17 Nov 2023 Working Papers
Energy Transit under GATT Article V and Energy Trade Dispute Resolution in the WTO
WTI Working Paper No. 11/2023 by Michail Skouzes
This paper analyses Article V of the General Agreement on Tariffs and Trade (GATT) and its application to transit of energy-related goods via fixed infrastructure with certain capacity, such as pipelines and power grids. Modern economy requires the passing of goods through the territory of more than two countries in order to reach their destination. This also applies to goods in the energy sector, since oil and natural gas-producing countries are not their majority consumers. There is a nexus of pipelines, both on land and below the sea, that transport oil and natural gas through vast distances of land crossing several countries to connect producing and consuming countries. Transfer via pipelines is not the only mode of transportation in the energy sector. Sea carriage via specially designed ships, such as oil tankers or LNG carriers, is another common way of transporting energy commodities. Electric power can be internationally transported through power grids connecting neighbouring countries. In an era, in which energy plays a strategic role, the transportation of energy-related goods is essential to the welfare of countries. In the absence of a multilateral International Treaty regulating international trade in the energy sector, bilateral treaties proliferate in this sector. It is evident that the creators of the GATT did not intend to regulate energy matters. However, as will be discussed in this article, the World Trade Organization (WTO), with its Dispute Settlement System, can be a forum suitable to adjudicate disputes in the energy sector, concerning eg the transportation of natural gas, oil and electric power. Article V of the GATT ensures freedom of transit, with some limitations, from the territory of each contracting party for goods, vessels and other means of transportation. Should this Article be applied to the energy sector and it being interpreted so as to also provide for capacity establishment rights, it has the potential to liberalize the energy market for WTO Members and reshape the world economy.