in the world trade organization panel proceedings · 2019-04-29 · in the world trade organization...

In the World Trade Organization

Panel Proceedings

EUROPEAN UNION AND ITS MEMBER STATES – CERTAIN

MEASURES RELATING TO THE ENERGY SECTOR

(DS476)

Second Written Submission

by the European Union

Non-Confidential Version

Geneva, 21 November 2016

EU and its Member States – Energy Package Second Written Submission

(DS476) by the European Union

________________________________________________________________________________________

- i -

TABLE OF CONTENTS

1. INTRODUCTION ....................................................................................................... 1

2. UNBUNDLING .......................................................................................................... 1

2.1. Claim VII: Russia's claim that the implementation of the unbundling

requirement in the domestic laws of Croatia, Hungary and Lithuania

violates the commitments under Article XVI of the GATS in respect of

these countries (Russia's claims 1 to 3) ............................................................. 1

2.1.1. Introduction ......................................................................................... 2

2.1.2. EU's response to Russia's arguments that the unbundling

requirement would violate Article XVI of the GATS ......................... 2

2.1.2.1 Sub-paragraph (e) (Russia's Claim 1) .................................. 2

2.1.2.2 Sub-paragraph (a) (Russia's Claim 2) .................................. 7

2.1.2.3 Sub-paragraph (f) (Russia's Claim 3) .................................. 8


requirement is not justified under Articles XIV(a) or (c) .................. 10

2.1.3.1 Article XIV(a) of the GATS .............................................. 10

COMPETITION IN THE ENERGY SECTOR IS A FUNDAMENTAL 2.1.3.1.1

INTEREST OF EU SOCIETY .......................................................................................... 10

NO ALTERNATIVE MEASURES ARE REASONABLY 2.1.3.1.2

AVAILABLE TO ACHIEVE THE OBJECTIVE ............................................................ 11

THE UNBUNDLING REQUIREMENT MEETS THE CONDITIONS 2.1.3.1.3

OF THE CHAPEAU OF ARTICLE XIV ......................................................................... 14

2.1.3.2 Article XIV(c) of the GATS .............................................. 15

2.2. Claim VIII: The public body specification in Article 9(6) of Directive

2009/73 violates neither de jure nor de facto the national treatment

obligation in Article XVII of the GATS (Russia's Claims 4 and 5) ................ 16

2.2.1. Introduction ....................................................................................... 16

2.2.2. Article 9(6) is not de jure discriminatory .......................................... 17

2.2.3. Article 9(6) is not de facto discriminatory ........................................ 18

2.3. Claim IX: The unbundling measure does not violate the most favoured

nation obligation in Article II:1 of the GATS (Russia's claim 6) .................... 21

2.3.1. Introduction ....................................................................................... 21

2.3.2. The treatment service suppliers receive must be assessed in

each EU Member State individually .................................................. 22

2.3.3. The imposition of the OU model does not alter the competitive

position of pipeline transport service suppliers ................................. 25

2.3.4. Russia cannot demonstrate that the alleged negative

competitive impact of OU (quod non) is predominantly on

Russian service suppliers ................................................................... 27

2.3.4.1 Russia asks the Panel to disregard 15 years of WTO

jurisprudence ..................................................................... 27



________________________________________________________________________________________

- ii -

2.3.4.2 Russia cannot demonstrate that any alleged

detrimental impact of the unbundling requirement

(quod non) is predominantly on the group of pipeline

transmission service suppliers from Russia ....................... 28

2.3.4.3 Russia's "evidence" on the implementation of the

unbundling requirement in the Member States is

critically flawed. ................................................................ 29

2.4. Claim X: Russia's claim under Article III:4 of the GATT 1994 (Russia's

claim 8) ............................................................................................................ 31

2.4.1. Introduction ....................................................................................... 31

2.4.2. The treatment of gas of different origins must be assessed in

each EU Member State individually .................................................. 32

2.4.3. Russia cannot show that a particular unbundling model

translates into a competitive disadvantage for gas of a certain

origin .................................................................................................. 33

2.4.4. The alleged negative competitive impact of the unbundling

requirement (quod non) is not predominantly on the group of

Russian gas ........................................................................................ 36

2.4.4.1 Russia's argument disregards established WTO

jurisprudence and ignores the essence of unbundling ....... 36

2.4.4.2 Abundant evidence shows the absence of a link

between the unbundling model and the volume of

Russian imports ................................................................. 38

