A Multifaceted Approach to Trade Liberalization and Investment Protection in the Energy Sector
The second annual event of the Platform was held on 21-22 June, 2018 at the University of Geneva. It was co-organised by Ms. Elena Cima (IHEID) and Prof. Makane Moïse Mbengue (University of Geneva, Faculty of Law)
International trade and investment in energy have never been greater than at present. Yet, the international legal framework that regulates trade and investment is not expressly tailored for the energy sector and often overlooks the potential repercussions of energy activities in other contexts. This workshop intends to interrogate this challenge from two often conflicting, yet interrelated perspectives:
i. Liberalizing trade and protecting investments in the energy sector
Multilateral trade rules were not designed with energy in mind and, as a consequence, WTO agreements do not contain any energy-specific provisions. Nevertheless, their rules do apply to energy goods and services, as they generally apply to all economic sectors. A fundamental challenge lies in the fact that general WTO rules might not always be adequate to deal with energy. In order to keep the discussion focused, the workshop will focus on some of the most challenging areas, such as energy subsidies (and green industrial policy more broadly) and transit. The latter poses unprecedented questions regarding the suitability of multilateral trade rules, given the particular characteristics of this industry. Similarly, in the area of subsidies, it is questionable whether the one-size-fits-all approach adopted by the relevant WTO provisions, which do not distinguish undesirable subsidies from those that address legitimate (environmental) concerns, is adequate or should rather be reformed, and whether new free trade agreements (FTAs) successfully address these questions. Moreover, although fossil fuels are more heavily subsidized than renewable energy, fossil fuel subsidies have never been challenged at the WTO, while most of the recent energy- related disputes concern subsidies to renewable energy producers.
Foreign direct investment plays a crucial role in the energy sector. Here, the level of State interference is higher than in other sectors, as FDIs have the potential to affect national sovereignty over natural resources, and a constant balance between public and private interests is required. Moreover, the severe uncertainty that characterizes this sector often leads to tensions between investors, who seek a stable and predictable investment climate, and host States, trying to retain sufficient policy space to accommodate potential changing circumstances. With these tensions in mind, the workshop will strive to: i) investigate to what extent modern investment treaties, and in particular the Energy Charter Treaty, have contributed to improving the investment climate in the energy sector of the state parties; ii) explore the common features of energy-related investment disputes; and iii) analyze the use of stabilization clauses, among others, in long-term investment contracts.
ii. Conciliating trade liberalization and investment protection with environmental and human rights approaches
Liberalizing trade in energy and protecting energy investments pose significant risks in terms of sustainable development. In entering into investment treaties and trade agreements states should maintain sufficient policy space to meet their environmental protection and human rights obligations. However, as States increasingly strengthen their domestic social and environmental standards, foreign investors in energy intensive industries might make use of provisions in bilateral or multilateral investment treaties to challenge those standards, as they risk to negatively impact their investment’s profitability. Stabilization clauses, for example, can be seen as obstacles to sustainable development as they may have a ‘chilling effect’ on the host State’s regulatory powers. Similarly, the one-size fits all approach adopted by the WTO subsidies agreement, as well as the difficulty of differentiating products on the basis of their process and production methods, among other features of the multilateral trading system, do not seem adequate from an environmental standpoint.
It is therefore important to consider all these perspectives when dealing with trade liberalization and investment protection in the energy context, and it is equally central to attempt to bridge the gap between them, in the quest for common solutions. Accordingly, the goal of this workshop is precisely to bring together and initiate a constructive dialogue between different international law regimes, in a multi- disciplinary manner.
The programme is available here.
The event resulted in an edited volume by Elena Cima and Makane Mbengue. More information available on the publisher’s website.