Energy Transit Provisions in the WTO Agreements, Energy Charter Treaty and Intergovernmental Agreements

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1 Energy Transit Provisions in the WTO Agreements, Energy Charter Treaty and Intergovernmental Agreements Nadiya Nychay Counsel Ashgabat, 10 December 2014

2 Contents 1. Energy Transit Provisions in the WTO Agreements General Agreement on Tariffs and Trade, Article V General Agreement on Trade in Services 2. Energy Charter Treaty/ Draft Transit Protocol Article 7 Draft Transit Protocol 3. Energy Transit under Intergovernmental Agreements 4. Conclusions

3 1. Energy Transit Provisions in the WTO Agreements

4 WTO: rules applicable in energy sector WTO rules generally apply to trade, transport and transit of energy 9 Agreements are relevant: GATT, GATS, AA, SCM, TBT, TRIMS, GPA, DSU and TFA WTO goods and services distinction: Basic investment rules in GATS, not in GATT or TRIMS, Different RTA provisions - discrimination in favour of customs union members allowed in GATT but limited in GATS; Would lower transit fees be allowed? Subsidy rules: distinction between industrial and agricultural goods WTO systems based on don ts, rules for imports, rather than exports Access to and use of natural resources, as well as the right to regulate to remain outside the scope of the WTO negotiations?

5 GATT, Article V Freedom of Transit Inter-state obligation "Traffic in transit covers both, the goods transported, and the vessels or other means of transport Applies to oil, gas and electricity Applies to fixed infrastructures, such as power grids and pipelines (not excluded from the scope) MFN with respect to charges, regulations and formalities imposed, but no NT No unjustified delays and restrictions Adequacy of charges to rendered services Non-discrimination between goods which have been imported directly and goods that have gone through transit.

6 GATS: Overview Limited commitments in the area of energy services, no single definition of energy services Key services relating to energy transportation are: Services incidental to energy distribution, which concerns in particular the transmission and distribution of gas and electricity Pipeline transportation of fuels, which includes transport of oil and gas by pipelines BUT few Members have undertaken specific commitments Road, rail, maritime; Bulk storage of oil and gas also listed Construction services of energy transport infrastructure (long distance and local pipelines, power lines) are classified under different headings Modes 1,3 and 4 are relevant Rules on monopolies and exclusive service suppliers

7 GATT/ GATS: accession commitments would apply all its laws, regulations and other measures governing transit of goods (including energy), such as those governing charges for transportation of goods in transit, in conformity with the provisions of Article V of the GATT 1994 and other relevant provisions of the WTO Agreement". "... commits itself to provide full transparency in the formulation, adoption and application of measures affecting access to and trade in services of pipeline transportation." "... undertakes to ensure adherence to the principles of nondiscriminatory treatment in access to and use of pipeline networks under its jurisdiction, within the technical capacities of these networks, with regard to the origin, destination or ownership of product transported, without imposing any unjustified delays, restrictions or charges, as well as without discriminatory pricing based on the differences in origin, destination or ownership." Ukraine s WTO Accession Working Party Report text

8 2. Energy Transit Provisions in the Energy Charter Treaty and Transit Protocol

9 ECT Article 7 - beyond GATT Article 7 ECT confirms GATT Article V obligations - Freedom of energy transit, definition of transit 7(10) - Non-discrimination: - As to origin, destination or ownership; - As to pricing - No unreasonable delays, restrictions or charges but also goes beyond-gatt provisions - Non-interruption of flows until dispute is settled - No mandatory Third Party Access but access to free capacity - National Treatment?: no less favourably than energy originating in or destined for transit country itself; (transit v. domestic transportation) - No limitations to new capacity establishment if lack of infrastructure or sufficient capacities.

