Progress report on ECT modernization negotiations indicates familiar divisions among delegations as push for EU withdrawal grows

Following three negotiation rounds on ECT modernization last year, the most recent of which concluded on November 6, 2020, a leaked progress report from December 2020 suggests that state parties are still divided on key issues. This makes progress in negotiations, which require consensus from the national delegations, difficult to come by.

Likely complicating matters, these negotiations are taking place while high-profile cases are brought against EU member states by investors under the ECT. Most recently, the German company RWE has initiated arbitration against the Netherlands due to that country’s coal phase-out. Other signs of EU member state discontent include Belgium’s request that the CJEU issue an opinion on the ECT’s compatibility with EU law and a recent letter from French officials expressing support for the possibility of withdrawal from the treaty.

The progress report documents ongoing discussions on a range of issues, from standard investment protection provisions such as FET and MFN, to the introduction of new clauses relating to CSR and sustainable development. The report also gives a glimpse of what could be considered two major factions—led by the EU and its member states on the one hand and Japan on the other—with significantly divergent views of the benefits and drawbacks of the ECT in its present form.

For its part, Japan is largely in favour of maintaining the status quo, while the EU and its member states, often accompanied by Georgia and Turkey, seek significant changes. For example, when it comes to standard provisions such as FET, MFN, and indirect expropriation, Japan appears to be in favour of upholding the current language. On the other hand, the EU and its member states, along with several others, favour more detailed definitions of these standards of protection, with, for example, the definition of FET including a closed list of violations. Similar tensions are clear in the parties’ suggestions for changes to the MFN provision.

The EU and its member states, as well as Georgia and Turkey, are also pursuing stronger language on the right to regulate, CSR and sustainable development, and environmental protection. (Editor’s note: we previously reported on the EU’s proposal for ECT modernization, and much of the language from that proposal is now found in the recent progress report.) However, much of this is opposed by Japan, which remarked, with reference to the proposed curtailment of  the indirect expropriation provision that “[p]roposals seem to be tilting the scales of balance overly to state concerns or right to regulate” and may “inappropriately undermine the level of investment protection to be achieved.”

The progress report provides details on how negotiations will move forward, noting that the COVID-19 pandemic slowed progress in 2020. The Chair has invited the group to hold four negotiation rounds in 2021 and also raised the possibility of informal meetings and workshops between negotiating rounds.