Explanatory Memorandum to COM(2024)142 - - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2024)142 - . |
|---|---|
| source | COM(2024)142 |
| date | 27-03-2024 |
1. Subject matter of the proposal
This proposal concerns the decision to partially suspend the application of the Energy Charter Treaty (“ECT”) between the EU and any legal entity that is owned or controlled by citizens or nationals of the Russian Federation or of the Republic of Belarus and that has no substantial business activities in the Area of the Contracting Party in which it is organised, and any Investment within the meaning of the ECT which is an Investment of an Investor of the Russian Federation or of the Republic of Belarus.
2. Context of the proposal
The ECT is a multilateral trade and investment agreement applicable to the energy sector that was signed in 1994 and entered into force in 1998. The ECT contains provisions on investment protection, trade and transit in energy materials and products, and dispute settlement mechanisms. The ECT also sets up a framework for cooperation in the energy field between its Contracting Parties. The EU is a party to the ECT1, together with Euratom, a number of Member States, as well as Japan, Switzerland, Turkey and most countries from the Western Balkans and the former USSR, with the exceptions of Russia2 and Belarus3.
Pursuant to Article 17(1) ECT, each Contracting Party reserves the right to deny the advantages of Part III of the ECT to a legal entity if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organised. In addition, pursuant to point (b) of Article 17(2) ECT, each Contracting Party reserves the right to deny the advantages of Part III of the ECT to an Investment, if the denying Contracting Party establishes that such Investment is an Investment of an Investor of a third state with or as to which the denying Contracting Party adopts or maintains measures that (i) prohibit transactions with Investors of that state; or (ii) would be violated or circumvented if the benefits of Part III of the ECT were accorded to Investors of that state or to their Investments.
Since March 2014, the EU has progressively imposed sanctions against the Russian Federation, initially in response to the illegal annexation of Crimea and Sevastopol and the deliberate destabilisation of Ukraine. On 23 February 2022, the EU expanded the sanctions in response to the recognition of the non-government controlled areas of the Donetsk and Luhansk ‘oblasts’ of Ukraine, and the ordering of Russian armed forces into those areas. After 24 February 2022, in response to Russia’s military aggression against Ukraine, the EU significantly expanded the sanctions. It added a significant number of individuals and organisations to the sanctions list and adopted unprecedented measures with the aim of weakening Russia's economic base, depriving it of critical technologies and markets, and significantly curtailing its ability to wage war.
In parallel, the EU’s sanctions regime concerning the Republic of Belarus has been expanded in response to the country’s involvement in Russia’s aggression against Ukraine. This is in addition to the sanctions aimed at the Republic of Belarus that were already in place. This sanctions regime consists of a range of financial, economic and trade measures.
Neither the Russian Federation nor the Republic of Belarus is a Contracting Party to the ECT. However, investors from these countries could use corporations established in the territory of a Contracting Party to the ECT to allege that the European Union or its Member States have acted inconsistently with the investment protection obligations of the ECT and hence bring investor-state dispute settlement proceedings against the EU or its Member States.
The Union’s actions and those of its Member States are consistent with the ECT and other relevant agreements and, in any event, claims with respect to such measures are precluded pursuant to the applicable instruments and general international law. Notwithstanding this, it is appropriate to take complementary procedural steps to avoid investor-state dispute settlement proceedings against the Union or its Member States under the ECT.
3. Proposed measures
Article 17 ECT allows Contracting Parties to deny the benefits of the investment protection provisions of the ECT to investors from non-Contracting Parties that seek to abuse the ECT by bringing investment claims through shell corporations or over measures that pertain to sanctions (“denial of benefits”).
It is appropriate to invoke Article 17(1) ECT and to deny the advantages of Part III of the ECT to any legal entity that is owned or controlled by citizens or nationals of the Russian Federation or of the Republic of Belarus and that has no substantial business activities in the Area of the Contracting Party in which it is organised. It is likewise appropriate to deny those advantages to any Investment within the meaning of the ECT which is an Investment of an Investor of the Russian Federation or of the Republic of Belarus in the circumstances of Article 17(2)(b).
The denial of benefits pursuant to Article 17 implies a partial suspension of the ECT and should be implemented by the Commission by issuing a public declaration on behalf of the EU and all Member States that are Contracting Parties to the ECT.
4. Legal basis
Article 218(9) of the Treaty on the Functioning of the European Union (TFEU) provides for decisions ‘suspending application of an agreement.’ The invocation of Article 17 ECT leads to a partial suspension of the ECT, namely of Part III of the ECT on investment promotion and protection, vis-à-vis investors from the Russian Federation and the Republic of Belarus. Therefore, the procedural legal basis for the proposed decision is Article 218(9) TFEU.
The main objective is the suspension of ECT rules concerning the promotion and protection of investments by investors from the Russian Federation and the Republic of Belarus. Therefore, the substantive legal basis of the proposed decision is Article 207 TFEU.
The legal basis of the proposed decision should therefore be Article 207 TFEU, in conjunction with Article 218(9) TFEU.
5. Publication of the envisaged act
As the declaration under Article 17 ECT will suspend the application of the ECT by the EU and all Member States that are Contracting Parties to the ECT, it is appropriate to publish it in the Official Journal of the European Union.