05 r 20.4(a) ................................. 35.18, 35.19 r 20.4(b) ........................................... 35.18 r 20.5 ................................................ 35.19 r 20.6 ................................................ 35.20 r 20.7(a) ............................................ 35.20 r 20.7(c) ............................................ 35.20 r 20.8(a) ............................................ 35.19 r 20.9 ................................................ 35.21 r 20.10 .............................................. 35.01 r 20.11(a) .......................................... 35.21 r 22 ................................................... 34.37 Agreement Establishing the World Trade Organization 1994 (WTO Agreement/Marrakesh Agreement) see WTO Agreement Agreement on Rules of Origin (World Trade Organization) ............ 4.06, 5.18 Agreement on Subsidies and Countervailing Measures (ASCM), (World Trade Organization 1994) ....................... 5.18 Agreement on Technical Barriers to Trade ............................................. 4.06 Agreement on Trade-Related Investment Measures (TRIMS Agreement), 1994 ......... 4.06, 5.01, 5.02, 5.03, 5.04, 5.08, 5.09, 5.10, 5.11, 5.15, 5.20, 5.22, 5.23, 10.54 Art 1 ................................................... 5.03 Art 2(1) ............................ 5.03, 5.07, 5.11 Art 3 .......................................... 5.03, 5.13 Art 5(1) .............................................. 5.20 Art 5(2) .............................................. 5.20 Art 6(3) .............................................. 5.20 Albania – UK BIT Art 7 ................................................. 14.05 Argentina – Bulgaria BIT Art 8 ................................................. 16.04 Argentina – United States BIT

Art XI ............................................... 24.04 Articles on Responsibility of States for Internationally Wrongful Acts (ARS), United Nations International Law Commission (ILC) ......... 10.15, 13.03, 22.13, 22.14, 22.16, 22.26 Art 1 ................................................. 10.20 Art 2 ................................................. 10.20 Art 2(a) ............................................ 10.20 Art 2(b) ............................................ 10.20 Arts 3–10 ......................................... 22.26 Art 4 ................................................. 22.14 Art 5 ................................................. 22.14 Art 8 ................................................. 22.14 Art 13 ............................................... 10.20 Art 15 ............................................... 10.20 Arts 20–26 ....................................... 10.20 Art 28 ............................................... 10.20 Art 31 .................................... 10.21, 13.31 Art 34 ............................................... 10.19 Art 35 .................................... 10.19, 13.33 Art 35(b) .......................................... 10.21 Art 36 ............................................... 13.33 Art 36(1) ............................... 13.28, 13.35 Art 55 ............................................... 10.19 ASEAN Comprehensive Investment Agreement (ACIA) .......... 10.04, 21.03 Australia-Indonesia BIT Art XII ............................................. 27.07 Austria – Tajikistan BIT (2010) Art 9 ................................................. 14.07 Bahrain – Mexico BIT (2012) Art 7 ................................................. 14.08 Belgium – Luxembourg and Hong Kong BIT Art 6 ................................................. 14.05 Brunei – China BIT (2000) Art 6 ................................................. 14.06 CAFTA Art 10.23 .......................................... 10.16 CAFTA-DR FTA 10.10(2) ............................................ 11.03 Cambodia – Germany BIT Art 7 ................................................. 14.06 China/Germany BIT) Art 10(2) .......................................... 10.44

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TABLE OF LEGISLATION Code of Conduct on Transfer of Technology (TOT Code), UNCTAD ..................................... 8.09 Code of Liberalization of Invisible Operations ................................... 14.03 Convention concerning International Carriage by Rail, 9 May 1980 Art 3(2) ............................................ 10.08 Convention on Long-Range Transboundary Air Pollution ....................... P.07, P.12 Convention on the Rights of Persons with Disabilities, 2006 Optional Protocol, Art 15 ............... 42.02 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965, 575 UNTS 159 ........................... 22.05 Art 70 ............................................... 40.03 Cuba – Austria BIT (2001) Art 7 ................................................. 14.06 Declaration on the Establishment of a New International Economic Order (NIEO), UN General Assembly Resolution 3201, 1974 ................ 18.14 EC Treaty Art 222 ............................................. 18.25 Article 307 ....................................... 16.05 Egypt – Malaysia BIT (2000) Art 6 ................................................. 14.06 Espoo Convention ............................... 19.06 EU – CARIFORUM EPA Arts 80–84 ....................................... 11.03 European Convention on Human Rights (ECHR) Art 53 ............................................... 10.07 Art 58 ............................................... 47.09 European Energy Charter (EEC) 1991 ......... P.06, 1.12, 8.04, 8.06, 8.15, 9.05, 9.19, 27.01, 31.04, 48.08 Title I ............................... 8.26, 8.51, 9.01 Title II .............................................. 32.01 Art 1 .......................................... 1.06, 2.04 General Agreement on Tariffs and Trade (GATT) (1947), 1994 ........ 1.83, 4.06, 4.10, 5.03, 20.06, 20.07, 22.07, 22.24, 23.05, 23.14, 24.01, 24.05, 24.13, 26.34, 29.02, 30.04, 30.07, 33.12

Art II: 1(b) ....................................... 29.16 Art III .......... 5.03, 5.11, 5.14, 5.16, 5.20, 5.22, 5.23, 5.27, 7.12, 10.54, 28.02 Art III:4 ........................... 5.06, 5.07, 5.15 Art III:8(a) ......................................... 5.18 Art V ......................................... 7.03, 7.09 Art XI . 5.03, 5.11, 5.14, 5.16, 5.20, 5.22, 5.23, 5.27, 10.54, 28.02 Art XI:1 .............................................. 5.15 Art XVII ................................. 8.35, 22.23 Art XVII 1(a) ................................... 22.23 Art XX .............. 5.27, 24.01, 24.14, 29.07 Art XXI ............................................ 24.14 Art XXIV ................................ 5.18, 23.14 Art XXIV(12) .................................. 23.15 General Agreement on Trade in Services (GATS) 1994 ... 4.06, 4.08, 4.09, 4.10, 5.02, 14.03 Part I .................................................. 4.10 Art XI ............................................... 14.03 Art XII ............................................. 14.03 Genocide Convention: 1948 Convention on the Prevention and Punishment of the Crime of Genocide, 78 UNTS 277 Art 1 ................................................. 10.20 Art XII ............................................. 40.03 Georgia/Israel BIT Art 2(2) ............................................ 10.31 Germany – Cambodia BIT Art 7 ................................................. 14.06 Headquarters Agreement (Kingdom of Belgium and the Energy Charter Conference) ................................. 35.03 ICSID Additional Facility Rules ........ 26.37, 26.42 ICSID Convention (Convention on the Settlement of Investment Disputes between States and Nationals of Other States), 1965 ... 1.32, 1.33, 1.59, 26.24, 26.25, 26.28, 26.31, 26.33, 26.37, 26.38 Art 27(1) .......................................... 27.04 Art 27(2) .......................................... 27.05 Art 39 ............................................... 27.21 Art 42(1) ............................... 10.13, 26.36 Art 45 ............................................... 26.33 Art 48(5) .......................................... 20.03

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COMMENTARY ON THE ENERGY CHARTER TREATY Art 64 ............................................... 27.08 ILC Draft Articles on Diplomatic Protection 2006 Art 1 ................................................. 27.03 Arts 3 et seq ..................................... 27.03 Art 15(a) ........................................... 13.09 ILC Draft Articles on International Responsibility of the State for Injuries Caused in its Territory to the Person or Property of Aliens Art 21 ................................................. 1.66 IMF Agreement ................................... 14.02 IMF Articles Art VIII, Section 2(a) ...................... 14.02 International Energy Charter (Hague II), 20 May 2015 .......... 1.09, 2.18, 8.05, 8.51, 19.02, 31.04 Title I ............................... 8.06, 8.26, 9.01 Art 1(2) .............................................. 2.18 Italy – Cuba BIT (1995) ..................... 27.09 Japan – Oman BIT (2015) Art 17 ............................................... 14.08 Japan – Vietnam BIT (2003) Art 12 ............................................... 14.05 Kyiv Protocol ....................................... 19.06 Kyoto Protocol to the United Nations Framework Convention on Climate Change, 1997 .............................. 33.10 Art 20(4) .......................................... 42.04 Latvia – Armenia BIT (2005) Art 7 ................................................. 14.08 Maastricht Treaty 1992, OJ C 325/5 Title V ............................................... P.09 Mexico – Greece BIT (2000) Art 7 ................................................. 14.06 Mexico – Netherlands BIT (1999) Art. 11(1) ......................................... 27.21 Mongolia – South Korea BIT (1991) Art 6 ................................................. 14.05 NAFTA ............. 10.04, 10.05, 10.12, 10.14, 20.07, 26.17 Ch 15 ............................................... 22.17 Art 103 ............................................. 10.06 Art 1101 ................................ 10.12, 13.15 Art 1102(1) ...................................... 10.50 Art 1105 ........................................... 10.33 Art 1105(1) ........................... 10.33, 10.42

Art 1113 ........................................... 17.02 Art 1113(2) ........................... 10.09, 17.12 Art 1121(1)(b) .................................. 28.18 Art 1121(2)(b) .................................. 26.18 Art 1131 ................................ 10.13, 10.16 Art 1131(1) ...................................... 10.14 Art 1502(3)(a) .................................. 22.17 Art 2103 ........................................... 21.07 Netherlands – Turkey BIT .................... 1.59 New York Convention 1958 ... 26.31, 26.32, 26.33, 26.38, 26.42 Art 1(3) ................................. 26.32, 26.33 OECD Capital Movements Code ...... 14.03 OECD .. Code of Liberalization of Invisible Operations..........................14.03, 14.05 Pakistan – Sweden BIT Art 9 ................................................. 16.05 Plurilateral Agreement on Government Procurement (World Trade Organization 1994, 2012) ............. 5.18 Revised Treaty of Chaguaramas Establishing the Caribbean Community Including the CARICOM, 2001 Art 38 ............................................... 11.03 Rome Statute of the International Criminal Court, 1998 Art 126(2) ........................................ 44.04 Russia PCA Art 32 ............................................... 11.08 Serbia – Algeria BIT (2012) Art 6 ...................................... 14.06, 14.07 Sweden – Vietnam BIT Art 9 ................................................. 16.04 Treaty of Friendship, Commerce, and Navigation between Great Britain and the United States (Jay Treaty) 1794 Art. V ............................................... 27.06 Turkey – Albania BIT (1992) Art IV .............................................. 14.06 Thailand – Argentina BIT (2000) Art 7 ................................................. 14.05 Treaty between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment, signed 14 November 1991 Art XI ............................................... 24.04

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TABLE OF LEGISLATION Treaty of Lisbon ......................... 1.16, 47.09 Treaty of Rome 1957 Art 58 .................................... 25.11, 25.12 Treaty on European Union (TEU) Art 50 ............................................... 47.09 Art 52 .......................... 1.80, 40.42, 40.43 Treaty on the Functioning of the European Union (TFEU) Art 101 ............................................... 6.13 Art 102 ............................................... 6.13 Art 349 ............................................... 1.80 Art 355 ........................ 1.80, 40.42, 40.43 Treaty on the Non-Proliferation of Nuclear Weapons ........... P.07, P.09, 8.52, 8.53 UN Charter, 24 October 1945, 1 UNTS XVI ................................... 24.04, 47.06 Art 13(1) .......................................... 22.13 Art 102(1) ........................................ 49.10 Art 103 ............................................. 16.01 UN General Assembly Resolution 1803, Permanent Sovereignty over Natural Resources, 1962 ........................... 18.14 UN General Assembly Resolution 3171 (XXVIII) Permanent Sovereignty over Natural Resources,1973 ... 18.14, 18.17 UN General Assembly Resolution 3281 (XXIX) Permanent Sovereignty over Natural Resources, 1974 ............ 18.14, 18.15 UN General Assembly, Protocol Relating to the Status of Refugees, 31 January 1967, United Nations, Treaty Series, vol. 606, 267 ................................ 44.04 UN Resolution 70/245, 23.12.2015 Scale of Assessment .................................. 37.04 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules .......... 26.26, 26.31, 26.36, 27.22 United Nations Convention on the Law of the Sea (UNCLOS) .................... 18.03 Art 2 ........................................ 1.78, 18.17 Art 2(1) ............................................ 18.17 Art 2.2 ................................................ 1.78 Arts 3–16 ........................................... 1.78 Art 3 ................................................. 18.18 Art 5 ................................................. 18.18

Art 56 ............................................... 18.19 Art 56(1) .......................................... 18.19 Art 56(1)(a) ...................................... 18.03 Art 77 ............................................... 18.19 United Nations Framework Convention on Climate Change (UNFCCC) ...... P.07, P.11 US Model BIT 2004 ......... 11.03 and before US – Argentina BIT ............................ 14.08 US – Ecuador Treaty Art X ................................................ 21.07 US – Kazakhstan BIT ......................... 32.16 Vienna Convention on the Law of Treaties (VCLT), 1155 UN Treaty Ser. 331, 8 ILM 679 (1969) .... 1.43, 10.15, 13.03, 16.01, 27.11, 34.14, 46.01, 47.10 Part IV ............................................. 42.01 Part V .................................... 47.03, 47.04 Art 11 ............................................... 34.23 Art 14(1) .......................................... 39.01 Art 14(2) .......................................... 39.01 Art 15 ............................................... 41.01 Art 16 ............................................... 41.01 Art 18 ............................................... 45.02 Art 19 ............................................... 46.02 Art 24 ............................................... 44.01 Art 25 .................................... 40.26, 45.03 Art 25(1) .......................................... 40.25 Art 25(2) .......................................... 40.25 Art 26 ........................ 18.17, 44.06, 47.02 Art 27 ............................................... 22.15 Art 28 ................................................. 7.40 Art 29 .................................... 40.04, 40.18 Art 30 ............................ 7.15, 7.40, 16.02 Art 30(2) .......................................... 16.02 Art 30(4) .......................................... 16.02 Art 31 ..... P.03, 3.08, 10.15, 10.16, 10.17, 13.03, 50.05 Art 31(1) ............. P.03, 1.34, 2.19, 10.10, 10.16, 10.17, 17.03 Art 31(2) ............................................ P.03 Art 31(2)(a) ...................................... 10.16 Art 32 .... 1.34, 10.15, 10.16, 47.06, 50.05 Art 33 ........................ 50.02, 50.03, 50.04 Art 33(3) .......................................... 50.04 Art 33(4) .......................................... 50.06 Art 42 ............................................... 47.03

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COMMENTARY ON THE ENERGY CHARTER TREATY Art Art Art Art Art Art Art Art Art

45 ............................................... 47.03 46 ............................................... 47.06 53 ............................................... 16.01 54 ............................................... 47.04 55 ............................................... 47.05 56 ............................................... 47.06 62 ............................................... 47.07 76 ........................ 49.02, 49.03, 49.05 77 ............ 49.02, 49.03, 49.05, 49.06, 49.07 Art 77(2) .......................................... 49.08 Art 80(1) .......................................... 49.10 Art 80(2) .......................................... 49.10 WTO Agreement (Marrakesh Agreement) ....... 1.81, 1.84, 4.03, 4.06, 4.07, 5.10, 5.13, 5.14, 5.20, 5.27, 5.31, 8.32, 8.51, 8.54, 10.54, 22.07, 22.23, 22.24, 23.15, 23.16, 24.13, 25.01, 29.02, 29.05–29.08, 29.15, 30.04, 30.07, 34.32, 35.15, 42.05, 42.06, 48.06

programmes on the environment ................................. 19.06 Directive 2003/55/EC (26 June 2003) Common Rules for the Internal Market in Natural Gas ................ 33.23 Directive 2003/87/EC Emissions Trading Scheme ........................................ 19.09 Directive 2010/75/EU Industrial Emissions .................................... 19.09 Art 3(10) .............................................. 19.21 Directive 2011/92/EU Art 3 ...................................... 19.07, 19.19

GIBRALTAR Constitution, Art. 33(1) (14 December 2006) ............................................ 40.29

KAZAKHSTAN EUROPEAN UNION Directive 85/337/EEC Environmental Impact Assessment, amended several times and later codified by Directive 2011/92/EU ..................... 19.07, 19.15 Directive 94/22/EC, Hydrocarbon Directive Art 2 ...................................... 18.27, 18.28 Art 2(2) ............................................ 18.27 Art 5 ................................................. 18.27 Art 6 ................................................. 18.28 Directive 2001/42/EC Assessment of the effects of certain plans and

Law on Development of Competition and Restriction of Monopolistic Activities, 11 June 1991 ............................... 32.10

SPAIN Civil Procedure (Ley de Enjuiciamiento Civil) Art 271(2) ........................................ 13.15 Law 30/92 Art 2 ................................................. 22.05

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INTRODUCTION1 Rafael Leal-Arcas

The Energy Charter Treaty (ECT) is an international agreement which aims to provide a ‘multilateral framework for energy cooperation’ based on the principles of ‘open, competitive markets and sustainable development’.2 By binding governments to commitments that guarantee open markets, nondiscrimination and access for foreign investment,3 the ECT aims to strengthen the global rule of law on energy issues and thereby reduce the risks associated with energy-related investments and trade.4 The ECT itself rests on five primary areas: investment protection;5 trade;6 transit;7 environmental protection;8 and dispute settlement;9 while there are optional protocols on various topics, including energy efficiency and the environment.10 In 1990, at a European Council meeting in Dublin, Ruud Lubbers, the Dutch Prime Minister, who, at the time, presided over the Council, called for more institutionalized relations with the energy-rich economies in Eurasia following their collapse in order to benefit from their consequent opening-up and orientation towards the global market-based economic order. This led to the adoption of the 1991 European Energy Charter, which is a non-legally binding political declaration embodying key principles of international energy cooperation. The 1991 European Energy Charter paved the way for the

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This introduction draws from R. Leal-Arcas, R. et al., International Energy Governance: Selected Legal Issues, Edward Elgar, 2014, pp. 346–50. For further details, Chapter 6. The Energy Charter Treaty and Related Documents: A Legal Framework for International Energy Cooperation, Brussels: Energy Charter Secretariat, 2004, p. 13. Francis McGowan, ‘Can the European Union’s Market Liberalism Ensure Energy Security in a Time of ‘Economic Nationalism’?’ (2008) 4(2) Journal of Contemporary European Research 90, 97. The Energy Charter Treaty and Related Documents: A Legal Framework for International Energy Cooperation, Brussels: Energy Charter Secretariat, 2004, at 14. Part III of the ECT. Part II of the ECT. Article 7 of the ECT. Article 19 of the ECT. Part V of the ECT. Protocol on Energy Efficiency and Related Environmental Aspects (PEERA), 1994.

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COMMENTARY ON THE ENERGY CHARTER TREATY

negotiation and eventual adoption of the ECT11 and the Energy Charter Process.12 Prior to the advent of the ECT, Western industrialized states attempted to have an energy-sector specific agreement adopted within the context of the General Agreement on Tariffs and Trade (GATT), but this effort ultimately foundered.13 In that sense, the advent of the ECT was a success for multilateralism, given the political difficulties in having such an agreement adopted within the multilateral trade system. The ECT’s fundamental purpose was to promote open energy markets, predicated on, chiefly, investment protection, in the energy-significant, yet economically depressed, Eurasian economies following the geopolitical and geo-economic re-shuffle in Eurasia as a result of the collapse of the Soviet Union. A more critical reading of the ECT and the events that led to its adoption would suggest that, beyond the official rhetoric, its actual aim was to enhance the energy security of developed European economies by, among other things, laying down norms to promote the eventual opening-up of those economies, and their energy sectors, to external exploitation, and to thus promote access for the industries of the developed European economies to the energy resources in those economies.14 In that sense, with such ostensible foundational links to the EU, the ECT regime presents an inherent bias towards EU industrial and energy interests.15 While there is legal equality between ECT parties, the fact that their economies are so disparate means that the benefits of ECT membership – such as investment protection in the energy sectors – are likely to accrue in an asymmetric manner that favours those economies with developed energy exploration (upstream) sectors. The European Communities is a foundational sui juris party to the ECT, as are those EU Member States that were part of the European Communities at the time of the ECT’s adoption.16

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34 ILM 360 (1995). The official historiography is contained in the Final Act of the European Energy Charter Conference. For the official account, see Final Act of the European Energy Charter Conference (Lisbon, 1994) in The Energy Charter Treaty and Related Documents: A Legal Framework for International Energy Cooperation, Brussels: Energy Charter Secretariat, 2004 (at pp. 23–4). The Energy Charter Process is a forum to exchange best practices with third parties and refers to all Energy Charter-related activities. See T. Wälde, T. The Energy Charter Treaty: An East-West Gateway for Investment and Trade, London: Kluwer Law International, 1996, for a fuller analysis on the ECT, its history, and for a more critical perspective. Ibid. For an EU perspective account of the European Energy Charter, the Energy Charter Treaty, and its relationship to the EU, see http://europa.eu/legislation_summaries/energy/external_dimension_enlargement/ l27028_en.htm, accessed 2 July 2018. See for background http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:31998D0181:EN: HTML, accessed 2 July 2018.

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INTRODUCTION

Currently, there are 54 ECT signatories (including each EU Member State and the EU in its own right), out of which four ratifications are still pending (Australia, Belarus, Iceland, and Norway).17 Russia signed the ECT and was applying it provisionally until 18 October 2009, but has not ratified it, arguably because it was concerned about the potential loss of its monopoly access to its vast domestic pipeline network that ratification – and thereby subjection to the non-discrimination principle – would entail.18 Russia notified the Energy Charter Secretariat that it would withdraw from the ECT’s provisional application from that date.19 This has implications for EU energy interests, given the volume of EU-bound energy flows from Russia. Russia’s unwillingness to ratify the ECT, combined with the non-participation of other major economies such as the United States and China, arguably significantly undercuts the ECT’s effectiveness in a globally accepted energy framework from an EU standpoint and from the standpoint of other Western energy-importing economies.20 ECT parties that have ratified may withdraw after the conclusion of the first five years following ratification.21 Additionally, ECT parties that had ratified before communicating their intention to withdraw from the ECT remain bound by ECT investment protection obligations for a further 20 years following withdrawal.22 For those parties who have signed but not ratified the ECT – as in the case of Russia – it is possible to withdraw with effect within a shorter time-frame – namely 60 calendar days.23 While the ECT expressly asserts state sovereignty over natural resources24 – itself a truism under international law25 – it provides robust protection for 17 18

19 20 21 22 23 24 25

Energy Charter Secretariat, ‘Members and Observers’, available at http://www.encharter.org/index.php?id= 61, accessed 2 July 2018. Lars-Christian U. Talseth, ‘The EU-Russia Energy Dialogue: Travelling without moving’ (Working Paper FG 5, German Institute for International and Security Affairs, April 2012) 8; for the exact order by which Russian expressed its intention to discontinue its observance of the ECT, see Government Ordinance 1055-r issued by Prime Minister Putin on July 30 2009; see also generally Andrei Belyi, ‘Russia’s Position on the Energy Charter’ (Chatham House, April 2012). See http://www.encharter.org/index.php?id=61 (accessed 2 July 2018) in relation to membership, pending ratifications, and Russian position. Andrei Belyi, ‘Energy Charter Treaty: Attempting Multilateralism in Energy’ (e-International Relations, July 2013). Article 47 ECT. Ibid. Article 45(3)(a) ECT. Article 18 ECT. See M. Sornarajah, The International Law on Foreign Investment, 2nd ed., Cambridge: CUP 2004, where Sornarajah refers to the notion of permanent sovereignty over natural resources (PSNR) as: ‘[merely] assert[ing] a truism in international law that the sovereignty of a State includes control over all persons, incidents, and substances within a State unless such control has been removed by treaty’ (emphasis added) (at p. 43); in other words, there must be previous state consent for any erosion of PSNR.

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investor interests in the territories of ECT parties.26 It does so by entrenching a legal right to compensation in cases where an ECT party carries out an expropriation or otherwise compromises investor interests in some legally significant manner. The ECT does not necessarily obligate its parties to liberalize their energy markets, it does not mandate inward flows of foreign investment, and it does not obligate its parties to provide energy exploitation contracts to all ECT parties on a non-discriminatory basis.27 However, it does provide disciplines that benefit energy-sector investment interests once these have been welcomed by ECT parties into their territory. In sum, once investments take place within ECT party territories, ECT parties must provide indiscriminate treatment to foreign investors (in other words, they must treat all as if they were investors from their ‘most favoured nation’), and must not discriminate between foreign and domestic investors (in other words, they must provide ‘national treatment’ to foreign investors).

STRUCTURE OF THE BOOK This book is a compilation of chapters written by different authors. Below is a list of the authors and their contributions to this Commentary on the Energy Charter Treaty: + + + + + + + + + + + +

26

27

Introduction: Rafael Leal-Arcas Preamble: Antonio Morelli Article 1: Dylan Geraets and Leonie Reins Article 2: Leonie Reins Articles 3–6: Pierre Serra Article 7: Cătălin Gabriel Stănescu Articles 8–9: Beatriz Huarte Melgar Articles 10–13: Diego Mejía-Lemos Article 14: Francesco Montanaro Article 15: Apurva Mudliar Article 16: Francesco Montanaro Article 17: Apurva Mudliar See Part III ECT (Arts 10–17), which exclusively deals with obligations to protect foreign investment, thus elevating investor interests to legally protected rights flowing from the ECT. These include the right to compensation (Art 12(2) ECT), which embeds the Hull formula of compensation – i.e., that it be ‘prompt, adequate, and efficient’, named after Cordell Hull, the US Secretary of State in 1938, who articulated the US’s position in relation to the expropriations carried out by the Mexican state during the Mexican Revolution of 1910. The ECT also heavily restricts sovereign rights of expropriation so that expropriations may be permissible to the extent they are ECT-compliant (Art 13 ECT). See Final Act of the European Energy Charter Conference (Lisbon, 1994), Part IV (Understandings), in The Energy Charter Treaty and Related Documents: A Legal Framework for International Energy Cooperation, at p. 25.

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Articles 18–19: Peter Vajda and Varvara Aleksić Tina Hunter Articles 20–21: Gloria Alvarez Article 22: Costantino Grasso Tina Hunter Article 23: Costantino Grasso Articles 24–25: Costantino Grasso Gloria Alvarez Article 26: Fernando Dias Simões Articles 27–28: Crina Baltag Article 29: Max Baumgart Articles 30–33: Silke Goldberg, Naomi Lisney and Anne Eckenroth Articles 34–37: Cătălin Gabriel Stănescu Articles 38–41: Odysseas Repousis Articles 42–47: Antonio Morelli Articles 48–50: Leonardo Borlini and Marina Petri Appendix: Andrey A. Konoplyanik

+ + + + + + + + + + + + + +

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PREAMBLE Antonio Morelli

The Contracting Parties to this Treaty, Having regard to the Charter of Paris for a New Europe signed on 21 November 1990; Having regard to the European Energy Charter adopted in the Concluding Document of the Hague Conference on the European Energy Charter signed at The Hague on 17 December 1991; Recalling that all signatories to the Concluding Document of the Hague Conference undertook to pursue the objectives and principles of the European Energy Charter and implement and broaden their co-operation as soon as possible by negotiating in good faith an Energy Charter Treaty and Protocols, and desiring to place the commitments contained in that Charter on a secure and binding international legal basis; Desiring also to establish the structural framework required to implement the principles enunciated in the European Energy Charter; Wishing to implement the basic concept of the European Energy Charter initiative which is to catalyse economic growth by means of measures to liberalize investment and trade in energy; Affirming that Contracting Parties attach the utmost importance to the effective implementation of full national treatment and most favoured nation treatment, and that these commitments will be applied to the Making of Investments pursuant to a supplementary treaty; Having regard to the objective of progressive liberalization of international trade and to the principle of avoidance of discrimination in international trade as enunciated in the General Agreement on Tariffs and Trade and its Related Instruments and as otherwise provided for in this Treaty; 6

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Determined progressively to remove technical, administrative and other barriers to trade in Energy Materials and Products and related equipment, technologies and services; Looking to the eventual membership in the General Agreement on Tariffs and Trade of those Contracting Parties which are not currently parties thereto and concerned to provide interim trade arrangements which will assist those Contracting Parties and not impede their preparation for such membership; Mindful of the rights and obligations of certain Contracting Parties which are also parties to the General Agreement on Tariffs and Trade and its Related Instruments; Having regard to competition rules concerning mergers, monopolies, anticompetitive practices and abuse of dominant position; Having regard also to the Treaty on the Non-Proliferation of Nuclear Weapons, the Nuclear Suppliers Guidelines and other international nuclear non-proliferation obligations or understandings; Recognizing the necessity for the most efficient exploration, production, conversion, storage, transport, distribution and use of energy; Recalling the United Nations Framework Convention on Climate Change, the Convention on Long-Range Transboundary Air Pollution and its protocols, and other international environmental agreements with energyrelated aspects; and Recognizing the increasingly urgent need for measures to protect the environment, including the decommissioning of energy installations and waste disposal, and for internationally-agreed objectives and criteria for these purposes, HAVE AGREED AS FOLLOWS:

COMMENTARY The Energy Charter (ECT) is a multilateral treaty, provided with binding P.01 force, to secure long-term cooperation in the energy field between the Contracting Parties. 7

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P.02 With its preamble, the ECT provides a framework for its interpreters, stating the principal goals of the agreement and picturing the international background that inspires it. Not only does the ECT seek inter-governmental cooperation in the energy sector, but also it fosters the development in energy-related spheres, as investment protection, trade regulation, energy transit and efficiency, environmental protection and dispute resolution. P.03 In international treaty law, a preamble to a treaty serves as a key for interpretation. The Vienna Convention on the Law of Treaties of 19691 (VCLT) provides a clear framework, defining in Article 312 the general rules. Article 31(1) states 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) narrows down the context, as it shall include its preamble, for the purpose of the interpretation of a treaty. Therefore, it is paramount for interpreters to picture a treaty in its context and to use the preamble as their bearing.3 P.04 The individual paragraphs of the ECT preamble are listed below: Having regard to the Charter of Paris for a New Europe signed on 21 November 1990; Having regard to the European Energy Charter adopted in the Concluding Document of the Hague Conference on the European Energy Charter signed at The Hague on 17 December 1991; Recalling that all signatories to the Concluding Document of the Hague Conference undertook to pursue the objectives and principles of the European Energy Charter and implement and broaden their cooperation as soon as possible by negotiating in good faith an Energy Charter Treaty and Protocols, and desiring to place the commitments contained in that Charter on a secure and binding international legal basis; P.05 Since from the early 1990s, Eastern and Western Europe Countries have discussed strategies to secure energy cooperation in the region. On the one hand, Eastern European Countries, along with Russia, were experiencing a 1 2 3

Vienna Convention on the Law of Treaties, see Vienna Convention on the Law of Treaties (1969), 1155 UN Treaty Ser. 331, 339. VCLT, Art 31 (‘General rule on interpretation’). The object and purpose of a treaty are usually embedded in its preamble. See generally Barry E. Carter and Allen S. Weiner, International Law, 86 (Wolters Kluwer, Aspen Casebook Series, 6th ed. 2011); see also United States Nationals in Morocco, ICJ Reports, 183, 184 (1952).

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PREAMBLE

copious energy supply, but with no investment opportunities. On the other hand, Western European Countries were trying to foster diversification in their energy supply chain, with a look to their neighbouring countries. This geopolitical framework sparked an inter-State dialogue to create a commonly accepted ground for energy cooperation that led to the signature of the Energy Charter Treaty in December 1994, and its entry into force in April 1998.4 Desiring also to establish the structural framework required to implement the principles enunciated in the European Energy Charter; Wishing to implement the basic concept of the European Energy Charter initiative which is to catalyse economic growth by means of measures to liberalise investment and trade in energy; Affirming that Contracting Parties attach the utmost importance to the effective implementation of full national treatment and most favoured nation treatment, and that these commitments will be applied to the Making of Investments pursuant to a supplementary treaty; The European Energy Charter of 1991 represents a stepping stone in the P.06 process of the adoption of the ECT. Even if the latter was not a binding document, it allowed developing the guidelines and the general principles that currently provide the ECT with a solid architecture. Among them, the ECT aspires to economic growth, along with liberalization of investments and trade in energy, aiming at the implementation of full national treatment and most-favoured-nation treatment. Having regard to the objective of progressive liberalisation of international trade and to the principle of avoidance of discrimination in international trade as enunciated in the Agreement Establishing the World Trade Organization and as otherwise provided for in this Treaty; Determined progressively to remove technical, administrative and other barriers to trade in Energy Materials and Products and Energy-Related Equipment, technologies and services; Looking to the eventual membership in the World Trade Organization of those Contracting Parties which are not currently members thereof and 4

See Kaj Hobér, ‘The Energy Charter Treaty, An Overview’, (June 2007) 8(3) The Journal of World Investment & Trade 323, 324, reconstructing the historical background that allowed the signature of the ECT and its related Protocols.

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concerned to provide interim trade arrangements which will assist those Contracting Parties and not impede their preparation for such membership; Mindful of the rights and obligations of certain Contracting Parties which are also members of the World Trade Organization; P.07 In 1998, with the progressive corroboration of the World Trade Organization (WTO)5 system in the international arena, ECT Contracting Parties decided to harmonize the ECT regime with WTO standards, approving the so-called Trade Amendment. Based on the principles of non-discrimination, transparency and a commitment to the progressive liberalisation of international trade, the Trade Amendment fostered the evolution of the ECT in line with rules and practices of WTO. Moreover, this process has revealed to be particularly relevant in easing the conditions for ECT Contracting Parties to obtain a WTO membership. Having regard to competition rules concerning mergers, monopolies, anticompetitive practices and abuse of dominant position; Having regard also to the Treaty on the Non-Proliferation of Nuclear Weapons, the Nuclear Suppliers Guidelines and other international nuclear non-proliferation obligations or understandings; Recognising the necessity for the most efficient exploration, production, conversion, storage, transport, distribution and use of energy; Recalling the United Nations Framework Convention on Climate Change, the Convention on Long-Range Transboundary Air Pollution and its protocols, and other international environmental agreements with energyrelated aspects; and Recognising the increasingly urgent need for measures to protect the environment, including the decommissioning of energy installations and waste disposal, and for internationally-agreed objectives and criteria for these purposes, 5

The WTO is the only global international organization dealing with the rules of trade between nations. Recently the WTO Director-General Roberto Azevêdo upheld that there are several areas where the WTO and the Energy Charter ‘can work more closely together to improve governance’, in order to ease access to energy and foster sustainability. See ‘Azevêdo seeks further cooperation with Energy Charter to support access to energy’, in WTO News, available online at: https://www.wto.org/english/news_e/spra_e/spra55_e.htm, [accessed 5 February 2018].

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PREAMBLE

Pictured in the historical framework of the first half of the 1990s, the last part P.08 of the preamble echoes the most salient topics in the international agenda of that time. First of all, it upholds the respect to competition standards, which, in those P.09 years, had a primary rule in the Maastricht Treaty of 1992,6 enhancing fair and equitable conditions within the Community. Second, it brings into analysis the Treaty on the Non-Proliferation of Nuclear P.10 Weapons, which still represents the only binding multilateral treaty that commits to nuclear weapons’ disarmament. Even if the Treaty was opened for signature in 1968, and entered into force in 1970, it went through a long negotiation process, until it was extended indefinitely in the mid-90s.7 Third, the United Nations Framework Conventions on Climate Change P.11 (UNFCCC), started in 1994, is recalled as it represents a global framework to give a twist on climate change.8 Since then, the Convention has acquired a solid role in international policymaking, setting ad hoc principles in international climate negotiations, within an integrated process of multilateral management.9 Similarly, the ECT recalls the Convention on Long-Range Transboundary P.12 Air Pollution, into force since 1983, as it intends to protect the human environment against air pollution. It aims at developing policies and strategies to combat the discharge of air pollutants through its gradual reduction and prevention, including at long-range transboundary level.

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Title V of the Maastricht Treaty regulated ‘Common Rules on Competition, Taxation and Approximation of Law’. European Union, Treaty on European Union (Consolidated Version), Treaty of Maastricht , 7 February 1992, OJ, C 325/5; 24 December 2002, available at: http://www.refworld.org/docid/3ae6b39218. html [accessed 5 February 2018]. On 11 May 1995, at the NPT Review and Extension Conference, the Treaty was extended indefinitely. Today, 191 States have joined the Treaty, including the five nuclear-weapon States. The information is available online at: https://www.un.org/disarmament/wmd/nuclear/npt/ [accessed 5 February 2018]. The United Nations Climate Change Convention (UNFCCC) today is composed by 197 parties, including the major contributors to climate change, and it represents a global framework for the whole international community. Information available at: http://unfccc.int/2860.php [accessed 5 February 2018]. See Jenni Kauppila, ‘Transnational Advocacy Networks in International Climate Policy, The Challenge of Raising the Voices of the Marginalised Effectively Without Compromising their Legitimacy’, in Thoko Kaime (ed.) International Climate Change Law and Policy: Cultural Legitimacy in Adoption and Mitigation, 138, 138 (Routledge, 2014).

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P.13 Pictured in this framework, the interpretation of the ECT is to be carried out following endogenous and exogenous elements of the energy sector. Hence, the agreement seeks to secure energy requirements between its Contracting Parties, in line with the goals and priorities of the international agenda, both in the UN and EU context.

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Part I DEFINITION AND PURPOSE

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ARTICLE 1 DEFINITIONS Dylan Geraets and Leonie Reins*

As used in this Treaty: (1)

(2)

(3)

(4)

(5)

(6)

*

‘Charter’ means the European Energy Charter adopted in the Concluding Document of the Hague Conference on the European Energy Charter signed at The Hague on 17 December 1991; signature of the Concluding Document is considered to be signature of the Charter. ‘Contracting Party’ means a state or Regional Economic Integration Organization which has consented to be bound by this Treaty and for which the Treaty is in force. ‘Regional Economic Integration Organization’ means an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters. ‘Energy Materials and Products’, based on the Harmonized System of the Customs Co-operation Council and the Combined Nomenclature of the European Communities, means the items included in Annex EM. ‘Economic Activity in the Energy Sector’ means an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises. ‘Investment’ means every kind of asset, owned or controlled directly or indirectly by an Investor and includes: (a) tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;

All websites referred to in the chapter were active as at 15 January 2018.

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(b) a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise; (c) claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment; (d) Intellectual Property; (e) Returns; (f) any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector. A change in the form in which assets are invested does not affect their character as investments and the term ‘Investment’ includes all investments, whether existing at or made after the later of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the ‘Effective Date’) provided that the Treaty shall only apply to matters affecting such investments after the Effective Date. ‘Investment’ refers to any investment associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party in its Area as ‘Charter efficiency projects’ and so notified to the Secretariat. (7)

(8)

(9)

‘Investor’ means: (a) with respect to a Contracting Party: (i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law; (ii) a company or other organization organized in accordance with the law applicable in that Contracting Party; (b) with respect to a ‘third state’, a natural person, company or other organization which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party. ‘Make Investments’ or ‘Making of Investments’ means establishing new Investments, acquiring all or part of existing Investments or moving into different fields of Investment activity. ‘Returns’ means the amounts derived from or associated with an Investment, irrespective of the form in which they are paid, including profits, dividends, interest, capital gains, royalty payments, management, technical assistance or other fees and payments in kind. 15

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(10) ‘Area’ means with respect to a state that is a Contracting Party: (a) the territory under its sovereignty, it being understood that territory includes land, internal waters and the territorial sea; and (b) subject to and in accordance with the international law of the sea: the sea, sea-bed and its subsoil with regard to which that Contracting Party exercises sovereign rights and jurisdiction. With respect to a Regional Economic Integration Organization which is a Contracting Party, Area means the Areas of the member states of such Organization, under the provisions contained in the agreement establishing that Organization. (11) (a) ‘GATT’ means ‘GATT 1947’ or ‘GATT 1994’, or both of them where both are applicable. (b) ‘GATT 1947’ means the General Agreement on Tariffs and Trade, dated 30 October 1947, annexed to the Final Act Adopted at the Conclusion of the Second Session of the Preparatory Committee of the United Nations Conference on Trade and Employment, as subsequently rectified, amended or modified. (c) ‘GATT 1994’ means the General Agreement on Tariffs and Trade as specified in Annex 1A of the Agreement Establishing the World Trade Organization, as subsequently rectified, amended or modified. A party to the Agreement Establishing the World Trade Organization is considered to be a party to GATT 1994. (d) ‘Related Instruments’ means, as appropriate: (i) agreements, arrangements or other legal instruments, including decisions, declarations and understandings, concluded under the auspices of GATT 1947 as subsequently rectified, amended or modified; or (ii) the Agreement Establishing the World Trade Organization including its Annex 1 (except GATT 1994), its Annexes 2, 3 and 4, and the decisions, declarations and understandings related thereto, as subsequently rectified, amended or modified. (12) ‘Intellectual Property’ includes copyrights and related rights, trademarks, geographical indications, industrial designs, patents, layout designs of integrated circuits and the protection of undisclosed information. (13) (a) ‘Energy Charter Protocol’ or ‘Protocol’ means a treaty, the negotiation of which is authorized and the text of which is adopted by the Charter Conference, which is entered into by two or more Contracting Parties in order to complement, supplement, extend or 16

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amplify the provisions of this Treaty with respect to any specific sector or category of activity within the scope of this Treaty, or to areas of co-operation pursuant to Title III of the Charter. (b) ‘Energy Charter Declaration’ or ‘Declaration’ means a nonbinding instrument, the negotiation of which is authorized and the text of which is approved by the Charter Conference, which is entered into by two or more Contracting Parties to complement or supplement the provisions of this Treaty. (14) ‘Freely Convertible Currency’ means a currency which is widely traded in international foreign exchange markets and widely used in international transactions.’

COMMENTARY Introduction Article 1 of the Energy Charter Treaty (ECT), entitled ‘Definitions’, contains 1.01 a list of definitions of terms that are used throughout the ECT. This is the first article of Part I, entitled ‘Definitions and Purpose’. The ECT was adopted in the Final Act of the European Energy Charter Conference and is contained in Annex 1 to the Final Act of the European Energy Charter Conference. The Final Act also adopted certain understandings in respect to the ECT, including Understanding 2 and 3. At the outset of this commentary it should be noted that Understandings are not part of the ECT and cannot be used to extend or modify the definitions provided for in Article 1. However, the Charter Conference made clear that they ‘are part of the overall political package when setting the conditions for accession to the ECT’.1 This commentary is based on all English language decisions of arbitral 1.02 tribunals that were available in January 2018. Considering the length of Article 1, including its various Understandings, the text of the provision is split into subparagraphs that are discussed one after the other. 1.03

A. Part I: Definitions and Purpose 1. Article 1: Definitions

‘As used in this Treaty: 1

Energy Charter Secretariat (2002), The Energy Charter Treaty – A Reader’s Guide, 85 pp., at 61 (Available at https://is.muni.cz/el/1422/jaro2017/MVV2368K/um/ECT_Guide_ENG.pdf) (hereinafter: ‘ECT Reader’s Guide’).

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(1)

‘Charter’ means the European Energy Charter adopted in the Concluding Document of the Hague Conference on the European Energy Charter signed at The Hague on 17 December 1991; signature of the Concluding Document is considered to be signature of the Charter.’

1.04 Article 1(1) defines ‘Charter’ as the European Energy Charter (EEC) signed in The Hague in December 1991. The proposal for a European Energy Community had been launched by Dutch Prime Minister Ruud Lubbers at a European Council meeting in Dublin in June 1990.2 1.05 Initially, the Charter was signed by 49 States and the EU. Currently, 54 States adhere to the EEC.3 The signing of the Charter represented a milestone in the process towards the conclusion of the ECT in 1994, as the signing of the EEC included a commitment to negotiate, in good faith, a legally binding ECT.4 All signatories of the Charter are observers to the Energy Charter Conference (ECC). Signatories of the Charter which are also signatories of or Contracting Parties to the Energy Charter Treaty are Members of the Energy Charter Conference.5 Signing the Charter is a prerequisite for accession to the 1994 Energy Charter Treaty. 1.06 The Charter is a political declaration for cooperation in the energy sector, based on the following principles:6 + + + + +

State sovereignty and sovereign rights over energy resources non-discrimination and market-oriented price formation spirit of political and economic cooperation development of an efficient energy market throughout Europe, and a better functioning global market due account of environmental concerns.

1.07 The EEC was the starting point for the negotiations on the ECT which started in 1992. The ECT was signed in Lisbon on 17 December 1994, and entered into force on 16 April 1998, after the 30th ratification by signatories.7 The tribunal in Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic found that, based on the text of the Preamble to the ECT, it can be 2 3 4

5 6 7

Ibid., 7. See https://energycharter.org/who-we-are/members-observers/. Energy Charter Secretariat (2016), The International Energy Charter – Consolidated Energy Charter Treaty with Related Documents, Last Updated: 15 January 2016, Foreword, 2. Available at https:// energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf (hereinafter: ‘Consolidated ECT’). See supra note 4 for an overview. Art 1, European Energy Charter. ECT Reader’s Guide , 67.

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concluded that ‘the scope of the (non-binding) European Energy Charter of 17 December 1991 was replicated in binding form in the ECT’.8 Although being officially called the ‘European Energy Charter’, the scope and 1.08 focus is global. Australia, Japan and Russia, as well as five Central Asian States (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan) are all founding members of the Energy Charter and Treaty.9 The tribunal in Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic also briefly considered the issue of whether disputes arising between EU Member States would be excluded from the scope of the ECT. The tribunal found that: [t]here is no indication of any inter se exclusion in the Charter, which refers to a ‘new desire for a European-wide and global co-operation based on mutual respect and confidence', and further refers to the ‘support from the European Community, particularly through completion of its internal energy market' (Preamble, paras 6, 14). The EC and Euratom were signatories to the Charter. This was of course before the Treaty of Maastricht, let alone the Lisbon Treaty.10

Hence, the tribunal, based on several additional arguments, concluded that ‘the European Member States remain ‘Contracting Parties’ and that the ECT does create inter se obligations for European Member States’.11 In 2009 a modernization process of the Energy Charter Process was launched 1.09 which resulted in the adoption of the political declaration of an International Energy Charter on 20 May 2015. The declaration reflects the ‘global modern energy challenges and maps out common principles and areas of international cooperation in the field of energy for the 21st Century’.12 (2)

‘Contracting Party’ means a state or Regional Economic Integration Organisation which has consented to be bound by this Treaty and for which the Treaty is in force.

Article 1(2) defines the term ‘Contracting Party’. A Contracting Party can be 1.10 either a State or a Regional Economic Integration Organisation (REIO), such as the EU. To become a Contracting Party: (a) the State or REIO has to give its ‘consent to be bound’ by the ECT; and (b) the ECT has to have entered into force in the territory of the State or REIO. 8 9 10 11 12

Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No. ARB/14/3, Award, 27 December 2016, 280. ECT Reader’s Guide, 11. Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, supra note 8, 280. Ibid., 284. Consolidated ECT, 2.

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1.11 At the time of writing there are 54 Contracting Parties to the ECT, including the EU. Some countries have signed the Treaty but not yet ratified it (Australia, Norway and the Russian Federation); others, such as Belarus, apply the ECT on a provisional basis.13 According to the definition, the Treaty must be in force in order to be a Contracting Party. In the absence of domestic ratification a Treaty will not yet have entered into force. In other words, States such as Australia which have signed but not yet ratified the ECT are not yet a Contracting Party to the ECT.14 However, such States are signatories to the ECT and hence a Member of the ECC. The status of ratification of the ECT can be consulted on the ECT’s website.15 There have also been States that have withdrawn from the ECT. Italy is a prominent example. On 31 December 2014 Italy notified the Depository of its withdrawal from the ECT. Under Article 47, paragraph 2 of the ECT, any such withdrawal takes effect upon the expiry of one year after the date of the receipt of the notification by the Depositary. Therefore, the withdrawal from the ECT by the Italian Republic took effect on 1 January 2016. 1.12 There are essentially two distinct categories within the institutional framework of the ECC: members and observers. All signatories and Contracting Parties to the ECT are, by definition, members of the ECC. All signatories of the EEC (1991) are observers to the ECC. Signatories of the EEC which are also signatories of or Contracting Parties to the ECT are members of the ECC. 1.13 The distinction between ‘consent to be bound’ and the Treaty being ‘in force’ for a State was considered by the Permanent Court of Arbitration (PCA) in Yukos Universal Ltd (Isle of Man) v. Russian Federation. The PCA held: That there is a distinction between consenting to be bound provisionally by the treaty and, on the other hand, the treaty being ‘in force’ for a State is also clear from the definition of ‘Contracting Party’ in Article 1(2) of the ECT. As used in the ECT, ‘Contracting Party’ means ‘a state or Regional Economic Integration Organization which has consented to be bound by this Treaty and for which the Treaty is in force.’ The use of the conjunction ‘and’ between the clauses ‘which has consented to be bound by this Treaty’ and ‘for which the Treaty is in force’ means that there must be circumstances, in the eyes of the parties to the ECT, including the Russian Federation, where a State for which the ECT is not ‘in force,’ has nevertheless consented to be bound by its terms.16

13 14 15 16

https://energycharter.org/who-we-are/members-observers/countries/belarus/. https://energycharter.org/who-we-are/members-observers/countries/australia/. https://energycharter.org/who-we-are/members-observers/. Yukos Universal Ltd (Isle of Man) v. Russian Federation, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 385.

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The tribunal in Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian 1.14 Republic observed that: Article 1(2) of the ECT defines ‘Contracting Party' as ‘a state or Regional Economic Integration Organization which has consented to be bound by this Treaty and for which the Treaty is in force. EU Member States and the EU are all Contracting Parties. Prima facie at least, a treaty applies equally between its parties. It would take an express provision or very clear understanding between the negotiating parties to achieve any other result. Thus when Great Britain was asserting ‘the diplomatic unity of the British Empire', it was argued from time to time that multilateral treaties to which the Dominions were separately parties had no inter se application. The inter se doctrine was not however accepted, being unsupported by express provision or clear understanding to the contrary.

(3)

‘Regional Economic Integration Organisation’ means an organization constituted by states to which they have transferred competence over certain matters a number of which are governed by this Treaty, including the authority to take decisions binding on them in respect of those matters.

The definition of a REIO has mostly been developed through decisions and 1.15 awards by tribunals dealing with disputes. In this regard the decision on jurisdiction, applicable law and liability of the tribunal in Electrabel S.A. v. Republic of Hungary is particularly instructive. The tribunal observed that ‘[i]t is commonly understood that the European Union was and remains such a Regional Economic Integration Organisation (‘REIO’)’.17 As such, ‘[t]he framework of the ECT recognizes that the EU Member States will be legally bound by decisions of the European Union under EU law’.18 Moreover; [a]s regards protection under the ECT, investors can have had no legitimate expectations in regard to the consequences of the implementation by an EU Member State of any such decision by the European Commission’. Thus, according to the tribunal, ‘the possible interference with a foreign investment through the implementation by an EU Member State of a legally binding decision of the European Commission was and remains inherent in the framework of the ECT itself.19

However the mere fact that the EU is party to the ECT does not mean that 1.16 the EU Member States do not have competence to enter into inter se

17 18 19

Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012, para. 4.142. Ibid. Ibid.

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obligations in the Treaty.20 Instead, the ECT seems to contemplate that there would be overlapping competences. But nothing in Article 1, nor any other provision in the ECT, suggests that the EU Member States had then transferred exclusive competence for all matters of investment and dispute resolution to the EU.21 In this regard the tribunal in Eiser Infrastructure Ltd and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain observed that ‘the Treaty of Lisbon, transferring to the EU exclusive competence in the field of investment protection, was not signed until December 2007’.22 (4)

‘Energy Materials and Products’, based on the Harmonised System of the World Customs Organization and the Combined Nomenclature of the European Communities, means the items included in Annexes EM I or EM II.15

1.17 The definition of ‘Energy Materials and Products’ refers to the items listed in Annexes EM I or EM II.15.23 Only the items listed in the Annexes are covered by the Treaty. Annex EM I refers back to Article 1(4) of the ECT and lists as Energy Materials and Products: +

+

+

nuclear energy (uranium, radioactive chemical elements and heavy water) (Chapter 26 and 28 of the HS); coal, natural gas, petroleum, petroleum products, and electrical energy (Chapter 27 of the HS); and other energy materials and Products, such as fuel wood and wood charcoal (Chapter 44 of the HS).

1.18 Annex EM II does not contain any items. The original negotiations were based on the 1992 version of the Harmonized System Nomenclature (HS), whereas the negotiations for the amendment to the Trade-Related Provisions (Trade Amendment) were based on the 1996 version of the HS. This is the reason that Annex EM I uses four- to six-digit HS codes to identify products. As the HS has been updated several times since the original negotiations, the Energy Charter Secretariat has issued a correspondence table adapting the Annexes to the HS changes.24

20 21 22 23 24

Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, supra note 8, 280. Ibid. as well as Eiser Infrastructure Ltd and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017, 190. Eiser Infrastructure Ltd, ibid. Annex EM I replaces Annex EM in the original Treaty text. Available at https://energycharter.org/fileadmin/DocumentsMedia/Legal/Correspondence_table_-_HS_ nomenclature.pdf.

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(4bis) ‘Energy-Related Equipment’, based on the Harmonised System of the World Customs Organization, means the items included in Annexes EQ I or EQ II.16 The definition of ‘Energy-Related Equipment’ refers to the items listed in 1.19 Annexes EQ I or EQ II.16. Only the items listed in the Annexes are covered by the Treaty. Annex EQ I contains as Energy-Related Equipment, for example: self-adhesive plates, sheets, film, foil, tape, strip and other flat shapes, of plastics, whether or not in rolls; tubes, pipes and hollow profiles, seamless, of iron; reservoirs, tanks, vats and similar containers for any material.

+

+ +

Annex EQ I covers products from HS Chapters 39, 73, 76, 78, 81–85, 87, 1.20 89–90. Annex EQ II does not list any items. The original negotiations were based on the 1992 version of the HS, whereas 1.21 the negotiations for the amendment to the Trade Amendment were based on the 1996 version of the HS. As the HS has been updated several times since the original negotiations, the Energy Charter Secretariat has issued a correspondence table adapting the Annexes to the HS changes.25 (5)

‘Economic Activity in the Energy Sector’ means an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises.

The definition of ‘Energy Activity in the Energy Sector’ encompasses an 1.22 economic activity relating to the ‘exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of energy materials and products’ and is hence broad in its scope. Explicitly excluded are those products and materials that are listed in Annex NI on ‘Non-Applicable Energy Materials and Products for Definitions of ‘Economic Activity in the Energy Sector’. These are for example oils and other products of the distillation of high temperature; certain types of Fuel wood and Wood charcoal.

25

Available at ibid.

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1.23 The tribunal in Electrabel S.A. v. Republic of Hungary has held in this regard that: [i]t is clear from the ordinary meaning of the term that electricity generation constitutes an economic activity in the energy sector. Furthermore, in accordance with the definition contained in Article 1(5) ECT and the provisions of Annex EM paragraph 27.16 ECT and Annex NI ECT, the activities of ‘production’ and ‘sale’ of ‘electrical energy’ as ‘energy materials’ also constitute an ‘economic activity in the energy sector’.26

1.24 In addition, Understanding Nr. 2 includes a non exhaustive list of economic activities in the energy sector. It clarifies that the Treaty is only applicable to economic activities in the energy sector.27 1.25 The tribunal in Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic clarified that regarding section (b)(ii) of the Understanding, the words ‘construction and operation’ do not impose a cumulative requirement.28 Otherwise, the tribunal considered, ‘an investor purchasing an already constructed plant would not be covered’.29 Further, the preparatory phase of a project is over ‘once an active process of construction of an energy project involving substantial resources is commenced’.30 The project then also qualifies as an investment under Article 1(6),31 as further discussed below. The Understanding reads: [UNDERSTANDING With respect to Article 1(5) (a) (b)

26 27 28 29 30 31

It is understood that the Treaty confers no rights to engage in economic activities other than Economic Activities in the Energy Sector. The following activities are illustrative of Economic Activity in the Energy Sector: (i) prospecting and exploration for, and extraction of, e.g., oil, gas, coal and uranium; (ii) construction and operation of power generation facilities, including those powered by wind and other renewable energy sources;

Electrabel S.A. v. Republic of Hungary, supra note 17, para. 5.50. Ibid., para. 5.47. Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, supra note 8, para. 263. Ibid., para. 263. Ibid. Ibid.

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(iii) land transportation, distribution, storage and supply of Energy Materials and Products, e.g., by way of transmission and distribution grids and pipelines or dedicated rail lines, and construction of facilities for such, including the laying of oil, gas, and coalslurry pipelines; (iv) removal and disposal of wastes from energy related facilities such as power stations, including radioactive wastes from nuclear power stations; (v) decommissioning of energy related facilities, including oil rigs, oil refineries and power generating plants; (vi) marketing and sale of, and trade in Energy Materials and Products, e.g., retail sales of gasoline; and (vii) research, consulting, planning, management and design activities related to the activities mentioned above, including those aimed at Improving Energy Efficiency.] The tribunal in Limited Liability Company Amto v. Ukraine held that ‘[t]he 1.26 drafters of the Energy Charter Treaty did not require an Investment to be an Economic Activity in the Energy Sector, but only to be “associated with” such an activity’, thereby adopting a rather broad interpretation of the term ‘economic activity’.32 This is arguably in line with the wording of the provision. Moreover The Arbitral Tribunal considers that the interpretation of the words ‘associated with' involves a question of degree, and refers primarily to the factual rather than legal association between the alleged investment and an Economic Activity in the Energy Sector. A mere contractual relationship with an energy producer is insufficient to attract ECT protection where the subject matter of the contract has no functional relationship with the energy sector. The open-textured phrase ‘associated with' must be interpreted in accordance with the object and purpose of the ECT, as expressed in Article 2. The associated activity of any alleged investment must be energy related, without itself needing to satisfy the definition in Article 1(5) of an Economic Activity in the Energy Sector.33

(6)

‘Investment’ means every kind of asset, owned or controlled directly or indirectly by an Investor and includes:

Key to any investment treaty is the definition of ‘Investment’. Importantly for 1.27 the purpose of the ECT is the relationship to the energy sector. The ECT 32 33

Limited Liability Company Amto v. Ukraine, Arbitration No. 080/2005, Final Award, 26 March 2008, para. 42. Ibid.

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Secretariat has put forward that the scope of the ECT encompasses ‘Investment Associated with Economic Activity in the Energy Sector covering certain Energy Materials and Products.’34 1.28 Article 1(6) of the ECT provides that an ‘Investment’ means ‘every kind of asset’ that is ‘owned or controlled’ ‘directly or indirectly’ by an ‘investor’, and then provides a list of possible investments. The definition of an ‘investor’ is provided in Article 1(7). Therefore, the main component of Article 1(6) is the establishment of what constitutes an asset. The ECT provides a broad, non-exhaustive, definition of an investment.35 The definition of asset is broad and non-exhaustive, and includes: + + + +

+ + +

tangible and intangible, moveable and immovable property; shares, stocks, or other forms of equity participation in a company; bonds and other debt of a company; claims to money and claims to performance pursuant to a contract having an economic value associated with an investment; intellectual property; returns; any right conferred by law, contract or licence.

1.29 The element of ‘control’ is further defined in Understanding Nr. 3. It covers both equity interests of the investor and the ability to exercise substantial influence over the company. The ECT Reader’s Guide further provides that ‘the definition extends to any investment “associated with” an economic activity in the energy sector’ and that the ‘term “associated with” implies that it includes not only the establishment of an energy company as such (e.g., a refinery), but also investments indirectly linked to economic activity in the energy sector (e.g., office space associated with a refinery)’. 36 1.30 The tribunal in Plama Consortium Ltd v. Republic of Bulgaria clarified that the broad definition, as including ‘any right conferred by law or contract’ extends to ‘a contractual or property right even if it were defeasible’.37 1.31 The tribunal in AES Summit Generation Ltd and AES-Tisza Erömü Kft. v. Republic of Hungary confirmed that ‘the investments protected by the ECT 34 35 36 37

ECT Reader’s Guide, at 20. Ibid. Ibid., 20–21. Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, para. 128.

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include those made before the entry into force of this Treaty, provided that it shall only apply to matters affecting such investments after the Effective Date’.38 In Alapli Elektrik B.V. v. Republic of Turkey the tribunal relied upon arbitra- 1.32 tions under the ICSID Convention in order to obtain guidance on the interpretation of the ‘admittedly spare definitions of ‘investor’ and ‘investment’ under […] the ECT’.39 The tribunal observed that; [i]n the words of the Salini tribunal, ‘[t]he doctrine generally considers that the investment infers: contributions, a certain duration of performance of the contract and a participation in the risks of the transaction. In reading the Convention’s preamble, one may add the contribution to the economic development of the host State of the investment as an additional condition. In reality, these various elements may be interdependent. Thus, the risks of the transaction may depend on the contributions and the duration of performance of the contract.40

Thereby distinguishing the following elements: contributions; a certain duration of performance of the contract; and a participation in the risks of the transaction.

+ + +

By contrast, the tribunal in Anatolie Stati, Gabriel Stati, Ascom Group S.A. and 1.33 Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan referred to Article 1(6) as providing an ‘extremely broad’ definition and contrasted it with the ICSID Convention. Since the latter does not contain a definition of ‘investment’ it ‘needs further interpretation as regularly done by ICSID tribunals’. However, according to the tribunal the: [g]uidelines and tests of criteria developed in this jurisprudence on the ICSID Convention and similar treaties, therefore, cannot be used as long as any right or activity is clearly covered by the wording of the above definition in ECT cases. Therefore, the so-called Salini test, controversial and much discussed both by the Parties in this case and otherwise in ICSID and similar arbitrations, even if applied as a flexible guideline rather than as a strict jurisdictional requirement, cannot be used for the definition of investment under the ECT or, likewise, in the present case.41 38 39 40 41

AES Summit Generation Ltd and AES-Tisza Erömü Kft. v. Republic of Hungary, ICSID Case No. ARB/07/ 22, Award, 23 September 2010, para. 6.4.1. Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Excerpts of Award, 16 July 2012, para. 382. Ibid., para. 383. Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan, SCC Case No. V116/2010, Award, 19 December 2013, para. 806. (emphasis added).

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1.34 The tribunal further observed that there was no need to refer to the supplementary means of interpretation as provided for under Article 32 of the Vienna Convention on the Law of Treaties (VCLT), as the interpretation under Article 31.1 VCLT clearly did not leave the meaning of the term ‘investment’ ambiguous or obscure nor lead to a result which is manifestly absurd or unreasonable. This was the result of the fact that the ECT provides for a ‘wide and highly detailed above definition of “investment”’.42 Finally, the tribunal observed that, considering the ‘extremely detailed definition of investment’ in the ECT, there was no ground for finding that an investment could somehow be considered ‘illegal’.43 1.35 The tribunal in Veteran Petroleum Ltd (Cyprus) v. Russian Federation considered whether nominal legal ownership of an asset by an ‘Investor’ is sufficient to establish ownership of an ‘Investment’ under Article 1(6). In a lengthy paragraph the tribunal observed that: the ECT, by its terms, applies to an ‘Investment’ owned nominally by a qualifying ‘Investor,’ and that nothing more is required. Respondent’s submission that simple legal ownership of shares does not qualify as an Investment under Article 1(6)(b) of the ECT finds no support in the text of the Treaty. The breadth of the definition of Investment in the ECT is emphasized by many eminent legal scholars. […] The Tribunal reads Article 1(6)(b) of the ECT as containing the widest possible definition of an interest in a company, including shares (as in the case at hand), with no indication whatsoever that the drafters of the Treaty intended to limit ownership to ‘beneficial’ ownership.44

1.36 In an obiter dicta, the tribunal nevertheless proceeded to set out its views on the questions of beneficial ownership and control. It rejected the argument that in order for an investment to meet the definition of Article 1(6) it needs ‘an injection of foreign capital’.45 1.37 Finally, in RREEF Infrastructure (G.P.) Ltd and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain the tribunal considered that there is nothing in the ECT that says that there can only be one investor for each investment. As the tribunal observed ‘[t]he very concept of indirect ownership or control presupposes that there is interposed between a claimant 42 43 44 45

Ibid., para. 807. Ibid., para. 812. Veteran Petroleum Ltd (Cyprus) v. Russian Federation, PCA Case No. 228, Interim Award on Jurisdiction and Admissibility, 30 November 2009, para. 477. Ibid., para. 488.

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that is an indirect owner or controller and the investment one or more other owners and controllers through which the claimant owns or controls the investment’.46 (a)

tangible and intangible, and movable and immovable, property, and any property rights such as leases, mortgages, liens, and pledges;

The tribunal in Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf 1.38 Trans Traiding Ltd v. Republic of Kazakhstan considered that the claimants had tangible and intangible holdings, including ownership of oil and gas wells, drilling equipment, gathering pipelines, treatment and storage facilities, vehicles, offices, an LPG Plant, equity interests, and contractual rights. According to the tribunal, ‘[t]hese are encompassed by the subcategories (a), (b), (c), (e), and (f) of Art. 1(6) ECT and, further, by the language ‘any investment associated with an economic activity in the energy sector’ for the purpose of Art. 1(6)’.47 The oil and gas wells, drilling equipment, gathering pipelines, treatment and storage facilities, vehicles, offices, an LPG Plant presumably qualify as either movable and/or immovable tangible property. (b)

a company or business enterprise, or shares, stock, or other forms of equity participation in a company or business enterprise, and bonds and other debt of a company or business enterprise;

The tribunal in Ioannis Kardassopoulos v. Georgia considered that ‘the indirect 1.39 ownership of shares […] constitutes an ‘investment’ under […] the ECT’.48 In Veteran Petroleum Ltd (Cyprus) v. Russian Federation the respondent unsuc- 1.40 cessfully submitted that simple legal ownership of shares does not qualify as an Investment under Article 1(6)(b) of the ECT.49 According to the tribunal, Article 1(6)(b) ECT contains ‘no indication whatsoever that the drafters of the Treaty intended to limit ownership to ‘beneficial’ ownership’.50 Finally, in Mohammad Ammar Al-Bahloul v. Republic of Tajikistan the tribunal 1.41 considered that ‘the Energy Charter Treaty protects not only directly, but also 46 47 48 49 50

RREEF Infrastructure (G.P.) Ltd and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June 2016, para. 142. Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan, supra note 41, para. 808. Ioannis Kardassopoulos v. Georgia, ICSID Case No. ARB/05/18, Decision on Jurisdiction, 6 July 2007, para. 124. Veteran Petroleum Ltd (Cyprus), supra note 44, para. 477. Ibid.

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indirectly, owned or controlled investments’ and ‘applies to assets held through an intermediary company in a non-ECT State’.51 (c)

claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment;

1.42 The tribunal in Mohammad Ammar Al-Bahloul v. Republic of Tajikistan considered that certain agreements that, even though they still required the issuance of a license to give effect to exploration and exploitation rights, gave the claimant a contractual right to the issuance of these necessary licenses. Therefore, according to the tribunal ‘they may be considered as ‘claims to performance pursuant to contract having an economic value and associated with an Investment ’ pursuant to Article 1(6)(c) of the ECT’.52 1.43 The tribunal in Electrabel S.A. v. Republic of Hungary considered the meaning of the phrase ‘associated with an investment’ in Article 1(6) of the ECT. It found that this phrase constitutes a ‘limitation’ on the notion of investment. In the dispute, the parties then disagreed on whether and to what extent this limitation gives rise to circularity in the ECT’s definition of ‘investment’.53 The tribunal, relying upon the rules of treaty interpretation as contained in the VCLT, held that ‘the correct interpretation must give effect to the terms in their context and avoid obscure results’. Accordingly, ‘as a matter of common sense, it is necessary to understand ‘investment’ in sub-paragraph (c) to mean an investment other than the one addressed in this same sub-paragraph’. Based on this reasoning the tribunal considered that ‘the rights arising out of the Power Purchasing Agreement (PPA) needed to be associated with the Claimant’s overall investment’.54 1.44 In Petrobart Ltd v. Kyrgyz Republic the tribunal observed that ‘the wording “claims to money and claims to performance pursuant to contract having an economic value and associated with an Investment” presents certain ambiguities’.55 The tribunal held that: [i]n particular, it is not entirely clear whether the words ‘pursuant to contract having an economic value and associated with an Investment’ or parts of these words – ‘having

51 52 53 54 55

Mohammad Ammar Al-Bahloul v. Republic of Tajikistan, SCC Case No. V064/2008, Partial Award on Jurisdiction and Liability, 2 September 2009, para. 142. Ibid., para. 139. Electrabel S.A. v. Republic of Hungary, supra note 17, para. 5.52. Ibid., para. 5.53. Petrobart Ltd v. Kyrgyz Republic, ARB No. 126/2003, Arbitral Award, 29 March 2005, para. VIII.6.28.

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an economic value and associated with an Investment’ or ‘associated with an Investment’ – relate only to ‘claims to performance’ or also to ‘claims for money’. If we assume that at least the terms ‘associated with an Investment’ also relate to ‘claims for money’, we are faced with the logical problem that the term ‘Investment’ is not only the term to be defined but is also used as one of the terms by which ‘Investment’ is defined. This means that the definition is in reality a circular one which raises a logical problem and creates some doubt about the correct interpretation.56

Ultimately the tribunal deferred to Article 1(6)(f) to circumvent this problem of circularity and concluded that there was in fact an investment.57 In State Enterprise ‘Energorynok’ (Ukraine) v. Republic of Moldova the tribunal 1.45 considered whether the Agreement on the Parallel Operation of the Energy Systems of Ukraine and Moldova (APO) constituted evidence of the existence of an investment. It relied on, inter alia, the aforementioned findings by the tribunals in Electrabel and in Petrobart. The APO related to the transportation, distribution and supply of energy materials and products by way of transmission and distribution grids. The tribunal considered that the APO conferred ‘a right to undertake an economic activity concerning the transit of electricity in the host State’. According to the tribunal, this activity ‘constitutes an Investment according to the ECT’.58 The tribunal then however went on to consider that the claimant did not have 1.46 any role in the economic activity carried out under the APO. The tribunal agreed that ‘ECT Article 1(6) requires the Investor to own or control the asset’. It then raised the question whether the claimant only needs to own or control the claim to money or whether he must rather have some ownership or control, directly or indirectly, of the Investment to which the claim of money, as per ECT Article 1(6)(c), must be related. The tribunal referred to the third Understanding (discussed below) and found that ‘[w]here there is doubt as to whether an Investor controls, directly or indirectly, an Investment, an Investor claiming such control has the burden of proof such control exists’.59 The tribunal considered, inter alia, the following factual considerations to support its ultimate conclusion that although the claimant had acquired a debt (or was authorized to collect a debt), it did not acquire an Investment under the ECT:

56 57 58 59

Ibid. Ibid., para. VIII.6.30. State Enterprise ‘Energorynok’ (Ukraine) v. Republic of Moldova, SCC Case No. V (2012/175), Final Award, 29 January 2015, para. 81. Ibid., para. 89.

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+

+

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the claimant offered no proof that it had any financial or equity interest in the economic activity it claimed its Investment arose out of; the claimant had no ability to exercise substantial influence of the management and operation of the transmission of electricity under the APO; and the claimant had no right to exercise any influence over the selection of members of the board of directors or any other managing body involved in the transmission of electricity to Moldova under the APO.60

1.47 Based on this finding, the tribunal concluded that it had no jurisdiction over the dispute.61 (d) Intellectual Property; 1.48 Investments can take the form of intellectual property rights. Intellectual property is defined in Article 1(12) and further discussed below. It includes copyrights as well as industrial property. (e)

Returns;

1.49 Returns can take the form of intellectual property rights. The notion of return is defined in Article 1(9) and further discussed below. Returns include the amounts derived from or associated with an Investment, irrespective of the form in which they are paid, including profits, dividends, interest, capital gains, royalty payments, management, technical assistance or other fees and payments in kind. (f)

any right conferred by law or contract or by virtue of any licences and permits granted pursuant to law to undertake any Economic Activity in the Energy Sector.

1.50 The tribunal in Plama Consortium Ltd v. Republic of Bulgaria clarified that the broad definition, as including ‘any right conferred by law or contract’ extends to ‘a contractual or property right even if it were defeasible’.62 1.51 In Electrabel S.A. v. Republic of Hungary the tribunal considered whether a PPA constituted a right conferred by law or contract as referred to in Article 1(6)(f) ECT. It held that the PPA constitutes a commercial agreement to 60 61 62

Ibid., paras 90–92. Ibid., para. 102. Plama Consortium Ltd v. Republic of Bulgaria, supra note 37, para. 128.

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undertake the sale and distribution of electricity, which constitutes an economic activity in the energy sector.63 The tribunal in Mohammad Ammar Al-Bahloul v. Republic of Tajikistan consid- 1.52 ered that ‘[s]ince the exercise of the exploration and exploitation rights’ still required the issuance of a license, they could not be considered to constitute ‘rights conferred by law’ for the purpose of Article 1(6)(f) of the ECT. However, this did not prevent the tribunal from ultimately finding that they may be ‘considered as claims to performance pursuant to contract having an economic value and associated with an Investment’ pursuant to Article 1(6)(c) of the ECT’.64 ‘A change in the form in which assets are invested does not affect their character as investments and the term ‘Investment’ includes all investments, whether existing at or made after the later of the date of entry into force of this Treaty for the Contracting Party of the Investor making the investment and that for the Contracting Party in the Area of which the investment is made (hereinafter referred to as the ‘Effective Date’) provided that the Treaty shall only apply to matters affecting such investments after the Effective Date.’ This second subparagraph of Article 1(6) was interpreted by the tribunal in 1.53 Ioannis Kardassopoulos v. Georgia, which focused on the term ‘Effective Date’. The tribunal had to answer the following question: ‘whether, for the purposes 1.54 of the definition of ‘Effective Date’ in Article 1(6) of the ECT, the date from which the ECT became provisionally applicable is to be treated as its ‘date of entry into force’.65 The tribunal found ‘that the language used in Article 1(6), particularly its use of the term ‘entry into force’, is to be interpreted as meaning the date on which the ECT became provisionally applicable for Georgia and Greece’.66 Thus, for the purpose of Article 1(6) the date of provisional application of the ECT can be seen as the date of its entry into force, according to the tribunal.

63 64 65 66

Electrabel S.A. v. Republic of Hungary, supra note 17, para. 5.57. Mohammad Ammar Al-Bahloul v. Republic of Tajikistan, supra note 51, para. 139. Ioannis Kardassopoulos v. Georgia, supra note 48, para. 221. Ibid., para. 223.

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‘Investment’ refers to any investment associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party in its Area as ‘Charter efficiency projects’ and so notified to the Secretariat. 1.55 The tribunal in Limited Liability Company Amto v. Ukraine held that ‘the interpretation of the words “associated with” involves a question of degree, and refers primarily to the factual rather than legal association between the alleged investment and an Economic Activity in the Energy Sector’. Hence, the tribunal concluded that ‘[a] mere contractual relationship with an energy producer is insufficient to attract ECT protection where the subject matter of the contract has no functional relationship with the energy sector’.67 [UNDERSTANDING With respect to Article 1(6) For greater clarity as to whether an Investment made in the Area of one Contracting Party is controlled, directly or indirectly, by an Investor of any other Contracting Party, control of an Investment means control in fact, determined after an examination of the actual circumstances in each situation. In any such examination, all relevant factors should be considered, including the Investor’s (a) (b) (c)

financial interest, including equity interest, in the Investment; ability to exercise substantial influence over the management and operation of the Investment; and ability to exercise substantial influence over the selection of members of the board of directors or any other managing body. Where there is doubt as to whether an Investor controls, directly or indirectly, an Investment, an Investor claiming such control has the burden of proof that such control exists.]

[DECLARATION With respect to Article 1(6) The Russian Federation wishes to have reconsidered, in negotiations with regard to the supplementary treaty referred to in Article 10(4), the question of the importance of national legislation with respect to the issue of control as expressed in the Understanding to Article 1(6).] 1.56 Article 1(6) of the ECT contains an Understanding that provides further background on the term ‘controlled directly or indirectly’ as used in the first part of that provision. In Eskosol S.p.A. in liquidazione v. Italian Republic the 67

Limited Liability Company Amto v. Ukraine, supra note 32, para. 42.

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tribunal used the Understanding to interpret the meaning of the term ‘foreign control’ as used in Article 25(2)(b) of the ECT.68 The tribunal observed that ‘[i]t is significant that in the non-exhaustive list of three “relevant factors” identified in the Understanding, the first listed is “financial interest, including equity interest, in the Investment”’ at the same time, the Tribunal noted, ‘this is not the exclusive criterion for – and therefore not conclusive proof of – control for purposes of the ECT’. It noted that the Understanding in paragraphs (b) and (c) provides two other ‘relevant factors’ that should be taken into consideration when examining whether there is control over an Investment for the purpose of the ECT.69 (7)

‘Investor’ means:

Article 1(7) of the ECT defines the term ‘Investor’. According to sub- 1.57 paragraphs 1(7)(a)(i) and 1(7)(a)(ii), an investor is either a natural person having the citizenship or nationality of, or permanently residing in, a contracting party in accordance with its applicable law; or a company or other organization organized in accordance with the law applicable in that contracting State. In Khan Resources Inc, Khan Resources B.V. and CAUC Holding Co Ltd v. 1.58 Government of Mongolia the tribunal considered the question whether Article 17(1) of the ECT constitutes an automatic denial of benefits. In answering this question in the negative, the tribunal observed that ‘Article 1(7) of the ECT contains a broad definition of what counts as an ‘Investor’ for purposes of the Treaty’.70 Thus, according to the tribunal, ‘[i]f Article 17(1) were to provide for an automatic denial of benefits, it would effectively create an exception to this broad definition. Such exception would more logically be found within the definition at Article 1(7) itself’.71 In Alapli Elektrik B.V. v. Republic of Turkey, the tribunal made clear that in 1.59 order to be considered an ‘Investor’ for the purpose of the ECT it is not sufficient to merely be ‘a national of the other contracting state’. What is required, according to the tribunal is that the person in question actually

68 69 70 71

Eskosol S.p.A. in liquidazione v. Italian Republic, ICSID Case No. ARB/15/50, Decision on Respondent’s Application Under Rule 41(5), 20 March 2017, para. 101. Ibid., para. 102. Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v. Government of Mongolia, UNCITRAL, Decision on Jurisdiction, 25 July 2012, para. 420. Ibid., para. 420.

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makes an investment, ‘in the sense of an active (meaningful) contribution’.72 The tribunal further considered that ‘[a]s a Dutch corporation, Claimant might otherwise have fallen within the range of entities eligible for consideration as Investors under the Netherlands-Turkey BIT, the ECT and the ICSID Convention’.73 The tribunal observed however that, ‘to establish status of an Investor, such as to create jurisdiction pursuant to these investment treaties, something more is required than simple incorporation under Dutch law’.74 According to the tribunal, ‘[w]ithout an actual contribution to some Turkish investment, however, the Dutch incorporation creates no entitlement to protection as an Investor subject to the jurisdiction of this Tribunal’.75 In this sense, it appears that the tribunal introduced an element of an ‘activity’ into the term ‘investor’. The term was interpreted as meaning a person that ‘actively contributes’ in a ‘meaningful’ manner. 1.60 The tribunal in RREEF Infrastructure (G.P.) Ltd and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain dealt with the question whether there can be only one ‘investor’ per investment. The tribunal answered this negatively when it observed that ‘[t]he very concept of an indirect investor and an indirect investment contains within it the concept that here will be a chain of ownership and control that involve more than one entity’.76 Based on the fact that the first claimant indirectly controlled and the second claimant indirectly owned and controlled the relevant assets, the tribunal concluded that they constituted ‘investors’ under the ECT.77 1.61 Finally, in Limited Liability Company Amto v. Ukraine the tribunal used Article 1(7) to come to a definition of the term ‘third state’. It found that the term ‘is not defined in the ECT, but is used in Article 1(7) in contradistinction to ‘Contracting Party', which suggests that a third state is any state that is not a Contracting Party to the ECT’.78

72 73 74 75 76 77 78

Alapli Elektrik B.V. v. Republic of Turkey, ICSID Case No. ARB/08/13, Excerpts of Award, 16 July 2012, paras 349–350. Ibid., para. 355. Ibid., para. 356. Ibid., paras 356–358. RREEF Infrastructure (G.P.) Ltd and RREEF Pan-European Infrastructure Two Lux S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/30, Decision on Jurisdiction, 6 June 2016, para. 142. (emphasis added). Ibid., para. 147. Limited Liability Company Amto v. Ukraine, supra note 32, para. 62

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(a)

with respect to a Contracting Party: (i) a natural person having the citizenship or nationality of or who is permanently residing in that Contracting Party in accordance with its applicable law;

In Cem Cengiz Uzan v. Republic of Turkey the tribunal was faced with a 1.62 claimant that sought to invoke the status of ‘permanently residing in’ in order to establish the jurisdiction of the tribunal.79 The tribunal observed that the claimant must satisfy the tribunal that he is an investor. The tribunal made the following observation in respect of Article 1(7)(a)(i): Turning to the wording of Article 1(7)(a)(i), there are three ways in which a natural person may qualify as an Investor: (1) having the nationality of, or (2) having the citizenship of, or (3) permanently residing in a Contracting Party to the ECT in accordance with its applicable law. The first two requirements have an identical meaning and can be considered as one. There is no dispute that the Claimant is a national of the Republic of Turkey, and that he does not hold nationality or citizenship of any other country, or any other Contracting Party to the ECT.80

Thus, the tribunal was faced with the task of determining whether ‘the 1.63 element of “permanently residing in that Contracting Party’ entitles an Investor, without more, to commence an arbitration against a Contracting Party of which he or she is a national or citizen’.81 Importantly, the tribunal observed that: While under general international law nationality may be a stronger link than ‘permanently residing in,’ the Tribunal is satisfied that the ECT does not on its face seek to create a hierarchical relationship between the criteria of nationality and permanently residing. The wording of Article 1(7)(a)(i) appears to be broad in scope. Without having to examine the preparatory works of the ECT, it is clear that its ‘object and purpose’ was to create a wide expanding energy framework for the ease and encouragement of international energy investments. As has been evidenced in these proceedings, the Contracting Parties to the ECT address the issues of nationality, citizenship and permanent residence in different ways. The inclusion of ‘permanently residing’ appears to have been intended to give protection to investors who may not meet the often strict requirements for nationality and citizenship, as defined by a particular Contracting Party.82

79 80 81 82

Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Award on Respondent Bifurcated Preliminary Objection, 20 April 2016, paras 133–134. Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Award on Respondent Bifurcated Preliminary Objection, 20 April 2016, para. 139. Ibid., para. 140. Ibid.

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1.64 Importantly for the purpose of the dispute, the claimant also had to establish that he was an ‘Investor of another Contracting Party’ or ‘an international Investor’ by virtue of Article 26(1).83 The tribunal considered that there are a factual and a legal component to the ‘permanently residing’ criterion: Starting with the latter, there is no dispute that this operates a renvoi to the domestic law of the Contracting Party. The Tribunal must look to the domestic law of the Contracting Party in question to determine whether the Claimant qualifies as permanently residing in that country in accordance with that law. However, determinations by domestic authorities, while highly persuasive, are not absolutely determinative, and the Tribunal is authorized to examine the underlying facts in order to determine whether the Claimant has permanently resided there in accordance with the applicable domestic law. Regarding the factual component, the Tribunal decides that the structure of the wording ‘permanently residing’ implies that there must also be a determination that an Investor was actually living permanently in the territory of the Contracting Party. This is obvious from the ordinary and natural meaning of the text.84

1.65 Ultimately the tribunal considered that the claimant was unable to meet the permanently residing criterion.85 Co-Arbitrator Philippe Sands QC issued a declaration expressing support for the finding of the tribunal that it did not have jurisdiction over the claim because the claimant was not ‘an investor of another Contracting Party’ within the meaning of Article 26 ECT.86 He however considered that it was not necessary for the tribunal to have made a factual finding as to whether the claimant had in fact been ‘permanently residing in’ France.87 In the declaration the Co-Arbitrator further indicated that the claimant ‘was not – at the time of making the investment or at the time when the alleged interference was said to have occurred or commenced – a ‘natural person having the citizenship or nationality of or who is permanently residing in’ another Contracting Party’. The Co-Arbitrator further observed that the ECT: is not a treaty that is intended to protect the international flow of national investors of a Contracting Party who have already made an investment and thereafter, by reason of their circumstances, decide to (or are forced to) relocate to another Contracting Party. The ECT is not akin to a human rights treaty of the kind that does provide certain protections in such circumstances.88 83 84 85 86 87 88

Ibid., para. 146. Ibid., para. 156. Ibid., para. 189. Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Declaration of Philippe Sands, 20 April 2016, para. 1. Ibid., para. 3. Ibid., para. 2.

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(ii) a company or other organisation organised in accordance with the law applicable in that Contracting Party; In Veteran Petroleum Ltd (Cyprus) v. Russian Federation the PCA stated that it 1.66 agreed with Professor Crawford that ‘in order to qualify as a protected Investor under Article 1(7) of the ECT, a company is merely required to be organized under the laws of a Contracting Party’.89 As Professor Crawford rightly points out: ‘The Treaty imposes no further requirements with respect to shareholding, management, siège social or location of its business activities (…). Companies incorporated in Contracting Parties are embraced by the definition, regardless of the nationality of shareholders, the origin of investment capital or the nationality of directors or management.’90 The tribunal further juxtaposed Article 1(7) with Article 21 of the ILC Draft Articles on International Responsibility of the State for Injuries Caused in its Territory to the Person or Property of Aliens and found that the former is more comprehensive and naturally cast than the latter.91 In State Enterprise ‘Energorynok’ (Ukraine) v. Republic of Moldova the tribunal 1.67 agreed that ECT Article 1(7) does not preclude a government agency from being an Investor.92 Finally, in Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans 1.68 Traiding Ltd v. Republic of Kazakhstan the tribunal accepted the nationality of investors based on identification cards and passports. Moreover, the tribunal accepted the status of another investor based on a Certificate of Incorporation of the investor in Moldova. Based on these documents the tribunal accepted that the claimants were investors and that it had jurisdiction.93 (b)

with respect to a ‘third state’, a natural person, company or other organisation which fulfils, mutatis mutandis, the conditions specified in subparagraph (a) for a Contracting Party.

89

Veteran Petroleum Ltd (Cyprus) v. Russian Federation, supra note 44, para. 411. The tribunal quoted Professor Crawford in James Crawford, SC, Energy Charter Treaty Arbitration: Jurisdiction Issues, 22 June 2006, para. 126: [t]he Treaty imposes no further requirements with respect to shareholding, management, siège social or location of its business activities (…). Companies incorporated in Contracting Parties are embraced by the definition, regardless of the nationality of shareholders, the origin of investment capital or the nationality of directors or management.

90 91 92 93

Ibid. Ibid., para. 413. State Enterprise ‘Energorynok’ (Ukraine) v. Republic of Moldova, supra note 58, para. 79. Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan, supra note 41, paras 741–745.

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1.69 In Libananco Holdings Co Ltd v. Republic of Turkey the tribunal confirmed that the term ‘third state’ should be interpreted as a ‘state that is not a Contracting Party’.94 (8)

‘Make Investments’ or ‘Making of Investments’ means establishing new Investments, acquiring all or part of existing Investments or moving into different fields of Investment activity.

1.70 The definition of ‘make investment’ in Article 1(8) provides that making investments should be interpreted in a broad way. It does not only include new investments but also acquiring parts or an entire existing investment and also changing the field of an investment activity. It aims at extending the nondiscriminatory treatment principle once an investment has been made to the ‘post-establishment phase’.95 1.71 This becomes apparent when reading the definition together with the first sentence of Article 10(1) ECT. Article 10 ECT includes the obligations regarding the promotion, protection and treatment of Investments. Contracting Parties have the obligation to ‘encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area'. Foreign investors hence ‘would have been on equal legal footing with their domestic competitors in the host country when applying for an investment authorisation or any other kind of permission necessary for their establishment’.96 This interpretation of making investments is also based on the second sentence of Article 10(1) and is confirmed by the tribunal in Plama Consortium Ltd v. Republic of Bulgaria.97 1.72 Moreover, in Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic the tribunal stated that Article 10(1) second sentence stipulates ‘that the stable conditions to be created under the first sentence ‘shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment'.98

94 95 96 97 98

Libananco Holdings Co Ltd v. Republic of Turkey, ICSID Case No. ARB/06/8, Award, 2 September 2011, para. 552. ECT Reader’s Guide, at 21. See also Plama Consortium Ltd v. Republic of Bulgaria, supra note 37, para. 172. ECT Reader’s Guide, at 21. Plama Consortium Ltd v. Republic of Bulgaria, supra note 37, para. 172. Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, supra note 8, para. 315. (emphasis in original).

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Although based on the Turkey-United States BIT and not on the ECT, the 1.73 award of the tribunal in PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret LtdSirketi v. Republic of Turkey provides valuable guidance in this regard. The tribunal found a ‘breach of the fair and equitable treatment (‘FET’) standard by reference to the ‘roller-coaster’ effect of the continuing legislative changes’.99 According to the tribunal ‘[t]his is particularly the case of the requirements relating, in law or practice, to the continuous change in the conditions governing the corporate status of [a project], and the constant alternation between private law status and administrative concessions that went back and forth’.100 The tribunal, ‘while emphasising the relevance of the changing attitudes and policies of the administration, concluded that ‘[s]tability cannot exist in a situation where the law kept changing continuously and endlessly, as did its interpretation and implementation.'101 Understanding 4 with respect to Article 1(8) provides that [UNDERSTANDING With respect to Article 1(8) Consistent with Australia’s foreign investment policy, the establishment of a new mining or raw materials processing project in Australia with total investment of $A 10 million or more by a foreign interest, even where that foreign interest is already operating a similar business in Australia, is considered as the making of a new investment.] The understanding thus establishes a minimum threshold for investments in 1.74 Australia’s new mining and raw materials processing projects. Investments with total investment of $A 10 million or more by a foreign interest qualify as making an investment. It clarifies that this is also the case even in cases where that foreign interest is already operating a similar business in Australia. (9)

‘Returns’ means the amounts derived from or associated with an Investment, irrespective of the form in which they are paid, including profits, dividends, interest, capital gains, royalty payments, management, technical assistance or other fees and payments in kind.

99

PSEG Global, Inc., The North American Coal Corporation, and Konya Ingin Electrik Üretim ve Ticaret Limited Sirketi v. Republic of Turkey, ICSID Case No. ARB/02/5, para. 250. Ibid. Ibid., para. 254.

100 101

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1.75 Article 1(9) of the ECT has not yet been the subject of dispute settlement proceedings. The provision defines ‘Returns’ as covering amounts derived from or associated with an Investment, irrespective of the form in which they are paid, including profits, dividends, interest, capital gains, royalty payments, management, technical assistance or other fees and also returns/ payments in kind. As per the definition of Article 1(6) of the ECT, a ‘return’ can in itself also constitute an investment for the purpose of the ECT. 1.76 Article 14(1)(b) on transfers related to investments specifies that each Contracting Party shall with respect to investments in its area of investors of any other Contracting Party guarantee the freedom of transfer into and out of its area, including the transfer of returns. Article 14(2) ECT specifies that these transfers shall be effected without delay and (except in case of a Return in kind) in a Freely Convertible Currency (see also Article 1(14) below). Even though the issue of returns were not of direct concern in dispute settlement proceedings as yet, the tribunal in Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan clarified that reinvesting profits is also an investment, as Article 14(1) ECT allowed the Claimants to ‘take the ‘Returns’ […] and to distribute them as dividends or to spend or invest them as they saw fit’.102 (10) ‘Area’ means with respect to a state that is a Contracting Party: (a) the territory under its sovereignty, it being understood that territory includes land, internal waters and the territorial sea; and (b) subject to and in accordance with the international law of the sea: the sea, sea-bed and its subsoil with regard to which that Contracting Party exercises sovereign rights and jurisdiction. With respect to a Regional Economic Integration Organisation which is a Contracting Party, Area means the Areas of the member states of such Organisation, under the provisions contained in the agreement establishing that Organisation. 1.77 Article 1(10) provides an explicit definition of the term ‘Area’. The definition of an area of a State that is a Contracting Party includes the land, internal waters and the territorial sea. The tribunal in Libananco Holdings Co. Ltd v. Republic of Turkey found that ‘Area’ […] is a term of art, defined in Article 1(10), and includes the land and maritime territory of a Contracting Party’.103 In Mohammad Ammar Al-Bahloul v. Republic of Tajikistan the tribunal 102 103

Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan, supra note 41, para. 809. Libananco Holdings Co Ltd v. Republic of Turkey, supra note 93, para. 550.

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observed that ‘[i]t is evident that all investments at sites located within the territory of a Contracting Party constitute Investments in the “Area” of the Contracting Party’.104 For a definition of the term ‘territorial sea’ one has to refer to Article 2 of the 1.78 United Nations Convention on the Law of the Sea (‘UNCLOS’).105 According to that provision, ‘[t]he sovereignty of a coastal State extends, beyond its land territory and internal waters and, in the case of an archipelagic State, its archipelagic waters, to an adjacent belt of sea, described as the territorial sea’. Article 2.2 of the UNCLOS provides that ‘[t]his sovereignty extends to the air space over the territorial sea as well as to its bed and subsoil’. There are limits to the territorial sea introduced by Articles 3–16 of the UNCLOS. Article 1(10) ECT defines the concept of territory by referring to both the 1.79 territory of the Contracting Parties, as well as the territory of REIO, such as the EU.106 The tribunal in Charanne B.V. and Construction Investments S.A.R.L. v. Kingdom of Spain found that ‘Article 1(10) of the ECT, in order to define the concept of “area” refers to both the territory of the Contracting States (Article 1(10)(a)) and the EU territory (Article 1(10) second paragraph)’.107 Accordingly, so the tribunal reasoned, ‘it appears reasonable to deduce that, in referring to investments made “in the territory” of a contracting party, Article 26(1) refers to both, in the case of a EU member State, to the territory of a national State as well as the territory of the EU’.108 In respect of the definition of the territory of the EU, Article 52 of the Treaty 1.80 on European Union (‘TEU’) provides that: The Treaties shall apply to the Kingdom of Belgium, Republic of Bulgaria, the Czech Republic, the Kingdom of Denmark, the Federal Republic of Germany, the Republic of Estonia, Ireland, the Hellenic Republic, the Kingdom of Spain, the French Republic, the Italian Republic, the Republic of Cyprus, the Republic of Latvia, the Republic of Lithuania, the Grand Duchy of Luxembourg, the Republic of Hungary, the Republic of Malta, the Kingdom of the Netherlands, the Republic of Austria, the Republic of Poland, the Portuguese Republic, Romania, the Republic of Slovenia, the

104 105 106 107 108

Mohammad Ammar Al-Bahloul v. Republic of Tajikistan, supra note 51, para. 140. Available at http://www.un.org/depts/los/convention_agreements/texts/unclos/unclos_e.pdf. Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, supra note 8, para. 236. Charanne B.V. and Construction Investments S.A.R.L. v. Kingdom of Spain, SCC Case No. 062/2012, Award, 21 January 2016, unofficial translation by Mena Chambers, para. 430. Ibid.

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Slovak Republic, the Republic of Finland, the Kingdom of Sweden and the United Kingdom of Great Britain and Northern Ireland.109

The territorial scope of the Treaties is specified in Article 355 of the Treaty on the Functioning of the European Union (‘TFEU’).110 The Faroe Islands, Greenland, French overseas territories, Netherlands Antilles are not part of the Territory of the EU. Guadeloupe, French Guiana, Martinique, Réunion, Saint-Barthélemy, Saint-Martin, the Azores, Madeira and the Canary Islands however form part of the European territories in accordance with Article 349 of the TFEU.111 (11) (a) ‘WTO’ means the World Trade Organization established by the Agreement Establishing the World Trade Organization. (b) ‘WTO Agreement’ means the Agreement Establishing the World Trade Organization, its Annexes and the decisions, declarations and understandings related thereto, as subsequently rectified, amended and modified from time to time. Annex W: Exceptions and Rules Governing the Application of the Provisions of the WTO Agreement (in accordance with article 29(2)(A)) (c) ‘GATT 1994’ means the General Agreement on Tariffs and Trade as specified in Annex 1A to the Agreement Establishing the World Trade Organization, as subsequently rectified, amended or modified from time to time. 1.81 Article 1(11) of the ECT defines the terms ‘WTO’, ‘WTO Agreement’ and ‘GATT 1994’. It confirms the close relationship between the ECT regime and the World Trade Organization (‘WTO’) (Article 1(11)(a)). 1.82 The Energy Charter Secretariat confirms this close relationship as it states that [o]ne of the necessary conditions for forging open and non-discriminatory energy markets through the Energy Charter process has been to create a stable, predictable and non-discriminatory regime for energy and energy-related trade between all 52 ECT Contracting Parties (‘CPs’)/signatories. Such a framework should naturally follow and be based on the rules of the multilateral trading system as embodied in the 109 110 111

European Union, Treaty on European Union, available at http://eur-lex.europa.eu/legal-content/EN/TXT/ ?uri=celex%3A12012M%2FTXT. European Union, Consolidated version of the Treaty on the Functioning of the European Union, available at http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12012E%2FTXT. See also for an overview https://ec.europa.eu/taxation_customs/business/vat/eu-vat-rules-topic/territorialstatus-eu-countries-certain-territories_en.

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General Agreement on Tariffs and Trade (‘GATT’) – when the ECT was negotiated between 1991 and 1994 – and now in the World Trade Organisation (‘WTO’).112

The ECT regime and the regime laid down by the GATT 1994 (as defined in 1.83 Article 1(11)(c)) are closely connected. The ECT also found a way through which to deal with transactions between ECT Contracting Parties that were already a party to the GATT and those that were not. This was done by making the substantive GATT rules applicable to such transactions (‘GATT by reference’ – Art. 29)’.113 The ECT therefore has the effect of treating those Contracting Parties which are not members of the WTO, as if they were WTO members – in the framework of energy-related trade. Indeed, ‘the ECT trade regime will have fulfilled its purpose once all member countries have also become members of the WTO’.114 Three years after the entry into force of the WTO Agreement, the ECT was 1.84 amended in order to take account of the relevant changes in the multilateral trade rules resulting from the Uruguay Round that had led to the creation of the WTO. The amendment has taken the same approach as the original Treaty: it incorporated all those WTO rules on trade in goods that are relevant from a sectoral viewpoint (‘WTO by reference’).115 ‘On 24 April 1998, the International Conference of the Parties to the Energy 1.85 Charter adopted a new instrument, which amended the Treaty (the so-called ‘Trade Amendment’). It replaced the GATT provisions of the ECT with those of the WTO.’116 It is beyond the scope of this commentary to discuss the relationship between the ECT and the provisions of the WTO in detail.117 It should be noted that ‘[t]he integration of GATT rules was done using the legal technique known as ‘incorporation by reference’, i.e., declaring the applicability of the GATT through an Annex’.118 The Annex is a ‘negative list’ stating the provisions of GATT that are not applicable in ECT’.119

112 113 114 115 116 117

118 119

ECT Reader’s Guide, at 12. Ibid. Ibid., at 13. Ibid., at 12. Ibid., at 14. Reference is made to the explanation relating to ‘The Trade Amendment (TA) of the Energy Charter Treaty’ (‘Explanations relating to the Trade Amendment (TA) of the Energy Charter Treaty’). Available at https://energycharter.org/fileadmin/DocumentsMedia/Thematic/Trade_Amendment_Explanations-EN. pdf. Explanations relating to the Trade Amendment (TA) of the Energy Charter Treaty, p. 2. Ibid.

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(12) ‘Intellectual Property’ includes copyrights and related rights, trademarks, geographical indications, industrial designs, patents, layout designs of integrated circuits and the protection of undisclosed information. [UNDERSTANDING With respect to Article 1(12) The representatives recognise the necessity for adequate and effective protection of Intellectual Property rights according to the highest internationally-accepted standards.] 1.86 Article 1(12) provides a definition of the term ‘intellectual property’. Title II of the EEC states that ‘the signatories will ensure that the international rules on the protection of industrial, commercial and intellectual property are respected’.120 This is again reflected in Article 8(1) ECT on transfer of technology. Intellectual property also qualifies as an ‘investment’ according to the definition of that term provided in Article 1(6)(d). 1.87 The definition includes two categories of intellectual property, namely industrial property such as patents, trademarks, industrial designs and geographical indications, as well as copyrights which covers amongst others literal and artistic work. The understanding with regard to Article 1(12) further specifies that the protection of intellectual property rights is to be carried out adequately and effectively, according to the highest international standards. 1.88 The Joint Declaration on Trade-Related Intellectual Property Rights on the amendment to the trade-related provisions of the ECT re-confirms this commitment of the signatories and specifies that for the purpose of this Declaration property rights are ‘in particular copyright and related rights (including computer programmes and data bases), trademarks, geographical indications, patents, designs, topographies of semiconductor products and undisclosed information’.121 The definition included in the amendment is therefore slightly different than the one of the ECT itself. It is more detailed in that it explicitly specifies that copyrights and related rights include ‘computer programmes and databases’ and further explicitly includes ‘topographies of semiconductor products’ into the definition.

120 121

Title II: Implementation EEC. Final Act of the International Conference and Decision by the Energy Charter Conference in respect of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty, as adopted on 24 April 1998.

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(13) (a) ‘Energy Charter Protocol’ or ‘Protocol’ means a treaty, the negotiation of which is authorised and the text of which is adopted by the Charter Conference, which is entered into by two or more Contracting Parties in order to complement, supplement, extend or amplify the provisions of this Treaty with respect to any specific sector or category of activity within the scope of this Treaty, or to areas of cooperation pursuant to Title III of the Charter. Article 33 ECT deals with Energy Charter Protocols and Declarations. This 1.89 is the first article of Part VII on Structure and Institutions. Article 33(1) includes the mandate for the Charter Conference to authorize the negotiation of a number of Energy Charter Protocols or Declarations in order to pursue the objectives and principles of the Charter. Article 13(5) further states that a Protocol shall apply only to the Contracting Parties which consent to be bound by it, and shall not derogate from the rights and obligations of those Contracting Parties not party to the Protocol. Currently only one Protocol has been adopted, as Annex 3 to the Final Act of 1.90 the European Energy Charter Conference. This is the Protocol on Energy Efficiency and Related Environmental Aspects (‘PEEREA’). The Protocol builds on ECT Article 19 and ‘defines policy principles for the promotion of energy efficiency as a considerable source of energy and for consequently reducing adverse Environmental Impacts of energy systems’.122 Moreover, it provides guidance on the development of energy efficiency programmes. It indicates areas of cooperation and ‘provides a framework for the development of cooperative and coordinated action’.123 The protocol was negotiated and signed alongside the ECT in 1994 and open for signature as well as entered into force at the same time as the Treaty on 16 April 1998. Negotiations on a second Protocol, the ‘Transit Protocol’ based on ECT 1.91 Article 7 started in 2000, roughly one year after the ECT and PEEREA entered into force. The objectives of the Protocol as included in the last official draft of 2003 were ‘(a) to ensure secure, efficient, uninterrupted and unimpeded Transit […] (b) to promote transparent and non-discriminatory access to and use of Available Capacity […] (d) to facilitate the construction, expansion, extension, reconstruction, and operation of Energy Transport Facilities […].’124 The negotiations were suspended in 2003 and in 2009 a new 122 123 124

Article 1 PEEREA. Ibid. Article 2(1) draft Transit Protocol, version 31 October 2003.

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negotiation mandate was issued. However, this mandate was repealed by the ECC in 2011.125 At the point of writing, the Energy Charter Secretariat is conducting consultations with stakeholders on a reset of negotiations on the Transit Protocol or an additional Energy Charter instrument on energy transit.126 (b)

‘Energy Charter Declaration’ or ‘Declaration’ means a nonbinding instrument, the negotiation of which is authorised and the text of which is approved by the Charter Conference, which is entered into by two or more Contracting Parties to complement or supplement the provisions of this Treaty.

1.92 Declarations include individual views and positions of the Charter Conference (made by States or groups of States) regarding certain aspects of the Treaty.127 They are not formal parts of the Treaty but constitute non-binding instruments. However the Charter Conference emphasized that they belong to the ‘overall political package when setting the conditions for accession’.128 Article 33(1) includes the mandate for the Charter Conference to authorise the negotiation of a number of Energy Charter Protocols or Declarations in order to pursue the objectives and principles of the Charter. Most of the declarations are directly included in the Final Act.129 (14) ‘Freely Convertible Currency’ means a currency which is widely traded in international foreign exchange markets and widely used in international transactions. 1.93 Article 1(14) of the ECT has not yet been at issue in dispute settlement proceedings. The provision simply provides a definition for the term ‘freely convertible currency’ as used in Articles 13 and 14 of the ECT. The Collins English Dictionary defines a convertible currency as ‘a currency that can be bought and sold on the open market for other currencies’.130

125 126 127 128 129 130

For a detailed overview of the negotiation history and process of the Transit Protocol see https://energy charter.org/what-we-do/trade-and-transit/transit-protocol/. https://energycharter.org/what-we-do/trade-and-transit/transit-protocol/. ECT Reader’s Guide, 62. Ibid., 61. Ibid., 62. Collins English Dictionary. Copyright © HarperCollins Publishers, 2018.

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ARTICLE 2 PURPOSE OF THE TREATY Leonie Reins

‘This Treaty establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter.’

COMMENTARY Article 2 of the Energy Charter Treaty (ECT) lays down the purpose of the 2.01 Treaty. The provision highlights the ‘treaty’s role in providing a legal framework promoting long-term cooperation, suggesting that the treaty is conceived as enhancing the stability required for such cooperation.’1 The ECT is a multilateral treaty2 which is ‘broad and far reaching in scope’.3 The Treaty’s purpose essentially contains four elements: 1. 2. 3. 4.

the establishment of a ‘legal framework’ aimed at; the promotion of long-term cooperation in the energy field based on; complementarities and mutual benefits; in accordance with the objectives and principles of the Charter. 2.02

These elements will be discussed in reverse order in the following.

1 2 3

Eiser Infrastructure Ltd and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award, 4 May 2017 378–9. Anatolie Stati, Gabriel Stati, Ascom Group S.A. and Terra Raf Trans Traiding Ltd v. Republic of Kazakhstan, SCC Case No. V116/2010, Dissenting Opinion of Judge Magnus Ulriksson, 9 December 2016 at 3. Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Award on Respondent Bifurcated Preliminary Objection, 20 April 2016, at 151, 152.

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A. ‘In accordance with the objectives and principles of the Charter’ 2.03 Article 2 of the ECT makes clear that the promotion of long-term cooperation in the energy field should not take place in a vacuum. Rather, it should be carried out in search of complementarities and mutual benefits, and, moreover, it should be in accordance with the objectives and principles of the Charter. It is thus essential to determine what those ‘objectives’ and ‘principles’ are. 2.04 The ECT itself does not contain a separate section on objectives and principles but refers to the principles and objectives of the European Energy Charter (1991) (see Article 1(1) ECT for a definition) (‘EEC’). The EEC lists its objectives in Article 1. Accordingly the signatories of the EEC strive to: + +

+

improve the security of energy supply; maximize the efficiency of production, conversion, transport, distribution and use of energy; enhance safety and minimize environmental problems on an acceptable economic basis.

Moreover: within the framework of State sovereignty and sovereign rights over energy resources and in a spirit of political and economic cooperation, they undertake to promote the development of an efficient energy market throughout Europe, and a better functioning global market, in both cases based on the principle of non-discrimination and on market-oriented price formation, taking due account of environmental concerns. They are determined to create a climate favourable to the operation of enterprises and to the flow of investments and technologies by implementing market principles in the field of energy.4

2.05 States will, in accordance with the principles, take action in the following fields: +

+ +

4 5

development of trade in energy consistent with major relevant multilateral agreements; cooperation in the energy field (see further below); and energy efficiency and environmental protection.5

Article 1 EEC. Ibid.

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These objectives and principles have further been developed and concretized 2.06 through several Awards that have interpreted Article 2 of the ECT. Accordingly, for example regarding trade, emphasis has been placed on the 2.07 transparency element. The Charter ‘points to the goal of a stable investment regime. In order to promote the international flow of investments, the signatories will at national level provide for a stable, transparent legal framework for foreign investments, in conformity with the relevant international laws and rules on investment and trade’.6 Further, the Energy Charter provisions ‘show that, in interpreting [the] ECT’s obligation to accord fair and equitable treatment, interpreters must be mindful of the agreed objectives of legal stability and transparency’.7 2.08

The Energy Charter Secretariat has observed that: the ECT establishes a multilateral legal framework for cross-border energy co-operation. It covers energy trade, investment, and transit in a comprehensive manner. It also deals with the issue of energy efficiency and includes binding dispute resolution procedures. The ECT aims to encourage and facilitate international energy co-operation. Its key principles of openness of energy markets and non-discrimination have the potential to stimulate foreign direct investment and cross-border trade. This will contribute towards securing energy supply of energy importing countries, and increasing capital inflows into energy exporting countries. Economies in transition need capital to develop and upgrade their energy industries.8

Thus, the principles of ‘openness’ and ‘non-discrimination’ are also cornerstones of the regime laid down by the ECT. The Energy Charter Secretariat describes the basic elements of the ECT as 2.09 follows: +

+ + +

6 7 8

investment protection (e.g., by granting investors non-discriminatory treatment – national treatment and most-favoured nation treatment – compensation in case of expropriation and other losses, free transfer of capital); trade in energy, energy products and energy related equipment, based on the WTO rules; freedom of energy transit; improvement of energy efficiency; Eiser Infrastructure Ltd and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, supra note 1, 378–9. Ibid. Energy Charter Secretariat (2002), The Energy Charter Treaty – A Reader’s Guide, 85 pp., at 6 (Available at https://is.muni.cz/el/1422/jaro2017/MVV2368K/um/ECT_Guide_ENG.pdf). Emphasis added.

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+

+

international dispute settlement, including investor-state arbitration and inter-state arbitration; improved legal transparency.9

In other words, the promotion of long term cooperation in the energy field should be pursued through a legal framework that takes into account these aforementioned objectives and principles. ‘Further to these key elements, the ECT contains commitments on governmental cooperation, for instance with regard to transfer of technology, opening of financial markets, and the development of competition rules.’10 2.10 The ECT is said to be based on a united commitment of an economic alliance of countries to achieve the following common goals: +

+ +

to provide open energy markets, and to secure and diversify energy supply; to stimulate cross-border investment and trade in the energy sector; to assist countries in economic transition in the development of their energy strategies and of an appropriate institutional and legal framework for energy, and in the improvement and modernization of their energy industries.11

2.11 It should also be noted that the ECT confirms the principle of national sovereignty over energy resources in Article 18. This provision confirms that ECT Member countries retain their freedom to conduct national energy policies and retain their sovereignty over their natural resources, as long as they exercise this sovereignty in accordance with the provisions of the ECT. The ECT does not address the regulation of domestic energy markets, the corporate legal structure of energy companies or rules on third-party access.12 Finally, the national security exception and other exceptions are enshrined in Article 24 of the ECT.13

9 10 11 12 13

Ibid., at 10. Ibid., at 9. Ibid. Ibid., at 9–10. Ibid.

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The principles and objectives of the ECT continue to form cornerstones of the 2.12 work of the Energy Charter. However, it is also acknowledged that the Energy Charter process should adapt to new challenges.14 The objectives and principles of the Treaty include not only the promotion of 2.13 investments but also the promotion of the economic development of the contracting states in a balanced manner which takes into account that ‘the totality of the Treaty’s purpose is appropriate’.15 This finding of the tribunal in Plama Consortium Ltd v. Republic of Bulgaria confirms that there is a developmental aspect to the ECT too. Whereas the promotion of investments is an objective, so is the promotion of the economic development of the ECT’s contracting states through such investments. In other words, tribunals will always have to consider the balance between the rights of investors and the desired objective of ensuring economic development of the contracting states. This approach was echoed by the tribunal in El Paso Energy International Co. v. Argentina: ‘This Tribunal considers that a balanced interpretation is needed, taking into account both State sovereignty and the State’s responsibility to create an adapted and evolutionary framework for the development of economic activities, and the necessity to protect foreign investment and its continuing flow.’16 A final element of the objectives and principles is the need for a transnational 2.14 (or international) link. The ECT process serves to protect international, as opposed to national, investments. This is a key principle, as was observed by the tribunal in Cem Cengiz Uzan v. Republic of Turkey: As established by the objectives and the implementation of the Concluding Document of the Hague Conference of the European Energy Charter, the object and purpose of the ECT is to protect ‘the international flow of investments,’ and hence to protect international investors. The Claimant, no matter how he frames his arguments, is missing this essential transnational link, in relation both to the time his ‘investment’ was made and when he alleges it was interfered with.17

In conclusion, the objectives and principles of the Charter are graphically 2.15 displayed in Table 2.1. 14

15 16 17

Energy Charter Secretariat (2016), The International Energy Charter – Consolidated Energy Charter Treaty with Related Documents, Last Updated: 15 January 2016, Foreword, at 2. Available at https:// energycharter.org/fileadmin/DocumentsMedia/Legal/ECTC-en.pdf. Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Award, 27 August 2008, at 166–7. El Paso Energy International Co. v. Argentina, ICSID Case No. ARB/03/15, Award, 31 October 2011 at 650. Cem Cengiz Uzan v. Republic of Turkey, SCC Case No. V 2014/023, Award on Respondent Bifurcated, Preliminary Objection, 20 April 2016, at 151–2.

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Table 2.1

Charter objectives and principles Objectives

Principles

Development of open and efficient energy markets

Non-Discrimination: treatment of established investments (post-establishment) as well as the treatment in terms of the making of investments (pre-establishment), both in terms of ‘national treatment’ and ‘most-favoured nation’ (‘MFN’) treatment

Creation of conditions that will stimulate the flow of private investments and the participation of private enterprises

Openness (of international energy markets)

To secure and diversify energy supply

Transparency

To assist countries in economic transition in the development of their energy strategies and of an appropriate institutional and legal framework for energy, and in the improvement and modernisation of their energy industries

‘Pacta Sunt Servanda’, as part of customary international law

Confirmation of the principle of sustainable development and state sovereignty over natural resources

B. ‘Complementarities and mutual benefits’ 2.16 The expression ‘mutual benefits’ of Article 2 of the ECT refers to the receipt of a benefit by each contracting party, but does not imply that such benefits must be coextensive.18 The notion of complementarities has not received any attention in dispute settlement as yet. C. ‘Long-term cooperation in the energy field’ 2.17 The purpose of the Treaty is to ‘promote long-term cooperation’ (emphasis added) in the energy area. There is thus an explicit temporal element to the purpose as stipulated in Article 2. The inclusion of the term ‘long-term’ 18

Khan Resources Inc., Khan Resources B.V. and CAUC Holding Company Ltd. v. Government of Mongolia, UNCITRAL, Decision on Jurisdiction, 25 July 2012, at 421.

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indicates that a predictable and stable framework for cooperation was envisaged by the drafters of the ECT. On 20 and 21 May 2015, the ‘representatives of the signatories’ of the EEC 2.18 met in The Hague, The Netherlands. The outcome of the meeting was a ‘Concluding Document of the Ministerial (‘The Hague II’) Conference on the International Energy Charter’.19 The document includes the International Energy Charter and opens with the following statement, ‘Desirous to better reflect the new realities of the energy sector, especially the growing weight from developing countries, including emerging economies, and to serve the interests of the existing and potential participants of the Energy Charter constituency.’ After a recollection of the objectives of the International Energy Charter as well as several other recitals, Article 1(2) of the International Energy Charter provides that it entails: + +

+

+

+

+

the coordination of energy policies; […] mutual access to technical and economic data, consistent with proprietary rights; formulation of stable and transparent legal frameworks creating conditions for the development of energy resources; coordination and, where appropriate, harmonization of safety principles and guidelines for energy products and their transport, as well as for energy installations, at a high level; facilitating the exchange of technology information and knowhow in the energy and environment fields, including training activities; research, technological development and demonstration projects.

The ECT does not have any retrospective effect, as this would not be 2.19 consistent with this ‘long-term’ purpose. If […] the right’s exercise had retrospective effect, the consequences for the investor would be serious. The investor could not plan in the ‘long term’ for such an effect (if at all); and indeed such an unexercised right could lure putative investors with legitimate expectations only to have those expectations made retrospectively false at a much later date.20

This finding of the tribunal in Plama Consortium Ltd v. Republic of Bulgaria was echoed by the tribunal in Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan. The tribunal, in assessing the 19 20

Energy Charter Secretariat (2016), supra note 14, at 9. Plama Consortium Ltd supra note 15, at 161–2.

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retroactive effect of the right as provided for in Article 17(1) of the ECT explained that: With regard to the question of whether the right under Article 17(1) of the ECT can only be exercised prospectively, the Tribunal considers that the above mentioned notification requirement – on which the Parties agree – can only lead to the conclusion that the notification has prospective but no retroactive effect. Accepting the option of a retroactive notification would not be compatible with the object and purpose of the ECT, which the Tribunal has to take into account according to Article 31(1) of the VCLT, and which the ECT, in its Article 2, expressly identifies as ‘to promote long-term co-operation in the energy field’. Such long-term co-operation requires, and it also follows from the principle of legal certainty, that an investor must be able to rely on the advantages under the ECT, as long as the host state has not explicitly invoked the right to deny such advantages.21

2.20 Based on these considerations, the tribunal found that Article 17(1) of the ECT did not have retroactive effect. The element of ‘long-term’ cooperation was also found to be implicitly contained in Article 17(1) by the tribunal in Khan Resources Inc., Khan Resources B.V. and CAUC Holding Co. Ltd. v. Government of Mongolia. The tribunal observed that: The interpretation that Article 17 requires an active exercise of the Contracting Party’s right to deny the benefits of Part III of the ECT is in line with the Treaty’s object and purpose. Article 2 of the ECT describes its purpose to establish ‘a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits.’ The provision of an option to deny the benefits of Part III of the ECT furthers this goal of ‘long-term cooperation,’ as it creates an incentive to join the Treaty for states with a variety of policies with respect to legal entities that fall within the definition of Article 17(1). Thus, both states that wish to attract the investment of such legal entities, and those that do not wish to extend investment protections to such entities, are encouraged to become Contracting Parties.22

2.21 In other words, by providing for the option not to extend benefits to the ‘mailbox’ entities identified in Article 17(1), the ECT seeks to provide for a framework that enables member countries to pursue different policy options. This, essentially, is an element of seeking to pursue ‘long-term’ cooperation, as policy preferences may change over time. Thus, the inclusive approach provided for in Article 17(1) is in line with the objective of providing a framework for long-term cooperation.

21 22

Liman Caspian Oil BV and NCL Dutch Investment BV v. Republic of Kazakhstan, ICSID Case No. ARB/07/14, Excerpts of Award, 22 June 2010. Khan Resources Inc., supra note 18, at 421.

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Given the fact that energy is a global issue, the Energy Charter process is dynamic and open. ECT member countries seek co-operation with non-members and encourage them to an active dialogue. The ECT therefore establishes an important international policy forum for energy-related issues.23

D. ‘A legal framework’ The main operative part of Article 2 of the ECT confirms that the ECT 2.22 provides for a ‘legal framework’ that is based on the principles and ideas that have been set out earlier. The ECT thus lays down a rules-based system through which the contracting parties seek to achieve the objectives that they have jointly developed. Importantly, the legal framework provided by the ECT is multilateral in nature.24 As the Secretariat of the ECT observes, the ECT has a pioneering role in 2.23 treaty-based international energy cooperation, as it: + + +

+ +

[i]s unique in covering all forms of international energy cooperation simultaneously, i.e., investment, trade, transit and energy efficiency; may create an intermediary step towards WTO membership for those ECT countries that are not yet WTO members; is the first binding multilateral agreement on the promotion and protection of foreign investment, covering all important investment issues and providing high standards of protection, including a fully developed dispute settlement mechanism; is the first multilateral treaty on energy transit issues and energy efficiency; establishes a permanent discussion forum between members concerning all aspects of international energy cooperation.25

Thus, the legal framework established by the ECT provides, broadly speaking 2.24 for two functions: (1) a negotiating pillar, i.e., a permanent discussion forum for the members; and (2) a fully developed dispute settlement mechanism that provides members with the possibility of having their disputes resolved through various means. Part VII of the ECT entitled ‘Structure and Institutions’ provides for the first 2.25 function of the legal framework laid down in the ECT. Article 33(1) of the ECT indeed explicitly provides that ‘[t]he Charter Conference may authorise 23 24 25

Energy Charter Secretariat (2002) supra note 8, at 6. Ibid., at 12. Ibid.

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the negotiation of a number of Energy Charter Protocols or Declarations in order to pursue the objectives and principles of the Charter’. Moreover, Article 34(1) provides that ‘[t]he Contracting Parties shall meet periodically in the Energy Charter Conference (referred to herein as the ‘Charter Conference’) at which each Contracting Party shall be entitled to have one representative. Ordinary meetings shall be held at intervals determined by the Charter Conference’. Thus, these articles in effect provide for the negotiating function that is part of the ECT’s legal framework. 2.26 The dispute settlement function of the legal framework of the ECT is provided for in Part V thereof. Both an investor-state (Art. 26) and a state-to-state dispute settlement mechanism are foreseen. Indeed, as the dissent of arbitrator Ulriksson in the Stati case confirms: The states offer various types of solutions for issues arising in respect of the various disputes stated in the treaty. With respect to disputes between the parties to the treaty, Art. 27 provides that such disputes shall preferably be resolved through diplomatic contacts and, if that does not succeed within a reasonable period of time, the dispute may be referred to an ad hoc tribunal. Art. 26 provides various solutions for disputes – including arbitration in accordance with the SCC’s rules – in respect of disputes between a state and an investor from another state that is a party to the treaty. If the investor acts in accordance with the provisions of the article, the agreement thus arises which renders the appointed arbitral tribunal competent to decide the dispute.26

Thus, in essence the ECT provides for a legal framework, comprised of a negotiation and a dispute settlement function, which is based upon the objectives and principles as enshrined in the Treaty.

26

Anatolie Stati, supra note 2, at 3.

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Part II COMMERCE

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ARTICLE 3 INTERNATIONAL MARKETS Pierre Serra

‘The Contracting Parties shall work to promote access to international markets on commercial terms, and generally to develop an open and competitive market, for Energy Materials and Products and Energy-Related Equipment’

COMMENTARY A. Introduction 3.01 Article 3 of the Energy Charter Treaty1 (ECT hereinafter) regarding international markets is a provision written in a broad language that does not encompass clearly and narrowly defined obligations for the signatory parties to the Charter. However, it is a well-written article that, provided a fine-grained analysis is applied, encapsulates several distinct noteworthy elements. This provision embodies a dual commitment on market openness and on the nature of the latter. The scope of this openness is circumscribed to the energy industry, and more precisely to ‘Energy Materials and Products and Energy Related-Equipment’. According to the language adopted, such an opening endeavour shall be conducted ‘on commercial terms’. This entails it shall be achieved on the basis of means of commercial exchanges such as concession agreements, sales contracts or service contracts. Very simplistically put, it is about opening this industry to international trade operations, that is, involving international parties and transnational movements of goods and services. The second part of the commitment focuses on the commercial context in which these trade operations shall take place. Pursuant to the language, markets of 1

Consolidated Version Of The Energy Charter Treaty And Related Documents (Energy Charter Secreteriat Organisation 2015) accessed 9 January 2018.

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the signatory parties are to be ‘open’ and ‘competitive’. The word ‘open’ is not a fortuitous overlap with the previous clause which provides that ‘The contracting parties shall work to promote access’. The use of ‘open’ and ‘competitive’ must be interpreted in the light of Article 3’s location under the title ‘Part II: Commerce’ and of the previous versions of the ECT. B. ‘An open and competitive market’ 1. The obligation of openness

The previous drafts of the ECT contained an Article 3 with the same title but 3.02 a different wording. The latter, from the second version of 1 May 1993 until the sixth version of 20 December 1993, was written in more precise language. These previous versions of Article 3 are illuminating to interpret generalist words employed in the final version. The anterior phrasing provided that parties ‘will (…) undertake to remove progressively barriers to trade’. Thereupon the word ‘open’ in the final text implies that parties to the ECT must eliminate the different barriers to trade, to comply with Article 3. In the absence of further precision, ‘barriers’ are to be understood as tariff barriers as well as non-tariff barriers. 2. The competitiveness of the market

Again, the second paragraph of the previous Article 3’s language allows a 3.03 better understanding of the word ‘competitive’: ‘(2) They will accordingly seek to ensure that price formation shall be based on market principles’. ‘Competitive’ price-fixing relies upon the commonly accepted economic 3.04 phenomenon of matching supply and demand aiming at an optimum distribution of resources. Notwithstanding the limits of the pure and perfect competition model,2 Article 3 infers contracting parties must engage in policies benefiting market competitiveness and eliminating anti-competitive practices. The promotion of competitive markets spans the different provisions of Part II and is subject to a specific provision. This emphasis on competition also echoes the general goal of the ECT trade regime. The latter aims at promoting market openness in the energy industry in importing benefits and obligations from the WTO legal architecture for non-WTO countries.3 As a result, it also allows WTO provisions to connect directly with the energy industry.4 2 3

See, e.g., G. Akerlof, ‘The Market For “Lemons”: Quality Uncertainty and The Market Mechanism', (1970) 84(3) The Quarterly Journal of Economics 488–500 Trade Amendment Explanatory Note: The Trade Amendment (TA) Of The Energy Charter Treaty (ECT) Explained to Decision-Makers of Ratifying Countries (Energy Charter Secretariat 2018)

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C. ‘Energy Materials and Products and Energy-Related Equipment’ 3.05 This provision forces signatory parties to comply with the encapsulated obligations in a precisely-defined industrial area: Energy Materials and Products and Energy-Related Equipment. Pursuant to the definitions provided by the Charter’s Article 1(4)5 and 1(4)bis,6, Annexes EM I and EM II cover ‘Energy Materials and Products’, and Annexes EQ I7 and EQ II define ‘Energy-Related Equipment’. These annexes8 transpose, although incompletely,9 different elements of the nomenclature of the World Customs Organization (WCO hereinafter). This compilation is an interesting feature since the WCO’s nomenclature does not have a specific category for energy products or materials.10 The Charter therefore provides an informed selection of items across the different categories of the WCO nomenclature. This transposition in the Charter is not problematic since all ECT’s signatory parties are also bound to the WCO Harmonized system11 except Turkmenistan but the latter nonetheless applies it.12 As a result, the Charter and its Article 3 provides an innovative13 legal interlocking in one provision between trade-related obligations and the energy industry, which is well-defined by a

4 5 6 7

8 9

10

11

12 13

accessed 22 January 2018, 1; see webpage ‘Applicable Trade Provisions of The Energy Charter Treaty (2003) – Energy Charter' (Energycharter.org) accessed 15 January 2018. Ibid., 2–3. Consolidated Version of The Energy Charter Treaty and Related Documents (n 1), 39. Ibid., 40. Annexes EM II, EQ I and EQ II were added in the Energy Charter corpus pursuant to art 5 of the Final Act of the International Conference and Decision by the Energy Charter Conference in respect of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty, (Energy Charter Secretariat 1998) accessed 16 January 2018. Energy Charter Secretariat, ‘Applicable Trade Provisions of The Energy Charter Treaty' (2003), 11–25. For Annex EQ I, LIST OF ENERGY-RELATED EQUIPMENT ‘Ex’ has been included to indicate that the product description referred to does not exhaust the entire range of products within the World Customs Organization Nomenclature headings or the Harmonized System codes listed below in Energy Charter Secretariat, ‘Applicable Trade Provisions of The Energy Charter Treaty’, See the table of contents and the different categorizations in ‘World Customs Organization – HS Nomenclature 2017 Edition' (Wcoomd.org, 2017) accessed 20 January 2018. List Of 209 Countries, Territories or Customs or Economic Unions Applying the Harmonized System. 156 Contracting Parties (155 Countries and The European Union) (World Customs Organization 2017) accessed 18 January 2018. See Notes, 2 in ibid. Until the Doha Round, the GATT and now WTO rules did not ‘deal with energy as a distinct sector’, in Thomas Cottier and others, Individual Project No. 6, ‘Energy in WTO Law and Policy accessed 2 January 2018, 1–2.

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reference game, from Article 3, to Article 1(4), 1(4) bis, to annexes to the Charter, to the HS system of the WCO. The clause ‘Energy Materials and Products and Energy-Related Equipment’ 3.06 however raises a doubt about the material scope of this provision. The ECT arguably encapsulates under its material scope goods as well as services. The Preamble leaves in this regard14 no doubt about the intention of the parties: Determined progressively to remove technical, administrative and other barriers to trade in Energy Materials and Products and Energy-Related Equipment, technologies and services.15

The wording of the Charter distinguishes ‘Energy Materials and Products and 3.07 Energy-Related Equipment’ and ‘Economic Activity in the Energy Sector’. The latter is defined by Article 1(5) in the following terms. An economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises.16

Such activities are to be regarded as services;17 however, there is no further 3.08 precision about services, besides the Understanding. The latter gives a nonexhaustive list of illustrative activities.18 In explicitly specifying ‘Energy Materials and Products and Energy-Related Equipment’ all the while remaining vague on services, Article 3 reduces its scope of application to goods, and therefore undermines the obligation of competitive market openness for services.

14

15 16 17 18

Pursuant to art 31 of the Vienna Convention on the Law of Treaties: ‘The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes’, see Vienna Convention on The Law of Treaties (Office of Legal Affairs, United Nations 1969) accessed 26 January 2018, 12. Consolidated Version of The Energy Charter Treaty and Related Documents (Energy Charter Secretariat Organisation 2015), 38 (emphasis added). Ibid., 40 (emphasis added). See inter alia Thomas Cottier and others, Individual Project No. 6, ‘Energy in WTO Law And Policy accessed 2 January 2018, 1–2. See ibid., 40.

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ARTICLE 4 NON-DEROGATION FROM WTO AGREEMENT Pierre Serra

‘Nothing in this Treaty shall derogate, as between particular Contracting Parties which are members of the WTO from the provisions of the WTO Agreement as they are applied between those Contracting Parties.’

COMMENTARY A. Introduction 4.01 The signatory parties of the Energy Charter Treaty (ECT hereinafter) are diverse.1 Most of the Western European Countries are also members of the World Trade Organization (WTO hereinafter), whereas others, notably Eastern European ones, were not in the 1990s.2 Since 1994, most of the non-WTO countries at the time have been progressively accessing to WTO’s membership with the exception of Uzbekistan for example.3 4.02 Simplistically put, there are therefore three patterns of interactions for signatory parties to the ECT and such a configuration raises the question of the trade regime to be applied for each.

1

2

3

For an updated list on 9 April, 2015, see ‘Energy Charter Treaty – Energy Charter – Signatories/Contracting Parties To The Energy Charter Treaty' (Energycharter.org, 2015) accessed 17 January 2018. Members of the WTO in 2016 and detailed accession to membership dates by country, see ‘WTO – Members And Observers' (Wto.org, 2016) accessed 16 January 2018. ‘WTO Accession Status: Uzbekistan' (Wto.org) accessed 25 January 2018.

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+

+

+

WTO/WTO: the two interacting parties are both members of the WTO and signatory parties to the ECT WTO/non-WTO: only one of the two signatory parties to the ECT is a member of the WTO Non-WTO/non-WTO: none of the two interacting parties to the ECT are members of the WTO

The essential question to which this non-derogatory provision brings an answer is: what trade regime is to be applied in each of these configurations? For the last two (WTO/non-WTO and non-WTO/non-WTO), Article 4.03 29(2)a of the ECT specifies: Trade in Energy Materials and Products and Energy-Related Equipment between Contracting Parties at least one of which is not a member of the WTO shall be governed, subject to subparagraph (b) and to the exceptions and rules provided for in Annex W, by the provisions of the WTO Agreement, as applied and practised with regard to Energy Materials and Products and Energy-Related Equipment by members of the WTO among themselves, as if all Contracting Parties were members of the WTO.4

Outside this Article 29(2)a and the reference mechanism it establishes with the Annex W, ECT’s Part II on Commerce does not directly provide a defined trade regime for non-WTO parties. This article nonetheless plays an essential role by forcing WTO members interacting with each other to apply WTO provisions, to which they are subject. B. The non-derogatory provision Special Rapporteur Roberto Ago5 on the occasion of his contribution to the 4.04 International Responsibility of State distinguished primary rules from secondary rules.6 The former essentially focus on the obligations of the incumbent State whereas secondary rules are dedicated to the mechanisms of the State’s

4 5

6

Consolidated Version of The Energy Charter Treaty and Related Documents (Energy Charter Secreteriat Organisation 2015). For a brief biography and details of Ago’s achievements as an international lawyer see Nicolas Valticos, ‘Roberto Ago (1907–1995)' (1995) 89 The American Journal of International Law accessed 17 January 2018. See Yearbook of the International Law Commission 1963 Volume II – A/CN.4/SER.A/1963/ADD.1 – Documents of The 15th Session Including The Report Of The Commission To The General Assembly (United Nation Publications 1964) accessed 12 January 2018.

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responsibility per se.7 In terms of primary rules this non-derogatory provision arises from a necessity to give the ECT its full and adequate effect. The Charter is an innovative instrument in mingling trade, investment and competition provisions with an exclusive focus on the energy industry. Because of the limited applicability of Annex W, as worded by Article 29(2)a, the non-derogatory Article 4 fills the gap left by the latter. In the absence of a non-derogatory rule, Annex W or WTO provisions would not apply to WTO-WTO interactions under the auspices of the ECT. Article 4 thereupon closes the loop and gives a clear view about the trade regimes applicable to the different signatory members to the ECT. 4.05 Hence, the picture is clear, WTO members operating with each other must comply with the WTO provisions, alternatively the Annex W which partially mirrors the WTO regime applies: + +

+

WTO/WTO: WTO regimes applies to its full extent pursuant to Article 4 WTO/non-WTO: the WTO applies within the limits specified by Annex W; hence an ad hoc trade regime applies pursuant to Article 29(2)a Non-WTO/non-WTO: the WTO applies within the limits specified by Annex W, hence an ad hoc trade regime applies pursuant to Article 29(2)a.

Such a configuration can be commented on in three respects: about the different levels of constraint between ECT’s signatory parties; about the wording of the non-derogatory provision; and about services in the energy industry. 4.06 The Trade Amendment8 compiles different provisions from the WTO legal architecture with a focus on the General Agreement on Tariffs and Trade of 19949 and on other agreements such as the Agreement on Technical Barriers to Trade or the crucial Agreement on Rules of Origin.10 Article 4 of the Trade Amendment inserted Annex W into the ECT. This annex provides a list of 7 8

9 10

See Yearbook of the International Law Commission 1963 (n 5), 228. Final Act of The International Conference and Decision by The Energy Charter Conference in Respect of the Amendment to the Trade-Related Provisions Of The Energy Charter Treaty (Energy Charter Secretariat) accessed 15 January 2018. General Agreement on Tariffs And Trade 1994 (WTO Secretariat) accessed 25 January 2018. See the document published by the Energy Secretariat Applicable Trade Provisions Of The Energy Charter Treaty (Energy Charter Secretariat 2003) accessed 26 November 2017, III.

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‘Provisions of the WTO Agreement applicable to the ECT under Article 29(2)(a)’ pursuant to this Annex’s §(A).11 Although Annex W can be read as a negative list12 of inapplicable provisions or as a positive list,13 there is still a persistent imbalance between the applicable trade regime pursuant to Article 29(2)a and the regime applicable pursuant to Article 4 for WTO countries operating amongst each other. This imbalance is notably reflected by the inapplicability of the General Agreement on Trade in Services14 since Annex W does not incorporate this instrument in its positive list.15 The issue of services will be dealt to a greater extent in the subsequent paragraphs. Also, the Agreement on Government Procurement, as well as the Agreement on Trade-Related Investment Measures are not applicable.16 However Article 5 of the ECT copies the wording of the TRIMS Agreement which therefore applies outside of an Annex mechanism, thanks to an in-text incorporation.17 The second comment about the trade regime of the ECT deals with the 4.07 wording of Article 4 and its dynamic approach. The latter specifies: ‘the provisions of the WTO Agreement as they are applied between those Contracting Parties’.18 The clause ‘as they are applied between those Contracting Parties’ encapsulates a dynamic character. At the risk of formulating a truism, legal rules and their application go beyond the black letter. This subtle component to Article 4 allows the capture of the dynamic character of such rules. Law is a practice complemented by several types of interpretations, enshrined in case-law and nourished by academic debates. For the ECT members affiliated to the WTO system, the ‘as they are applied’19 forces them to apply WTO provisions in the light of today’s context and evolutions of international economic law practices. Hence, the ECT trade regime for WTO members inserts itself in the broader and historically nourished process of trade, with its usages, its case-law, its moving and plural interpretations. 11 12 13 14 15

16 17 18 19

Consolidated Version of The Energy Charter Treaty (n 4), 129. See Final Act Of The International Conference (n 9), 11–23. See again Consolidated Version of The Energy Charter Treaty (n 4), 129. General Agreement on Trade in Services (1994) accessed 9 January 2018. The reader must pay attention to the distinction between the two available versions of the Energy Charter Treaty. The first one (Consolidated Energy Charter Treaty) incorporates a negative listing for its Annex W. The second one is also known as the Consolidated Energy Charter Treaty, but incorporates a transparency document which has a positive listing for the Annex W. This transparent version was introduced in 2016, see The International Energy Charter Consolidated Energy Charter Treaty with Related Documents Transparency Document (With Annex W, Modified into a Positive List of The Applicable WTO Provisions) (Energy Charter Secretariat 2016) accessed 17 January 2018. Applicable Trade Provisions Of The Energy Charter Treaty (Energy Charter Secretariat 2003), VIII. Ibid. Consolidated Version of The Energy Charter Treaty (n 4). Ibid.

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Consequently, signatory states subject to Article 4 must pay particular attention to the broader WTO context. They must also avoid playing within the lines on the grounds that they operate in a legally pluralistic environment composed of the WTO and the ECT. 4.08 The third comment about Article 4 is in relation with the material scope of the ECT and the WTO regime that applies to its full extent for WTO members which are also parties to the Charter. The question of the GATS’ applicability in relation to the ECT via its WTO members is a controversial issue. 4.09 At first sight, it is intuitively arguable that ECT parties affiliated to the WTO parties must respect the GATS’ provisions such as Article VIII about monopolies and exclusive suppliers.20 A narrow interpretation is to argue that the GATS has not to be respected by WTO members to comply with Article 4, which does not distinguish between goods and services in its wording. The interpretational difficulties arise when the object of the Charter is questioned. Article 1(4) and (4bis) make references to the Annexes EQ I, II, EM I, II. In the light of the Preamble and the inclusion of the clause ‘Energy Materials and Products and Energy-Related Equipment’ in multiple provisions, the ECT applies to energy goods, within the limits of the aforementioned annexes. Moreover, the preamble explicitly mentions the parties’ determination to open markets for ‘Energy Materials and Products and Energy-Related Equipment’.21 4.10 Hence, are services in the energy industry included in the material scope of the Charter? Energy services are found under the clause ‘Economic Activity in the Energy Sector’, defined at Article 1(5).22 This clause encapsulates trade activities of goods, but the definition given by the aforementioned article also specifies different activities such as ‘exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing’.23 Such actives are to be regarded as services.24 In the same way, the Preamble mentions the determination to foster market openness in services. Therefore, it is sound to affirm that services fall within the scope of the Charter. Consequently, WTO members must arguably respect GATS’s provisions to comply with Article 4 of the ECT. This incidentally reinforces the imbalances 20 21

22 23 24

See General Agreement on Trade in Services (1994), 291–2. See Consolidated Version Of The Energy Charter Treaty And Related Document: ‘Determined progressively to remove technical, administrative and other barriers to trade in Energy Materials and Products and Energy-Related Equipment’, 38. Ibid., 40. Ibid. See inter alia Thomas Cottier and others, Individual Project No. 6, ‘Energy In WTO Law And Policy’ accessed 2 January 2018, 1–2.

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in terms of obligations between the WTOs and non-WTOs. However, contrary to goods which are listed via the Annexes EQ I, II, EM I, II, services under the scope of the ECT are more nebulous. Article 1(5) gives a general list and the Understanding attached to this provision brings only a few clarifications. However, to bring the GATS in the ECT via Article 4 is innovative since the former instrument does not mention the energy industry at all. Of course, this positive appraisal is intrinsically limited by the GATS’s operationalization.25 C. The non-derogatory provision and secondary rules As a result of the legal bridge built by the non-derogatory provision, between 4.11 WTO provisions and Article 4, the latter may be breached if an ECT member affiliated to the WTO infringes a provision arising from his commitment to the latter. Hence, in line with the ad hoc mechanism designed by Article 27 of the Charter on the ‘Settlement of Disputes between Contracting Parties’,26 an ad hoc tribunal will be nominated to decide infringements.27 Article 4 being excluded from the exceptions28 to Article 27 material competence – to determine whether the former was infringed by a party, the ad hoc tribunal will have to decide whether the latter breached a WTO provision.

25

26 27 28

Contrary to the GATT, the GATS is operationalized on the basis of broad provisions (Part I) and thanks to States committing themselves via specific negotiation rounds and schedules in line with the Agreement’s objectives, pursuant to Part III and IV of the instrument, see GENERAL AGREEMENT ON TRADE IN SERVICES (1994) accessed 9 January 2018, 297– 300. Consolidated Version Of The Energy Charter Treaty And Related Documents (Energy Charter Secreteriat Organisation 2015), 81. See ibid., 81–83, Article 27 (2) and (3), the ad hoc tribunal will be constituted provided that diplomatic channels to settle the dispute have been exhausted pursuant to Article 27 (1). The ECT precluded from the competence of the ad hoc tribunal designed by Article 27 infringements and disputes regarding some articles of the Charter. See Article 27 (2) and Article 28 in Consolidated Version Of The Energy Charter Treaty And Related Documents (Energy Charter Secreteriat Organisation 2015).

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ARTICLE 5 TRADE-RELATED INVESTMENT MEASURES1 Pierre Serra

[DECLARATION With respect to Articles 5 and 10(11) Australia notes that the provisions of Articles 5 and 10(11) do not diminish its rights and obligations under the GATT, including as elaborated in the Uruguay Round Agreement on Trade-Related Investment Measures, particularly with respect to the list of exceptions in Article 5(3), which it considers incomplete. Australia further notes that it would not be appropriate for dispute settlement bodies established under the Treaty to give interpretations of GATT articles III and XI in the context of disputes between parties to the GATT or between an Investor of a party to the GATT and another party to the GATT. It considers that with respect to the application of Article 10(11) between an Investor and a party to the GATT, the only issue that can be considered under Article 26 is the issue of the awards of arbitration in the event that a GATT panel or the WTO dispute settlement body first establishes that a trade-related investment measure maintained by the Contracting Party is inconsistent with its obligations under the GATT or the Agreement on Trade-Related Investment Measures.] (1)

1

A Contracting Party shall not apply any trade-related investment measure that is inconsistent with the provisions of article III or XI of

See Final Act of the European Energy Charter Conference, Declarations, n. 2. with respect to arts 5 and 10(11), p. 30; art 28, p. 76; and Annex D, p. 105.

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the GATT 1994; this shall be without prejudice to the Contracting Party’s rights and obligations under the WTO Agreement and Article 29.2 [UNDERSTANDING With respect to Article 5(1) The representatives’ agreement to Article 5 is not meant to imply any position on whether or to what extent the provisions of the “Agreement on Trade-Related Investment Measures” annexed to the Final Act of the Uruguay Round of Multilateral Trade Negotiations are implicit in articles III and XI of the GATT.] (2)

(3)

2

Such measures include any investment measure which is mandatory or enforceable under domestic law or under any administrative ruling, or compliance with which is necessary to obtain an advantage, and which requires: (a) the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production; or (b) that an enterprise’s purchase or use of imported products be limited to an amount related to the volume or value of local products that it exports; or which restricts: (c) the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports; (d) the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to the foreign exchange in flows attributable to the enterprise; or (e) the exportation or sale for export by an enterprise of products, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production. Nothing in paragraph (1) shall be construed to prevent a Contracting Party from applying the trade-related investment measures described in subparagraphs (2)(a) and (c) as a condition of eligibility for export See Final Act of the European Energy Charter Conference, Understandings, n. 6. with respect to art 5(1), p. 27.

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(4)

promotion, foreign aid, government procurement or preferential tariff or quota programmes.3 Notwithstanding paragraph (1), a Contracting Party may temporarily continue to maintain trade-related investment measures which were in effect more than 180 days before its signature of this Treaty, subject to the notification and phase-out provisions set out in Annex TRM.

COMMENTARY A. Introduction 5.01 Article 5 of the Energy Charter Treaty (ECT hereinafter) focuses on the Trade-Related-Investments Measures. This article was designed in the last drafts to the Energy Charter Treaty. In its fifth version, Article 5 of the 1993 draft4 provides that the contracting parties will consider ‘appropriate amendments to this Agreement’ provided ‘the adoption of agreements within the framework of the Uruguay Round’.5 Concluding the Uruguay Round, the Final Act and its annexed texts,6 notably the Annex 1A, incorporated the Trade Related Investment Measures Agreement7 (TRIMs hereinafter). The present article to the final version to the ECT is a complex legal provision that incorporates to a certain extent the TRIMs. B. Trade-related investment measures: basic elements and the WTO approach 5.02 The concept of trade-related investment measures is not defined by the agreement attached to the Annex 1A to the Final Act of the Uruguay Round. This legal notion is first and foremost an empirical observation of the linkages between investment flows, their regulations, trade flows and potential distortions or restrictions. Hence, a ‘trade related investment’ measure is to affect

3 4

5 6 7

See Final Act of the European Energy Charter Conference, Declarations, n. 2. with respect to arts 5 and 10(11), p. 30. CONF 72, Draft ECT – Fifth Version, 11 October 1993 (Energy Charter Secretariat) accessed 17 January 2018, 12. Ibid. Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations (1994) accessed 16 January 2018. Agreement on Trade-Related Investment Measures (1994) accessed 8 January 2018.

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trade flows and ultimately to breach GATT8 provisions. For example, in Indonesia – Certain Measures Affecting the Automobile Industry, the ‘National Car Program’ designed by Indonesian authorities, included a series of benefits from the government, provided that a local content requirement was fulfilled. Such a measure is identified by the TRIMs Agreement Illustrative list: ‘Indonesia’s measures, which are contingent on compliance with local content requirements, thus clearly constitute prohibited TRIMs as set forth in the Illustrative List’.9 Supporting local products over foreign ones, this category of measures creates a trade distortion. A prohibited TRIM is therefore identified in a two-steps process. It is firstly necessary to establish that the measure targets investment, whether immediately, or mediately.10 The second step is the demonstration that the investment measure affects trade. Thirdly, the effect on trade must breach a GATT provision. The question of the linkage between trade and investment formally and firmly 5.03 emerged on the occasion of the Uruguay Round.11 Despite the limited outcome of the negotiations compared to ‘the measures that were discussed (…) such as export performance and transfer of technology requirements’,12 the TRIMs brought clarification about the incompatibility between a TRIM and GATT provisions. This instrument substantiates and illustrates the breaches of Articles III and XI by TRIM. This clarification was much needed and is enshrined in the positive appraisal of foreign direct investment by

8 9 10

General Agreement on Trade in Services (1994) accessed 9 January 2018. Indonesia – Certain Measures Affecting the Automobile Industry Report of the Panel (98–2505) [1998] World Trade Organization (World Trade Organization), §6.6. See notably § 14.80 ibid.: On the basis of our reading of these measures applied by Indonesia under the 1993 and the 1996 car programmes, which have investment objectives and investment features and which refer to investment programmes, we find that these measures are aimed at encouraging the development of a local manufacturing capability for finished motor vehicles and parts and components in Indonesia. Inherent to this objective is that these measures necessarily have a significant impact on investment in these sectors. For this reason, we consider that these measures fall within any reasonable interpretation of the term ‘investment measures’. We do not intend to provide an overall definition of what constitutes an investment measure. We emphasize that our characterization of the measures as ‘investment measures’ is based on an examination of the manner in which the measures at issue in this case relate to investment. There may be other measures which qualify as investment measures within the meaning of the TRIMs Agreement because they relate to investment in a different manner. (emphasis added).

