Explanatory Memorandum to COM(2019)231 - Authorisation of the entering into negotiations on the modernisation of the Energy Charter Treaty - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2019)231 - Authorisation of the entering into negotiations on the modernisation of the Energy Charter Treaty. |
|---|---|
| source | COM(2019)231  |
| date | 14-05-2019 |
# Reasons for and objectives ofthe proposal
The E nergy Uharter I reaty ("ECT") is a plurilateral trade and investment agreement applicable to the energy sector. It was signed by the EU in December 1994 and entered into force for the EU in Apri, 1998. T o d ate the ECT has been acceded to by fifty ~tw o states, as well as the EU and EU RATO M. The E U M ember States represent roughly a half of the Energy Cha rte r Conference membership as well as ofthe Contracting Partiestothe ECT.
The ECT was originally set up as a framework for international cooperation b etw een European countries and other industrialised countries with the aim of developing the energy potential of Central and Eastern European countries and of ensuring the security of energy supply f o r th e EU.
The key provisions of the Treaty concern the protection of investment, trade in energy materials and products, transit and dispute settlement.
Since the 1990s ( m ost of) the ECT provisions have not been revised. I his became particularly problematic in the context of the ECT provisions on the protection of investment, which do
protection. Those outdated provisions are no longer sustainable or adequate for the current
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challenges, yet it is today the most litigated investment agreement in the world .
In the view of growing legal and political concerns about the ECT, the E nergy Uharter Secretariat proposed a modernisation of the ECT. I n preparation of the modernisation, the
investment protection standards, other Contracting Parties supported the inclusion of provisions such as transit, provisions related to dispute resolution, regional economic
integration organisation ('REIO') or pre investment. laking advantage of the process, the
Energy Cha rte r Secretariat suggested addressing the issue of obsolete provisions.
The list of topics for modernisation was approved on 27 N o v e m b e r 2018 by the Energy C h a rte r M inisterial Conference and covers (mainly) investment protection provisions and related definitions, pre_i nvestment protection, transit, REIO, provisions related to dispute resolution and obsolete ECT provisions.
sistency with existing policy provisions in the policy area
This recom mendation (to enter the negotiations on the ECT modernisation) forms part of the EU reformed approach to investment as presented following the entry into force of the Lisbon Treaty and further developed in the 2015' C ommission Uommunication on I rade for all
As of 1 J a n u a r y 2016 I taly has withdrawn from the I reaty, maintaining a status of Ubserver to the Energy Charter Conference. The voting rules provide that where the m atter f a I I s under EU/E u rato m competence, the EU/E uratom have as many votes as they count members.
UNCTAD has recorded a total of 121 investment disputes under the ECT. As arbitration can be kept confidential (no notification requirement or transparency obligation under the ECT), the actual number will likely be higher.
Communication from the Commission to the Council, the European Parliament, the European Economic and Social Comm itte e and the Committee of the Re gions Towards a comprehensive European international investment policy ' (COM(2010)343 final).
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Since then the EU reformed approach has been promoted in a number of recently concluded or neg oti ate d EU investment agreements with third country partners .
This approach should consequently be applied in the context of plurilateral relations, such as the ECT. T he recommendation mainly entails the clarification and better definition of the standards of protection for investors and investments such as ( n o n ~ e x h a u sti v e list).
• M ost favoured nation treatment provision, including national treatment post" esta bl ish m ent,
• Rightto regulate,
• Fair and equitabletreatment, and full protection and security,
• Expropriation, covering direct and indirect expropriation, and appropriately defined to clarify the nature of indirect expropriation,
• Umbrella clause,
• Transfers, allowing free transfers relating to an investment, together with appropriate exceptions and safeguards for financial difficulties or crises,
• Denial of benefits.
Self_standing provisions on sustainable development and corporate social responsibili ty, i n line with the commitments undertaken in the Trade for all Communication and following the example of recently concluded EU investment agreements are proposed to be included.
Given the ongoing international initiatives on the reform of dispute settlement (ICSID and MIC) , the modernisation of the relevant provisions of the ECT should only be conducted once those international initiatives deliver tangible results.
