EUROPEAN UNION AND ITS MEMBER STATES – CERTAIN MEASURES RELATING TO THE ENERGY SECTOR

report of the panel

BCI deleted, AS INDICATED [***]

TABLE OF CONTENTS

1   Introduction.. 26

1.1   Complaint by Russia. 26

1.2   Panel establishment and composition. 26

1.3   Panel proceedings. 26

1.3.1   General 26

1.3.2   Additional Working Procedures on Business Confidential Information (BCI) 27

1.3.3   Preliminary rulings. 27

2   Factual aspects. 28

2.1   Introduction. 28

2.2   The measures at issue. 29

2.2.1   Introduction. 29

2.2.2   The unbundling measure. 30

2.2.2.1   The unbundling measure in the Directive. 30

2.2.2.2   The unbundling measure in the national implementing laws of Croatia, Hungary, and Lithuania  36

2.2.3   The public body measure in the national implementing laws of Croatia, Hungary, and Lithuania  37

2.2.4   The LNG measure. 38

2.2.5   The infrastructure exemption measure. 38

2.2.6   The upstream pipeline networks measure. 40

2.2.7   The third-country certification measure. 41

2.2.7.1   The third-country certification measure in the Directive. 41

2.2.7.2   The third-country certification measure in the national implementing laws of Croatia, Hungary and Lithuania. 42

2.2.8   The TEN-E measure. 44

3   Parties' requests for findings and recommendations. 47

4   Arguments of the parties. 54

5   Arguments of the thiRd parties. 54

6   interim review... 54

6.1   Factual aspects. 55

6.2   Introduction. 56

6.3   General issues related to Russia's claims under the GATS. 56

6.4   The unbundling measure. 59

6.5   The public body measure. 67

6.6   The LNG measure. 67

6.7   The upstream pipeline networks measure. 69

6.8   The TEN-E measure. 71

7   Findings. 72

7.1   Introduction. 72

7.1.1   Order of analysis. 72

7.1.2   Burden of proof 73

7.1.3   General observations. 74

7.2   Terms of reference issues. 74

7.2.1   First request for a preliminary ruling by the European Union. 74

7.2.1.1   Introduction. 74

7.2.1.2   The capacity allocation measures included in Section II of Russia's panel request 75

7.2.1.3   The TEN-E measure included in Section III of Russia's panel request 76

7.2.2   Second request for a preliminary ruling by the European Union. 85

7.2.2.1   Introduction. 85

7.2.2.2   Reasoning in support of the conclusions issued in the second preliminary ruling. 86

7.2.2.2.1   Relevant legal provisions and general considerations of the Panel 86

7.2.2.2.2   Russia's claims 1 through 3 against the unbundling measure in the national implementing laws of Croatia, Hungary and Lithuania. 87

7.2.2.2.3   Russia's claims 12 through 14 against the LNG and upstream pipeline networks measures  88

7.2.2.2.4   Russia's claim 16 against the third-country certification measure in the Directive. 88

7.2.2.2.5   Russia's claim 21 against the infrastructure exemption measure. 91

7.2.2.2.6   Russia's claim 27 against the infrastructure exemption/upstream pipeline networks measures  92

7.2.2.2.7   Russia's claims 7, 9 and 11 against the unbundling measure in the Directive. 96

7.2.2.2.8   Russia's alternative claims 29 through 31 against the TEN-E measure. 98

7.2.2.3   Decision on the terms of reference issues not resolved in the second preliminary ruling. 100

7.2.2.3.1   Lithuania's grant of priority to natural gas supplied by Litgas through the Klaipeda LNG Terminal and the supply agreement between Litgas and Statoil 100

7.2.2.3.2   Additional conditions in respect of the third-country certification measure in the national implementing laws of Croatia, Hungary and Lithuania. 102

7.2.2.3.2.1   Sections 123(5) and 123(6) of Hungary's Gas Act 104

7.2.2.3.2.2   Article 20(5) of Lithuania's Law on Natural Gas. 106

7.2.2.3.2.3   Article 29(4)(3) of Lithuania's Law on Natural Gas. 107

7.2.2.3.2.4   Conclusion. 109

7.2.2.3.3   Commission certification opinions regarding TIGF and DESFA. 109

7.2.3   Other terms of reference issues. 111

7.2.3.1   Terms of reference issues raised by the Panel on its own motion. 111

7.2.3.1.1   Russia's de facto claim against the public body measure in the national implementing law of Hungary  111

7.2.3.1.2   Section 123(4) of Hungary's Gas Act in respect of the unbundling measure in the national implementing law of Hungary. 113

7.2.3.2   Article 20(5) of Lithuania's Law on Natural Gas in respect of the unbundling measure in the national implementing law of Lithuania. 115