2.4.4.3 Russia's "evidence" allegedly linking an unbundling

model to gas volumes is critically flawed ......................... 39

THERE IS NO LINK BETWEEN THE UNBUNDLING MODEL 2.4.4.3.1

AND RUSSIAN GAS IMPORTS ..................................................................................... 39


AND EU-PRODUCED GAS VOLUMES ........................................................................ 41


AND GAS VOLUMES IMPORTED FROM OTHER THIRD COUNTRIES ................ 43

2.5. Claim XI: Russia's claim under Article I:1 of the GATT 1994 (Russia's

claim 10) .......................................................................................................... 47

2.6. Claim XII: Russia's claim of violation of Article I:1 of the GATT 1994

because the Directive would accord natural gas of other third countries

imported through LNG facilities and upstream pipeline networks an

advantage not extended to Russian Gas (Russia's Claims 12 and 13) ............. 47

2.6.1. Introduction ....................................................................................... 47

2.6.2. The LNG measure does not violate Article I:1 of the GATT

1994 (Russia's claim 12) .................................................................... 48

2.6.2.1 LNG and natural gas are not "like" ................................... 49

2.6.2.2 Russia cannot demonstrate that the LNG measure

alters the competitive position of gas imported from

Russia ................................................................................ 50



________________________________________________________________________________________

- iii -

2.6.3. The upstream pipeline networks measure does not violate

Article I:1 of the GATT 1994 (Russia's claim 13) ............................ 52

2.6.3.1 Upstream pipeline networks have a different nature

and role than transmission pipelines.................................. 52

2.6.3.2 Russia errs when claiming that Russian pipelines

would never be eligible to qualify as upstream

pipeline networks .............................................................. 55

THE LEGISLATIVE HISTORY CONTRADICTS RUSSIA'S 2.6.3.2.1

ALLEGATION THAT THE "UPSTREAM PIPELINES NETWORKS"

DEFINITION IS "TAILORED TO APPLY SOLELY TO NORWEGIAN

PIPELINES" ...................................................................................................................... 55

SEVERAL FACTS CONTRADICT RUSSIA'S ALLEGATION THAT 2.6.3.2.2

THE UPSTREAM PIPELINE NETWORKS DEFINITION WILL NEVER BE

AVAILABLE FOR RUSSIAN PIPELINES ..................................................................... 57

2.6.3.3 Russia cannot demonstrate that gas carried through

an upstream pipeline network has a competitive

advantage over gas carried through a transmission

pipeline .............................................................................. 59

2.7. Claim XIII: Russia's claim of violation of Article III:4 of the GATT

1994 because the Directive would accord Russian gas treatment less

favourable than like domestic gas transported via upstream pipeline

networks (Russia's claim 14) ........................................................................... 61

3. THIRD COUNTRY CERTIFICATION ................................................................... 61

3.1. Claim XIV: Article XVII GATS (Russia's Claim 15) ..................................... 61

3.1.1. The policy objective pursued by the SoS certification

requirement falls within the scope of Article XIV (a) GATS ........... 62

3.1.1.1 SoS is a "fundamental interest" of the EU society, as

reflected in EU's law and policies ..................................... 62

3.1.1.2 TSOs controlled by persons of third countries pose a

genuine and sufficiently serious threat to SoS in the

EU ...................................................................................... 64

3.1.2. The SoS certification requirement is necessary to achieve its

policy objective ................................................................................. 68

3.1.2.1 Relative importance of the objective ................................. 68

3.1.2.2 Contribution to the objective ............................................. 68

3.1.2.3 Restrictiveness of the measure .......................................... 69

3.1.2.4 Alternative measures ......................................................... 69

3.1.3. The SoS certification requirement is applied in conformity

with the requirements of the chapeau ............................................... 72

3.2. Claims under Article XVII GATS concerning other requirements

imposed by Hungary and Lithuania (Included in Russia's Claim 15) ............. 73

3.3. Claim XV: Article II:1 GATS (Russia's Claims 16 and 17) ........................... 74

3.3.1. The de jure claim ............................................................................... 74



________________________________________________________________________________________

- iv -

3.3.2. The de facto claim ............................................................................. 74

3.3.2.1 Terms of reference ............................................................. 74

3.3.2.2 Europolgaz is not a service supplier - Gaz-System is

not a Russian service supplier ........................................... 75

3.3.2.3 Legal status of the Commission opinions .......................... 76

3.3.2.4 Article 54 of the Gas Directive .......................................... 77

3.3.2.5 The delays in the certification of Gaz-System do not

affect conditions of competition to its detriment ............... 80

3.3.2.6 Press release of the European Parliament's press

service on the occasion of the adoption of the TEP .......... 82

3.4. Claim XVI: Article III:4 GATT (Russia's Claim 18) ...................................... 82

3.5. Claim XVII: Article VI:1 GATS (Russia's claim 19) ..................................... 83

3.6. Claim XVII bis: Article VI:5 GATS (Russia's claim 20) ................................ 84

3.6.1. Relationship between Articles VI:4 and VI:5 GATS and

Article XVII GATS ........................................................................... 84

