13 Part VII: Structure and Institutions

This chapter examines Part VII of the Energy Charter Treaty, which is entitled ‘Structure and Institutions’. Any signatory to the European Energy Charter may participate in negotiations envisioned in Article 33, ‘Energy Charter Protocols and Declarations’. A State or a Regional Economic Integration Organization may not, however, become a party to a Protocol or Declaration unless it becomes a Contracting Party to the ECT. Article 34 establishes the Energy Charter Conference, which is the principal decision-making body of the ECT. The Energy Charter Conference—at which each Contracting Party is entitled to have one representative—has political responsibility for the European Energy Charter, the ECT, and related instruments. Meanwhile, Article 35 is entitled ‘Secretariat’; The Secretariat organizes and administers the Charter Conference and its various bodies. Article 36 sets forth the voting rules at the meetings of the Charter Conference, while Article 37 concerns the funding principles. The activities of the Charter Conference and the Secretariat are funded by the Contracting Parties.

7 Part I: Definitions and Purpose

This chapter assesses Part I of the Energy Charter Treaty, which deals with definitions and the purpose of the treaty. Central to the functioning and proper understanding of the ECT, Article 1 sets forth relatively detailed definitions of key terms and concepts used in the ECT. In particular, there are two defined terms which are important: Article 1(6), which defines ‘Investment’; and Article 1(7), which defines ‘Investor’. These two concepts have been argued in practically every ECT award rendered so far. Article 1 also defines other key terms used in the ECT such as ‘Contracting Party’ (paragraph 4), ‘Energy Materials and Products’ (paragraph 5), and ‘Area’ (paragraph 10). Meanwhile, Article 2 is titled ‘Purpose of the Treaty’. Proceeding from the rules of treaty interpretation laid down in the Vienna Convention, Article 2 of the ECT is relevant when determining the object and purpose of the ECT. It should be noted that Article 2 refers to the European Energy Charter, which is also relevant when determining the object and purpose of the ECT.

5 Rules of Attribution

This chapter focuses on the rules of attribution. The State is not responsible for all acts and omissions of its nationals, but only for those which can be attributed to the State. It is thus necessary to establish this link between the State and the person, or persons, committing an unlawful act or omission. The legal principles used to establish this link are usually referred to as rules of attribution. The rules of attribution form part of the law of state responsibility, which, to a large part, is reflected in the work of the International Law Commission (ILC) of the United Nations. At its fifty-third session in 2001, the ILC adopted its final version of the ILC Articles on Responsibility of States for Internationally Wrongful Acts. The ILC Articles are intended to cover all aspects of state responsibility under international law. The rules of attribution are laid down in Chapter II of the ILC Articles. From an Energy Charter Treaty perspective, Articles 4—8 are the most relevant ones. The central provision with respect to attribution is Article 4, which confirms the well-established principle of international law that the State is responsible for the acts of its own organs acting in the capacity of the State.

4 Interpreting the Energy Charter Treaty

This chapter discusses the interpretation of the Energy Charter Treaty. The ECT is a multilateral treaty during the negotiation of which approximately fifty States participated, albeit to varying degrees. It goes without saying that in such a setting, there are many competing interests to take into account, often resulting in ambiguous treaty provisions. Indeed, almost every dispute based on the ECT involves issues of treaty interpretation. The law applicable to the interpretation of treaties is international law, unless the parties to the treaty in question have agreed otherwise. For all practical purposes, the most important international document when it comes to treaty interpretation is the 1969 Vienna Convention on the Law of Treaties. Article 2(1)(a) of the Vienna Convention defines ‘treaty’ as ‘an international agreement concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation’. There is little doubt that the ECT is covered by this definition. Article 26(6) of the ECT provides that disputes under it are to be resolved on the basis of its provisions and ‘applicable rules and principles of international law’. The chapter then considers Articles 31—3 of the Vienna Convention, which deal with the interpretation of treaties.

2 The Energy Charter Treaty: An Overview

This chapter provides an overview of the Energy Charter Treaty. Developed on the basis of the European Energy Charter of 1991, the Energy Charter Treaty is a multilateral treaty dealing with inter-governmental co-operation in the energy sector. It covers five broad areas in the energy sector: trade; investment protection; transit; environmental protection and energy efficiency; and settlement of disputes. The trade provisions of the Treaty were designed to import fundamental GATT principles, such as non-discrimination, national treatment, most-favoured-nation treatment, and transparency. The provisions on investment protection are found in Part III of the Treaty. In particular, Article 13 in Part III deals with expropriation, while Article 10 deals with various standards of treatment of foreign investments. The rules for facilitating transit of energy through the participating States are laid down in Article 7. The transit regime is based on freedom of transit and the principle of non-discrimination. Meanwhile, Article 19 of the ECT sets forth a number of ‘best efforts’ obligations of the Contracting Parties with respect to environmental protection and energy efficiency. Lastly, the ECT includes two binding dispute settlement mechanisms: investor-State arbitration for investment disputes (Article 26) and state-to-state arbitration for basically all disputes that may arise under the ECT (Article 27), with the exception for disputes concerning competition (Article 6(7)) and environment (Article 27(2)). The chapter then looks at the Energy Charter Conference, an inter-governmental organization established by the ECT and the governing and decision-making body for the Energy Charter Process.

