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Costantino Grasso

As has been recently demonstrated by the ‘Panama Papers’ and ‘Bahamas Leaks’ scandals, corruption is rife in our societies. Quoting Kofi Annan’s opening statement to the United Nations Convention against Corruption of 2004: ‘It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life and allows organized crime, terrorism and other threats to human security to flourish’. The origins of this social plague may be traced back to the outset of human civilization. However, it appears that this kind of unethical behavior is particularly rampant in the energy sector. This chapter will introduce the topic of corruption and analyze the reasons behind the fact that, almost unexpectedly, over the course of the last two decades corruption has gradually moved from the margins to the center of the international political stage. Then, the chapter will try to explain why, in the energy sector, such a criminal phenomenon has traditionally been wildly rampant, with extremely dramatic effects. Finally, the chapter will offer a vivid depiction of a recent tale of dishonesty, which is emblematic of the way in which corrupt practices are commonly perpetrated within the energy industry.

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Costantino Grasso

This chapter offers a commentary to Article 23 of the Energy Charter Treaty, which establishes a criterion of attribution of liability in relation to the commercial operations carried out by regional or sub-regional authorities. Especially, it explains that the Member States have to ensure that all their sub-national authorities act in accordance with the treaty and how such a duty implies that, where a regional or local authority violates the rules set out by the treaty, the Member State that exerts control over it shall be deemed responsible for those activities. The chapter then illustrates the difficulties faced by the Contracting Parties in regulating this matter due to the impossibility of relying on the various domestic constitutional and administrative sources of law. The author also highlights the complexity concerning the establishment of a conventional definition of terms like ‘region’ and ‘territory,’ which bear a variety of meanings in the different historical traditions of the Member States. In that regard, the chapter illustrates the Nomenclature of Territorial Units for Statistics (NUTS) system used by the European Commission, which represents a heterogeneous aggregation of national administrative units.

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Costantino Grasso and Tina Hunter

This chapter offers a commentary to Article 22 of the Energy Charter Treaty, which addresses the vexed question of the presence of state-owned and privileged enterprises in commercial operations. The chapter begins with a historical background of the dominant role played by state-owned and privileged enterprises in the energy sector. It also identifies the emerging geopolitical pattern related to the use of such type of corporations. The author deals with the theoretical and practical difficulties experienced at the international level due to the absence of a universally accepted definition of state-owned enterprises, analysing the most relevant case law such as the landmark decisions Emilio Agust'n Maffezini v. The Kingdom of Spain and Salini v. Morocco. Finally, the chapter analyses the relevant International and European legal framework in the light of the provision of Article 22, which aims at preventing a state from invoking domestic law as a defense against the violation of an international obligation in relation to contracts or other acts undertaken by state entities.

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Costantino Grasso and Gloria Alvarez

This chapter illustrates a series of exceptions provided by Article 24 of the Energy Charter Treaty, which have been inspired by the exceptions from trade rules that are contained in the General Agreement on Tariffs and Trade framework (GATT) of 1994. Such exceptions give the Contracting Parties the possibility of derogating from treaty rules for various reasons. The chapter offers a critical analysis of such exceptions focusing on issues like the acquisition or distribution of energy materials and products in conditions of short supply arising from exceptional causes; the possibility of establishing privileges for investors who are aboriginal people or socially or economically disadvantaged individuals; the possibility of establishing or joining free-trade areas or customs unions, the protection of essential security interests; the implementation of national policies related to the non-proliferation of nuclear weapons; and the maintenance of domestic law and order.

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Costantino Grasso and Gloria Alvarez

This chapter offers a commentary to Article 25 of the Energy Charter Treaty, which sets out rules to be applied where a Contracting Party is also party to an Economic Integration Agreement (EIA). The chapter deals with the difficulties of defining and regulating this kind of international legal instruments, whose scope may vary significantly and that may be established at the multilateral, regional, interregional, plurilateral or bilateral level. It then explains how Article 25 provides a general exception establishing that the provisions of the treaty cannot be interpreted in a way to oblige a Contracting Party, which is also party to an EIA, to extend, by means of most-favoured-nation treatment, to another Contracting Party which is not a party to that EIA, any preferential treatment applicable between the parties to that agreement.

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Energy Security, Trade and the EU

