Explanatory Memorandum to COM(2024)256 - - Main contents
Please note
This page contains a limited version of this dossier in the EU Monitor.
| dossier | COM(2024)256 - . |
|---|---|
| source | COM(2024)256 |
| date | 02-07-2024 |
1. CONTEXT OF THE PROPOSAL
• Reasons for and objectives of the proposal
The Energy Charter Treaty (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 European Union is a Contracting Party to the ECT1, together with Euratom, 22 EU Member States (as of 19 June 2024)2, as well as Japan, Switzerland, Turkey and most countries from the Western Balkans and the former USSR, with the exception of Russia3 and Belarus4.
In Komstroy5, the CJEU held that Article 26(2)(c) ECT must be interpreted as not being applicable to disputes between a Member State and an investor of another Member State concerning an investment made by the latter in the first Member State. Arbitral tribunals nevertheless continue to accept jurisdiction and to hand down awards in intra-EU proceedings. On 5 October 2022, the Commission sent a Communication to the Council, the European Parliament and the Member States setting out its intention to open negotiations on an agreement between the Union, Euratom and the Member States in relation to the interpretation of the Energy Charter Treaty that would include, in particular, a confirmation that the ECT has never, does not and will not apply intra-EU, that the ECT cannot serve as a basis for arbitration proceedings, and that the sunset clause does not apply. Those negotiations have taken place. The text of the inter se agreement is now considered stable. The initialling of the text, signalling that negotiations are closed, took place on 26 June 2024.
• The envisaged agreement
Nothing in the agreement states anything novel. It is a reflection of the case law of the CJEU and entirely in line with the established position of the Union as expressed on numerous occasions including in open court in third country jurisdictions. The recitals to the agreement recount the history and context of the agreement, including in particular the interpretation of Union law as handed down by the CJEU, and acknowledge the fact that the effective implementation of Union law is being undermined by the issuing of awards in intra-EU arbitration proceedings. The single provision of substance (Article 2) sets out the common understanding of the parties to the agreement in relation to the inapplicability of Article 26(2)(c) ECT intra-EU and the consequent absence of any legal basis for intra-EU arbitration proceedings as expressed in the inter se agreement.
2. LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY
• Legal basis
The Komstroy judgment has not been respected by arbitral tribunals, who consistently do not decline jurisdiction for lack of a valid arbitration agreement and, as a result, arbitral awards have been and continue to be rendered in a manner contrary to the rules of the European Union and EURATOM. Those awards are often the subject of enforcement proceedings, including in third countries. There is a risk of conflict between the Treaties and the ECT as interpreted by some arbitral tribunals which, if confirmed by the courts of a third country, would de facto turn into a legal conflict because arbitration awards violating EU law would circulate in the legal orders of third countries.
According to the case-law of the Court, the risk of legal conflict is such as to render an international agreement incompatible with EU law. In the Commission’s view, in order for the ECT to be compatible with the Treaties, all risk of conflict needs to be eliminated. The energy policy of the Union must include achieving compliance with the case law of the CJEU and avoiding a conflict between the ECT, an act of Union law, and the FEU and EU Treaties. Given the stance of arbitral tribunals, it will be important that the risk is addressed from the perspective of international law. To that end, the Commission negotiated an Agreement on the interpretation and application of the Energy Charter Treaty between the European Union, the European Atomic Energy Community and their Member States.
The Agreement is a necessary measure to achieve the objectives of the Union energy policy, as detailed above. The Euratom Treaty does not provide the necessary powers. The decision to authorise signature of the agreement on behalf of the European Atomic Energy Community should therefore be adopted on the basis of Article 203 EURATOM.
• Proportionality
The European Atomic Energy Community is also a Contracting Party to the ECT and as such, it falls to the Council to decide whether the Euratom should become a party to the Agreement interpreting that Treaty. Existing case law of the CJEU and numerous interventions of the Commission before arbitral tribunals and courts of third countries have not been sufficient to ensure an effective implementation of Union law and elimination of the risk of conflict between the ECT and the FEU and EU Treaties. If it is to have the desired effect on the decision-making practice of arbitral tribunals, the act to be adopted must be an act of international law. The Commission is, therefore, of the view that the appropriate response is to adopt an instrument in the form of an agreement between the parties regarding the interpretation of the treaty.
3. BUDGETARY IMPLICATIONS
none
4. OTHER ELEMENTS
In the late stages of the negotiation of the Agreement, the possibility of making a Declaration on the legal consequences of the Komstroy judgment was raised as a means to formalise, already now, the common understanding reflected in the inter se agreement. The Commission has signed that Declaration on behalf of the Union.