11

12

See ‘WTO | Trade And Investment – Technical Information – Agreement On Trade Related Investment Measures’ (Wto.org) accessed 27 January 2018: ‘The Punta del Este Ministerial Declaration which launched the Uruguay Round included the subject of trade-related investment measures as a subject for the new round.’ Ibid.

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stakeholders, in relation with growth and development.13 Very superficially put, this clarification arises from the structure of the TRIMs Agreement. It first, narrows down its scope of application to goods, precluding therefore services in Article 1, then it secondly, specifies the Articles (III and XI) of the GATT that may be breached by a TRIM in its Article 2(1). Then Article 3 provides a general gateway for exceptions to the prohibitions – most importantly, the Agreement comes with an Illustrative list in Annex which provides enlightening examples. 5.04 A last development will focus on the TRIMs in the context of this commentary’s industry, that is energy. How does the WTO dispute settlement body (DSB hereinafter) approach TRIMs in the energy industry? 5.05 Case DS452 – European Union and certain Members States – Certain Measures Affecting the Renewable Energy Generation Sector is still pending and was initiated by China in December 2011.14 Although the Panel Report has not yet been published, the content of the Chinese request for consultation contains illustrations of what could be regarded as a TRIM infringing GATT provisions in the energy sector. 5.06 To contextualize, the EU adopted the Directive 2009/28/EC aiming at promoting energy production from renewable resources. To create incentives, the transposition process entails the granting of advantages and operates, inter alia, on the basis of feed-in-tariffs. However, conditioning ‘the receipt of the full advantage of the measure on the use of domestic goods’,15 the delegation of China argues that such measures are ‘in conjunction with paragraph 1(a) of the Agreement’s Illustrative List, (…) inconsistent with Article III:4 of the GATT 1993’.16 Hence, feed-in-tariffs might be regarded as TRIMs breaching Article III:4 of the GATT. 5.07 Another case illustrating the type of measures to be qualified as breaching TRIMs could be DS456 India – Certain Measures Relating to Solar Cells and 13

14

15

16

See, inter alia, The Working Group on the Relationship Between Trade and Investment – World Trade Investment, ‘Report (1998) of the Working Group on the Relationship Between Trade and Investment to the General Council – WT/WGTI/2 8 December 1998 – (98–4920)’ (1998), §126. See WTO website for a process tracking of the proceedings, ‘Results List – DS452: European Union And Certain Member States – Certain Measures Affecting The Renewable Energy Generation Sector’ (Docs.wto.org) accessed 11 January 2018. The delegation of China to the World Trade Organization, ‘European Union and Certain Member States – Certain Measures Affecting The Renewable Energy Generation Sector Request For Consultations By China – DS452 – WT/DS452/1 G/L/1008 G/SCM/D95/1 G/TRIMS/D/34’ (2012). Ibid.

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Solar Modules.17 Following the US request for consultations, the Panel Report provided an analysis of the measures at stake in the light of the TRIMs Agreement. The claim related to ‘domestic content requirements (…) [in] solar cells and solar modules, and (…) imposed on certain entities selling electricity to government agencies under the National Solar Mission’18 Such measures were found ‘inconsistent with the obligation of national treatment provided for in paragraph 4 of Article III of GATT 1994 and thereby also inconsistent with Article 2.1 of the TRIMs Agreement’.19 To summarize the previous developments, the concept of TRIMs took its 5.08 final shape consequent to the Uruguay Round and appears as a necessity in the light of the undeniable linkage between trade and investment measures. In the context of the energy industry, the WTO DSB gave illustrations of TRIMs which take the traditional form of domestic content requirements and conditionality of advantages upon such content requirements. The next section will comparatively discuss the Article 5 structure with the 5.09 TRIMs Agreement. C. Article 5 on TRIMs, a provision-by-provision analysis This section of this commentary that follows a general presentation of the 5.10 TRIMs under the WTO regime will turn to the ECT article per se. The latter consists of four different paragraphs that will be successively studied. ‘5(1): ‘A Contracting Party shall not apply any trade-related investment measure that is inconsistent with the provisions of article III or XI of the GATT 1994; this shall be without prejudice to the Contracting Party’s rights and obligations under the WTO Agreement and Article 29.’ This provision can be broken down in two separate clauses, calling for distinct 5.11 commentaries. The first clause (‘A Contracting Party shall not apply any trade-related investment measure that is inconsistent with the provisions of article III or XI of the GATT 1994’) is a partial transposition of Article 2(1)

17

18 19

To obtain all the WTO information on the dispute, see ‘WTO | Dispute Settlement – The Disputes – DS456 – India—Certain Measures Relating To Solar Cells And Solar Modules’ (Wto.org) accessed 5 January 2018. India – Certain Measures Relating To Solar Cells and Solar Modules Report of the Panel [2016] World Trade Organization – Dispute Settlement Body (World Trade Organization – Dispute Settlement Body), §2.1. Ibid., § 7.2.3.4

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of the TRIMs Agreement.20 It therefore provides a prohibition like the WTO system. In other words, to fall under the scope of this prohibition, a measure must first be identified as a TRIM, and second, it must be demonstrated that the latter is inconsistent with GATT Articles III or XI. 5.12 Although this does not call for any specific comment, a difficulty may arise in the interpretation given to the notion of trade-related-investment-measure. The latter concept is not precisely defined per se by the TRIMs Agreement, despite the Illustrative List Annex. The methodology to establish whether a measure is a TRIM is given by the WTO case law and notably by Indonesia – Autos,21 and yet again no specific definition is given by the Panel. As a result, there is a risk of ambiguity regarding legal predictability for the Contracting Parties in relation to a potential litigation. The various litigation scenarios under the ECT could create contradicting interpretations with regards to the notion of TRIM between the Charter’s ad hoc jurisdictions and the WTO DSB. 5.13 The second clause of this first paragraph to Article 5(1) appears to be a gateway for exceptions to the prohibition provided by the first clause (‘this shall be without prejudice to the Contracting Party’s rights and obligations under the WTO Agreement and Article 29’). This clause indeed connects the prohibition to the broader networks of provisions arising from the trade regime applicable to the Charter’s parties. It is however a less limpid wording compared to Article 3 of the TRIMs Agreement which explicitly provides the word ‘exceptions’.22 The use of the word ‘rights’ by the Charter’s article can nonetheless be interpreted as a gateway for exceptions. The second noteworthy element of this clause is ‘under the WTO Agreement and Article 29’. 5.14 The applicable trade regime varies upon the affiliation to the WTO of both interacting parties. Pursuant to Article 29(2)(a), trade in ‘Energy Materials and Products and Energy-Related Equipment between Contracting Parties at least one of which is not a member of the WTO shall be governed, subject to subparagraph (b) and to the exceptions and rules provided for in Annex W’. Contrarily, Article 4 of the ECT provides that WTO parties and Contracting Parties to the Charter do not derogate ‘from the provisions of the WTO 20

21 22

See art 2(1) in Agreement on Trade-Related Investment Measures (1994): ‘Without prejudice to other rights and obligations under GATT 1994, no Member shall apply any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994.’ See ‘Interpretation and Application of Article 1’ in ‘WTO | WTO Analytical Index: Guide To WTO Law And Practice – Agreement On Trade-Related Investment Measures’ (Wto.org). See art 3 in Agreement on Trade-Related Investment Measures (1994): ‘All exceptions under GATT 1994 shall apply, as appropriate, to the provisions of this Agreement.’

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Agreement as they are applied between those Contracting Parties’. As a result, trade exclusively conducted between WTO parties is subject to the latter’s trade regime, failing to be subject to the ad hoc regime of Annex W, pursuant to Article 29(2)(a). In relation to the second clause of the Charter’s Article 5(1), exceptions to the TRIMs’ prohibition when a trade transaction is conducted between two WTO parties are to be found in the WTO regime. Conversely, a trade transaction is conducted under the circumstances prescribed by Article 29(2)(a), available exceptions to TRIMs breaching Articles III and XI of the GATT are to be found in Annex W. ‘5(2): ‘Such measures include any investment measure which is mandatory or enforceable under domestic law or under any administrative ruling, or compliance with which is necessary to obtain an advantage, and which requires: (a)

(b)

the purchase or use by an enterprise of products of domestic origin or from any domestic source, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production; or that an enterprise’s purchase or use of imported products be limited to an amount related to the volume or value of local products that it exports;

or which restricts: (c)

the importation by an enterprise of products used in or related to its local production, generally or to an amount related to the volume or value of local production that it exports; (d) the importation by an enterprise of products used in or related to its local production by restricting its access to foreign exchange to an amount related to the foreign exchange in flows attributable to the enterprise; or (e) the exportation or sale for export by an enterprise of products, whether specified in terms of particular products, in terms of volume or value of products, or in terms of a proportion of volume or value of its local production.’ Article 5(2) equates to a partial in-text incorporation of the Illustrative Annex 5.15 List to the TRIMs Agreement. The chapeau (‘investment measure which is mandatory or enforceable under domestic law or under any administrative ruling, or compliance with which is necessary to obtain an advantage, and which requires’) corresponds to the chapeaus found in (1) and (2) of 77

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the Annex, which provides a broad detection base for investment measures that can be lodged in various instruments (‘under domestic law or under any administrative ruling, or compliance’). In terms of structure, indents (a) and (b) under the TRIMs Agreement are linked to Article III:4 of the GATT 1994 – (c), (d) and (e) with Article XI:1. The general chapeau of the 5(2) incorporates these linkages but less precisely, since it does not connect the measures to the exact paragraph the former may breach. ‘5(3): Nothing in paragraph (1) shall be construed to prevent a Contracting Party from applying the trade-related investment measures described in subparagraphs (2)(a) and (c) as a condition of eligibility for export promotion, foreign aid, government procurement or preferential tariff or quota programmes.’ 5.16 Contrary to the second clause of Article 5(1), this paragraph is explicitly a provision laying down exceptions to the measures listed in Article 5(2). In other words, according to the exceptions detailed by this provision, Contracting Parties can adopt measures alike those ‘described in subparagraphs (2)(a) and (c)’ without running the risk of infringing Articles III and XI of the GATT, that is infringing Article 5(1) of the Charter. The (a) and (c) of the article are tantamount to local content requirements. The first measure equates to an obligation for the company to buy ‘products of domestic origin or from any domestic source’ and the second is a restriction about the importation of products for a company’s local production in relation for its exportations activities. Article 5(3) distinguishes four types of exceptions where the aforementioned measures can be conditions of eligibility: ‘export promotion, foreign aid, government procurement or preferential tariff or quota programmes.’ 5.17 The following comments will essentially focus on three of them: export promotion; government procurement, and preferential tariff or quota programmes. 5.18 Such exceptions could be seen as confusing, but Article 5(3) only echoes existing international trade practices. +

export promotion: the term covers a multifaceted reality. The first intuition tells the reader that behind it lies export subsidies. Yet, the present exception given by Article 5(3) is not an exception regime for subsidies. Indeed, both types of parties (WTO and non-WTO) to the Charter are subject to the Agreement on Subsidies and Countervailing 78

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Measures23 (ASCM hereinafter) on the basis of the ECT’s Article 4 (for WTO members) and Article 29(2)(a)/Annex W. As a result, should a party contingently subsidize a product upon export performances and local content requirements, this party would infringe Article 3(1) of the ASCM. Falling as result in the category of prohibited subsidies, such a measure cannot be lawfully operationalized without breaching WTO/ Annex W provisions. Hence, ‘export promotion’ in Article 5(3) of the Charter must not be read as export subsidies. Other policies towards export promotion can be designed and enforced – Article 3 remains an unavoidable bottom-line to which policymakers must pay attention. government procurement: this aspect of international trade is subject for some parties to the ECT to the Plurilateral Agreement on Government Procurement24 in its 1994 version25 and its 2012 Revised version.26 Being a plurilateral agreement this agreement is not mandatory for WTO members – because of strong domestic pressures from domestic producers and suppliers.27 The Agreement on Government Procurement is consequently excluded from the applicable trade regime arising from Article 29(2)(a)/Annex W.28 To provide an exception to local content requirements in relation with government procurement in the context of TRIMs simply mirrors the already existing exception to Article III of the GATT: Article III:8(a).29 One may nonetheless note that the wording of the GATT is more precise than the lapidary use of ‘government procurement’, the former distinguishing between government purchases ‘with a view to commercial resale’ and purchases outside this aim. preferential tariff or quota programs: both tariff and quota programs operate on the basis of a preferential advantage, granted by a country to another thanks to international agreements, in terms of tariff for example. The term ‘preferential tariffs’ is a dubious one and so is the

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23 24

25 26 27

28 29

Agreement on Subsidies and Countervailing Measures (World Trade Organization 1994) accessed 17 January 2018. For an access to different documents and information, see ‘WTO | Government Procurement – The Plurilateral Agreement On Government Procurement (GPA)’ (Wto.org) accessed 18 January 2018. Agreement on Government Procurement (World Trade Organization 1994) accessed 29 January 2018. Revised Agreement on Government Procurement (Entry Into Forces In 2014) (World Trade Organization 2012) accessed 6 January 2018. For a brief explanation of the rationales underpinning plurilateral agreements see ‘WTO | Understanding The WTO – Plurilaterals: Of Minority Interest’ (Wto.org, 2018) accessed 22 January 2018. See Energy Charter Secretariat, ‘Applicable Trade Provisions Of The Energy Charter Treaty’ (2003), VIII. Art III:8(a): ‘The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale’ in General Agreement on Tariffs and Trade 1994 (WTO Secretariat).

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word ‘quota’. Preferential tariffs and quota programs, with the skyrocketing number of regional trade agreements and preferential trade agreements, are traditional tools of international trade. Such tools do not infringe WTO most-favoured-nation clause, pursuant to Article XXIV of the GATT. The latter instruments can incorporate preferential tariffs and quota programs on a bilateral basis, sometimes a unilateral one.30 Similarly the WTO acknowledges a formal exception for developing countries in its Decision of 28 November 1979 (L/4903).31 The vocabulary is varied, and confusion must be avoided between preferential tariffs, preferential trade agreements, regional trade agreements, and preferential quota systems. Besides these technicalities, the practice of preferential tariffs is common; for example, the EU developed a system of tariff quotas in its relations with third-party countries.32 Of course, this system of preferences works on the basis of origin. In other words, to benefit from preferential tariffs and from quotas programs between two countries, products exported from one to another must be manufactured to a certain extent of products from the former. Failing to ensure compliance in terms of origins, it could be rational for firms from a first country to use intermediary countries to access a third country at a preferential rate, without incorporating any elements from the intermediary. This mechanism consisting of tracking the origins of goods is nothing new and already operates under the Agreement on Rule of Origin.33 Therefore, the exception laid down by Article 5(3) about local content requirements in relation to preferential tariffs and quota programs is unsurprising. ‘5(4): Notwithstanding paragraph (1), a Contracting Party may temporarily continue to maintain trade-related investment measures which were in effect more than 180 days before its signature of this Treaty, subject to the notification and phase-out provisions set out in Annex TRM.’ 30

31

32

33

For a general explanation regarding the MFN and exceptions to the latter, see ‘WTO | Understanding The WTO – Principles Of The Trading System’ (Wto.org) accessed 17 January 2018; for a more detailed inquiry on PTAs and RTAs see Part II in World Trade Report 2011 The WTO And Preferential Trade Agreements: From Co-Existence To Coherence (World Trade Organization 2011) accessed 29 January 2018. Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing Countries Decision Of 28 November 1979 (L/4903) (World Trade Organization 1979) accessed 19 January 2018. ‘Tariff Quotas – Taxation And Customs Union – European Commission’ (Taxation and Customs Union) accessed 29 January 2018. Agreement on Rules of Origin (World Trade Organization) accessed 25 January 2018.

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This provision of Article 5 encapsulates a transitional regime for applicable 5.19 TRIMs prior to the entry into force of the Charter and is supported by the Annex TRM to the latter. This regime must be seen in the light of the TRIMs Agreement, which is mirrored to a certain extent. The provision per se can be broken down to a sequence of three requirements, 5.20 that must be interpreted in relation to the pertaining Annex TRM. The first requirement is a temporal one (‘180 days’), the second is a formal procedure (‘subject to the notification and phase-out provisions set out in Annex TRM’), and the third is temporal as well (‘temporarily’). The notification procedure and the adjective ‘temporarily’ are clarified by the Annex TRM. Again, as it will be detailed, the regime distinguishes WTO members from non-WTO members in its requirements. 180 days: this temporal requirement does not call for any particular comment as such. Incidentally, the chronology is exactly the same as the one in the TRIMs Agreement, although the wording is different. Pursuant to the latter, ‘TRIMs introduced less than 180 days before the date of entry into force of the WTO Agreement shall not benefit from the transitional arrangements’.34 the notification – formal and substance requirements. Annex TRM lays down the notification procedure in its paragraphs (1), (2) and (6). First, to trigger a notification process, the existence of a TRIM is not sufficient. The latter must indeed be inconsistent with GATT Articles III and XI. Assuming that a TRIM is in force 180 days prior to the entry into force of the Charter, the time lapse to notify the Charter’s Secretariat varies upon the WTO affiliation of the notifying party. (1)35 of the Annex provides that WTO members must notify within 90 days after the entry of the Charter, like in Article 5(1) of the TRIMs Agreement.36 Annex TRM (1) also specifies that non-WTO parties have 12 months37 to do so. In terms of substance, Annex TRM (1) indicated that the notification must include the ‘principle features’ of the investment measure. Nonetheless, (2) defines that information that may threaten ‘the legitimate commercial interests of particular enterprises need not be disclosed’.38 This protection in relation with the disclosure of the features of the measures is to be found in the TRIMs Agreement at

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34 35 36 37 38

Agreement on Trade-Related Investment Measures (1994). See Annex TRM in Energy Charter Treaty (1994), (1)a. Ibid, art 5(1): ‘Members, within 90 days of the date of entry into force of the WTO Agreement, shall notify the Council for Trade in Goods (…)’. See Annex TRM in Energy Charter Treaty (1994), (1)b. Ibid, (2).

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+

Articles 5(1)39 and 6(3), which nonetheless provides a broader basis for non-disclosure.40 temporarily: again, the Annex TRM distinguishes between WTO members and non-WTO ones. In the same as in the TRIMs Agreement Article 5(2), WTO members must eliminate the inconsistent TRIMs within two years after the entry to force of the treaty, pursuant to Annex TRM (3)(a). Non-WTO members benefit from an extended time lapse of three years according to (3)(b).

5.21 To fully capture the transitional regime set out by Article 5(4) and Annex TRM to the Energy Charter, two other features must be commented: the paragraph (6) and the operationalization of the phase-out period. Paragraph (6)41 oversees the time lapse regarding the notification and the elimination of inconsistent TRIMs for countries joining the Charter after its entry into force. Regarding the notification, the provision sets out that the party may notify at ‘the later of the applicable date in paragraph (1)’, that is, 12 months.42 Then, regarding the elimination of the measure, the later date in paragraph (3) is retained.43 Alternative, if the notification is conducted at ‘the date of deposit of the instrument of accession’,44 the elimination can be operated at ‘the date on which the Treaty enters into force for that state or Regional Economic Integration Organisation’.45 5.22 The Annex TRM, copying the TRIMs Agreement Article 5, also covers the management of the phase-out. First, (4) of the Annex to the Charter provides like Article 5(4) of the TRIMs Agreement that the notifying must not modify the terms of the measures in a fashion that will increase its inconsistency with the provisions of Article 5 of the Charter, that is GATT Articles III and XI, during the phase-out period. Secondly, the (5) of the Annex to the Charter covers the question of new investments that would benefit from the inconsistent TRIM. New investment may benefit from the TRIM during the phaseout provided that two cumulative conditions are met. The first condition is a criterion of similarity, the applicability of the TRIM is subject to the similarity 39 40

See Agreement on Trade-Related Investment Measures (1994), art 5(1), footnote 1. Ibid, art 6(3): In conformity with Article X of GATT 1994 no Member is required to disclose information the disclosure of which would impede law enforcement or otherwise be contrary to the public interest or would prejudice the legitimate commercial interests of particular enterprises, public or private.

41 42 43 44 45

See Annex TRM in Energy Charter Treaty (1994). Ibid., see (6)(a). Ibid., see (6)(b). Ibid., see (6)(a). Ibid., see (6)(b).

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between ‘the products of such Investment’46 and the ‘products to those of the established enterprises’.47 The second condition to be met to apply the inconsistent measure to a new investment is a matter of competition. That is, if the non-applicability of the measure creates competition distortions between those subject to the latter and the new products, then the TRIM can be applied to the new investments during the phase-out period. Moreover, and surely for monitoring purposes, (5) to the Annex specifies that the application of the inconsistent measure to new investments must be notified to the Secretariat during the phase-out period. D. The Australian Declaration: exceptions and jurisdictional issues [DECLARATION With respect to Articles 5 and 10(11) Australia notes that the provisions of Articles 5 and 10(11) do not diminish its rights and obligations under the GATT, including as elaborated in the Uruguay Round Agreement on Trade-Related Investment Measures, particularly with respect to the list of exceptions in Article 5(3), which it considers incomplete. Australia further notes that it would not be appropriate for dispute settlement bodies established under the Treaty to give interpretations of GATT articles III and XI in the context of disputes between parties to the GATT or between an Investor of a party to the GATT and another party to the GATT. It considers that with respect to the application of Article 10(11) between an Investor and a party to the GATT, the only issue that can be considered under Article 26 is the issue of the awards of arbitration in the event that a GATT panel or the WTO dispute settlement body first establishes that a trade-related investment measure maintained by the Contracting Party is inconsistent with its obligations under the GATT or the Agreement on Trade- Related Investment Measures.] The Australian declaration calls for comments on two issues. This declaration 5.23 encapsulates a dual-critic. It first pinpoints the incompleteness of Article 5(3) in terms of exceptions available to the parties. And it secondly assesses the adequacy ‘for dispute settlement bodies established under the Treaty to give interpretations of GATT Articles III and XI in the context of disputes between parties to the GATT (…).’ 46 47

Ibid., see (5)(a). Ibid.

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1. Exceptions

5.24 In relation to exceptions, Article 5(3) is unquestionably incomplete. It does not indeed specify all available exceptions under the GATT regime. However, parties to the Charter must not adopt a short view vis-à-vis the latter. The main body of the ECT is only the tip of the iceberg. The ECT’s in-text provisions are only footbridges towards a differentiated trade regime, varying upon the WTO affiliation of the interacting parties under the Charter. Hence, although not all traditional WTO exceptions are mentioned in Article 5(3), the by-reference system embodied by in-text provisions make them available. However, two different paths are possible for a WTO country such as Australia. Again, the applicable trade regime varies upon the membership to the WTO of the interacting parties. 5.25 In the case of Australia, which is a member of the WTO since 1995 and to the GATT since 1967,48 two patterns of interactions are possible under the ECT: + +

WTO/non-WTO: a non-WTO country interacts with a WTO member. WTO/WTO: Australia or any WTO member, interacts with another WTO country.

5.26 In the first hypothesis, according to Article 29(2)a of the Charter, the applicable trade regime is given by the Annex W. This annex was incorporated to the Charter by the Trade Amendment, adopted in 1998 and entered into force in 2010. Annex W is nothing more than a pure and simple reference to the WTO legal architecture. As a result, most of the WTO instruments are applicable to non-WTO members. Thereupon, the applicable trade regime embodied by the Annex W is an adapted transposition of the WTO trade system. 5.27 As a consequence of the wording of Annex W, the general exceptions of GATT Article XX for example are fully available to parties. Furthermore, Article 5(1) provides also that the prohibition of inconsistent TRIMs with Article III and XI of the GATT ‘shall be without prejudice to the Contracting Party’s rights and obligations under the WTO Agreement and Article 29’. 5.28 Hence WTO members are entitled to the full benefit of WTO provisions, including exceptions. This clause takes an all-the-more important meaning since the Trade Amendment that encapsulated the ad hoc trade regime only 48

See ‘WTO | Australia – Member Information’ (Wto.org) accessed 24 January 2018.

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entered into force in 2010, whereas the ECT entered into force in 1994. Thence, the interests of WTO members, meaning the availability of exceptions here, have been preserved since the very beginning of the Charter. In the second hypothesis (WTO/WTO), the combination of the non- 5.29 derogatory provision specified by Article 4 of the Charter as well as the second clause of Article 5(1) leaves very few doubts and is not contentious. All WTO exceptions are available, since the WTO trade regime applies to its full extent under the ECT when two WTO members are contracting with each other. Hence, WTO exceptions are available despite the incompleteness of Article 5(3). 2. Jurisdictional issues

In its declaration, Australia secondly pinpoints the inadequacy of the dispute 5.30 settlement bodies of the ECT to give interpretations to GATT breaches when both contracting parties are WTO members. This assertion calls for a double-comment. First, in the specific context of Article 5, the ad hoc system of Article 27 is in principle incompetent to settle disputes arising from this article, pursuant to Article 28 on the ‘Non-Application of Article 27 to Certain Disputes’. This principle of non-application admits one exception: the ad hoc system will settle a dispute arising from the article if and only if both ‘parties to the dispute so agree’. Therefore, the bottom-line for WTO States fearing interpretations from the ad hoc bodies is: if they oppose the competence of Article 27 dispute settlement body, the latter will not settle the dispute. Hence, WTO contracting parties will not settle a litigation arising from Article 5 under Article 27 of the Charter in the absence of an agreement to do so. Incidentally, Article 29 provides another dispute settlement system established 5.31 by the ECT. Pursuant to Article 29(9), Annex D on Interim Provisions for Trade Dispute Settlement is in principle applicable if one of the litigant is not a WTO member. This settlement regime is not applicable if parties agree otherwise.49 Of course, this dispute settlement’s rules of application does not correspond to the hypothesis pinpointed by Australia’s declaration; it is nonetheless worth mentioning it. Secondly, the loophole of Article 28 should not nonetheless distract the reader from the broader question about pathdependency that may arise from the WTO case law in relation with the 49

The difference between arts 28 and 29(9) is considerable. In art 28, the rejection from one of the parties prevents the application of the dispute settlement of art 27; therefore only a mutual agreement allows the parties to submit the litigation to the latter’s settlement system. However, with art 29(9), the refusal of one party to submit the litigation to Annex D dispute settlement does deprive the latter from its competence to settle the litigation. That is a significant difference, to avoid Annex D’s application, parties must so agree.

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settlement of disputes by the Article 27 or Annex D bodies regarding breaches of GATT provisions. What would be the interpretation guidelines for a dispute under Article 27? Logically, in the light of the purpose of the ECT and with the aim of mirroring the WTO legal architecture to a certain extent for trade in the energy industry, one may legitimately expect that the dispute systems of the ECT will follow the footsteps of the WTO Dispute Settlement Body, its interpretations and case law.50

50

See Annex W(B)(10)(a): ‘Interpretations of the WTO Agreement adopted by the Ministerial Conference or the General Council of the WTO under paragraph 2 of article IX of the WTO Agreement insofar as they interpret provisions applicable under Article 29(2)(a) shall apply’ in The International Energy Charter Consolidated Energy Charter Treaty with Related Documents Transparency Document (With Annex W, Modified Into A Positive List Of The Applicable WTO Provisions), 401 – although this provision about interpretation is narrowed to Annex W application and pertaining litigations, the wording is enlightening. Presumably the same approach is likely to be adopted if the ad hoc body of art 27 is to settle a dispute arising from the ECT’s art 5 between two WTO members, provided that both so agree.

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ARTICLE 6 COMPETITION1 Pierre Serra

[UNDERSTANDING With respect to Article 6 (a)

(b)

1 2

The unilateral and concerted anti-competitive conduct referred to in Article 6(2) are to be defined by each Contracting Party in accordance with its laws and may include exploitative abuses. ‘Enforcement’ and ‘enforces’ include action under the competition laws of a Contracting Party by way of investigation, legal proceeding, or administrative action as well as by way of any decision or further law granting or continuing an authorisation.] (1) Each Contracting Party shall work to alleviate market distortions and barriers to competition in Economic Activity in the Energy Sector. (2) Each Contracting Party shall ensure that within its jurisdiction it has and enforces such laws as are necessary and appropriate to address unilateral and concerted anti-competitive conduct in Economic Activity in the Energy Sector.2 (3) Contracting Parties with experience in applying competition rules shall give full consideration to providing, upon request and within available resources, technical assistance on the development and implementation of competition rules to other Contracting Parties. (4) Contracting Parties may cooperate in the enforcement of their competition rules by consulting and exchanging information. (5) If a Contracting Party considers that any specified anticompetitive conduct carried out within the Area of another Contracting Party is adversely affecting an important interest relevant See Final Act of the European Energy Charter Conference, Understandings, n. 7. with respect to Art. 6, p. 27. See Art. 32(1), p. 79 and Annex T, pp. 113 and 114.

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to the purposes identified in this Article, the Contracting Party may notify the other Contracting Party and may request that its competition authorities initiate appropriate enforcement action. The notifying Contracting Party shall include in such notification sufficient information to permit the notified Contracting Party to identify the anti-competitive conduct that is the subject of the notification and shall include an offer of such further information and cooperation as the notifying Contracting Party is able to provide. The notified Contracting Party or, as the case may be, the relevant competition authorities may consult with the competition authorities of the notifying Contracting Party and shall accord full consideration to the request of the notifying Contracting Party in deciding whether or not to initiate enforcement action with respect to the alleged anti-competitive conduct identified in the notification. The notified Contracting Party shall inform the notifying Contracting Party of its decision or the decision of the relevant competition authorities and may if it wishes inform the notifying Contracting Party of the grounds for the decision. If enforcement action is initiated, the notified Contracting Party shall advise the notifying Contracting Party of its outcome and, to the extent possible, of any significant interim development.3 (6) Nothing in this Article shall require the provision of information by a Contracting Party contrary to its laws regarding disclosure of information, confidentiality or business secrecy. (7) The procedures set forth in paragraph (5) and Article 27(1) shall be the exclusive means within this Treaty of resolving any disputes that may arise over the implementation or interpretation of this Article.

COMMENTARY A. Introduction 6.01 This article provides a series of provisions focusing on competition, in relation to the energy industry. To locate an article on competition policy in a section on Commerce is unsurprising. The question of the relationship between competition policy and the achievement of trade liberalization is nothing new. The 1990s was certainly the decade during which this question irremediably emerged. Such an appearance in the agenda of policymakers was of course 3

See Art. 32(1), p. 79 and Annex T, pp. 113 and 119.

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caused by the Charter itself with the article subject to this commentary, but also by WTO declarations. In 1996, the Singapore Ministerial Declaration established at its paragraph 204 a working group to study ‘the interaction between trade and competition policy’.5 In this vein, the working group drafted a Synthesis Paper on the subject matter in 1998.6 That paper emphasized the connectedness of both issues. Full and total trade liberalization is unachievable without an effective competition policy preventing market distortions.7 These endeavours testify a general awareness about the role competition processes play on trade liberalization. Yet, both the ECT and the WTO have fallen short of expectations for the past ten years. In the turbulent background of the Doha Round, it was decided in 2004 that 6.02 the Working Group would not be active anymore,8 despite Doha Ministerial Conference’s 2001.9 Hence the flourishing technical assistances and symposiums to raise awareness about the interaction between trade and competition10 came to a halt in 2005. Technical assistance activity is now confined to national events at the request of States. So far, only Cameroon and Zambia have submitted requests to the WTO secretariat and benefited from the latter’s assistance.11 What about the Energy Charter Treaty and its article 6? The latter is a 6.03 fragmented compilation of provisions that cannot be regarded as a competition regime. Indeed, it does not establish a clear set of rules to be applied by Contracting Parties to the Charter. The wording leaves few doubts – Article 6 neither enforces nor triggers any sort of convergence in terms of 4

5 6

7 8

9 10

11

See Ministerial Conference, World Trade Organization, ‘Singapore Ministerial Declaration Adopted On 13 December 1996 – Ministerial Conference Singapore, 9–13 December 1996 – WT/MIN(96)/DEC 18 December 1996 – (96–5316)' (WTO 1996). Ibid., see §20. Working Group on the Interaction between Trade and Competition Policy – World Trade Organization, ‘Synthesis Paper on the Relationship of Trade and Competition Policy to Development and Economic Growth – WT/WGTCP/W/80 18 September 1998 – (98–3575) – Restricted' (WTO 1998). Ibid., see 12. World Trade Organization – General Council, ‘Text Of The ‘July Package’—The General Council’s Post-Cancún Decision – WT/L/579 2 August 2004 Decision Adopted By The General Council On 1 August 2004' (WTO 2004). World Trade Organization, ‘Doha WTO Ministerial 2001: Ministerial Declaration WT/MIN(01)/DEC/ 1 20 November 2001' (WTO 2001), §§ 23, 24, 25. For a more detailed report about the different activities of technical assistance, see Working Group on the Interaction between Trade and Competition Policy – World Trade Organization, ‘SECRETARIAT Technical Assistance Activities Pursuant To Paragraph 24 Of The Doha Ministerial Declaration – WT/WGTCP/W/230 21 May 2003 – (03–2722)' (WTO 2003). ‘WTO – Trade And Competition Policy – Technical Assistance In Regard To Trade And Competition Policy' (Wto.org) accessed 18 January 2018.

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competition policy. Briefly put, Article 6 is structured upon a general obligation and provisions prompting for cooperation and assistance between countries. In terms of enforcement mechanisms, Article 6’s enforceability hinges on soft means: Articles 6(5) and 27(1). Article 6(7) is extremely clear in this regard; these two articles are the ‘exclusive means within this Treaty of resolving any disputes that may arise over the implementation or interpretation of this Article’.12 The subsequent comments will proceed to a crossprovision analysis. The logic that spans across this article can be synthesized in one word: discretionary. Indeed, throughout the different provisions arises a legal landscape where contracting parties remain in control and poorly constrained. B. The obligation of alleviation – Article 6(1) 6.04 This first provision is the crux of Article 6 to a certain extent. It embodies a general obligation following which Contracting Parties must commit to prevent ‘market distortions and barriers to competition’13 in the energy industry. More precisely put, this first provision can be broken down in three elements. The pertaining comments will illustrate the legal weakness of this broad provision. 1. Material scope: ‘Economic Activity in the Energy Sector’

6.05 The clause ‘Economic Activity in the Energy Sector’ is defined by the Charter’s Article 1(5) as ‘an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products’.14 This definition encompasses energy products, which are categorized as ‘Energy Materials and Products’15 in the Charter. Also, activities listed such as land transport and transmission are regarded as services.16 Despite the absence of a clear and comprehensive listing of services pertaining to the energy sector,17 it

12 13 14 15

16 17

See Consolidated Version Of The Energy Charter Treaty And Related Documents (Energy Charter Secreteriat Organisation 2015), 48. See ibid., 47. Ibid., 40. In the Charter, Art. 1(4) gives the scope of ‘Energy Materials and Products’. This scope mirrors the harmonized system of the World Customs Organization (WCO) and is precisely defined thanks to Annexes EM I and II to the Charter. These Annexes cross-compile several elements of the WCO nomenclature. See, inter alia, Thomas Cottier and others, Individual Project No. 6, ‘Energy In WTO Law And Policy accessed 2 January 2018, 1–2. See the Understanding to Article 1(5) for extra-illustrations about activities encapsulated by the clause ‘Economic Activity in the Energy Sector’ in Consolidated Version Of The Energy Charter Treaty And Related Documents (Energy Charter Secreteriat Organisation 2015), 40.

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can be assumed that services, under the clause ‘Economic Activity in the Energy Sector’, are covered by Article 6(1). 2. Nature of the obligation: ‘shall work’

The clause ‘shall work’ is ambivalent. It is simultaneously clear that Contract- 6.06 ing Parties must positively act; however, the wording is broad. It does not indeed embody any particular schedule, arrangement or indication about the pace of reforms. Similarly, the clause does not provide any further indication about the tools to be employed. Hence, Contracting Parties are poorly constrained in terms of methodology, chronology and results. 3. Content of the obligation: ‘market distortions and barriers to competition’

The subsequent question to the above paragraph is: parties ‘shall work’ but 6.07 towards what? Contracting Parties must work to prevent ‘market distortions and barriers to competition’. Again, this clause is ambivalent: it appears rather straightforward and self-explanatory. Yet, ‘market distortions’ as well as ‘barriers to competition’ are very broad concepts. The WTO provides a summarizing definition of a market distortion in its 6.08 Glossary: ‘When prices and production are higher or lower than levels that would usually exist in a competitive market’.18 Hence market distortion is about pricing and production distortion arising from a market that is not perfectly competitive. In other words, distortion may arise from deviation from the five cardinal rules of pure and perfect competition. Beyond the contradictions and controversies19 underpinning the concept of competition as defined by Smith in the Wealth of Nations,20 to employ ‘market distortion’ covers several realities. On a more legal note, compliance with this provision can be met if for example a party engages in reforms towards competition policy holy trinity: merger control, antitrust and state aid. But does the same State comply if it does not engage in these reforms? Nothing is less certain since the concept is very broad. Failing to provide a detailed list of sub-areas in which the State must engage 6.09 to foster competitive market price fixing, the Contracting Party remains in control and has a wide discretion over the reforms it intends to implement. 18 19 20

‘WTO, Glossary – Distortion' accessed 8 January 2018. See, inter alia, the landmark work of Stigler in George J. Stigler, ‘Perfect Competition, Historically Contemplated' (1957) 65 Journal of Political Economy. Adam Smith, The Wealth Of Nations (Dancing Unicorn Books 2017).

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Merger control, antitrust and state aid are indeed not mentioned nor discussed by Article 6. 6.10 What about ‘barriers to competition’? An economist would certainly argue that specifying ‘barriers to competition’ after including ‘market distortions’ is redundant since barriers preventing access to markets, that is to competition, create market distortions in deviating the price from the competitive market price. Besides these economic considerations, ‘barriers to competition’ refer broadly speaking to barriers to entry markets. Again, such barriers are varied and numerous. First, the inquiry to provide a holistic definition of barriers to competition ‘is unlikely to be very helpful in investigations and policy decisions’.21 Secondly, how does a policymaker recognize a barrier to entry? It is possible to distinguish structural barriers from strategic ones,22 yet barriers to entry can be found in several areas of regulation, ranging from licenses to safety requirements.23 Legally speaking, endeavours towards compliance with this provision are nebulous and varied. As for market distortions, parties to the Charter are consequently given a large autonomy. C. Enforcement of competition provisions by the Contracting Parties – Article 6(2) 6.11 Again, the wording of the provision combined with the pertaining understandings (a) and (b) leaves a wide autonomy for signatory parties. Article 6(2) can also be broken down in distinct elements. The scope of the provision is the same as that of Article 6(1).24 1. The nature of the obligation: ‘shall ensure that within its jurisdiction it has and enforces such laws as are necessary and appropriate’

6.12 Article 6(2) broadly specifies what the signatory State must design and implement via laws and enforcement policies. Yet again, the pace of implementation and potential arrangements are not mentioned by the wording. Consequently, the issue of compliance remains nebulous. Moreover, Understanding (b) to the article provides a broad autonomy regarding the means of enforcement: ‘by way of investigation, legal proceeding, or administrative action as well as by way of any decision or further law granting or continuing an authorisation’.25 21 22 23 24 25

Competition And Barriers To Entry – Organisation For Economic Co-Operation and Development – Policy Brief (OECD 2007) accessed 6 January 2018, 2. Ibid., 3. Ibid., 4. Cf. supra Art. 6(1), material scope and notably footnotes from 12–16. See Consolidated Version Of The Energy Charter Treaty, supra note 12, 46–7.

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2. Content of the obligation: ‘unilateral and concerted anti-competitive conduct’

Article 6(2) distinguishes between unilateral and concerted behaviour of 6.13 economic players. This categorization is rather common – for example, the EU distinguishes in the Treaty on the Functioning of the European Union in Articles 101 and 102 unilateral conducts from concerted. However, failing to detail the different anti-competitive behaviours, contrary to the TFEU, States benefit from significant flexibility on the policies that they wish to implement in priority. Moreover, reinforcing this lack of detail, Understanding (a) to Article 6(2) specifies a freedom in terms of definition. That is, each party, according to its laws, is to define ‘unilateral and concerted anti-competitive conduct referred to in Article 6(2)’.26 The assessment for compliance is rendered even more difficult in this regard: this provision does not contain a common schedule for parties; does not provide a list of behaviours; and lastly, does not provide a set of identical definitions. As a result, harmonization between competition frameworks is unlikely and the goal of building harmonized competition regimes is far from being accomplished. D. Obligation of cooperation between Contracting Parties and between national competition authorities – Article 6(3), (4) and (6) Article 6(3) and (4) are grouped here since both provisions encapsulate 6.14 cooperation mechanisms aiming at promoting the development and efficacy of competition frameworks. Article 6(3) focuses on technical assistance between countries, especially between ‘Contracting Parties with experience in applying competition rules’27 and countries with limited experience in the field. The second provision concentrates on information exchange and cooperation between countries to ensure the enforcement of their respective competition rules. Yet again, discretion remains the keyword here. The wording leaves no doubt regarding the constraining power of both provisions. Article 6(3) specifies that parties ‘shall give full consideration’ and 6(4) specifies that parties ‘may cooperate’. Such formulations are soft and leave autonomy in the decision to cooperate. It would not have been the same story, had the wording been ‘shall provide technical assistance’ for Article 6(3) and ‘will cooperate’ for Article 6(4). 26 27

Ibid., 46. Ibid., 47.

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E. Infringement, cooperation and dispute resolution – Article 6(5) and (7) 6.15 This provision embodies the resolution process if anti-competitive conduct arising from one party affects another’s market. 6.16 This system operates on the basis of a notification by the party undergoing a negative effect from another party’s market. The latter may decide, or its competition authority may, not to do anything, it only ‘shall accord full consideration to the request of the notifying Contracting Party’.28 Moreover, in the absence of harmonization in terms of policies and above all in terms of definitions, the competition authority of the notified party may not have incorporated a prohibition of the anticompetitive conduct pinpointed by the notifying party. 6.17 The remainder of the provision details the procedural aspects when the notified party accepts to prosecute is self-explanatory. Article 6(7) specifies that the mechanism of Article 6(5) and the diplomatic channels mentioned at Article 27(1) are the sole means ‘of resolving any disputes that may arise over the implementation or interpretation of this Article’.29 The enforcement mechanisms pertaining to the latter are therefore extremely weak.

28 29

Ibid., 47. Ibid.

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ARTICLE 7 TRANSIT1 Cătălin Gabriel Stănescu

(1) Each Contracting Party shall take the necessary measures to facilitate the Transit of Energy Materials and Products consistent with the principle of freedom of transit and without distinction as to the origin, destination or ownership of such Energy Materials and Products or discrimination as to pricing on the basis of such distinctions, and without imposing any unreasonable delays, restrictions or charges. (2) Contracting Parties shall encourage relevant entities to cooperate in: (a) modernising Energy Transport Facilities necessary to the Transit of Energy Materials and Products; (b) the development and operation of Energy Transport Facilities serving the Areas of more than one Contracting Party; (c) measures to mitigate the effects of interruptions in the supply of Energy Materials and Products; (d) facilitating the interconnection of Energy Transport Facilities. (3) Each Contracting Party undertakes that its provisions relating to transport of Energy Materials and Products and the use of Energy Transport Facilities shall treat Energy Materials and Products in Transit in no less favourable a manner than its provisions treat such materials and products originating in or destined for its own Area, unless an existing international agreement provides otherwise. (4) In the event that Transit of Energy Materials and Products cannot be achieved on commercial terms by means of Energy Transport Facilities the Contracting Parties shall not place obstacles in the way of new capacity being established, except as may be otherwise provided in applicable legislation which is consistent with paragraph (1).2 (5) A Contracting Party through whose Area Energy Materials and Products may transit shall not be obliged to (a) permit the construction or 1 2

See Final Act of the European Energy Charter Conference, Declarations, n. 3. with respect to Art 7, p. 31. See Art 32(1), p. 79 and Annex T, pp. 113 and 122.

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modification of Energy Transport Facilities; or (b) permit new or additional Transit through existing Energy Transport Facilities, which it demonstrates to the other Contracting Parties concerned would endanger the security or efficiency of its energy systems, including the security of supply. Contracting Parties shall, subject to paragraphs (6) and (7), secure established flows of Energy Materials and Products to, from or between the Areas of other Contracting Parties. (6) A Contracting Party through whose Area Energy Materials and Products transit shall not, in the event of a dispute over any matter arising from that Transit, interrupt or reduce, permit any entity subject to its control to interrupt or reduce, or require any entity subject to its jurisdiction to interrupt or reduce the existing flow of Energy Materials and Products prior to the conclusion of the dispute resolution procedures set out in paragraph (7), except where this is specifically provided for in a contract or other agreement governing such Transit or permitted in accordance with the conciliator’s decision. (7) The following provisions shall apply to a dispute described in paragraph (6), but only following the exhaustion of all relevant contractual or other dispute resolution remedies previously agreed between the Contracting Parties party to the dispute or between any entity referred to in paragraph (6) and an entity of another Contracting Party party to the dispute: (a) A Contracting Party party to the dispute may refer it to the Secretary General by a notification summarising the matters in dispute. The Secretary General shall notify all Contracting Parties of any such referral. (b) Within 30 days of receipt of such a notification, the Secretary General, in consultation with the parties to the dispute and the other Contracting Parties concerned, shall appoint a conciliator. Such a conciliator shall have experience in the matters subject to dispute and shall not be a national or citizen of or permanently resident in a party to the dispute or one of the other Contracting Parties concerned. (c) The conciliator shall seek the agreement of the parties to the dispute to a resolution thereof or upon a procedure to achieve such resolution. If within 90 days of his appointment he has failed to secure such agreement, he shall recommend a resolution to the dispute or a procedure to achieve such resolution and shall decide the interim tariffs and other terms and conditions to be observed for Transit from a date which he shall specify until the dispute is resolved.

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(d) The Contracting Parties undertake to observe and ensure that the entities under their control or jurisdiction observe any interim decision under subparagraph (c) on tariffs, terms and conditions for 12 months following the conciliator’s decision or until resolution of the dispute, whichever is earlier. (e) Notwithstanding subparagraph (b) the Secretary General may elect not to appoint a conciliator if in his judgement the dispute concerns Transit that is or has been the subject of the dispute resolution procedures set out in subparagraphs (a) to (d) and those proceedings have not resulted in a resolution of the dispute. (f) The Charter Conference shall adopt standard provisions concerning the conduct of conciliation and the compensation of conciliators. (8) Nothing in this Article shall derogate from a Contracting Party’s rights and obligations under international law including customary international law, existing bilateral or multilateral agreements, including rules concerning submarine cables and pipelines. (9) This Article shall not be so interpreted as to oblige any Contracting Party which does not have a certain type of Energy Transport Facilities used for Transit to take any measure under this Article with respect to that type of Energy Transport Facilities. Such a Contracting Party is, however, obliged to comply with paragraph (4). (10) For the purposes of this Article: (a) “Transit” means (i) the carriage through the Area of a Contracting Party, or to or from port facilities in its Area for loading or unloading, of Energy Materials and Products originating in the Area of another state and destined for the Area of a third state, so long as either the other state or the third state is a Contracting Party; or (ii) the carriage through the Area of a Contracting Party of Energy Materials and Products originating in the Area of another Contracting Party and destined for the Area of that other Contracting Party, unless the two Contracting Parties concerned decide otherwise and record their decision by a joint entry in Annex N. The two Contracting Parties may delete their listing in Annex N by delivering a joint written notification of their intentions to the Secretariat, which shall transmit that notification to all other Contracting Parties. The deletion shall take effect four weeks after such former notification. (b) “Energy Transport Facilities” consist of high-pressure gas transmission pipelines, high-voltage electricity transmission grids and lines, crude oil transmission pipelines, coal slurry pipelines, oil 97

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product pipelines, and other fixed facilities specifically for handling Energy Materials and Products.

COMMENTARY ‘(1) Each Contracting Party shall take the necessary measures to facilitate the Transit of Energy Materials and Products consistent with the principle of freedom of transit and without distinction as to the origin, destination or ownership of such Energy Materials and Products or discrimination as to pricing on the basis of such distinctions, and without imposing any unreasonable delays, restrictions or charges.’ 7.01 By ‘transit’, one understands the transport of certain goods from one country to another, through at least a third country.3 While most of the definitions of ECT are provided for in Article 1, Article 7 contains its own definition of transit and it specifically covers the transit of energy materials and products4 such as uranium, coal, natural gas, petroleum, electricity, fuel wood, or wood charcoal. 7.02 The definition provided by Article 7, Paragraph 10 is two-fold. On the one hand,5 ‘transit' means carriage through, to or from port facilities of an area of a Contracting Party, of energy materials and products, either originating in the area of another state or destined for the area of a third state, in cases where the other state or the third state is a Contracting Party to the ECT. On the other hand,6 it also means the carriage through the Area of a Contracting Party of Energy Materials and Products originating in the Area of another Contracting Party and destined for the Area of that other Contracting Party, unless the two Contracting Parties concerned decide otherwise7 and record their decision by a joint entry in Annex N.8 Thus, in order to qualify as transit under the 3 4 5 6 7

The Energy Charter Treaty. A Reader's Guide (Guide to ECT), p. 29, available online at: https://is.muni.cz/ el/1422/jaro2017/MVV2368K/um/ECT_Guide_ENG.pdf, last accessed on 04.04.2018. According to Art 1, Para 4 of the ECT, Energy Materials and Products means the items included in Annexes EM I and EM II to the ECT. Art 7, Para 10, letter (a), point (i) of the ECT. Art 7, Para 10, letter (a), point (ii) of the ECT. Such a decision can be reversed according to the final provisions of Art 7, Para 10, letter (a), point (ii), which state that: The two Contracting Parties may delete their listing in Annex N by delivering a joint written notification of their intentions to the Secretariat, which shall transmit that notification to all other Contracting Parties. The deletion shall take effect four weeks after such former notification.

8

Annex N contains a List of Contracting Parties Requiring at least three Separate Areas to be Involved in a Transit. So far the parties that made such requirements are Canada and the US.

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ECT and trigger its provisions, it suffices that the transit state and either the producing or the destination states are Contracting Parties. In other words, although transit regularly involves a triadic relationship, the ECT is satisfied with two parties being members, as long as the transit state is one of them. Paragraph 1 of Article 7 establishes an obligation to facilitate transit in a 7.03 non-discriminatory manner, notwithstanding if discrimination would arise from origin, destination, ownership, price or taxation of energy. In doing so, Article 7 is consistent with the provisions of Article 10, Paragraph 1, establishing the principle of non-discrimination with respect to accessing energy resources and markets,9 but also with those of Article V of GATT,10 which governed matters related to freedom of transit of energy until the entry into force of the ECT.11 It must be mentioned here that the ECT builds upon and broadens the provisions of GATT, by explicitly covering grid-bound energy transport and its enforceability.12 This ensured that states that were not part of any international transit agreement had, through the ECT, access to a set of rules suited to protect their interests and were accepted by the parties of the treaty. Another aim of Article 7, Para 1 of the ECT was to provide a balance between 7.04 sovereign interests of states and the need for security and stability of transit.13 With respect to ‘transit', one should note that although Article 7 already 7.05 represented the most elaborate set of multilateral rules concerning energy transit, the parties to the ECT felt that further strengthening and elaboration of said rules were needed.14 To this end, the Energy Charter Conference decided in 1999 to launch negotiations on a Transit Protocol to the ECT.15

9

10 11

12 13 14 15

According to Art 10, Para 1 of the ECT: ‘[s]uch Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal’. Art V of GATT and the Interpretative Note Ad Art V are available online at: https://www.wto.org/english/ res_e/booksp_e/gatt_ai_e/art5_e.pdf last accessed on 04.04.2018. Guide to ECT, p. 29. According to the guide, the provisions of GATT became unable to deal with energy transit, due to the increased complexity of transit transactions, especially with respect to service fees and transit routes. Thus, rules that are more elaborate were needed to ensure transit on reasonable terms. Ibid., p. 30. Ibid. Ibid., p. 31. See Decision CCDEC 199914 regarding the Mandate for negotiations on a Multilateral Transit Framework, available online at: https://energycharter.org/what-we-do/conference-decisions/documents/all/, last accessed on 04.04.2018. For details concerning the Draft Charter Protocol see: Rafael Leal Arcas – Energy Transit Activities: Collection of Intergovernmental Agreements of Oil and Gas Transit Pipelines and Commentary, published by the Energy Charter Secretariat, 2015, pp. 12–13, available online at: https://energycharter.org/ fileadmin/DocumentsMedia/Thematic/Energy_Transit_Activities_2015_en.pdf, last accessed on 04.04.2018.

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Negotiations were suspended in 200316 but resumed in 2007.17 A mandate to restart negotiations on the remaining open issues of the draft Protocol on Transit was granted by the Energy Charter Conference to the Trade and Transit Group in 2009,18 but it failed to deliver and it was subsequently repealed in 2011.19 In addition to the attempts to adopt and implement a Transit Protocol, the Contracting Parties have also engaged in the development of non-legally binding instrument related to transit, to serve as guidelines in negotiating individual projects involving transit.20 Therefore, a number of Intergovernmental and Host Government Model Agreements concerning cross-border oil and gas transit projects have been drawn up.21 ‘(2) Contracting Parties shall encourage relevant entities to cooperate in: (a)

modernising Energy Transport Facilities necessary to the Transit of Energy Materials and Products; (b) the development and operation of Energy Transport Facilities serving the Areas of more than one Contracting Party; (c) measures to mitigate the effects of interruptions in the supply of Energy Materials and Products; (d) facilitating the interconnection of Energy Transport Facilities.’ 7.06 Paragraph 2 of Article 7 also establishes a commitment of Contracting Parties to cooperate with respect to Energy Transport Facilities, either by modernising and interconnecting the existing ones, or by constructing, operating and developing new ones. Since the wording of the ECT does not distinguish between internal and cross-border facilities, this commitment should be read to cover both. One purpose, specifically mentioned by the ECT, is to mitigate potential effects of interruptions in supply of energy materials and products and to increase the level of interconnection, the two being in a symbiotic 16

17

18

19 20 21

See Decision CCDEC 200307 – Conclusion of negotiations on and Adoption of the Energy Charter Protocol on Transit, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/ CCDEC200307.pdf, last accessed on 04.04.2018. Decision CCDEC 200708 regarding Next Steps in Relation to the Draft Transit Protocol, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC200708.pdf, last accessed on 04.04.2018. Decision CCDEC 200906 – Mandate for the Negotiation of the Remaining Open Issues of the draft Protocol on Transit, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/ CCDEC200906.pdf, last accessed on 04.04.2018. See Decision CCDEC 201106 – Decision on the Draft Transit Protocol, available online at: https:// energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC201106.pdf, last accessed on 04.04.2018. Guide to ECT, p. 32. See, e.g., Model Agreements for Cross Border Pipelines, for Cross-Border Electricity projects, available online in both English and Russian at: https://energycharter.org/what-we-do/trade-and-transit/modelagreements/, last accessed on 04.04.2018.

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relationship. However, the mention of this purpose is not limited and cannot be understood in the sense that the commitments of the Contracting Parties regarding Energy Transfer Facilities cannot pursue other objectives. Since Paragraph 1 established the principle of non-discrimination with respect 7.07 to measures meant to facilitate transit of energy materials and products, it follows that any activity listed in Paragraph 2 must observe the principle as well. Therefore, countries may not refuse transit, the construction of a new pipeline, the increase of network capacity or interconnection solely on the basis of origin, destination of ownership of the energy material or product.22 Nevertheless, the ECT does not exclude a right of refusal on legitimate grounds23 and in good faith, given the chosen wording of Paragraph 2 and the subsequent fourth, fifth and ninth Paragraph to Article 7. States are, thus, bound to ‘encourage collaboration’, but not to ensure it. The definition of ‘Energy Transport Facilities' is provided in Article 7, Para 7.08 10, letter (b) of the ECT and covers fixed energy infrastructure: (a) highpressure gas transmission pipelines; (b) high-voltage electricity transmission grids; (c) crude oil transmission pipelines; (d) coal slurry pipelines; (e) oil product pipelines; and (f) other fixed facilities meant for handling energy materials and products, one notable example being port facilities.24 ‘(3) Each Contracting Party undertakes that its provisions relating to transport of Energy Materials and Products and the use of Energy Transport Facilities shall treat Energy Materials and Products in Transit in no less favourable a manner than its provisions treat such materials and products originating in or destined for its own Area, unless an existing international agreement provides otherwise.’ Paragraph 3 of Article 7 of ECT is a natural continuation and application of 7.09 the principle of non-discrimination set out in Paragraph 1 of Article 7 of ECT (and Art V of GATT). It establishes an obligation for Contracting Parties not to implement any provisions with regard to transport or use of energy transport facilities that would treat energy materials and products that are in transit less favourably than similar materials of products that are exported from or imported into their own areas. The obligation stems from the wording of Paragraph 3: ‘shall treat […] in no less favourable a manner’. Nevertheless, 22 23

24

Guide to ECT, p. 30. See Art 7, Para 4 of the ECT and its reference to the obligation to refrain from establishing obstacles to new capacities being established, other than legal barriers that do not contravene to the principle of nondiscrimination or Art 7, Para 5, establishing a right of refusal of transit, based on safety or efficiency concerns. Guide to ECT, p. 30.

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since the wording of Paragraph 3 refers strictly to ‘provisions’, the prohibition of discrimination encompassed by it appears to cover only discriminatory treatments that would arise from different legal regimes applicable to energy materials and products or legal regimes governing the use of energy transportation facility. In other words, Contracting Parties are generally precluded from establishing individual exceptions to the principle of non-discrimination established in Paragraph 1 of Article 7, although different regimes may arise from specific situations, where other existing international agreements state otherwise. 7.10 The provisions of Paragraph 3 should also be read as giving more power to the recommendations set out in Paragraph 2, as any discriminatory or different legal regimes applicable to energy materials and products that are destined to own use or exports and, those that are in transit respectively, would go against ‘cooperation’. Similarly, any restrictions or different regimes in accessing or using transport facilities destined for energy materials and products would violate the obligation to mitigate the danger of interruptions or to facilitate interconnections between Contracting Parties. 7.11 The obligation not to discriminate by establishing different legal regimes between transiting materials or products or between users of transport facilities for energy may also be read to establish a National Treatment (NT) for energy materials and products that are transiting the territory of a Contracting Party. According to Paragraph 3 NT is granted in respect of all laws, regulations and requirements affecting transiting goods or the usage of transport facilities: ‘[…] its (the Contracting Party's) provisions related to transport […] or the use […] shall treat Energy Materials and Products in transit in no less favourable a manner than […] such materials and products originating in or destined for its own Area’. 7.12 The presence of NT with respect to transiting goods or usage of transport facilities for energy products or materials has its origin in international trade law, notwithstanding whether it was established at multilateral level (i.e., Article III of GATT or WTO) or at bilateral level (i.e., via BITs). It is also reaffirmed by the ECT in Part III dedicated to Investment Promotion and Protection, where it is established that ‘[e]ach Contracting Party shall endeavour to accord to Investors of other Contracting parties, as regards the Making of Investments in its Area […]’25 a ‘[…] treatment […] which is no less favourable than that which it accords to its own investors […]’.26 25 26

Art 10, Para 2 of ECT. Art 10, Para 3 of ECT.

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A question that arises is that of the relationship between Article 7, Para 1 and 7.13 3 of the ECT and Article 10, Para 2 and 3 of the ECT with respect to the application of the Most-Favoured-Nation Treatment (MFNT) to transiting goods. It is clear that the ECT considers matters related to transit and matters related to investments as two different things, although inter-related, as the former is provided for in Part II of the ECT – Commerce, and the latter is covered by Part III – Investment Promotion and Protection. Another reason, for which the two should be analysed independently, is the fact that the drafters have chosen to refer in both cases to the application of NT, to avoid any misunderstandings. At first glance, it would appear that in the absence of a specific provision in 7.14 Article 7, similar to the one in Article 10, Paragraph 3 (‘[t]reatment … no less favourable than that which it accords … to Investors of any other Contracting Party, or any third state, whichever is the most favourable’), the MFNT will not apply to transiting goods. However, such interpretation should be nuanced. The final statement of Article 7, Paragraph 3 of the ECT states that the NT must apply to transiting energy materials and products or to the use of transport facilities ‘unless an existing international agreement provides otherwise’. Although this statement establishes an exemption from the application of the NT, the exemption may refer to either a lower or a higher standard than the NT. Thus, there is no obstacle in the application of the MFNT to transiting goods, where an existing international agreement provides so. Regarding the final statement of Paragraph 3 of Article 7, by which the 7.15 drafters established a potential exemption from the principle of nondiscrimination and the NT regarding transiting energy goods or the usage of transport facilities, attention should be given to the choice of wording. The drafters referred to exemptions established by ‘existing’ international agreements (in consonance to the Vienna Convention),27 and not international agreements in general (current or future). Thus, the text allows for exemptions already (emphasis added) established via international agreements, but in doing so, it precludes Contracting Parties imposing such exemptions, by resorting to future international agreements. In conclusion, the exemptions from the application of the non-discriminatory principle and the NT with respect to transit are to be read and understood as limitative and prohibited in the future. 27

Art 30 of Vienna Convention on the Law of Treaties, available online at: https://treaties.un.org/doc/ publication/unts/volume%201155/volume-1155-i-18232-english.pdf, last accessed on 04.04.2018.

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‘(4) In the event that Transit of Energy Materials and Products cannot be achieved on commercial terms by means of Energy Transport Facilities the Contracting Parties shall not place obstacles in the way of new capacity being established, except as may be otherwise provided in applicable legislation which is consistent with paragraph (1).’ 7.16 Paragraph 4 of Article 7 further qualifies to the provisions of Paragraph 1 regarding the principle of non-discrimination. These provisions are applicable in cases where transit of energy goods is not possible on ‘commercial terms’, by ‘means of Energy Transport Facilities’. 7.17 With regard to the meaning of ‘commercial terms’, the ECT provides no definition thereof. Thus, one may adopt a general and broad understanding encompassing any commercial terms applicable to a particular agreement or the terms and conditions used by an energy company28 regarding transit by means of transport facilities of energy. However, given the fact that the ECT is a multilateral international treaty and part of the international trade law framework, one may also consider a more specific, narrower meaning, by referring to International Commercial Terms, such as the INCOTERMS developed by the ICC and used worldwide by both shippers and governments, to avoid uncertainty and misunderstandings. 7.18 The reference to transit by means of Energy Transfer Facilities is meant to limit the scope of Paragraph 4 to the transportation of energy materials and products via fixed infrastructure – such as oil and gas pipelines, transmission grids, or port facilities. Thus, any other type of transportation of energy materials and products would escape the coverage of Paragraph 4. 7.19 It follows that in cases where an agreement on commercial terms applicable to transport via fixed energy networks is not possible, Contracting Parties are under a negative obligation (‘shall not place’) – to refrain from frustrating the establishment of new capacities.29 In the context of transit, although the drafters have not specifically said so, ‘new capacities' need to be understood as 28

See for instance the statement of the Energy Charter Secretary General on the Russia-Belarus energy negotiations with regard to natural gas supply and transit, 8.01.2007, available online at: https://energy charter.org/media/news/article/energy-charter-secretary-general-on-the-russia-belarus-energy-negotiations/ ?tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&cHash=24314eae8fe8c96b5a 5ca129812547a5, last accessed on 04.04.2018. Gazprom's intention to move to new commercial terms for gas deliveries to neighbouring states has been clear for some time ‘stating the need for a swift settlement of negotiations’ in order to avoid the risk of interruptions to energy supply through Belarus into other European markets (emphasis added).

29

Guide to ECT, p. 30.

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new transit capacities, in the form of new fixed infrastructure that would ensure transportation of energy goods. The general negative obligation of refraining from placing obstacles in the way 7.20 of new capacities being established is nuanced by the final statement of Paragraph 4, which provides an exemption from the aforementioned obligation where the applicable legislation is consistent with Paragraph 1, meaning it is not discriminatory and those of Paragraph 9, which provide that Contracting Parties cannot be obliged to take any measures with regard to a type of transport facility they do not have. Nevertheless, Contracting Parties that would seek to oppose the construction of new capacities would need to demonstrate that the new capacities would endanger the security or efficiency of their energy systems, including security of supply30 to avoid arbitrariness. The ECT also acknowledges the fact that given the states' sovereign rights, national legislation may override the treaty's provisions, in areas such as environmental protection, land use, safety or technical standards.31 ‘(5) A Contracting Party through whose Area Energy Materials and Products may transit shall not be obliged to (a) permit the construction or modification of Energy Transport Facilities; or (b) permit new or additional Transit through existing Energy Transport Facilities, which it demonstrates to the other Contracting Parties concerned would endanger the security or efficiency of its energy systems, including the security of supply. Contracting Parties shall, subject to paragraphs (6) and (7), secure established flows of Energy Materials and Products to, from or between the Areas of other Contracting Parties.’ The provisions of Article 7, Paragraph 5 are addressed exclusively to transit 7.21 states that are also Contracting Parties of the ECT and provide them with the possibility to block any development works concerning their Energy Transport Facilities as defined in Paragraph 10, letter b) of the same treaty article. As mentioned before32 this provision acknowledges the sovereign rights of any 7.22 Contracting Party both over their fixed energy infrastructure and over their right to regulate, by national law, any aspect concerning environmental protection, land use, safety or technical standards. 30 31

32

See Art 7, Para 5 of ECT. See Understanding 8 with respect to Art 7(4) of the ECT, according to the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_ Final_Act.pdf, last accessed on 04.04.2018. See also Guide to ECT, p. 30. See supra para 7.20.

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7.23 Given the sovereign rights of Contracting Parties, the latter can be forced neither to allow works or changes to their fixed energy infrastructure, nor to allow additional transit through their infrastructure. However, the exercise of this sovereign right cannot be arbitrary. The wording of Paragraph 5 establishes a requirement that the Contracting Parties demonstrates to other parties affected by the exercise of the transit state's sovereign right that such developments of the infrastructure or additional transport through the existing infrastructure would ‘endanger the security or efficiency of its energy systems, including the security of supply’. The ECT is silent on what those dangers might be, which means that the assessment of the potential arbitrariness of a refusal under Paragraph 5 should be conducted on a case-by-case basis, taking into account all relevant circumstances. 7.24 Among the causes for refusal of construction or modification of fixed energy infrastructure, one could envision environmental concerns, issues with land use, expropriations, the safety of communities, disruption caused in energy transit or supply due to the length or complexity of works, societal opposition. With respect to causes for refusal of allowing additional or new transit via the existing energy infrastructure, the most plausible reason appears to be the one stemming from the capacity of the infrastructure, as any excess could lead to failures in the energy flow or even endanger the physical integrity of the system, thus affecting the security of supply. 7.25 The final statement of Paragraph 5, creates a link to the following two paragraphs of Article 7 (both of them covering matters related to or arising from transit disputes), and establishes an obligation for transit states to ensure a stable flow of energy goods to, from or between other Contracting Parties. 7.26 The obligation established in Paragraph 5 is a reaffirmation of the obligation set out in Paragraph 2, letter c) regarding mitigation of the effects of interruptions in the supply of energy materials and products. Nevertheless, while the provision of Paragraph 2 establishes a general obligation for Contracting Parties to encourage cooperation of relevant entities to mitigate the effects of interruptions in supply, the one encompassed in Paragraph 5 is more specific. Paragraph 5 obliges Contracting Parties to secure established flows of energy materials and products, in cases where no permit for additional constructions or transit through the existing fixed infrastructure was granted, or where a transit related dispute has occurred. In other words, the sovereign right to decline modifications or additions either to the existing infrastructure or to the existing transit cannot cause any detrimental effects to the security of the established flow. 106

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The final statement could also be read to mean that where new constructions 7.27 or modifications of fixed energy facilities have been permitted, Contracting Parties have an obligation to ensure that the established flows of energy goods are secured, by resorting to other means of transportation, where possible. ‘(6) A Contracting Party through whose Area Energy Materials and Products transit shall not, in the event of a dispute over any matter arising from that Transit, interrupt or reduce, permit any entity subject to its control to interrupt or reduce, or require any entity subject to its jurisdiction to interrupt or reduce the existing flow of Energy Materials and Products prior to the conclusion of the dispute resolution procedures set out in paragraph (7), except where this is specifically provided for in a contract or other agreement governing such Transit or permitted in accordance with the conciliator’s decision.’ Paragraph 6 of Article 7 establishes a clear obligation for transiting states, 7.28 parties to the ECT, to refrain from interrupting or reducing the existing flow of energy goods, either directly or indirectly (via third parties under its control or jurisdiction). The reference to third party’s: ‘entity subject to its control […] or […] subject to its jurisdiction’ covers both state-owned and private entities, thus encompassing all entities that might be able to disrupt the flow of energy materials and products, whether under the direct control of the state or solely under its jurisdiction. Paragraph 6, thus, precludes states from hiding behind the corporate veil or behind private owners. From the wording of Paragraph 6, it appears that the obligation to refrain 7.29 from disruptions of energy flow is limited in scope, on the one hand, to situations arising from transit-related disputes and, in time, on the other hand, prior to the conclusion of the dispute resolution procedure. These limitations, however, cannot be read in absolute terms that would allow, per a contrario, a Contracting Party to disrupt transit of energy goods outside the mentioned situations. What Paragraph 6 is trying to ensure is that transit states, parties to the ECT, will not use the energy flow as a political or commercial weapon. In other words, that they will not disrupt the transportation of energy material and products through their area in order to pressure other Contracting Parties or entities from other Contracting Parties with regard to the transit-related dispute. Nevertheless, the specific ban on using the disruption of energy flow as a pressuring mechanism cannot be read in the sense that such practices are allowed outside the dispute-related framework either. The fact that interruptions or reductions in the flow of energy materials and 7.30 products are only deemed valid in exceptional situations is evident from the 107

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wording of the last statement of Paragraph 6. It refers either to a specific provision thereof in the contract or agreement governing transit, or to the specific decision of the conciliators appointed to settle the transit dispute. Nevertheless, from the two exceptions mentioned, the former appears to be problematic, as nothing precludes the parties to include clauses that would allow for self-help mechanisms enabling parties to resort to distortions in the existing energy flow. ‘(7) The following provisions shall apply to a dispute described in paragraph (6), but only following the exhaustion of all relevant contractual or other dispute resolution remedies previously agreed between the Contracting Parties party to the dispute or between any entity referred to in paragraph (6) and an entity of another Contracting Party party to the dispute: (a)

A Contracting Party party to the dispute may refer it to the Secretary General by a notification summarising the matters in dispute. The Secretary General shall notify all Contracting Parties of any such referral. (b) Within 30 days of receipt of such a notification, the Secretary General, in consultation with the parties to the dispute and the other Contracting Parties concerned, shall appoint a conciliator. Such a conciliator shall have experience in the matters subject to dispute and shall not be a national or citizen of or permanently resident in a party to the dispute or one of the other Contracting Parties concerned. (c) The conciliator shall seek the agreement of the parties to the dispute to a resolution thereof or upon a procedure to achieve such resolution. If within 90 days of his appointment he has failed to secure such agreement, he shall recommend a resolution to the dispute or a procedure to achieve such resolution and shall decide the interim tariffs and other terms and conditions to be observed for Transit from a date which he shall specify until the dispute is resolved. (d) The Contracting Parties undertake to observe and ensure that the entities under their control or jurisdiction observe any interim decision under subparagraph (c) on tariffs, terms and conditions for 12 months following the conciliator’s decision or until resolution of the dispute, whichever is earlier. (e) Notwithstanding subparagraph (b) the Secretary General may elect not to appoint a conciliator if in his judgement the dispute concerns Transit that is or has been the subject of the dispute resolution procedures set out in subparagraphs (a) to (d) and those proceedings have not resulted in a resolution of the dispute. 108

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(f)

The Charter Conference shall adopt standard provisions concerning the conduct of conciliation and the compensation of conciliators.’

Paragraph 7 of Article 7 provides the procedural rules for a conciliation 7.31 mechanism designed to deal with transit-related disputes. However, this mechanism can be used only following ‘the exhaustion of all relevant contractual or other dispute resolution remedies previously agreed’ between the parties to the dispute, which are also Contracting Parties to the ECT, or between any entity referred to in Paragraph 633 and an entity of another Contracting Party that is party to the dispute. In other words, parties can resort to the conciliation mechanism only after they have made use of the regular dispute resolution mechanisms, such as litigation, commercial arbitration or investor-state arbitration, whichever of them was referred to in the agreement between the parties in dispute. The ECT obliged the Conference Charter to adopt standard provisions 7.32 concerning the conduct of conciliation and the compensation of conciliators.34 Therefore, the provisions of Article 7, Paragraph 7 were developed and completed by The Rules Concerning the Conduct of Conciliation of Transit Disputes under Article 7 of the Energy Charter Treaty (The Conciliation Rules)35 and by a Commentary to the Rules Concerning the Conduct of Conciliation of Transit Disputes (The Official Commentary).36 The procedure37 (Art 7, Para 7 of ECT corroborated with Rules Concerning 7.33 the Conduct of Conciliation of Transit Disputes) states that a Contracting Party may refer a dispute to the Secretary General by a notification, summarizing the matters in dispute, provided that all relevant contractual or other dispute resolution remedies previously agreed between the parties to the

33 34 35

36

37

Entities either controlled or within the jurisdiction of a Contracting Party. See supra para 7.28. Art 7, Para 7, letter f) of ECT. The Rules Concerning the Conduct of Conciliation of Transit Disputes under Article 7 of the Energy Charter Treaty (The Conciliation Rules) were adopted in 1998 (Decision CCDEC 199811, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC199811.pdf, last visited 04.04.2018) and were subsequently amended in 2002 (Decision CCDEC 200216, available online at https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC200216.pdf, last visited on 02.01.2018) and 2015 (Decision CCDEC 201511 available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2015/CCDEC201511.pdf, last visited 04.04.2018). The Conciliation Rules were deemed ambiguous and uncertain, for which reason it was considered that the conciliation mechanism has not been properly used. As a result an Official Commentary was adopted as of 2016, available online at https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC 201607.pdf, last visited on 02.01.2018. For more details see Kim Talus (Ed), Research Handbook On International Energy Law (Edward Elgar, 1st ed.: Cheltenham, UK; Northampton, MA, USA, 2014), pp. 614–17.

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dispute have been exhausted.38 The Secretary General will notify all Contracting Parties of any such referral.39 7.34 Within 30 days of receipt of the said notification, the Secretary General, in consultation with the parties in dispute and all other Contracting Parties concerned,40 shall either appoint a conciliator41 or elect not to appoint a conciliator, if in his judgement the dispute concerns transit that is or has been the subject of the dispute resolution procedures set out in subparagraphs (a)–(d) and those procedures have not resulted in a resolution to the dispute.42 By leaving it to the Secretary General’s discretion to decide whether to appoint or not a conciliator, the ECT ensures that the dispute over the same transit issue is referred to conciliation only once.43 7.35 With respect to the appointment, the Secretary General must ensure that the conciliator has or is likely to have the confidence of the parties, is independent and impartial and has expertise and experience relevant to the issue in dispute, is not in any conflict of interest, will respect the confidentiality requirements and will conduct proceedings in a manner which ensures the integrity and reputation of the procedure.44 Any breach of the aforementioned obligations may result in disqualification of the conciliator, at the Secretary General’s sole discretion.45 In order to fulfil its obligations regarding the appointment, the Secretary General is to maintain a list of qualified conciliators that will facilitate and accelerate its task of nominating a suitable conciliator.46 7.36 The Secretary General retains an important part during the proceedings as well, in case the conciliator is disqualified,47 resigns,48 dies or, in the Secretary’s opinion, becomes incapacitated, unable or fails to perform its duties or

38 39 40

41

42 43 44 45 46 47 48

Rule 1(1) of the Conciliation Rules. Rule 1(3) and (4) of the Conciliation Rules. Rule 2(1) of the Conciliation Rules. The requirement for prior consultation was requested by Norway, to diminish the Secretary General’s sole discretion in appointing the conciliator. However, due to the silence of the Treaty’s provisions, the form of consultation and its appropriateness is left with the Secretary General. See Paragraph 72 of the Commentary. According to Art 7(7)(a) of the ECT the conciliator ‘shall have experience in the matters subject to the dispute and shall not be a national or citizen of or permanently resident in a party to the dispute or one of the other Contracting Parties concerned’. In other words, if the first conciliation attempt failed, the Secretary General cannot deny the failure and must acknowledge it. See: Talus, supra note 37, p. 615. Rule 2(7) of the Conciliation Rules. See also Para 33 of the Commentary. Rule 2(1) of the Conciliation Rules. See also Para 73 of the Commentary. Rule 4 of the Conciliation Rules. See also Para 87 of the Commentary. Rule 2(2) of the Conciliation Rules. See also Para 78 of the Commentary. Rule 4(1) of the Conciliation Rules. Rule 3(1) of the Conciliation Rules.

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provide administrative or technical assistance. In such cases, the procedure is suspended, and the Secretary General will appoint a new conciliator.49 The conciliator is empowered to conduct the proceedings however he/she 7.37 deems fit, provided the Conciliation Rules are observed, as well as the principles of impartiality, equity and justice.50 According to the ECT, the conciliator should seek an agreement of the parties to the dispute within 90 days of his appointment.51 Proposals for agreements may also come from the parties themselves.52 Where such an agreement cannot be reached within the timeframe, the conciliator recommends a solution or a procedure thereof.53 More importantly, the conciliator will decide on interim tariffs and other terms and conditions applicable to transit from a specific date and until the final resolution of the dispute,54 as well as on all matters related to the costs of the proceedings.55 The conciliator may also recommend the interruption or the reduction of energy flow.56 Throughout the procedure the Contracting Parties must observe or ensure 7.38 that the entities under their control or jurisdiction cooperate in good faith with the conciliator and comply with any procedural orders throughout the proceedings, or with any interim decisions taken by the conciliator for 12 months or until resolution of the dispute, depending on which comes earlier.57 When an agreement is reached, the conciliator must inform the Secretary 7.39 General in writing so that it can notify all Contracting Parties58 and, where the parties allow it, inform the public thereof.59 The Secretary General acts as public notary or depositary of the recommendation and decision and will keep a copy of it at the archives of the Secretariat.60 Matters related to the costs of proceedings will also be handled through the Secretary General.61

49 50 51 52 53 54 55 56 57 58 59 60 61

Rule 3(2) and (4) corroborated with Rule 4(1) and (4) of the Conciliation Rules. Details regarding the conduct of conciliation proceedings are contained in Rules 5–8 and 10–11 of the Conciliation Rules. Art 7, Para 7, letter c) of the ECT. Rules 10 and 11 of the Conciliation Rules. Art 7, Para 7, letter c) of the ECT corroborated with Rule 12 of the Conciliation Rules. Art 7, Para 7, letter c) of the ECT. Rule 15 of the Conciliation Rules. Art 7, Para 6 of the ECT. See supra para 7.30. Art 7, Para 7, letter d) of ECT corroborated with Rule 9 of the Conciliation Rules. Rule 12(2) of the Conciliation Rules. See also Para 116 of the Commentary. Rule 12(3) of the Conciliation Rules. Rule 13(2) (a) of the Conciliation Rules. See also Para 119 of the Commentary. Rule 16 of the Conciliation Rules. See also Para 138 of the Commentary.

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‘(8) Nothing in this Article shall derogate from a Contracting Party’s rights and obligations under international law including customary international law, existing bilateral or multilateral agreements, including rules concerning submarine cables and pipelines.’ 7.40 The provisions of Paragraph 8 give expression to the principle of nonretroactive effect of the ECT62 and those regarding application of successive treaties relating to the same subject matter, contained in the Vienna Convention.63 Thus, on the one hand, the drafters specifically state that the provisions of the ECT do not constitute a lex specialis with respect to other existing international agreements or customary law regarding transit of energy goods (‘nothing … shall derogate’). On the other hand, the express reference to ‘existing agreements’ is meant to underline that the ECT cannot be used as a basis to change agreements or customs already in place. 7.41 Within the auspices of this Paragraph 8, one should also refer to the Declaration of the European Communities and their Member States, Austria, Norway, Sweden and Finland, according to which the provisions of Article 7 are subject to the conventional rules of international law on jurisdiction over submarine cables and pipelines, or, where there are no such rules, to general international law. In this regard, the said Contracting Parties have further declared that in their opinion Article 7 is not intended to affect the interpretation of existing international law on jurisdiction over submarine cables and pipelines, and cannot be considered as doing so.64 ‘(9) This Article shall not be so interpreted as to oblige any Contracting Party which does not have a certain type of Energy Transport Facilities used for Transit to take any measure under this Article with respect to that type of Energy Transport Facilities. Such a Contracting Party is, however, obliged to comply with paragraph (4).’ 7.42 Paragraph 9 must be understood also in relation to the sovereign rights of Contracting Parties, already touched upon in the commentaries of Paragraphs 4 and 5. Thus, provided the measure is not justified by discriminatory 62

See the provisions of Art 28 of the Vienna Convention on the Law of Treaties, stating that: Unless a different intention appears from the treaty or is otherwise established, its provisions do not bind a party in relation to any act or fact which took place or any situation which ceased to exist before the date of the entry into force of the treaty with respect to that party.

63 64

See provisions of Art 30 of the Vienna Convention on the Law of Treaties. See Declaration 3 of the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_Act.pdf, last accessed on: 04.04.2018.

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grounds, Contracting Parties that do not have a certain type of fixed energy infrastructure as defined in Paragraph 10 of Article 7, cannot be obliged to take any measure to establish that type of infrastructure. This means that a state lacking, for instance, a high-pressure gas transmission pipeline cannot be forced into building one, provided its lack of consent regarding construction is not discriminatory under the provisions of Paragraph 1 of Article 7.

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ARTICLE 8 TRANSFER OF TECHNOLOGY Beatriz Huarte Melgar

(1)

(2)

The Contracting Parties agree to promote access to and transfer of energy technology on a commercial and non-discriminatory basis to assist effective trade in Energy Materials and Products and Investment and to implement the objectives of the Charter subject to their laws and regulations, and to the protection of Intellectual Property rights. Accordingly, to the extent necessary to give effect to paragraph (1) the Contracting Parties shall eliminate existing and create no new obstacles to the transfer of technology in the field of Energy Materials and Products and related equipment and services, subject to nonproliferation and other international obligations.

COMMENTARY A. Introduction 8.01 Transfer of technology is an important instrument for international energy cooperation as well as energy trade and investments. However, the drafting of this legal provision has been carried out in order to find a compromise among the Energy Charter Treaty (ECT) Contracting Parties; accordingly it can be considered as a ‘best effort’ clause. In this regard, this chapter makes a commentary on Article 8 to understand its raison d’être and relevance in the energy sector. 8.02 The ECT, signed in December 1994 and in force since April 1998, is a multilateral treaty whose scope of application is restricted to the energy sector. It confirms the principle of national sovereignty over energy resources (Art 18) and provides legal rights and obligations, as well as soft law commitments, concerning investment, trade and other matters that are enforceable in legally 114

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binding arbitration or through dispute resolution mechanisms such as mediation and conciliation procedures. The purpose of the ECT is recognized in Article 2, which explicitly clarifies 8.03 that the Treaty ‘establishes a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits, in accordance with the objectives and principles of the Charter’. Thus, the ECT, on the basis of the Charter’s principles and objectives, is a milestone in international energy cooperation that creates a stable, comprehensive and non-discriminatory legal foundation for cross-border energy relations, through which the ECT reduces political risks associated with economic activities in transition economies.1 Accordingly, it is important to highlight that the origins of the ECT go back 8.04 to the European Energy Charter, a political declaration signed in The Hague in December 1991 for the cooperation in the energy sector. After agreeing the legally non-binding European Energy Charter, negotiations were already under way on a Treaty to implement the objectives and principles of the Charter (the ECT was negotiated between 1991 and 1994 by the Conference on the European Energy Charter).2 In this regard, the European Energy Charter already established in Title I its Objectives, among which ‘the flow of investments and technologies by implementing market principles in the field of energy’ was underlined to accomplish, inter alia, the development of trade in energy. Thus, the Charter set up the goal of removing ‘technical, administrative and other barriers to trade in energy and associated equipment, technologies and energy related services’ as well as the promotion of ‘best possible access to capital, particularly through appropriate existing financial institutions’. Other core purposes of the Charter are cooperation in the energy field as well as energy efficiency and environmental protection. Aiming at reflecting the new realities of the energy sector, especially the 8.05 growing weight from developing countries, of the present time, the Ministerial Conference on the International Energy Charter was held in The Hague on 20 and 21 May 2015 (‘The Hague II’) to adopt the International Energy

1 2

Energy Charter Secretariat, ‘The Energy Charter Treaty: A Reader’s Guide’, p. 9, available at accessed 4 July 2018. Craig S. Bamberger, ‘An Overview of the Energy Charter Treaty’ in Thomas W. Wälde (ed), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International, 1996), pp. 1–33, pp. 1–2.

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Charter as an update of the European Energy Charter.3 The International Energy Charter is a political declaration with the purpose of strengthening energy cooperation between the signatories and does not bear any legally binding obligation. 8.06 The 2015 Charter also provides its objectives in Title I, among which the development of trade in energy through, inter alia, the ‘removal of technical, administrative and other barriers to trade in energy and associated equipment, technologies and energy related services’ as well as the ‘access on commercial terms to technologies for the exploration, development, conversion and use of energy resources’ are also mentioned. In the same way as the 1991 Charter (European Energy Charter), the 2015 Charter (International Energy Charter) sets up as other core goals: the cooperation in the energy field as well as energy efficiency and environmental protection. 8.07 On the basis of these political declarations, the ECT creates the commitment ‘transfer of technology’ within its Part II (Commerce), which is a precept of significance for foreign investors. B. Transfer of technology 8.08 The term ‘technology’ is a multi-faceted concept that is well defined by the Licensing Guide for Developing Countries of the World Intellectual Property Organization (WIPO): Technology means systematic knowledge for the manufacture of a product, the application of a process or the rendering of a service, whether that knowledge be reflected in an invention, an industrial design, a utility model, or a new plant variety, or in technical information or skills, or in the services and assistance of an industrial plant or for the management of an industrial or commercial enterprise or its activities.4

8.09 In 1970, after the promulgation of the Declaration on the Establishment of a New International Economic Order, the UNCTAD5 established the intergovernmental Group on the Transfer of Technology to prepare a draft outline to serve as a basis for a universally applicable code of Conduct on Transfer of Technology (TOT Code). The TOT Code defined ‘transfer of technology’ as the ‘transfer of systematic knowledge for manufacture of a product, for the 3

4 5

Energy Charter Secretariat, ‘The International Energy Charter consolidated the Energy Charter Treaty with related Documents’, 2016, p. 9, available at accessed 4 July 2018. WIPO, ‘Licensing Guide for Developing Countries’ (Geneva, 1977), p. 28. UNCTAD: United Nations Conference on Trade and Development.

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application of a process or for the rendering of a service and does not extend to the transactions involving a mere sale or mere lease of goods’. Among its objectives it is remarkable that the establishment of general norms of equitable conduct in the transfer of technology and in which mutual confidence is promoted, inequalities in bargaining power are balanced and abuses avoided, as well as to facilitate the transfer of technology to developing countries.6 Between 1978 and 1985 several sessions were held but failed to adopt the TOT Code. A 1978 OECD7 Study on the future of East-West technology transfers 8.10 defined technology as ‘the use of scientific knowledge by a given society at a given moment to resolve concrete problems facing its development, drawing mainly at the means at its disposal, in accordance with its culture and scale of values’.8 Thus, technology may be transmitted through an intangible process in which the body of knowledge is diffused or by means of being the subject of a specific communication, in a particular transaction (assignment of industrial property rights, communication of know-how in a documentary form, etc.). However, in addition to the commercial transfer of technology there is a vast range of non-commercial transfer of technology, which is applicable under the umbrella of international cooperation agreements and relates to infrastructure projects, scientific and industrial research, transport, etc.9 Accordingly, this part deals with the notion of ‘transfer of technology’ applied 8.11 to the energy sector and, in particular, within the context of the Energy Charter Treaty (ECT). C. Context of Article 8 The need for technology transfer10 and capacity building (especially to 8.12 developing countries) has been recognized in various international fora (UNCLOS, UNCTAD, WTO, ECT, etc.) to promote access to technologies and know-how. The implementation of technology-related provisions shows

6 7 8 9 10

Michael Blakeney, Legal Aspects of the Transfer of Technology to Developing Countries (ESC Publishing Limited, 1989), pp. 135–7. OECD: Organisation for Economic Co-operation and Development. Francis Gurry, ‘Legal Methods and Arrangements for the Commercial Acquisition of Foreign Technology’, in Proceedings of the Interregional Seminar in Industrial Strategy and the Patent System (Seoul, 1985), pp. 232–3. Blakeney, supra note 6, p. 3. Concerning ‘technology transfer’ see UNCTAD, ‘Transfer of Technology’, United Nations Publication, 2001, available at http://unctad.org/en/docs/psiteiitd28.en. pdf> accessed 4 July 2018.

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States' willingness to cooperate internationally to redress or reduce the asymmetric distribution of scientific and technological capabilities in the world.11 8.13 Transfer technology plays a significant role within the context of international energy cooperation. The research, development and exploitation of energy resources are expensive and may be technically difficult. They may also arouse environmental concerns due to their characteristics.12 In all these respects, modern and up-to-date technology may be the best possible means to make use of energy resources in a cost-efficient,13 technologically sound and environmentally friendly manner.14 8.14 It is important to clarify that ‘transfer of technology’ should not be confused either with ‘transit of energy materials and products’ or with ‘energy transport facilities’, which are concepts explicitly defined by ECT Article 7 (Transit). Accordingly, ECT Article 7, paragraph 10, refers to the carriage of energy materials and products, which, pursuant to ECT Article 1(4), are the items included in Annexes EM I or EM II. Likewise, ECT Article 7, Paragraph 10(b) defines ‘energy transport facilities’ as follows: [They] consist of high-pressure gas transmission pipelines, high-voltage electricity transmission grids and lines, crude oil transmission pipelines, coal slurry pipelines, oil product pipelines, and other fixed facilities specifically for handling Energy Materials and Products.

Following this explanation, it is interesting to examine the travaux préparatoires of the ECT to understand the notion of ‘transfer of technology’ in this field. 11 12

UNCTAD/ITE/IPC/Misc.5, ‘Compendium of International Arrangements on Transfer of Technology: Selected Instruments’, United Nations Publication, 2001, Preface, p. iii. Since there is not a particular definition of ‘technology transfer’ within the ECT, it is interesting to see UNCTAD Draft International Code on the Transfer of Technology, Ch 1, para 1.2: Transfer of technology under this Code is the transfer of systematic knowledge for the manufacture of a product, for the application of a process or for the rendering of a service and does not extend to the transactions involving the mere sale or mere lease of goods. See also Stephen Seres, Erik Haites and Kevin Murphy, ‘Analysis of technology transfer in CDM projects: An update’ (2009) 37 Energy Policy 4919–26, 4919: the Intergovernmental Panel on Climate Change (IPCC) defines technology transfer ‘as a broad set of processes covering the flows of know-how, experience and equipment for mitigating and adapting to climate change amongst different stakeholders such as governments, private sector entities, financial institutions, non-governmental organizations (NGOs) and research/education institutions’.

13 14

ECT Art 19.3.d defines the concept of ‘cost-effective’ as: ‘Means to achieve a defined objective at the lowest cost or to achieve the greatest benefit at a given cost.’ Energy Charter Secretariat, ‘The Energy Charter Treaty: A Reader’s Guide’, supra note 1, p. 35.

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Transfer of technology was not mentioned in the first Draft Treaty, Basic 8.15 Protocol to the European Energy Charter (20 August 1991). However, since it is directly affected by intellectual property rights (Art 8, para 1) it is remarkable that Article 7 of this Draft (20 August 1991) recognized the principle of national sovereignty over natural resources and Article 17 had already set up the intellectual property legal provision. This stipulation obliged contracting parties to grant protection under their national laws to investments and activities carried out in their territory by investors of other contracting parties. The first document that includes ‘transfer of technology’ within an ECT 8.16 Draft was BA 6 Basic Agreement (21 January 1992) in Article 12, which was based on a USSR suggestion.15 The text of Article 12 of this Draft was similar to the current ECT Article 8, but with some differences. Therefore, it is interesting to compare both legal provisions to appreciate the similitude and divergences. 8.17

On the one hand, current ECT Article 8 reads as follows: (1) The Contracting Parties agree to promote access to and transfer of energy technology on a commercial and non-discriminatory basis to assist effective trade in Energy Materials and Products and Investment and to implement the objectives of the Charter subject to their laws and regulations, and to the protection of Intellectual Property rights. (2) Accordingly, to the extent necessary to give effect to paragraph (1) the Contracting Parties shall eliminate existing and create no new obstacles to the transfer of technology in the field of Energy Materials and Products and related equipment and services, subject to non-proliferation and other international obligations.

On the other hand, the first Draft of this legal provision (Art 12, on 21 8.18 January 1992) was written in this manner: (1) The Contracting Parties agree to promote access to and transfer of energy technology on a commercial and non-discriminatory basis to assist effective trade in Energy Materials and Products and Investment activities and to implement the objectives of the Charter subject to their laws and regulations, and to the protection of Intellectual Property rights. (2) Accordingly, to the extent necessary to give effect to paragraph (1) the Contracting Parties shall eliminate existing and create no new administrative or legal obstacles to the for transfer of technology in the field of and related [Energy Materials and Products], and related equipment and services between investors to 15

See Note to Art 12 of the BA 6, Basic Agreement (21 January 1992).

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the recognition and protection Intellectual property rights. subject to nonproliferation and other international obligations.

8.19 Furthermore, BA 6, Basic Agreement (21 January 1992) incorporated the notion of ‘energy transfer’ in paragraph 1(f) of Article 14 (environmental aspects), which was redrafted by the Chairman on the basis of a Swiss suggestion and the substance and need for such an article was supported by Austria, The Netherlands and United States.16 Article 14 (current ECT Art 19) showed the environmental concerns in relation to technology transfer. Paragraph 1(f) read as follows: (1) The Contracting Parties shall strive to minimize harmful effects on the environment of energy production, transportation, transport and use in an economically and environmentally sustainable manner. To this end they shall: (e) Promote in energy industries the use of best available technologies not entailing excessive costs. (f) Encourage favourable conditions for the transfer of technology which will reduce harmful environmental impacts from the production, transformation, transport and use of energy.

8.20 A new draft of Article 12 (transfer of technology) was drafted in the BA 12, Basic Agreement (9 April 1992), which was based on the European Communities proposal.17 The new draft contained the following text: (1) The Contracting Parties agree to promote access to and transfer of energy technology on a commercial and non-discriminatory basis to assist effective trade in Energy Materials and Products and Investment activities and to implement the objectives of the Charter subject to their laws and regulations, and to the protection of Intellectual Property rights subject to the provisions of Article 7 [intellectual property]. (2) Accordingly, to the extent necessary to give effect to paragraph (1) the Contracting Parties shall eliminate existing and create no new administrative or legal obstacles to the for transfer of technology in the field of and related [Energy Materials and Products], and related equipment and services between investors, to the recognition and protection Intellectual property rights subject to nonproliferation and other international obligations.

8.21 Negotiations on this legal provision were finished with that redaction, as the Draft BA 13, Basic Agreement (19 June 1992) indicated in Note to Article 12. With the document CONF 50, Draft Energy Charter Treaty (Basic Agreement) – Compromise text, on 15 March 1993, the same text, mutatis mutandi, 16 17

See Note and General Comments to Art 14 of the BA 6, Basic Agreement (21 January 1992). See Note to Art 12 of the BA 12, Basic Agreement (9 April 1992): USA requested deletion of this Art 12.

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of this legal provision was moved to Article 9.18 Conversely, in the CONF 60, Draft ECT – third version, 1 June 1993, the Russian Federation asked for the deletion of the article; actually, Russia was particularly worried about paragraph 2 thereof (Russia was concerned over nuclear trade with the European Communities; in fact, The Russian Federation and the EC agreed a Memorandum on this topic)19 and the USA wanted to give more emphasis to the intellectual property right protection. However, in spite of these observations, the final draft of the legal provision related to transfer of technology (ECT Article 8) did not undergo significant variations since 1993.20 Some years later, the Trade Amendment and Inclusion of Energy-Related 8.22 Equipment (1998) was adopted. This document promotes technology export and technology transfer from developed countries to energy producing emerging economies needing such technologies, which facilitates energy sector investments being a good complement to investment protection of the ECT. D. Article 8, Paragraph 1 1. Access to and transfer of energy technology

One of the strengths of the ECT was the recognition of the need for capital 8.23 and transfer technology to modernize and provide economic growth to transform central planned economies to economies based on market principles.21 This situation benefited Western countries, which, in exchange for modern technology, needed to secure future energy supplies by having access 18 19 20

The intellectual property provision was moved to Art 6 in the Draft BA 13, Basic Agreement (19 June 1992). CONF 115, Summary of the Sixteenth Plenary Session of the Energy Charter Conference – Adoption of the Energy Charter Treaty, 6 January 1995. See Annex I and Annex II thereof. Concerning the relationship between Russia and the ECT, see Irina Mironova, Risks and Benefits for the Russian Federation from Participating in the Energy Charter: Comprehensive Analysis (Energy Charter Secretariat, 2014); and Energy Charter Secretariat: In 2009 Russia terminated the provisional application [of the ECT], stated its intent not to become an ECT Contracting Party and presented a Conceptual Approach to the New Legal Framework for Energy Cooperation, which laid the foundation of the Draft Convention on Ensuring International Energy Security of November 2010. However, Russia remains a signatory to the ECT and participates in the Charter Process, although it has not paid its contributions to the budget of the Organisation for 2010–2014. The status of Russia in the Energy Charter and, in particular, the prospects of its further participation are not fully defined. Available at accessed 4 July 2018. In relation to the relationship of the US and the ECT, as a Signatory of the European Energy Charter (1991), the US is an Observer to the Energy Charter Conference. The US is not a Contracting Party to the Energy Charter Treaty. See Energy Charter Secretariat, ‘Constituency of the Energy Charter Conference’, available at accessed 4 July 2018.

21

Andrew Seck, ‘Investing in the former Soviet Union’s Oil Industry: The Energy Charter Treaty and its implications for mitigating political risk’ in Wälde supra note 2, pp. 110–36, p. 120.

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to the Eastern countries energy resources.22 Accordingly, cross-border energy cooperation brings economic profit for neighbouring countries. It enhances the economic efficiency of the use of cross-border transmission capacity on seasonal and daily bases and provides monetary gains from power trade. 8.24 By means of the ECT, international energy cooperation has a platform for political dialogue and a systematic channel for knowledge and information sharing. Thus, the ECT may result in an instrument that significantly lowers any transaction costs borne by the participants and ensures a politically neutral framework for cooperation.23 8.25 Due to the technological advances (greater efficiency and high technology) the introduction of energy technology in Eastern countries limited environmentally damaging discharges to the atmosphere (such as leaks of methane and oil from pipelines), into the soil, rivers and leaks reducing greenhouse gas emissions.24 8.26 As previously stated, one of the objectives of the European Energy Charter and the International Energy Charter is energy efficiency and environmental protection (Title I). Effective and timely environmental technology is fundamental to reduce greenhouse gas emissions, energy consumption and to minimize waste disposal problems. Consequently, the Energy Charter Treaty establishes the environmental legal provision in its Article 19, which explicitly mentions the need to employ technologies and technological means that reduce pollution, to develop economically efficient energy policies and costeffective practices and technologies and environmentally sound technologies, and to encourage favourable conditions for the transfer and dissemination of such technologies. 8.27 ECT Article 19 should be read in the light of ECT Article 8, which sets up a non-binding requirement for Contracting Parties to promote access to and transfer of energy technology on a commercial and non-discriminatory basis to assist trade in energy, materials and investments subject to national law and to intellectual property rights protection. Moreover, pursuant to ECT Article 8 Contracting Parties should eliminate existing obstacles and create no new 22 23

24

Craig Bamberger, Jan Linehan and Thomas Wälde, ‘The Energy Charter Treaty in 2000: in a new phase’, in Martha M Roggenkamp (ed), Energy Law in Europe (Oxford University Press, 2000), p. 2. Irina Kustova, ‘Regional Electricity Cooperation in the South Caucasus: Cross-Border Trade Opportunities and Regional Regulatory Uncertainties’, Energy Charter Secretariat Knowledge Centre, Occasional Paper Series, 2016, p. 35. Mehmet Ögˇütçü, ‘Eurasian Energy Politics and Prospects: Need for a Longer-Term Western Strategy’ in Wälde, supra note 2, pp. 68–109, p. 77.

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obstacles to the transfer of technologies concerning energy materials, products and related equipment and services. This last statement is only subject to any contrary provisions of international law on the non-proliferation of nuclear technology and related obligations.25 Concerning environmental protection, ECT Article 19 sets up ‘best efforts’ 8.28 commitments to environmental goals in the energy sector, including cooperation with other competent organizations, consideration of pollutionreducing technologies or the promotion of technology transfer. Likewise, the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA), on the grounds of ECT Article 19, includes among its Basic Principles the promotion of dissemination and transfer of technologies (Art 3.2.e) and the legal provision ‘Promotion of Energy Efficient Technology’ (Art 7), which reads as follows: (1) Consistent with the provisions of the Energy Charter Treaty, Contracting Parties shall encourage commercial trade and cooperation in energy efficient and environmentally sound technologies, energy-related services and management practices. (2) Contracting Parties shall promote the use of these technologies, services and management practices throughout the Energy Cycle.

As can be observed, PEEREA recognizes the soft law principle of transfer 8.29 technologies promotion, the commitment (through Art 7) of encouraging commercial trade and cooperation in energy efficient and environmentally sound technologies, as well as the support of the use of those technologies. Hence, despite the environmental nature of the Protocol, it can be interpreted that PEEREA leans towards the economic and commercial benefits of energy efficiency, rather than the environmental part. In this sense, it is noteworthy that the integration of environmental protection requirements into the commercially inspired ECT (ECT Art 19 and PEEREA), even though it represented a change of attitude, was dominated by investment and trade concerns. This is because the European Energy Charter as well as the ECT intended to facilitate the economic regeneration of Eastern Europe, Russia and the newly independent Republics at that time.26 Article 8 final drafting is the result of the previously explained difference 8.30 between the US and the Russian Federation. As a result, the final text contains two paragraphs that directly link a ‘soft’ obligation to ‘promote’ energy 25 26

Clare Shine, ‘Environmental Protection Under the Energy Charter Treaty’ in Wälde, ibid., pp. 520–45, p. 533. Ibid., p. 520.

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technology transfer with a comparatively ‘hard’ commitment to eliminate existing and create no new obstacles to such transfer.27 2. ‘Commercial and non-discriminatory basis’

8.31 Pursuant to ECT Article 8(1), Contracting Parties agree to promote access to and transfer of energy technology on a commercial and non-discriminatory basis. Nonetheless, this obligation is subject to the existing national laws. Consequently, Contracting Parties are neither obliged to amend their respective existing domestic legislation, nor does Article 8 impose a mandatory technology transfer. Consequently, this legal provision can be qualified as a ‘best efforts’ clause concerning the encouragement of technology transfer. 8.32 In this regard, it should not be forgotten that Article 8 belongs to ECT Part II (Commerce), which provides that Contracting Parties shall respect the rules of a free trade market and free competition as well as promote the access to international markets within the energy sector. In fact, ECT Article 4 establishes the non-derogation from WTO Agreement for Contracting Parties which are Members of the WTO. The context in which ECT Part II should be applied are the following principles (ECT Part IV): principle of national sovereignty over energy resources; principle of transparency; environmental provisions; application of the ECT provision to and by sub-national authorities and State-owned enterprises; as well as the ECT Article 24 exceptions. Accordingly, Article 8 should be interpreted in conjunction with the whole Part II of the Treaty, i.e., the transfer of energy should be done on the grounds of the rules of a free trade energy market. 8.33 Since governments may carry out measures having redeeming social or political qualities that may harm a foreign investor’s project, the nondiscrimination provision is found in ECT Article 10 with the objective of causing the minimum damage to foreign investors and, at the same time, supporting domestic industries. Paragraph 7 thereof establishes the mostfavoured nation (MFN) treatment, which applies not only to investments of investors of other Contracting Parties, but also to ‘their related activities including management, maintenance, use, enjoyment or disposal’. However, the application of the trade law-based MFN principle to specific negotiations between resource-owning governments or State enterprises and foreign investors can be challenging. In this regard, it is noteworthy the fact that a European Energy Charter Conference Decision (incorporated to the Treaty) allows the Russian Federation to require legislative approval for the leasing of federal 27

Craig S. Bamberger, ‘Epilogue: the 1994 Energy Charter Treaty as a Work in Progress’ in Wälde, supra note 2, pp. 591–602, p. 595.

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property by companies with foreign participation, subject to an obligation not to discriminate among investors of different parties; moreover, Bulgaria has been allowed to claim (in the Treaty's Annex T) with regard to ECT Article 10(7) a ‘transitional' exception concerning land ownership.28 Under these circumstances, it is remarkable that the Understanding to the 8.34 ECT as a whole (contained in the Final Act of the negotiating Conference) states that derogations from MFN treatment ‘are not intended to cover measures which are specific to an Investor or group of Investors, rather than applying generally’.29 The national treatment principle set up in ECT Article 10 faces interpretative 8.35 issues, in particular concerning public companies or private companies vested with ‘special or exclusive privileges’. Thus, the ECT duties of States to ensure Treaty-compliant conduct by such enterprises (transposed from relevant GATT provisions such as Article XVII) approaches a duty of enterprises with monopoly control over essential facilities or otherwise dominant market power not to abuse such power by discriminating against foreign competitors. The interplay of the Treaty's investment conditions and its creation of state responsibilities of effective regulation of such enterprises moves in the direction of a concept of state responsibility to impose and implement competition law.30 For this study it is important the limitation on the national/MFN treatment 8.36 principle (ECT Art 10, Para 8), sought by the US, which notes that the ‘modalities of application’ of Paragraph 7 in relation to programs of grants, financial assistance or contracts for energy technology research and development, are ‘reserved for’ the ‘second-phase’. A supplementary Treaty and up-to-date reporting on such programmes is required by Paragraph 4. In addition, ECT Article 10(10) specifies that the Treaty's standard of the better of national or MFN treatment shall not apply to the protection of intellectual property (which is within the Treaty's definition of ‘Investment'). Instead, the treatment to be accorded with regard to intellectual property ‘shall be as specified in the corresponding provisions of the applicable international agreements for the protection of intellectual property rights to which the respective Contracting Parties are parties’. This allows the Contracting Parties

28 29 30

Bamberger, Linehan and Wälde, supra note 22, pp. 6–7. Final Act of the European Energy Charter Conference, 17 December 1994, p. 7. Bamberger, Linehan and Wälde, supra note 22, pp. 6–7.

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to maintain their existing exceptions to national/MFN treatment under the relevant intellectual property rights agreements.31 8.37 It is also noteworthy to mention the Decision Nr. 2 concerning ECT Article 10(7), which grants the Russian Federation the right to require foreign investors to obtain legislative approval for the leasing of federally owned land. In doing so, Russia must respect the MFN principle. Other nondiscrimination treatment restriction can be found in ECT Article 21 regarding exceptions to the principle of non-discrimination concerning taxation matters on the basis of the practice in other international investment treaties. 8.38 ECT Article 24 contains several general exceptions from ECT measures, among which Paragraph 4 provides that the MFN requirements of the ECT shall not oblige any Contracting Party to extend to the investors of any other Contracting Party any preferential treatment resulting from its membership of a free-trade area or customs union or which is accorded by a bilateral or multilateral agreement concerning economic cooperation between States that were constituent parts of the former Union of Soviet Socialist Republics pending the establishment of their mutual economic relations on a definitive basis. On the grounds of that, if an investor was denied access to energy technology transfer or there was a discriminatory transfer that prejudiced the investor, the investor could arguably raise a claim of non-discrimination.32 3. ‘Protection of intellectual property rights’

8.39 Technology is invariably transferred as an exercise of industrial property rights or in a know-how agreement. Thus, industrial property law (it embraces as its objects patents and utility models, plant variety rights, industrial designs, trade-marks and service marks) together with the law relating to copyright and unfair competition law comprise the law of intellectual property.33 In this regard, at the national level, countries use several policy instruments to influence and strengthen the generation, transfer and diffusion of technology. These policy instruments included regimes for the protection of intellectual property rights, competition laws, performance requirements (e.g., joint venture and local R&D requirements) and a variety of promotion instruments (e.g., fiscal and financial incentives, training facilities).34 31 32 33 34

Ibid. Ian A. Laird, Borzu Sabahi, Frédéric G. Sourgens, Todd J. Weiler (eds), Investment Treaty Arbitration and International Law (Juris, 2014), p. 21, footnote 42. Blakeney, supra note 6, pp. 4–5. UNCTAD, ‘Transfer of Technology’, United Nations Publication, 2001, p. 17, available at accessed 4 July 2018.

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Many countries are concerned about the proprietary nature of technology, in 8.40 particular, patentable knowledge, and its protection in third countries. However, technology should be understood as a necessary public good in relation to the development of less developed countries; therefore, it is important to find a compromise on this issue that facilitates technology transfer. Accordingly, within the energy sector, ECT Article 8, Paragraph 1, estab- 8.41 lishes the inter-State commitment to protect intellectual property: ‘The Contracting Parties agree to […] the protection of Intellectual Property rights.’ Nevertheless, as it has been previously explained, this is just a commitment subject to the existing domestic laws of Contracting Parties; hence, there is not an imposition to amend domestic laws to offer a better protection of intellectual property rights. This provision does not create an effective right for investors to claim respect for their intellectual property rights from governments. In such a case, investors may try to get their home State to spouse their case vis-à-vis the allegedly infringing host State.35 The intellectual property protection matter within the energy sector, as was 8.42 stated above, is also exposed by ECT Article 19, which should be read in conjunction with ECT Article 8. This provision promotes the sharing of technical information on environmentally sound technologies and the transfer of such technologies subject to the adequate and effective protection of intellectual property rights. Conversely, it is interesting to point out that ECT Article 10 (non- 8.43 discrimination provision), Paragraph 10, reads as follows: Notwithstanding any other provision of this Article, the treatment described in paragraphs (3) and (7) shall not apply to the protection of Intellectual Property; instead, the treatment shall be as specified in the corresponding provisions of the applicable international agreements for the protection of Intellectual Property rights to which the respective Contracting Parties are parties.

Hence, the intellectual property protection is considered as a particular issue 8.44 with its own complexities, whose treatment should be based on the specific international agreements related to intellectual property rights. In relation to that, according to the Joint Declaration on Trade-Related 8.45 Intellectual Property Rights of the Final Act of the International Conference 35

Thomas W. Wälde, ‘International Investment Under the 1994 Energy Charter Treaty’ in Wälde, supra note 2, pp. 251–320, p. 312.

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and Decision by the Energy Charter Conference in Respect of the Amendment to the Trade-Related Provisions of the ECT, 24 April 1998: Signatories confirm their commitment to provide effective protection of intellectual property rights following the highest international standards. Intellectual property rights include for the purpose of this Declaration in particular copyright and related rights (including computer programmes and databases), trademarks, geographical indications, patents, designs, topographies of semiconductor products and undisclosed information.

8.46 This Declaration shows the evolution of technology and, consequently, the need to ensure a better protection of intellectual property rights thereof, on the grounds of ‘the highest international standards’. However, once more this is a soft law statement that lacks of enforceable power. E. ECT Article 8, Paragraph 2 1. Elimination of obstacles

8.47 ECT Article 8, Paragraph 2, includes the inter-State obligation to facilitate the transfer of technology: ‘to the extent necessary to give effect to paragraph (1) the Contracting Parties shall eliminate existing and create no new obstacles to the transfer of technology’. This statement is only subject to any contrary provisions of international law on the non-proliferation of nuclear technology and related obligations.36 8.48 ECT Article 8 final drafting is the result of the previously mentioned difference between the US (the US was concerned about the intellectual property protection) and the Russian Federation (Russia was concerned about the non-proliferation of nuclear technology). Thus, the final text contains two paragraphs that directly link a ‘soft’ obligation to ‘promote’ energy technology transfer with a comparatively ‘hard’ commitment to eliminate existing and create no new obstacles to such transfer.37 8.49 The Russian Federation and the European Communities agreed a Memorandum on this topic.38 In this sense, it is interesting to cite the Joint Declaration by the Russian Federation and the European Union of the Final Act of the

36 37 38

Shine, supra note 25, p. 533. Bamberger, supra note 27, p. 595. CONF 115, Summary of the Sixteenth Plenary Session of the Energy Charter Conference – Adoption of the Energy Charter Treaty, 6 January 1995. See Annex I and Annex II thereof.

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International Conference and Decision by the Energy Charter Conference in Respect of the Amendment to the Trade-Related Provisions of the ECT, 24 April 1998: The Russian Federation has raised the issue of trade in nuclear materials. The Russian Federation and the EU agreed that the Partnership and Cooperation Agreement between the Russian Federation, the European Union and its Member States, which entered into force on 1 December 1997, is the appropriate framework to deal with this issue, as confirmed in the conclusions of 27 January 1998 Cooperation Council.

As can be observed, the obligation to ‘eliminate existing and create no new 8.50 obstacles to the transfer of technology in the field of Energy Materials and Products and related equipment and services’, which also covers intellectual property protection, is softened by the non-proliferation and other related international obligations requirement, which will be analysed in the next section. 2. ‘Non-proliferation and other international obligations’

As previously explained, among the Objectives (Title I) of the European 8.51 Energy Charter as well as of the International Energy Charter it is notable that the ‘Development of trade in energy [is] consistent with major relevant multilateral agreements such as the WTO Agreement and its related instruments, where applicable, and nuclear non-proliferation obligations and undertakings.’ Accordingly, trade in energy must be in compliance with other international obligations (in particular WTO law), taking into account the nuclear non-proliferation obligations, which will be reached, inter alia, through the removal of technical, administrative and other barriers to trade in energy and associated equipment, technologies and energy related services as well as through the access on commercial terms to technologies for the exploration, development, conversion and use of energy resources. Likewise, the European Energy Charter and the International Energy Charter provide in Paragraph 3 of Title II (Implementation) the liberalization of trade in energy ‘in a manner consistent with the provisions of the WTO Agreement and its related instruments, where applicable, and nuclear non-proliferation obligations and undertakings.’ Furthermore, Paragraph 6 of Title II reads as follows: Research, technological development technology transfer, innovation and dissemination. The signatories decide to promote exchanges of technology and cooperation on their technological development and innovation activities in the fields of energy production, conversion, transport, distribution and the efficient and clean use of energy, in a manner consistent with nuclear non-proliferation obligations and undertakings. To this end, they will encourage cooperative efforts on:

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Research and development activities. Pilot or demonstration projects. + The application of technological innovations. + The dissemination and exchange of know-how and information on technologies. + +

8.52 On the basis of the ‘Treaty on the Non-Proliferation of Nuclear Weapons, the Nuclear Suppliers Guidelines and other international nuclear nonproliferation obligations or understandings’ (Preamble of the ECT), and pursuant to ECT Article 8, Contracting Parties shall eliminate existing obstacles and create no new obstacles to the transfer of technologies concerning energy materials, products and related equipment and services. 8.53 To understand the ‘ECT non-proliferation’ it should be clarified that its basis lies in the mentioned Treaty on the Non-Proliferation of Nuclear Weapons, the Nuclear Suppliers Guidelines and other international nuclear nonproliferation obligations or understandings (Preamble of the ECT). The Nuclear Non-Proliferation Treaty is a binding Treaty whose objective is to prevent the spread of nuclear weapons and weapons technology, to promote cooperation in the peaceful uses of nuclear energy and to further the goal of achieving nuclear disarmament and general and complete disarmament (191 States have joined the Treaty, including the five nuclear-weapon States.).39 The Nuclear Supplier’s Guidelines is a non-binding document, which states that nuclear materials and establishments are to be supplied to non-nuclear powers. Both instruments are important because they are based on the principle of nuclear peace and on the premise that the benefits of nuclear power ought to be available to all. In addition, the International Atomic Energy Authority (IAEA) is remarkable, which encourages and facilitates the development and dissemination of nuclear power and ensures its use for peaceful purposes. Conversely, the IAEA’s standards are not legally binding on its members. It is only empowered to inspect by virtue of the Non-Proliferation Treaty’s requirements that Signatories allow periodic inspections.40 8.54 ECT Article 24 contains several general exceptions from the ECT measures, among which, it is noteworthy for this research, Paragraph 3. This paragraph establishes a ‘self-judging’ exception concerning the issue of non-proliferation. Thus, it begins with a prefatory requirement under the consideration of the Contracting Party: ‘The provisions of this Treaty other than those referred to in paragraph (1) shall not be construed to prevent any Contracting Party from 39 40

United Nations Office for Disarment Affairs, ‘Treaty on the Non-Proliferation of Nuclear Weapons (NPT)’, available at: accessed 4 July 2018. Lorna Brazell, ‘The Energy Charter Treaty: Some Observations on its Intenatinal Context and Internal Structure’ in Wälde, supra note 2, pp. 226–39, p. 232.

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taking any measure which it considers necessary.’ While the first exception is related to the protection of essential security interests and the third exception concerns the ordre public, the second exception refers to measures considered necessary with regard to nuclear non-proliferation. Nonetheless, these exceptions are subject to the limitation that the measure must ‘not constitute a disguised restriction on transit’. As can be seen, the fact that these exceptions are restricted to the extension 8.55 that the measure must ‘not constitute a disguised restriction on transit’ does not necessarily cover ‘transfer of technology’. Therefore, it could be understood that transfer of technology (ECT Art 8) may be limited by the consideration of Contracting Parties to comply with nuclear non-proliferation obligations, which weakens the obligation to eliminate existing and create no new obstacles to the transfer of technology in the field of Energy Materials and Products. F. Conclusions ECT Article 8 (transfer of technology) is a legal provision that can be 8.56 considered as a ‘best efforts’ clause. Taking into account the relevance of transfer of technology for international energy cooperation, ECT Article 8 fosters access to and transfer of energy technology on a commercial and non-discriminatory basis, but subject to the existing domestic laws of Contracting Parties, which results in the fact that this provision does not impose a mandatory technology transfer. As has been illustrated throughout the writing, in spite of the ECT complex 8.57 structure, the Treaty’s negotiations were conducted and brought to a conclusion with the same sense of urgency (slightly more than three years) that motivated its origin in an effort to spur economic recovery in Eastern Europe and the former USSR, by establishing a legal framework to promote longterm cooperation in the energy field, based on complementarities and mutual benefits, pursuant to the objectives and principles of the Charter (ECT Art 2). These circumstances explain some imperfections and ambiguities left in the text because the alternative would have been the failure of the negotiations and the consequent negative message for potential investors in the so-called ‘economies-in-transition’.41

41

Bamberger, supra note 27, pp. 2–3.

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ARTICLE 9 ACCESS TO CAPITAL1 Beatriz Huarte Melgar

(1)

(2)

(3)

1

The Contracting Parties acknowledge the importance of open capital markets in encouraging the flow of capital to finance trade in Energy Materials and Products and for the making of and assisting with regard to Investments in Economic Activity in the Energy Sector in the Areas of other Contracting Parties, particularly those with economies in transition. Each Contracting Party shall accordingly endeavour to promote conditions for access to its capital market by companies and nationals of other Contracting Parties, for the purpose of financing trade in Energy Materials and Products and for the purpose of Investment in Economic Activity in the Energy Sector in the Areas of those other Contracting Parties, on a basis no less favourable than that which it accords in like circumstances to its own companies and nationals or companies and nationals of any other Contracting Party or any third state, whichever is the most favourable. A Contracting Party may adopt and maintain programmes providing for access to public loans, grants, guarantees or insurance for facilitating trade or Investment abroad. It shall make such facilities available, consistent with the objectives, constraints and criteria of such programmes (including any objectives, constraints or criteria relating to the place of business of an applicant for any such facility or the place of delivery of goods or services supplied with the support of any such facility) for Investments in the Economic Activity in the Energy Sector of other Contracting Parties or for financing trade in Energy Materials and Products with other Contracting Parties. Contracting Parties shall, in implementing programmes in Economic Activity in the Energy Sector to improve the economic stability and investment climates of the Contracting Parties, seek as appropriate to See Final Act of the European Energy Charter Conference, Understandings, n. 9. with respect to Arts 9, 10 and Part V, p. 27.

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(4)

encourage the operations and take advantage of the expertise of relevant international financial institutions. Nothing in this Article shall prevent: (a) financial institutions from applying their own lending or underwriting practices based on market principles and prudential considerations; or (b) a Contracting Party from taking measures: (i) for prudential reasons, including the protection of Investors, consumers, depositors, policy-holders or persons to whom a fiduciary duty is owed by a financial service supplier; or (ii) to ensure the integrity and stability of its financial system and capital markets.

COMMENTARY A. Introduction ECT Article 9 was, like ECT Article 8, drafted to find a compromise among 9.01 the ECT Contracting Parties; for that reason, it can be considered as ‘best efforts’ clause. Access to capital through open capital markets is fundamental to finance trade in energy materials and products and, consequently, to promote investments of foreign enterprises and their operations. The commitment of ‘access to capital’ is one of the Objectives (Title I) of the European Energy Charter as well as of the International Energy Charter. Both of them read as follows: Development of trade in energy consistent with major relevant multilateral agreements such as GATT, its related instruments, and nuclear nonproliferation obligations and undertakings, which will be achieved by means of: […] promoting best possible access to capital, particularly through appropriate existing financial institutions.

ECT Article 9, like ECT Article 8, belongs to ECT Part II (Commerce), 9.02 which establishes that Contracting Parties shall respect the free trade energy market and provide rules for the implementation of fair competition (ECT Art 6). Therefore, ECT Article 9 should be interpreted in the light of the whole ECT Part II. Accordingly, the right of foreign traders and investors to have access to the capital markets of the host country is an important element of the promotion of cross-border trade and investment.

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9.03 Foreign investors might be more interested in a loan provided by banks located in the host country than in the home country in order to avoid the risks of transfer restrictions and exchange rate fluctuations. Conversely, there may be cases where the host country’s financial market is too weak or too small to guarantee foreign companies unlimited access.2 In general terms, ECT Article 9 is, together with ECT Article 8, another important instrument for international energy cooperation as well as energy trade and investments; accordingly, through ECT Article 9 capital-importing States receive something very important for them: foreign capital to develop their own national markets. B. Context of ECT Article 9 9.04 After this introduction to the conception ‘access to capital’ within the energy sector, the travaux préparatoires of the ECT Article 9 will be examined to understand the conception, the context and evolution of this legal provision. 9.05 The notion of ‘access to capital’ was not found in the first Draft Treaty, Basic Protocol to the European Energy Charter (20 August 1991). The first time that the provision regarding ‘access to capital’ was pointed out during the ECT preparatory work was in Article 13 of the document BA 6, Basic Agreement (21 January 1992), based on USSR suggestions. Unlike current ECT Article 9 (access to capital), which contains four paragraphs, the draft Article 13 (access to capital) had only three paragraphs. Therefore, it is interesting to compare both texts, as shown below: Current ECT Article 9 reads as follows: (1) The Contracting Parties acknowledge the importance of open capital markets in encouraging the flow of capital to finance trade in Energy Materials and Products and for the making of and assisting with regard to Investments in Economic Activity in the Energy Sector in the Areas of other Contracting Parties, particularly those with economies in transition. Each Contracting Party shall accordingly endeavour to promote conditions for access to its capital market by companies and nationals of other Contracting Parties, for the purpose of financing trade in Energy Materials and Products and for the purpose of Investment in Economic Activity in the Energy Sector in the Areas of those other Contracting Parties, on a basis no less favourable than that which it accords in like circumstances to its own companies and nationals or companies and nationals of any other Contracting Party or any third state, whichever is the most favourable.

2

Energy Charter Secretariat, ‘The Energy Charter Treaty: A Reader’s Guide’, p. 36, available at .

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(2) A Contracting Party may adopt and maintain programmes providing for access to public loans, grants, guarantees or insurance for facilitating trade or Investment abroad. It shall make such facilities available, consistent with the objectives, constraints and criteria of such programmes (including any objectives, constraints or criteria relating to the place of business of an applicant for any such facility or the place of delivery of goods or services supplied with the support of any such facility) for Investments in the Economic Activity in the Energy Sector of other Contracting Parties or for financing trade in Energy Materials and Products with other Contracting Parties. (3) Contracting Parties shall, in implementing programmes in Economic Activity in the Energy Sector to improve the economic stability and investment climates of the Contracting Parties, seek as appropriate to encourage the operations and take advantage of the expertise of relevant international financial institutions. (4) Nothing in this Article shall prevent: (a) financial institutions from applying their own lending or underwriting practices based on market principles and prudential considerations; or (b) a Contracting Party from taking measures: (i) for prudential reasons, including the protection of Investors, consumers, depositors, policy-holders or persons to whom a fiduciary duty is owed by a financial service supplier; or (ii) to ensure the integrity and stability of its financial system and capital markets.

Draft Article 13 of the Basic Agreement set up the following: (1) Each Contracting Party shall accord to investors of another Contracting Party treatment no less favourable than that accorded in like situations to its own investors or to investors of any other Contracting Party or of any third State with respect to the borrowing of funds and the purchase, insurance, and sale of equity shares and other securities in connection with extraction, production, conversion, treatment, carriage or supply of [Energy Materials and Products]. (2) Each Contracting Party shall provide the fullest possible access consistent with this Agreement to official credit, guarantee or insurance agreement to investors, in connection with extraction, production, conversion, treatment, carriage and supply of [Energy Materials and Products]. (3) The Contracting Parties shall seek to greatest extent possible to take advantage of and to support the operations and expertise of relevant international financial institutions in mobilizing private investments in connection with the subject matter of this Agreement.

Even though there are evident differences, Draft Article 13 of the Basic 9.06 Agreement in January 1992 had already established the MFN treatment; the access to capital markets to finance trade in Energy Materials and Products; and the commitment to take advantage of the expertise of relevant international financial institutions. However, this Draft, unlike current ECT Article 9, lacked of a fourth paragraph regarding the possibility for financial 135

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institutions and for Contracting Parties to apply particular measures based on prudential considerations. 9.07 The next amendment of this draft was in the document BA 12, Basic Agreement (9 April 1992), which was based on Russian Federation suggestion and only changed in Paragraph 2 the expression ‘official credit’ for ‘public credit’. With this drafting the Chairman was concerned to ensure that the wording of the Article did not jeopardize national provisions to protect private investors or hamper the ability of lenders to demand appropriate security for loans. The European Communities and Japan stressed the need to clarify the objective of these provisions, as well as the criteria and appreciation modalities which are referred to. The European Communities pointed out that a guarantee mechanism for political risks could not be globally provided by other parties.3 In this regard, Japan asked for deletion of Paragraphs 1 and 3 and suggested the insertion of ‘in the framework of its domestic systems’. Likewise, the US asked that a new clarifying sentence be added: ‘Nothing in this Article is intended to impair the ability of private institutions to establish and apply their own lending practices based on market principles.’ And the European Communities suggested inserting the following: ‘In accordance with its laws and regulations’.4 As can be observed, at that time there was some distrust about the guarantees that could be offered by the capital markets of certain third countries. Therefore, it was intended to preserve the sovereignty of the Contracting Parties in relation to the regulations of their capital markets. 9.08 Other amendments took place in document BA 13, Basic Agreement (19 June 1992), which also inserted the US suggestion in the first paragraph: (1) Each Contracting Party shall accord to investors of another Contracting Party access to capital markets treatment no less favourable than that accorded in like situations to its own investors or to investors of any other Contracting Party or of any third State with respect to the borrowing of funds and the purchase insurance and sale of equity shares and other securities in connection with extraction, production, conversion, treatment, carriage or supply of [Energy Materials and Products]. Nothing in this Article is intended to impair the ability of financial institutions to establish and apply their own lending practices based on market principles. (2) Each Contracting Party shall provide the fullest possible access consistent with this Agreement to public credits, guarantees and or insurance agreement to for investors, in connection with extraction, production, conversion, treatment, carriage or and supply of [Energy Materials and Products]. 3 4

General Comments of BA 12, Basic Agreement (9 April 1992), p. 38. Specific Comments of BA 12, Basic Agreement (9 April 1992), p. 38.

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(3) The Contracting Parties shall seek to greatest extent possible to take advantage of the expertise and to support the operations and expertise of relevant international financial institutions in mobilizing private investments in connection with the subject matter of this Agreement.

Document BA-26, Basic Agreement (25 November 1992) did not modify 9.09 Draft Article 13; however, it added a general comment: ‘This Article shall be revisited at the December WG II meeting. To this end CDN (Canada) shall circulate the OECD definition on capital market and H [it is understood that this abbreviation refers to Hungary] will forward to the Secretariat by 30 November 1992 the description of its financial schemes.’ In this line, document BA-31, Basic Agreement (21 December 1992), 9.10 keeping the same drafting of Article 13, inserted another general comment: In the December WG II meeting it was decided that, in good time for the next WG II meeting: + Russian Federation will produce a note indicating the need for this Article and, if so, which Paragraphs need to be maintained. Other Delegations which see advantage in maintaining this Article, are invited to do the same. + USA will explore in a note the relation with Article 16 (7)5 and provide – if necessary – adaptive formulations which should minimize any restrictions on a free flow of capital. Reference is also made to the RO [Romania] notes on this subject as indicated in Room Documents 19 of 17 December 1992 and 23 of 18 December 1992.

Discussion on the drafting of Article 13 continued in document BA-35, Basic 9.11 Agreement (9 February 1993), whose general comment read as follows: The discussion in WG II on 4 February 1993 had been based on the analysis prepared by USA Delegation exploring the relationship between issues addressed in this Article and Article 16, particularly paragraph (7) (see Room Document 9 of 1 February 1993). USA’s view in that issues contained in Article 13 are sufficiently covered by Article 16 5

Art 16 of document BA-31, Basic Agreement (21 December 1992), titled ‘Promotion, protection and treatment of investments’, set up in Paragraph 7 the following: In addition each Contracting Party shall in its Domain accord to Investments of Investors of another Contracting Party, and their management, maintenance, use, enjoyment or disposal, treatment no less favourable than that which it accords to Investments of its own Investors or of the Investors of any other Contracting Party or any third State, and their management, maintenance, use, enjoyment or disposal, whichever is the most favourable. In this regard, on the one hand the working hypothesis 1 indicated: ‘Treatment post-establishment shall be the better of national treatment or most favourable nation treatment.’ On the other hand, working hypothesis 2 settled the following: ‘There shall be no exceptions to national treatment or MFN post-establishment subject to the conclusions of the Taxation Sub-Group on 11.09.92.’

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and consequently do not require any coverage by Article 13. Some Delegations supported this view. Some Delegations however, pointed out that its retention, particularly of paragraph (2), has merits. Chairman asked Russian Federation and USA to discuss the need for this Article once again in the light of the deductions indicated in Room Document 9 and come up with a clear statement of what should be covered in this Article that is not covered by Article 16 (7).

9.12 Furthermore, within the specific comments, CDN preferred to insert in Article 13(2) the expression ‘endeavour to’ instead of ‘shall provide’ and there was a suggestion to add at the end of Article 13 (2) the sentence ‘in accordance with its laws and regualtions’. 9.13 Accordingly, the CONF 50, Draft Energy Charter Treaty (Basic Agreement) – Compromise text (15 March 1993) included the following amendments, already suggested in the last version, and changed the legal provision ‘access to capital’ to Article 10: (1) Each Contracting Party shall endeavour to encourage such capital flows by facilitating, in accordance with its laws, [DL] accord to investors of another Contracting Party access to its capital markets [DL] for no less favourable than that accorded in like situations to its own investors or to investors of any other another Contracting Party [DL] or of any third State with respect to the borrowing of funds and the insurance and sale of equity shares and other securities in connection with [DL] Economic activity in the energy sector. extraction, production, conversion, treatment, carriage or supply of [Energy Materials and Products]. Nothing in this Article is intended to impair the ability of financial institutions to establish and apply their own lending practices based on market principles. (2) To the extent permitted by its laws each Contracting Party shall provide [DL] the fullest possible access to public credits, guarantees and insurance for investors, in extraction, production, conversion, treatment, carriage or supply of Energy Materials and Products. (3) The Contracting Parties shall seek [DL] to greatest extent possible to take all appropriate advantage of the expertise and to support the operations of relevant international financial institutions in mobilizing private investments in connection with the subject matter of this Agreement.

9.14 Document CONF 56, Draft ECT – Second version (1 May 1993) introduced more changes in Article 10 (access to capital): (1) Contracting Parties acknowledge the importance of conditions which promote the flow of capital to finance trade in Energy Materials and Products and Investment in the Energy Sector of Contracting Parties particularly those with economies in transition. [Accordingly, in accordance with their laws and with the measures

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necessary for prudential regulation, Contracting Parties shall not require entities subject to their jurisdiction] to provide to [traders and] Investors from other Contracting Parties seeking to borrow funds or issue and sell equity shares or other securities in connection with Economic Activity in the Energy Sector treatment less favourable than provided in like circumstances to their own [traders and] Investors from any other Contracting Party ot any third State. (2) A Contracting Party which has programmes providing for access to public credits, guarantees and insurance for facilitating trade or investment abroad shall to the extent permitted by its laws make such facilities available to its Investors for Investments in Economic Activity in the Energy Sector of other Contracting Parties or available for trade in relation with such investments, in accordance with the criteria for assistance for such programmes. (3) Contracting Parties shall seek to encourage the operations and, where appropriate, make full use of the expertise of relevant international financial institutions in mobilizing private Investments in Economic Activity in the Energy Sector of Contracting Parties. (4) Nothing in this Article shall prevent financial institutions from applying their own lending/underwriting practices based on market principles and prudential considerations or prevent Contracting Parties from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system.

As it can be seen, this drafting includes in Paragraph 4 that financial 9.15 institutions may apply their own practice based on market principles and on ‘prudential considerations’. The specific comments to this Article read as follows: +

+ + +

+

Several Eastern European countries preferred the earlier version of this Article and expressed the view that the needs of economies in transition should explicitly be taken into account in this Article. Russian Federation will come up with its own text. Other Delegations might do the same.’ Concerning Paragraph 1 of this Article: First square brackets: ‘USA proposes to replace this wording with: ‘Accordingly to the extent permitted by their laws Contracting Parties shall endeavour’. Furthermore, the word ‘no’ should be inserted in the 10th line, so that it reads ‘treatment no less favourable’.’ Second and third square brackets: ‘USA suggests to look for new wording as the word ‘trader’ is not very precise. The suggestion was made to look for a more general wording which could include the concept of a ‘trader’.

Document CONF 64, Draft ECT – fourth version (7 July 1993) introduces 9.16 more changes on Article 10 and adds a fifth Paragraph: 139

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(1) Contracting Parties [acknowledge the importance of conditions which promote the flow of capital to finance] trade in Energy Materials and Products and investment in the Energy Sector of Contracting Parties particularly those with economies in transition. Accordingly each Contracting Party shall: [(a) [facilitate access to its capital market for its companies and nationals and not hinder access of companies and nationals of other Contracting Parties to its market] for Making or assisting Investment in Economic Activity in the Energy Sector in the Area of other Contracting Parties. (b) rexamine economic, fiscal or other measures that may contribute to the expansion of trade and Investment in Economic Activity in the Energy Sector in countries of transition ; (c) [regularly report to the Charter Conference the initiation of such measures and the results thereof]. [(2) [DL] To the extent permitted by the laws and consistent with measures appropriate for prudential regulation [and with existing international agreements], Contracting Parties shall [not require entities subject to their Jurisdiction to provide] [DL] to companies and nationals from other Contracting Parties seeking to borrow funds or issue and sell equity shares or other securities in connection with [DL] [financing trade or Making Investment] in the Energy Sector treatment [no] less favourable than that provided [in like circumstances] to their own [DL] companies and nationals or to [DL] companies and nationals from any other Contracting Party or any third State]. (3) A Contracting Party which has programmes providing for access to public loans and grants. guarantees and insurance [for facilitating trade or Investment abroad] shall [to the extent permitted by its laws and regulations, make such facilities available] to its Investors for Investments in Economic Activity in the Energy Sector of other Contracting Parties or [DL] for financing trade [in relation [DL] to such Investments,] [in accordance with the criteria for assistance from such programmes]. [(4) [The Contracting Parties shall seek to encourage the operations and, where appropriate, make full use of the expertise of relevant international [financial] institutions in mobilising private Investments in Economic Activity in the Energy Sector of Contracting Parties. (5) Nothing in this Article shall prevent financial institutions from applying their own lending/underwriting practices based on market principles and prudential considerations or prevent Contracting Parties from taking measures for prudential reasons, including for the protection of Investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a financial service supplier, or to ensure the integrity and stability of the financial system [and capital markets].

9.17 Several Delegations made specific comments on this draft. More amendments were made concerning ‘access to capital’ in document CONF 72, Draft ECT – fifth version (11 October 1993); document CONF 82, Draft ECT – sixth version (20 December 1993); document CONF 96, Draft ECT – seventh version (17 March 1994); document CONF 98, Draft ECT – Chairman‘s Compromise Text (22 April 1994); and document Interim Text – Final Act of 140

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the Conference on the ECT (20 June 1994). The first time that the drafting of Article 10 was similar to the last version of ‘access to capital’ in The Energy Charter Treaty (17 December 1994), which moved this legal provision to ECT Article 9 in document CONF 104, Note from the Conference Chairman – Adoption of the ECT (14 September 1994), was in document Interim Text – Final Act of the Conference on the ECT (25 June 1994). The preparatory work of ECT Article 9 was subject to many drafts and 9.18 discussions due to the distrust of third States’ financial markets, because the capital markets are generally in the hands of private investors6 and due to the needs of economies in transition. In spite of the evolution of the matter ‘access to capital’ during the ECT’s travaux préparatoires, the final wording of the Article sets up a set of soft law commitments maintaining the freedom of financial institutions and Contracting Parties to apply their own practices and their own prudential considerations. This implies a conservative and protectionist implementation of the legal provision. In any case, it is interesting to quote the Final Act of the European Energy 9.19 Charter Conference (Understanding 9): As a Contracting Party’s programmes which provide for public loans, grants, guarantees or insurance for facilitating trade or Investment abroad are not Connected with Investment or related activities of Investors from other Contracting Parties in its Area, such programmes may be subject to constraints with respect to participation in them.

This Understanding emphasizes the importance of the non-discrimination principle with regard to access to capital as well as that access to capital should be done on the grounds of a free trade energy market and free competition regulations. Nonetheless, it is essential that these programmes apply to energy trade and investment with/in other Contracting Parties; otherwise, these funding programmes might be subject to restrictions. In doing so it should be reminded that the right of foreign traders and investors to have access to the capital markets of the host country is a significant element of the promotion of cross-border trade and investment. C. ECT Article 9, Paragraph 1 Pursuant to Article 9(1), Contracting Parties acknowledge the importance of 9.20 open capital markets in encouraging the flow of capital to finance energy trade and investment. Hence, each Contracting Party shall endeavour to promote 6

Energy Charter Secretariat, ‘The Energy Charter Treaty: A Reader’s Guide’, supra note 2, p. 36.

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conditions for access to its capital market by companies and nationals of other Contracting Parties for the purpose of such financing on a non-discriminatory basis. This ‘best efforts’ obligation resulted from the fact that, as previously indicated, capital markets are generally in the hands of private investors. 9.21 It is interesting to note that the ECT, as previously shown in the ECT’s travaux préparatorires and as it is reflected in ECT Article 9(1), aimed to provide interim trade arrangements to assist the economies in transition (towards their membership into the WTO). In this line, ECT Article 32 set out arrangements under which Contracting Parties considered economies-intransition (ECT Art 24) listed in ECT Annex T were eligible for temporary exceptions from ECT’s obligations under certain legal provisions. Thus, Annex T (‘Contracting Parties’ Transitional Measures’) of the ECT, whose applicability terminated on 1 July 2001, referred to ECT Article 32(1) ‘Transitional Agreements’, whose applicability also terminated on 1 July 2001, and which read as follows: In recognition of the need for time to adapt to the requirements of a market economy, a Contracting Party listed in Annex T may temporarily suspend full compliance with its obligations under one or more of the following provisions of this Treaty, subject to the conditions in paragraphs (3) to (6): […] Article 9(1).

9.22 Accordingly, Annex T contained claims to transitional arrangements by Azerbaijan, Belarus, Georgia, Kazakhstan and Kyrgyzstan concerning the ‘best-efforts’ obligation of ECT Article 9(1).7 That is, these Contracting Parties took exceptions from the access to capital markets’ obligation endeavour to promote access to such markets. In this regard, the description given in ECT Annex T by Azerbaijan, Belarus, Georgia and Kyrgyzstan was ‘relevant legislation is at the stage of preparation/elaboration’. The description belonging to Kazakhstan was ‘the bill of foreign investments is at the stage of authorization approval with the aim to adopt it by the Parliament in autumn 1994’.8 1. Acknowledgement of the importance of open capital markets

9.23 There has been a widespread financial liberalization and the emergence of a real global capital market influenced by the revolution of information technology. Therefore, countries, companies and projects have to compete in

7 8

Craig S. Bamberger, ‘An Overview of the Energy Charter Treaty’, in Thomas W. Wälde (ed), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International, 1996), p. 19. Annex T of the Energy Charter Treaty in accordance with ECT Art 9(1).

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financial global terms.9 In this regard, the relevance of open capital markets is clear to finance trade in energy materials and products because free access to capital is necessary to promote investments of foreign enterprises and their operations, and, consequently, for the development of energy trade. Accordingly, ECT Article 9(1) assumes that investments require capital. In this regard, it is noteworthy the Dissenting Opinion of Arbitrator Dominic Pellew: Article 9(1) guarantees Investors access to capital markets in the host country ‘for the purpose of Investment’. This assumes that investments require capital. Article 14 also provides that each Contracting Party guarantees: the freedom of transfer into and out of its Area, including the transfer of: (a) the initial capital plus any additional capital for the maintenance and development of an Investment; (b) Returns (…).10

Likewise, open capital markets facilitate the assistance with regard to invest- 9.24 ments in economic activity in the energy sector in the areas of other Contracting Parties, particularly those with economies in transition. The explicit consideration of economies in transition within this legal provision was one of the requirements of several Eastern European countries during the ECT preparatory work. Consequently, even though the acknowledgement of the importance of open 9.25 capital markets is fundamental to take measures to apply this commitment, it is only a good-will obligation, which complicates its implementation due to the lack of coactivity. 2. Obligation to promote conditions for access to the national capital market

The second sentence of ECT Article 9(1) points out that the promotion of 9.26 conditions for access to the national capital market has the purpose of ‘financing trade in Energy Materials and Products and [for] the purpose of Investment in Economic Activity in the Energy Sector in the Areas of those other Contracting Parties, on a basis no less favourable than that which it accords in like circumstances to its own companies and nationals or companies and nationals of any other Contracting Party or any third state, whichever is the most favourable.’ 9 10

Maidan Suleimenov and William Holland, ‘The Energy Charter Agreement and the Development of Kazakhstan Legislation’ in Wälde, supra note 7, pp. 179–93, pp. 188. Dissenting Opinion of Arbitrator Dominic Pellew, ISDSC 055do en, para 13.

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9.27 Accordingly, the two purposes of this paragraph, namely, the financing of energy trade and the financing of energy investment should be done on a non-discrimination basis. This is very important for the encouragement of cross-border trade and investment. As was explained in paragraphs 9.19 and 9.20 of this chapter, the non-discrimination principle is established in ECT Article 10. In this sense we should reflect on the Understanding 9 of the Final Act of the European Energy Charter Conference, with respect to ECT Articles 9, 10 and Part V, which set out: As a Contracting Party’s programmes which provide for public loans, grants, guarantees or insurance for facilitating trade or Investment abroad are not connected with Investment or related activities of Investors from other Contracting Parties in its Area, such programmes may be subject to constraints with respect to participation in them.

9.28 ECT Article 10(1) begins with a best efforts obligation, i.e., ‘Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area.’ It, nonetheless, adds the non-discrimination treatment as follows: ‘In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations.’ However, it is remarkable the Chairman’s statement on this sentence: I would like to note that the Russian Federation believes that the reference to international law in Article 10(1) is not intended to impose most favoured nation obligations with regard to Making of Investments. This is clearly in accordance with the intent of the negotiators who decided not to include in this first Treaty MFN obligations for the pre-investment stage.11

In spite of this statement, ECT Article 10(3) clarifies the meaning of the concept ‘Treatment’ in this context: ‘For the purposes of this Article, “Treatment” means treatment accorded by a Contracting Party which is no less favourable than that which it accords to its own Investors or to Investors of any other Contracting Party or any third state, whichever is the most favourable.’ In this line, Paragraphs 2, 4, 5 and 6 of ECT Article 10 refer to the ‘treatment’ meaning of ECT Article 10 (3), and Paragraph 7 establishes the MFN treatment obligation for foreign investments and their related activities; for that reason, in Decision 2 with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference) was agreed the following decision: 11

Chairman’s Statement at Adoption Session on 17 December 1994.

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The Russian Federation may require that companies with foreign participation obtain legislative approval for the leasing of federally-owned property, provided that the Russian Federation shall ensure without exception that this process is not applied in a manner which discriminates among Investments of Investors of other Contracting Parties.

This Decision is the result of the fact that Russian State enterprises enjoyed significant preferences concerning access to resources,12 which falls under pre-investment. Thus, the Treaty solution was the soft-law obligation of ECT Article 10(2): ‘Each Contracting Party shall endeavour to accord to Investors of other Contracting Parties, as regards the Making of Investments in its Area, the Treatment described in paragraph 3 [MFN treatment].’13 In view of that, even though ECT Article 9(1) establishes that the financing of 9.29 energy trade and the financing of energy investment should be done on a non-discrimination basis, this legal provision should be read in the light of ECT Article 10 to be implemented. Furthermore, concerning environmental protection and energy efficiency, the 9.30 Energy Charter Protocol on Energy Efficiency and related Environmental Aspects (PEEREA) incorporates in Article 6(2) that ‘Contracting Parties shall endeavour to take advantage of and promote access to private capital markets and existing international financing institutions in order to facilitate investments in Improving Energy Efficiency and in environmental protection related to energy efficiency.’ This legal provision aims at fostering access to private capital markets to achieve energy efficiency and environmental protection; therefore, it is in accordance with the PEEREA’s scope of application and objectives, whose basis is the definition of ‘policy principles for the promotion of energy efficiency as a considerable source of energy and for consequently reducing adverse Environmental Impacts of energy systems’ (PEEREA Art 1).

12 13

D. MacDougall and P. Cameron, Trade in Energy and Natural Resources – Trade-Related Investment Measures (1994) 28 J.W.T. 3. ECT Art 10(2) should be read in conjunction with ECT Art 18(4): ‘The Contracting Parties undertake to facilitate access to energy resources, inter alia, by allocating in a non-discriminatory manner on the basis of published criteria authorisations, licences, concessions and contracts to prospect and explore for or to exploit or extract energy resources.’

