WORLD TRADE  
ORGANIZATION   
TN/TF/W/179 
4 June 2012 
 (12-2921) 
Negotiating Group on Trade Facilitation Original:   English 
  
 
DISCUSSION PAPER ON THE INCLUS ION OF THE GOODS MOVED VIA FIXED 
INFRASTRUCTURE INTO THE DEFINITION OF TRAFFIC IN TRANSIT 
 
 
Communication from Egypt and Turkey 
 
 
The following communication, dated 1 June 2012, is  being circulated at the request of the 
delegations of Egypt and Turkey for considera tion by the Negotiating Group on Trade Facilitation. 
 
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I. INTRODUCTION 
This communication has been presented in or der to better explain the concerns of the 
proponents regarding Paragraph 1 of the Article 11 of the Draft Consolidated Negotiating Text 
(TN/TF/W/165/Rev.11) on Freedom of Transit. 
 
II. BACKGROUND 
The concept of "goods moved via fixed infrastru cture" first appeared in the Trade Facilitation 
Agenda in Communication G/C/W/422 dated 30 Sept ember 2002 by the European Union even before 
the start of negotiations.  In that document, th e proponent of the document submitted that "carriage 
e.g. of oil and gas and other products via pipelines or other means may also fall within the scope of 
transit".  
The concept first took place in the agenda of the negotiations through the Communication 
TN/TF/W/79 dated 15 February 2006 by Armenia, Canada, the European Union, the Kyrgyz 
Republic, Mongolia, New Zealand, Paraguay and Repub lic of Moldova.  In that document, under the 
title "Operationalization and clarification of terms", th e definition of traffic in transit in GATT Article 
V:1 was reviewed and the following expression was in serted into the definition: "Goods (including 
those moved via fixed infrastructure, inter alia pi pelines, baggage and the pe rsonal belongings of the 
person operating the means of transport)". The sa me expression existed in the proposal TN/TF/W/113 
dated 6 June 2006 by Armenia, the European Uni on, the Kyrgyz Republic, Macedonia, Mongolia and 
Republic of Moldova.  
The expression has been preserved in the joint proposal TN/TF/W/133 dated 10 July 2006 by 
Armenia, the European Union, Macedonia, Kyrgyz  Republic, Mongolia, Paraguay, Moldova, Rwanda 
and Switzerland, however the initial proponent of th e expression has not been a sponsor to its three 
revisions.  The proposal took its current shape as it appears in Paragraph 1 of the Article 11 of the 
Draft Consolidated Text during the facilitator le d process by Switzerland, Turkey and Rwanda and 
later on by Mexico.  
During the negotiations up to date, the propone nt of the provision regarding the fixed 
infrastructure submitted that the explicit inclusion of  the goods moved via fixed infrastructure into the TN/TF/W/179 
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  definition of traffic in transit was a mere clarification of the scope of GATT Article V which already 
covers energy products including those moved via fi xed infrastructure.  On the other hand, a number 
of delegations expressed their concerns on the app licability of the text on freedom of transit to the 
energy sector and the potential inconsistencies if su ch an application would occur.  One delegation 
submitted a counterproposal to clarify some of the points that may be relevant for the energy sector. 
The proponent also argued that fixed infrastructur e such as pipelines were represented a mode of 
transportation like other modes.  Some delegati ons questioned the assumption that energy products, 
particularly those moved via fixed infrastructure are actually covered by GATT.  Those delegations 
submitted that the concept repeated throughout the Ar ticle V was "traffic in transit" and this concept 
inherently leaves out transportation via fixed infrastru cture.  In this sense, those delegations argued, 
inclusion of goods moved via fixed infrastructure w ould mean a change in the scope of original 
GATT Article V.  
III. THE ISSUE 
1. Are Energy Products subject to GATT? 
The proponents of the present communication do not question the applicability of GATT 
provisions to energy products. No products are ex ante  excluded from the scope of GATT disciplines. 
As there is no provision explicitly leaving the energy  products out of the scope of GATT, in principle, 
the trade of energy products such as petroleum and natural gas
1 between WTO Members is subject to 
GATT provisions.  In fact this has been confirme d by a number of Panel and Appellate Body rulings 
both during the GATT and WTO times.2  
 However, the problem does not lie with the fact  that energy products are subject to GATT. 
Rather, the problem is related to the fact that GATT provisions were not designed to deal with the 
energy sector, particularly with the transit via pipelines.  
 