Regional and International Perspectives

Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Energy security is a burning issue in a world where 1.4 billion people still have no access to electricity. This book is about finding solutions for energy security through the international trading system. Focusing mainly on the European Union as a case study, this holistic and comprehensive analysis of the existing legal and geopolitical instruments strives to identify the shortcomings of the international and EU energy trade governance systems, concluding with the notion of a European Energy Union and what the EU is politically prepared to accept as part of its unified energy security.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Energy security, or access to energy at an affordable price, is one of the main problems that humanity faces today and the European Union (EU) has to rely on energy-rich countries for its energy needs. Chapter 1 offers four ways in which the EU may enhance its energy security through the international trading system. First, since the regulation of energy in international law is fragmented and largely incoherent, it is essential to understand the overall trade in energy system and determine its net effect in terms of EU energy security. Second, all forms of energy should be subject to the same rules. Energy may become part of the World Trade Organization (WTO) agenda in the near future. Given that current WTO rules are far from addressing all the needs of energy trade today, is it necessary to have a WTO agreement on trade in energy? If so, can and should the Energy Charter Treaty be used as a model? Moreover, now that Russia has joined the WTO and that energy is one of its greatest assets in economic terms, would this be the right time to include energy trade as part of the WTO agreements? Those energy-rich Middle Eastern countries that are not yet WTO members but wish to become WTO members will most likely follow Russia. These Middle Eastern countries should prioritize the conclusion of negotiations to enter the WTO in order to integrate fully into the global trading system and protect their growing interests on world markets. WTO membership will certainly help eliminate any discrimination against them in their trade. Third, since the EU is energy dependent, it is necessary to propose models for enhanced governance of energy trade to promote energy security. The aim is to find ways in which this can be encouraged normatively. The expansion of the Energy Charter’s membership to countries in the Middle East and North Africa and to the Economic Community of West African States may be an avenue to enhance EU energy security through the creation of an infrastructure that will enhance international, long-distance trade in energy. Fourth, the aim of the international community is to decarbonize the economy. With renewables, international trade in energy is likely to increase. In turn, the trading system can be a major vehicle towards moving away from fossil fuels to renewable energy. To this end, it can provide fair competition, economies of scale and knowledge transfer. Very little research has been conducted on the impact of preferential trade agreements (PTAs) in addressing climate change mitigation and energy security. It is thus worth exploring the potential of incorporating chapters addressing climate change mitigation and promoting renewable energy within PTAs, for which the EU could make use of its vast network of PTAs. There could well be tangible ways in which the EU can, through its network of PTAs, move towards greater energy independence as renewable energy becomes increasingly economically viable.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

The current international energy trade governance system is fragmented and multilayered. Streamlining it for greater legal cohesiveness and international political and economic cooperation would promote global energy security. Chapter 2 explores three levels of energy trade governance: multilateral, regional and bilateral. Most energy-rich countries are part of the multilateral trading system, which is institutionalized by the World Trade Organization (WTO). The chapter analyses the multilateral energy trade governance system by focusing on the WTO and energy transportation issues. Regionally, the chapter focuses on five major regional agreements and their energy-related aspects and examines the various causes of the proliferation of regional trade agreements and their compatibility with WTO law, and then provides several examples of regional energy trade governance throughout the world. When it comes to bilateral energy trade governance, this chapter only addresses the European Union’s (EU) bilateral energy trade relations. The chapter explores ways in which gaps could be filled and overlaps eliminated while remaining true to the high-level normative framework, concentrating on those measures that would enhance EU energy security.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Chapter 3 provides an analysis of relevant Intergovernmental and Host Government Agreements on oil and gas transit pipelines in several parts of the world. The following questions serve as the basis for the analysis: 1. To what extent can common principles and regional specificities be derived from the agreements in question? 2. How does the content of the agreements relate to the Energy Charter Model Agreements on Cross-border Pipelines and the provisions of the draft Transit Protocol (text as of January 2010)? 3. What recommendations can be made in view of the possible agreement on common principles or rules on Transit and Cross-border energy flows in the Energy Charter context? The Energy Charter provides principles for cross-border cooperation in the energy industry among the states of Eurasia. The Energy Charter Secretariat produced a second edition of the Model Intergovernmental Agreement (Model IGA) and Host Government Agreement (Model HGA) for cross-border pipelines (together defined as the Model Agreements), designed to provide ‘a template of prescriptive clauses that are designed to reflect generally accepted practices within a given field’. The Model Agreements aim to assist state–state and investor–state in cross-border oil and gas pipeline matters. The agreements seek to balance all participants’ interests in cross-border pipeline projects and provide a starting point for negotiations between potential partners. These Model Agreements are also available to non-parties to the Energy Charter Treaty (ECT) to use or adopt. The structure of the chapter is as follows: after a brief introduction, Section II deals with the fundamentals of energy transit; Section III provides an analysis of several Intergovernmental Agreements and Host Government Agreements on oil and gas transit pipelines in several parts of the world; and Section IV provides a brief conclusion. The chapter concludes that the Model Agreements, along with the ECT and the Protocol, form a regulatory umbrella in relation to transit issues at the multilateral level. At present, there are 54 members of the Energy Charter, all except five of which have ratified the ECT. There seems to be significant interest of some countries (namely India, Indonesia, Pakistan) in joining the Energy Charter. In this scenario, the regulation of transit issues based on the Energy Charter’s instruments will provide the scope for creating globally accepted and uniform standards on transit issues. The above agreements show that a number of the standards relating to transit issues are found in many international agreements. However, there is no homogeneity regarding a number of issues.
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Rafael Leal-Arcas, Costantino Grasso and Juan Alemany Ríos

Chapter 4 examines the system of law and governance of international trade in unconventional energy sources. Currently, there is no cohesive governance for global energy trade. On the contrary, governance of energy trade mainly arises by default, rather than design, through the ad hoc interplay of different aspects of the international economic and political system. This has implications for the European Union (EU), which relies heavily on the rest of the world for its energy supply, and consequently its energy security. The chapter provides some background to EU energy policy; it then explains the current revolution in unconventional sources of fossil fuel and how it may geopolitically impact the EU. The last section concludes the chapter and provides some policy recommendations.