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D. ECT Article 9, Paragraph 2: Facilities to have access to funds for facilitating trade or investment abroad 9.31 ECT Article 9(2) deals with financing activities by home countries of energy traders and investors. This legal provision states that a Contracting Party may adopt or maintain programmes relating to the promotion of trade or investment abroad (e.g., public loans, grants, insurance, guarantees, etc.). Such programmes shall apply to energy trade and investment with/in other Contracting Parties.14 9.32 This article highlights the importance of access to capital to finance investments abroad. In addition, such access to capital should be facilitated by the States so that investors can obtain funds in an agile, transparent and nondiscriminatory manner. 9.33 Furthermore, this legal provision should be read taking into account the Final Act of the European Energy Charter Conference, Understanding 9: As a Contracting Party’s programmes which provide for public loans, grants, guarantees or insurance for facilitating trade or Investment abroad are not Connected with Investment or related activities of Investors from other Contracting Parties in its Area, such programmes may be subject to constraints with respect to participation in them.

Accordingly, and, as has been previously explained, Understanding 9 emphasizes the relevance of the non-discrimination principle concerning access to capital. Nevertheless, it is highlighted that these programmes of ECT Article 9(2) apply to energy trade and investment with/in other Contracting Parties; otherwise, these funding programmes might be subject to restrictions. 9.34 Consequently, access to capital should be done on the grounds of a free trade energy market and free competition regulations in a non-discriminatory manner. However, the facilities to have access to funds for facilitating trade and/or investment abroad shall comply with the subject matter of being addressed to investments or related activities of the energy sector of investors from other Contracting Parties in its area. Thus, it is important to emphasize that the right of foreign traders and investors to have access to the capital markets of the host country is a significant element of the promotion of cross-border trade and investment.

14

Energy Charter Secretariat, ‘The Energy Charter Treaty: A Reader’s Guide’, supra note 2, p. 36.

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E. ECT Article 9, Paragraph 3: Implementation of programmes in Economic Activity in the Energy Sector ECT Article 9(3) clarifies that the funding programmes pointed out in ECT 9.35 Article 9, Paragraph 2, should be implemented in cooperation with and taking advantage of the expertise of relevant international financial institutions. This soft law provision confirms the relevance of implementing the commitment of access to capital according to international law as well as the most relevant international financial institutions and on the grounds of a free energy market. It is remarkable that the PEEREA contains a legal provision in Article 6 9.36 regarding financial and financial incentives with the particular objective of improving energy efficiency and environmental protection. It establishes that Contracting Parties shall encourage the implementation of methods for financing energy efficiency and energy related environmental protection investments. Thus, in the light of ECT Article 9 Paragraphs 2 and 3, PEEREA Article 6 sets up that ‘Contracting Parties shall endeavour to take advantage of and promote access to private capital markets and existing international financing institutions’ as well as ‘provide fiscal or financial incentives to energy users’ in a transparent and free energy market manner. This shows the importance of facilitating access to capital according to 9.37 international law and the most relevant international institutions also in relation to energy efficiency and environmental protection in order to help market penetration of energy efficiency technologies, products and services. In this sense, as it has been commented above, despite the environmental nature of the Protocol, it can be understood that PEEREA leans towards the economic and commercial benefits of energy efficiency, rather than the environmental part. F. ECT Article 9, Paragraph 4: ‘Nothing in this Article shall prevent […]’ Paragraph 4 of ECT Article 9 is divided into two parts: one part is related to 9.38 financial institutions and the other part refers to Contracting Parties. Thus, ECT Article 9(4) points out that, in spite of the other three paragraphs of ECT Article 9, on the one hand financial institutions may apply their own lending or underwriting practices on the grounds of market principles and prudential considerations, and, on the other hand, Contracting Parties may take particular protectionist measures based on prudential reasons and with the objective to ensure the integrity and stability of its financial system and capital markets. That is, as established in the first sentence of this legal 147

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provision, ‘[n]othing in this Article shall prevent’ the applying of mentioned protectionist measures. 9.39 The option to implement measures based on ‘prudential considerations/ reasons’ and ‘to ensure the integrity and stability of their national financial system and capital markets’ opens the door to the application of conservative and discretionary measures. Therefore, it is essential that these measures are justified in a precise manner, in order to avoid arbitrariness. 9.40 This last Paragraph 4 weakens the already ‘best efforts’ legal provision established in ECT Article 9 concerning access to capital within the energy sector. G. Conclusions 9.41 ECT Article 9 (access to capital), in the same way as ECT Article 8, is a legal provision that can be considered as a ‘best efforts’ clause. The right of foreign traders and investors to have access to the capital markets of the host country is fundamental for the promotion of cross-border energy trade and investments. ECT Article 9 acknowledges this situation and, consequently, points out that Contracting Parties shall endeavour to encourage conditions for access to its capital market by foreign companies of other Contracting Parties on a non-discriminatory basis. However, as previously explained, this provision does not establish a legally binding obligation due to the fact that the capital markets are generally in the hands of private investors, which weakens the consequences of the precept.

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Part III INVESTMENT PROMOTION AND PROTECTION

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ARTICLE 10 PROMOTION, PROTECTION AND TREATMENT OF INVESTMENTS1 Diego Mejía-Lemos

1. Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment. Such Investments shall also enjoy the most constant protection and security and no Contracting Party shall in any way impair by unreasonable or discriminatory measures their management, maintenance, use, enjoyment or disposal. In no case shall such Investments be accorded treatment less favourable than that required by international law, including treaty obligations.2 Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party.3 2. Each Contracting Party shall endeavour to accord to Investors of other Contracting Parties, as regards the Making of Investments in its Area, the Treatment described in paragraph (3). 3. For the purposes of this Article, ‘Treatment’ means treatment accorded by a Contracting Party which is no less favourable than that which it accords to its own Investors or to Investors of any other Contracting Party or any third state, whichever is the most favourable. 4. A supplementary treaty shall, subject to conditions to be laid down therein, oblige each party thereto to accord to Investors of other 1 2 3

See Final Act of the European Energy Charter Conference, Understandings, n. 9. with respect to Arts 9, 10 and Part V, p 27 and Declarations, n 4. with respect to Art 10, p. 31. See Final Act of the European Energy Charter Conference, Understandings, n 17. with respect to Arts 26 and 27, p 28 and Chairman’s Statement at Adoption Session on 17 December 1994, p 157. See Art 26(3)(c), p 73; Art 27(2), p 75 and Annex IA, p 98.

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parties, as regards the Making of Investments in its Area, the Treatment described in paragraph (3). That treaty shall be open for signature by the states and Regional Economic Integration Organizations which have signed or acceded to this Treaty. Negotiations towards the supplementary treaty shall commence not later than 1 January 1995, with a view to concluding it by 1 January 1998.4 Each Contracting Party shall, as regards the Making of Investments in its Area, endeavour to: a. limit to the minimum the exceptions to the Treatment described in paragraph (3); b. progressively remove existing restrictions affecting Investors of other Contracting Parties. (a) A Contracting Party may, as regards the Making of Investments in its Area, at any time declare voluntarily to the Charter Conference, through the Secretariat, its intention not to introduce new exceptions to the Treatment described in paragraph (3). (b) A Contracting Party may, furthermore, at any time make a voluntary commitment to accord to Investors of other Contracting Parties, as regards the Making of Investments in some or all Economic Activities in the Energy Sector in its Area, the Treatment described in paragraph (3). Such commitments shall be notified to the Secretariat and listed in Annex VC and shall be binding under this Treaty. Each Contracting Party shall accord to Investments in its Area of Investors of other Contracting Parties, and their related activities including management, maintenance, use, enjoyment or disposal, treatment no less favourable than that which it accords to Investments of its own Investors or of the Investors of any other Contracting Party or any third state and their related activities including management, maintenance, use, enjoyment or disposal, whichever is the most favourable.5 The modalities of application of paragraph (7) in relation to programmes under which a Contracting Party provides grants or other financial assistance, or enters into contracts, for energy technology research and development, shall be reserved for the supplementary treaty described in paragraph (4). Each Contracting Party shall

5.

6.

7.

8.

4

5

See Final Act of the European Energy Charter Conference, Understandings, n 10 with respect to Art 10(4), p 27; n 11 with respect to Arts 10(4) and 29(6), p. 28; Final Act of the European Energy Charter Conference, Declarations, n 1 with respect to Art 1(6), p 30 and Chairman’s Statement at Adoption Session on 17 December 1994, p 157. See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), n. 2. with respect to Article 10(7), p. 135; Article 32(1), p. 79 and Annex T pp. 113 and 126.

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9.

10.

11.

12.

6

through the Secretariat keep the Charter Conference informed of the modalities it applies to the programmes described in this paragraph. Each state or Regional Economic Integration Organization which signs or accedes to this Treaty shall, on the date it signs the Treaty or deposits its instrument of accession, submit to the Secretariat a report summarizing all laws, regulations or other measures relevant to: a. exceptions to paragraph (2); or b. the programmes referred to in paragraph (8). A Contracting Party shall keep its report up to date by promptly submitting amendments to the Secretariat. The Charter Conference shall review these reports periodically. In respect of subparagraph (a) the report may designate parts of the energy sector in which a Contracting Party accords to Investors of other Contracting Parties the Treatment described in paragraph (3). In respect of subparagraph (b) the review by the Charter Conference may consider the effects of such programmes on competition and Investments. Notwithstanding any other provision of this Article, the treatment described in paragraphs (3) and (7) shall not apply to the protection of Intellectual Property; instead, the treatment shall be as specified in the corresponding provisions of the applicable international agreements for the protection of Intellectual Property rights to which the respective Contracting Parties are parties. For the purposes of Article 26, the application by a Contracting Party of a trade-related investment measure as described in Article 5(1) and (2) to an Investment of an Investor of another Contracting Party existing at the time of such application shall, subject to Article 5(3) and (4), be considered a breach of an obligation of the former Contracting Party under this Part.6 Each Contracting Party shall ensure that its domestic law provides effective means for the assertion of claims and the enforcement of rights with respect to Investments, investment agreements, and investment authorizations.

See Final Act of the European Energy Charter Conference, Declarations, n 2 with respect to Arts 5 and 10(11), p 30.

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COMMENTARY7 Various arbitral tribunals constituted under the Energy Charter Treaty (ECT) 10.01 have interpreted and applied Article 10, and, more generally, commented on Part III.8 This commentary surveys relevant decisions of the aforementioned ECT arbitral tribunals, and discusses, where apposite, selected decisions of other arbitral tribunals.

7 8

The author is grateful to Ali Al-Khasawneh and Christine Sim for their valuable comments on an earlier draft. The Energy Charter Secretariat maintains in its website a ‘List of all Investment Dispute Settlement Cases’ (at https://energycharter.org/what-we-do/dispute-settlement/all-investment-dispute-settlement-cases/, consulted on 1 September 2018). In this list 119 cases, concluded and pending, are recorded as having been commenced under the ECT. The list includes cases which have been settled, and cases about which information is not publicly available. Nykomb Synergetics Technology Holding AB v. The Republic of Latvia (SCC), Award, 16 December 2003 (Nykomb); Petrobart Ltd v. The Kyrgyz Republic (SCC 126/2003), Award, 29 March 2005 (Petrobart); Plama Consortium Ltd v. Republic of Bulgaria (ICSID ARB/03/24), Decision on Jurisdiction, 8 February 2005 (Plama Jurisdiction); Plama Consortium Ltd v. Republic of Bulgaria (ICSID ARB/03/24), Award, 27 August 2008 (Plama); Ltd Liability Company AMTO v. Ukraine (SCC 080/2005), Award, 26 March 2008 (AMTO); Europe Cement Investment & Trade SA v. Republic of Turkey (ICSID ARB(AF)/07/2), Award, 13 August 2009 (Europe Cement); Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan (SCC V(064/2008)), Partial Award on Jurisdiction and Liability, 2 September 2009 (Al-Bahloul Jurisdiction and Liability); Hulley Enterprises Ltd (Cyprus) v. The Russian Federation (PCA AA 226), Interim Award on Jurisdiction and Admissibility, 30 November 2009 (Hulley Jurisdiction and Admissibility); Veteran Petroleum Ltd (Cyprus) v. The Russian Federation (PCA AA 228), Interim Award on Jurisdiction and Admissibility, 30 November 2009 (Veteran Jurisdiction and Admissibility); Yukos Universal Ltd (Isle of Man) v. The Russian Federation (PCA AA 227), Interim Award on Jurisdiction and Admissibility, 30 November 2009 (Yukos Jurisdiction and Admissibility); Ioannis Kardassopoulos and Ron Fuchs v. The Republic of Georgia (ICSID ARB/05/18 and ARB/07/15), Award, 3 March 2010 (Kardassopoulos); Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan (SCC V(064/2008)), Final Award, 8 June 2010 (Al-Bahloul); Liman Caspian Oil BV and NCL Dutch Investment BV v Republic of Kazakhstan (ICSID ARB/07/14), Award, 22 June 2010 (LCO); AES Summit Generation Ltd, AES-Tisza Erömü Kft v. The Republic of Hungary (ICSID ARB/07/22), Award, 23 September 2010 (AES); Libananco Holdings Co Ltd v. Republic of Turkey (ICSID ARB/06/8), Award, 2 September 2011 (Libananco); Alapli Elektrik BV v. Republic of Turkey (ICSID ARB/08/13), Award, 16 July 2012 (Alapli); Khan Resources Inc, Khan Resources BV, CAUC Holding Company Ltd v. The Government of Mongolia, MonAtom LLC (PCA 2011–09), Decision on Jurisdiction, 25 July 2012 (Khan Jurisdiction); Electrabel SA v The Republic of Hungary (ICSID ARB/07/19), Decision on Jurisdiction, Applicable Law and Liability, 30 November 2012 (Electrabel Jurisdiction, Applicable Law and Liability); Energoalliance Ltd v. The Republic of Moldova (UNCITRAL, Ad Hoc), Arbitral Award, 23 October 2013 (Energoalliance); The AES Corporation and Tau Power BV v. Republic of Albania (ICSID ARB/10/16), Award, 1 November 2013 (AES & Tau); Anatolie Stati, Gabriel Stati, Ascom Group SA, Terra Raf Trans Trading Ltd v. The Republic of Kazakhstan (SCC V (116/2010)), Award, 19 December 2013 (Stati); Hulley Enterprises Ltd (Cyprus) v. The Russian Federation (PCA AA 226), Final Award, 18 July 2014 (Hulley); Veteran Petroleum Ltd (Cyprus) v. The Russian Federation (PCA AA 228), Final Award, 18 July 2014 (Veteran); Yukos Universal Ltd (Isle of Man) v. The Russian Federation (PCA AA 227), Final Award, 18 July 2014 (Yukos); State Enterprise Energorynok v. The Republic of Moldova (SCC V (2012/175)), Final Award, 29 January 2015 (Energorynok); Khan Resources Inc, Khan Resources BV, CAUC Holding Company Ltd v. The Government of Mongolia, MonAtom LLC (PCA 2011–09), Award on the Merits, 2 March 2015 (Khan Merits); Mamidoil Jetoil Greek Petroleum Products Société SA v. Republic of Albania (ICSID ARB/11/24), Award, 30 March 2015 (Mamidoil); Electrabel SA v. The Republic of Hungary (ICSID ARB/07/19), Award, 25 November 2015 (Electrabel); Hrvatska Elektroprivreda DD v. Republic of Slovenia (ICSID ARB/05/24), Award, 17 December 2015 (HEP); Charanne BV Construction Investments Sàrl v. Kingdom of Spain (062/2012), Final Award, 21 January 2016 (Charanne) [Dissenting Opinion of Tawil of 21 December 2015

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10.02 There is a vast body of scholarly literature which has analysed, with varying degrees of depth, Article 10 and, in general, Part III.9 This body of literature has also been comprehensively surveyed in this commentary. 10.03 This commentary provides an overview and analysis of Part III and Article 10 on the basis of the aforementioned bodies of decisions of arbitral tribunals and scholarly literature. This commentary comprises the following elements: (i)

the nature of the ECT, its place among treaties governing investment, with a particular focus on the character of Part III10 and the obligations and rights set out in Part III;11 (ii) the relationships between the ECT, particularly Part III, and other treaties,12 including treaty-based systems of law,13 with a particular focus on the nature of the rule of Part III governing this relationship;14

9

10 11 12 13 14

(in Spanish) (Charanne Dissenting Opinion)]; RREEF Infrastructure (GP) Ltd and RREEF Pan-European Infrastructure Two Lux Sàrl v. Kingdom of Spain (ICSID ARB/13/30), Decision on Jurisdiction, 6 June 2016 (RREEF Jurisdiction); Isolux Infrastructure Netherlands, BV v. Kingdom of Spain (SCC V2013/153), Award, 12 July 2016 (Isolux) [Dissenting Opinion of Tawil of 6 July 2016 (in Spanish) (Isolux Dissenting Opinion)]; Blusun SA, Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID ARB/14/03), Award, 27 December 2016 (Blusun); Eiser Infrastructure Ltd and Energia Solar Luxembourg Sàrl v. Kingdom of Spain (ICSID ARB/13/36), Award, 4 May 2017 (Eiser); Novenergia II – Energy & Environment (SCA) SICAR v. The Kingdom of Spain (SCC 2015/063), Final Arbitral Award, 15 February 2018 (Novenergia II); Antaris Solar and Dr Michael Göde v. The Czech Republic (PCA 2014–01), Award, 2 May 2018 (Antaris) [Dissenting Opinion of Mr Gary Born (Antaris Dissenting Opinion); Declaration of Judge Tomka (Antaris Declaration); the Antaris Award, Dissenting Opinion and Declaration are not available on the PCA website; the Energy Charter Secretariat has published their redacted versions, at https://energycharter.org/fileadmin/ DocumentsMedia/Disputes/ISDSC-036-Final_Award__published_by_IA_Reporter_.pdf (consulted on 1 September 2018)]; Masdar Solar & Wind Cooperatief UA v. Kingdom of Spain (ICSID ARB/14/1), Award, 16 May 2018 (Masdar); Antin Infrastructure Services Luxembourg Sàrl and Antin Energia Termosolar BV v. The Kingdom of Spain (ICSID ARB/13/31), Award, 15 June 2018 (Antin). The collective works surveyed in this chapter include the following edited books, which, in turn, contain various relevant individual contributions: Peter Muchlinski, Federico Ortino, Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008) [Muchlinski, Ortino, Schreuer (2008)]; August Reinisch (ed), Standards of Investment Protection (Oxford University Press 2008) [Reinisch (2008)]; Graham Coop and Clarisse Ribeiro (eds), Investment Protection and The Energy Charter Treaty (JurisNet 2008) [Coop & Ribeiro (2008)]; PM Dupuy, F Francioni, and EU Petersmann (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) [Dupuy, Francioni, Petersmann (2009)]; Christina Binder, Ursula Kriebaum, August Reinisch, and Stephan Wittich (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford University Press 2009) [Binder, Kriebaum, Reinisch, Wittich (2009)]; Andrea K. Bjorklund and August Reinisch (eds), International Investment Law and Soft Law (Edward Elgar 2012) [Bjorklund & Reinisch (2012)]; Tarcisio Gazzini and Eric De Brabandere (eds), International Investment Law: The Sources of Rights and Obligations (Martinus Nijhoff 2012) [Gazzini and Brabendere (2012)]; Marc Bungenberg, Jorn Griebel, Stephan Hobe, August Reinisch (eds), International Investment Law: A Handbook (Nomos/Hart 2015) [Bungenberg, Griebel, Hobe, Reinisch (2015)]. See para 10.4. See para 10.5. See para 10.6. See para 10.8. See para 10.7.

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(iii) the rules of Part III concerning its own operation, including its nonapplication;15 (iv) the bearing of Part III on dispute settlement under the ECT,16 including as to the scope of dispute settlement between Investors and Contracting Parties under the ECT,17 and the jurisdiction of ECT arbitral tribunals;18 (v) the bearing of Part III on the applicable law in ECT arbitrations,19 and an analysis of the place of the internal law of a Contracting Party20 and the applicability of general international law,21 particularly the law of treaties,22 and the law of state responsibility in ECT arbitrations;23 (vi) Article 10, and its various parts;24 (vii) Article 10(1), and an analysis of the overlap and interactions among the standards of treatment it comprises;25 (viii) the rules set out in the sentences contained in Article 10(1), the standards of treatment contained in each sentence, and the interactions of each of those standards with other standards and rules of general international law;26 and (ix) the rules set out in the remainder of Article 10.27 A. Part III Part III is entitled ‘Investment Promotion and Protection’.28 Part III contains 10.04 the substantive investment provisions of the ECT.29 Treaties, whether 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

See para 10.9. See para 10.10. See para 10.11. See para 10.12. See para 10.13. See para 10.14. See para 10.15. See paras 10.16–10.17. See paras 10.18–10.21. See paras 10.22–10.23. See paras 10.24–10.28. See paras 10.29–10.44. See paras 10.45–10.55. Plama Jurisdiction, para 132. Ibid. (Part III contains ‘the ECT’s principal substantive protections’.); Veteran Jurisdiction and Admissibility, para 494; Yukos Jurisdiction and Admissibility, para 438; Hulley Jurisdiction and Admissibility, para 437 (Part III comprises ‘the Treaty’s substantive articles on “Investment Promotion and Protection”’); Khan Jurisdiction, para 411; Electrabel Jurisdiction, Applicable Law and Liability, para 4.176 (referring to ‘the substantive protections in Part III of the ECT’.) See also Thomas W. Wälde, ‘European Energy Charter Conference: Final Act, Energy Charter Treaty, Decisions and Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects’ (1995) 34(2) International Legal Materials 360 [Wälde (1995)] 360; Thomas W. Wälde and P.K. Wouters, ‘State Responsibility in a Liberalised World Economy: ‘State, Privileged and Subnational Authorities’ under the 1994 Energy Charter Treaty: An Analysis of Articles 22 and 23’ (1996) 27 Netherlands Yearbook of International Law 143 [Wälde and Wouters (1996)] 189; Kaj Hobér, ‘The Energy Charter Treaty: An Overview’ (2007) 8(3) The Journal of World Investment &

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bilateral or multilateral,30 may govern investment in whole or in part. Treaties governing investment in whole mainly consist in bilateral investment treaties (BITs) and multilateral investment treaties,31 the latter being mostly regional. Treaties governing investment in part contain investment provisions, often grouped in ‘parts’ or ‘chapters’, alongside provisions on other matters;32 they comprise mostly free trade agreements.33 By virtue of the provisions contained in Part III, the ECT has a special nature among treaties governing investment in part,34 particularly as a treaty which is both multilateral and sectoral.35 The

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34 35

Trade 323 [Hobér (2007)] 327; Lucy Reed and Lucy Martinez, ‘The Energy Charter Treaty: An Overview’ (2008) 14(2) ILSA Journal of International & Comparative Law 405 [Reed and Martinez (2008)] 407; Jorge E Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’ (2010) 80(1) The British Year Book of International Law 244, 257; Thomas Roe, Matthew Happold, James Dingemans, Settlement of Investment Disputes under the Energy Charter Treaty (Cambridge University Press 2011) [Roe, Happold, Dingemans (2011)] 104; James Harrison, ‘The Life and Death of BITs: Legal Issues Concerning Survival Clauses and the Termination of Investment Treaties’ (2012) 13(6) The Journal of World Investment & Trade 928, 936; Rafael Leal-Arcas, Juan Alemany Ríos, Costantino Grasso, ‘The European Union and its Energy Security Challenges’ (2015) 8(4) Journal of World Energy Law & Business 291, 330 n 255; Campbell McLachlan, Laurence Shore, and Matthew Weiniger, International Investment Arbitration: Substantive Principles (Oxford University Press 2017) [McLachlan, Shore, Weiniger (2017)] 50 para 3.10. Christoph H. Schreuer, Loretta Malintoppi, August Reinisch and Anthony Sinclair, The ICSID Convention: A Commentary (2nd ed, Cambridge University Press 2009) [Schreuer, Malintoppi, Reinisch, Sinclair (2009)] 604–5 para 171. Other classifications of treaties governing investment are used. Friedl Weiss, ‘Trade and Investment’ in Muchlinski, Ortino, Schreuer (2008) 365 [Weiss (2008)] 410 (‘[i]nvestment rules are […] included in bilateral, regional, interregional, and plurilateral’ agreements); Stefan D Amarasinha and Juliane Kokott, ‘Multilateral Investment Rules Revisited’ in Muchlinski, Ortino, Schreuer (2008) 262 [Amarasinha and Kokott (2008)] 266 (describing the ECT as ‘inter-regional’). Swiss Federal Tribunal, First Civil Law Court, Republic of Hungary v EDF International SA, Decision on Annulment (4A34/2015), 6 October 2015 (EDF Decision on Annulment) para 3.2.2 (referring to ‘[i]nvestment protection treaties, whether bilateral or multilateral’.) See also Zachary Douglas, The International Law of Investment Claims (Cambridge University Press 2009) [Douglas (2009)] 2 para 2 (referring to the ECT). The other matters tend to be economic. Weiss (2008) 410 (some treaties ‘integrate rules on foreign investment into a broader framework on economic cooperation and integration—such as EC, NAFTA’ and the ECT). Lucy Reed and Robert Kirkness, ‘Old Seeland, new Netherland and New Zealand: Some thoughts on the possible ‘discovery’ of investment treaty arbitration in New Zealand’ (2012) 43(4) Victoria University of Wellington Law Review 687 [Reed and Kirkness (2012)] 693 n 22; August Reinisch, ‘Legality of Expropriations’ in Reinisch (2008) 171 [Reinisch (2008b)] 173 n 8 (referring to FTAs ‘with investment chapters as well as multilateral investment relevant treaties’, like the ECT.); Christian Tietje and Emily Sipiorski, ‘The Evolution of Investment Protection Based on Public International Law Treaties: Lessons to Be Learned’ in Bjorklund and Reinisch (2012) 192 [Tietje and Sipiorski (2012)] 193 (the ECT is similar to FTAs which ‘include an investment chapter that can be seen as the equivalent of’ an invesment treaty). The ECT is often described as ‘unique’ among treaties on investment. Richard Happ, ‘The Energy Charter Treaty’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 240 [Happ (2015)] 245 para 15. In addition to being described as multilateral, the ECT is described in various ways. Ratione materiae, the ECT is sectoral. Pia Acconci, ‘Most-Favoured-Nation Treatment’ in Peter Muchlinski, Federico Ortino, Christoph Schreuer (eds), The Oxford Handbook of International Investment Law (Oxford University Press 2008) in Muchlinski, Ortino, Schreuer (2008) 652 [Acconci (2008)] 666; Amarasinha and Kokott (2008) 266; L Liberti, ‘The Relevance of Non-Investment Treaty Obligations in Assessing Compensation’ in Dupuy, Francioni, Petersmann (2009) 557, 568 (the ECT exemplifies ‘investment-related norms in sectoral agreements’); Stephan Schill, The Multilateralization of International Investment Law (Cambridge University Press 2009) 43; Reed and Kirkness (2012) 693 n 22 (being ‘sector-specific’, the ECT is ‘[o]ne notable

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ECT is the preeminent sectoral treaty governing investment, among various aspects of international cooperation, in the energy sector.36 Due to its wide scope of application,37 content,38 and potential roles,39 the ECT is paramount among multilateral treaties containing investment provisions.40 Part III is not only special by reference to other treaties on investment; the provisions

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exception’ among treaties on investment.) The ECT is frequently described as regional. Stephen Vasciannie, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’ (2000) 70(1) British Year Book of International Law 99 [Vasciannie (2000)] 117 (the ECT ‘is limited […] to the European continent’); Ioana Tudor, The Fair and Equitable Treatment Standard in the International Law of Foreign Investment (Oxford University Press 2008) [Tudor (2008)] 43 nn 125, 129 (describing the ECT as ‘regional’ and ‘sectorial’); I Knoll-Tudor, ‘The Fair and Equitable Treatment Standard and Human Rights Norms’ in Dupuy, Francioni, Petersmann (2009) 310, 315; Moshe Hirsch, ‘Sources of International Investment Law’ in Bjorklund and Reinisch (2012) 9, 10 n 3; Chester Brown, ‘The Evolution of the Regime of International Investment Agreements: History, Economics and Politics’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 153, 181 para 70. Nonetheless, the ECT limits its scope ratione materiae only. McLachlan, Shore, Weiniger (2017) 16 para 1.60 (‘[t]he ECT is restricted ratione materiae to the energy sector.’) Thus, the ECT is primarily sectoral, and applies beyond a particular geographical region. McLachlan, Shore, Weiniger (2017) 26 para 2.02 (unlike NAFTA ‘and the ASEAN Comprehensive Investment Agreement (ACIA), which are […] regional’, the ECT ‘is focused on a particular economic activity’.); Surya P Subedi, International Investment Law: Reconciling Policy and Principle (Hart 2008) [Subedi (2008)] 109 (the ECT has been ratified also by Japan, Mongolia and Australia). Andrei Konoplyanik and Thomas W. Wälde, ‘Energy Charter Treaty and Its Role in International Energy’ (2006) 4 Journal of Energy & Natural Resources Law 523 [Konoplyanik and Wälde (2006)] 526 (‘the ECT is currently the only major multilateral treaty in the energy field’); Happ (2015) 245 para 14 (‘[t]he ECT thus creates a specific legal regime for energy-related investments’). Konoplyanik and Wälde (2006) 526 (‘the ECT is currently […] in terms of investment protection, the multilateral treaty with the largest geographical and country coverage’); Thomas W. Wälde, ‘Interpreting Investment Treaties: Experiences and Examples’ in Christina Binder, Ursula Kriebaum, August Reinisch, and Stephan Wittich (eds), International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (Oxford University Press 2009) 725 [Wälde (2009)] 725 (describing the ECT as ‘the world's major multilateral investment treaty’); Happ (2015) 245 para 15 (the ECT’s scope is broader than NAFTA’s). Rudolf Dolzer and Margrete Stevens, Bilateral Investment Treaties (Martinus Nijhoff 1995) xiii (the ECT is ‘noteworthy given the long-standing absence of consensus’ on foreign investment among states); Thomas W. Wälde, ‘Investment Arbitration under the Energy Charter Treaty – From Dispute Settlement to Treaty Implementation’ (1996) 12(4) Arbitration International 429 [Wälde (1996)] 429–30 (unlike prior multilateral instruments, like the Havanna Charter and the Abs-Shawcross Convention, the ECT ‘has succeeded in achieving […] a legally binding’ character). Karl-Heinz Böckstiegel, ‘The Future of International Investment Law – Substantive Protection and Dispute Settlement’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1863, 1871 para 39 (the ECT may pave the way to ‘start replacing’ BITs); Happ (2015) 260 para 64 (the ECT is useful where ‘new sources of energy are available, but […] investments and political stability’ are not). The ECT is not a multilateral investment treaty, in the sense of a multilateral treaty concerned in whole with investment. Veijo Heiskanen, ‘Arbitrary and Unreasonable Measures’ in Reinisch (2008) 87 [Heiskanen (2008)] 89; Reinisch (2008b) 173 n 8 (using the term ‘multilateral investment relevant treaty’); Ole Spiermann, ‘Applicable Law’ in Muchlinski, Ortino, Schreuer (2008) 212 [Spiermann (2008)] 226; Andreas R. Ziegler, ‘Is the MFN Principle in International Investment Law Ripe for Multilateralization or Codification?’ in Bjorklund and Reinisch (2012) 238 [Ziegler (2012)] 245 (the ECT ‘comes closest to the concept of a multilateral binding agreement’ on investment); Christoph Schreuer, ‘The Future of International Investment Law’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1863, 1909 para 22 (the ECT ‘represents a multilateral […] framework’).

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contained in Part III are also distinct, as compared to those in other substantive parts of the ECT.41 10.05 Part III provisions prescribe ‘the standards of treatment, “the conditions”’, under which a Contracting Party is bound to accord treatment.42 Part III provisions set out obligations regarding investment ‘promotion, protection and treatment’.43 Part III ‘substantial obligations’ are imposed upon one Contracting Party with regard to an ‘Investor’ of another Contracting Party and ‘Investments’ of that Investor44 in the Area of the host Contracting Party.45 Certain Part III obligations arise under provisions said to be expressly applicable for an ‘unlimited’ period.46 The rights created by Part III provisions are directly accorded to their holders;47 like most treaties on investment, the ECT affords various direct rights, including to international arbitration.48

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Lawrence L Herman, ‘NAFTA and the ECT: Divergent Approaches with a Core of Harmony’ (1997) 15(2) Journal of Energy & Natural Resources Law 129 [Herman (1997)] 144–5; Rainer Liesen, ‘Transit Under the 1994 Energy Charter Treaty’ (1999) 71(1) Journal of Energy & Natural Resources Law 56, 66–7; RJ Stevenson, ‘Energy Charter Treaty: Implications for Australia’ (2001) 19(2) Journal of Energy & Natural Resources Law 113 [Stevenson (2001)] 128; Ole Kristian Fauchald, ‘International Investment Law and Environmental Protection’ (2007) 17(7) Yearbook of International Environmental Law 3 [Fauchald (2007)] 4 n 8 (‘environmental provisions […] are placed in Part IV’, having ‘consequences in the context of dispute settlement’); Reed and Martinez (2008) 407. Veteran Jurisdiction and Admissibility, para 494; Yukos Jurisdiction and Admissibility, para 438; Hulley Jurisdiction and Admissibility, para 437 (referring to Art 10 in particular.); Electrabel Jurisdiction, Applicable Law and Liability, para 6.14 (referring to ‘standards of protection under Article 10 ECT’). Al-Bahloul Jurisdiction and Liability, para 11. See also Crina Baltag, The Energy Charter Treaty: The Notion of Investor (Kluwer International Law 2012) [Baltag (2012)] 13. Investment is only used in ‘lower case’, as modifier, within various nominal phrases contained in the ECT, such as ‘trade-related investment measure’, in Art 10(11), and ‘investment agreements and investment authorizations’, in Art 10(12). Baltag (2012) 171 n 29 (describing the use of ‘investment’ as ‘adjectives and not as nouns’.) Antin, para 207; Eiser, para 183; AMTO, para 73. AMTO, ibid. (referring specifically to the use of ‘at all times’ and ‘the most constant’ in Art 10(1)). Plama Jurisdiction, para 141 (referring to Art 26 as a significant feature of the ECT, and to the ECT itself as ‘marking’ investors ‘transition from objects to subjects of international law.’) See also Douglas (2009) 33 para 67; McLachlan, Shore, Weiniger (2017) 42 para 2.70 (listing ‘[t]he substantive rights protected under the ECT’). Thomas W. Wälde, ‘Renegotiating Acquired Rights in the Oil and Gas Industries: Industry and Political Cycles Meet the Rule of Law’ (2008) 1(1) Journal of World Energy Law & Business 55, 57 (Art 26 illustrates that ‘rule of law’ notions underlie treaty-based investment protection, including under the ECT); Thomas W. Wälde and Walid Ben Hamida, ‘Questions and Observations: Interactive Session, Part I – The Energy Charter Treaty and corporate acquisition’ in Coop and Ribeiro (2008) p 157 [Wälde and Ben Hamida (2008)] 166 (discussing availability of a ‘direct investor-state arbitration right’ in BITs and NAFTA Chapter XI); Happ (2015) 257 para 54; Chin Leng Lim, Jean Ho, Martins Paparinskis, International Investment Law and Arbitration: Commentary, Awards and Other Materials (Cambridge University Press 2018) 25 n 53 (‘[t]he ECT 1994 is a multilateral treaty […] providing for investment arbitration under Art 29 [sic]’).

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Part III sets out rules on the operation of Parts III and V with regard to other 10.06 treaties.49 Article 16 sets out a rule concerning other treaties relating to the same subject matter of the ECT.50 More specifically, Article 16 concerns the relations between Parts III and V, on one hand, and provisions in other, ‘prior’ or ‘subsequent’, bilateral or multilateral, ‘international agreements’ entered into by the Contracting Parties and ‘whose terms in either case concern the subject matter’ of Part III (non-ECT treaty),51 on the other hand. Article 16 provides that ‘nothing in’ Parts III and V or a non-ECT treaty ‘shall be construed’ as derogating from a provision in Parts III and V or in the non-ECT treaty, ‘where any such provision is more favourable to the Investor or Investment’. The bearing of Article 16 on the operation of Part III provisions raises some 10.07 issues as to the nature of Article 16. It has been suggested that the legal consequence of Article 16 is general, precluding a non-ECT treaty from diminishing the level of protection accorded in Parts III and V.52 Nevertheless, Article 16 does not impose any general obligation, in the absence of a conflict of treaties, as to the level of protection to be accorded in non-ECT treaty provisions. Instead, Article 16 precludes interpretations whereby either Parts III and V provisions or non-ECT treaty provisions ‘derogate from’ one another ‘where […] more favourable’. Article 16 is a rule which concerns both the interpretation and application of conflicting treaties. Article 16 is primarily concerned with the content of the conflicting treaties, as a matter of interpretation.53 In this vein, Article 16 has been described as a ‘mobile priority’ provision.54 By virtue of ‘mobile priority’ provisions, mostly found in treaties for the protection of the individual, the treaty having the more favourable 49

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Moshe Hirsch, ‘Interactions between Investment and Non-investment Obligations’ in Muchlinski, Ortino, Schreuer (2008) 319, 325 (NAFTA Art 103, ‘the Energy Charter Treaty, the Canadian, and US model BITs include several provisions that explicitly set out the relationships between investment agreements and other treaties’); Eirik Bjorge, ‘EU Law Constraints on Intra-EU Investment Arbitration?’ (2017) 16(1) The Law & Practice of International Courts and Tribunals 71 [Bjorge (2017)] 79 (‘the ECT contains a provision which specifically deals with other international law’). Tomás Fecák, International Investment Agreements and EU Law (Kluwer 2016) [Fecák (2016)] 397. Art 16 (setting out rules applicable ‘[w]here two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, […]’). Fecák (2016) 397–8 (arguing that ‘this provision might be possibly construed as requiring that other international agreements (whether anterior or posterior) may not lower the level of investment protection accorded by the ECT and may not jeopardize the right of investors to pursue their claims in investment treaty arbitration’). Art 16, which employs the clause ‘nothing […] shall be construed’, refers to interpretation. Robert Kolb, The Law of Treaties: An Introduction (Edward Elgar 2016) [Kolb (2016)] 188 (considering this type of priority among treaties to be ‘plainly an issue of interpretation’.) But see Roe, Happold, Dingemans (2011) 35 (‘Article 16 refers to derogations from Part III and V; it does not cover how their provisions are to be interpreted in the first place’). Kolb (2016) 188 (proposing this concept); Bjorge (2017) 79 (using the concept to describe Art 16).

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content prevails over other treaties.55 Article 16, furthermore, resolves a conflict of application among interpreted treaties. In this sense, Article 16 is said to depart from the lex posterior and lex specialis maxims.56 Since greater favourability of content, as opposed to time of entry into force and specificity of content, is the criterion whereby Article 16 solves conflicts of application between Parts III and V and non-ECT treaty provisions, the maxim ‘aliquid in mitiorem partem interpretari’ would describe more closely Article 16.57 10.08 The operation of Part III with regard to rules under other treaties includes rules under treaty-based systems of law. Such systems of law include the law of the European Union (EU). The relationship between Part III and the ECT, generally, and EU law raises issues. Part III is regarded as concerning matters regulated by EU law,58 most notably Article 10.59 In particular, the term ‘Investment’ in the ECT is regarded as corresponding to the concept of ‘freedom of establishment’ under EU law,60 and ECT investor-state arbitration may overlap with the enforcement of EU law rules on freedom of movement of capital.61 The European Community (EC) Member States had concluded various treaties on investment,62 which have been generally regarded as similar to EC treaties.63 In turn, EU law had a bearing on the content of the ECT.64 Notwithstanding the aforementioned aspects, the obligations and rights created by the ECT and EU law instruments are not identical.65 It has been argued that neither the ECT nor EU law would

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Ibid. (citing Art 53 of the European Convention on Human Rights as example). Matthew Happold and Thomas Roe, ‘The Energy Charter Treaty’ in Gazzini and Brabandere (2012) 72 [Happold and Roe (2012)] (‘Article 16 would appear designed to avoid disputes as to whether one such agreement has displaced the other by application of the principles lex posterior derogate [sic] priori or lex specialis derogate [sic] generali ’). ‘To put the more favourable construction upon a thing’. Cicero, Pro Munera, cited in ‘Favourable’, in William Smith and Theophilus D. Hall, Smith’s English-Latin Dictionary (Bolchazy-Carducci Publishers 2000) 291. Wälde (2009) 766 n 141 (considering whether ‘accession by the former East European countries to the EU does, or does not, extinguish pre-existing, BIT or ECT-based, private investor rights’). Angelos Dimopoulos, EU Foreign Investment Law (Oxford University Press 2011) 330 (including Arts 10, 11, and 14). Wälde and Ben Hamida (2008) 184. Ibid., 168. Wenhua Shan, The Legal Framework of EU-China Investment Relations: A Critical Appraisal (Hart 2005) [Shan (2005)] 71, 281 (discussing the role of the EC and its Member States, including in the conclusion of the ECT.); Marc Bungenberg and Stephan Hobe, ‘The Relationship of International Investment Law and European Union Law’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1602 [Bungenberg and Hobe (2015)] 1607 para 10 (the ECT reflected the EU position on investment prior to the Lisbon Treaty). Wälde and Ben Hamida (2008) 209. Konoplyanik and Wälde (2006) 528 (the ECT reflects directives reforming EU energy law, albeit in ‘diluted form’). Wälde and Ben Hamida (2008) 214 n 114–15 (‘[t]he rights and obligations under the Energy Charter Treaty have a separate existence and a separate procedural regime from those in the European Union

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preclude the application of the ECT to relations between EU Member States,66 in spite of any ‘tensions’ between the ECT investment and EU law internal market rules which may arise.67 Most notably, the ECT, unlike other international agreements concluded by EU Member States, does not include a ‘disconnection clause’.68 In this vein, Article 16 has been relied upon to argue that, should a conflict between the ECT and EU law arise, the ECT could be seen as complementing, but not superseding, EU law, where the former is more favourable.69 Latterly, the relationship between the ECT and EU law has been brought to the fore, most prominently in connection with various pending ECT investor-state arbitrations commenced by EU investors against EU Member States (intra-EU).70 Some ECT arbitral tribunals conducting intra-EU investor-state arbitrations have addressed the bearing, if any, of decisions of the Court of Justice of the EU.71 Part III sets out rules on the operation of Part III provisions themselves.72 10.09 Article 17, the ‘final article’ in Part III, concerns the ‘non-application’ of Part III.73 Under Article 17, which contains the ‘‘denial-of-benefits’ clause’ of the ECT,74 a Contracting Party may ‘deny the advantages of this Part’.75 If and

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instruments’, citing International Tribunal for the Law of the Sea, Mox Plant, Provisional Order, 30 December 2001, para 51 and Eritrea Ethiopia Claims Commission, Partial Award, 1 July 2003, para 21). Happ (2015) 245 para 18 (adding that arbitral tribunals favour the applicability of the ECT). Wälde and Ben Hamida (2008) 210 (the ECT did not provide for its non-application ‘within a regional economic integration organisation’). Ibid., 211 n 108 (adding that the ECT does not contain other provisions to a similar effect, such as a ‘clause according to which the EU instruments prevail over the provisions of the agreement’, like Art 3(2) of Convention concerning International Carriage by Rail, of 9 May 1980). Ibid., 212 (unlike Art 26, EU law ‘does not provide a procedural remedy to the investor’). McLachlan, Shore, Weiniger (2017) 43 para 2.74. Court of Justice of the EU (CJEU), Slovak Republic v. Achmea BV (Case C-284/16), Judgment, 6 March 2018 (Achmea). The Masdar tribunal concluded that the judgment of the CJEU in Achmea ‘has no bearing’ on that arbitration, since the ECT is not a BIT, and the CJEU remained ‘simply silent on the subject of the ECT’. Masdar, paras 678–683. See also Roe, Happold, Dingemans (2011) 94 (‘[t]he effects of EU law […] go (if at all) to the merits of the claim, not to whether a tribunal constituted under Article 26 has jurisdiction to hear it or whether it is admissible’.) Art 16 concerns the operation of Part V as well. Bjorge (2017) 79. Veteran Jurisdiction and Admissibility, para 495; Yukos Jurisdiction and Admissibility, para 439; Hulley Jurisdiction and Admissibility, para 438. Veteran Jurisdiction and Admissibility, para 496; Yukos Jurisdiction and Admissibility, para 440; Hulley Jurisdiction and Admissibility, para 439. See also Andrea K. Bjorklund, John F.G. Hannafor, Meg Kinnear, Investment Disputes under NAFTA: an Annotated Guide to NAFTA Chapter 11 (Kluwer 2006) para 1113–9(D) (noting that Art 17(l) is similar to NAFTA Art 1113(2)); Dominique D’Allaire, ‘The Nationality Rules under the Energy Charter Treaty: Practical Considerations’ (2009) 10(1) The Journal of World Investment & Trade 39 [D’Allaire (2009)] 53 (discussing similar provisions in US BITs and NAFTA); Douglas (2009) 318 para 592; Anne K. Hoffmann, ‘Denial of Benefits’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 598 [Hoffmann (2015)] 600 para 8; McLachlan, Shore, Weiniger (2017) 212 para 5.181 (like Art 17 of the 2012 US model BIT, Art 17 exemplifies denial of benefits clauses). ‘[T]his Part’, within the meaning of Art 17, is Part III. Veteran Jurisdiction and Admissibility, para 497; Yukos Jurisdiction and Admissibility, para 441; Khan Jurisdiction, para 411; Libananco, para 550 (under Art

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until a Contracting Party exercises its right under Article 17,76 a putative investor has a legitimate expectation to be accorded protection under Part III.77 10.10 Part III does not govern dispute settlement under the ECT.78 Part III sets out ‘material rules’, whereas Part V comprises ‘dispute-resolution provisions’.79 In particular, this distinction is illustrated by Article 17.80 Article 17 does not relate to the ‘ECT as a whole’, but exclusively to Part III.81 The ‘express terms’ of Article 17, as confirmed by its ‘title’, confine a denial to Part III ‘advantages’.82 The ECT, unlike other treaties, does not provide for ‘a denial of all benefits to a covered investor’, but only of those under Part III.83 Since Article 17 does not apply to Part V, Article 17 has no bearing on the jurisdiction of an ECT arbitral tribunal.84 It has been argued that a denial depriving an Investor

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17, ‘each Contracting Party ‘reserves the right’ to deny the advantages of Part III of the Treaty’); Alapli, para 326 (‘each Contracting Party reserves the right to deny the advantages of [Part III]’.) See also D’Allaire (2009) 55. Arbitral tribunals have been divided over whether the effect of a denial of benefits clause is retrospective or prospective. See Plama and LCO, paras 224–225 (holding that Art 17(1) had prospective effect). But see Ulysseas Inc v. Ecuador (Interim Award) (PCA 2009–19 (2010)), para 172 (finding that the denial of benefits clause did not only apply prospectively, and that retrospective application was acceptable). For a discussion of this question, see Happ (2015) 256–7 para 52 (‘ascribing […] a merely prospective effect […] would severely curtail the scope of application’); McLachlan, Shore, Weiniger (2017) 213 paras 5.183–5.184 (discussing Plama, Liman and Ulysseas). Plama Jurisdiction, para 161. Veteran Jurisdiction and Admissibility, para 497; Yukos Jurisdiction and Admissibility, para 441; Hulley Jurisdiction and Admissibility, para 440 (‘[p]rovision for dispute settlement under the ECT is not found in Part III’). Veteran Jurisdiction and Admissibility, para 348; Yukos Jurisdiction and Admissibility, para 348; Hulley Jurisdiction and Admissibility, para 348 (referring to ‘the material rules for the protection of investments in Part III of the ECT’ alongside Part V provisions, as ‘specific elements of the ECT’). Furthermore, this distinction is without prejudice to the obligation to apply jointly Parts III and V during the ECT’s provisional application. Anatole Boute, ‘The Protection of Russian Investments in the EU Energy Market: A Case in Support of Russia’s Ratification of the Energy Charter Treaty’ (2014) 29(3) ICSID Review – Foreign Investment Law Journal 525, 533. Veteran Jurisdiction and Admissibility, para 497; Yukos Jurisdiction and Admissibility, para 441; Hulley Jurisdiction and Admissibility, para 440. Plama Jurisdiction, para 147 (relying on VCLT Art 31(1) and noting the ‘substantive’ nature of Part III benefits). Plama Jurisdiction, para 149. But see Engela C Schlemmer, ‘Investment, Investor, Nationality, and Shareholders’ in Muchlinski, Ortino, Schreuer (2008) 140, 166 (stating that under ‘Article 17(1) […] each Contracting Party reserves the right to deny the benefits of the Treaty’, without specifying that only Part III benefits may be denied). Plama Jurisdiction, para 240(A)(1) (‘Article 17(1) ECT has no relevance to the Tribunal’s jurisdiction’ regarding claims under Part III); Veteran Jurisdiction and Admissibility, para 497; Yukos Jurisdiction and Admissibility, para 441; Hulley Jurisdiction and Admissibility, para 440 (referring to the interpretation of Art 17(1).); Khan Jurisdiction, paras 411–412 (noting its concordance with Yukos and Plama). See also Pia Acconci, ‘Determining the Internationally Relevant Link between a State and a Corporate Investor: Recent Trends concerning the Application of the ‘Genuine Link’ Test’ (2004) 5(1) The Journal of World Investment & Trade 139, 152; Elvira R Gadelshina, ‘Burden of Proof under the ‘Denial-of-Benefits' Clause of the

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of its legal personality would preclude an ECT arbitral tribunal from exercising jurisdiction.85 Nevertheless, the character as an Investor is not a Part III advantage, nor is the definition thereof contained in Part III. Thus, whether an entitlement to Part III ‘advantages’ exists is a question of the merits of the dispute.86 In particular, a denial of benefits under Article 17 would only concern the admissibility of a claim regarding the denied benefit.87 Part III, nevertheless, has a bearing on the scope of dispute settlement under 10.11 the ECT.88 Arbitration under Article 26 is exclusively for the settlement of disputes concerning an alleged breach of Part III obligations.89 Unlike dispute settlement procedures under Article 26, arbitration between the Contracting Parties under Article 27 is not confined to disputes concerning Part III.90 While Part III has a bearing on dispute settlement, Part III would not determine the question of the separability from the remainder of the ECT of Article 26 and other dispute settlement provisions.91

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Energy Charter Treaty: Actori Incumbit Onus Probandi?’ (2012) 29(3) Journal of International Arbitration 269, 281; Happ (2015) 255 para 48. Happ ibid. (adding that ‘[t]he facts alleged by the claimants, even if taken to be true, cannot amount to a breach of the respondent contracting party's obligation under Part III of the ECT’). Veteran Jurisdiction and Admissibility, para 497; Yukos Jurisdiction and Admissibility, para 441 (‘a question not of jurisdiction but of the merits’). Khan Jurisdiction, para 411 (a matter ‘for the merits, not jurisdiction’). See also Hobér (2007) 350–51 (commenting on Plama tribunal’s rejection of the argument that ‘the applicability of Article 17 would affect the jurisdiction of the tribunal’, and adding that the Petrobart tribunal had not addressed this issue); Pyoungkeun Kang, ‘The Relationship between the Investor-State Dispute Settlement and the Denial of Benefits with Specific Reference to the Energy Charter Treaty’ (2017) 19 Asian Business Lawyer 15, 38 (noting that it has been questioned whether the application of Art 17(1) is ‘a problem of jurisdiction, or admissibility of the claims, or merits of the dispute’). Hoffmann (2015) 610 para 44 (‘not directed against the forum, but rather at the claim being heard’). Wälde (1996) 438 (‘Chapter [sic] III of the Treaty defines the proper scope for investment arbitration.’); Hobér (2007) 328 (Part III ‘delineates the right to arbitration’); Kaj I. Hobér, Andrea J. Menaker, Heather van Slooten Walsh, ‘Interplay of the Energy Charter Treaty with Other Treaties’ in Coop and Ribeiro (2008) p 235 [Hobér, Menaker, Slooten Walsh (2008)] 265 (‘[t]he scope of protection pursuant to Part III of the ECT also delimits the availability of arbitration under Article 26’). The Russian Federation v. Veteran Petroleum Ltd, The Russian Federation v. Yukos Universal Ltd, The Russian Federation v. Hulley Enterprises Ltd (The Hague District Court Chamber for Commercial Affairs) Judgment, 20 April 2016, para 5.32 (Art 26 ‘only created the option for arbitration for an (alleged) breach of obligations’.) See also Wälde (1996) 453; Emmanuel Gaillard, ‘Questions and Observations: Interactive Session, Part II – How does the so-called ‘fork-in-the-road’ provision in Article 26(3)(b)(i) of the Energy Charter Treaty work? Why did the United States decline to sign the Energy Charter Treaty?’ in Coop and Ribeiro (2008) 221, 227 (pointing out the unlikelihood of applying a fork-in-the-road provision, since an Investor may be unable to initiate proceedings before a domestic court ‘based on alleged breaches of […] Part III’); Reed and Martinez (2008) 407 (Part II and Part IV claims are not arbitrable under Art 26); Lucy Reed, Jan Paulsson, Nigel Blackaby, Guide to ICSID Arbitration (Kluwer 2010) 116–117 (a dispute, albeit involving a foreign investor, is not arbitrable under Art 26, if ‘the relevant provision is not contained in Part III’). Plama Jurisdiction, para 146 (‘unlike Article 27, Article 26 is a remedy limited to an alleged breach of Part III’.) See also Konoplyanik and Wälde (2006) 545. Plama Jurisdiction, para 130 (upholding the effectiveness of the agreement to arbitrate.) See Christoph Schreuer, ‘Consent to Arbitration’ in Muchlinski, Ortino, Schreuer (2008) 1405, 1406.

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10.12 The ECT governs the jurisdiction of ECT arbitral tribunals.92 As for jurisdiction ratione personae, the disputing parties must be a Contracting Party and an Investor.93 As for jurisdiction ratione materiae,94 a dispute must arise in connection with an alleged breach of an obligation under Part III.95 Therefore, an ECT arbitral tribunal can only hear claims based on alleged violations of a claimant’s rights under Part III.96 Part III provisions, thus, serve as ‘legal grounds’ for claims.97 Where an ECT provision not contained in Part III is involved, its reference to Part III is not sufficient for a tribunal to have jurisdiction over claims under that ECT provision.98 Furthermore, a counterclaim not related to Part III obligations would fall outside the jurisdiction of an ECT arbitral tribunal.99 Although the scope of jurisdiction ratione materiae of ECT arbitral tribunals is confined to alleged breaches of Part III obligations,100 ECT provisions not contained in Part III may be invoked in support of claims under Part III.101 Furthermore, the alleged Part III breach must relate to an Investment,102 which, under Article 1(6)(f), must be in the energy sector.103 The ECT differs from other investment treaties,104 which may often provide for jurisdiction over ‘all’ or ‘any’ disputes,105 or over disputes arising

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Europe Cement, para 140; Energorynok, para 57 (and the applicable institutional rules and the law of the lex arbitri). Art 26(1). See also Reed and Martinez (2008) 418 (referring to ‘requirements […] ratione personae ’). Reed and Martinez (2008) 421; Wälde and Ben Hamida (2008) 176 (‘Article 26(1) […] regulates, inter alia, the jurisdiction rationae materiae of investor-state arbitral tribunals’ constituted under the ECT). Al-Bahloul Jurisdiction and Liability, para 147. See also Zachary Douglas, ‘The Hybrid Foundations of Investment Treaty Arbitration’ (2004) 74(1) British Year Book of International Law 151, 238 (the ECT and NAFTA confine ‘ratione materiae jurisdiction […] exclusively to alleged violations of the substantive provisions of the treaty itself’). Al-Bahloul Jurisdiction and Liability, para 163. Electrabel Jurisdiction, Applicable Law and Liability, para 6.14 (namely, the ‘standards […] under Article 10’.) AES, paras 9.3.2, 9.3.3; Al-Bahloul Jurisdiction and Liability, para 172 (‘Article 22 is not contained in Part III of the Treaty (although it does cross-refer to Part III obligations)’). Wälde (1996) 461. The distinction between Part II and Part III has been raised in support of the annulment of an arbitral award concerning a claim arising out of a mere commercial transaction. Republique de Moldavie v. Société Komstroy (Cour d’Appel de Paris, RG N°13/22531), Arrêt, 12 Avril 2016 (discussing the distinction between Parts II and III in connection with an analysis of arbitral jurisdiction under Art 26(1), and setting aside an arbitral award involving claims over a contract of sale of energy, not deemed an investment). Nykomb, 8 (since Art 22 did not ‘give rise to any separate claim’, its invocation was not ‘inadmissible’). Reed and Martinez (2008) 423–4 (nevertheless a host state may be ‘estopped from objecting to a Tribunal's jurisdiction ratione materiae […] if the state approved the investment without objection as to its legality’.); Douglas (2009) 242 para 463 (noting the similarity with NAFTA Art 1101 regarding this required ‘nexus’). AMTO, paras 39–43. See also Lars Markert and Helene Bubrowski, ‘National Setting Aside Proceedings in Investment Arbitration’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1460, 1472 para 13 n 56 (noting that this may be taken into account in set aside proceedings); McLachlan, Shore, Weiniger (2017) 41 para 2.66 (discussing AMTO). Douglas (2009) 234–5 paras 443–444 (identifying ‘four prototype provisions’). Douglas ibid., para 443; Roe, Happold, Dingemans (2011) 45.

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out of a certain instrument.106 While the ECT falls within a set of treaties providing for jurisdiction over alleged breaches of the substantive provisions of the treaties only,107 such treaties do not usually confine jurisdiction to a part of the treaties containing substantive provisions. A merely ‘alleged’ Part III breach suffices for an ECT arbitral tribunal to establish its jurisdiction, in accordance with Article 26.108 In this vein, the Plama tribunal adopted a ‘pro tem test’, whereby the facts as alleged by a claimant suffice to establish its jurisdiction.109 It has been argued that the pro tem test is suitable to determine whether the dispute arises out of an ‘alleged’ breach of a Part III obligation only.110 As for jurisdiction ratione temporis, the Nykomb tribunal held that it could hear claims over rights under contracts concluded prior to the date of entry into force of the ECT, provided that the conduct allegedly in breach of such rights occurs after that date.111 While not invoked by the Nykomb tribunal, Article 1(6)(f) provides a ground for this finding.112 The arbitration procedure is governed by the ECT,113 and other applicable rules.114 The applicable law in ECT arbitrations is the ECT and other applicable 10.13 principles and rules of international law, pursuant to Article 26(6).115 Article 26(6), as the ECT provision on applicable law in ECT arbitrations, may, in 106 107 108 109

110 111 112 113 114 115

Douglas ibid. (treaties based on the US Model BIT (1994) restrict ‘ratione materiae jurisdiction to three legal sources’ of a dispute, namely the treaty, ‘an investment authorization’ or ‘an investment agreement’). This set includes, most prominently, the ECT and NAFTA. Spiermann (2008) 226; Douglas ibid., 235 para 444. Plama Jurisdiction, para 132 (referring to the ‘unambiguous wording’ of Art 26). Ibid. (referring to ‘Judge Higgins' test in Oil Platforms ’.) See also Hobér (2007) 348 (discussing Plama Jurisdiction); Audley Sheppard, ‘The Jurisdictional Threshold of a Prima-Facie Case’ in Muchlinski, Ortino, Schreuer (2008) 1567, 1589–90 (noting that other tribunals have used a pro tem test without referring to Judge Higgin’s approach.); Happ (2015) 257 para 55. Roe, Happold, Dingemans (2011) 44–5. Nykomb, 4.4.3.(a). See also Wälde (1995) 364 (while investments made before the entry into force of the ECT are covered, ‘there is no retroactive protection’); Hobér (2007) 344 (discussing Nykomb). McLachlan, Shore, Weiniger (2017) 232 para 6.58. Energorynok, para 56 (referring to ‘general principles of international law’ as well). Khan Merits, para 428. Al-Bahloul Jurisdiction and Liability, para 159; AES, para 7.6.4; Electrabel Jurisdiction, Applicable Law and Liability, para 4.18. See also Wälde (1996) 457; Taida Begic, Applicable Law in International Investment Disputes (Eleven International Publishing 2005) 26 (Art 26(6) belongs to a ‘type of choice of law clauses’ which ‘refers only to the respective treaty and to the rules of international law’.); Reed and Martinez (2008) 428; P.M. Dupuy, ‘Unification Rather than Fragmentation of International Law? The Case of International Investment Law and Human Rights Law’ in Dupuy, Francioni, Petersmann (2009) 45 [Dupuy (2009)] 56 (Art 26(6) contains ‘in substance’ the wording of NAFTA Art 1131); J Krommendijk and J Morijn, ‘‘Proportional’ by What Measure(s)? Balancing Investor Interests and Human Rights by Way of Applying the Proportionality Principle in Investor-State Arbitration’ in Dupuy, Francioni, Petersmann (2009) 422, 424; Schreuer, Malintoppi, Reinisch, Sinclair (2009) 562 para 36 (the ECT and NAFTA among ‘several multilateral treaties providing for ICSID arbitration […] contain clauses on applicable law that refer only to the respective treaty and to rules of international law’.); Happold and Roe (2012) 71 n 13 (citing AES); Ole Spiermann, ‘Investment Arbitration: Applicable Law’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1373, 1385 para 36 (arguing that provisions listing sources of applicable law may have a ‘limited’ effect, contingent on their interpretation).

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turn, constitute the agreement on choice of law between disputing parties to ECT arbitrations.116 While provisions on applicable law may contain criteria to solve conflicts of law issues, Article 26(6) merely provides that disputes must be decided under the law it states to be applicable.117 As for the applicability of rules other than the ECT, it has been discussed whether the international law on the environment118 and on human rights,119 are applicable. The reference to other rules of international law is without prejudice to the exclusive character of Part III as the substantive law governing the treatment accorded to Investors and their Investments under the ECT.120 For the Veteran, Hulley and Yukos tribunals, an ECT arbitral tribunal ‘is not a human rights court’, without prejudice to having jurisdiction over aspects of an alleged breach of Part III to which international law on human rights would be applicable, such as ‘allegations of harassment and intimidation’, if such aspects ‘form part of the factual matrix’ of the claim.121 The preeminent source of law in ECT arbitrations is, thus, the ECT, and Part III in particular.122 10.14 The internal law of a Contracting Party is not stated in Article 26(6) to be applicable.123 As in NAFTA Article 1131(1), domestic law is omitted in 116

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This double role of that provision is a feature of various investment treaties. Schreuer, Malintoppi, Reinisch, Sinclair (2009) 577 para 85 (such agreements come into existence ‘upon the acceptance by the investor of the offer of consent to jurisdiction’). Andrew E.L. Tucker, ‘The Energy Charter Treaty and ‘Compulsory’ International State/Investor Arbitration’ (1998) 11(3) Leiden Journal of International Law 513 [Tucker (1998)] 525 (discussing whether Art 26(6) ‘is intended to exclude the application of other conflict of laws rules’); Douglas (2009) 43 para 82 n 11 (Art 26(6) is intended to confirm the competence of an arbitral tribunal ‘to apply the stipulated sources of law, rather than prescribe the connecting factors necessary to determine the applicable laws in any given case’). R. Pavoni, ‘Environmental Rights, Sustainable Development, and Investor-State Case Law: A Critical Appraisal’ in Dupuy, Francioni, Petersmann (2009) 525, 528 n 14 (arguing that under ICSID Convention Art 42(1) and ECT Art 26(6), ‘[a]s a branch of public international law, international environmental law is generally applicable in investor-state arbitrations’.); Jorge E. Viñuales, ‘Investment Law and Sustainable Development: The Environment breaks into Investment Disputes’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1714 [Viñuales (2015)] 1723 para 24. Bruno Simma, ‘Foreign Investment Arbitration: A Place for Human Rights?’ (2011) 60(3) The International and Comparative Law Quarterly 573, 581 n 31 (arguing that ECT Art 26(6), among others, may serve as a ‘means of intermediating human rights norms within the investment treaty framework’); Dupuy (2009) 56 (arguing that customary law providing for ‘obligations to protect’ various human rights including those of ‘peremptory character’, is applicable under Art 26(6).) But see C. Reiner and C. Schreuer, ‘Human Rights and International Investment Arbitration’ in Dupuy, Francioni, Petersmann (2009) 82, 82 (the ECT does not ‘[m]ention’ human rights). Happ (2015) 259 para 60 (Art 26(6) ‘does not give a tribunal leeway to imply into the ECT further substantive investment protection provisions […] except due to provisions contained in Part III, such as the MFN obligation’.) Veteran, para 765; Yukos, para 765; Hulley, para 765. This is the case of most arbitral tribunals. Schreuer, Malintoppi, Reinisch, Sinclair (2009) 605 para 171. Energoalliance, para 387 (holding that ‘[n]o procedural norm or national legislation may be applied in respect of the Tribunal to the effect that it would oblige the Tribunal to award payments in any particular currency’.) See also Schreuer, Malintoppi, Reinisch, Sinclair (2009) 581 para 96 (among treaties governing investment, ‘an exclusive reference to international law such as in the NAFTA and in the Energy Charter Treaty […] is

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Article 26(6).124 The internal law of a Contracting Party, albeit not applicable, may or may not be of relevance to ECT arbitral tribunals.125 In this vein, an ECT arbitral tribunal may have the power to decide certain questions regarding the application of the law of a Contracting Party as a ‘necessary corollary’ of its exercise of jurisdiction over claims of alleged breaches of Part III.126 Furthermore, a Contracting Party may not rely on its internal law to justify a breach of an obligation under the ECT. In this vein, the Stati tribunal denied that Article 18(2) has the effect of allowing a respondent state to rely on its domestic law in order to justify a failure to observe an ECT obligation.127 Similarly, the AES tribunal, having characterized EU law as internal, found that a respondent Contracting Party to the ECT who is an EU Member State may not rely on EU law in order to justify a breach of the ECT.128 The applicable law in ECT arbitrations includes general international law, 10.15 most prominently customary international law.129 The customary international law applicable in ECT arbitrations comprises the law of treaties, as codified in the Vienna Convention on the Law of Treaties (VCLT),130 if not applicable qua treaty,131 and the law of state responsibility,132 as codified in the Articles on Responsibility of States for Internationally Wrongful Acts

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also feasible’.). But see Viñuales (2015) 1723 para 24 (arguing that Art 26(6), among others, allows for the ‘potential application of environmental norms stemming from both domestic and international law’). Spiermann (2008) 230 (Art 26(6) and NAFTA Art 1131(1), among others, ‘list principles or rules of international law, but omit national law’). Masdar, para 579 (‘[d]omestic case law is irrelevant to determining the calculation method for the fair market value of an investment under Article 10(1) of the ECT’.); Plama, paras 138–139; Yukos, paras 1575–1585. See also Jarrod Hepburn, Domestic Law in International Investment Arbitration (Oxford University Press 2017) 157–9 (critiquing the positions on the relevance of internal law in Plama and Yukos). Eiser, para 337 (referring to a ‘question involving application of Spanish law’). Stati, paras 831–841. See also McLachlan, Shore, Weiniger (2017) 42–3 para 2.71 (discussing Stati). AES, para 7.6.6. See also Bungenberg and Hobe (2015) 1626 para 56 (discussing the character of EU law ‘as a “fact”’ in AES); McLachlan, Shore, Weiniger (2017) 43 para 2.74 (discussing AES). Dupuy (2009) 56; Bruno Simma and Dirk Pulkowski, ‘Two Worlds, but Not Apart: International Investment Law and General International Law’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 360, 361 para 1 (‘[i]nvestment law is not […] a subsystem that functions in isolation from the remainder of public international law’.); Happ (2015) 259 para 60 (Art 26(6), instead of incorporating substantive protection, ‘is the basis for the tribunal to apply, e.g., the principles of State responsibility’). Concluded on 23 May 1969, and entered into force 27 January 1980. 1155 UNTS 331, 8 ILM 679 (1969). Antin, para 517 (noting that VCLT Art 31 ‘contains the general rule of customary international law’ on treaty interpretation); AES, para 7.6.5 (regarding the rules codified in VCLT Arts 31 and 32.) See also Happold and Roe (2012) 71 n 14. Roe, Happold, Dingemans (2011) 28 (since ‘not all the parties to the ECT are also parties to the VCLT’). Al-Bahloul Jurisdiction and Liability, para 164 (on the ‘question’ of ‘attribution to the State’ of conduct).

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(ASR).133 General principles of law,134 such as good faith,135 may also be applicable in ECT arbitrations. 10.16 The interpretation of ECT provisions must be conducted in accordance with the rules set out in the VCLT.136 VCLT Articles 31 and 32 have been applied by ECT arbitral tribunals.137 The Plama tribunal stated that ‘the text’ was ‘[t]he starting point’ of the interpretation of Article 10(1).138 In particular, the perceived vagueness of parts of the text of Article 10 has been regarded as a feature requiring the application of VCLT Articles 31 and 32.139 The Antin tribunal observed that Article 10(1) ‘cannot be interpreted in separation from the treaty’s context, object and purpose.’140 In particular, the context of the ECT is relevant.141 The context of the ECT includes the Preamble and its Annexes.142 The structure of the ECT has played a role in the interpretation of its provisions. In particular, the distinction between Part III and other parts of the ECT may have a bearing on the interpretation of provisions in those parts.143 For instance, the interpretation of Article 21, particularly as to the scope of operation of Article 21(1), must be consistent with ‘the purpose of Part III’.144 The context also comprises agreements relating to, and instruments made in connection with, the ECT.145 The Understandings and 133 134 135 136

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Adopted by the UN General Assembly (GA) in 2001. GA Res 56/83, UN Doc A/RES/56/83 (2001), Annex. Antin, para 316 (stating that under Art 26(6), and as accepted by the respondent, cases are to be heard by ECT arbitral tribunals ‘not just under the ECT but taking into account also the rest of international law’). Ibid. (‘in application of the general principle of good faith, parties are not allowed to abuse their rights’). Masdar, para 483; Eiser, para 375 (citing VCLT Art 31); Antin, para 259 (citing VCLT Art 31); EDF Decision on Annulment, para 3.5.1 (stating that the rule set out in VCLT Art 31(1) applies to the ECT, ‘[l]ike any other treaty’). See also Reed and Martinez (2008) 406 n 6; August Reinisch, ‘The Interpretation of International Investment Agreements’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 372 [Reinisch (2015)] 373 para 1. Antin, para 207 (‘[t]he rule of Article 31 VCLT is an integral single rule […] Article 32 is a subsidiary rule’.) But see Wälde (2009) 728–9 (arguing that Plama Jurisdiction, among others, shows that ECT arbitral tribunals depart from the VCLT, by ‘applying a very contract-text-focused standard commercial arbitration approach’). Plama, para 168. Mamidoil, paras 601, 602 (indicating the tribunal’s agreement with the MTD v. Chile annulment decision.) Reinisch (2015) 373 para 2 (investment treaties and the ECT ‘display a particularly high degree of generality and vagueness’). Antin, para 518 (analysing the ordinary meaning of terms in the English and Spanish versions of Art 10(1)). Wälde (2009) 756–7. Ibid., 756. Wälde and Ben Hamida (2008) 179 (arguing that ‘the distinction between Part III issues and the obligations in other parts of the Treaty, which at times can seem overly strict, would not make sense’ and that ‘[t]he “effet utile” principle of treaty interpretation thus supports the view of justiciable pre-investment obligations’). Veteran, para 1433; Yukos, para 1433; Hulley, para 1433 (finding that an interpretation whereby ‘the mere labelling of a measure as “taxation” would be sufficient to bring such measure within the ambit of Article 21(1) of the ECT’, would ‘seem difficult to reconcile such an interpretation with the purpose of Part III of the ECT’). Wälde (2009) 757.

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Decisions contained in the Final Act, which comprises the ECT, have been regarded as agreements relating to the ECT; the Declarations have equally been regarded as instruments made in connection with the ECT.146 The European Energy Charter is regarded as part of the context of the ECT.147 Declarations issued by the Energy Charter Conference,148 like decisions of treaty bodies under various investment treaties,149 could serve as evidence of a subsequent agreement.150 In this vein, the participation of a Contracting Party in an arbitration under an investment treaty in the making of an interpretative decision by a treaty body under that investment treaty may raise various issues.151 Some arbitral tribunals may take into account materials in addition to those pertaining to the context of the treaty. For instance, the Plama tribunal, in order to set out its ‘relevant definition of the standards’ applicable,152 took into account ‘practice under the ECT’ and decisions of arbitral tribunals constituted under other treaties.153 Supplementary means of interpretation under VCLT Article 32 may have more practical relevance in relation to a multilateral treaty like the ECT,154 given the greater availability of travaux préparatoires.155 The application of the VCLT is intended to reach an objective interpretation. As such, it should not yield a result favouring either disputing party in ECT arbitrations.156 The Plama tribunal observed that an appropriate interpretation is to be ‘balanced’157 and to take into account ‘the totality of the Treaty’s purpose’.158 The Blusun tribunal, likewise, sought to interpret the text of Article 10(1) in a ‘balanced’ manner.159 146 147

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Ibid. Wälde (1995) 362 (‘the Charter possesses considerable significance in the interpretation of the Treaty’); Happ (2015) 242 para 5 (‘the ECT must be read in the light of the European Energy Charter’). The European Energy Charter has been claimed to be an agreement. Wälde (2009) 757 (‘it is an Article 31(2)(a) VCLT “agreement” because it preceded and prepared for the ECT and was thus made ‘in connection with the conclusion of the treaty”’). Wälde (2009) 766 (referring to ECT Art 34(3)(i)). Ibid. (noting that ‘[i]Interpretative agreements, at present, mainly take the form of interpretative decisions by treaty commissions, possible under both the NAFTA (Art 1131) and the CAFTA (Art 10.23)’). Ibid., 767. Ibid. (a respondent Contracting Party’s support of an interpretative decision detrimental to the claimant raises ‘issues of third-party beneficiary rights, retroactive effect, self-judging, due process, and good faith’). Plama, para 164. Ibid. Marc Bungenberg and Catharine Titi, ‘Precedents in International Investment Law’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1505, 1513 para 15 (arguing that treating decisions of other arbitral tribunals as binding precedent is incompatible with the VCLT). Wälde (2009) 732 (arguing that this holds true of multilateral treaties in general). Ibid., 777 (particularly those of the ECT and NAFTA, unlike most investment treaties). Ibid., 732 (arguing that a ‘consistent pro-State or pro-investor approach’ is absent from the VLCT). Plama, para 167 (citing El Paso Energy International Co. v. Argentina and further noting that balance is to be struck between a Contracting Party’s ‘sovereignty’ and ‘responsibility’ regarding the framework for economic development, on one hand, and the ‘necessity’ of foreign investment protection, on the other). Ibid. Blusun, para 319 (‘a balanced interpretation of the text of Article 10 read in the light of its object and purpose’).

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10.17 The interpretation of ECT provisions is sometimes discussed by reference to rules of treaty interpretation not codified in the VCLT. For instance, the Plama tribunal sought to apply rules of interpretation to which it referred as having been specifically adopted during the adoption of the ECT,160 in addition to the rules set out in the VCLT, including VLCT Article 31(1).161 Other rules take the form of, among others, maxims.162 For instance, it has been asserted that the preferable interpretation is the one whereby a standard retains its ‘independent meaning’ from another standard.163 Such independence has been affirmed where the standards are ‘listed separately’ in the treaty interpreted,164 and joined by the conjunction ‘and’,165 without any statement that a listed standard derives from another listed standard.166 Furthermore, it has been asserted that an expression referring to a standard of treatment does not plausibly denote concepts governed by customary international law,167 and that the latter would presumably be referred to directly.168 In particular, the ‘listing in sequence’ of standards of treatment has been relied upon by the Azurix tribunal, as an aspect of the interpretation of a complex provision, on grounds of the structure of its text and a specific purpose predicated of one part with respect to the content of other parts of the provision.169 These assertions may be based on the rule of effectiveness, which is grounded on the principle of good faith.170

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Plama, para 164 (namely, ‘the rules of interpretation delineated by the Chairman's statement at the adoption session of the ECT on 17 December 1994’). Ibid., n 27 (citing Energy Charter Secretariat, The Energy Charter Treaty and Related Document. A Legal Framework for International Energy Cooperation, Chairman's Statement at Adoption Session on 17 December 1994, p. 158.) See also Wälde (1995) 367 (since the Chairman’s Statement ‘was a basis for the willingness of several delegations to sign the Treaty and needs to be taken into account when interpreting the Treaty’). Plama, ibid. Wälde (2009) 733 (‘[t]he traditional interpretation maxims have not been dealt with’ in the VCLT). Christoph H. Schreuer, ‘Selected Standards of Treatment Available under the Energy Charter Treaty, Part I – Fair and Equitable Treatment (FET): interactions with other standards’ in Coop and Ribeiro (2008) 63 [Schreuer (2008)] 68. Ibid. Ibid., 88. Ibid., 74. Ibid., 77. Ibid. Azurix Corp v. The Argentine Republic, Award, 14 July 2006 (Azurix), para 361 (noting that where a ‘paragraph consists of […] full statements, each listing in sequence a standard of treatment to be accorded to investments’ and ‘the last sentence’ sets out that treatment is to be ‘not less than required by international law’, the last sentence has ‘[t]he purpose’ of setting ‘a floor, not a ceiling’, which ‘ensures that, whichever content is attributed to the other two standards, the treatment accorded to investment will be no less than required by international law’.) See also Schreuer (2008) 87 (discussing Azurix). EDF Decision on Annulment, para 3.5.1 (‘the principle of good faith is intimately connected to the rule of interpretation of the effectiveness of the law, even if the latter does not expressly appear at Art. 31’ of the VCLT.)

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Various ECT arbitral tribunals have applied the rules of general law of state 10.18 responsibility with regard to reparation,171 particularly in the form of restitution172 and compensation,173 and interests.174 This is due to the absence of rules on the content of responsibility for breaches of ECT obligations within the ECT.175 The absence of such rules is explained by the character of most substantive rules, including under treaties governing investment, as primary norms.176 Various ECT provisions which interact with Part III provisions seemingly operate as secondary rules. Article 22(1), concerning the conduct of a Contracting Party’s state-owned entity, raises various issues touching on matters governed by Part III provisions. The obligation under Article 22(1) is confined to ensuring that a state-owned entity of a Contracting Party be capable of observing the obligations of the Contracting Party under Part III.177 While Article 22(1) might appear to provide for state responsibility where conduct of a state-owned entity is involved, it merely clarifies the content of primary obligations under Part III.178 Article 22(1) does not provide for the assumption by a Contracting Party of responsibility for the failure of the state-owned entity of a Contracting Party to discharge contractual obligations in relation to an Investment.179 Nor is Article 22(1) applicable to determine the attribution of conduct to a Contracting Party, since this is governed by customary international law.180 Furthermore, it has been argued that Article 22(3) would confirm the law of state responsibility.181

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Masdar, paras 548–549, 551 (in accordance with ‘the default standard provided by customary international law’). Ibid., para 558. Novenergia II, para 803 (as no rules in the ECT govern compensation for breaches of the ECT, it is ‘appropriate to apply general principles of customary international law to determine the relevant compensation standard’). Ibid., para 844 (Art 10 ‘moreover, is silent with respect to the interest rate that should apply’). Antin, para 659 (noting the absence of provisions governing compensation for breaches of FET under the ECT); Masdar, para 548 (‘Article 10 of the ECT sets forth no express provisions regarding remedies or reparations for breach of the Treaty’s protection’); Novenergia II, para 803 (‘the ECT does not embody a provision which regulates the applicable compensation standard for a state's violation of the obligation to accord fair and equitable treatment’). See also Wälde (1996) 440. Stephan Wittich, ‘Investment Arbitration: Remedies’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 1391 [Wittich (2015)] 1395 para 9 (arguing that this holds true of general international law). AMTO, para 112 (namely, a ‘general obligation’ of ensuring that a state-owned entity carry out a set of ‘activities which, in general terms of governance, management and organization’ enable it to observe Part III obligations). Wälde and Wouters (1996) 168. AMTO, para 112 (referring to ‘a commercial debt in a given instance’); Al-Bahloul Jurisdiction and Liability, para 172 (stating that, according to the AMTO tribunal, ‘Article 22 should not be understood as a rule of strict liability for the state, but rather as an independent obligation’). Thomas W. Wälde; Kaj Hobér, ‘The First Energy Charter Treaty Arbitral Award’ (2005) 22(2) Journal of International Arbitration 83 [Wälde and Hobér (2005)] 90. Wälde and Wouters (1996) 165.

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Nonetheless, Article 22(3) sets out primary obligations,182 and, therefore, has no direct bearing on matters of state responsibility, including attribution.183 In spite of the above interactions, the obligations under Articles 22 and 23 remain external to Part III.184 Hence, claims based on Articles 22 and 23 only would not be arbitrable under Article 26.185 10.19 Article 26(8) may be regarded as an exception to the absence of ECT rules governing remedies for breaches of Part III.186 ASR Article 55, on ‘lex specialis’, provides that the ASR do not apply where the existence, content or implementation of international responsibility ‘are governed by special rules of international law’. In particular, special rules may exist where the primary rules are contained in treaties for the protection of individuals, such as the ECT.187 Such special rules would concern the implementation of international responsibility, as opposed to its existence and content.188 Article 26(8) contains three sentences. Article 26(8) Second Sentence (2nd Sentence) provides that certain awards may order the payment of monetary damages ‘in lieu of any other remedy granted.’ By providing for compensation as a remedy in lieu of other remedies granted, Article 26(8) 2nd Sentence sets out a special secondary rule, governing the implementation of international responsibility for breaches of Part III which arise out of conduct of a sub-national organ of a disputing Contracting Party, and which engage the international responsibility of that Contracting Party;189 the purpose of Article 26(8) 2nd Sentence is to give that Contracting Party a means to more efficiently implement its responsibility.190 Notwithstanding the character of Article 26(8) 2nd Sentence as a special secondary rule on implementation, the general law of state responsibility remains applicable to determinations as to the existence and content of responsibility for breaches of Part III. As for the content of such

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Roe, Happold, Dingemans (2011) 168–9. Ibid., 169–70. Ibid., 171. Al-Bahloul Jurisdiction and Liability, para 172 (‘Article 22 is not contained in Part III’). See Roe, Happold, Dingemans ibid., 169 (concerning Art 23). Wittich (2015) 1395 para 9 (arguing that Art 26(8) places the ECT among a few treaties on investment which ‘exceptionally do contain a provision concerning remedies’, which ‘usually narrows the range of available remedies’). Douglas (2009) 94 para 165 (arguing there is ‘a sui generis regime of state responsibility for investment treaties’). Ibid. (‘[t]he secondary obligations generated by the implementation of state responsibility in these cases are different in their legal character from secondary obligations that arise on the inter-state plane’). Art 26(8), 2nd Sentence (‘An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted.’). Happ (2015) 259 para 62 (‘the national government […] might not be able to implement an award ordering specific performance’).

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responsibility, Article 26(8) 2nd Sentence does not depart from the forms of reparation generally available, but merely provides for the possibility that one, compensation, substitutes others, such as restitution by performance of certain conduct;191 Article 26(8) 2nd Sentence merely provides for a combination of forms of reparation granted.192 An ECT arbitral tribunal first examines whether a breach of an ECT 10.20 obligation exists.193 Prior to establishing a breach, the conduct in question must be attributable to a Contracting Party.194 Determinations of attribution may be particularly required where conduct by an entity distinct from the Contracting Party is involved, most notably a state-owned company.195 As put by the Electrabel tribunal, in the absence of attribution, no further enquiry ensues.196 The Al-Bahloul tribunal appeared to suggest that a finding of a breach is preceded by a determination of international responsibility, which it equated to the attribution of the act or omission in question.197 The Electrabel tribunal seemed to consider that attribution and breach would be cumulative conditions for a breach.198 Nevertheless, while predicable of the same conduct, determinations as to attribution and breach,199 and, ultimately, as to international responsibility,200 are to not to be conflated. Only if attribution is established, and conduct attributable to a Contracting Party constitutes a breach of an international obligation in force,201 an internationally wrongful

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ASR Art 35, ILC Commentary (6), 98 (‘[t]he term “restitution” […] has a broad meaning, encompassing any action that needs to be taken by the responsible State to restore the situation resulting from its internationally wrongful act’); Happ (2015) 259 para 62 (under Art 26(8) 2nd Sentence, ‘specific performance is […] an available remedy’). ASR Art 34, (‘[f]ull reparation for the injury caused by the internationally wrongful act shall take the form of restitution, compensation and satisfaction, either singly or in combination’). Petrobart, p 73 (‘this question is a preliminary’ to that concerning a damage resulting from a breach, if any). Electrabel Jurisdiction, Applicable Law and Liability, para 758. See also Reed and Martinez (2008) 420. Reed and Martinez, ibid. Electrabel Jurisdiction, Applicable Law and Liability, para 758. These relations among breach, international responsibility and attribution, in the order formulated by this tribunal, follow from its use of the phrase ‘in order to’ and ‘i.e.’ Al-Bahloul Jurisdiction and Liability, para 164 (‘In order to find that Respondent is in breach of the ECT, we must find that its international responsibility is incurred, i.e. that the actions or omissions alleged to be in breach of […] the Treaty are in fact attributable to the State’ (emphasis added)). This equivalence between attribution and violation follows from the use of ‘in order to’ and the conjunction ‘and’. Electrabel Jurisdiction, Applicable Law and Liability, para 758 (‘In order to constitute a violation of the ECT, an act has to be both attributable to the State and a violation of an international obligation under the ECT.’ (emphasis added)). ASR Art 2(a), on attribution, and 2(b), on breach, in aggregate, constitute an internationally wrongful act. ASR Art 1. ASR Art 13.

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act in violation of the ECT exists, and entails, in the absence of any circumstance precluding wrongfulness,202 responsibility.203 Where conduct consisting in a set of actions and omissions allegedly breaches Article 10(1), it may not be necessary to establish that the set of instances of conduct amounts to a ‘composite breach’, within the meaning of ASR Article 15;204 a claim of breach of Article 10(1) ‘is not materially stronger when the measures are taken in aggregate than separately’.205 As a preliminary to the question of damages caused by an established breach, establishing an alleged breach of Article 10(1) is likely to itself involve a claim of fact,206 in relation to which the claimant bears the onus probandi.207 Provided that a breach of Article 10(1) obligations is found to exist, an ECT arbitral tribunal examines whether and to what extent damage is caused by a breach of Article 10(1) obligations.208 Not only are attribution and breach the only necessary conditions for the existence of state responsibility; generally, they are also sufficient, under the secondary rules in which the law of state responsibility primarily consists. As the Electrabel tribunal noted, the character of attribution and breach as necessary and sufficient conditions for international responsibility is without prejudice to instances where the content of the primary obligation requires that the existence of other elements, such as damage, be established.209 10.21 Where a breach of an obligation under Article 10 is found to exist, it is necessary to determine the appropriate standard for compensation due, if other forms of reparation are not accorded,210 and the quantum of compensation.211 In this connection, a determination of damages is

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ASR Arts 20–26. ASR Arts 1, 28. Blusun, para 362 (adding that ‘The first two sentences of ECT Article 10(1) do not define an aggregate of acts as wrongful in the way that Article 1 of the Genocide Convention does’). Ibid., para 364 (referring to a claim of breach of the ‘stability undertaking’ under Article 10(1) 1st Sentence). Ibid., para 375. Ibid., paras 394, 395 (concluding that, since the claimant failed to prove that the respondent had caused the alleged failure of the claimant’s project at issue, Art 10(1) had not been breached, thus precluding an analysis of damages). Petrobart, p 73 (referring to ‘an examination of whether or to what degree the breach resulted in damage’). Electrabel, para 120 n 52 (citing the ILC Commentary to ASR Art 2 and stating that ‘damages (or loss) are generally not necessary to a finding of liability, whilst remaining necessary to the granting of compensation, unless of course loss or damage are a constituent part of the legal wrong’). Masdar, paras 558–562 (denying restitution, like ‘[s]imilarly situated tribunals’ which ‘have denied restitution of regulatory regimes’, since ASR Art 35(b) ‘exempts responsible States from their primary obligation to make restitution when restitution is disproportionately burdensome compared to the benefit which would be gained’). Ibid., para 580 (‘[t]he standard of compensation for a breach of Article 10(1) of the ECT, as well as the method of quantification of such compensation, are prescribed by international law, and are defined autonomously’); Eiser, para 419; Novenergia II, para 803.

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necessary.212 Nevertheless, as with most primary rules of international law, Article 10 does not set out compensation standards for breach of the obligations it contains.213 The compensation for loss or damage caused by a breach of Article 10 is governed by the law of state responsibility.214 As with other aspects of the law of state responsibility,215 the ASR have been relied upon as an authoritative restatement of such rules of customary international law.216 In particular, ASR Article 31 is regarded as accurately reflecting the rule of customary international law applicable in relation to a breach of obligations under Article 10(1).217 ASR Article 35 has also been relied upon, in relation to restitution.218 As for quantum, it has been held that an Investor is not to be necessarily awarded an amount equivalent to a ‘reasonable return’.219 As for methods of valuation, most recently, the Masdar tribunal considered the appropriateness of income-based valuation methods220 to determine the fair market value of losses caused by a breach of the ECT, particularly the discounted cash flow (DCF) method.221 The Masdar tribunal majority deemed the DCF method to be ‘presumptively appropriate, absent persuasive reasons making it inappropriate in particular cases.’222 Article 10 does not govern the question of interests for breaches of its obligations.223 In this regard, Article 13(1) has been applied by analogy.224

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Electrabel, para 120. Eiser, para 420. Nykomb, p 38. See also Hobér (2007) 354 (commenting on Nykomb and Petrobart). Supra, para 10.18. Antin, para 664; Masdar, para 550 (noting that ASR Art 31 ‘codified the Chorzów Factory principle, requiring that States responsible for an internationally wrongful act make full reparation for the moral and material injury caused’); Nykomb, p 38. See also Hobér (2007) 354 (noting that ‘[g]uidance is usually sought from’ the ASR). Antin, paras 663–664; Novenergia II, paras 804–806; Eiser, para 424. Masdar, para 558. Eiser, para 434 (referring to the implications of FET as for quantum). Masdar, para 575 (noting, in relation to asset-based valuation (ABV) and the DCF, that ‘both valuation methods – DCF and ABV – are widely accepted in valuation theory and […] used by tribunals in investment treaty arbitrations’). Ibid., paras 567, 577. Ibid., paras 575, 587. Ibid., para 661; Eiser, para 475; Novenergia II, para 844. Ibid.

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B. Article 10 10.22 Article 10 is entitled ‘Promotion, Protection and Treatment of Investments’.225 The title of Article 10 sets out the ‘terms’ of some of the ECT’s paramount ‘objectives and principles’.226 10.23 The remainder of this commentary is divided into two main parts, namely Article 10(1) and Article 10(2) to 10(12). 10.24 Article 10(1) is a general,227 ‘complex provision’,228 which comprises ‘five sentences’.229 These five sentences ‘embody commitments towards investments, in accordance with their terms.’230 Accordingly, they are not ‘preambular’, nor ‘hortatory’,231 as evidenced by the use of ‘[t]he modal verb ‘shall’’.232 The sentences of Article 10(1) ‘refer to various other obligations, some of

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A Declaration was adopted by Canada and the US in relation to Art 10. This Declaration set out considerations for the application of Art 10 provisions. Such considerations concern treatment accorded to investors of Contracting Parties and their Investments. An assessment of treatment is to be considered on a ‘case-by-case basis’. The validity of a comparison of treatment is confined to that made regarding Investors and Investments in similar circumstances. Two factors are taken into account in determining the consistency of differential treatment, namely policy objectives and relevance of foreign ownership or control. Wälde (1995) 364 (‘the concept of ‘legitimate policy objectives’ […] has a GATT-understanding’, which is ‘hard to transfer to investment law.’); Fauchald (2007) 13 n 66. Furthermore, by virtue of a Contracting Party’s inclusion in Annex IA, an Investor or a Contracting Party is not allowed to submit to international arbitration disputes concerning Article 10(1). See AES, paras 9.3.2, 9.3.3 (notwithstanding that Article 10(1) ‘is contained in Part III’.) See also Wälde (1995) 364. Hence, an ECT arbitral tribunal lacks jurisdiction over an Investor’s contractual claims under Art 10(1), last sentence. See AES, paras 9.3.2, 9.3.3 (by virtue of inclusion in Annex IA.) See also Tucker (1998) 518. Veteran Jurisdiction and Admissibility, para 514; Yukos Jurisdiction and Admissibility, para 458; Hulley Jurisdiction and Admissibility, para 457. See also Baltag (2012) 157 (critiquing the Veteran, Yukos and Hulley tribunal’s rejection of ‘the retrospective effects of Article 17’, as incompatible with such objectives and principles). Andrew Newcombe, ‘Yukos Universal Limited (Isle of Man) v The Russian Federation: An Introduction to the Agora’ 30(2) ICSID Review – Foreign Investment Law Journal 283, 289. AMTO, para 73; Electrabel Jurisdiction, Applicable Law and Liability, para 7.57. See also Schreuer (2008) 64; Happ (2015) 248 para 26. AMTO, ibid. (‘Article 10(1) is a complex provision of five sentences’). Blusun, para 319(1). Ibid. Contra, AES & Tau, para 380 (‘the first sentence of Article 10(1) of the ECT […] is an introductory sentence […]. As such, it has mainly programmatic character and does not provide for an independent standard of protection’.) The AES & Tau Tribunal appears to infer from its proposition that FET and Art 10(1) 1st Sentence overlap that the latter imposes no obligation, being thus devoid of legal consequences. See, AES & Tau, para 383 (since no protection is afforded ‘beyond the protection already afforded under the more specific protection standards set out in the remaining part of Article 10(1) of the ECT […] no independent claim may be based on the first sentence of Article 10(1) of the ECT’). Antin, para 525 (this verb ‘expresses an instruction, command or obligation’).

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which are well known in investment treaty law’,233 like other Part III provisions.234 The Petrobart tribunal considered that the ‘various specific elements’ of Article 10.25 10(1) are intended to ensure Fair and Equitable Treatment (FET).235 Accordingly, the Petrobart tribunal deemed it unnecessary to analyse the respondent’s conduct by reference to such ‘specific elements’.236 This proposition of the Petrobart tribunal is held by other tribunals.237 The AMTO tribunal, likewise, observed that there is ‘clearly overlapping within Article 10(1)’.238 The AMTO tribunal further noted that Article 10(1) refers to both FET and the ‘minimum standard’,239 and that conduct in breach of these standards also ‘breaches various obligations in Article 10(1)’.240 The Plama tribunal, by contrast, observed that ‘Article 10(1) contains a 10.26 complex provision that refers equally’ to an obligation concerning conditions for the Making of Investments, in addition to a set of standards of protection.241 The Plama tribunal further observed that, albeit ‘closely interrelated’, Article 10(1) standards of protection ‘are separate and autonomous’.242 The Plama tribunal expressly rejected the stance of the Petrobart tribunal,243 as it considered that the Petrobart tribunal ‘opted for subsuming all standards’ set out in Article 10(1) under FET.244 Similarly, the Electrabel tribunal held that Article 10(1) contains standards ‘beyond the FET’.245 Other ECT arbitral tribunals have applied FET separately from other Article 10(1) standards.246 233 234 235 236 237 238 239 240 241

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AMTO, para 73 (referring to the second to fifth sentences of Art 10(1)). See also Hobér, Menaker, Slooten Walsh (2008) 265; Roe, Happold, Dingemans (2011). See Roe, Happold, Dingemans, ibid., 15. Petrobart, p 76 (‘this paragraph in its entirety is intended to ensure a fair and equitable treatment of investments’). Ibid. See Noble Ventures Inc. v. Romania, Award, 12 October 2005 (Noble Ventures), para 182. Schreuer (2008) 65 (discussing Noble Ventures.). AMTO, para 74. Ibid. (adding that ‘these two standards may be identical in many contexts’). Ibid. (adding that claims based on the same conduct may be made ‘in circumstances where the content and relationship between these obligations is not clear’). Plama, para 161 (‘fair and equitable treatment, constant protection and security, the prohibition of unreasonable or discriminatory measures and the observance of obligations entered into with an Investor or an Investment’). See also Baltag (2012) 205–6. Ibid. (‘The better view is that these standards, though related, are separate and autonomous. In fact, some tribunals have given them their own specific meaning’). See also Tarcisio Gazzini, ‘The Role of Customary International Law in the Field of Foreign Investment’ (2007) 8(5) The Journal of World Investment & Trade 691 [Gazzini (2007)] 699–700. Plama, para 163 n 25 (citing Petrobart, p 76.). Ibid., para 162 n 25. Electrabel Jurisdiction, Applicable Law and Liability, paras 6.119, 7.79. Energoalliance, para 346 (finding that the adoption of a decree ‘constituted a violation’ of Art 10(1) 1st Sentence and FET under Art 10(1) 2nd Sentence).

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The separate character of ECT standards from FET has been accepted in annulment proceedings.247 10.27 Some tribunals have refrained from plainly asserting that FET and the standards set out in Article 10(1) are fully coextensive, confining themselves to positing that the question of overlapping of the aforementioned standards is a matter of degree. According to the Stati tribunal, the extent to which FET and the other standards in Article 10(1) overlap ‘may be arguable’.248 10.28 Some tribunals, while recognizing the independence of the various Article 10(1) standards, ultimately regard them as relating to ‘essentially the same conduct’ of a respondent.249 The Al-Bahloul tribunal considered claims of breach of Article 10(1) first, second,250 third and fourth sentences as FET claims, emphasising their ‘highly overlapping’, albeit separate, nature.251 1. Article 10(1) First Sentence and the Obligation regarding ‘Stable, Equitable, Favourable and Transparent Conditions’

10.29 Article 10(1) 1st Sentence sets out what the AMTO tribunal deemed an ‘expansive obligation’.252 Albeit expansive in various aspects, the AMTO tribunal also considered the scope of application ratione temporis of Article 10(1) 1st Sentence to be ‘ambiguous’.253 Article 10(1) First Sentence (1st Sentence) is a provision not found in most treaties governing investment.254 10.30 For the Plama tribunal, Article 10(1) 1st Sentence conditions are applicable to ‘all’, including ‘pre-Investment’, ‘stages’ of an Investment.255 For the Blusun 247

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EDF Decision on Annulment, para 3.5.3.1 (stating as to Art 10(1), that ‘the substantive commitments […] in the […] sentences of the same provision, such as […] fair and equitable treatment […], are not interchangeable’.). Stati, paras 1255, 1256 (regarding ‘the obligation to provide most constant protection and security’), 1281, 1282 (relating to the obligation not to take ‘unreasonable or discriminatory measures’), 1314, 1315 (concerning ‘the Umbrella Clause in Art 10(1)’). Al-Bahloul Jurisdiction and Liability, paras 248, 254. Ibid., paras 178–179 (relying on Petrobart and noting that it ‘went even further’, by holding ‘that all of the provisions of Article 10(1) were interlinked’). Ibid., para 248 (referring to Plama in its proposition that ‘conduct under [the ‘Unreasonable and Discriminatory Measures’] heading is essentially the same conduct alleged in connection with this claim under the heading of unfair and inequitable treatment’); ibid., para 254 (referring to claims of ‘Treatment Less Favourable than Required by International Law under Article 10(1) ECT’ as being ‘essentially the same as those made under the heading of denial of due process’). AMTO, para 73 (‘Article 10(1) […] opens with an expansive obligation’). But see Roe, Happold, Dingemans (2011) 107. AMTO, ibid. Happ (2015) 248 para 28. Plama, para 172. See also Armand de Mestral, ‘Pre-Entry Obligations under International Law’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 685 [Mestral (2015)] 694 para 24.

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tribunal, the ‘requirement’ set out in Article 10(1) 1st Sentence is not confined to the stages preceding and constituting the Making of Investments, as it also ‘includes subsequent extensions of the investment as well as changes of form’.256 According to the Blusun tribunal, a determination as to whether conduct breaches Article 10(1) 1st Sentence is to be done ‘by examining each of the state acts complained of against ECT standards’.257 For the Plama tribunal, Article 10(1) 1st Sentence conditions are ‘dependent 10.31 on’ the other standards of protections under Article 10(1).258 Similarly, according to the Antin tribunal, stability under Article 10(1) 1st Sentence ‘merits’ a ‘joined assessment’ with FET under Article 10(1) 2nd Sentence.259 Such a joint assessment is without prejudice to the binding character of the obligation under Article 10(1) 1st Sentence.260 Conduct which breaches Article 10(1) 1st Sentence conditions may also breach the minimum standard of treatment.261 Accordingly, compliance with Article 10(1) 1st Sentence conditions has been assessed ‘in connection with the other standards’ set out in Article 10(1).262 The conditions of stability and being equitable are regarded as being ‘clearly part of’ FET.263 Stability of the legal regime governing an Investment is emphasized264 and regarded as an element of FET generally.265 The ‘favourable and transparent conditions’ would be the only addition to ‘the FET standard as it is generally understood’.266 Transparency may be ‘related to’ FET, as an element significant for the protection of an Investor’s legitimate expectations.267 The protection of legitimate expectations, according to the Electrabel tribunal, is the ‘most important function’ of FET standard.268 256 257 258 259 260 261 262 263

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Blusun, para 319(2). Ibid., para 321. Plama, para 173. Antin, para 533. Ibid. AMTO, para 74 (‘[c]onduct that breaches these standards might also constitute […] failure to “create stable, equitable, favourable and transparent conditions for Investors”’). Plama, para 174. See also Mestral (2015) 697 para 30. Ibid., para 173; Novenergia II, para 645 (agreeing ‘with the arbitral tribunals' findings in Isolux, Plama and Eiser that the stability and transparency obligation is simply an illustration of the obligation to respect the investor's legitimate expectations through the FET standard, rather than a separate or independent obligation’). Eiser, para 380. Antin, para 533 (stating that FET ‘includes the obligation to provide a stable and predictable legal framework for investments’); Antaris, para 360(1) (referring to ‘legal and business stability’); Blusun, para 315(c). See also Christoph Schreuer, ‘Fair and Equitable Treatment in Arbitral Practice’ (2005) 6(3) The Journal of World Investment & Trade 357, 359. Electrabel Jurisdiction, Applicable Law and Liability, para 7.79. Plama, para 178 (referring also to its significance for the protection of ‘the stability of the legal framework’). See also Happ (2015) 245 para 17 (discussing the role of legitimate expectations in Article 10(1) 1st Sentence). Electrabel Jurisdiction, Applicable Law and Liability, para 7.75.

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Article 10(1) 1st Sentence would comprise an obligation to create ‘transparent conditions’ in connection with the exercise of a Contracting Party’s right under Article 17.269 Transparency would include the obligation to inform of intended significant policy or regulatory changes, to allow an Investor to plan ‘adequately’ and ‘engage’ in any necessary ‘dialogue about protecting its legitimate expectations’.270 Favourability would involve creating ‘an investorfriendly environment’.271 2. Article 10(1) Second Sentence and the Obligation to accord fair and equitable treatment

10.32 Article 10(1) Second Sentence (2nd Sentence) provides that Article 10(1) 1st Sentence conditions include FET.272 FET is to be accorded ‘at all times’.273 The vagueness of terms employed in Article 10(1) 2nd Sentence is not intended to allow arbitral tribunals, as the Mamidoil tribunal stated, ‘to create a new standard of international law in disregard of the terms of the applicable treaties, generic as they may be’.274 Turning to the nature of conduct which breaches Article 10(1) 2nd Sentence, and notwithstanding that it is not necessary to establish that such instances of conduct are composite,275 arbitral tribunals have taken into account the cumulative character of such conduct. For instance, according to the Stati tribunal, conduct consisting in a ‘string of measures of coordinated harassment by various institutions’ of a Contracting Party, ‘seen cumulatively in context to each other and compared with’ an Investor’s treatment before an order of a Contracting Party’s head of state, has been found to breach FET under Article 10(1) 2nd Sentence.276 It sufficed to

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Khan Jurisdiction, para 427 (by invoking Art 17 ‘right in time to give adequate notice to investors’); Kardassopoulos, paras 428, 441, 446 (holding that the respondent’s conduct violated ‘requirements of consistency, transparency, even-handedness and nondiscrimination’, under Art 2(2) of the Georgia/Israel BIT, on FET, and inferring a breach of ECT Art 10(1) from ‘the overlap in the factual and treaty matrices and, in particular, the shared essential ingredients’ with the BIT FET claim). Electrabel Jurisdiction, Applicable Law and Liability, para 7.79 (referring to ‘an obligation to be forthcoming with information about intended changes in policy and regulations that may significantly affect investments’). Ibid. Plama, para 172; Blusun, para 315(c). See also Vasciannie (2000) 117 n 96; Reed and Martinez (2008) 410; Tudor (2008) 43 (describing Art 10(1) as ‘[a]mong […] regional agreements, one of the most complete provisions on FET’); Roland Kläger, ‘Fair and Equitable Treatment: A Look at the Theoretical Underpinnings of Legitimacy and Fairness’ (2010) 11(3) The Journal of World Investment & Trade 435, 436 n 5; Moshe Hirsch, ‘Between Fair and Equitable Treatment and Stabilization Clause: Stable Legal Environment and Regulatory Change in International Investment Law’ (2011) 12(6) The Journal of World Investment & Trade 783, 789 n 37; Happ (2015) 249 para 29. Vasciannie (2000) 117 (this phrase reflects the OECD Draft of 1967.). Mamidoil, para 610. See supra, para 10.17. Stati, paras 1086, 1095.

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establish the above elements through an objective analysis of their temporal sequence.277 The ‘meaning’ of FET under Article 10(1) 2nd Sentence is to be assessed ‘in 10.33 the context of the particular treaty in which it is found’, namely the ECT.278 Accordingly, a ‘specific’ FET standard ‘above the minimum standard’ is to be identified through interpretation of Article 10(1) 2nd Sentence, and applied.279 This raises the question of the independence of FET under Article 10(1) 2nd Sentence from other rules of international law. Whether FET is independent of other standards and, in particular, of the minimum standard of treatment under customary international law, has been addressed by various arbitral tribunals.280 These arbitral tribunals have held divergent positions of these questions.281 This question has been deemed to concern, ultimately, the scope and content of FET under the respective treaty.282 In connection with the independence of FET from other standards listed ‘in sequence’ therewith, alongside a statement providing for treatment ‘not less than required by international law’, FET has been found to have a separate and ‘higher’ content than treatment under international law.283 In addition to matters of interpretation, the question of the independence of FET has also been discussed in connection with its application. It has been affirmed that the status of FET as an independent standard, with a distinct content, ‘may well be more apparent than real’ in its application, which may vary according to ‘to the specific facts of a case’.284 Likewise, ECT arbitral tribunals have adopted divergent positions on the aforementioned questions. For the Blusun tribunal, Article 10(1) 2nd Sentence ‘incorporates the fair and equitable treatment standard under customary international law’.285 For the LCO tribunal, the protection afforded 277 278 279 280

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Ibid., para 1086 (relying on a ‘timeline’ of relevant instances and declining to entertain the claim ‘that there was a “playbook”’ establishing a respondent’s alleged pattern of treatment of foreign investors). Eiser, para 376 (adding that the assessment is not to be done ‘on some Platonic plane’). LCO, para 263. For a discussion as to the general relations between FET and other standards of treatment under Art 10, see supra para 10.31. See PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Ltd Sirketi v. Republic of Turkey (ICSID Case N ARB/02/5), Award, 19 January 2007 (PSEG), para 239. MTD Equity Sdn Bhd and MTD Chile SA v. Republic of Chile, Award, 25 May 2004 (MTD), paras 110–111; Occidental Exploration and Production Co v. Ecuador, Award, 1 July 2004 (Occidental), paras 189–190; CMS Gas Transmission Co v. Argentina, Award, 12 May 2005 (CMS), paras 282–284; Saluka Investments BV (The Netherlands) v. The Czech Republic, Partial Award, 17 March 2006 (Saluka), para 294; Siemens v. Argentina, Award, 6 February 2007 (Siemens), paras 299–300. See also Schreuer (2008) 83–4 (citing MTD, Occidental, CMS, Saluka, Siemens and others.). Siemens, para 293 (namely, ‘a question about the substantive content of fair and equitable treatment’). Antin, para 530 (referring to FET under the ECT and denying that ‘the ECT sets no more limits on the regulatory power of States than the minimum standard of international law’); Azurix, para 361. See supra, para 10.17 n 168. Saluka, para 291. See also Schreuer (2008) 87. Blusun, para 319(3) (adding that FET is incorporated ‘and as applied by tribunals’). See, nevertheless, Mamidoil, para 603 (noting, in relation to the tribunal’s interpretation of FET, that ‘assistance is not only

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by Article 10(1) 2nd Sentence ‘goes beyond the minimum standard of treatment under international law’.286 Article 10(1) 2nd Sentence ‘differs from NAFTA Article 1105 […] which contains an express reference to international law’.287 The interpretation of this reference in NAFTA Article 1105(1), to the effect that FET does not go beyond the minimum standard of treatment, stems from a decision of an entity constituted under NAFTA, empowered to issue interpretations of NAFTA binding to the parties to NAFTA only. This aspect of the interpretation of NAFTA is regarded as a reason for limiting the relevance of NAFTA practice to the relation between FET and the minimum standard of treatment under other treaties, in addition to those aspects which relate to the text of NAFTA Article 1105(1) itself.288 10.34 Under Article 10(1) 2nd Sentence, FET comprises an ‘obligation to provide fundamental stability in the essential characteristics of the legal regime relied upon’ by an Investor.289 The standard set out in Article 10(1) 2nd Sentence preserves the legislative and regulatory authority of a host Contracting Party to make and change its laws and regulations.290 FET under Article 10(1) 2nd Sentence does not imply that ‘regulatory regimes cannot evolve’.291 Nevertheless, where an Investor has made an Investment in reliance upon a regulatory regime, a radical alteration of the regulatory regime carried out in a manner which deprives the Investor of the value of the Investment has been deemed to breach FET under Article 10(1) 2nd Sentence.292 Thus, FET does not protect an Investor against ‘any and all changes’ of a Contracting Party’s law, in the absence of a reasonable expectation.293 Such expectation may be created by a

286 287 288 289 290 291 292 293

limited by the fact that international arbitral tribunals are under no obligation to rely on precedents, but also by the lack of a jurisprudence constante ’). LCO, para 263. Ibid. (referring to the ‘interpretation given by the Free Trade Commission on 31 July 2001’). See also Schreuer (2008) 82. Schreuer ibid, 83. Eiser, para 382; Antin, para 532 (concluding its interpretation of Art 10(1) with an almost identical statement). Antin, para 530; Antaris, para 360(8); Blusun, para 319(4). Eiser, para 382. Antin, para 531 (citing Charanne, paras 513–514, 517, and Eiser); Novenergia II, para 656; Eiser, para 382. Plama, para 219 (‘[u]nder the fair and equitable treatment standard the investor is only protected if (at least) reasonable and justifiable expectations were created in that regard’); Antaris, para 360(6) (‘[p]rovisions of general legislation applicable to a plurality of persons or a category of persons, do not create legitimate expectations’).

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promise or representation to ‘freeze’ law,294 or specific legislative guarantees or commitments,295 among other forms of conduct296 in which a Contracting Party engages,297 or are attributable thereto.298 Thus, an Investor’s subjective consideration alone is insufficient for a legitimate expectation to exist.299 A representation at the origin of a legitimate expectation, and which induced an Investment, whether explicit or implicit,300 must be clear.301 For the Antaris tribunal, the origin of an alleged legitimate expectation must be identified in the respective claim.302 The ‘timing’ of assessment of legitimate expectations under Article 10(1) is that of the Making of an Investment by an Investor,303 from an ex ante position, in which the assessment ought not to involve any ‘hindsight’.304 Notwithstanding the emphasis placed upon the existence of a special commit- 10.35 ment made to an Investor, it has been argued that a ‘legitimate expectation’ may also be created by the legal order in force at the time of the Making of Investments, in the absence of a specific commitment.305 This position stands in contrast to the school of thought whereby a commitment need be specific,306 and whereby seemingly specific conduct, in the form of stabilization 294

295

296

297

298 299

300 301 302 303 304 305 306

Plama ibid. (‘It does not appear that Bulgaria made any promises or other representations to freeze its legislation on environmental law to the Claimant or at all’); Antaris, para 360(7), (10) (referring to ‘the absence of a stabilization clause’ and of ‘specific promises or representations’). Masdar, para 484; Antaris, para 360(4) (referring to ‘what are construed as specific guarantees in legislation’, and citing LG&E v. Argentina, Decision on Liability, 3 October 2006 (LG&E), paras 162–263, and Enron Corporation Ponderosa Assets L.P. v. Argentine Republic (ICSID ARB/01l3), Award of 22 May 2007 (Enron), paras 264–266). Antin, para 539 (referring to the respondent’s ‘conduct prior to, and at the time of, the investment’); Antaris, para 360(5) (‘[a] specific representation […] is not indispensable to establish a claim based on legitimate expectation’, although it may affect an assessment of the ‘the reasonableness and legitimacy’ of the expectation). Novenergia II, para 651 n 496 (citing Ioan Micula, Viorel Micula, SC European Food SA, SC Starmill SRL and SC Multipack SRL v. Romania (ICSID ARB/05/20), Award, 11 December 2013, para 669, and stating that ‘an expectation that the regulatory framework will be stable can arise from, or be strengthened by, state conduct or statements’). Antaris, para 360(3) (referring to ‘representations were made by or attributable to the state’). Antin, para 538 (‘legitimate expectations cannot arise from subjective considerations of the investor absent an affirmative action of the State which, objectively determined, evidences that the State intended to describe a particular treatment or regime on which the investor could rely when making its investment’). Antaris, para 360(3)(a) n 537 (citing Parkerings-Compagniet AS v. Lithuania (ICSID ARB/05/8), Award, 11 September 2007 (Parkerings), para 331.). Ibid. Ibid., para 360(2) (‘identification of the origin’ is necessary ‘so that its scope can be formulated with precision’). Antin, para 537; Novenergia II, para 535 (namely ‘at the time it made its investment in the Respondent's territory’). Antin ibid. (namely by considering ‘the information and conditions available at such time’). Masdar, paras 490–494; Charanne Dissenting Opinion, para 5. Masdar ibid., paras 489–490 (noting that ‘[t]here are two schools of thought on’ whether a commitment need be specific).

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provisions, cannot create legitimate expectations, being ‘offered in general legislation’.307 The legal order of a Contracting Party is to be examined in order to establish whether a legitimate expectation not derived from a specific commitment exists.308 Such a legal order, while general in the abstract, may operate in relation to a ‘reduced number of potential addressees’,309 and not sine die, but for a limited period.310 In any case, as argued by the majority of the Isolux tribunal, where a general rule in a Contracting Party’s law is addressed to both national and foreign investors, it can hardly be concluded that obligations are only imposed regarding the former.311 Where general legislation is regarded as a ‘source’ of a legitimate expectation, the Masdar tribunal has required that the Investor proves that ‘due diligence’ has been exercised,312 and that the expectation was reasonable in light of the circumstances.313 The Masdar tribunal took into account the claimant’s reliance on stabilisation clauses contained in general regulations.314 For the Masdar tribunal, a resolution specifically issued to individual companies confirming their eligibility for benefits under the general regulations was a sufficiently specific commitment.315 10.36 The legislative and ‘regulatory authority’ of a Contracting Party is, as put by the Blusun tribunal, ‘subject to respect for specific commitments made’.316 The basis for this restriction lies, according to the Charanne tribunal, in the principle of good faith, qua principle of customary international law.317 Accordingly, for the Charanne tribunal, ‘in the absence of a specific commitment’, there is no obligation to grant benefits or to maintain unchanged those granted.318 The failure to establish a special commitment or an undertaking not to amend laws may lead to the dismissal of a claim of breach of Article 10(1) 2nd Sentence.319 Where a legitimate expectation may be deemed to arise 307 308 309 310 311 312 313 314

315 316 317 318 319

Ibid., para 507 (‘or political announcements, like press releases and others’). Ibid., para 491 (according to this view, ‘the starting point to determine an investor’s legitimate expectations is the ‘legal order’ or ‘legal framework’ of the host State at the time when the investor made its investment’). Charanne, Dissenting Opinion, para 8; Isolux Dissenting Opinion, para 4. Charanne, Dissenting Opinion, para 9 (adding that the limited period of the legal regime in question consisted in a time frame for the Making of an Investment). Isolux, para 771. Masdar, para 494 (‘and that it has familiarised itself with the existing laws’). Ibid., para 498 (quoting Parkerings, para 333, in its statement that the claimant had proven the two elements). Ibid., paras 499–500 (based on its due diligence, the claimant ‘believed that it had a legitimate expectation that the laws would not be modified, as they included stabilisation clauses’, on which ‘[p]articular reliance is placed’). Ibid., paras 520–521. Blusun, para 319(4). Charanne, para 486. Blusun, para 319(5) (referring to ‘subsidies such as feed-in tariffs’). Ibid., para 374.

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from general legislation in the absence of a specific commitment, or where the source of a rule containing a commitment of specific scope of application is general legislation, a question as to whether a ‘margin of change’ exists, whereby changes of the relevant general legislation of a Contracting Party do not constitute a breach of FET, has arisen. For the majority of the Antaris tribunal, where an expectation has arisen, but a stabilization clause is absent, there exists an ‘acceptable margin of change’, within which changes to general legislation modifying a regulatory framework relied upon by an Investor320 and made pursuant to the Contracting Party’s normal regulatory power do not breach FET.321 Such a margin of change is contested on grounds of, among others, lack of support in the text of the ECT322 and inconsistency with the purposes of specific guarantees and of FET generally.323 Where a benefit has been lawfully granted, any amendment to the benefit should be necessary and proportionate to the aim of the amendment.324 Relatedly, changes resulting under ‘certain circumstances in disadvantages’ to an Investor have been held to be insufficient to breach FET under Article 10(1) 2nd Sentence.325 Article 10(1) 2nd Sentence entitles an Investor ‘to expect’ that a regulatory regime in reliance upon which an Investment is made is ‘not drastically and abruptly’ revised, in a value-destructive manner.326 Hence, it is not necessary to establish that an Investment has been ‘obliterated’ in order to find a breach of Article 10(1).327 Where a recipient’s commitment of ‘substantial resources’ is made in reliance upon a regime to be amended, due regard should be had to the recipient’s ‘reasonable reliance interests’.328 FET under Article 10(1) is breached if a reasonably relied upon representation is ‘repudiated’ by a Contracting Party.329 Various ECT arbitral tribunals have analysed whether conduct of a Contract- 10.37 ing Party in connection with the enactment, interpretation and application of the internal law of a Contracting Party constitutes a breach of Article 10(1), 320 321 322 323 324 325 326 327

328 329

Antaris, para 360(7) (‘the regulatory framework relied upon by the investor at the time of its investment’). Ibid. (‘the host State’s normal regulatory power in the pursuance of a public interest’). Antaris, Dissenting Opinion, para 42. Ibid., para 52. Blusun, para 319(5). AES & Tau, para 279 (referring to ‘the guarantee of ‘stability’ provided under the FET standard’ in the ECT). Eiser, para 387. Novenergia II, para 694 (‘the actions of the Respondent need not have obliterated the Claimant's investment entirely in order […] to consider that the Respondent has breached the FET […] [d]estruction of the value of the investment is clearly determinative in the assessment of whether a state has breached Article 13 of the ECT, but it is but one of several factors to consider when determining whether a state has breached Article 10(1) of the ECT’). Blusun, para 319(5). Antaris, para 360(3)(c).

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outside the context of a claim relying on a legitimate expectation. As for conduct of various state organs, in particular judicial, a mere error in the application of a Contracting Party’s law is not constitutive of a breach of Article 10(1) 2nd Sentence;330 an ECT arbitral tribunal is not ‘an appeal body’ called upon ‘to correct errors, if any, […] committed by the host states’ national courts’.331 The Petrobart tribunal found that conduct of state organs in connection with domestic court proceedings amounted to a breach of FET under Article 10(1) 2nd Sentence, although not to expropriation.332 As for the conduct of legislative organs, the content of the legislative measure has a bearing on a determination of breach of Article 10(1). This is illustrated by legislative taxation measures. The enactment of a tax law is presumed to be bona fide.333 To rebut this presumption is a ‘high’ onus probandi, which falls on a claimant.334 ECT arbitral tribunal lacks jurisdiction over measures covered by the carve-out in Article 21(1).335 A taxation measure in the form of a law falls within the scope of the carve-out in Article 21(1), in principle.336 A definitive determination of whether a tax law is covered by the carve-out in Article 21(1) depends on whether it is ‘truly’ a taxation measure. Such a determination is based on the bona fide criterion.337 In application of the bona fide criterion, the Novenergia II tribunal held that the onus probandi regarding an alleged breach of Article 10(1) by the enactment of a tax law is met not merely by proving that a general revenue raising purpose did not exist, but by showing that a different purpose existed;338 that different purpose must be a mala fide purpose.339 The Antin tribunal has not required that a mala fide purpose be proved. The Antin tribunal has held, instead, that a measure is not bona fide if it constitutes an abuse of a Contracting Party’s rights under the

330 331 332 333

334 335 336

337

338 339

LCO, paras 274, 279. Ibid., para 325. August Reinisch, ‘Expropriation’ in Muchlinski, Ortino, Schreuer (2008) 726, 764. Novenergia II, paras 521, 524 n 380 (‘the starting point, or the assumption, should always be that the taxation measure was in fact adopted in good faith’ and observing that ‘[i]t is not easy to overthrow the presumption that a tax measure introduced by a state is enacted bona fide ’). Novenergia II, para 523 nn 381–2 (citing RosInvestCo, para 580, and Yukos, para 1407, in support of the proposition that ‘the evidentiary threshold incumbent on the Claimant is high’). Novenergia II, paras 519, 525. Ibid., para 519 (‘a tax of the domestic law of a Contracting Party’ under ‘Article 21, section (7)(a)(i) […] is indeed a taxation measure in its nature, which on its face is subject to the carve-out from the protection of the ECT’). Ibid., para 520 nn 738–9 (citing RosInvestCo UK Ltd v. Russian Federation (SCC 79/2005), Final Award, 12 September 2010 (RosInvestCo), para 628, and, Renta 4 SVSA, Ahorro Corporación Emergentes FI, Ahorro Corporación Eurofondo FI, Rovime Inversiones SICAV SA, Orgor de Valores SICAV SA, GBI 9000 SICAV SA v. Russian Federation (SCC 24/2007), Award, 20 July 2012 (Renta), para 179, and quoting Yukos, para 1407, and stating that ‘[t]he bona fide criterion has been considered and confirmed by several arbitral tribunals’). Novenergia II, para 521. Ibid., para 521 (namely, that ‘a different purpose, i.e. that the measure therefore was enacted mala fide ’).

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ECT.340 For the Novenergia II tribunal, the mala fide element derives from the fact that ECT arbitral tribunals have accepted ‘substantial deprivation’ resulting from enforcement of a tax law,341 and ‘contrasted’ bona fide measures with egregious measures.342 Hence, according to the Novenergia II tribunal, where conduct of a Contracting Party falls ‘short of extreme actions’, there are no ‘viable mala fide grounds’.343 Where a plurality of claims are made and forms of relief are sought in 10.38 connection with the same set of conducts of a Contracting Party, giving rise to potential overlaps among the claims and prayers of relief, various ECT arbitral tribunals have addressed whether and to what extent it is necessary to decide all such claims and prayers for relief, and whether and to what extent departures from the structure set out in the disputing parties’ pleadings is possible. According to the Stati tribunal, a declaration that FET under Article 10(1) 2nd Sentence has been breached does not necessarily preclude a general declaration that the ECT has been otherwise breached, had such declaratory relief been sought.344 Hence, declaratory relief may be granted regarding each of a plurality of ECT provisions, even where the breach of only one ECT provision fully justifies the tribunal’s award of damages. By contrast, a plurality of awards of compensation is unnecessary, where the entire damage is awarded for one breach only.345 This appeared to leave room for an analysis of the merits of the breaches for which no compensation was to be awarded. The Stati tribunal considered that, when an Investor’s claim of breach of FET under Article 10(1) 2nd Sentence prevails, and the conduct breaching FET also serves as the basis for a claim of breach of another obligation under the ECT, the latter claim is analysed only if any further relief sought is ‘not 340

341

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343 344 345

Antin, para 317 (whether a Contracting Party’s measure is ‘adopted […] with the precise aim of abusing its rights […] to curtail the investors’ alleged rights […], in a manner that abusively sought to employ the taxation exclusion’). Novenergia II, para 522 n 381 (quoting a statement in RosInvestCo, para 580, in its statement that ‘the evidentiary threshold incumbent on the Claimant is high since “[s]tates have a wide latitude in imposing and enforcing taxation law, even if resulting in substantial deprivation”’). Ibid., n 382 (further stating that the equivalence between a ‘different’ and a ‘mala fide ’ purpose ‘is supported by the fact that the arbitral tribunals in the Yukos and RosInvestCo cases contrasted the bona fide measures with measures taken for the purposes of destroying a party or political adversary’). Ibid., para 524. Stati, paras 1202, 1203 (‘Regarding the first relief sought […], a declaration that the Respondent has violated the ECT is possible already after a breach of the FET obligation has been found by the Tribunal’). Ibid., paras 1202, 1204 (‘Regarding the second relief sought […], if such damages are granted on the basis of one particular ECT provision, there is no need for the Tribunal to examine further whether the same relief would also have to be granted on the basis of another ECT provision’). But see Abba Kolo and Thomas Wälde, ‘Economic Crises, Capital Transfer Restrictions and Investor Protection under Modern Investment Treaties’ (2008) 3(2) Capital Markets Law Journal 154, 182 (arguing, in relation to ECT Art 14 and investment treaties generally, that ‘each separate treaty obligation […] involves an equally separate determination of compensation […] tribunals (and claimants) must carry out a separate remedy analysis for each claim’ and ‘avoid over-recovery […] when determining the overall remedy’).

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covered by the FET breach.’346 Ultimately, the Stati tribunal not only abstained from determining whether compensation was due, but also decided that it was not necessary to analyse whether a breach of any of the ECT provisions invoked in addition to the FET provision in Article 10(1) had also been ‘shown’,347 or whether the ‘taking’ caused by a breach of the Article 10(1) FET standard had also resulted from a breach of Article 13.348 10.39 Various arbitral tribunals, including ECT arbitral tribunals, have grounded their decisions in disputes involving a plurality of claims and prayers of relief in the aforementioned circumstances on ‘considerations of economy’. Such considerations have been relied upon by ECT arbitral tribunals in relation to standards of treatment other than FET.349 By virtue of ‘considerations of economy’, as put by the Eiser tribunal, it is unnecessary to address ‘issues extraneous to those essential to its decision’.350 The Eiser tribunal established that the Article 10(1) 2nd Sentence FET standard provided ‘the most appropriate legal context for assessing the complex factual situation presented’ before it. The Eiser tribunal stated that a ‘decision of the remaining claims would not alter the outcome or affect the damages to which Claimants are entitled’. The Eiser tribunal reasoned that its decision regarding the claim of breach of FET under Article 10(1) 2nd Sentence ‘fully resolves Claimants’ claim’.351 Accordingly, in its analysis of the merits, the Eiser tribunal abstained from addressing claims in its analysis of the merits claims advanced under the Third Sentence, Second Clause, and the Fifth Sentence of Article 10(1), and under Article 13.352 The Eiser tribunal clarified that, where there is an overlap between FET claims and claims based on other provisions, no analysis of the plurality of claims is needed with respect to both merits and compensation.353 The above considerations of economy may be relevant where a decision concerns conduct concurrently breaching the ECT and another treaty.354 If 346 347 348 349 350

351 352 353 354

Stati, paras 1205 (Art 13), 1231, 1232 (Art 10(12)), 1255, 1256 (Art 10(1) 3rd Sentence 1st Clause), 1281, 1282 (Art 10(1) 3rd Sentence 2nd Clause), 1314, 1315 (Art 10(1) 5th Sentence), 1322, 1323 (Art 11(2)). Ibid., paras 1257 (Art 10(1) 3rd Sentence 1st Clause), 1283 (Art 10(1) 3rd Sentence 2nd Clause), 1314, 1315 (Art 10(1) 5th Sentence), 1322, 1323 (Art 11(2)). Ibid., para 1207. Masdar, para 667 (quoting Eiser, para 354). See also Heiskanen (2008) 92 (discussing Nykomb.) Eiser, paras 353–356 (referring to considerations ‘both jurisprudential and financial’ and citing SGS Société Générale v. Paraguay and Micula v. Romania.); Energoalliance, paras 348, 366; Novenergia II, para 713 (‘[u]nder the rationale of procedural economy […] an arbitral tribunal does not need to address claims and issues that are already implied in those that are essential to its decision’). See also Ronald S Lauder v. The Czech Republic, Award, 3 September 2001 (Lauder), paras 193, 195; Saluka, paras 252–265. Heiskanen (2008) 92. Eiser, para 353. Ibid., paras 352, 356. Ibid., paras 352, 356. Where conduct is claimed to concurrently breach provisions of the ECT and of another treaty applicable to the same relation between the parties to a dispute, an award of compensation for a breach of the latter

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the primary, non-ECT, claim prevails, the ECT claim is dismissed.355 They may also be relevant where a claim involves the determination of whether FET as set out in a Contracting Party’s foreign investment law has been breached.356 It has been suggested that considerations of economy are grounded on the principle iura novit curia, presupposing an equivalence between arbitral and judicial dispute settlement.357 Relatedly, while a tribunal’s choice to base its award on a single ground may be ‘pragmatic’, it has been suggested that decisions based on considerations of economy may involve risks at the enforcement stage, in particular the possibility that the award be set aside in its entirety. Such risks raise issues as to the appropriateness of a judicial decision-making method in arbitrations.358 3. Article 10(1) Third Sentence and the Obligations of most constant protection and security and non-impairment by unreasonable or discriminatory measures

Article 10(1) Third Sentence (3rd Sentence) is composed of two clauses and 10.40 sets out rules governing a Contracting Party’s obligations concerning Investments of Investors of any other Contracting Parties.359 According to the Plama tribunal, Article 10(1) 3rd Sentence ‘links’ the remainder of Article

355 356

357 358 359

implies that ‘[t]he Claimant has been deprived of nothing by the dismissal of its alternative ECT Claim’. HEP, para 580. See also Sumio Kozawa, ‘Depoliticization of International Dispute Settlement: A Comparison of the Dispute Settlement Provisions of the WTO and the Energy Charter Treaty’ (2002) 3(5) The Journal of World Investment & Trade 793, 815 (noting that under Art 10(1) a tribunal ‘may apply non-ECT treaties’). HEP, para 602 (ECT claims were dismissed not for being ‘untenable, but because they were pleaded in the alternative to the primary and ultimately successful claims under the’ other treaty). AES & Tau, para 259 (the tribunal did ‘not consider it necessary to determine whether the standards under […] the FET principle’ and the respondent’s foreign investment law were ‘actually different’, since ‘changes in legislation effected and implemented […] were not of a nature to breach either of these two standards’). Masdar, para 668 (referring to ‘[t]he principle of judicial economy’). See also Heiskanen (2008) 97–8 (citing Nykomb and Petrobart as instances of such an approach). Wälde and Hobér (2005) 96 n 43 (arguing, by reference to the enforcement of the Metalclad award, for ‘the practical wisdom of resting an award not only on one particular claim’). ‘Such Investments’ under Art 10(1) Third and Fourth Sentences refer to the same category of ‘Investment’ as ‘an Investment of Investors of any other Contracting Party’, in Art 10(1) Fifth Sentence. Furthermore, the standards set out in Art 10(1) Third Sentence do not extend to the Making of an Investment. The reference to ‘[s]uch Investments’ in Art 10(1) Third and Fourth Sentences was considered ‘misleading’. During the negotiations of the ECT, it was suggested in the Legal Sub-Group that, since ‘such’ is used in Art 10(1) 1st Sentence, the use of ‘such’ to qualify ‘Investments’ in Art 10(1) Third and Fourth Sentences could be interpreted as extending the standards under Art 10(1) Third and Fourth Sentences to the Making of Investments. This confusion would have called for the inclusion of an Understanding to, or a rephrasing of, Art 10(1) Third and Fourth Sentences in order to ‘create a distinction between the pre- and post-Investment obligations’. Ultimately, none of the suggested avenues for addressing this perceived misleading wording was pursued. See Baltag (2012) 206 n 182.

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10(1) protections to Article 10(1) 1st Sentence and Article 10(1) 2nd Sentence.360 Other tribunals have held similar views.361 10.41 Article 10(1) 3rd Sentence First Clause (1st Clause) sets out a protection and security standard362 and incorporates a Full Protection and Security (FPS) standard.363 Various arbitral tribunals have been divided as to whether the FPS standard is independent from the FET standard,364 primarily based on their interpretations of the relevant treaty provisions.365 As for ECT arbitral tribunals, the Electrabel tribunal held that the FPS standard is ‘distinct’ from the FET standard.366 It has been asserted that this view is preferable.367 In addition to the independence of FPS from FET as a matter of treaty interpretation, it has been argued that the obligations they impose differ in nature:368 while FET consists in a negative obligation,369 FPS comprises a positive obligation.370 Article 10(1) 3rd Sentence 1st Clause comprises the ‘obligation to take reasonable steps’ for the protection of Investors against conduct ‘by third parties and/or state actors’.371 Article 10(1) 3rd Sentence 1st Clause includes ‘an obligation actively to create a framework that grants security’.372 A breach of Article 10(1) 3rd Sentence 1st Clause may not lead to an award of damages in addition to those accorded for a breach of FET under

360 361 362 363 364 365

366 367 368 369 370 371

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Plama, para 172. The reference to conditions does not imply that the application of the rules set out in each sentence of Art 10(1) is conditional. Happ (2015) 249 para 29. Electrabel Jurisdiction, Applicable Law and Liability, para 7.80 (referring to Art 10(1) 3rd Sentence as ‘[t]he second part of Article 10(1)’). Hobér, Menaker, Slooten Walsh (2008) 267. Electrabel Jurisdiction, Applicable Law and Liability, para 7.80. See also Schreuer (2008) 66. Roland Kläger, ‘Fair and Equitable Treatment’ in International Investment Law (Cambridge University Press 2011) 290–91. Wena Hotels Ltd v. Arab Republic of Egypt, Award on the Merits of 8 December 2000, ICSID Case No. ARB/98/4 (Wena Hotels), paras 84–95; Occidental, para 187; Azurix, para 407. See also Schreuer (2008) 66–8. Electrabel Jurisdiction, Applicable Law and Liability, para 7.80 (‘The FET standard and this FPS standard are two distinct standards of protection under the ECT’). Schreuer (2008) 68. Ibid. Ibid. Ibid. AES, paras 13.3.2, 13.3.3 (specifically, ‘to protect its investors (or to enable its investors to protect themselves)’). Some arbitral tribunals have required evidence that a respondent state has actively provided support to third parties. See Técnicas Medioambientales TECMED SA v. The United Mexican States, Award, 29 May 2003 (TECMED), para 176; Eureko BV v. Poland, Partial Award, 19 August 2005 (Eureko), paras 236–237. See also Schreuer, ibid., n 18 (citing Elettronica Sicula SpA (ELSI) (United States of America v. Italy), Judgment, ICJ Reports 1989, p 15, paras 105–108, among others). Plama, paras 179, 180. Ibid, para 179 n 36 (citing American Manufacturing & Trading v. Republic of Zaire, Award of 21 February 1997, ICSID Case No. ARl93/1, para 28; Wena Hotels Ltd v. Arab Republic of Egypt, para 84; Saluka, para 484).

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Article 10(1) 2nd Sentence.373 The FPS standard, having originally encompassed ‘physical security’ only,374 is deemed to also comprise ‘legal security’,375 as the Plama tribunal held in relation to Article 10(1) 3rd Sentence 1st Clause.376 While Article 10(1) 3rd Sentence 1st Clause may extend beyond ‘physical security’, it does not necessarily protect against the impact of a Contracting Party’s exercise of its right to ‘legislate’ about or ‘regulate’ Investments.377 For instance, if a Contracting Party’s ‘public policy goal’ and implementing measure are reasonable, a negative impact upon an Investment is not necessarily in breach of Article 10(1) 3rd Sentence 1st Clause.378 The FSP standard under Article 10(1) 3rd Sentence 1st Clause is not ‘absolute’ nor does it imply ‘strict liability’.379 If the standard were absolute, any ‘change in law’ would be precluded, as if ‘a non-existent stability agreement’ were in place.380 To the extent that the standard requires the provision of a ‘reasonable measure of prevention’,381 no ‘strict liability’ is imposed.382 Article 10(1) 3rd Sentence Second Clause (2nd Clause) prohibits unreason- 10.42 able or discriminatory measures.383 The term ‘unreasonable’ has been regarded as synonymous with ‘arbitrary’384 and ‘unjustified’.385 The standard contained in Article 10(1) 3rd Sentence 2nd Clause has been referred to by arbitral tribunals under other treaties as the ‘non-impairment’ standard.386 Unreasonable conduct has been addressed by ECT arbitral tribunals. For the Plama tribunal, a measure is unreasonable if it is not based on ‘reason or fact’.387 It

373 374

375 376 377 378 379 380 381 382 383

384 385 386 387

Stati, para 1256 (adding that the former breach ‘leads to no further relief than that resulting from the FET breach’). See Reed and Martinez (2008) 413 n 38 (‘[t]his clause has traditionally been used for claims of violence and civil unrest affecting an investment’, and citing Asian Agricultural Products, Ltd v. Republic of Sri Lanka (ICSID 1991)). Ibid.; Happ (2015) 249–50 para 31. Plama, para 180 (thus becoming ‘closely connected with the notion of fair and equitable treatment’); PSEG, para 258. See also Schreuer (2008) 68. AES, paras 13.3.2, 13.3.3. AES, para 13.3.3. Plama, para 181. Ibid., n 38 (citing Tecmed, para 177; Saluka, para 484); AES, para 13.3.2. AES, para 13.3.5. AES, paras 13.3.2, 13.3.3. See Noble Ventures, para 164. AES ibid. See TECMED, para 177. Hobér, Menaker, Slooten Walsh (2008) 267; Nicole Duclos and Stephen Jagusch, ‘Compensation for the Breach of Relative Standards of Treaty Protection’ (2009) 10(4) The Journal of World Investment & Trade 515, 517–18; Ursula Kriebaum, ‘Arbitrary/Unreasonable or Discriminatory Measures’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 790, 791 para 3. Heiskanen (2008) 89. Schreuer (2008) 69. Heiskanen (2008) 89. Plama, para 184. Ibid., n 40 (citing Lauder, paras 221, 222, 232.). See Lauder, para 232. See also Happ (2015) 250 para 32.

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would, on the contrary, be based on ‘caprice’.388 Discriminatory conduct has also been addressed by ECT arbitral tribunals.389 According to the Plama tribunal, a measure is discriminatory if no ‘reasonable or justifiable grounds’ are set out in support of the differential treatment in which the measure consists.390 For the Nykomb tribunal, a comparison of ‘like with like’ may be involved.391 Where a differential measure affects one among a set of comparable companies, a Contracting Party implementing the differential measure must establish that no discrimination took place, and thus bears the onus probandi.392 There are various positions regarding the relations between the prohibition of unreasonable or discriminatory conduct set out in Article 10(1) 3rd Sentence 2nd Clause and other standards, in particular FET. As noted by the AMTO tribunal, conduct which breaches Article 10(1) 3rd Sentence 2nd Clause may also breach FET and the minimum standard.393 Article 10(1) 3rd Sentence 2nd Clause and FET may overlap,394 which arguably renders a distinction between these two standards difficult.395 As pointed out by the Plama tribunal, to the extent that rationality is an element in common between the Article 10(1) 3rd Sentence 2nd Clause prohibition and the FET standard, there is a ‘strong correlation’ between them.396 An overlap with FET may be found to exist where a treaty does not include a separate provision on arbitrary and discriminatory conduct, as exemplified, most prominently, by the NAFTA.397 In particular, various NAFTA arbitral tribunals have considered arbitrariness as an element of the FET standard under NAFTA Article 1105(1).398 An overlap with FET may be found to occur even where a separate 388 389

390 391

392

393 394 395 396 397 398

Plama, ibid. Various arbitral tribunals constituted under other treaties have addressed issues related to discriminatory conduct not dealt with by known decisions of ECT arbitral tribunals. For instance, various arbitral tribunals have addressed whether intent is required to breach the prohibition of discriminatory conduct. See SD Myers v. Canada, Award on Liability, 13 November 2000, 8 ICSID Reports 18 (SD Myers), para 254; LG&E, paras 146–147; Siemens, para 321. See also Schreuer (2008) 76 n 45. That ECT arbitral tribunals have not dealt with the question of intent is due to the absence of this requirement under the ECT. Reed and Martinez (2008) 411. Plama, para 184. Ibid., n 41. See F. Ortino, ‘Non-Discriminatory Treatment in Investment Disputes’ in Dupuy, Francioni, Petersmann (2009) 344 [Ortino (2009)] 354 n 27. See also Saluka, para 313. Nykomb, 34. See Saluka, paras 314–323; Occidental, para 176. See also William W. Park, ‘Selected Standards of Treatment Available under the Energy Charter Treaty, Part III – Tax arbitration and investor protection’ in Coop and Ribeiro (2008) 115, 142; Reed and Martinez (2008) 412; Schreuer (2008) 76 n 44. Nykomb, ibid. Andrea K. Bjorklund, ‘National Treatment’ in Reinisch (2008) 29 [Bjorklund (2008)] 57 (the Nykomb tribunal ‘also endorsed a burden-shifting approach’, like the tribunal in Feldman v. United Mexican States, ICSID ARB(AF)/99/1, Award, 16 December 2002, para 177). AMTO, para 74. Hobér, Menaker, Slooten Walsh (2008) 267; Reed and Martinez (2008) 411. Schreuer (2008) 69. Plama, para 183. Ibid., n 39 (citing Saluka, para 460). Schreuer (2008) 70. SD Myers, para 263; Pope & Talbot v. Canada, Award in Respect of Damages, 31 May 2002 (Pope & Talbot), paras 63–64; Mondev Intl Ltd v. United States of America, Award, 11 October 2002 (Mondev), para 127; ADF Group Inc v. United States of America, Award, 9 January 2003 (ADF), paras 188, 191; Loewen Group Inc and

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treaty provision on arbitrary and discriminatory conduct exists. Various arbitral tribunals have represented such separate treaty provisions as being part of,399 having the same content as,400 or necessarily involving a breach401 of the FET standard.402 As for ECT arbitral tribunals, this position has found some support.403 Similarly, the Stati tribunal, for instance, held that a breach of Article 10(1) 3rd Sentence 2nd Clause may not necessarily lead to an award of damages in addition to those accorded for a breach of FET under Article 10(1) 2nd Sentence.404 Accordingly, a decision on a claim of breach of Article 10(1) 3rd Sentence 2nd Clause may not be required in these circumstances.405 The position whereby the prohibition of arbitrary and discriminatory conduct is held to be independent from the FET standard, in spite of a certain degree of overlap, has been asserted on grounds of treaty interpretation.406 Various arbitral tribunals have applied the prohibition of arbitrary and discriminatory separately from the FET standard,407 and even explicitly examine circumstances in which a breach of one of these standards does not imply a breach of the other.408 This position also enjoys support among ECT arbitral tribunals. In particular, the Plama tribunal addressed the position of arbitral tribunals which, in its view, had practically merged provisions on arbitrary and discriminatory conduct with the FET standard,409 including where treaties lacking a separate provision on reasonableness are applied.410 The Plama tribunal held that, notwithstanding their apparent degree of overlap, the prohibition of arbitrary and discriminatory conduct may be ‘defined separately’ from the FET standard.411

399 400 401 402 403

404 405 406 407

408 409 410 411

Raymond L Loewen v. United States of America, Award, 26 June 2003 (Loewen), paras 131–133; Waste Management, Inc v. United Mexican States, Award, 30 April 2004 (Waste Management), para 98. See also Schreuer ibid., 70–71. MTD, para 196; Antaris, para 360(11) n 546 (citing Tecmed, para 154, CMS, para 290, and others, and stating that ‘[p]rotection from arbitrary or unreasonable behaviour is subsumed under the FET standard’). Impregilo SpA v. Islamic Republic of Pakistan, Decision on Jurisdiction, 22 April 2005, ICSID Case No. ARB/02/2 (Impregilo), paras 270–271; Saluka, para 460. CMS, para 290; PSEG, para 261. Schreuer (2008) 72–4. Antaris, para 360(12) (citing AMTO, para 74, and stating that ‘[p]rotection from arbitrary or unreasonable behaviour’, which was held to be ‘subsumed’ under FET, ‘also’ falls within non-impairment under Art 10(1)). Stati, para 1256 (adding that the former breach ‘leads to no further relief than that resulting from the FET breach’). Eiser, paras 352, 353. Schreuer (2008) 74. Genin, Eastern Credit Ltd Inc and AS Baltoil v. Republic of Estonia, Award, 25 June 2001 (Genin), paras 367–368; Lauder, paras 214–221, 292–294; Occidental, para 166; Noble Ventures, paras 175–183; Azurix, paras 361, 390–393; Siemens, paras 318–321. Lauder, para 293; LG&E, paras 162–163. Plama, para 184. Ibid., n 39 (most notably by NAFTA tribunals, citing SD Myers, para 263; Waste Management Inc v. United Mexican States, Award, 30 April 2004, ICSID Case No. ARB(AF)/00/3, para 98). Plama, para 184. Ibid., n 39 (citing CMS, para 290; Impregilo, paras 264–270; MTD, para 196). Plama, ibid.