2. Why Energy Sector is Different than Other Sectors? 
Trade in energy products, like some other natura l resources, has a totally different nature than 
the trade in conventional products.  This is due to the fact energy products are scarce in nature and 
face a highly inelastic demand. Hence, while in c onventional products, the trade distorting measures 
concentrate on the importation side (tariffs, non-tariff measures, discriminatory practices etc.), in 
energy trade, such measures concentrate on the ex portation side.  The exporting side has an incentive 
to restrict the supply and exports of the product wh ile the importing side has an incentive to lower the 
barriers at the importation side and to ensure the security of supply.  
GATT rules and disciplines are not drafted to deal with the specific cases arising from the 
above mentioned market structure. Instead, the text  of GATT 1947 has been drafted mostly to address 
the potential cases of protectionism at the importation side.  The fact that there are no disciplines in 
GATT regarding the most commonly faced restrictiv e practices in the energy trade such as dual 
pricing or export taxes or restrictions is a proof  of that situation. 
                                                      
1 While petroleum or natural gas are products within the scope of GATT, it is questionable whether 
electricity is a good which is subject to GATT. Unlike oil and gas it is not a physical substance that can be stored easily. Electricity is a physical process (a flow of electrons) which takes place throughout the cables that 
carry it and it has to be generated more or less at the same time as it is being used.  The fact that there is an HS 
Code for electricity –namely 27.16.00- , taking into account the decision making process in the WCO does not ensure that electricity has been unambiguousl y accepted as a good within the WTO context. 
2 GATT Panel on United States – Taxes on Petroleum and Certain Imported Substances, Report of the 
Panel adopted on 17 June 1987 (L /6175-34S/136), more recently th e Appellate Body Report on United States – 
Standards for Reformulated and Conventional Gasoline  adopted on 19 April 1996, WT/DS2/AB/R  TN/TF/W/179 
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  3. The Negotiating History of GATT proves that  G A T T  i s  n o t  d e s i g n e d  t o  d e a l  w i t h  
Energy Matters 
A closer look at the negotiating history of GATT would clearly reveal that it has not been 
drafted having the energy trade in the mind of  the negotiators. Apparently, pre-dominantly for 
political reasons, energy-related issues have not b een included in the GATT negotiations.  A closer 
examination of the negotiation history of both GA TT in general and GATT Article V in particular 
reveals that energy trade and in particular trad e via pipelines has not been  an issue discussed during 
the preparatory committee works. 
 
For the case of pipelines, the term used throu ghout GATT Article V, -traffic in transit- is 
another indication that the drafters did not have transit through fixed infrastructure in their mind as 
this term would normally be used for moving vehicles.3 
 This was, however, not because energy relate d issues –even the case of pipelines- were 
uncommon or unknown in international community. The origins of the use of pipelines as a 
transportation method for oil and gas goes back even to 19
th century and in 1930s, there was already a 
network of existing and planned projects of border crossing pipelines in the Middle East region. 
Indeed, there were international conventions specifica lly dealing with the issue of energy transit via 
pipelines4 or energy grids5 concluded before the starting of negotiations on GATT. 
 
As a necessity of a common binding regulation on energy related issues, the Energy Charter 
Treaty has entered into force in April 1998 and to da te, the Treaty has been signed or acceded to by 53 
states or entities .  The trade related provisions of the Ener gy Charter Treaty, that many of the 
members are also members of WTO, are based on the WTO rules. 
 
4. The Peculiarities of the Transit via Fixed Infrastructure 
Having established that GATT Article V disciplines are not designed to govern the transit of 
energy products via fixed infrastructure, it is warrant ed to show that transit via fixed infrastructure has 
peculiar characteristics which do not exist in the conventional modes of transportation.  
 
At the essence of these characteristics lie the ec onomic properties of fixed infrastructure used 
for transit.  Fixed infrastructure such as petroleu m or natural gas pipelines, especially border crossing 
pipelines, require massive investment before its ope ration. Thus, the fixed costs of the operation are 
very high whereas the variable costs constitute  only a smaller portion of the total costs.  
 
Consequently, pipelines, especially border cr ossing pipelines are, for most cases, project 
specifically built. They are not built, like roads to op en to international transit, for general purposes of 
transportation. Such pipelines are built, however, to  transport a certain type and quality of petroleum 
or natural gas from one specific destination to anot her one.   As the pipeline projects mostly require 
high levels of investment, a project would not be  carried out without guaranteeing the amount of gas 
or petroleum to be transported by it. 
                                                      