3.6.2. Letter (b) of Article VI:4 GATS ........................................................ 84

3.6.3. Letter (c) of Article VI:4 GATS ........................................................ 86

4. INFRASTRUCTURE EXEMPTIONS ..................................................................... 87

4.1. Introduction ..................................................................................................... 87

4.2. The exemption for new major infrastructure ................................................... 88

4.3. Claim XVIII: Russia’s claim under Article X:3(a) of the GATT 1994

(Russia's claim 21) ........................................................................................... 89

4.4. Claim XIX: Russia’s claim under Article I:1 of the GATT 1994

(Russia’s claim 22) .......................................................................................... 96


(Russia’s claim 23) .......................................................................................... 99


(Russia’s claim 24) ........................................................................................ 101

4.7. Claim XX: Russia’s claim under Article II:1 of the GATS (Russia’s

claim 25) ........................................................................................................ 101

4.8. Claim XXI: Russia’s claim under Article I:1 of the GATT 1994 in

respect of upstream pipeline networks (Russia’s claim 26) .......................... 103

4.9. Claim XXII: Russia’s claim under Article II:1 of the GATS in respect

of upstream pipeline networks (Russia’s 27) ................................................ 104

4.10. Claim XXIII: Russia’s claim under Article XI:1 of the GATT 1994

(Russia’s claim 28) ........................................................................................ 104

5. PROJECTS OF COMMON INTEREST ................................................................ 108

5.1. Meaning of "Russian project" ....................................................................... 108

5.2. Claim XXIV: Article II:1 GATS (Russia's Claim 29)................................... 110

5.2.1. De iure claim ................................................................................... 110

5.2.2. De facto claim .................................................................................. 111

5.2.3. The [[ ]] project ............................................................................... 112



________________________________________________________________________________________

- v -

5.3. Claims XXV and XXVI: Article III:4 GATT and Article I:1 GATT

(Russia's claims 30 and 31) ........................................................................... 115

5.3.1. De iure claims .................................................................................. 115

5.3.2. De facto claims ................................................................................ 117

5.3.3. In the alternative, the TEN – E measure is justified under

Article XX j) GATT ........................................................................ 119

5.3.3.1 Introduction ..................................................................... 119

5.3.3.2 Legal standard ................................................................. 120

THE "FIRST TIER" ...................................................................................... 120 5.3.3.2.1

THE "SECOND TIER" ................................................................................. 123 5.3.3.2.2

BURDEN OF PROOF ................................................................................... 124 5.3.3.2.3

5.3.3.3 Gas is a product in "short supply" in the European

Union ............................................................................... 124

5.3.3.4 The TEN-E measure is essential for the acquisition

and distribution of gas ..................................................... 127

RELATIVE IMPORTANCE OF THE OBJECTIVE ................................... 127 5.3.3.4.1

CONTRIBUTION TO THE OBJECTIVE .................................................... 127 5.3.3.4.2

TRADE - RESTRICTIVENESS OF THE MEASURE ................................ 128 5.3.3.4.3

ALTERNATIVE MEASURES ..................................................................... 129 5.3.3.4.4

5.3.3.5 The TEN – E measure is consistent with the

principle that all Members are entitled to an

equitable share of the international supply of gas ........... 129

5.3.3.6 The aspects of the TEN – E measure challenged by

Russia are temporary in nature ........................................ 129

5.3.3.7 The TEN – E measure is applied consistently with

the chapeau of Article XX GATT ................................... 130

6. CONCLUSION ....................................................................................................... 130



________________________________________________________________________________________

- vi -

TABLE OF CASES CITED

Short Title Full Case Title and Citation

Argentina – Financial Services Panel Report, Argentina – Measures Relating to Trade in Goods and Services, WT/DS453/R and

Add.1, adopted 9 May 2016, as modified by Appellate Body Report WT/DS453/AB/R

Argentina – Financial Services Appellate Body Report, Argentina – Measures Relating to Trade in Goods and Services,