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4. Article 10(1) Fourth Sentence

10.43 Article 10(1) Fourth Sentence (4th Sentence), like Article 10(1) 3rd Sentence, sets out rules governing a Contracting Party’s obligations concerning Investments of Investors of other Contracting Parties.412 The Electrabel tribunal referred to the obligation under Article 10(1) 4th Sentence as an ‘International Law Standard’.413 The Electrabel tribunal further noted that this ‘minimum standard’ was ‘similar’ in content to the ‘other standards expressly mentioned in Article 10(1) ECT, which also exist as standards of protection in customary international law.’414 The Electrabel tribunal concluded that certain conduct not violating FET was not in breach of Article 10(1) 4th Sentence.415 Article 10(1) 4th Sentence may encompass breaches of customary international law. It has been argued that Article 10(1) 4th Sentence would allow claims arising out of treatment less favourable than that required by customary international law, even where no breach of other specific Part III obligation is committed by a Contracting Party.416 Article 10(1) 4th Sentence also comprises breaches of ‘treaty obligations’. Article 10(1) 4th Sentence ‘treaty obligations’ may arise under treaties other than the ECT. Nevertheless, not every obligation relating to a treaty falls within the scope of application of Article 10(1) 4th Sentence. In particular, Article 10(1) 4th Sentence ‘treaty obligations’ appear to be confined to those directly set out in a treaty, to the exclusion of obligations arising under a treaty, but the content of which is set out in instruments external to the treaty, such as decisions of international organizations constituted under the treaty. As set out in a relevant Understanding, the phrase ‘treaty obligations’ does not include ‘decisions taken by international organizations’, among other obligations.417 5. Article 10(1) Fourth Sentence Fifth Sentence as ‘Umbrella Clause’

10.44 Article 10(1) Fifth Sentence (5th Sentence) contains an ‘umbrella clause’.418 In this vein, Article 10(1) 5th Sentence is said to reflect the principle of pacta sunt 412 413 414 415 416 417

418

Supra, n 160. 358. Electrabel Jurisdiction, Applicable Law and Liability, para 7.155. Ibid., para 7.158 (referring to ‘the development of investment protection in treaty law and customary international law’). Ibid., para 7.159. Roe, Happold, Dingemans (2011) 118. It also excludes ‘treaties entered into force before 1 January 1970’. See Gazzini (2007) 700 n 56; Hobér, Menaker, Slooten Walsh (2008) 269; Happold and Roe (2012) 86 (the Understanding excludes ‘EU regulations or directives’). AMTO, para 73; Al-Bahloul Jurisdiction and Liability, para 256; Khan Merits, paras 295, 366; EDF Decision on Annulment, para 3.2.2 (‘[t]he last sentence of Art 10(1) ECT unquestionably constitutes an umbrella clause’). See also Wälde (1996) 454–5; Wälde and Hobér (2005) 92; Konoplyanik and Wälde (2006) 534–5 (referring to the ‘obligation to observe (contractual) obligations’); Lorenzo Cotula, ‘Stabilization Clauses and the Evolution of Environmental Standards in Foreign Investment Contracts’ (2007) 17(7) Yearbook of International Environmental Law 111, 125 n 56 (discussing stabilization clauses); Axel Weissenfels,

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servanda.419 The scope of Article 10(1) 5th Sentence is ‘wide’.420 Article 10(1) 5th Sentence applies to obligations owed to either an Investor or an Investment of an Investor.421 The use of ‘any’ in Article 10(1) 5th Sentence implies that the ordinary meaning of ‘obligation’ comprises an obligation ‘regardless of its nature’, namely ‘whether it be contractual or statutory’.422 For the Al-Bahloul tribunal, the existence of ‘a prima facie breach of contract’ and the respondent’s failure to meet its onus probandi sufficed to find a breach of Article 10(1) 5th Sentence.423 The scope of Article 10(1) 5th Sentence is not limited to the content of the obligation, unlike other international investment agreements, which confine their umbrella clause to obligations ‘entered into with regard to investments’.424 Even an interpretation of ‘entered into’, whereby the scope of Article 10(1) 5th Sentence is confined to ‘consensual obligations’ as opposed to statutory, would comprise ‘contractual obligations’.425 Annex 1A, while excluding from investor-state arbitration conduct

419

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‘Independent BIT Standard or Mere Affirmative Commitment?’ (2007) 10(1) Austrian Review of International and European Law 95, 95 n 1 (‘[t]he umbrella clause (also labelled pacta sunt servanda clause, mirror effect clause, observation of commitments clause, observance of undertakings clause or sanctity of contract clause) is a provision that appears in a large number of today's BITs’); Anatole Boute, ‘Improving the Climate for European Investments in the Russian Electricity Production Sector: (I) the Role of Investment Protection Law’ (2008) 26(2) Journal of Energy and Natural Resources Law 267 [Boute (2008)] 293 (referring to the ‘sanctity of contracts clause’); Kaj Hobér, ‘State Responsibility and Attribution’ in Muchlinski, Ortino, Schreuer (2008) 960, 992; Hobér, Menaker, Slooten Walsh (2008) 267; Jean-Christophe Honlet and Guillaume Borg, ‘The Decision of the ICSID Ad Hoc Committee in CMS v. Argentina Regarding the Conditions of Application of an Umbrella Clause: SGS v. Philippines Revisited’ (2008) 7(1) The Law & Practice of International Courts and Tribunals 1, 3 n 7; Schreuer (2008) 64; Reed and Martinez (2008) 413; Subedi (2008) 105; Tudor (2008) 193 n 49 (referring to Art 10(1) as one among various ‘clauses’ having an ‘elevating, mirror or parallel effect’); Roe, Happold, Dingemans (2011) 16; Alexander J Belohlávek and Filip Cerný, ‘Law Applicable to Claims Asserted in International Investment Disputes’ (2012) 54(6) International Journal of Law and Management 443 n 9; Happ (2015) 251 para 34; Mavluda Sattorova, ‘Investor Rights under EU Law and International Investment Law’ (2016) 17(6) The Journal of World Investment & Trade 895, 907. Wälde (1995) 361; Tucker (1998) 523 (arguing that ‘[t]o the extent that this provision merely encapsulates the doctrine of pacta sunt servanda it arguably does not extend the host state’s existing obligations under customary international law’); Thomas W. Wälde, ‘The ‘Umbrella’ Clause in Investment Arbitration: A Comment on Original Intentions and Recent Cases’ (2005) 6(2) The Journal of World Investment & Trade 183 [Wälde (2005)] 203 (referring to the ‘Abschinnungsklausel ’); Konoplyanik and Wälde (2006) 535. Plama, para 186. See also Wälde (2005) 203; Sheng Zhang, ‘The Energy Charter Treaty and China: Member or Bystander?’ (2012) 13 The Journal of World Investment & Trade 597 [Zhang (2012)] 614 (‘the coverage of the ‘umbrella clause’ also goes beyond Chinese BITs practice’). AMTO, para 73; supra, n 160. 358 Plama, para 186. Ibid., n 42 (citing Enron, para 274); Khan Jurisdiction, para 438 (relying on ‘the ordinary meaning of the term “any”’ and the respondent’s failure to submit ‘arguments or authorities to the contrary’). See also Tucker (1998) 523; Priscilla M.F. Leung and Guiguo Wang, ‘State Contracts in the Globalized World’ (2006) 7(6) The Journal of World Investment & Trade 829 [Leung and Wang (2006)] 853; Boute (2008) 293 (‘unilateral commitments’ are included). Al-Bahloul Jurisdiction and Liability, paras 265–266 (namely the respondent’s ‘burden to rebut such a prima facie breach of obligation’). Leung and Wang (2006) 853; Zhang (2012) 614 n 87 (citing Art 10(2) of the China/Germany BIT). Plama, para 186. Ibid., n 43 (citing CMS v. Argentina, Annulment Decision of 25 September 2007, para 95; Impregilo, paras 214–216.). See also Happ (2015) 252 para 35.

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in breach of contract-based obligations under Article 10(1) 5th Sentence, does not preclude claims arising out of the same conduct, if constitutive of breaches of other Part III obligations.426 The applicability of Article 10(1) 5th Sentence to ‘contractual obligations’ does not mean that Article 10(1) 5th Sentence may be breached by any conduct of organs or entities of a Contracting Party entering into such contractual obligations. It has been pointed out that a ‘wide interpretation of the umbrella clause’ under Article 10(1) 5th Sentence, read with Article 22(1), could lead to a host state’s responsibility for ‘a wide range of actions or omissions of state enterprises’ in connection with the ‘sales of goods and delivery of services’.427 While arguably going beyond other international investment agreements with respect to the consequences of conduct of ‘subnational’ entities,428 Article 22(1) does not provide for vicarious responsibility.429 The interactions of an umbrella clause with other standards of treatment, particularly the FET standard, have been addressed in scholarship and decisions of arbitral tribunals.430 Some tribunals have held that, in general, a provision containing the FET standard may apply to contractual obligations431 and contract claims,432 and found that conduct in breach of obligations under,433 or in connection with the performance of,434 a contract amounted to a breach of the FET standard. Some tribunals, on the contrary, have held that a breach which does not amount to ‘an outright and unjustified repudiation’ of a contract,435 nor involves the exercise of the respondent state’s ‘puissance publique’,436 does not constitute a breach of the FET standard. As for ECT tribunals, the Eiser tribunal considered that a decision on a claim of breach of Article 10(1) 5th Sentence was not necessary, given that the

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Wälde (1996) 456. Hobér, Menaker, Slooten Walsh (2008) 268; Wälde and Wouters (1996) 174; Happ (2015) 252 para 35. Anna Turinov, ‘“Investment” and “Investor” in Energy Charter Treaty Arbitration: Uncertain Jurisdiction’ (2009) 26(1) Journal of International Arbitration 1, 4. Tucker (1998) 524; Hobér, Menaker, Slooten Walsh (2008) 268. EDF Decision on Annulment, para 3.5.3.1 (holding that the umbrella clause in Art 10(1) is independent from FET). Questions as to both treaty-based standards of treatment and customary international law have been discussed. Wälde (2003) 183. Noble Ventures, para 182. See also Schreuer (2008) 91–2. Mondev, para 134. See also Schreuer, ibid., 90. SGS v Philippines, Decision on Jurisdiction, 29 January 2004 (SGS), para 162. See also Schreuer, ibid., 90–91. Iurii Bogdanov, Agurdino-Invest Ltd and Agurdino-Chimia JSC v. Republic of Moldova, Award, 22 September 2005 (Bogdanov) 17. See also Schreuer, ibid., 91. Waste Management, para 115. See also Schreuer, ibid., 92 n 99. Impregilo, paras 266–270. See also Schreuer, ibid., 93 (critiquing the reliance on the criterion of use of ‘puissance publique ’ by the Impregilo tribunal, since ‘an action that abrogates a contract through an act of puissance publique would probably more accurately be described as an expropriation’); Anthony Sinclair, ‘Umbrella Clause’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 887 [Sinclair (2015)] 943 para 160 (arguing that the view whereby the ‘umbrella clause should only protect State contracts concluded de iure imperii ’ has no basis on the text of the ECT).

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tribunal’s decision regarding the claim of breach of FET under Article 10(1) 2nd Sentence fully addressed the claims.437 6. Article 10(2)–10(12)

Article 10(2) provides for an obligation to ‘endeavour to accord’ to Investors 10.45 treatment as described in Article 10(3) and with regard to the ‘Making of Investments’ in the Area of a Contracting Party.438 While the enforceability of rights under Article 10(2) through investor-state arbitration under Article 26 is debated,439 other mechanisms which may induce compliance with Article 10(2) are in place under the ECT. For instance, Contracting Parties’ measures not in conformity with Article 10(2) obligations are recorded in a register regularly reviewed by the ‘Investment Group’, a subsidiary organ of the Energy Charter Conference.440 This review is conducted alongside the Investment Group’s country reviews of investment climate and restructuring of energy markets.441 Article 10(3) sets out the meaning of treatment for the purposes of Article 10. 10.46 Such treatment is to be ‘no less favourable’ than that accorded to a Contracting Party’s own Investors or of any third party. Furthermore, such treatment is to be ‘whichever is the most favourable’. Article 10(4) provides for a supplementary treaty. The Article 10(4) supple- 10.47 mentary treaty is intended to set out an obligation to accord treatment to Investors regarding their Making of Investments in a Contracting Party’s area, as described in Article 10(3), and to lay down the conditions for its fulfilment.442 A set of understandings and statements were issued in connection with Article 10(4). An Understanding regarding Article 10(4) states that the Article 10(4) supplementary treaty is to specify the conditions for Article 19(3) treatment. Such conditions would include provisions regarding ‘privatisation’ 437 438 439 440

441 442

Supra, para 7. 10.18. Ignacio Gómez-Palacio and Peter Muchlinski, ‘Admission and Establishment’ in Muchlinski, Ortino, Schreuer (2008) 434 [Gómez-Palacio and Muchlinski (2008)] 447. Roe, Happold, Dingemans (2011) 190 n 17 (‘Article 10(2) does not give rise to any rights enforceable by Investors’). Contra Wälde and Ben Hamida (2008) 180. The ECT established the Energy Charter Conference (Conference) in Art 34, and, the Energy Charter Secretariat, in Art 35. The Conference, in turn, set up various subsidiary organs, including the Investment Group. Energy Charter Secretariat, The Blue Book: Making Investments in Energy Charter Member Countries: Exceptions to the Principle of Non-discriminatory Treatment (Energy Charter Secretariat, 2009); Roe, Happold, Dingemans (2011) 24. Ibid., 23. A.F.M. Maniruzzaman, ‘Towards Regional Energy Co-operation in the Asia—Pacific: Some Lessons from the Energy Charter Treaty’ (2002) 3(6) The Journal of World Investment & Trade 1061 [Maniruzzaman (2002)] 1087; Acconci (2008) 667; Amarasinha and Kokott (2008) 315 n 87; Gómez-Palacio and Muchlinski (2008) 447.

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and ‘demonopolisation’. Connections, if any, between Articles 10(4) and 29(6) could be considered, according to another Understanding. According to a Chairman’s Statement, negotiations regarding the Article 10(4) supplementary treaty should have achieved consistency, in light of the Uruguay Round, among others. Negotiations for the Article 10(4) supplementary treaty were to be commenced in 1995 and concluded in 1998.443 A draft has been prepared. The draft covers establishment,444 among other matters. Nevertheless, the Article 10(4) supplementary treaty has not been concluded.445 10.48 Article 10(5) sets out obligations regarding the Making of Investments in an Area.446 Article 10(5)(a) provides for an obligation to ‘endeavour’ to ‘limit to the minimum’ exceptions to Article 10(3) treatment.447 Article 10(5)(b) provides for an obligation to ‘endeavour’ to ‘progressively remove’ restrictions which affect Investors.448 The obligations under Article 10(5) have been described as being of ‘best efforts’, by contrast to the obligations of ‘result’ contained in other parts of Article 10.449 The distinction between obligations of ‘means’ and ‘result’, nevertheless, was rejected in the ASR.450 The distinction would, in any case, not differentiate the obligations under Articles 10(5) from those under the other parts of Article 10: the use of the verbs ‘accord’ and ‘observe’ does not convey necessarily a commitment to achieve a ‘result’. Article 10(5) obligations are often regarded as providing for a ‘soft’ regime, applicable to the ‘pre-investment’ phase, as opposed to the ‘hard’ regime governing the ‘post-investment’ phase.451 The obligations under Article 10(5) 443

444 445 446 447 448 449 450

451

Gómez-Palacio and Muchlinski, ibid. (‘negotiations began in 1995’ and ‘were suspended in 2002, pending the outcome of discussions over a multilateral framework on investment in the WTO, but have not been resumed’). Ibid. Shan (2005) 285 n 71; Konoplyanik and Wälde (2006) 533; Wälde and Ben Hamida (2008) 164 n 14; Roe, Happold, Dingemans (2011) 16. Roe, Happold, Dingemans, ibid., 106. Gómez-Palacio and Muchlinski (2008) 447 (‘Article 10(5) introduces a “standstill” on new restrictions’). Ibid. (‘Article 10(5) introduces […] “rollback”’). Wälde and Ben Hamida (2008) 179; Baltag (2012) 207. James Crawford, State Responsibility: The General Part (Cambridge University Press 2013) 224. But see Roe, Happold, Dingemans (2011) 98 (‘Part III ECT contains obligations of results rather than of conduct or means’). Wälde (1995) 361, 363; Wälde (1996) 454; Wälde and Wouters (1996) 157; Tucker (1998) 518; Kepa Sodupe and Eduardo Benito, ‘Los problemas energéticos en la Unión Europea a la luz del Tratado sobre la Carta de la Energía’ (2000) 16 Anuario de Derecho Internacional 421, 433; Stevenson (2001) 118–19; Maniruzzaman (2002) 1087; Konoplyanik and Wälde (2006) 533; Hobér (2007) 328; Hobér, Menaker, Slooten Walsh (2008) 259; Wälde and Ben Hamida (2008) 160; Thomas W. Wälde, ‘Organization of The Petroleum Exporting Countries’ in Christian Tietje and Alan Brouder (eds), Handbook of Transnational Economic Governance Regimes (Brill 2010) 989, 1005–6; Roe, Happold, Dingemans (2011) 107; Baltag (2012) 207–8; Happold and Roe (2012) 86; Zhang (2012) 605 n 38; Wenhua Shan and Sheng Zhang, ‘Market Access Provisions in the Potential EU Model BIT: Towards a ‘Global BIT 2.0’?’ (2014) 15(4) The Journal of World Investment & Trade 422, 434.

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have been considered not to be ‘merely hortatory’, regardless of the aforementioned controversies as to their character, content and scope.452 An obligation, even if characterized as being of ‘best effort’, remains binding.453 The decision that the Article 10(4) supplementary treaty regulate the Making of Investment,454 including those aspects to which Article 10(5) obligations relate, does not imply that obligations regarding the Making of Investments, as they stand at present, lack binding effect.455 The question is not the character of such obligations as binding, but rather their content and scope.456 The arbitrability of Article 10(5) obligations is a question which has been mainly discussed in scholarship. The position that disputes regarding Article 10(5) obligations may be arbitrable has been advanced in scholarly commentary on ECT investor-state arbitration.457 According to this position, Article 26 allows for the submission to international arbitration, among other dispute settlement procedures, of disputes between an Investor and a Contracting Party ‘relating to an Investment’, provided that the disputes ‘concern an alleged breach’ of a Part III obligation. Article 10(5), among other provisions concerning the Making of Investments, is within Part III. Article 26 did not expressly exclude the Making of Investments,458 nor confined Investment to that which has been ‘made’459 or, like Article 10(11), to that which is ‘existing’.460 The contrary position, whereby disputes regarding Article 10(5) are not arbitrable under Article 26, has found expression in scholarly commentaries on the ECT too.461 This view mainly argues that disputes arising out of alleged breaches of Article 10(5) are not arbitrable under Article 26, since an aggrieved person seeking to invest would not yet be an Investor.462 Nevertheless, Article 1(7), which defines ‘Investor’ under the ECT, does not require that an Investment be made by an entity for it to qualify as an ‘Investor’. ECT arbitral tribunals have not yet addressed the various questions discussed above, regarding the nature and content of Article 10(5) obligations,463 including 452 453 454 455

456 457 458 459 460 461 462 463

Wälde (1995) 361; Wälde and Ben Hamida (2008) 162; Baltag (2012) 208; Zhang (2012) 613. But see Roe, Happold, Dingemans (2011) 16. Wälde and Ben Hamida, ibid., 180. Supra para 10.47. Maniruzzaman (2002) 1087; Wälde and Ben Hamida (2008) 180 (referring to ‘[t]he pre-investment language, in Article 10(1), (2) (6) (5) and Article 18(4)’, and arguing that ‘a legally binding obligation was introduced and maintained, even after the decision to postpone more specific regulation to the Supplementary Treaty’). Wälde and Ben Hamida (2008) 186. Ibid., 180. Ibid., 187. Ibid. (although ‘[t]he French version of the ECT, in contrast with the other versions of the ECT referred to ‘investissement réalisé ’ (investment made)’). Ibid. Roe, Happold, Dingemans (2011) 106–7. Ibid. Konoplyanik and Wälde (2006) 533.

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those concerning the eventual arbitrability of disputes which may arise in connection with alleged breaches thereof. 10.49 Article 10(6) further provides for the rights to make voluntary declarations or commitments regarding the Making of Investments.464 Article 10(6)(a) provides for a right to ‘declare voluntarily’ the intention not to introduce new exceptions to Article 10(3) treatment. Such declaration is to be communicated to the Charter Conference through the Secretariat.465 Article 10(6)(b) provides that a voluntary commitment regarding the Making of Investments in economic activities in the energy sector of an Area of a Contracting Party may be made. Article 10(6)(b) commitments, to be notified to the Secretariat and listed in Annex V, are binding under the ECT. 10.50 Article 10(7) provides for an obligation to accord treatment to Investments of Investors and their related activities.466 Article 10(7) has been considered a ‘complex provision’.467 Article 10(7) ‘contains an obligation of nondiscrimination underlying national and most favoured nation treatment’.468 To the extent that Article 10(7) provides for non-discrimination, it may overlap with the prohibition of discriminatory Article 10(1) 1st Sentence 2nd Clause.469 The scope of application of Article 10(7) differs from that of similar provisions in other international investment agreements.470 Most prominently, Article 10(7), which does not apply to ‘establishment’ and ‘acquisition’,471 due to the ECT primary focus on the protection of established Investments,472 differs in this respect from NAFTA Article 1102(1) NAFTA.473 Article 10(7) has been found to be breached if there is a ‘different treatment’ of an Investor or Investment in comparison to other Investors or 464 465 466

467 468 469 470

471 472 473

Roe, Happold, Dingemans (2011) 106; Gómez-Palacio and Muchlinski (2008) 447. Ibid., 106 n 7 (noting that, as of 2011, no ‘such notification’ had been made). Victor Mosoti, ‘Non-Discrimination and its Dimensions in a Possible WTO Framework Agreement on Investment: Reflections on the Scope and Policy Space for the Development of Poor Economies’ (2003) 4(6) The Journal of World Investment & Trade 1011, 1025 n 50 (noting, in relation to Article 10(7), that it ‘only grants MFN treatment to the investment and not to the investor’). But see Ana Stanicˇ, ‘Doing Business in Uzbekistan: A Guide to its Foreign Investment Framework’ (2003) 4(6) The Journal of World Investment & Trade 1047, 1067 (‘[i]nvestors from a State party to the ECT have, under Part III of the Treaty, the following rights in respect of investments […] to MFN treatment’). See also Ortino (2009) 347. Electrabel Jurisdiction, Applicable Law and Liability, para 7.57 (referring also to Art 10(1)). Ibid. Reed and Martinez (2008) 414. Paul D. Friedland, ‘Selected Standards of Treatment Available under the Energy Charter Treaty, Part II – The Scope of Most Favoured Nation treatment under the Energy Charter Treaty’ in Coop and Ribeiro (2008) 101 [Friedland (2008)] 111 (the ECT MFN clauses do not address whether they apply to dispute settlement). Acconci (2008) 667. Reed and Martinez (2008) 415; Subedi (2008) 70. Herman (1997) 147; Subedi, ibid., 69.

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Investments. The comparison may be made with respect to ‘the generality’.474 Various arbitral tribunals applying the NT standard, including ECT arbitral tribunals, appear to have been divided as to onus probandi aspects.475 Any diverging positions among arbitral tribunals regarding onus probandi of breaches of NT may reflect the lack of a uniform position on the nature of such breaches.476 Treatment is to be no less favourable than the treatment accorded to national or third-state investors and their related activities. Such related activities include the management, maintenance, use, enjoyment or disposal of Investments. Treatment, in accordance with Article 10(7), is to be ‘whichever is the most favourable’.477 Article 25(1) allows for derogations from MFN treatment where preferential treatment under an Economic Integration Agreement is involved.478 Nevertheless, treatment not required by virtue of a derogation from the Article 10(7) MFN obligation under Article 25 may be required under the Article 10(7) NT obligation.479 Article 10(1) and (7) contain the ECT’s National (NT)480 and Most Favoured Nation (MFN)481 standards of treatment, both giving effect to non-discrimination.482 NT and MFN are regarded as ‘relative’ treatment standards.483 In this vein, Article 10(7) differs from the remainder of Part III standards, which are ‘noncontingent’ upon the treatment accorded by a Contracting Party to a national or third-state investor.484 The Article 10(7) MFN standard has been described as indeterminate in content,485 and, unlike other provisions on MFN, does not condition MFN upon ‘like circumstances’.486 Pursuant to a Decision regarding Article 10(7), in the Russian Federation, legislative approval may be required for the leasing of federally owned property. This is subject to Russia’s obligation to ensure that the process is applied in a non-discriminatory manner.

474 475 476 477 478 479 480 481

482 483 484 485 486

AES, para 10.3.53 (‘[d]iscrimination necessarily implies that the state benefited or harmed someone more in comparison with the generality’). Bjorklund (2008) 56. Ibid. (namely, ‘a uniform approach to analysing the existence of a violation’). August Reinisch, ‘National Treatment’ in Bungenberg, Griebel, Hobe, Reinisch (2015) 846, 850 paras 11–12. Roe, Happold, Dingemans (2011) 98–9; Acconci (2008) 667. Ibid., 100. Tietje and Sipiorski (2012) 232–3 (Art 10(1) contains a provision on ‘national treatment of investors’). Andrei V. Belyi, ‘Reciprocity as a Factor of the Energy Investment Regimes in the EU-Russia Energy Relations’ (2009) 2(2) Journal of World Energy Law & Business 117, 119; Ziegler (2012) 245 (the Preamble’s ‘strong affirmation’ of MFN culminates in Art 10). Boute (2008) 293. Wälde and Ben Hamida (2008) 172. Roe, Happold, Dingemans (2011) 16. Acconci (2008) 667 (the ECT ‘the most-favoured-nation clause […] cannot be considered unconditional, although it is reciprocal and indeterminate’). Acconci (2008) 667; Ortino (2009) 354 (like French and German BITs.)

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10.51 Article 10(8) provides that certain modalities of application of Article 10(7) are reserved for regulation by the Article 10(4) supplementary treaty. Article 10(7) application modalities concern programmes for the provision of grants or other financial assistance, or the conclusion of contracts, for energy technology research and development. 10.52 Article 10(9) sets out an obligation to submit a report (Report). The Report, to be submitted to the Secretariat, is to summarize all laws, regulations and other measures relevant to exceptions to Article 10(2) (under Article 10(9)(a))487 and Article 10(8) programmes (under Article 10(9)(b)). With regard to Article 10(9)(a), the Report may designate parts of the energy sector in which Investors are accorded Article 10(3) treatment. With respect to Article 10(9)(b), the Charter Conference may consider in its review effects on competition and Investments. The Report is to be kept up to date and reviewed periodically by the Charter Conference. 10.53 Article 10(10) provides that, notwithstanding any other provision in Article 10, neither Article 10(3) nor Article 10(7) treatment applies to intellectual property.488 Intellectual property treatment is governed by the applicable international agreements.489 In addition, it has been established that Article 10 may exceptionally apply to a tax measure, namely to the institution of a new tax, if this measure is not taken bona fide.490 10.54 Article 10(11) provides that the application of a trade-related measure to an Investment may be in breach of obligations under Part III, subject to Article 5(3) and (4).491 Articles 5(1) and (2) describe Trade-related Investment measures inconsistent with the General Agreement on Tariffs and Trade

487 488 489 490 491

Roe, Happold, Dingemans (2011) 106 (Art 10(9)(a), among others, concerns ‘exceptions to MFN treatment as regards the making of Investments’). Happold and Roe (2012) 88; Friedland (2008) 111. Happold and Roe, ibid. (suggesting that Art 10(7) does not preclude claims of breach of ‘the ‘corresponding provisions of the applicable international agreements’ under the penultimate sentence of Article 10(1)’). RREEF Jurisdiction, para 195 (in the alternative, it may be found that ‘the Respondent cannot avail itself of the exemption provided for in Article 21(1)’). See also Happold and Roe, ibid., 86. A Declaration regarding Arts 5 and 10(11) was issued by Australia. Australia noted that its GATT rights and obligations, including as elaborated in the Uruguay Round and the Agreement on Trade-Related Investment Measures, are not diminished by Arts 5 and 10(11). Australia further noted that interpretation of GATT Arts III and XI by Treaty bodies settling disputes between GATT parties or involving a GATT party’s Investor would be inappropriate. With particular regard to Art 10(11), Australia considered that the issue of an arbitral award is the only issue which can be considered, if the inconsistency of a trade-related measure with the GATT or the Agreement on Trade-Related Investment Measures is first established by a GATT panel or the WTO dispute settlement body.

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(GATT) or, in accordance with the Amendment to the Trade-related Provisions of the ECT, the Agreement Establishing the World Trade Organization (WTO Agreement).492 Article 10(11) incorporates into ECT Part III the obligations under the GATT and WTO rules to which Articles 5(1) and (2) relate.493 Article 10(11) enables the commencement of investor-state arbitration for breaches of rules which can, in principle, only be invoked in inter-state proceedings by WTO member states, within the WTO dispute settlement system.494 Where the ECT Contracting Party is a WTO Member, as is mostly the case at present, an Investor may rely on the WTO Agreement on Trade-Related Investment Measures (TRIMs Agreement),495 among other WTO instruments.496 ECT Article 5(2) reproduces an ‘illustrative list’ of Trade-related Investment measures inconsistent with GATT Articles III and XI annexed to the TRIMs Agreement.497 Pursuant to Article 10(11), Article 5 may only operate with regard to an Investment of an Investor ‘existing’ at the time of the application of the Trade-related Investment measures at issue, among other conditions.498 Article 10(12) sets out an obligation of providing effective claim assertion and 10.55 right enforcement means. Such means relate to Investments and investment agreements and authorisations. While Article 10(12) may be said to partly overlap with FET under Article 10(1), the content of the former is considered more specific than the latter.499 A measure in breach of Article 10(1) obligations may also be in breach of Article 10(12) obligations.500 In particular, the conduct of legislative organs ‘affecting the administration of justice’ may be in breach of the Article 10(12) obligation.501 The ‘rule of law’ provides the basis to determine whether there is an ‘effective means’.502 In this vein, Article 10(12) is described as setting out a standard involving systemic and

492 493 494 495 496 497

498 499 500 501 502

Happold and Roe (2012) 89. Wälde (1995) 365; Happold and Roe, ibid., 89. Happold and Roe, ibid. Ibid; Happ (2015) 250–51, para 33. Happ, ibid. (suggesting that ‘further provisions of the GATT/WTO law […] might be actionable, if their content is investment-related and is directly applicable to the case’). Happold and Roe (2012) 90 (‘such measures can, and frequently are, conditions imposed on persons wishing to make an investment, as well as for obtaining advantages (for example subsidies) once an investment has been made’). Ibid. (adding that ‘for a trade-related investment measure to be inconsistent with the provisions of Articles III or XI GATT it must be related to trade in goods’). Roe, Happold, Dingemans (2011) 131 (quoting AMTO paras 87–88). Petrobart, 77. AMTO, para 75. Ibid., para 87.

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comparative aspects.503 Individual instances of conduct may not breach Article 10(12).504 In this vein, certain practical challenges posed by implementation may be relevant.505

503

504 505

Ibid., para 88 (‘The difficulty is to identify the criteria by which to assess the effectiveness of the legislation and rules […] under Article 10(12) ECT […] ‘effective' is a systematic, comparative, progressive and practical standard’). Ibid. (they may establish ‘systematic inadequacies, but are not themselves a breach of Article 10(12)’). Ibid. (‘it is a practical standard in that […] the application of legislation in certain circumstances, raises particular difficulties which should not be ignored in assessing effectiveness’).

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ARTICLE 11 KEY PERSONNEL Diego Mejía-Lemos

1)

A Contracting Party shall, subject to its laws and regulations relating to the entry, stay and work of natural persons, examine in good faith requests by Investors of another Contracting Party, and key personnel who are employed by such Investors or by Investments of such Investors, to enter and remain temporarily in its Area to engage in activities connected with the making or the development, management, maintenance, use, enjoyment or disposal of relevant Investments, including the provision of advice or key technical services. A Contracting Party shall permit Investors of another Contracting Party which have Investments in its Area, and Investments of such Investors, to employ any key person of the Investor’s or the Investment’s choice regardless of nationality and citizenship provided that such key person has been permitted to enter, stay and work in the Area of the former Contracting Party and that the employment concerned conforms to the terms, conditions and time limits of the permission granted to such key person.

2)

COMMENTARY1 Decisions of arbitral tribunals constituted under the Energy Charter Treaty 11.01 (ECT) directly concerned with Article 11 are scarce. Only one ECT arbitral tribunal has touched on the operation of Article 11.2

1 2

The author is grateful to Ali Al-Khasawneh for his valuable comments on an earlier draft. Anatolie Stati, Gabriel Stati, Ascom Group S.A., Terra Raf Trans Traiding Ltd v. The Republic of Kazakhstan (SCC Arbitration V (116/2010)), Award, 19 December 2013 (Stati).

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11.02 Scholarly literature regarding Article 11 is somewhat scant too.3 11.03 Article 11 sets out obligations of the Contracting Parties arising in connection with ‘key personnel’. Personnel is one among other aspects of foreign direct investment,4 particularly post-admission.5 ‘Key’ is a qualification of personnel which may be found in international instruments relating to foreign direct investment.6 Provisions on employment of key personnel may be found in other international economic law instruments,7 including Free Trade Agreement,8 regional integration agreements,9 and the treaty practice of the

3

4 5

6

7

8

9

Steve Peers, ‘From Cold War to Lukewarm Embrace: The European Union' Agreements with the CIS States’ (1995) 44(4) International & Comparative Law Quarterly 829 [Peers (1995)]; Christian Leathley, International Dispute Resolution in Latin America: An Institutional Overview (Kluwer Law International 2007) [Leathley (2007)]; Rudolf Adlung and Martín Molinuevo, ‘Bilateralism in Services Trade: Is There Fire Behind the (Bit-)Smoke?’ (2008) 11(2) Journal of International Economic Law 365 [Adlung and Molinuevo (2008)]; Angelos Dimopoulos, ‘Shifting the Emphasis from Investment Protection to Liberalization and Development: The EU as a New Global Factor in the Field of Foreign Investment’ (2010) 11(1) The Journal of World Investment & Trade 5 [Dimopoulos (2010)]; Edna Sussman, ‘A Multilateral Energy Sector Investment Treaty: Is it Time For a Call For Adoption by All Nations?’ (2010) 44(3) The International Lawyer 939 [Sussman (2010)]; Thomas Roe, Matthew Happold, James Dingemans, Settlement of Investment Disputes under the Energy Charter Treaty (Cambridge University Press 2011) [Roe, Happold, Dingemans (2011)]; James D. Fry and Juan Ignacio Stampalija, ‘Towards an Agreement on Investment in Mercosur: Conflict and Complementarity of International Investment Law and International Trade-in-Services Law’ (2012) 13(4) The Journal of World Investment & Trade 556 [Fry and Stampalija (2012)]; Christopher Hanewald, ‘The Death of OPEC? The Displacement of Saudi Arabia as the World's Swing Producer and the Futility of an Output Freeze’ (2017) 24(1) Indiana Journal of Global Legal Studies 277 [Hanewald (2017)]. Fry and Stampalija (2012) 571 (observing that ‘[f]oreign direct investment does not only imply transfer of funds from one state to another, but also the transfer of other factors, such as technology and personnel’). Dimopoulos (2010) 6, 10 n 25 (commenting on the EU practice of concluding Economic and Partnership Agreements (EPAs), and noting that ‘provisions on the employment of foreign key personnel are of particular importance, as they cover an important aspect of post-admission operation of foreign investment in a detailed manner that is not found under most BITs’). Dimopoulos (2010) 10 n 26 (noting that ‘the US Model BIT of 2004 contains a provision prohibiting only national measures determining the nationality of natural persons having managerial positions’); Fry and Stampalija (2012) 557, 571 (suggesting that the adoption of a ‘key-personnel provision may help develop the free circulation of workers in Mercosur’ in connection with a commentary on Mercosur’s Common Market Council Decision 30/10 of 16 December 2010, setting out guidelines for concluding an Agreement on Investments in Mercosur). Adlung and Molinuevo (2008) 372 (discussing ‘[i]nvestment liberalization treaties’ and ‘investment protection treaties’, and noting that the former ‘allow for core obligations – such as MFN or national treatment, disciplines on performance requirements and provisions on the movement of key personnel – to be subjected to sector reservations’). Leathley (2007) 30 nn 74, 75 (stating that, under 10.10(2) of the CAFTA-DR FTA, ‘no member state may require that an enterprise of that state (that is an investment of an investor of another member state) appoint to senior management or the board of directors (or its equivalent) individuals of any particular nationality’, and that a host state may be permitted ‘to require a majority of the board of directors (for example) be comprised of individuals of a particular nationality, provided the requirement does not materially impair the ability of the investor to exercise control over its investment’). Leathley (2007) 30 n 76 (referring to ‘provisions […] on the free movement of natural persons’ in Art 38 of the 2001 Revised Treaty of Chaguaramas Establishing the Caribbean Community Including the CARICOM Single Market and Economy (Revised Treaty)).

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European Union (EU) on foreign investment.10 In particular, it has been argued that the qualification of personnel as ‘key’ is a means to balance the interests of an investor in hiring certain foreign personnel and of a host state’s in the creation of employment in its territory.11 Article 11(1) sets out an obligation of examination of requests for the entry 11.04 and stay of ‘key personnel’ in the Contracting Party’s Area.12 The Article 11(1) obligation is ‘subject to’ the ‘laws and regulations relating to 11.05 the entry, stay and work of natural persons’ of a Contracting Party which carries out the examination provided for by Article 11(1). International investment agreements subject the grant of a right to enter, stay and work in the territory of a host state to compliance with the host state’s immigration laws and regulations.13 The ECT, therefore, does not differ from other IIAs in relation to the aforementioned condition set out in Article 11(1). The content of the Article 11(1) obligation may be described by reference to 11.06 treaty practice in the field of treatment of key personnel in addition to the above international economic law instruments, most notably the treaty practice of the European Union (EU) in the form of Partnership and Cooperation Agreements (PCAs), between the EU and former Soviet states, and Europe Agreements (EAs), between the EU and Eastern Europe states.14 The Article 11(1) obligation differs from PCAs with respect to the duration of entry and stay, the manners of its performance and the criteria for characterizing personnel as ‘key’. Article 11(1) provides that the request to be examined is ‘to enter and remain 11.07 temporarily in its Area’. PCAs, by contrast, provide for entry and stay which may be permanent. Article 11(1) provides that an examination is to be performed ‘in good faith’.15 11.08 It has been suggested that the ‘good faith’ performance of Article 11(1) 10

11 12 13 14 15

Dimopoulos (2010) 6, 10 n 25 (commenting on the EU practice of concluding Economic and Partnership Agreement (EPA), and noting that Arts 80–84 of the EU-CARIFORUM EPA concern key personnel employment). Fry and Stampalija (2012) 571 n 49 (adding that ‘[t]he notion of “key personnel” may help to set aside such tension’, and noting that ‘[t]he notion of “key personnel” can be found in The Energy Charter Treaty’)’. Roe, Happold, Dingemans (2011) 134 (quoting Article 11(1).); Fry and Stampalija (2012) 571 n 49 (quoting Art 11(1)). Fry and Stampalija (2012) 571 (‘international investment agreements usually do not grant an unconditional right to enter the state and work regardless of the state’s immigration requirements’). Peers (1995) 829. Ibid., 838 n 60 (citing Art 11(1)).

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examinations is an aspect which distinguishes the Article 11(1) obligation from obligations concerning key personnel under other international agreements involving former Soviet states.16 In particular, various PCAs contain obligations of provision of a right of residence to key personnel of companies from the former Soviet states parties to PCAs.17 11.09 Article 11(1) provides that entry and stay are to ‘engage in activities’ which, among others, include, but are not exclusively confined to, ‘the provision of advice or key technical services’. PCAs and EAs, unlike Article 11(1), provide for a variety of criteria which may include certain qualifications, level of knowledge of, or position in the management of, the company in question.18 11.11 A breach of Article 11(2) may not lead to an award of damages in addition to those accorded for a breach of FET under Article 10(1) 2nd Sentence.19

16 17

18

19

Ibid. (noting that ‘[t]he ECT obliges States only to examine applications for residence of key personnel in “good faith”’). Ibid. (noting that ‘the EU has agreed, in all the partnership agreements, to provide a right of residence for all “key personnel” of ex-Soviet companies’, as evidenced by Art 28 of various PCAs and Art 32 of the Russia PCA). Ibid., n 61 (observing that under PCAs and EAs, ‘[k]ey personnel must be nationals of the EU or the State in question, must be managers or supervisors, and must have uncommon knowledge essential to certain aspects of the company’, that such ‘knowledge may reflect a specific qualification’, and that ‘EAs allow entry to those with high or uncommon knowledge and/or specific qualifications’). Stati, para 1324 (adding that the former breach ‘leads to no further relief than that resulting from the FET breach’).

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ARTICLE 12 COMPENSATION FOR LOSSES Diego Mejía-Lemos

1)

Except where Article 13 applies, an Investor of any Contracting Party which suffers a loss with respect to any Investment in the Area of another Contracting Party owing to war or other armed conflict, state of national emergency, civil disturbance, or other similar event in that Area, shall be accorded by the latter Contracting Party, as regards restitution, indemnification, compensation or other settlement, treatment which is the most favourable of that which that Contracting Party accords to any other Investor, whether its own Investor, the Investor of any other Contracting Party, or the Investor of any third state. Without prejudice to paragraph (1), an Investor of a Contracting Party which, in any of the situations referred to in that paragraph, suffers a loss in the Area of another Contracting Party resulting from a. requisitioning of its Investment or part thereof by the latter’s forces or authorities; or b. destruction of its Investment or part thereof by the latter’s forces or authorities, which was not required by the necessity of the situation, shall be accorded restitution or compensation which in either case shall be prompt, adequate and effective.

2)

COMMENTARY1 There are no decisions of arbitral tribunals constituted under the Energy 12.01 Charter Treaty (ECT) directly dealing with Article 12.

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The author is grateful to Ali Al-Khasawneh for his valuable comments on an earlier draft.

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12.02 Scholarly literature regarding Article 12 is scant.2 12.03 Article 12 sets out rules regarding compensation for losses.3 Compensation for losses is one among other matters often governed by substantive provisions of international investment agreements,4 and, within the ECT, by Part III.5 12.04 Article 12 is composed of two sentences. 12.05 Article 12(1) provides for an obligation to accord treatment to an investor which suffers a loss with respect to an investment.6 The loss may be owed to armed conflict, including war, a state of national emergency or civil disturbance or similar event. The treatment to be accorded is to be the most favourable of the treatments accorded to the Contracting Party’s own Investors, or the Investors of other Contracting Parties or third parties. 12.06 Article 12(2) provides for an obligation to accord restitution or compensation for loss resulting from either requisitioning or destruction, not required by the situation, of an Investment by forces or authorities of a Contracting Party. Either restitution or compensation are to be prompt, adequate and effective.

2

3 4 5 6

Stephen Vasciannie, ‘The Fair and Equitable Treatment Standard in International Investment Law and Practice’ (2000) 70(1) British Year Book of International Law 99 [Vasciannie (2000)]; Graham Coop, ‘Energy Charter Treaty and the European Union: is Conflict Inevitable?’ (2009) 27(3) Journal of Energy and Natural Resources Law 404 [Coop (2009)]; Thomas Roe, Matthew Happold, James Dingemans, Settlement of Investment Disputes under the Energy Charter Treaty (Cambridge University Press 2011) [Roe, Happold, Dingemans (2011)]; Christopher Hanewald, ‘The Death of OPEC? The Displacement of Saudi Arabia as the World's Swing Producer and the Futility of an Output Freeze’ (2017) 24(1) Indiana Journal of Global Legal Studies 277 [Hanewald (2017)]. Roe, Happold, Dingemans (2011) 134; Hanewald (2017) 304 n 163, referring to Art 12 among other ECT ‘binding provisions’. Vasciannie (2000) 149, stating that, among other matters, ‘many investment instruments also stipulate substantive provisions on matters pertaining to […] compensation for losses in times of armed conflict’. Coop (2009) 416, referring to various obligations of Contracting Parties under Part III, including of compensation for losses, without directly citing Art 12. Roe, Happold, Dingemans (2011) 134, stating that ‘Article 12 requires the non-discriminatory payment of compensation for losses’.

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ARTICLE 13 EXPROPRIATION Diego Mejía-Lemos

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Investments of Investors of a Contracting Party in the Area of any other Contracting Party shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation (hereinafter referred to as ‘Expropriation’) except where such Expropriation is: a. for a purpose which is in the public interest; b. not discriminatory; c. carried out under due process of law; and d. accompanied by the payment of prompt, adequate and effective compensation. Such compensation shall amount to the fair market value of the Investment expropriated at the time immediately before the Expropriation or impending Expropriation became known in such a way as to affect the value of the Investment (hereinafter referred to as the ‘Valuation Date’). Such fair market value shall at the request of the Investor be expressed in a Freely Convertible Currency on the basis of the market rate of exchange existing for that currency on the Valuation Date. Compensation shall also include interest at a commercial rate established on a market basis from the date of Expropriation until the date of payment. The Investor affected shall have a right to prompt review, under the law of the Contracting Party making the Expropriation, by a judicial or other competent and independent authority of that Contracting Party, of its case, of the valuation of its Investment, and of the payment of compensation, in accordance with the principles set out in paragraph (1). For the avoidance of doubt, Expropriation shall include situations where a Contracting Party expropriates the assets of a company or enterprise in its Area in which an Investor of any other Contracting Party has an Investment, including through the ownership of shares. 211

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COMMENTARY1 13.01 Various arbitral tribunals constituted under the Energy Charter Treaty (ECT) have interpreted and applied Article 13.2 13.02 Article 13 has furthermore been the object of scholarly analysis.3 13.03 The customary international law applicable in ECT arbitrations comprises the law of treaties, as codified in the Vienna Convention on the Law of Treaties 1 2

3

The author is grateful to Ali Al-Khasawneh and Christine Sim for their valuable comments on an earlier draft. Nykomb Synergetics Technology Holding AB v. The Republic of Latvia (SCC), Award, 16 December 2003 (Nykomb); Petrobart Ltd v. The Kyrgyz Republic (SCC), Award, 29 March 2005 (Petrobart); Plama Consortium Ltd v. Republic of Bulgaria (ICSID Case No. ARB/03/24), Award, 27 August 2008 (Plama); Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan (SCC V(064/2008)), Final Award, 8 June 2010 (Al-Bahloul); Anatolie Stati, Gabriel Stati, Ascom Group S.A., Terra Raf Trans Traiding Ltd v. The Republic of Kazakhstan (SCC Arbitration V (116/2010)), Award, 19 December 2013 (Stati); Hulley Enterprises Ltd (Cyprus) v. The Russian Federation (PCA AA 226), Final Award, 18 July 2014 (Hulley); Veteran Petroleum Ltd (Cyprus) v. The Russian Federation (PCA AA 228), Final Award, 18 July 2014 (Veteran); Yukos Universal Ltd (Isle of Man) v. The Russian Federation (PCA AA 227), Final Award, 18 July 2014 (Yukos); Electrabel SA v. The Republic of Hungary (ICSID ARB/07/19), Award, 25 November 2015 (Electrabel); Charanne BV Construction lnvestments Sàrl v. Kingdom of Spain (062/2012), Final Award, 21 January 2016 (Charanne) [Dissenting Opinion of Tawil of 21 December 2015 (in Spanish) (Charanne Dissenting Opinion)]; Isolux Infrastructure Netherlands, BV v. Kingdom of Spain (SCC V2013/153), Award, 12 July 2016 (Isolux); Eiser Infrastructure Ltd and Energia Solar Luxembourg Sàrl v. Kingdom of Spain (ICSID Case No. ARB/13/36), Award, 4 May 2017 (Eiser). Thomas W. Wälde, ‘European Energy Charter Conference: Final Act, Energy Charter Treaty, Decisions and Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects’ (1995) 34(2) International Legal Materials 360 [Wälde (1995)]; Gaetan Verhoosel, ‘Foreign Direct Investment and Legal Constraints on Domestic Environmental Policies: Striking a ‘Reasonable’ Balance between Stability and Change’ (1998) 29(4) Law and Policy in International Business 451 [Verhoosel (1998)]; Zeyad A. Alqurashi, ‘Indirect Expropriation in the Field of Petroleum’ (2004) 5(6) Indirect Expropriation in the Field of Petroleum 897 [Alqurashi (2004)]; Andrei Konoplyanik and Thomas W. Wälde, ‘Energy Charter Treaty and Its Role in International Energy’ (2006) 4 Journal of Energy & Natural Resources Law 523 [Konoplyanik and Wälde (2006)]; Alex M. Niebruegge, ‘Provisional Application of the Energy Charter Treaty: The Yukos Arbitration and the Future Place of Provisional Application in International Law’ (2007) 8(1) Chicago Journal of International Law 355 [Niebruegge (2007)]; Christoph H. Schreuer, ‘Selected Standards of Treatment Available under the Energy Charter Treaty, Part I – Fair and Equitable Treatment (FET): interactions with other standards’ in Coop and Ribeiro (2008) p 63 [Schreuer (2008)]; Thomas Roe, Matthew Happold, James Dingemans, Settlement of Investment Disputes under the Energy Charter Treaty (Cambridge University Press 2011) [Roe, Happold, Dingemans (2011)]; Rachel A. Nathanson, ‘The Revocation of Clean-Energy Investment Economic-Support Systems as Indirect Expropriation Post-Nykomb: A Spanish Case Analysis’ (2013) 98(2) Iowa Law Review 863 [Nathanson (2013)]; Frank Hoffmeister and Gabriela Alexandru, ‘A First Glimpse of Light on the Emerging Invisible EU Model BIT’ (2014) 15 The Journal of World Investment & Trade 379 [Hoffmeister and Alexandru (2014)]; Chester Brown, ‘The End of the Affair? Hulley Enterprises Ltd (Cyprus) v Russian Federation; Yukos Universal Ltd (Isle of Man) v Russian Federation; Veteran Petroleum Ltd (Cyprus) v Russian Federation, UNCITRAL, PCA Nos AA 226, 227, 228, Final Awards, 18 July 2014 (Yves Fortier, Charles Poncet, Stephen Schwebel)’ (2016) The Journal of World Investment & Trade 126 [Brown (2016)]; Conor McCarthy, ‘The Problems of Fragmentation and Diversification in the Resolution of Complex International Claims: OAO Neftyanaya Kompaniya Yukos v Russia, European Court of Human Rights, Application No. 14902/04, Judgment (Just satisfaction), 31 July 2014’ 17(1) The Journal of World Investment & Trade 140 [McCarthy (2016)]; Juan Jorge Piernas López, Elena López-Almansa

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(VCLT),4 and the law of state responsibility, as codified in the Articles on Responsibility of States for Internationally Wrongful Acts (ASR).5 In particular, the Hulley, Veteran and Yukos tribunals discussed the application of the law of treaties to the interpretation of Article 13. The interpretation of treaty provisions is subject to VCLT Article 31.6 VCLT Article 31 sets out ‘the general rule of interpretation’ according to which relevant treaty provisions have been interpreted.7 An ECT provision, ‘[l]ike any provision in an international treaty […] must be interpreted in good faith’.8 An interpretation in good faith may lead to a certain ‘conclusion’ as to the operation of an ECT provision ‘under the circumstances of a specific case’.9 An interpretation of a relevant provision ought not to ‘defeat the object and purpose’ of the ECT.10 Where a ‘meaning’ established through an interpretation according to VCLT Article 31 is ‘neither ambiguous nor obscure and does not lead to a result which is manifestly absurd or unreasonable’, no ‘aid’ of other rules of interpretations is necessary.11 As for guidance drawn from the ECT’s travaux préparatoires, the replacement of a term by another term may be insufficient to establish a motivation to limit the scope of a provision employing the latter term, absent ‘some additional expression in the record’.12 The existence of ‘a “middle ground of varying practices”’ in other treaties may be of no assistance to the interpretation of the ECT.13

4 5 6 7 8 9 10 11 12 13

Beaus, José Elías Esteve Moltó, ‘Decisiones de los órganos judiciales españoles en materia de Derecho internacional público’ (2016) 32 Anuario Español de Derecho Internacional 505 [Piernas López, LópezAlmansa Beaus, Esteve Moltó (2016)]; Fernando Dias Simões, ‘Charanne and Construction Investments v. Spain: Legitimate Expectations and Investments in Renewable Energy’ (2017) 26(2) Review of European, Comparative & International Environmental Law 174 [Dias Simões (2017)]; Juan Jorge Piernas López, Elena López-Almansa Beaus, José Elías Esteve Moltó, ‘Decisiones de los órganos judiciales españoles en materia de Derecho internacional público’ (2017) 33 Anuario Español de Derecho Internacional 421 [Piernas López, López-Almansa Beaus, Esteve Moltó (2017)]. Concluded on 23 May 1969, and entered into force 27 January 1980. 1155 UNTS 331, 8 ILM 679 (1969). Adopted by the UN General Assembly (GA) in 2001. GA Res 56/83, UN Doc A/RES/56/83 (2001), Annex. See Article 10, para 15. Hulley, para 1412; Veteran, para 1412; Yukos, para 1412 (quoting VCLT Art 31). Hulley, para 1414; Veteran, para 1414; Yukos, para 1414 (referring to the interpretation of Art 21). Hulley, para 1424; Veteran, para 1424; Yukos, para 1424 (referring to Art 21(5)(b)(i)). Hulley, ibid.; Veteran, ibid.; Yukos, ibid. (in this instance, as to whether a referral pursuant to Art 21(5)(b)(i) is required, in light of its eventual futility in a ‘specific case’). Hulley, para 1413; Veteran, para 1413; Yukos, para 1413 (stating that a certain interpretation of Art 21(5) ‘would defeat the object and purpose of the claw-back and of the ECT itself’). Hulley, para 1415; Veteran, para 1415; Yukos, para 1415 (referring to the interpretation of Art 21). Hulley, ibid.; Veteran, ibid.; Yukos, ibid. (referring to Respondent’s allegation regarding a ‘replacement of “Taxation Measures” with “taxes” in a draft of Article 21(5) of the ECT circulated in June 1993’). Hulley, para 1414; Veteran, para 1414; Yukos, para 1414 (referring to Respondent’s allegations concerning ‘a number of treaties that contain a taxation carve-out, but that either do not contain any claw-back provision or limit the claw-back to certain substantive protection standards’).

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13.04 The operation of Article 13 in connection with conduct of a Contracting Party regarding taxation raises various issues.14 In particular, while Article 21(1) contains a ‘carve-out’ whereby ‘taxation measures’ fall outside the scope of protections under the ECT, Article 13 is applicable to ‘taxes’, pursuant to Article 21(5), which contains a ‘claw-back’.15 The issues raised in this vein, in addition to those regarding the interpretation of the ECT,16 concern procedural and jurisdictional aspects of an arbitration involving determinations as to the operation of Articles 13 and 21. 13.05 The procedural stage of a decision regarding the operation of Article 13 may vary. The Hulley, Veteran and Yukos tribunals deferred their decision on the ‘definitive interpretation’ of, ‘characterization of claims’17 and objections under,18 Article 21(5) ‘claw-back’, to a phase of the arbitration in which they could form a fuller view of the facts and the nature of the claims. Objections under Article 21 raised an ‘important threshold issue’ in these arbitrations.19 13.06 The nature of and basis for jurisdiction of a tribunal over Article 13 claims may relate to the type of conduct at issue and whether it falls within the scope of operation of Article 13. The Hulley, Veteran and Yukos tribunals considered that they had jurisdiction to rule on Article 13 claims for two independent reasons, each affording a sufficient basis for jurisdiction.20 13.07 A tribunal has ‘indirect’ jurisdiction over Article 13 claims arising out of ‘measures excluded’ by Article 21(1) carve-out from, but ‘brought back’ by Article 21(5) claw-back within, protection under the ECT, according to the

14

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16 17

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Various arbitral tribunals have addressed these issues. See EnCana Corporation v. Ecuador (LCIA UN3481), Award, 3 February 2006 (EnCana), para 177. See also Roe, Happold, Dingemans (2011) 191 n 20 (citing EnCana.). Hulley Jurisdiction and Admissibility, para 570; Veteran Jurisdiction and Admissibility, para 582; Yukos Jurisdiction and Admissibility, para 571 (setting out the parties’ arguments on ‘the scope of this claw-back in case of an expropriation’); Hulley, para 1376; Veteran, para 1376; Yukos, para 1376 (‘[t]he relevant provisions of Article 21 of the ECT for present purposes are paragraphs 1 (the “carve-out”), 5 (the “claw-back”) and 7 (definitions)’). See supra, para 13.3. Hulley Jurisdiction and Admissibility, para 570; Veteran Jurisdiction and Admissibility, para 596; Yukos Jurisdiction and Admissibility, para 585 (namely, ‘to the next phase of the arbitration, when it will have a complete record on the nature of the claims themselves and a fuller understanding of the facts’). Hulley, ibid.; Veteran, ibid., para 597; Yukos, ibid., para 586 (namely, ‘the issue of whether Respondent’s objection based on Article 21 goes to jurisdiction or admissibility and, if it goes to jurisdiction, whether it was made in a timely manner by Respondent’). Hulley, para 1375; Veteran, para 1375; Yukos, para 1375. Hulley, para 1406; Veteran, para 1406; Yukos, para 1406.

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Hulley, Veteran and Yukos tribunals.21 The establishment of indirect jurisdiction is independent of findings on the applicability of Article 21.22 A tribunal may have indirect jurisdiction even if Article 21(1) applies.23 A determination that a tribunal has indirect jurisdiction in the event that 13.08 Article 21(1) applies is based on the relative scopes of operation of the Article 21(5) claw-back and the Article 21(1) carve-out.24 The Hulley, Veteran and Yukos tribunals held that ‘[a]ny measures’ covered falling under Article 21(1) are covered by Article 21(5).25 Article 21(7) defines the terms employed in Article 21.26 Article 21(7) defines the term ‘Taxation Measures’, used in Article 21(1), whereas Article 21(7) does not define the term ‘taxes’, used in Article 21(5).27 The proposition that the term ‘taxes’ should be given a ‘narrow meaning’ was rejected.28 An interpretation giving ‘taxes’ a “narrow meaning” would have excluded from the scope of the claw-back ‘Taxation Measures’ such as ‘collection and enforcement measures’.29 Such an interpretation would have resulted ‘in a wide carve-out and a narrow claw-back’, thus fully depriving an Investor from ‘expropriatory taxation’ by a Contracting Party.30 Such an interpretation would have defeated the object and purpose of Article 21(5) and the ECT at large.31 A determination of indirect jurisdiction also results from the ‘futility’ of a 13.09 referral to a Competent Tax Authority under Article 21(5)(b).32 Such a referral would not have been of any assistance.33 Under Article 21(5)(b)(i), interpreted in good faith,34 a referral would not be required in the circumstances faced by the Hulley, Veteran and Yukos tribunals, since such a referral

21 22 23 24 25

26 27 28 29 30 31 32 33 34

Ibid. Ibid. Hulley, para 1409; Veteran, para 1409; Yukos, para 1409. Ibid. Hulley, para 1416; Veteran, para 1416; Yukos, para 1416 (‘any measures falling under the taxation carve-out of Article 21(1) of the ECT are also covered by the scope of the expropriation claw-back in Article 21(5) of the ECT’). Hulley, para 1376; Veteran, para 1376; Yukos, para 1376. Hulley, para 1411; Veteran, para 1411; Yukos, para 1411. Hulley, para 1410; Veteran, para 1410; Yukos, para 1410. Hulley, para 1413; Veteran, para 1413; Yukos, para 1413. Ibid. (agreeing with the claimant’s submission to this effect). Ibid. Hulley, para 1409; Veteran, para 1409; Yukos, para 1409. Hulley, para.1423; Veteran, para 1423; Yukos, para 1423. Hulley, para 1424; Veteran, para 1424; Yukos, para 1424. See also Roe, Happold, Dingemans (2011) 192 (noting that ‘[t]o an extent, what paragraph 5(a) gives substantively, paragraph 5(b) takes away procedurally’).

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would have been futile at any stage of the arbitrations.35 The tax authorities would have lacked ‘an opportunity to provide timely and pertinent guidance’ to the Hulley, Veteran and Yukos tribunals, given the implausibility of reducing ‘the gist’ of the cases to a size and scope to ‘a meaningful submission’ which could be ‘digested’ by the tax authorities.36 Furthermore, tax authorities would have to confine themselves to ‘discrete’ taxes and cognate issues, whereas an arbitral tribunal reaches conclusions upon ‘consideration of the totality of the evidence presented to it’.37 In any case, a determination by a competent tax authority upon referral would not be binding on an arbitral tribunal, under Article 25(5)(b)(iii).38 Generally, according to the Hulley, Veteran and Yukos tribunals, a procedure may be dispensed with under circumstances in which the procedure ‘would not produce’ its intended result.39 This is recognized in relation to exhaustion of local remedies in connection with diplomatic protection and similar to findings of arbitral tribunals in relation to ‘cooling-off periods’40 and requirements to submit disputes to litigation before domestic courts.41 13.10 A tribunal has ‘direct jurisdiction’ over Article 13 claims arising in connection with conduct not excluded by Article 21(1) from protection under the ECT, according to the Hulley, Veteran and Yukos tribunals.42 Since Article 21(1) is applicable only to ‘bona fide taxation actions’, a tribunal has jurisdiction over claims arising in connection with ‘actions […] taken only under the guise of taxation’.43 The inapplicability of the Article 21 carve-out results is due to the 35

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Hulley, para 1423; Veteran, para 1423; Yukos, para 1423. See also Roe, Happold, Dingemans, ibid., 194 (suggesting that the referral procedure would ultimately ‘extend the length and increase the cost of legal proceedings’). Hulley, para 1422; Veteran, para 1422; Yukos, para 1422. Hulley, para 1423; Veteran, para 1423; Yukos, para 1423. Hulley, para 1427; Veteran, para 1427; Yukos, para 1427. Hulley, para 1425; Veteran, para 1425; Yukos, para 1425 (quoting Art 15(a) of the 2006 ILC Draft Articles on Diplomatic Protection). Hulley, ibid.; Veteran, ibid.; Yukos, ibid. (referring to the findings of ‘[t]ribunals adjudicating claims of investors under international investment treaties’). See also Roe, Happold, Dingemans (2011) 194 (noting that the referral ‘procedure seems akin to a requirement to exhaust domestic remedies, a requirement which does not, of course, apply in relation to other claims under the Treaty’). Hulley, ibid.; Veteran, ibid.; Yukos, ibid. (more specifically, ‘the requirement to submit a dispute to litigation in the host State’s domestic courts for a certain period of time’). Hulley, para 1407; Veteran, para 1407; Yukos, para 1407. Hulley, ibid.; Veteran, ibid.; Yukos, ibid. See RosInvestCo UK Ltd v. Russian Federation (SCC 79/2005), Final Award, 12 September 2010 (RosInvestCo), para 628 (‘it is generally accepted that the mere fact that measures by a host state are taken in the form of application and enforcement of its tax law, does not prevent a tribunal from examining whether this conduct of the host state must be considered, under the applicable BIT or other international treaties on investment protection, as an abuse of tax law to in fact enact an expropriation’); Quasar de Valores SICAV SA, Orgor de Valores SICAV SA, GBI 9000 SICAV SA, ALOS 34 SL v. Russian Federation (SCC 24/2007), Award, 20 July 2012 (Quasar de Valores), para 179 (‘investment protection through international law would likely become an illusion, as states would quickly learn to avoid responsibility by dressing up all adverse measures, perhaps expropriation first of all, as taxation. When

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fact that measures at issue are not ‘a bona fide exercise’ of a Contracting Party’s tax powers.44 A bona fide tax action includes an action ‘motivated for the purpose of raising general revenue for the State’.45 An interpretation of Article 21 not confining it to bona fide measures would imply that a mere ‘labelling’ of a measure as taxation suffices for the measure so labelled to fall within the scope of application of Article 21(1).46 Such an interpretation would be a ‘loophole in the protective scope of the ECT’.47 This result would be inconsistent with the ‘purpose of Part III of the ECT’.48 The proposition that Article 21(1) is applicable only to bona fide taxation 13.11 measures is not a conflation of the conditions for application of the carve-out under Article 21(1) and the standard set out in Article 13, respectively.49 According to the Hulley, Veteran and Yukos tribunals, a measure which meets the conditions for application of Article 21(1) may not meet the conditions for being lawful under Article 13: a taxation measure may be bona fide, and yet expropriatory.50 The character of conditions for application of an ‘exception to the protection standards under the ECT’ and of ‘the protection standards themselves’ is not conflated by the aforementioned proposition.51 Furthermore, the characterization of an action as a taxation measure for the purposes of Article 21(1) depends on ‘the motivation underlying it’, as opposed to its effects.52 In this particular connection, a preliminary examination by competent tax authorities regarding the motivation of a measure ‘would add little value for an arbitral tribunal’.53 A conclusion that a Contracting Party has breached Article 13 may render it 13.12 ‘unnecessary’ to ‘consider the application of Article 10’.54 Accordingly, Article 10 claims are not considered in that event,55 although a tribunal may decide to

44 45 46 47 48 49 50 51 52 53 54 55

agreeing to the jurisdiction of international tribunals, states perforce accept that those jurisdictions will exercise their judgment, and not be stumped by the use of labels’). See also Brown (2016) 136 (commenting that the Hulley, Veteran and Yukos tribunals ‘also agreed with the RosInvestCo and Renta 4 tribunals’ as to their ‘jurisdiction to decide whether a taxation measure had been implemented for improper reasons’). Hulley, para 1430; Veteran, para 1430; Yukos, para 1430. Hulley, para 1431; Veteran, para 1431; Yukos, para 1431 (using the word ‘i.a. ’). Hulley, para 1433; Veteran, para 1433; Yukos, para 1433. Ibid. Ibid. Hulley, para 1434; Veteran, para 1434; Yukos, para 1434. Ibid. Ibid. Ibid. Hulley, para 1435; Veteran, para 1435; Yukos, para 1435. Hulley, para 1449; Veteran, para 1449; Yukos, para 1449. Hulley, para 1585; Veteran, para 1585; Yukos, para 1585. See also Brown (2016) 133–4 (commenting on Hulley, Veteran and Yukos).

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set out the parties’ arguments ‘for the sake of completeness’.56 Similarly, a tribunal may decide that it is appropriate to consider claims in an order in which expropriation claims precede claims under ‘the FET standard’ and FET claims, in turn, precede claims under ‘the ECT’s other standards’.57 In this vein, the FET standard has been found to be a more appropriate means ‘to provide redress’ to an investor whose rights under a treaty have been breached, where ‘the facts of the dispute do not clearly support the claim for direct expropriation’.58 Relatedly, the burden of proof to establish an expropriation tends to be higher than that required to establish a breach of other standards of treatment.59 13.13 Article 13 sets out rules concerning expropriation.60 Like other provisions of Part III, Article 13 contains various obligations.61 Article 13 is divided into three parts. 13.14 Article 13(1) provides that Investments are not to be subjected to nationalization, expropriation or a measure or measures having an effect equivalent to nationalization or expropriation.62 Article 13(1) refers to these three types of conduct as ‘Expropriation’. 13.15 Article 13(1) ‘provides investments of investors with protection from both direct and indirect expropriation’.63 Indirect expropriation under Article 13(1) is characterized by having an ‘effect’ which is ‘defined as “equivalent to

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61

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Hulley, para 1449; Veteran, para 1449; Yukos, para 1449. Electrabel Jurisdiction, Applicable Law and Liability, para 6.50 (referring to the Claimant’s ‘subsidiary case under the ECT’s other standards’). PSEG Global Inc. and Konya Ilgin Elektrik Uretim ve Ticaret Ltd Sirketi v. Republic of Turkey (ICSID ARB/02/5), Award, 19 January 2007 (PSEG), para 238 (‘[t]he standard of fair and equitable treatment has acquired prominence in investment arbitration as a consequence of the fact that other standards traditionally provided by international law might not in the circumstances of each case be entirely appropriate’). Schreuer (2008) 95–6 (quoting and discussing PSEG). Verhoosel (1998) 466; Alqurashi (2004) 899; Niebruegge (2007) 361; Schreuer (2008) 95 (‘Article 13 of the ECT contains a detailed provision on expropriation’); Nathanson (2013) n 167; Hoffmeister and Alexandru (2014) 393–4; McCarthy (2016) 143–4; Dias Simões (2017) 176. Al-Bahloul Jurisdiction and Liability, paras 98, 278–279 (adding, at para 279, that ‘[t]he legal standard for indirect expropriation has been discussed in many investment treaty arbitrations’ and referring to ‘the formulation of this standard that is found in the Tecmed v. Mexico award’). Roe, Happold, Dingemans (2011) 134 (referring to these three elements in Art 13 as ‘mirroring widespread and long-established provisions in many other treaties’). Electrabel Jurisdiction, Applicable Law and Liability, para 6.51. See also Alqurashi (2004) 899; Hoffmeister and Alexandru (2014) 393–4 (stating that ‘EU agreements will try to follow the mainstream of treaty practice to a very large extent’ and that ‘[t]he standard clause is likely to refer to both direct and indirect expropriation […]’ among other aspects of an ‘approach […] enshrined in article 13 of the Energy Charter Treaty’, among other treaties).

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nationalisation or expropriation”’.64 Both direct and indirect expropriation involve a ‘test for substantial deprivation’.65 This threshold of substantiality is predicable of both forms of expropriation ‘whether unlawful or lawful (subject to appropriate compensation)’.66 As for direct expropriation, no breach of Article 13(1) may be claimed in the 13.16 absence of a ‘taking’ by a respondent ‘for itself’ or a transfer by a respondent ‘to any third party’.67 In this vein, a claimant is required to ‘establish that the effect of’ a respondent’s conduct ‘was materially the same as if its investment […] had been nationalised or directly expropriated by’ the respondent.68 Such conduct includes measures variously referred to as ‘indirect, creeping, or de facto expropriation’.69 Such conduct also comprises ‘regulatory takings’.70 According to the Plama tribunal, conduct may be in breach of Article 13(1) 13.17 where ‘parts’ of an Investment or rights to an Investment are affected, provided that they are ‘distinct’ and ‘identifiable’.71 Nevertheless, for the Electrabel tribunal, ‘the test for expropriation is applied to the relevant investment as a whole, even if different parts may separately qualify as investments for jurisdictional purposes’.72 Commenting on the Metalclad tribunal’s approach, the Electrabel tribunal noted that, if an Investor ‘could always meet the test for indirect expropriation by slicing its investment as finely as the particular circumstances required, without that investment as a whole ever meeting that same test’, it would be meaningless to require that a 64

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Ibid. See Constitutional Court, Plenary Session, Judgment 270/2015, 17 December 2015 (Judgment 270/2015); Spanish Supreme Court, Contentious-Administrative Chamber, 3rd Section, Judgment 1265/ 2017, 14 July 2017, Case 749/2014 (Judgment 1265/2017). See also Verhoosel (1998) 472 (‘Article 13 largely copies NAFTA Article 1110; hence it also covers “measures equivalent to expropriation”.’); Piernas López, López-Almansa Beaus, Esteve Moltó (2016) 528–30 (commenting on the invocation of Art 13 in support of a claim that an indirect expropriation was committed through a regulation governing financial instability in the electric system (RS 9/2013) in constitutional proceedings challenging the constitutionality of RS 9/2013); Piernas López, López-Almansa Beaus, Esteve Moltó (2017) 439, 444 (commenting on the discussion of indirect expropriation in Eiser, in connection with Judgment 1265/2017, holding that the Award in Eiser is not enforceable in Spain pursuant to Law on Civil Procedure (Ley de Enjuiciamiento Civil) Art 271(2)). Electrabel Jurisdiction, Applicable Law and Liability, para 6.63 (noting that ‘the Tribunal also interprets the terms of Article 13(1) ECT as requiring Electrabel to meet the test for substantial deprivation both for direct expropriation and indirect expropriation having the equivalent effect to direct expropriation or nationalisation’). Ibid., para 6.64. Ibid., para 6.52. Ibid. Petrobart, p 77. Nykomb, p 33. Plama, para 193 (referring to ‘the economic use and enjoyment of the rights to the investment, or of identifiable, distinct parts thereof’). Electrabel Jurisdiction, Applicable Law and Liability, para 6.58 (adding that this is so ‘both in applying the wording of Article 13(1) ECT and under international law’).

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respondent’s conduct be proven to constitute a ‘radical deprivation’ or ‘deprivation of any real substance’.73 Thus, according to the Electrabel tribunal, a given right of a claimant is not ‘an autonomous investment set apart from’ other rights or ‘interests’74 which are part of an ‘aggregate collection’75 and constitute ‘one integral investment’.76 13.18 The ‘test under international law’ for indirect expropriation has been described as ‘equally applicable to the ECT’.77 The ‘standard’ contained in Article 13(1) may be breached by conduct of a Contracting Party which affects the use or economic value of an Investment, without interfering with ownership or possession.78 In the absence of a deprivation of the use of objects such as a ‘power plant, equipment or other real property’, no indirect expropriation takes place.79 A claimant ‘must prove […] that its investment lost all significant economic value’ as a result of a respondent’s conduct.80 The requirement that deprivation be ‘substantial’ is, according to the Electrabel tribunal, part of the definition of ‘taking’,81 and accepted in the decisions of various arbitral tribunals.82 Hence, where a claimant’s ‘business, taken as a whole, was not rendered financially worthless’ by a respondent’s conduct, remaining ‘still operational and operated by’ a claimant, no indirect expropriation has occurred.83 73 74 75 76

77 78

79 80 81

82

83

Ibid., para 6.57 (so as to establish that the respondent’s conduct is ‘similar in effect to a direct expropriation or nationalisation’). Ibid., para 6.58. Ibid. Ibid., paras 6.57–6.58 (noting, at para 6.57, that ‘the wording in the Metalclad award as to “significant part” qualifies the required gravity of deprivation and not the investment’, and interpreting ‘that phrase as describing in different terms the same approach later described by the Tecmed tribunal’). Ibid., para 6.53, n 2, citing J. Paulsson and Z. Douglas, ‘Indirect Expropriation in Investment Treaty Arbitration’, in N. Hornand and S. Kröll (eds), Arbitrating Foreign Investment Disputes 145, 148 (2004). Plama, para 191 (citing Starrett Housing Corp v. Iran and Tecmed v. Mexico, and stating that ‘expropriation can result from State conduct that does not amount to physical control or loss of title but that adversely affects the economic use, enjoyment and value of the investment’). Electrabel Jurisdiction, Applicable Law and Liability, para 6.53. Ibid. Ibid., para 6.61 (citing that Second Restatement of the Foreign Relations Law of the United States of America, published in 1965, in support of the proposition that ‘taking’ is ‘conduct which (inter alia) effectively deprived an alien ‘of substantially all benefit of his interest in property … even though the state does not deprive him of his entire legal interest in the property’, and adding that the restatement ‘reflected the relevant definition under international law at the time of the decision in Starrett (1983) and Tippetts (1984)’). Ibid., para 6.62 (noting that ‘[i]n addition to Metalclad and Tecmed (above), arbitral decisions and awards to such effect include Pope and Talbot (2000), paras 102–104; S.D. Myers (2000), paras 282–285; Lauder (2001); paras 200–201; CME (2001), paras 603–604; GAMI (2004), paras 123–126; Telenor (2006), paras 63–67; Sempra (2007), paras 284–285; and Parkerings-Compagniet (2007), para 455. Conversely, arbitral tribunals have rejected claims for expropriation under international law where the investor has failed to meet this test for “substantial” deprivation, including: CMS (2005), paras 260–264; and Azurix (2006), para 321.’). Ibid., para 6.53.

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The elements for assessing whether conduct of a Contracting Party is in 13.19 breach of Article 13(1) include the degree of deprivation,84 the permanence of the conduct and irreversibility of its effects,85 and the extent of loss of economic value suffered by the Investor.86 Irreversibility implies, in the particular case of ‘contractual rights’, that ‘a temporary non-fulfilment of the State's contractual obligations is not sufficient to constitute an expropriation’.87 Since, in the absence of a ‘permanent taking’ of contractual rights no right of an Investor is ‘destroyed’,88 such ‘temporary deprivation will not suffice to constitute expropriation’,89 without prejudice to any breach of ‘obligation under the umbrella clause of Article 10(1)’,90 or any ‘claim of damages for losses sustained’ by virtue of the deprivation.91 In addition, emphasis has sometimes been placed on the significance of the extent of economic loss suffered;92 sometimes it is placed upon the degree of deprivation.93 Conduct of a Contracting Party which, in spite of having ‘negative effects’ for an Investor, neither is ‘directed specifically against’ an Investment nor has ‘the aim of transferring economic values’ from an Investor to a Contracting Party, has been held to fall outside Article 13(1).94 Where conduct is not found to have amounted to an expropriation, a tribunal is not required to determine whether such conduct ‘would constitute a “measure” within the meaning of’ Article 13.95 Article 13(1) further provides that Expropriation may not be carried out 13.20 except where four conditions are met.96 The violation of the conditions entails 84

85 86 87 88 89 90 91 92 93

94 95 96

Plama, para 193 (referring to ‘substantially complete deprivation […] (i.e., approaching total impairment)’); Nykomb, p 33 (‘The decisive factor for drawing the border line towards expropriation must primarily be the degree of possession taking or control over the enterprise the disputed measures entail’). Plama, ibid. (referring to ‘the irreversibility and permanence of the contested measures (i.e., not ephemeral or temporary)’). Ibid. (referring to ‘the extent of the loss of economic value experienced by the investor’). Al-Bahloul Jurisdiction and Liability, para 281. Ibid., para 282. Ibid., para 281. Ibid., para 280 (recalling the tribunal’s prior finding that such a breach occurred). Ibid., para 281 (namely, ‘damages for losses sustained during the period when the investor has been deprived of the use or enjoyment of his contract rights’). Isolux, para 841 (adding that this is prior to a determination of the amount of damages, if any.). Charanne, para 460 (stating that in order to establish that an indirect expropriation has taken place, it is necessary to determine ‘whether the measures in dispute had the effect of depriving totally or partially’ an Investor.). See also Dias Simões (2017) 176 (commenting on this finding of the Charanne tribunal). Petrobart, p 77. Al-Bahloul Jurisdiction and Liability, para 283 (referring to ‘[…] Section 13 of the Treaty’). Hulley Jurisdiction and Admissibility, para 437; Veteran Jurisdiction and Admissibility, para 494; Yukos Jurisdiction and Admissibility, para 438 (referring to ‘prescribed conditions’); Hulley, para 1580; Veteran, para 1580; Yukos, para 1580 (referring to ‘[t]he four conditions specified in Article 13 (1) of the ECT’). See also Brown (2016) 126 (commenting on Hulley, Veteran and Yukos and describing Art 13(1) as setting out an ‘obligation not to expropriate investments unless certain conditions are met’); Hoffmeister and Alexandru (2014) 393–4 (stating that EU agreements largely follow ‘[t]he standard clause’ in treaty practice, which ‘is

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that a Contracting Party ‘stands in breach of its treaty obligations under Article 13 of the ECT’.97 The sufficiency of a set of violations of the conditions in question for a finding of a breach of Article 13 has been pointed out.98 13.21 Article 13(1)(a) requires that Expropriation be carried out for a purpose in the public interest.99 Where measures amounting to a destruction of a company in a sector are in the interest of a state-owned company in the same sector, the interest of the state-owned company is not the same as ‘the public interest of the economy, polity and population of’ the state in question.100 13.22 Article 13(1)(b) requires that Expropriation be not discriminatory.101 Treatment of companies in a sector may include the Contracting Party’s treatment in relation to advantages enjoyed by the companies which derive from ‘investments in low-tax jurisdictions’.102 13.23 Article 13(1)(c) requires that Expropriation be carried out under due process of law.103 That an Investor is ‘subjected to processes of law’ may not suffice to satisfy this condition.104 Where, in a Contracting Party, the ‘courts bent to the will’ of ‘the executive authorities’, among other circumstances, the Contracting Party’s conduct fails to satisfy this condition.105 13.24 Article 13(1)(d) requires that Expropriation be accompanied by payment of prompt, adequate and effective compensation. The adjectival phrase ‘prompt,

97 98

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likely to […] enumerate the four conditions for a lawful expropriation’, among other aspects of an ‘approach […] enshrined in article 13 of the Energy Charter Treaty’, among other treaties). Hulley, para 1585; Veteran, para 1585; Yukos, para 1585. Hulley, para 1584; Veteran, para 1584; Yukos, para 1584 (‘[i]n order for the Russian Federation to be found in breach of its treaty obligations under Article 13 of the ECT, the foregoing violations of the conditions of Article 13 more than suffice’). Hoffmeister and Alexandru (2014) 394. Hulley, para 1581; Veteran, para 1581; Yukos, para 1581 (referring to Yukos as ‘Russia’s leading oil company and largest taxpayer’ and to ‘the largest State-owned oil company, Rosneft, which took over the principal assets of Yukos virtually cost-free’, respectively). Hoffmeister and Alexandru (2014) 394. Hulley, para 1582; Veteran, para 1582; Yukos, para 1582 (referring to ‘the treatment of Yukos and the appropriation of its assets by Rosneft (and to a much lesser extent, another State-owned corporation, Gazprom), when compared to the treatment of other Russian oil companies’ equally investing in low-tax jurisdictions). Wälde (1995) 363; Konoplyanik and Wälde (2006) 534 (‘[t]his is probably the current standard of customary international law (based on the so-called “Hull formula”)’); Hoffmeister and Alexandru (2014) 394 (stating that, in the EU, ‘all Member States’ BITs refer to the well known “Hull formula”’, among other aspects of an ‘approach […] enshrined in Article 13 of the Energy Charter Treaty’). Hulley, para 1583; Veteran, para 1583; Yukos, para 1583 (‘the Tribunal does not accept that the effective expropriation of Yukos was “carried out under due process of law” for multiple reasons’). Ibid. (referring to the ‘Russian courts’ and ‘Russian executive authorities’).

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adequate and effective’, which qualifies the form of compensation, corresponds to the Hull formula.106 Findings of breach of this condition include circumstances where expropriation ‘was not “accompanied by […]” any compensation whatsoever’.107 Article 13(1) sets out directions applicable to ‘the case of a lawful expropri- 13.25 ation’.108 Article 13(1) further requires that compensation amount to the fair market value of the Investment at the time of the valuation date.109 In addition, compensation is to include interest at a commercial rate on a market basis, to be accrued from the date of Expropriation until the day of payment. The valuation date is the time immediately before the Expropriation took 13.26 place or, where impending, the time when it became known in a way which affected the value of the Investment. The valuation date forms the basis for determining the market rate of exchange of a currency in which the fair market value is to be expressed, if so requested by the Investor. The determination of the exact valuation date in the event of an illegal 13.27 expropriation gives rise to various questions. Article 13 affords arbitral tribunals ‘latitude’ in this regard.110 A tribunal is not required ‘to assess damages as of the time of the expropriation’.111 Neither the text of Article 13 nor its travaux préparatoires ‘provide a definitive answer’ as to which date is to be taken into account in the valuation of damages.112 While Article 13 specifies ‘the four conditions that must be met to render an expropriation lawful’ and provides that damages caused by a lawful expropriation are calculated as of the date of taking, there is no rule on unlawful expropriations.113 The choice between ‘the expropriation date and the date of an award’ for the 13.28 purposes of valuation may be the object of an Investor’s entitlement.114 An entitlement to choose the date of valuation in principle flows from the 106

107 108 109

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Hoffmeister and Alexandru (2014) 393–4 (stating that, in the EU, ‘all Member States’ BITs refer to the well known “Hull formula” of “prompt, adequate and effective” compensation’, among other aspects of an ‘approach […] enshrined in Article 13 of the Energy Charter Treaty’, among other treaties). Hulley, para 1584; Veteran, para 1584; Yukos, para 1584 (referring to ‘the effective expropriation of Yukos’). Hulley, para 1650; Veteran, para 1650; Yukos, para 1650. Hulley, para 1591; Veteran, para 1591; Yukos, para 1591. See also Hoffmeister and Alexandru (2014) 394 (noting that a provision for ‘fair market value’ is another common element in all the BITs concluded by EU Member States.). Hulley, para 1766; Veteran, para 1766; Yukos, para 1766. Hulley, para 1765; Veteran, para 1765; Yukos, para 1765. Ibid. Ibid. (adding that ‘[a] contrario, the text of Article 13 may be read to import that damages for an unlawful taking need not be calculated as of the date of taking’). Hulley, para 1766; Veteran, para 1766; Yukos, para 1766.

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unlawfulness of the expropriation.115 The Hulley, Veteran and Yukos tribunals concluded that an Investor does have such an entitlement, and expressly noted that this position found support in decisions of other arbitral tribunals ‘dealing with illegal expropriation’, including in Kardassopoulous v. Georgia.116 Whether an Investor is the holder of such an entitlement is best determined by ‘considering which party should bear the risk and enjoy the benefits of unanticipated events leading to a change in the value of the expropriated asset between the time of the expropriatory actions and the rendering of an award’.117 An Investor does not ‘bear the risk of unanticipated events decreasing the value of an expropriated asset over that time period’.118 An unanticipated event which decreases the value of the right to restitution or compensation in lieu of restitution does not affect ‘an investor’s entitlement to compensation of the damage “not made good by restitution” within the meaning of ASR Article 36(1)’.119 An example of a damage not made good by restitution includes any decrease in the value of an asset from its expropriation until its restitution, whether the asset could be returned or not.120 The ‘reason’ for an Investor’s entitlement to ‘the difference in value’ is that ‘in the absence of the expropriation the investor could have sold the asset at an earlier date at its previous higher value’.121 13.29 The criterion for determining the exact date of expropriation, for the purposes of valuation, is whether a loss occurred which ‘marked a substantial and irreversible diminution of Claimants’ investment’.122 Such a loss may most likely involve a claimant’s ‘main production asset’, as a result of a loss of a claimant’s ‘power to govern […] financial and operating policies’ of a company constitutive of the main asset ‘[…] so as to obtain the benefits from its activities’ from the corporate asset, and the attendant condition of the corporate asset as being ‘incapable of operating as a business’.123

115 116 117 118 119 120 121 122 123

Hulley, para 1763; Veteran, para 1763; Yukos, para 1763. Hulley, para 1769; Veteran, para 1769; Yukos, para 1769 (referring also to Siemens and Amoco). Hulley, para 1766; Veteran, para 1766; Yukos, para 1766. Hulley, para 1768; Veteran, para 1768; Yukos, para 1768. Ibid. Ibid. (adding that ‘[t]he same analysis must also apply where the asset cannot be returned, allowing the investor to claim compensation in the amount of the asset’s higher value’). Ibid. Hulley, para 1763; Veteran, para 1763; Yukos, para 1763. Ibid.

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The rules on reparation under the law of state responsibility, as set out in the 13.30 ASR, are relevant in relation to the determination of the valuation date in the event of an illegal expropriation.124 There are various causation issues which may arise in connection with a 13.31 finding of breach of Article 13. Where an expropriation is found to be in breach of Article 13, causation is established by reference to ‘the heads of damages’ identified as consequences of the expropriatory measures.125 Where ‘multiple causes’ are involved in relation to the same damage, and a cause or causes among such multiple causes ‘for the same damage’ are in part attributable to the respondent, various issues as to the legal consequences of ‘concurrent causation’ arise.126 Such legal consequences may concern both a determination of causation and its related onus probandi.127 As for causation, the Hulley, Veteran and Yukos tribunals, relying on ASR Article 31, and its commentary,128 concluded that where a breach and ‘concurrent action that is not a breach’ cause a damage, such ‘mere fact’ of concurrent causation ‘does not interrupt’ the ‘relationship of causation’ between the breach and the damage, unless the concurrent action is ‘severable in causal terms’ or ‘too remote’, so as to be unable ‘to give rise to Respondent’s duty to compensate’.129 Severability is established where ‘intervening actions’ by the claimant or a third party take place.130 As for onus probandi of causation, a respondent has to demonstrate the causal severability or remoteness of ‘a particular consequence of its actions […] with regard to any of the heads of damages’.131 With regard to mitigation, where it has been established that a respondent’s 13.32 ‘primary objective’ is to ‘appropriate’ a claimant’s assets and the respondent is ‘determined’ to undertake ‘whatever […] necessary to achieve this purpose’,

124 125

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Hulley, para 1766; Veteran, para 1766; Yukos, para 1766. Hulley, para 1772; Veteran, para 1772; Yukos, para 1772 (referring to ‘[a]ll of the heads of damage subsequently identified by the Tribunal are consequences of the 2000–2004 tax assessments that led to the expropriation of Claimants’ investment, and this expropriation was clearly a breach of Article 13 ECT’). Hulley, para 1773; Veteran, para 1773; Yukos, para 1773 (referring to ‘concurrent causation of a particular line of damage’, under the heading ‘Multiple Causes for the Same Damage’). Ibid. (referring to the respondent’s allegations that conduct of third parties and the claimant or the respondent’s non-wrongful conduct ‘should exclude Respondent’s responsibility for that damage, and that Claimants bear the burden of showing that no such causation exists’). Hulley, para 1774; Veteran, para 1774; Yukos, para 1774. Hulley, para 1775; Veteran, para 1775; Yukos, para 1775. Ibid. Ibid. (holding that ‘causation exists between the damage and Respondent’s expropriation of Claimants’ investment’).

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the claimant’s actions ‘would not ultimately have made a difference to’ the respondent’s ‘enforcement measures’.132 13.33 The obligations of restitution and compensation, set out in ASR Articles 35 and 36, respectively, have a bearing on the question of the exact valuation date. ARS Article 35 sets out an obligation of ‘putting the injured party into the position that it would be in if the wrongful act had not taken place’.133 The ‘obligation of restitution applies as of the date when a decision is rendered’.134 ASR Article 36 sets out an obligation to compensate.135 The obligation of compensation arises only and to the extent that the former is insufficient to ‘make good the damage caused’.136 A ‘right to compensation’ may arise ‘in lieu of’ a ‘right to restitution’ in relation to ‘unanticipated events that increase the value of an expropriated asset up to the date of the decision […] as of that date’.137 This right of compensation requires that a tribunal establishes ‘the total value of damages caused by Respondent’s actions on each of the two valuation dated identified’, so as to award ‘the higher’ of the two amounts.138 The amount awarded may be subject to a ‘deduction […] for contributory fault’.139 There are no grounds for ‘any further deductions’ in addition to contributory fault.140 In particular, ‘any advantages that Claimants may have obtained through their investments prior to Respondent’s expropriatory actions can not have any impact on the damages they have suffered’.141 The fact that such advantages may accrue to a claimant poses ‘no risk of “doublerecovery”’.142 ‘[T]he basis for the calculation of the damages awarded’ is ‘the value of the expropriated investment on the date of the Award’.143 Therefore, ‘the amount originally invested by Claimants’144 and ‘the rate of return that Claimants may realize on their original investment […] as a result of the damages that the Tribunal has awarded to them for the expropriation of their shares’145 are ‘irrelevant’.146 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146

Hulley, para 1776; Veteran, para 1776; Yukos, para 1776 (this finding concerned, specifically, ‘paying the taxes then assessed or re-filing VAT and tax returns in early 2004’). Ibid. Ibid. Ibid. Ibid. Hulley, para 1767; Veteran, para 1767; Yukos, para 1767 (italics in the original). Hulley, para 1777; Veteran, para 1777; Yukos, para 1777 (referring to ‘the date of the YNG auction and the date of this Award’). Ibid. (namely a ‘deduction of 25 per cent’). Hulley, para 1828; Veteran, para 1828; Yukos, para 1828. Ibid. Ibid. Hulley, para 1829; Veteran, para 1829; Yukos, para 1829. Ibid. Ibid. Ibid.

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The assessment of a claimant’s damages is effected on the basis of ‘balance of 13.34 probabilities’.147 The Hulley, Veteran and Yukos tribunals based their assessment of the claimant’s damages on their shareholding.148 The Hulley, Veteran and Yukos tribunals rejected the claimant’s ‘first damages scenario’ in which an ‘envisaged merger’ would have been completed ‘in the absence of Respondent’s expropriatory actions’ as being ‘too speculative’.149 Likewise, a ‘potential listing […] on the NYSE and the benefits that Claimants might have derived from such a listing’ were discarded as ‘too uncertain’.150 The choice of ‘the specific methodology of establishing the damages’ in an arbitration is preceded by ‘determinations in respect of the valuation dates, causation and mitigation’, where relevant.151 The object of a claimant’s entitlement may include values associated to various ‘heads of damages’, including the values of ‘shares […] valued as of the valuation date’,152 ‘dividends that the Tribunal determines would have been paid to Claimants […] up to the valuation date but for the expropriation’,153 and ‘pre-award simple interest on these amounts’.154 The ‘consequences’ of applying the rules on restitution and compensation, in 13.35 turn, have a bearing on the ‘calculation of damages’ for an ‘illegal expropriation’.155 An Investor’s right to compensation would imply the Investor’s entitlement to ‘enjoy the benefits of unanticipated events that increase the value of an expropriated asset up to the date of the decision’,156 namely the award. Hence, an increase in the value of an asset, if any, ‘also increases the value of the right to restitution’.157 Such an increase would also be predicable of an eventual right to compensation, in lieu of restitution.158 An Investor not only is entitled to benefits in the event of unanticipated events. Furthermore, an Investor does not ‘bear the risk of unanticipated events decreasing the value of an expropriated asset over that time period’.159 The value of an Investor’s right to compensation of damages ‘not made good by restitution’ within the meaning of ASR 36(1) is unaffected, even where ‘such events decrease the 147 148 149 150 151 152 153 154 155 156

157 158 159

Hulley, para 1780; Veteran, para 1780; Yukos, para 1780. Ibid. (‘the assessment of Claimants’ damages must be based on their shareholding in Yukos, without taking into account the potential effects of a completed merger’). Ibid. (‘assuming a completed merger in the “but for” scenario is too speculative’). Hulley, para 1779; Veteran, para 1779; Yukos, para 1779 (referring to ‘a potential listing of Yukos’). Hulley, para 1777; Veteran, para 1777; Yukos, para 1777. Hulley, para 1778; Veteran, para 1778; Yukos, para 1778 (referring to ‘shares in Yukos’). Ibid. (referring to ‘dividends’ to be ‘paid […] by Yukos’). Ibid. Hulley, para 1767; Veteran, para 1767; Yukos, para 1767 (noting that such consequences ‘are twofold’). Ibid. (‘investors must enjoy the benefits of unanticipated events that increase the value of an expropriated asset up to the date of the decision, because they have a right to compensation in lieu of their right to restitution of the expropriated asset as of that date’). Ibid. Ibid. Hulley, para 1768; Veteran, para 1768; Yukos, para 1768.

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value of the right to restitution’.160 Hence, in the event of restitution, where an ‘asset could be returned to the investor on the date where a decision is rendered’, an Investor would be entitled to any ‘difference in value’ between the ‘previous higher value’ of the asset and its value as ‘decreased since the expropriation’.161 In the event of compensation in lieu of restitution, ‘where the asset cannot be returned’, an Investor would be entitled to ‘claim compensation in the amount of the asset’s higher value’.162 13.36 The various methods for the valuation of an expropriated company include:163 discounted cash flow (DCF) ‘method’,164 ‘[c]omparable companies method’,165 ‘[c]omparable transactions method’,166 ‘market capitalization’, which may be ‘adjusted’ pursuant to developments of various price indexes as of the relevant valuation date,167 and a method of ‘[i]mplied value […] based on share swap between’ related companies.168 13.37 The suitability of a method involving a comparison is the existence of comparable elements. Thus, in the absence of comparable elements, there is ‘no basis that would allow a useful comparison’.169 Such a lack of comparable elements is a fact which may be inferred from the parties’ agreement.170 The character of a method as ‘a suitable independent basis for determining the value of’ an expropriated asset may also relate to the use of ‘secondary valuations primarily in support of their main valuation’.171 In particular, the introduction of figures derived from secondary valuations ‘at a very late stage of the proceedings’ by a claimant may prevent a respondent from ‘properly’ addressing the figures.172 The suitability of a method may be inferred from the agreement of the parties as to a method’s ability to yield ‘a useful valuation’, even where a party has not conducted an analysis allowing it to ‘fully endorse’ a 160 161 162 163 164 165 166 167 168 169 170 171 172

Ibid. (a decrease is predicable of both ‘the value of the right to restitution (and accordingly the right to compensation in lieu of restitution)’). Ibid. Ibid. Hulley, para 1782; Veteran, para 1782; Yukos, para 1782 (listing ‘methods and the valuations of Yukos derived from them (in USD billion)’ in a table). Ibid. Ibid. Ibid. Ibid. Ibid. Hulley, para 1785; Veteran, para 1785; Yukos, para 1785 (referring to ‘Claimants’ calculations based on the comparable transactions’). Ibid. (noting that ‘both Parties agree that, in fact, there were no comparable transactions’). Hulley, para 1786; Veteran, para 1786; Yukos, para 1786 (referring to ‘the remaining valuation methods put forward by Claimants, and the valuations of Yukos generated by them’). Ibid. (referring to figures introduced ‘through demonstrative exhibits at the Hearing and in Claimants’ Post-Hearing Brief’ by the Claimants).

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figure derived from corrections to the valuation derived by the other party using the method on which the parties agree.173 A suitable valuation method forms a tribunal’s ‘starting point’ for its valuation analysis.174 The reliability of a method may be determined ‘[o]n balance’.175 In particular, 13.38 considerations militating against the reliability of a given method may include a party’s expert’s admission during a hearing as to the influence of the expert’s ‘own pre-determined notions as to what would be an appropriate result’ on an analysis of value on the basis of a method.176 The valuation methods may be put forward by the claimant alone, and the 13.39 respondent may confine itself to providing a ‘corrected’ version of one among the methods proposed by the claimant, alongside any adjustments to the value derived from a given method.177 The ‘corrected’ value may be deemed ‘the best available estimate’ of an expropriated company’s value where supported by ‘extensive expert evidence’ in the form of ‘written evidence’ set out in ‘expert reports’, and testimony given during hearings.178 Where a value is determined by reference to a ‘development of a relevant 13.40 index’, the ‘next step’ of a tribunal’s analysis is to determine which, among ‘the various options in this regard’, is ‘the most appropriate index for that purpose’.179 The appropriateness of a method may include elements such as the method’s: basis on ‘prices of trades executed in securities admitted to trading on’ the relevant stock exchange,180 the transparency and public availability of the ‘methodology for establishing the index as well as its current and historical values’,181 and its use by both parties as a ‘reliable indicator reflecting the changes in the value of’ companies in the relevant country and

173

174 175 176 177

178 179

180

181

Hulley, para 1787; Veteran, para 1787; Yukos, para 1787 (concluding that, in those ‘circumstances’, ‘the comparable companies method’ was ‘the most tenable approach to determine Yukos’ value as of 21 November 2007’). Ibid. Hulley, para 1785; Veteran, para 1785; Yukos, para 1785. Ibid. Hulley, para 1783; Veteran, para 1783; Yukos, para 1783 (adding that the Respondent’s expert ‘provided a “corrected” version of Claimants’ comparable companies analysis, making adjustments for what he considered to be the principal errors’ of the Claimant). Hulley, para 1784; Veteran, para 1784; Yukos, para 1784. Hulley, para 1788; Veteran, para 1788; Yukos, para 1788 (referring to its ‘adjusting Yukos’ value as of November 2007 on the basis of the development of a relevant index’, and its finding that ‘the RTS Oil and Gas index is the most appropriate index for that purpose’). Ibid. (namely, ‘the Moscow Stock Exchange’, in addition to that fact that the index ‘presently includes preferred or common shares of nine Russian oil and gas companies, the most important of which are Gazprom, Lukoil, Novatek, Rosneft and Surgutneftegas’). Ibid. (most notably given its availability ‘on the webpage of the Moscow Stock Exchange’).

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sector, among other calculations.182 The actual calculation may take into account ‘practical’ considerations, including the avoidance of ‘the effects of random fluctuations of the index on the amount to be awarded’.183 In this vein, a tribunal may choose ‘to use the average of the values of the index over the period’ relevant to the valuation ‘as the basis for its calculations’.184 13.41 The valuation of ‘the loss of dividends’ concerns the ‘second element of the damages suffered by Claimants as a result of Respondent’s expropriation of their investment’185 and which ‘would otherwise have been paid to them as […] shareholders’.186 The value of lost dividends is determined ‘up to each date’ taken into account for valuation.187 The ‘Claimants’ calculation of […] lost cash flows is merely a starting point for the Tribunal’s determination of […] the correct estimate of the dividends that Claimants would have earned […] in the “but for” scenario.’188 Cash flows estimations may be impacted by ‘corrections’ regarding, among others, ‘the interpretation of the historical information’ on which the cash flows may be based.189 In turn, aspects on how ‘historical information’ may be misinterpreted include the possibility that the claimant underestimates ‘transportation costs’ or that the claimant’s DCF model ‘overlooks certain operating expenses’.190 13.42 In addition, discrepancies may result from failing to take into account that by virtue of an expropriation an Investor, albeit deprived of the value of the expropriated asset, is relieved ‘of the risk associated with owning it’.191 The risks to cash flows which expropriation eliminates ‘must be factored back into the cash flow model in the “but for” scenario’.192 Such risk may include ‘the real risk of substantially higher taxes’, all the more in the cases of companies for which ‘taxes other than income taxes (also referred to as “non-income taxes”) consistently account for well over 50 percent of […] net income from year to year’.193 For such companies, ‘cash flows could be significantly affected 182 183 184 185 186 187 188 189 190 191

192 193

Ibid. (referring to the parties use of the index in relation to ‘the value of Russian oil and gas companies’). Hulley, para 1821; Veteran, para 1821; Yukos, para 1821. Ibid. Hulley, para 1791; Veteran, para 1791; Yukos, para 1791. Ibid. Ibid. (recalling that those dates are ‘the date of the YNG auction (19 December 2004) and the date of this Award (deemed to be 30 June 2014 for valuation purposes)’). Hulley, para 1798; Veteran, para 1798; Yukos, para 1798. Hulley, para 1800; Veteran, para 1800; Yukos, para 1800. Hulley, para 1801; Veteran, para 1801; Yukos, para 1801. Hulley, para 1803; Veteran, para 1803; Yukos, para 1803 (quoting and agreeing with the respondent’s proposition that ‘an expropriation relieves the owner not only of the value of the asset on the date of expropriation, but also of the risk associated with owning it’). Ibid. Hulley, para 1805; Veteran, para 1805; Yukos, para 1805 (with particular reference to Yukos).

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by any increases in the tariffs and rates relating to the non-income taxes’.194 The risk of taxation may be underestimated where a calculation is based on the assumption that the expropriated company would have operated as a stateowned company.195 Other risks may derive from the complexity and opaqueness of ‘a vast offshore structure’ operating in connection with the expropriated company and ‘set up by Claimants, or by others on their behalf, in order to transfer money earned […] out of the’ respondent state.196 The complexity and scale of the structure may be evidenced by indications that ‘corporate governance reforms’, including most notably the adoption of ‘standards of transparency and protection of minority interests’, are a mere ‘façade’.197 The likelihood of the aforementioned offshore structures’ continued use in the absence of an expropriation is an additional aspect of a tribunal’s analysis of the above ‘additional risks’.198 The ‘principles of compensation’ set out in Article 13(1) are not applicable in 13.43 respect of damage or loss caused by breaches of Article 10.199 When an Investor’s claim of breach of FET under Article 10(1) 2nd Sentence prevails, and the conduct breaching FET ‘resulted finally in a taking’ of an Investor’s Investment, Article 13(1) 2nd Sentence may be taken into account, as ‘guidance […] regarding the date and measure for the calculation of damages’.200 Rather than a ‘taking’, as aptly put by the Eiser tribunal, ‘a violation of a treaty obligation causing injury entitles an injured party to compensation for the injury sustained’.201 In particular, Article 13(1) 2nd Sentence provides guidance regarding the amount to be awarded where conduct ‘found […] to be not a lawful expropriation’ causes damages.202 On the basis of this piece of guidance, the quantum of damages caused by a breach of the ECT not constitutive of a lawful expropriation ‘shall not be lower than what the ECT prescribes for a lawful expropriation’.203 The rule regarding interests due for expropriation has been applied by analogy 13.44 to breaches of Article 10(1).204 194 195 196 197 198 199 200 201 202 203 204

Ibid. Hulley, para 1804; Veteran, para 1804; Yukos, para 1804 (agreeing with the respondent’s view that the claimants had ‘effectively valued Yukos as if it were a State-owned strategic enterprise, which it never was’). Ibid. (referring to Yukos offshore structure.). Hulley, para 1809; Veteran, para 1809; Yukos, para 1809 (agreeing with the respondent’s assessment of Yukos’ corporate governance). Hulley, paras 1810–1811; Veteran, paras 1810–1811; Yukos, paras 1810–1811. Nykomb, p 38. Stati, para 1460. Eiser, para 420. Stati, para 1461. Ibid. Eiser, para 475; Novenergia II, para 844.

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13.45 Article 13(2) provides for the right of an Investor to prompt review of the valuation of its Investment and the payment of compensation. The review is to be conducted in accordance with the principles set out in Article 13(1) by a judicial or other competent authority of, and under the law of, the party making the Expropriation. 13.46 Article 13(3) provides, for the avoidance of doubt, that where an Investment is held through ownership of shares, the expropriation of assets of the company or enterprise whose shares are held, is deemed an Expropriation. 13.47 The determination of costs is decided in the exercise of a tribunal’s discretion and in light of various factors.205 The amount of costs awarded to a claimant may take into account a tribunal’s finding as to the egregiousness of a breach of the ECT.206

205 206

Hulley, para 1887; Veteran, para 1887; Yukos, para 1887. Hulley, para 1886; Veteran, para 1886; Yukos, para 1886.

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ARTICLE 14 TRANSFERS RELATED TO INVESTMENTS1 Francesco Montanaro

(1)

Each Contracting Party shall with respect to Investments in its Area of Investors of any other Contracting Party guarantee the freedom of transfer into and out of its Area, including the transfer of: (a) the initial capital plus any additional capital for the maintenance and development of an Investment; (b) Returns; (c) payments under a contract, including amortization of principal and accrued interest payments pursuant to a loan agreement; (d) unspent earnings2 and other remuneration of personnel engaged from abroad in connection with that Investment; (e) proceeds from the sale or liquidation of all or any part of an Investment; (f) payments arising out of the settlement of a dispute; (g) payments of compensation pursuant to Articles 12 and 13. Transfers under paragraph (1) shall be effected without delay and (except in case of a Return in kind) in a Freely Convertible Currency.3 Transfers shall be made at the market rate of exchange existing on the date of transfer with respect to spot transactions in the currency to be transferred. In the absence of a market for foreign exchange, the rate to be used will be the most recent rate applied to inward investments or the most recent exchange rate for conversion of currencies into Special Drawing Rights, whichever is more favourable to the Investor. Notwithstanding paragraphs (1) to (3), a Contracting Party may protect the rights of creditors, or ensure compliance with laws on the

(2) (3)

(4)

1 2 3

See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), n. 3. with respect to Art 14, p. 135. See Art 32(1), p. 79 and Annex T, pp. 113 and 127. See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), n. 4. with respect to Art 14 (2), p. 136.

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(5)

(6)

issuing, trading and dealing in securities and the satisfaction of judgements in civil, administrative and criminal adjudicatory proceedings, through the equitable, non-discriminatory, and good faith application of its laws and regulations. Notwithstanding paragraph (2), Contracting Parties which are states that were constituent parts of the former Union of Soviet Socialist Republics may provide in agreements concluded between them that transfers of payments shall be made in the currencies of such Contracting Parties, provided that such agreements do not treat Investments in their Areas of Investors of other Contracting Parties less favourably than either Investments of Investors of the Contracting Parties which have entered into such agreements or Investments of Investors of any third state.4 Notwithstanding subparagraph (1)(b), a Contracting Party may restrict the transfer of a Return in kind in circumstances where the Contracting Party is permitted under Article 29(2)(a) or the GATT and Related Instruments to restrict or prohibit the exportation or the sale for export of the product constituting the Return in kind; provided that a Contracting Party shall permit transfers of Returns in kind to be effected as authorized or specified in an investment agreement, investment authorization, or other written agreement between the Contracting Party and either an Investor of another Contracting Party or its Investment.

COMMENTARY A. Introduction 14.01 Foreign investments – both direct and indirect – are by definition crossborder, namely they presuppose the movement of capital from one country to another.5 The establishment and the expansion of an investment imply a transfer of funds from the country where the investor is based to the country where investment operations will take place.6 Similarly, investors make fund transfers to repatriate investment proceeds to their home State, if they do not 4 5 6

See Final Act of the European Energy Charter Conference, Understandings, n. 12. with respect to Art 14(5), p. 28. IMF, Balance of Payments Manual, 2005, 100, 110. ‘There are, in fact, two types of inward transfers that fall into this category. The first type are those that are made for purposes of making a new investment; the second type are those that are made to develop or maintain an existing investment (e.g. increased capitalization of a foreign affiliate).’ See UNCTAD, UNCTAD, ‘Transfer of funds’, UNCTAD Series on issues in international investment agreements, 2009, 32.

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reinvest them in the host State, and move the invested capital back to their home State. For this reason, transfer clauses are central to the treaty-based system of protection of foreign investment.7 This, however, limits the power of the States to impose exchange restrictions, i.e. all enactments that control the movement of currency, property and services for the purpose of protecting the financial resources of a country.8 Such provisions inevitably curb margin of manoeuvre of the host State in the field of monetary policy.9 Notably, it limits the power of the latter to impose restriction on the inflow or the outflow of funds to improve the balance-of-payments situation.10 Transfer clauses should be regarded as part and parcel of a composite 14.02 multilateral international legal framework governing the cross-border movement of funds. A large number of international conventional instruments contain provisions restraining the power of the States to impose limits on funds transfers. The IMF Agreement regulates this matter with a view to creating a multilateral system of payments and addressing trade imbalances between the contracting States. A balanced international financial system was considered key to the promotion of international trade and, ultimately, to the creation of the post-World War II international economic order. For this reason, the IMF Agreement among other things prohibits the States from imposing restrictions on the international current transactions without the approval of the Fund.11 Current transactions under the Agreement include payments related to business activities, including the payments of interest on loans and those concerning amortization of loans. Technically, some of these categories are not current transactions. However, they have been included in this category in order to promote cross-border deployment of capital for productive purposes.12 Capital transactions, instead, are not subject to this obligation. Though there is no doubt that the infusion of fresh capital into existing investments would fall within the latter category,13 it should be 7 8 9

10

11 12 13

G. Sacerdoti, ‘Bilateral treaties and multilateral instruments on investment protection’ (1997) 269 Recueil des Cours de l’Académie de Droit International, 358–9. F.A. Mann, ‘Money in Public International Law’, (1959) 96 Recueil des Cours de l’Académie de Droit International, 56. M. Waibel, ‘BIT by BIT: The Silent Liberalization of the Capital Account’ in C. Binder, U. Kriebaum, A. Reinisch, and S. Wittich (eds) International Investment Law for the 21st Century: Essays in Honour of Christoph Schreuer (OUP, 2009) 498. ‘The balance of payments is a statistical statement that summarizes transactions between residents and nonresidents during a period. It consists of the goods and services account, the primary income account, the secondary income account, the capital account, and the financial account’. See IMF, Balance of Payments Manual (n 5) 9. Art. VIII, Section 2(a), IMF Articles. C.D. Zimmermann, ‘The Promotion of Transfer-of-Funds Liberalization across International Economic Law’ (2011) 12 Journal of World Investment and Trade 725, 728. A. Newcombe, L. Paradell, Law and Practice of Investment Treaties – Standards of Treatment (Kluwer Law International, 2009) 402.

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nonetheless noted that in a large number of other instances the distinction between capital and current transactions might be quite blurred in practice.14 14.03 Moreover, the OECD has also played an important role in the liberalization of international transactions.15 The OECD Council has adopted two liberalization codes. The OECD Capital Movements Code applies to a wide range of capital transfers, including cross-border loans and foreign direct investments.16 The Code of Liberalization of Invisible Operations covers international movement of capital relating to cross-border service provision.17 The General Agreement on Trade in Services (GATS) also regulates cross-border capital transfers that are instrumental in cross-border provision of services.18 Article XI of the GATS prohibits restrictions on current transactions made in connection with the services covered by contracting States’ specific commitments. Such an obligation, however, leaves unprejudiced the rights and obligations of the contracting States under the IMF Agreement. In addition, Article XII of the GATS stipulates that the Contracting States can derogate from the above obligation if this is necessary to deal with balance-of-payments imbalances. B. The monetary transfer clause in the Energy Charter Treaty in light of the investment treaty practice 14.04 Before analysing Article 14 of the ECT, it is worth investigating how these clauses are framed in investment treaty practice. According to the UNCTAD database, 2561 IIAs contain transfer clauses.19 These provisions share the same purpose, namely ensuring the prompt transfer of funds ‘relating to an investment’, ‘related to an investment’ or ‘in connection with an investment’. According to the Continental tribunal, the phrase ‘relating to’ encompasses all transfers ‘essential for, or typical to the making, controlling, maintenance, disposition of investments’.20 It follows that all these transfers do not include 14 15 16 17 18

19 20

C. Proctor, Mann on the Legal Aspect of Money (OUP, 2012) para. 2.51. D. Henderson, ‘The Role of the OECD in Liberalising International Trade and Capital Flows’ (1996) 19 World Economy 11, 15–18. OECD, ‘Codes of Liberalisation of Capital Movements and of Current Invisible Operations – User's Guide 2007’, 9. Ibid. F. Lupo Pasini, ‘Movement of Capital and Trade in Services: Distinguishing Myth from Reality Regarding the GATS and the Liberalization of the Capital Account’ (2012) 15 Journal of International Economic Law 581, 583. UNCTAD IIA Mapping Project, see http://investmentpolicyhub.unctad.org/IIA/mappedContent (last accessed January 2018). Continental Casualty Company v. The Argentine Republic, ICSID Case No. ARB/03/9, Award (5 September 2008), para. 240.

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mere changes of ‘type, location and currency of an investor’s existing investment’.21 Furthermore, the Biwater Gauff tribunal added that transfer clauses are not ‘a guarantee that investors will have funds to transfer’.22 The Metalpar23 tribunal, instead, rejected the investor’s claim that the establishment of an authorization procedure for outward transfer resulted in a restriction prohibited under the transfer clause. In particular, it found that the investor was well aware from the outset that the making of certain kinds of transfers was conditional upon an authorization of the Argentinean Central Bank.24 Having said that, it should be noted that the wording of such clauses varies from treaty to treaty.25 What distinguishes these clauses is the scope of application of the transfer rights, the treatment prescribed, and the provision of exceptions to such rights.26 As regards the first criterion, it should be noted that some transfer clauses 14.05 apply only to outbound investments, namely the repatriation of the proceeds associated with a foreign investment or the repatriation of the investment itself. However, unlike the OECD liberalization code, such clauses do not cover outbound investment made by nationals of the host State.27 For instance, the BIT between Belgium-Luxembourg and Hong Kong stipulates that the host State cannot impose restrictions on the right to transfer investments and returns abroad.28 Other transfer provisions explicitly stipulate that investors may transfer funds from and into the country.29 A third category of IIAs contain transfer clauses that do not specify the types of transfers covered, but can be interpreted as including both outbound and inbound transfers.30 For instance, Article 7 of the Albania – UK BIT stipulates the Contracting Parties shall ensure the free transfer of all payments relating to their investments.31 In this respect, it should be noted that transfer clauses generally list the types of transfers to which they apply. In some cases, they contain an exhaustive list of the categories of transfers falling within their 21 22 23 24 25 26 27 28 29 30

31

Ibid., para. 241 Biwater Gauff (Tanzania) Ltd. v. United Republic of Tanzania, ICSID Case No. ARB/05/22, Award (24 July 2008), para. 732. Metalpar S.A. and Buen Aire S.A. v. The Argentine Republic, ICSID Case No. ARB/03/5, Award (6 June 2008). Ibid., 179. R. Dolzer, C. Schreuer, Principles of International Investment Law (OUP, 2008) 192; Waibel (n 4) 511. UNCTAD, ‘Transfer of funds’ (n 6) 30–34. Zimmermann (n 12), 735. Art 6, Belgium–Luxembourg and Hong Kong BIT (1996). Art 12, Japan – Vietnam BIT (2003). The only exception being those treaties where similar clauses are denominated ‘repatriation of investment and returns’. See UNCTAD, ‘Bilateral Investment Treaties 1995–2006: Trends in Investment Rule-making’, United Nations, 2007, 57. Art 7, Albania – UK BIT (1994).

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scope of application.32 More frequently, however, transfer clauses provide for an illustrative list of fund transfers.33 Thus, they also cover transfers that are not exclusively listed in the provision. 14.06 As regards the second criterion, some agreements impose on the State the obligation to allow monetary transfers in a freely convertible currency.34 Other IIAs adopt a more flexible approach, whereby the transfer shall be made in the currency agreed by the parties or in the currency in which the investment was made.35 A third group of treaties stipulates that the Contracting States shall not impede transfers made in any usable currency.36 This last formulation appears to be the most restrictive in that it reduces the range of currencies that can be adopted for the transfer and may ultimately impose ancillary obligations on the host State.37 Notably, if the currency of the host State is not usable, the latter will be forced to convert it into a usable one.38 Last, some IIAs also specify the exchange rate at which the transfer shall be made.39 For instance, Article 7 of the Germany-Cambodia BIT establishes that the rate of exchange should be calculated on the basis of the IMF Special Drawing Rights.40 14.07 Last, it is possible to discern transfer clauses stipulating an unfettered right to transfer from those41 setting out exceptions to this right.42 In this respect, it should be noted that States agreeing on unrestricted transfer clauses may nonetheless impose limitations on capital transfers if this is permitted under customary international law and the IMF agreement.43 14.08 IIAs explicit exceptions to the transfer of funds, instead, can be invoked in good faith and in a non-discriminatory manner to pursue a wide range of public interest objectives. A first group of exceptions ensures the compatibility with the domestic legislation of the host State. In particular, this includes

32 33 34 35 36 37 38 39 40 41 42 43

Art 6, Mongolia – South Korea BIT (1991). Art 7, Thailand – Argentina BIT (2000). Art 7, Mexico – Greece BIT (2000); Art 6, Serbia – Algeria BIT (2012); Art 7, Cuba – Austria BIT (2001). Article 6, Brunei – China BIT (2000); Article IV, Turkey – Albania BIT (1992). Art 6, Egypt – Malaysia BIT (2000). UNCTAD (n 30) 60. Ibid. G. Sacerdoti, ‘The Admission and the Treatment of Foreign Investment under Recent Bilateral and Regional Treaties’ (2000) 1 Journal of World Investment and Trade 105, 117. Art 7, Cambodia – Germany BIT. Art 6, Serbia – Algeria BIT (2012). Art 9, Austria – Tajikistan BIT (2010). C. Kern, ‘Transfer of Funds’ in M. Bungenberg, J. Griebel, S. Hobe, A. Reinisch (eds) International Investment Law: A Handbook (C.H. Beck, Hart, Nomos, 2014) 36.

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measures adopted in the context of (i) bankruptcy and (ii) insolvency proceedings, measures adopted to ensure compliance with (iii) criminal laws, (iv) judgments, (v) and laws governing regulated markets.44 Of particular relevance are the exceptions covering disturbances of the balance of payments. Often included in multilateral international treaties,45 such exceptions are absent in a large number of IIAs. One possible explanation is that States have regarded IIAs as an instrument to protect non-volatile investments, such as foreign direct investment. Therefore, they did not deem necessary to provide for this sort of emergency break in case of excessive capital flights.46 For instance, Article 17 of the Japan – Oman BIT of 2015 reads as follows: 1. A Contracting Party may adopt or maintain measures not conforming with its obligations under Article 3 relating to cross-border capital transactions and Article 13: (a) in the event of serious balance-of-payments and external financial difficulties or threat thereof; or (b) in cases where, in exceptional circumstances, movements of capital cause or threaten to cause serious difficulties for macroeconomic management, in particular, monetary and exchange rate policies. 2. Measures referred to in paragraph 1: (a) shall be consistent with the Articles of Agreement of the International Monetary Fund, so long as the Contracting Party taking the measures is a party to the said Articles; (b) shall not exceed those necessary to deal with the circumstances set out in paragraph 1 above; (c) shall be temporary and shall be eliminated as soon as conditions permit; (d) shall be promptly notified to the other Contracting Party; and (e) shall avoid unnecessary damages to the commercial, economic and financial interests of the other Contracting Party. 3. Nothing in this Agreement shall be regarded as altering the rights enjoyed and obligations undertaken by a Contracting Party as a party to the Articles of Agreement of the International Monetary Fund.

That being said, it should be noted that the lack of express exceptions does not constitute at least in principle an impediment for arbitral tribunals to limit transfer of funds.47 In Continental, the tribunal found that the transfer rights laid down in the US-Argentina BIT should be regarded as a special and broader rule vis-à-vis the IMF regime.48 Thus, also unqualified IIAs transfer clauses are in any case subject to the exceptions set out in the IMF Agreement.49 In addition, according to some arbitral tribunals, IIAs substantive provisions may suffer in any case the necessity exception under international law.50 44 45 46 47 48 49 50

Art 7, Latvia – Armenia BIT (2005); Article 7, Bahrain – Mexico BIT (2012). Waibel (n 9) 506, 514. UNCTAD, ‘Transfer of funds’ (n 6) 37. Kern (n 43) 45. Continental v. Argentina (n 20) paras 241–244. Kern (n 43) 881. Ibid.

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14.09 Article 14 of the ECT has a broad scope of application. In fact, it expressly applies to the transfer into and out of the territory of the Contracting States and contains a merely illustrative list of transfers concerning all the phases of the investment cycle. To begin with, the provision at hand makes reference to the infusions of capital aimed to establish and enlarge the investment. Moreover, it includes a large number of sums, such as proceeds deriving from the investment operations or payments relating to a contract. Finally, it also specifically covers all monetary transfers made in relation to partial or complete divestment. The treatment afforded to such transfers is similar to that commonly provided for in IIAs. Transfers must be made without delay and in a freely convertible currency.51 This provision, however, should be read in conjunction with the decision concerning Article 14 contained in the Annex II to the Final Act of the Conference on the European Energy Charter. This decision clarifies that the transfer clause under the ECT leaves unprejudiced the right of the the Contracting States to adopt restrictive measures that do not undermine the rights set out therein, and are consistent with the MFN obligations and do not affect current transactions, i.e. payments connected with the movement of goods, services and persons that are not connected with capital movements. The Chairman’s Statement appended below the decision seems to buttress this reading: restrictions on capital movements are allowed insofar as they comply with the requirements set out in the decision. The decision then goes on to specify that only former Soviet Union States may adopt such restrictive measures if they expressed their intention to do so before 1 July 1995. In any event, the decision clarifies that such restrictive measures do not derogate from the rights of the Contracting Parties, Investors or Investments or from the obligations of the Contracting Parties as far as concerns Article 16 ECT. It is not entirely clear the extent to which this qualification limits the power to adopt the restrictive measures mentioned in the decision. However, the exchange of letters between Russia and the then European Communities sheds some light on the rather obscure language of the decision. In particular, both parties agree on the fact that this decision should not prevent the application of Article 16 ECT. 14.10 Having said that, the broad protection afforded to monetary transfers is combined with several exceptions. The first group of exceptions grants to the host State the power to adopt non-discriminatory restrictive measures to ensure compliance with its internal laws or with judgments. The second category of exceptions specifically covers transfers in kind, which can be 51

The same provision, however, states that former Soviet Union States may conclude between themselves agreements allowing transfers to be made in their currencies on condition that this does not result in a treatment less favorable for the investors.

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limited in accordance with the provisions set out in Article 29 of the ECT and in the GATT. No balance of payments exception, instead, is included in the ECT. The absence of such mechanism may turn out to be problematic, especially when IIAs cover both capital and current transactions,52 for the right to transfer funds might come into conflict with the IMF Agreement.53

52 53

A. De Luca, ‘Umbrella Clauses and Transfer Provisions in the (Invisible) EU Model BIT’ (2014) Journal of World Trade and Investment 506, 527. Ibid.; Waibel (n 9).

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ARTICLE 15 SUBROGATION Apurva Mudliar

(1)

(2)

(3)

If a Contracting Party or its designated agency (hereinafter referred to as the “Indemnifying Party”) makes a payment under an indemnity or guarantee given in respect of an Investment of an Investor (hereinafter referred to as the ‘Party Indemnified’) in the Area of another Contracting Party (hereinafter referred to as the ‘Host Party’), the Host Party shall recognize: (a) the assignment to the Indemnifying Party of all the rights and claims in respect of such Investment; and (b) the right of the Indemnifying Party to exercise all such rights and enforce such claims by virtue of subrogation. The Indemnifying Party shall be entitled in all circumstances to: (a) the same treatment in respect of the rights and claims acquired by it by virtue of the assignment referred to in paragraph (1); and (b) the same payments due pursuant to those rights and claims, as the Party Indemnified was entitled to receive by virtue of this Treaty in respect of the Investment concerned. In any proceeding under Article 26, a Contracting Party shall not assert as a defence, counterclaim, right of set-off or for any other reason, that indemnification or other compensation for all or part of the alleged damages has been received or will be received pursuant to an insurance or guarantee contract.

COMMENTARY 15.01 Subrogation is a term originating in insurance law, wherein the insurer steps into the insured’s shoes, thereby allowing an insurer to recover the amount it has paid for a loss by suing the party that caused the loss. Most the BITs contain a subrogation clause, obliging the host State of the investment to 242

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recognize assignment of the rights of an investor to a party or its agency which makes a payment to the investor pursuant to an investment insurance scheme. The basic rationale behind having this clause is providing mechanisms for insurers to recover the money they expended under an investment guarantee. These clauses empower the investment insurer (or the home State) to enforce claims against the host State in its own right. Article 15 of the ECT contains the subrogation clause, which provides for the 15.02 transfer of rights that foreign investors might have vis-à-vis the host country if they receive compensation from their home country under an investment insurance or guarantee.1 It provides that the insurance agency of the home State (or the home State itself) is subrogated and then entitled to exercise and enforce the rights of the investor. By virtue of Article 15(1) the host party shall recognize assignment of all the rights and claims to a Contracting Party or its designated agency which indemnifies an investor under an indemnity or guarantee given in respect of an Investment in the area of another Contracting Party. This allows the indemnifying party to exercise all the rights the investor had in respect to its investment in another Contracting Party. According to Article 15(1) the indemnifying party can either be the host State 15.03 or its designated agency. The ECT does not provide any guidance on the term ‘designated agency,' hence it leaves the question open whether the designated agency has to be the same nationality as the investor to pursue the claims. In a plain textual interpretation of Article 15(1), if the indemnifying party qualifies as a designated agency of the Contracting Party then it should be allowed to pursue the arbitration against the host State of the investment. Article 15(2) entitles the indemnifying party to receive the same treatment in 15.04 respect of the rights and claims acquired by virtue of the assignment, and the same payments due pursuant to those rights and claims as the investor (party indemnified) was entitled to receive by the ECT in respect of the investment concerned under all the circumstances. Finally, by virtue of Article 15(3) a Contracting Party is not allowed to assert 15.05 as a defence, counterclaim, right of set-off or for any other reason, that

1

The Energy Charter Treaty – A Reader's Guide, available at https://is.muni.cz/el/1422/jaro2017/ MVV2368K/um/ECT_Guide_ENG.pdf, Pg. 27.

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indemnification or other compensation for all or part of the alleged damages has been received or will be received pursuant to an insurance or guarantee contract in any proceeding under Article 26.

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ARTICLE 16 RELATION TO OTHER AGREEMENTS1 Francesco Montanaro

Where two or more Contracting Parties have entered into a prior international agreement, or enter into a subsequent international agreement, whose terms in either case concern the subject matter of Part III or V of this Treaty, (1) nothing in Part III or V of this Treaty shall be construed to derogate from any provision of such terms of the other agreement or from any right to dispute resolution with respect thereto under that agreement; and (2) nothing in such terms of the other agreement shall be construed to derogate from any provision of Part III or V of this Treaty or from any right to dispute resolution with respect thereto under this Treaty, where any such provision is more favourable to the Investor or Investment.

COMMENTARY A. Introduction Norm conflicts are common to all legal systems. However, this issue is even 16.01 more relevant in the context of the international legal system, which is composed of a plethora of conventional instruments that can overlap and, eventually, come into collision with each other. In a way, conflicts between treaty obligations are nothing less than the upshot of the notorious fragmentation of international law.2 Such inconsistencies can be solved by resorting to 1

2

See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), n. 1. with respect to the Treaty as a whole, p. 135 and n. 3. with respect to Article 14, p. 135. Report of the Study Group of the International Law Commission, ‘Fragmentation of International Law: Difficulties arising from the Diversification and Expansion of International Law’, International Law Commission, 58th session, Geneva, 1 May-9 June and 3 July-11 August 2006, pp. 33–4. As is well known, this phenomenon has attracted a great deal of scholarly attention. See generally A. Fischer-Lescano, G. Teubner. ‘Regime-Collisions: The Vain Search for Legal Unity in the Fragmentation of Global Law’

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the principles set out in the Vienna Convention on the Law of Treaties (VCLT). These rules are residual in that they apply if the conflicting treaties do not contain criteria that can be used to solve norm conflicts.3 These principles shall be applied with no prejudice to Article 103 of the UN Charter. The latter is therefore hierarchically superior to other treaty clauses.4 Similarly, Article 53 of the VCLT provides that: ‘A treaty is void if, at the time of its conclusion, it conflicts with a peremptory norm of general international law’. 16.02 With respect to norm conflicts concerning all other treaties, one should distinguish the cases in which the conflicting treaties do not contain any instrument to solve norm conflicts from those cases where a given treaty dictates one or more principles to solve these kinds of clashes. In the first scenario, Article 30 first adopts the chronologic criterion (lex posterior derogat anteriori). If all the parties to a treaty concluded a new treaty containing provisions that contradicted the earlier treaty, the later treaty prevails over the former. Put another way, the earlier treaty still applies insofar as it is compatible with the later one, unless the earlier one has been terminated or suspended. The VCLT also provides for rules applicable to the case in which the parties to the later treaty are not exactly the same as those to the earlier treaty. Under Article 30, paragraph 4, the earlier treaty governs the relationship between the States Parties to both treaties and those parties to the earlier one. In the second scenario, Article 30, paragraph 2, of the VCLT establishes that if a treaty stipulates that its provisions should not be considered inconsistent with another treaty – be that concluded before or after the first former – then the latter prevails. This provision explicitly refers to the so-called ‘conceding clause’, but this does not preclude States from adopting different instruments to solve treaty conflicts. B. Clauses governing conflicts with other treaties in the IIAs and in the ECT 16.03 Overlaps and conflicts often arise between IIAs and other domestic and international obligations. Notably, IIAs contain a number of provisions that serve the same purpose as those included in other conventional instruments

3 4

(2004) 25 Michigan Journal of International Law 999; M. Young (ed), Regime Interaction in International Law: Facing Fragmentation (CUP, 2012). M.E. Villiger, Commentary on the 1969 Vienna Convention on the Law of the Treaties (Brill, 2009) 403. Ibid., 404.

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promoting international economic integration. For instance, preestablishment and market access provisions may be contained both in IIAs and other regional economic agreements.5 The so-called ‘preservation of rights’ or ‘non-derogation’ clauses precisely 16.04 address this issue. Such provisions, however, may have different scopes of application. In some instances, they may stipulate that a given IIA does not prevent the application of international law and domestic law. For example, Article 9 of the Sweden – Vietnam BIT stipulates that: This Agreement shall in no way restrict the rights and benefits which an investor of one Contracting Party enjoys under national or international law in the territory of the other Contracting Party.

Some other treaties limit their application to the other agreements concluded between the investor and the host State. Furthermore, these clauses are also characterized by different formulations. Some establish that the provisions of the relevant IIA apply unless other provisions grant a more favourable treatment.6 Other treaties clarify that their provisions do not prejudice the enjoyment of rights enshrined in international instruments and domestic law.7 Article 16 of the ECT states that no provision contained in other agreements 16.05 and affording a less favourable treatment can derogate from the rules laid down in the ECT. This rule was invoked in the Electrabel case.8 The dispute arose from a power purchase agreement concluded between Hungary and Electrabel, a Belgian electricity company. The contract was concluded before Hungary joined the EU. However, after the accession, the European Commission’s State aid investigation revealed that Hungary had granted illegal aid to Electrabel through the abovementioned contract. Hungary terminated the contract to comply with EU State aid rules. But this decision led the investor to start arbitration against the host State. In particular, Electrabel claimed the violation of several ECT substantive standards. One of the main questions underlying the dispute concerned the relationship between EU law obligations, particularly the EU State aid discipline and ECT obligations. The starting point of the tribunal’s reasoning was that international law does not establish a hierarchical relationship between international treaties.9 But both 5 6 7 8 9

M. Houde, K. Yannaca-Small, ‘Relationships between International Investment Agreements’, OECD Working Papers on International Investment, 2004/01, OECD Publishing, 10. Art 8, Argentina – Bulgaria BIT. Art 9, Pakistan – Sweden BIT. Electrabel S.A. v. Republic of Hungary, ICSID Case No. ARB/07/19, Award (25 November 2015). Ibid., para. 4.173.

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the EU legal order and the ECT contained a mechanism conceived for this purpose, namely Article 307 of the EC Treaty and Article 16 of the ECT.10 With regard to the latter, the tribunal, espousing the conclusions of previous case law, found that the ECT and the EU legal order did not cover the same subject matter.11 Therefore, ECT Article 16 was not applicable to the instant case.12

10 11 12

Ibid. Ibid., para. 4.174. Ibid., para 4.176.

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ARTICLE 17 NON-APPLICATION OF PART III IN CERTAIN CIRCUMSTANCES Apurva Mudliar

Each Contracting Party reserves the right to deny the advantages of this Part to: (1)

(2)

a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized; or an Investment, if the denying Contracting Party establishes that such Investment is an Investment of an Investor of a third state with or as to which the denying Contracting Party: (a) does not maintain a diplomatic relationship; or (b) adopts or maintains measures that: (i) prohibit transactions with Investors of that state; or (ii) would be violated or circumvented if the benefits of this Part were accorded to Investors of that state or to their Investments.

COMMENTARY A. Introduction Article 17 of the ECT is the so-called ‘denial of benefits clause.’ It is a 17.01 common clause found in the BITs which safeguards the home state contracting party against the ‘free riders,’ i.e., the nationals of third countries who would gain rights despite the fact that the contracting parties to the treaty did not agree on according them those benefits. The purpose of this clause is to basically provide the contracting party with a reserved right to limit the benefits of investment protection to a class of investors and investments. It 249

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effectively allows the contracting party to pierce the ‘corporate veil’ in order to narrow the scope of treaty application. 17.02 The right conferred to the contracting parties under Article 17 is in consonance with clauses found in modern bilateral and multilateral treaties, for example, Article 1113 of the NAFTA.1 The decision on jurisdiction rendered by ICSID Tribunal in Plama Consortium Ltd v. Republic of Bulgaria 2 (hereinafter Plama case) provides guidance on interpretation of Article 17 of ECT. It addresses the questions of conditions under which a contracting party has the right to deny the benefits under the treaty. 17.03 In order to effectively understand this provision, based on Article 31 of the Vienna Convention on the Law of Treaties (VCLT),3 let us first interpret this provision in its plain language. B. Title: Non-application of Part III in certain circumstances 17.04 From the plain interpretation of the wording of the title, one can conclude that the ‘denial of benefit clause’ under the ECT only allows the contracting party to deny the benefits laid out in Part III of the ECT. Part III (Article 10 to 17) of the ECT covers the provisions on investment promotion and protection. The so-called ‘denial of benefits’ clause only applies to Part III, i.e., it allows the Contracting Party to reserve their rights to deny the benefits set out in Article 10–16 of the ECT to any investor or investment meeting the descriptions of the circumstances laid out in paragraphs (1) or (2) of Article 17. 17.05 In the Plama case, the tribunal considered the wording of Article 17 and reckoned its exclusive reference to the provisions of Part III on the promotion and protection of Investments:

1

Article 1113: Denial of Benefits 1. A Party may deny the benefits of this Chapter to an investor of another Party that is an enterprise of such Party and to investments of such investor if investors of a non-Party own or control the enterprise and the denying Party: (a) does not maintain diplomatic relations with the non-Party; or (b) adopts or maintains measures with respect to the non-Party that prohibit transactions with the enterprise or that would be violated or circumvented if the benefits of this Chapter were accorded to the enterprise or to its investments.

2 3

Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005 Art. 31(1) of the VCLT says 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.

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The express terms of Article 17 refer to a denial of the advantages ‘of this Part’, thereby referring to the substantive advantages conferred upon an investor by Part III of the ECT. The language is unambiguous; but it is confirmed by the title to Article 17: ‘Non–Application of Part III in Certain Circumstances’ (emphasis supplied). All authentic texts in the other five languages are to the same effect. From these terms, interpreted in good faith in accordance with their ordinary contextual meaning, the denial applies only to advantages under Part III. It would therefore require a gross manipulation of the language to make it refer to Article 26 in Part V of the ECT.4

The tribunal in Yukos case5 further confirmed this view: […] Article 17 specifies–as does the title of the Article–that it concerns denial of the advantages of ‘this Part,’ i.e., Part III of the ECT. Provision for dispute settlement under the ECT is not found in ‘this Part’ but in Part V of the Treaty. Whether or not Claimant is entitled to the advantages of Part III is a question not of jurisdiction but of the merits. Since Article 17 relates not to the ECT as a whole, or to Part V, but exclusively to Part III, its interpretation for that reason cannot determine whether the Tribunal has jurisdiction to entertain the claims of Claimant.6

Hence, it can be effectively concluded that Article 17 is a reserved right, 17.06 meaning unless the Contracting Party does not exercise the right the investor or investment will continue to benefit from the protections laid out in Articles 10–16 (Part III). Now moving on to the circumstances in which the contracting parties can 17.07 invoke this provision, let us understand the application of Article 17(1) and 17(2). C. Application of Article 17(1) of the ECT Article 17(1) gives each Contracting Party the right to deny the advantages of 17.08 Part III to, ‘A legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized.’ There are two limbs to Article 17(1), which lay out the conditions a 17.09 Contracting Party needs to meet to use the option to deny the benefits to a legal entity. These are:

4 5 6

Plama Consortium (n 2), para. 147. Yukos Universal Ltd (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227. Ibid., para. 441.

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First, the legal entity in a Contracting Party needs to be owned or controlled by the nationals of ‘third State’; and second, this legal entity (i.e., owned or controlled by nationals of third State) has no substantial business activities in the area of the Contracting Party in which it is organized. The use of word ‘and’ in between these two limbs clearly implies that in order for a host State to exercise its reserved right it is mandatory to fulfil both of these conditions. It is only upon fulfilling these two conditions, the host State can expressly invoke this right. Although Article 17 of the ECT does not throw light on how the host State can exercise its right, it does specify that this right is ‘reserved’. Hence, unless the host State exercises this right, the covered investor enjoys the advantages of Part III. 17.10 This interpretation was confirmed by the tribunal in the Plama case, wherein the tribunal reasoned its decision on jurisdiction as follows: In the Tribunal’s view, the existence of a ‘right’ is distinct from the exercise of that right. For example, a party may have a contractual right to refer a claim to arbitration; but there can be no arbitration unless and until that right is exercised. In the same way, a Contracting Party has a right under Article 17(1) ECT to deny a covered investor the advantages under Part III; but it is not required to exercise that right; and it may never do so. The language of Article 17(1) is unambiguous; and that meaning is consistent with the different state practices of the ECT’s Contracting States under different bilateral investment treaties: certain of them applying a generous approach to legal entities incorporated in a state with no significant business presence there (such as the Netherlands) and certain others applying a more restrictive approach (such as the USA). The ECT is a multilateral treaty with Article 17(1) drafted in permissive terms, not surprisingly, in order to accommodate these different state practices.7

This was further noted by the Yukos tribunal: Article 17(1) does not deny simpliciter the advantages of Part III of the ECT – as it easily could have been worded to do […]. It rather ‘reserves the right’ of each Contracting Party to deny the advantages of that Part to such entity. This imports that, to effect denial, the Contracting Party must exercise the right.8

Therefore, an investor can be assured of the legitimate expectations of such advantages until the host State exercises its right. 17.11 Heretwo important questions arise: first, how does a contracting party invoke the right? And second, whether invoking the right would have a prospective or retrospective effect? 7 8

Plama Consortium (n 2), para. 155. Yukos Universal Ltd (n 5), para 456.

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Addressing the first question, as mentioned before, the ECT does not 17.12 expressly provide any requisites for invoking the right, unlike Article 1113(2) of the NAFTA9 wherein it expressly provides that the application of denial of benefit clause is subject to prior notification and consultation where the legal entity is owned or controlled by nationals of a third State and has no substantial business in the Contracting Party where it is organized. However, the tribunal in Plama case takes a view that the denying Contracting Party must exercise the denial of benefits right in a public manner that must be reasonably made available to Investors: The exercise would necessarily be associated with publicity or other notice so as to become reasonably available to investors and their advisers. To this end, a general declaration in a Contracting State’s official gazette could suffice; or a statutory provision in a Contracting State’s investment or other laws; or even an exchange of letters with a particular investor or class of investors.10

Having said that, the author is of the opinion that the ordinary meaning of the terms used by Article 17 ECT does not validate an implied requirement for a prior notification of investors by the Contracting Parties before exercising the denial of benefits right. Moving to the second question: whether this right has retrospective or 17.13 prospective effect. Again, the language of Article 17(1) does not clearly provide guidance in this aspect; however, as the essence of the ECT is to provide more certainty in the area of energy investments, the author is of the opinion that this provision can only have prospective effective. The ECT’s express ‘purpose’ under Article 2 ECT is the establishment of ‘a legal framework in order to promote long-term co-operation in the energy field … in accordance with the objectives and principles of the Charter’. Therefore, the ECT intends to provide an investor with an assurance for long-term cooperation by helping it plan/base its decision to invest on whether or not that host State has exercised its right under Article 17(1) ECT. Hence, any retrospective effect does not seem to be inconsistent with this ‘long-term’ purpose as it would breach investor’s legitimate expectation and would contradict the object and purpose of the ECT. 9

Art 1113: Denial of Benefits 2. Subject to prior notification and consultation in accordance with Articles 1803 (Notification and Provision of Information) and 2006 (Consultations), a Party may deny the benefits of this Chapter to an investor of another Party that is an enterprise of such Party and to investments of such investors if investors of a non-Party own or control the enterprise and the enterprise has no substantial business activities in the territory of the Party under whose law it is constituted or organized.

10

Plama Consortium Limited v. Republic of Bulgaria ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, Para. 157.

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Relying on the legitimate expectations of Investors and on the purpose of the ECT, the tribunal in the Plama case also rejected the retrospective effects of Article 17: The ECT’s express ‘purpose’ under Article 2 ECT is the establishment of ‘… a legal framework in order to promote long–term cooperation in the energy field … in accordance with the objectives and principles of the Charter’ (emphasis supplied). It is not easy to see how any retrospective effect is consistent with this ‘long-term’ purpose.11

Also, the use of the present tense (‘own or control’ … ‘has no substantial activities’) with the right’s exercise; and likewise, Article 17(2) ECT (‘if the denying Contracting Party establishes …’ etc.) suggests only a prospective effect to a denial of advantages to an Investment. The issue of whether there is an implied requirement of prior notification and whether the denial right has prospective or retrospective effective still remain contested in the practise of ECT tribunals. 17.14 Let us move now to the two cumulative conditions that a Contracting Party needs to fulfill to exercise this right. As laid out by the tribunal in the Yukos case on Article 17(1): It is apparent from the wording of Article17(1) that two additional cumulative substantive conditions must be met before the ‘denial-of-benefits’ clause can be exercised in respect of any particular legal entity. First, such legal entity must be owned or controlled by citizens or nationals of a third State; second, the legal entity must have no substantial business activities in the place in which it is organized.12

1. First condition: Legal entities should be owned and controlled by nationals or citizens of a third State

17.15 The meaning of the term ‘third State’ in common parlance denotes a State which is not party to the treaty. There are several provisions in the ECT like Articles (1)(7), 10(3) and 10(7), and 17 etc., which distinguish between a Contracting Party and third State and suggest a clear distinction between a Contracting Party and a third State. The travaux préparatoires demonstrates that the term ‘third State’ was substituted for the term ‘non-Contracting Party.’ Hence, it is the opinion of the author that ECT does not connote any special meaning to the term ‘third state,’ i.e., it simply means non-contracting party to the ECT. This has also been succinctly put forward by the Yukos tribunal: 11 12

Plama Consortium (n 2), para. 161. Yukos Universal (n5), para. 460.

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The Treaty clearly distinguishes between a Contracting Party (and a signatory), on the one hand, and a third State, which is a non-Contracting Party, on the other. The Tribunal agrees with Claimant that, on their face, several provisions distinguish between a Contracting Party and third State (for example, Articles (1)(7), 10(3) and 10(7), and 17) and that there is no equation in the ECT between a Contracting Party and a third State. This conclusion is further supported by the travaux préparatoires, which demonstrate that the term ‘third state’ was substituted for the term ‘nonContracting Party’.13

Further in Amto v. Ukraine the tribunal concluded that ‘third State’, ‘[…] is used in Article 1(7) in contradistinction to ‘Contracting Party’, which suggests that a third state is any state that is not a Contracting Party to the ECT’.14 In order to fulfil the first condition the meaning of ownership of any legal 17.16 entity by nationals or citizens of a third State is quite straightforward; while the concept of control is more complex. Investment is broadly defined in Article 1(6) of the ECT as ‘every kind of asset, owned or controlled directly or indirectly by an Investor’. The only notion of ‘direct or indirect control’ is explained in understandings number 3 of the ECT as being ‘control in fact, determined after an examination of the actual circumstances in each situation’.15 Though understanding no. 3 restricts its purpose to definition of investment under Article 1(6), nevertheless, it provides guidance to understand the drafter's notion of ‘control’. 2. Second condition: Legal entities with no substantial business activities in the area of the Contracting Party where it is organised

In order to fulfil this condition we need to address the question what does 17.17 ECT mean by the expression ‘substantial business activities’? The concept of ‘substantial business activities’ is not defined by the ECT but based on the plain meaning we can reasonably assume that a legal entity should be more than a brass plate and a certification of incorporation in a contracting party. In AMTO v. Ukraine, the tribunal discussed the meaning of the term ‘substan- 17.18 tial’ and reached the conclusion that: ‘in this context means ‘of substance, and not merely of form'. It does not mean ‘large', and the materiality not the magnitude of the business activity is the decisive question’.16 13 14 15

16

Ibid., para. 544. Limited Liability Company AMTO v. Ukraine, SCC Case No. 080/2005, para. 62. Final Act of the European Energy Charter Conference, Lisbon, 16–17 December 1994, Understandings no. 3 – With Respect to Article 1(6), available at https://energycharter.org/fileadmin/DocumentsMedia/Legal/ 1994_Final_Act.pdf, at p. 8. AMTO v. Ukraine (n 14), para. 69.

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17.19 This is like the so-called ‘mailbox company’ and ‘shell company’ typology, in which the activities either occur elsewhere or they are temporary or restricted to the existence of the legal entity in the area of a Contracting Party. The Plama tribunal held that the lack of substantial business activity ‘cannot be made good with business activities undertaken by an associated but different legal entity’,17 even where the latter owns or controls the different legal entity. 17.20 Although there is no clear definition of ‘substantial business,’ based on the Plama and Amto tribunals’ view one can reasonably suppose that entity has no life of its own, i.e., existing only on paper, without engaging in any activity would fulfil the condition having ‘no substantial business activity’. Undoubtedly, such an assessment should be conducted based on a case-by-case basis, taking into consideration the nature and duration of their activities and the specific facts of each case. 17.21 Upon the fulfilment of the abovementioned two cumulative conditions, a contracting party can choose to invoke its right to deny the benefits under Part III of the ECT to an investment under Article 17(1). D. Denial of benefits to an investment under Article 17(2) 17.22 Article 17(2) of the ECT allows Contracting Parties to deny the benefits of Part III to investments of an investor of a third State if the denying Contracting Party (i) does not maintain a diplomatic relationship with this third state, or (ii) adopts or maintains measures that prohibit transactions with investors of the third State or such measures would be violated or circumvented if the benefits of Part III of the ECT were accorded to such investors or their investments. 17.23 The Contracting party reserves the right to deny the investments able if the prerequisites under Article 17(2) of the ECT are met. First, the denying Contracting Party must establish that such an investment is an investment of an investor of a third State. Secondly, there has to be a case where the Contracting Party either does not maintain diplomatic relations with the third State or adopts or maintains measures that would be incompatible with the benefits offered by Part III of the ECT. This clause has not yet been invoked. However, unlike Article 17(1), Article 17(2) makes it clear that the State has the burden of proof for establishing that an alleged investor falls under one of the situations mentioned under this ‘denial of benefits’ provision. 17

Plama Consortium (n 2), para. 169.

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E. Conclusion Article 17 of the ECT, the denial of benefits clause, when exercised by the 17.24 denying Contracting Party, restricts the benefits of the provisions provided in Part III of the ECT for the protection and promotion of investments to legal entities and investments. It is a reserved right which a Contracting Party can use to exclude the legal entities which are owned or controlled by nationals of a third State and do not have substantial business activity in the Contracting Party in which it is organized, and the investments of investors of third States towards which the respondent Contracting Party took certain economic and political measures.

