COMMISSION OF THE EUROPEAN COMMUNITIES 
C0M(93)542 final 
Brussels, 4 November 1993 
COMMUNICATION FRQM THE COMMISSION 
THE EUROPEAN ENERGY CHARTER: 
FRESH IMPETUS FROM THE EUROPEAN COMMUNITY 
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introduction 
1. The aucceesful exploitât Ion of the energy resources of the Hepublles 
of the former Soviet Union and the Central and Eastern European 
countries Is vitally Important to their ongoing efforts to rebuild 
their economies and would also contribute to a more stable political 
environment. Production and/or consumption of oil and gas In these 
countries has fallen dramatically. They have been engaged In 
difficult discussions about pricing and transit arrangements. Some 
of these countries are also discussing how much access foreign 
Investors should be allowed to their raw materials, and the outcome 
of that debate Is difficult to predict. Internationally guaranteed 
rules would therefore be a way of convincing economic operators in 
the OECD countries of the need to help In renewing and developing 
Infrastructures for the whole energy cycle. Clear standards of 
conduct should also help to limit potential conflict and Improve the 
security of energy supply to the Community. 
It should be underlined that from a political point of view the 
successful conclusion of the Basic Agreement and subsequently of an 
agreement on the national treatment In the pre-Invest ment phase, 
would play a major role In the relations between the Community and 
the CIS. 
At the same time such a development would favourably Influence the 
political relations between the CIS republics themselves and with 
the PECO's. The latter are, at present, Importing nearly the 
totality of their energy supplies from some of the CIS republics and 
notably Russia. 
2. In the light of these considerations and at the prompting of the 
European Community, the European Energy Charter was adopted on 
17 December 1991. It now has 50 signatories, Including the European 
Community, all the other OECD countries (except New Zealand), the 
countries of Central and Eastern Europe and the Republics of the 
former USSR (except Turkmenistan). 
The signatories have begun to negotiate an Internatlonal convention, 
known as the Basic Agreement, designed to ensure the mandatory 
Implementation of the political principles set out In the Charter. 
Progress of the Basic Agreement negotiations 
3. Negotiations on the Basic Agreement have been going on for two years 
and are now entering the final stage. 
Negotiation takes place during the plenary sessions of the 
Conference, which are held at regular Intervals (roughly every six 
weeks) and are hosted and funded by the Commission. The last 
meeting was held from 6 to 8 October 1993 and the next Is scheduled 
for 14 to 18 December. The technical aspects of the Basic Agreement 
are discussed at expert level In working parties meeting In parallel 
with the Conference. The Community's position Is prepared In an ad 
hoc working party set up by the Committee of Permanent 
Représentât Ives and In on-the-spot coordination sessions. 
The Community's alms In the negotiations. 
4. Since the beginning of the negotiations the Community has pursued 
the following objectives: 
- to set the highest possible levels of protect Ion for Investors; 
- to maximise access to Investments; 
- to lay down strict provisions governing freedom of transit; 
- to reaffirm the traditional position of the Community In favour of 
opening up access to trade In energy materials and products as set 
out In the existing trade and cooperation agreements and In line 
with the partnership and cooperation agreements currently being 
negotlated; 
- to ensure that the other parties to the negotiations demonstrate 
the same openness In respect of trade and Investment. 
Specific Issues related to the situation In Russia 
5. At the negotiating session of 6 to 8 October 1993 In Brussels the 
Russian delegation reaffirmed Its attachment to the principle of 
national treatment for Investments, but requested a three-year 
period of adjustment after the signature of the Basic Agreement In 
order to frame the legislation needed for the orderly Implementation 
of the market economy system and, where necessary, to prepare a list 
of exceptions to that principle In the light of the legislation 
adopted. 
Outline of a Community response to the difficulties mentioned by Russia 
6. The conclusion reached In discussions at Community expert level was 
that a two-stage approach enshrined In the treaty to be concluded 
might overcome the problems encountered by Russia, while protecting 
the legitimate Interests of Community Industry and Investors. 
The first stage would entail the conclusion of a Basic Agreement 
containing all the elements agreed as at the date of signature, 
Including principles on trade, transit, access to International 
arbitration and national treatment for Investments. The aim of the 
negotiations would be to conclude a final agreement on a 11 
outstanding Issues, except for the detailed procedures for 
Implement Ing national treatment during the pre-Invest ment stage. On 
this particular Issue the most-favoured nation (MFN) principle would 
apply for a period not exceeding three years. 
The second stage of negotiations, to be carried out during that 
three-year period, would be aimed at full Implementation of national 
treatment to the pre-Invest ment stage. A suitable procedure for 
negotiating the content of clauses setting out exceptions to that 
principle and deciding on the full Implementation of the Basic 
Agreement would have to be agreed. 