One C ontracting Tarty wished to add pre~investment to the list of topics for the negotiation. The EU recorded its reservation to avoid making preU nvestment subject to disputesettlement. In general, the EU views thatthe reasons and circumstances that did not allow for a successful
conclusion of a 'Supplementary Treaty' in the past, remain. Against this backdrop, pre
investment is not a priori ty of the EU in this modernisation round which should focus on investment protection provisions. In addition, the ECT Se cretariat expressed a wish to agree on the deletion of obsolete ECT provisions in the modernisation. W hile this is not the EU's priority, it may increase the readability of the ECT and it could therefore be considered to delete obsolete provisions.
The transit chapter of the Treaty is not fully in line with the concept of liberalised energy mark ets in the EU. I t should be adapted to the requirements of integrated energy markets with
third party access rights. It should make clear that the concept of 'transit' in the ECT does not
contradict the principle of open access and unrestricted exchange of gas without territorial restrictions, with energy trading being based on virtual flows and not on the exchange of physical molecules, as applied in the EU.
See http . //trad e.ec.europa.eu/d ocl ib/docs/201 5/octob er/tr a doc 153846.pdf .
E.g. ELJ-Canada Comprehensive Economic and Trade Agreement, EU-S ingapore Investment Protection Agreement, ELJ-V ietnam Investment Protection Agreement or ELJ-[\/lexico Global Agreement. EU_Canada Comprehensive Economic and Trade Ag ree m ent.
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# Consistency with other Union policies
The recommendation is fully aligned with the Union investment policy, which is a partofthe common commercial policy.
It is also linked to the energy policy of the Union, however better alignment of the ECT to sustainable development, including climate change and clean energy transition goals should be reflected, to the extent that these do not expand the scope of the ECT to carry out actions that are already dealt with in other fora.
# Lega I basis
Artie,e 207(3) and 207(4) , first subparagraph, Artie,e 194(2) and Artie,e 218(3) and (4) of the Treaty on the Functioning of the European Union (TFEU).
arity ^for n o n " e x c I u s i v e competence^
According to Article 5(3) of the TEU, the subsidiarity principle does not apply in areas of exclusive EU competence. I he common commercial policy is listed among the areas of exclusive competence of the Union in Article 3 of the TFEU. T his policy includes the negotiation ofthetrade and investmentagreements pursuant to, interalia, Artie,e 207 TFEU.
a I ity
ECT
modernisation is the only possible policy choice at this stage. IVIodernising the organisation in which the EU and i ts M ember States are already members is the most suitable measure for achieving the objective of the proposal.
# Choice of the in stru ment Decision of the Council of the European Union
# Ex_post evaluations/fitness checks of existing legislation
The need forthe modernisation of the outdated provisions of the ECT has been recognised by the ECT C ontracting Parties (i.e. the EU, the EU Member S tates and other Uontracting Parties). On 27 N o v e m b e r 2018, the E nergy Cha rter Conference adopted the Bucharest declaration stressing the importance of the ECT modernisation and approved a list of issues
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to be addressed .
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# Stakeholder consultations
Stakeholder consultations on the EU reformed approach to investment were conducted in the context of entering into negotiations of investment treaties b etw een the EU and its th i rd countries partners, such as the Comprehensive Qconomic and I rade /\g r e e m e n t (CETA) between the EU and Canada.
In the context of the ECT itself, the decision on the list of topics for the modernisation was adopted following consultations with the industry and Observers and internal discussions during 2018 conducted by the Uha ir and Vice-C hair of the Subgroup on M odernisation .
# Collection and useofexpertise
The ECT modernisation is a process based on the experience gained by the ECT C o n tr a cti n g Parties in the implementation of the ECT over the last 20 years. Building on that experience the ECT C ontracting r arties carry out their assessment of the ECT provisions and their relevance for energy markets today.
