Energy is different from any other commodities. Apart from the fact that
energy is more than any other good vital for economic and social
development of modern world, conventional energy resources such as
hydrocarbons have been distributed very unevenly throughout the world.
The above factors lead to the prominent energy leverage that has
governed over the last decades both in international and domestic policy
discussions. The above aspects also make negotiations of international
binding rules covering energy very difficult. Despite clear
interdependence, the interests of consuming and producing countries
differ significantly and finding common ground is challenging, although
In addition to the unequal distribution, energy resources are finite.
Countries that possess such resources are usually driven in their
decisions in regard to development and exploration of energy fields by
two considerations: (1) desire to maximize their resource rent; (2) use
their natural endowment to promote domestic industrialization and social
policy objectives. These two considerations have provoked controversies
in the multilateral trade forum (for instance with respect to the energy
dual pricing policies).(1)
Decisions on depletion policy, that is, on whether and how fast national
resources are to be developed, are matters for resource-owning
governments(2) . International regulation is not likely to succeed if it
tries to infringe in a binding way on these national prerogatives(3). This
was in fact the experience during the preceding rounds of trade
negotiations. In the current WTO negotiations, a number of countries
made it clear that the access to, and use of, natural resources as well
as the right to regulate, should remain outside the scope of
Although WTO Agreements do not contain rules that are specifically aimed
at energy trade, it is without doubt that the general rules of the
multilateral trading system cover trade in energy. Existing GATT/WTO
agreements, however, tackle mainly market access and do not address to
the substantial degree the issues that are commonly regarded as most
crucial in oil and gas — such as investment protection.
Furthermore, issues related to restrictive practices of the energy
exporting countries and energy enterprises that occupy monopoly position
and often are granted exclusive rights and privileges are not addressed
to a substantial degree by the existing multilateral trade rules(4).
Finally, the energy sector is highly capital-intensive — significant
costs are needed to find, produce and transport energy. Trade in
electricity and gas has mainly been regional due to particular
transportation characteristics of these products. Transportation of
natural gas, for instance, takes place mainly through pipelines,
although the share of LNG trade has been increasing steadily. Power
needs to be transported over grids which are costly to duplicate.
Finally, both electricity and gas are difficult to store. These
characteristics of hydrocarbons and electricity and the fact that a
significant part of such trade takes place through fixed infrastructure
lead to significant challenges in energy trade.
Energy trade by fixed infrastructure puts an additional emphasis on two
issues: the framework for investment in highly capital-intensive
infrastructure projects; and the conditions for access to these networks
— that is access to capacity restricted transportation services(5).
Construction of transportation pipelines and transmission grids requires
substantial investments. Such transportation facilities, involve
significant economies of scale in the construction phase and once
constructed, have limited capacity for transporting specific energy
products. Thus capacity has to be decided on a long-time basis.
For most manufactured goods (transported in vessels, trucks or railway)
capacity constraints can be solved by queuing without adverse
implications for the transportation. Because grid bound energy is
difficult to store, availability of capacity at the right time matters.
It may physically be impossible to provide access to transportation due
to lack of capacity as it is unusual to invest in pipeline projects with
substantial spare capacity. Investment rules are therefore necessary to
ensure that additional capacity can be constructed, should the existing
one prove insufficient(6).
There are thus two major questions to consider in the context of energy
trade discussions: to what extent the existing or new rules could tackle
(1) the non-discriminatory use of existing energy infrastructure and (2)
the conditions to create an additional transportation capacity if
available capacity is not sufficient. For the latter an effective
investment framework is needed. The WTO has already experience with
negotiating specific rules for another network industry, the — telecommunications sector. Here too, international trade may involve
transmission by wires, although — by way of contrast to electricity and
gas infrastructure — the fixed grid is now contestable by wireless
telecommunications. While some lessons from these negotiations could be
learned, the energy sector has some differences, especially with respect
to security of supply and environmental concerns, which should be
Some of the above issues are dealt with by the Energy Charter Treaty (ECT)
— the only international treaty setting legal norms specific to energy
trade and investment. Comprising 52 member states it includes in its
membership countries across Eurasian continent from European Union to
former Soviet Union republics to Japan. Non-derogation from the WTO
rules is the cornerstone of the ECT. Moreover, the Treaty’s trade regime
applies WTO rules by reference to trade between its members that have
not yet acceded to WTO. The last element — presence of investment rules
enforceable through a dispute settlement system — makes the Energy
Charter the only international energy investment treaty. Finally, the ECT deals specifically with issues of transit of energy materials and
products via fixed infrastructure.
While the WTO agreements do not provide for specific rules on trade in
energy, there are some distinctive features of the energy sector, where
more energy-specific rules may be needed. Problems related to the
existence of quantitative restrictions, transportation and access to
pipeline networks, public service obligations, environment and climate
change all have implications for energy production and trade and deserve
1. See Julia Selivanova, “World Trade
Organization Rules and Energy Pricing: Russia’s Case”, 38 Journal of
World Trade 4 (2004); Julia Selivanova “Energy Dual Pricing in WTO Law.
Analysis and Prospects in the Context of Russia’s Accession to the WTO.”
Cameron May (2008). back to text
2. See UN Resolution No. 1803 of 18
December 1962 on permanent sovereignty over natural resources. back to text
3. André Mernier, “Setting the Rules of
Energy Trade.” In Fundamentals of the Global Oil and Gas Industry.
London: Petroleum Economist (2008). back to text
4. Yulia Selivanova, The WTO and Energy.
WTO Rules and Agreements of Relevance to the Energy Sector, Trade and
Sustainable Energy Series, ICTSD Program on Trade and Environment,
International Centre for Trade and Sustainable Development (August
2007), at 45. back to text
5. See discussion in Yulia Selivanova,
“Managing the patchwork: Challenges for multilateral agreements in trade
and investment” in: Global Energy Governance: The New Rules of the Game,
eds. Andreas Goldthau and Jan Martin Witte (Washington, DC: Brookings
Institution Press, 2010). back to text
6. Statement of the Energy Charter
Secretariat at the Council for Trade in Services, WTO, 11 February 2010. back to text
7. Id. back to text
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