12 Part VI: Transitional Provisions

This chapter discusses Part VI of the Energy Charter Treaty, which concerns transitional provisions. The present text of Article 29 of the ECT, entitled ‘Interim Provisions on Trade-Related Matters’, provides for a best endeavours tariff commitment for both Energy Materials and Products and Energy-Related Equipment. This is complemented by the possibility to move to a future, legally binding commitment for agreed items which are presently subject to the best endeavours commitment (paragraphs (6) and (7)). Article 30, entitled ‘Developments in International Trading Arrangements’, refers to the Trade Amendment in 1988 which entered into force in 2010. This article is therefore no longer relevant. Similarly, Article 31, entitled ‘Energy-Related Equipment’, is no longer applicable. Energy-Related Equipment was included in the provisions of the ECT by virtue of the Trade Amendment. Moreover, the transitional arrangements provided for in Article 32 were terminated on July 1, 2001, which means that the article is no longer applicable as well.

11 Part V: Dispute Settlement

This chapter highlights Part V of the Energy Charter Treaty, which deals with the settlement of disputes under the Treaty. Article 26 addresses investor-State disputes. It is central to the enforcement of the investment protection standards set out in Part III of the ECT. Article 26 offers an investor different options as to the method of settling disputes, including court proceedings and international arbitration. Meanwhile, Article 27 deals with disputes between Contracting Parties, i.e. inter-State disputes. It covers any dispute concerning the application or interpretation of the ECT, save for disputes concerning Articles 6 and 19 and for some Contracting Parties disputes concerning Article 10(1), last sentence of the Treaty. The dispute settlement method foreseen in Article 27 is ad hoc arbitration, provided that the disputing parties have been unable to settle the dispute through diplomatic channels. Article 28 exempts certain disputes from Article 27, namely disputes concerning the application and interpretation of Articles 5 and 29.

10 Part IV: Miscellaneous Provisions

This chapter studies Part IV of the Energy Charter Treaty, which is entitled ‘Miscellaneous Provisions’. Article 18, dealing with sovereignty over natural resources, is the first article in Part IV of the ECT. This is significant, because the placement of Article 18 outside of Part III of the ECT means that the provisions in Article 18 cannot be made the subject of the dispute settlement mechanism in Article 26 of the ECT, which requires that there be an alleged breach of an obligation under Part III of the ECT. Meanwhile, Article 19 deals with environmental aspects and Article 20 with transparency. Article 21, concerning taxation, has a complex structure such that interpretation based on the Vienna Convention may be required. Article 22 deals with a Contracting Party's obligations in relation to the conduct of state enterprises (paragraphs 1 and 2); the conduct of entities which it has entrusted with governmental authority (paragraph 3); and the conduct of entities which have been granted exclusive or special privileges (paragraph 4). Article 23 addresses the responsibility of Contracting Parties for acts of all organs of government, be they at the national, regional, or local level. Article 24 sets forth a number of general exceptions to the obligations set out in the ECT. Lastly, Article 25 sets forth a separate exception related to most-favoured-nation treatment for members of an economic integration agreement (EIA).

6 The Preamble

This chapter examines the Preamble of the Energy Charter Treaty. The Preamble draws heavily on the ideas and philosophy underlying the European Energy Charter. The Charter constitutes a political commitment to co-operation in the energy sector based on the idea of open and efficient energy markets. It foresees the creation of conditions stimulating private investment based on non-discrimination and respect for state sovereignty over natural resources. The signatories to the Concluding Document agreed to pursue the objectives and principles of the European Energy Charter and to transform them into binding international legal commitments which eventually lead to the Energy Charter Treaty. The signatories are desirous of sustainable energy development—improving energy security and maximising the efficiency of production, conversion, transport, distribution, and use of energy—to enhance safety and to minimize environmental problems, on an acceptable economic basis. 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.

14 Part VIII: Final Provisions

This concluding chapter assesses Part VIII, ‘Final Provisions’, of the Energy Charter Treaty. Article 38 of the ECT states that the ECT was open for signature only for States which had signed the European Energy Charter. Article 39 is entitled ‘Ratification, Acceptance or Approval’. The ECT is open for ratification, acceptance, and approval to States which have signed the Treaty as per Article 38. Article 40 builds on Article 29 of the Vienna Convention, which deals with the territorial scope of treaties. Similarly, Article 41 mirrors Article 15 of the Vienna Convention, which deals with consent by a State to be bound by a treaty expressed by accession. Article 42 sets forth the procedure to be followed to amend the Treaty. Meanwhile, pursuant to Article 43 of the ECT, the Charter Conference may authorize the negotiation of association agreements with a view to pursuing the objectives and principles of the European Energy Charter and the ECT. The provisions of Article 44 determine when the Treaty enters into force. Article 45 concerns provisional application, while Article 46 concerns reservations. Article 47 regulates withdrawals from the Treaty, the procedure thereof, and the effect of withdrawals. Article 48 is entitled ‘Status of Annexes and Decisions’; Article 49 states that the Government of the Portuguese Republic shall be the Depositary for the ECT; and Article 50 is entitled ‘Authentic Texts’.