The European Council has approved negotiating directives for the EU’s participation in talks to modernize the ECT, confirming its decision during a meeting on July 2, 2019.
The European Commission submitted a proposal for a negotiating mandate in May 2019, citing the need to bring the 1994 trade and investment agreement in line with current practice and norms relating to investment protection. The ECT applies to the energy sector, with the stated objective of setting “a legal framework in order to promote long-term cooperation in the energy field, based on complementarities and mutual benefits.”
Contracting parties have been actively looking at updating the accord over the past two years, though formal negotiations are not due to start until later in 2019.
“Those outdated provisions are no longer sustainable or adequate for the current challenges; yet it is today the most litigated investment agreement in the world,” the European Commission said in May when requesting approval of the negotiating mandate. To date, 122 disputes have been filed under the treaty, which has over 50 contracting parties. This includes nearly all EU member states, as well as the EU and Euratom in their own rights.
The European Council decision authorizing the negotiating directives has a dedicated section on investment protection, calling for the modernized ECT to be aligned with the relevant provisions of the latest EU agreements, along with ensuring “a high level of investment protection” and “legal certainty for investors and investments of Parties in each other’s market.”
Notably, the directives say that the EU should aim to have the ECT be subject to its proposed MIC, which it has proposed in the context of the UNCITRAL Working Group III process on multilateral ISDS reform. The EU’s approach of negotiating an ICS in its more recent investment agreements is meant to lay the groundwork for a future MIC, even if the proposal does not gain traction within UNCITRAL.
The directives also note that ISDS reform processes underway in other forums—specifically UNCITRAL and ICSID—should be reflected in the modernized ECT, though it stops short of saying that ECT negotiations should wait until those other deliberations are completed.
Items slated to come up in the ECT modernization negotiations, according to a list of priority topics approved by the Energy Charter Conference last year, include the definition of FET, a regular feature of ECT arbitrations, including some high-profile cases involving renewable energy. The EU negotiating directives say that an updated FET clause should be “appropriately circumscribed for interpretation purposes.”
The directives also say that the modernized ECT “should explicitly reaffirm the right of ECT Contracting Parties to take measures to achieve legitimate public policy objectives, such as the protection of health, safety, the environment or public morals, social or consumer protection (‘right to regulate’).” The “right to regulate” was also in the list approved by the Energy Charter Conference in 2018.
The EU’s directives also call for the revised treaty to “contribute to the achievement of the objectives of the Paris Agreement,” referring to the United Nations agreement on tackling greenhouse gas emissions that has been in force since November 2016. It also states that the modernized ECT’s sustainable development provisions should feature language on “climate change and clean energy transition in line with the Paris Agreement” as well as terminology in the latest agreements negotiated by Brussels, along with those currently being developed.