3 See for instance The Concise Oxford  Dictionary of Current English. 
4 "The Convention on Pipeline Construction" (Convenio sobre Construccion de Oleoductos) signed at 
Regional Conference of the River Plate Countries on 6 February 1941.  This Convention is indeed a treaty 
having highly advanced provi sions on the construction and operation of pipelines through each other’s territory 
which includes transit. The Contracting Parties also undertake national treatment regarding the operation of 
those pipelines. 
5 "Convention Relating to the Transmission in Transit of Electric Power" signed under the auspices of 
League of Nations on 9 December 1923.  Although this convention was signed at a quite early date, it has detailed provisions on the transmission in transit of the electric power through power grids.  TN/TF/W/179 
Page 4 
 
 
  Energy trade via pipelines is a chain consis ting of the producer, the transporter and the 
consumer as the actors of the business. Energy trade should not be confined to one single actor. Hence, the investments in production and transportati on sides are strictly bound to the consumer side. 
Since the investment in production is much higher than  the investment in the other sides, without the 
purchase commitment of the consumer, there will be no investment in the upstream, midstream and 
downstream. This principal is core to the materialization
 of the energy trade via pipelines. 
 As a result, it is unusual for pipelines to opera te with a considerable spare capacity which 
would indicate an economic inefficiency. Given the lack of such spare capacity and given that 
nowhere in GATT Article V Members are obliged to expand their transit capacity or to allow the 
construction of new transit infrastructure, it is pr actically impossible to fulfil the requirement in 
Article V:2 –to provide freedom of transit via the most convenient route- which would mean access 
by third parties to the operating pipeline.  
 
One particular consequence of the "investment -dependence" of pipelines is that provisions 
regulating the trade via pipelines should be paired w ith the provisions regulating the investment for 
such infrastructure as this is case in bilateral or multilateral agreemen ts regulating trade via pipelines. 
Unless such provisions exist, it is likely that signi ficant incompatibilities aris e between the rights and 
obligations of the investors and the traders. Since WTO is not a platform to deal with investment 
issues, bringing up these matters in Trade Facilitation Negotiations does not seem feasible. 
 Another practical issue regarding fixed infrastru cture is that projects to build and operate 
pipelines often involve private sector partnership. In some cases, a private sector dominated consortium established under privat e law owns the pipeline and is responsible for its operation.   
Naturally, WTO Agreements create obligations for Members but not for private entities. While there 
can be extreme cases where Members are obliged to take necessary measures vis-à-vis the private 
entities to ensure freedom of transit through its territory
6, obviously, a privately owned border 
crossing pipeline through the territory of a Member would not fall under this category.  Taking into account that such a pipeline would be built to trans port a certain type of natural resource from one 
point to another for commercial reasons, this s ituation resembles more to a case where a private 
company builds a private railway line to transport coal  from the mining site to a port.  In such a case, 
a third party aspiring to transport coal on the sa me route would either have to build its own 
infrastructure or seek for access to the exis ting infrastructure on commercial terms.  
 One more important question regarding fixe d infrastructure is on whether the fixed 
infrastructure should be regarded as "a means of transport" or not. Previously, some delegations 
submitted that fixed infrastructure is a type of tr ansportation infrastructure just the like highways in 
the road transportation case and thus should be regarded as out of the scope of "traffic in transit" mentioned in GATT Article V.  In this case, a natural resource flowing through the pipeline would 
resemble the goods moving on a road. While this ar gument has some merit and pipelines exhibit some 
properties of a transportation infrastructure, it also tr ue that pipelines exhibit the properties of a means 
                                                      
6 One such extreme case would be where all highway s available for international transit through the 
territory of a Member are privately owned. In that case, that Member would be under an obligation to take 
necessary measures to provide transit passage for other Members since any other action would mean a total 
denial of the right to transit by other Members.  One should, however, be very cautious when comparing this case and the case of privately owned pipelines. When there is, for instance, a road that is open to public use and 
which is privately owned or operated, there is a concession agreement between  the state and the operator so that 
the state transfers its public service duty to a private entity while the ultimate responsibility to carry out the public service lies with the state. In exchange, the private entity undert akes to carry out the service in 
accordance with principles a ccording to which the public services s hould be conducted such as impartiality, 
non-discrimination and transparency. As one can easily j udge, this case is not co mparable to the case of 
privately owned pipelines, since the tranfer of oil and gas through pipelines has no public service aspect.    TN/TF/W/179 
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  of transport.  As a result, a pipeline is built exclus ively to transport a certain type of natural resource 
and the physical characteristics of the pipeline highly depend on the physical characteristics of the 
natural resource to be transported. For example, th e ratio of sulphur content, viscosity, etc… of the 
product simply affect the selection of the type of  the steel and pumps and many other technical 
parameters of the pipeline design. That is to say, a product incompatible with the technical 
specifications of the pipeline cannot be transported as this would result in irrevocable damages to the 
whole system.  In this sense, the difference between  the transportation infrastructure and the means of 
transport blurs and a pipeline can easily be regard ed as a special means of transport built to carry a 
specific good from definite destination to another. 
 
