Ownership Unbundling and Related Measures in the EU Energy Sector: Foundations, the Impact of WTO Law and Investment Protection (European Yearbook of International Economic Law 5)

Annotation This book provides the first comprehensive analysis of unbundling and, in particular, ownership unbundling policies from the perspective of international economic law. It does so by focusing on the prominent example of the EU's energy sector and its Third Energy Package. Unbundling has become an increasingly crucial competition instrument in network-bound industries worldwide. It is designed to ensure access to bottleneck infrastructures on fair and non-discriminatory terms and thus to suppress the anti-competitive potential deriving from vertical integration in natural monopoly situations. While promoting important public policy objectives, unbundling policies have also raised a number of legal issues. This book analyzes how international economic law limits the adoption and maintenance of unbundling and related measures and also outlines how international trade law can play a 'positive' role in this field. As a result, it provides a valuable reference for academics, practitioners and policy-makers Contents 7 List of Abbreviations 12 Chapter 1: Introduction 14 1.1 Private Restraints on Competition and Energy Transmission as a Natural Monopoly 16 1.2 Anti-competitive Practices by Vertically Integrated Energy Undertakings 17 1.3 Unbundling Measures in Context: Behavioral and Structural Regulatory Approaches 19 1.4 Unbundling as a Cross-Sectoral and Global Policy Approach 22 1.5 The Focus of Previous Research 26 1.6 The Subject and Relevance of This Book 30 1.7 The Course of This Book 32 Chapter 2: The Unbundling and Unbundling-Related Measures in the EU Energy Sector 34 2.1 The First and Second Energy Packages 34 2.2 Draft Directives Proposed by the European Commission 36 2.3 The Third Energy Package 39 2.3.1 Unbundling Requirements 39 2.3.1.1 The Three Unbundling Models 39 2.3.1.1.1 Ownership Unbundling 40 2.3.1.1.2 Independent System Operator 43 2.3.1.1.3 Independent Transmission Operator 44 2.3.1.2 Choice Between Unbundling Models 47 2.3.1.3 Unbundling Requirements for State-Owned Entities 49 2.3.1.4 Extraterritorial Application of the Ownership Unbundling Requirements 51 2.3.1.5 Third Country Companies and Ownership Unbundling Requirements 55 2.3.2 Certification 59 2.3.2.1 General Certification Procedure 59 2.3.2.2 The Certification Procedure in Relation to Third Countries 60 2.3.2.3 Certification Practice in Relation to Third Countries 63 2.3.3 Exemptions from Unbundling 67 2.3.3.1 General Exemption Procedure 67 2.3.3.2 Exemption Decisions and Third Countries 71 2.4 Ownership Unbundling and General EU Competition Law 73 Chapter 3: Ownership Unbundling and National Constitutional Law and EU Law: A Brief Summary of the Relevant Legal Issues 77 3.1 Introduction 77 3.2 National Constitutional Law 78 3.3 EU Law 81 3.4 The Essent Case 87 Chapter 4: International Economic Law as a Possible Limit to the Implementation of Unbundling and Unbundling-Related Measures:... 94 4.1 Introduction 94 4.2 Energy Services Within the Meaning of the GATS 97 4.3 Are Energy Services `Services Supplied in the Exercise of Governmental Authority ́? 102 4.4 Commitments on Energy Services Within the GATS Framework 104 4.5 Article XVI GATS (Market Access) 112 4.5.1 Quantitative Limitations 115 4.5.2 Limitations on Forms of Legal Entity 123 4.5.3 Limitations on Foreign Capital Participation 127 4.5.4 PTAs Addressing the Relationship Between Ownership Unbundling and Market Access Obligations 129 4.6 Article XVII GATS (National Treatment) 131 4.6.1 Likeness Analysis 133 4.6.1.1 Relationship Between Likeness of Services and Likeness of Service Suppliers 133 4.6.1.2 Interpretation of Likeness: GATS Jurisprudence 135 4.6.1.3 Likeness of Service Suppliers in the Context of the TEP 137 4.6.1.4 Likeness of Services in the Context of the TEP 140 4.6.2 No Less Favorable Treatment 141 4.6.2.1 Certification Procedure in Relation to Third Countries 141 4.6.2.2 Individual Ownership Unbundling Exemption Decisions 143 4.6.2.3 The Ownership Unbundling Exemption Regime 151 4.6.2.4 Special Ownership Unbundling Requirements for Public Companies 156 4.7 Article II GATS (Most-Favored-Nation Treatment) 161 4.7.1 Likeness of Services or Service Suppliers 163 4.7.2 No Less Favorable Treatment 164 4.7.2.1 Individual Ownership Unbundling Exemption Decisions 164 4.7.2.2 Variety of Unbundling Models (OU, ISO and ITO) 166 4.7.2.3 The Certification Procedure in Relation to Third Countries 169 4.8 Article VI GATS (Domestic Regulation) 174 4.8.1 Article VI:1 GATS: Reasonable, Objective and Impartial Administration 174 4.8.1.1 Exemptions from Ownership Unbundling: Interpretation of the Notion of `Interconnector ́ 177 4.8.1.2 Application of Unbundling Rules to Offshore Sections of Gas Import Pipelines 181 4.8.2 Article VI:4/5 GATS: Substantive Disciplines on Domestic Regulation 186 4.9 Article XIV (General Exceptions) 195 4.9.1 Public Interest Grounds and the Unbundling Regime Under the TEP 196 4.9.2 Unbundling and Unbundling-Related Measures and the Security of Energy Supply 198 4.10 Article XIVbis (Security Exceptions) 205 4.11 Conclusions 209 Chapter 5: International Economic Law as a Possible Limit to the Implementation of Unbundling and Unbundling-Related Measures:... 