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European Union: Russia Challenges EU Energy Laws Before WTO

(May 6, 2014) In May 2014, the Russian Federation filed a formal complaint before the World Trade Organization (WTO) against the European Union (EU) on the grounds that the EU’s energy rules, the so-called “Third Energy Package,” constitute discrimination. (Benjamin Fox, Russia To File WTO Lawsuit Against EU Energy Laws, EUOBSERVER (May 1, 2014).)

The Third Energy Package, which was adopted by the EU in 2009, regulates the EU’s gas and electricity market and is designed to boost competition, to facilitate cross border trade, and to fully liberalize the gas and electricity market in the EU. At the core of this legislation is the “ownership unbundling” provision, which requires the separation of gas production and sale operation from the transmission networks, to the effect that a single company may not both own and operate a gas pipeline. (Directive 2009/72/EC Concerning Common Rules for the Internal Market in Electricity and Repealing Directive 2003/54/EC, 2009 OFFICIAL JOURNAL OF THE EUROPEAN UNION (L211) 55.)

Russia deems the ownership unbundling provision controversial and discriminatory and argues that the EU violates WTO rules on market access and non-discrimination. Russia points to the fact that its state-owned energy company, Gazprom, is the only company which has the right to export gas from Russia. The company provides more than 30 % of the EU’s gas needs, with the majority of the imported gas coming through Ukraine. Russia also contends that the EU rules should not apply retroactively to contracts signed prior to 2009. (Fox, supra.)

For its part, in December 2013, the European Commission opined that bilateral agreements made between Russia and a number of EU countries, including Austria, Bulgaria, Croatia, Greece, Hungary, and Slovenia, to build the South Stream Gas pipeline, violate the EU’s laws and must be renegotiated. (South Stream Bilateral Deals Breach EU Law, Commission Says, EURACTIV (Dec. 14, 2013).)

Russia and the EU have 60 days to negotiate and try to solve their differences on this issue before Russia resorts to taking legal action. In such a case, the WTO will establish an arbitration panel to examine the case. (Fox, supra.)