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Part IV MISCELLANEOUS PROVISIONS

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ARTICLE 18 SOVEREIGNTY OVER ENERGY RESOURCES Contributions by Peter Vajda and Varvara Aleksic´, and Tina Hunter

(1)

The Contracting Parties recognize state sovereignty and sovereign rights over energy resources. They reaffirm that these must be exercised in accordance with and subject to the rules of international law. Without affecting the objectives of promoting access to energy resources, and exploration and development thereof on a commercial basis, the Treaty shall in no way prejudice the rules in Contracting Parties governing the system of property ownership of energy resources.1 Each state continues to hold in particular the rights to decide the geographical areas within its Area to be made available for exploration and development of its energy resources, the optimalization of their recovery and the rate at which they may be depleted or otherwise exploited, to specify and enjoy any taxes, royalties or other financial payments payable by virtue of such exploration and exploitation, and to regulate the environmental and safety aspects of such exploration, development and reclamation within its Area, and to participate in such exploration and exploitation, inter alia, through direct participation by the government or through state enterprises. The Contracting Parties undertake to facilitate access to energy resources, inter alia, by allocating in a non-discriminatory manner on the basis of published criteria authorizations, licences, concessions and contracts to prospect and explore for or to exploit or extract energy resources.

(2)

(3)

(4)

1

See Final Act of the European Energy Charter Conference, Declarations, n. V., p. 30 and Chairman’s Statement at Adoption Session on 17 December 1994, p. 157.

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COMMENTARY

Peter Vajda and Varvara Aleksic´ 18.01 Energy sovereignty can be considered as the ability of a political community to have the authority to control, regulate and manage their own energy. Energy sovereignty can also be seen as the right of conscious individuals, communities and peoples to make their own decisions on energy generation, distribution and consumption in a way that is appropriate within their ecological, social, economic and cultural circumstances, provided that these do not affect others negatively.2 18.02 This definition is quite clear when it comes to the land-based energy sources, since the borders of sovereign states are in most cases determined and internationally recognised.3 The question however arises more obviously for energy sources that are not located within the sovereign territory of a state, but are outside it. In this respect, offshore sites are of particular relevance, especially the ones that are still unexplored but are potentially highly valuable sources of energy resources. As Article 18(1) states that ‘state sovereignty and sovereign rights over energy resources […] must be exercised in accordance with and subject to the rules of international law’, international maritime law is a crucial reference point for the application and interpretation of this provision. 18.03 To that end, the United Nations Convention on the Law of the Sea (UNCLOS) of 10 December 19824 is of particular relevance. This Convention, among others, prescribes the concepts of territorial sea, contiguous zone, exclusive economic zone and continental shelf. In relation to the exclusive economic zone, over which the coastal state has sovereign rights regarding the exploring and exploiting, conserving and managing the natural resources,5 particular reference is made to energy production from the water, currents and wind.6 Article 56(1)(a) clearly determines: sovereign rights for the purpose of exploring and exploiting, conserving and managing the natural resources, whether living or non-living, of the waters superjacent to the 2 3 4 5 6

Ariza-Montobbio, Pere: Energy sovereignty: politicising an energy transition, p. 79: http://www.envjustice.org/ wp-content/uploads/2015/09/EJOLT-6.79–84.pdf. It should be borne in mind that notable exemptions however exist even between Contracting Parties of the Energy Charter Treaty and with recent political developments, this issue has become even more apparent. https://www.un.org/Depts/los/convention_agreements/texts/unclos/UNCLOS-TOC.htm. In the energy sector, the most important issue is the exploration and exploitation of offshore oil and gas. United Nations Convention on the Law of the Sea, Part V Exclusive Economic Zone https://www.un.org/ depts/los/convention_agreements/texts/unclos/part5.htm.

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seabed and of the seabed and its subsoil, and with regard to other activities for the economic exploitation and exploration of the zone, such as the production of energy from the water, currents and winds.7

The exclusive economic zone stretches from the baselines out to 200 nautical miles from the coast. A good example for the demarcation of exclusive economic zones is the North 18.04 Sea, which, after certain disputes has been divided in accordance with international law between the five coastal countries8 involved in offshore drilling and where a system based on taxes and royalty licensing is in place. Despite the set of international rules, however, this issue remains highly sensitive and controversial in the increasing race of resources, not only including the exploration of fossil fuels but also related to offshore wind.9 Article 18(2) reaffirms the sovereign right of the Contracting Parties to 18.05 regulate the system of property rights of energy resources located in their territories. However, the provision recalls the need for the commercial exploration and development of such resources, meaning that energy resources shall not be monopolised. At the same time, the Energy Charter Treaty (ECT) does not stipulate any particular method for compliance with this objective and Article 18(2) leaves the regulation of the property rights of energy resources in the hands of the Contracting Parties. Article 18(3) deals with the methods of commercial access to the energy 18.06 resources located in the territory of a Contracting Party, whereby the specific argument based on state sovereignty is further elaborated and reinforced. It should be pointed out that there is a delicate interaction between Article 18(2) and the last part of Article 18(3), whereby the possibility of direct participation of the government or state enterprises is emphasised. While the participation of state-owned enterprises may not be in contradiction with the commercial basis required by Article 18(2), this may not hold true in the same manner for direct governmental participation. It is most likely that this particular reference was introduced into the ECT upon the request of some of the Contracting Parties. Article 18(4) sets general transparency and non-discrimination rules as general 18.07 rules in the process of facilitating the access to energy resources. It should be 7 8 9

Ibid. Norway, Denmark, Germany, the Netherlands and the UK. Apparent examples for that are the disputes over maritime borders in the Eastern Mediterranean with the involvement of Cyprus, Israel, Lebanon or Turkey or the case of the Arctic in general.

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noted that this provision also seems to stand in contradiction with the last part of Article 18(3), especially when it comes to direct governmental participation.

COMMENTARY

Tina Hunter 18.08 Article 18 is divided into four sections, which address the issue of sovereignty in relation to energy resources. Given the wording of the section, it is evident that this article refers to sovereignty over primary physical energy resources, particularly hydrocarbons, rather than energy resources generated through processes such as the burning of hydrocarbons. It also covers such resources that generate energy, such as wind and water. Paragraph 1 refers to the sovereignty and sovereign rights that are created and protected in international law. Sources of such laws include UN Resolutions, Treaties and Declarations. Paragraph 1 enunciates a Contracting Parties’ freedom to develop their energy resources subject to the rights and responsibilities under international law. 18.09 Paragraph 2 clearly elucidates that the ECT does not seek to prejudice or interfere with the rights and rules associated with property ownership in the Contracting Parties’ states. It instead upholds the rights and responsibilities in those states with regard to property ownership. 18.10 The sovereign right of a contracting state with regard to control over, or participation in, the extraction of energy resources is protected in Paragraph 3. In this paragraph, the state has the right to determine which areas will be made available for the development of resources, how the state will optimise recovery of resources, the rate of depletion, and the freedom of a contracting state to participate in the exploitation of energy resources, either directly or indirectly through state-owned companies.10 Furthermore, the state also has the sovereign right to specify the rate of taxation, levies, royalty or otherwise in the exploitation of the energy resources. In regard to environment and safety, Paragraph 3 stipulates that the Contracting state has the right to regulate the environmental and safety aspects of resource exploitation. 18.11 Paragraph 4 of the Article sets out a requirement that Contracting Parties must allocate access to its energy resources on a non-discriminatory basis of 10

Although there is a freedom of state-owned companies to participate in the exploitation of natural resources, such state-owned entities are subject to the responsibilities and conditions outlined in Art 22 of the ECT. A commentary of Art 22 is found in this chapter.

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criteria that is readily available through published media. This requirement extends to both licenses/concessions and contracts used to access energy resources. The concept of sovereignty has been addressed by numerous scholars and is 18.12 aptly defined by Jennings and Watts as excluding ‘subjection to any other authority, and in particular the authority of another state’.11 Further, sovereignty is defined as ‘comprising the power of a state to exercise supreme authority over all persons and things within its territory, sovereignty involves territorial authority (dominium, territorial sovereignty)’.12 Therefore, Jennings and Watts define sovereignty as the territorial authority of a state over everything within its territory, including sovereignty over the state’s mineral resources, such as mineral deposits.13 Article 18 is a declaration of the well-established international law principle of 18.13 permanent sovereignty over natural resources. In accordance with the wording of Article 18(1) the Contracting Parties recognise two fundamental tenets of international law: that of state sovereignty, and sovereign rights over energy resources. These derive from the fundamental international law principle of permanent sovereignty over natural resources. Therefore, the Article must be read in conjunction with the principle. The concept of permanent sovereignty over natural resources is well developed 18.14 in international law. In particular, there are a number of UN Resolutions and Instruments that capture the notion of sovereignty over natural resources, including those pertaining to energy resources. Such international instruments include: UN Resolution 1803,14 UN Resolution 3171,15 UN Resolution 3281 (the Charter of Economic Rights and Duties of State)16 and the United 11 12 13 14

15

16

R. Jennings and A. Watts A (eds) (1992). Oppenheim’s International Law, Vol. 1. Peace, 9th edn. London: Longman, p. 382. Ibid. Ibid., p. 384. In 1962 The United Nations General Assembly adopted Resolution 1803 on ‘Permanent Sovereignty over Natural Resources’ http://www.ohchr.org/EN/ProfessionalInterest/Pages/NaturalResources.aspx. This Resolution enables a host state’s control over their natural resources and to exercise their full and inalienable right over their natural wealth and resources. Resolution 1803 (XVII) requires states and international organisations to respect the sovereignty of peoples and nations over their natural wealth and resources in accordance with the Charter of the United Nations and the principles contained in the resolution. United Nations General Assembly Resolution 3171 (XXVIII) adopted by the United Nations General Assembly on 17 December 1973 on ‘Permanent Sovereignty over Natural Resources’. This Resolution declares the principle of permanent sovereignty over natural resources, reiterating in Art 1 that full control over natural resources is an indispensable element of the sovereignty of a state. United Nations General Assembly Resolution 3281 (XXIX) of 12 December 1974. The principle of permanent sovereignty was included in a broader set of principles and rights expressed in this Resolution http://www.un-documents.net/a29r3281.htm.

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Nations Declaration on the Establishment of a New International Economic Order (NIEO).17 18.15 Under Article 2 of UN Resolution 3281: ‘Every State has and shall freely exercise full permanent sovereignty, including possession, use and disposal, over all its wealth, natural resources and economic activities.’ As a part of this right, each state has the right to: +

+

regulate and exercise authority over foreign investment within its national jurisdiction in accordance with its laws and regulations and in conformity with its national objectives and priorities. No state shall be compelled to grant preferential treatment to foreign investment; nationalise, expropriate or transfer ownership of foreign property, in which case appropriate compensation should be paid by the state adopting such measures, taking into account its relevant laws and regulations and all circumstances that the state considers pertinent. In any case where the question of compensation gives rise to a controversy, it shall be settled under the domestic law of the nationalizing State and by its tribunals, unless it is freely and mutually agreed by all States concerned that other peaceful means be sought on the basis of the sovereign equality of States and in accordance with the principle of free choice of means.18

18.16 This right to expropriate or transfer ownership of foreign property potentially places Article 18 at odds with Article 13 of the ECT. In addition the issue of whether international law or domestic law is applied in instances of expropriation and extraterritoriality was considered in the case of Texaco Overseas Petroleum Co. and California Asiatic Oil Co. v. the Government of the Libyan Arab Republic (17 ILM 1(1978)). 18.17 Under the normative international law principle of pacta sunt servanda (agreements must be kept), which has been codified in Article 26 of the Vienna Convention on the Law of Treaties, contracting states are bound by international treaties in force, and are required to perform the obligations of such treaties in good faith. Article 1 of UN Resolution 3171 reaffirms the inalienable rights of sovereignty over all natural resources on land within a 17

18

Declaration on the Establishment of a New International Economic Order (NIEO), United Nations General Assembly Resolution 3201 of 01 May 1974; Available at http://www.un-documents.net/s6r3201.htm. Para 4(e) of this Resolution states while advancing one of the core principles of the Resolution to be ‘full, permanent sovereignty of every State over its natural resources’, clarifying that each state retains the right to nationalise foreign property when necessary. UN Resolution 3281, Art 2.

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state’s international boundaries, as well as those on the sea-bed and subsoil within their natural jurisdictions and in the superjacent waters. This affirmation of sovereignty in waters is supported by Article 2(1) of the United Nations Convention on the Law of the Sea, which states that: ‘the sovereignty of a coastal State extends beyond its land territory and internal waters [ ] top an adjacent belt of sea, described as the territorial sea’.19 The breadth of such area is from baseline to a limit not exceeding 12 nautical 18.18 miles (nm).20 Such a baseline is defined as the low water line along a coast as marked on large-scale charts officially recognised by the coastal state.21 Whereas a contracting state enjoys sovereignty over its Territorial Sea under 18.19 UNCLOS, UNCLOS confers sovereign rights over the exclusive economic zone22 and the continental shelf.23 Such rights convey legal authority over some activities, such as the extraction of natural resources (including energy resources) and the production of energy from water currents and winds,24 but do not convey exclusive legal authority over other activities. Given the plethora of international instruments reinforcing a state’s sover- 18.20 eignty over its natural resources both on land and extending into the sea, Contracting States maintain the right to make alterations to its regulatory or contractual regime regarding energy resources. Article 18(3) enunciates those sovereign rights that are specifically exempt 18.21 from the limitations of the ECT. Such rights include: the capacity to determine the geographical areas to be made available for exploration and development of its energy resources; the right to optimise the recovery of energy resources, as well as the right to determine the rate at which the resources may be depleted or otherwise exploited; the right to specify and enjoy any taxes, royalties or other financial payments payable by virtue of such exploration and exploitation; the right to regulate the environmental and safety aspects of any exploration, development and reclamation activities within its area; and

+

+

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19 20 21 22 23 24

UNCLOS, Art 2. Ibid., Art 3. Ibid., Art 5. Ibid., A 56. Ibid., A 77. Ibid., a 56(1).

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the right of the state to participate in exploration and exploitation activities, either through direct participation by the government or through state enterprises.

18.22 Some academics identify negative aspects of the inclusion of Article 18 in the ECT. Haghighi argues that the inclusion of Article 18 creates a danger because ‘as no limit is imposed on the exercise of this right, the contracting parties can derogate from their obligations in other parts of the treaty, such as protection of investment, through claiming sovereignty and the fact that the “public interest” so necessitated’.25 Wälde and Ndi see such an article as preserving a degree of interpretive ambiguity, since the provisions of Articles 18 and 26(3) of the ECT, read together with the open-ended obligations found in Article 10(1), reaffirm the duty to respect investment agreements. However, Article 10(1) could equally be read as to require a balance between sanctity of contract and public prerogative over contractual commitments associated with the principle of permanent sovereignty over natural resources on the other hand.26 Haghighi has interpreted such ambiguity as sovereignty overriding an obligation in cases of conflict.27 18.23 On its face, Article 18(2) creates the right of a contracting State to establish and maintain a system of property ownership over energy resources. However, as noted in the ECT, it is essential that this Article is read in conjunction with the following declaration: FINAL ACT OF THE EUROPEAN ENERGY CHARTER CONFERENCE, DECLARATIONS, V: The representatives declared that Article 18(2) shall not be construed to allow the circumvention of the application of the other provisions of the Treaty.28 CHAIRMAN’S STATEMENT AT ADOPTION SESSION ON 17 DECEMBER 1994: Finally, I note that the representative of Norway supported by the representatives of Armenia, Belarus, Estonia, European Communities, and their Member States, Finland, Iceland, Lithuania, Liechtenstein, Kazakhstan, Moldova, the Russian Federation, Sweden, Switzerland and Ukraine have declared that the ECT shall be applied and interpreted in accordance with generally recognized rules and principles of observance, application and interpretation of treaties as reflected in Part III of the 25 26 27 28

S. Haghighi, Energy Security – The External Legal Relations of the European Union with Major Oil- and Gas-Supplying Countries (Oxford and Portland, 2007), p. 210. T. Wälde and G. Ndi, ‘Stabilizing International Investment Commitments: International Law Versus Contract Interpretation’ (1996) 31 Tex. Int'l L.J. 215, 247. Haghighi (n 25), p. 210. Energy Charter Secretariat, The Energy Charter Treaty and Related Documents (2004), p. 30.

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Vienna Convention on the Law of Treaties of 25 May 1969. In particular in the context of Article 18(2) they recalled that a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.29

Reading Article 18(2) in light of the above statements, it can be interpreted 18.24 that: the Contracting Party has the right to prescribe the rules governing the system of property ownership of energy resources in its Area. This right must not, however, be interpreted or applied in a way to allow such a Contracting Party to circumvent its specific obligations under the ECT: most notably, the obligations set out in Part III of the ECT. Neither can that Contracting Party rely on its domestic law rules as justification for breaching any of its obligations under the ECT. It follows that a Contracting Party may not take any measures, which are, for example, discriminatory and/or expropriatory and then contend that these measures were taken in exercise of its right(s) under Article 18(2).30

The application of the laws governing property ownership in EU Member 18.25 States has been considered by the European Court of Justice (ECJ). In Konle,31 the Court considered the interaction of Article 222 of the EC Treaty in relation to Greek and Austrian national laws relating to property ownership.32 The ECJ found that ‘although the system of property ownership continues to be a matter for each Member State, that provision does not have the effect of exempting such a system from the fundamental rules of the treaty’.33 The principle of Article 18(4) is to ensure that the treatment of potential 18.26 investors is non-discriminatory, and should be read in conjunction with the provisions of Article 10. Article 18(4) of the ECT seeks to limit the sovereignty of the contracting state by requiring the allocation of access to energy resources to occur in a non-discriminatory manner on the basis of published criteria authorisations, licences, concessions, and contracts to prospect for and explore for or extract energy resources. Whereas on one hand Article 18 clearly respects a state’s sovereignty over its resources, as articulated in Article 18(1), the limitations expressed in Article 18(4) seek to ensure equality and non-discrimination in accessing the resources that the 29 30

31 32 33

Ibid., p. 158. MENA Chambers, Notes on the Energy Charter Treaty: A Birds Eye View of Article 18 of the Energy Charter Treaty (2014) [15] http://www.menachambers.com/note-4-a-birds-eye-view-on-article-18-sovereignty-ofthe-energy-charter-treaty/. Konle v Austria, Case C-302/97, [1999] ECR I-003099. Ibid., [37]. Ibid., [38].

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state has sovereignty over. Such limitations have been interpreted by some states as ensuring foreign access to energy resources.34 18.27 The limitations regarding a state’s sovereignty over its natural resources are also enunciated in Directive 94/22/EC (The Hydrocarbon Directive).35 Article 2 of the Hydrocarbon Directive establishes the right of a Member State to determine the areas made available for hydrocarbon activities. However, once an area is made available, Article 2(2) establishes a requirement that the grant of access and exercise of the activities is made subject to the principles of non-discrimination as defined in Article 5 of the Hydrocarbon Directive. 18.28 It is important to note that under Article 6 of the Hydrocarbon Directive, a Member State can, in justified circumstances, impose conditions and requirements on the exercise of the grant of access for hydrocarbon activities under Article 2 of the Directive. Such circumstances include matters of national security, public safety and health, security of transport, protection of the environment, protection of biological resources and national treasures, safety of installations and workers, planned management of hydrocarbons (such as rate of extraction/depletion) and the need to secure tax revenues. Such inclusions are similar to those enunciated in Article 18(3) of the ECT: the right to freely decide which geographical areas are to be made available for the exploration and development of its energy resources, the optimisation of resource recovery, the rate of recovery of the resources, the rate of taxation, royalty or other revenue, the right to regulate environment and safety and the right to participate in such activities, be it either directly or through state enterprises. Therefore, it is possible that these freedoms enunciated in Article 18(3) of the ECT can, in the same breath, impose conditions and requirements on the exercise of Article 18(4) of the ECT. However, to date this has not been tested in an arbitration of judicial ruling.

34

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Yulia Selivanova, ‘The Energy Charter and the International Energy Governance’ in Yulia Selivanova (ed), Regulation of Energy in International Trade Law: WTO, NAFTA, and Energy Charter (Kluwer Law International; 2011), p. 376. Directive 94/22/EC of the European Parliament on the council of 30 May 1994 on the conditions for granting and using authorisations for the prospection, exploration and production of hydrocarbons (The Hydrocarbon Directive).

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ARTICLE 19 ENVIRONMENTAL ASPECTS Contributions by Peter Vajda and Varvara Aleksic´, and Tina Hunter

(1)

In pursuit of sustainable development and taking into account its obligations under those international agreements concerning the environment to which it is party, each Contracting Party shall strive to minimize in an economically efficient manner harmful Environmental Impacts occurring either within or outside its Area from all operations within the Energy Cycle in its Area, taking proper account of safety. In doing so each Contracting Party shall act in a Cost-Effective manner. In its policies and actions each Contracting Party shall strive to take precautionary measures to prevent or minimize environmental degradation. The Contracting Parties agree that the polluter in the Areas of Contracting Parties, should, in principle, bear the cost of pollution, including transboundary pollution, with due regard to the public interest and without distorting Investment in the Energy Cycle or international trade. Contracting Parties shall accordingly: (a) take account of environmental considerations throughout the formulation and implementation of their energy policies; (b) promote market-oriented price formation and a fuller reflection of environmental costs and benefits throughout the Energy Cycle; (c) having regard to Article 34(4), encourage co-operation in the attainment of the environmental objectives of the Charter and co-operation in the field of international environmental standards for the Energy Cycle, taking into account differences in adverse effects and abatement costs between Contracting Parties; (d) have particular regard to Improving Energy Efficiency, to developing and using renewable energy sources, to promoting the use of cleaner fuels and to employing technologies and technological means that reduce pollution; 269

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(2)

(3)

1

(e) promote the collection and sharing among Contracting Parties of information on environmentally sound and economically efficient energy policies and Cost-Effective practices and technologies; (f) promote public awareness of the Environmental Impacts of energy systems, of the scope for the prevention or abatement of their adverse Environmental Impacts, and of the costs associated with various prevention or abatement measures; (g) promote and co-operate in the research, development and application of energy efficient and environmentally sound technologies, practices and processes which will minimize harmful Environmental Impacts of all aspects of the Energy Cycle in an economically efficient manner; (h) encourage favourable conditions for the transfer and dissemination of such technologies consistent with the adequate and effective protection of Intellectual Property rights; (i) promote the transparent assessment at an early stage and prior to decision, and subsequent monitoring, of Environmental Impacts of environmentally significant energy investment projects;1 (j) promote international awareness and information exchange on Contracting Parties’ relevant environmental programmes and standards and on the implementation of those programmes and standards; (k) participate, upon request, and within their available resources, in the development and implementation of appropriate environmental programmes in the Contracting Parties. At the request of one or more Contracting Parties, disputes concerning the application or interpretation of provisions of this Article shall, to the extent that arrangements for the consideration of such disputes do not exist in other appropriate international fora, be reviewed by the Charter Conference aiming at a solution. For the purposes of this Article: (a) ‘Energy Cycle’ means the entire energy chain, including activities related to prospecting for, exploration, production, conversion, storage, transport, distribution and consumption of the various forms of energy, and the treatment and disposal of wastes, as well as the decommissioning, cessation or closure of these activities, minimizing harmful Environmental Impacts; (b) ‘Environmental Impact’ means any effect caused by a given activity on the environment, including human health and safety, flora, See Final Act of the European Energy Charter Conference, Understandings, n. 13. with respect to Art 19(1)(i), p. 28.

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fauna, soil, air, water, climate, landscape and historical monuments or other physical structures or the interactions among these factors; it also includes effects on cultural heritage or socioeconomic conditions resulting from alterations to those factors; (c) ‘Improving Energy Efficiency’ means acting to maintain the same unit of output (of a good or service) without reducing the quality or performance of the output, while reducing the amount of energy required to produce that output; (d) ‘Cost-Effective’ means to achieve a defined objective at the lowest cost or to achieve the greatest benefit at a given cost.

COMMENTARY

Peter Vajda and Varvara Aleksic´ Article 19(1) provides the essence of the environmental dimension of the 19.01 Energy Charter Treaty (ECT). The European Energy Charter signed in 1991 already recognised the importance of energy-related environmental issues, which was clearly pointed out in one its preambles, mentioning that the parties are ‘[c]onvinced of the signatories’ common interest in problems of energy supply, safety of industrial plants, particularly nuclear facilities,2 and environmental protection’.3 Furthermore, the parties declared their willingness ‘to do more to attain the objectives of security of supply and efficient management and use of resources, and to utilise fully the potential for environmental improvement, in moving towards sustainable development’4 and their conviction of ‘the essential importance of efficient energy systems in the production, conversion, transport, distribution and use of energy for security of supply and for the protection of the environment’.5 The International Energy Charter signed at the signatories meeting in The 19.02 Hague on 20–21 May 2015 repeated the same commitment,6 while at the same time also, ‘[r]ecognising the global challenge posed by the trilemma between energy security, economic development and environmental protection, and efforts by all countries to achieve sustainable development’.7 2 3 4 5 6 7

The reason for the particular reference to nuclear facilities was clearly the Chernobyl disaster, that had happened only five years before the signature of the Charter. European Energy Charter, Preamble 10. Ibid., Preamble 11. Ibid., Preamble 12. International Energy Charter, Preamble 17. Ibid., Preamble 9.

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19.03 The reference to the ‘energy trilemma’ is particularly interesting. Environmental sustainability represents the third pillar of this academic concept, completing the triangle made up with energy security and energy equity.8 There is a broad scientific consensus, however, that our current ways of generating and using energy are not on a sustainable pathway and should the current trends in changes to the global climate system continue (to which the energy sector is a very important contributor),9 the consequences will be felt by everyone in the very short term. In order to avoid a scenario in the twenty-first century that would have devastating consequences for the entire planet, its inhabitants as well as the global economy, it is thus imperative to strengthen the sustainability pillar of the triangle, thereby promoting the efficient generation and use of any form of energy – heat, power, or any form of fuels. 19.04 At the same time, it would be unrealistic not to count on energy consumers expecting a stable and secure supply of energy at affordable prices. All around the world, energy poverty inevitably leads to solutions that are environmentally not sustainable.10 We shall therefore point out that the real price of energy goes well beyond the pure material costs of the fuel, the infrastructure necessary for turning it into heat and/or power and its transmission to the end consumer. The bare economic logic of external costs needs to be engraved in the mind of the energy consumer in order to be able to make a responsible decision.11 This line of thought can also be seen as providing the background and reason of point (b) of Article 19(1) of the ECT which requires a fuller reflection of environmental costs and benefits throughout the energy cycle, i.e., the internalisation of the external costs of the generation, transmission and use of energy.

8

9

10 11

World Energy Council, World Energy Trilemma Index 2016 (October 2016), https://www.worldenergy. org/publications/2016/2016-energy-trilemma-index-benchmarking-the-sustainability-of-national-energysystems/, p. 6; Caroline Kuzemko, Andreas Goldthau, Michael F. Keating, The Global Energy Challenge: Environment, Development and Security, Palgrave Macmillan, London (2016), p. 1. According to the UN Intergovernmental Panel on Climate Change (IPCC), electricity and heat production is responsible for one quarter of the global emissions of greenhouse gases, while the category ‘other energy’ is responsible for an additional 10 per cent. The most important source of emissions in this segment is the household fuel combustion sector, which often comprises any material with a calorific value, including (agricultural or municipal) waste. The European Commission estimates that total health-related external costs of air pollution (from the ‘traditional pollutants’ of sulphur dioxide, nitrogen oxides, particulate matter and heavy metals) in 2010 were in the range of €330–940 billion, including direct economic damages of €15 billion from lost work days, €4 billion from healthcare costs, €3 billion from crop yield loss and €1 billion from damage to buildings, in: European Commission, Commission Staff Working Document, Impact Assessment – Accompanying the Communication from the Commission to the Council, the European Parliament, the European Economic and Social Committee and the Committee of the Regions – a Clean Air Programme for Europe, SWD (2013)531, http://ec.europa.eu/environment/archives/air/pdf/Impact_assessment_en.pdf, pp. 18–19.

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For all these reasons and given the fact that the sustainability dimension often 19.05 comes as a distant third to energy security and energy equity when talking about decisions related to the ‘energy trilemma’, any references thereto in international treaties and agreements are extremely helpful for emphasising the need for a strengthened environmental policy in the energy sector. Points (a) and (i) of Article 19(1) introduce provisions that show large 19.06 similarities to environmental assessments, processes that apply both in an EU and UNECE context. Point (a) is largely equivalent to strategic environmental assessment, which was adopted by the Kyiv Protocol under the UNECE framework and which requires its parties to evaluate the environmental consequences of their official draft plans and programmes, including plans and programmes in the energy sector. The Protocol was adopted by an extraordinary meeting of the Parties to the Espoo Convention, held on 21 May 2003 during the Ministerial ‘Environment for Europe' Conference in Kyiv. The EU had adopted a Directive on strategic environmental assessments in 2001.12 There is a significant overlap between the geographical scope of these instruments and the Contracting Parties of the Energy Charter, covering more than half of them. The information exchange of point (j) of Article 19(1) includes also these programmes, for which international awareness raising and information exchange is required. Point (i) of Article 19(1) resembles the environmental impact assessment 19.07 process, for which at international level the Espoo Convention sets out the obligations of parties to assess the environmental impact of certain activities at an early stage of planning. The Convention, adopted in 1991, also lays down the general obligation of states to notify and consult each other on all major projects under consideration that are likely to have a significant adverse environmental impact across boundaries (the so-called transboundary environmental impact assessment). In the EU, a Directive governing environmental impact assessments has existed since 1985.13 While the scope of these legal instruments is very broad, they cover a large number of projects from the energy sector.14 The core requirement of the Directive is that the development consent for public and private projects which are likely to have significant effects on the environment should be granted only after prior assessment of the likely significant environmental effects of these projects has been carried out. This assessment must be conducted on the basis of the appropriate 12 13 14

Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment. Directive 85/337/EEC on the assessment of the effects of certain public and private projects on the environment, amended several times and later codified by Directive 2011/92/EU. E.g., crude-oil refineries, thermal power stations and other combustion installations, nuclear power stations, oil and gas pipelines.

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information supplied by the developer, which may be supplemented by the authorities and – via rules on public participation – by the people who may be concerned by the project in question. 19.08 Point (d) of Article 19(1) refers to energy efficiency, energy generated from renewable sources as well as emission reduction. Energy efficiency is a cornerstone of the sustainability portfolio of the Energy Charter. In relation to that, the Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) was negotiated, opened for signature and entered into force at the same time (16 April 1998) as the ECT. Building on the provisions of the Treaty, PEEREA requires its participating states to formulate clear policy aims for improving energy efficiency and reducing the energy cycle’s negative environmental impact. Through the implementation of PEEREA, the Energy Charter provides its member countries with a menu of good practices and a forum in which to share experiences and policy advice on energy efficiency issues. Within this forum, particular attention is paid to such aspects of a national energy efficiency strategy as taxation, pricing policy in the energy sector, environmentally-related subsidies and other mechanisms for financing energy efficiency objectives.15 19.09 In relation to emission reduction, it is important to distinguish between pollutants that cause direct health and environmental impacts and others that provide their harmful effects by more indirect means, such as greenhouse gases and climate change(s). Environmental economics indeed suggests that the external costs of various activities are to be internalised, incorporated into the mechanisms of the real-world economy, and the modified price signal will thereby help in getting the right responses. The two main schools of economics dealing with externalities16 are translated into the legal concepts of command-and-control measures and market-based instruments. In European 15

16

The Signatories / Contracting Parties to the PEEREA are Afghanistan, Albania, Armenia, Australia*, Austria, Azerbaijan, Belarus**, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union and Euratom, Finland, France, Georgia, Germany, Greece, Hungary, Iceland*, Ireland, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, Montenegro, The Netherlands, Norway*, Poland, Portugal, Romania, Russian Federation*, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, The former Yugoslav Republic of Macedonia, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan (* signed but did not ratify **provisional application). Arthur C. Pigou, the founder of the economic discipline studying externalities, justified government intervention via taxation with the aim of internalising the external costs and thereby providing a price that reflects not only the marginal private costs, but also the marginal social costs (in: Arthur C. Pigou, The Economics of Welfare, Macmillan, London (1920)). The ‘Coase theorem’, however, states that if trade in an externality is possible and there are sufficiently low transaction costs involved, bargaining will lead to a Pareto-efficient outcome regardless of the initial allocation of property (in: Ronald H. Coase, ‘The Problem of Social Cost’, (1960) 3 Journal of Law and Economics 1–44).

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legislation, the Industrial Emissions Directive17 is the classical example of command-and-control type measures, while the Emissions Trading Scheme Directive18 and its related legislation regulate greenhouse gas emissions via a market-based instrument. The two directives are mutually exclusive and address different pollutants (sulphur dioxide, nitrogen oxides and dust in the case of the Industrial Emissions Directive and carbon dioxide and other greenhouse gases in the case of the Emissions Trading Scheme Directive). Points (f) and (j) of Article 19(1) are interlinked in the sense that they both 19.10 require awareness raising activities from the Contracting Parties. Point (f) also clearly relates to the better reflection of the external costs of the energy sector discussed above and the internalisation thereof. Simply put, reducing emissions results in a healthier and longer life in a better environment, which can also be proven by sophisticated economic calculations. Therefore, any investment into emission reduction – either via emission abatement technologies, energy efficiency measures or alternative generation capacities – is also an investment into the quality of life of the individual as well as into our future. It is vital that citizens understand and identify with these objectives and therefore support a better understanding of the environmental impacts of the energy sector by the general public and gathering broad support for expensive emission abatement measures is indeed crucial. In relation to Article 19(2), it shall be pointed out that under the general rules 19.11 for dispute settlement in accordance with Article 27, there are two forms of dispute settlement under the ECT depending on the subject matter and actors of dispute. Ad hoc arbitration is set for disputes between Contracting Parties on the interpretation or application of the Treaty, while investment arbitration is for disputes between an investor and a Contracting Party. Nevertheless, the starting point for both mechanisms is the willingness to reach an amicable agreement between the parties to any dispute.19 However, there are some exceptions from this general approach, for which 19.12 environmental issues provide the most apparent example: Article 19(2) of the ECT gives the competence to the Charter Conference, as an Institution of the Treaty, ‘to aim at a solution’ of disputes the subject matter of which is the interpretation or application of the provisions set in Article 19. However, it 17 18 19

Directive 2010/75/EU on industrial emissions. Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community. International Energy Charter, Dispute Settlement, https://energycharter.org/what-we-do/dispute-settlement/ overview/ accessed 4 July 2018.

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mandates the Charter Conference20 as the body for aiming at a solution for environmental disputes only in cases when arrangements for the consideration of such disputes do not exist in other appropriate international fora. In other words, environmental disputes are falling under the scope of work of Charter Conference, if no other appropriate international fora exist for the consideration of such disputes. 19.13 As the terms ‘to aim at a solution’, ‘arrangements for the consideration of such disputes’ and ‘other appropriate international fora’ these are not defined by the Treaty, there is plenty of room for interpretation to determine the precise meaning thereof. 19.14 In relation to the term ‘other appropriate international’ fora in particular, Contracting Parties may address their disputes in the field of environment via any established instrument under international law. For Contracting Parties that are at the same time Member States of the EU, the Court of Justice of the EU is the obvious ultima ratio instance of resolving disputes, including environmental ones in the energy sector between the Member States.21 19.15 As an illustration of other international fora, Contracting Parties of the ECT could, in accordance with this clause, refer environment-related cases to the institutions and instruments of the Energy Community Treaty, provided that they are Contracting Parties to this Treaty at the same time. In relation to its aims, the procedure stipulated by the ECT in fact resembles the Energy Community Treaty’s Dispute Settlement Procedure.22 However, there are significant differences when assessing the subject matter of potential disputes: since the ECT does not stipulate concrete obligations to the Contracting Parties in line with its Article 19, it is up to each Contracting Party to individually determine the level of environmental protection, by taking into consideration principles stipulated in this Article. At the same time, the dispute settlement mechanism provided by the Energy Community Treaty operates based on obligations in line with the EU legislation that forms part of the Energy Community acquis communautaire on environment.23 Another

20

21 22 23

The Energy Charter Conference shall meet periodically according to Art 34(1) ECT, with the intervals of ordinary meetings to be determined by the Charter Conference itself. In practice, annual meetings of the Charter Conference are held. As an example, see Case C-115/08 Land Oberösterreich v ČEZ as on the operation of the Temelín nuclear power plant in the Czech Republic, situated approximately 50 kilometres from the Austrian border. For more information on the Energy Community Dispute Settlement Procedure, see https://www.energycommunity.org/legal/cases/dispute.html accessed 4 July 2018. In the environmental field, Directives on Environmental Impact Assessment, Strategic Environmental Assessment, Sulphur in Fuels, Wild Birds, Large Combustion Plants and (in part) Industrial Emissions apply

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notable difference is that under the mechanism provided by Article 19(2) of the ECT, the right to initiative is only provided to Contracting Parties. Neither can the Secretariat initiate a case, nor can individual complaints provided either to the Secretariat or to the Charter Conference trigger the application of the mechanism provided by Article 19(2) of the Treaty. In other words, the nature of the environmental dispute has to reach state level importance in order to be addressed in light of the procedure provided by Article 19(2), which is not always the case for environmental issues and which are mostly raised and advocated by the public concerned or environmental NGOs.24 Furthermore, the Energy Charter Conference mandated the Secretariat to 19.16 assist with good offices, mediation and conciliation, as well as to provide neutral, independent legal advice and assistance in dispute resolution and participate in pre-trial proceedings between Contracting Parties. Following this mandate, the Secretariat established a Conflict Resolution Centre which provides assistance and support in relation to, among others, environmental disputes between Contracting Parties.25 This enables a consultation between the Contracting Parties as a preliminary step prior to the proceedings at the Charter Conference and is an efficient tool for facilitating to reach an amicable agreement between the Parties to potential disputes. With regard to Article 19(3) of the ECT, it should be noted first that this 19.17 paragraph provides definitions for the purposes of Article 19 only. Point (a) of Article 19(3) provides the broadest possible definition of the 19.18 energy cycle, including all of its aspects and enabling a holistic, ‘from the cradle to the grave’ approach. The term is used throughout Article 19, in reference to environmental impacts as well as investments.

24

25

in the Energy Community. For more information on the Energy Community acquis communautaire, see https://www.energy-community.org/legal/acquis.html, accessed 4 July 2018. In the Energy Community context, an example of a case for non-compliance with the rules on environmental impact assessment was started in 2015 and was initiated upon complaint. In its assessment, the Secretariat took a preliminary view that the environmental impact assessment procedure of a planned thermal power plant in Bosnia and Herzegovina was not carried out in compliance with the Energy Community acquis communautiare on environment. In particular, the permitting procedure failed to fully address all direct and indirect impacts of the project as well is its potential transboundary impacts, as required by the Environmental Impact Assessment Directive. Furthermore, the Secretariat found that the Directive’s provisions on public participation were not fully respected, see https://www.energy-community.org/legal/cases/2015/case0115BH. html, accessed 4 July 2018. As the dispute was however not between state actors, such a case would not be able to trigger the application of Art 19(2) of the ECT. For more information about the Conflict Resolution Centre, see https://energycharter.org/what-we-do/ dispute-settlement/conflict-resolution-centre/, accessed 4 July 2018.

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19.19 Point (b) of Article 19(3) defines environmental impact in an almost identical manner to the EU’s Environmental Impact Assessment Directive.26 The term is used in the introductory wording of Article 19(1), which stipulates that ‘each Contracting Party shall strive to minimize in an economically efficient manner harmful Environmental Impacts occurring either within or outside its Area from all operations within the Energy Cycle in its Area, taking proper account of safety.’ While this provision provides the broadest possible taking into account of environmental impacts of the energy sector, the wording ‘strive to’ makes it clear that the provision is rather an expression of goodwill for the Contracting Parties than an obligation. Furthermore, points (f), (g) and (i) of Article 19(1) are using the term when talking about different aspects of awareness raising of environmental impacts of the energy sector. In relation to these points, the Energy Charter Treaty uses a wording based on ‘shall’, meaning that the Contracting Parties are legally bound to these commitments. 19.20 Point (c) of Article 19(3) defines the improvement of energy efficiency in a very broad context, which becomes even more apparent when looking at point (d) of Article 19(1) which is the only instance where this term is being used. From the wording of that point, it is also clear that energy efficiency in the context of Article 19 of the ECT is used in a much broader context than in other international legal instruments, incorporating also the issues of energy generated from renewable sources and cleaner fuels, which is highly useful. Having environmental and climate science providing the framework, we can conclude that a full transformation of our energy systems is indeed inevitable – along with transformation of other sectors in this time period globally. The planning and management of the transition requires, beyond political will, a significant amount of research on the way the transition can be completed with the least cost and highest efficiency and using energy efficiency in a broad interpretation such as the one provided by this definition clearly is an enabler in this process. The adoption of the PEEREA marks the importance of energy efficiency in the context of the ECT and the good practices and shared experience provided via that framework have the potential to facilitate, further, and speed up the necessary changes for the energy transition.

26

Art 3 of Directive 2011/92/EU sets out the purpose and content of the environmental impact assessment as follows: The environmental impact assessment shall identify, describe and assess in an appropriate manner, in the light of each individual case and in accordance with Articles 4 to 12, the direct and indirect effects of a project on the following factors: (a) human beings, fauna and flora; (b) soil, water, air, climate and the landscape; (c) material assets and the cultural heritage; (d) the interaction between the factors referred to in points (a), (b) and (c).

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Point (d) of the Article 19(3) defines the principle of cost effectiveness, which 19.21 is then used in the preliminary wording of Article 19(1) and in point (e) thereof with reference to practices and technologies. This definition resembles the concept of the best available techniques, used in the European Union by the Industrial Emissions Directive.27

COMMENTARY

Tina Hunter Whereas Article 18 of the ECT recognises a Contracting State’s sovereignty 19.22 over its energy resources, Article 19 recognises that energy activities have the potential to cause environmental harm, particularly through pollution. Therefore, Article 18 recognises the state’s sovereignty and Article 19 lays down a state’s responsibility for the environment with respect to energy and to minimise the harmful environmental impacts of domestic energy activities both within and outside a contracting state.28 Such methods to minimise environmental harm include obligations that exist under international agreements. In particular, Article 19 does not impose a direct environmental obligation on the foreign investor, but rather embraces the international environmental law concepts of precautionary principle and the polluter pays principle. The Trail Smelter Case establishes principles in relation to the prevention of 19.23 trans-boundary harm and the polluter pays principle.29 The case also laid down the principle that although a state has sovereignty over its natural resources, such sovereignty is subject to a corresponding responsibility to ensure that activities occurring within their jurisdiction do not cause damage to areas beyond the limits of national jurisdiction. The general rule under Article 19(1) is that Contracting Parties minimise the 19.24 harmful environmental impacts arising from energy use in an economically

27

Art 3(10) of the Industrial Emissions Directive defines ‘best available techniques’ and point (b) thereof stipulates that: ‘available techniques’ means those developed on a scale which allows implementation in the relevant industrial sector, under economically and technically viable conditions, taking into consideration the costs and advantages, whether or not the techniques are used or produced inside the Member State in question, as long as they are reasonably accessible to the operator (emphasis added).

28 29

Art 19(1) of the ECT. Trail Smelter Arbitration (United States v Canada) Arbitral Trib., 3 U.N. Rep. Int’l Arb. Awards 1905 (1941).

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efficient manner. Contracting Parties agree that the polluter in the areas30 of the Contracting Parties should, in principle, bear the costs of pollution (be it wholly contained within the Contracting State or trans-boundary) having regard to public interest and without distorting investment in the energy Cycle or Energy trade. The environmental harm aspects of Article 19 have been considered by a number of scholars, who have differing views on the role of the ECT in environmental protection.31 19.25 Essentially, such a rule requires the Contracting Parties to balance the importance and value of economic benefit and investment with the principles of environmental law. To guide parties, Article 19 (1) sets out a number of actions to be taken into account: environmental considerations when planning and implementing energy policies; (b) market-oriented price reform throughout the energy cycle; (c) encourage cooperation in attaining environmental objectives of the Energy Charter; (d) have regard to improving energy efficiency; (e) promote information collection and sharing among Contracting Parties; (f) promote public awareness of environmental impacts of energy systems and the costs associated with abatement; (g) promote and cooperate in the research and development associated with energy; efficiency and environmentally sound technologies and practices to minimise harmful environmental impacts; (h) encourage favourable conditions for transfer and dissemination of such technologies; (i) promote transparency in decision making and monitoring of environmental impacts; (j) promote international awareness and information exchange regarding relevant environmental programmes; and (k) participate in the development of appropriate environmental programmes where appropriate and within available resources. (a)

30 31

‘Areas’ is defined in Art 1(10) of the ECT. These include Clare Shine, ‘Environmental Protection Under the Energy Charter Treaty’, in T. Wälde (ed), The Energy Charter Treaty (1996), 520, 522–5; Clare Shine, ‘Environmental Policies Towards Mining in Developing Countries’ (1992) 10 Journal of Energy and Natural Resources Law 327–36; L. Brazell, ‘Draft Energy Charter Treaty: Trade, Competition, Investment and Environment.' (1994) 12(3) Journal of Energy and Natural Resources Law L 299; T. Wälde and A. Kolo ‘Environmental Regulation, Investment Protection and ‘Regulatory Taking’ in International Law’ (2001) 50 International and Comparative Law Quarterly. 811; F.X. Perrez, ‘The Relationship between ‘Permanent Sovereignty' and the Obligation not to cause Transboundary Environmental Damage' (1996) 26 Environmental Law 1187.

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Article 19(2) covers disputes arising from the environment, including state-to- 19.26 state disputes concerning the environment (all other disputes are covered under Art 27). One or more contracting parties are able to take the dispute to Charter Conference for a solution if no other appropriate international forum is available.

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ARTICLE 20 TRANSPARENCY Gloria Alvarez

(1)

(2)

(3)

1

Laws, regulations, judicial decisions and administrative rulings of general application which affect trade in Energy Materials and Products are, in accordance with Article 29(2)(a), among the measures subject to the transparency disciplines of the GATT and relevant Related Instruments. Laws, regulations, judicial decisions and administrative rulings of general application made effective by any Contracting Party, and agreements in force between Contracting Parties, which affect other matters covered by this Treaty shall also be published promptly in such a manner as to enable Contracting Parties and Investors to become acquainted with them. The provisions of this paragraph shall not require any Contracting Party to disclose confidential information which would impede law enforcement or otherwise be contrary to the public interest or would prejudice the legitimate commercial interests of any Investor. Each Contracting Party shall designate one or more enquiry points to which requests for information about the above-mentioned laws, regulations, judicial decisions and administrative rulings may be addressed and shall communicate promptly such designation to the Secretariat which shall make it available on request.1

See Art 32(1), p. 79 and Annex T, pp. 113 and 128.

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COMMENTARY A. Structure and scope The structure of Article 20 is divided into three sections and addresses 20.01 transparency in the context of laws, regulations, judicial and administrative decisions applicable to trade and energy and which are issued by an ECT Contracting Party. Paragraph (1), refers to transparency of laws, regulations, judicial decisions and rulings which can affect trade in Energy Materials and Products. Paragraph (2) mentions, more generally transparency of laws, rules and decisions which might affect investments covered under the ECT. Most importantly, Paragraph (2) sets out the requirement of prompt publication for the benefit of informing energy investors protected under the ECT. Paragraph (3) addresses the designation of enquiry points where the information and communication of the above-mentioned laws and decisions should become available. B. Notion of transparency in the ECT The inclusion of the notion of transparency in different forms of international 20.02 investment agreements aims to promote the inclusion of transparent practices at the host-state national level. There are general considerations and previous analysis from the OECD which highlights the positive effects of transparency in the public sector as it creates effective channels of communication – and expectations – between a foreign investor and the host-state.2 The Energy Charter Treaty (ECT) refers to the notion of transparency only in 20.03 the context of specific national measures. These measures are: legislative, judicial and administrative decisions made by a Contracting Party which could affect foreign trade and investments in the energy sector, and which are protected under the ECT. The ECT is silent on the context of transparency of the arbitration process to resolve investment disputes between ECT disputing parties; where arbitration rules might be more specific by offering concrete provisions related to the scope and notion of transparency in the investment arbitration process.3 There is, however, under the Model Intergovernmental 2 3

OECD, Public Sector Transparency and the International Investor (2003). ICSID Convention, Art 48 (5) See also Biwater Gauff Ltd v United Republic of Tanzania, ICSID Case No. ARB/05/22, Procedural Order No. 3 (29 September 2006) para 121, United Utilities (Tallinn) B.V. and Aktsiaselts Tallinna Vesi v Republic of Estonia, ICSID Case No. ARB/14/24, Decision on Respondent Application for Provisional Measures (12 May 2016) para 112 and Border Timbers Ltd, Border Timbers International (Private) Ltd and Hangani Development Co. (Private) Ltd v Republic of Zimbabwe, ICSID Case No. ARB/10/25, Decision on Application for Provisional Measures (17 March 2016) para 35.

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and Host Governmental Agreements for Cross-Border Pipelines, reference to the obligation of making available a copy of the final award which should be deposited with the ECT Secretariat.4 Moreover, the ECT Secretariat has further explained and clarified the notion of transparency in the context of the scope of ECT Article 20, where transparency is a vehicle to remove barriers to energy investments and therefore promote a more predictable and stable energy sector at a national level.5 20.04 In commercial arbitration, for example, confidentiality is an essential characteristic during all the arbitration process.6 This is, however, quite different in the context of international treaty practice and in particular in investment arbitration. The involvement of a state in international law and – more concretely – according to the wording of the ECT, requires that the investorstate relationship remains transparent at all stages of the investment made by an ECT investor in another Contracting Party. 20.05 The ECT does not generally define the notion of transparency nor refers to transparency in the particular context of investor-state arbitration. The absence of a definition on transparency in the ECT is perhaps the intention of the ECT drafters to not have a limited notion, hence avoiding the ECT’s concept of transparency becoming outdated or irrelevant. In the context of the ECT arbitration practice, disputing parties and arbitration tribunals have rarely referred to Article 20 and therefore this provision has not been subject to review and comments by investment arbitral tribunals so far. The only reference to the provision was made obiter dictum in the Yukos cases where the tribunal merely cited that ‘[t]ransparency would have been of little value to the investor and would add nothing to Article 20 ECT’.7 More substantively, the Plama tribunal observed that transparency is an elemental part of the 4

5

6 7

Guiseppe Bianco, ‘Article 2. Publication of information at the commencement of arbitral proceedings’ in Dimitrij Euler, Markus Gehring and Maxi Scherer, Transparency in International Investment Arbitration: A Guide to UNCITRAL Rules on Transparency in Treaty-Based Investor-State Arbitration (Cambridge University Press 2015) 86 and Energy Charter Treaty Secretariat, Model Intergovernmental and Host Government Agreements for Cross-Border Pipelines (Second Edtion), https://energycharter.org/fileadmin/Documents Media/Legal/ma2-en.pdf accessed 12 February 2018. See for example Model Intergovernmental and Host Government Agreements for Cross-Border Pipelines (Second Edtion), https://energycharter.org/fileadmin/DocumentsMedia/Legal/ma2-en.pdf, accessed 12 February 2018. Markus Ghering and Dimitri Euler, ‘Public interest in investment arbitration’ in Euler, Gehring and Scherer, supra note 4, 7–27. Hulley Enterprises Ltd v Russian Federation, PCA Case No. AA 226, Interim Award on Jurisdiction and Admissibility (30 November 2009) para. 94, Yukos Universal Ltd v Russian Federation, PCA Case No. 227, Interim Award on Jurisdiction and Admissibility (30 November 2009) and Veteran Petroleum Ltd v Russian Federation, PCA Case No. 228, Interim Award on Jurisdiction and Admissibility (30 November 2009) para. 94.

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protection of fair and equitable treatment in particular in the context of the investor’s legitimate expectations at seeking a stable legal framework.8 More broadly, paragraph 1 of ECT Article 20 refers to the transparency 20.06 disciplines of GATT and relevant Related Instruments, where according to the World Trade Organization, transparency is: ‘the degree to which trade policies and practices, and the process by which they are established, are open and predictable … ’.9 There are, however, other definitions of transparency in the context of international investments, and although there is no common definition of transparency there are some characteristics in relation to the notion of transparency in relation to the public sector. For example, for contracting states in an investment agreement, transparency obligations relate to the effective communication of laws, regulations, practices, judicial and administrative decisions. This effective communication should be informed promptly and timeousely which enables the foreign investor to act and operate their investments accordingly.10 ECT Article 20(1) imposes an obligation on Contracting Parties to issue 20.07 energy-trade related laws, regulation and judicial decisions with certain levels of transparency according to GATT. Therefore, the scope of application for transparency refers to ‘law, regulation, judicial and administrative rulings in relation to trade’.11 The relationship between transparency and a Contracting Party’s autonomy to exercise their own judicial and legislative trade decisions has always been a relevant institutional concern to be addressed. Therefore, ECT drafters wanted to explicitly include and ensure that the inclusion of transparent judicial and legislative processes related to Energy trade. Transparency in national trade decisions has been used as a vehicle to address national concealed protectionism and inefficiencies.12 ECT Article 20(2) is a section which was influenced by NAFTA and applies to acts affecting energy investments.13

8 9 10 11 12

13

Plama Consortium Ltd v Republic of Bulgaria, ICSID Case No. ARB/03/24, Award (27 August 2008) para. 178. World Trade Organization (WTO), Glossary https://www.wto.org/english/thewto_e/glossary_e/ transparency_e.htm, accessed 29 January 2018. OECD, Public Sector Transparency and the International Investor (2003) 7–12. Mirian Omalu, NAFTA and the Energy Charter Treaty: Compliance With, Implementation, and Effectiveness of International Investment Agreements (Kluwer International 1998) 178-–9. Joel Trachtman, Lessons for GATS Article VI from the SPS, TBT and GATT Treatment of Domestic Regulation in Aaditiya Matoo and Pierre Sauve (eds), Domestic Regulation and Service Trade Liberalization (Oxford University Press 2003) 27–42. Omalu, supra note 11, 178–9.

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20.08 Moreover, Article 20(3) requires the designation of enquiry points which shall be addressed with requests for information regarding the existence of laws and regulations affecting foreign energy investment. Interestingly, according to ECT Article 32(1) its Contracting Parties listed in Annex T may temporarily suspend the full compliance with Article 20(3). A number of states, including the Russian Federation, have suspended the compliance with Article 20(3) and have not designated entry points.14 These enquiry points, according to the OECD, enable clarification of the government rules and the way these rules should be implemented by a foreign investor. In addition, one of the advantages of having enquiry points as part of the promotion of transparency in the public sector is to cut down the costs for investors as they have a specific place where they can request information about laws and regulations, hence securing the effective compliance and implementation of the host-state’s legislative changes and other type of decisions (i.e., judicial and administrative). In the context of foreign direct investments, it has also been suggested that enquiry points could also be a place for the dissemination of specialized publications and registers. These points of enquiry could also include the adequate use of other platforms such as communication technologies, including websites.15 C. Transparency in ECT Secretariat Model Agreements 20.09 Foreign investors expect transparency in some of the most fundamental functions of the host-state. These fundamental functions include the effective communication of legislative, administrative and fiscal functions. Effective transparency enables foreign investors to reduce risk and uncertainties as well as identify how to respond to these legislative, judicial and administrative measures. There are many public measures that could affect an investor’s investment which include taxation, investment incentives, intellectual property, social and environmental requirements, among others. In the particular context of ECT Article 20, the Energy Charter Secretariat has proposed different approaches to promote transparency in relation to specific legal requirements arising from international and national legal systems. 20.10 As mentioned above, there are two model agreements: the Model Intergovernmental and Host Government Agreements for Cross-Border Pipelines both published by the ECT Secretariat aiming to provide present practices in the areas of cross-border pipeline construction, operation and investments. 14 15

C.P. Andrews-Speed and T.W. Wälde, Will the Energy Charter Treaty help international energy investors?, (1998) 5(3) Transnational Corporations 31–60. OECD, supra note 2, 38–43.

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These model contracts include the transparency of land rights and tax-related measures. For land rights, it is required that activities are performed under fair, transparent, legal, enforceable and clear terms. In relation to tax measures, states commit to cooperate at ensuring a fair and transparent application of tax measures with respect to investors, shippers and contracts with respect to any part of a specific project and activities.16

16

Energy Charter Treaty Secretariat, supra note 5.

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ARTICLE 21 TAXATION Gloria Alvarez

(1)

(2)

(3)

(4) (5)

Except as otherwise provided in this Article, nothing in this Treaty shall create rights or impose obligations with respect to Taxation Measures of the Contracting Parties. In the event of any inconsistency between this Article and any other provision of the Treaty, this Article shall prevail to the extent of the inconsistency. Article 7(3) shall apply to Taxation Measures other than those on income or on capital, except that such provision shall not apply to: a) an advantage accorded by a Contracting Party pursuant to the tax provisions of any convention, agreement or arrangement described in subparagraph (7)(a)(ii); or b) any Taxation Measure aimed at ensuring the effective collection of taxes, except where the measure of a Contracting Party arbitrarily discriminates against Energy Materials and Products originating in, or destined for the Area of another Contracting Party or arbitrarily restricts benefits accorded under Article 7(3). Article 10(2) and (7) shall apply to Taxation Measures of the Contracting Parties other than those on income or on capital, except that such provisions shall not apply to: a) impose most favoured nation obligations with respect to advantages accorded by a Contracting Party pursuant to the tax provisions of any convention, agreement or arrangement described in subparagraph (7)(a)(ii) or resulting from membership of any Regional Economic Integration Organization; or b) any Taxation Measure aimed at ensuring the effective collection of taxes, except where the measure arbitrarily discriminates against an Investor of another Contracting Party or arbitrarily restricts benefits accorded under the Investment provisions of this Treaty. Article 29(2) to (8) shall apply to Taxation Measures other than those on income or on capital. (a) Article 13 shall apply to taxes. 288

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(6)

(7)

b) Whenever an issue arises under Article 13, to the extent it pertains to whether a tax constitutes an expropriation or whether a tax alleged to constitute an expropriation is discriminatory, the following provisions shall apply: (i) The Investor or the Contracting Party alleging expropriation shall refer the issue of whether the tax is an expropriation or whether the tax is discriminatory to the relevant Competent Tax Authority. Failing such referral by the Investor or the Modification based on Art. 2 of the Amendment to the Trade-Related Provisions of the Energy Contracting Party, bodies called upon to settle disputes pursuant to Article 26(2)(c) or 27(2) shall make a referral to the relevant Competent Tax Authorities; (ii) The Competent Tax Authorities shall, within a period of six months of such referral, strive to resolve the issues so referred. Where non-discrimination issues are concerned, the Competent Tax Authorities shall apply the nondiscrimination provisions of the relevant tax convention or, if there is no non-discrimination provision in the relevant tax convention applicable to the tax or no such tax convention is in force between the Contracting Parties concerned, they shall apply the non-discrimination principles under the Model Tax Convention on Income and Capital of the Organisation for Economic Cooperation and Development; (iii) Bodies called upon to settle disputes pursuant to Article 26(2)(c) or 27(2) may take into account any conclusions arrived at by the Competent Tax Authorities regarding whether the tax is an expropriation. Such bodies shall take into account any conclusions arrived at within the sixmonth period prescribed in subparagraph (b)(ii) by the Competent Tax Authorities regarding whether the tax is discriminatory. Such bodies may also take into account any conclusions arrived at by the Competent Tax Authorities after the expiry of the six-month period; (iv) Under no circumstances shall involvement of the Competent Tax Authorities, beyond the end of the six-month period referred to in subparagraph (b)(ii), lead to a delay of proceedings under Articles 26 and 27. For the avoidance of doubt, Article 14 shall not limit the right of a Contracting Party to impose or collect a tax by withholding or other means. For the purposes of this Article: 289

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a) The term ‘Taxation Measure’ includes: (i) any provision relating to taxes of the domestic law of the Contracting Party or of a political subdivision thereof or a local authority therein; and (ii) any provision relating to taxes of any convention for the avoidance of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound. b) There shall be regarded as taxes on income or on capital all taxes imposed on total income, on total capital or on elements of income or of capital, including taxes on gains from the alienation of property, taxes on estates, inheritances and gifts, or substantially similar taxes, taxes on the total amounts of wages or salaries paid by enterprises, as well as taxes on capital appreciation. c) A ‘Competent Tax Authority’ means the competent authority pursuant to a double taxation agreement in force between the Contracting Parties or, when no such agreement is in force, the minister or ministry responsible for taxes or their authorized representatives. d) For the avoidance of doubt, the terms ‘tax provisions’ and ‘taxes’ do not include customs duties.

COMMENTARY A. Introduction, structure and scope 21.01 The State’s right to regulate is a right that often needs to be balanced against the investor’s substantive protections. In the context of tax measures, ECT Article 21 safeguards the State’s right to regulate when exercising bone fide tax measures that could have an effect on foreign energy investors. Article 21 is often described as a ‘carve-out’ provision as it protects the State’s regulatory tax measures against possible challenges made by foreign investors. This means that the ECT does not create rights nor impose obligations in relation to taxation measures; however, there are some conditional limitations. ECT Article 21(5)(b) provides that when there is a question on whether a tax measure constitutes expropriation and discrimination the issue should be referred to competent tax authorities.1 However, 1

Ugˇur Erman Özgür, Taxation of Foreign Investments under International Law: Article 21 of the Energy Charter Treaty in Context, Energy Charter Treaty Secretariat (2015) 49.

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as discussed in detail below, the application of ECT Article 21 has been subject to different interpretations.2 B. Bona fide taxation measures according to the ECT There have been some ECT cases, where arbitration tribunals have looked 21.02 into the notion of bona fide taxation measures under ECT Article 21. For example, in the Eiser case, the tribunal addressed the notion of ‘bona fide taxation measures’ where it was concluded that it could not be demonstrated that any improper or abusive use of the power to tax was used by Spain.3 In this respect, the tribunal concluded that the power to tax is a core sovereign power that should not be questioned lightly. The ECT Article 21(1) tax ‘carve-out’ and the corresponding provisions in many other bilateral and multilateral investment treaties reflect States’ determination that tax matters not become a subject of investor-State arbitration, save perhaps in carefully limited circumstances. For example, according to the Eiser tribunal, ECT Article 21(5)(a) allows claims for expropriation effected through taxation, but subject to limiting procedures requiring consideration of the claim by national tax authorities. The tribunal recalls in this connection the conception of ‘bona fide taxation’ utilized by the tribunal in Yukos Universal v Russia, where the tribunal found that, the carve-out of Article 21(1) can apply only to bona fide taxation actions, i.e., actions that are motivated by the purpose of raising general revenue for the State.4 Therefore, any carve-out exemption, the Eiser tribunal concluded, should be on the basis that the respondent did not behave in bona fide but rather as a pattern of behaviour aimed at destroying the investor’s investment, which was not the case. Taxation is a permissible regulatory power which needs to be safeguarded 21.03 while protecting substantive investment protections granted to foreign investors.5 Carve-out clauses are often the mechanism to protect a state’s regulatory right. In the case of the ECT, the immediate effect of carve-out clauses is to exclude taxation measures from the dispute resolution clause available. Nonetheless, carve-out clauses might have – or not have – unconditional limitations that could exclude taxation measures to be subject to the agreed dispute

2 3 4 5

Alejandro Lopez Ortiz, Michael P. Lennon and William Ahern, ‘Investment arbitration under the Energy Charter Treaty’, Practical Law and Özgür, ibid. Eiser Infrastructure Ltd and Energía Solar Luxembourg S.à r.l. v Kingdom of Spain, ICSID Case No. ARB/13/36, Award (4 May 2017) 266–71. Hulley v Russian Federation; Yukos Universal Ltd (Isle of Man) v Russian; and Veteran Petroleum Ltd) v Russian Federation, 1407–45. Harvard Draft Convention on the International Responsibility of States for Injuries to Aliens (1961), Art 10.

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resolution mechanism. An example of an unconditional carve-out tax provision is in the ASEAN Agreement, which mentions that (i) taxation measures cannot amount to expropriation and (ii) taxation issues shall be exclusively governed by the Contracting Parties’ national law.6 There are, of course, other examples where the carve-out taxation provision is conditional, which means that in some situations taxation measures could be (i) subject to the dispute resolution clause in that specific international agreement and therefore (ii) taxation measures could also amount to indirect expropriation. 21.04 One of the best examples to illustrate conditional tax carve-out provisions is ECT Article 21; however as explained in detail below, the understanding of ECT Article 21 is often complex, where previous commentators have highlighted the net of multi-layered exceptions of this provision.7 C. Structure and the general rule on Article 21 21.05 The general rule clearly provides that nothing in the ECT shall create rights or impose obligations with respect to taxation measures of the Contracting Parties and in the event of any inconsistency Article 21 shall prevail. An initial question that arises from this general rule is the scope of ‘taxation measures’. According to Article 21(1)(7) the term ‘taxation measures’ includes any provision related to taxes of the domestic law of the Contracting Party (including its political subdivisions) and any provision relating to taxes of any convention by which the Contracting Party is bound. In addition, the ECT also includes taxes on income and capital as those taxes imposed on total income, local capital or on elements of income or of capital, including taxes on gains from the alienation of property, taxes on estates, inheritance and gifts, or substantially similar taxes on total amounts of wages or salaries paid by enterprises. 21.06 In the Yukos and Plama cases, the arbitration tribunal discussed the scope of ‘taxation measures’ where both tribunals had to consider if taxation measures also included the imposition, collection and enforcement of taxes. In Plama, the tribunal concluded that measures modifying lax laws fall within the scope of Article 21(1), while in the Yukos cases the tribunal concluded that actions ‘under the guise of taxation’ are also included within Article 21(1). In more detail, in the Yukos cases, the question was whether the tax optimization 6

7

Part V, Association of Southeast Asian Nations (ASEAN’s) Agreement on the Promotion and Protection of Investments of 1987. See also other examples such as Argentina-New Zealand BIT, Art 5 and the Moscow Convention on Protection of the Rights of the Investor, Art 5. William Park, ‘Arbitrability and Tax,’ in Loukas Mistelis and Stavros L. Brekoulakis (eds), Arbitrability: International and Comprative Prespectives (Kluwer Law International 2009).

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scheme imposed on Yukos falls under the application of ECT Article 21. According to the respondent all measures adopted by the Russian Federation constitute taxation measures which are excluded from the protection under ECT due to the carve-out in Article 21. Claimants, on the other hand, argued that: (i) Article 21 does not apply because the measures adopted by the respondent were disguised tax measures and were not bona fide; (ii) Article 13 ECT regarding discriminatory measures as well as expropriation still applies due to the claw-back clause (Art 21(5) ECT); (iii) referring the issues to the respondent’s tax authorities as per the claw-back provision in Article 21(5) would be futile.8 Based on the evidence, the tribunal analysed whether the respondent’s measures were taken as good faith sovereign power to tax or whether they were abusive and had led to the destruction of the investor’s investment. Therefore, the carve-out mechanism did not apply. Further, the Yukos tribunal established that, first, Contracting States shall take taxation measures in good faith in order to take benefit of the carve-out in Article 21 ECT and, secondly, that the referral mechanism in Article 21(5) ECT is not binding especially when it can be considered as futile, where the relevant tax authorities might not be able to come to a timely and meaningful conclusion.9 D. Exceptions to the general rule on Article 21 In many treaties, the exclusion from their coverage of matters of taxation 21.07 sometimes have, as exceptions to that exclusion, measures that could amount to an expropriation. Such exclusions are to be found for instance in the model bilateral investment treaties of Canada (Art 16), the US (Art 21), the US-Ecuador Treaty (Art X), the Energy Charter Treaty (Art 21) and the North American Free Trade Agreement (Art 2103). The exclusions are also to be related to the very extensive body of treaties dealing specifically with the issues of taxation – a separate, large and highly technical field. All of the cases to which the parties referred, as they also acknowledge, essentially turn on the specific way in which tax matters are regulated by the investment treaty in question. Those provisions are all markedly different from those in issue in this case. In particular, they all expressly address the relationship between the parties’ undertakings and matters of taxation by providing, for instance, that nothing in the Agreement in question applies to taxation.10

8 9 10

Özgür, supra note 1, 47. Supra note 7. Conocophillips Petrozuata B.V., Conocophillips Hamaca B.V. and Conocophillips Gulf of Paria B.V. v Bolivarian Republic of Venezuela, ICSID Case No. ARB/07/30, Decision on Jurisdiction and the Merits (3 September 2013) 313.

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21.08 Article 21 provides for exceptions to the carve-out rule by making references to Article 7 (Transit of Energy Materials and Products),11 Article 10 (MostFavoured-Nation and National Treatment standards), Article 29 (Interim Provisions on Trade-Related Matters) and Article 13 (Expropriation). From the reading of Article 21(2) there is a double exception mechanism as Article 7(3) is excluded from the general carve-out having the effect of making taxation measures other than those on income or on capital. The first effect of this provision is to enable the protection of National Treatment to be applicable to taxation measures other than the ones of income and capital.12 This exception is also extended to Article 21(7)(a)(ii) which also refers to any convention of double taxation or of any other international agreement or arrangement by which the Contracting Party is bound. 21.09 The second exception of Article 21(2)(b) is to ‘any taxation measure’ provided that the taxation measure does not arbitrarily discriminate against Energy Materials and Products originating in or destined for the Area of another Contracting Party or arbitrarily restricts the guarantee of national treatment under Article 7(3). Additionally, a third exception to the general carve-out provision of Article 21 is its section 4 which states that Article 29(2)–(6) shall apply to Taxation Measures other than those on income or capital. 21.10 A fourth exception to the general carve-out of Article 21 is in its paragraph 3; where Article 10(2) and (7) shall apply to taxation measures with the exception of the application of most favoured nation and national treatment with respect to advantages accorded by a Contracting Party in double taxation agreements or resulting from membership of any Regional Economic Organisation. Additionally, this provision should not apply to any taxation measure ensuring the effective collection of taxes, except when the measure arbitrarily discriminates against the investor. 21.11 The fifth exception to the general carve-out of Article 21 is in its paragraph 5 and in relation to the expropriatory and discriminatory taxation according to ECT Article 13. The provision sets out the procedure that should be followed when the extent of the tax constitutes an expropriation. One of the most important values of this provision is that it sets out a joint consultation mechanism whereby the investor or the Contracting Party shall refer the issue

11 12

Treatment of transit Energy Materials and Products in a no less favourable manner than the Materials and Product originating or destined for the State own’s territory. See in this Commentary Art 7(3).

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to the relevant Competent Tax Authority. This prerequisite could be used as a defence for the respondent party as a jurisdictional requirement before activating the arbitration mechanism.13 According to paragraph 5(b)(ii) the Competent Tax Authorities shall strive to resolve the issue(s) referred within a period of six months. Also, this provision gives some guidance to the Competent Tax Authority should apply when the issues concerned are non-discriminatory. If so the relevant non-discrimination provision should be applied and in absence on such provision, the Tax Authority shall apply the non-discrimination principles under the Model Tax Convention on Income and Capital of the Organisation for Economic Cooperation and Development. For example, in the Plama v Bulgaria case, the issue relating to the provision of 21.12 ECT Article 21 mainly concerned the claimant’s argument on the merits that Bulgaria failed to adopt proper taxation provisions regarding the ‘paper profit’ accumulation problem which eventually led to the bankruptcy of the company. The respondent relied on Article 21 and the carve-out of taxation measures. The tribunal concluded that Article 21 ECT generally excludes the protection of substantive rights, except for the claims regarding expropriation or discriminatory measures under the claw-back of Article 21(5). However, the consultation requirement of Article 21(5)(b) requires the investor to first refer the issue to the competent tax authorities and this should be complied with, something which the claimant did not do.14 1. Competent Tax Authorities according to the ECT Practice

In the Eiser case, as part of the tribunal’s dealing with the respondent’s 21.13 jurisdictional objection based on Article 21(1) ECT, it was established that consultation requirement under Article 21(5)(b) should be satisfied, where a couple of issues arose in this regard. First, which entities should be considered as the ‘Competent Tax Authorities’ in the case at hand, in particular where the investors are nationals of two different Contracting Parties or the Tax Authorities of the host State. In this case, the tribunal ultimately decided that the requirement is satisfied by reference to the host State’s Tax Authorities, namely the Spanish ones. The second issue then was whether the two communications cited by claimants satisfied the requirement that they ‘refer’ their claim to the Spanish Ministers and the President of the Government. According to the tribunal, there is no indication that the Ministers were actually the Competent Tax Authorities. Moreover, the communications 13 14

Özgür, supra note 1, 58. Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, Decision on Jurisdiction, 8 February 2005, 266.

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contain no evidence or claim that the claimants view the measures as expropriatory or discriminatory. Accordingly, the claimants did not indeed ‘refer’ their claim to the Competent Tax Authorities, as required by Article 21(5)(b). Thirdly, the tribunal dealt with the claimants’ argument, based on the Yukos award, that any reference would be futile. Based on the evidence collected, the tribunal disagreed and sustained the respondent’s objection.15 E. Article 21 in practice and jurisdictional issues 21.14 In the Yukos cases, both parties made extensive submissions on Article 21, both in writing and orally. Having considered the parties’ arguments, the tribunal concluded that it had jurisdiction to rule on claimants’ claims under Article 13 of the ECT for two independent reasons, each of which in and of itself suffices to justify the jurisdiction of the tribunal. First, the tribunal found that, irrespective of its findings regarding the applicability of Article 21 of the ECT to the present case, it would have ‘indirect’ jurisdiction over claims under Article 13 of the ECT because any measures excluded by the carve-out under Article 21(1) of the ECT would be brought back within the tribunal’s jurisdiction by the claw-back of Article 21(5) of the ECT and any referral to the Competent Taxation Authorities within the meaning of this latter provision would clearly have been futile.16 21.15 The publicly available arbitral practice has dealt with the question of whether the referral mechanism established in Article 21(5)(b) ECT constitutes a jurisdictional prerequisite to the submission of any claw-back claims to an arbitral tribunal.17 While the tribunal in Plama v Bulgaria considered that tax consultation requirement as a prerequisite to the jurisdiction of an international tribunal to hear expropriatory or discriminatory claims under the claw-back clause, the Yukos award established that the referral to the Competent Tax Authorities is not required where it would clearly have been futile. The Eiser tribunal faced the dilemma to apply or not the futility exception established in Yukos and remained silent on the issue whether such futility exception exists. In the Eiser case, the tribunal determined instead that it could not assume that the Spanish Competent Tax Authorities would disregard the claimants’ referral and pointed out that Article 21(5) appears to envision a process of interaction between national tax authorities regarding a vexed question of international law – when and whether a tax measure may be expropriatory. The existence of this provision indicates that this was a matter 15 16 17

Eiser v Spain, supra note 3, 286–98. Yukos v Russia, supra note 4, 1406. Özgür, supra note 1, 64.

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of concern to the ECT Contracting Parties, who nevertheless took care to assure that the agreed procedure could not be allowed to frustrate arbitration of a future claim. Overall, commentators have criticized the overly complicated, unclear and 21.16 multi-layered drafting of Article 21 which adds nothing but confusion.18 It is suggested that Article 21 ‘was chiefly negotiated by Finance Ministries that essentially aimed at limiting application of ECT provisions in matters of taxation where MFN provisions of their BITs were applicable’.19 The structural complexity and lack of clarity relates to the existence of a principal carve-out its paragraph 1, claw-backs with regard to some ECT provisions, and exceptions to the claw-backs which creates a heavy legal mechanism which is difficult to be applied.20 Furthermore, it has been argued that placing the definitions chronologically in the last paragraph 7 of the article is probably not the most appropriate drafting technique.21 Another item, frequently discussed in practice in relation to Article 21 is the 21.17 notion of ‘Taxation Measures’. In Yukos, one of the first items studied by the tribunal was brought by Russia, which argued that the term ‘Taxation Measures’ used in the carve-out, should be given a broad meaning, including collection and enforcement measures. The tribunal observed that the term ‘Taxation Measures’, used in Article 21(1), is defined in Article 21(7)(a) to mean ‘provisions’ of domestic tax law and tax treaties, while the term ‘taxes’, used in Article 21(5), is not defined in the Treaty.22 In the view of the tribunal, the ordinary meaning of ‘tax’ used in Article 21(5) cannot be narrower than the meaning of ‘Taxation Measure’ used in Article 21(1). Respondent’s interpretation of ‘Taxation Measures’ and ‘taxes’ would result in a wide carve-out and a narrow claw-back, reinstating protection from expropriation only in relation to ‘charges and payments’, but not collection and 18

Ibid. See also: However, Article 21 ECT is difficult to understand: its provisions are abstruse and contain some laboured syntactical constructions, all of which defy assured comprehension. It is, therefore, likely that the provisions of Article 21 ECT will continue to be subject to interpretive disagreements between disputing parties, as each side will naturally attempt to advocate one of the two main policy objectives that have shaped the taxation provisions of the ECT. Mena Chambers’ publication, Note 13 – Making Sense of the Taxation Provisions of the Energy Charter Treaty, accessed on 3 January 2018.

19 20 21 22

Craig S. Bamberger, ‘An Overview of the Energy Charter Treaty’ in Thomas W. Wälde (ed.), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International, 1996) 24. Park, supra note 7, 189. Mena Chambers, supra note 18. Yukos v Russia, supra note 4, 1410–11.

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enforcement measures or interests and fines. The tribunal concluded that such an interpretation would lead to a gaping hole in the ECT where investors would stand completely unprotected from expropriatory taxation. Such an interpretation would defeat the object and purpose of the claw-back and of the ECT itself.23 21.18 In addition, there are terminological and definitional problems arising out of the drafting of Article 21. Such terminological issues arise with regard to the difference between the terms ‘taxation measures’ used throughout the article, and ‘taxes’ in the claw-back provision of Article 21(5).24 The different wording caused a dispute between the parties to Yukos, where the Russian federation argued that the scope of ‘taxes’ used in the claw-back provision is narrower and does not apply to the category of the taxation measures involved in the arbitration while the claimants argued that the two terms have identical meaning.25 The tribunal, however, concluded that: ‘Such an interpretation would defeat the object and purpose of the claw-back and of the ECT itself.’

23 24 25

Ibid., 1413. Özgür, supra note 19, 52 Ibid., 59 and Yukos v Russia, supra note 4, 1413.

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ARTICLE 22 STATE AND PRIVILEGED ENTERPRISES1 Contributions by Costantino Grasso and Tina Hunter

(1)

Each Contracting Party shall ensure that any state enterprise which it maintains or establishes shall conduct its activities in relation to the sale or provision of goods and services in its Area in a manner consistent with the Contracting Party’s obligations under Part III of this Treaty. No Contracting Party shall encourage or require such a state enterprise to conduct its activities in its Area in a manner inconsistent with the Contracting Party’s obligations under other provisions of this Treaty. Each Contracting Party shall ensure that if it establishes or maintains an entity and entrusts the entity with regulatory, administrative or other governmental authority, such entity shall exercise that authority in a manner consistent with the Contracting Party’s obligations under this Treaty. No Contracting Party shall encourage or require any entity to which it grants exclusive or special privileges to conduct its activities in its Area in a manner inconsistent with the Contracting Party’s obligations under this Treaty. For the purposes of this Article, ‘entity’ includes any enterprise, agency or other organisation or individual.

(2)

(3)

(4)

(5)

1

See Final Act of the European Energy Charter Conference, Understanding 14 with respect to Arts 22 and 23.

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Costantino Grasso 22.01 Article 22, which deals with state-owned and privileged enterprises,2 sets out a basic principle under which these companies, irrespective of their national status, have to carry out their business operations in a manner consistent with the rules provided by the Energy Charter Treaty (ECT). In practice, the ECT does not prevent in any way Contracting Parties from maintaining or establishing state-owned companies but prevents governments from using the controlled enterprises to circumvent the rules of the treaty and ensures that in their sales and procurements those entities act in accordance with the ECT investment protection provisions.3 22.02 Article 22 also provides for a fundamental rule of attribution in that it implies that, where state-owned and privileged enterprises operate in a way that violates ECT rules, the responsibility is attributed directly to the state. 22.03 The issues related to Article 22 can be considered as a question of great significance. Up to the end of the 1950s, the presence of state-owned enterprises was a phenomenon that characterized mainly communist countries. In addition, the most relevant state-owned enterprises fell commonly into the category of public utilities. In a few countries, including Mexico and Italy, such enterprises were more pervasive; whereas in a few others, including the UK, those type of enterprises represented legacies of the Great Depression or the Second World War.4 However, it is possible to identify an emerging pattern in that state-owned enterprises are currently present in a wide range of industries both in the advanced industrialized countries and in the developing nations, and they occupy a central role in many key economic areas.5 In particular, state-owned enterprises have always played a dominant role in the energy sector due to the crucial geopolitical importance that energy resources have always had because of the asymmetric distribution of reserves, production

2

3

4 5

Earlier drafts of the Treaty also included articles on monopolies and state aids; these have now been deleted. In the context of the interpretative understanding, this will allow state aids to be left in place so long as they do not conflict with domestic competition law. See Lorna Brazell, ‘Draft Energy Charter Treaty: Trade, Competition, Investment and Environment,’ (1994) 12(3) Journal of Energy & Natural Resources Law 318. See Sumio Kozawa, ‘Depoliticization of International Dispute Settlement – A Comparison of the Dispute Settlement Provisions of the WTO and the Energy Charter Treaty,’ (2002) 3(5) Journal of World Investment 799. See Raymond Vernon, ‘The International Aspects of State-Owned Enterprises.’ (1979) 10(3) Journal of International Business Studies 7. Ibid.

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and consumption of natural resources around the globe.6 As a matter of fact, governments tend to create state-owned enterprises as a means of developing or maintaining industrial sectors having strategic importance, that private companies are unable to defend or where the presence of foreign-owned corporations is not considered acceptable.7 Consequently, it is not surprising that privileged and licensed energy monopolies dominate the energy industry, in particular, the ‘natural monopolies’ of energy transport and distribution.8 A vexed question raised by Article 22 is represented by the absence of a 22.04 universally accepted definition of state-owned enterprise. At the international level, no attempt to define the notion of state-owned enterprise has been successful so far. Such conceptual problems generate, in turn, practical issues related to the difficulties of assessing whether or not a certain corporation is a state enterprise. As an example of such complexity it is possible to mention that, although the countries negotiating the Trans-Pacific Partnership agreed the percentage of government ownership ought to be the key criterion delineating a state-owned enterprise, they could then not agree on a given percentage figure.9 The absence of a universal definition of state-owned enterprises and the differences in the way in which such companies are regulated by national legislations generate a significant level of confusion in assessing the real nature of some companies, which in turn influence the identification of the subject that has to be deemed liable for violating the established international rules. An example of these conceptual difficulties and their practical consequences is 22.05 offered by the case Emilio Agustín Maffezini v. The Kingdom of Spain10 brought before the International Centre for Settlement of Investment Disputes,11 which arose in the context of the Argentine-Spain Bilateral Investment Treaty. The Kingdom of Spain tried to rely on the structure of the Spanish 6

7 8 9 10

11

See Costantino Grasso, ‘The Dark Side of Power: Corruption and Bribery within the Energy Industry,’ in Rafael Leal-Arcas and Jan Wouters (eds), Research Handbook on EU Energy Law and Policy (Edward Elgar, 2017), 245. See Vernon, supra note 4, 8. See Thomas Wälde, ‘Energy Charter Treaty-based Investment Arbitration: Controversial Issues,’ (2004) 5 The Journal of World Investment and Trade 405. See Raj Bhala, ‘TPP, American National Security and Chinese SOEs,’ (2017) 16(4) World Trade Review 5. See Emilio Agustín Maffezini v. The Kingdom of Spain, Argentine-Spain BIT, Award on the Merits, Case No. ARB/97/7, 13 November 2000. https://www.italaw.com/sites/default/files/case-documents/ita0481.pdf, accessed 4 July 2018. The International Centre for Settlement of Investment Disputes is the world’s leading institution devoted to international investment dispute settlement. It was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which is a multilateral treaty formulated by the Executive Directors of the World Bank. See World Bank Group. About ICSID. https://icsid.worldbank.org/en/Pages/about/default.aspx, accessed 4 July 2018.

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public administration to argue that the involved company – SODIGA – was not to be considered as a state-owned enterprise but as a merely financial company created as a private corporation.12 In order to support such an argument, it invoked Article 2 of the domestic statute (Law 30/92) establishing the legal regime of public administrations in Spain. Specifically, it was pointed out that companies like SODIGA did not fall under the criteria set out by the above-mentioned national legislation.13 However, the tribunal, applying both a structural and a functional test,14 found that SODIGA was a state entity acting on behalf of the Kingdom of Spain. In order to reach such a conclusion, the tribunal applied both a structural and a functional test.15 As regards the former, it was demonstrated that in Spain a variety of public entities existed that were governed by private law but occasionally exercised public functions governed by public law, and that they represented a mixed category of public entities operating under a private law regime that had always given rise to great confusion.16 From a functional point of view, the elements on which the tribunal focused were the control of the company by the state or state entities, and the objectives and functions for which the company was created.17 Specifically, the tribunal found that, although some SODIGA’s functions were essentially commercial in character, a number of other functions performed by the company were governmental in nature18 (e.g., SODIGA was an entity charged with the implementation of governmental policies relating to industrial promotion).19 As a result, the tribunal held that the responsibility for the actions carried out by SODIGA had to be attributed to the Kingdom of Spain.20 22.06 The definition of ‘an entity of a State’ is also offered in Salini v. Morocco, in which an ICSID Tribunal had to consider contractual and treaty claims on the basis of a bilateral investment treaty concluded between Italy and Jordan.21 The Kingdom of Morocco alleged that the arbitral tribunal lacks ratione personae jurisdiction because the action was founded on acts attributed to the Societe Nationale des Autoroutes du Maroc (ADM), which was not a state 12 13 14 15 16 17 18 19 20 21

Ibid., at para 47. Ibid. Ibid., at para 46. Ibid., at para 46. Ibid., at para 48. Ibid., at para 50. Ibid., at para 57. Ibid., at para 78. Ibid., at para 83. See Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom of Morocco, Italy-Morocco BIT, Award on the Merits, Case No. ARB/OO/4, 13 July 2001. https://www.italaw.com/sites/default/files/case-documents/ ita0738.pdf, acccessed 4 July 2018.

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entity.22 The Kingdom of Morocco argued that ADM was a private legal entity, with its own assets and personality.23 Consequently, the fact that the state exercised its rights as shareholder and licensor should not have any effect on the legal autonomy of ADM. Similarly, the nature of the public procurement contract, which automatically follows from any construction works contract within the public domain, should have no influence on ADM's nature, nor should the levying of a special tax, the benefit of which might be granted to public or private legal entities. On the contrary, the Italian companies alleged that ADM was a public legal entity, notwithstanding its incorporation as a limited liability company.24 The composition of its assets and its Board of Directors at the time of its creation and the direct involvement of the Minister of Infrastructure in all fundamental decision-making relating to the contract established the active participation of the state. In particular, the construction contract at issue was governed by national rules known as Cahier des Clauses Administratives Generales (CCAG),25 so that all the works were carried out on behalf of the state and fell under the jurisdiction of the administrative courts. This logically implied that it was a public procurement contract. Therefore, as argued by the Italian companies, ADM was directly or indirectly financed by the Kingdom of Morocco, and the road network construction projects were accounted for by the state.26 Thus, from the Italian perspective, being a public entity bound by a public procurement contract, all the conditions required to assimilate ADM to the state were satisfied. In order to determine the degree of control and participation of a state in a company, the ICSID Tribunal, referring to the ICSID award rendered in the above-mentioned case Emilio Agustín Maffezini v. The Kingdom of Spain, considered that it had to take into account the international rules governing the liability of states.27 The assessment of the degree of state control and participation in a company was, again, based on two criteria: the first, structural, related to the structure of the company and, in particular, to its shareholders; the other, functional, related to the objectives of the company in question.28 Therefore, in the case at issue, from a structural point of view, the tribunal considered that the Kingdom of Morocco, through the medium of the

22

23 24 25 26 27 28

The Societe Nationale des Autoroutes du Maroc (ADM) was incorporated in 1989 as a limited liability company aiming at building, maintaining and operating highways and various road-works. Its business operations were carried out on behalf of the state in accordance with the Concession Agreement concluded with the Minister of Infrastructure and Professional and Executive Training. See ibid., at para 2. Ibid., at para 28. Ibid., at para 29. Ibid. Ibid. Ibid., at para 31. Ibid.

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Treasury and various public entities, held at least 89 per cent of ADM.29 Also, regarding the management of ADM, the majority stake of the Moroccan State in the company's Board of Directors translated into control de facto of the latter.30 Consequently, from a structural point of view, the ICSID Tribunal affirmed that ADM was an entity controlled and managed by the Moroccan State through the medium of the Minister of Infrastructure and various public organs.31 From a functional point of view, its Memorandum and Articles of Association made it clear that ADM's main object was to accomplish tasks that were under state control (building, managing and operating of assets falling under the province of the public utilities responding to the structural needs of the Kingdom of Morocco with regard to infrastructure and efficient communication networks).32 In virtue of what has been set out above, the tribunal held that ADM was an entity, from a structural as well as a functional point of view, which was distinguishable from the state solely on account of its legal personality.33 In particular, in the following passage the tribunal clarified that the model of corporate structure is irrelevant to assess whether or not a firm can be considered a state-owned enterprise: The fact that a State may act through the medium of a company having its own legal personality is no longer unusual if one considers the extraordinary expansion of public authority activity. In order to perform its obligations, and at the same time take into account the sometimes diverging interests that the private economy protects, the State uses a varied spectrum of modes of organisation, among which are in particular semi-public companies, similar to ADM, a company mostly held by the State which, considering the size of its participation (over 80 per cent), directs and manages it.34

22.07 Some authors suggest to distinguish between private and state companies using the criteria provided by the General Agreement on Tariffs and Trade framework (GATT) of 199435 and EU competition law under which the

29 30 31 32 33 34 35

Ibid., at para 32. Ibid. Ibid. Ibid., at para 33. Ibid, at para 35. Ibid. The original General Agreement on Tariffs and Trade (GATT) was signed in April 1947 in Geneva. After several rounds, the agreement was updated in 1994. The most significant change that was included in GATT 1994 was the creation of the World Trade Organization (WTO), which was established in 1994 by the Marrakesh Agreement and came into existence in 1995. See Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos, Energy Security, Trade and the EU: Regional and International Perspectives (Edward Elgar 2016) 55.

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decisive question is if a conduct displays normal ‘business judgment’ or the ‘market investor principle,’ or if it is characterized significantly by public policy concerns.36 Even within the EU there is not strict definition applicable to state-owned 22.08 enterprises. In the opinion of the European Economic and Social Committee on ‘the unexplored economic potential of EU competitiveness – reform of state-owned enterprises’, it is clarified that the notion of state-owned enterprises is related to the general concepts of ‘state aid and services of general economic interest’.37 In that regard, it is emblematic that the Report from the European Commis- 22.09 sion on the state of play in the work on the guidelines for state aid and services of general economic interest (SGEIs) of 2002 specifies that ‘in the absence of Community rules in this area, Member States have wide discretionary powers when it comes to defining their SGEIs in the light of their political choices and in line with the general principles of the Treaty’.38 In conclusion, it is possible to affirm that, irrespective of the definition 22.10 applied, the distinguishing feature of state-owned enterprises consists in the fact that they enjoy a series of privileges in their home countries that private firms cannot exercise such as direct support, preferential financing, selective enforcement of laws, or regulatory exemptions.39 Having said that, it is not surprising that Article 22, instead of providing a 22.11 definition of ‘state and privileged enterprises’, has offered a general guiding principle in order to address the business interactions between state-owned enterprises and private companies, and avoid any unfairness due to the presence of such particular market players. As a matter of fact, it aims at ensuring that the Contracting States shall require state-owned enterprises to conduct their activities in a manner consistent with the Contracting State’s obligations under the ECT.

36 37

38

39

See Thomas Wälde, ‘Energy Charter Treaty-based Investment Arbitration: Controversial Issues,’ (2004) 5 The Journal of World Investment and Trade 406. See European Economic and Social Committee, ‘Opinion of the European Economic and Social Committee on ‘The unexplored economic potential of EU competitiveness—reform of state-owned enterprises’ (exploratory opinion).’ OJ C 327/01, 12/11/2013, para 2.2. See European Commission, ‘Report from the Commission on the state of play in the work on the guidelines for state aid and services of general economic interest (SGEIs).’ 2002, para 4.1. Available at http:// ec.europa.eu/competition/state_aid/studies_reports/sieg_en.pdf, acccessed 4 July 2018. See Bhala, supra note 5.

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22.12 The fact that Article 22 serves the purpose of setting a general guiding principle to avoid any unfair business operation carried out through stateowned enterprises emerges clearly also from the alternative proposals for its drafting as submitted to the European Energy Charter Secretariat during the ECT preparatory works. For instance, in the Note from the European Energy Charter Secretariat of 18 September 1992 it was proposed to include the following text: ‘Each Contracting Party undertakes that if it grants to any entity exclusive or special privileges, in the field of energy, such entity shall conduct its activities in a manner consistent with this Agreement.’40 Another proposal, which was included in the same document, suggested the following alternative text: ‘Any Contracting Party shall be free to participate in energy activities through direct participation by the Government or through government-controlled investors. Such Investors may be granted exclusive or special privileges in this respect. In such cases, they shall conduct these activities in a manner consistent with this Agreement.’41 22.13 In reality, Article 22 reiterates the general international law rules on state responsibility, which are customary in nature42 but have been codified in 200143 by the International Law Commission (ILC) established by the United Nations General Assembly.44 As a matter of fact, the subject of state responsibility has always been regarded as a major area of interest in the development of international law. In 2001, at its 53rd session, the Commission adopted the final version of the text, consisting of 59 Articles.45 Then, by resolution 56/83 of 12 December 2001, the General Assembly took note of the Articles, the text of which was annexed to the resolution, and commended them to the attention of governments.

40

41 42

43 44

45

European Energy Charter Conference Secretariat, Note from the Secretariat, 40/92, BA-18, 18 September 1992, p. 38. https://energycharter.org/fileadmin/DocumentsMedia/ECT_Drafts/9_-_BA_18__18.09.1992_. pdf, acccessed 4 July 2018. Ibid., p. 39. In international law, customary law can be defined as a law created by a usual or habitual course of action or a long-established practice occurring among states where such a repetition of the conduct is accompanied by the shared conviction that it constitutes the fulfilment of a duty or the exercise of a right. See Hans Kelsen, Principles of International Law, 2nd edition (Holt, Rinehart and Winston, 1966), p. 440. International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts, GA res. 567/3 (12 December 2001), Annex. The International Law Commission was established in 1947 by the General Assembly of the United Nations to undertake the mandate of the Assembly, under Art 13 (1) (a) of the Charter of the United Nations to ‘initiate studies and make recommendations for the purpose of … encouraging the progressive development of international law and its codification’. See United Nations. International Law Commission. . See International Law Commission, ‘Responsibility of States for Internationally Wrongful Acts.’ 2001. http://legal.un.org/ilc/texts/instruments/english/draft_articles/9_6_2001.pdf, acccessed 4 July 2018.

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In particular, the ILC’s document establishes the fundamental postulates 22.14 defining the basic features of state responsibility for internationally wrongful acts by identifying a set of criteria under which it is possible to attribute a certain conduct to a state. Specifically, the provisions of Chapter II of Part One specify the scope of this concept, both from a subjective and a functional point of view.46 Those criteria include inter alia: Article 4, under which the conduct of any state organ (person or entity) shall be considered as an act of that state under international law whatever position it holds in the organization of the state; Article 5, which provides that the conduct of a person or entity which is not an organ of the state but is empowered by the law of that state to exercise elements of the governmental authority shall be considered an act of the state under international law; and Article 8, under which the conduct of a person shall be considered an act of a state under international law if the person is in fact acting on the instructions of, or under the direction or control of, that state in carrying out the conduct.47 The rationale behind the above-mentioned provisions is to prevent a state 22.15 from invoking domestic law as a defence against the violation of an international obligation in relation to contracts or other acts undertaken by state entities.48 The same principle is provided under Article 27 of the Vienna Convention on the Law of Treaties,49 which is entitled ‘Internal Law and Observance of Treaties’ and specifies that: ‘A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty.’50 Therefore, the provision of Article 22 aims at resolving the vexed issue of 22.16 attribution, which is the assessment as to whether the conduct of a stateowned enterprise towards a foreign investor can be attributed to the state with the effect that the state is responsible for that conduct as if it were its own.51 In other words, it consists of determining to which subject – the state-owned 46

47 48 49

50

51

See James Crawford, Introductory Note to the Articles on Responsibility of States for Internationally Wrongful Acts. United Nations Audiovisual Library of International Law, 2001, p. 4. . See International Law Commission, supra note 45. See Rudolf Dolzer and Christoph Schreuer, Principles of International Investment Law (Oxford University Press, 2012), p. 220. The convention was adopted due to the fundamental role that treaties had assumed in the history of international relations as well as their ever-increasing importance as a source of international law. It represents one of the major international law reforms of the last century. See Keith Kenneth, ‘Bilateralism and Community in Treaty Law and Practice,’ in Ulrich Fastenrath et al. (eds), From Bilateralism to Community Interest (Oxford University Press, 2011), p. 754. See United Nation Treaty Collection, ‘Vienna Convention on the Law of Treaties (with annex). Concluded at Vienna on 23 May 1969.’ Article 27. acccessed 4 July 2018. See Wälde, supra note 8.

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enterprise or the government – the responsibility should be attributed where the firm carries out its business operations in a manner inconsistent with the ECT. Article 22 makes it clear that the obligation of ensuring that state enterprises carry out their business activities in a manner consistent with the ECT represents a duty of the state. This conclusion is also backed by the principles of customary international law as codified by the International Law Commission’s Draft Articles on State Responsibility. 22.17 This solution has been consistently used also within other international contexts. For instance, Chapter Fifteen of the North American Free Trade Agreement (NAFTA),52 which is entitled ‘Competition Policy, Monopolies and State Enterprises,’ provides that: ‘Each Party shall ensure, through regulatory control, administrative supervision or the application of other measures, that any privately owned monopoly that it designates and any government monopoly that it maintains or designates acts in a manner that is not inconsistent with the Party's obligations.’53 Such a provision, resembling the one adopted by Article 22, has been construed in another decision taken by the ICSID in the following way: The particular provisions of chapter 15 themselves distinguish in their operation between the Party on the one side and the monopoly or enterprise on the other. It is the Party which is to ensure that the monopolies or enterprises meet the Party's obligations stated in the prescribed circumstances. The obligations remain those of the State Party; they are not placed on the monopoly or enterprise.54

22.18 The analysis of two cases that have dealt with Article 22 ECT can help understand how the issues raised by this article have been addressed in practice. 22.19 In Nykomb Synergetics Technology Holding AB v. The Republic of Latvia,55 the transaction between Nykomb and Latvenergo (a Latvian State Joint-Stock 52

53 54

55

The North American Free Trade Agreement (NAFTA) came into effect on 1 January 1994 among three contracting parties: Canada, Mexico and the US. It represents a trading bloc that now links 450 million people, producing USD 17 trillion worth of goods and services. See Leal-Arcas, Rafael, Grasso, Costantino and Alemany Ríos, Juan. Energy Security, Trade and the EU: Regional and International Perspectives (Edward Elgar 2016) 92. See the NAFTA, Arti 1502(3)(a). See United Parcel Service of America v. Government of Canada, NAFTA/UNICTRAL, Award on the Merits, Case No. UNCT/02/1, 11 June 2007, p. 31. https://www.italaw.com/sites/default/files/case-documents/ ita0885.pdf, acccessed 4 July 2018. On 24 March 1997 Nykomb Synergetics Technology Holding AB, a Sweden company, entered into an agreement with the State Joint-Stock Company Latvenergo, which was originally organized as a state enterprise under Latvian law in 1991, and was in 1993 transformed into a joint stock company under Latvian law. The Republic of Latvia owned 100 per cent of the shares in Latvenergo. By an amendment of 3 August 2000 to the Latvian Energy Law the company was defined as ‘a national economy object of the State

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Company) took place in a public-service market dimension. The arbitral tribunal noted that, as highlighted by the claimant, the operation by which the conduct of Latvenergo was treated as if it were an integral part of the state and by which the veil of its corporate personality was pierced (or lifted) was based on customary international law (applicable under Art 26 (6) of the Treaty), the State Responsibility draft of the International Law Commission, as well as on Article 22 (1, 3 and 4) of the Treaty, that however merely reinforced the special attribution norm set out by the former.56 Also, the respondent's argument by which the arbitral tribunal had no jurisdiction on the ground that Article 22 was placed in Part IV of the Treaty, which merely focuses on administrative and legal arrangements, whereas Article 26, which regulates the settlement of disputes between an investor and a contracting party, required that the claims had to be based on alleged breaches of the rules on international cooperation as established under Part III of the Treaty, was dismissed.57 As a matter of fact, the arbitral tribunal noted that the claimant had stated that the provisions of Article 22 did not give rise to any separate claim, but were rather invoked as provisions which clarified the scope and contents of other treaty provisions, among them the ones included in Part III of the Treaty. The tribunal found that the interpretation and application of the relevant articles of the ECT, Articles 10 and 13, were best considered under the merits part of the award, and that the references to Article 22 could not be dismissed as such as inadmissible in the form the references were relied on.58 In Petrobart Ltd v. The Kyrgyz Republic,59 the claimant asserted that the 22.20 Republic had failed to ensure that its state enterprise conducted its activities in

56 57 58 59

economy’ that shall not be privatized. According to the agreement, Nykomb accepted to build a cogeneration plant in the town of Bauska, which was to produce electric power and heat on the basis of natural gas, the electric power to be purchased by Latvenergo and distributed over the national grid, and the heat to be purchased and distributed by the Bauska municipality. In 1999 the plant was built and was ready to start but a dispute arose over the purchase price to be paid by Latvenergo. After unsuccessful attempts to reach an amicable settlement Nykomb on 11 December 2001 requested arbitration at the Stockholm Chamber of Commerce in accordance with Art 26.4.c of the ECT. See Nykomb Synergetics Technology Holding AB v. The Republic of Latvia, Energy Charter Treaty (ECT), Arbitral Award, 16 December 2003. https://www. italaw.com/sites/default/files/case-documents/ita0570.pdf, acccessed 4 July 2018. Ibid., at para 1(2)(3). Ibid. Ibid., at para 2(3). Petrobart Ltd, registered in Gibraltar, contracted with Kyrgyzgazmunaizat (KGM), the Kyrgyz state gas company, to supply 200,000 tons of gas condensate. Petrobart made five deliveries but was only paid for the first two as KGM was in severe financial difficulties. Therefore, in 2003 Petrobart submitted a request for arbitration against the Kyrgyz Republic to the Arbitration Institute of the Stockholm Chamber of Commerce under the Energy Charter Treaty, claiming, inter alia, the acts of the Kyrgyz Republic breached the obligations of Art 22 ECT aiming to ensure that a state enterprise conducts its activities in a manner consistent with the Republic’s obligations under Part III (Art 22(1)). See Petrobart Ltd v. The Kyrgyz Republic, Energy Charter Treaty (ECT), SCC Case No. 126/2003, Arbitral Award, 29 March 2005. , acccessed 4 July 2018.

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a manner consistent with the Republic’s obligations under Part III of the Treaty (Art 22(1) of the Treaty). As a matter of fact, Kyrgyzgazmunaizat (KGM) was a state-owned enterprise, maintained and established and indeed wholly controlled by the Kyrgyz Republic. KGM, by failing to honour its contractual commitments when due, had acted in a manner inconsistent with the Republic’s obligations under Part III of the Treaty, having particularly failed to observe the agreement it entered into with an investor (last sentence of Art 10(1)). As a consequence, under Article 22(1) of the Treaty, from the claimant's point of view the contracting state had to assume liability for the acts of the state-owned entity.60 22.21 The case at issue poses an interesting question concerning the relationship between Article 10(1) and Article 22 of the ECT. As some authors argued, the last sentence of Article 10(1), the so-called ‘umbrella clause,’ emphasises the principle of pacta sunt servanda by making it an obligation of each Contracting Party to ‘observe any obligations it has entered into with an Investor or an Investment of an Investor of any other contracting party’. Thus, a breach of such an obligation covered by Article 10(1) may constitute a violation of a Contracting Party's obligations under the ECT. It could also be argued that the umbrella clause of Article 10(1), when read together with Article 22, may have far-reaching implications on commercial contracts for the sale of goods, delivery of services, etc. which have been entered into by an investor and a legal entity controlled or owned by the host state. In the light of Article 10(1), assuming a wide interpretation of the umbrella clause, it could be argued that the host state may become responsible under the ECT (in addition to any liability of the state-owned company under the commercial agreement) for a wide range of actions or omissions of state enterprises in the fulfilment of agreements for the sale of goods and delivery of services, and so on.61 22.22 In any case, the tribunal rejected the claim under Article 22(1) that the Republic failed in its obligation to ensure that the state enterprise KGM conducted its business in a manner consistent with Part III of the Treaty, highlighting how Article 22(1) of the Treaty could not be read as an effective sovereign guarantee by the Kyrgyz Republic of KGM’s debt. This article merely required a Contracting Party that owned a state enterprise to ensure that the state enterprise acted consistently with Part III of the Treaty. The

60 61

Ibid., at Part VII, 1(D). See Kaj Hober, ‘Investment Arbitration and the Energy Charter Treaty,’ (200) 1(1) Journal of International Dispute Settlement 159.

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Republic’s obligations under Part III were, in essence, to refrain from expropriation and to accord national treatment to companies from other Contracting Parties. KGM’s insolvency, which existed prior to the effective date of the Treaty and which was not caused by the Republic, did nothing to breach those Part III obligations.62 It has to be mentioned that in relation to the hypothesis of trade in energy 22.23 materials and products63 and energy-related equipment64 between Contracting Parties, where at least one of them is not a member of the WTO, Article 29 of the ECT establishes that the provisions of the WTO Agreement shall be applied. In particular, Understanding No. 14 included in the Final Act of the ECT has clarified that, for the cases that fall under the provision of Articles 29, Article XVII of GATT 1994 will apply instead of Article 22 of the ECT. Specifically, Article XVII GATT establishes that, where a Contracting Party establishes or maintains a state enterprise, it undertakes that ‘such enterprise shall, in its purchases or sales involving either imports or exports, act in a manner consistent with the general principles of non-discriminatory treatment prescribed in this Agreement for governmental measures affecting imports and exports by private traders’.65 Finally, due to the fact that WTO Members could express preference for 22.24 WTO rules when enacting different treaties,66 a cornerstone of the ECT trade regime is represented by the non-derogation from WTO rules.67 Specifically, in Article 4 of the ECT, the Contracting Parties have expressly opted for such a choice. The provision includes a non-derogation from WTO Agreement clause establishing that: ‘Nothing in this Treaty shall derogate, as between particular Contracting Parties which are members of the WTO, from the provisions of the WTO Agreement as they are applied between those Contracting Parties.’ As a result, for trade among parties to the GATT, Article 4 of the ECT safeguards the continued applicability of the provisions

62 63

64 65 66

67

See Petrobart Ltd, supra note 59. A list of energy materials and products is included in Annex EM I107 to the ECT. Such a list includes: nuclear energy, coal, natural gas, petroleum and petroleum products, electrical energy, and other energy sources like Fuel wood and Wood charcoal. A list of energy-related equipment is included in Annex EQ I to the ECT. See General Agreement on Tariffs and Trade 1994, Art XVII 1(a). See Joost Pauwelyn, ‘The Application of Non-WTO Rules of International Law in WTO Dispute Settlement,’ in Patrick F.J. Macrory, Arthur E. Appleton, and Michael G. Plummer (eds), The World Trade Organization: Legal, Economic and Political Analysis (Springer, 2007), p. 1419. See Yulia Selivanova ‘The Energy Charter and the International Energy Governance,’ in Yulia Selivanova (ed.), Regulation of Energy in International Trade Law: WTO, NAFTA, and Energy Charter (Wolters Kluyer, 2011), p. 376.

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included in the General Agreement on Tariffs and Trade framework, generating, in practice, the same legal effects achieved for non-parties to the GATT by the above-mentioned Understanding No. 14.68

COMMENTARY

Tina Hunter 22.25 Many ECT member states continue to have state-owned enterprises which play a major role in the energy industry. The role of Article 22 is to ensure that the impact or influence of a state-owned enterprise (SOE) is no greater than that of a privately owned corporation, and that the state does not use a SOE to exert dominance in the energy system, or subsume a monopolistic position. To that end, Article 22(1) of the ECT requires that any state enterprise conducts its operations consistently with Articles 10–17 of the ECT. Furthermore, Article 22(2) of the ECT requires that no Contracting Party encourages a SOE to act in a manner inconsistent with its obligation under the ECT. Further, if a SOE holds a regulatory or administrative role, the SOE is required to exercise the authority granted to it in a manner that is consistent with the contracting Party’s obligations under the ECT.69 If a SOE is involved in the provisions of goods and services, then that entity must act in accordance with the national treatment provisions of Article 10.70 22.26 Wälde notes that international law is generally ill-equipped to deal with the complex issues arising out of the wrongful acts of non-state actors in the area of international economic law.71 In order to address the wrongful acts of a state, the rules of attribution in international law are laid out in the ILC Draft Articles on State Responsibility.72 However, Article 22 of the ECT creates an obligation for the state to be responsible for the conduct of its state enterprises and entities in energy transactions. Wälde notes that by making the state responsible for regulating and supervising the activities of state and privileged enterprises, the ECT solves the problems inherent in the attribution-based approach to international responsibility under international law.73 68 69 70 71

72 73

See Wälde, supra note 8, p. 488. ECT, Art 22(3). ECT Arts 22(2), 22(3) and 22(4). See Thomas Wälde and Patricia Wouters, ‘State Responsibility and the Energy Charter Treaty: The Rules Regarding State Enterprises, Entities, and Subnational Authorities,’ (1997) 2 Hofstra Law and Policy symposium 117, 130. In particular see Arts 3–10. International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts (2001). Wälde and Wouters, supra note 71, p. 128.

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Article 22 of the ECT, therefore, forces a contracting state to be liable for its 22.27 failure to ensure that their SOEs comply with the trade and investment provisions of the ECT. This provides assurance to investors making an energy investment in a member state, since there are no attribution requirements for the state’s wrongful acts where the member state has breached the provisions of the ECT, an investor is provided access to dispute resolution measures in investments with State and privileged enterprises. Such a remedy is available under Article 26 of the ECT. Article 22 has been utilised by a number of contracting parties for claims. Such 22.28 cases include: Nykomb v. Latvia.74 This case addressed the activities of Latvenergo, Latvia’s state-owned enterprise were attributable to the state. The tribunal held in the affirmative. Petrobart Ltd v. The Kyrgyz Republic.

74

Nykomb Synergetics Technology Holding AB v Latvia, Stockholm Rules (Energy Charter Treaty) Award, December 16, 2003, Stockholm Intl. Arb Rev 2005.

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ARTICLE 23 OBSERVANCE BY SUB-NATIONAL AUTHORITIES1 Costantino Grasso

(1)

(2)

Each Contracting Party is fully responsible under this Treaty for the observance of all provisions of the Treaty, and shall take such reasonable measures as may be available to it to ensure such observance by regional and local governments and authorities within its Area. The dispute settlement provisions in Parts II, IV and V of this Treaty may be invoked in respect of measures affecting the observance of the Treaty by a Contracting Party which have been taken by regional or local governments or authorities within the Area of the Contracting Party.

COMMENTARY 23.01 While Article 22 enshrines a principle of responsibility for the participating countries in the case of state-owned enterprises, Article 23 establishes a criterion of attribution of liability in relation to regional or sub-regional authorities. 23.02 In particular, Article 23 deals with such territorial entities specifying that each Member State has to ensure that they act in accordance with the treaty. Such a duty implicitly implies that, where a regional or local authority violates the rules set out by the Energy Charter Treaty (ECT), the Member State that exerts control over it shall be deemed responsible for those activities.

1

See Final Act of the European Energy Charter Conference, Understanding 14 with respect to Arts 22 and 23.

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It is interesting to note that, during the negotiation process, the text of Article 23.03 23 was substantially modified. In its original version (at the time the provision was included in Art 26) the rule was structured as follows: Each Contracting Party shall take all measures available to it within its constitution to ensure observance of the provisions of this Agreement by the regional and local governments and other governmental authorities within its Domain.2

In particular, it appears that the original reference to ‘all measures available to 23.04 [the state] within its constitution’ was abandoned not only to avoid giving Contracting Parties the possibility of using domestic legal sources as a way to circumvent the treaty but also because of the almost insurmountable difficulties that such a rule would have generated during settlement procedures. Suffice here to highlight the extraordinary diversity of the traditions of the various Contracting Parties as well as the extreme complexity that an arbitral tribunal would have faced to interpret the specific constitutional and administrative rules under its scrutiny. As a result, it makes sense that in the final version of Article 23 it included a reference to ‘reasonable measures as may be available to [the state],’ which although vague and generic, avoids the above-mentioned complexities through the adoption of a more equitable approach. Not surprisingly the provisions of this article proved to be particularly 23.05 controversial. It is emblematic that, from the comments included in the ECT draft of 20 December 1993, it emerges that during the discussion no agreement was reached on the text in not one of the first six versions.3 Specifically, while some delegations expressed the view that it was opportune to adopt the text that was selected for the GATT during the Uruguay Round negotiations, the US opted to revert to this article only after the overall balance of the ECT was clarified.4 It was not until the seventh draft of 17 March 1994 that the text of the article was eventually elaborated as it is in its final version.5 Article 23 enshrines the concept that all provisions of the ECT have to be 23.06 observed by sub-national authorities, with the consequence that, in the case of violations committed by those authorities, a Contracting Party may invoke the 2 3 4 5

See European Energy Charter. ‘Draft Treaty,’ 15 March 1993, Art 26. accessed 4 July 2018. See European Energy Charter. ‘Draft Treaty,’ 20 December 1993, Art 26. https://energycharter.org/ fileadmin/DocumentsMedia/ECT_Drafts/20_-_ECT_6__20.12.93_.pdf accessed 4 July 2018. See European Energy Charter. ‘Draft Treaty,’ 1 June 1993, Art 26. https://energycharter.org/fileadmin/ DocumentsMedia/ECT_Drafts/17_-_ECT_3__01.06.93_.pdf accessed 4 July 2018. See European Energy Charter. ‘Draft Treaty,’ 17 March 1994, Art 26. https://energycharter.org/fileadmin/ DocumentsMedia/ECT_Drafts/17_-_ECT_3__01.06.93_.pdf accessed 4 July 2018.

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dispute settlement provisions of Parts II, IV and V of the ECT.6 This is expressly provided by Article 23(2). 23.07 This provision assumes particular importance in relation to the roles of the regions within the EU. Although generally speaking a region can be easily defined as a territorial entity, both the terms ‘region’ and ‘territory’ bear a variety of meanings in the different historical traditions of the European states. It is not surprising that, from a judicial, political or administrative perspective, Europe does not possess a uniform level of regional government.7 Due to the fact that Article 23 expressly mentions the concept of ‘regional government,’ it appears clear that it refers to regions focusing on their institutional dimension instead of their social, political and economic one. From this perspective, regions have to be considered as an institutional system, either in the form of a regional government or as a group of institutions operating on a determined territory.8 In particular, it is possible to define the concept of regional government as any institution that works at an intermediary level between the state and municipal government.9 The adoption of such a broad notion can be useful to allow the variety of different regional institutions that can be identified, for example within the European context, to fall within the scope of Article 23. As a matter of fact, different types of regional authorities can be identified in Europe. Suffice here to mention the metropolitan regions established around large cities, the provincial regions resulting from the division of the entire state into large provinces, and the smaller regions generated as ‘leftovers’ after the establishment of larger neighbouring regions.10 The Nomenclature of Territorial Units for Statistics (NUTS) system used by the European Commission, which represents a heterogeneous aggregation of national administrative units, is emblematic of the difficulties of adopting a commonly shared legal definition of ‘regional authority’ applicable to all Contracting Parties. The NUTS system categorizes regions within three broad groups from NUTS level 1 to NUTS level 3 and allocates regions among them utilizing quite vague criteria: NUTS level 1 includes ‘major socio-economic regions’ such as East of England and Southern Italy; NUTS level 2 includes ‘basic regions for the application of regional policies’ like Essex and Campania; NUTS level 3 includes ‘small regions for specific diagnoses’ such as West Essex and Napoli. As of 1 January 2015, the 6 7 8 9 10

See Thomas Wälde, The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Wolters Kluwer, 1996), p. 488. See Michael Keating, ‘Is there a Regional Level of Government in Europe?’ in Patrick Le Galès and Christian Lequesne (eds), Regions in Europe: The Paradox of Power (Routledge, 1998), p. 11. Ibid. Ibid., at p. 19. Ibid.

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NUTS classification lists 98 regions at NUTS level 1, 276 regions at NUTS level 2 and 1,342 regions at NUTS level 3.11 The lowest level of local authorities is represented by municipalities. Although 23.08 they are territorially speaking the smallest in size, they play a significant role in relation to the business operations carried out under the rules of the ECT for at least two reasons. First, a specific area of cooperation that serves the general purpose of 23.09 improving energy efficiency within the Contracting Countries expressly includes municipalities and local community services such as district heating systems, gas distribution systems, energy planning activities, and energy management in public buildings.12 Secondly, due to the fact that municipalities are the closest authorities to the 23.10 citizens, they incarnate the crucial principle of subsidiarity. Under the principle of subsidiarity, as defined by Article 5 of the Treaty on the EU, it should be ensured that decisions are taken as closely as possible to the citizens and that constant checks are made to verify that action at supranational level is justified in light of the possibilities available at national, regional or local level.13 Although from an administrative point of view there are differences in the way 23.11 that local authorities are regulated, it is possible to identify three common features shared by local governments at least within the EU Member States: the political bodies in each municipality are chosen by democratic election; there is an identifiable political leader who leads the local authority (usually, but not always, defined as the mayor); there is at least one executive officer, whose primary role is to manage, coordinate and supervise government organisation, advise politicians and ensure public resources are used rationally, efficiently and in accordance with the law.14 As the Council of European Municipalities and Regions15 has emphasized, 23.12 the EU motto ‘United in diversity’ could not better reflect the wide range of 11 12 13 14 15

See European Commission – Eurostat. ‘NUTS – Nomenclature of territorial units for statistics.’ . accessed 4 July 2018. See Wälde, supra note 6, p. 543. See European Union, EU law and publications, Eur-Lex. ‘Subsidiarity.’ . See Xavier Bertrana Horta and Mariona Tomas Fornes, ‘Systems of Local Government in Europe and Their Chief Executive Officers’. Diputació Barcelona Xarxa de Municipis, p. 6. The Council of European Municipalities and Regions (CEMR) is the oldest and broadest European association of local and regional governments. Since its creation in 1951, CEMR promotes the construction

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municipalities and other larger sub-national authorities existing in Europe and the different ways in which they run and develop their communities and territories.16 In the European continent, the number of municipalities varies from country to country from the 23 municipalities of Montenegro17 to the 36,658 municipalities of France.18 At the same time, their competences differ among the different countries. For instance, while in some countries like Cyprus they have only a handful of competences such as urban planning, protection of the environment, water supply, land development, and household refuse,19 in other countries, like Finland, they have a wide range of competences which expressly include building and maintenance of technical infrastructure in the energy sector.20 23.13 Having said that, it is not surprising that Article 23, instead of offering a precise definition of sub-national authorities, has opted for a generic reference to ‘regional and local governments and authorities,’ which may include all the different types of existing local authorities irrespective of the administrative organization that each Contracting Party has developed. 23.14 Under international trade law, the rule set out by Article 23 does not represent a distinctive trait of the sole ECT. The same principle included in the ECT has also been adopted within the General Agreement on Tariffs and Trade framework (GATT) of 1994.21 As a matter of fact, the wording of Article 23 resembles the one used by the Understanding on the Interpretation of Article XXIV of GATT 1994. Paragraph 13 of the General Agreement on Tariffs and Trade provides that each member is fully responsible for the observance of

16

17

18 19 20 21

of a united, peaceful and democratic Europe founded on local self-government, respect for the principle of subsidiarity and the participation of citizens. See Council of European Municipalities and Regions. ‘Introducing CEMR.’ . accessed 4 July 2018. See the Council of European Municipalities and Regions. ‘Local and regional government in Europe – Structures and competences,’ at p. 1. . accessed 4 July 2018. See the Council of European Municipalities and Regions. ‘Local and regional government in Europe – Structures and competences,’ 2016, at p. 2. . accessed 4 July 2018. Ibid. Ibid., at p. 19. Ibid., at p. 26. The original General Agreement on Tariffs and Trade (GATT) was signed in April 1947 in Geneva. After several rounds, the agreement was updated in 1994. The most significant change that was included in GATT 1994 was the creation of the World Trade Organization (WTO), which was established in 1994 by the Marrakesh Agreement and came into existence in 1995. See Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos, Energy Security, Trade and the EU: Regional and International Perspectives (Edward Elgar 2016) p. 55.

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all provisions and shall ‘ensure such observance by regional and local governments and authorities within its territory’.22 The ensuing paragraph 14 also specifies that the rules related to ‘Dispute Settlement Understanding may be invoked in respect of measures affecting its observance taken by regional or local governments or authorities within the territory of a Member.’23 The WTO provisions are particularly relevant in relation to the case of trade 23.15 in energy materials and products24 and energy-related equipment25 between Contracting Parties where at least one of them is not a member of the WTO. On such occasions, as established by Article 29 of the ECT, the provisions of the WTO Agreement shall be applied. In particular, Understanding No. 14 included in the Final Act of the ECT has clarified that, for the cases that fall under the provision of Article 29, Article XXIV(12) GATT will apply instead of Article 23 of the ECT. Moreover, it has to be emphasized that a cornerstone of the ECT trade regime 23.16 is represented by the non-derogation from WTO rules.26 In particular, WTO Members could express a preference for WTO rules when enacting different treaties.27 Such a choice has been made within the ECT legal framework by Article 4 that provides a non-derogation from the WTO Agreement clause, which establishes that: ‘Nothing in this Treaty shall derogate, as between particular Contracting Parties which are members of the WTO, from the provisions of the WTO Agreement as they are applied between those Contracting Parties.’ As a result, for trade among parties to the GATT, Article 4 of the ECT safeguards the continued applicability of the provisions included in the General Agreement on Tariffs and Trade framework, and in practice generates the same legal effects achieved for non-parties to the GATT by the above-mentioned Understanding No. 14.28

22

23 24

25 26

27

28

See General Agreement on Tariffs and Trade 1994, Part III, Article XXIV, C. Understanding on the Interpretation, at para 13. . accessed 4 July 2018. Ibid., at para 14. A list of energy materials and products is included in Annex EM I107 to the ECT. Such a list includes: nuclear energy, coal, natural gas, petroleum and petroleum products, electrical energy, and other energy sources like fuel wood and wood charcoal. A list of energy-related equipment is included in Annex EQ I to the ECT. See Yulia Selivanova, ‘The Energy Charter and the International Energy Governance,’ in Yulia Selivanova (ed.), Regulation of Energy in International Trade Law: WTO, NAFTA, and Energy Charter (Wolters Kluwer, 2011), p. 376. See Joost Pauwelyn, ‘The Application of Non-WTO Rules of International Law in WTO Dispute Settlement,’ in Patrick F.J. Macrory, Arthur E. Appleton, and Michael G. Plummer (eds), The World Trade Organization: Legal, Economic and Political Analysis (Springer, 2007), p. 1419. See Wälde, supra note 6, p. 488.

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ARTICLE 24 EXCEPTIONS1 Contributions by Costantino Grasso and Gloria Alvarez

1) 2)

This Article shall not apply to Articles 12, 13 and 29. The provisions of this Treaty other than a. those referred to in paragraph (1); and b. with respect to subparagraph (i), Part III of the Treaty shall not preclude any Contracting Party from adopting or enforcing any measure i. necessary to protect human, animal or plant life or health; ii. essential to the acquisition or distribution of Energy Materials and Products in conditions of short supply arising from causes outside the control of that Contracting Party, provided that any such measure shall be consistent with the principles that A. all other Contracting Parties are entitled to an equitable share of the international supply of such Energy Materials and Products; and B. any such measure that is inconsistent with this Treaty shall be discontinued as soon as the conditions giving rise to it have ceased to exist; or iii. designed to benefit Investors who are aboriginal people or socially or economically disadvantaged individuals or groups or their Investments and notified to the Secretariat as such, provided that such measure A. has no significant impact on that Contracting Party’s economy; and B. does not discriminate between Investors of any other Contracting Party and Investors of that Contracting

1

See Final Act of the European Energy Charter Conference, Understandings, n. 15. with respect to Art 24, p. 28 and note 44, p. 77.

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Party not included among those for whom the measure is intended, C. provided that no such measure shall constitute a disguised restriction on Economic Activity in the Energy Sector, or arbitrary or unjustifiable discrimination between Contracting Parties or between Investors or other interested persons of Contracting Parties. Such measures shall be duly motivated and shall not nullify or impair any benefit one or more other Contracting Parties may reasonably expect under this Treaty to an extent greater than is strictly necessary to the stated end. The provisions of this Treaty other than those referred to in paragraph (1) shall not be construed to prevent any Contracting Party from taking any measure which it considers necessary: a. for the protection of its essential security interests including those i. relating to the supply of Energy Materials and Products to a military establishment; or ii. taken in time of war, armed conflict or other emergency in international relations; b. relating to the implementation of national policies respecting the non-proliferation of nuclear weapons or other nuclear explosive devices or needed to fulfil its obligations under the Treaty on the Non-Proliferation of Nuclear Weapons, the Nuclear Suppliers Guidelines, and other international nuclear non-proliferation obligations or understandings; or c. for the maintenance of public order. d. Such measure shall not constitute a disguised restriction on Transit. The provisions of this Treaty which accord most favoured nation treatment shall not oblige any Contracting Party to extend to the Investors of any other Contracting Party any preferential treatment: a. resulting from its membership of a free-trade area or customs union;2 or b. which is accorded by a bilateral or multilateral agreement concerning economic co-operation between states that were constituent parts of the former Union of Soviet Socialist Republics pending the establishment of their mutual economic relations on a definitive basis.

3)

4)

2

See Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), n. 5. with respect to Arts 24(4)(a) and 25, p. 137 and note 6, p. 42.

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COMMENTARY

Costantino Grasso 24.01 Article 24 of the Energy Charter Treaty (ECT) includes a series of exceptions, which found their inspiration3 in the exceptions from trade rules that are contained in the General Agreement on Tariffs and Trade framework (GATT) of 1994, which give the Contracting Parties the possibility of derogating from treaty rules for various reasons. Specifically, Article 24(2)(i) aims at safeguarding inhabitants' health and the natural environment. It specifies that the rules of the ECT shall not preclude any Contracting Party from adopting or enforcing any measure ‘necessary to protect human, animal or plant life or health’. This provision echoes the only environment-related provision present in the GATT, which is represented by Article XX that allows the use of measures otherwise contrary to the GATT if necessary for the protection of human, animal or plant life or health.4 24.02 Taking into consideration the strategic importance of energy resources, Article 24(2)(ii) allows Contracting Parties to derogate from the ECT rules where such a violation is ‘essential to the acquisition or distribution of energy materials and products in conditions of short supply arising from [exceptional] causes’. In other words, a Contracting Party is allowed to adopt measures which are essential to the acquisition or distribution of energyrelated products in conditions of short supply arising from causes outside its control.5 This rule is tempered by two provisions. The first one, considering that a situation of limited supplies can affect simultaneously several Contracting Parties, establishes that ‘all other Contracting Parties are entitled to an equitable share of the international supply of such energy materials and products’. The second one provides that, in any case, the measure that is inconsistent with the ECT rules has to be ‘discontinued as soon as the conditions giving rise to it have ceased to exist’. 24.03 Article 24(2)(iii) provides for an exception where the conducts that do not comply with the ECT rules are ‘designed to benefit Investors who are aboriginal people or socially or economically disadvantaged individuals’. 3 4 5

See Craig S. Bamberger, Jan Linehan, Thomas Wälde, ‘Energy Charter Treating 2000: In a New Phase,’ (2000) 18(4) Journal of Energy & Natural Resources Law 336. See Lorna Brazell, ‘Draft Energy Charter Treaty: Trade, Competition, Investment and Environment,’ (1994) 12(3) Journal of Energy & Natural Resources Law 339. See Anna Papaionnou, ‘Security of Energy Supply: the Approach in the European Union and the Contribution of the Energy Charter Treaty,’ (1995) 2(1) Maastricht Journal of European and Comparative Law 41.

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However, the same article specifies that such measures must not have a significant impact on that Contracting Party's economy and ‘does not discriminate between Investors of any other Contracting Party and Investors of that Contracting Party not included among those for whom the measure is intended’. In that regard, some concerns arise from the vagueness of the term ‘significant’ and the way in which it could be adequately assessed in the case of settlement procedure. Moreover, if the purpose of the exception is to safeguard indigenous people or economically disadvantaged individuals it seems that a better option was to establish an objective economic threshold more than a relative and vague criterion related to the economy of the Contracting Party interested by the measure. Such a choice can end up betraying the very aim the exception is supposed to serve. As a matter of fact, the use of the chosen criterion can produce different results depending on the size and wealth of the interested country as well as the amount of indigenous or economically disadvantaged people that live in it. For instance, a poor country with a relatively high amount of economically disadvantaged persons would reasonably seek to make more use of this exception from both a quantitative and qualitative perspective; at the same time, the derogating measure would easily exert a significant impact on its economy, exposing it to liability for violation of the Treaty. Similarly, the impact on a Contracting Party's economy can become more relevant, and conversely the exception less applicable, in times of economic crisis that is when the adoption of measures for the safeguard of the most vulnerable population groups becomes of crucial importance. In any case, in order to avoid potential abuses, Article 24(2)(iii) expressly establishes that measures provided in favour of aboriginal people and socially or economically disadvantaged individuals have to be duly motivated and notified to the Secretariat. Article 24(3), instead of providing an exception in a classical and substantive 24.04 way, introduces a method of interpretation under which the provisions of the ECT cannot be construed to prevent any Contracting Party from taking measures aimed at6 protecting its essential security interests, implementing national policies related to the non-proliferation of nuclear weapons, and maintaining law and order.7 These kind of exceptions are not a novelty under 6

7

As it emerges from the original draft of the ECT, in the original version of this article (at that time, Art 27(3)(c)) it was also expressly provided that the agreement ‘shall not be construed […] to prevent any Contracting Party from taking any measure in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security’. See European Energy Charter. ‘Draft Treaty,’ 1 June 1993. accessed on 23 February 2018. From the preparatory works, it emerges that in the original draft of the ECT, the exception related to any measure necessary for the maintenance of public order was instead inserted in the classic exceptions currently falling under the provision of Art 24(2) (at that time Art 27(2)(a)). See ibid.

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international trade law and are included in several international treaties and bilateral trade agreements. For instance, Article XI of the Treaty between the United States of America and the Argentine Republic Concerning the Reciprocal Encouragement and Protection of Investment, which was signed on 14 November 1991 and entered into force on 20 October 1994, expressly provides that: ‘This Treaty shall not preclude the application by either Party of measures necessary for the maintenance of public order, the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security, or the Protection of its own essential security interests.’8 Such a provision was subject to arbitral review in the decision taken by the International Centre for Settlement of Investment Disputes9 in the case Continental Casualty Company v Argentine Republic.10 In the decision the tribunal affirmed that: The ordinary meaning of the language used, together with the object and purpose of the provision clearly indicates that either party would not be in breach of its BIT obligations if any measure has been properly taken because it was necessary, as far as relevant here, either ‘for the maintenance of the public order’ or for ‘the protection of essential security interests’ of the party adopting such measures […] A private investor of the other party could therefore not succeed in its claim for responsibility and damages in such an instance, because the respondent party would not have acted against its BIT obligations since these would not be applicable, provided of course that the conditions for the application of Art. XI are met. In other words, Art. XI restricts or derogates from the substantial obligations undertaken by the parties to the BIT in so far as the conditions of its invocation are met. In fact, Art. XI has been defined as a safeguard clause; it has been said that it recognizes ‘reserved rights,’ or that it contemplates ‘non-precluded’ measures to which a contracting state party can resort.11

24.05 In any case, Article 24(3) specifies that such measures cannot constitute a disguised restriction on ‘Transit’.12 From this provision, it emerges that under 8 9

10

11 12

See Argentina-United States BIT, Art XI, available at https://www.italaw.com/sites/default/files/laws/ italaw6017%284%29.pdf accessed on 23 February 2018. The International Centre for Settlement of Investment Disputes is the world’s leading institution devoted to international investment dispute settlement. It was established in 1966 by the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, which is a multilateral treaty formulated by the Executive Directors of the World Bank. See World Bank Group. About ICSID. accessed on 23 February 2018. See Continental Casualty Company v Argentine Republic, Argentina-United States BIT, Award on the Merits, ICSID Case No. ARB/03/9, 5 September 2008, p. 31. accessed on 23 February 2018. Ibid, at para 164. Under Art 7 of the ECT, contracting parties are obliged to facilitate transit on a non-discriminatory basis, consistent with the principle of freedom of transit enshrined in the WTO/GATT. These provisions go beyond the WTO insofar as they contain explicit obligations relative to energy transit, including via fixed infrastructure like pipelines and electricity grids. See International Energy Charter. ‘Transit Protocol.’ accessed on 23 February 2018.

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the ECT energy transit issues are considered as a matter of special importance. This is emphasized not only by Article 24(3) but also by the negotiations for a Transit Protocol, by Article 7 of the ECT, which has structured a special dispute resolution mechanism assigning particular importance to transit, and by the establishment of a relevant Directorate and Working Group for ‘Trade and Transit’.13 Article 24(4)(a) safeguards the Contracting Party's possibility of establishing 24.06 or joining free-trade areas or customs unions. Specifically, the article provides that the ECT provisions which accord most-favoured-nation treatment14 shall not oblige any Contracting Party to extend to the Investors of any other Contracting Party any preferential treatment where it derives from the participation in free-trade areas or customs unions. From an analysis of the preparatory works it clearly emerges that the introduction of this exception, which was fostered by the European Communities, was a matter of concern to extra-European countries, who believed such a clause might have generated an unfair advantage for the EC Member States. As a matter of fact, the US and Japan openly opposed the introduction of any exception for Region Economic Integration Organization.15 A similar concern also arose in relation to the provision included in Article 24(4)(a) of the ECT,16 which aims at safeguarding the Contracting Party's possibility of establishing or joining free-trade areas or customs unions. The provision of Article 24(4)(a), as well as the one of Article 25, were subject 24.07 to Decision17 no. 5 as included in the treaty materials as a result of further

13 14

15 16 17

See Danae Azaria, ‘Energy Transit under the Energy Charter Treaty and the General Agreement on Tariffs and Trade,’ (2009) 27(4) Journal of Energy and Natural Resources Law 587. Under the most-favoured-nation treatment clause any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. See John H. Jackson, ‘World Trade Rules and Environmental Policies: Congruence or Conflict,’ (1992) 49(4) Washington and Lee Law Review 1260. See European Energy Charter. ‘Draft Treaty,’ 1 June 1993, at p. 60. accessed on 23 February 2018. See Saamir Elshihabi, ‘The Difficulty behind Securing Spector-Specific Investment Establishment Rights: The Case of the Energy Charter Treaty,’ (2001) 35(1) International Lawyer (ABA) 154. These decisions were taken to promote conditions for cooperation between Western and Eastern energy organizations, in order to bring about a cycle of economic activity which will act as a catalyst for economic recovery in Eastern Europe and the former Soviet Union. Their aim is the progressive liberalization of international trade and investment, the avoidance of discrimination and the alleviation of market distortions and barriers to competition. See European Commission – Community Research and Development Information Service. ‘Council Decision on provisional application of the Energy Charter Treaty by the European Community.’ accessed on 23 February 2018.

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consultations after the adoption of the Interim Text.18 Such a decision allows the extension of treatments commonly reserved to countries that are part of free-trade areas or customs unions to third parties where some specific conditions are satisfied. Specifically, Decision no. 5 provides that: An Investment of an Investor referred to in Article 1(7)(a)(ii), of a Contracting Party which is not party to an EIA19 or a member of a free-trade area or a customs union, shall be entitled to treatment accorded under such EIA, free-trade area or customs union, provided that the Investment: (a) has its registered office, central administration or principal place of business in the Area of a party to that EIA or member of that free-trade area or customs union; or (b) in case it only has its registered office in that Area, has an effective and continuous link with the economy of one of the parties to that EIA or member of that free-trade area or customs union.

24.08 Article 24(4)(b) extends the exception also to bilateral or multilateral agreements ‘concerning economic cooperation between states that were constituent parts of the former Union of Soviet Socialist Republics pending the establishment of their mutual economic relations on a definitive basis’. 24.09 A major concern arose in relation to the general exception related to EIAs included in Article 24(4)(a) of the ECT. In particular, the non-EU states expressed concern as to how such an exception would affect them in the case of adoption of further EU laws on investment that, by means of Article 24(4)(a), could be used in a discriminatory way towards them. This concern has been considered by some authors as far-fetched because, on the one hand, a move aimed at guaranteeing more favourable terms for EU Member States could eventually jeopardize their hopes of securing investments in non-EU states and, on the other, non-EU countries may respond adopting a reciprocity exception on access to energy investments.20 24.10 Article 24(1) established that the above-mentioned exceptions are applicable in relation to the entire Treaty but for Articles 12, 13 and 29. Specifically, the reference to Article 12 of the ECT excludes the possibility of using the exceptions to affect another Contracting Party's right to compensation for 18

19

20

See European Energy Charter. ‘Note from the Conference Chairman.’ 14 September 1994, at p. 5. accessed on 23 February 2018. An economic integration agreement (EIA) may be defined as an agreement that facilitates international trade and cross-border movement of the factors of production. See United Nations Conference on Trade and Development. ‘Investment Provisions in Economic Integration Agreements,’ (2006) at p. 2. accessed on 23 February 2018. See Elshihabi, supra note 116.

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losses in case of war, other armed conflict, state of national emergency, and civil disturbance. Similarly, no exception can be used to affect another Contracting Party's right to compensation for losses in case of requisitioning or destruction of its investment by the forces or authorities of the state that would like to invoke the exception. The reference to Article 13 excludes the possibility of invoking the exceptions 24.11 in case of nationalization or expropriation of another Contracting Party's investments. This exclusion operates unless the expropriation is applied for a purpose which is in the public interest, in a way that is not discriminatory and under due process of law, and is accompanied by the payment of prompt, adequate and effective compensation. Finally, Article 29 excludes the possibility of invoking the exceptions in 24.12 relation to the case of trade in energy materials and products21 and energyrelated equipment.22 By means of Understanding No. 15, it has been clarified that irrespective of 24.13 the clauses included in Article 24, the exceptions contained in the GATT and its related instruments apply between particular Contracting Parties which are parties to that agreement. This legal effect is a direct application of the non-derogation from WTO Agreement clause provided by Article 4 of the ECT, which establishes that: ‘Nothing in this Treaty shall derogate, as between particular Contracting Parties which are members of the WTO, from the provisions of the WTO Agreement as they are applied between those Contracting Parties.’

COMMENTARY

Gloria Alvarez Article 24 ECT provides for exceptions in the protection of the treaty regime. 24.14 Similarly to Article 21 ECT, the provisions of the article create exceptions to the exceptions (claw-backs), namely – exclusion in the protection of:

21

22

A list of energy materials and products is included in Annex EM I107 to the ECT. Such a list includes: nuclear energy, coal, natural gas, petroleum and petroleum products, electrical energy, and other energy sources like Fuel wood and Wood charcoal. A list of energy-related equipment is included in Annex EQ I to the ECT.

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compensation for loss,23 expropriation24 and provisions on trade-related matters.25 It has been pointed out that the general exceptions provided for in Article 24 ECT find their inspiration in Articles XX and XXI of the General Agreement on Tariffs and Trade (GATT) but are adapted to the investment and other non-trade rights under the ECT which are essentially different than those in the GATT.26 24.15 The first set of three general exceptions are in paragraph 2 and relate to measures (i) necessary to protect life and health (according to ECT Article 24(2)(b), this exception does not apply to Part III ECT), (ii) addressing short supply Energy Materials and Products caused by reasons outside of the Contracting Party’s control (provided that such measures (A) do not infringe the equitable share of the international supply of all other Contracting Parties; and (B) is discontinued as soon as the conditions giving rise to it have ceased to exist) and (iii) designed to benefit aboriginal or socially or economically disadvantaged individuals or groups, notified to the Secretariat as such (provided that such measures (A) do not significantly impact the Contracting Party's economy; or (B) discriminate between Investors). The text further provides that the measures purported to be justified under Article 24(2) shall be duly motivated, shall not constitute (i) a disguised restriction on Economic Activity; (ii) arbitrary or unjustifiable discrimination; shall not nullify any benefit a Contracting Party may reasonably expect. 24.16 The next set of exceptions are set out in paragraph 3 and relate to measures which the respective Contracting Party considers necessary (i) for the protection of its essential security interests, including those relating to the supply of Energy Materials and Products to military establishments, or taken in time of war or international conflict; (ii) non-proliferation of nuclear weapons; and (iii) for the protection of public order. According to the last sentence of the paragraph, the above-mentioned measures shall not constitute a disguised restriction on transit. The most important question regarding the practical application of the exception under ECT Article 24(3) ECT is whether they are self-judging, as argued by commentators.27 As already emphasized, the wording of the provision, namely that it concerns measures which are considered necessary by the Contracting Party, leads to the conclusion that these exceptions are indeed designed to be self-judging. This begs the question 23 24 25 26 27

See Commentary ECT Art 12. See Commentary ECT Art 13. See Commentary ECT Art 29. Craig S. Bamberger, ‘An Overview of the Energy Charter Treaty’ in Thomas W. Wälde (ed.), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International, 1996), 22. Ibid.

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why the publicly available practice regarding reliance on the exceptions under Article 24 ECT is virtually non-existent. Lastly, paragraph 4 sets out exceptions to the MFN protection under ECT which apply to preferential treatment arising out of (i) membership in free-trade area or customs union28 or (ii) a bilateral or multilateral agreement concerning economic cooperation between states that were constituent parts of the former Union of Soviet Socialist Republics.29

28

29

Decision with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference) accessed on 23 February 2018. Energy Charter Conference, ‘Final Act’, (Lisbon 16–17 December 1994), Understanding 15 AF/EECH/en 13: UNDERSTANDING with respect to Article 24 Exceptions contained in the GATT and Related Instruments apply between particular Contracting Parties which are parties to the GATT, as recognized by Article 4. With respect to trade in Energy Materials and Products governed by Article 29, that Article specifies the provisions relevant to the subjects covered by Article 24.

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ARTICLE 25 ECONOMIC INTEGRATION AGREEMENTS1 Contributions by Costantino Grasso and Gloria Alvarez

1)

2)

3)

The provisions of this Treaty shall not be so construed as to oblige a Contracting Party which is party to an Economic Integration Agreement (hereinafter referred to as ‘EIA’) to extend, by means of most favoured nation treatment, to another Contracting Party which is not a party to that EIA, any preferential treatment applicable between the parties to that EIA as a result of their being parties thereto. For the purposes of paragraph (1), ‘EIA’ means an agreement substantially liberalizing, inter alia, trade and investment, by providing for the absence or elimination of substantially all discrimination between or among parties thereto through the elimination of existing discriminatory measures and/or the prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time frame. This Article shall not affect the application of the GATT and Related Instruments according to Article 29.

COMMENTARY

Costantino Grasso 25.01 Article 25 ECT sets out rules to be applied where a Contracting Party is also party to an Economic Integration Agreement (EIA). Under international trade law, the term ‘Economic Integration Agreement’ is used to define agreements that facilitate international trade and cross-border movement of 1

See Final Act of the European Energy Charter Conference, Declarations, n. 5. with respect to Art 25, p. 32 and Decisions with respect to the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), n. 5. with respect to Arts 24(4)(a) and 25, p. 137 and note 6, p. 42.

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the factors of production.2 The scope of these international legal instruments may vary significantly in that they may address one, some or all these types of economic transactions in various combinations, with trade being the central component, and foreign investment activity one possible element.3 In the latter case, those agreements are known as ‘Economic Integration Investment Agreements’ (EIIAs). The territorial coverage of the EIAs may also differ considerably from agreement to agreement. Not only may they be established at the multilateral, regional, interregional, plurilateral or bilateral level but also they may cover transactions that take place within the borders of a country where such trade operations may influence international commerce.4 The EIAs are an integral part of the complex international trade cooperation legal framework, which Leal-Arcas has illustrated as having pyramidal form: With the creation of the World Trade Organization (WTO) in 1995, the pyramidal design of the international trading system placed multilateralism at the top of the pyramid, regionalism/bilateralism in the middle, and the domestic trade and economic policies of WTO Member States at the bottom of the pyramid.5

The ECT offers its own definition of EIA. As a matter of fact, Article 25(2) 25.02 specifies that EIA: means an agreement substantially liberalizing, inter alia, trade and investment, by providing for the absence or elimination of substantially all discrimination between or among parties thereto through the elimination of existing discriminatory measures and/or the prohibition of new or more discriminatory measures, either at the entry into force of that agreement or on the basis of a reasonable time frame.

What is not clear is whether, with the inclusion of such a specific definition, 25.03 the Contracting Parties intended to limit the scope of application of Article 25 excluding some international agreements that, although generically considered EIA, do not fall within this definition because of the lack of one or more specified elements. In reality, although some authors highlight that this definition represents a more stringent test for qualification of an agreement as an EIA under the ECT,6 it seems that the use of the words ‘substantially’ and ‘inter alia’ suggests that such a definition serves a merely illustrative function 2 3 4 5 6

See United Nations Conference on Trade and Development. ‘Investment Provisions in Economic Integration Agreements,’ (2006) at p. 2. . Ibid. Ibid. See Rafarl Leal-Arcas, ‘Proliferation of Regional Trade Agreements: Complementing or Supplanting Multilateralism,’ (2011) 11(2) Chicago Journal of International Law 597. See Craig S. Bamberger, Jan Linehan and Thomas Wälde, ‘Energy Charter Treating 2000: In a New Phase,’ (2000) 18(4) Journal of Energy & Natural Resources Law 336.

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and that the notion of EIAs adopted under the ECT cannot be considered as divergent from the one commonly adopted at the international level. 25.04 Article 25(1) of the ECT grants a general exception to EIAs establishing that the provisions of the treaty cannot be interpreted in a way to oblige a Contracting Party, which is also party to an EIA, to extend, by means of most favoured nation treatment, to another Contracting Party which is not a party to that EIA, any preferential treatment applicable between the parties to that agreement. 25.05 Article 25(3) then specifies that the above-mentioned provision shall not affect the application of the GATT according to Article 29, which refers to interim provisions on trade-related matters. 25.06 It is interesting to note that, during the ECT negotiations, the US aggressively pushed to change the language of Article 25 because of the concern that this provision could foster the establishment of special relationships between the EU Member States and central and eastern European countries to the exclusion of non-European Contracting Parties, including the US.7 A similar concern also arose in relation to the provision included in Article 24(4)(a) of the ECT,8 which aims at safeguarding the Contracting Party's possibility of establishing or joining free-trade areas or customs unions. 25.07 On the contrary, by an analysis of the preparatory works it emerges that, in the course of the ECT negotiations, the EU considered the inclusion of a rule on EIAs as a matter of crucial importance. As a matter of fact, as of the draft of 1 June 1993, in the comments to the article at issue it is possible to find that the European Communities suggested the introduction in the then Article 27 of a general exception for Regional Economic Integration Organisations, free trade areas and customs unions.9 25.08 Not surprisingly, the introduction of EIA provisions became a highly contentious issue over the course of the ECT negotiations and represented one of the objections raised by the US in order to justify their decision not to sign the

7

8 9

William Fox, ‘The United States and the Energy Charter Treaty: Misgivings and Misperceptions,’ in Thomas W. Wälde (ed.) The Energy Charter Treaty: An East-West Gateway for Investment & Trade (Kluwer Law International, 1996), p. 198. See Saamir Elshihabi, ‘The Difficulty behind Securing Spector-Specific Investment Establishment Rights: The Case of the Energy Charter Treaty,’ (2001) 35(1) International Lawyer (ABA) 154. See European Energy Charter. ‘Draft Treaty,’ 1 June 1993. accessed 14 July 2018.