7.3   Legal standards. 115

7.3.1   GATS. 115

7.3.1.1   Article II:1 of the GATS. 115

7.3.1.2   Article XIV(a) of the GATS. 116

7.3.1.3   Article XVI:2(a), (e) and (f) of the GATS. 116

7.3.1.4   Article XVII of the GATS. 117

7.3.2   GATT 1994. 118

7.3.2.1   Article I:1 of the GATT 1994. 118

7.3.2.2   Article III:4 of the GATT 1994. 118

7.3.2.3   Article X:3(a) of the GATT 1994. 118

7.3.2.4   Article XI:1 of the GATT 1994. 119

7.3.2.5   Article XX(j) of the GATT 1994. 119

7.4   General issues related to Russia's claims under the GATS. 120

7.4.1   The services at issue. 120

7.4.1.1   Introduction. 120

7.4.1.2   Analysis by the Panel 123

7.4.2   Interpretation of the Schedules of Croatia, Hungary and Lithuania. 128

7.4.2.1   Introduction. 128

7.4.2.2   The terms "Pipeline Transport [Services]". 129

7.4.2.2.1   Introduction. 129

7.4.2.2.2   Analysis by the Panel 129

7.4.2.3   Market access and national treatment commitments. 137

7.4.2.3.1   Introduction. 137

7.4.2.3.2   Market access commitments. 137

7.4.2.3.3   National treatment commitments. 141

7.5   The unbundling measure. 143

7.5.1   The unbundling measure in the Directive. 143

7.5.1.1   Introduction. 143

7.5.1.2   Level for assessing the WTO consistency of the unbundling measure. 144

7.5.1.2.1   Analysis by the Panel 146

7.5.1.2.2   Conclusion. 150

7.5.1.3   Russia's claim under Article II:1 of the GATS. 150

7.5.1.3.1   Introduction. 150

7.5.1.3.2   Analysis by the Panel 150

7.5.1.3.2.1   Scope of the GATS. 151

7.5.1.3.2.2   Like services and service suppliers. 151

7.5.1.3.2.3   Less favourable treatment 153

7.5.1.3.3   Conclusion. 176

7.5.1.4   Russia's claims under Articles I:1 and III:4 of the GATT 1994. 177

7.5.1.4.1   Introduction. 177

7.5.1.4.2   Analysis by the Panel of Russia's claim under Article III:4 of the GATT 1994. 177

7.5.1.4.2.1   Scope of Article III:4 of the GATT 1994. 177

7.5.1.4.2.2   Like products. 179

7.5.1.4.2.3   Less favourable treatment 180

7.5.1.4.2.4   Conclusion. 187

7.5.1.4.3   Analysis by the Panel of Russia's claim under Article I:1 of the GATT 1994. 187

7.5.1.4.3.1   Scope of Article I:1 of the GATT 1994. 188

7.5.1.4.3.2   Like products. 188

7.5.1.4.3.3   An advantage, favour, privilege or immunity. 189

7.5.1.4.3.4   Conclusion. 191

7.5.2   The unbundling measure in the national implementing laws of Croatia, Hungary and Lithuania  191

7.5.2.1   Introduction. 191

7.5.2.2   Russia's claims under Article XVI:2(a) of the GATS. 192

7.5.2.2.1   Introduction. 192

7.5.2.2.2   Analysis by the Panel 193

7.5.2.3   Russia's claims under Article XVI:2(e) of the GATS. 198

7.5.2.3.1   Introduction. 198

7.5.2.3.2   Analysis by the Panel 199

7.5.2.3.2.1   Introduction. 199

7.5.2.3.2.2   Whether the measures at issue constitute impermissible limitations within the meaning of Article XVI:2(e) 205

7.5.2.4   Russia's claims under Article XVI:2(f) of the GATS. 215

7.5.2.4.1   Introduction. 215

7.5.2.4.2   Analysis by the Panel 215

7.5.2.4.2.1   Whether the measures at issue limit "the participation of foreign capital". 216

7.5.2.5   Conclusion. 220

7.6   The public body measure. 220

7.6.1   Introduction. 220

7.6.2   Russia's claim under Article XVII of the GATS. 220

7.6.2.1   Introduction. 220

7.6.2.2   Analysis by the Panel 221

7.6.2.2.1   National treatment commitments by Croatia, Hungary and Lithuania in the relevant sector(s) and mode(s) 222

7.6.2.2.2   Affecting the supply of services in the relevant sector(s) and mode(s) 222

7.6.2.2.3   Like services and service suppliers. 222

7.6.2.2.4   Less favourable treatment 224

7.6.2.3   Conclusion. 240

7.7   The LNG measure. 241

7.7.1   Introduction. 241

7.7.2   Russia's claim under Article I:1 of the GATT 1994. 241

7.7.2.1   Introduction. 241

7.7.2.2   Analysis by the Panel 241

7.7.2.2.1   Scope of Article I:1 of the GATT 1994. 242

7.7.2.2.2   Like products. 243

7.7.2.3   Conclusion. 248

7.8   The infrastructure exemption measure. 248

7.8.1   Introduction. 248

7.8.2   Russia's claim under Article X:3(a) of the GATT 1994. 249

7.8.2.1   Introduction. 249

7.8.2.2   Analysis by the Panel 252

7.8.2.2.1   Introduction. 252

7.8.2.2.2   Measure of general application. 252

7.8.2.2.3   Measure of the kind described in Article X:1 of the GATT 1994. 253

7.8.2.2.4   Administered in a manner that is not uniform, impartial and reasonable. 255

7.8.2.2.4.1   Introduction. 255

7.8.2.2.4.2   Administered. 256

7.8.2.3   Conclusion. 259

7.8.3   Russia's claims under Article II:1 of the GATS and Article I:1 of the GATT 1994. 259

7.8.3.1   Introduction. 259

7.8.3.2   Whether the European Union applied or implemented Article 36 of the Directive in an "inconsistent" or "discriminatory" manner 261