-L 
The Russian delegation welcomed this Idea. It undertook to study 
the ImplI cat Ions and give Its opinion at the next meeting. This 
solution also found favour with the other countries of Eastern 
Europe and most of the Western countries. Only the United States 
and Japan have reserved their position at this Juncture. 
The approach suggested by the Community assumes that an acceptable 
balance between rights and obiIgatIons can be achieved as early as 
the first stage, even though this would mean a less ambitious 
agreement, at least Initially. As far as the countries of the CIS 
are concerned, this approach presupposes that the main Incentive to 
Implement the principle of national treatment prior to Investment 
will be the realIzat/on by these countries that It Is In their 
Interest to do so, rather than the hypothetical threat of reprisals 
If they do not. 
The approach also takes the following points Into account: 
- The general Issue of access to natural resources Is an extremely 
sensitive one In the countries of the CIS. This Is uniIkely to 
change, whatever the economic philosophy adopted. An agreement 
which Is over-ambitlous In this area would encounter rat If I cat Ion 
problems. The West has simitar concerns; Indeed, some member 
countries of the OECD are also unwilling to grant unrestricted 
access to foreign Investors In the energy sector. 
- The undertakings written Into the draft partnership and 
cooperation agreement with Russia as It stands are that the MFN 
principle should apply, moving on to national treatment at the 
pre-Invest ment stage and MFN or national treatment, whichever Is 
the better. In the post-Investment stage. 
- Russia has requested that the provisions of GATT should be 
Incorporated In the Basic Agreement. The Community should 
therefore take steps to ensure that Its response to this request 
Is consistent with the partnership agreement with Russia, which Is 
still being negotiated, and with the position that the Community 
takes In the discussions on the possible accession of other 
countries (e.g. China) to GATT. 
- Despite years of discussions, the OECD countries have not yet 
managed to convert the national treatment Instrument Into a 
binding agreement. It would be Inadvisable to risk the success of 
the Charter negotiation process over the single Issue of access to 
Investment. 
- Provisions more favourable to Investors, which might be Included 
In bilateral treaties concluded by the Member States or the 
Community, would continue to take precedence over the provisions 
of the Basic Agreement. 
- In some Member States economic operators consider that provisions 
In the Basic Agreement to protect existing Investments are 
Intrlnstcally useful. 
i 
8. It follows that the first szage or zne basic Agreemeni must o® 
structured as follows: 
The countries of the CIS would accept: 
- a transit Zonal period of clearly defined scope and duration for 
the provisions on the protect Ion of Investments plus articles on 
expropriation, compensation, transfer of payments, subrogation, 
taxation and settlement of disputes; 
- national treatment In the post-Investment phase; 
- the EC position on coal, uranium (see point 11d) and the Community 
exception clause (known as the RE 10 clause - see point 11a). This 
last point will have to be examined with the United States and 
Japan once the final proposal on Investments has been drawn up; 
- no less than MFN treatment for Investors In the pre-Invest ment 
stage and acceptance of the principle of national treatment not 
later than three years following the signing of the Basic 
Agreement. 
In return, the CIS countries should see an Increase In Investments 
made In the energy sector by the Industries of the OECD countries. 
Where trade Is concerned, the Community should take steps to ensure 
that Its response to the Russian request for GATT treatment Is 
consistent with the position adopted during the negotiation of the 
partnership agreement and In the GATT accession negotiations. 
The Basic Agreement would be formally concluded and ratified In this 
first stage. The same procedure wl11 apply to phase 2. 
9. In view of the broadly favourable reaction to this Community 
approach, the US delegation put forward the Idea of adding a 
'positive list' which would enable any Contracting Parties who so 
wished to accept national treatment In certain specified sectors 
even before the beginning of the second stage. 
This positive list could take the form of an annex specifying the 
economic activities In the energy sector. Contracting Parties 
prepared to offer national treatment In the pre-Invest ment phase, 
for particular activities, would Inform the Secretariat. Those 
having accepted this obi Igat Ion would automat leally grant each other 
national treatment In this area. The positive list could continue 
to apply until the necessary procedures for Implementing the second 
stage had been completed. 
This Is an Interesting option which could be chosen provided that It 
does not delay the conclusion of the Basic Agreement. The list 
could, for example, be establI shed after signature of the Basic 
Agreement. 
h 
Other outstanding problems 
10. Some other difficulties were Identified In Commission staff working 
paper SEC(93) 1313 of 27 August 1993. 
They relate to the scope of the Basic Agreement (I.e. whether or not 
equipment and services are to be Included), the applIcablIIty of the 
rules of transit to the continental shelf, temporary suspension of 
access to convertible currencies and exceptions to national 
treatment for Investments. 