10 Energy Transit: Definition

11 Energy Charter Draft Transit Protocol Objectives: to ensure secure, efficient, uninterrupted and unimpeded transit to promote more efficient use of transit infrastructure to facilitate the construction or modification of transit infrastructure Main points: definition of available capacity for transit rules on the utilization of available capacity (access rules) obligation to have in place objective, transparent and non-discriminatory authorization procedures concerning energy transport facilities used for transit objective, reasonable, transparent, non-discriminatory transit tariffs and other conditions based on operational and investment costs, including a reasonable rate of return provisions on government charges, technical and accounting standards, etc. Negotiated access of 3 rd parties to available capacity Current status: on-hold, with a view to launch talks on new protocol

12 3. Intergovernmental Agreement

13 Intergovernmental Agreement: Normally concluded among states which are involved in construction and operation of pipeline system, including broader context land rights, tax harmonization, etc. Energy Charter Secretariat promotes model law for international agreement or treaty with a view to providing interested parties to energy-related projects with a neutral and non-prescriptive starting point for negotiations

14 Intergovernmental Agreements: Obligation of the Host Countries Transit Rights Freedom of transit Non-interruption of transit during dispute Land Rights Environmental and Safety Standards International Cooperation in Energy

15 Selected oil and gas transit agreements 1. Nabucco Pipeline Agreement 2. Baku-Tbilisi-Ceyhan Pipeline Intergovernmental Agreement 3. South Caucasus Pipeline Agreement 4. Turkmenistan-Afganistan-Pakistan-India Pipeline Agreement 5. Kirkuk-Ceyhan Oil Pipeline Agreement 6. Thans-Anatolian Pipeline Intergovernmental Agreement

16 Conclusions Energy Transit is not just about non discriminatory access to transport infrastructure, possibility to create new transit capacity, non interruption of existing transit are important WTO rules on transit are general and not designed to deal with specific energy transit concerns ECT rules are specific to energy and contain investment rules and dispute resolution provisions Short of a new energy transit instrument, intergovernmental agreements could satisfy certain bi-lateral needs and expectations of countries but provide no comprehensive or uniform answer to energy security and sustainability concerns.

17 Contact information Nadiya Nychay Counsel T E Nadiya.Nychay@dentons.com Nadiya Nychay is Counsel on International Trade, WTO and Government Affairs. Nadiya has worked in the field of international trade law and policy for over a decade. With particular emphasis on the WTO and EU Ukraine relations, she has been advising private clients, sovereign governments and international organizations on trade and energy policy matters out of Brussels, Washington D.C. and Geneva. Nadiya's work consists partly of advising clients on the enforcement of international trade agreements, with particular focus on litigation in the World Trade Organization s dispute settlement system. She also focuses on complex legal issues arising under the Energy Charter Treaty. With her strong background in EU regulatory law, Nadiya also helps clients gain access to the internal market of the European Union, notably in the area of agriculture, as well as industrial goods. Nadiya also advises clients on extraterritorial application of US trade control laws, as well as on EU export control regime, most notably on EU Dual Use Regulation, Common Foreign & Security Policy, EU Sanction Regimes, European Customs Code and EU Blocking Regulation. Prior to joining Dentons, for nearly five years Nadiya worked as a legal officer and a consultant with the WTO Secretariat, where she was involved in the WTO dispute settlement process and international trade negotiations, particularly in the area of subsidies, trade remedies, agricultural and industrial market access. In this capacity, she was directly involved in several high-profile dispute settlement proceedings before the WTO panels, including Airbus and Boeing, United States zeroing, as well as in cases involving Mexico and Norway, among others. While at the WTO, Nadiya also advised on various WTO accessions matters, including the cases of China, Samoa, Ethiopia and Belarus. Previously Nadiya practiced law at a prominent UK law firm in Brussels and in the United States. She was involved in many EU anti-dumping and antisubsidy proceedings and advised on EU rules of origin, administration of tariff quotas, and customs procedures. Her practice also focused on EU regulatory law, including air transport, chemicals (REACH) and public procurement, as well as energy trade and investment.

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