7.8.3.3   Conclusion. 275

7.8.4   Russia's claim under Article XI:1 of the GATT 1994. 276

7.8.4.1   Introduction. 276

7.8.4.2   Analysis by the Panel 278

7.8.4.3   Conclusion. 285

7.9   The upstream pipeline networks measure. 285

7.9.1   Introduction. 285

7.9.2   Russia's claim under Article I:1 of the GATT 1994. 286

7.9.2.1   Introduction. 286

7.9.2.2   Analysis by the Panel 286

7.9.2.2.1   Scope of Article I:1 of the GATT 1994. 286

7.9.2.2.2   Like products. 287

7.9.2.2.3   An advantage, favour, privilege or immunity. 289

7.9.2.2.3.1   More favourable conditions for the transportation of natural gas. 291

7.9.2.3   Conclusion. 295

7.9.3   Russia's claim under Article III:4 of the GATT 1994. 295

7.9.4   Russia's additional claim against the upstream pipeline networks measure. 296

7.10   The third-country certification measure. 298

7.10.1   The third-country certification measure in the Directive. 298

7.10.1.1   Introduction. 298

7.10.1.2   Analysis by the Panel of Russia's claim under Article II:1 of the GATS. 299

7.10.1.2.1   Scope of the GATS. 299

7.10.1.2.2   Like services and service suppliers. 300

7.10.1.2.3   Less favourable treatment 301

7.10.1.3   Conclusion. 311

7.10.2   The third-country certification measure in the national implementing laws of Croatia, Hungary and Lithuania. 311

7.10.2.1   Introduction. 311

7.10.2.2   Russia's claim under Article XVII of the GATS. 312

7.10.2.2.1   Introduction. 312

7.10.2.2.2   Analysis by the Panel 312

7.10.2.2.2.1   Article 24 of Croatia's Gas Market Act, Section 128/A of Hungary's Gas Act and Article 29 of Lithuania's Law on Natural Gas. 313

7.10.2.2.2.2   Sections 123(5) and 123(6) of Hungary's Gas Act 315

7.10.2.2.3   Conclusion. 316

7.10.2.3   The European Union's defence under Article XIV(a) of the GATS. 316

7.10.2.3.1   Introduction. 316

7.10.2.3.2   Analysis by the Panel 316

7.10.2.3.2.1   Provisional justification under Article XIV(a) of the GATS. 317

7.10.2.3.2.2   Requirements under the chapeau of Article XIV of the GATS. 334

7.10.2.3.3   Conclusion. 337

7.10.2.4   Russia's claims under Articles VI:1 and VI:5(a) of the GATS. 337

7.11   The TEN-E measure. 338

7.11.1   Introduction. 338

7.11.2   Russia's claims under the GATT 1994. 338

7.11.2.1   Introduction. 338

7.11.2.2   Analysis by the Panel 340

7.11.2.2.1   The objective of diversification of natural gas supply. 340

7.11.2.2.2   Russia's claim under Article III:4 of the GATT 1994. 344

7.11.2.2.2.1   Introduction. 344

7.11.2.2.2.2   Analysis by the Panel 344

7.11.2.2.2.3   Conclusion. 346

7.11.2.2.3   Russia's claim under Article I:1 of the GATT 1994. 346

7.11.2.2.3.1   Introduction. 346

7.11.2.2.3.2   Analysis by the Panel 346

7.11.2.2.3.3   Conclusion. 348

7.11.2.2.4   Observations on certain additional arguments in respect of Russia's claims under Articles I:1 and III:4 of the GATT 1994. 348

7.11.3   European Union's defence under Article XX(j) of the GATT 1994. 350

7.11.3.1   Introduction. 350

7.11.3.2   Analysis by the Panel 351

7.11.3.2.1   Designed to address "the acquisition or distribution of products in general or local short supply"  351

7.11.3.2.1.1   Products "in general or local short supply". 352

7.11.3.2.1.2   Whether the TEN-E measure is designed to address "the acquisition or distribution" of natural gas. 357

7.11.3.2.2   Essential to "the acquisition or distribution" of natural gas. 357

7.11.3.2.3   Conclusion. 362

7.11.4   Russia's claim under Article II:1 of the GATS. 362

7.11.4.1   Analysis by the Panel 363

7.11.4.1.1   Scope of the GATS. 363

7.11.4.1.2   Like services and service suppliers. 364

7.11.4.1.2.1   Introduction. 364

7.11.4.1.2.2   Likeness of LNG and pipeline transport services and service suppliers. 365

7.11.4.1.2.3   Conclusion. 369

7.11.4.1.3   Less favourable treatment 369

7.11.4.2   Conclusion. 374

8   conclusions and recommendation.. 375