The consequences of this duality are significant.   If pipelines are regarded as transportation 
infrastructure, the above-mentioned concerns will con tinue to exist.  On the other hand, if pipelines 
are regarded as a means of transport, then furthe r complexities will arise.  In that case, fixed 
infrastructure itself will become a part of the traffi c in transit and as there is freedom of transit for 
traffic in transit, the question on the construction of new pipelines through the territory of a Member 
will arise as an important issue. If pipelines are a mean s of transport and they are privately owned, the 
above argument on the third party access to the priv ately owned pipelines would find an even stronger 
application. There is even less doubt that WTO provisions would not apply to the operation of a 
privately owned means of transport. 
 
Another example of disharmony is related to th e lack of a basic principle concerning transit 
via pipelines in GATT Article V or the draft text on freedom of transit.  "Non-interruption in the case 
of a dispute" is an essential principle existing in most legal texts regulating the transit via pipelines 
including the Article 7 of the Energy Charter Treaty.  Without this principle, which does not appear in 
GATT Article V, invoking the dispute settlement  mechanism of the WTO regarding a dispute 
regarding the transit via fixed infrastructure would almost become meaningless. 
 
These issues, among others, are examples of th e significant incompatibilities and uncertainties 
between the current Article V and Article 11 of the dr aft text with the pipeline based energy sector. It 
is only normal that such incompatibilities or uncerta inties exist since, as we have mentioned, these 
texts were not drafted taking into account the aspects related with pipelines.  In fact, one can confirm 
this position by comparing the text of GATT Article V and a legal text which was specifically drafted 
to handle energy transit via fixed infrastructure and which was drafted based on GATT Article V such 
as the transit article of the Energy Charter Treaty (ECT).  
 
Some commentators argued that such incomp atibilities or uncertainties can be resolved 
through interpretation of the current texts and ther e were attempts in that direction. However, 
considering energy is a strategic and vital one fo r many of the Members, the proponents are of the 
view that such cases cannot resolved through mere interpretation.  
IV. THE WAY FORWARD 
In this context, the proponents of the current communication are of the view that the explicit 
inclusion of the element of fixed infrastructure in th e definition of traffic in transit in Paragraph 1 of 
the Article 11 cannot be perceived as a "simple clar ification" as this action would have much more 
significant consequences than a simple clarification. As we have emphasized, the concerns do not stem from the applicability of GATT to energy products or from a motivation to open up a discussion 
on this applicability.  Rather, these legitimate concer ns are related to the potential inconsistencies with 
the current texts which are not designed for transit of energy products via fixed infrastructure.  
 Under these circumstances, the proponents belie ve that the current formulation on fixed 
infrastructure does not serve even the purpose of th e advocating Member itself.  Hence, regarding the 
way forward on this issue we need to consider different options. TN/TF/W/179 
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  One option may be leaving aside the issue of fi xed infrastructure for the current negotiations 
by dropping the Paragraph 1 from the text.  This would indicate that  Members recognize that current GATT Article V is not a fully adequate means deal  with specific energy cases while not opening up a 
discussion whether energy products are subject to GATT or not. This would also indicate the 
willingness of Members to continue to deal with energy specific issues on energy specific platforms 
such as the ECT while not closing the door for pros pective negotiations on energy related provisions. 
 Another option might be to address each a nd every potential issue related to fixed 
infrastructure by making additions or amendments to the current text on freedom of transit.   
However, trying to deal with both conventional means of transit and transit via fixed infrastructure in 
the same text would either necessitate an aggreg ation of the provisions or creating exceptions for 
fixed infrastructure. In both cases, the current te xt which was mainly drafted having conventional 
means of transportation in mind would be distorted.  Moreover, the negotiations on freedom of transit 
would be much more complicated as different in terests would have entered into the picture. 
 
Finally, a third option may be to deal with the transit via fixed infrastructure with a separate 
provision. Taking into account the peculiarities ment ioned above, this provision may tailor the basic 
principles existing in GATT Article V and in the current draft text to the transit via fixed infrastructure. In doing this, Members may benefit from the already existing texts to specifically 
handle the questions regarding transit via pipelines su ch the Article 7 of the ECT or the draft Transit 
Protocol of the ECT.  Nevertheless, this option may also create difficulties as not all Members are parties to the ECT and lack of any guidance on this  separate provision may lead to similar type of 
difficulties existing in option 2.    
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