# Impactassessment
The objective of the ECT modernisation will be to bring the investment protection provisions in line with the standards developed along the lines of the reformed investment policy approach that the EU has adopted and applied since 2010'U (e .g. modern definition of the Right to Regulate, a clarification of the concepts of Fair and Equitable Treatment and of indirect expropriation etc.J. I hese standards already form part of several EU agreements and the EU a, so obliges M ember States to apply them when being authorised to negotiate any new Bilateral I n v est m e n t Ag r e e m e n ts. As such the ECT modernisation is a logical step in pursuing
the EU's reformed approach on investment protection. The impact should be In I i n e w ith th e
one of th e EU reformed approach. I he modernisation is expected to minimise the number of possible investor claims against legitimate public policy measures of the Contracting Parties.
# Regulatory fitness and simplification
Investors (including SMEs) and M ember States will benefit from the updating of the investment protection standards in line with the modern international trends and the EU sta n d a r d s .
# Fundamental rights
The human rights aspects should be addressed as a part of negotiations, in particular in relation to topics such as sustainable development or right to regulate.
Contents
- BUDGETARY IMPLICATIONS
- not correspond to modern standards as reflected in the EU's reformed approach on investment
- ECT Contracting Parties submitted ideas for topics: the EU's position was to modernise the
- Con
- The transit chapter of the Treaty is not fully in line with the concept of liberalised energy mark ets in the EU. I t should be adapted to the requirements of integrated energy markets with
- 2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
- S u b s i d
- Proportion
- In line with the principle of proportionality, en te ring into the negotiations on the
- 3. RESULTS OF EX-POST EVALUATIONS, STAKEHOLDER CONSULTATIONS AND IMPACT ASSESSMENTS
- 5. OTHERELEMENTS
- The E uropean Parliament will be informed at all stages of the procedure, in line with Artieie
- s internal rules on
- COUNCIL DECISION
The ECT modernisation has no impactonthe budgetofthe EU.
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10 COM(2010)343 final, quoted abc
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# Implementation plans and monitoring, evaluation and reporting arrangements
In the spirit of its commitments regarding better implementation made in the 2015 Commission Communication Trade for all , the Commission will ex_post evaluate the result and effects of the ECT m odern isati on.
# Explanatory documents (for directives) N ot a p pIi ca bIe.
# Detailed explanation ofthe specific provisions ofthe proposal N ot a p pIi ca bIe.
# Procedural aspects
The Commission will negotiateforthe EU.
In accordance with Artiee 218(4) TFEU, it is suggested that the uouncil of the European Union designates the Trade Policy (Services and Investment) Committee and the Energy W orking Fa rty as the committees in consul tation with which the negotiations must be c o n d u cte d .
218(10) TFEU.
The Commission welcomes the fact that the M embers of the Council of the European Union are increasingly engaging at an early stage with their parliaments on trade negotiations in line with their institutional practices. It encourages the M embers ofthe Council ofthe European Union to do the same with regard to this Recommendation for a Council decision having due regard to Ceunei, Deeisien 2013/488/EU on the security rules for protecting EU e, a ss i f i e d information.
The Commission will inform the ECT C ontracting Parties of the EU' transparency and access by the Council of the European Union and the European Parliament to negotiating documents.
The Commission makes this Recommendation and its A nnex public immediately after its ado pti o n .
The Commission recommends that the negotiating directives be made public immediately aftertheir adoption.
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Reco m mendation for a
authorising the entering into negotiations on the modernisation of the Energy Charter "Treaty
THECOUNCILOFTHE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Artie,e 194(2), Artie,e 207(3) and the first subparagraph of Artie,e 207(4), in conjunction with Artie,e 218(3) and (4) thereof,
Having regard to the recommendation from the European Commission,
WHEREAS participation of the Luropean Union in the negotiations on the modernisation of the Energy Charter Treaty should be ensured,
HAS ADOPTED THIS DECISION:
Article 1
The Commission is authorised to enter on behalf of the Union into negotiations on the modernisation of the Energy Charter Treaty,
Article 2
The negotiating directives are set out in the Annex.
Article 3
The negotiations shall be conducted in consultation with the Trade Policy Committee (Services and Investment) and the Energy W orking Fa rty.
Article 4
This Deeis ion and i ts r\ nnex will be made public immediately after their adoption.
Article 5
This Deeis ion is addressed to the Vvom mission. Done at Brussels,
Fa r the Co unci! Th e President
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