Suggestions to resolve these difficulties are put forward In 
points 11 and 12 below. 
Problems concerning Commmunlty Integration 
11. As far as the Community, In particular, Is concerned, the observance 
of certain key principles still has to be establI shed. The main 
ones are non-extension of Community treatment to third countries, 
the principle of disconnection, preservation of the autonomy of the 
Community's legal system and protect Ion of specific aspects arising 
from the ECSC and Euratom Treaties. 
a.The RE 10 (Regional Economic Intégrât Ion Organization) clause 
The Community has proposed that a clause protecting the acquis 
comunautalre and any developments thereof from being extended to 
the other Contracting Parties should be Inserted In the list of 
general exceptions to the rules of the Basic Agreement. 
Any extension to all the other Contracting Parties of the 
Community's own rules on freedom of establIshment and provision of 
services would be tantamount to bringing them Into the Community 
Integration process. This would be unprecedented, with the 
exception of the European Economic Area Treaty and the Europe 
Agreements with the countries of Central and Eastern Europe which 
are part of the moves towards European Integration. 
The RE 10 clause therefore also alms to cover the préfèrent I a I 
agreements concluded by the Community In these areas and, more 
especially, the EEA or Europe agreements. It may be of Interest 
to the CIS or other free trade areas yet to be establ/shed. 
The United States and Japan are resolutely opposed to the proposed 
clause, as presently worded, but they are alone In this. 
To accommodate some of their concerns about the scope of the RE 10 
clause (and presumably also about the creation of other RElOs) the 
Community could propose a clarification of the clause, explaining 
that : 
the purpose Is not to erect new barriers to trade or 
Investment ; 
ç 
and that It Is a question of protecting Community Integration 
which contributes towards the development of trade and 
Investment and, through agreements concluded by the Community 
with third countries, enables the latter to participate In a 
European integration process. 
With regard to trade, provisions on the subject a/ready exist 
within GATT and also apply to the Basic Agreement. 
b. Disconnection clause 
In order to dispel any ambiguity about the primacy of Community 
law, the Community proposed the Inclusion, among the general 
exceptions to the Agreement, of the following clause separating 
the internal functioning of the Community from Its external 
obi I gat Ions under the Basic Agreement: 
"In their mutual relations, Contracting Parties which are Members 
of the European Communities shall apply Community rules and shall 
not therefore apply the rules arising from this Agreement except 
Insofar as there Is no Community rule governing the particular 
subject concerned". 
At the moment this clause appears In a ministerial déclarât Ion. 
It ought to be Included In the actual text of the Basic Agreement. 
c. The exclusion of 'forum shopping' 
The draft Basic Agreement does not, In principle, rule out the 
possfblIIty of an Investor In dispute with a contracting party 
bringing the matter to International arbitration after having 
exhausted all possibilities of appeal before the defendant's 
national courts. 
In the case of the Community this comprehensive right runs counter 
to the guiding principles of the precedence of Community law and 
the autonomy of Its legal system, which are clearly spelled out by 
the Court In Its rulings 1/91 and 2/91. 
The Community has therefore asked to be Included among those 
Contracting Parties which do not unconditional I y accept 're­
submission' . 
This position could be substantlated as follows: 
"The Treaties establIsh/ng the European Community have created an 
autonomous legal order in which the Court of Justice exclusively 
ensures that, In the Interpretation and application of these 
Treaties, the law Is observed". 
(• 
d. Exceptions for the ECSC and Euratom 
These are Intended to cover two types of situation resulting from 
specific features of the ECSC and Euratom Treaties which are not 
contested In GATT, In order to rule out the posslblIIty of 
ContractIng Parties which are not yet members of GATT calling 
these situât Ions Into question under the terms of the Basic 
Agreement. 
In the case of the ECSC this refers to measures to enable 
Community coal to be produced and sold In accordance with 
Community rules relating to the restructuring of the coal 
Industry. 
In the case of Euratom It means leaving Intact the role of the 
Euratom Supply Agency and, In particular, Its acknowledged right 
to determine the geographical origin of materials purchased 
outside the Community. 
In both cases the Community should ensure that the conclusion of 
the Agreement does not affect the existing practices under the two 
abovementIoned Treaties. These practices could be listed In an 
appropriate annex. Other ContractIng Parties could also add their 
own traditional exceptions to that annex. 
Wider Issues 
12. The other outstanding problems In the negotiations are as follows: 
a.Definitions 
Some definitions are very comprehensive and have to be brought 
Into line with the partnership agreement being negotiated with 
Russia (on economic activity In the energy sector) or simply 
defined more clearly so as to avoid Introducing liberalization 
which may not be reciprocated. In particular the definition of 
beneficiary companies and the control thereof. 
