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 -- though denied by all concerned parties -- have attracted renewed attention on 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 over a 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: (i) support greater market access by removing customs duties on goods and restrictions on services; (ii) promote regulatory coherence by dismantling regulatory barriers; and (iii) encourage the development of international standards.
From the outset of the negotiations, the EU insisted on the inclusion of an energy and raw materials chapter in the TTIP. The EU is heavily dependent on imports of fossil fuels and intends to use the TTIP negotiations to secure access to more diversified energy sources. It also wishes the TTIP to set model trade-in-energy provisions that may be used as a reference in preferential trade negotiations with other partners. The U.S. has not opposed the negotiations of an energy chapter, but questions its necessity.
International Trade Law and Energy
World trade in goods and services is governed by the World Trade Organization (“WTO”) Agreements. These agreements are of general application and contain very limited energy-specific provisions. For example, the General Agreements on Trade in Services (“GATS”) only covers certain types of energy services, yet does not address even these services comprehensively. WTO rules also primarily focus on discrimination affecting imports. As export restrictions are common in the energy sector, global trade rules have been of limited effectiveness in promoting international liberalization 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 liberalization of trade in energy. These initiatives, however, have been largely opposed by developing countries that remain dependent on oil and gas exports. Bilateral and regional trade agreements also contain very limited provisions regarding preferential trade in energy.
EU Energy Priorities in the TTIP Negotiations
The European Commission briefly outlined the EU’s priorities for energy and raw materials in the TTIP negotiations in a position paper and factsheet circulated in February 2015. It first notes that one of the EU’s main future challenges is to secure more open, diversified, stable and sustainable access to energy. The EU thus supports broad preferential trade and investment rules covering all energy products – including oil, gas, electrical energy and renewable energy – and energy services. The EU 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. It however proposes to reassert the sovereign rights of the EU and the U.S. to decide on the exploitation -- or not -- of their natural resources. Furthermore, 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 EU proposals are primarily directed at ensuring access to U.S. crude oil and natural gas resources.
The 11th round of TTIP negotiations took place in Miami on October 19-23, 2015. During two days, the EU and the U.S. reviewed the relationships between potential energy-specific provisions and horizontal TTIP provisions, trade and investment in renewable energy, and the possible impact of TTIP on existing energy cooperation activities. The EU continued to advocate for a stand-alone chapter on energy. The 12th round of negotiations is likely to take place in Brussels at the end of January or early February 2016.
The negotiations on the TTIP energy chapter are closely followed by energy stakeholders on both sides of the Atlantic as these will have a significant impact on bilateral energy trade and the EU and U.S. 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 EU and the U.S.