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Treaty.10 As a result, the proposal of the European Communities to include, under the umbrella of the exception, national as well as Most-FavouredNations11 treatments was withdrawn under widespread opposition. Since the exception established by this article applies only to Most-Favoured-Nations and not to national treatment, it affects only preferential trade conditions that a party to an EIA, like an EU Member State, extends to a state that does not participate in the EIA; consequently, such preferences are likely to be quite limited as concerns investment.12 In the original draft of 1993 no rule for EIAs was offered, nor did it set out a 25.09 provision similar to the one of Article 24(4)(a).13 The article appeared (at that time as Article 28) for the first time only after one year of negotiations, in the seventh draft of the ECT as adopted on 17 March 1994.14 The circumstance that, in the comment to the draft, it emerges that some Negotiating Parties, including the US, believed that ‘only Most-Favoured-Nations exception would be justifiable’15 is emblematic of the above-mentioned difficulties faced during the negotiations of the treaty. The provision of Article 25 was subject to Decision16 no. 5 as included in the 25.10 treaty materials as a result of further consultations after the adoption of the Interim Text.17 Such a decision allows the extension of treatments commonly reserved to countries that are part of free-trade areas or customs unions to third parties where some specific conditions are satisfied. Specifically, Decision no. 5 provides that: 10 11

12 13 14 15 16

17

See Bamberger et al. supra note 6. Under the most-favoured-nation treatment clause any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. See John H. Jackson, ‘World Trade Rules and Environmental Policies: Congruence or Conflict,’ (1992) 49(4) Washington and Lee Law Review 1260. See Bamberger, et al. supra note 6. See European Energy Charter. ‘Draft Treaty,’ 15 March 1993. https://energycharter.org/fileadmin/ DocumentsMedia/ECT_Drafts/15_-_ECT_1__15.03.93__.pdf accessed 14 July 2018. See European Energy Charter. ‘Draft Treaty,’ 17 March 1994, Article 28. https://energycharter.org/ fileadmin/DocumentsMedia/ECT_Drafts/17_-_ECT_3__01.06.93_.pdf accessed 14 July 2018. Ibid. These decisions were taken to promote conditions for cooperation between Western and Eastern energy organizations, in order to bring about a cycle of economic activity which will act as a catalyst for economic recovery in Eastern Europe and the former Soviet Union. Their aim is the progressive liberalization of international trade and investment, the avoidance of discrimination and the alleviation of market distortions and barriers to competition. See European Commission – Community Research and Development Information Service. ‘Council Decision on provisional application of the Energy Charter Treaty by the European Community.’ accessed 14 July 2018. See European Energy Charter. ‘Note from the Conference Chairman.’ 14 September 1994, at p. 5. accessed 14 July 2018.

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An Investment of an Investor referred to in Article 1(7)(a)(ii), of a Contracting Party which is not party to an EIA or a member of a free-trade area or a customs union, shall be entitled to treatment accorded under such EIA, free-trade area or customs union, provided that the Investment: (a) has its registered office, central administration or principal place of business in the Area of a party to that EIA or member of that free-trade area or customs union; or (b) in case it only has its registered office in that Area, has an effective and continuous link with the economy of one of the parties to that EIA or member of that free-trade area or customs union.

25.11 This decision, which was inspired by the Treaty of Rome18 and jurisprudence of the European Court of Justice, was introduced after the EU and the US had eventually reached an agreement.19 25.12 In the Note from the Conference Chairman of 14 September 1994, it included an extensive declaration by the European Communities and their Member States related to Article 25. Such a declaration reads as follow: The European Communities and their Member States recall that, in accordance with article 58 of the Treaty establishing the European Community: a) companies or firms formed in accordance with the law of a Member State and having their registered office, central administration or principal place of business within the Community shall, for the right of establishment pursuant to Part Three, Title III, Chapter 2 of the Treaty establishing the European Community, be treated in the same way as natural persons who are nationals of Member States; companies or firms which only have their registered office within the Community must, for this purpose, have an effective and continuous link with the economy of one of the Member States; b) ‘companies and firms’ means companies or firms constituted under civil or commercial law, including co-operative societies, and other legal persons governed by public or private law, save for those which are non-profitmaking. The European Communities and their Member States further recall that: Community law provides for the possibility to extend the treatment described above to branches and agencies of companies or firms not established in one of the Member States; and that, the application of Article 25 of the Energy Charter Treaty will allow only those derogations necessary to safeguard the preferential

18 19

The Treaty of Rome is the treaty establishing the European Economic Community. It was signed in Rome on 25 March 1957, Art 58. See Bamberger et al., supra note 6, p. 337.

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treatment resulting from the wider process of economic integration resulting from the Treaties establishing the European Communities.20

COMMENTARY

Gloria Alvarez Until recently, Article 25 ECT was not subject to any application on behalf of 25.13 investment arbitration tribunals. The article was invoked as a recognition in the ECT of the supremacy of regional economic agreements and, in particular, the EU law as part of the jurisdictional objections to the application of ECT in intra-EU investment disputes made by Spain in a couple of the Spanish solar energy cases, namely Eiser and Isolux. According to the Isolux tribunal the application of Article 25 is limited to circumscribe the extent of the most favoured nation treatment standard between Contracting Parties that are parties to ‘Economic Integration Agreements’ and those that are not. Thus Article 25 cannot be interpreted as a disconnection clause of general scope.21 In Eiser, the respondent invoked Article 25 with regard to jurisdictional 25.14 objections, namely that the tribunal lacked jurisdiction ratione personae because the ECT does not apply to disputes involving investments made within the EU by investors from other EU countries.22 Particularly, according to the Kingdom of Spain, the ECT itself acknowledges the preferential application of EU law and that any conflict between the ECT and EU law shall be resolved in favour of the latter. This preferential application, according to the Kingdom of Spain, was evidenced in ECT Article 25 under which the ECT’s most-favoured-nation treatment obligations do not extend to preferential treatment accorded to members of an Economic Integration Agreement eliminating or prohibiting discriminatory measures among its members.23 The tribunal did not agree with this interpretation and decided that the existence of ECT Article 25 does not mean that the EU law shall prevail in any conflict with the ECT investment treaty regime.24 Similarly in the Isolux case, Spain invoked Article 25 in support of its jurisdictional objection based on the 20

21 22 23 24

See European Energy Charter. ‘Note from the Conference Chairman.’ 14 September 1994, at p. 12. accessed 14 July 2018. Isolux Infrastructure Netherlands, BV v. Kingdom of Spain, SCC Case No. V2013/153, Award (12 July 2016) 639. Eiser Infrastructure Ltd and Energía Solar Luxembourg S.à r.l. v. Kingdom of Spain, ICSID Case No. ARB/13/36, Award (4 May 2017) p. 160. Ibid., p. 165. Ibid., p. 192.

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supremacy of the EU law over the ECT. Specifically, it claimed that it may be considered as a disconnection clause, where the Tribunal disagreed with such interpretation pointing out, inter alia, that Article 25 only concerns MFN obligations.25

25

Isolux Infrastructure Netherlands, BV, supra note 21. See also Energy Charter Conference, ‘Final Act’, (Lisbon 16–17 December 1994), Declaration 5 AF/EECH/en 19 and Craig S. Bamberger, ‘An Overview of the Energy Charter Treaty’ in Wälde (ed.), supra note 7, p. 22.

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Part V DISPUTE SETTLEMENT

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ARTICLE 26 SETTLEMENT OF DISPUTES BETWEEN AN INVESTOR AND A CONTRACTING PARTY1 Fernando Dias Simões

(1)

(2)

(3)

1 2

Disputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III shall, if possible, be settled amicably. If such disputes cannot be settled according to the provisions of paragraph (1) within a period of three months from the date on which either party to the dispute requested amicable settlement, the Investor party to the dispute may choose to submit it for resolution: (a) to the courts or administrative tribunals of the Contracting Party party to the dispute;2 (b) in accordance with any applicable, previously agreed dispute settlement procedure; or (c) in accordance with the following paragraphs of this Article. (a) Subject only to subparagraphs (b) and (c), each Contracting Party hereby gives its unconditional consent to the submission of a dispute to international arbitration or conciliation in accordance with the provisions of this Article. (b) (i) The Contracting Parties listed in Annex ID do not give such unconditional consent where the Investor has previously submitted the dispute under subparagraph (2)(a) or (b). (ii) For the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its See Final Act of the European Energy Charter Conference, Understandings, n. 17. with respect to Arts 26 and 27, p. 28. See Final Act of the European Energy Charter Conference, Understandings, n. 16. with respect to Art 26(2)(a), p. 28.

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(4)

(5)

policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval in accordance with Article 39 or the deposit of its instrument of accession in accordance with Article 41. (c) A Contracting Party listed in Annex IA does not give such unconditional consent with respect to a dispute arising under the last sentence of Article 10(1). In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to: (a) (i) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention on the Settlement of Investment Disputes between States and Nationals of other States opened for signature at Washington, 18 March 1965 (hereinafter referred to as the ‘ICSID Convention’), if the Contracting Party of the Investor and the Contracting Party party to the dispute are both parties to the ICSID Convention; or (ii) The International Centre for Settlement of Investment Disputes, established pursuant to the Convention referred to in subparagraph (a)(i), under the rules governing the Additional Facility for the Administration of Proceedings by the Secretariat of the Centre (hereinafter referred to as the ‘Additional Facility Rules’), if the Contracting Party of the Investor or the Contracting Party party to the dispute, but not both, is a party to the ICSID Convention; (b) a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law (hereinafter referred to as ‘UNCITRAL’); or (c) an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce. (a) The consent given in paragraph (3) together with the written consent of the Investor given pursuant to paragraph (4) shall be considered to satisfy the requirement for: (i) written consent of the parties to a dispute for purposes of Chapter II of the ICSID Convention and for purposes of the Additional Facility Rules; (ii) an ‘agreement in writing’ for purposes of article II of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, done at New York, 339

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(6)

(7)

(8)

10 June 1958 (hereinafter referred to as the ‘New York Convention’); and (iii) ‘the parties to a contract [to] have agreed in writing’ for the purposes of article 1 of the UNCITRAL Arbitration Rules. (b) Any arbitration under this Article shall at the request of any party to the dispute be held in a state that is a party to the New York Convention. Claims submitted to arbitration hereunder shall be considered to arise out of a commercial relationship or transaction for the purposes of article I of that Convention. A tribunal established under paragraph (4) shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law. An Investor other than a natural person which has the nationality of a Contracting Party party to the dispute on the date of the consent in writing referred to in paragraph (4) and which, before a dispute between it and that Contracting Party arises, is controlled by Investors of another Contracting Party, shall for the purpose of article 25(2)(b) of the ICSID Convention be treated as a ‘national of another Contracting State’ and shall for the purpose of article 1(6) of the Additional Facility Rules be treated as a ‘national of another State’. The awards of arbitration, which may include an award of interest, shall be final and binding upon the parties to the dispute. An award of arbitration concerning a measure of a sub-national government or authority of the disputing Contracting Party shall provide that the Contracting Party may pay monetary damages in lieu of any other remedy granted. Each Contracting Party shall carry out without delay any such award and shall make provision for the effective enforcement in its Area of such awards.

COMMENTARY A. Article 26(1) 26.01 Article 26 of the ECT regulates investor-state dispute resolution. While this provision has been praised by some for its clarity,3 it leaves some open questions, requiring careful exegesis. 3

Mirian Omalu, NAFTA and the Energy Charter Treaty: Compliance With, Implementation and Effectiveness of International Investment Agreements (Kluwer Law International 1999) 89; Jan Paulsson, ‘Arbitration Without Privity’ in Thomas Wälde (ed.), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International 1996) 422, 436.

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The first paragraph delineates what disagreements may be submitted to this 26.02 dispute resolution mechanism: only disputes4 between a contracting party5 and an investor6 of another contracting party7 relating to an investment8 in the area of the former, which concerns an alleged breach of an obligation under Part III. The major difficulty raised by the ‘contracting party’ element regards the 26.03 provisional application of the treaty. Signatory states agree to apply the ECT provisionally (insofar as provisional application is not inconsistent with its constitution, laws or regulations)9 unless they opt out of provisional application.10 Signatory states may also terminate provisional application11 but the obligation to apply Parts III (Investment Promotion and Protection) and V (Dispute Settlement) remains in effect for 20 years after termination;12 except if they request to be listed in Annex PA.13 4

5

6 7

8

9 10 11 12 13

In Azpetrol International Holdings B.V., Azpetrol Group B.V. and Azpetrol Oil Services Group B.V. v. The Republic of Azerbaijan (ICSID case no. ARB/06/15) the tribunal declined jurisdiction because the parties had reached a binding settlement agreement and thus there was no ‘legal dispute’ between them – award of 8 September 2009, para 105. A contracting party is a state or Regional Economic Integration Organisation which has consented to be bound by the ECT and for which the treaty is in force – ECT, art. 1(2). The EU is a regional economic integration organisation within the meaning of the ECT and thus can be sued under the treaty. The EU and the Member States will, if necessary, determine among them who is the respondent party to arbitration proceedings – Statement submitted by the European Communities to the Secretariat of the Energy Charter pursuant to Article 26(3)(b)(ii) of the Energy Charter Treaty, OJ L 69/115, of 9 March 1998. See ECT, art. 1(7). This requirement means that the investor cannot have the nationality of a non-ECT member state nor the nationality of the respondent state – Matthew Slater, ‘The Energy Charter Treaty: a Brief Introduction to its Scope and Initial Arbitral Awards’ in Association for International Arbitration (ed.), Alternative Dispute Resolution in the Energy Sector (Maklu 2009) 15, 35. See, however, art. 26(7) on local companies subject to foreign control. See ECT, art. 1(6). In the case of investments that comprise energy and non-energy components (mixed investments), the best solution seems to be to apply art. 26 only if the energy element is dominant – see Thomas Wälde, ‘International Investment Under the 1994 Energy Charter Treaty’ in Wälde, (n 3) 251, 274. See ECT, art. 45(1). Ibid., art. 45(2)(a). Ibid., art. 45(3)(a). Ibid., art. 45(3)(b). Ibid., art. 45(3)(c). Several arbitral awards have discussed the provisional application of art. 26 – see Plama Consortium Ltd v. Republic of Bulgaria (ICSID case no. ARB/03/24), decision on jurisdiction of 8 February 2005; Petrobart Ltd v. The Kyrgyz Republic (Stockholm Chamber of Commerce case no. 126/2003), arbitral award of 29 March 2005; Ioannis Kardassopoulos v. The Republic of Georgia (ICSID case no. ARB/05/18), decision on jurisdiction of 6 July 2007; and Yukos Universal Ltd (Isle of Man) v. The Russian Federation (Permanent Court of Arbitration case no. AA 227), interim award on jurisdiction and admissibility of 30 November 2009. For a discussion, see Kaj Hobér, ‘Investment Arbitration and the Energy Charter Treaty’ (2010) 1 Journal of International Dispute Settlement 153; Thomas Roe and Matthew Happold, Settlement of Investment Disputes under the Energy Charter Treaty (Cambridge University Press 2011) 67–77; Emmanuel Gaillard and Mark McNeill, ‘The Energy Charter Treaty’ in Katia Yannaca-Small (ed.), Arbitration Under International Investment Agreements: A Guide to the Key Issues (Oxford University Press 2010) 37, 53–60; Alex Niebruegge, ‘Provisional Application of the Energy Charter Treaty: The Yukos Arbitration and the Future Place of Provisional Application in International Law’ (2007) 8(1) Chicago Journal of International Law 355;

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26.04 The expression ‘relating to an Investment’ suggests that the dispute should be connected or associated with an investment.14 This begs the question whether the pre-investment stage is included since Article 10(1) of the ECT (which is contained in Part III) imposes obligations on contracting parties that extend to both pre- and post-investment phases.15 Unlike other investment treaties that refer to ‘any’ or ‘all’ disputes concerning an investment, regardless of whether a treaty provision has been breached,16 Article 26(1) requires that the dispute concern an alleged breach of an obligation under Part III (‘Investment Promotion and Protection’). The ECT distinguishes two phases and submits them to different protection mechanisms. The pre-investment phase comprises general ‘soft-law’ obligations, imposing a duty of ‘best efforts’.17 Parts II (commerce) and IV (miscellaneous) are excluded from Article 26 because they contain state obligations concerning diverse matters (transit, competition policy, environmental policy, transparency of decision-making, etc.), most of which are stated in aspirational fashion.18 The process of ‘making an investment’19 does not seem to be covered by Article 26.20 In fact, while the first paragraph refers to disputes relating to an ‘investment’, it does not mention disputes relating to the making of an investment.21 26.05 Albeit Article 10 is located in Part III, disputes over pre-investment obligations under this provision appear to be excluded from investor-state dispute settlement under Article 26.22 Instead, they may be submitted to inter-state

14 15

16

17 18 19 20 21 22

Matthew Belz, ‘Provisional Application of the Energy Charter Treaty: Kardassopoulos v. Georgia and Improving Provisional Application in Multilateral Treaties’ (2008) 22(2) Emory International Law Review 727; Yas Banifatemi, ‘Provisional Application of the Energy Charter Treaty: the Negotiating History of Article 45’ in Graham Coop (ed.) Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty (Juris 2011) 191; Peter Laidlaw, ‘Provisional Application of the Energy Charter as Seen in the Yukos Dispute’ (2012) 52 Santa Clara Law Review 655; Lena Serhan, ‘Arbitration Unbound: How the Yukos Oil Decision Yields Uncertainty for International Investment Arbitration’ (2016) 95(1) Texas Law Review 101; Tomoko Ishikawa, ‘Provisional Application of Treaties at the Crossroads between International and Domestic Law’ (2016) 31 (2) ICSID Review 270. Crina Baltag, The Energy Charter Treaty: The Notion of Investor (Kluwer Law International 2012) 178. Thomas Wälde and Walid Hamida, ‘The Energy Charter Treaty and Corporate Acquisition’ in Graham Coop and Clarisse Ribeiro (eds), Investment Protection and the Energy Charter Treaty (JurisNet 2008) 172–85. Kenneth Vandevelde, ‘Arbitration Provisions in the BITs and the Energy Charter Treaty’ in Thomas Wälde (ed), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International 1996) 409, 413; Gaillard and McNeill (n 11) 50; Roe and Happold (n 11) 45. Thomas Wälde, ‘Investment Arbitration Under the Energy Charter Treaty – From Dispute Settlement to Treaty Implementation’ (1996), 12(4) Arbitration International 429, 438. Slater (n 7) 37; Lucy Reed and Lucy Martinez, ‘The Energy Charter Treaty: An Overview’ (2008) 14 ILSA Journal of International and Comparative Law 405, 407. ECT, art. 1(8). Wälde (n 17) 453–4; Wälde (n 3) 283. Baltag (n 14) 209. Wälde (n 3) 269–270 and 305; Philip Andrews-Speed and Thomas Wälde, ‘Will the Energy Charter Treaty help International Energy Investors?’ (1996) 5(3) Transnational Corporations 31, 42; Saamir Elshihabi, ‘The

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dispute resolution pursuant to Article 27.23 What seems beyond doubt is that disputes over Articles 18 (sovereignty over energy resources) and 20 (transparency) cannot be submitted under Article 26.24 Transit obligations under Article 7 are subject to a specific form of dispute settlement.25 Disputes over Article 19 (environmental aspects) are similarly excluded from the application of Article 26 but may be reviewed by the Charter Conference.26 The application of Article 26 is confined to specific obligations mentioned in Part III of the ECT, provided that the investment has already been effected.27 In that case the protection standards contained in Part III (arts 10–17) become applicable and host states are responsible for actions by state enterprises (art. 22) and sub-national authorities (art. 23). Because Article 26 only applies to investments made, drawing a line between 26.06 ‘making of investment’ and ‘investment’ is of paramount importance.28 While Article 26 seems to be limited to post-investment obligations, in some cases pre-investment undertakings may be part of a chain of smaller ‘investments’ that pave the way for the ‘final’ investment.29 Once the threshold established by the definition of investment is crossed, all investments seem to be covered.30 While pre-investment obligations seem to be softer than the hard-law obligations contained in Part III, they may in this case be submitted under Article 26.31 Still, claimants need to fulfil all the requirements of Article 26(1): they should demonstrate that their claim concerns the making of an

23

24 25 26

27 28 29 30 31

Difficulty Behind Securing Sector-Specific Investment Establishment Rights: The Case of the Energy Charter Treaty’ (2001) 35(1) The International Lawyer 137, 148. See also Thomas Wälde, ‘International Investment under the 1994 Energy Charter Treaty-Legal, Negotiating and Policy Implications for International Investors within Western and Commonwealth of Independent States/Eastern European Countries’ (1995) 29(5) Journal of World Trade 5, 30–3. Lucy Reed, Jan Paulsson and Nigel Blackaby, Guide to ICSID Arbitration (Kluwer Law International 2010) 117–8; Philip Andrews-Speed, ‘The Politics of Petroleum and the Energy Charter Treaty as an Effective Investment Regime’ (1999) 4 Journal of Energy Finance and Development 117, 121; Thomas Wälde, ‘Investment Arbitration under the Energy Charter Treaty: An Overview of Selected Key Issues based on Recent Litigation Experience’ in Norbert Horn and Stefan Kroll (eds), Arbitrating Foreign Investment Disputes: Procedural and Substantive Legal Aspects (Kluwer Law International 2004) 193, 200–201; Gerhard Loibl, ‘The Energy Charter Treaty: Implementation and Compliance Issues’ in Thomas Wälde (n 3), 565, 581–2; Andrews-Speed and Wälde (n 22) 42; Elshihabi (n 22) 148; Wälde (n 3) 283. Andrews-Speed and Wälde (n 22) 41–2. Rainer Liesen. ‘Transit Under the 1994 Energy Charter Treaty’ (1999) 17(1) Journal of Energy and Natural Resources Law 56, 66–7; Wälde (n 23) 201; Wälde (n 3) 302. Thomas Wälde, ‘European Energy Charter Conference: Final Act, Energy Charter Treaty, Decisions and Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects’ (1995) 34(2) International Legal Materials 360, 365. Andrews-Speed and Wälde (n 22) 42 and 46–7; Wälde (n 3) 269 and 305; Wälde (n 17) 439 and 453. Elshihabi (n 22) 146. Wälde (n 3) 280 and 305. Ibid., 305. Wälde and Hamida (n 15) 180.

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investment that was actually made, that the dispute relates to that investment, and that it concerns alleged breaches of Part III.32 26.07 A fundamental Part III obligation is set out in the last sentence of Article 10(1): ‘[e]ach Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party’. This is a so-called ‘umbrella clause’ – obligations undertaken by the host state in contracts or other arrangements with the investor are brought under the umbrella of protection of the treaty.33 This provision is especially important in the energy sector since most investments are based on a contract between the investor and the host state.34 As a rule, a violation of the investment contract or other agreement is treated as a breach of the ECT itself, blurring the distinction between contract and treaty claims35 – both fall under the purview of Article 26.36 This applies even if such arrangements do not contain any specific dispute resolution clause;37 if they do, they are overridden.38 It should be noted that state enterprises (art. 22) and subnational authorities (art. 23) are also required to observe such obligations.39 Still, it seems that contracts of a purely commercial nature are not covered by the umbrella clause, as they do not relate to an ‘investment’ pursuant to Article 1(6) of the ECT.40 On the other hand, the phrase ‘entered into’ does not necessarily limit the state’s obligations to contracts but rather extends to other types of general arrangements such as investment authorizations, licenses, and permits.41 26.08 Article 10(1) also requires, in its penultimate sentence, that in no case investments be accorded treatment less favourable than that required by international law, including treaty obligations. A violation of any principle of international law, whether customary or conventional, can be submitted 32 33 34 35 36 37 38 39 40

41

Baltag (n 14) 210. See Andrew Newcombe and Lluís Paradell, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009) 437 ff. Yulia Selivanova, ‘The Energy Charter and the International Energy Governance’ in Christoph Herrmann and Jorg Terhechte (eds), European Yearbook of International Economic Law, Vol. 3 (Springer 2012) 307, 321. Alexandra Diehl, The Core Standard of International Investment Protection (Kluwer Law International 2012) 118. Selivanova (n 34) 321; Vandevelde (n 16) 413; Gaillard and McNeill (n 13) 47. Vandevelde (n 16) 413; Wälde (n 17) 455. Wälde (n 17) 456. Ibid., 455–6. Diehl (n 35) 113; Richard Happ, ‘Dispute Settlement under the Energy Charter Treaty’ (2005) 2(1) Transnational Dispute Management 1, 17; Sanam Haghighi, Energy Security: The External Legal Relations of the European Union with Major Oil- and Gas-Supplying Countries (Hart Publishing 2007) 206. See also Wälde (n 17) 455–6. Gaillard and McNeill (n 13) 48; Wälde (n 17) 455.

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under Article 26.42 Signatories are also required to respect intergovernmental agreements such as bilateral investment treaties.43 Still, the reference to treaty obligations does not include decisions taken by international organisations, even if they are legally binding, or treaties which entered into force before 1 January 1970.44 Finally, Article 26(1) requires that disputes, as defined therein, ‘if possible’, be 26.09 settled amicably. This provision imposes on both parties an obligation to try to resolve any dispute through negotiations.45 Amicable settlement may be requested by both investors and host states.46 B. Article 26(2) The obligation to settle disputes amicably expires after three months. This 26.10 cooling off period – before the expiry of which the investor cannot resort to the dispute settlement mechanisms established in paragraph two47 – is unusually short.48 Only investors can launch such proceedings.49 Alleged wrongdoing by the investor is outside the scope of this provision50 and thus limited to national courts or the terms of any investment agreement.51 The investor has the power to decide if and what mechanism to activate irrespective of the host state’s consent.52 The first option is to submit the dispute to the courts or administrative 26.11 tribunals of the host state.53

42 43 44 45

46 47

48 49 50 51 52 53

Vandevelde (n 16) 414. Wälde (n 26) 364. Final Act of the European Energy Charter Conference, Understanding 17. Vandevelde (n 16) 414. ‘The purpose of a request for amicable settlement is to discuss the dispute, with a view to exchanging views over its causes, the interests involved, clarifying factual uncertainties and possible misunderstandings, and identifying possible solutions (…)’ – see Limited Liability Company Amto v. Ukraine (Stockholm Chamber of Commerce case no. 080/2005, award of 26 March 2008, para 57). Hege Kjos, Applicable Law in Investor-State Arbitration: The Interplay Between National and International Law (Oxford University Press 2013) 140, fn 258. Hobér (n 13) 162; Kaj Hobér, ‘Russian Energy Policy and Dispute Settlement’ in Graham Coop (ed), Energy Dispute Resolution: Investment Protection, Transit and the Energy Charter Treaty (Juris 2011) 315, 343. See also Roe and Happold (n 15) 136–8. Paulsson (n 3) 436; Andrews-Speed and Wälde (n 22) 47; Vandevelde (n 16) 414. Wälde (n 17) 452; Andrews-Speed and Wälde (n 22) 47; Kjos (n 46) 140. Vandevelde (n 16) 413; Wälde (n 3) 305. Andrews-Speed and Wälde (n 22) 47; Andrews-Speed (n 23) 121. Vandevelde (n 16) 414; Hobér (n 47) 343; Andrews-Speed and Wälde (n 22) 47. ‘Art 26(2)(a) should not be interpreted to require a Contracting Party to enact Part III of the Treaty into its domestic law.’ – see Final Act of the European Energy Charter Conference, Understanding 16.

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26.12 The second option is to execute any applicable, previously agreed dispute settlement procedure. This is only a possibility, not an obligation.54 While investment agreements are frequent in the energy field, the combination of Article 26(2) and the umbrella clause of Article 10(1) means that such arrangements do not even need to contain dispute resolution clauses.55 Even if they do, such mechanisms may have limited application in practice.56 26.13 The third option is to refer the dispute to international arbitration or conciliation in accordance with the following paragraphs of Article 26. This means that the investor may ignore any dispute resolution clauses possibly contained in investment agreements with the host state.57 The operation of Article 26(2) will also cure potential defective arbitration clauses.58 The ECT seems to take priority over any dispute settlement clauses contained in investment arrangements.59 C. Article 26(3) 26.14 Should the investor decide to refer the dispute to international arbitration or conciliation, Article 26(3) demarcates the scope of consent by host states. International arbitration is clearly the most important dispute resolution mechanism60 – the ECT does not even provide any specific regime for conciliation.61 26.15 Subparagraph (a) provides that, as a rule, each contracting party gives its unconditional consent to the submission of a dispute to international arbitration. This commitment is viewed as an ‘offer’ which can be ‘accepted’ by investors.62 This provision creates ‘arbitration without privity’ because the host

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55 56 57 58 59 60 61 62

Paulsson (n 3) 436; Andrews-Speed and Wälde (n 22) 47; Andrew Tucker, ‘The Energy Charter Treaty and ‘Compulsory’ International State/Investor Arbitration’ (1998) 11(3) Leiden Journal of International Law 513, 522. Andrews-Speed and Wälde (n 22) 47. Gaillard and McNeill (n 13) 50. Andrews-Speed and Wälde (n 22) 47; Julian Lew, Loukas Mistelis and Stefan Kröll, Comparative International Commercial Arbitration (Kluwer Law International 2003) 773. Paulsson (n 3) 436. Wälde (n 3) 287. Ibid., 304; Wälde (n 26) 364; Hobér (n 13) 162–3. Munir Maniruzzaman, ‘Energy Charter Treaty Arbitration (Investor-State) in the Asia-Pacific Context: An Overview’ (2004) 4 International Energy Law and Taxation Review 101, 104. Matthew Parish and Charles Rosenberg, ‘An Introduction to the Energy Charter Treaty’ (2009) 20(2) American Review of International Arbitration 191, 199; Edna Sussman, ‘The Energy Charter Treaty’s Investor Protection Provisions: Potential to Foster Solutions to Global Warming and Promote Sustainable Development’ (2008) 14(2) ILSA Journal of International and Comparative Law 391, 394.

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state need not be a party to any prior arbitral agreement.63 The investor’s right to initiate arbitration proceedings arises directly from the ECT and is not subject to the exhaustion of local remedies or any other forms of dispute resolution possibly agreed with the host state.64 The ‘unconditional’ consent by the contracting state implies that it cannot cancel its consent or withdraw from the ECT upon submission of the claim to arbitration under Article 26.65 The state’s consent is irrevocable.66 If contracting parties decide to withdraw from the ECT, they remain bound to honour investment protection obligations for a period of 20 years following the effective date of withdrawal.67 26.16

This broad scope of consent may be limited in two situations.

First, pursuant to subparagraph (b)(i), contracting states may declare that they 26.17 do not consent to arbitration under the ECT if the investor has already submitted the dispute to courts or administrative tribunals or in accordance with any previously agreed dispute settlement mechanism.68 This provision, known as ‘fork-in-the-road’,69 may require an investor to make an irrevocable choice of forum70 as the mere ‘submission’ of the dispute to the relevant forum can result in a forfeiture of the arbitral claim.71 The language employed seems to imply that states can refuse consent where the investor has initiated other proceedings, even if later on they are discontinued.72 The investor cannot submit its claim to arbitration under the ECT if all of the 26.18 following conditions are met: the investor party to a dispute concerning an alleged breach of an obligation under Part III has previously submitted the dispute to the courts or administrative tribunals of the contracting party to the dispute or to 63 64

65 66 67 68 69

70 71 72

Wälde (n 3) 304; Wälde (n 26) 364; Omalu (n 1) 68–9 and 88; Sussman, ibid., 394; Maniruzzaman (n 61) 101; Parish and Rosenberg (n 62) 199. Hobér (n 13) 162; Hobér (n 47) 343; Reed, Paulsson and Blackaby (n 23) 117; Richard Happ, ‘Dispute Settlement under the Energy Charter Treaty’ (2002) 45 German Yearbook of International Law 331, 358; Diehl (n 35) 116; Roe and Happold (n 13) 138–9. Hobér (n 47) 343–4; Hobér (n 13) 163. Hobér (n 47) 344; Hobér (n 11) 163; Wälde (n 17) 451 and 451, fn 81. ECT art. 47(3). Countries making this declaration are listed in Annex ID. Gaillard and McNeill (n 13) 50; Happ (n 64) 358; Michael Polkinghorne, ‘Investor-State Dispute Resolution Under The Energy Charter Treaty: Which Fork? Which Road?’ 19 Mealey’s International Arbitration Report 13 (2004); Roe and Happold (n 13) 146. Gaillard and McNeill (n 13) 51; Reed and Martinez (n 18) 423. Gaillard and McNeill (n 13) 52; Wälde (n 17) 456. Lawrence Herman, ‘NAFTA and the ECT: Divergent Approaches with a Core of Harmony’ (1997) 15(2) Journal of Energy and Natural Resources Law 129, 149. Differently, other treaties, such as NAFTA, contain so-called ‘no U-turn’ provisions that allow the prior submission of the dispute to another forum but require the investor to irrevocably waive the right to ‘continue’ proceedings as a condition to submitting a claim to treaty arbitration.

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any applicable, previously agreed dispute settlement procedure. Because Article 26(1) provides a narrow definition of dispute, limited to alleged breaches of Part III of the ECT, subparagraph (b)(i) only bars a prior dispute in which the claimant alleged a breach of the ECT and not some other source of law.73 The dispute, however, must be the same.74 The definition of what constitutes an ‘identical’ dispute is problematic.75 On the other hand, this problem does not arise if it was the host state to launch judicial or arbitral proceedings.76 26.19 States that make the declaration not only avoid the burden of contesting two different claims but also the possibility of seeing a decision from a local court reversed by an arbitral award.77 The opt-out contained in Article 26(3)(b)(i) indicates that ECT negotiators wanted investment tribunals to prevail over domestic litigation or contractual arbitration.78 One question that remains open is what happens if the domestic legislation of a contracting state requires the exhaustion of local remedies and that state makes the declaration, thereby preventing investors from resorting to international arbitration.79 Should this forced submission to domestic courts prevent them from resorting to international arbitration under the ECT?80 According to subparagraph (b)(ii), contracting parties making this declaration shall provide a written statement of their policies, practices and conditions in this regard. If this situation arises, host states should be estopped from invoking such declaration as they were the ones forcing investors to refer the dispute to national courts in the first place. 26.20 As for countries not listed in Annex ID, they have consented to arbitrate under the ECT, even if the same dispute has already been submitted to national courts or arbitration under a clause in an investment agreement.81 In 73

74 75

76 77 78 79 80 81

Gaillard and McNeill (n 13) 52. Therefore, it is possible for the investor to claim a breach of the contract in one forum and a treaty breach at another – see Pieter Bekker, ‘The Use of Non-domestic Courts for Obtaining Domestic Relief: Jurisdictional Conflicts Between NAFTA Tribunals and U.S. Courts?’ (2005) 11(2) ILSA Journal of International & Comparative Law 331, 340. The NAFTA adopts a different regime, requiring the claimant to broadly waive all proceedings referring to the same ‘measure’ at issue in the treaty arbitration – see art. 1121(1) (b) and 2(b). Wälde (n 17) 460. In Yukos Universal Ltd (Isle of Man) v. The Russian Federation, the tribunal rejected the Russian Federation’s argument that the claimant’s claims were barred under art. 26(3)(b)(i) of the ECT because various other proceedings had been brought by other entities before the Russian courts and the European Court of Human Rights. The tribunal held that the Russian Federation had failed to satisfy the so-called ‘triple identity test’ which requires a claimant to demonstrate ‘identity of parties, cause of action and object of the dispute’ – see n 13, paras 593 and 598. Wälde (n 17) 460. Vandevelde (n 16) 415. Wälde (n 17) 460. Jeswald Salacuse, ‘The Energy Charter and Bilateral Investment Treaty Regimes’, in Wälde (n 3), 321, 347. Ibid., 347–8. Gaillard and McNeill (n 13) 52; Omalu (n 3) 69.

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this case the various dispute resolution mechanisms are not mutually exclusive,82 and the jurisdiction of national courts and contractually established arbitral tribunals may be overridden.83 This raises problems regarding the relation between domestic litigation, contractual arbitration, and arbitration under the ECT.84 Article 26(2) allows the investor to submit the dispute to national courts, contractual arbitration, or ECT arbitration. The investor may choose treaty arbitration without the need to go through domestic courts first.85 As a rule, investors may initiate national court litigation and switch over to investment arbitration.86 This possibility may breach fundamental principles of civil procedure, namely litispendence and res judicata.87 However, if domestic litigation is initiated, there can be no recourse to arbitration until domestic litigation has run its course.88 This result is confirmed by the opt-out in Article 26(3)(b).89 While the language used is not totally clear, Article 26(2) states that the investor can choose between domestic litigation and contractual or treaty arbitration, but Article 26(3) and the opt-out suggest that, for countries that do not opt-out, the investor’s initial resort to a local court does not prevent him from a subsequent ‘super-appeal’ to arbitration under the ECT.90 Wälde argues that this system demonstrates an ‘exhaustion of local remedies’ remnant in the ECT, but only in the situation where the investor – not the host state – initiates litigation in national courts.91 Differently, if the investor has triggered a contract-based arbitration, he should not be allowed to switch to treaty arbitration as this would breach generally recognized principles of civil procedure. According to Wälde, the purpose of Article 26 is to ensure that the investor, apart from the Annex ID case, can have access to international arbitration, but this must be done in a manner consistent with generally recognised civil procedure.92 The second exception to the contracting states’ consent to international 26.21 arbitration is contained in Article 26(3)(c) – countries may opt out of international arbitration for disputes arising under the umbrella clause of Article 10(1) and request to be listed in Annex IA. This makes that umbrella 82 83 84 85 86 87

88 89 90 91 92

Vandevelde (n 16) 415. Omalu (n 3) 69–70. Wälde (n 17) 459. Wälde (n 3) 307–8. Ibid., 306; Haghighi (n 40) 205. Wälde (n 17) 456; Wälde (n 3) 306. From a different perspective, Herman argues that the language of art. 26(2), while not totally clear, seems to eliminate the possibility of transferring a dispute from the courts to international arbitration once court proceedings have been commenced – see Herman (n 72) 149. Wälde (n 3) 308; Haghighi (n 38) 207. Wälde, ibid. Ibid., 305 and 308, fn 205. Ibid. Ibid., 306.

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clause particularly unusual as it is optional.93 This possibility was included in the treaty to accommodate states concerned about the use of treaty arbitration to enforce a potentially broad range of obligations.94 This exemption shields opt-out countries from ECT arbitration over contract-based commitments but does not release them from arbitration over the other Part III obligations.95 Such an opting-out clause does not, however, seem to restrict the substantive obligations included in the last sentence of Article 10(1).96 Disputes arising from the breach of contractual obligations should be settled by the agreed procedure or be submitted to national courts, unless the host country agrees otherwise.97 26.22 Two decades after the entry into force of the ECT, the consent by contracting parties – as regards intra-EU disputes – may be further limited due to a supervening event: the world-shattering decision in Slovak Republic v. Achmea BV.98 The Court of Justice of the European Union held that the arbitration clause in the agreement between the Netherlands and Slovakia on the protection of investments was not compatible with EU law. This decision will most likely also have implications for intra-EU arbitrations initiated under the ECT. It remains to be seen whether awards already rendered will be enforceable, how tribunals will react to the court’s judgment in pending disputes, and whether European investors will still be able to launch new arbitrations against European Member States under the ECT.99 D. Article 26(4) 26.23 If the investor decides to submit a dispute to international arbitration or conciliation, he needs to choose the arbitral forum and corresponding arbitration rules. Again, the host state’s agreement is not necessary.

93 94 95 96 97 98 99

Gaillard and McNeill (n 13) 47; Parish and Rosenberg (n 62) 198. Vandevelde (n 16) 413. Wälde (n 17) 456. Esa Paasivirta, ‘The Energy Charter Treaty and Investment Contracts: Towards Security of Contracts’, in Wälde (n 8), 349, 358. Andrews-Speed and Wälde (n 22) 48. Judgement of the Court (Grand Chamber) of 6 March 2018, case C-284/16. For some initial comments, see Nikos Lavranos, ‘Black Tuesday: the End of intra-EU BITs’, Thomson Reuters Arbitration Blog, 7 March 2018, http://arbitrationblog.practicallaw.com/black-tuesday-the-end-ofintra-eu-bits; Clément Fouchard and Marc Krestin, ‘The Judgment of the CJEU in Slovak Republic v. Achmea – A Loud Clap of Thunder on the Intra-EU BIT Sky!’, Kluwer Arbitration Blog, 7 March 2018, http://arbitrationblog.kluwerarbitration.com/2018/03/07/the-judgment-of-the-cjeu-in-slovak-republic-vachmea/; Steffen Hindelang, ‘The Limited Immediate Effects of CJEU’s Achmea Judgement’, Verfassungsblog, 9 March 2018, https://verfassungsblog.de/the-limited-immediate-effects-of-cjeus-achmea-judgement.

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The first mechanism is arbitration or conciliation before the International 26.24 Centre for Settlement of Investment Disputes (ICSID). This option is available if the host state and the investor’s home state are both parties to the Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID Convention). The second mechanism is arbitration or conciliation before the Additional 26.25 Facility for the Administration of Proceedings by ICSID. The Additional Facility was established in 1978 to arbitrate certain types of disputes that were not within the jurisdiction of ICSID under its Convention. This option is available only if the host state or the home state of the investor, but not both, is a party to the ICSID Convention. The third alternative is arbitration by a sole arbitrator or an arbitral tribunal 26.26 established under the United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules. The choice between arbitration by a sole arbitrator and arbitration by a tribunal rests with the investor.100 Because Article 26 does not define any appointing authority if the investor chooses arbitration under the UNCITRAL Rules, the Secretary General of the Permanent Court of Arbitration in The Hague will have to be approached to nominate the appointing authority, which may further complicate and delay proceedings.101 The fourth option is arbitration under the aegis of the Arbitration Institute of 26.27 the Stockholm Chamber of Commerce. This institution built a reputation for impartiality for dispute resolution in East-West disputes during the cold war.102 This menu of options gives investors the possibility of choosing according to 26.28 the particular circumstances of the dispute. Factors to take into account include the amount in dispute, the issues raised, the nationalities of the parties, the venue thought desirable, and the effect of the choice of rules on the composition of the arbitral tribunal.103 While there is no default seat under the ECT, the default seat for ICSID arbitration is Washington, D.C. Still, the tribunal and parties may agree to hold hearings in other locations for convenience sake.104 Furthermore, the investor should consider the need to 100 101 102 103 104

Paulsson (n 3) 437, fn 28. Ibid.; Gaillard and McNeill (n 13) 50. Salacuse (n 79) 347, fn 80. Paulsson (n 3) 436–7; Reed, Paulsson and Blackaby (n 23) 118. See also Roe and Happold (n 13) 152–61. Reed and Martinez (n 18) 428.

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meet the procedural requirements that result from their choice.105 For example, if the investor chooses ICSID arbitration, he must satisfy the requirements of the ICSID Convention, and any challenge to the arbitral award must be made before an ad hoc committee and cannot be made before the local courts of the state in which the arbitration takes place.106 26.29 Contracting parties have consented to arbitration under art. 26(3); investors are also required to consent in writing to arbitration to satisfy jurisdictional requirements.107 26.30 Investment arbitration is available at the option of the investor only.108 This puts into question the possibility of responding states raising counterclaims. The only allusion to counterclaims in the ECT is contained in Article 15(3), pursuant to which: [i]n any proceeding under Article 26, a Contracting Party shall not assert as a defence, counterclaim, right of set-off or for any other reason, that indemnification or other compensation for all or part of the alleged damages has been received or will be received pursuant to an insurance or guarantee contract.

According to Wälde, if the tribunal has jurisdiction over the claim, it should be competent to deal with the overall issue and decide on counterclaims.109 In Limited Liability Company Amto v. Ukraine the tribunal dismissed the counterclaim because the respondent state did not present any basis in the applicable law for a claim of non-material injury to reputation.110 Paulsson discusses an interesting variant. In his opinion, counterclaims may be admitted in cases where the investor ignored a pre-existing arbitration clause under which the respondent state could have brought a claim.111 Otherwise, the respondent state could decide to initiate a second arbitration under the contractual clause, leading to concurrent proceedings.112 105

106 107

108 109 110 111 112

Baltag (n 14) 64–7. See also Juliet Blanch, Andy Moody and Nicholas Lawn, ‘Access to Dispute Resolution Mechanisms under Article 26 of the Energy Charter Treaty’, in Graham Coop and Clarisse Ribeiro (eds), Investment Protection and the Energy Charter Treaty (JurisNet 2008) 1, 8. Gaillard and McNeill (n 13) 50. Paulsson (n 3) 437; Omalu (n 3) 69, fn 28. In Limited Liability Company Amto v. Ukraine, the tribunal held that, even in the absence of a separate written consent, an unconditional request to initiate arbitration is the consent that completes the arbitration agreement and establishes the jurisdiction of the arbitral tribunal (n 43, para 46). Wälde (n 3) 304; Omalu (n 3) 68–9. Wälde (n 3) 306. See also Haghighi (n 40) 204. Limited Liability Company Amto v. Ukraine (n 43), para 118. See also Europe Cement Investment & Trade S.A. v. Republic of Turkey (ICSID case no. ARB(AF)/07/2), award of 14 August 2009, paras 181 and 195. Paulsson (n 3) 436, fn 27. Ibid.

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E. Article 26(5) The contracting parties give their unconditional consent to investment arbi- 26.31 tration in Article 26(3)(a); the investor gives his under Article 26(4). Article 26(5)(a) specifies that, together, both consents are deemed to satisfy the arbitration agreement requirement contained in the ICSID Convention, the Additional Facility Rules, and the UNCITRAL Arbitration Rules, but also of the New York Convention. The references to the New York Convention and the ICSID Convention are meant to increase the likelihood of recognition and enforcement of arbitral awards rendered by ECT tribunals.113 If the parties do not agree on the place of arbitration, then the place will be 26.32 determined in accordance with the rules of one of the four arbitration methods selected by the investor – but, if the investor so wishes, only in a state which is a party to the New York Convention. This reference is useful because many of the parties to the New York Convention have entered a declaration under which they will enforce an arbitral award only if it is rendered in a state that is also a party to the Convention (the ‘reciprocity reservation).114 Thus, this provision of the ECT allows the investor to ensure that such states are obligated to enforce the award.115 Furthermore, any claims submitted to arbitration shall be considered to arise 26.33 out of a ‘commercial transaction or relationship’ for the purpose of that same convention. This language was included to ensure enforceability under the New York Convention, which permits states to declare that they will apply the Convention only to the arbitration of disputes arising out of commercial relationships (the ‘commercial reservation’).116 In combination with the written consent of the parties, this ensures the enforceability of awards – the host state will not be able to invoke sovereign immunity against execution, as the object and purpose of Article 26 ECT imply a respective waiver.117 Moreover, the ICSID Convention already requires that its parties recognise and enforce ICSID arbitral awards.118 Therefore, if this option is chosen, the ICSID awards will generally be enforceable in a large number of states even if the New York Convention is, for some reason, inapplicable.119

113 114 115 116 117 118 119

Wälde (n 17) 450–51, 458. New York Convention, art. 1(3). Vandevelde (n 16) 418. New York Convention, art. 1(3). See Vandevelde (n 16) 418. Happ (n 64) 359. ICSID Convention, art. 45. Vandevelde (n 16) 418; Selivanova (n 34) 322, fn 87.

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F. Article 26(6) 26.34 Paragraph 6 deals with the law applicable to the merits of the dispute. Irrespective of the type of arbitration chosen, the arbitration is to be decided in accordance with the provisions of the treaty120 and the rules and principles of international law. In a similar fashion, the fourth sentence of Article 10(1) also refers to the minimum standard of treatment required by international law, including obligations based on other treaties. The reference to international law may even include the application of the General Agreement on Tariffs and Trade (GATT), pursuant to Article 10(11) and 5(1) of the ECT. However, such rules must be applicable and somehow relate to the case.121 26.35 There is a close relationship between the arbitration agreement and the choice-of-law provision.122 The ECT emphasises international law and makes no reference to contracts between investors and host states.123 This provision also fails to make any reference to national law. The question is whether it is possible to completely dissociate the dispute from the relevant national legal framework.124 Some view this regime as impracticable.125 While the goal seems to be to insulate disputes between investors and host states from domestic legal systems,126 national laws cannot be ruled out in full. Roe and Happold underline that ‘[t]he rule or principle that a tribunal must first determine as a matter of national law what the claimant’s rights are (…) is itself an applicable rule or principle of international law’.127 National legislation should be considered as a matter of fact, with international law determining its consequences and characterisation.128 Domestic laws may be relevant, for example, when assessing the notion of ‘investor’ or deciding the merits of the dispute.129 For instance, in Plama Consortium Ltd v. Republic of Bulgaria, the tribunal held that the investment was obtained by deceitful conduct that was in violation of Bulgarian law; in light of the ex turpi causa defence, the tribunal could not grant the substantive protections of the ECT.130 The need to resort to national law may also result from the operation 120 121 122 123 124 125 126 127 128 129 130

The reference to ‘this treaty’ is not totally clear – see Wälde (n 17) 457, fn 104. Happ (n 64) 358. Kjos (n 46) 124. Wälde (n 3) 308. Maniruzzaman (n 61) 102. See Wälde (n 17) 457–8; Tucker (n 54) 524–5. Maniruzzaman (n 61) 102. Roe and Happold (n 13) 51. Ibid., 27. Baltag (n 14) 25. Plama Consortium Ltd v. Republic of Bulgaria (ICSID case no. ARB/03/24), award of 27 August 2008, paras 143–146.

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of the umbrella clause.131 An examination of potential breaches of contractual obligations under Article 10(1) of the ECT without taking into account national law does not make much sense.132 This is even more so when the investment agreement expressly points to the application on national law.133 The lack of a reference to national law in Article 26(6) contrasts with the 26.36 ICSID Convention, whose Article 42(1) provides that arbitral tribunals shall decide disputes in accordance with such rules of law as may be agreed by the parties, and that 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. Should the investor opt for ICSID arbitration, the contractual choice of law, overlooked by the ECT, becomes relevant under the ICSID Convention. If the parties have expressly made national law applicable, a conflict between international law (including the ECT) and national law arises.134 If UNCITRAL rules are chosen, Article 33 stipulates the prevalence of the law designated by the parties; otherwise ‘the law determined by the conflict-of-laws rules which it considers applicable’ is to decide the dispute. The international regime postulated by the ECT seems to conflict with the choice-of-law rules contained in the arbitral methods available under the treaty.135 This is a tremendous conflict of laws issue.136 Wälde suggests that this conflict be settled according to the ICSID and UNCITRAL arbitration methods; in line with the established principles of contract and conflict of laws, dispute settlement must first be based on the parties’ own choice of law – if such choice of law has been made.137 Negotiated rules must prevail, and both the ECT – Article 10(1), last sentence – and the aforesaid arbitration rules acknowledge this, even against the wording of Article 26(6). If there is no contractual choice of law, then international law (including the ECT itself) and national law are fighting for predominance, with the added complication that in many cases the ECT may have been incorporated into national law, which may have been subsequently amended.138 If that is the case, national law applies as long as it is compatible with the ECT’s obligations.139 The author concludes that 131 132 133 134 135 136 137 138 139

Kjos (n 44) 247. Wälde (n 17) 457. Ibid. Ibid., 453, fn 87. See also Happ (n 64) 359–61. Wälde (n 3) 308. Wälde (n 17) 458. Wälde (n 3) 309. Ibid. Ibid.

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the ECT, both under Article 26(6) and the arbitration rules of ICSID and UNCITRAL, becomes fully applicable and acquires, in case of conflict, supremacy over national law.140 G. Article 26(7) 26.37 Subparagraph 7 refers to local companies subject to foreign control.141 This provision is necessary in the case of arbitrations before ICSID or the Additional Facility. ICSID conducts arbitrations only between one state and investors of another state. A company having the nationality of a contracting state party to the dispute and, before the dispute arises, having been under the control of investors of another contracting state, is to be treated as a national of another contracting state for the purposes of the ICSID Convention and the ICSID Additional Facility Rules. Hence, if the majority of shares of an investor of the same nationality as the host state are controlled by investors of another contracting state, the investor is to be considered as an investor of another contracting party for purposes of establishing ‘diversity’.142 In the absence of such language, foreign-owned companies would be unable to launch investment disputes provision against the host state.143 Difficult questions of parallel proceedings may arise, however, if claims under the ECT are brought simultaneously against the host state by the local company and its foreign shareholder.144 H. Article 26(8) 26.38 The first sentence of subparagraph 8 provides that the arbitration award shall be final and binding upon the parties to the dispute. The ECT does not set up a process of review of arbitral awards. Review of awards is nevertheless possible if one of the four arbitration methods selected by the treaty (as 140 141

Ibid. According to the Final Act of the European Energy Charter Conference, Understanding 3, control of an investment means: control in fact, determined after an examination of the actual circumstances in each situation. In any such examination, all relevant factors should be considered, including the Investor’s (a) financial interest, including equity interest, in the Investment; (b) ability to exercise substantial influence over the management and operation of the Investment; and (c) ability to exercise substantial influence over the selection of members of the board of directors or any other managing body.

142 143 144

Where there is doubt as to whether an Investor controls, directly or indirectly, an Investment, an Investor claiming such control has the burden of proof that such control exists. Hobér (n 13) 164. Vandevelde (n 16) 419. Hobér (n 13) 164.

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happens with the ICSID Convention) allows for review.145 A review may also be possible by national courts called upon for enforcement of arbitral awards if national law and international obligations (e.g., New York Convention of 1958) allow such a review.146 26.39

In addition, the award may include an award of interest.

The second sentence of paragraph 8 refers to subnational entities. If the 26.40 arbitral award concerns a measure of a sub-national government or authority of the disputing contracting party, only monetary damages can be awarded as a remedy. This provision, infrequent in bilateral investment treaties, addresses the concern about the lack of authority, for legal or political reasons, by central governments to order compliance by subnational governments.147 The central government is financially liable for sub-national misconduct without owing the impractical remedy of full restitution.148 Central governments can discharge their responsibility to comply with the award by means of a monetary payment.149 In other words, arbitral tribunals will be barred from annulling governmental acts or ordering specific performance or restitutio in integrum against governmental entities.150 By only limiting the power of tribunals to award non-pecuniary remedies in 26.41 the case of measures of sub-national governments or authorities, the provision allows, as a rule, arbitral tribunals to grant both pecuniary remedies (i.e., compensation) and non-pecuniary remedies (i.e., orders for specific performance) in all other cases.151 Because this is a special rule limited to subnational entities, Article 26(8) seems to suggest that ‘other remedies’ (including restitution) are available in other cases.152 This seems to suggest that even the remedy of specific performance will be available as regards government measures taken at the national level.153 In theory, an ECT tribunal could even order the repeal of national legislation or of a judicial decision taken at the national level.154 145 146 147 148 149 150 151 152 153 154

Wälde (n 17) 458. Ibid., 458–9. Vandevelde (n 16) 419; Wälde (n 17) 459; Omalu (n 1) 143; Anna de Luca, Non-Pecuniary Remedies under the Energy Charter Treaty (Energy Charter Secretariat 2015) 1. Wälde (n 17) 459. Vandevelde (n 16) 419. Paulsson (n 3) 439. De Luca (n 147) 1. See Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan (Stockholm Chamber of Commerce case no V (064/2008), award of 8 June 2010, para 49. Wälde (n 17) 459. Gaillard and McNeill (n 13) 50–51; Paulsson (n 3) 439, fn 30. Gaillard and McNeill (n 13) 51.

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26.42 Finally, according to the third sentence of subparagraph 8, the parties to the treaty are required to carry out the award without delay and to make provisions for the effective enforcement in its territory. This provision creates an obligation for contracting parties to effectively enforce arbitral awards rendered. The ECT does not contain a special enforcement regime. Therefore with the exception of arbitration under ICSID rules, enforcement has to be based on the New York Convention. However, if a contracting state refuses to enforce or comply with an award, this amounts to a breach of the treaty and interstate arbitration under Article 27 becomes possible.155 Such noncompliance can also be raised within the Charter Conference under Article 34(3).156

155 156

Lew, Mistelis and Kröll (n 57) 773; Wälde (n 17) 459. Wälde, ibid., 459.

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ARTICLE 27 SETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTIES Crina Baltag

(1)

(2)

(3)

Contracting Parties shall endeavour to settle disputes concerning the application or interpretation of this Treaty through diplomatic channels. If a dispute has not been settled in accordance with paragraph (1) within a reasonable period of time, either party thereto may, except as otherwise provided in this Treaty or agreed in writing by the Contracting Parties, and except as concerns the application or interpretation of Article 6 or Article 19 or, for Contracting Parties listed in Annex IA, the last sentence of Article 10(1), upon written notice to the other party to the dispute submit the matter to an ad hoc tribunal under this Article. Such an ad hoc arbitral tribunal shall be constituted as follows: (a) The Contracting Party instituting the proceedings shall appoint one member of the tribunal and inform the other Contracting Party to the dispute of its appointment within 30 days of receipt of the notice referred to in paragraph (2) by the other Contracting Party; (b) Within 60 days of the receipt of the written notice referred to in paragraph (2), the other Contracting Party party to the dispute shall appoint one member. If the appointment is not made within the time limit prescribed, the Contracting Party having instituted the proceedings may, within 90 days of the receipt of the written notice referred to in paragraph (2), request that the appointment be made in accordance with subparagraph (d); (c) A third member, who may not be a national or citizen of a Contracting Party party to the dispute, shall be appointed by the Contracting Parties parties to the dispute. That member shall be the President of the tribunal. If, within 150 days of the receipt of 359

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(d)

(e)

(f)

(g) (h) (i)

(j)

(k)

the notice referred to in paragraph (2), the Contracting Parties are unable to agree on the appointment of a third member, that appointment shall be made, in accordance with subparagraph (d), at the request of either Contracting Party submitted within 180 days of the receipt of that notice; Appointments requested to be made in accordance with this paragraph shall be made by the Secretary General of the Permanent Court of International Arbitration within 30 days of the receipt of a request to do so. If the Secretary General is prevented from discharging this task, the appointments shall be made by the First Secretary of the Bureau. If the latter, in turn, is prevented from discharging this task, the appointments shall be made by the most senior Deputy; Appointments made in accordance with subparagraphs (a) to (d) shall be made with regard to the qualifications and experience, particularly in matters covered by this Treaty, of the members to be appointed; In the absence of an agreement to the contrary between the Contracting Parties, the Arbitration Rules of UNCITRAL shall govern, except to the extent modified by the Contracting Parties parties to the dispute or by the arbitrators. The tribunal shall take its decisions by a majority vote of its members; The tribunal shall decide the dispute in accordance with this Treaty and applicable rules and principles of international law; The arbitral award shall be final and binding upon the Contracting Parties parties to the dispute; Where, in making an award, a tribunal finds that a measure of a regional or local government or authority within the Area of a Contracting Party listed in Part I of Annex P is not in conformity with this Treaty, either party to the dispute may invoke the provisions of Part II of Annex P; The expenses of the tribunal, including the remuneration of its members, shall be borne in equal shares by the Contracting Parties parties to the dispute. The tribunal may, however, at its discretion direct that a higher proportion of the costs be paid by one of the Contracting Parties parties to the dispute; Unless the Contracting Parties parties to the dispute agree otherwise, the tribunal shall sit in The Hague, and use the premises and facilities of the Permanent Court of Arbitration;

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(l) A copy of the award shall be deposited with the Secretariat which shall make it generally available.1

COMMENTARY The Energy Charter Treaty (ECT) was signed at the Final Plenary Session of 27.01 the European Energy Charter Conference in Lisbon on 16–17 December 1994 and entered into force in April 1998, less than seven years after the signature of its precursor, the European Energy Charter in 1991. Few would have predicted in 1998 that the ECT would play such an important role in the protection of investments in the energy field. It was stated on numerous occasions that the entry into force of the ECT, in itself, was far from being a safe bet at the time of the negotiations.2 Fast forward 20 years and, if judging by the number of disputes submitted by Investors against the Contracting Parties under the arbitration option of Article 26 and which concern alleged breaches of the provisions on the Investment Promotion and Protection under Part III of the ECT, one could safely conclude that the ECT is a success. The number of arbitration cases under the ECT increased steadily, reaching 114 in March 2018, with more than 60 per cent of them filed under the International Centre for Settlement of Investment Disputes (ICSID) option.3 The dispute resolution provision under Article 26 of the ECT is, however, not 27.02 the only procedural mechanism available under the ECT. Article 27 provides for the resolution of disputes between the Contracting Parties if such disputes concern the application or the interpretation of the ECT. All dispute resolution provisions under the ECT are the guarantee that the substantive protection granted to Investments of Investors, as well as the rights of the Contracting Parties, are properly observed.4 State-state dispute resolution in International Investment Agreements (IIAs) 27.03 is a reminiscence of the traditional diplomatic protection under international law, where the private party could not access the benefits of a treaty and could not resort, in its own name, to a dispute resolution mechanism against a state 1 2 3 4

See Final Act of the European Energy Charter Conference, Understandings, n. 17. with respect to Arts 26 and 27, p. 28 and Art. 28, p. 76. Crina Baltag, The Energy Charter Treaty. The Notion of Investor, (Wolters Kluwer 2012), 9. Full information about the disputes is available at accessed 9 March 2018. See also the transit disputes which are subject to the conciliation mechanism of Art. 7(7) of the ECT and the specific mechanisms for the settlement of competition related disputes (Art. 6(5) of the ECT), and for the trade-related disputes (Annex D to the ECT, if at least one party is not member of the WTO).

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that allegedly breached the rights of the individual. Diplomatic protection is duly recognized in international law. The Draft Articles on Diplomatic Protection define the notion of ‘diplomatic protection’ as: the invocation by a State, through diplomatic action or other means of peaceful settlement, of the responsibility of another State for an injury caused by an internationally wrongful act of that State to a natural or legal person that is a national of the former State with a view to the implementation of such responsibility.5

As explained by the Draft Articles on Diplomatic Protection, there are certain conditions to be met for the state of nationality of the private party to espouse the claim of its national against another state.6 However, what is strikingly relevant is the discretion of the state of nationality of the individual in presenting (or not) the claim against the other state. As explained by the International Court of Justice (ICJ) in Barcelona Traction, the state is ‘the sole judge to decide whether its protection will be granted, to what extent it is granted, and when it will cease’.7 27.04 However, with the proliferation of IIAs and the recognition of private parties in the international arena with respect to their rights to bring claims directly against a state, the role of diplomatic protection diminished. With this, states became probably less concerned that their diplomatic relations with other states might deteriorate simply because they have to take up the claims of their individuals against other states. Some treaties, including the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 1965 (ICSID Convention), exclude diplomatic protection where the individual is granted direct access against a state. For example, Article 27(1) of the ICSID Convention provides that No Contracting State shall give diplomatic protection, or bring an international claim, in respect of a dispute which one of its nationals and another Contracting State shall have consented to submit or shall have submitted to arbitration under this Convention, unless such other Contracting State shall have failed to abide by and comply with the award rendered in such dispute.

27.05 However, even if diplomatic protection is excluded, the states involved may still have informal diplomatic exchanges in respect of the matter, ‘for the sole purpose of facilitating a settlement of the dispute’, as stated in Article 27(2) of 5 6 7

International Law Commission, ‘Draft Articles on Diplomatic Protection’, 2006, Official Records of the General Assembly, Sixty-first Session, Supplement No. 10 (A/61/10), Art. 1. See Arts 3 et seq. Barcelona Traction, Light and Power Co, Ltd (Belgium v. Spain), Judgment of 5 February 1970, ICJ Reports (1970) 44.

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the ICSID Convention. These informal diplomatic exchanges or discussions are often encountered at the post-award stage, usually when the state fails to pay the compensation owed to the aggrieved investor.8 With the diplomatic protection being placed on the back seat of international 27.06 law, the IIAs included, in exchange, a state-state dispute resolution mechanism, narrower in its scope than the investor-state dispute settlement.9 Under the state-state dispute settlement, the states can resolve their disputes concerning the interpretation or the application of the provisions of a treaty by arbitration, with the possibility to refer the dispute to amicable settlement prior to the initiation of the arbitration proceedings. For example, Article XII of the Australia-Indonesia Bilateral Investment 27.07 Treaty (BIT), entered into force on 27 July 1993 refers to the following state-state dispute settlement provision: 1. Disputes between the Parties concerning the interpretation or application of this Agreement should, if possible, be settled through diplomatic channels. 2. If a dispute between the Parties cannot thus be settled within six months, it shall upon the written request of either Party be submitted to an arbitral tribunal. 3. Such an arbitral tribunal shall be constituted for each individual case in the following way: (a) within two months of the receipt of the request for arbitration, each Party shall appoint one member of the tribunal. Those two members shall then select a national of a third country who on approval by the two Parties shall be appointed Chairman of the tribunal. The Chairman shall be appointed within two months from the date of appointment of the other two members; (b) in case any arbitrator appointed as provided for in this Article shall resign or become unable to act, a successor arbitrator shall be appointed in the same manner as prescribed for the appointment of the original arbitrator and the successor shall have all the powers and duties of the original arbitrator.

8

9

See the cases of Blue Ridge Investments and Azurix Corp, two US companies with ICSID arbitral awards against Argentina of over USD 100 million each, which triggered a response from the US and even a pressure on Argentina through various trade mechanisms to pay the outstanding amounts. On this and on other similar cases, see Theodore R. Posner and Marguerite C. Walter, ‘The Abiding Roles of State-State Engagement in the Resolution of Investor-State Disputes’ in Jean E. Kalicki and Anna Joubin-Bret (eds), Reshaping the Investor-State Dispute Settlement System (Brill Nijhoff 2015), 394 et seq. The first state-state dispute settlement provision is considered to be Art. V of the 1794 Treaty of Friendship, Commerce, and Navigation between Great Britain and the United States (the Jay Treaty), establishing the Jay Commission which dealt with border disputes, claims for compensation by British creditors for debts preceding the War of Independence and the treatment of the American commercial fleet. See Kenneth Vandevelde, Bilateral Investment Treaties, (OUP 2010), 504. For a detailed analysis of the Jay Treaty and the following developments leading to the establishment of the investor-state dispute resolution, including the Alabama Arbitration, see Richard Happ and Sebastian Wuschka, ‘From the Jay Treaty Commissions towards a Multilateral Investment Court: Addressing the Enforcement Dilemma’, 6(1) IJAL (2017) 113, 116 et seq.

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4. If within the period specified in paragraph 3 the necessary appointments have not been made, either Party may, in the absence of any other agreement, invite the President of the International Court of Justice to make any necessary appointments. If the President is a national of either Party or is unable to discharge the said function, the Vice-President or the next most senior Member who is not disqualified on such a ground shall make the necessary appointments. 5. The arbitral tribunal shall decide all questions relating to its competence and shall, subject to any agreement between the Parties, determine its own procedure. It shall reach its award by majority vote taking into account the provisions of this Agreement, the international agreements both Parties have concluded and the generally recognised principles of international law. The arbitral tribunal shall afford to the Parties a fair hearing. It may render an award on the default of a Party. Any award shall be rendered in writing and shall state its legal basis. An award shall be final and binding on the Parties. 6. Each Party shall bear the costs of its appointed arbitrator. The cost of the Chairman of the tribunal and other expenses associated with the conduct of the arbitration shall be borne in equal parts by both Parties. The arbitral tribunal may decide, however, that a higher proportion of costs shall be borne by one of the Parties.

27.08 The ICSID Convention also provides for such mechanism in Article 64: Any dispute arising between Contracting States concerning the interpretation or application of this Convention which is not settled by negotiation shall be referred to the International Court of Justice by the application of any party to such dispute, unless the States concerned agree to another method of settlement.10

27.09 Only two cases making use of the state-state dispute resolution mechanism under IIAs are reported up to this date. In Lucchetti v. Peru,11 the state-state dispute settlement was filed by Peru against Chile, in parallel with the claim of the investor against Peru. Peru requested the ICSID arbitral tribunal in the investor-state dispute to suspend the proceedings until the resolution of the 10

11

For more details on the history of the provision, as well as for additional explanation, see Christoph Schreuer et al., The ICSID Convention: A Commentary on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States, (2d edn, CUP 2009), 1258 et seq. Empresas Lucchetti, S.A. and Lucchetti Peru, S.A. v. The Republic of Peru, ICSID Case No. ARB/03/4, Award of 7 February 2005, paras 7 and 9: 7. On August 7, 2003, Respondent filed a request for suspension of the proceedings, in view of the fact that ‘Claimants’ Request for Arbitration [was] (…) the subject of a concurrent State-to-State dispute between the Republic of Peru and the Republic of Chile.’ Pursuant to the Tribunal’s instructions, the parties filed on September 11, 2003 their briefs on Respondent’s request for suspension. The Tribunal also invited the parties to present oral arguments on this issue during the first session. … 9. During the course of the first session, the Tribunal also heard oral arguments on Respondent’s request for suspension of August 7, 2003. By a decision communicated through the Secretariat on September 16, 2003, the Tribunal found that the conditions for a suspension of the proceedings were not met and confirmed the schedule for the submission of pleadings on the objections to jurisdiction.

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state-state dispute. The tribunal refused to do so and later dismissed the investor’s claim for lack of jurisdiction. In Italy v. Cuba,12 the tribunal presided over by Yves Derains had to decide on the two types of claims brought by Italy. The first one was the diplomatic protection of its own nationals, which was rejected on admissibility grounds related to the exhaustion of local remedies. The second one concerned Italy’s own rights under the Italy-Cuba BIT entered into force on 23 August 1995 and failed on jurisdiction and merits, except for the sub-claim on enrichment without just cause. Interesting on the quantum of claims, Italy requested a symbolic EUR 1 in damages from Cuba, a claim that was rejected by the arbitral tribunal. The tribunal ordered the parties to pay the costs of arbitration in equal parts. The first draft of Article 27 of the ECT followed the general lines of the 27.10 current provision and referred to the following: (1) Disputes between the Contracting Parties concerning the interpretation or application of this Agreement should, if possible, be settled through diplomatic channels. (2) If a dispute between Contracting Parties cannot thus be settled, it shall upon the request of any Contracting Party to the dispute be submitted to an arbitral tribunal. (3) Such an arbitral tribunal shall be constituted for each individual case in the following way. Within two months of the receipt of the request for arbitration, each Contracting Party to the dispute shall appoint one member of the tribunal. Those members shall then select a national of a third Contracting Party not party to the dispute who on approval by the Contracting Parties to the dispute shall be appointed Chairman of the tribunal. The Chairman shall be appointed within two months from the date of appointment of the other members. (4) If within the period specified in paragraph (3) of this Article the necessary appointments have not been made, any Contracting Party to the dispute may, in the absence of any other agreement, invite the President of the International Court of Justice to make any necessary appointments. If the President is a national of any Contracting Party to the dispute or if he is otherwise prevented from discharging the said function , the Vice-President of the International Court of Justice shall be invited to make the necessary appointments. If the Vice President is a national of any Contracting Party to the dispute or if he too is prevented from discharging the said function, the Member of the International Court of Justice next in seniority who is not a national of any Contracting Party to the dispute shall be invited to make the necessary appointments. (5) The arbitral tribunal shall reach its decision by a majority of votes. Such decision shall be binding on the Contracting Parties to the dispute. Such Contracting Party shall bear the costs of its own member of the tribunal and of its representation in the arbitral proceedings; the cost of the Chairman and the remaining costs shall be 12

Italian Republic v. Republic of Cuba, Final Award of 1 January 2008.

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borne in equal parts by the Contracting Parties to the dispute. The tribunal may, however, in its decision direct that a higher proportion of costs shall be borne by any Contracting Party to the dispute and this award shall be binding on all Contracting Parties to the dispute. The tribunal shall determine its own procedure. (6) The provisions of this Article shall apply with respect to any Core Protocol or Supplementary Protocol except as otherwise provided in the Protocol concerned.13

27.11 The dispute settlement provision under Article 27 of the ECT offers the opportunity to the Contracting Parties to refer to an ad hoc arbitral tribunal any disputes concerning the application or interpretation of the ECT. This provision, thus, can only be employed by the Contracting Parties. As narrow as the scope of Article 27 might appear to be, the interpretation and application of the ECT are two broad notions, although not defined by the ECT nor by the Vienna Convention on the Law of Treaties, 1969 (Vienna Convention). 27.12 This provision can be successfully used in the interpretation and application of any of the provisions of the ECT, except for the ones excluded by Article 28 of the ECT: ‘A dispute between Contracting Parties with respect to the application or interpretation of Article 5 or 29 shall not be settled under Article 27 unless the Contracting Parties parties to the dispute so agree.’ 27.13 Article 5 of the ECT refers to trade-related investment measures, while Article 29 concerns interim provisions on trade-related matters. Even so, the Contracting Parties in dispute may agree to submit these provisions to the mechanism of Article 27. 27.14 As such, Article 27 of the ECT can be used in respect of the provisions concerning the promotion or protection of Investors and their Investments, if a dispute as to the interpretation or application of these provisions arises between the Contracting Parties. It might be pertinent to envisage that, in the context of the judgment of the Court of Justice of the European Union in the Achmea case14 and of the numerous intra-EU ECT disputes submitted to arbitration, the EU and/or the EU Member States will make use of this mechanism at some stage in the future.15

13 14 15

Art. 31 of the Draft Treaty of 20 August 1991, accessed 13 March 2018. Judgment of the Grand Chamber of the Court of Justice of the European Union of 6 March 2018 in Case C-284/16, Slowakische Republik v. Achmea BV. One could also add Brexit to this list.

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The dispute resolution mechanism under Article 27 of the ECT offers the 27.15 option to the Contracting Parties to the ECT to settle their disputes concerning the application or interpretation of the provision of the ECT to the flexible mechanism of ad hoc arbitration. Nevertheless, before resorting to arbitration, the Contracting Parties must first attempt the amicable resolution of the dispute, through diplomatic channels. Unlike the corresponding provision in Article 26 of the ECT, Article 27 fails 27.16 to provide for the exact period of time under which the Contracting Parties should try to settle amicably. This is quite unusual, especially in the context of BITs, which do provide for a specific period of time in which the parties may attempt a settlement on the interpretation or application of the provisions of the ECT.16 It is sensible to conclude that where it is evident that there is no prospect of a 27.17 successful settlement of the dispute through diplomatic channels, the Contracting Parties should commence arbitration without delay. This conclusion is in line with the decisions of ECT arbitral tribunals in the corresponding cases concerning the cooling-off provision under Article 26(2) of the ECT. For example, in Al-Bahloul v. Tajikistan, the tribunal agreed with the approach that where the respondent did not react to the notice of arbitration sent by the claimant, the request of the arbitral tribunals to direct the claimant to comply with the cooling off provision would be an ‘unnecessary formality’.17 A similar position took the arbitral tribunal in Khan Resources v. Mongolia when it held that the claimants have ‘met the attempt at amicable settlement requirement of Article 26 [of the ECT]’.18 Article 27(2) of the ECT refers to a ‘reasonable period of time’, after which 27.18 the Contracting Parties can proceed with the other options offered under this dispute settlement mechanism. Again, the ECT does not contain an explanation as to what is considered to be ‘reasonable’, but one could argue that, in any case, it should not exceed the maximum period granted under other IIAs.19

16 17 18 19

For various examples of BITs, see Vandevelde, supra note 9, 500. Mohammad Ammar Al-Bahloul v. The Republic of Tajikistan, SCC Case No. V (064/2008), Partial Award on Jurisdiction and Liability of 2 September 2009, para. 154. Khan Resources Inc., Khan Resources B.V. and Cauc Holding Co Ltd. v. The Government of Mongolia and Monatom Co., Ltd., PCA Case No. 2011–09, Decision on Jurisdiction of 25 July 2012, para. 409. Usually of six months. See Vandevelde, supra note 9, 500.

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27.19 If the dispute could not be settled by negotiations, Article 27(2) refers the Contracting Parties to ad hoc arbitration. Article 27(2) contains two exceptions: (i) where the parties agreed in writing to proceed in another manner or where the ECT provides otherwise; and (ii) when the dispute concerns the application or interpretation of Article 6 (Competition) and Article 19 (Environmental Aspects)20 or, for the Contracting Parties listed in Annex IA to the ECT, the last sentence of Article 10(1).21 27.20 In order to commence the arbitration, either Contracting Party may submit the matter to an ad hoc arbitral tribunal upon written notice. There is no specific or mandatory requirement in Article 27 of the ECT as to this written notice. 27.21 The ad hoc arbitral tribunal shall be constituted by three members, one appointed by each Contracting Party and the President of the tribunal by the 20

Art. 27 excludes the disputes concerning the interpretation or application of Arts 6 and 19 since these two provisions already contain their specific dispute resolution mechanisms. Art. 6 of the ECT refers to the following: (5) If a Contracting Party considers that any specified anti-competitive conduct carried out within the Area of another Contracting Party is adversely affecting an important interest relevant to the purposes identified in this Article, the Contracting Party may notify the other Contracting Party and may request that its competition authorities initiate appropriate enforcement action. The notifying Contracting Party shall include in such notification sufficient information to permit the notified Contracting Party to identify the anti-competitive conduct that is the subject of the notification and shall include an offer of such further information and cooperation as the notifying Contracting Party is able to provide. The notified Contracting Party or, as the case may be, the relevant competition authorities may consult with the competition authorities of the notifying Contracting Party and shall accord full consideration to the request of the notifying Contracting Party in deciding whether or not to initiate enforcement action with respect to the alleged anti-competitive conduct identified in the notification. The notified Contracting Party shall inform the notifying Contracting Party of its decision or the decision of the relevant competition authorities and may if it wishes inform the notifying Contracting Party of the grounds for the decision. If enforcement action is initiated, the notified Contracting Party shall advise the notifying Contracting Party of its outcome and, to the extent possible, of any significant interim development. (7) The procedures set forth in paragraph (5) and Article 27(1) shall be the exclusive means within this Treaty of resolving any disputes that may arise over the implementation or interpretation of this Article. Art. 19(2) of the ECT provides that, At the request of one or more Contracting Parties, disputes concerning the application or interpretation of provisions of this Article shall, to the extent that arrangements for the consideration of such disputes do not exist in other appropriate international fora, be reviewed by the Charter Conference aiming at a solution.

21

The Contracting Parties listed in Annex IA to the ECT (Australia, Canada, Hungary and Norway; whereas Australia, Canada and Norway are not currently Contracting Parties to the ECT) do not give their unconditional consent with respect to disputes arising out of the last sentence of Art. 10(1) of the ECT. Art. 10(1) of the ECT refers to the following umbrella clause: ‘Each Contracting Party shall observe any obligations it has entered into with an Investor or an Investment of an Investor of any other Contracting Party.’

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agreement of the Contracting Parties in dispute. If the responding Contracting Party fails to appoint its arbitrators or if the Contracting Parties fail to agree on the President of the ad hoc tribunal, the appointing authority shall be the Secretary-General of the Permanent Court of International Arbitration. The presiding arbitrator may not be a citizen or a national of a Contracting Party in the dispute. This latter provision is common in other treaties, including under the ICSID Convention where Article 39 provides that the ‘majority of the arbitrators shall be nationals of States other than the Contracting State party to the dispute and the Contracting State whose national is a party to the dispute’.22 The appointments of the arbitrators shall be made in consideration of the qualifications and experience of the individuals, in particular on matters covered by the ECT. The rules applicable to the ad hoc arbitration under Article 27 of the ECT shall 27.22 be the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL). Having designated the applicable arbitration rules, on all matters not covered by Article 27, such as the incapacity of an arbitrator, as well as the actual procedure to be followed, the UNCITRAL Rules shall provide the adequate answer. The place of arbitration, as referred to in Article 27(3)(k), shall be The Hague, with all the consequences deriving from this designation. Mirroring the provision under Article 26(6), Article 27(3)(g) provides that the 27.23 arbitral tribunal shall decide the dispute in accordance with provisions of the ECT and applicable rules and principles of international law. The arbitral award shall be final and binding upon the Contracting Parties in 27.24 the dispute and the expenses and the remuneration of the arbitrators shall be borne in equal shares by the Contracting Parties in dispute, but with the tribunal discretion in ordering a higher share of the costs to be paid by one of the Contracting Parties. Up to this date, there is no official record of the Article 27 being resorted to by 27.25 the Contracting Parties to the ECT. However, it is likely that the future will

22

See also this requirement in the context of the BITs, Art. 11(1) of the Mexico-The Netherlands BIT, entered into force on 1 October 1999: ‘Each Contracting Party shall appoint one arbitrator and the two arbitrators thus appointed shall together appoint a third arbitrator as their chairman who is not a national of either Contracting Party.’

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bring complex situations where the Contracting Parties to the ECT will take advantage of the benefits of the provisions of Article 27 in any dispute arising out of the interpretation and application of the ECT.

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ARTICLE 28 EXCLUSION OF CERTAIN PROVISIONS OF THE ECT FROM THE SETTLEMENT OF DISPUTES BETWEEN CONTRACTING PARTIES Crina Baltag

A dispute between Contracting Parties with respect to the application or interpretation of Article 5 or 29 shall not be settled under Article 27 unless the Contracting Parties parties to the dispute so agree.

COMMENTARY Article 28 of the ECT limits the scope of the dispute settlement provision 28.01 under Article 27, by excluding Articles 5 and 29 of the ECT. Nevertheless, the restriction can be lifted if the Contracting Parties in a dispute under Article 27 of the ECT so agree. There is no formality provided for this agreement of the parties. Article 5 of the ECT concerns trade-related investment measures and, in a 28.02 nutshell, prohibits the Contracting Parties to the ECT from applying any trade-related investment measures which are inconsistent with the provisions of Articles III or XI of the GATT, without prejudice to the Contracting Party’s rights under the WTO and Article 29 of the ECT. Article 29 of the ECT concerns interim provisions on trade-related matters, while a Contracting Party to the ECT is not a member of the WTO. The drafting history of the ECT explains why the trade exception was included as an exclusion from Article 27 of the ECT. As explained in the Note to Article 33 (the now Article 27 to the ECT) of the Basic Agreement of 31 October 1991:

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Where a dispute arises between GATT members or parties to a GATT-related instrument in circumstances where GATT or such instruments overrides the Agreement [the ECT] then the dispute must be settled according to the procedures of GATT or the instrument in question. This is to prevent both forum-shopping and the possibility of parallel jurisprudence being developed in GATT areas. This leaves open the possibility of different jurisprudence arising from GATT member/GATT member disputes as compared with GATT member/non-GATT member disputes but there is no way of avoiding this until all Parties to the Agreement are GATT members. There is also the question of differential in the membership of GATT-related instruments: it is conceivable that a dispute may arise in the GATT area which is provided for in a related instrument between two parties to GATT which are not both also parties to the instrument. In such circumstances the dispute could be settled under Article 33 of the Agreement [now Article 27 of the ECT] until such time as a general dispute resolution mechanism is agreed for GATT; this is under discussion in the Uruguay Round.1

28.03 The original wording of Article 28 was featured as a paragraph of Article 33 in the Basic Agreement of 31 October 1991: (3) Subject to paragraph (4) below, in the event of a dispute between Contracting Parties who are also parties to the GATT or a GATT-related instrument, which could also be brought under the provision of the GATT or the GATT-related instrument concerned, the parties to the dispute shall, without prejudice to the initial application of paragraph (1) above, settle the dispute according to the procedures provided for in the GATT or the GATT-related instrument concerned. (4) In the event of a dispute arising in relation to any of the matters referred to in Article 14 such dispute shall be dealt with as specified in Article 14 and not under this Article regardless of whether or not the parties to the dispute are also members of the GATT.2

28.04 Before settling to the final wording of Article 28 of the ECT, the provision was first included as a separate article in the Basic Agreement of 21 December 1992 as follows: A dispute between Contracting Parties concerning the application of provisions of the GATT or a related instrument referred to under Article 5 of this Agreement may be settled in the GATT and shall not be settled under Article 24 [now Article 27 of the ECT].3

1 2 3

Basic Agreement of 31 October 1991, accessed 14 March 2018, emphasis added. Art. 33(3) and (4) of the Basic Agreement of 31 October 1991. Art. 14 of the same Basic Agreement referred to ‘Unfair Trade and Subsidisation’, the correspondent of the now Art. 5 of the ECT. Art. 24BIS of the Basic Agreement of 21 December 1992, available at accessed 14 March 2018.

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Part VI TRANSITIONAL PROVISIONS

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ARTICLE 29 INTERIM PROVISIONS ON TRADE-RELATED MATTERS Max Baumgart

(1)

(2)

(3)

The provisions of this Article shall apply to trade in Energy Materials and Products and Energy-Related Equipment while any Contracting Party is not a member of the WTO. (a) Trade in Energy Materials and Products and Energy-Related Equipment between Contracting Parties at least one of which is not a member of the WTO shall be governed, subject to subparagraph (b) and to the exceptions and rules provided for in Annex W, by the provisions of the WTO Agreement, as applied and practised with regard to Energy Materials and Products and Energy-Related Equipment by members of the WTO among themselves, as if all Contracting Parties were members of the WTO. (b) Such trade of a Contracting Party which is a state that was a constituent part of the former Union of Soviet Socialist Republics may instead be governed, subject to the provisions of Annex TFU, by an agreement between two or more such states, until 1 December 1999 or the admission of that Contracting Party to the WTO, whichever is the earlier. (a) Each signatory to this Treaty, and each state or Regional Economic Integration Organization acceding to this Treaty before 24 April 1998, shall on the date of its signature or of its deposit of its instrument of accession provide to the Secretariat a list of all customs duties and charges of any kind imposed on or in connection with importation or exportation of Energy Materials and Products, notifying the level of such customs duties and charges applied on such date of signature or deposit. Each signatory to this Treaty, and each state or Regional Economic Integration Organization acceding to this Treaty before 24 April 1998, shall on that 374

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(4)

(5)

date provide to the Secretariat a list of all customs duties and charges of any kind imposed on or in connection with importation or exportation of Energy-Related Equipment, notifying the level of such customs duties and charges applied on that date. (b) Each state or Regional Economic Integration Organization acceding to this Treaty on or after 24 April 1998, shall, on the date of its deposit of its instrument of accession, provide to the Secretariat a list of all customs duties and charges of any kind imposed on or in connection with importation or exportation of Energy Materials and Products and Energy-Related Equipment, notifying the level of such customs duties and charges applied on such date of deposit. Any changes to such customs duties or charges of any kind imposed on or in connection with importation or exportation shall be notified to the Secretariat, which shall inform the Contracting Parties of such changes. Each Contracting Party shall endeavour not to increase any customs duty or charge of any kind imposed on or in connection with importation or exportation: (a) in the case of the importation of Energy Materials and Products listed in Annex EM I or Energy-Related Equipment listed in Annex EQ I and described in Part I of the Schedule relating to the Contracting Party referred to in article II of the GATT 1994, above the level set forth in that Schedule, if the Contracting Party is a member of the WTO; (b) in the case of the exportation of Energy Materials and Products listed in Annex EM I or Energy-Related Equipment listed in Annex EQ I, and that of their importation if the Contracting Party is not a member of the WTO, above the level most recently notified to the Secretariat, except as permitted by the provisions made applicable by subparagraph (2)(a). A Contracting Party may increase such customs duty or other charge above the level referred to in paragraph (4) only if: (a) in case of a customs duty or other charge imposed on or in connection with importation, such action is not inconsistent with the applicable provisions of the WTO Agreement, other than those provisions of the WTO Agreement listed in Annex W; or (b) it has, to the fullest extent practicable under its legislative procedures, notified the Secretariat of its proposal for such an increase, given other interested Contracting Parties reasonable opportunity for consultation with respect to its proposal, and accorded consideration to any representations from such Contracting Parties. 375

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(6)

(7)

(8)

(9)

In respect of trade between Contracting Parties at least one of which is not a member of the WTO, no such Contracting Party shall increase any customs duty or charge of any kind imposed on or in connection with importation or exportation of Energy Materials and Products listed in Annex EM II or Energy-Related Equipment listed in Annex EQ II above the lowest of the levels applied on the date of the decision by the Charter Conference to list the particular item in the relevant Annex. A Contracting Party may increase such customs duty or other charge above that level only if: (a) in case of a customs duty or other charge imposed on or in connection with importation, such action is not inconsistent with the applicable provisions of the WTO Agreement, other than those provisions of the WTO Agreement listed in Annex W; or (b) in exceptional circumstances not elsewhere provided for in this Treaty, the Charter Conference decides to waive the obligation otherwise imposed on a Contracting Party by this paragraph, consenting to an increase in a customs duty, subject to any conditions the Charter Conference may impose. Notwithstanding paragraph (6), in the case of trade referred to in that paragraph, Contracting Parties listed in Annex BR in respect of Energy Materials and Products listed in Annex EM II, or in Annex BRQ in respect of Energy-Related Equipment listed in Annex EQ II, shall not increase any customs duty or other charge above the level resulting from their commitments or any provisions applicable to them under the WTO Agreement. Other duties and charges imposed on or in connection with importation or exportation of Energy Materials and Products or EnergyRelated Equipment shall be subject to the provisions of the Understanding on the Interpretation of Article II: 1(b) of the GATT 1994 as modified according to Annex W. ANNEX D shall apply: (a) to disputes regarding compliance with provisions applicable to trade under this Article; (b) to disputes regarding the application by a Contracting Party of any measure, whether or not it conflicts with the provisions of this Article, which is considered by another Contracting Party to nullify or impair any benefit accruing to it directly or indirectly under this Article; and

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(c) unless the Contracting Parties parties to the dispute agree otherwise, to disputes regarding compliance with Article 5 between Contracting Parties at least one of which is not a member of the WTO, except that Annex D shall not apply to any dispute between Contracting Parties, the substance of which arises under an agreement that: (i) has been notified in accordance with and meets the other requirements of sub-paragraph (2)(b) and Annex TFU; or (ii) establishes a free-trade area or a customs union as described in article XXIV of the GATT 1994.

COMMENTARY A. Introduction Article 29 ECT incorporates essential rights and obligations from the WTO 29.01 agreement into the Energy Charter Treaty. The provision aims to: extend the benefits, but also the obligations, of WTO Membership to the energy sector of those ECT Contracting Parties, who are not yet in the WTO. In practice this extension means that trade in the energy sector between WTO and non-WTO Members and among non-WTO Members is treated as if all were Members of the WTO.1

Therefore, Article 29 ECT creates a system in which every Contracting Party of the ECT is treated equally in matters relating to Trade in Energy Materials and Products as well as Energy-Related Equipment. The provision is part of the ECT’s transitional provisions and specifically covers trade-related matters in those circumstances in which at least one Contracting Party is not a member of the WTO. To date, only Azerbaijan, Belarus,2 Bosnia and Herzegovina, Turkmenistan and Uzbekistan are parties to the ECT, but not to the WTO Agreement. However, with the exception of Turkmenistan, these countries have at least an observer status in the WTO.3

1

2 3

The Trade Amendment (TA) of the Energy Charter Treaty (ECT) Explained to Decision-makers of ratifying countries (‘TA Explanatory Note’), section 2 (Accentuations supressed). Cp. also the commentary on Arts 30–33. Belarus has not yet ratified the ECT, but is applying it provisionally, cp. https://energycharter.org/process/ energy-charter-treaty-1994/energy-charter-treaty/signatories-contracting-parties/ (accessed 18 March 2018). Cp. https://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm (accessed 18 March 2018).

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29.02 Article 29 ECT was amended by Article 1 of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty (The Trade Amendment). The Trade Amendment was adopted within the framework of the International Conference of 24 April 1998 and was included in Annex 1 of the International Conference’s Final Act.4 The Trade Amendment entered into force on 21 January 2010.5 In contrast to its earlier version, the amended Article 29 ECT covers not only Energy Materials and Products, but also Energy-Related Equipment; moreover, the references to the GATT 1947 were replaced by references to the WTO agreement, and a stand still clause was introduced.6 B. Temporal scope of application (para 1) 29.03 Article 29 ECT applies ‘while any Contracting Party is not a member of the WTO’. 29.04 The former version of this provision made reference to the GATT 1947 and not to the WTO. This wording gave rise to some debate: After the conclusion of the Marrakesh Agreement, the question arose as to whether the reference to GATT 1947 could be read as a reference to the WTO.7 The amendment of Article 29 ECT solved any possible doubt in this regard. C. Incorporation of the WTO Agreement’s rights and obligations (para 2) 29.05 Article 29(2)(a) ECT incorporates the rights and obligations set forth by the WTO Agreement into the ECT.8 The provision applies to ‘Trade in Energy Materials and Products and Energy-Related Equipment’. An explicit definition of the covered matter can be found in the ECT’s Annex EM I and EQ I.9 29.06 In general, Article 29(2)(a) ECT declares that the provisions of the WTO Agreement are also applicable to ECT Contracting Parties that are not parties of the WTO; these provisions apply ‘as if all Contracting Parties were members of the WTO’.10 Non-applicable provisions of the WTO agreement 4 5 6 7 8 9 10

Cp. The Energy Charter Treaty, Trade Amendment and Related Documents, https://www.italaw.com/sites/ default/files/laws/italaw6101%2812%29.pdf (accessed 18 March 2018), 143. TA Explanatory Note, section 1. For further details, see the commentary on Arts 30–33. Cp. TA Explanatory Note, s 3. Ingrid Frasl, The Trade Rules of GATT and Related Instruments and the Energy Charter Treaty, in Thomas W. Wälde (ed) The Energy Charter Treaty. An East-West Gateway for Investment and Trade, 465 f. (1996). Cp. ibid., 466 ff. (referring to the former version of Art. 29 ECT). TA Explanatory Note, ss 2 and 3.2. For more details, see Frasl (n 7), 466 ff. (referring to the former version of Art. 29 ECT).

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are listed in Annex W to the ECT. In contrast to its former version, Article 29(2)(a) ECT now also introduces rights and obligations to energy-related trade among non-WTO Members. The previous Article 29(2)(c) ECT provided that ‘[a]s concerns trade between any two parties to the GATT, subparagraph (a) shall not apply if either of those parties is not a party to GATT 1947’. This sentence was left out of the amended version of Article 29(2) ECT. Overall, this incorporation of WTO rules has the effect of incorporating three 29.07 fundamental principles from international trade law into the ECT framework: the most-favoured-nation treatment, the national treatment and the elimination of quantitative restrictions.11 These principles do not however apply in absolute terms.12 For instance, the GATT general exceptions (GATT Article XX) are also applicable in this context. However, the rights and obligations set forth by the WTO Agreement are not 29.08 incorporated in every situation: Article 29(2)(b) ECT contains an exception for those Contracting Parties that were ‘a constituent part of the former Union of Soviet Socialist Republics’.13 D. Full transparency obligation (para 3) Article 29(3) ECT requires every Contracting Party to provide important 29.09 trade-related information. With it, the ECT introduces an obligation for the Contracting Parties to ensure full transparency on the concerned matters,14 which clearly supports the application of the most-favoured-nation treatment obligation incorporated through Article 29(2)(a) ECT.15 Article 29(3) ECT distinguishes two different types of duties: those before the 29.10 amendment of Article 29 ECT on 24 April 1998 and those introduced on or after 24 April 1998. The reason is that the scope of application of Article 29 ECT was expanded with the Amendment to the Trade-Related Provisions of the ECT to Energy-Related Equipment.16

11 12 13 14 15 16

TA Explanatory Note, s 2. Cp. also ibid. For more details, see Frasl (n 7), 467 f. (referring to the former version of Art. 29(2) ECT). Cp. ibid., 475 (referring to the former version of Art. 29(3) ECT). Cp. ibid (referring to the former version of Art. 29(3) ECT). See above.

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E. Best-endeavour commitment (paras 4 and 5) 29.11 Articles 29(4) and (5) ECT refer to situations where a Contracting Party is allowed to increase customs duties or charges of any kind imposed on or in connection with importation or exportation. Article 29(4) ECT establishes a commitment of the ECT’s Contracting Parties not to increase their energyrelated tariffs beyond a specific level.17 Nevertheless, if a Contracting party fulfils the requirements of Article 29(5) ECT, these energy-related tariffs mentioned in Article 29(4) ECT can still be raised beyond the referred level.18 These requirements are mainly an advance notification of tariff increases to the ECT Secretariat and the grant of possible consultations. Therefore, Article 29(4) ECT only consists of a so-called ‘“soft-law” or “best-endeavour” commitment’,19 which is accompanied by the option to come to a legally binding commitment in Articles 29(6) and (7) ECT.20 F. Stand still clause (paras 6, 7 and 8) 29.12 Article 29(6) ECT aims at giving the Energy Charter Conference the ‘[p]ossibility […] to progressively replace the soft law customs tariffs pledges by a binding customs duty standstill regime’.21 It contains a stand still clause for items that are specified in Annexes EM II or EQ II. The provision has to be seen as a compromise: in the negotiations of the Trade Amendment no consensus was reached for replacing the best-endeavour commitment already with a legally binding system.22 29.13 The stand still clause applies to all items listed in Annexes EM II or EQ II. To change Annex EM II or EQ II, unanimity among the Contracting Parties at the Energy Charter Conference has to be reached (Art 36(1)(g) ECT).23 In this context, the Final Act in respect of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty, Understanding 3 states: ‘The Charter Conference shall conduct an annual review with respect to any possibility of moving items of Energy Materials and Products or EnergyRelated Equipment from Annexes EM I or EQ I to Annexes EM II or EQ II.’ 17 18 19 20 21 22 23

TA Explanatory Note, s 2. For further details, see Frasl (n 7), 459, 476 f. (referring to the former version of Art. 29(5) ECT). TA Explanatory Note, s 2. The Energy Charter Treaty, Trade Amendment and Related Documents, https://www.italaw.com/sites/ default/files/laws/italaw6101%2812%29.pdf (accessed 18 March 2018), 141. TA Explanatory Note, s 3 (Accentuations suppressed). Cp. also the commentary on Arts 30–33 ECT. TA Explanatory Note, s 3.3. Cp. for more details TA Explanatory Note, s 3.3. Cp. also Art. 34(1)(o) ECT.

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The previous version of Article 29(6) ECT established a time frame for 29.14 negotiations between the signatories in view of the expected changes in the world trading system.24 As these neogitations led to the Amendment to the Trade-Related Provisions of the ECT and the amendment of Article 29 ECT itself, the previous version of Article 29(6) ECT was consequently removed. Article 29(7) ECT allows a Contracting Party to opt-out from a general stand 29.15 still clause for all Contracting Parties.25 It can request to be put onto Annex BR or BRQ to only be obliged to ‘not increase any customs duty or other charge above the level resulting from their commitments or any provisions applicable to them under the WTO Agreement’. According to 34(3)(n) ECT, it is the Energy Charter Conference that ‘approve[s] the listing of signatories in Annexes BR or BRQ or in both these Annexes’. Article 29(8) ECT complements the legal framework for the trade of energy- 29.16 related items by introducing another transparency obligation. In regard to ‘other duties and charges’, it refers to ‘the provisions of the Understanding on the Interpretation of Article II: 1(b) of the GATT 1994 as modified according to Annex W’. More specifically, these modifications can be found in Annex W(B)(5), while the Understanding on the Interpretation of Article II: 1(b) of the GATT 1994 only applies without its sections 2, 4, 6 and 8.26 According to Annex W(B)(5)(ii), the provisions of the Understanding on the Interpretation of Article II: 1(b) of the GATT 1994 shall apply in respect of all items listed in the Annexes EM II and EQ II. G. Dispute settlement (para 9) Article 29(9) ECT finally states in which cases Annex D of the ECT shall 29.17 apply. Annex D contains a dispute settlement system that can be described as a ‘unitary State-to-State dispute settlement mechanism’.27 In the former Article 29 ECT, para 7 contained a similar dispute settlement 29.18 provision.

24 25 26

27

Frasl (n 7), 477. Cp. TA Explanatory Note, s 3. See in this context also Decision 1 in Connection with the Adoption of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty (Annex 2 to the Final Act). See Annex W(A)(1)(a)(i) and Annex W(B)(5): ‘The applicable provisions of the Understanding on the Interpretation of Article II:1(b) of the GATT 1994 shall, without prejudice to Article 29(4), (5) or (7), apply with the following modifications.’ Frasl (n 7), 477.

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ARTICLE 30 DEVELOPMENTS IN INTERNATIONAL TRADING ARRANGEMENTS Silke Goldberg, Naomi Lisney and Anne Eckenroth

Contracting Parties undertake that in the light of the results of the Uruguay Round of Multilateral Trade Negotiations embodied principally in the Final Act thereof done at Marrakesh, 15 April 1994, they will commence consideration not later than 1 July 1995 or the entry into force of this Treaty, whichever is the later, of appropriate amendments to this Treaty with a view to the adoption of any such amendments by the Charter Conference.

COMMENTARY 30.01 The discussion in the following four chapters covers Articles 30–33 of the Energy Charter Treaty (ECT) and reflects some of the key challenges faced by the ECT over the years. 30.02 While the language of Articles 30–33 prima facie seems to deal with procedural and transitional issues and future amendments of the ECT, they do in fact prepare the ground for a series of future ECT related protocols which widen the scope of the ECT and its application in the context of international law: +

The Trade Amendment. Articles 30 and 31 reflect the fact that it was already clear in 1994 that the ECT would need to be amended soon, not only to adapt the ECT to the World Trade Organization (WTO) system, but also to ensure that it remained relevant to the entire energy sector. The amendments envisaged in Articles 30 and 31 were subsequently implemented through the Amendment to the Trade-Related Provisions of the ECT (the ‘Trade Amendment’). 382

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+

+

Transitional Arrangements: Article 32 relates to transitional arrangements that gave some of the member states in Central and Eastern Europe and the former USSR additional time to adapt their economies to the market system before they would have to comply in full with certain of their ECT obligations. Energy Charter Protocols and Declarations. Article 33 allows for the negotiation of Protocols and Declarations to pursue the objectives and principles of the European Energy Charter (the ‘Charter’). To date, only one Protocol has been adopted: the Protocol on Energy Efficiency and Related Environmental Aspects (‘PEEREA’), which is considered to have been key in maintaining international focus on and momentum of energy efficiency policies. On the other hand, negotiations on the salient issue of transit have failed to result in a Protocol.

The Trade Amendment was adopted by the ECT member states on 24 April 30.03 1998, and entered into force on 21 January 2010 following ratification by 35 ECT member states.1 It added three new elements to the ECT, mainly through modification to the ECT Annexes. One was the introduction, under the amended Article 29(6), of a mechanism for introducing in future a legally-binding standstill on customs duties. The other two elements were envisaged by the drafters of the ECT in Articles 30 and 31, as discussed below in this chapter. When the ECT was concluded in 1994, the Marrakesh Agreement establish- 30.04 ing the WTO was not yet in force. As a result, the ECT initially incorporated only the pre-WTO rules of the multilateral trading system, based on the General Agreement on Tariffs and Trade of 1947 (GATT). The drafters of the ECT already envisaged, however, that the ECT would 30.05 need to be adapted to the new WTO system in due course, and mandated negotiations to this effect in Article 30.2 The Trade Amendment accordingly reflected the relevant changes in the multilateral trade rules resulting from the establishment of the WTO following the Uruguay Round of negotiations. The stated purpose of the amended ECT trade regime3 is to extend the 30.06 benefits, but also the obligations, of WTO membership to the energy sector of those ECT member states, who are not yet in the WTO. Kazakhstan having 1 2 3

In accordance with ECT Arts 42 and 44. The Trade Amendment of the ECT Explained to Decision-makers of ratifying countries (TA Explanatory Note, s 3.1. TA Explanatory Note, s 2.

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become the 162nd WTO member on 30 November 2015, there remain at the date of publication five ECT member states which are not WTO members. Of these, only Turkmenistan has not been granted observer status by the WTO; the others (Azerbaijan, Belarus, Bosnia and Herzegovina and Uzbekistan) are at varying stages of the WTO accession negotiation process.4 30.07 While the technical adaptations of the ECT trade regime from GATT to WTO involved detailed changes in the wording of Annexes,5 there were in reality only minimal changes of material scope.6

4 5

6

See the WTO accessions page of the WTO website for details of each country's accession negotiations, available at: https://www.wto.org/english/thewto_e/acc_e/acc_e.htm last accessed 14 July 2018. The Annexes to the ECT use the product nomenclature developed by the World Customs Organization: the ‘Harmonized Commodity Description and Coding System’ generally referred to as ‘Harmonized System’ or simply ‘HS’. TA Explanatory Note, s 2.

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ARTICLE 31 ENERGY-RELATED EQUIPMENT Silke Goldberg, Naomi Lisney and Anne Eckenroth

The provisional Charter Conference shall at its first meeting commence examination of the inclusion of energy-related equipment in the trade provisions of this Treaty.

COMMENTARY Originally, the trade-related provisions of the Energy Charter Treaty (ECT) 31.01 applied only to trade in energy materials and products, such as fossil fuels (coal, natural gas and petroleum) and other forms of fuels such as nuclear energy, electricity, fuel wood and charcoal;1 however, Article 31 required that the provisional Charter Conference commence, at its very first meeting, examination of the inclusion of energy-related equipment in these provisions. The Amendment to the Trade-Related Provisions of the ECT (the Trade 31.02 Amendment) extended the scope of the ECT to cover the long list of energy-related equipment now set out at Annex EQ I of the ECT, including a great variety of industrial products used in the energy sector. This covered items such as pipelines, electric cables and towers, drilling platforms, nuclear reactors, and certain types of motor vehicles, but also many items vital to green energy investments, for example: parts for boilers for the production of heat and power on the basis of biomass fuels;2 turbines designed for the production of geothermal energy and co-generation (CHP);3 solar water heaters, and evaporators and dryers for water and waste water treatment;4 wind-powered

1 2 3 4

See Annex EM of the original ECT, renumbered Annex EM I, for the list of ‘Energy Materials and Products’. See 84.02 and 84.04, using the HS 2012 nomenclature; supra. See 84.06. See 84.19.

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electric generating equipment;5 and photosensitive semiconductor devices including photovoltaic cells.6 31.03 With the Trade Amendment, the ECT member states were agreeing to the removal of barriers to trade in, and the development of an open and competitive market for, all such items, and promoting emerging economies' access to environmental technologies, amongst others. The ECT now states that member states are: [d]etermined progressively to remove technical, administrative and other barriers to trade in Energy Materials and Products and Energy-Related Equipment, technologies and services (Preamble), and that they shall work to promote access to international markets on commercial terms, and generally to develop an open and competitive market for, Energy Materials and Products and Energy-Related Equipment (Art 3).

31.04 The inclusion of energy-related equipment in the scope of the ECT was an important step in assisting the promotion of new and renewable energies and clean technologies in line with the commitments contained in the European Energy Charter, by facilitating the transfer of technology in particular.7 Given the increasing role of clean technologies in the energy sector, it is clear that the inclusion in the scope of the ECT of energy-related equipment has played a crucial part in ensuring that the ECT remains relevant to the entire energy sector.

5 6 7

See 85.02. See 85.41. European Energy Charter Title I: Objectives, item 3. The importance of access to sustainable, modern, affordable and cleaner energy, in particular in developing countries, was further emphasised in the International Energy Charter, which was adopted in May 2015 as an update to the Charter.

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ARTICLE 32 TRANSITIONAL ARRANGEMENTS Silke Goldberg, Naomi Lisney and Anne Eckenroth

(1)

(2)

(3)

In recognition of the need for time to adapt to the requirements of a market economy, a Contracting Party listed in Annex T may temporarily suspend full compliance with its obligations under one or more of the following provisions of this Treaty, subject to the conditions in paragraphs (3) to (6): Article 6(2) and (5) Article 7(4) Article 9(1) Article 10(7) specific measures Article 14(1)(d) related only to transfer of unspent earnings Article 20(3) Article 22(1) and (3) Other Contracting Parties shall assist any Contracting Party which has suspended full compliance under paragraph (1) to achieve the conditions under which such suspension can be terminated. This assistance may be given in whatever form the other Contracting Parties consider most effective to respond to the needs notified under subparagraph (4)(c) including, where appropriate, through bilateral or multilateral arrangements. The applicable provisions, the stages towards full implementation of each, the measures to be taken and the date or, exceptionally, contingent event, by which each stage shall be completed and measure taken are listed in Annex T for each Contracting Party claiming transitional arrangements. Each such Contracting Party shall take the measure listed by the date indicated for the relevant provision and stage as set out in Annex T. Contracting Parties which have temporarily suspended full compliance under paragraph (1) undertake to comply fully with the relevant obligations by 1 July 2001. Should a Contracting Party find it necessary, due to exceptional circumstances, to request that the period of such temporary suspension be extended or that any 387

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(4)

(5)

(6)

further temporary suspension not previously listed in Annex T be introduced, the decision on a request to amend Annex T shall be made by the Charter Conference. A Contracting Party which has invoked transitional arrangements shall notify the Secretariat no less often than once every 12 months: (a) of the implementation of any measures listed in its Annex T and of its general progress to full compliance; (b) of the progress it expects to make during the next 12 months towards full compliance with its obligations, of any problem it foresees and of its proposals for dealing with that problem; (c) of the need for technical assistance to facilitate completion of the stages set out in Annex T as necessary for the full implementation of this Treaty, or to deal with any problem notified pursuant to subparagraph (b) as well as to promote other necessary marketoriented reforms and modernisation of its energy sector; (d) of any possible need to make a request of the kind referred to in paragraph (3). The Secretariat shall: (a) circulate to all Contracting Parties the notifications referred to in paragraph (4); (b) circulate and actively promote, relying where appropriate on arrangements existing within other international organisations, the matching of needs for and offers of technical assistance referred to in paragraph (2) and subparagraph (4)(c); (c) circulate to all Contracting Parties at the end of each six month period a summary of any notifications made under subparagraph (4)(a) or (d). The Charter Conference shall annually review the progress by Contracting Parties towards implementation of the provisions of this Article and the matching of needs and offers of technical assistance referred to in paragraph (2) and subparagraph (4)(c). In the course of that review it may decide to take appropriate action.

COMMENTARY 32.01 When the European Energy Charter (the Charter) was adopted in 1991, the signatories recognised that some States in Central and Eastern Europe and the former USSR faced specific circumstances, and would need to adapt their

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economies to the market system before being able to implement in full certain provisions of the Charter, the Energy Charter Treaty (ECT), and related Protocols.1 Article 32(1) of the ECT accordingly entitled certain countries temporarily to 32.02 suspend full compliance with their obligations under specified provisions of the ECT. The 24 countries entitled to negotiate such transitional arrangements were listed in Annex T to the ECT,2 together with the relevant provisions, the stages towards full implementation of each, the measures to be taken and the date or, exceptionally, contingent event, by which each stage was to be completed and measures taken for each country.3 The countries benefitting from transitional arrangements were required to 32.03 provide the Secretariat with a progress update at least once per year, and the Charter Conference was to review such progress towards implementation of the relevant ECT provisions annually. The relevant countries were also required to notify the Secretariat if they required technical assistance in respect of such implementation. A. Review of the transitional arrangements The exceptions actually claimed by the eligible countries were very modest, 32.04 and the Charter Conference, in its annual progress reviews conducted in accordance with Article 32(6), noted that overall progress towards elimination of non-complying measures was faster than originally envisaged under the ECT. Many countries that had transitional periods to bring their laws into conformity with the relevant ECT provisions in fact did so before the deadlines prescribed in Annex T. Only Armenia requested, and was granted, an extension of its transitional arrangements, for both Articles 6(5) and 20(3).4 The principal exception claimed under Article 32 was from the ECT's 32.05 requirement under Article 20(3) that Member States establish ‘official enquiry points' to which investors can address requests for information about laws and regulations affecting trade in energy materials and products or energy-related equipment. In its conclusions adopted on 23 and 24 April 1998,5 the 1 2 3 4

5

European Energy Charter, Title II: Specific Agreements. ECT Annex T. In accordance with ECT Art 32(3). See the Decisions of the Energy Charter Conference concerning Transitional Arrangements dated 8 July 1997 (CCDEC 1997 4 GEN), 23–24 April 1998 (CCDEC 1998 3 GEN), 3–4 December 1998 (CCDEC 1998 13 GEN) and 7 December 1999 (CCDEC 1999 9 GEN). See CCDEC 1998 3 GEN, ibid.

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Conference noted that Armenia, Azerbaijan, Belarus and Kazakhstan had requested technical assistance in relation to this, and asked the Secretariat to investigate with appropriate parties the possibilities of technical and financial assistance for these countries, and possible Tajikistan, regarding the establishment of these enquiry points. 32.06 On 9 November 1998, there was a detailed review of all outstanding transitional suspensions. The stated aim was to discuss the status of the phase-outs, identify potential obstacles and discuss the need and options for technical assistance. The review meeting made certain recommendations to Bosnia and Herzegovina, Bulgaria, Uzbekistan, Turkmenistan and Russia.6 32.07 The most important conclusion from the following review session, on 8 November 1999, was that outstanding transitional suspensions, except for the Bulgarian one on Article 10(7), had either very limited impact on business in the energy sector or that compliance with the relevant provisions of the ECT had been achieved. This concluded the examination of transitional arrangements.7 The last transitional arrangements in place, which were phased out on 1 July 2001, were in relation to Article 6(2) for Turkmenistan, Articles 7(4) and 10(7) for Bulgaria, and Article 20(3) for Kazakhstan and Russia.8 32.08 It is, of course, necessary to maintain a certain degree of scepticism in respect of these glowing progress reports. With the termination of the transitional arrangements, however, comes the obligation to be fully compliant with the relevant ECT obligations, and the corresponding protection for investors from other ECT member states. B. The AES Corporation and Tau Power B.V. v. Republic of Kazakhstan (ICSID Case No. ARB/10/16) 32.09 Under Article 32 and Annex T, Kazakhstan benefitted from a transitional suspension in respect of Articles 6(2) and 6(5), which respectively contain: (1) obligations to have and enforce laws as are necessary and appropriate to address anti-competitive conduct in the energy sector; and (2) a procedure for the notification by one ECT Member State to another, to request the initiation of enforcement action with respect to alleged anti-competitive conduct.

6 7 8

Ibid. See CCDEC 1999 9 GEN, supra note 4. In accordance with ECT Art 32(3).

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The description of Kazakhstan's requirement of transitional arrangements in 32.10 respect of these obligations, in Annex T, noted in respect of Article 6(2) that, while Kazakhstan had adopted a law on Development of Competition and Restriction of Monopolistic Activities on 11 June 1991, this was of a general nature; it would be necessary to develop the legislation further, by adopting relevant amendments or adopting a new law. In respect of Article 6(5), it was noted that an Anti-Monopoly Committee had been established in Kazakhstan, but that its activity needed improvement, from both legislative and organisational points of view, in order to elaborate an effective mechanism for handing complaints of anti-competitive conduct.9 Kazakhstan was subsequently able to rely on these provisions of Article 32 and 32.11 Annex T of the ECT in its defence to claims brought against it in an ICSID arbitration commenced in 2010 by US energy company AES and its Swiss subsidiary Tau Power B.V. (hereafter, ‘AES’ is used to refer to both claimants) that reforms to Kazakhstan's competition laws between 2000 and 2009 breached the Fair and Equitable Treatment (FET) Standard under Article 10(1) of the ECT by failing to respect AES's legitimate expectations. Kazakhstan's arguments in defence to these included that, in light of its ECT 32.12 obligations, in particular under Article 6 read together with Article 32, it was required to undertake a wholesale overhaul of its Soviet-era competition legislation and the mechanisms of enforcement, and AES had to expect that this would be done by no later than 1 January 1998, and in any case by 1 July 2001. The changes made to Kazakhstan's competition law regime were thus envisaged by the ECT, and would and should have been anticipated by AES at the time of conclusion of its investment agreement with Kazakhstan.10 In its award of 1 November 2013,11 the tribunal agreed that Kazakhstan's 32.13 obligations under Article 32 and Annex T of the ECT formed part of the regulatory framework in place when AES made its investment, and made it clear from the very beginning that Kazakhstan would be reforming its competition law to develop competition within the electricity market. It found that the aim of the various amendments implemented by Kazakhstan was to establish a competitive market in the field of energy generation and trading; moreover, they were not of an extraordinary nature, but rather followed a common approach to the regulation of markets in the general public interest.12 9 10 11 12

ECT Annex T. ICSID Case No. ARB/10/16, Award, 1 November 2013, para. 269. Available at: https://www.italaw.com/sites/default/files/case-documents/italaw8205_0.pdf, Accessed 15 July 2018. Ibid., para. 277.

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32.14 As the tribunal underlined, it requires: the very clearest of commitments on the part of the State to refrain from adjusting that regulatory framework in some specified manner to give rise to any expectation that an investment would be insulated from the effects of normal legal and regulatory evolution. This is particularly the case where (as here) that evolution takes the form of the introduction of commonly-used regulatory mechanisms in pursuit of goals that had been clearly announced at the time when the investment was contemplated and made.13

32.15 On the facts of the case, the tribunal did not consider that any of Kazakhstan's successive amendments of its competition law were of such a nature as to violate any legitimate expectations under the ECT, and held that the competition law as promulgated and applied by Kazakhstan was not in breach of any of the protections proffered under the ECT or otherwise.14 32.16 In contrast, while it dismissed AES's claims in respect of Kazakhstan's competition law reforms, the tribunal found that a 2009 amendment to Kazakhstan's electricity law, which required investors to reinvest all profits and suspend dividend payments for seven years, was ‘drastic and radical’15 and did breach the fair and equitable treatment provisions in the ECT as well as the US-Kazakhstan BIT.

13 14 15

Ibid., para. 289. Ibid., para. 279. Ibid., para. 405.

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Part VII STRUCTURE AND INSTITUTIONS

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ARTICLE 33 ENERGY CHARTER PROTOCOLS AND DECLARATIONS Silke Goldberg, Naomi Lisney and Anne Eckenroth

(1)

(2) (3)

(4) (5)

(6)

The Charter Conference may authorise the negotiation of a number of Energy Charter Protocols or Declarations in order to pursue the objectives and principles of the Charter. Any signatory to the Charter may participate in such negotiation. A state or Regional Economic Integration Organisation shall not become a party to a Protocol or Declaration unless it is, or becomes at the same time, a signatory to the Charter and a Contracting Party to this Treaty. Subject to paragraph (3) and subparagraph (6)(a), final provisions applying to a Protocol shall be defined in that Protocol. A Protocol shall apply only to the Contracting Parties which consent to be bound by it, and shall not derogate from the rights and obligations of those Contracting Parties not party to the Protocol. (a) A Protocol may assign duties to the Charter Conference and functions to the Secretariat, provided that no such assignment may be made by an amendment to a Protocol unless that amendment is approved by the Charter Conference, whose approval shall not be subject to any provisions of the Protocol which are authorised by subparagraph (b). (b) A Protocol which provides for decisions thereunder to be taken by the Charter Conference may, subject to subparagraph (a), provide with respect to such decisions: (i) for voting rules other than those contained in Article 36; (ii) that only parties to the Protocol shall be considered to be Contracting Parties for the purposes of Article 36 or eligible to vote under the rules provided for in the Protocol.

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COMMENTARY Article 33(1) provides that the European Energy Charter (the Charter) 33.01 Conference may authorise the negotiation of ‘Protocols’ and ‘Declarations’ ‘in order to pursue the objectives and principles of the Charter’. This followed from the Energy Charter Treaty (ECT) signatories’ undertaking, in Title III of the Charter, to implement and broaden their cooperation as soon as possible by negotiating in good faith the ECT and Protocols. Title III also set out a list of potential areas of cooperation, which included ‘energy efficiency, including environmental protection’.1 While a ‘Declaration‘ is a non-binding instrument,2 a ‘Protocol‘ is a treaty 33.02 which will bind those ECT contracting parties which consent thereto.3 Any signatory to the Charter may participate in the negotiation of Protocols and Declarations,4 but a state or ‘Regional Economic Integration Organisation’5 (REIO) can only become a party to a Protocol or Declaration if it is, or becomes at the same time, a signatory to the Charter and an ECT contracting party.6 Article 33 provides further that voting rules for decisions to be taken under a 33.03 Protocol will not necessarily be the same as those applicable to the ECT, and a Protocol may provide that only parties to the Protocol shall be considered eligible to vote with respect to such decisions.7 The Secretariat has identified the four central pillars covered by the Charter’s 33.04 legal instruments as being (1) energy efficiency, (2) investment, (3) trade and (4) transit.8 Only one Protocol has been adopted to date, in relation to the first pillar – the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA), which was entered into at the same time as the ECT. As discussed further below, it now appears unlikely that there will be a Protocol on energy transit.

1 2 3 4 5

6 7 8

European Energy Charter, Title III. ECT Art 1(13)(b). ECT Art 1(13)(a) and Art 33(5). ECT Art 33(2). Under ECT Art 1(3), ‘Regional Economic Integration Organisation’ means, ‘an organisation constituted by states to which they have transferred competence over certain matters a number of which are governed by [the ECT], including the authority to take decisions binding on them in respect of those matters’. ECT Art 33(3). ECT Art 33(6). Energy Charter Secretariat Annual Report 2002.

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A. The PEEREA 33.05 The PEEREA opened for signature alongside the ECT, was signed by all ECT signatories, and entered into force on 16 April 1998. It requires contracting parties to formulate and implement clear policy aims for improving energy efficiency and reducing the energy cycle’s negative environmental impact.9 33.06 The PEEREA Working Group (also known as the Energy Efficiency Group) met twice a year to monitor implementation of the PEEREA and the energy efficiency-related provisions of the ECT, including through discussion of the country review reports10 and other discussion papers prepared by the Secretariat. Following the Charter Conference’s decision of 31 October 2016, this was merged with the Investment Group and the Trade and Transit Group into the new Implementation Group with effect as of 25 November 2016.11 33.07 The energy efficiency country reports published by the Secretariat comprise ‘regular’ review reports, which are compiled by the Secretariat based on input provided by the countries in question, and ‘in-depth’ review reports, which analyse the broad economic and energy context of the country, patterns of energy use, energy efficiency policies and institutional frameworks, together with concrete recommendations to the host country concerning ways of improving its national energy efficiency strategies, as endorsed by the Charter Conference. For an in-depth review, the Secretariat assembles a multilateral team of experts to visit the country in question; the corresponding report is then based on a peer review by representatives from three or four other countries that are parties to the PEEREA and the Secretariat.12 The host country is then expected to report back on its implementation of the recommendations received after two to three years.13 The in-depth review is then complemented by regular monitoring based on a standard review format.14 9 10 11

12

13 14

PEEREA Art 5 (Strategies and Policy Aims). All reviews published to date are available at: http://www.energycharter.org/what-we-do/energy-efficiency/ energy-efficiency-country-reviews/, last accessed 18 December 2017. Decision of the Energy Charter Conference, ‘Adoption by correspondence – Establishment and Terms of Reference of the Implementation Group’, 31 October 2016 (CCDEC 2016 28 STR); see also the overview for the Implementation Group at: https://energycharter.org/who-we-are/subsidiary-bodies/implementationgroup/, last accessed 18 December 2017. For example, the peer review team for the In-Depth Review of the Energy Efficiency Policy of Armenia published by the Secretariat in 2017 was composed of officials from Norway, Latvia and Romania, together with two members from the Secretariat. The recommendations to the government of Armenia were endorsed by the Charter Conference in its decision of 26 October 2016 (CCDEC 2016 23 EEF). Overview of In-depth Energy Efficiency Reviews: http://www.energycharter.org/what-we-do/energyefficiency/energy-efficiency-country-reviews/, last accessed on 18 December 2017. Ibid.

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In addition to this review process, the Secretariat sought to stimulate the role 33.08 of the PEEREA Working Group as a forum for policy debate on energy efficiency issues and to promote awareness of best practices, in particular among economies in transition,15 notably by preparing and submitting to the PEEREA Working Group discussion papers on a number of energy efficiency policy issues and by inviting independent experts and other international organisations to meetings of the PEEREA Working Group.16 In 2003, for example, the Secretariat arranged for presentations to be made 33.09 at its meetings by representatives of the European Parliament and the European Commission (on the current status of development and adoption of various EU Directives designed to promote energy efficiency), the International Energy Agency (on how best to promote energy efficient homes), the EBRD (the European Bank for Reconstruction and Development), FEDARENE (the European Federation of Regional Energy and Environment Agencies), and by government representatives of several countries, on specific developments concerning energy efficiency policies.17 The thematic reports published by the Secretariat include the 2004 report 33.10 entitled ‘Investing in Energy Efficiency – Removing the Barriers’ prepared with the support of PEEREA delegates as a follow-up on the PEEREA Working Group’s activities,18 and the January 2006 report entitled ‘Energy Efficiency and Emissions Trading – A PEEREA perspective after the entry into force of the Kyoto Protocol and of the EU ETS’ prepared with the support of independent experts for the purpose of discussion and debate in the PEEREA Working Group.19 The Secretariat also cooperates with other international organisations on 33.11 various energy efficiency initiatives relating to PEEREA contracting parties. Most recently, in 2016 the Secretariat became one of the three implementing partners of EU4Energy, together with the Energy Community Secretariat and the International Energy Agency. As part of this, the Secretariat is providing technical assistance to Armenia, Azerbaijan and Belarus by supporting the three countries to strengthen the legislative, regulatory and institutional environment in the areas of electricity and gas markets, energy efficiency and 15 16 17 18 19

Energy Charter Secretariat Annual Report 2002, page 12. http://www.energycharter.org/who-we-are/subsidiary-bodies/energy-efficiency-group/, last accessed on 18 December 2017. Energy Charter Secretariat Annual Report 2003, page 11. ‘Investing in Energy Efficiency – Removing the Barriers.’ ‘Energy Efficiency and Emissions Trading – A PEEREA perspective after the entry into force of the Kyoto Protocol and of the EU ETS.’

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renewable energy as well as in the process of identification of key energy infrastructure.20 B. The Transit Protocol 33.12 As discussed in the chapter on Article 7 of the ECT that article requires contracting parties to take the necessary measures to facilitate energy transit on a non-discriminatory basis. These provisions are consistent with the principle of freedom of transit enshrined in the World Trade Organization (WTO)/ General Agreement on Tariffs and Trade of 1947 (GATT), but go beyond the WTO in so far as Article 7 contains explicit obligations relative to energy transit, including via fixed infrastructure such as pipelines and electricity grids.21 33.13 The provisions of Article 7 were, however, considered unclear, and as early as December 1998 a Transit Working Group was established to expand on the principles and provisions of the ECT and conduct consultations on a multilateral transit framework.22 The Charter Conference then approved, in December 1999, the Transit Working Group’s mandate for negotiating a Transit Protocol with the following objectives:23 (1) (2) (3)

to ensure secure, efficient, uninterrupted and unimpeded transit; to promote more efficient use of transit infrastructure; and to facilitate the construction or modification of transit infrastructure.

33.14 Four rounds of negotiations on the draft text of the Transit Protocol were held in 2002 within the Transit Working Group,24 with the result that at its meeting in December 2002, the Charter Conference was able to record the achievement of a wide measure of agreement on the main text of the Transit Protocol among its 51 member states, bringing a provisional conclusion to the multilateral negotiations.25 Among other things, the draft Transit Protocol defined the meaning of ‘available capacity’ in energy transport facilities used 20 21 22 23 24 25

Energy Charter Secretariat Annual Report 2016, p. 17; see also the Secretariat’s overview of EU4Energy at: https://energycharter.org/partners/eu4energy/overview/, last accessed on 18 December 2017. Overview of the Transit Protocol: http://www.energycharter.org/what-we-do/trade-and-transit/transitprotocol/, last accessed on 18 December 2017. Decision of the Energy Charter Conference, ‘Establishment of the Working Group on Transit: Terms of Reference’, 3–4 December 1998 (CCDEC 1998 19 TTG). Decision of the Energy Charter Conference, ‘Mandate for Negotiations on a Multilateral Transit Framework’, 7 December 1999 (CCDEC 1999 14 TTG). Energy Charter Secretariat Annual Report 2002, p. 20. Decision of the Energy Charter Conference, ‘Finalisation of negotiations on an Energy Charter Protocol on Transit based on the Transit Working Group Chairman’s Final Compromise text’, 17–18 December 2002.

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for transit, and included provisions on methods to fix transit tariffs, on the grant of access for third parties to existing pipelines, and on the inadmissibility of any unauthorised ‘taking’ of energy resources during their transit.26 There remained, however, three unresolved inter-related issues, as follows:27 (1) (2)

33.15

the formulation to be used in the draft Article dealing with transit tariffs; the Russian proposal for a so-called ‘Right of First Refusal’ (RFR) for existing transit shippers; and the EU’s proposal for a REIO clause.

(3)

These issues all related almost exclusively to differences in position between 33.16 the EU and Russia, and accordingly, the Secretariat’s efforts during the first part of 2003 concentrated on organising and supporting bilateral consultations between the two countries, aimed at finding solutions to these issues. Following intensive negotiations, a final compromise ‘package agreement’ was tabled for adoption at the Charter Conference meeting in December 2003; however, it became clear during this meeting that a unanimous decision to adopt the Transit Protocol could not be achieved.28 Russia had made it clear from the outset that the Russian Parliament’s 33.17 ratification of the ECT would largely depend on the successful negotiation of transit arrangements acceptable to Russia.29 Following the ECT’s failure to prevent the Russian-Ukrainian gas crisis in January 2009,30 Russia gave formal notification that it did not intend to ratify the ECT and PEEREA, resulting in its termination of its provisional application of the ECT on 19 October 2009.31 1. Transit tariffs

The first outstanding issue for negotiation between the EU and Russia 33.18 concerned auction-based access to transport capacity for transit. Article 10 of 26

27 28 29 30

31

A. Konoplyanik, ‘Energy Charter Protocol on Transit: On the way to Agreement – What Kind of Treatment will be Accorded to Russian Gas in EU Countries?’, OGEL, Vol.2 – Issue 1, February 2004, p. 1, last accessed on 18 December 2017 at http://www.konoplyanik.ru/ru/publications/articles/385-E-OGEL-2. 2004.pdf. Energy Charter Secretariat Annual Report 2003, p. 16. Ibid., p. 17. Ibid., Annex I. A. Konoplyanik, ‘Energy Charter Treaty: Past, Present and Future’, (2012) 10(3 March) OGEL 33–4, last accessed on 21 December 2017 at http://www.konoplyanik.ru/ru/publications/ov10–3-article06Konoplyanik.pdf. https://energycharter.org/who-we-are/members-observers/countries/russian-federation/, last accessed on 18 December 2017.

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the draft Transit Protocol incorporated the principle of cost-reflectiveness and provided that transit tariffs should ‘be based on operational and investment costs, including a reasonable rate of return’. At the same time, however, it was suggested in the draft that congestion management mechanisms might include auctions. These led to an inconsistency, given that tariffs established through auctions do not usually reflect the cost of the provided transportation service, but rather reflect demand-supply correlation and thus might result in revenues exceeding costs.32 33.19 EU and Russian experts proposed a solution to both this issue and a more general problem, in the form of a more general, competitive procedure to allocate available capacity on energy transporting infrastructures. Their joint proposal for transparent and non-discriminatory congestion management was informally agreed at a multilateral level by the ECT community in 2007, and reflected in a revised draft of the Transit Protocol.33 2. The right of first refusal issue

33.20 The second outstanding issue concerned the need to guarantee access to fixed infrastructure for the duration of long-term supply (delivery) contracts. 33.21 Soviet/Russian gas export contracts to EU countries have historically been based on long-term supply contracts, with delivery points placed on the outer eastern border of the ‘former’ EU (the EU-15). The development of an integrated EU market and its further liberalisation and enlargement have created new transit risks for Russian gas inside the EU, because of the potential mismatch between long-term supply contracts and transit contracts of a shorter duration (the so-called ‘contractual mismatch’ problem) resulting from unbundling and mandatory third-party access to energy infrastructure.34 33.22 Russia’s position was that the Transit Protocol should include the RFR if a long-term supply contract did not match the transit contract. This approach, frequently used in the US and countries outside the EU, allows a long-term transport customer a priority right to renew a transit contract by matching the offer (in respect of both the transport rate and length of contract) made by a new bidder.35

32 33 34 35

A. Konoplyanik, ‘Gas Transit in Eurasia: Transit Issues between Russia and the European Union and the Role of the Energy Charter’, (2009) 27(3) Journal of Energy & Natural Resources Law 477. Ibid, pp. 477–8. Ibid., p. 461. Ibid., p. 480.

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The EU, on the other hand, has been prioritising the development of a liquid 33.23 and competitive EU energy market over the interests of producers/suppliers of gas into the EU market; it wishes to see both transit and supply contracts shortened, in order to enhance competition.36 The EU opposed RFR arrangements on the basis that they give preferential rights to incumbent capacity holders, thus discriminating against new entrants to the market.37 The draft Transit Protocol38 adopted the RFR approach; however, the expert 33.24 discussion between the EU and Russia suggested that the draft provisions were designed to avoid the contractual mismatch, and that the RFR was only one of the possible tools for addressing the problem. Another possibility would be to call for an open season to give all interested bidders a time-limited opportunity to join on a non-discriminatory basis.39 3. Transit Protocol implementation inside the EU (the REIO clause)

The thorniest issue that needed to be settled between the EU and Russia 33.25 concerned the EU’s position that the territories of its member states should be treated as together constituting one integral space for transit purposes. In practice, this would mean that the Transit Protocol’s provisions would cease to apply to transports of energy products upon reaching the external border of the EU, reducing their application within the EU area to a few minor cases (such as supplies to Switzerland, Kaliningrad Oblast or Turkey). Only the movement of energy materials and products across the entire EU would be considered transit regulated by the Transit Protocol; supplies ending within the EU, even if crossing one or more EU countries, would not. Instead, such movement would constitute ‘internal transportation’, governed by EU internal legislation.40 From Russia’s viewpoint, the REIO clause would ‘effectively excus[e] the EU 33.26 of its obligations under the Transit Protocol … and agreeing to it would compel Russia to subordinate itself to existing EU legislation, as well as future EU legislation, as amended, of course, without Russia’s participation’, at a time when the EU was expanding. Russia further considered that the approval of the REIO clause would entail extra export transaction costs resulting from

36 37 38 39 40

See, e.g., Directive 2003/55/EC of the European Parliament and of the Council (26 June 2003) concerning Common Rules for the Internal Market in Natural Gas, para. 25. Konoplyanik (n 32), p. 480. Art. 8.4 of the draft in CC 251. Konoplyanik (n 32), p. 481. Konoplyanik (n 26).

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the changeover from ‘transit’ (as regulated by the Transit Protocol) to ‘internal transportation’ (as unilaterally regulated by EU countries).41 33.27 According to Andrei Konoplyanik, who served as Deputy Secretary General of the Secretariat from March 2002 to April 2008, by 2007 the EU proposal in respect of the REIO clause was the only matter in dispute that remained unresolved.42 4. The shift in emphasis in the Energy Charter’s work on transit issues and ultimate suspension of work on the draft Transit Protocol

33.28 Following the Charter Conference’s failure to adopt the Draft Protocol in December 2003, the Secretariat, while noting that efforts on the draft Transit Protocol would continue, indicated that there would be a shift in emphasis in the Energy Charter’s work to focusing on how member states implement their obligations under the ECT, and to developing further dialogue between member states over the major issues of contention that arose during the draft Transit Protocol negotiations. 33.29 For that purpose, in June 2003 the Charter Conference established a new Transit Group, replacing the previous Transit Working Group that had functioned as a negotiating forum for the development of the text for the draft Transit Protocol. The new Transit Group would have a wide remit to monitor compliance by ECT member states with their transit obligations under the ECT and to act as a forum for discussion between the member states on transit-related issues.43 Subsequently, in December 2004, a new Trade and Transit Group was established through a merger of the separate working groups in these areas. 33.30 A few months after Russia’s withdrawal from the ECT, on 9 December 2009, the Charter Conference mandated a restart of formal negotiations on the remaining open issues of the draft Transit Protocol, based on the texts that had been worked out by the Trade and Transit Group through multilateral consultations in 2009.44

41 42 43 44

From the Russian delegation’s papers distributed in advance of the June 2002 negotiating session, as cited by Konoplyanik, ibid. Konoplyanik (n 30), p. 25. Energy Charter Secretariat Annual Report 2003, p. 17. Decision of the Energy Charter Conference, ‘Mandate for the Negotiation of the Remaining Open Issues of the draft Protocol on Transit’, 9 December 2009 (CCDEC 2009 6 TTG).

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When resuming its work on the draft Transit Protocol in early 2011, the 33.31 Trade and Transit Group noted that45 the fact that there had been no negotiations in 2010 on the basis of the previously agreed text might signal a problem. Since Russia had sent its withdrawal letter to the depository of the ECT, there 33.32 had been signals that Russia might wish to continue participating in the Energy Charter Process. At the same time, Russia had circulated a proposal for a ‘Draft Convention on Ensuring International Energy Security’ which also contained provisions on transit. On 3 March 2011, the EU’s third internal energy market package became 33.33 effective, while the ECT had been enlarged to include Ukraine and Moldova. At the meeting of the Trade and Transit Group in October 2011, the EU 33.34 presented a new common position on the draft Transit Protocol, arguing that in light of developments in the international energy situation and in the Energy Charter constituency and, most notably, the lack of progress on the Transit Protocol in recent years, it appeared no longer opportune to continue the negotiations on the current basis. The EU was, however, willing to consider a reset of the negotiations of a new document reflecting the common views of the member states, if an important number of them would express a genuine interest in such negotiations and a commitment to be bound by its result.46 Against this background, on 29 November 2011 the Charter Conference repealed the Trade and Transit Group’s negotiation mandate.47 For several years thereafter, the Secretariat continued to conduct consultations 33.35 among governments and industry representatives from member states as well as observers, on a possible reset of negotiations of the Transit Protocol or an additional Energy Charter instrument on energy transit. In November 2017, however, the Charter Conference formally noted the lack of political will to reset negotiations on the Transit Protocol. The preference of the member states appears to be to address transit issues through soft law instruments instead.48

45 46 47 48

Energy Charter Secretariat Annual Report 2011, p. 16. Ibid., p. 17. Decision of the Energy Charter Conference, ‘Decision on the draft Transit Protocol’, 29 November 2011 (CCDEC 2011 6 TTG). Energy Charter Secretariat, ‘Decision of the Energy Charter Conference: Adoption by correspondence – Multilateral Framework Agreement on Transit’, 23 November 2017, last accessed on 18 December 2017 at http://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/CCDEC201711.pdf.

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ARTICLE 34 ENERGY CHARTER CONFERENCE1 Cătălin Gabriel Stănescu

1)

2)

3)

1

The Contracting Parties shall meet periodically in the Energy Charter Conference (referred to herein as the ‘Charter Conference’) at which each Contracting Party shall be entitled to have one representative. Ordinary meetings shall be held at intervals determined by the Charter Conference. Extraordinary meetings of the Charter Conference may be held at such times as may be determined by the Charter Conference, or at the written request of any Contracting Party, provided that, within six weeks of the request being communicated to the Contracting Parties by the Secretariat, it is supported by at least one-third of the Contracting Parties. The functions of the Charter Conference shall be to: a. carry out the duties assigned to it by this Treaty and any Protocols; b. keep under review and facilitate the implementation of the principles of the Charter and of the provisions of this Treaty and the Protocols; c. facilitate in accordance with this Treaty and the Protocols the co-ordination of appropriate general measures to carry out the principles of the Charter; d. consider and adopt programmes of work to be carried out by the Secretariat; e. consider and approve the annual accounts and budget of the Secretariat; f. consider and approve or adopt the terms of any headquarters or other agreement, including privileges and immunities considered necessary for the Charter Conference and the Secretariat;

See Final Act of the European Energy Charter Conference, Understandings, n. 20. with respect to Art 34, p. 29.

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g. encourage co-operative efforts aimed at facilitating and promoting marketoriented reforms and modernization of energy sectors in those countries of Central and Eastern Europe and the former Union of Soviet Socialist Republics undergoing economic transition; h. authorize and approve the terms of reference for the negotiation of Protocols, and consider and adopt the texts thereof and of amendments thereto; i. authorize the negotiation of Declarations, and approve their issuance; j. decide on accessions to this Treaty; k. authorize the negotiation of and consider and approve or adopt association agreements; l. consider and adopt texts of amendments to this Treaty; m. consider and approve modifications of and technical changes to the Annexes to this Treaty;2 n. appoint the Secretary-General and take all decisions necessary for the establishment and functioning of the Secretariat including the structure, staff levels and standard terms of employment of officials and employees. In the performance of its duties, the Charter Conference, through the Secretariat, shall co-operate with and make as full a use as possible, consistently with economy and efficiency, of the services and programmes of other institutions and organizations with established competence in matters related to the objectives of this Treaty. The Charter Conference may establish such subsidiary bodies as it considers appropriate for the performance of its duties. The Charter Conference shall consider and adopt rules of procedure and financial rules. In 1999 and thereafter at intervals (of not more than five years) to be determined by the Charter Conference, the Charter Conference shall thoroughly review the functions provided for in this Treaty in the light of the extent to which the provisions of the Treaty and Protocols have been implemented. At the conclusion of each review the Charter Conference may amend or abolish the functions specified in paragraph (3) and may discharge the Secretariat.

4)

5) 6) 7)

2

See Final Act of the European Energy Charter Conference, Understandings, n. 21. with respect to Art 34(3)(m), p. 29.

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COMMENTARY 34.01 The Charter Conference is an inter-governmental organization, the governing and the decision-making body of the Energy Charter process, as established by the ECT.3 Its activity is governed by the dedicated provisions of the ECT, corroborated with the Rules of Procedure of the Energy Charter Treaty (Rules of Procedure).4 A. Members and observers 34.02 All the Contracting Parties (states and Regional Economic Integration Organizations (REIO) that have signed or acceded to the ECT) are members of the Charter Conference, which meets regularly.5 Contracting Parties are entitled to send one representative each6 in order to discuss any issues affecting energy cooperation and trade among signatories, to review the implementation of the ECT’s provisions (together with all Protocols) and to consider possible new instruments or joint activities within the ECT’s framework.7 Contracting Parties hold the chair of the Charter Conference for one calendar year.8 34.03 Not only Contracting Parties and signatories of the ECT attend the meetings of the Charter Conference. Representatives from states and international organizations that have signed the European Energy Charter or the International Energy Charter obtain observer status without a right to vote in the Charter Conference's meetings.9 At the same time representatives of other international organizations may be invited by the Charter Conference to attend its meetings as observers, also without a right to vote.10 To this end, observers are notified by the Secretariat of the meetings and are provided with

3 4

5 6 7 8 9 10

https://energycharter.org/who-we-are/energy-charter-conference/, last visited on 02.01.2018. See Decision CCDEC201611 regarding the approval of the Rules for Appointment of Deputy SecretaryGeneral, the amendment to the Rules of Procedure of the Energy Charter Conference and the dissolution of the WG on Procedural Issues, containing the latest version of the Rules of Procedure, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC201611.pdf, last visited on 02.01.2018. Art 34(1) of ECT. The names of representatives of Contracting Parties, Sigantories, as well as those of observers (referred to in the next paragraph) are to be communicated to the Secretariat according to Rule 8 of the Rules of Procedure. Art 34(3)(a), (b), and (h) of ECT. Rules of Procedure, rule 13(a). Ibid., rule 7(a). Ibid., rule 7(b).

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the agenda and relevant documents thereof.11 Notwithstanding their nonvoting status, observers may be asked to make statements on particular issues.12 B. Meetings of the Charter Conference The meetings of the Conference are regularly held in Brussels, although the 34.04 Charter Conference may decide to meet elsewhere.13 The meetings are not public, unless the Charter Conference decides otherwise.14 The Charter Conference holds both ordinary and extraordinary meetings. Ordinary meetings are held at intervals determined by the Charter Conference,15 while extraordinary meetings may be held at times determined either by the Charter Conference or at the written request of any of the Contracting Parties, provided that, within six weeks of the request being communicated to the parties by the Secretariat, the request meets the support of at least one-third of the Contracting Parties.16 As the ECT does not distinguish between competences of the ordinary and extraordinary meetings, it follows that the difference lies with summoning the parties and reducing the time between ordinary meetings, allowing parties to address important or urgent matters that fall into the competence of the Charter Conference and cannot be voted on by correspondence.17 C. The powers and functions of the Charter Conference The Charter Conference may establish a Secretariat, to act as its representative 34.05 body.18 The Charter Conference also decides on the Secretariat's functioning, structure, staff levels and standard terms of employment.19 Through the Secretariat, the Charter Conference cooperates and makes use to the maximum extent possible of the services and programmes of other institutions and organizations that have competence in matters related to ECT’s objectives. Moreover, in order to perform its duties, the Charter Conference may establish subsidiary bodies as it deems fit.20 Last, but not least, the Charter

11 12 13 14 15 16 17 18 19 20

Ibid., rule 7(d). Ibid., rule 7(c). Ibid., rule 3(a). Ibid., rule 18(a). ECT, Art 34(1) corroborated with ibid., rule 1(a). ECT, Art 34(2) corroborated with ibid., rule 1(b). See infra Section 4. Art 34(1) corroborated with Art 35(1) of ECT. ECT, Art 34(3)(p). Ibid., Art 34(5) of ECT corroborated with Section V – Subsidiary Bodies of the Rules of Procedure.

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Conference is entitled to adopt rules regarding procedure or finances21 or to review, amend or abolish its treaty functions,22 ensuring that it remains a living and adaptable organism, throughout the implementation of ECT’s provisions. 34.06 The ECT lists the functions of the Charter Conference. Given the wording of the ECT’s provisions and the absence of an open-ended definition of its tasks, the list appears to be exhaustive, thus limiting the Charter Conference’s activity to the following functions. 1. Carrying-out the duties assigned to it by the ECT and any Protocols

34.07 The ECT empowered the Charter Conference with a number of duties and tasks regarding the application or interpretation of the treaty’s provisions. For instance, where Contracting Parties are in a dispute regarding the interpretation of the provisions regarding environmental liability, and there are no other arrangements for consideration of such disputes in appropriate international fora (such as arbitral tribunals), following the request of one or more Contracting Parties, the Charter Conference shall review and provide a solution for the dispute.23 Similarly, where the WTO provided for joint action of Members of the WTO, it was understood by Signatory Parties that the Charter Conference was to take such action,24 thus acting as representative of those parties. The Charter Conference is entitled to take appropriate action also in regard of its review of the progress of Contracting Parties to implement transitional arrangements.25 34.08 However, the ECT provides that additional duties for the Charter Conference may be assigned by way of Protocols to the ECT, provided certain conditions regarding their approval are met.26

21 22 23 24

25 26

Ibid., Art 34(6). Ibid., Art 34(7). According to this provision, the review of functions takes place every five years, starting with 1999. Ibid., Art 19(2). Understanding 18, Part (a) with respect to Art 29(2) (a) of the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_ Act.pdf, last visited on 02.01.2018. ECT, Art 32(6) last statement. Ibid., Art 33(6)(a). Subparagraph (b) of Art 33(6) states that: [A] Protocol which provided for decisions thereunder to be taken by the Charter Conference, may, subject to subparagraph (a), provide with respect to such decisions: (i) for voting rules other than those contained in Article 36; (ii) that only parties to the Protocol shall be considered to be Contracting Parties for the purposes of Art 36 or eligible to vote under the rules provided for in the Protocol.