For the Community the benefits of Community treatment ('national 
treatment') under Article 58 of the EEC Treaty apply only to 
companies or firms which are formed In accordance with the law of 
a Member State and have their registered office, central 
administration or principal place of business within the 
Community, or have an effective and continuous link with the 
economy of a Member State. 
b.Territorial scope 
The territory covered by the Basic Agreement Is the subject of 
much discussion; Norway wants the continental shelf to be 
excluded. The scope of the Agreement would be defined Instead by 
reference to the territory under the sovereignty of a Contracting 
Party and, In accordance with the law of the sea, to the sea, the 
sea-bed and the subsoil over which that Contracting Party 
exercises sovereign rights. 
1 
c.Trans 11 
The definition of transit In this article Is a source of ambiguity 
as It duplicates Article V of GATT. This definition should 
therefore be deleted. 
d.Free movement of capital 
This form of liberalization, even though It Is sectoral and relies 
on the applfeat Ion of national treatment for access to sources of 
credit and the freedom to transfer payments related to 
Investments, must leave Intact the relevant safeguard clauses 
which the Community Is allowed to apply under the Treaty on 
European Union (Articles 109h, 1091 and 73f to protect the future 
EMS). 
e.Exceptions to national treatment for Investors 
A broad definition of the coverage provided by the Basic Agreement 
and the existence of reciprocity clauses in some Community 
direct Ives (on public procurement and banking, for example) might 
necessitate the inclusion of Community exceptions to national 
treatment In the pre-establIshment phase. 
Relationship with other agreements 
13. As stated above, the horizontal nature of the provisions In the 
Basic Agreement Inevitably gives rise to overlapping with similar 
provisions In other mult I lateral or bilateral agreements being 
negotlated (e.g. Uruguay Round - GATT membership - partnership and 
cooperation agreements - Euratom nuclear cooperation). It Is 
Important to ensure, as the negotiations progress, that full 
compatibility Is maintained between the respective provisions 
covering a particular area, and that the clause which is most 
favourable to the Invest or/operator applies In every case. 
Future timetable of the negotiations 
14. The next plenary session of the Conference Is scheduled for the 14 
to 18 December 1993. This session Is likely to be decisive In terms 
of concluding the Basic Agreement, If the lines of thinking set out 
at the beginning of October can be confirmed as a basis for 
discussion which Is both acceptable to the main players In the 
negotiations and credible to Industrial Ists/Investors. 
Informal bilateral contacts between the Community, the United States 
and Russia are due to take place In November. These could 
contribute to a fruitful outcome to the Conference In December. 
By out lining a possible compromise the Community has regained the 
Initiative In these negotiations. It would be most valuable If It 
could hold on to that Initiât fve. Hence, the Community Inst/tutIons 
must make very plain their approval of and support for the 
Individual components of the proposed compromise. 
Conclusion 
15. The Commission therefore proposes that the Community should reaffirm 
Its desire to conclude the Baste Agreement as soon as possible. 
To that end the Council should formally endorse the two-stage 
approach described In points 9 to 11 of this paper and, In 
accordance with the procedures laid down In the negotiating 
directives which It adopted, should Instruct the Presidency and the 
Commission to prepare the necessary draft texts. These texts should 
be examined and approved In the ad hoc Working Party on the Charter 
set up by the Committee of Permanent Représentât Ives. 
In this way the Community could continue to negotiate the Basic 
Agreement on the basis set out at the beginning of October 1993 and 
arrive at the text of a substantial treaty which satisfies the 
following criteria: 
-It should form a balanced set of mandatory provisions on trade and 
investment ; 
-it should contain the except Ion clauses which the Community needs 
(as described In point 11); 
-ft should Include transitional measures which are of clearly 
defined duration and scope; 
-It should ensure that, at the end of the Initial three-year 
period, the principle of national treatment In the pre-Investment 
phase Is actually put Into practice; 
- It should enable that principle to be Implemented, on a voluntary 
basis, as from the signature of the Agreement. 
In order to prepare the December plenary conference, the Council 
should confirm the mandate given to the Presidency and the 
Commission to make the necessary contacts on behalf of the 
Community. 
An assessment of the outcome of the December 1993 plenary conference 
will be drawn up for the Community Institutions. They will be 
invited to express an opinion In principle on the acceptablIIty of 
the draft Basic Agreement which will be produced by that plenary 
session. 
The Commission will then put the necessary procedures In hand to 
enable the draft Treaty to be concluded by the Community. 
ISSN 0254-1475 
COM(93) 542 final 
DOCUMENTS 
EN 12 
Catalogue number : CB-CO-93-578-EN-C 
ISBN 92-77-60647-9 
Office for Official Publications of the European Communities 
L-2985 Luxembourg