Recent reports of the influence of major oil and gas companies on the European Commission's position on energy in the Transatlantic Trade and Investment Partnership (TTIP) negotiations – although denied by all concerned parties – and the United States' decision to lift a 40-year-old ban on exports of crude oil, have attracted renewed attention in the TTIP energy chapter discussions.
In July 2015 the European Union and the United States – the world's two largest trading partners, which account for more than one-third of global trade in goods and services – initiated free trade agreement negotiations. The objective of the TTIP negotiations is the conclusion of a comprehensive trade and investment agreement to restore sustainable growth and create jobs on both sides of the Atlantic. The TTIP aims to:
- support greater market access by removing customs duties on goods and restrictions on services;
- promote regulatory coherence by dismantling regulatory barriers; and
- encourage the development of international standards.
From the outset of the negotiations, the European Union insisted on the inclusion of an energy and raw materials chapter in the TTIP. The European Union is heavily dependent on imports of fossil fuels and intends to use the TTIP negotiations to secure access to more diversified energy sources. It would also like the TTIP to set model trade-in-energy provisions that could be used as a reference in preferential trade negotiations with other partners. The United States has not opposed the negotiations of an energy chapter, but it has questioned its necessity.
World trade in goods and services is governed by the World Trade Organisation (WTO) Agreements. These agreements are of general application and contain limited energy-specific provisions. For example, the General Agreements on Trade in Services covers only certain types of energy services, but does not address these services comprehensively. The WTO's rules also focus primarily on discrimination affecting imports. As export restrictions are common in the energy sector, global trade rules have been of limited effectiveness in promoting international liberalisation of trade in energy. Within the WTO accession negotiations of major oil-producing states such as Saudi Arabia, and the ongoing round of global trade negotiations, attempts have been made by net-energy-importing countries to impose greater liberalisation of trade in energy. However, these initiatives have been largely opposed by developing countries that remain dependent on oil and gas exports. Bilateral and regional trade agreements also contain limited provisions regarding preferential trade in energy.
The commission briefly outlined the European Union's priorities for energy and raw materials in the TTIP negotiations in a position paper and factsheet circulated in February 2015. It noted that one of the European Union's main challenges in the future will be to secure more open, diversified, stable and sustainable access to energy. The European Union thus supports broad preferential trade and investment rules covering all energy products – including oil, gas, electrical energy and renewable energy – and energy services. The European Union calls for the elimination of all restrictions on energy trade, including export measures. It also supports the prohibition of discrimination, such as local content requirements for energy projects. However, it has proposed to reassert the sovereign rights of the European Union and the United States to decide on the exploitation – or not – of their natural resources. Further, it favours the adoption of rules on transport of energy goods and transit, as well as making third-party access to existing infrastructure mandatory. The European Union proposals are primarily directed at ensuring access to US crude oil and natural gas resources.
On December 18 2015 President Barack Obama lifted the ban on exports of crude oil from the United States that had been in force since the height of the 1970s oil crisis. This decision will have a direct impact on the TTIP negotiations, as it addresses all of the European Union's priorities with respect to energy and access to the United States' crude oil. The first tanker, which set sail from Texas at the end of 2015, arrived in Marseille, France, on January 20 2016. It will be interesting to follow the upcoming 12th round of TTIP negotiations, due to soon take place in Brussels, to see whether the consequences of the end of the United States' ban are discussed and negotiators decide to review the focus of their discussions on energy-related issues.
The negotiations on the TTIP energy chapter are closely followed by energy stakeholders on both sides of the Atlantic, as they will have a significant effect on bilateral energy trade and EU and US regulatory environments. These should also be closely monitored by energy operators in third countries because the TTIP energy-specific provisions will, if adopted, set a precedent for future preferential trade agreement negotiations and will globally affect energy trade to and with the European Union and the United States.
For further information on this topic please contact Charles Julien at King & Spalding LLP by telephone (+41 22 591 0800) or email (firstname.lastname@example.org). The King & Spalding LLP website can be accessed at www.kslaw.com.