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2. Keeping under review and facilitating the implementation of the Charter’s principles and the provisions of the ECT and Protocols

This function refers to the powers and duties of the Charter Conference 34.09 regarding the implementation of the ECT’s provisions, notwithstanding their scope. An important aspect here is the possibility to adopt official Commentaries to particular provisions of the ECT, Rules in connection to it (such as the Rules Concerning the Conduct of Conciliation of Transit Disputes27), or Recommendations for review of policies and programmes directed at certain Contracting Parties.28 With respect to the monitoring of the implementation of the ECT’s principles 34.10 and provisions, one may point to the Charter Conference’s periodical reviews of all reports submitted by Contracting Parties to the Secretariat,29 by the Secretariat itself,30 or to the review of its own Decisions concerning certain articles of the ECT.31 Additional yearly reviewing duties are related to the possibility of moving items of Energy Materials and Products or EnergyRelated Equipment from Annexes EM or EQ to Annexes EM II or EQ II (connected to its function specified at letter o)32 or regarding the progress in implementing the provisions covering/governing transitional arrangements and the matching of needs and offers of technical assistance referred to.33 Concerning facilitation of implementation, the Charter Conference is empowered to adopt standard provisions concerning the conciliation procedure, which would ease and aid the implementation of the dispute resolution mechanism provided for with respect to issues arising from transit related matters.34 27

28

29 30

31

32

33 34

See Decision CCDEC201607 regarding the adoption of the Commetary to the Rules Concerning the Conduct of Conciliation of Transit Disputes, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2016/CCDEC201607.pdf, last accessed on 02.01.2018. See for instance Decision CCDEC201009 – Recommendations on the In-depth Review of Energy Efficiency Policies and Programmes of Mongolia, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/CCDEC201009.pdf, or Decision CCDEC200801 – Recommendations on the In-depth Review of Energy Efficiency Policies and Programmes of Bulgaria, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC200801.pdf, both last visted on 02.01.2018. See ECT, Art 10(9) second and third statement. See for instance Decision CCDEC201522 regarding the approval of the Conclusions of the review of implementation of the ECT transit provisions, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2015/CCDEC201522.pdf, last visited on 02.01.2018. See for instance the Decision with respect to Art 14 of the ECT, para (2) stating that: ‘the Decision shall be subject to examination by the Charter Conference five years after the entry into force of the Treaty, but not later than the date envisaged in Art 32(3)’. See Understanding 3 with respect to Arts 29(6) and (7) and 34(3)(o) of the Final Act of the European Energy Charter Conference in respect of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_ Final_Act.pdf, last visited on 02.01.2018. See ECT, Art 32 (6). Ibid., Art 7(7)(f).

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3. Facilitating the coordination of appropriate general measures to carry out the principles of the Charter

34.11 In this regard, the Charter Conference is providing consultancy to ECT signatories, which may be, for example, affected by an increase in custom duties or other charges of any kind imposed on or in connection with importation or exportation of Energy Materials and Products and EnergyRelated Equipment between Contracting Parties, in cases where at least one of them is not a member of the WTO.35 4. Considering and adopting the programmes of work to be carried out by the Secretariat

34.12 This function must be read in correlation with the ECT provision according to which the Secretariat assists the Charter Conference with everything necessary for the performance of the Charter’s duties, carries out all functions assigned to it by the Treaty, any Protocol or by the Charter Conference,36 and reports back to it.37 In fact, the Secretariat is acting as a delegate and representative of the Charter Conference in carrying out its duties,38 being empowered with its own legal personality to conclude administrative and contractual arrangements thereof.39

35

36

37

38 39

See ibid., Art 29(2)(a) and Annex W, as well as the Understanding 1 with respect to Art 29(2)(a) of the Final Act of the European Energy Charter Conference in respect of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018. Ibid., Art 35(4). See for instance Decision CCDEC201621, by which the Charter Conference mandated the Secretariat to formulate specific non-binding instruments which could remove non-discriminatory and de facto barriers to the establishment of energy investments, in close cooperation with other international organisations, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/ CCDEC201621.pdf, or Decision CCDEC201637 – Pilot project for a flagship publication on energy investment risk assessment, by which the Charter invited the Secretariat to continue the pilot phase of the work, to continue its efforts on identifying legal and regulatory risk indicators and ways of measuring them, as well as to begin preparatory work to lay the foundation for the future publication of the horizontal flagship on selected countries in Asia and Pacific and to report periodically to the Implementation Group on the progress of this work, both last visited on 02.01.2018. Ibid., Art 35(3). See for instance: Decision201521 – Adoption of the Secretariat’s Work Programme for 2016–2017, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2015/ CCDEC201521.pdf, last visited on 02.01.2018. For details see infra Art 35 – The Energy Charter Secretariat. Ibid., Art 35(1). Ibid., Art 35(5). See for instance the Preamble of the Headquarter Agreement between the Kingdom of Belgium and the Energy Charter Conference, stating that the Charter Conference is ‘represented and acting through’ the Secretariat, available online at https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/CCDEC199518.pdf, last visited on 02.01.2018.

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5. Considering and approving the annual accounts and the budget of the Secretariat

This function must be read in connection with the provisions governing voting 34.13 and the funding principles under the ECT. The annual budget has to be adopted before the beginning of the financial year.40 The costs of the Secretariat are covered by the Contracting Parties, based on the assessment of their capacity to pay, determined according to the specifications set out in Annex B.41 However, budgetary decisions must be taken with a qualified majority of all Contracting Parties representing in combination at least three-quarters of the total assessed contributions.42 At the same time, Decisions taken in connection with the Secretariat’s budget cannot be adopted by correspondence.43 6. Considering and approving or adopting the terms of any headquarters or of other agreement, including privileges and immunities considered necessary for the Charter Conference and the Secretariat

Under the terms of the Vienna Convention on the Law of Treaties of 1986 34.14 (Vienna Convention), the definition of treaty was extended to include legal binding agreements between states and international organizations.44 This function enables the Charter Conference to enter a treaty (headquarter agreement) with a state (in this case Belgium), in order to regulate the status and privileges of the organization in the territory of the host state. On this basis, the provisional Charter Conference approved the terms of the 34.15 headquarters agreement with the Kingdom of Belgium, authorized the Secretary General to agree on the necessary technical changes to the text and instructed the Chairman of the Conference and the Secretary General to sign it on its behalf.45

40 41 42 43 44 45

Understanding 20(b) of the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018. ECT, Art 37(3) of ECT. For details, see infra Art 37 – Funding Principles. Ibid., Art 36(2) and (6). See also infra Art 36 – Voting. See ibid., Art 36(2) and (4) of the ECT. See also infra Art 36 – Voting, footnote 215. A. Aust, Modern Treaty Law and Practice (Cambridge University Press, 2013), p. 347. Decision CCDEC 199518 concerning the Terms of the Headquarters Agreement, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC199518.pdf, last visited on 02.01.2018.

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7. Encouraging cooperative efforts aimed at facilitating and promoting market oriented reforms and modernization of energy sectors in those countries of Central and Eastern Europe and the former Union of Soviet Socialist Republics undergoing economic transition

34.16 This function stems from the very origin of the ECT: the collapse of the USSR and the fall of communism in Central and Eastern Europe which created the opportunity for East-West cooperation and the possibility to create an international law instrument to facilitate cross-border cooperation between former ideological opponents.46 At the same time, the ECT was meant to create the mechanisms that would increase stability and provide assurance for large and capital-intensive investments, in countries whose legislation or political institutions were not yet mature and were facing transition towards a democratic system, based on market economy.47 Since the most affected countries by such transformations were the Central and Eastern European ones, together with all ex-soviet countries, the Treaty and the Charter Conference place greater emphasis on aiding these countries with their reforms and their transition process.48 8. Authorizing and approving the terms of reference for the negotiation of Protocols and considering and adopting the texts thereof and the amendments thereto

34.17 This function and the one stated at letter (i) below, are closely connected with the provisions of Article 33 of the ECT, the introductory provision of Part VII – Structure and Institutions. It is thus stated twice that the Charter Conference is the body entitled to authorize the negotiation of a number of Energy Charter Protocols,49 for the purpose of pursuing the objectives and the principles of the Charter.50 Any signatory of the Charter may participate in the negotiation and no state or Regional Economic Integration Organisation 46 47 48

49

Kim Talus, EU Energy Law and Policy, A Critical Account (Kim Talus (ed), Oxford University Press. Oxford, 2013), p. 444. Ibid., pp. 445–6. See for instance Decision CCDEC201701 Approval by correspondence of the acceptance of two voluntary contributions by the Secretary General, available online at https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2017/CCDEC201701.pdf, or Decision CCDEC201710 regarding the Recommendations of the In-Depth Energy Efficiency Review of the Kyrgyz Republic, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/CCDEC201710.pdf, both last visited on 02.01.2018. ECT, Art 1(13)(a) defines Energy Charter Protocol or Protocol as: [A] treaty, the negotiation of which is authorized and the text of which is adopted by the Charter Conference, which is entered into by two or more Contracting Parties, in order to complement, supplement, extend or amplify the provisions of this Treaty, with respect to any specific sector or category of activity within the scope of this Treaty or areas of cooperation pursuant to Title III of the Charter’ (emphasis added).

50

Ibid., Art 33(1) corroborated with Art 34(3)(h).

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may become a party to a Protocol, unless it is or becomes at the same time a signatory of the Charter and a Contracting Party of the ECT, a logical measure, given the ancillary character of Protocols.51 It is also a measure against potential cherry picking, which might allow states to join only certain agreements, related to the ECT, while avoiding the terms of the ECT itself. Nevertheless, based on the wording of their definition,52 Protocols to the 34.18 ECT are optional. Contracting Parties may choose not to be bound by a Protocol, in which case, the Protocol shall be applicable only to the Contracting Parties that have expressed consent, provided the rights and obligations of the former are not derogated from by way of Protocol.53 Read in connection with the previous provision, it seems to express the old legal adagio according to which whoever can do more, can do less, but not the other way around. As already stated54 a Protocol may assign duties to the Charter Conference 34.19 and functions to the Secretariat. Such power stems from the general competence of the Charter Conference under the ECT to set up tasks and assign functions for the Secretariat, either directly, or by way of Protocol.55 9. Authorizing the negotiation of Declarations and approving their issuance

The ECT does not allow reservations.56 Yet, interpretative Declarations are 34.20 regularly used as reservations, the purpose being to establish an interpretation of the treaty that is consistent with the domestic law of the Contracting Party concerned.57 The ECT contains a number of Declarations,58 formally stating the interpretation of various provisions as favoured by a Contracting Party or another.59 51 52 53 54 55 56 57 58

Ibid., Art 33(2) and (3). See supra footnote 36. ECT, Art 33(5). See supra section B.1. See ECT, Art 34(3 (d) corroborated with Art 35(4). ECT, Art 46 corroborated with Art 19 of the Energy Charter Protocol on Energy Efficiency and related Environmental Aspects. Aust, supra note 44, p. 115. ECT, Art 1(13)(b) defines an Energy Charter Declaration or Declaration as: [A] non-binding instrument, the negotiation of which is authorized and the text of which is approved by the Charter Conference, which is entered into by two or more Contracting Parties to complement or supplement the provisions of this Treaty.

59

See for instance Declaration 6, with respect to ECT, Art 40 by which Denmark recalled that the European Energy Charter does not apply to Greenland and the Faeroe Islands until notice to this effect has been received from the local governments, or Declaration 4, by which Canada and the US stated under which considerations they would apply the provisions of ECT, Art 10, in the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/ 1994_Final_Act.pdf, last visited on 02.01.2018.

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34.21 The function must be read in connection with the previous one stated at letter (h), since both of them stem from the provisions of ECT, Art 33. The Charter Conference is authorized to negotiate a number of Declarations, for the purpose of pursuing the objective and principles of the Charter.60 34.22 Any signatory of the Charter may participate in the negotiation and no state or Regional Economic Integration Organisation may become a party to a Declaration, unless it is or becomes at the same time a signatory of the Charter and a Contracting Party of the ECT,61 for the same grounds referred already in connection to the similar provisions concerning Protocols. 10. Deciding on accessions to the ECT

34.23 Accession62 is the primary means by which a state or an international organization may become a party to a multilateral treaty.63 Nevertheless, no state or international organization will be able to accede if the treaty in question does not allow it (or falls within the set limits) or the parties do not agree to it. According to the final provisions of the ECT, the treaty is open for accession by states and REIOs that have signed the Charter, on the terms approved by the Charter Conference.64 In other words, accessions to the ECT are conditional on both signature on the Charter and approval by the Charter Conference. 34.24 The Charter Conference decides on all applications for accession to the ECT and on their terms and conditions, by vote. Unanimity of the present and voting Contracting Parties65 is required by the ECT;66 however based on the

60

61 62

63 64 65

66

See for instance the list of Declarations noted by the representatives with respect to the ECT in the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018. See also Understanding 19 of the Final Act of the European Energy Charter Conference regarding Article 33 of the ECT, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018. ECT, Art 33(2) and (3). For details see supra section B.8. See also Art 11 of the Vienna Convention on the Law of Treaties, 1969, available online at: https:// treaties.un.org/doc/publication/unts/volume%201155/volume-1155-i-18232-english.pdf, last accessed on 02.01.2018. Aust, supra note 44, p. 101. ECT, Art 41. ‘Present and voting Contracting Parties' are defined by Art 36(5) as those parties present and casting affirmative or negative votes, which may be expressed by correspondence in accordance with the Rules of Procedure approved by the Charter Conference. For details see infra, Art 36 – Voting. ECT, Art 36(1)(b) and (4).

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Rules of Procedure,67 decisions may be adopted also by correspondence.68 For instance, the latest decision concerning the accession of the Islamic Republic of Mauritania to the ECT was adopted by correspondence,69 although it is not a singular case. This function also includes the possibility of the Charter Conference to simplify the accession procedure to the ECT.70 11. Authorizing the negotiation of and considering and approving or adopting association agreements

This function is linked to the final provisions of the ECT, which empower the 34.25 Charter Conference to authorize the negotiation of association agreements with states, REIOs or international organizations, for the purpose of pursuing the objectives and principles of the Charter or the provisions of the ECT and/or its Protocols.71 In this regard, one may point to agreements that grant observer status to states or international associations, which would allow them to familiarize themselves with the Charter and its functions. Such status would ease the observers' decision to accede to the ECT and would help promoting cross-border energy cooperation.72 At the same time one must consider here the agreement by which the Charter Conference itself sought to obtain the status of observer with the General Assembly of the United Nations.73 The decision to authorize the negotiation of and approve or adopt the text of 34.26 the association agreement, as well as approval of accession to the ECT by 67

68

69

70

71 72

73

See Decision CCDEC201611 regarding the approval of the Rules for Appointment of Deputy SecretaryGeneral, the amendment to the Rules of Procedure of the Energy Charter Conference and the dissolution of the WG on Procedural Issues, containing the latest version of the Rules of Procedure, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC201611.pdf, last visited on 02.01.2018. Art 19 of the Rules of Procedure, available online at: https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/2016/CCDEC201611.pdf, last visited on 02.01.2018. For details see infra Subsection 4 – Voting. See Decision CCDEC201603 – Terms and Conditions for the Accession of the Islamic Republic of Mauritania to the Energy Charter Treaty, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2016/CCDEC201603.pdf, last visited on 02.01.2018. See for instance Decision CCDEC201709 – Simplification of the accession procedure to the Energy Charter Treaty, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/ CCDEC201709.pdf, last accessed on 02.01.2017. ECT, Art 43(1). See Decision CCDEC200309 – Application of the AEAN Centre for Energy for Observer Status at the Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/CCDEC200309.pdf, last visited on: 02.01.2018 and the enclosed declaration of Dr Guillermo R. Balce, Executive Director of the ASEAN Centre for Energy, stating: ‘[…][I]n the future we in ASEAN will not be content with being just an observer in this conference. Individually, or collectively, I can look forward to our member states submitting applications for upgrading to contracting party status’. See Decision CCDEC200701 – Accession of the Energy Charter Conference to the status of observer to the general Assembly of the United Nations, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/CCDEC200701.pdf, last visited on 02.01.2018.

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states or REIOs, which were not signatories of the Charter as of 16 June 1995, requires unanimity of the present and voting Contracting Parties at the meeting of the Charter Conference.74 12. Considering and adopting texts of amendments to the ECT

34.27 As any treaty establishing an international organization, the ECT has a built-in amendment mechanism, by which once an amendment has been approved by a certain number of members, it is binding on all of them. The advantage is that once an amendment entered into force it is binding also on those who did not express their vote.75 Amendments to the ECT (with the exceptions of Arts 34 and 35, Annex T, and the revision of the Charter Conference’s functions76 or budgetary matters77) require unanimity voting from present and voting Contracting Parties78 and a simple majority of all Contracting Parties.79 34.28 Based on the final provisions of the ECT, any Contracting Party is entitled to propose amendments to the ECT. Such proposal is filed with the Secretariat, who has the task of communicating it to all other Contracting Parties, at least three months before the date on which it is proposed for adoption by the Charter Conference. If the proposed amendments have been adopted by the Charter Conference, the Secretariat communicates them to the Depository, which then submits them to the Contracting Parties for ratification, acceptance or approval, as the case may be.80 34.29 For example, one amendment was considered and adopted, with respect to the trade-related provisions of the ECT. The provisional Charter Conference met to negotiate the amendment during 1994–97, while a meeting to adopt the amendment was held in 1998, after the Charter Conference was definitively established on the entry into force of the ECT.81

74 75 76 77

78 79 80 81

ECT, Art 36(1)(b) and (c). Aust, supra note 44, p. 235. According to ECT, Art 36(1)(a), (2), (3) and (4), the exceptions require three-qua majorities of the Contracting Parties. According to ECT, Art 36(2) and (6) budgetary matters may be adopted with simple majority of the Contracting Parties, provided their contributions represent at least three-quarters of the total assessed contributions. ECT, Art 36(1)(a) and (4). Ibid., Art 36(6) and (2). Ibid., Art 42 (1)–(3). See Decision CCDEC199801 – regarding the Amendment to the Trade-Related Provisions of the Energy Charter Treaty, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/ CCDEC199801.pdf, last visited on 02.01.2018.

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13. Considering and approving modifications and technical changes to the Annexes to the ECT

The Charter Conference is empowered to amend Annex T following a request 34.30 from a Contracting Party to introduce a temporary suspension, not previously listed in the annex.82 According to the ECT's provisions governing voting, the amendments to Annex T do not require unanimity, but three-quarters majority of Contracting Parties Present and Voting at the meeting (or by correspondence as the case may be according to Procedural Rules).83 Additional clarifications stem from the Contracting Parties' Understanding 34.31 that technical changes to Annexes might include ‘delisting of non-signatories or of signatories that have evinced their intention not to ratify, or additions to Annexes N and VC’.84 According to the same understanding it is the task of the Secretariat to propose such changes to the Charter Conference, when appropriate.85 14. Considering and approving the listing of signatories in Annexes BR and BRQ or in both these Annexes

In strong connection to this function are the provisions of Article 29(7) of the 34.32 ECT, already referred to. Annexes BR and BRQ contain Lists of Contracting Parties which Shall Not Increase any Customs Duty or Other Charge above the Level Resulting from their Commitments or any Provisions Applicable to Them under the WTO Agreement and were introduced by Article 5 of the Amendment to the Trade-related Provisions of the ECT.86 Based on a Decision connected to the Adoption of the Amendment to the 34.33 Trade-related Provisions of the ECT, a signatory which does not apply the Amendment provisionally, may at the time that it takes action to apply that Amendment, whether on a definitive or a provisional basis, notify the Secretariat in writing that until it is listed in Annexes BR and BRQ, it will

82 83 84

85 86

ECT, Art 32(3). Ibid., Art 36(1)(a) and (4). Understanding 21 of the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018. Ibid. Art 5 of Amendment to the Trade–Related Provisions of the ECT, available online at: https:// energycharter.org/fileadmin/DocumentsMedia/Legal/1998_Final_Act.pdf, last visited on 02.01.2018.

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apply the Amendment as if all items of Energy Materials and Products and Energy Related Equipment continued to be listed in Annexes EM I and EQ I.87 15. Considering and approving the addition of items to Annex EM II from Annex EM I with the corresponding deletion of those items from Annex EM I and considering and approving the addition of items to Annex EQ II from Annex EQ I with the corresponding deletion of those items from Annex EQ I

34.34 Annexes EM I and EM II contain lists of Energy Materials and Products, in accordance with the provisions of Article 1 (4) of the ECT, while Annexes EQ I and EQ II, contain lists of Energy-related Equipment, in accordance with the provisions of Article 1 (4 bis) of the ECT. 34.35 The Charter Conference must conduct an annual review with respect to any possibility of moving items of Energy Materials and Products or Energyrelated Equipment from Annexes EM I or EQ I to Annexes EM II or EQ II.88 The Decision mentioned above at letter n)89 is relevant here as well. Approval of addition of items to Annex EM II from Annex EM I with the corresponding deletion of those items from Annex EM I as well as approval of addition of items to Annex EQ II from Annex EQ I with the corresponding deletion of those items from Annex EQ I requires unanimous decision of Contracting Parties present and voting at the Charter Conference meeting.90 16. Appointing the Secretary General and taking all necessary decisions for the establishment and functioning of the Secretariat

34.36 The function91 must be read in connection with the provisions regarding the Secretariat in the ECT and those regarding the Secretary General and Deputy Secretary General from the Rules of Procedure.92 87

88

89 90 91

92

Decision 1 in Connection with the Adoption of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty (Annex 2 to the Final Act of the European Energy Charter Conference), available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC199801.pdf, page 205, last visited on 02.01.2018. Understanding 3 of the Final Act of the International Conference and Decision by the Energy Charter Conference in Respect of the Amendment to the Trade-Related Provisions of the ECT, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1998_Final_Act.pdf, last visited 02.01.2018. See supra footnote 87. ECT, Art 36(1)(g). See for instance Decision CCDEC200510 – Election of the Secretary General of the Energy Charter Secretariat, adopted at the 16th Meeting of Energy Charter Conference held on 9 December 2005, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC200510.pdf, last visited on 02.01.2018. ECT, Art 35(1) and (2) and the Rules for Appointment of Secretary-General (Rule 20.1–20.11) and the Rules for Appointment of Deputy Secretary General (Rules 21.1–21.5) of the Rules of Procedure. For details see section C – The Secretariat.

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The Charter Conference is also empowered to amend the Rules of Proced- 34.37 ure,93 or adopt and amend the Code of Conduct and the Staff Regulations and Rules. The latest amendments provided that the Code of Conduct is to be observed not only by officials of the Secretariat, but also by other people involved with the work of the Secretariat and the Conference, including Chairs, Vice-Chairs of the Conference and its subsidiary bodies and working groups when performing such functions.94 D. Subsidiary bodies As stated earlier, the Charter Conference may establish subsidiary bodies 34.38 that are deemed appropriate for the performance of its duties.95 The subsidiary bodies are divided in two categories, depending on whether the issues they deal with are either of regular, or of temporary nature. For the former, the Charter Conference establishes Standing Groups,96 while for the latter, it establishes Working Groups.97 Further establishment of temporary sub-groups to assist either the Charter Conference98 or the subsidiary bodies is possible.99 The subsidiary bodies' meetings are not public, unless they decide otherwise.100

93 94

95

96 97

98

99 100

Rule 22 of the Rules of Procedure establishes that ‘the Conference may decide at any time to revise these Rules or any part of them’. See Decision CCDEC201706 – Code of Conduct and Revisions to the Staff Regulations and Rules, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/CCDEC 201706.pdf, last visited on 02.01.2018. See for instance Decision CCDEC 201002 – by which the Charter Conference amended the Terms of Reference of the Group on Trade and Transit. Point III of the terms contains the list of tasks entrusted to the group, the first one being ‘assisting the Energy Charter Conference in discharging its functions with respect to the implementation of trade and transit-related provisions of the Energy Charter Treaty and any related instrument’ available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/ CCDEC201002.pdf, last visited on 02.01.2018. For instance The Trade and Transit Group. Rule 9(a) of the Rules of Procedure. See for instance Decision CCDEC199609 on the establishment of new Working Groups: Protocol on Electric Power Sector and Protocol on Major Accidents, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC199609.pdf, last visited on 02.01.2018. See also Decision CCDEC201611 by which the Charter Conference acknowledged the successful completion of the mandate received by the Working Group on Procedural Issues and decided to dissolve the Working Group – available online at: https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/2016/CCDEC201611.pdf, last visited on 02.01.2018. See for instance Decision CCDEC 199521 – regarding the establishment of a Legal Advisory Committee (sub-group) to provide legal advice to the Chairman of the Conference and to Working Group Chairmen, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC199521.pdf, last visited on 02.01.2018. Rules of Procedure, rule 10. Ibid., rule 18(a).

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34.39 Each subsidiary group has a Chairperson and a Vice-Chairperson, designated yearly by the Conference Charter.101 The Chair and Vice-Chair are designated on volunteer basis,102 taking also into consideration the principle of equitable geographical distribution among the Contracting Parties and Signatories. By rule no person can be Chair or Vice-Chair of the same subsidiary body for more than three consecutive mandates, unless there is no other volunteer.103 The tasks of the Chairperson are set up by the Rules of Procedure.104 34.40 The Charter Conference determines both the terms of reference105 and the membership of the subsidiary bodies, which means that the latter's jurisdiction is confined to their purpose and instructions set by the Conference Charter. Nevertheless, within these confinements, subsidiary bodies are free to address any matter related to the issues in their competence.106 Strictly procedural decisions of subsidiary bodies and sub-groups are taken with a majority of the Contracting Parties and signatories which are members of that body whose representatives are present and voting, unless the Rules of Procedure provide otherwise.107 For instance, the subsidiary group is entitled to adopt rules for decisions of that body to be taken by correspondence.108 Decisions on recommendations to be submitted to the Charter Conference must be reached by consensus; otherwise a three-quarters majority of the Contracting Parties and Signatories which are members of that body whose representatives are present and voting is required.109 34.41 Reporting obligations of subsidiary bodies110 and sub-groups are governed by the principle of hierarchy as the former report to the Charter Conference while the latter report to the body which set them up.111

101 102

103 104 105 106 107 108 109 110

111

Ibid., rule 13B.(a). See ibid., rule 13B.(b). According to rule 13B.(c), in case there are no volunteers or the Charter Conference is not able to take a decision, the serving Chairman will act as interim, until a volunteer is found and confirmed by the Charter Conference. Ibid., rule 13B.(a). Ibid., rules 14 and 15, concerning the conduct of business. See supra footnote 93. Rules of Procedure, rule 11. Ibid., rule 16(a). Ibid., rule 1 (e). Ibid., rule 16(b). See for instance the Report of the Chairman of the Trade and Transit Group, submitted to the Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2015/ CCDEC201530.pdf, last visited on 02.01.2018. Rules of Procedure, rule 12.

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E. Conclusions As stated by the Secretary General in 2016 the primary focus of the Contract- 34.42 ing Parties has been ‘to ensure full implementation of the Treaty's commitments’112 which entailed ‘increased multilateral cooperation’.113 Later, the focus shifted towards ‘modernization of the Energy Charter Process’114 and ‘geographical expansion’115 of the ECT, by becoming open for accession by any state or REIO that would commit to the treaty's principles and provisions. All these are reflected in the functions of the two institutions and would not 34.43 have been possible in their absence. The Charter Conference is the sole governing and decision-making body of the Energy Charter Process. It consists of all states and REIOs that have acceded the ECT. The Charter Conference's functions reflect perfectly the primary focuses of the Contracting Parties mentioned by the Secretary-General as they mainly concern the accession process, the evaluation of ECT's implementation, amendment of the treaty and all related documents, and the activity of the Secretariat or other subordinated bodies. Its meetings now consist of more than 60 delegations,116 which emphasizes the treaty's increasingly global amplitude and its success in increasing international cooperation in the energy sector.

112

113 114 115 116

See Forward to The International Energy Charter. Consolidated Energy Charter Treaty with Related Documents, updated on 22.02.2016, p. 2, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/Legal/ECT-Positive_Annex_W.pdf, last visited on 02.01.2018. Id at 2. Id at 2. Id at 2. https://energycharter.org/who-we-are/energy-charter-conference/meetings/28th-meeting-of-the-energy-charterconference, last visited on 02.01.2018.

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ARTICLE 35 SECRETARIAT Cătălin Gabriel Stănescu

1)

2)

3) 4)

5)

In carrying out its duties, the Charter Conference shall have a Secretariat which shall be composed of a Secretary-General and such staff as are the minimum consistent with efficient performance. The Secretary-General shall be appointed by the Charter Conference. The first such appointment shall be for a maximum period of five years. In the performance of its duties the Secretariat shall be responsible to and report to the Charter Conference. The Secretariat shall provide the Charter Conference with all necessary assistance for the performance of its duties and shall carry out the functions assigned to it in this Treaty or in any Protocol and any other functions assigned to it by the Charter Conference. The Secretariat may enter into such administrative and contractual arrangements as may be required for the effective discharge of its functions.

COMMENTARY 35.01 The Secretariat is a permanent body established to serve the Charter Conference. It is composed of a Secretary General and other staff, consisting of energy sector experts from various countries.1 The Secretary General is appointed by the Energy Charter Conference and is the main representative of the Secretariat.2 The initial term is of five years,3 with a single possibility of re-appointment by the Charter Conference4 or re-application by the serving 1 2 3 4

ECT, Art 35 (1). https://energycharter.org/who-we-are/secretariat/overview/, last visited on 02.01.2018. ECT, Art 34(3)(p) corroborated with Art 35 (2), Rules of Procedure, rule 20. (b) and (c) and rule 20.2(b). Rules of Procedure, rule 20.2(a). See for instance Decision CCDEC201604 – Re-appointment of the Secretary General, by which Dr Urban Rusnák was re-appointed as Secretary General of the Energy Charter

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Secretary General for no more than the initial term.5 The provisions regarding candidacy, nationality, the interview, as well as those governing situations such as single candidacy, reappointment or early departure of the serving Secretary General are contained in the Rules of Procedure.6 A. The staff of the Secretariat The Treaty does not provide an exact figure of staff members of the 35.02 Secretariat. It merely states that the minimum number should be consistent with efficient performance of the Secretariat’s tasks and functions.7 The structure of the Secretariat, staff levels, standard terms of employment and budget8 are determined by the Conference Charter,9 but the Secretariat runs also short-term programmes, which allow for visiting researchers, seconded experts, staff on loan and interns to work at the Secretariat in order to create transfer knowledge and develop their skills and expertise.10 The staff is selected from nationals of the signatory member countries of the 35.03 ECT, and it is subjected to the Regulations and Rules established by the Energy Charter Conference together with the Headquarters Agreement between the Kingdom of Belgium and the Energy Charter Conference.11 For instance, the Secretary General and his Deputy enjoy diplomatic privileges and immunities.12 At the same time, all those working with the International Energy Charter, are expected to abide and observe the provisions and standards set in the Code of Conduct.13 35.04

The current structure of the Secretariat is shown in Figure 35.1.

5 6 7 8

9 10 11 12 13

Secretariat until 31st December 2021, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2016/CCDEC201604.pdf, last visited on 02.01.2018. Ibid., rule 20.2(d) corroborated with rule 20.10. Ibid., rule 20. For details see infra. ECT, Art 35(1). Ibid., Art 34(3)(e). See also Decision CCDEC201712 – Budget for 2018–2019, Annex II, available at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/CCDEC201712.pdf, last visited on 02.01.2018. Ibid., Art 34(3)(p). https://energycharter.org/who-we-are/secretariat/jobsvacancies/, last visited on 02.01.2018. https://energycharter.org/who-we-are/secretariat/overview/, last visited on 02.01.2018. Art 15 of the Headquarter Agreement, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/CCDEC199518.pdf, last visited on 02.01.2018. https://energycharter.org/fileadmin/DocumentsMedia/Legal/20171124-Code_of_Conduct.pdf, last visited on 02.01.2018.

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Current structure of the Secretariat Figure 35.1

Source:

https://energycharter.org/who-we-are/secretariat/staff/, last updated 22.12.2017.

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B. The role and functions of the Secretariat The main role of the Secretariat is to assist the Charter Conference in 35.05 performing its duties14 and to carry out the work programmes15 it was assigned by the Treaty, any Protocol,16 or by the Charter Conference.17 To this end, the Secretariat is responsible to and reports18 to the Charter Conference19 who may even discharge it, following its five-year reviews.20 In order to perform its functions, the Secretariat is empowered with legal personality, which allows it to enter into both administrative and contractual agreements thereof.21 35.06

The Secretariat’s functions are as follows. 1. To monitor and develop elements for the implementation and amendment of the ECT and Protocol’s obligations22

This function covers a wide area of tasks, mostly administrative, that the 35.07 Secretariat has to fulfil in relation to the implementation and amendment of the obligations established by the ECT or the Protocols. For example, the text of any proposed amendment to the ECT must be communicated by the Secretariat to all Contracting Parties, at least three months before the date on which it is proposed for adoption by the Charter Conference, and, in case the amendment is adopted, the Secretariat must communicate it to the Depository.23 It is also the task of the Secretariat to inform all the participants to the Charter 35.08 Conference on the completion of all relevant formalities regarding the formal adoption of the Amendment to the Trade-Related Provisions of the ECT, at

14

15

16 17 18 19 20 21 22

23

ECT, Art 35(1) corroborated with Art 35(4). See also the provisions of Art 11(1) of the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects, Annex 3 to the Final Act of the European Energy Charter Conference. See for instance Decision201521 – Adoption of the Secretariat’s Work Programme for 2016–2017, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2015/CCDEC201521.pdf, last visited on 02.01.2018. According to Art 33(6)(a): ‘a Protocol may assign […] functions to the Secretariat […]’. ECT, Art 35(4). The Secretariat publishes annual reports concerning its activities. The reports are publicly available online at: https://energycharter.org/who-we-are/secretariat/overview/annual-reports/, last visited on 02.01.2018. ECT, Art 35(3). Ibid., Art 34(7). Ibid., Art 35(5). See for instance Decision201522 – Approval of the Conclusions of the review of implementation of the ECT transit provisions, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/ 2015/CCDEC201522.pdf, last visited on 02.01.2018. ECT, Art 42(2) and (3).

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least 90 days after the meeting has taken place,24 or to circulate to all Contracting Parties the notifications received from those Contracting Parties which invoked transitional agreements, or to circulate and actively promote the matching of needs for and offers of technical assistance, needed to facilitate the completion of stages set out in Annex T as necessary for the full implementation of the ECT.25 2. To organize and administer meetings of the Energy Charter Conference and its subsidiary bodies

35.09 According to the Rules of Procedure, two weeks prior to the conference, the Secretariat produces a schedule of planned and proposed meetings and activities for the upcoming year.26 Where possible, the Secretariat offers the option for the Contracting Parties to attend the conference via videoconference systems.27 In consultation with the relevant Chairperson, the Secretariat shall also draw up and transmit to the Contracting Parties and Signatories the proposed agenda for each meeting of the Conference or of the subsidiary bodies. The notification regarding the meeting date shall include any available information relevant for the agenda. The notification and the attached documents must also be uploaded on the Secretariat’s webpage 15 days before the meeting.28 For organizational purposes, the Secretariat must be informed of the names of representatives of Contracting Parties, Signatories and observers that attend the meetings of the Conference and its subsidiary bodies,29 a task that falls to the member and observing states or organizations. 3. To provide analytical support and advice to the Energy Charter Conference and its subsidiary bodies on all aspects of the Energy Charter Process

35.10 This function stems from the permanent status of the Secretariat as an institution established to provide support to the Charter Conference and all supporting bodies in fulfilling their own tasks under the ECT. It means that the Secretariat does not merely act as an administrative body, performing clerical duties, but also as a professional body, consisting of energy experts, who are able to provide the analyses and the counselling needed by the Charter Conference or its subsidiary bodies. 24

25 26 27 28 29

Decision 199801 on the Amendment to the Trade-Related provision of the Energy Charter Treaty, Chairman's conclusion on the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC199801.pdf, last visited on 02.01.2018. ECT, Art 32(5)(a) and (b) corroborated with Art 32(4). Rules of Procedure, rule 3(b). Ibid., rule 3(c). Ibid., rule 4. Ibid., rule 8.

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4. To represent the Energy Charter Conference in the development of its relations with non-member states and other relevant international organisations and institutions

For instance, the Secretariat cooperates with other international organizations, 35.11 with academic institutions and stakeholders in the energy sector. Based on the information provided by the Secretariat, there are different operational modalities, such as Memoranda of Understanding, Letters of Understanding, Projects of Mutual Interest or Enhanced Cooperation.30 5. To support negotiations on new instruments mandated by the Conference

This function is normally fulfilled by the Secretariat, unless it has been 35.12 delegated to another subsidiary body.31 In this regard one may point out the tasks set out by the Charter Conference concerning opening the negotiations on: a Treaty amendment dealing with tariff standstill,32 a supplementary treaty as required by Article 10(4) of the ECT,33 the inclusion of Energy-related Equipment in the Trade Provisions of the Treaty (amendment of Art 31)34 by which the Secretary-General was invited to submit proposals on the constitution of a Working Group to deal with the matter, set up its terms of reference and the timing of its first meeting. As part of the same function, records of negotiations of the Charter Conferences are deposited with the Secretariat.35

30 31

32

33

34

35

For full description of each mode of operation and a list of partnerships entered into by the Secretariat see https://energycharter.org/partners/overview/, last visited on 02.01.2017. See for instance Decision CCDEC 201306 – Adoption of the negotiation mandate in view of updating the European Energy Charter, by which the task of starting negotiations in view of updating the European Energy Charter of 1991 was given to the Strategy Group, available online at: https://energycharter.org/ fileadmin/DocumentsMedia/CCDECS/CCDEC201306.pdf, last visited on 02.01.2018. See also Decision CCDEC 200906 – Mandate for the Negotiation of the Remaining Open Issues of the draft Protocol on Transit, by which the Trade and Transit Group was mandated to restart negotiations on the remaining open issued of the draft of Transit Protocol. Decision CCDEC 199405 concerning the opening of negotiations on a Treaty amendment dealing with Tariff Standstill (Art 29(6)), available online at: https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/1994/CCDEC199405.pdf, last visited on 02.01.2018. Decision CCDEC 199404 – concerning the opening of negotiations on a supplementary treaty (Article 10(4)), available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/1994/CCDEC 199404.pdf, last visited on 02.01.2018. Decision CCDEC 199406 – concerning the opening of negotiations on the inclusion of Energy-Related Equipment in the Trade Provisions of the Treaty (Article 31), available online at: https://energycharter.org/ fileadmin/DocumentsMedia/CCDECS/1994/CCDEC199406.pdf, last visited on 02.01.2018. See Declaration IX of the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018.

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6. To collect, register and deposit notifications, declarations, reports or requests made by Contracting Parties with respect to their intentions, commitments, obligations or conditions vis-à-vis the ECT

35.13 In regard to this function, there are multiple provisions scattered throughout the ECT. For instance, the Secretariat gathered from all signatories of the ECT, and each state or REIO that acceded to the Treaty before 1998 the list of all customs duties or charges of any kind imposed on or in connection with importation or exportation of Energy Materials and Products.36 A similar obligation concerns the gathering of such lists from each state or REIO acceding to the treaty on or after 1998.37 35.14 Additionally, the Secretariat gathers: joint written notifications by which two Contracting Parties inform jointly of their intention to be deleted from Annex N, in order to further inform the other Contracting Parties38 or in connection to all trade-related investment measures applied by a Contracting Party, which are not in conformity with the provisions of Article 5 of the ECT;39 voluntary declarations concerning a Contracting Party's intention of not introducing exceptions to the Most-Favoured-Nation treatment mentioned in Article 10(3) of the ECT or voluntary commitments to accord to Investors of other Contracting Parties the MFN treatment;40 reports summarizing all relevant laws, regulations or measures, submitted by each state or REIO, which signs or accedes to the ECT;41 exceptions consisting of measures designed to benefit Investors who are aboriginal people or socially or economically disadvantaged individuals or groups;42 or requests for extraordinary meetings of the Charter Conference.43 35.15 The nature of notifications to the Secretariat appears to be two-fold. Generally, they serve the role of information44 and/or opposability45 to other

36 37 38 39 40 41 42 43 44

ECT, Art 29(3)(a). Ibid., Art 29(3)(b). Ibid., Art 7(10)(ii). (1) and (5) of Annex TRM: Notification and Phase-Out (TRIMs) to the ECT. ECT, Art 10(6)(a) and (b). The latter are to be listed in Annex VC which is binding under the ECT. Ibid., Art 10(9). Ibid., Art 24(2)(iii). Ibid., Art 34(2). For instance, Art 32(4) and (5) refer to the obligation of Contracting Parties which invoked transitional arrangements to notify the Secretariat every 12 months with respect to implementation and progress made during that period. The Secretariat in return will circulate the information received with all other Contracting parties. The obligation to notify the Secretariat has here a purely informative character, for the benefit of all Contracting Parties. Conversely, Art 26(3)(b)(iii) states that:

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Contracting Parties. Nevertheless, in some instances they also play the role of a validity condition.46 7. To deposit and make generally available awards of ad hoc constituted tribunals regarding the settlement of disputes between Contracting Parties (Art 27(3)(l) or (6)(d) of Annex D to the ECT)

This function stems from the provisions of ECT concerning dispute settle- 35.16 ment between Contracting Parties, where it is specifically mentioned that a copy of the award shall be deposited with the Secretariat, which will make it generally available.47 Similar provisions are to be found in Annex D to the ECT, concerning Interim Provisions for Trade Dispute Settlement, which state that the arbitral panel must deliver a written determination not only to the parties involved, but also to the Secretariat, to be presented further to the Charter Conference, at the earliest practicable opportunity.48

for the sake of transparency, each Contracting Party that is listed in Annex ID shall provide a written statement of its policies, practices and conditions in this regard to the Secretariat no later than the date of the deposit of its instrument of ratification, acceptance or approval […].

45

The written statement serves mainly the role of informing the other parties of applicable rules by those Contracting Parties that do not allow an Investor to Resubmit the Same Dispute to International Arbitration at a Later Stage under Art 26. However, the syntagma ‘no later than the date’ indicates that such written statement is also subjected to a statute of limitations, beyond which the statement will not have the intended and desired effect, which turns the notification duty in a validity condition for triggering the effects of Art 26 and Annex ID. For instance, Art 29(5)(b) states that: a Contracting Party may increase such customs duty or other charge above the level referred to in paragraph (4) only if […] it has, to the fullest extent practicable under its legislative procedures, notified the Secretariat of its proposal for such an increase […].

46

The wording suggests that, on the one hand, the notification is a condition precedent for the validity of increasing custom duties and charges, and, on the other hand, that notification serves also the role of opposability to the other Contracting Parties. See supra fns 44 and 45, with respect to the validity condition role played by the notifications sent to the Secretariat. See also Letter (A) (5) (v) of Annex W: Exceptions and Rules Governing the Applications of the Provisions of the WTO Agreement, which states that: ‘other duties or charges’, omitted from a notification to the Secretariat shall not subsequently be added to it and any ‘other duty or charge’ recorded at a level lower than that prevailing on the applicable date shall not be restored to that level, unless such additions or charges are made within six months of the notification to the Secretariat.

47 48

The wording clearly indicates that the notification is more than a formality and serves mainly the role of a validity condition to the application of any addition or charge referred to in the cited provision. ECT, Art 27(3)(l). Ibid., Annex D, (6) (d).

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C. The appointment of the Secretary General 35.17 As has been stated, the Charter Conference appoints the Secretary General49 of the Secretariat. The appointment is done in accordance with the Rules of Procedure adopted by the Charter Conference50 and is deemed ‘part of the effort to reach agreement by consensus’ required by the voting related provisions of the ECT.51 Since nowadays there is a Secretary General in office, the procedure establishes that first, the Charter Conference will decide whether or not to re-appoint the serving Secretary General for a second mandate, at least 12 months before the expiration of the first contract.52 Nevertheless, Contracting Parties are entitled to make additional proposals,53 even before the last 12 months before the expiration of the serving Secretary General’s mandate.54 Where the Charter Conference decided not to re-appoint the Secretary General in office, or where the serving Secretary General has indicated in writing that he/she is not considering a second mandate, the appointing procedure will continue as prescribed in the Rules of Procedure.55 35.18 Candidates proposed for the appointment must have and show broad experience in international affairs, as well as in leadership and organizational management, in government, international organizations and/or industry.56 However, these qualifications are referred to as ‘desirable’, which means that they are not mandatory, and exceptions may be made. Candidates must have the nationality of one of the Contracting Parties,57 but there is no requirement that the candidates proposed have the specific nationality of the Contracting Party that nominated them.58 35.19 There are express terms, deadlines and conditions regarding submission of proposals. Deadlines are regularly set to nine months prior to the Charter Conference’s meeting where appointment is supposed to take place,59 while the submission of the candidate’s name to the Charter Conference must be completed no later than three months prior to the expiry of the contract of 49 50 51 52 53 54 55 56 57 58 59

Ibid., Art 34(3)(p) corroborated with Art 35(2). Ibid., Art 34(6) corroborated with Section 12 Rules for Appointment of Secretary General, Rule 20 of the Rules of Procedure. See Rules of Procedure, rule 20.1 (c) corroborated with ECT, Art 36(1). See also Art 36 – Voting. Ibid., rule 20.2(a). Provided they are not in arrears according to ECT, Art 36(8) corroborated with ibid., rule 20.4(a). Ibid., rule 20.2(b). Ibid., rule 20.2(c). Ibid., rule 20.3(b). Ibid., rule 20.4(a). Ibid., rule 20.4(b). Ibid., rule 20.3(d).

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the serving Secretary General.60 Nominations can be made solely by those Contracting Parties that are not in arrears in paying their financial contributions to the budget of the Secretariat.61 All proposed and eligible candidates must be interviewed by the Contracting Parties and Signatories, at least six months prior to the meeting of the Charter Conference set to make the appointment.62 The Rules of Procedure further distinguish between two situations regarding 35.20 the appointment of a Secretary General: when there is only one candidate and when there are two or more candidates. In the first case, the procedure appears to be expedited, as the Charter Conference is invited to appoint, by consensus, the sole candidate.63 In the second case, the rules establish also an informal sounding,64 in order to identify a preferred candidate and make an appointment by consensus.65 As in the case of nominations, only Contracting Parties not in arrears can participate in the informal sounding.66 There are also contingency measures provided for in the Rules of Procedure. 35.21 One situation refers to the event in which no appointment is made on the date of the Charter Conference’s meeting. The rule is that in such cases the Deputy Secretary General67 will be designated as Acting Secretary General. Where the position of Deputy is vacant, then the serving Secretary General’s position will be prolonged.68 Another situation concerns the events where the serving Secretary General resigns, his/her mandate is terminated by Decision of the Charter Conference, or any other unforeseen event that leads to an early expiry of the Secretary General’s contract. Here also the rule is that while replacement steps are taken the Deputy Secretary General will serve as Acting Secretary General. Nevertheless, if the Deputy position is vacant, then the Contracting Parties and Signatories will designate within 14 days from the departure an Acting Secretary General from the existing staff of the Secretariat, until a new appointment is made.69

60 61 62 63 64 65 66 67 68 69

Ibid., rule 20.8(a). Ibid., rule 20.4(a). Ibid., rule 20.5. Ibid., rule 20.6. See ibid., Annex. Ibid., rule 20.7(a). Ibid., rule 20.7(c). For the appointment rules of the Deputy Secretary General see ibid., Section XIII. Ibid., rule 20.9. Ibid., rule 20.11(a).

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D. The Secretary General's role in ECT's Dispute Resolution Mechanisms 35.22 The Secretary General also plays a role in the dispute resolution mechanism of the ECT regarding the transit70 of Energy Materials and Products. The procedure (Art 7(7) corroborated with Rules Concerning the Conduct of Conciliation of Transit Disputes71)72 states that a Contracting Party may refer it to the Secretary General by a notification, summarizing the matters in dispute, provided that all relevant contractual or other dispute resolution remedies previously agreed between the parties to the dispute have been exhausted.73 The Secretary General will notify all Contracting Parties of any such referral.74 35.23 Within 30 days of receipt of the said notification, the Secretary General, in consultation with the parties in dispute and all other Contracting Parties concerned,75 shall either appoint a conciliator76 or elect not to appoint a conciliator, if in his judgment the dispute concerns transit that is or has been the subject of the dispute resolution procedures set out in subparagraphs (a)–(d) and those procedures have not resulted in a resolution to the dispute.77 By leaving to the Secretary General’s discretion to decide whether or not to appoint a conciliator, the ECT ensures that the dispute over the same transit issue is referred to conciliation only once. Nevertheless, the factual judgment is left to the Secretary General, who must decide whether the dispute terms vary

70 71 72

73 74 75

76

77

For more details see Kim Talus (ed.), Research Handbook on International Energy Law (1st ed. Edward Elgar, Cheltenham, UK; Northampton, MA, USA, 2014), pp. 614–17. Decision CCDEC 201607, available online at https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/…/CCDEC201607.pdf, last visited on 02.01.2018. The Rules Concerning the Conduct of Conciliation of Transit Disputes under Art 7 of the Energy Charter Treaty (The Conciliation Rules) were adopted in 2002 (Decision CCDEC 200216, available online at https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/CCDEC200216.pdf, last visited on 02.01.2018) and were amended by the Charter Conference in 2015. They were deemed ambiguous and uncertain, for which reason it was considered that the conciliation mechanism has not been properly used. As a result an official Commentary was adopted in 2016, available online at https://energycharter.org/fileadmin/ DocumentsMedia/CCDECS/2016/CCDEC201607.pdf, last visited on 02.10.2018. Conciliation Rules, rule 1(1). Ibid., rule 1(3) and (4). Ibid., rule 2(1). The requirement for prior consultation was requested by Norway, to diminish the Secretary General’s sole discretion in appointing the conciliator. However, due to the silence of the Treaty’s provisions, the form of consultation and its appropriateness is left with the Secretary General. See para 72 of the Commentary, supra note 72. According to ECT, Art 7(7)(a) the conciliator ‘shall have experience in the matters subject to the dispute and shall not be a national or citizen of or permanently resident in a party to the dispute or one of the other Contracting Parties concerned’. In other words, if the first concilliation attempt failed, the Secretary General cannot deny the failure and must acknowledge it. See: Talus, supra note 70, p. 615.

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from the previous one in a significant manner to justify a new conciliation procedure.78 With respect to the appointment, the Secretary General must ensure that the 35.24 conciliator has or is likely to have the confidence of the parties, is independent and impartial and has expertise and experience relevant to the issue in dispute, is not in any conflict of interest, will respect the confidentiality requirements and will conduct proceedings in a manner which ensures the integrity and reputation of the procedure.79 Any breach of the aforementioned obligations may result in disqualification of the conciliator, at the Secretary General’s sole discretion.80 In order to fulfil its obligations regarding the appointment, the Secretary General must maintain a list of qualified conciliators that will facilitate and accelerate its task of nominating a suitable conciliator.81 The Secretary General retains an important part during the proceedings, in 35.25 case the conciliator is disqualified,82 resigns,83 dies or, in the Secretary’s opinion, becomes incapacitated, unable or fails to perform its duties or by providing administrative or technical assistance. In such cases, the procedure is suspended, and the Secretary General will appoint a new conciliator.84 However, it is not the only role played by the Secretary General throughout 35.26 the proceedings. When an agreement is reached, the conciliator must inform the Secretary General in writing so that it can notify all Contracting Parties85 and, where the parties allow it, inform the public thereof.86 At the same time, the Secretary General acts as public notary or depositary of the recommendation and decision and will keep a copy of it at the archives of the Secretariat.87 Matters related to the costs of proceedings will also be handled through the Secretary General.88

78 79 80 81 82 83 84 85 86 87 88

Conciliation Rules, rule 2(7). See also para 33 of the Commentary, supra note 72. Ibid, rule 2(1). See also para 73 of the Commentary, ibid. Ibid., rule 4. See also para 87 of the Commentary, ibid. Ibid., rule 2(2. See also para 78 of the Commentary, ibid. Ibid., rule 4(1). Ibid., rule 3(1). Ibid., rule 3(2) and (4) corroborated with rule 4(1) and (4). Ibid., rule 12 (2). See also para 116 of the Commentary, supra note 72. Ibid., rule 12(3). Ibid., rule 13(2)(a). See also para 119 of the Commentary, supra note 72. Ibid., rule 16. See also para 138 of the Commentary, ibid.

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35.27 Another important part played by the Secretary General89 is the one in the Trade Disputes Settlement mechanism.90 Annex D provides that where the Contracting Parties fail to arrive at a mutually satisfactory resolution regarding trade-related disputes under Articles 5 and 29 of the ECT by cooperation and consultation, and they do not agree to resolve such dispute by conciliation, mediation, arbitration or other method,91 then each of them may deliver to the Secretariat a request for establishment of a panel. The panel is composed of three members that are chosen by the Secretary General from a roster set up according to the provisions of Annex D to the ECT.92 Regularly, each dispute is settled by a designated panel; however, where the Contracting Parties’ disputes are substantively similar, the Secretary General may (with the parties’ consent) decide to appoint a single panel.93 35.28 In the same context of trade-related dispute settlement, after a ruling or recommendation of the panel has been made, but not observed by one of the parties, the Secretary General is in charge of establishing an arbitration panel (following the same rules of establishment mentioned above)94 in order to examine the level of obligations owed to the non-complying party that an injured Contracting Party proposes to suspend.95 E. Conclusions 35.29 The Secretariat is the main executive body responsible for the strategic planning, communication, implementation and monitoring of the ECT's provisions and objectives, as well as the Charter Conference's duties and adopted programmes. It is more than a mere representative, for its role is not limited to administrative and clerical tasks, but also provides professional counsel and assistance to the Charter Conference as well. The Secretary General also plays an important part in the dispute resolution mechanisms established by the ECT. One may conclude that its activity is critical for the functioning and implementation of the ECT.

89 90 91 92

93 94 95

ECT, Annex D (9) states that the Charter Conference may appoint or designate other bodies or fora to perform the functions delegated by the Annex to the Secretariat and the Secretary General. ECT, Annex D. ECT, Annex D (1)(a) and 2(a). The componence of the roster is determined according to the rules set out in ECT, Annex D (7). In this regard the Secretary General is entitled to designate, with the approval of the Charter Conference, a maximum of ten individuals, willing and able to serve as panellists. He/She is also entitled to designate another individual to serve in the panel, in cases where a designee’s term has expired or became incapacitated, resigned or died during the term. ECT, Annex D (3)(c). Ibid., (6)(b). Ibid., (5) and (6).

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ARTICLE 36 VOTING Cătălin Gabriel Stănescu

1)

2)

3) 4)

Unanimity of the Contracting Parties Present and Voting at the meeting of the Charter Conference where such matters fall to be decided shall be required for decisions by the Charter Conference to: a. adopt amendments to this Treaty other than amendments to Articles 34 and 35 and Annex T; b. approve accessions to this Treaty under Article 41 by states or Regional Economic Integration Organizations which were not signatories to the Charter as of 16 June 1995; c. authorize the negotiation of and approve or adopt the text of association agreements; d. approve modifications to Annexes EM, NI, G and B; e. approve technical changes to the Annexes to this Treaty; and f. approve the Secretary-General’s nominations of panelists under Annex D, paragraph (7). The Contracting Parties shall make every effort to reach agreement by consensus on any other matter requiring their decision under this Treaty. If agreement cannot be reached by consensus, paragraphs (2) to (5) shall apply. Decisions on budgetary matters referred to in Article 34(3)(e) shall be taken by a qualified majority of Contracting Parties whose assessed contributions as specified in Annex B represent, in combination, at least three-fourths of the total assessed contributions specified therein. Decisions on matters referred to in Article 34(7) shall be taken by a three-fourths majority of the Contracting Parties. Except in cases specified in subparagraphs (1)(a) to (f), paragraphs (2) and (3), and subject to paragraph (6), decisions provided for in this Treaty shall be taken by a three-fourths majority of the Contracting Parties Present and Voting at the meeting of the Charter Conference at which such matters fall to be decided. 435

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5)

6)

7)

8)

For purposes of this Article, ‘Contracting Parties Present and Voting’ means Contracting Parties present and casting affirmative or negative votes, provided that the Charter Conference may decide upon Rules of Procedure to enable such decisions to be taken by Contracting Parties by correspondence. Except as provided in paragraph (2), no decision referred to in this Article shall be valid unless it has the support of a simple majority of the Contracting Parties. A Regional Economic Integration Organization shall, when voting, have a number of votes equal to the number of its member states which are Contracting Parties to this Treaty; provided that such an Organization shall not exercise its right to vote if its member states exercise theirs, and vice versa. In the event of persistent arrears in a Contracting Party’s discharge of financial obligations under this Treaty, the Charter Conference may suspend that Contracting Party’s voting rights in whole or in part.

COMMENTARY 36.01 The ECT contains provisions on the voting mechanisms by which the members to the Charter Conference can make decisions falling into its area of competence.1 These provisions are supplemented by the provisions contained in the Rules of Procedure, adopted by the Charter Conference.2 The rules set out, on the one hand, whom can vote and how votes are exercised, and, on the other hand, the number of votes needed to reach a decision. A. Who can vote 36.02 Each Contracting Party and Signatory (when applicable) is entitled to one vote, provided they are not in arrears in paying their financial contributions to the Secretariat’s budget in an amount that either equals or exceeds the amount due for the two preceding years.3 REIOs however, exercise a number of votes equal to the number of member states that are also Contracting Parties to the

1 2 3

ECT, Art 36. Rules of Procedure, rules 16 and 19. Ibid., rule 16(c) corroborated with ECT, Art 36(8). A similar rule regarding the financial obligations stemming out of the Protocol is contained in Art 12(5) of the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference).

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ECT.4 There are, however, two limitations to the REIO's voting rights. The first limitation states that a REIO may not vote when its member states are also exercising their right to vote on their own (limit on double voting).5 The second limitation stems from the general limits on voting, in case of arrears to the Secretariat’s budget. Hence, if a state cannot vote due to this reason, neither can the REIO to which it belongs exercise a vote in its name (to avoid circumvention of voting limitations).6 B. Exercising the right to vote – voting by correspondence Judging by the wording of the ECT, generally voting is expressed by being 36.03 present at the Charter Conference meetings.7 However, the ECT enables the Charter Conference to adopt Rules of Procedure by which decisions can be taken by the Contracting Parties by correspondence.8 Voting by correspondence may be exercised solely by those states and REIOs that are Contracting Parties or Signatories on the date the Chairperson’s message requesting such vote is uploaded on the Secretariat’s website.9 Not all decisions of the Charter Conference may be adopted by corres- 36.04 pondence. The Rules of Procedure seem to indicate that only decisions provided for in Article 36(2) and (4) of the ECT may be taken by correspondence and only when such decisions are needed during the intervals between the meetings of the Conference.10 The decisions appear to be those for which a qualified majority of Contracting Parties or three-quarters of present and voting Contracting Parties is needed: the decisions on budgetary

4

5 6 7 8

9 10

ECT, Art 36(7). See a similar rule in Art 12(4) of the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference). In the latter case, the REIO casts the votes of its member states that are Contracting Parties to the Protocol. Ibid. Rules of Procedure, rule 16(d). ECT, Art 36(5). Ibid., corroborated with Rules of Procedure, rule 19. Decisions taken by correspondence include for instance: the adoption of the Guide on Investment Mediation (Decision CCDEC201612, available on line at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC201612.pdf, last visited on 02.01.2018), confirmation of the new date of the annual meeting of the Energy Charter Conference (Decision CCDEC201614, available online at: https://energycharter.org/fileadmin/DocumentsMedia/ CCDECS/2016/CCDEC201614.pdf, last visited on 02.01.2018), or the appointment of a new Vice-Chair of the Conference (Decision CCDEC201618, last visited on: https://energycharter.org/fileadmin/Documents Media/CCDECS/2016/CCDEC201618.pdf, last visited on 02.01.2018). Rules of Procedure, rule 19(d). Ibid., rule 19(a).

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matters11 and, respectively, any other decision except the cases specified in subparagraphs 1 (a)–(f), paragraphs 2 and 3.12 36.05 The Rules of Procedure also set out the steps to be followed in case of a vote by correspondence. Initiation of such vote belongs either to the Chairperson of the Conference or may stem from the request placed by a Contracting Party or a Signatory. The decision on whether a vote by correspondence shall take place lies with the Chairperson of the Conference, who, following a positive decision, instructs the Secretariat to upload a message on its webpage,13 containing all the information deemed necessary and sufficient by the Chairperson.14 The decision of the Charter Conference on the matter subjected to the vote by correspondence is deemed adopted with immediate effect if no objections are received within the set deadline. The date and hour by which any opposition must be submitted are determined by the Chairperson; however, they may not be set earlier than 20 days from the day of upload of the message thereof on the Secretariat’s webpage.15 Where a decision is approved by correspondence, a confirmation message is uploaded on the Secretariat’s website.16

11

12 13 14 15 16

See for instance Decision CCDEC201634 – Adjustments to the Secretariat’s draft Budget for 2017, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC201634.pdf, last visited on 02.01.2018. The preamble states that the decision was taken at the Energy Charter Conference’s ‘27th Meeting held on 25 November 2016.’ ECT, Art 36(2) and (4). The date of publication is relevant for determining which states and REIOs are entitled to vote by correspondence. See supra fn 9. Rules of Procedure, rule 19(b). Ibid., rule 19(c). The provision states that in exceptional circumstances the Chairperson of the Conference may extend the time limit. See for instance Decision CCDEC201701 – Approval by correspondence of the acceptance of two voluntary contributions by the Secretary General, available online at https://energycharter.org/fileadmin/Documents Media/CCDECS/2017/CCDEC201701.pdf, last visited on 02.01.2018. The Decision reads: By CC 593 dated 21 March 2017, delegations were invited to approve the acceptance of the additional amount of the voluntary contribution from the European Commission in connection to the new grant contract between the European Commission and the Energy Charter Secretariat (in the framework of ‘EU action on Energy Policy in Eastern Partnership countries’ project), as well as the financial support from Iran equal to 100,000 US dollars (part of which will be provided in kind and is expected to cover some activities in 2017 and 2018). As specified by Rule 19 of the Rules of Procedure concerning the adoption of decisions by correspondence, members of the Energy Charter Conference were informed that any delegation that wished to object to this proposal should notify the Secretariat of its position in writing by 10 April 2017. No objections were received within the specified time limit. Therefore, on 10 April 2017 the Conference authorised the Secretary General to accept the additional amount of the voluntary contribution from the European Commission, as well as the voluntary contribution from Iran’ (emphasis added).

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C. Voting rules By rule, decisions adopted by the Charter Conference on any Treaty matter 36.06 must be reached by consensus of all Contracting Parties, with two exceptions: a) where the ECT’s provisions require otherwise and b) where the efforts to reach an agreement by consensus have failed.17 At the same time, decisions on strictly procedural matters not provided for in the ECT are by rule (and provided it was not established otherwise) taken by a majority of the Contracting Parties and Signatories that are present and voting in the Conference.18 Consensus is the rule also for recommendations made to the Conference by subsidiary bodies.19 The adoption of consensus as the main rule for decision-making follows the common understanding that ‘for a multilateral treaty to be truly effective, the substance has to be generally acceptable to all the negotiating states, […] especially so for law-making treaties, such as those […] establishing international organizations’.20 With regard to the first category of exceptions, where the ECT expressly 36.07 requires voting, decisions of the Charter Conference may be taken either with unanimity, or with three-quarters or qualified majority. Additional qualifications are necessary, for the exceptions refer alternatively either to Contracting Parties Present and Voting or just to Contracting Parties. For instance, while unanimity and the three-quarters generally refer to Contracting Parties Present and Voting at the meeting,21 the qualified majority and one instance of three-quarters majority, refer to Contracting Parties. The importance of the distinction stems also from the provisions of the ECT, which clearly state an additional condition to unanimity or three-quarters majorities, since ‘no decision […] shall be valid unless it has the support of a simple majority of the Contracting Parties’.22 Unanimity of Contracting Parties Present and Voting at the meeting is 36.08 necessary for a number of matters that are exhaustively listed by the treaty: 17

18 19 20 21

22

ECT, Art 36(1) last statement. Agreement by consensus is the rule also under Art 12(1) second statement of the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018). Rules of Procedure, rule 16(a). Ibid., rule 16(b). A. Aust, Modern Treaty Law and Practice (Cambridge University Press, 2013), p. 81. See ECT, Art 36(5) and Art 12(2) of Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference), which both define ‘Contracting Parties Present and Voting’ as ‘Contracting Parties present and casting affirmative or negative votes.’ Ibid., Art 36(6).

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amendments to the ECT,23 accessions to the ECT24 by states or international organizations that did not sign the Charter as of 16 June 1995, negotiations, approvals and adoptions of association agreements, modifications to Annexes EM, NI, W and B, technical changes to the Annexes of the ECT and approval of nominations of panellists under Annex D, paragraph 7, made by the Secretary General, additions and corresponding deletions of items to and from Annexes EM II, EM I, EQ II and EQ I.25 As already mentioned, in order for the decision to be valid, the unanimous decision of present and voting parties must also represent the simple majority of all parties to the ECT.26 36.09 Where unanimity is not needed, decisions may be taken with three-quarters majority or a qualified majority. There are two types of three-quarters majority votes for decision-making. The main one is that of Contracting Parties Present and Voting at the meeting of the Charter Conference, applicable to all decisions provided by the ECT, with the exclusion of the decisions requiring unanimity or other.27 The second type of decision requiring three-quarters majority is the one regarding revision and amendment of the Charter Conference’s functions,28 in which case decisions are taken with a three-quarters majority of all Contracting Parties. A qualified majority of Contracting Parties is required for decisions on budgetary matters,29 provided they represent at least three-quarters of the total assessed contributions specified in Annex B to the ECT.30 As in the case of revision of Charter Conference’s functions, the three-quarters refer to the totality of Contracting Parties, and not just to those present and voting. 23

24

25 26

27 28 29

30

The same rule applies in case of adoption of amendments to the Protocol. See Art 12(1)(a) of Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018). A similar rule applies in case of approval of accessions to the Protocol. See Art 12(1)(b) Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/ DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018). ECT, Art 36(1). A similar rule is contained in Art 12(3) of Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_Final_Act.pdf, last visited on 02.01.2018). ECT, Art 36(4). Ibid., Art 36(4) corroborated with Art 34(7). See also ibid., Art 34(3)(e). For a similar rule see Art 12 (1) final statement of Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex 3 to the Final Act of the European Energy Charter Conference, available online at: https://energycharter.org/fileadmin/DocumentsMedia/Legal/1994_ Final_Act.pdf, last visited on 02.01.2018). Ibid., Art 36(2).

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D. Conclusions The voting rule requiring consensus and the exceptions requiring either 36.10 unanimity or some form of qualified majority place the ECT within the trend of multilateral treaties that seek to ensure true effectiveness of their substance. While consensus provides general acceptability, the voting quotas ensure that the decision-making process does not remain blocked if consensus cannot be reached. Nevertheless, seeking consensus may increase the complexity of the ECT's text, which is not short of complexity or obscurity already.

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ARTICLE 37 FUNDING PRINCIPLES Cătălin Gabriel Stănescu

1) 2) 3)

4) 5)

Each Contracting Party shall bear its own costs of representation at meetings of the Charter Conference and any subsidiary bodies. The cost of meetings of the Charter Conference and any subsidiary bodies shall be regarded as a cost of the Secretariat. The costs of the Secretariat shall be met by the Contracting Parties assessed according to their capacity to pay, determined as specified in Annex B, the provisions of which may be modified in accordance with Article 36(1)(d). A Protocol shall contain provisions to assure that any costs of the Secretariat arising from that Protocol are borne by the parties thereto. The Charter Conference may in addition accept voluntary contributions from one or more Contracting Parties or from other sources. Costs met from such contributions shall not be considered costs of the Secretariat for the purposes of paragraph (3).

COMMENTARY 37.01 As any other organization, the Charter Conference requires funding for proper functioning and fulfilment of its duties. Thus, the ECT provides for funding principles by which costs generated by the activity of the Charter Conference, the Secretariat and the subsidiary bodies are covered by the members. A. Types of costs 37.02 There are two types of costs associated with the Charter Conference: parties’ representation costs and Conference’s or subsidiary bodies’ meeting costs. 442

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The latter are regarded as costs of the Secretariat1 and will be integrated in the Secretariat’s budgetary expenses, together with all its expenses with staff, location, and activity. However, although the two are connected, they are not the same and their funding principles differ. The representation costs are straightforward and easy to settle as the ECT 37.03 states that each Contracting Party shall bear its own costs of representation at the meetings of the Charter Conference and any subsidiary bodies.2 The budgetary costs of the Secretariat, however, although covered by the Contracting Parties, are assessed according to their capacity to pay, which is determined in Annex B to the ECT.3 In other words, the administrative costs of the Charter Conference or any subsidiary bodies meetings are to be covered not equally by the parties, but based on a percentage assessed according to their economic situation. B. Determination of financial contributions The percentage is determined by employing a formula provided in Annex B, 37.04 which states that contributions to be paid by Contracting Parties are determined annually on the basis of their percentage contributions required under the latest available United Nations Regular Budget Scale of Assessment (supplemented by information on theoretical contributions for any Contracting Parties which are not UN members).4 The latest United Nations Scale of Assessment was adopted by Resolution 70/245 of 23.12.2015.5 It provides that for the 2016–18 period, the assessment is to be based on the following elements and criteria (a) estimate of gross national income; (b) average statistical base periods of three and six years; (c) conversion rates based on market exchange rates (except where that would cause excessive fluctuations and distortions in the income of some member states); (d) the debt-burden approach employed in the scale of assessments for the 2013–15 period; (e) a low per capita income adjustment of 80 per cent, with a threshold per capita income limit of the average per capita gross national income of all member states for a statistical base periods; (f) a minimum assessment rate of 0.001 per cent; (g) a maximum assessment rate for the least developed countries of 0.01 per cent; and (h) a maximum assessment rate of 22 per cent. The latest assessment of Member States’ advances to the Working Capital Fund and 1 2 3 4 5

ECT, Art 37(2). Ibid., Art 37(1). Ibid., Art 37(3). Ibid., Annex B (1). Available online at http://daccess-ods.un.org/access.nsf/GetFile?OpenAgent&DS=a/res/70/245&Lang=E& Type=DOC, last visited on 02.01.2018.

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contributions to the United Nations regular budget dates from 2017.6 However, the UN contributions are adjusted so that the total is 100 per cent7 of the Secretariat’s costs. 37.05 The List of National Contributions to the Budget is included in each yearly draft budget, usually in Annex III and is amended once the UN scale of assessments changes (the next change being scheduled for 2019).8 A payment Protocol, meant to assure payment of the Secretariat’s costs will have to be signed.9 Contract Parties that are persistently in arrears regarding their financial obligations under the ECT may have their right to vote suspended, either in full or in part, by the Charter Conference.10 At the same time, they are not allowed to nominate a candidate for the post of Secretary General.11 C. Voluntary contributions 37.06 Another provision is the one referring to the Charter Conference’s possibility of accepting voluntary contributions from either one or more Contracting Parties or from other sources. The provision that covers what may qualify as individual or joint sponsorship states that any costs covered with such contributions are not to be considered costs of the Secretariat for the purposes of paragraph 3 (meaning costs covered by the proportional contributions of the Contracting Parties).12 The intent is to exclude from the budgetary expenses of the Secretariat all costs covered by sponsorships and ensure that sponsorships are directed towards their intended programmes.13 At the same time,

6 7 8

9 10 11 12 13

Available online at: https://daccess-ods.un.org/access.nsf/GetFile?Open&DS=ST/ADM/SER.B/955& Lang=E&Type=DOC, last visited on 02.01.2018. Annex B (2) to the ECT. See for instance Decision CCDEC201712 – Budget for 2018–2019, Annex 1 and 3, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2017/CCDEC201712.pdf, last visited 02.01.2018. ECT, Art 47(4). Ibid., Art 36(8). See Rules of Procedure, rule 20.4. ECT, Art 37(5). See for instance Decision CCDEC201703 regarding the approval by correspondence of the acceptance of a voluntary contribution by OFID, with respect to a potential contribution of 145,937.00 USD from OFID in connection to a grant contract for providing technical assistance and capacity building regarding the energy sector in Palestine, available online at: https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/ 2017/CCDEC201703.pdf, last visited on 02.01.2018 or Decision CCDEC201606 regarding the approval of the acceptance of a voluntary contribution from the European Commission of maximum 1,050,000 in relation to the project in EU Eastern Partnership and Central Asian countries (through a Grant Contract), available online at https://energycharter.org/fileadmin/DocumentsMedia/CCDECS/2016/CCDEC201606.pdf, last visited on 02.01.2018.

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FUNDING PRINCIPLES

where such programmes are funded from the Secretariat’s budget, external contributions serve to decrease the Contracting Parties’ financial burden.14 D. Conclusions The funding principles ensure an equitable and fair allocation of costs between 37.07 Contracting Parties. Thus, following the principles of the UN that allocate costs on the basis of parties' capacity to pay helps avoid the pitfalls of equal cost-sharing that might deter poorer countries from joining out of a fear of being excluded from the decision-making process due to an incapacity to cover their contribution and ensures that wealthier states undertake a higher financial burden.

14

For instance in Decision CCDEC201701 – Approval by correspondence on the acceptance of two voluntary contributions by the Secretary General, in regard to the voluntary financial support from Iran, it is stated that ‘part […] is expected to cover some activities in 2017 and 2018’, available online at: https://energycharter.org/ fileadmin/DocumentsMedia/CCDECS/2017/CCDEC201701.pdf, last visited on 02.01.2018.

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Part VIII FINAL PROVISIONS

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ARTICLE 38 SIGNATURE Odysseas G. Repousis

This Treaty shall be open for signature at Lisbon from 17 December 1994 to 16 June 1995 by the states and Regional Economic Integration Organizations which have signed the Charter.

COMMENTARY A. Introduction Article 38 is the first of ECT’s Part VIII, which contains its ‘Final Provisions’. 38.01 Specifically, Part VIII is comprised of 13 Articles: signature (Art. 38); ratification, acceptance or approval (Art. 39); application to territories (Art. 40); accession (Art. 41); amendments (Art. 42); association agreements (Art. 43); entry into force (Art. 44); provisional application (Art. 45); reservations (Art. 46); withdrawal (Art. 47); status of annexes and decisions (Art. 48); depository (Art. 49); and authentic texts (Art. 50). B. Scope Article 38 determines the states and Regional Economic Integration Organ- 38.02 izations (REIOs) which may sign the ECT. By contrast, Articles 39, 41 and 44 set out the rules for the ECT’s regular entry into force, an exception to which is provisional application, which is governed by Article 45. Indeed, had it not been for Article 45, consent to be bound by the ECT would normally have been subject to ratification, acceptance or approval. However, by operation of Article 45 and absent a contrary declaration under Article 45(2), signature, pursuant to Article 38, amounts to consent to be bound by the ECT provisionally, albeit subject to the terms of Article 45. 447

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C. Eligibility and temporal issues 38.03 Article 38 contains two limitations. First, it is limited to those states and REIOs, which had signed the Energy Charter on 17 December 1991. These states and ReEIOs were the following: Albania, Armenia, Australia, Austria, Azerbaijan, Belgium, Belorussia, Bulgaria, Canada, Cyprus, Czechoslovakia, Denmark, Estonia, The European Communities, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, The Interstate Economic Committee, Ireland, Italy, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, The Netherlands, Norway, Poland, Portugal, Romania, The Russian Federation, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, The United Kingdom of Great Britain and Northern Ireland, The Unites States of America, Uzbekistan, and Yugoslavia. 38.04 Second, the ECT was open for signature for a prescribed interval of time (17 December 1994 to 16 June 1995) after which new states or REIOs would have to accede to the ECT in accordance with Article 41. D. State practice 38.05 The signatories to the ECT are the following: Afghanistan, Albania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union and Euratom, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, Montenegro, The Netherlands, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, The former Yugoslav Republic of Macedonia, Turkey, Turkmenistan, Ukraine, The United Kingdom of Great Britain and Northern Ireland, and Uzbekistan. 38.06 Of the signatories set out above, Australia, Norway and the Russian Federation have not ratified the ECT. Moreover, Belarus applies the ECT on a provisional basis, as did the Russian Federation until 18 October 2009. E. Succession cases 38.07 While Czechoslovakia and Yugoslavia were the initial signatories to the Energy Charter, the ECT was subsequently not signed by Serbia, but was 448

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SIGNATURE

signed by the Czech Republic (on 8 June 1995) and Slovakia (on 17 December 1994). The Former Yugoslav Republic of Macedonia1 and Montenegro2 acceded to the ECT at a much later stage.

1 2

Approved for accession by the Energy Charter Conference on 8 July 1997. See Accession of the former Yugoslav Republic of Macedonia to the Energy Charter Treaty (CCDEC199705). Approved for accession by the Energy Charter Conference on 6 December 2013. See Terms and Conditions for the Accession of Montenegro to the Energy Charter Treaty (CCDEC201314).

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ARTICLE 39 RATIFICATION, ACCEPTANCE OR APPROVAL Odysseas G. Repousis

This Treaty shall be subject to ratification, acceptance or approval by signatories. Instruments of ratification, acceptance or approval shall be deposited with the Depository.

COMMENTARY A. Introduction 39.01 Article 39 (along with Arts 41 and 44) sets out the rules for the ECT’s regular entry into force, which may be done through ratification1 and acceptance or approval.2 39.02 Article 49 designates the Government of the Portuguese Republic as the ECT’s depositary. The designation of a government that sponsors a treaty as its depositary is common in international practice. The depositary receives all instruments of ratification, acceptance or approval, territorial declarations under Article 40, notices on provisional application under Article 45 and any notices of withdrawal in accordance with Article 47.

1

2

See also Vienna Convention on the Law of Treaties, 23 May 1969, 1155 UNTS 331, Art. 14(1): ‘The consent of a State to be bound by a treaty is expressed by ratification when: (a) The treaty provides for such consent to be expressed by means of ratification.’ [hereinafter Vienna Convention]. See also Vienna Convention, Art. 14(2): ‘The consent of a State to be bound by a treaty is expressed by acceptance or approval under conditions similar to those which apply to ratification.’

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RATIFICATION, ACCEPTANCE OR APPROVAL

B. State practice The states or Regional Economic Integration Organizations that have ratified 39.03 the ECT are the following: Afghanistan, Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union and Euratom, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, Montenegro, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, The former Yugoslav Republic of Macedonia, Turkey, Turkmenistan, Ukraine, The United Kingdom of Great Britain and Northern Ireland, and Uzbekistan.

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ARTICLE 40 APPLICATION TO TERRITORIES Odysseas G. Repousis

(1)

(2)

(3)

(4)

Any state or Regional Economic Integration Organization may at the time of signature, ratification, acceptance, approval or accession, by a declaration deposited with the Depositary, declare that the Treaty shall be binding upon it with respect to all the territories for the international relations of which it is responsible, or to one or more of them. Such declaration shall take effect at the time the Treaty enters into force for that Contracting Party. Any Contracting Party may at a later date, by a declaration deposited with the Depositary, bind itself under this Treaty with respect to other territory specified in the declaration. In respect of such territory the Treaty shall enter into force on the ninetieth day following the receipt by the Depositary of such declaration. Any declaration made under the two preceding paragraphs may, in respect of any territory specified in such declaration, be withdrawn by a notification to the Depositary. The withdrawal shall, subject to the applicability of Article 47(3), become effective upon the expiry of one year after the date of receipt of such notification by the Depositary. The definition of ‘Area’ in Article 1(10) shall be construed having regard to any declaration deposited under this Article.

COMMENTARY A. Introduction 40.01 Article 40, along with Article 1(10), determines the territorial scope of the ECT. The territorial coverage of the ECT is important in at least two specific respects. First, it delimits those areas where the ECT applies, be that for purposes of investment and trade or energy transit. Second, since the overseas territories of certain ECT Contracting Parties constitute separate jurisdictions 452

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that also have separate corporate registries, Article 40 and Article 1(10) also are important in determining the scope of covered investors under the ECT. Owing mainly to the practice of the United Kingdom in respect of Gibraltar, 40.02 Article 40 also raises various important issues, insofar as the relationship between Articles 40 and 45 is concerned. This issue is examined in more detail below in Section VI. B. Territories for the international relations of which a contracting party is responsible The wording of Article 40 is indicative of the fact that some of the key 40.03 signatories to the ECT are European states (such as France and the UK) that are in possession of overseas departments or territories. Yet, the wording used in Article 40 is echoed in older treaties (especially those of the early decolonization era), where territorial extension clauses, of the type included in Article 40, were typically referred to as colonial extension clauses.1 Pursuant to Article 29 of the Vienna Convention ‘[u]nless a different inten- 40.04 tion appears from the treaty or is otherwise established, a treaty is binding upon each party in respect of its entire territory’.2 It could thus be argued that Article 40 derogates from the customary international law rule on the territorial application of treaties, since, absent a territorial declaration, there is a presumption against the application of the ECT to ‘all’ or to ‘one or more of’ the territories for the international relations of which an ECT Contracting Party is responsible. However, the use of the verb ‘may’ somewhat perplexes the matter inasmuch 40.05 as it does not render relevant territorial declarations mandatory. In other words, under the Vienna Convention a treaty would be binding in respect of the entire territory of a Contracting Party unless a different intention appears from the treaty or is otherwise established. Conversely, ECT’s territorial application ‘may’ be extended to ‘all the territories for the international 1

2

See, e.g., 1948 Convention on the Prevention and Punishment of the Crime of Genocide, 78 UNTS 277, Art. XII; 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States, 575 UNTS 159, Art. 70; Oliver Dorr and Kirsten Schmalenbach (eds), Vienna Convention on the Law of Treaties: A Commentary (Springer, London 2012) 492. See also Mark E. Villiger, Commentary on the 1969 Vienna Convention on the Law of Treaties (Brill, Leiden 2009) 387–95; Antony Aust, Modern Treaty Law and Practice (2nd edn, CUP, Cambridge 2007) 178–91; Olivier Corten and Pierre Klein (eds) The Vienna Conventions on the Law of Treaties: A Commentary (OUP, Oxford 2011) 639–57; ILC, Draft Articles on the Law of Treaties with Commentaries, YILC, Vol. II (1966) Art. 25, para. 6 [hereinafter Vienna Convention Commentary].

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relations of which’3 an ECT member is responsible but Article 40 does not expressly deal with the situation where no relevant territorial declaration is made. C. Territorial declarations and the ECT ‘Area’ 40.06 Article 40(4) makes clear that the definition of the term ‘Area’ included in Article 1(10) must be construed having regard to any declaration deposited under Article 40. 40.07 Article 1(10) employs the term ‘Area’, which is meant to include: (a) the territory under [a Contracting Party’s] sovereignty, it being understood that territory includes land, internal waters and the territorial sea; and (b) subject to and in accordance with the international law of the sea: the sea, sea-bed and its subsoil with regard to which that Contracting Party exercises sovereign rights and jurisdiction.

40.08 The combination of Article 1(10) and Article 40(4) leads to two main conclusions. First, unless a territorial extension declaration is made, the ECT will not apply to non-metropolitan territories. Second, when a territorial declaration is made, on the one hand, nationals or companies incorporated in that territory will be considered covered investors (i.e., investors of a Contracting Party), and investments realized in those territories will be considered investments made in the Area of a Contracting Party. This is an important feature, considering that the majority of overseas territories form separate jurisdictions that have promulgated their own company laws, while also retaining separate commercial registries. D. Temporal issues 40.09 Article 40 is very flexible when it comes to the time of territorial declarations. Article 40(1) provides that such declarations may be made ‘at the time’ of signature, ratification, acceptance, approval or accession, and should be addressed to and deposited with the depositary. Therefore, territorial declarations may be made at the time of consent to be bound by the ECT. However, such territorial declarations take effect ‘at the time’ the ECT ‘enters into force for that Contracting Party’.4

3 4

ECT, Art. 40(1). ECT, Art. 40(1) in fine.

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This means that for the initial signatories to the ECT, any territorial 40.10 declarations took effect on 16 April 1998, whereupon the ECT entered into force. However, territorial declarations made by ECT parties that acceded to the ECT at a later stage take effect at the time the ECT enters into force for that Contracting Party. However, Article 40 is silent about the effect of territorial declarations during 40.11 the provisional application of the ECT. This issue is further explored below in Section VI. Pursuant to Article 40(2), a Contracting Party may also make territorial 40.12 declarations ‘at a later date’. However, such declarations only enter into force 90 days following their receipt by the depositary. An ECT Contracting Party is free to withdraw any territorial declarations 40.13 made either prior to or after the entry into force of the ECT (in respect of that Contracting Party). This is provided for in Article 40(3), which nevertheless subjects this right to the applicability of Article 47(3). Specifically, Article 40(3) provides that withdrawals of territorial declarations become effective upon the expiry of one year after their receipt by the depositary. However, the ECT continues to apply to investments made in those territories to which it was previously applied, or to investors of those territories, for an additional period of 20 years.5 E. State practice At the time of signature, the only ECT signatory that had made a territorial 40.14 declaration under Article 40 was Denmark, which reiterated its position that since the Energy Charter did not apply to Greenland and the Faroe Islands, nor did the ECT.6

5 6

ECT, Art. 47(3). See Final Act of the European Energy Charter Conference, Declaration 6: Denmark recalls that the European Energy Charter does not apply to Greenland and the Faroe Islands until notice to this effect has been received from the local governments of Greenland and the Faroe Islands. In this respect Denmark affirms that Article 40 of the Treaty applies to Greenland and the Faroe Islands.

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40.15 At the time of ratification (11 December 1997), the Netherlands did not extend the application of the ECT to the ex-Netherlands Antilles but merely stated its acceptance for the ECT to apply to the European part of the Kingdom.7 40.16 Similarly, at the time of ratification (16 December 1997), the UK advanced a territorial declaration pursuant to Article 40, whereby it extended the ECT to the Bailiwick of Jersey and the Isle of Man.8 The ECT Secretariat has inscribed UK’s ratification on 13 December 1996 and the deposit of the instrument of ratification on 16 December 1997. However, the UK Treaty Series indicates that ratification took place on 16 December 1997 whereby the ECT was extended to Jersey and the Isle of Man.9 Shortly after the above ratification, the UK also extended the ECT to the Bailiwick of Guernsey (11 August 1998).10 F. Territorial declarations and provisional application 1. The relationship between Articles 40 and 45

40.17 Unlike Article 40, Article 45 does not deal with territorial declarations made during the provisional application of the ECT. In fact, the structure of Article 40 discussed above, denotes that territorial declarations under Article 40 become effective only after the entry into force of the ECT for a Contracting Party. 40.18 Regardless, the UK was the only Contracting Party that made a territorial declaration under Article 45 in respect of Gibraltar. First, the UK was not among those ECT signatories that did not accept the provisional application of the ECT in accordance with Article 45(2).11 Second, the UK, unlike the Netherlands, did not express its will to merely provisionally apply the treaty to its metropolitan territories.12 In this regard, since Article 45 does not contain a 7

8 9 10 11

12

See online (last accessed on 26 November 2017) and , at G (last accessed on 26 November 2017). Energy Charter Treaty, 78 UK Treaty Series (2000) at 72. The UK ratified the ECT on 16 December 1997 and the ECT entered into force on 16 April 1998. Ibid., at 1 and 72. Declaration of 11 August 1998, online: (last accessed on 24 November 2017). See Annex PA to the ECT that lists the Czech Republic, Germany, Hungary, Lithuania, Poland and Slovakia, which were the states that did not accept the provisional application of the ECT. All of these states have now ratified the ECT. See , at G (last accessed on 24 November 2017).

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territorial extension clause (like Art. 40), this could arguably mean that absent any contrary statement, an ECT signatory accepts the provisional application of the ECT in respect of its entire territory. This outcome would be consistent with Article 29 of the Vienna Convention discussed above. However, upon signature, the UK declared that ‘provisional application under 40.19 Article 45(1) shall extend to the United Kingdom of Great Britain and Northern Ireland and to Gibraltar’.13 In accordance with this declaration, the UK thus applied the ECT provisionally to Gibraltar from 17 December 1994, whereupon it signed the ECT and made the territorial declaration set out above. In this respect, it remains uncertain whether the provisional application of the ECT to Gibraltar ceased upon the entry into force of the ECT in respect of the UK. In this respect, it should be recalled that the UK, through its instrument of 40.20 ratification, extended (in accordance with Art. 40), the application of the ECT to the Bailiwick of Jersey and the Isle of Man, but made no suchlike reference to Gibraltar.14 Moreover, after the entry into force of the ECT the UK also extended the application of the ECT to Guernsey.15 As explained above, the UK ratified the ECT on 16 December 1997, and the ECT entered into force on 16 April 1998 (pursuant to Art. 44). Therefore, the ECT applied to Jersey and the Isle of Man for roughly four months, but was never applied provisionally to Guernsey. In accordance with Article 45(1), ‘[e]ach signatory agrees to apply this Treaty 40.21 provisionally pending its entry into force for such signatory in accordance with Article 44’. Article 45 therefore provides for the provisional application of the ECT pending its entry into force. However, the UK, upon and since the entry into force of the ECT on 16 April 1998, has made no declaration in respect of Gibraltar. Article 40 provides that territorial declarations have effect from the time ‘the 40.22 Treaty enters into force for that Contracting Party’.16 Similarly, Article 45(1) provides for provisional application pending the ‘entry into force for such signatory in accordance with Article 44’.17 Furthermore, Article 45(3) provides that a signatory ‘may terminate its provisional application of this 13 14 15 16 17

Declaration of 17 December 1994, online: (last accessed on 24 November 2017). The UK ratified the ECT on 16 December 1997 and the ECT entered into force on 16 April 1998. Declaration of 11 August 1998, online: (last accessed on 24 November 2017). ECT, Art. 40(1). Ibid., Art. 45(1).

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Treaty by written notification […] of its intention not to become a Contracting Party to the Treaty’. However, the UK did become a party to the ECT. The question that therefore arises is whether the ECT may still apply in respect of part of a signatory’s territory (here Gibraltar), even after the entry into force of the ECT for such signatory (here the UK). 2. Provisional application in respect of part of a signatory’s territory

40.23 As explained above, the UK applied the ECT provisionally to Gibraltar from the date of signature (17 December 1994). However, at the time of ratification (16 December 1997) and thereafter, the UK did not advance a territorial declaration with respect to Gibraltar, as it did with respect to the Isle of Man and the Bailiwicks of Jersey and Guernsey. 40.24 At the same time, the UK has not revoked the provisional application of the ECT to Gibraltar pursuant to Article 45(3). In this respect, Article 45(3) makes reference to the termination of provisional application by a signatory, and not part of signatory, when such signatory does not intend to become a Contracting Party. The wording of Article 45(1) and 45(3) therefore suggests that provisional application with respect to a signatory comes to an end when such signatory becomes a Contracting Party. In this regard, it is undisputed that the UK did become a party to the ECT. What is nevertheless disputed is whether the ECT continues to apply provisionally to Gibraltar even after its entry into force with respect to the UK. 40.25 In this respect, the Vienna Convention allows for the provisional application of ‘[a] treaty or part of a treaty pending its entry into force if […] the treaty itself so provides’ or ‘[t]he negotiating States have in some other manner so agreed’.18 Such provisional application: of a treaty or a part of a treaty with respect to a State shall be terminated if that State notifies the other States between which the treaty is being applied provisionally of its intention not to become a party to the treaty.19

40.26 The latter rule does not apply when ‘the treaty otherwise provides or the negotiating States have otherwise agreed’.20 However, the ECT does not appear to provide otherwise nor has there been any other agreement between

18 19 20

See Vienna Convention, Art. 25 (1). Ibid, Art. 25(2). Ibid.

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the parties to the ECT. Moreover, the Vienna Convention and its Commentary merely refer to the provisional application of a treaty or part of a treaty and not to the provisional application for part of a signatory.21 In addition, prominent authorities on the law of treaties as well as state 40.27 practice on the provisional application of treaties do not envisage the scenario encountered with respect to Gibraltar, namely the provisional application of a treaty for part of a signatory even after the entry into force of this treaty for such signatory.22 On 27 July 2004, the British Embassy in Lisbon advanced a note verbale to the 40.28 depositary of the ECT, the Portuguese Government, providing as follows: The UK did apply the Energy Charter Treaty provisionally to the UK and Gibraltar at signature. However, the Government of Gibraltar subsequently informed Her Majesty’s Government that they did not wish to seek ratification of the Treaty, since at that time the Treaty would not have had any practical effect for the territory. Gibraltar was therefore not included in the UK’s instrument of ratification relating to the Treaty, deposited on 17 December 1997. The Government of Gibraltar do however plan to introduce legislation to ratify the Treaty at a later date. Her Majesty’s Government are currently liaising with the Government of Gibraltar on the drafting of the necessary legislation.23

Three years after this verbal note, the Legislature of Gibraltar indeed passed a 40.29 bill for an ‘Act to implement in Gibraltar the provisions of the Energy Charter Treaty’24 but for this bill to become law, it needs to be ‘assented to by Her Majesty or by the Governor on behalf of Her Majesty.’25 This does not however appear to have happened. In addition, the past tense used in the 21 22

23 24

25

Vienna Convention, Art. 25; Vienna Convention Commentary, Art. 22, paras 1–4. Antony Aust, Modern Treaty Law and Practice (2nd edn, CUP, Cambridge 2007) 139–41; René Lefeber, ‘The Provisional Application of Treaties’ in Jan Klabbers and René Lefeber (eds) Essays on the Law of Treaties (Kluwer Law International, The Hague 1998) 84–5; Mahnoush H. Arsanjani and W. Michael Reisman, ‘Provisional Application of Treaties in International Law: The Energy Charter Treaty Awards’ in Enzo Cannizzaro (ed.) The Law of Treaties Beyond the Vienna Convention (OUP, New York 2011) 86–90; Thomas Roe and Matthew Happold (eds) Settlement of Investment Disputes under the Energy Charter Treaty (CUP, Cambridge 2011) 67. See also First report on the provisional application of treaties prepared by Mr Juan Manuel Gómez-Robledo, Special Rapporteur, 3 June 2013, UN Doc A/CN4/664; Second report on the provisional application of treaties prepared by Mr Juan Manuel Gómez-Robledo, Special Rapporteur, 9 June 2014, UN Doc A/CN4/675; Report of the International Law Commission on the work of its sixty-third and sixty-fourth sessions, 18 January 2013, UNGA A/CN4/657, paras 39–46. Note Verbale 78/2004 of 27 July 2004 (original with the Depositary). See 3rd Supplement to the Gibraltar Gazette, No. 3,582 of 8th February 2007, B. 01/07, Bill for an ACT to implement in Gibraltar the provisions of the Energy Charter Treaty, online: (last accessed on 22 November 2017). See Gibraltar Constitution, Art. 33(1) (14 December 2006), online: (last accessed on 22 November 2017).

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above verbal note (‘did apply’) appears to suggest that the ECT ceased to apply to Gibraltar after its entry into force. 40.30 Despite this, arbitral tribunals under the ECT have found that the ECT applies to Gibraltar even after its entry into force in respect of the UK. 3. Arbitral practice

40.31 In Yukos, Hulley and Veteran v. Russia (the Yukos cases),26 the issue that was relevant for the application of the ECT to Gibraltar arose in connection with the application of Article 17 of the ECT that encapsulates the denial of benefits clause. In general, investment treaties cover (as investors) legal entities whose true and beneficial owners are not nationals of a Contracting Party.27 In this regard, denial of benefits provisions, such as those of the ECT set some additional requirements.28 In particular, Article 17 of the ECT is included in Part III that contains the substantive rights of protection accorded to foreign investors and enables ECT Contracting Parties to deny the benefits of the ECT to ‘a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized’.29 40.32 A key issue of Article 17 is the term ‘third state’.30 In previous ECT cases, this term has been interpreted to refer to a non-ECT member state and not a third party to the dispute.31 In the Yukos cases, the claimant of Yukos v. Russia, Yukos Universal Ltd (YUL) was a company organized under the laws of the Isle of Man and wholly-owned by GML a company incorporated in Gibraltar. 26

27 28

29 30

31

Yukos Universal Ltd (Isle of Man) v. The Russian Federation, PCA Case No. AA 227, UNCITRAL, 30 November 2009, Interim Award on Jurisdiction and Admissibility; Hulley Enterprises Ltd (Cyprus) v. The Russian Federation, PCA Case No. AA 226, UNCITRAL, 30 November 2009, Interim Award on Jurisdiction and Admissibility; Veteran Petroleum Ltd (Cyprus) v. The Russian Federation, PCA Case No. AA 228, UNCITRAL, 30 November 2009, Interim Award on Jurisdiction and Admissibility. Mark Feldman, ‘Setting Limits on Corporate Nationality Planning in Investment Treaty Arbitration’ (2012) 27(2) ICSID Review 281, 296. Paul M. Blyschak, ‘Yukos Universal v. Russia: Shell Companies and Treaty Shopping in International Energy Disputes’, (2010–2011) 10 Rich J Global L & Bus 179, 208–9; Anthony C. Sinclair, ‘The Substance of Nationality Requirements in Investment Treaty Arbitration’ (2005) 20(2) ICSID Review 357, 378–87. ECT, Art. 17(1) (emphasis added). See generally Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, 8 February 2005, Decision on Jurisdiction, paras 146–165; Plama Consortium Ltd v. Republic of Bulgaria, ICSID Case No. ARB/03/24, 27 August 2008, Award, paras 79–95; Yukos v. Russia (n 30) paras 443–546; Limited Liability Company Amto v. Ukraine, SCC Case No. 080/2005, 26 March 2008, Final Award, paras 62–69; Libananco Holdings Co Ltd v. Republic of Turkey, ICSID Case No. ARB/06/8, 2 September 2011, paras 553–556. Matteo M. Winkler, ‘Arbitration without Privity and Russian Oil: The Yukos case before the Houston Court’ (2006) 27 U Pa J Int’l Econ L 115, 117; Zachary Douglas, The International Law of Investment Claims (CUP, Cambridge 2009) 468–72. Plama v. Bulgaria, Jurisdiction, ibid., para. 169; Plama v. Bulgaria, Award, ibid., paras 79–95. Similarly Amto v. Ukraine, ibid., para. 62; Libananco v. Turkey, ibid., paras 553–556.

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GML was in turn owned by seven Guernsey trusts.32 In Hulley v. Russia, the claimant was a Cypriot company whose sole shareholder was YUL that, as just indicated, was organized under the laws of the Isle of Man.33 Lastly, the claimant in Veteran v. Russia also was a Cypriot company whose ownership and control were vested with Chiltern, a trust settled in Jersey, whose settlor as well as beneficiary was YUL.34 The question that was therefore at issue in the Yukos cases and is relevant to 40.33 this discussion is whether Russia’s invocation of the denial of benefits provision satisfied the first limb of Article 17 that requires ownership or control by a national of a third state.35 Given that the UK had extended the application of the ECT to the Isle of Man, Jersey and Guernsey, and applied the ECT provisionally to Gibraltar, the tribunal in Yukos concluded that the first limb of Article 17 was not satisfied as the claimants were owned or controlled by nationals of the UK.36 However, the Yukos tribunal did not determine whether the ECT continued to apply to Gibraltar on a provisional basis. Rather, that tribunal merely found that since ownership or control was exercised by the seven Guernsey trusts, with Guernsey explicitly covered by the UK’s declarations, that was the end of the matter. In Petrobart v. Kyrgyzstan,37 the claimant was a company registered in 40.34 Gibraltar.38 In the course of the proceedings, Kyrgyzstan objected to the application of the ECT to Gibraltar, thus objecting to jurisdiction ratione personae.39 In deciding the matter, the Petrobart tribunal focused on Article 45(3) of the ECT and the non-revocation of the declaration made by the UK in respect of Gibraltar. Specifically, that tribunal noted that while the UK had extended the provisional application of the ECT to Gibraltar upon signature, the instrument of its ratification did not mention this territory. Then focusing on Article 45(1), which provides for provisional application ‘pending’ the ECT’s entry into force, and Article 45(3) that refers to the possibility to terminate such provisional application if a signatory does not intend to become a Contracting Party, the tribunal found that: It is obvious that Article 45(1) envisages, at least primarily, the simple case where a signatory first accepts provisional application and subsequently ratifies the Treaty in 32 33 34 35 36 37 38 39

Yukos v. Russia (n 26) paras 1 and 536. Hulley v. Russia (n 26) para. 535. Veteran v. Russia (n 26) para. 521. Ibid., paras 443–555. See Yukos v. Russia (n 26) para. 537; Hulley v. Russia (n 26) para. 536; Veteran v. Russia (n 26) paras 536–7. Petrobart Ltd v. The Kyrgyz Republic, SCC Case No. 126/2003, 29 March 2005, Arbitral Award. Ibid., under I. Ibid., under VIII, at 2.

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respect of the same territory with the effect that upon its entry into force the provisional application ceases and is succeeded and replaced by the direct application resulting from the ratification. As regards the unusual situation where the territory accepted for provisional application and for application upon ratification does not coincide, no rule is to be found in the Treaty, and a problem of interpretation therefore arises.40

40.35 The Petrobart tribunal was correct in identifying that ECT’s provisional application to Gibraltar, even after its entry into force for the UK, is a matter not regulated by the ECT. However, that tribunal noted that: in principle, on matters of this kind, a rather formal approach based on the wording of the Treaty is appropriate. It is then to be noted that according to the text of the Treaty provisional application ceases if it is terminated either by a special notification under Article 45(3)(a) of the Treaty or by transition from provisional application to a corresponding and final legal commitment resulting from the entry into force of the Treaty. It could indeed be expected that the United Kingdom, if it wished the provisional application of the Treaty to Gibraltar to be terminated as a result of a ratification not including Gibraltar, should have made this clear by making a notification in line with Article 45(3)(a) or a declaration in some other form in connection with the ratification. In the Arbitral Tribunal’s opinion, the fact that the ratification, for political or other reasons, did not include Gibraltar does not justify the conclusion that the United Kingdom intended to revoke the application of the Treaty to Gibraltar on a provisional basis. It may be observed that what is at issue here is not only the rights of investors from Gibraltar in other states but also the protection of foreign investors in Gibraltar. The Arbitral Tribunal therefore finds that the Treaty continues to apply on a provisional basis to Gibraltar despite the fact that the United Kingdom’s ratification does not cover Gibraltar.41

40.36 This approach is problematic in at least two respects. First, the tribunal failed to explain the relationship between Article 45(1) and 45(3), which is in fact antithetical in nature. Second, that tribunal applied Article 45(3) to Gibraltar, without any further explanation, although this provision refers to a signatory and not part of a signatory, as is exactly the case with Gibraltar. In addition to the above, the tribunal failed to note that this situation is also not captured by the customary international law rule enshrined in the Vienna Convention. These points have also not been addressed by previous commentators who referred to the Petrobart award42 although Thomas Roe and Matthew Happold note that a combination of Articles 45(1) and 45(3) indicates that: ‘[t]he 40 41 42

Ibid. Ibid. Roe and Happold (n 22) at 69–70; Arsanjani and Reisman (n 22) at 100–101; Gerhard Hafner, ‘The ‘Provisional Application’ of the Energy Charter Treaty’ in Christina Binder and others (eds) International Investment Law for the 21st Century, Essays in Honour of Christoph Schreuer (OUP, Oxford 2009) 593–607.

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treaty’s provisional application to Gibraltar did not require express revocation; and the natural inference from the failure to mention Gibraltar in the instrument of ratification ought to have been that the UK did not intend the Treaty to apply to Gibraltar’.43 Moreover, neither the tribunal in Petrobart nor claimant’s expert, Professor 40.37 Adnan Amkhan, made any reference to the 2004 verbal note mentioned above, whose existence was most likely ignored or intentionally not referred to.44 However, the decision of the tribunal does make reference to the fact that: In its Reply to the Request for Arbitration, submitted on 15 October 2003 to the SCC Institute, the Kyrgyz Republic did not argue that the Treaty is inapplicable to Gibraltar. Nor did it do so in its Statement of Defence, submitted to the Arbitral Tribunal on 24 March 2004, or in its Rejoinder of 11 October 2004. The argument was raised for the first time in its brief of 7 December 2004 which contained the Republic’s replies to the Arbitral Tribunal’s questionnaire.45

Arguably, the passage set out above, implies that Kyrgyzstan could have 40.38 belatedly raised this objection due to the fact that the UK advanced the afore-mentioned verbal note on 27 July 2004.46 Still, both Kyrgyzstan and Professor Amkhan do refer, albeit in converse terms, to the historical background surrounding the UK’s decision to provisionally apply the ECT to Gibraltar but not to include it in its instrument of ratification.47 This is no other than the dispute between the UK and Spain over Gibraltar. This point may be indicative of the motives behind the UK’s ambiguous approach, and could also be the reason behind the non-materialization of the Bill for an ‘Act to implement in Gibraltar the provisions of the Energy Charter Treaty’.48 But this fails to explain whether the ECT continues or not to apply to Gibraltar. Kyrgyzstan subsequently sought to set-aside the Petrobart award in the legal 40.39 seat of those proceedings, Sweden. However, the reasoning of the Petrobart tribunal was adopted by the Svea Court of Appeal which determined that the

43 44 45 46 47 48

Roe and Happold, ibid., at 70. See Petrobart Ltd v. The Kyrgyz Republic, SCC Case No. 126/2003, Supplementary Opinion of Adnan Amkhan, 14 December 2004, paras 5–18 [hereinafter Amkhan]. Petrobart v Kyrgyzstan (n 37) under I. See Note Verbale 78/2004 of 27 July 2004 (original with the Depositary). Petrobart v Kyrgyzstan (n 37) under VII, at 2; Amkhan (n 44) para 14. See 3rd Supplement to the Gibraltar Gazette, No. 3,582 of 8th February 2007, B. 01/07, Bill for an ACT to implement in Gibraltar the provisions of the Energy Charter Treaty, online: (last accessed on 22 November 2017).

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ECT was still applicable to Gibraltar on a provisional basis and thus declined to set-aside the award.49 40.40 Nevertheless, the factual matrix of Petrobart did not exactly go to the heart of the matter. Petrobart’s investment was realized through a contract concluded on 23 February 1998, i.e., prior to the ECT’s entry into force.50 At that stage, there is no doubt that the ECT applied provisionally to Gibraltar. However, the breach appears to have taken place after the entry into force of the ECT.51 This was a crucial issue that was not however discussed by the Petrobart tribunal. For if the ECT did cease to apply to Gibraltar after its entry into force for the UK, then the follow-on question would be whether the 20-year survival clause provided for in Article 45(3)(b) could be triggered. 40.41 In Stati v. Kazhakstan, one of the claimants, Terra Raf, was a company incorporated in Gibraltar in 1999.52 Terra Raf had therefore realized its investment after the entry into force of the ECT in April 1998.53 Kazhakstan argued that the ECT did not apply to Gibraltar since pursuant to Article 45(1), ‘the entry into force of the ECT automatically brings provisional application of the ECT to an end’.54 40.42 In support of its position, Kazhakstan sought to draw a distinction between the case at hand and Petrobart v. Kyrgyzstan focusing precisely on the fact that Terra Raf’s investment had been realized after the entry into force of the ECT.55 In addressing however the matter, the Stati tribunal adopted a differing view finding that it did not have to decide the matter on the basis of the provisional application of the ECT to Gibraltar.56 Rather, the Stati tribunal found that: in any case, the ECT applies to Gibraltar on the basis that Gibraltar is a part of the European Community, which is itself party to the ECT. According to Article 52 of the Treaty on the European Union and Article 355 of the Treaty on the Functioning of the European Union, Gibraltar is included in its territory.57

49 50 51 52 53 54 55 56 57

See The Kyrgyz Republic v Petrobart Ltd, Review by Svea Court of Appeal, Judgment Case no. T5208–05 (2008) 13 ICSID Rep 480, 483–4 and 487. The point is also raised by Prof. Adnan Amkhan. See Amkhan (n 44) para. 17. Petrobart v Kyrgyzstan (n 37) under VIII, at 1. Anatolie Stati, Gabriel Stati, Ascom Group SA and Terra Raf Trans Traiding Ltd v Kazakhstan, SCC Case No. 116/2010, 19 December 2013, Award. See Stati v. Kazakhstan, ibid., para. 718. Ibid., para. 734. Ibid., paras 735–736. Ibid., para. 746. Ibid.

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Article 52 of the Treaty on the European Union and Article 355 of the Treaty 40.43 on the Functioning of the European Union do extend the application of EU treaties to Gibraltar.58 However, this does not necessarily mean that the ECT also applies to Gibraltar. In Stati, what was at stake was not the territorial application of the ECT in respect of the EU. In fact, accepting ECT’s application to Gibraltar via the EU’s membership to the ECT would effectively diminish Article 40 and any territorial declarations advanced by the UK (or other EU member states) thereunder. Moreover, the approach of the tribunal in Stati also appears inconsistent with 40.44 the practice of other states such as Denmark and the Netherlands that, as said, do not apply the ECT to their non-metropolitan territories.59 Furthermore, the EU was not a party to any of the investor-State cases discussed above and the EU, until the conclusion of the Lisbon Treaty, was not exclusively competent over issues of foreign direct investment.60 Moreover, even postLisbon, the EU and the member states share competences when it comes to non-foreign direct investment issues (e.g., portfolio investments) and investorstate dispute settlement.61 In sum, an appraisal of the issues and cases discussed above indicates that the 40.45 application of the ECT to Gibraltar, even after its entry into force for the UK, remains unsettled. Regardless, it appears more consistent to accept that ECT’s 58

59

See Consolidated version of the Treaty on the European Union, OJ C 326, art 52 (signed on 13 December 2007, entered into force on 1 December 2009); Consolidated version of the Treaty on the Functioning of the European Union, OJ C 326, Art. 355(3): ‘3.The provisions of the Treaties shall apply to the European territories for whose external relations a Member State is responsible.’ and Declaration 55 by the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland: ‘The Treaties apply to Gibraltar as a European territory for whose external relations a Member State is responsible. This shall not imply changes in the respective positions of the Member States concerned.’. Less credible is the argument of mixed agreements advanced by the respondent. See Stati v. Kazakhstan (n 52) para. 736: Respondent reminds the Tribunal that the EU is not a contracting party to the ECT. The United Kingdom signed the ECT as an EU Member State in a ‘mixed agreement.’ This means that, the Member State signed in respect of those matters where Member States align their policies with the EU. There is a strong presumption that mixed agreements are concluded in territorial areas which fall within the regulatory scope of the application of EU law. Respondent states that Gibraltar is a disputed territory as between the United Kingdom and Spain and, as a result, important aspects of EU policy do not apply to Gibraltar.

60

61

See generally Marc Bungenberg, Jörn Griebel and Steffen Hindelang (eds) European Yearbook of International Economic Law, Special Issue: International Investment Law and EU Law (Springer, Berlin 2011); Marc Bungenberg and others (eds) EU and Investment Agreements: Open Questions and Remaining Challenges (Nomos and Hart, Oxford 2013); Philip Strik, Shaping the Single European Market in the Field of Foreign Direct Investment (Hart, Oxford 2014). See Opinion 2/15 of the Court (Full Court), ECJ, 16 May 2017, online: (last accessed 22 November 2017).

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provisional application to Gibraltar ceased when the ECT entered into force. This would mean that the ECT applied provisionally to Gibraltar from 17 December 1994 to 16 April 1998. In that case, it would still be relevant to examine whether and how investments realised within the above timeframe are protected, even when a breach occurs after the entry into force of the ECT. In this respect, Article 45(3) provides that: (a) Any signatory may terminate its provisional application of this Treaty by written notification to the Depository of its intention not to become a Contracting Party to the Treaty. […] (b) In the event that a signatory terminates provisional application under subparagraph (a), the obligation of the signatory […] with respect to any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for 20 years following the effective date of termination.

40.46 Article 45(3) therefore refers to the termination of ECT’s provisional application by a signatory and not by part of a signatory, as is the case of Gibraltar. In addition, Article 45(3) does not apply when the ECT enters into force pursuant to Article 44 of the ECT. Rather, it is uncertain whether Article 45(3) would apply in respect of a territory, absent a declaration not to become an ECT Contracting Party, that is when a signatory actually becomes an ECT Contracting Party. 40.47 It could be argued that if the ECT did cease to apply in respect of Gibraltar on 16 April 1998, the 20-year ‘survival clause’ enshrined in Article 45(3)(b) could nevertheless be triggered in respect of investments made in Gibraltar or investments made by Gibraltarian entities. At first sight, it would appear that Article 45(3)(b) would only apply in respect of investments made in Gibraltar. In any case, for the triggering of the 20-year ‘survival clause’, it would be required that an investment was realised ‘during [the] provisional application’62 of the ECT and thus the cut-off point would be the entry into force of the ECT for the UK (16 April 1998).63

62 63

ECT, Art. 45(3)(b). Cf Ioannis Kardassopoulos v. The Republic of Georgia, ICSID Case No. ARB/05/18, July 6, 2007, Decision on Jurisdiction, para. 247.

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ARTICLE 41 ACCESSION Odysseas G. Repousis

This Treaty shall be open for accession, from the date on which the Treaty is closed for signature, by states and Regional Economic Integration Organizations which have signed the Charter, on terms to be approved by the Charter Conference. The instruments of accession shall be deposited with the Depositary.

COMMENTARY A. Introduction Article 41 deals with accession to the ECT after 16 June 1995 (cf Art. 38). It 41.01 therefore is designed for states and Regional Economic Integration Organizations (REIOs) that accede to the ECT at a subsequent stage.1 These entities may thus become Contracting Parties to the ECT without prior signature. 41.02

Instruments of accession must be deposited with the depositary.2

1

See also Vienna Convention, Art. 15: The consent of a State to be bound by a treaty is expressed by accession when: (a) The treaty provides that such consent may be expressed by that State by means of accession; (b) It is otherwise established that the negotiating States were agreed that such consent may be expressed by that State by means of accession; or (c) All the parties have subsequently agreed that such consent may be expressed by that State by means of accession.

2

See Vienna Convention, Art. 16: Unless the treaty otherwise provides, instruments of ratification, acceptance, approval or accession establish the consent of a State to be bound by a treaty upon: (a) Their exchange between the contracting States; (b) Their deposit with the depositary; or (c) Their notification to the contracting States or to the depositary, if so agreed.

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B. Scope 41.03 Article 41 addresses two cases. First, states and REIOs that belonged to the initial signatories to the Energy Charter but did not subsequently sign the ECT (until 16 June 1995). Second, states and REIOs that did not belong to the initial signatories to the Energy Charter and also did not sign the Energy Charter and ECT until 16 June 1995. For those cases, accession to the ECT requires prior approval by the Energy Charter Conference. C. State practice 41.04 To date, four ECT Contracting Parties have acceded to the ECT in accordance with Article 41. These states are Afghanistan,3 Mongolia,4 Montenegro5 and the Former Yugoslav Republic of Macedonia.6

3

4

5

6

Afghanistan signed the Energy Charter on 4 August 2006, and ratified the ECT on 19 January 2013. Its approval for accession to the ECT was granted by the Energy Charter Conference on 7 December 2007 (CCDEC200705). The ECT entered into force for Afghanistan on 20 June 2013. Mongolia signed the Energy Charter on 25 April 1997, and ratified the ECT on 21 July 1999. Its approval for accession to the ECT was granted by the Energy Charter Conference on 3–4 December 1998 (CCDEC199816). The ECT entered into force for Mongolia on 17 February 2000. Montenegro signed the Energy Charter on 27 November 2012, and ratified the ECT on 16 July 2015. Its approval for accession to the ECT was granted by the Energy Charter Conference on 6 December 2013 (CCDEC201314). The ECT entered into force for Montenegro on 7 December 2015. The Former Yugoslav Republic of Macedonia signed the Energy Charter on 3 April 1996, and ratified the ECT on 26 March 1998. Its approval for accession to the ECT was granted by the Energy Charter Conference on 8 July 1997 (CCDEC199705). The ECT entered into force for FYROM on 25 June 1998.

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ARTICLE 42 AMENDMENTS Antonio Morelli

(1) (2)

(3)

(4)

Any Contracting Party may propose amendments to this Treaty. The text of any proposed amendment to this Treaty shall be communicated to the Contracting Parties by the Secretariat at least three months before the date on which it is proposed for adoption by the Charter Conference. Amendments to this Treaty, texts of which have been adopted by the Charter Conference, shall be communicated by the Secretariat to the Depositary which shall submit them to all Contracting Parties for ratification, acceptance or approval. Instruments of ratification, acceptance or approval of amendments to this Treaty shall be deposited with the Depositary. Amendments shall enter into force between Contracting Parties having ratified, accepted or approved them on the ninetieth day after deposit with the Depositary of instruments of ratification, acceptance or approval by at least three-fourths of the Contracting Parties. Thereafter the amendments shall enter into force for any other Contracting Party on the ninetieth day after that Contracting Party deposits its instrument of ratification, acceptance or approval of the amendments.

COMMENTARY In public international law, the procedure of amending treaty provisions is a 42.01 matter regulated by the law of the treaty, following on a general principle of sovereign voluntarism, and in accordance with Part IV of the VCLT. Article 42 of the ECT mirrors this principle, providing a detailed regulation on amendments.

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42.02 The ECT procedure regulates several aspects, both formal and substantial, in order to provide a clear framework for Contracting Parties aiming at modifying their conventional status quo. In the international treaty practice, agreements containing amendment provisions first tend to regulate the proposal procedure. These provisions usually specify what subjects can propose the amendments and the bodies entitled to receive it. In this fashion, Article 42 (1)(2) regulates these facets, leaving to all contracting parties the right for amendments, whilst leaving to the Secretariat the power to receive them.1 The Secretariat is a treaty body that stands in a perfect position for providing administrative support, granting the necessary assistance in the consultation process, and allowing the circulation of proposals of the amendments. In the absence of such a treaty body, the Secretary-General of the United Nations being the treaty depositary may be tasked with this function. 42.03 Usually international treaties confer on an ad hoc conference or an executive body the adoption of the amendments. The ECT tailors this role for the Charter Conference, which is tasked to adopt the text of the proposed amendments. Article 34 of the ECT envisions in the Charter Conference its main institutional body, as it holds the political responsibility for the implementation of the treaty and its related instruments. 42.04 For an amendment to be binding upon a Member State, not only shall it be approved with formal consent, but also followed by the deposit of ratification instruments. Then, it enters into force following the process embedded in the treaty. Usually it may enter into force either upon the elapse of a specific time period, once the deposit of a certain number or percentage of ratifications or acceptance instruments has been met; or merely after its circulation, where no objection is raised. If the prior is the case of the ECT, as it is stated in Article 42(4), the latter case can be ascribed to the Kyoto Protocol procedure.2 1

Another example is provided by Art 15 of the Optional Protocol to the Convention on the Rights of Persons with Disabilities, 2006, which upholds that: Any State Party may propose an amendment to the present Protocol and submit it to the Secretary-General of the United Nations. The Secretary-General shall communicate any proposed amendments to States Parties; with a request to be notified whether they favour a meeting of States Parties for the purpose of considering and deciding upon the proposals.

See UN General Assembly, Optional Protocol to the Convention on the Rights of Persons with Disabilities, 13 December 2006, A/RES/61/106, Annex II, available online at: http://www.refworld.org/docid/4680d0982. html, last accessed 5 February 2018. 2 Art. 20(4) of the Kyoto Protocol to the United Nations Framework Convention on Climate Change, 1997: Instruments of acceptance in respect of an amendment shall be deposited with the Depositary. An amendment adopted in accordance with paragraph 3 above shall enter into force for those Parties having accepted it on the ninetieth day after the date of receipt by the Depositary of an instrument of acceptance by at least three fourths of the Parties to this Protocol.

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AMENDMENTS

Throughout the years, the ECT has been amended once, in April 1998, on 42.05 the basis of the so-called Trade Amendment to the Treaty.3 The rational of the Trade Amendment was to embrace in the ECT regime the relevant changes in multilateral trade after the entry into force of the World Trade Organization (WTO), with the Uruguay Round.4 The fil rouge that connects the two systems, the ECT and the WTO, can be 42.06 found in shared general principles, as non-discrimination, transparency and commitment to progressive liberalization of international trade. Procedurally, the Trade Amendment disposes a pro futuro mechanism for legally binding systems on custom duties and import and export charges in the energy field. Substantially, the approach of the Trade Amendment mirrors the one taken in the original treaty, as it incorporates WTO relevant rules from a sectorial perspective. Nonetheless, it also expands the scope of the treaty, in order to cover trade in energy-related equipment.5 In turn, the ECT has the effect to treat all its Contracting Parties under the WTO standards, even if they are not WTO members.6 This is an important step in the achievement of a stable and predictable system, in which the ECT membership may be a stepping-stone towards joining the WTO.7

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See UNFCCC (1997) Kyoto Protocol to the United Nations Framework Convention on Climate Change adopted at COP3 in Kyoto, Japan, on 11 December 1997. The dialogue between the ECT Secretariat and the WTO Secretariat allows for exchange of information, and the promotion of interpretation or modifications of the amendments of WTO provisions that fall under the ECT. The architecture of the WTO derives from previous trade negotiations, especially with reference to the Uruguay Round (1986–1994). The information is available online at: https://www.wto.org/english/thewto_e/ whatis_e/tif_e/fact5_e.htm, last accessed 18 July 2018. The Amendment to the Trade-related Provisions of the Energy Charter Treaty, available online at: https://energycharter.org/process/energy-charter-treaty-1994/trade-amendment/, last accessed 18 July 2018. Non-WTO members that are contracting parties in the ECT: Azerbaijan; Belarus; Bosnia and Herzegovina; Turkmenistan; Uzbekistan. As the ECT mentions in its Preamble: Looking to the eventual membership in the World Trade Organization of those Contracting Parties which are not currently members thereof and concerned to provide interim trade arrangements which will assist those Contracting Parties and not impede their preparation for such membership.

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ARTICLE 43 ASSOCIATION AGREEMENTS Antonio Morelli

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The Charter Conference may authorise the negotiation of association agreements with states or Regional Economic Integration Organisations, or with international organisations, in order to pursue the objectives and principles of the Charter and the provisions of this Treaty or one or more Protocols. The relationship established with and the rights enjoyed and obligations incurred by an associating state, Regional Economic Integration Organisation, or international organisation shall be appropriate to the particular circumstances of the association, and in each case shall be set out in the association agreement.

COMMENTARY 43.01 Article 43 of the ECT embeds a regulation on the negotiation of association agreements, under the umbrella of the Charter Conference, with States, Regional Economic Integration Organisations, or international organizations. Association agreements can be defined as bilateral agreements between an organization and a third party. Nonetheless, this concept remains undefined and the letter of the provision leaves room for Contracting Parties’ will. As a result, in principle, Article 43 allows a different array of agreements, from instruments of informal cooperation to binding conventions. 43.02 Mutatis mutandi, in the European Union context, association agreements serve the goal to prepare the ground for the accession procedure to EU membership. Currently the EU holds an association agreement with Turkey,

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ASSOCIATION AGREEMENTS

whilst the relationship with Western Balkan countries are embedded in the so-called ‘stabilization and association agreements'.1 Through participation agreements, the ECT aims at achieving forms of 43.03 participation different than membership tout court, as regulated under Article 42 of the ECT. Nonetheless, it is still debatable which subjects are entitled to join such agreements on behalf of Contracting Parties.2 Under Article 36 of the ECT, unanimity is required for the subject matter at hand, for the approval of association agreements. With regard to the ECT, this provision has never produced the realization of association agreements so far.

1 2

The information on the EU association agreement framework is available online at: https://ec.europa.eu/ neighbourhood-enlargement/policy/glossary/terms/association-agreement_en, last accessed 18 July 2018. See Craig S. Bambager, An Oveview of the Energy Charter Treaty, in The Energy Charter Treaty: An East-West Gateway for Investment and Trade, 3, 27 (Thomas Wälde ed., Kluwer, London, Cambridge, 1996).

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ARTICLE 44 ENTRY INTO FORCE Antonio Morelli

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This Treaty shall enter into force on the ninetieth day after the date of deposit of the thirtieth instrument of ratification, acceptance or approval there of, or of accession thereto, by a state or Regional Economic Integration Organisation which is a signatory to the Charter as of 16 June 1995. For each state or Regional Economic Integration Organisation which ratifies, accepts or approves this Treaty or accedes thereto after the deposit of the thirtieth instrument of ratification, acceptance or approval, it shall enter into force on the ninetieth day after the date of deposit by such state or Regional Economic Integration Organisation of its instrument of ratification, acceptance, approval or accession. For the purposes of paragraph (1), any instrument deposited by a Regional Economic Integration Organisation shall not be counted as additional to those deposited by member states of such Organisation.

COMMENTARY 44.01 Article 44 of the ECT regulates the steps for the entry into force of the agreement under international law. The entry into force of a treaty represents the moment the treaty becomes legally binding. Article 24 of the Vienna Convention on the Law of Treaties of 19691 regulates the subject matter at hand, leaving to States’ voluntarism the procedure and timeline of the entry into force of the agreement. 44.02 Typically, treaty provisions determine the date of its entry into force, based on the will of the signatories. Nonetheless, if no date is specified, there is a presumption that the treaty will come into force as soon as all the negotiating 1

VCLT, Art. 24: ‘Entry into force’.

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ENTRY INTO FORCE

States have consented to be bound.2 For bilateral treaties this procedure follows a State-by-State basis, for multilateral treaties, Contracting Parties usually agree upon a fixed minimum threshold of ratifications for their entry into force.3 This is what Article 44 (1) of the ECT provides, as it states a minimum 44.03 number of 30 ratification instruments for its entry into force. With this procedure, Contracting Parties aim at creating a basis of States’ commitment before giving full effects to the treaty. Once the ratification process is met, a multilateral treaty may enter into force 44.04 in different time periods.4 On the one hand, the entry into force can occur immediately after the deposit of its instrument of ratification, acceptance, approval or accession. For instance, this is the case of the Protocol Relating to the Status of Refugees, of 1967,5 which provided its immediate entry into force in its Article VIII.6 On the other hand, a specific time framework is provided after States’ deposit of their instrument of ratification, acceptance, approval or accession. This is the case of Article 44 (1)(2) of the ECT, which provides a 90-day period of standstill after the deposit of its 30th instrument of ratification for the agreement to entry into force. Similar to the ECT, other multilateral agreements embeds similar provisions, as, for instance, the Rome Statute of the International Criminal Court of 1998,7 which provides a 60-day period freeze before its entry into force.8

2 3 4 5

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See Jan Klabbers, Treaties, Conclusion and Entry into Force, in Max Planck Encyclopedia of Public International Law, last updated: September 2006. See Barry E. Carter, Allen S. Weiner, International Law, 86 (Wolters Kluwer, Aspen Casebook Series, 6th ed. 2011). UN Office of Legal Affairs, Treaty Section, Treaty Handbook, UN Sales No. E.12.V.1, eISBN-13 978–92– 1-055293–6, Revised Edition of 2012, 22–3. UN General Assembly, Protocol Relating to the Status of Refugees, 31 January 1967, United Nations, Treaty Series, vol. 606, p. 267, available online at: http://www.refworld.org/docid/3ae6b3ae4.html, last accessed 5 February 2018. Ibid., Art. VIII, upholds that: ‘For each State acceding to the Protocol after the deposit of the sixth instrument of accession, the Protocol shall come into force on the date of deposit by such State of its instrument of accession.’ UN General Assembly, Rome Statute of the International Criminal Court (last amended 2010), 17 July 1998, ISBN No. 92–9227–227–6, available online at: http://www.refworld.org/docid/3ae6b3a84.html last accessed 5 February 2018. Art 126 (2) of the Rome Statute of the International Criminal Court, of 1998 upholds that: For each State ratifying, accepting, approving or acceding to this Statute after the deposit of the 60th instrument of ratification, acceptance, approval or accession, the Statute shall enter into force on the first day of the month after the 60th day following the deposit by such State of its instrument of ratification, acceptance, approval or accession.

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COMMENTARY ON THE ENERGY CHARTER TREATY

44.05 Moreover, in the multilateral context, some treaties also require the satisfaction of additional conditions. The Paris Agreement, in the sphere of climate change, serves as a recent example for this practice. To become legally binding, not only did the agreement need to be joined by at least by 55 countries, but all together these should represent at least 55 per cent of the total global greenhouse emissions. With the EU agreeing to the ratification on October 5th 2016, the agreement met its threshold and entered into force 30 days afterwards, on 4 November 2016.9 44.06 From the moment of its entry into force, an international treaty is officially binding on Contracting Parties. The effects of the entry into force are regulated by Article 26 of the VCLT,10 which imposes an obligation to perform in good faith. This provision echoes one of the most genuine principles on international law, pacta sunt servanda, which inspires the whole architecture of treaty-making process in international law.

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The first session of the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement (CMA1) will take place in Marrakech, in November 2016, on the occasion of COP 22. See United Nations Framework Convention on Climate Change, Status of Ratification of Paris Agreement, available online at http://unfccc.int/paris_agreement/items/9444.php., last accessed 5 February 2018. See VCLT, Art 26: ‘Pacta sunt servanda’.

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ARTICLE 45 PROVISIONAL APPLICATION Antonio Morelli

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Each signatory agrees to apply this Treaty provisionally pending its entry into force for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its constitution, laws or regulations. (a) Notwithstanding paragraph (1) any signatory may, when signing, deliver to the Depository a declaration that it is not able to accept provisional application. The obligation contained in paragraph (1) shall not apply to a signatory making such a declaration. Any such signatory may at any time withdraw that declaration by written notification to the Depository. (b) Neither a signatory which makes a declaration in accordance with subparagraph (a) nor Investors of that signatory may claim the benefits of provisional application under paragraph (1). (c) Notwithstanding subparagraph (a), any signatory making a declaration referred to in subparagraph (a) shall apply Part VII provisionally pending the entry into force of the Treaty for such signatory in accordance with Article 44, to the extent that such provisional application is not inconsistent with its laws or regulations. (a) Any signatory may terminate its provisional application of this Treaty by written notification to the Depository of its intention not to become a Contracting Party to the Treaty. Termination of provisional application for any signatory shall take effect upon the expiration of 60 days from the date on which such signatory’s written notification is received by the Depository. (b) In the event that a signatory terminates provisional application under subparagraph (a), the obligation of the signatory under paragraph (1) to apply Parts III and V with respect to any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect 477

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COMMENTARY ON THE ENERGY CHARTER TREATY

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with respect to those Investments for twenty years following the effective date of termination, except as otherwise provided in subparagraph (c). (c) Subparagraph (b) shall not apply to any signatory listed in Annex PA. A signatory shall be removed from the list in Annex PA effective upon delivery to the Depository of its request therefor. Pending the entry into force of this Treaty the signatories shall meet periodically in the provisional Charter Conference, the first meeting of which shall be convened by the provisional Secretariat referred to in paragraph (5) not later than 180 days after the opening date for signature of the Treaty as specified in Article 38. The functions of the Secretariat shall be carried out on an interim basis by a provisional Secretariat until the entry into force of this Treaty pursuant to Article 44 and the establishment of a Secretariat. The signatories shall, in accordance with and subject to the provisions of paragraph (1) or subparagraph (2)(c) as appropriate, contribute to the costs of the provisional Secretariat as if the signatories were Contracting Parties under Article 37(3). Any modifications made to Annex B by the signatories shall terminate upon the entry into force of this Treaty. A state or Regional Economic Integration Organisation which, prior to this Treaty’s entry into force, accedes to the Treaty in accordance with Article 41 shall, pending the Treaty’s entry into force, have the rights and assume the obligations of a signatory under this Article.

[Provisional Application of the Trade Amendment: Article 6 ‘Provisional Application’ of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty: (1)

(2)

Each signatory which applies the Energy Charter Treaty provisionally in accordance with Article 45(1) and each Contracting Party agrees to apply this Amendment provisionally pending its entry into force for such signatory or Contracting Party to the extent that such provisional application is not inconsistent with its constitution, laws or regulations. (a) Notwithstanding paragraph (1): (i) any signatory which applies the Energy Charter Treaty provisionally or Contracting Party may deliver to the Depositary within 90 days from the date of the adoption of this Amendment by the Charter Conference a declaration that it is not able to accept the provisional application of this Amendment. (ii) Any signatory which does not apply the Energy Charter Treaty provisionally in accordance with Article 45(2) may deliver to the 478

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PROVISIONAL APPLICATION

Depositary not later than the date on which it becomes a Contracting Party or begins to apply the Treaty provisionally a declaration that it is not able to accept the provisional application of this Amendment. The obligation contained in paragraph (1) shall not apply to a signatory or Contracting Party making such a declaration. Any such signatory or Contracting Party may at any time withdraw that declaration by written notification to the Depositary. (b) Neither a signatory which makes a declaration in accordance with subparagraph (a) nor Investors of that signatory may claim the benefits of provisional application under paragraph (1). Any signatory or Contracting Party may terminate its provisional application of this Amendment by written notification to the Depositary of its intention not to ratify, accept or approve this Amendment. Termination of provisional application for any signatory or Contracting Party shall take effect upon the expiration of 60 days from the date on which such signatory’s or Contracting Party’s written notification is received by the Depositary. Any signatory which terminates its provisional application of the Energy Charter Treaty in accordance with Article 45(3)(a) shall be considered as also having terminated its provisional application of this Amendment with the same date of effect.]

(3)

COMMENTARY The ECT embeds in Article 45 a discipline on provisional application. This is 45.01 a relatively recent development in international law, tailored to overcome a traditional political impasse in the practice of concluding international agreements. From its signature to its ratification, to its entry into force, a treaty follows domestic procedural requirements for ratification, approval, acceptance or accession, all of which preclude immediate entry into force of the treaty.1 Indeed, provisional application is generally tailored for those subject matters characterized by urgency or deep political stakes, around which negotiating States are striving to build trust with their counterparts.2 Whether a treaty has no legal effects on its Contracting Parties from its signature to its entry into force, provisional application circumvents this temporary gap with an ad hoc procedure. 1 2

UN Office of Legal Affairs, Treaty Section, Treaty Handbook, UN Sales No. E.12.V.1, 1ISBN-13 978–92– 1-055293–6, Revised Edition of 2012, 11. See Heike Krieger, ‘Article 25’, in Vienna Convention on the Law of Treaties: A Commentary, 408 (Oliver Dorr, Kirsten Schmalenbach eds, Heidelberg, New York, Springer, 2012).

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45.02 International law does not provide a clear guidance on the topic of provisional application, and the nature of the legal obligations at stake remains still unclear.3 Under customary international law, a treaty starts to produce legal effects only with its entry into force. A limited exception to this rule can be found in the estoppel principle,4 by which signatory States refrain from acts or omissions that may defeat the object and purpose of the treaty. Nonetheless, no affirmative duty is required.5 As a result, the discipline on provisional application captures a moment of progressive development in international law, which can be analysed through conventional sources and States’ practice. 45.03 The VCLT provides at Article 256 a framework for provisional application of a treaty, which applies on a sovereign will basis, pending its entry into force. With the aim to promote more detailed guidance to States, the International Law Commission is currently debating a Draft Report on Provisional Application of Treaties, fostering progressive development around the topic.7 Based on the voluntary approach it purports, the provisional application can either be the result of a treaty provision, or a different agreement reached by the parties. The ECT falls under the prior case, as ECT Article 45 provides an expressed detailed regulation for provisional application. The convention resulted in its provisional application by all signatory parties between December 1994 and its entry into force in April 1998, except for those that expressly declared their inability.8 As of June 2013, five of the original Contracting States had not ratified the ECT yet. Among these, on the one hand, Norway, Iceland and Australia, filed declarations to be unable to start a provisional application of the ECT regime. On the other hand, the Russian Federation and Belarus have implicitly accepted the provisional application, by not filing a contrary declaration at the time of the signature. In other words, they committed to apply the Treaty to the extent it met consistency with their own constitutions and domestic legal system.9 3

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See Alex M. Niebruegge, ‘Provisional Application of the Energy Charter Treaty: The Yukos Arbitration and the Future Place of Provisional Application in International Law’, in (2007) 8(1) Chicago Journal of International Law 355, 356. See generally Thomas Cottier and Jörg Paul Müller; Estoppel; in Max Planck Encyclopedia of Public International Law, last updated: September 2006.; see also Megan L. Wagner, ‘Jurisdiction by Estoppel in the International Court of Justice’, (1986) 74(5) California Law Review 1777–8: reviewing the ICJ standards in the reconstruction and application of the principle of estoppel. This principle is embedded in the VCLT, Art. 18: ‘Obligation not to defeat the object and purpose of a treaty prior to its entry into force.’ Ibid., Art. 25: ‘Provisional Application.’ International Law Commission, Draft Report of the International Law Commission on the work of its 69th session, A/CN.4/L.901. See Kaj Hobér, ‘The Energy Charter Treaty, An Overview’, (2007) 8(3) The Journal of World Investment & Trade 323, 337. Ibid., at 351.

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PROVISIONAL APPLICATION

Pursuant to Article 45(3), not only does such voluntaristic approach serve as 45.04 the steppingstone for the access to the regime of provisional application, but also to opt out. Indeed, a signatory State may terminate its status with a written notification expressing its intention no longer to be a contracting party. This is what happened with Russia, which terminated its status of provisional application of the ECT, on 18 October 2009,10 upon expiration of the 60th calendar day from the date of the notification to the Depository.11 Russia’s termination of its provisional application of the ECT opened the ground for investors’ protection issues, particularly concerning Article 26 of the convention, which provides a mechanism for investor-state dispute settlement, through international arbitration or conciliation.12 Therefore, while Russia did not eventually ratify the ECT, it did consent to ISDS due to its provisional application of the treaty, thus implicitly granting investors’ protection for an additional 20-year period from the termination date. This generated the raise of multiple international and domestic disputes from Russia’s alleged treatment of OAO Yukos Oil Company.13 Russia’s consent to the provisional application is a matter currently under scrutiny, as it has to demonstrate a lack of inconsistent with its domestic constitution, laws, or regulations. This question will remain paramount for every ECT claim against Russia, until 19 October 2029.14

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On 20 August 2009, the Russian Federation informed the Depository of its intention not to become a Contracting Party to the Energy Charter Treaty and the Protocol on Energy Efficiency and Related Environmental Aspects. Energy Charter Secretariat, International Energy Charter Overview, available online at: https://energycharter. org/process/overview/, last accessed 18 July 2018. Pursuant to Art. 26(3)(a), contracting parties agree to ‘unconditional consent to the submission of a dispute to international arbitration or conciliation’. See Chester Brown, ‘The End of the Affair?’, (2016) 17 J. World Inv. Trade, 126, 127 et ss. See Tania Voon and Andrew D. Mitchell, ‘Symposium on Treaty Exit at The Interface of Domestic and International Law, Ending International Investment Agreements: Russia’s Withdrawal from Participation in the Energy Charter Treaty’, (2018) 111 AJIL Unbound 461, 463, available online at: https://www.cambridge. org/core/services/aop-cambridge-core/content/view/E44E5A4DAB45B4767CC357EC948B189A/S23987 72317001039a.pdf/ending_international_investment_agreements_russias_withdrawal_from_participation_ in_the_energy_charter_treaty.pdf, last accessed 18 July 2018.

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ARTICLE 46 RESERVATIONS Antonio Morelli

No reservations may be made to this Treaty.

COMMENTARY 46.01 In the international legal practice, States’ participation in multilateral treaties can be subject to reservations. This is a declaration made by negotiating States in order to limit, within their own juridical sphere, the effects of certain provisions. In other words, a reservation allows a State to participate in international treaties, but only up to the limits to which it wishes to commit, thus avoiding the application of certain provisions. The reserving State will commit to a different regime than the other Contracting Parties. The Vienna Convention on the Law of Treaties of 1969, covers the subject matter at hand, reproducing and developing the standards of the 1951 advisory opinion of the International Court of Justice on Reservations to the Convention on Genocide.1 46.02 Under Article 19 of the VCLT, if an agreement excludes the possibility to make reservations, then these are to be considered inadmissible. Nonetheless, the VCLT provides no guidance regarding the effects of inadmissible reservations.2 International scholars hold different standings on this topic. On the one hand, a formalist approach upholds the invalidity of inadmissible reservations. On the other hand, a more pragmatic approach believes that even an 1

2

ICJ, Advisory Opinion, 1951 ICJ 15, Reservations to the Convention on the Prevention and Punishment of the Crime of Genocide, 28 May 1951. In order to provide more flexibility, along with a broader participation to international treaties, the Court overcame the traditional Manichean vision that States had to accept the text of the agreement tout court, facilitating a flexible solution to the International Community, which, in those years, was experiencing a period of expansion. See generally Thomas Giegerich, ‘Reservations to Multilateral Treaties’, in Max Planck Encyclopedia of Public International Law, last updated: October 2010.

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RESERVATIONS

inadmissible reservation can be valid if other Contracting Parties have accepted it.3 This is a very delicate issue that is setting new standards in international jurisprudence, as it fosters progressive development in certain fields of international law. The European Court of Human Rights undertook an innovative approach to this matter, tailored to grant a broader participation to international treaties.4 This approach mirrors the principle utile per inutile non vitiatur, for which an invalid provision cannot invalidate the whole treaty that includes it. Whenever a Contracting Party formulates an inadmissible reservation, this does not entail that the State will be excluded from the agreement in toto, but the reservation will be considered null or, to put it bluntly, as if it was never made. A similar approach was followed by the UN Committee on Human Rights in the General Commentary No. 24 of 19945 and the Kennedy case of 1999.6 If the principle utile per inutile non vitiatur has been applied to the field of human rights, its extension to other fields may be too premature. Therefore, in the context of the ECT, the provision of Article 46 excludes, by now, every possibility for reservations.

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See Jean Koh Peters, Reservations to Multilateral Treaties: How International Legal Doctrine Reflects World Vision Faculty Scholarship Series, 2185 (Yale Law Schol, 1982). The European Court of Human Rights undertook this approach in three decisions: ECHR, Belilos v. Switzerland, Application No. 10328/83, Judgement of 29 April 1988; ECHR, Weber v. Switzerland, May 22, 1990 Series A, No. 177, 12 E.H.R.R., 508, Judgment of 22 May 1990; ECHR, Gradinger v. Austria, Application No. 1 5963/90, Judgment of 23 October 1995. UN Human Rights Committee (HRC), CCPR General Comment No. 24: Issues Relating to Reservations Made upon Ratification or Accession to the Covenant or the Optional Protocols thereto, or in Relation to Declarations under Article 41 of the Covenant, 4 November 1994, CCPR/C/21/Rev.1/Add.6, available online at: http:// www.refworld.org/docid/453883fc11.html, last accessed 18 July 2018. UN Human Rights Committee (HRC), Rawle Kennedy (represented by the London law firm Simons Muirhead & Burton) v. Trinidad and Tobago, Communication No. 845, UN Doc. CCPR/C/67/D/845/1999 (31 December 1999).

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ARTICLE 47 WITHDRAWAL Antonio Morelli

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At any time after five years from the date on which this Treaty has entered into force for a Contracting Party, that Contracting Party may give written notification to the Depositary of its withdrawal from the Treaty. Any such withdrawal shall take effect upon the expiry of one year after the date of the receipt of the notification by the Depositary, or on such later date as may be specified in the notification of withdrawal. The provisions of this Treaty shall continue to apply to Investments made in the Area of a Contracting Party by Investors of other Contracting Parties or in the Area of other Contracting Parties by Investors of that Contracting Party as of the date when that Contracting Party’s withdrawal from the Treaty takes effect for a period of 20 years from such date. All Protocols to which a Contracting Party is party shall cease to be in force for that Contracting Party on the effective date of its withdrawal from this Treaty.

COMMENTARY 47.01 The international regulation on States’ withdrawal from international treaties is a particularly relevant topic in the current scholarly debate. Article 47 of the ECT regulates withdrawal, but it subjects this provision to strict conditions that Contracting Parties shall fulfil in order to effectively exert their right. 47.02 As international law aims at preserving the integrity of international treaties, and the treaty provisions, it limits the possibility for termination, withdrawal

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or suspension. This is an idea that can be traced back from one of the cardinal principles in international law, which is the principle pacta sunt servanda.1 The VCLT regulates the subject matter at hand in its Part V, on ‘Invalidity, 47.03 Termination and Suspension of the Operation of Treaties’. With the aim of reconstructing the architecture for withdrawal, first of all it is worth analysing possibilities and limits for States to withdraw from an international treaty. Under Article 42 of VCLT,2 a State party can only withdraw from an international treaty as a result of the application of a treaty provision or, in cases where this is not possible, in compliance with the provisions in the Convention at hand. Nonetheless, pursuant to Article 45 of the VCLT,3 a State may lose its right to withdraw from a treaty if it has expressly agreed on its validity or continuation into force; or whenever a State behaviour falls under acquiescence.4 Section 3 of Part V of the Vienna Convention provides a more detailed 47.04 framework on the subject matter at hand, distinguishing whether or not a multilateral treaty contains a provision for withdrawal. Pursuant to Article 54 of the VCLT,5 withdrawal can occur only on a voluntary basis. It comes about either out of the provisions of the treaty or based on a new ancillary agreement. Therefore the law of the treaty, or the agreement that was negotiated, regulate the circumstance for withdrawal and the way to realize it. This is the case of Article 47 (1) of the ECT, which defines the chronological and procedural framework for Member States to invoke withdrawal, as it can occur only after five years from the entry into force of the Treaty, through written notification. In a multilateral framework, even if the number of Contracting Parties falls 47.05 below the minimum threshold for its entry into force, due to withdrawal, the treaty remains in force. Article 55 of the VCLT6 embeds this principle, aiming to provide a clear framework for international lawyers, since multilateral treaties often fail to cover this point.7 Therefore, in the case of the ECT, even if the number of Contracting Parties goes below 30, as its threshold as per ECT Article 44, the agreement is to be considered still in force. 1 2 3 4 5 6 7

The principle is embedded in the VCLT, Art. 26: ‘Pacta sunt servanda.’ VCLT, Art. 42: ‘Validity and continuance in force of treaties.’ VCLT, Art. 45: ‘Loss of a right to invoke a ground for invalidating, terminating, withdrawing from or suspending the operation of a treaty.’ See Barry E. Carter and Allen S. Weiner, International Law, 86 (Wolters Kluwer, Aspen Casebook Series, 6th ed. 2011). VCLT, Art. 54: ‘Termination of or withdrawal from a treaty under its provisions or by consent of the parties.’ VCLT, Art. 55: ‘Reduction of the parties to a multilateral treaty below the, number necessary for its entry into force.’ Yearbook of the International Law Commission, Commentary to Art. 55.

