Proposals released for modernising the Energy Charter Treaty

On 6 October 2019, the Energy Charter Secretariat released Member State proposals for modernising the Energy Charter Treaty (ECT).  Individual submissions were offered by Albania, Azerbaijan, Georgia, Japan, Luxembourg, Switzerland and Turkey, in addition to the European Union (EU).  The proposals cover several aspects of investment protection, including the definition of “investment” and “investor”; the content of the expropriation, fair and equitable treatment (FET), most constant protection and security, umbrella clause, and most-favoured nation (MFN) standards; as well as the right to regulate, sustainable development, denial of benefits, frivolous claims, third-party funding, security for costs, and transparency.

Pre-Investment Coverage: Almost all Member States proposed an amendment to explicitly exclude the pre-investment phase from ECT protection.

Definition of “Investment”: A majority of Member States proposed that certain characteristics ─ such as commitment of capital, assumption of risk, expected profit, or contribution of capital ─ be included in the definition.  A majority also proposed an express requirement for an investment to be made in accordance with host State laws.

Definition of “Investor”: Most Member States proposed inserting into the provision requirements for committing a “substantial amount of capital”, having a corporate “seat”, or conducting “substantial business activity” in the host State’s territory.

Right to Regulate: A majority of submissions sought an amendment to preserve a government’s right to regulate in the public interest.

Sustainable Development and Corporate Social Responsibility: Member States favoured including treaty language to strengthen existing commitments towards sustainable development and corporate social responsibility.

FET & Most Constant Protection and Security: Several Member States proposed additional criteria to describe the FET standard or outlining a closed list of elements.  There was substantial consensus that the most constant protection and security standard be limited to the physical security of investors and investments.

MFN: Most Member States suggested excluding dispute settlement procedures from MFN protection and modifying the provision to clarify that it applies only to investors in “like circumstances” or “like situations”.

Indirect Expropriation: Suggestions included clarifying what constitutes “indirect expropriation” or outlining what does not breach the standard.

Umbrella Clause: A majority of Member States suggested restricting the clause to “written” or “specific” commitments, or both.

Denial of Benefits: Proposals included having a clear procedure for invoking the clause, clarifying that the provision apples only to investors and investments owned or controlled by persons of the host State, and extending the provision to include instances where respondent States have adopted international sanctions regarding security and human rights.

Frivolous Claims and Security of Costs: Most Member States favoured introducing a provision and procedure for the early dismissal of frivolous and unmeritorious claims.

Transparency: All Member States proposed introducing an article on transparency in investor-State arbitration; some recommended applying the 2014 UNCITRAL Rules on Transparency.

Third Party Funding: Most Member States favoured having a declaration on third party funding, to align with current reform initiatives for ICSID and UNCITRAL Rules.

Finally, the EU emphasised its preference for creating a multilateral investment court that would also apply to ECT disputes.

The Sub-Group on Modernisation of the ECT will continue to identify potential policy options for the above topics.

ECT Member State proposals can be accessed here.