213 5.1 Introduction 213 5.2 The Framework for Investor-State Claims 217 5.3 Admission Rights 219 5.4 National Treatment Obligation 221 5.5 MFN Treatment Obligation 225 5.6 Protection from Direct or Indirect Expropriation 229 5.6.1 Introduction 229 5.6.2 Compulsory Sale of an Investment: Taking Stock 231 5.6.3 Ownership Unbundling Measures as a Compulsory Sale of Investments 239 5.6.4 Legality of Expropriations 248 5.7 The Fair and Equitable Treatment Standard 253 5.7.1 Introduction 253 5.7.2 Legitimate Expectations and the Stability of the Legal Framework 254 5.7.2.1 An Obligation Not to Modify the Regulatory Framework? 255 5.7.2.2 Possible Exceptions to the General Rule 263 5.7.3 Unreasonable and Disproportionate Changes to the Legal Framework 267 5.7.3.1 Proportionality as an Element of FET 267 5.7.3.2 Proportionality and Ownership Unbundling Measures 270 5.8 Conclusions 280 Chapter 6: International Economic Law as a Possible Vehicle for the Implementation of Unbundling Measures 283 6.1 Introduction 283 6.2 The Development of International Competition Law 287 6.3 Existing Competition Law Provisions in the WTO Agreements 291 6.3.1 Article VIII GATS 291 6.3.2 Article IX GATS 298 6.3.3 Article XVII GATT 298 6.4 A Reference Paper for Energy Services Within the WTO Framework 302 6.4.1 Experience in the Telecommunications Sector 303 6.4.1.1 The Annex on Telecommunications 303 6.4.1.2 The Reference Paper on Basic Telecommunications Services 306 6.4.2 Experience in the Tourism Sector 313 6.4.3 Experience from Bilateral and Regional Agreements with Energy-Specific Provisions 316 6.4.4 The Way Forward: Developing a Reference Paper for Energy Services 320 6.4.4.1 General Observations 320 6.4.4.2 A Reference Paper on Energy Services and Unbundling Requirements 321 6.5 Conclusions 325 Chapter 7: Final Conclusions: Unbundling as a Competition Instrument in the Light of International Trade and Investment Law 326 7.1 The First Direct Legal Challenge to Unbundling Is Based on International Economic Law 326 7.2 The EU and Its Member States Are Free to Impose OU, Subject to Conditions 327 7.3 EU Member States Cannot Be Forced to Privatize Their TSOs/Commercial Energy Companies 329 7.4 The Plurality of Unbundling Models Among EU Member States Can Be Preserved 329 7.5 The Application of Unbundling Requirements to Offshore Gas Pipelines Should Be Clarified 330 7.6 The EU ́s Ownership Unbundling Exemption Regime Can Be Maintained As It Is 331 7.7 The Third-Country Certification Procedure Is Discriminatory but Can Nevertheless Be Justified 332 7.8 Vertical Integration Is a Barrier to Energy Trade, and WTO Law As It Stands Is Unable to Provide a Solution 333 7.9 A Future Energy Reference Paper Should Contain Common Disciplines on Unbundling 334 Table of Cases 335 WTO Panel and Appellate Body Reports 335 GATT Case Law 337 Arbitral Awards of International Investment Tribunals 337 Other Arbitral Awards 340 International Court of Justice 340 Court of Justice of the European Union 340 European Court of Human Rights 341 National Courts 341 Legislation 343 WTO Agreements 343 International Investment Agreements 343 Trade-Related Agreements 344 Other Public International Law Agreements 345 Primary EU Legislation 345 Secondary EU Legislation 345 National Legislation 347 Documents 348 GATT/WTO Documents 348 EU Documents 351 Other Documents 356 Bibliography 361 Front Matter ....Pages i-xiv Introduction (Tilman Michael Dralle)....Pages 1-20 The Unbundling and Unbundling-Related Measures in the EU Energy Sector (Tilman Michael Dralle)....Pages 21-63 Ownership Unbundling and National Constitutional Law and EU Law: A Brief Summary of the Relevant Legal Issues (Tilman Michael Dralle)....Pages 65-81 International Economic Law as a Possible Limit to the Implementation of Unbundling and Unbundling-Related Measures: WTO Law (Tilman Michael Dralle)....Pages 83-201 International Economic Law as a Possible Limit to the Implementation of Unbundling and Unbundling-Related Measures: International Investment Law (Tilman Michael Dralle)....Pages 203-272 International Economic Law as a Possible Vehicle for the Implementation of Unbundling Measures (Tilman Michael Dralle)....Pages 273-315 Final Conclusions: Unbundling as a Competition Instrument in the Light of International Trade and Investment Law (Tilman Michael Dralle)....Pages 317-325 Back Matter ....Pages 327-371 "This book provides the first comprehensive analysis of unbundling and, in particular, ownership unbundling policies from the perspective of international economic law. It does so by focusing on the prominent example of the EU's energy sector and its Third Energy Package. Unbundling has become an increasingly crucial competition instrument in network-bound industries worldwide. It is designed to ensure access to bottleneck infrastructures on fair and non-discriminatory terms and thus to suppress the anti-competitive potential deriving from vertical integration in natural monopoly situations. While promoting important public policy objectives, unbundling policies have also raised a number of legal issues. This book analyzes how international economic law limits the adoption and maintenance of unbundling and related measures and also outlines how international trade law can play a 'positive' role in this field"--Back cover