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47.06 From a procedural standpoint, it is worth noting that the clauses in the VCLT are framed in a negative form, as they aim at limiting the possibility for States to invoke them. Indeed, under Article 56 of the VCLT,8 withdrawal is not allowed, unless the parties intended to admit this possibility. A deterrent condition is also embedded in ECT, as Article 47(2) upholds that withdrawal is effective only after one year from the receipt of notification by Depositary. In case a treaty has no withdrawal provision, then the right may be implied by the nature of the treaty. In this case, supplementary means of interpretation may be helpful in reconstructing the will of the parties within the treatymaking process, through the travaux preparatoires or the circumstances of its conclusions.9 Looking at the nature of the treaty implies that some conventional sources are meant to be ad libitum. This is the case of the Charter of the United Nations,10 which is meant to be a permanent instrument in international law. This instrument deliberately did not allow access to withdrawal to State parties, with the aim of preventing political pressures being exerted. As the League of Nations revealed its own limits due to parties’ repudiation of the system, the drafters of the Charter decided to undertake a different strategy in Dumbarton Oaks. The goal revealed positive outcomes, since, by the date we are writing, only Indonesia expressed its intention to withdraw in 1965, though without succeeding, due to changes in the domestic political system. 47.07 In order to picture withdrawal in customary international law, the rebus sic stantibus clause serves as a reference framework. Diametrically opposite to the general principle pacta sunt servanda, the rebus sic stantibus clause upholds that whenever a substantial unforeseen change in circumstances occurs in the life of a treaty, then withdrawal may be invoked. This principle has been embedded in Article 62 of the VCLT,11 which allows withdrawal in case of fundamental change of circumstance, only if those circumstances were essential for a State’s consent; or the obligations at stake are radically transformed. 47.08 Particular restrictions to Contracting Parties are encompassed in Article 47(3) of the ECT, which ties States’ decision to withdraw with investors’ prerogatives. Indeed, if member States exit the ECT, they still remain bound by investment protection obligations. This is a condition that lasts for a 20-year 8 9 10 11

VCLT, Art. 46: ‘Denunciation of or withdrawal from a treaty containing no provision regarding termination, denunciation or withdrawal.’ VCLT, Art. 32 regulates the ‘Supplementary means of interpretation’, in order to clarify a particular meaning within the treaty whenever it remains ambiguous or obscure. United Nations, Charter of the United Nations, 24 October 1945, 1 UNTS XVI, available online at: http://www.refworld.org/docid/3ae6b3930.html, last accessed 5 February 2018. VCLT, Art. 62: ‘Fundamental change of circumstances.’

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period starting from the effective date of withdrawal. In turn, this provision is inherently related to Article 26(3)(a) of the ECT,12 under which parties’ unconditional consent is given to arbitration or conciliation clauses. The dichotomy between sovereign voluntarism vis-à-vis investors’ protection came to a head, in practical terms, with the first case of withdrawal from the ECT.13 Indeed, in May 2015, the Italian Government announced its decision, justifying it as a consequence of a spending review.14 Allegedly, the costs of remaining a member would be too high for Italian’s domestic budgetary restrictions. Nonetheless, as investors are currently seeking protection before alternative dispute settlement mechanisms, Italy has been called on to challenge its cost-opportunity decision.15 This case sheds lights on how relating the withdrawal clause to ISDS mechanisms may trigger a deterrent for Contracting Parties to withdraw. In the most recent developments in international law, the topic of withdrawal 47.09 from international treaties has been greatly reshaping frontiers and balances in the international arena. The recent nationalist trends around the globe are posing new challenges to the international community. Besides the case of the Energy Charter, several examples are sprouting up, among which Brexit may represent the peak of the iceberg. Therefore, it is paramount for international lawyers to find appropriate answers to the emerging challenges in the sources of international law. The procedure of withdrawal of the UK from the EU falls under the category of withdrawal from international treaties that establish international organizations,16 pursuant to Article 50 of the Treaty of the 12 13 14

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ECT, Art. 26: ‘Settlement of Disputes between an Investor and a Contracting Party.’ August Reinisch, ‘The EU and the Investor-State Dispute Settlement’, (2017) The European Yearbook of International Economic Law 249, 249–51. (Marc Burgenger, Markus Krajewski et al Eds. Springer, 2017). With regard to the Italian situation as a withdrawing party to the ECT, see The Status of Member Countries in the ECT on the ECT website, available online at: https://energycharter.org/who-we-are/membersobservers/countries/italy/. See also Francesca Morra, Lorenzo Parola, ‘Any Consequences Stemming from Italy’s Withdrawal from the Energy Charter Treaty’ (15/05/2015), available online at: http://www.ispi online.it/it/energy-watch/any-consequences-stemming-italys-withdrawal-energy-charter-treaty-13323, last accessed 5 February 2018. Before the International Center for Dispute Settlement Dispute (ICSID) the following cases are pending: Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic (ICSID Case No. ARB/14/3); Belenergia S.A. v. Italian Republic (ICSID Case No. ARB/15/40); Eskosol S.p.A. in liquidazione v. Italian Republic (ICSID Case No. ARB/15/50). Before the Stockholm Chamber of Commerce (SCC) the following case is pending: Greentech Energy Systems and Novenergia v. Italy (registered 7 July 2015). On a parallel track, amongst the international agreements that provide a conventional framework, the European Convention on Human Rights (ECHR) expressly states the possibility for States’ withdrawal. Under the rubric of ‘denunciation’, Art. 58 of the ECHR states the possibility to withdraw, once the withdrawing State has met certain notice requirements, thus informing the Secretary General of the Council of Europe and other High Contracting Parties. See Council of Europe, ‘European Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols Nos. 11 and 14’, 4 November 1950, ETS 5, available online at: http://www.refworld.org/docid/3ae6b3b04.html, last accessed 5 February 2018.

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European Union (TEU).17 Even if the TEU was originally framed as a permanent instrument, to remain in force ad libitum, future amendments have eventually introduced the possibility of withdrawal. From this perspective, the debate on a withdrawal clause from the EU can be traced to the Spinelli Report in 1984, even if this remained a mere project, in an embryonic status.18 The right to withdraw was later developed throughout the negotiation process of the unratified Constitutional Treaty of 2004. At that time, States running for the European membership were called to participate to the travaux preparatoires next to the EU Member States and succeeded in securing the inclusion of a withdrawal clause.19 Even if the project for a European Constitution failed, the Treaty of Lisbon absorbed 95 per cent of the provisions, and its Article 50 currently regulates the right to exit the EU.20 From the procedural lens, it is worth noting a significant difference between accession and withdrawal from the EU. On the one hand, to join the EU, the acceding member needs to conclude an agreement with all the EU Member States. On the other hand, to exit the EU, the withdrawing member only needs to conclude an agreement with the EU tout court, but no negotiation with singular members is required.21 In such a renewed framework, the European Commission is negotiating the withdrawal of the UK from the EU, following the British referendum on European membership in June 2016. 47.10 In times of political uncertainty, the status quo in the international community is at stake. In this picture, international law can still provide legitimate standards of behaviour for States to follow and for international lawyers to apply. Recourse to withdrawal clauses is generally a legitimate possibility that follows a traditional voluntary-based approach, whenever the principle of pacta 17

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European Union, Treaty on European Union (Consolidated Version), Treaty of Maastricht, 7 February 1992, OJ C 325/5; 24 December 2002, available at: http://www.refworld.org/docid/3ae6b39218.html last accessed 5 February 2018. The Spinelli Report was a treaty proposal, developed on the basis of the 1941 ‘Ventotene Manifesto’, echoing the idea of the United States of Europe. The report aimed at designing a new institutional asset for the Community, corroborating a system for human rights protection, developing the subsidiarity principle and the principle of primauté of the communitarian law, whilst strengthening common defence and external action. In other words, it started the process of constitutionalization of the EU. See Paolo Ponzano, ‘The “Spinelli” Treaty of February 1984’, (2007) 3 The Federalist Debate, available online at: http://www.federalistdebate.org/index.php/current/item/282-the-spinelli-treaty-of-february-1984, last accessed 5 February 2018. On May 1, 2004 ten new countries entered the EU: Cyprus, Czech Republic, Estonia. Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia. Since most of these countries had experienced the regime of the Warsaw Pact, which left no room for withdrawal, they decided to support a withdrawal clause in the negotiation process for the 2004 Constitutional Treaty. For more information regarding States’ membership in the EU over time, see European Union, The 28 Member Countries of the EU, available online at: https://europa.eu/european-union/about-eu/countries_en#tab-0–1, last accessed 5 February 2018. See Rafael Leal-Arcas, ‘Three Thoughts on Brexit’, Queen Mary University of London, School of Law Legal Studies Research Paper No. 249, 1, 3 (2016). Ibid.

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sunt servanda can no longer be applied. International law frames this possibility as an extrema ratio solution, in order to maintain a solid architecture in the conventional sphere. For this reason, the VCLT frames a negative approach for withdrawal clauses, which can be invoked only in limited cases. In turn, this approach facilitates compliance to international regimes and it sheds lights on the effectiveness of international law vis-à-vis States’ realism.

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ARTICLE 48 STATUS OF ANNEXES AND DECISIONS1 Leonardo Borlini and Marina Petri

The Annexes to this Treaty and the Decisions set out in Annex 2 to the Final Act of the European Energy Charter Conference signed at Lisbon on 17 December 1994, as well as the Decisions adopted in connection with the adoption of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty are an integral part of the Energy Charter Treaty.

COMMENTARY2

Marina Petri A. Purpose and function 48.01 Article 48 of the Energy Charter Treaty (ECT) plays a key role in defining the status of the complex apparatus of Decisions and Annexes, including one ad hoc Protocol, within the scope of the agreement. Indeed, it is a paramount provision in defining an equal playing field for this set of international tools, which not only enjoy the same legal status of the Treaty, but, most importantly, represent ‘an integral part’ of the Treaty itself. The distinction just mentioned is not a merely formal or theoretically relevant one: rather, it is distinctively telling in characterising the Energy Charter Treaty as a unique environment within international sectoral multilateral governance.3 48.02 As a matter of fact, the ECT comprises a structured ensemble of Annexes and Decisions, incorporated by reference throughout the corpus of the main 1 2 3

As amended by Art. 7 of the Amendment to the Trade-Related Provisions of the Energy Charter Treaty. This Commentary is the result of a joint collaboration between the two authors. In particular, paras 48.01 to 48.09 have been written by M. Petri, while paras 48.10 to 48.14 have been written by L. Borlini. The Legal Counsel of the International Energy Agency, The Energy Charter Treaty – a description of its provisions (OECD/IEA eds 1994) 8.

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agreement, the status of which is enshrined in Article 48. Notably, there is a substantially wide range of international instruments falling within the aforementioned categories, which include both hard law and ‘best efforts’ and soft law commitments.4 The clear purpose of the article at hand is thus to define a homogeneous status for a substantially variegated set of tools, against the backdrop of the definition of an adequate and efficient standard of regulation for the energy sector, among the signatory States. B. Relevance of the article As anticipated, Article 48 represents a fundamental tool in defining the 48.03 applicative and interpretative perimeter of the variegated landscape of annexes and decisions which are conceived to be substantially, if only by reference, relevant in complementing the content of the agreement. Indeed, several Articles throughout the Treaty include specific reference to the relevant Annexes, which mainly represent listings of specific energy products and tools, but it is through Article 48 specifically that such additional features can be considered an integral part of the Treaty. In line with the aforementioned, extremely synthetic, considerations, specific 48.04 attention will be drawn, in the following subparagraphs, to the nature of the main Annexes included in the Treaty via Article 48, as well as the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (Annex III to the final act of the European Energy Charter Conference). 1. Annexes to the Treaty

The present subsection is dedicated to a simplified recognition of the main 48.05 Annexes encompassed in the Treaty. Indeed, each Annex is included in the agreement through the specific reference made in the relevant provision (falling outside the scope of the Final Provisions analysed in this section of the Commentary). Thus, it is only relevant in this context to present a brief overview of the main Annexes to the ECT, while suggesting a general classification of these binding documents. The first category of Annexes included in the Treaty represents listings of 48.06 products and equipment: Annex EM I (in accordance with Art. 1(4)) covers a list of energy materials and products; Annex EQ I (in accordance with Art. 1(4bis)) is a list of energy-related equipment; Annex NI (in accordance with Art. 1(5)) regards a list of non-applicable energy materials and products for 4

ibid.

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the definitions of ‘Economic Activity in the Energy Sector’. Secondly, it is possible to identify a set of Annexes which deal with the application of the relevant TRIMs (see Annex TRM, in accordance with Art. 5(4)) and WTO provisions (see Annex W: exceptions and rules governing the application of the provisions of the WTO Agreement, in accordance with Art. 29(2)(b)).5 Annex D provides for a set of interim provisions for trade dispute settlement. Finally, several Annexes spell out the contracting States which require for specific physic or legal qualifications in order for a determined set of provisions to be applicable, including dispute settlement mechanisms (e.g. Annex N, Annex ID, Annex IA, Annex BR). 48.07 The content of the mentioned Annexes has been duly analysed in the relevant sections of the present Commentary, when contextualising the referencing provisions within the Treaty, and it would not be of the utmost importance to consider the specific content of each Annex a second time, in the present section. 2. Protocol on Energy Efficiency and Related Environmental Aspects

48.08 The Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA), negotiated, opened for signature and entered into force on 16 April 1998, at the same time as the ECT, represents a peculiar instrument, which is worthy of autonomous analysis, both structurally and content-wise. The PEEREA builds on Article 19 of the Treaty, which has been previously analysed in the present Commentary, where, in line with the 1991 Energy Charter Declaration, the intimate connection between energy efficiency and environmental sustainability is underlined.6

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In this context, it is worth mentioning that Annex TFU, which introduced relevant provisions regarding trade agreements between States which were constituent parts of the former Union of Soviet Socialist Republics, ceased to be applicable on 1 December 1999 as per Art. 29.2.b ECT. The Charter's involvement in matters of energy efficiency and its relation to a cleaner environment was introduced in the 1991 Energy Charter Declaration. The subsequent ECT, and in particular Art. 19 of the Treaty, requires that each Contracting Party ‘… shall strive to minimize in an economically efficient manner, harmful Environmental Impacts’ arising from energy use. It is noteworthy that the idea of practicing sufficiency as the solution to the moral, social and environmental problems of ‘excessive’ consumption is long-standing in Western countries’ life, as is the advocacy of efficiency as the solution to resource shortages. Historians and social scientists have long pointed out the powerful influence that the ‘gospel of efficiency’ has (and still does have) on American life. Samuel Hays in his pioneering book Conservation and the Gospel of Efficiency (first published in 1959) traces its origins back to the conservation policies that arose in the Progressive Era of 1890–1920 in the United States. Unlike the ‘conservationists’ of the 1970s, often referred to as the ‘prophets of doom’, these 19th century conservationists were not Malthusian prophets of despair and gloom. See Hays Conservation and the Gospel of Efficiency: The Progressive Conservation Movement, 1890–1920 (Harvard University Press 1969).

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The underlying ratio is clear: providing the contracting States with a set of 48.09 tools to be skilfully used in order to minimise the link between energy growth (and energy demand growth) and environmental exploitation. In other words, the Protocol builds on the premises defined in Article 19 of the Energy Charter Treaty by introducing an obligation for the parties7 to develop specifically-designed policy tools in order to positively influence the environmental impact of energy use. PEEREA requires its participating States to formulate clear policy aims for improving energy efficiency and reducing the energy cycle’s negative environmental impact. In this context, a peculiar role is played by the notion of ‘energy cycle’,8 which covers the entire energy chain, from production to waste management and decommissioning. Notably, the energy circle has to be organised in such a way that minimises harmful environmental impact. More specifically, according to Article 1 (PEEREA), the main scope of the 48.10 Protocol is threefold: promoting energy efficiency policies and sustainable growth; creating an adequate framework for energy to be used efficiently, especially through fully representing real environmental costs and benefits in efficiently organised energy markets; developing a cooperative environment and thus providing a forum to share best practices and commitments in the field of energy efficiency. Indeed, cooperation represents a key and innovative feature of the Protocol, as it constitutes one of the structural pillars of the energy efficient (better: environmentally sustainable) policy-making environment set out in Article 3 (‘Basic Principles’). Moreover, according to Article 4, cooperation is also relevant from an internal perspective, as ‘each contracting party shall strive to ensure that energy efficiency policies are coordinated among all of its responsible authorities’. In this framework, it is worth pointing out that cooperation does not merely represent a vague or generic principle to be potentially applied in the actual development of energy efficiency policies: rather, Article 9 of the Protocol makes specific reference to the Annex to PEEREA, where a non-exhaustive list of areas of (institutional) international cooperation is included. Through the implementation of PEEREA, the Energy Charter provides transition economies with a menu of good practices and a forum in which to share experiences and policy advice on 7

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The following States are signatories of the Protocol on Energy Efficiency and Related Environmental Aspects: Afghanistan, Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union and Euratom, Finland, France, Georgia, Germany, Greece, Hungary, Ireland, Japan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, Montenegro, The Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, The former Yugoslav Republic of Macedonia, Turkey, Turkmenistan, Ukraine, United Kingdom and Uzbekistan. Norway, Iceland, Australia and the Russian Federation did not ratify the Protocol, while Belarus has not ratified it but still applies it provisionally. See Art. 2, para. 3, of the Protocol.

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energy efficiency issues with leading OECD states. Within this forum, particular attention is paid to such aspects of a national energy efficiency strategy as taxation, pricing policy in the energy sector, environmentallyrelated subsidies and other mechanisms for financing energy efficiency objectives. PEEREA’s development is currently focused on a series of in-depth energy efficiency reviews, designed to produce concrete recommendations for individual governments concerning ways of improving their national energy efficiency strategies. 48.11 By creating binding obligations concerning the development of structured policy tools, the Protocol provides for a sharing platform between contracting States, and it includes a variegated set of policy options to be further elaborated by the signatory States on the basis of the actual status of the relevant energy market. The policy content included in the Protocol covers both financial and financing incentives (Art. 6) and energy efficient technology (Art. 7), as well as providing for a detailed policy provision on domestic programmes (Art. 8). PEEREA is also a vehicle for sharing best practice recommendations and advice on energy efficiency policies among governments in the Eurasian area, and, hence, it plays a key role in furthering the informal-law making generated by the Charter, i.e., in promoting soft law, alongside legally binding obligations, within the ECT’s normative and institutional system.9 Since the implementation of PEEREA, a working group has provided an important forum for discussion. There is the possibility of direct contact through meetings, workshops, seminars and conferences. Since its creation in 1998, the Working Group of PEEREA has actively promoted an exchange of experiences amongst its participating countries. 48.12 There are many ways this has happened. First, there are both standard and in-depth reviews of energy efficiency policies together with energy and environmental policies and programmes.10 These are peer reviews with the reviewing teams made up of representatives from selected participating countries. Recommendations are endorsed by all participating countries at the 9

10

Such a facilitative role was explicitly recognised in the Statement on Energy Efficiency adopted by the Kiev Ministerial Conference. The UN-ECE ‘Environment for Europe’ Ministerial Conference, which was held in Kyiv, Ukraine, in May 2003, based its findings in the area of energy efficiency on the work carried out on PEEREA’s implementation. See Fifth Ministerial Conference Environment for Europe Kiev, Ukraine 21–23 May 2003, ‘Statement on Energy Efficiency submitted by the Energy Charter Secretariat through the Ad Hoc Working Group of Senior Officials United Nations Commission for Europe’. See also, ECS, ‘The Road towards an Energy-Efficient Future, Report to the Ministerial Conference ‘Environment for Europe’ Kiev, Ukraine, May 21–23 2003’. On the respective roles of hard and soft law in international governance see, among others, Kenneth W. Abbott and Duncan Snidal, ‘Hard and Soft Law in International Governance’ (2000) 54(3) International Organization 421. For further information on the in-depth reviews of energy efficiency policies and programs carried out thus far, see www.encharter.org.

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Working Group of PEEREA and then at the Energy Charter Conference, the most senior body within the Energy Charter. Since its creation, the Working Group has had an ambitious work programme to deal with many of the pressing issues related to promoting energy efficiency. In particular, over the years, the Working Group addressed a number of these issues through a number of studies, which have been eventually published by the ECS. Examples are the reports on ‘Advice on Developing an Energy Efficiency Strategy’; ‘Financing Energy Efficiency – An Application Manual’; ‘Impacts of market liberalization on energy efficiency policies and programmes’; ‘Fiscal Policies for Improving Energy Efficiency’. The Working Group has also undertaken work on other issues such as the role of energy agencies, thirdparty financing/energy contract management, integration of energy efficiency into other economic areas, district heating and cogeneration. The Working Group has also invited representatives of NGOs, industry groups/associations, international organizations and international financial institutions (IFIs) to discuss energy efficiency issues. The Protocol is thus a paramount instrument when it comes to the nature and 48.13 essence of its content, but it also represents an interesting international law tool from a structural point of view, as it provides for a privileged perspective over the development of public international law. More precisely, and in contrast with other practices within the Energy Charter 48.14 Process,11 the approach taken within the Protocol and its implementation does not focus on the design of strictly binding obligations on contracting States. Rather, a more pragmatic and policy-based perspective is taken, through the definition of a fundamental role for best practices sharing and cooperative policy making. In this sense, it is perhaps possible to consider the Protocol, which plays a unique role within the complex apparatus shaping the material content of the Energy Charter Treaty, an innovative tool to foster cooperation between contracting States. In other words, while still using a lexicon and terminology that clearly pertains to traditional public international law, the Protocol ends up introducing a new model of policy making that

11

The main reference is to the Energy Charter Process. This is the name given to the process of implementation of the ECT, which is based on monitoring procedures with regular interviews of the implementation ECT provisions of ECT provisions in Member States. It is, in essence, a highly specialized forum for advanced discussions (in the working group) on the evolution of energy markets and new risks for energy projects that might arise from such evolution. Once identified, it attempts these risks in cooperation with governments and other stakeholders. As such it is also a framework for further developments and the drafting of new legally binding instruments to address those related risks. See, among others, Kim Talus, EU Energy Law and Policy (Oxford University Press 2013) 233–5.

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substantially ends up subverting the traditional dynamics of regulatory practice, by underlining the key role of cooperation and providing signatory States with a flexible menu of (cooperative) regulatory practices to be implemented.

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ARTICLE 49 DEPOSITARY Leonardo Borlini and Marina Petri

The Government of the Portuguese Republic shall be the Depositary of this Treaty.

COMMENTARY1 A. Purpose and function The main purpose of this article is strictly linked to the intimately multilateral 49.01 nature of the Energy Charter Treaty (ECT), which implies the necessity to define a depositary figure in order to cope with the communication between the parties relating to the life of the Treaty, as opposed to the feasibility of direct communication in the contest of bilateral Treaties.2 Indeed, introducing a depositary represents a paramount feature of the centralization process with regards to the handling of a Treaty, which has characterized the development of public international law starting from the early nineteenth century.3 As a matter of fact, the designating procedure and the nature of the depositary 49.02 are enshrined in Article 76 of the Vienna Convention on the Law of the Treaties, which encompasses both the principle of flexibility (according to which the States are entirely free to decide upon the designation of the depositary) and the principle of impartiality, which relates to the obligation of the depositary not to pursue particular interests in the exercise of its function. More specifically, Article 77 of the VCLT includes a non-exhaustive list of 1 2 3

This Commentary is the result of a joint collaboration between the two authors. In particular, paras 49.01–49.03 have been written by L Borlini, while paras 49.04–49.10 have been written by M Petri. cf Oliver Dörr and Kirsten Schmalenbach (eds), Vienna Convention on the Law of Treaties, A Commentary (Springer-Verlag 2018) 1401. cf Richard Caddell, ‘Depositary’, The Max Planck Encyclopedia of Public International Law (Oxford University Press 2008).

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the main tasks and functions of the depositary, in line with international customary law, underlining the key administrative function of this figure. Notably, Article 77 of the 1969 Convention has a clear residuary role, and it is thus applicable in the present context, considering that the ECT does not include any additional reference to the actual content of the depositary role. 49.03 According to the synthetic elements that have been presented in this introductory paragraph, the following paragraph will aim at analysing Article 49 of the ECT with a peculiar focus on its role within the context designed by Articles 76 and 77 of the VCLT. B. Content of the article 49.04 As anticipated, it is worth considering the extremely brief text of this Article in light of the more general framework of international law, as systematized in the VCLT. 49.05 According to the text of Article 49, the Government of the Portuguese Republic shall be the depositary of the ECT. In line with the aforementioned provisions of the 1969 Vienna Convention, this entails that the Portuguese Government shall act as a custodian of the Treaty, in an administrative and non-political manner. Indeed, centralizing the administration of the Treaty enables the achievement of a substantial simplification in the management of the life of the Treaty, but it also implies that no binding decisions regarding the life of the Treaty shall be taken by the depositary.4 In other words, the depositary administers the Treaty on behalf of the States in order to provide for a simpler management of a multilateral agreement such as the ECT, but its actions shall not result in any overcoming of the States’ prerogative over decision-making dynamics. 49.06 In this context, it is perhaps of some substantial relevance to recall a few linear elements of the debate which took place within the International Law Commission when defining the actual scope of the provisions concerning the content and the nature of the depositary role. Indeed, in that context, the conception of the depositary as a completely independent institution prevailed over the notion of ‘agent of the State Parties’ that had been first suggested.5 Indeed, the interpretation that has been given of the mentioned provisions, as 4 5

cf ‘Waldock report’ I 32, in Oliver Dörr and Kirsten Schmalenbach (eds), Vienna Convention on the Law of Treaties, A Commentary (Springer-Verlag 2018) 1403. See S Rosenne, ‘The Depositary of International Treaties’ (1967) 61(4) American Journal of International Law 495.

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well as of Article 49 of the ECT, underlines that the introduction of a depositary shall be solely considered as an administrative mechanism developed in order to smooth the communication between the signatory States. Along with the elements that have just been briefly depicted with regards to 49.07 the figure of the depositary, it is now of paramount importance to recall the key functions of this figure, with particular reference to Article 77 of the VCLT. More specifically, it is worth noting that the residuary nature of Article 77 has already been mentioned in the previous paragraph:6 as no other provision is included in the Treaty with regards to the role of the depositary, this provision, which includes a non-exhaustive list of functions, is entirely applicable to the ECT environment. As anticipated, the functions assigned to the depositary are notarial and 49.08 administrative in nature, and, although they might imply, to a certain extent, control and supervision (e.g.. with regards to the requirements for entry into force, or when it comes to assessing whether the instruments are in due and proper form), this quasi-decisional role can only be of a provisional nature, as it cannot be exercised without the opinion and active engagement of the States concerned.7 In view of that, according to Paragraph 2 of Article 77 of the VCLT, in the event of any difference appearing between a State and the depositary as to the performance of the latter's functions, the depositary shall bring the question to the attention of the signatory States and the contracting States. With particular reference to the actual content of the role given to the 49.09 depositary, it is worth mentioning that the main functions enshrined in the 1969 Vienna Convention include: (a) keeping custody of the original text of the treaty and of any full powers delivered to the depositary; (b) preparing certified copies of the original text and preparing any further text of the treaty in such additional languages as may be required by the treaty and transmitting them to the parties and to the States entitled to become parties to the treaty; (c) receiving any signatures to the treaty and receiving and keeping custody of any instruments, notifications and communications relating to it; (d) examining whether the signature or any instrument, notification or communication relating to the treaty is in due and proper form and, if need be, bringing the 6

7

A detailed account of the residuary nature of Art. 77 of the Vienna Convention on the Law of the Treaties is included in J Stoll, ‘Depositary’, Encyclopedia of Public International Law, (1992), vol. 1, 1010–12 and Fatsah Ouguergouz, Santiago Villalpando and Jason Morgan-Foster, ‘Article 77 (1969)’, in Olivier Corten and Pierre Klein (eds), The Vienna Conventions on the Law of the Treaties: A Commentary (Oxford University Press 2011) 1715–53. Rosenne (n 5) 935–6.

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matter to the attention of the State in question; (e) informing the parties and the States entitled to become parties to the treaty of acts, notifications and communications relating to the treaty; (f) informing the States entitled to become parties to the treaty when the number of signatures or of instruments of ratification, acceptance, approval or accession required for the entry into force of the treaty has been received or deposited; (g) registering the treaty with the Secretariat of the United Nations. 49.10 With specific regard to the latter function, relating to the registration and publication of treaties, it is worth mentioning that, according to Article 80, paragraph 2, of the VCLT, the designation of a depositary constitutes per se an authorization for it to perform the transmission of the agreement to the Secretariat of the United Nations. Thanks to the aforementioned provision, the obligation to register treaties is thus generalized,8 allowing for a systematic examination of treaty practice on a global scale, which, along with contributing to the development of international law, represents a key step forward with regards to the practice of secret treaties, characterizing the early League of Nations and UN practice.9

8

9

Indeed, the ratio of Art. 80, para. 1 was initially that of allowing members which were party to the VCLT but not to the United Nation to register their treaties to the United Nations Secretariat (cf Art. 102, para 1, UN Charter). Nowadays, the Holy See being the only member to the 1969 Vienna Convention not to be party to the UN, the relevance of this Article is merely ‘symbolic’ (cf Helmut Tichy and Philip Bittner, ‘Article 80’, in Oliver Dörr and Kirsten Schmalenbach (eds), Vienna Convention on the Law of Treaties, A Commentary (Springer-Verlag 2018) 1450). cf Manley O Hudson, ‘The Registration and Publication of Treaties’ (1925) 19(2) American Journal of International Law 273–92.

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ARTICLE 50 AUTHENTIC TEXTS Leonardo Borlini and Marina Petri

In witness whereof the undersigned, being duly authorised to that effect, have signed this Treaty in English, French, German, Italian, Russian and Spanish, of which every text is equally authentic, in one original, which will be deposited with the Government of the Portuguese Republic. Done at Lisbon on the seventeenth day of December in the year one thousand nine hundred and ninety-four.1

COMMENTARY2 A. Purpose and function Article 50 of the Energy Charter Treaty (ECT), which is the final article of 50.01 the agreement at hand, is relevant in two distinctive regards. First, it represents the key provision in spelling out which are the authentic languages of the Treaty: this element is clearly paramount when it comes to applying, enforcing, and, in this context, interpreting the Treaty. Secondly, and as a result, it provides for a structural basis when dealing with the interpretation and enforcement of the Treaty. The utterly common circumstance for international (multilateral) agreements 50.02 to be concluded in more than one language implies a comprehensive set of argumentative and interpretative issues which have been preliminarily addressed by Article 33 of the Vienna Convention on the Law of the Treaties

1 2

For Signatories see the Energy Charter Secretariat website (www.encharter.org). This Commentary is the result of a joint collaboration between the two Aauthors. In particular, paras 50.01 and 50.02 have been written by L Borlini, while paras 50.03–50.06 have been written by M Petri.

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(VCLT), which is agreed to be part of customary international law.3 Consequently, the purpose of the provision is to provide adequate tools to be used when interpreting international agreements which have been authenticated in two or more languages. While providing for the authentication of the ECT in six languages, Article 50 of the agreement shall be read in conjunction with the aforementioned provision of the 1969 Vienna Convention. What is more, it is worth noting that the six languages (English, French, German, Italian, Russian and Spanish) mentioned in Article 50 perfectly mirror the authenticated texts of the above mentioned Protocol on Energy Efficiency and Related Environmental Aspects (see Art. 22 of the Protocol), which entered into force on the same day as the European Charter Treaty. B. Content and interpretative implications of the article 50.03 As mentioned, Article 50 of the ECT concerns its authentication in six languages, English, French, German, Italian, Russian and Spanish. However theoretically minimal in the context of multilateral international agreements, the practical relevance of this provision is substantial, as it has to be firmly framed within the interpretative debate concerning the relevance of conflicting meanings resulting from the analysis of different authenticated versions. In line with the aforementioned considerations relating to the purpose of the present article, it is worth recalling that Article 33 of the VCLT tackles the issue of multilingual treaties by focusing on which text shall be deemed relevant in case conflicting meanings emerge from a comparative reading of the authenticated texts, by defining the applicable rules to be taken into account. 50.04 In particular, as Article 50 of the ECT does not include any reference to the potential prevailing of one version over another, it shall be noted that, in line with the first paragraph of Article 33 of the 1969 Vienna Convention, each text is to be considered equally authoritative. Consequently, and along with the provision enshrined in paragraph 3 of Article 33 of the VCLT, the wording and lexicon used in the six authenticated versions is to be considered equivalent and potentially linked to the exact same meaning. No interpretative divergences shall arise between authenticated texts: paragraph 3 of Article 33 is clear in determining a presumption of identical meaning, which requires the 3

cf Oliver Dorr, ‘Article 33’ in Oliver Dörr and Kirsten Schmalenbach (eds), Vienna Convention on the Law of Treaties, A Commentary (Springer-Verlag 2018) 636. See, in particular: Kasikili/Sededu Island (1999) ICJ Rep 1045; LaGrand (2001) ICJ Rep 466;, Responsibilities and obligations of States sponsoring persons and entities with respect to activities in the area ITLOS (Seabed Disputes Chamber) (2011); Golder v United Kingdom App no 4451/70 (ECtHR 1975); US – Softwood lumber IV WTO Appellate Body WT/DS257/AB/R (2004); Chile – Price band system WTO Appellate Body WT/DS207/AB/R (2002).

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interpreter to shape a common ground in the quest for an effective and truthful interpretation of the relevant provision.4 As a matter of fact, it shall be noted that Article 50 is crystal clear in specifying 50.05 that, notwithstanding the fact that encompassing the authentication of six different versions implies the introduction of an additional variable in the interpretative process, the Treaty is to be considered as a unique international agreement, the interpretation of which has to be developed according to the ordinary canons, namely Articles 31 and 32 of the VCLT. The equality of all authenticated versions is intrinsic to plurilingual multi- 50.06 lateral treaties such as the ECT,5 implying that the application of Article 33, paragraph 4, of the 1969 Vienna Convention shall be considered only as an exceptional divergence from the general rule, as it extends the process of interpretation ‘beyond the search for the ordinary meaning, by directing the interpreter towards reconciling different meanings in the light of the Treaty’s object and purpose’.6

4 5 6

Anthony Aust, Modern Treaty Law and Practice (Cambridge University Press 2013) 222–5. cf Dorr, (n 3) 636. Ibid.

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APPENDIX: GAS TRANSIT IN EURASIA: TRANSIT ISSUES BETWEEN RUSSIA AND THE EUROPEAN UNION AND THE ROLE OF THE ENERGY CHARTER Andrey A. Konoplyanik1

Soviet/Russian gas supplies to Europe commenced in 1968. Today we celebrate their ‘golden jubilee’. And through all this 50-years-long period transit issues matter, though with different sensitivity, and they have been addressed with different transit-risk-mitigating solutions. International law mechanisms such as ECT-related instruments have been just a part of such solutions.

1. THREE MAJOR COMPONENTS OF TRANSIT RISK IN THE CROSS-BORDER GAS VALUE CHAIN The very fact of transit per se, non-dependent of the name of the transit state, creates additional transportation risks both for the producer/exporter and for the importer since both bear supply obligations within the long-term gas export contracts (LTGEC) which usually shall be a long-term one for investment-protection purposes of the producer. There are three groups of transit risks through the territory of any transit country: (i) legal/regulatory/ contractual; (ii) technical; (iii) political. First, any sovereign state possesses its sovereign right to establish within its territory such transit regime (access to and use of transmission grids at its territory) as it considers appropriate, including establishment of different external limitations for transportation/transit operations between foreign (to 1

Detailed and extended bibliography of this author on the ECT-related issues, including on the issues of transit, is presented at his website at www.konoplyanik.ru/. This chapter presents a much shortened version of the initial manuscript ‘Gas transit in Eurasia: transit issues between Russia and the European Union and the role of the Energy Charter’ which is placed at https://www.e-elgar.com/commentary-on-the-energy-charter-treatycompanion-site.

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this transit state) parties of the LTGEC. This is why in any transit state a ‘contractual mismatch’ problem might appear, e.g., a need for correlation in terms of timing/duration and volumes/throughput capacities between transit contracts providing access to transportation capacities, on the one hand, and underlying supply contracts (usually LTGEC), on the other hand. Secondly, since transit component of the gas value chain is beyond the reach of the parties to LTGEC, this means that technical conditions of the transit system, which directly influence stability and reliability of supply, are also dependent on the third country, i.e., transit state and its transportation system owner/operator (TSO). Adequate maintenance of the transit system is key to the technical stability and reliability of transit. If such maintenance is not adequately provided, this creates technical risks for the producer and the consumer of non-fulfilment of their contractual supply obligations due to lower technical conditions of transit infrastructure beyond their reach. This facet of transit risk reflects its technical component. Thirdly, political component of transit risk. If political relations between transit states and its neighbours (either seller or buyer under LTGEC) worsen, this creates additional risk to secure, reliable, non-interruptible supply flow up to interruptions of supplies of non-technical character. This means that contrary to the perception that transit risk is primarily a political issue, in this author’s view, the basic component of multi-facet transit risk development is the sovereign one (legal, regulatory, contractual), then comes technical aspects of transit risk, and the political component of transit risk is the element of last order in its hierarchy.

2. SOVIET/RUSSIAN GAS SUPPLIES TO EUROPE: TRANSIT RISKS UPSTREAM OF DELIVERY POINTS Delivery points (DPs) for Soviet/Russian gas supplies to the EU have been historically located at the Eastern border of the then EU-15 which means at the Western border of the COMECON. This was caused by the then political split of Europe: the USSR could have assured uninterrupted supply only within the area of its political influence (in USSR/COMECON), while West European wholesale buyers could do so downstream of such DPs on crossborder EU routes to their end-users. This predetermined the important role of transit immediately from the beginning of Soviet/Russian gas supplies to the EU, both upstream and downstream of DPs. 505

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During the Soviet era transit risks through COMECON had been eliminated to zero level since all its states were under the political and economic dependence of the USSR. Soviet sole exporter (Soyuzgazexport) owned the gas in the pipe, and it had operational control over the transit flows usually without owning and/or leasing transit capacities but possessing them in its disposal through the COMECON mechanisms of the ‘socialist economic integration’. In the West, a wholesale buyer of Soviet gas (vertically integrated company/VIC) usually owned/leased the transit pipelines thus possessing legal ownership of both the pipe (capacity) and the gas in it (commodity) and thus such VIC also concentrated management of both commodity and capacity in one (the same) hands. Since the early 1990s the legal and economic environment for transit flows has been changing in both segments of Soviet/Russian gas export value chain, upstream and downstream to/from DPs. This happened first due to political changes in the former COMECON/USSR area, then due to EU expansion and EU internal energy market development and its liberalizations trends. Following the dissolution of COMECON and USSR at the end of 1991, new independent sovereign states have appeared (former Republics of the USSR) and former COMECON states have received real (factual) sovereignty compared to a nominal (virtual) one during USSR/COMECON time. After 1992 Soviet Gas Ministry and Soyuzgazexport were no longer to be solely responsible (and possessing operational capacity to implement this responsibility) for reliable gas supplies between Russia up to DPs at the then EU-15 border. Since that time secure Russian gas supplies to Europe depend on a number of de jure and de facto sovereign ‘third’ states between the Russian border and these DPs since it was these states and their respective entities who owned and controlled the infrastructure within their sovereign territories. So management of commodity and capacity in the area upstream to DPs was disunited since capacity has come under operational control of the former Soviet entities after political changes in Eastern Europe. This gave rise to the so-called ‘contractual mismatch’ problem in Russian gas value chain to the EU upstream of DPs. This explains why in the 1990s Russian monopoly gas exporter Gazprom has been trying to enter into privatization processes within the former COMECON countries with the aim of buying (preferably controlling stocks in) equity in Eastern European TSOs and thus to receive ownership control over the transit pipelines. In such a manner Gazprom has tried to prolong the former management model of providing secure and reliable transit to the EU 506

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(to have operational control of both commodity and capacity within the territories of the third states), which his predecessor in external gas trade has been effectively using through the USSR time.

3. SOVIET/RUSSIAN GAS SUPPLIES TO EUROPE: TRANSIT RISKS DOWNSTREAM OF DELIVERY POINTS Downstream of delivery points of Russian gas to the EU the changing nature of transit problems has occurred due to legal changes as a result of EU liberalization trends. Second EU Energy Package (SEP, 2003) has introduced ‘unbundling’. This disunited ‘commodity’ and ‘capacity’ markets thus giving operational responsibility and management for the ‘pipe’ and the ‘gas in the pipe’ to different non-affiliated entities. Since then management for secure non-interruptible supplies has not been concentrated in single hands of VICs, as before. This created the risk of mismanagement of the supplies with now two contractual components in different hands. SEP also introduced mandatory third-party access (MTPA) as an obligatory access regime to transportation capacities. In combination with unbundling, MTPA created the problem of contractual mismatch (long-term access to infrastructure for transit flows to match existing LTGEC supply obligations), which has since been one of the major risks for the long-term transit supplies, especially through the linear transit systems, i.e., for external gas supplies to the EU and for financing of their development. This has objectively increased transit risks (which generated risks for secure and non-interruptible supply), since the risk of ‘contractual mismatch’ has appeared also within the EU area. Third EU Energy Package (TEP, 2009) has introduced a completely new architecture of the emerging common internal EU gas market based on a ‘pool’ system with intentional upside-down development of internal EU gas regulatory system based on an increasing ‘short-termism’ approach similar to international oil market and/or US gas market development trends: towards spot and futures transactions away from longer term contracts, to growing trades at the hubs/exchanges away from replacement-value-based commodity pricing (i.e., from former indexation to backstop commodities, which was dominant in contractual pricing and was aimed at maximization of marketable resource rent), entry-exit auction-based cross-border transportation tariffs, etc. Since 2003 EU authorities have been regularly stating that there will no longer be transit within the EU since the concept of a single internal EU market was 507

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introduced in SEP. In the light of this, on 30.06.2004 the EU Gas Transit Directive of 1991 was repealed. Since that time the term ‘transit’ is no more in use within the EU. All transportation within the EU is considered to be as if it is internal domestic transportation. But this does not abolish the existence of a ‘contractual mismatch’ problem in cross-border transportation within the EU, which is common to any cross-border transportation where ownership (operational control) of the pipe (capacity) and the gas in the pipe (commodity) belongs to different entities. According to TEP (and its following key documents such as Gas Target Model, Network Codes, etc., developed through 2010–16), the internal EU market does not represent a single homogenous one-market-zone structure, in which case there would have been no ‘transit’ inside such a single zone, as was attempted in 2003 and which was the basis for repealing the Gas Transit Directive. Instead, it consists of a number of market zones with ‘entry-exit’ tariffs at their cross-border points; different individual TSOs are responsible for internal transportation (access to transmission capacities) within their zones on the long-distance cross-border route of Russian gas to its DPs which have been now located deep inside the ‘new’ EU-25/27/28. So ‘transit’, as crossing of two and/or more interconnection (cross-border) points within a gas value chain, does factually exist in the EU although the term ‘transit’ is not in use. This means that the substance of the ‘transit’ problems within the EU (which is the problem of minimizing risks of the long-term supplies through cross-border capital-intensive immobile infrastructure in the third countries) does not disappear and is still in place. And the major one among those is the risk of contractual mismatch for term (long-, medium-, short-term) supplies. Most of the states upstream of DPs of Russian gas are the EU Member States (MSs) since 2004/2007 and this implies EU energy acquis. Since 2006, a number of non-EU countries signed the Energy Community Treaty which obliged them to imply EU energy acquis (competition and energy laws) even not being EU MSs. Now the EU rules are to cover the area through the whole gas value chain at the main transit corridor of Russian gas to the EU from the Russian border (Ukraine is in the process of enforcing EU acquis in its territory) and further downstream to end-users. This has created, both under SEP-2003 and TEP-2009 (but has not diminished and/or nullified), new types of ‘transit’ risks for Russian (and/or any other) gas within the EU (or ‘internal EU cross-border transportation’ risks, I

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call them ‘liberalization risks’), i.e., within the sphere of contractual responsibility of Russian exporters for secure gas supplies to the DPs of Russian gas within the EU. All transit risks are of a multilateral nature (since they refer to ‘third countries’ in the gas value chains beyond seller/producer and buyer/consumer reach). So the way to deal with them most effectively was not by the means of multiplicity of corresponding bilateral instruments, but by the means of the multilateral international law instruments with the aim to create common rules of the game and the level playing field in the area of energy/gas transit. But among the available instruments of international law, EU’s acquis communautaire is not diminishing, but creating new (additional) transit risks within the EU area, at least for external suppliers to the EU that shall, first, supply on the long-term basis due to the necessity to diminish investment risks related to development of production and long-distance transportation infrastructure, and, secondly, which DPs have been placed deep within the EU territory.

4. GATT/WTO VS. ENERGY CHARTER (ECT AND DRAFT TRANSIT PROTOCOL) FRAMEWORK Among multilateral instruments of international law dealing with transit, the correlation between Article V of GATT/WTO ‘Freedom of Transit’, Article 7 ‘Transit’ of the ECT and draft Energy Charter Protocol on Transit are worth mentioning. The concept of freedom of transit originated in the Barcelona Convention and Statute on Freedom of Transit (1921) and is embodied in Article V of GATT (1947), providing for transit via the most convenient routes with no distinction based on the place of origin, departure, entry, exit or destination, or relating to the ownership of goods or means of transport. Article V of GATT emphasizes comparative characteristics of transit compared to other means of transportation of goods to their final destinations and not on regulation of transit per se within/through the transit state. Moreover, the GATT transit provisions were negotiated in the 1940s. Most goods traded then among Contracting Parties were transported by ‘mobile’ carriers such as vessels, trucks, trains, which presented mostly discrete transactions of single volumes of goods via the routes which can be changed rather flexibly. The processes of the continuous flows of traded goods through the fixed (‘immobile’) infrastructure such as pipelines and electricity grids, that 509

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rigidly bound together production and trade/transportation processes/facilities into one indissoluble technological chain, were much fewer. GATT Article V does not therefore address some pertinent issues linked to transit per se, especially through fixed (immobile) infrastructure, i.e., through oil and gas pipelines and electricity grids. The ECT Contracting Parties felt however that additional disciplines were needed to clarify specific issues related to energy transit, especially through fixed infrastructure, in addition to the generic rules of GATT Article V. The ECT-1994/1998 applies by reference the rules of GATT-1947 (and WTO1995 by the Trade Amendment-1998) to Energy Materials and Products (EMP) which include by definition those EMP that are being traded/ transported/transited only through fixed infrastructure, like electricity, or through both mobile and fixed infrastructure, like oil, gas or coal. So ECT Article 7 ‘Transit’ addresses explicitly energy transit by fixed infrastructure, as defined in this Article. Most decisions on transit of EMP needing fixed infrastructure are long term since they are usually linked to the supply decisions with LTGEC. Spare capacity in fixed infrastructure is expensive and, therefore, usually of a temporary nature. In case of bottlenecks and congestion, existing capacity may be allocated through non-discriminatory congestion management mechanisms. Congestion can in principal be overcome by investment into additional capacity, but only taking into account the time necessary for planning, authorization and construction. As ECT Article 7 does not address in detail the implications of these issues and other aspects, there was a wish of ECT Member States to detail them in a special Transit Protocol. Negotiations on the draft Energy Charter Protocol on Transit (TP) started in 2000 and in two years had resulted in considerable progress. At the Energy Charter Conference in December 2002, all 51 Member States agreed on a text of the draft Transit Protocol, however, subject to a solution of three issues which stayed open between the EU and the Russian Federation: two issues relating to transit per se and one broader (non-transit-specific) issue stemming from the specificities of the EU as a Regional Economic Integration Organisation (REIO). The points of substance that remained open concerned: (1)

(2)

non-discriminatory use of available capacity and the rules of handling congestion implied in the discussion of cost-reflectiveness of transit tariffs if established at auctions; the issue stemming from the longevity of transit decisions. Originally it was labelled as Right of First Refusal (which reflected one of the debated 510

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(3)

solutions, broadly used outside the EU, of the contractual mismatch issue, but not acceptable for the EU), later – as avoidance of contractual mismatch (which reflected the issue per se); the EU-specific issue of application of the draft Transit Protocol inside the EU (in line with the EU concept, since SEP-2003, that there is no longer ‘transit’ within the emerging internal single EU market; since SEP-2003 till TEP-2009 this was considered by the Commission and presented by EU authorities to the outside world to be organized as a single homogenous market zone). The point was whether to apply definition of ‘transit’ to the crossing of the EU entire territory as REIO, as proposed by the EU in the draft Transit Protocol (Art. 20), and thus to narrow down definition of ‘transit’ as made in the ECT, or to apply definition of ‘transit’ both to the crossing of each single EU member country and/or of the EU as a single area, as defined in the ECT (Art. 7). This issue stems, inter alia, from the fact that each EU Member State has signed and ratified ECT in its double-capacity: as an individual ECT Contracting Party and as a member-state of the EU which, in turn, is itself a separate Contracting Party of the ECT.

Further to these three open issues related to the draft Transit Protocol, the Russian Federation has been continuously raising its concerns regarding different (from the EU interpretation) or unclear interpretation of some key transit-related provisions of the ECT regarding: (1) (2) (3)

(4)

implementation of MTPA within the ECT area (despite clear and definite wording on this of ECT Understanding IV(1)(b)(i)); correlation between tariffs for transit, export, import and domestic transportation, whether they shall or shall not be equal (ECT Art. 7.3); conciliatory procedure of transit-related dispute settlements, including establishment of interim tariffs by conciliator and definition of conciliator per se, i.e., whether it shall be a single person or can be a collective entity (ECT Art. 7.7); role of long-term contracts which are fundamental for long-term transit solutions.

The above-mentioned demands of the Russian Federation to address its transit-related concerns regarding interpretation of the ECT Article 7 and other transit-related issues of the ECT were not included by the Energy Charter Conference into three open issues between Russia and the EU since they related to the ECT and not to the draft Transit Protocol, although it was proposed to solve these issues in the course of finalization of the Transit Protocol (the legal status of the Transit Protocol allows such a scenario) as a 511

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‘package’ which Russia always presented as an obligatory prerequisite for its further consideration on ECT ratification.

5. DIFFERENT PURPOSE OF RUSSIA AND THE EU ON PROSPECTIVE IMPLEMENTATION OF ENERGY CHARTER TRANSIT PROVISIONS (WHY THE BALANCED SOLUTION ON TRANSIT WAS NOT REACHED) It seems that from the very beginning of the Energy Charter Process Russia and the EU have both had different visions and different purposes of prospective implementation of the Energy Charter transit instruments, both in regard to the ECT and its draft Transit Protocol. This finally prevented either of the two parties and the whole multilateral Charter community from reaching balanced solutions on all open transit issues and/or their mutually acceptable interpretation. Major disputed issues between Russia and the EU in this regard were reflections of these different purposed visions. Russia aimed at minimizing existing (since early 1990s) transit risks with the help of Energy Charter transit-related instruments, both upstream and downstream of its DPs. First of all, to exclude the appearance of (and if not possible, then to minimize the) contractual mismatch problem and thus to secure non-interruptible transit flows to the EU of Russian gas under LTGEC schemes. The EU would like, first and most, to ‘open’ internal Russian GTS for transit of Central Asian gas to the EU via Russia (and through the whole former USSR/COMECON area), i.e., to obtain access to the existing Russian pipeline network as a shortest route for prospective supplies of cheap Central Asian (mostly Turkmen) gas to the EU. This will enable EU companies to obtain triple value, since: (1)

(2)

(3)

production costs of Turkmen gas (produced in the South) are cheaper than of Russian gas (produced in the North/Arctic) due to natural factors; the same with transportation costs to the EU (different length of transportation routes to the EU from the corresponding wellheads in Russian Nadym-Pur-Taz and Yamal areas in Northern Siberia and in Turkmenistan); the EU delegation has been insisting on such interpretation of ECT Article 7.3 (referring to GATT/WTO Art. 5 and EU acquis and its 512

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practical implementation in the EU) that as if tariffs for transit, export, import and domestic transportation shall be equal; the latter will enable EU companies to obtain access to Russian GTS with transit flows at discounted domestic tariffs introduced for the owner of the Russian GTS (Gazprom) under the Russian law ‘On Gas Supply’ (and it was only after ECS has undertaken a special study in which it was proven that in the EU itself domestic tariffs differ from transit ones, this point of Russia-EU disagreement was clarified on the basis of the Russian vision). The external trade concept of Turkmenistan authorities has been always to sell its gas on its external border thus transferring delivery obligations to the final foreign destination (and thus the corresponding transit costs and risks) to the buyer. So the EU was aiming to receive access to the existing system of gas pipelines ‘Central Asia – Centre [of the European part of Russia]’, which were developed in Soviet times, and then further on through the Ukrainian transit corridor to the final destinations in the EU. This means: through the same pipelines and through existing DPs of the Russian gas in the EU, i.e., to create competition between Russian and Turkmen gas in the same pipelines, at the same DPs, at the same markets in the EU. This would have been good for the EU, since it would diminish the commodity price of delivered gas as a result of competition between two key suppliers in the same pipeline system. And that would be a ‘cheap’ solution for the EU to enable competition between two major (existing and potential) gas suppliers to the EU: there would be no need to invest in alternative supply routes, but just to use ‘positive discrimination’ instruments by implementing MTPA in the existing Russian GTS to its owner and the incumbent supplier Gazprom based on pro-competitive, in line with the EU evolving internal legislation, interpretation of the Energy Charter multilateral instruments. But this would not be good for Russia since it would provide access to its pipeline system on the discounted basis for its foreign competitor in the same EU market. On top of this, it would have created the problem of contractual mismatch in regard to Russian transit supplies to the EU. This was an attempt at implementation by the EU of the ‘multiple supplies/suppliers’ concept within the same pipeline route (existing transportation capacities) using corresponding interpretation of the Energy Charter documents. 513

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Unfortunately, it was not possible (and, probably, would not be possible for the time being) to successfully finalize the draft Energy Charter Protocol on Transit, mostly because the party most interested in it – the Russian Federation – had first withdrawn from provisional application of the Treaty in August 2009, and then, in April 2018 (just on the eve of the tenth Anniversary of ECT entering into force), it precisely informed ECS Secretary General that it was recalling its signature under the ECT. Thus Russia has moved from the signatory to observer status in the Energy Charter process without an opportunity to take a decisive role in its further development. In 2015 Russia has not taken part in signing the International Energy Charter. The formal explanations for leaving ECT since 2009 were mostly transitrelated, further to finally unsuccessful results of bilateral Russia-EU consultations on ECT transit-related issues, and to negative consideration of Russian authorities on effectiveness of ECT instruments (although Russia has not applied them in a formal way) during the January 2006 and January 2009 Russia-Ukraine gas transit crises. Although the Yukos case, per se, seemed also to play the role. The Russian Federation has demonstrated that it lost its confidence in the ECT instruments and since then it has been mostly relying on the development of alternative pipeline solutions without (if/when/where possible) transit components on their routes thus developing diversification as a means for addressing transit problems under the ‘multiple pipelines’ concept. But it also seems that the EU, which has been mostly interested in implementing ECT transit rules (in a way how EU delegation had interpreted them according to the dominant ‘export of EU acquis’ concept in international EU policy) within Russia and not within EU territory (as the REIO clause has shown), has also lost interest in the ECT, mostly due to the internal EU legal conflict between more-and-more liberalized rules of the internal EU energy market and the fixed ECT rules. This means that two major historical players within the Energy Charter process – the Russian Federation and the EU, – although for different reasons, have lost interest in this process without finding a mutually beneficial solution to the transit problem which is a key element in providing secure, stable and reliable supplies of Russian gas to the EU through the cross-border longdistant capital-intensive immobile infrastructure within the ‘Broader Energy Europe’. This means that the game is not over yet. ‘The Show must go on’!

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INDEX

Abbott, K. 48.11 aboriginal peoples 24.03, 24.15 access commercial access methods and sovereignty over energy resources 18.06 technology see technology transfer transit of goods see transit of goods access to capital 9.01–41 access to public credits, guarantees and insurance for investors 9.08, 9.13–14, 9.31, 9.33 acknowledgement of the importance of open capital markets 9.23–5 best efforts clause 9.01, 9.20, 9.22, 9.28, 9.40 borrowing of funds and the insurance and sale of equity shares and other securities 9.05, 9.08, 9.13–14, 9.16, 9.19, 9.38 energy cooperation 9.03, 9.35 energy trade 9.03, 9.19–20, 9.23, 9.27, 9.29, 9.31, 9.33, 9.41 environmental protection and energy efficiency 9.30, 9.36–7 exceptions 9.21–2 exchange rates 9.03, 14.06, 14.08, 37.04 expertise of relevant international financial institutions 9.05, 9.06, 9.08, 9.13, 9.14, 9.16, 9.35 facilitating trade or investment abroad 9.31–4 financial system and capital markets 9.05, 9.14, 9.16, 9.38–9 free trade market and fair competition 9.02, 9.19, 9.34, 9.37 implementation of programmes 9.35–7

interim trade arrangements and economies in transition 9.21–2, 9.24–5 market principles and lending practices 9.08, 9.38 measures for prudential reasons 9.05, 9.06, 9.14, 9.15, 9.16, 9.38, 9.39 most-favoured-nation (MFN) treatment 9.06, 9.28 non-discrimination principle 9.19–20, 9.26–9, 9.32 obligation to promote conditions for access to the national capital market 9.26–30 pre-investment phase 9.28–9 private investors 9.07, 9.08, 9.13, 9.14, 9.16, 9.18, 9.20, 9.41 protectionist measures, nothing shall prevent application of 9.38–40 soft law commitments maintaining the freedom of financial institutions 9.18, 9.36 third state 9.05, 9.08, 9.11, 9.13, 9.14, 9.16, 9.18, 9.26, 9.28 transfer restrictions 9.03 travaux préparatoires 9.04, 9.18, 9.21 accession 41.01–4 association agreements 43.02, 43.03 Conference approval 34.23–4, 41.03 depositary 41.02 Regional Economic Integration Organizations (REIOs) 41.01, 41.03 states 41.01, 41.03 Acconci, P. 10.04, 10.10, 10.47, 10.50 acquisition or distribution of energy materials and products in conditions of short supply 24.02, 24.15 ad hoc conference or executive body 42.03 ad hoc tribunal

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COMMENTARY ON THE ENERGY CHARTER TREATY dispute settlement between contracting parties 27.11–12, 27.15, 27.19–22 non-derogation from WTO Agreement 4.11 Secretariat awards 35.16 trade-related investment measures, Australian Declaration 5.30–31 see also dispute settlement Adlung, R. 11.02, 11.03 administrative rulings, and transparency 20.01, 20.03, 20.06–9 Ago, R. 4.04 Akerlof, G. 3.04 Aleksic´, V. 18.01–28, 19.01–26 Alexandru, G. 13.02, 13.13, 13.20, 13.21, 13.22, 13.23, 13.24 alleviation obligation, and competition 6.04–10 Alqurashi, A. 13.02, 13.13 Alvarez, G. 20.01–10, 21.01–18, 24.01–16, 25.01–14 Amarasinha, S. 10.04, 10.47 amendments to international agreements 42.01–6 ad hoc conference or executive body 42.03 Energy Charter Conference, texts of amendments consideration and adoption 34.27–9 formal consent and ratification 42.04 import and export charges 42.06 liberalization of international trade 42.06 proposal procedure 42.02 Trade Amendment and WTO 42.05–6 amicable settlement 26.09–13, 27.06–8, 27.16–18 Amkhan, A. 40.37, 40.40 Andrews-Speed, P. 20.08, 26.05, 26.10, 26.12, 26.13, 26.21 annexes and decisions, status of 48.01–14 Annex D (interim provisions for trade dispute settlement) 48.06 Annex EM I (energy materials and products) 34.34–5, 48.06 Annex EQ I (energy-related equipment) 31.02, 48.06 Annex ID, countries not listed in 26.20

Annex NI (non-applicable energy materials and products and economic activity) 1.22, 48.06 Annex T (transitional arrangements) 32.02, 32.04, 32.09–11, 32.13 Annex TRM (trade-related investment measures) 48.06 Annex W (WTO Agreement) 48.06 as integral part of treaty 48.03–4 modifications and technical changes, Energy Charter Conference consideration and approval 34.30–31 annexes and decisions, status of, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 48.08–14 best practice recommendations 48.11, 48.14 cooperation focus 48.10–11 energy cycle role 48.09 environmental impact of energy use 48.09 legally binding obligations 48.11 review procedures 48.12 Working Group 48.11–12 appointment of Secretary General 35.01, 35.03, 35.12, 35.17–21 Ariza-Montobbio, P. 18.01 Arsanjani, M. 40.27, 40.36 ‘as used in this Treaty’, definition 1.03–9 assignment of rights, and subrogation 15.01, 15.02, 15.04 association agreements 43.01–3 accession procedure and membership agreements 43.02, 43.03 Energy Charter Conference, authorizing negotiation and adoption 34.25–6 participation agreements 43.03 attribution of liability establishing, promotion, protection and treatment of investments 10.18, 10.20–21, 10.34 multiple causes 13.31 observance by sub-national authorities 23.01–2 state-owned and privileged enterprises 22.02, 22.16–21, 22.26–8

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INDEX Aust, A. 34.14, 34.23, 34.27, 36.06, 40.04, 40.27, 50.04 Australian Declaration see trade-related investment measures, Australian Declaration authentic texts 50.01–6 authoritative equality of each text 50.04–5 content and interpretative implications 50.03–6 interpretation and enforcement of treaty 50.01 languages used 50.01–3 and Vienna Convention 50.02, 50.03–6 available capacity 33.14, 33.19 awareness raising activities, environmental aspects 19.06, 19.10, 19.19 Azaria, D. 24.05 Baltag, C. 10.05, 10.22, 10.40, 10.48, 26.04, 26.06, 26.28, 26.35, 27.01–25, 28.01–4 Bamberger, C. 8.04, 8.23, 8.30, 8.33, 8.35, 8.48, 8.57, 9.22, 21.16, 24.01, 24.14, 25.03, 25.08, 25.11, 25.14, 43.03 Banifatemi, Y. 26.03 bankruptcy and insolvency cases 14.08, 21.12 barriers to competition see competition, market distortions and barriers to competition Baumgart, M. 29.01–18 Begic, T. 10.13 Bekker, P. 26.18 Belohlávek, A. 10.44 Belyi, A. 3, 10.50 Belz, M. 26.03 Ben Hamida, W. 10.05, 10.08, 10.12, 10.16, 10.47, 10.48, 10.50 beneficial ownership and control 1.36, 1.40 Benito, E. 10.48 Bertrana Horta, X. 23.11 best efforts clause 8.31, 9.01, 9.20, 9.22, 9.28, 9.40 best practices, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 33.08, 48.11, 48.14

best-endeavour commitment, interim provisions on trade related matters 29.11–12 Bhala, R. 22.04, 22.10 Bianco, G. 20.03 Binder, C. 10.02 Bittner, P. 49.10 Bjorge, E. 10.06, 10.07, 10.09 Bjorklund, A. 10.02, 10.09, 10.42, 10.50 Blakeney, M. 8.09, 8.10, 8.39 Blanch, J. 26.28 Blyschak, P. 40.31 Böckstiegel, K.-H. 10.04 bona fide measures see good faith interpretation Borg, G. 10.44 Borlini, L. 49.01–10, 50.01–6 borrowing of funds 9.05, 9.08, 9.13–14, 9.16, 9.19, 9.38 see also access to capital Boute, A. 10.10, 10.44, 10.50 Brazell, L. 8.53, 19.24, 22.01, 24.01 Brown, C. 10.04, 13.02, 13.10, 45.04 Bubrowski, H. 10.12 budgets 34.13, 36.02, 36.04, 36.09, 37.02, 37.03 Bungenberg, M. 10.02, 10.08, 10.14, 10.16, 40.44 business interests and denial of benefits clause 17.08, 17.09–10, 17.12, 17.14, 17.17–21 transfers related to investments 14.02 business judgment and market investor principle criteria 22.07, 22.11 Caddell, R. 49.01 Cameron, P. 9.28 candidate criteria, Secretariat 35.18 capacity building, and technology transfer 8.12 capital access see access to capital capital transactions, transfers related to investments 14.02–3, 14.07, 14.09 Carter, B. P.03, 44.02, 47.03 carve-out clauses, taxation 21.02–4, 21.06–12, 21.16, 21.17

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COMMENTARY ON THE ENERGY CHARTER TREATY Cerný, F. 10.44 Chairperson and Vice-Chairperson, Energy Charter Conference, subsidiary bodies 34.39 cherry picking avoidance, Energy Charter Conference 34.17 choice-of-law provision, dispute settlement, investor-state 26.34–6 claims to money and claims to performance definition 1.42–7, 1.55 claw-back clause, taxation 21.06, 21.12, 21.15, 21.16, 21.18 climate change 19.03 see also environmental aspects code of conduct 8.09, 34.37, 35.03 colonial extension clauses 40.03 command-and-control measures, environmental aspects 19.09 commercial reservation, dispute settlement, investor-state 26.33 compensation for losses 12.01–6 damages assessment and balance of probabilities 13.34 heads of damages reference 13.31 income-based valuation 10.21 loss resulting from either requisitioning or destruction 12.06 most favourable treatment 12.05 payment of prompt, adequate and effective 13.24–8 plurality of awards 10.38–9 restitution and compensation obligations 13.33–47 standard for breach of obligations 10.21 subnational entities and monetary damages 26.40–41 and transit of goods 7.32–9 war or national emergency 24.10, 24.16 see also conciliation competition 6.01–17 alleviation obligation 6.04–10 competitive price-fixing 3.04 cooperation and assistance provisions 6.03, 6.14–17 countries with limited experience 6.14 dispute settlement 6.03, 6.15–17

economic activity in the energy sector clause 6.05 experienced parties 6.14 free trade market and fair competition 9.02, 9.19, 9.34, 9.37 free trade market and free competition 8.32 ‘open and competitive market’ 3.02–4 rules and abuse of dominant position P.07, P.09 and trade liberalization 6.01 transitional arrangements 32.07, 32.10, 32.11–16 unilateral and concerted anti-competitive conduct 6.13 WTO Doha Round and technical assistance activity 6.02 competition, enforcement of competition provisions by the Contracting Parties 6.11–13 cooperation between Contracting Parties and between national competition authorities 6.14 enforces such laws as are necessary and appropriate 6.12 information exchange and cooperation 6.14 infringement, cooperation and dispute resolution 6.15–17 technical assistance between countries 6.14 unilateral and concerted anti-competitive conduct 6.13 competition, market distortions and barriers to competition 6.04–10 barriers to entry markets 6.10 definition 6.08 parties ‘shall work to prevent’ obligation 6.06–7 pricing and production distortion 6.08–9 reform discretion 6.09 complementarities and mutual benefits 2.16, 2.20, 8.03, 8.57 conceding clause 16.02 conciliation conciliator appointment 35.23–4

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INDEX conciliator disqualified and proceedings suspended 35.25 conciliator informs Secretariat in writing 35.26 environmental aspects 19.16 investor-state dispute settlement see dispute settlement, investor-state, international arbitration or conciliation provisional application 45.04 transit of goods 7.32–9 see also compensation for losses Conference see Energy Charter Conference confidentiality requirements 7.35, 20.04, 35.24 conflicting treaties 10.07, 10.08, 10.13, 16.03–5 congestion management, Transit Protocol 33.18–19 consent to arbitration, dispute settlement, investor-state 26.14–17, 26.20–22, 26.29, 26.31, 26.33 construction and operation requirement, definition 1.25 contractual or property right definition 1.30 cooling-off provisions 13.09, 26.10, 27.17 Coop, G. 10.02, 12.02, 12.03 cooperation and access to capital 9.03, 9.35 ‘as used in this treaty’ definition 1.06, 1.08 and competition 6.03, 6.14, 6.15–17 EU Partnership and Cooperation Agreements (PCAs) 11.06–7 non-derogation from WTO Agreement 4.02–3, 4.04–5 obligation, competition 6.14–17 promotion, protection and treatment of investments 10.04 Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 33.11, 48.10–11 and purpose of the Treaty 2.08–10, 2.17–21 strategies in Eastern and Western Europe Countries P.05

technology transfer 8.03–4, 8.10, 8.12–13, 8.23–4, 8.28–9 transit of goods 7.06, 7.07, 7.10 transition countries 34.16 copyright 1.87–8 see also intellectual property rights Corten, O. 40.04 costs allocation 27.24 awarded, and expropriation 13.47 environmental aspects 19.04, 19.09, 19.10, 19.21 Secretariat proceedings 35.26 Transit Protocol 33.18–19 see also funding principles Cottier, T. 3.05, 3.08, 4.10, 6.05, 45.02 Cotula, L. 10.44 country reports, energy efficiency 33.06–7 Crawford, J. 10.48, 22.14 currency freely convertible 1.93 restrictions 14.06 customary international law, promotion, protection and treatment of investments 10.13, 10.15, 10.17, 10.18–19, 10.21, 10.33, 10.36, 10.43 customs unions 24.06–7, 24.16, 25.06, 25.07, 25.10 see also free-trade areas; tariffs D’Allaire, D. 10.09 damages see compensation De Brabandere, E. 10.02 De Luca, A. 14.10, 26.40, 26.41 decisions, depositary quasi-decisional role 49.08–9 decisions and annexes see annexes and decisions, status of Declarations definition 1.92 negotiation and approving their issuance 34.20–22 and Protocols see Protocols and Declarations definitions 1.01–93 area of a State that is a contracting party 1.77–80

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COMMENTARY ON THE ENERGY CHARTER TREATY ‘as used in this Treaty’ 1.03–9 ‘as used in this treaty’, cooperation principles 1.06, 1.08 available capacity 33.14 competition 6.08 Contracting Parties 1.05, 1.08, 1.11–12, 1.14, 1.63–6, 1.7–-2, 1.79, 1.82–3, 1.89 economic integration agreement (EIA) 25.02–3 energy cycle 19.18 energy materials and products 1.17–21 energy-related equipment 1.19 European Energy Charter 1.03–9 freely convertible currency 1.93 intellectual property rights 1.86–8 Regional Economic Integration Organisation (REIO) 1.10, 1.13–14, 1.15–16, 1.79 returns 1.75–6 sovereignty 18.01–2, 18.12 state entity 22.06 state-owned enterprise 22.04–11 taxation 21.18 technology transfer 8.10 transit of goods 7.01–2 transparency 20.05 WTO (World Trade Organization) 1.81–5 WTO (World Trade Organization), GATT 1.81, 1.83, 1.85 definitions, economic activity in the energy sector 1.22–6 construction and operation requirement 1.25 electricity generation 1.23 excluded products and materials 1.22 investment associated with 1.26 definitions, Energy Charter Declaration 1.92 Protocol 1.89–92 Transit Protocol 1.91 definitions, investment 1.27–56, 1.70–74 beneficial ownership and control 1.36, 1.40 claims to money and claims to performance pursuant to contract

associated with an investment 1.42–7, 1.55 contractual or property right 1.30 contribution to the economic development of the host State 1.32 control element 1.29 effective date 1.31, 1.53–4 as every kind of asset 1.28 fair and equitable treatment 1.72–3 foreign control 1.56 indirect ownership or control 1.37, 1.39–41, 1.56 indirect ownership of shares 1.39–40 intellectual property rights 1.48 making of 1.70–74 minimum threshold 1.74 nominal legal ownership by investor 1.35–7 returns 1.49–56 Salini test 1.32–3, 22.06 tangible and intangible holdings 1.38 definitions, investor 1.28, 1.35–7, 1.46, 1.57–69 activity element 1.59 of another Contracting Party 1.64–5 company organized under the laws of a Contracting Party 1.66–8 government agency as 1.67 nationality based on identification cards and passports 1.68 ownership chain and indirect investment 1.60 status of ‘permanently residing in’ 1.62–5 and third state 1.61, 1.69 denial of benefits clause 10.09, 17.01–24 business interests 17.08, 17.09–10, 17.12, 17.14, 17.17–21 diplomatic relationship requirement 17.22–3 legal entity needs to be owned or controlled by the nationals of ‘third State’ 17.09–10, 17.12, 17.15–16, 17.22–3 legitimate expectations protection 17.10, 17.13 prior notification and consultation 17.12–13

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INDEX promotion, protection and treatment of investments 10.01–14, 10.16, 10.18–19, 10.24, 10.43, 10.44, 10.48, 10.50, 10.54 reserved right 17.01, 17.06, 17.09 retrospective or prospective effect 17.11, 17.13 right to deny the advantages of Part III 17.08–12 substantial business interests 17.08, 17.09, 17.12, 17.14, 17.17–21 third state own or control status 17.08, 17.13, 40.31–4 travaux préparatoires 17.15 depositary, Government of Portuguese Republic as 49.01–10 accession 41.02 appointment 39.02 flexibility principle 49.02 functions assigned to, and quasi-decisional role 49.08–9 impartiality principle 49.02 International Law Commission debate 49.06 registration and publication of treaties 49.09–10 and Vienna Convention 49.02–5, 49.07–9 deprivation degree, and expropriation 13.15, 13.19, 13.29 designated agency, and subrogation 15.03 destruction, loss resulting from 12.06 deterrent condition, and withdrawal from international treaties 47.06 development and recovery of resources 18.10, 18.28 developments and challenges in international trade agreements 30.01–7 legally-binding standstill on customs duties 30.03 Marrakesh Agreement 30.04 member states not yet in the WTO 30.06 Protocols and Declarations 30.02 Trade Amendment 30.02, 30.03–7 WTO system 30.02, 30.04–7 developments in international trade agreements, energy equipment 31.01–4

Annex EQ1 (energy-related equipment) 31.02 and environmental technology transfer 31.03, 31.04 Trade Amendment 31.02–3 trade barrier removal 31.03 developments in international trade agreements, transitional arrangements 30.02, 32.01–16 access to capital 9.21–2, 9.24–5 Annex T 32.02, 32.04, 32.09–11, 32.13 and competition 32.07, 32.10, 32.11–16 cooperative efforts and modernization of energy sectors 34.16 elimination of non-complying measures 32.04 exceptions 32.04–5 information requests and official enquiry points 32.05 interim provisions on trade related matters 29.01 phase-outs’ status 32.06 public interest objectives 32.13 suspensions, impact of 32.07, 32.09–16 technical assistance options 32.06 termination 32.08 terms of reference for the negotiation of Protocols 34.17–19 trade-related investment measures (TRIMS) see trade-related investment measures (TRIMS), transitional regime prior to the entry into force of the Charter Dias Simões, F. 13.03, 13.13, 13.19, 26.01–42 Diehl, A. 26.07, 26.15 Dimopoulos, A. 10.08, 11.02, 11.03 diplomatic relationships 17.22–3, 27.03–7, 27.09 discrimination avoidance P.06 concerns 24.09, 24.15 prohibition, economic integration agreement (EIA) 25.14 and taxation 21.01, 21.09, 21.11–13, 21.15 see also non-discrimination

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COMMENTARY ON THE ENERGY CHARTER TREATY dispute settlement ad hoc tribunal see ad hoc tribunal Annex D 48.06 and competition 6.03, 6.15–17 environmental aspects 19.11–16, 19.26 exceptions 24.05 function 2.14, 2.26 interim provisions on trade related matters 29.17–18 observance by sub-national authorities 23.06–7, 23.14, 26.40–41 promotion, protection and treatment of investments 10.10–13, 10.15, 10.16, 10.19–21 Secretariat role see Secretariat, dispute resolution role and transit of energy materials and products and taxation 21.03 transit of goods 7.29–39 withdrawal from international treaties 47.08 dispute settlement between contracting parties 27.01–25 ad hoc arbitral tribunal 27.11–12, 27.15, 27.19–22 amicable settlement 27.06–8, 27.16–18 amicable settlement, and time constraints 27.16–18 arbitral award shall be final and binding 27.24 costs allocation 27.24 diplomatic protection and exchange 27.03–7, 27.09 and International Centre for Settlement of Investment Disputes (ICSID) 27.01, 27.04, 27.05, 27.08 International Investment Agreements (IIAs) 27.03–9 interpretation and application of ECT 27.02, 27.06–8, 27.10–12, 27.14–16, 27.19, 27.21 non-application in certain disputes 5.30 remedies, exhaustion of 27.09 state-state dispute resolution 27.03, 27.06–7, 27.09 trade-related investment measures 27.13–14

and UN Commission on International Trade Law (UNCITRAL) 27.22 dispute settlement between contracting parties, exclusion of certain provisions 28.01–4 interim provisions on trade-related matters 28.02 trade-related investment measures 28.02 transfers related to investments 28.03 and WTO GATT 28.02–4 dispute settlement, investor-state 26.01–42, 27.17 alleged breach of an obligation under Part III ECT 26.04–8, 26.18 alleged breach of an obligation under umbrella clause 26.07, 26.21, 26.35 amicable resolution 26.09–13 arbitration award shall be final and binding upon the parties to the dispute 26.38–42 consent to arbitration 26.14–17, 26.20–22, 26.29, 26.31, 26.33 courts or administrative tribunals of the host state 26.11 enforcement of awards 26.22, 26.31–3, 26.38, 26.42 environmental protection 26.05 and EU law rules 10.08 exemption 26.21 favourable treatment requirement 26.08 interest award 26.39 intergovernmental agreements 26.08 International Centre for Settlement of Investment Disputes (ICSID) 26.24–5, 26.28, 26.31, 26.33, 26.36, 26.37, 26.38, 26.42 investment relationship 26.04 law applicable to the merits of the dispute (choice-of-law provision) 26.34–6 law applicable to the merits of the dispute (choice-of-law provision), conflict of laws issues 26.36 law applicable to the merits of the dispute (choice-of-law provision), domestic law 26.34–6 local companies subject to foreign control 26.37

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INDEX ‘making of investment’ and ‘investment’, distinction between 26.06 New York Convention 26.31–3, 26.38, 26.42 pre-investment phase 26.04–5, 26.06 previously agreed dispute settlement procedure 26.12 promotion, protection and treatment of investments 10.13–14, 10.19, 10.45 promotion, protection and treatment of investments and minimum standard of treatment required by international law 26.34 provisional application 26.03, 45.04 remedies, exhaustion of 26.15, 26.19, 26.40, 26.41 resolution through negotiation 26.09–10 review of awards 26.38 sovereignty 26.05 state-owned and privileged enterprises 22.19 Stockholm Chamber of Commerce 26.27 subnational entities and monetary damages 26.40–41 timeous and effective enforcement 26.42 transit obligations 26.05 transparency 20.04, 26.05 UN Commission on International Trade Law (UNCITRAL) Arbitration Rules 26.26, 26.31, 26.36 and WTO GATT 26.34 dispute settlement, investor-state, international arbitration or conciliation 26.13–22 arbitral forum choice 26.23–30, 26.32 commercial reservation 26.33 counterclaims by responding states 26.30 countries not listed in Annex ID 26.20 domestic litigation, contractual arbitration, and arbitration, and opt-out 26.20 ‘fork-in-the-road’ provision 26.17 host state launching judicial or arbitral proceedings 26.18–19 intra-EU arbitrations 26.22 jurisdictional requirements and consent in writing 26.29, 26.33 previous submissions, effects of 26.18

sovereign immunity issues 26.33 umbrella clause opt-out 26.19, 26.21 unconditional consent 26.15 unconditional consent to investment arbitration by contracting parties 26.31–3 dividends, valuation of loss of 13.41, 13.46 Dolzer, R. 10.04, 14.04, 22.15 domestic law and breach of obligation 10.14 dispute settlement, investor-state 26.19, 26.20, 26.34–6 see also most-favoured-nation (MFN) treatment; national treatment (NT) principle; state issues Dörr, O. 49.01, 49.05, 50.02, 50.06 double taxation agreements 21.10 Douglas, Z. 10.04, 10.05, 10.12, 10.13, 10.19, 13.18, 40.32 due process of law, and expropriation 13.23, 24.11 Dupuy, P. 10.02, 10.13, 10.15 Eckenroth, A. 30.01–7, 31.01–4, 32.01–16, 33.01–35 economic activity in the energy sector and competition 6.05 definition see Definitions, economic activity in the energy sector international markets, promotion of access to 3.07–8 economic development definition 1.32 promotion 2.13 economic integration agreement (EIA) 25.01–14 customs unions 25.06, 25.07, 25.10 definition 25.02–3 discriminatory measures prohibition 25.14 Economic Integration Investment Agreements (EIIAs) 25.01 exceptions 24.07, 24.09, 25.04, 25.06–8 free-trade areas 25.06–7, 25.10–12 jurisdictional objections 25.13–14 most-favoured-nation (MFN) treatment 25.04, 25.08, 25.09 pyramidal form 25.01

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COMMENTARY ON THE ENERGY CHARTER TREATY special relationship concerns 25.06 WTO GATT Agreement and interim provisions on trade-related matters 25.05 economic and social disadvantages 24.03, 24.15 economic threshold benefits 24.03 effective date definition 1.31, 1.53–4 electricity generation 1.23 eligibility, voting see voting in Charter Conference elimination quantitative restrictions, interim provisions on trade related matters 29.07 technology transfer obstacles 8.47–50 trade-related investment measures (TRIMS) 5.21 Elshihabi, S. 24.06, 24.09, 25.06, 26.05, 26.06 emission reduction 19.08, 19.09–10 see also environmental aspects Energy Charter Conference 34.01–43 accessions 34.23–4, 41.03 ad hoc conference or executive body, amendments to international agreements 42.03 association agreements, authorizing the negotiation and adoption 34.25–6 carrying-out the duties assigned to it by the ECT and any Protocols 34.07–8 cherry picking avoidance 34.17 Code of Conduct amendment 34.37 coordination of appropriate general measures 34.11 energy materials and products and energy-related equipment, addition and deletion of items 34.34–5 extraordinary meetings 34.04 funding principles 37.01–3, 37.05–6 headquarter agreement 34.14–15 implementation review and facilitation of principles and provisions 34.09–10, 34.10 listing of signatories, consideration and approval 34.32–3 meetings 34.04

members and observers 34.02–3, 34.25 modifications and technical changes to the Annexes, consideration and approval 34.30–31 negotiation of Declarations and approving their issuance 34.20–22 official Commentaries, adoption of 34.09 powers and functions 34.05–37 privileges and immunities, considering and adopting 34.14–15 programmes of work, considering and adopting 34.12 Rules of Procedure 34.01, 34.24, 34.36–7, 34.39–40, 35.01, 35.09, 35.17, 35.20–21, 36.01, 36.03–5 Secretariat involvement 34.05, 34.13, 35.05, 35.09, 35.10, 35.12 Secretary General appointment 34.36–7 Staff Regulations and Rules 34.37 texts of amendments to the ECT, consideration and adoption 34.27–9 transition countries 34.16, 34.17–19 voting see voting in Charter Conference see also Secretariat Energy Charter Conference, subsidiary bodies 34.38–41, 35.09 Chairperson and Vice-Chairperson 34.39 equitable geographical distribution among Contracting Parties and Signatories 34.39 membership and terms of reference 34.40 reporting obligations 34.41 Standing Groups 34.38 Working Groups 34.38 energy cycle definition, environmental aspects 19.04, 19.08, 19.18, 19.19, 19.24, 19.25, 33.05, 48.09 energy efficiency environmental aspects 9.30, 9.36–7, 19.08, 19.20 Protocol see Protocols and Declarations, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) technology transfer 8.04, 8.06, 8.23, 8.25–6

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INDEX energy flow, transit of goods 7.24, 7.29, 7.30, 7.37 energy materials and products Annex EM I 34.34–5, 48.06 definition 1.17–21 exceptions 24.02, 24.12, 24.15 interim provisions on trade related matters 29.01, 29.02, 29.05, 29.13 international markets, promotion of access to 3.05–8 non-derogation from WTO Agreement 4.09–10 Secretariat see Secretariat, dispute resolution role and transit of energy materials and products taxation 21.09 technology transfer 8.14 transit of goods 7.08–10, 7.12, 7.14, 7.15, 7.17–19, 7.21–7, 7.42 energy poverty effects 19.04–5 energy trilemma 19.02–5 see also environmental aspects energy-related equipment Annex EQ I and II 34.34–5, 48.06 definition 1.19 and developments in international trade agreements see developments in international trade agreements, energy equipment exceptions 24.12 interim provisions on trade related matters 29.01, 29.02, 29.05, 29.06, 29.10, 29.11, 29.13 international markets, promotion of access to 3.05–8 non-derogation from WTO Agreement 4.09–10 enforcement of awards, dispute settlement, investor-state 26.22, 26.31–3, 26.38, 26.42 enforcement of competition provisions see competition, enforcement of competition provisions by the Contracting Parties enquiry points 32.05 see also information exchange

entry barriers P.06, 3.02, 4.06, 6.10, 8.04, 8.06, 8.51, 31.03 see also competition entry into force of international agreements 44.01–6 additional conditions 44.05 legal effects 45.01, 45.02 obligation to perform in good faith 44.06 pacta sunt servanda principle 44.06 ratification process 39.01, 44.03–4 States’ commitment 45.03 time framework 44.04 entry and stay requests, key personnel 11.04–9 environmental aspects P.07, 19.01–26 access to capital 9.30, 9.36–7 awareness raising activities 19.06, 19.10, 19.19 and climate change 19.03 command-and-control measures 19.09 cost effectiveness principle 19.21 dispute settlement 19.11–16, 19.26 dispute settlement, investor-state 26.05 emission reduction 19.08, 19.09–10 energy cycle 19.04, 19.08, 19.18, 19.19, 19.24, 19.25, 33.05, 48.09 energy efficiency 9.30, 9.36–7, 19.08, 19.20 energy poverty effects 19.04–5 energy trilemma 19.02–5 environmental impact assessment 19.06–7, 19.19 and European Energy Charter 19.01 exceptions 24.01, 24.15 external costs 19.04, 19.09, 19.10 and International Energy Charter 19.02 market-based control instruments 19.09 mediation and conciliation 19.16 polluter pays principle 19.23–5 Protocol see Protocols and Declarations, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) public interest objectives 19.24 safety aspects of resource exploitation 18.10, 18.28

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COMMENTARY ON THE ENERGY CHARTER TREATY sovereignty over energy resources 18.10, 18.28, 19.22 state sovereignty and responsibility 19.22 sustainable development 19.01–5, 19.08 technology transfer 8.19, 8.25–6, 8.28–9, 8.32, 31.03, 31.04 estoppel principle 45.02 EU intra-EU arbitrations 26.22 Spinelli Report, and withdrawal from international treaties 47.09 EU law, investor-state arbitration 10.08 EU Partnership and Cooperation Agreements (PCAs) 11.06–7 Euler, D. 20.04 European Energy Charter P.04–6 definition 1.03–9 and environmental aspects 19.01 and promotion, protection and treatment of investments 10.16 and purpose of the Treaty 2.04 and technology transfer 8.04–6, 8.15, 8.26, 8.29, 8.33, 8.51 exceptions 24.01–16 access to capital 9.21–2 acquisition or distribution of energy materials and products in conditions of short supply 24.02, 24.15 bilateral or multilateral agreements 24.08, 24.16 compensation for losses in cases of war or national emergency 24.10, 24.16 customs unions 24.06, 24.07, 24.16 discrimination concerns 24.09, 24.15 dispute resolution 24.05 economic integration agreement (EIA) 24.07, 24.09, 25.04, 25.06–8 economic threshold benefits 24.03 essential security interests 24.04, 24.16 expropriation of another Contracting Party’s investments 24.11 free-trade areas or customs unions 24.06–7, 24.16 health and environmental protection 24.01, 24.15

interim provisions and trade in energy materials and products and energy-related equipment 24.12 interim provisions on trade related matters 29.08 investors who are aboriginal people or socially or economically disadvantaged individuals 24.03, 24.15 law and order, maintaining 24.04 most-favoured-nation (MFN) treatment 24.06, 24.16 non-proliferation of nuclear weapons 24.04, 24.16 taxation 21.07–13 technology transfer 8.38, 8.54–5 trade-related investment measures 5.03, 5.13–16, 5.18, 5.23–9, 5.30 transfers related to investments 14.08–10 transit restrictions 24.05 transitional arrangements 32.04–5 voting in Charter Conference 36.07 and WTO GATT Agreement 24.01, 24.13–14 exchange rates 9.03, 14.06, 14.08, 37.04 see also access to capital exclusions, dispute settlement between contracting parties see dispute settlement between contracting parties, exclusion of certain provisions exclusive economic zone 18.03–4, 18.19 see also sovereignty over energy resources exemptions carve-out clauses and taxation 21.02–4, 21.06–12, 21.16, 21.17 dispute settlement, investor-state 26.21 sovereignty over energy resources 18.21, 18.25 transit of goods 7.14–15, 7.20 expertise of relevant international financial institutions, and access to capital 9.05, 9.06, 9.08, 9.13, 9.14, 9.16, 9.35 export promotion, trade-related investment measures 5.16, 5.18 expropriation 13.01–47 asset value increase 13.25 causation issues 13.31

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INDEX conditions to be met 13.20–29 costs awarded 13.47 damages assessment and balance of probabilities 13.34 deprivation degree 13.19 distinct parts of investment or investment rights affected 13.17 and due process of law 13.23, 24.11 exceptions 24.11 fair and equitable treatment (FET) standard 13.12, 13.43 good faith interpretation 13.03, 13.09 heads of damages reference 13.31 illegal expropriation 13.27–8 interests due for expropriation 13.44 investment protection from both direct and indirect expropriation 13.15 irreversibility of effects 13.19, 13.29 law of treaties and law of state responsibility 13.03, 13.30 mitigation issues 13.32, 13.34 multiple causes attribution 13.31 non-discrimination 13.22 and Part III ECT 13.10, 13.13 payment of prompt, adequate and effective compensation 13.24–8 procedural stage of a decision 13.05 promotion, protection and treatment of investments application 13.12, 13.44 public interest purpose 13.21 regulatory takings 13.16 remedies, exhaustion of 13.09 restitution and compensation obligations 13.33–47 sovereignty over energy resources 18.15–16 substantial deprivation test 13.15, 13.29 taxation measures 13.04, 13.05, 13.07–11, 13.43, 21.01, 21.03, 21.07, 21.11–15 test under international law 13.18 travaux préparatoires 13.03, 13.27 tribunal jurisdiction, direct 13.10, 13.16 tribunal jurisdiction, indirect 13.06–9, 13.18 umbrella clause 13.19 valuation date 13.25–9, 13.33, 13.35

valuation methods 13.36–47 without prejudice 13.19 external costs, environmental aspects 19.04, 19.09, 19.10 extraordinary meetings, Energy Charter Conference 34.04 facilitating trade or investment abroad 9.31–4 see also access to capital fair and equitable treatment (FET) definition 1.72–3 dispute settlement, investor-state 26.08 expropriation 13.12, 13.43 key personnel 11.11 promotion, protection and treatment of investments 10.25–8, 10.31, 10.32–9, 10.42, 10.44, 10.55 purpose of the Treaty 2.07 technology transfer 8.09 Fauchald, O. 10.04 Fecák, T. 10.06, 10.07 Feldman, M. 40.31 financial institutions expertise of relevant 9.05, 9.06, 9.08, 9.13, 9.14, 9.16, 9.35 freedom of 9.18, 9.36 see also access to capital first refusal right, Transit Protocol 33.20–24 flexibility principle, depositary 49.02 foreign control definition 1.56 local companies subject to, dispute settlement, investor-state 26.37 ‘fork-in-the-road’ provision, dispute settlement, investor-state 26.17 forum choice 26.23–30, 26.32, 33.08–10 Fouchard, C. 26.22 Fox, W. 25.06 Frasl, I. 29.04, 29.06, 29.11, 29.14, 29.17 free-trade areas customs unions 24.06–7, 24.16, 25.06, 25.07, 25.10 economic integration agreement (EIA) 25.06–7, 25.10–12

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COMMENTARY ON THE ENERGY CHARTER TREATY and fair competition, access to capital 9.02, 9.19, 9.34, 9.37 and free competition, technology transfer, commercial and non-discriminatory basis 8.32 promotion, protection and treatment of investments 10.04 Friedland, P. 10.50 Fry, J. 11.02, 11.03, 11.04, 11.05 funding principles 37.01–7 budgetary expenses 37.02, 37.03 and Charter Conference 37.01–3, 37.05–6 cost types 37.02–3 financial contribution determination 37.04–5 financial contribution determination, arrears and voting rights 37.05 representation costs 37.02, 37.03 and Secretariat 37.01–6 voluntary contributions 37.06 see also costs Gadelshina, E. 10.10 Gaillard, E. 10.11, 26.03, 26.04, 26.07, 26.12, 26.17, 26.18, 26.20, 26.21, 26.26, 26.28, 26.41 Gazzini, T. 10.02, 10.43 Geraets, D. 1.01–93 Ghering, M. 20.04 Giegerich, T. 46.02 Goldberg, S. 30.01–7, 31.01–4, 32.01–16, 33.01–35 Gómez-Palacio, I. 10.45, 10.47, 10.48, 10.49 Gómez-Robledo, J. 40.27 good faith interpretation bona fide measures 10.37, 13.10–11, 21.02–4 entry into force of international agreements 44.06 expropriation 13.03, 13.09 key personnel performance 11.08 promotion, protection and treatment of investments 10.15, 10.17, 10.36 sovereignty over energy resources 18.17 taxation 21.06

transfers related to investments 14.08 see also non-discrimination principle government agency as investor, definition 1.67 government procurement, trade-related investment measures 5.18 Grasso, C. 22.01–28, 23.01–16, 24.01–16, 25.01–14 Gurry, F. 8.10 Hafner, G. 40.36 Haghighi, S. 18.22, 26.07, 26.20, 26.30 Hamida, W. 26.04, 26.06 Hanewald, C. 11.02, 12.02 Happ, R. 10.04, 10.08, 10.10, 10.12, 10.13, 10.19, 10.29, 10.41, 10.42, 10.44, 10.54, 26.07, 26.15, 26.17, 26.33, 26.34, 27.06 Happold, M. 10.07, 10.13, 10.43, 10.48, 10.53, 10.54, 26.03, 26.04, 26.10, 26.15, 26.28, 26.35, 40.27, 40.36 Harrison, J. 10.04 Hays, S. 48.08 headquarter agreement, Energy Charter Conference 34.14–15 heads of damages reference 13.31 see also compensation Heiskanen, V. 10.04, 10.39, 10.42 Henderson, D. 14.03 Hepburn, J. 10.14 Herman, L. 10.04, 10.50, 26.17, 26.20 Hindelang, S. 26.22 Hirsch, M. 10.04, 10.06, 10.32 Hobe, S. 10.08, 10.14 Hobér, K. P.05, 10.04, 10.10–12, 10.18, 10.39, 10.41–4, 10.48, 22.21, 26.03, 26.10, 26.15, 26.37, 45.03 Hoffmann, A. 10.09, 10.10 Hoffmeister, F. 13.02, 13.13, 13.20, 13.21, 13.22, 13.23, 13.24 Holland, W. 9.23 Honlet, J.-C. 10.44 Houde, M. 16.03 Huarte Melgar, B. 8.01–57, 9.01–41 Hudson, M. 49.10 Hunter, T. 18.01–28, 19.01–26, 22.01–28

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INDEX IMF Agreement addressing trade imbalances 14.02, 14.03, 14.07, 14.10 immunities, privileges and immunities, Energy Charter Conference considering and adopting 34.14–15 impartiality principle, depositary 49.02 indemnifying party, subrogation 15.02–5 indirect investment definition 1.60 indirect ownership definition 1.37, 1.39–41, 1.56 industrial property definition 1.87 see also intellectual property rights information exchange and competition 6.14 transitional arrangements 32.05 and transparency 20.08 see also language used intellectual property rights definition 1.48, 1.86–8 promotion, protection and treatment of investments 10.53 technology transfer 8.21, 8.36, 8.39–46, 8.48, 8.50 see also property rights interconnection levels, transit of goods 7.06, 7.07, 7.10 interest award, dispute settlement, investor-state 26.39 intergovernmental agreements 7.05, 8.09, 20.03, 20.10, 26.08 interim provisions on trade related matters 29.01–18 access to capital 9.21–2, 9.24–5 Annex D 48.06 best-endeavour commitment 29.11–12 dispute settlement 28.02, 29.17–18 economic integration agreement (EIA) 25.05 elimination of quantitative restrictions 29.07 energy materials and products 29.01, 29.02, 29.05, 29.13 energy-related equipment 29.01, 29.02, 29.05, 29.06, 29.10, 29.11, 29.13 exceptions 24.12, 29.08

incorporation of the WTO Agreement’s rights and obligations 29.04, 29.05–8, 29.16 most-favoured-nation treatment 29.07 national treatment 29.07 non-WTO members 29.01, 29.06 rights and obligations to energy-related trade among non-WTO Members 29.06 stand still clause 29.12–16 stand still clause, opt-out 29.15 state-owned and privileged enterprises 22.23–4 tariff increases, advance notification of 29.11 temporal scope 29.03–4 transitional provisions 29.01 transparency obligations 29.09–10, 29.16 International Centre for Settlement of Investment Disputes (ICSID) 1.33 dispute settlement between contracting parties 27.01, 27.04, 27.05, 27.08 dispute settlement, investor-state 26.24–5, 26.28, 26.31, 26.33, 26.36, 26.37, 26.38, 26.42 international investment agreements (IIAs) 27.03–9 relation to other agreements 16.03–5 transfers related to investments 14.04–6, 14.08–10 international markets, promotion of access to 3.01–8 competitive price-fixing 3.04 economic activity in the energy sector distinction 3.07–8 ‘energy materials and products and energy-related equipment’ 3.05–8 ‘energy materials and products and energy-related equipment’, material scope doubt 3.06 ‘open and competitive market’ 3.02–4 and World Customs Organization (WCO) harmonized system 3.05 international responsibility, and promotion, protection and treatment of investments 10.20

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COMMENTARY ON THE ENERGY CHARTER TREATY international trade agreements, developments and challenges see developments and challenges in international trade agreements interpretation authentic texts 50.01, 50.03–6 dispute settlement between contracting parties 27.02, 27.06–8, 27.10–12, 27.14–16, 27.19, 27.21 promotion, protection and treatment of investments 10.07, 10.37 sovereignty over energy resources 18.22 trade-related investment measures 5.12 withdrawal from international treaties 47.06 interruptions in supply, dealing with 7.06, 7.26, 7.28–30 see also transit of goods investment access to capital, facilitating trade or investment abroad 9.31–4 definition see definitions, investment making of investment 1.70–74, 10.48, 10.49, 26.06 promotion, protection and treatment of see promotion, protection and treatment of investments investor, definition see definitions, investor investor-state, dispute settlement see dispute settlement, investor-state investors’ protection, provisional application 45.04 irreversibility of effects, and expropriation 13.19, 13.29 Ishikawa, T. 26.03 Italian withdrawal from treaty 1.11, 47.08 iura novit curia principle 10.39 Jackson, J. 24.06, 25.08 Jennings, R. 18.12 joint written notifications, Secretariat gathering 35.14 jurisdiction, direct and indirect, and expropriation 13.06–9, 13.10, 13.16, 13.18 jurisdictional objections, economic integration agreement (EIA) 25.13–14

Kang, P. 10.10 Kauppila, J. P.11 Keating, M. 23.07 Kelsen, H. 22.13 Kenneth, K. 22.15 Kern, C. 14.07, 14.08 key personnel 11.01–11 entry and stay requests 11.04–9 EU Partnership and Cooperation Agreements (PCAs) 11.06–7 fair and equitable treatment (FET) 11.11 good faith performance 11.08 Kirkness, R. 10.04 Kjos, H. 26.09, 26.35 Klabbers, J. 44.02 Kläger, R. 10.32, 10.41 Klein, P. 40.04 Knoll-Tudor, I. 10.04 Kokott, J. 10.04, 10.47 Kolb, R. 10.07 Kolo, A. 10.38, 19.24 Konoplyanik, A. 10.04, 10.08, 10.11, 10.44, 10.47, 10.48, 13.23, 33.14, 33.17, 33.18, 33.23, 33.24, 33.25, 33.26, 33.27 Kozawa, S. 10.39, 22.01 Krestin, M. 26.22 Kriebaum, U. 10.42 Krieger, H. 45.01 Krommendijk, J. 10.13 Kustova, I. 8.24 Kuzemko, C. 19.03 Laidlaw, P. 26.03 Laird, I. 8.38 land rights, transparency 20.10 language used authentic texts 50.01–3 taxation terminological and definitional problems 21.18 see also information exchange Lavranos, N. 26.22 law, choice-of-law provision, dispute settlement, investor-state 26.34–6 law and order, maintaining 24.04 law of treaties and law of state responsibility 10.15, 10.18, 10.20–21, 13.03, 13.30

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INDEX Leal-Arcas, R. 10.04, 22.07, 22.17, 23.14, 25.01, 47.09 leasing of federally owned land, Russian Federation 8.37 Leathley, C. 11.02, 11.03 Lefeber, R. 40.27 legal effects, entry into force of international agreements 45.01, 45.02 legal framework, purpose of the Treaty 2.22–6 legal ownership definition 1.35–7 legitimate expectations protection denial of benefits clause 17.10, 17.13 promotion, protection and treatment of investments 10.09, 10.31, 10.34–7 less favourable treatment, agreements affording 16.05 Leung, P. 10.44 Lew, J. 26.13, 26.42 liberalization of international trade P.06, 6.01, 8.51, 9.23, 14.03, 14.05, 42.06 Liesen, R. 10.04, 26.05 Lim, C. 10.05 Lisney, N. 30.01–7, 31.01–4, 32.01–16, 33.01–35 listings illustrative list of fund transfers 14.05, 14.09 standards, listing in sequence 10.17, 10.33 TRIMs Agreement Illustrative list 5.02, 5.12, 5.15 local companies subject to foreign control 26.37 Loibl, G. 26.05 Lopez Ortiz, A. 21.01 losses, compensation for see compensation for losses Lupo Pasini, F. 14.03 McCarthy, C. 13.02, 13.13 MacDougall, D. 9.28 McGowan, F. 1 McLachlan, C. 10.04, 10.05, 10.08, 10.09, 10.12, 10.14 McNeill, M. 26.03, 26.04, 26.07, 26.12, 26.17, 26.18, 26.20, 26.21, 26.26, 26.28, 26.41

making of investment 1.70–74, 10.48, 10.49, 26.06 Maniruzzaman, M. 10.47, 10.48, 26.14, 26.15, 26.35 Mann, F. 14.01 margin of change to legislation, assessment of 10.36 Markert, L. 10.12 market access see international markets, promotion of access to market distortions and competition see competition, market distortions and barriers to competition market principles and lending practices, access to capital 9.08, 9.38 market-based control instruments, environmental aspects 19.09 Marrakesh Agreement 29.04, 30.04 Martinez, L. 10.04, 10.11, 10.12, 10.13, 10.20, 10.32, 10.41, 10.42, 10.44, 10.50, 26.04, 26.17, 26.28 mediation see conciliation Mejía-Lemos, D. 10.01–55, 11.01–11, 12.01–6, 13.01–47 members and observers, Energy Charter Conference 34.02–3, 34.25, 34.40 Mestral, A. de 10.30, 10.31 minimum standard of treatment 10.31, 10.33 minimum threshold 1.74, 44.02, 47.05 Mironova, I. 8.21 Mitchell, A. 45.04 Molinuevo, M. 11.02, 11.03 monitoring implementation monitoring, Energy Charter Conference 34.10 Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 33.06–7 Secretariat implementation and amendment of the ECT and Protocol’s obligations 35.07–8 Transit Protocol 33.29 Montanaro, F. 14.01–10, 16.01–5 Morelli, A. P.01–13, 42.01–6, 43.01–3, 44.01–6, 45.01–4, 46.01–2, 47.01–10 Morijn, J. 10.13

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COMMENTARY ON THE ENERGY CHARTER TREATY Morra, F. 47.08 Mosoti, V. 10.50 most-favoured-nation (MFN) treatment access to capital 9.06, 9.28 compensation for losses 12.05 economic integration agreement (EIA) 25.04, 25.08, 25.09 exceptions 24.06, 24.16 interim provisions on trade related matters 29.07 promotion, protection and treatment of investments 10.50 Secretariat 35.14 taxation 21.10, 21.16 technology transfer 8.33–8 transit of goods 7.13–14 see also domestic law; national treatment (NT) principle; state issues Muchlinski, P. 10.02, 10.45, 10.47, 10.48, 10.49 Mudliar, A. 15.01–5, 17.01–24 Müller, J. 45.02 Nathanson, R. 13.02, 13.13 national treatment (NT) principle P.06 interim provisions on trade related matters 29.07 promotion, protection and treatment of investments 10.50 state-owned and privileged enterprises 22.22, 22.25 taxation 21.08, 21.09, 21.10 technology transfer 8.35–6 trade-related investment measures (TRIMS) 5.07 transit of goods 7.11–15 see also domestic law; most-favoured-nation (MFN) principle; state issues nationalist challenges, and withdrawal from international treaties 47.09 nationality based on identification cards and passports 1.68 natural monopolies, state-owned and privileged enterprises 22.03 Ndi, G. 18.22

negotiation of Declarations and approving their issuance, Energy Charter Conference 34.20–22 New York Convention 26.31–3, 26.38, 26.42 Newcombe, A. 10.24, 14.02, 26.07 Niebruegge, A. 13.02, 13.13, 26.03, 45.02 Nomenclature of Territorial Units for Statistics (NUTS) system 23.07 nominal legal ownership by investor, definition 1.35–7 non-applicable provisions denial of benefits clause see denial of benefits clause dispute settlement between contracting parties 5.30 energy materials and products 1.22, 48.06 WTO agreement and interim provisions on trade related matters 29.06 non-derogation from WTO Agreement 4.01–11 ‘as they are applied between those Contracting Parties’, dynamic character of 4.07 dispute settlement and ad hoc tribunal 4.11 energy materials and products and energy-related equipment provision 4.09–10 material scope and GATS applicability 4.08–10, 14.03 non-WTO members 4.01–3, 4.05, 4.10 observance by sub-national authorities 23.16 patterns of interactions for signatory parties 4.02–3, 4.04–5 primary rules and secondary rules, distinction between 4.04–5, 4.11 relation to other agreements and preservation of rights 16.04 state-owned and privileged enterprises 22.24 technology transfer, commercial and non-discriminatory basis 8.32 Trade Amendment 4.06

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INDEX trade-related investment measures 5.14, 5.29 non-discrimination principle access to capital 9.19–20, 9.26–9, 9.32 expropriation 13.22 promotion, protection and treatment of investments 10.40–42 purpose of the Treaty 2.08–9 sovereignty over energy resources 18.07, 18.11, 18.26–7 state-owned and privileged enterprises 22.23 technology transfer see technology transfer, commercial and non-discriminatory basis transfers related to investments 14.08 transit of goods 7.03, 7.07, 7.09–11, 7.15–17, 7.20, 7.42 Transit Protocol 33.19 see also discrimination; good faith interpretation; transparency non-member states, Secretariat’s relations with 35.11 non-proliferation of nuclear technology P.07, P.10, 8.21, 8.27, 8.47, 8.48–55, 24.04, 24.26 non-retroactive effect principle, transit of goods 7.40–41 non-WTO members 3.04, 4.01–3, 4.05, 4.10, 5.18, 5.20, 5.25–6, 29.01, 29.06 norm conflicts, relation to other agreements 16.01–2 observance by sub-national authorities 23.01–16 attribution of liability 23.01–2 dispute settlement provisions 23.06–7, 23.14, 26.40–41 Nomenclature of Territorial Units for Statistics (NUTS) system 23.07 non-derogation from WTO Agreement 23.16 original version 23.03–4 reasonable measures as may be available 23.04–5 regional government roles 23.07–13

sub-regional authorities, municipalities and local community services involvement 23.01, 23.08–13 subsidiarity principle 23.10 WTO GATT Agreement 23.05, 23.14–16 see also state issues observers, Energy Charter Conference 34.02–3, 34.25 OECD Capital Movements Code, transfers related to investments 14.03, 14.05 OECD liberalization code 14.05 OECD technology transfer definition 8.10 Ögˇütçü, M. 8.25 Omalu, M. 20.07, 26.01, 26.15, 26.20, 26.29, 26.30, 26.40 openness see non-discrimination principle opt-out clauses 26.19, 26.20, 26.21, 29.15 Ortino, F. 10.42, 10.50 Ouguergouz, F. 49.07 overlaps among claims and prayers of relief 10.38–9 overseas territories 40.01, 40.03, 40.08, 40.17–22, 40.23–4, 40.27–30, 40.33–47 see also territorial scope ownership chain and indirect investment definition 1.60 Özgür, U. 21.01, 21.06, 21.11, 21.15, 21.18 Paasivirta, E. 26.21 pacta sunt servanda principle 10.44, 18.17, 22.21, 44.06, 47.02, 47.07 Papaionnou, A. 24.02 ‘paper profit’ accumulation problem, taxation 21.12 Paradell, L. 14.02, 26.07 Parish, M. 26.15, 26.21 Park, W. 10.42 Parola, L. 47.08 participation agreements 43.03 see also association agreements passports, nationality based on 1.68 Paulsson, J. 13.18, 26.01, 26.10, 26.12, 26.13, 26.26, 26.28, 26.29, 26.30, 26.40, 26.41

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COMMENTARY ON THE ENERGY CHARTER TREATY Pauwelyn, J. 22.24, 23.16 Pavoni, R. 10.13 Peers, S. 11.02, 11.06 permanent residency status definition 1.62–5 Perrez, F. 19.24 personnel, key see key personnel Peters, J. 46.02 Petri, M. 48.01–14, 49.01–10, 50.01–6 phase-out management trade-related investment measures (TRIMS) 5.20, 5.21, 5.22 transitional arrangements 32.06 Piernas López, J. 13.03, 13.15 Pigou, A. 19.09 policy debate forum, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 33.08–10 Polkinghorne, M. 26.17 polluter pays principle 19.23–5 see also environmental aspects Ponzano, P. 47.09 Portugal, Government of the Portuguese Republic as depositary see depositary, Government of Portuguese Republic as Posner, T. 27.05 poverty, energy poverty effects 19.04–5 prayers of relief, overlaps among claims and 10.38–9 pre-investment phase 9.28–9, 10.30, 10.48, 26.04–5, 26.06 Preamble P.01–13, 1.07, 1.32, 4.09 Charter of Paris for a New Europe P.04 competition rules and abuse of dominant position P.07, P.09 cooperation strategies in Eastern and Western Europe Countries P.05 discrimination avoidance P.06 environmental protection P.07 European Energy Charter P.04–6 international nuclear non-proliferation obligations P.07, P.10 trade barriers, removal of P.06 United Nations Convention on Long-Range Transboundary Air Pollution P.07, P.12 United Nations Framework Convention on Climate Change P.07, P.11

World Trade Organization standards P.06–7 predictability concerns trade-related investment measures (TRIMs) 5.12 transparency 20.03, 20.06 preferential tariff or quota programs 5.18 see also tariffs preservation of rights clause 16.04 see also non-derogation from WTO Agreement previous submissions, effects of, dispute settlement, investor-state 26.18 previously agreed dispute settlement procedure 26.12 price-fixing 3.04 see also competition pricing and production distortion 6.08–9 see also competition prior notification and consultation, denial of benefits clause 17.12–13 private investors, and access to capital 9.07, 9.08, 9.13, 9.14, 9.16, 9.18, 9.20, 9.41 privileged enterprises see state-owned and privileged enterprises privileges and immunities, considering and adopting, Energy Charter Conference 34.14–15 pro tem test, promotion, protection and treatment of investments 10.12 Proctor, C. 14.02 profits ‘paper profit’ accumulation problem, and taxation 21.12 repatriation 14.05 promotion, protection and treatment of investments 10.01–55 bilateral and multilateral treaties 10.04, 10.06 bona fide criterion 10.37 breach of obligations, establishing attribution 10.20–21 compensation standard for breach of obligations 10.21 compensations and income-based valuation 10.21

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INDEX conflicting treaties, interpretation and application 10.07, 10.08, 10.13 considerations of economy 10.39 Contracting Party’s obligations concerning Investments of Investors of other Contracting Parties 10.43 cooperation focus 10.04 and denial of benefits clause 10.01–14, 10.16, 10.18–19, 10.24, 10.43, 10.44, 10.48, 10.50, 10.54 and denial-of-benefits clause 10.09, 10.10 disconnection clause, absence of 10.08 dispute resolution 10.10–13, 10.15, 10.16, 10.19–21 dispute settlement between investor and contracting party, and choice of applicable law 10.13–14, 10.19, 10.45 domestic law and breach of obligation 10.14 effective claim assertion and right enforcement means and rule of law 10.55 effectiveness and good faith principle 10.17 enactment, interpretation and application of the internal law of a Contracting Party 10.37 ‘endeavour to accord’ obligation 10.45 and European Energy Charter 10.16 expropriation 13.12, 13.44 fair and equitable treatment (FET) 10.25–8, 10.31, 10.32–9, 10.42, 10.44, 10.55 free trade agreements 10.04 good faith application 10.15, 10.36 independent meaning retention 10.17 intellectual property treatment 10.53 international law, customary 10.15, 10.17, 10.18–19, 10.21, 10.33, 10.36, 10.43 international law rules, application without prejudice 10.13, 10.20 and international responsibility 10.20 investor-state arbitration and EU law rules 10.08 iura novit curia principle 10.39

law of treaties and law of state responsibility as applicable law in arbitrations 10.15, 10.18, 10.20–21 legitimate expectations protection 10.31, 10.34–7 listing in sequence of standards 10.17, 10.33 making of investments obligations 10.48 making of investments obligations, rights to make voluntary declarations or commitments 10.49 margin of change to legislation, assessment of 10.36 maxims 10.17 minimum standard of treatment 10.31, 10.33 and minimum standard of treatment required by international law 26.34 mobile priority provisions 10.07 most constant protection and security obligations and non-impairment by unreasonable or discriminatory measures 10.40–42 most-favoured-nation obligation 10.50 national treatment (NT) principle 10.50 non-application issues 10.09 obligation to accord treatment to Investments of Investors 10.50 obligations applicable for an ‘unlimited’ period 10.05 overlaps among claims and prayers of relief 10.38–9 plurality of awards of compensation 10.38–9 pre-investment phase 10.30, 10.48 pro tem test 10.12 protection and security standard 10.41 protection standards are separate and autonomous 10.26 relation to other agreements, legal consequence 10.07 remedies, exhaustion of 10.19 report submission obligation 10.52 rules under treaty-based systems of law 10.08 separate listing of standards 10.17

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COMMENTARY ON THE ENERGY CHARTER TREATY stable, equitable, favourable and transparent conditions 10.29–31 standard and conditions of treatment 10.05 state responsibility 10.15, 10.18, 10.19, 10.20, 10.21 state-owned and privileged enterprises 10.18 supplementary treaty provision 8.36, 10.16, 10.47, 10.48, 10.51, 35.12 taxation and scope of operation 10.16 trade-related measure application 10.54 travaux préparatoires availability 10.16 treatment, meaning of 10.46 and VCLT rules 10.15–17 WTO (World Trade Organization), GATT 10.54 promotion, protection and treatment of investments, umbrella clause 10.44 denial of benefits clause 26.07, 26.21, 26.35 expropriation 13.19 opt-out, dispute settlement, investor-state 26.21 and pacta sunt servanda principle 10.44 state-owned and privileged enterprises 22.21 technology transfer 8.10 property rights 1.30, 18.05, 18.09, 18.23–5 see also intellectual property rights protection standards see promotion, protection and treatment of investments protectionism and access to capital 9.18, 9.38–40 and transparency 20.07 Protocols and Declarations 33.01–35 definitions 1.89–92 developments and challenges in international trade agreements 30.02 Energy Charter Conference duties 34.07–8, 34.17–19 Secretariat implementation and amendment of obligations 35.07–8 transition countries 34.17–19 voting rules 33.03

Protocols and Declarations, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 33.04–11 annexes and decisions see annexes and decisions, status of, Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) best practices awareness 33.08 definition 1.90–91 implementation monitoring and country reports 33.06–7 international organisation cooperation 33.11 policy debate forum 33.08–10 Protocols and Declarations, Transit Protocol 33.12–35 available capacity 33.14, 33.19 compliance monitoring 33.29 definitions 1.91 first refusal right 33.20–24 freedom of transit 33.12–13 guaranteed access to fixed infrastructure for the duration of long-term supply 33.20–24 REIO clause (implementation inside the EU) 33.15, 33.25–7 Right of First Refusal (RFR), Russian proposal 33.15–19, 33.21–6, 33.30, 33.32 suspension of work on draft 33.28–35 tariff formulation 33.14, 33.15, 33.24 tariffs and cost-reflectiveness 33.18–19 Trade and Transit Group, new 33.29–34 transparent and non-discriminatory congestion management 33.18–19 provisional application 45.01–4 conciliation 45.04 dispute settlement, investor-state 26.03, 45.04 estoppel principle 45.02 International Law Commission Report 45.03 investor-state dispute settlement 45.04 investors’ protection 45.04 signature 38.02 termination procedure 45.04

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INDEX territorial scope 40.11, 40.17–47 and Vienna Convention 45.03 voluntary approach 45.03–4 prudential considerations, access to capital 9.05, 9.06, 9.14, 9.15, 9.16, 9.38, 9.39 public interest objectives environmental aspects 19.24 expropriation 13.21 sovereignty over energy resources 18.22 transfers related to investments 14.08 transitional arrangements 32.13 public utilities 22.03, 22.06 see also state-owned and privileged enterprises publication, depositary registration and publication of treaties 49.09–10 Pulkowski, D. 10.15 purpose of the Treaty 2.01–26 complementarities and mutual benefits 2.16, 2.20 cooperation promotion 2.08–10 dispute settlement function 2.14, 2.26 economic development promotion 2.13 and European Energy Charter 2.04 fair and equitable treatment 2.07 ‘in accordance with the objectives and principles of the Charter’ 2.03–15 legal framework 2.22–6 legal framework, negotiating pillar 2.24–5 long-term cooperation in the energy field 2.03 ‘long-term cooperation in the energy field’ 2.17–21 openness and non-discrimination 2.08–9 principle of national sovereignty 2.11 right to deny the benefits of Part III of ECT 2.20 transnational links, need for 2.14 transparency focus 2.07 pyramidal form, economic integration agreement (EIA) 25.01 qualified majority requirement 34.13, 36.04, 36.07, 36.09

see also voting in Charter Conference quantitative restrictions elimination, interim provisions on trade related matters 29.07 ratification, formal consent and ratification, amendments to international agreements 42.04 ratification, acceptance or approval 39.01–3 depositary appointment 39.02 entry into force 39.01, 44.03–4 formal consent, amendments to international agreements 42.04 state practice 39.03 rebus sic stantibus clause (substantial unforeseen change), and withdrawal from international treaties 47.07 Reed, L. 10.04, 10.11, 10.12, 10.13, 10.20, 10.32, 10.41, 10.42, 10.44, 10.50, 26.04, 26.05, 26.15, 26.17, 26.28 Regional Economic Integration Organisation (REIO) accession 41.01, 41.03 definition 1.10, 1.13–14, 1.15–16, 1.79 states and REIOs eligible to sign, signature 38.04 Transit Protocol 33.15, 33.25–7 voting in Charter Conference 36.02, 36.03 see also state issues regional government roles 23.07–13 see also observance by sub-national authorities registration and publication of treaties by depositary 49.09–10 regulatory takings, expropriation 13.16 Reiner, C. 10.13 Reinisch, A. 10.02, 10.04, 10.16, 10.37, 10.50, 47.08 Reins, L. 1.01–93, 2.01–26 Reisman, W. 40.27, 40.36 relation to other agreements 16.01–5 agreements affording a less favourable treatment 16.05 chronologic criterion 16.02 conceding clause 16.02

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COMMENTARY ON THE ENERGY CHARTER TREATY conflicts with other treaties 16.03–5 international investment agreements (IIAs) 16.03–5 legal consequence 10.07 non-derogation clause 16.04 norm conflicts 16.01–2 preservation of rights clause 16.04 VCLT principles 16.01 remedies, exhaustion of dispute settlement between contracting parties 27.09 expropriation 13.09 promotion, protection and treatment of investments 10.19 Secretariat 35.22 transit of goods 7.31, 7.33 renewables, energy production from 5.06 repatriation of profits 14.05 see also profits Repousis, O. 38.01–7, 39.01–3, 40.01–47, 41.01–4 representation costs 37.02, 37.03 see also funding principles requisition, loss resulting from 12.06, 24.10 reservations 46.01–2 formalist versus pragmatist approach 46.02 inadmissible 46.02 utile per inutile non vitiatur principle 46.02 and Vienna Convention 46.02 reserved right, denial of benefits clause 17.01, 17.06, 17.09 restitution see compensation retrospective or prospective effect, denial of benefits clause 17.11, 17.13 returns definition 1.49–56 review procedures dispute settlement, investor-state 26.38 Energy Charter Conference 34.09–10, 34.10 expropriation, valuation review 13.45 Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) 48.12 Ribeiro, C. 10.02

Right of First Refusal (RFR), Transit Protocol 33.15–19, 33.21–6, 33.30, 33.32 risk assessment expropriation and valuation and risks to taxation 13.43 offshore structure, complexity and opaqueness of 13.42 and transparency 20.09 Roe, T. 10.04, 10.07–8, 10.12–13, 10.15, 10.18, 10.43–5, 10.47–50, 10.52–5, 11.02, 11.04, 12.02–3, 12.05, 13.02, 13.04, 13.09, 13.14, 26.03–4, 26.10, 26.15, 26.28, 26.35, 40.27, 40.36 Rosenberg, C. 26.15, 26.21 Rosenne, S. 49.06, 49.08 Rules of Procedure, Energy Charter Conference 34.01, 34.24, 34.36–7, 34.39–40, 35.01, 35.09, 35.17, 35.20–21, 36.01, 36.03–5 Russia leasing of federally owned land 8.37 Right of First Refusal (RFR) proposal, Transit Protocol 33.15–19, 33.21–6, 33.30, 33.32 Sacerdoti, G. 14.01, 14.06 safety aspects of resource exploitation 18.10, 18.28 see also environmental aspects; sovereignty over energy resources Salacuse, J. 26.19, 26.27 Salini test definition 1.32–3, 22.06 Sattorova, M. 10.44 Schill, S. 10.04 Schlemmer, E. 10.10 Schmalenbach, K. 49.01, 49.05 Schreuer, C. 10.04, 10.11, 10.13, 10.17, 10.24, 10.31, 10.41, 10.42, 10.44, 13.02, 13.12, 13.13, 14.04, 22.15, 27.08 Seck, A. 8.23 Secretariat 35.01–29 analytical support and advice to the Energy Charter Conference and its subsidiary bodies 35.10 application deadlines 35.19

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INDEX appointment of Secretary General 35.01, 35.03, 35.12, 35.17–21 awards of ad hoc constituted tribunals for dispute settlement, making available 35.16 candidate criteria 35.18 confidentiality requirements 35.24 Energy Charter Conference duties 34.05, 34.13, 34.36–7, 35.05 and funding principles 37.01–6 implementation and amendment of the ECT and Protocol’s obligations, monitoring and developing 35.07–8 joint written notifications, gathering 35.14 Model Agreements and transparency 20.09–10 most-favoured-nation treatment obligations 35.14 notifications, declarations, reports or requests made by Contracting Parties on intentions, commitments, obligations or conditions 35.13–15 organize and administer meetings of the Energy Charter Conference and its subsidiary bodies 35.09 relations with non-member states and other relevant international organisations and institutions, development of 35.11 remedies, exhaustion of 35.22 role and functions 35.05–16 Rules of Procedure 34.01, 34.24, 34.36–7, 34.39–40, 35.01, 35.09, 35.17, 35.20–21, 36.01, 36.03–5 Secretary General appointment 34.36–7 Secretary General role, transit of goods 7.30, 7.33–6, 7.39 staff 35.02–4 support negotiations on new instruments mandated by the Conference 35.12 see also Energy Charter Conference Secretariat, dispute resolution role and transit of energy materials and products 35.22–8 arbitration panel 35.28 conciliator appointment 35.23–4

conciliator disqualified and proceedings suspended 35.25 conciliator informs in writing 35.26 costs of proceedings 35.26 disputes settlement mechanism 35.27–8 securities, and access to capital 9.05, 9.08, 9.13–14, 9.16, 9.19 security essential security interests 24.04, 24.16 most constant protection and security obligations 10.40–42 protection and security standard 10.41 sovereign interests and security and stability balance 7.04, 7.22–4, 7.27 Selivanova, Y. 18.26, 22.24, 23.16, 26.07, 26.33 Seres, S. 8.13 Serhan, L. 26.03 Serra, P. 3.01–8, 4.01–11, 5.01–31, 6.01–17 services of general economic interest (SGEIs), state-owned and privileged enterprises 22.09 Shan, W. 10.08, 10.47, 10.48 shares indirect ownership 1.39–40 sale of 9.05, 9.08, 9.13–14, 9.16, 9.19 see also access to capital Sheppard, A. 10.12 Shine, C. 8.27, 8.47, 19.24 signature 38.01–7 provisional application 38.02, 40.23–30 state practice 38.05 states and REIOs eligible to sign 38.04 succession cases 38.06 temporal issues 38.03–4 territorial scope 40.23–30 Simma, B. 10.13, 10.15 Sinclair, A. 10.44, 40.31 Sipiorski, E. 10.04, 10.50 Slater, M. 26.02, 26.04 Smith, A. 6.08 Snidal, D. 48.11 social and economic disadvantages 24.03, 24.15 Sodupe, K. 10.48 soft law commitments, access to capital 9.18, 9.36

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COMMENTARY ON THE ENERGY CHARTER TREATY Sornarajah, M. 3 sovereignty over energy resources 18.01–28 border disputes 18.04 commercial access methods 18.06 development and recovery of resources 18.10, 18.28 dispute settlement, investor-state 26.05, 26.33 energy resources outside state sovereignty 18.02 environmental aspects 18.10, 18.28, 19.22 exclusive economic zone 18.03–4, 18.19 exemptions 18.21 good faith principle 18.17 interpretive ambiguity 18.22 limitations 18.27 negative aspects 18.22 pacta sunt servanda principle 18.17 permanent sovereignty over natural resources 18.13–15 property rights 18.05, 18.09, 18.23–5 public interest objectives 18.22 purpose of the Treaty 2.11 right to expropriate or transfer ownership of foreign property 18.15–16 sovereignty definition 18.01–2, 18.12 technology transfer 8.15, 8.32 territorial authority 18.12 transit of goods 7.04, 7.22–4, 7.27 transparency, equality and non-discrimination rules 18.07, 18.11, 18.26–7 and UN Convention on the Law of the Sea (UNCLOS) 18.03, 18.17–19 special relationship concerns, economic integration agreement (EIA) 25.06 Spiermann, O. 10.04, 10.14 Spinelli Report, and withdrawal from international treaties 47.09 staff regulations 34.37, 35.02–4 Stampalija, J. 11.02, 11.03, 11.04, 11.05 stand still clause, interim provisions on trade related matters 29.12–16, 30.03 Standing Groups, Energy Charter Conference 34.38 Stănescu, C. 7.01–42, 34.01–43, 35.01–29, 36.01–10, 37.01–7

Stanicˇ, A. 10.50 state issues access to capital and provisions to protect private investors 9.07, 9.08, 9.13, 9.14, 9.16, 9.18, 9.20, 9.41 accession 41.01, 41.03 area of a State that is a contracting party definition 1.77–80 cooperation between Contracting Parties and national competition authorities 6.14 entry into force of international agreements 45.03 environmental aspects 19.22 law of treaties and law of state responsibility 10.15, 10.18, 10.20–21, 13.03, 13.30 local companies subject to foreign control 26.37 promotion, protection and treatment of investments 10.15, 10.18, 10.19, 10.20, 10.21 ratification, acceptance or approval 39.03 signature 38.05 state-owned and privileged enterprises 22.08–9, 22.13–15 state-state dispute resolution 27.03, 27.06–7, 27.09 territorial scope 40.14–16 see also most-favoured-nation (MFN) treatment; national treatment (NT) principle; observance by sub-national authorities; Regional Economic Integration Organisation (REIO) state-owned and privileged enterprises 22.01–28 attribution rule 22.02, 22.16–21, 22.26–8 business judgment and market investor principle criteria 22.07, 22.11 dispute settlement 22.19 exclusive or special privileges 22.12 industrial sector development 22.03 interim provisions and WTO Agreement provisions 22.23–4 national treatment (NT) principle 22.22, 22.25 natural monopolies 22.03

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INDEX non-derogation from WTO rules 22.24 non-discriminatory treatment 22.23 pacta sunt servanda principle 22.21 and Part III of ECT 22.19, 22.21 promotion, protection, and treatment of investments, umbrella clause 22.21 public utilities 22.03, 22.06 regulatory or administrative role of state-owned enterprise 22.25 state aid and services of general economic interest (SGEIs) 22.09 state entity definition 22.06 state responsibility 22.13–15 state-owned enterprise, lack of universally accepted definition and conceptual difficulties 22.04–11 WTO GATT 22.07, 22.23–4 Stevens, M. 10.04 Stevenson, R. 10.04 Stigler, G. 6.08 Stockholm Chamber of Commerce 26.27 Stoll, J. 49.07 Strik, P. 40.44 sub-national authorities see observance by sub-national authorities Subedi, S. 10.04, 10.50 subrogation 15.01–5 assignment of rights 15.01, 15.02, 15.04 designated agency 15.03 indemnifying party 15.02–5 and investment insurance or guarantee contract 15.05 same treatment in respect of the rights and claims acquired 15.04 and transfer of rights 15.02–3 subsidiarity principle, observance by sub-national authorities 23.10 subsidiary bodies Energy Charter Conference see Energy Charter Conference, subsidiary bodies Secretariat to organize and administer meetings of the Energy Charter Conference and its subsidiary bodies 35.09

substantial business interests, and denial of benefits clause 17.08, 17.09, 17.12, 17.14, 17.17–21 succession cases, signature 38.06 Suleimenov, M. 9.23 supplementary treaty provision 8.36, 10.16, 10.47, 10.48, 10.51, 35.12 survival clause, and territorial scope 40.40, 40.47 suspension of work on draft, Transit Protocol 33.28–35 suspensions, impact of, transitional arrangements 32.07, 32.09–16 Sussman, E. 11.02, 26.15 sustainable development 19.01–5, 19.08 see also environmental aspects Talseth, L.-C. 3 Talus, K. 7.33, 7.34, 34.16, 35.22, 35.23, 48.14 tangible and intangible holdings definition 1.38 tariffs and amendments to international agreements 42.06 customs duties, legally-binding standstill 30.03 feed-in, and energy production from renewable resources 5.06 increases, advance notification of, interim provisions on trade related matters 29.11 preferential tariff or quota programs, trade-related investment measures 5.18 Transit Protocol 33.14, 33.15, 33.18–19, 33.24 see also customs unions taxation 21.01–18 bona fide measures 21.02–4 carve-out clauses 21.02–4, 21.06–12, 21.16, 21.17 claw-back clause 21.06, 21.12, 21.15, 21.16, 21.18 competent tax authorities 21.13, 21.15

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COMMENTARY ON THE ENERGY CHARTER TREATY discrimination against energy materials and products originating in or destined for the area of another Contracting Party 21.09 dispute resolution 21.03 double taxation agreements 21.10 exceptions 21.07–13 expropriation measures 13.04, 13.05, 13.07–11, 13.43, 21.01, 21.03, 21.07, 21.11–15 good faith 21.06 indirect expropriation 21.03, 21.14 and investment treaty regulations 21.07 and measures excluded, expropriation 13.05, 13.07–11 most-favoured-nation (MFN) principle 21.10, 21.16 National Treatment (NT) protection 21.08, 21.09, 21.10 ‘paper profit’ accumulation problem 21.12 practice and jurisdictional issues 21.14–18 scope of measures 21.05–6 and scope of operation, promotion, protection and treatment of investments 10.16 taxation measures context 21.01, 21.02–10, 21.12, 21.17–18 technology transfer 8.37 terminological and definitional problems 21.18 transparency 20.10 technical assistance and competition 6.02, 6.14 transitional arrangements 32.06 technical changes to the Annexes, Energy Charter Conference consideration and approval 34.30–31 technology transfer 8.01–57 access to and transfer of energy technology 8.23–30 capacity building 8.12 complementarities and mutual benefits 8.03, 8.57 cooperation focus 8.03–4, 8.10, 8.12–13, 8.23–4, 8.28–9 definition 1.86 elimination of obstacles 8.47–50

energy efficiency 8.04, 8.06, 8.23, 8.25–6 environmental concerns 8.19, 8.25–6, 8.28–9, 8.32, 31.03, 31.04 and European Energy Charter 8.04–6, 8.15, 8.26, 8.29, 8.33, 8.51 fair and equitable conduct 8.09 intellectual property rights protection 8.21, 8.36, 8.39–46, 8.48, 8.50 most-favoured-nation (MFN) treatment 8.33–8 national sovereignty principle 8.15, 8.32 national treatment principle 8.35–6 non-discrimination concerning taxation matters 8.37 non-discriminatory basis 8.17–18, 8.20–21, 8.27, 8.29, 8.31–8 non-proliferation of nuclear technology P.07, P.10, 8.21, 8.27, 8.47, 8.48–55, 24.04, 24.26 OECD definition 8.10 political dialogue 8.24 transit of energy materials and products’ or ‘energy transport facilities’, difference from 8.14 transparency principle 8.32 travaux préparatoires 8.14 umbrella clause 8.10 universally applicable code of conduct 8.09 WTO GATT 8.35 technology transfer, commercial and non-discriminatory basis 8.29, 8.31–8 ‘best efforts’ clause 8.31 exceptions 8.38 free trade market and free competition 8.32 leasing of federally owned land 8.37 non-derogation from WTO Agreement 8.32 termination procedure provisional application 45.04 territorial scope 40.24–5, 40.46 transitional arrangements 32.08 see also withdrawal from international treaties terminology see language used territorial scope 40.01–47

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INDEX colonial extension clauses 40.03 definition 1.77–8, 1.80 denial of benefits clause and third state 40.31–4 derogation from customary international law rule 40.04 international relations of which a contracting party is responsible 40.03–5 non-mandatory declarations 40.05 overseas territories 40.01, 40.03, 40.08, 40.17–22, 40.23–4, 40.27–30, 40.33–47 provisional application in respect of part of a signatory’s territory 40.23–30 sovereignty over energy resources 18.12 state practice 40.14–16 ‘survival clause’ 40.40, 40.47 temporal issues 40.09–13 temporal issues, declarations and provisional application 40.11 temporal issues, withdrawal of declarations 40.13 termination of provisional application by a signatory 40.24–5, 40.46 territorial applications and provisional applications 40.11, 40.17–47 territorial applications and provisional applications, arbitral practice 40.31–47 territorial declarations and ECT area 40.06–8 third state 40.31, 40.32, 40.33 and Vienna Convention 40.04–5, 40.18, 40.25–6, 40.36 texts amendments to the ECT, Energy Charter Conference consideration and adoption 34.27–9 authentic see authentic texts third state access to capital 9.05, 9.08, 9.11, 9.13, 9.14, 9.16, 9.18, 9.26, 9.28 definition 1.61, 1.69 denial of benefits clause 17.08, 17.09–10, 17.12, 17.13, 17.15–16, 17.22–3 territorial scope 40.31, 40.32, 40.33

transit of goods 7.02, 7.14 threshold economic threshold benefits 24.03 minimum 1.74, 44.02, 47.05 Tichy, H. 49.10 Tietje, C. 10.04, 10.50 time constraints chronologic criterion, relation to other agreements 16.02 dispute settlement between contracting parties 27.16–18 dispute settlement, investor-state 26.42 entry into force of international agreements 44.04 interim provisions on trade related matters 29.03–4 promotion, protection and treatment of investments 10.05 signature 38.03–4 territorial scope 40.09–13 trade-related investment measures (TRIMS) 5.20 withdrawal from international treaties 47.04 Titi, C. 10.16 Tomas Fornes, M. 23.11 Trachtman, J. 20.07 trade access to capital 9.03, 9.19–20, 9.23, 9.27, 9.29, 9.31–4, 9.33, 9.41 interim provisions see interim provisions on trade related matters international trade agreements see developments and challenges in international trade agreements liberalization P.06, 6.01, 8.51, 9.23, 14.03, 14.05, 42.06 Trade Amendment 4.06, 30.02, 30.03–7, 31.02–3, 42.05–6 trade barriers P.06, 3.02, 4.06, 6.10, 8.04, 8.06, 8.51, 31.03 see also competition Trade and Transit Group 33.29–34 trade-related investment measures (TRIMS) 5.01–31 Annex TRM and TRIMS 48.06

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COMMENTARY ON THE ENERGY CHARTER TREATY dispute settlement between contracting parties 27.13–14, 28.02 exceptions 5.03, 5.13–14, 5.16, 5.18, 5.23–9, 5.30 non-WTO members 5.18, 5.20, 5.25–6 obligations 5.10, 5.13, 5.16, 5.27 predictability concerns 5.12 promotion, protection and treatment of investments 10.54 provision-by-provision analysis see trade-related investment measures (TRIMS), provision-by-provision analysis transposition process 5.06, 5.11, 5.26 trade-related investment measures (TRIMs), Australian Declaration 5.23–30 exceptions 5.24–9, 5.30 interaction patterns 5.25–9 jurisdictional issues 5.30–31 jurisdictional issues, dispute settlement and ad hoc system 5.30–31 non-derogatory provision 5.29 prohibition of inconsistent TRIMs 5.27 Trade Amendment effect 5.28 trade-related investment measures (TRIMS), provision-by-provision analysis 5.10–22 exceptions 5.13–16 export promotion 5.18 government procurement 5.16, 5.18 non-derogation from provisions of WTO Agreement 5.14 obligation for the company to buy ‘products of domestic origin or from any domestic source’ 5.16 preferential tariff or quota programs 5.18 and trade-related-investment-measure interpretation 5.12 without prejudice to the Contracting Party’s rights and obligations 5.13, 5.27 trade-related investment measures (TRIMS), transitional regime prior to the entry into force of the Charter 5.19–22 elimination of the measure 5.21 notification provisions 5.20, 5.21 phase-out management 5.20, 5.21, 5.22 temporal 5.20

trade-related investment measures (TRIMS), WTO approach 5.02–9 dispute settlement body 5.04 energy production from renewable resources and feed-in tariffs 5.06 and GATT and TRIM provisions, incompatibility between 5.03–14 national treatment obligation 5.07 and TRIMs Agreement Illustrative list 5.02, 5.12, 5.15 transfer of ownership, sovereignty over energy resources 18.15–16 restrictions, and access to capital 9.03 of rights, and subrogation 15.02–3 technology see technology transfer transfers related to investments 14.01–10 authorization procedure for outward transfer 14.04–5 bankruptcy and insolvency cases 14.08 capital transactions 14.02–3, 14.07, 14.09 currency restrictions 14.06 definition 1.76 dispute settlement between contracting parties, exclusion of certain provisions 28.03 disturbances of the balance of payments 14.08 exceptions to the transfer of funds 14.08–10 exchange restrictions 14.01–2 foreign investment 14.01, 14.05 free transfer of all payments 14.05 good faith and non-discrimination 14.08 illustrative list of fund transfers 14.05, 14.09 IMF Agreement addressing trade imbalances 14.02, 14.03, 14.07, 14.10 international investment agreements (IIAs) 14.04–6, 14.08–10 investment treaty practice 14.04 obligation to allow monetary transfers in a freely convertible currency 14.06 OECD Capital Movements Code 14.03, 14.05 OECD liberalization code 14.05

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INDEX payments connected with the movement of goods, services and persons 14.09 payments related to business activities 14.02 public interest objectives 14.08 repatriation of profits 14.05 transfers in kind 14.10 WTO General Agreement on Trade in Services (GATS) 14.03 transit of goods 7.01–42 confidentiality requirements 7.35 construction of new capacities 7.19–20, 7.23–4, 7.27 cooperation commitment 7.06, 7.07, 7.10 definition 7.01–2 dispute resolution 7.29–39 dispute resolution, conciliation and compensation 7.32–9 dispute settlement, investor-state 26.05 energy flow 7.24, 7.29, 7.30, 7.37 energy materials and products see Secretariat, dispute resolution role and transit of energy materials and products energy transport facilities and infrastructure 7.08–10, 7.12, 7.14, 7.15, 7.17–19, 7.21–7, 7.42 exceptions 24.05 exemptions 7.14–15, 7.20 interconnection levels 7.06, 7.07, 7.10 Intergovernmental and Host Government Model Agreements 7.05 international law obligations 7.40–41 interruptions in supply, dealing with 7.06, 7.26, 7.28–30 most-favoured-nation treatment (MFNT) 7.13–14 national treatment (NT) principle 7.11–15 non-discrimination principle 7.03, 7.07, 7.09–11, 7.15–17, 7.20, 7.42 non-retroactive effect principle 7.40–41 not possible on commercial terms 7.16–17, 7.19 and Part III of ECT – Investment Promotion and Protection 7.12–13 remedies, exhaustion of 7.31, 7.33

Secretary General role 7.30, 7.33–6, 7.39 sovereign interests and security and stability balance 7.04, 7.22–4, 7.27 and third state 7.02, 7.14 and WTO GATT 7.03, 7.09, 7.12 Transit Protocol see Protocols and Declarations, Transit Protocol transitional arrangements see developments in international trade agreements, transitional arrangements transparency 20.01–10 administrative rulings 20.01, 20.03, 20.06–9 application scope 20.07 confidentiality in commercial arbitration 20.04 definition, absence of 20.05 dispute settlement, investor-state 26.05 information requests and enquiry points 20.08 interim provisions on trade related matters 29.09–10, 29.16 investor-state relationship 20.04 judicial and legislative processes 20.07, 20.09 land rights 20.10 notion of 20.02–5 predictability 20.03, 20.06 promotion, protection and treatment of investments 10.29–31 protectionism 20.07 purpose of the Treaty 2.07 risk reduction 20.09 Secretariat Model Agreements 20.09–10 sovereignty over energy resources 18.07, 18.11, 18.26–7 tax measures 20.10 technology transfer 8.32 Transit Protocol 33.19 and WTO GATT 20.06–7 see also non-discrimination principle transposition process, trade-related investment measures 5.06, 5.11, 5.26 travaux préparatoires access to capital 9.04, 9.18, 9.21 denial of benefits clause 17.15

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COMMENTARY ON THE ENERGY CHARTER TREATY expropriation 13.03, 13.27 promotion, protection and treatment of investments 10.16 technology transfer 8.14 and withdrawal from international treaties 47.06, 47.09 TRIMS see trade-related investment measures (TRIMs) Tucker, A. 10.13, 10.44, 10.48, 26.12 Tudor, I. 10.04, 10.44 Turinov, A. 10.44 UK and Brexit 47.09 metropolitan territories, territorial scope 40.17–22, 40.23–4, 40.27–30, 40.33–47 umbrella clause see promotion, protection and treatment of investments, umbrella clause UN Commission on International Trade Law (UNCITRAL) and dispute settlement between contracting parties 27.22 dispute settlement, investor-state 26.26, 26.31, 26.36 UN Convention on the Law of the Sea (UNCLOS), and sovereignty over energy resources 18.03, 18.17–19 UN Convention on Long-Range Transboundary Air Pollution P.07, P.12 UN Framework Convention on Climate Change P.07, P.11 unanimity requirement, voting in Charter Conference 36.07–8, 36.09 unconditional consent, dispute settlement, investor-state 26.15, 26.31–3 utile per inutile non vitiatur principle, reservations 46.02 Vajda, P. 18.01–28, 19.01–26 valuation expropriation 13.25–9, 13.33, 13.35, 13.36–47 income-based 10.21

Vandevelde, K. 26.04, 26.07, 26.08, 26.09, 26.10, 26.19, 26.20, 26.21, 26.32, 26.33, 26.37, 26.40, 27.16, 27.18 Vasciannie, S. 10.04, 10.32, 12.02, 12.03 Verhoosel, G. 13.02, 13.13 Vernon, R. 22.03 Vienna Convention on the Law of Treaties (VCLT) P.03, 1.34 authentic texts 50.02, 50.03–6 depositary 49.02–5, 49.07–9 promotion, protection and treatment of investments 10.15–17 provisional application 45.03 relation to other agreements 16.01 reservations 46.02 territorial scope 40.04–5, 40.18, 40.25–6, 40.36 withdrawal from international treaties 47.03–6 Villiger, M. 16.01, 40.04 Viñuales, J. 10.04, 10.13, 10.14 voluntary approach promotion, protection and treatment of investments 10.49 provisional application 45.03–4 withdrawal from international treaties 47.04, 47.10 voluntary contributions, funding principles 37.06 Voon, T. 45.04 voting in Charter Conference 36.01–10 arrears in paying financial contributions 36.02 budgetary decisions 36.02, 36.04, 36.09 consensus of all Contracting Parties 36.06 eligibility 36.02 exceptions that require voting 36.07 financial obligations 36.02 funding principles 37.05 Protocols and Declarations 33.03 qualified majority requirement 34.13, 36.04, 36.07, 36.09 REIO’s voting rights 36.02, 36.03 rules 36.06–9 unanimity requirement 36.07–8, 36.09 voting by correspondence 36.03–5

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INDEX voting by correspondence, rules of procedure 36.05 voting rights 34.03, 34.04, 34.13, 34.24, 34.26, 34.27, 34.30, 34.35, 34.40 Wagner, M. 45.02 Waibel, M. 14.01, 14.08, 14.10 Wälde, T. 2, 8.41, 8.53, 10.04–5, 10.08, 10.11–13, 10.16–18, 10.22, 10.38–9, 10.44, 10.47–8, 10.50, 10.54, 13.02, 13.23, 18.22, 19.24, 20.08, 22.03, 22.07, 22.16, 22.26, 23.06, 23.09, 23.16, 26.04–8, 26.10, 26.12–15, 26.17–19, 26.20–21, 26.30–31, 26.34–6, 26.38, 26.40–42 Walter, M. 27.05 Wang, G. 10.44 Watts, A. 18.12 WCO (World Customs Organization) 3.05 Weiner, A. P.03, 47.03 Weiss, F. 10.04 Weissenfels, A. 10.44 Winkler, M. 40.32 withdrawal from international treaties 47.01–10 chronological and procedural framework 47.04 deterrent condition 47.06 dispute settlement mechanisms 47.08 disputes between investor and contracting parties and unconditional consent given to arbitration 47.08 and investors’ prerogatives and investment protection obligations 47.08 Italian withdrawal 1.11, 47.08 minimum threshold for entry into force of treaty 47.05 nationalist challenges 47.09 pacta sunt servanda principle 47.02, 47.07 rebus sic stantibus clause (substantial unforeseen change) 47.07 Spinelli Report 47.09 supplementary means of interpretation 47.06 territorial scope 40.13 and travaux preparatoires 47.06, 47.09 UK and Brexit 47.09

and Vienna Convention 47.03–6 voluntary basis 47.04, 47.10 see also termination procedure without prejudice expropriation 13.19 promotion, protection and treatment of investments 10.13, 10.20 trade-related investment measures (TRIMS) 5.13, 5.27 Wittich, S. 10.18, 10.19, 10.31 Wouters, P. 10.04, 10.18, 10.44, 10.48, 22.26 writing dispute resolution, conciliator informs in writing 35.14, 35.26 dispute resolution, jurisdictional requirements and consent in writing 26.29, 26.33 voting in Charter Conference by correspondence 36.03–5 WTO (World Trade Organization) competition, Doha Round and technical assistance activity 6.02 definitions 1.81–5 developments and challenges in international trade agreements 30.02, 30.04–7 GATS (General Agreement on Trade in Services) applicability 4.08–10, 14.03 interim provisions 29.04, 29.05–8, 29.16 member states not yet in WTO 30.06 non-derogation from see non-derogation from WTO Agreement standards P.06–7 and Trade Amendment 4.06, 30.02, 30.03–7, 31.02–3, 42.05–6 trade-related investment measures (TRIMS) see trade-related investment measures (TRIMS), WTO approach WTO (World Trade Organization), GATT (General Agreement on Tariffs and Trade) definitions 1.81, 1.83, 1.85 dispute settlement between contracting parties 28.02–4

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COMMENTARY ON THE ENERGY CHARTER TREATY dispute settlement, investor-state 26.34 economic integration agreement (EIA) 25.05 and exceptions 24.01, 24.13–14 interim provisions 29.04, 29.06–7, 29.16 observance by sub-national authorities 23.05, 23.14–16 promotion, protection and treatment of investments 10.54 state-owned and privileged enterprises 22.07, 22.23–4 technology transfer 8.35

trade-related investment measures (TRIMS) see trade-related investment measures (TRIMS) and transit of goods 7.03, 7.09, 7.12 and transparency 20.06–7 Wuschka, S. 27.06 Yannaca-Small, K. 16.03 Zhang, S. 10.44, 10.48 Ziegler, A. 10.04, 10.50 Zimmermann, C. 14.02, 14.05

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