Report on Compatibility of Chinese Laws and Regulations with the Provisions of the Energy Charter Treaty

Abstract

The origins of the Energy Charter go back to the early 1990s, to the fall of the Berlin Wall and the subsequent dissolution of the Soviet Union which brought fundamental change in European and world politics. As a reaction to such events, the European Energy Charter of 1991 represents a political commitment to cooperation in the energy sector between the then OECD countries (including USA, Australia, the European Communities and Japan) and those of the former Soviet Union. The Charter envisaged joint activities such as coordination of energy policies, facilitation of exchange of technology information, energy efficiency and environmental protection, as well as development of renewable energy sources. The Charter of 1991 also emphasised the need for the establishment of an appropriate international legal framework for energy cooperation between the participants. The Energy Charter Treaty was thus signed in 1994. The Treaty, which established the Energy Charter Conference, is a legally binding agreement on energy trade, transit and investment.

China was granted Observer Status to the Energy Charter Conference in 2001. Since then, co-operation between the Energy Charter and China has steadily developed and been mutually beneficial. The Secretariat has benefited greatly from the secondment of more than six experts from China. The programme has also allowed Chinese officials to learn about the Energy Charter. All of this resulted in the formal signature of the International Energy Charter by Mr. Nuer Baikeli (Vice Chairman of the National Development and Reform Commission and Administrator of the National Energy Administration) on behalf of China in May 2015 in The Hague. On that occasion Mr. Baikeli stated, ‘China will further develop energy communication and deepen the cooperation with member countries, observing countries and international organizations with the aid of Energy Charter.’

The need for China to look beyond its borders for energy supplies in order to reduce its reliance on coal makes it all the more necessary for China to cooperate with the rest of the world. Moreover, China’s sheer economic weight and its potential impact on global energy governance issue means that cooperation with China is considered as a priority for many states. Modern geo-political complexities require that all states look to the potential benefits of participating in multi-lateral organisations and forums. The Energy Charter is such a forum, and the adoption of the new International Energy Charter in 2015 was an important step for China on that path. Shortly after his inauguration as the leader of the People’s Republic of China, Chairman Xi Jinping paid his first formal visit to four Central Asian countries who are all members of the ECT (Kazakhstan, Kyrgyzstan, Turkmenistan, and Uzbekistan). That visit, gave further impetus to long-term multilateral cooperation in the fields of transportation, energy, communication and agriculture. Chairman Xi outlined his vision of the ‘New Silk Road Economic Belt’, which extends from China’s north-west to the seaboard of the Mediterranean. One essential element of such multilateral cooperation is the area of energy, where the Energy Charter is an important global player. In fact, in May 2015, Mr. Baikeli invited the Energy Charter to participate the ‘One Belt One Road’ process together with China and relevant countries.

China increasingly secures its energy needs by pipeline and through other infrastructure projects. But there are potential risks. The legal protections stipulated in existing Chinese bilateral intergovernmental agreements or multilateral cooperative mechanisms are insufficient to ensure stable energy flows through existing and planned pipelines. Meanwhile, the ECT embraces freedom of transit and the principle of non- discrimination, which might secure uninterrupted hydrocarbon transits from Central Asia to China. The Contracting Parties under the ECT undertake not to place obstacles in the way of new capacities being established in the event that transit of ‘Energy Materials and Products’ cannot be achieved on commercial terms by means of energy transport facilities. Moreover, the ECT includes two unique and effective instruments that can be a valuable source of uniform dispute settlement for China regarding transit in Central Asia: (i) an early warning mechanism to be used with signatories of the International Energy Charter and (ii) a conciliation procedure to deal specifically with disputes over transit that may be invoked by contracting parties, which is faster and less formal than taking a dispute to arbitration.

Furthermore, many of China’s investments are protected by first-generation bilateral investment treaties, some provisions of which now seem rather conservative and less investor-oriented. A more efficient and comprehensive international legal framework, as provided by the Energy Charter Treaty, is required to ensure the security of energy flows to China. The provisions of the ECT regarding foreign investments are considered to be the cornerstone of the treaty. It is important to mention that the ECT does not demand open access to resources or require certain market structures, but, once an energy investment is made, the treaty provides a stable interface between the foreign investor and the host government.

Finally, while China (as a WTO member) has already assumed the trade obligations contained in the ECT in its relationships with many of the ECT contracting parties, China would benefit from applying a WTO regime in its energy trade relationship with non- WTO member states that are ECT members (which critically include Kazakhstan, Turkmenistan and Uzbekistan).

The Energy Charter offers a transformative way for China to fulfil its deeper involvement in global energy governance. The implementation of the ‘New Silk Road Economic Belt’ strategy launched by the leadership of China could also be a potential initiative of high interest to the Energy Charter, since most of the countries in that economic belt are member states of the Charter.

It is therefore my great pleasure to present to you this useful report. I am confident that it will contribute to deeper involvement by China within the Energy Charter Process.