WT/DS453/AB/R and Add.1, adopted 9 May 2016

Brazil – Retreaded Tyres Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R,

adopted 17 December 2007, DSR 2007:IV, p. 1527

Chile – Alcoholic Beverages Appellate Body Report, Chile – Taxes on Alcoholic Beverages, WT/DS87/AB/R, WT/DS110/AB/R,

adopted 12 January 2000, DSR 2000:I, p. 281

China – Electronic Payment Services Panel Report, China – Certain Measures Affecting Electronic Payment Services, WT/DS413/R and

Add.1, adopted 31 August 2012, DSR 2012:X, p. 5305

China – Publications and Audiovisual

Products

Panel Report, China – Measures Affecting Trading Rights and Distribution Services for Certain

Publications and Audiovisual Entertainment Products, WT/DS363/R and Corr.1, adopted 19

January 2010, as modified by Appellate Body Report WT/DS363/AB/R, DSR 2010:II, p. 261

China – Publications and Audiovisual

Products Appellate Body Report, China – Measures Affecting Trading Rights and Distribution Services for

Certain Publications and Audiovisual Entertainment Products, WT/DS363/AB/R, adopted 19

January 2010, DSR 2010:I, p. 3

Colombia – Ports of Entry Panel Report, Colombia – Indicative Prices and Restrictions on Ports of Entry, WT/DS366/R and

Corr.1, adopted 20 May 2009, DSR 2009:VI, p. 2535

Dominican Republic – Import and

Sale of Cigarettes Appellate Body Report, Dominican Republic – Measures Affecting the Importation and Internal

Sale of Cigarettes, WT/DS302/AB/R, adopted 19 May 2005, DSR 2005:XV, p. 7367

EC – Asbestos Appellate Body Report, European Communities – Measures Affecting Asbestos and Asbestos-

Containing Products, WT/DS135/AB/R, adopted 5 April 2001, DSR 2001:VII, p. 3243

EC – Computer Equipment Appellate Body Report, European Communities – Customs Classification of Certain Computer

Equipment, WT/DS62/AB/R, WT/DS67/AB/R, WT/DS68/AB/R, adopted 22 June 1998, DSR

1998:V, p. 1851

EC – Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the Importation and

Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R, adopted 18 June 2014, DSR

2014:I, p. 7

EC – Seal Products Appellate Body Reports, European Communities – Measures Prohibiting the Importation and

Marketing of Seal Products, WT/DS400/AB/R / WT/DS401/AB/R, adopted 18 June 2014, DSR

2014:I, p. 7

EC – Selected Customs Matters Appellate Body Report, European Communities – Selected Customs Matters, WT/DS315/AB/R,

adopted 11 December 2006, DSR 2006:IX, p. 3791

India – Solar Cells Appellate Body Report, India – Certain Measures Relating to Solar Cells and Solar Modules,

WT/DS456/AB/R and Add.1, circulated to WTO Members 16 September 2016 [adoption pending]

Korea – Various Measures on Beef Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef,

WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, DSR 2001:I, p. 5

Philippines – Distilled Spirits Appellate Body Reports, Philippines – Taxes on Distilled Spirits, WT/DS396/AB/R /

WT/DS403/AB/R, adopted 20 January 2012, DSR 2012:VIII, p. 4163

Thailand – Cigarettes (Philippines) Appellate Body Report, Thailand – Customs and Fiscal Measures on Cigarettes from the

Philippines, WT/DS371/AB/R, adopted 15 July 2011, DSR 2011:IV, p. 2203

US – Clove Cigarettes Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove

Cigarettes, WT/DS406/AB/R, adopted 24 April 2012, DSR 2012: XI, p. 5751

US – Gambling Panel Report, United States – Measures Affecting the Cross-Border Supply of Gambling and Betting

Services, WT/DS285/R, adopted 20 April 2005, as modified by Appellate Body Report

WT/DS285/AB/R, DSR 2005:XII, p. 5797

US – Gambling Appellate Body Report, United States – Measures Affecting the Cross-Border Supply of Gambling

and Betting Services, WT/DS285/AB/R, adopted 20 April 2005, DSR 2005:XII, p. 5663 (and

Corr.1, DSR 2006:XII, p. 5475)

US – Gasoline Appellate Body Report, United States – Standards for Reformulated and Conventional Gasoline,

WT/DS2/AB/R, adopted 20 May 1996, DSR 1996:I, p. 3

US – Lamb Appellate Body Report, United States – Safeguard Measures on Imports of Fresh, Chilled or Frozen

Lamb Meat from New Zealand and Australia, WT/DS177/AB/R, WT/DS178/AB/R, adopted 16

May 2001, DSR 2001:IX, p. 4051

US – Tuna II (Mexico) Appellate Body Report, United States – Measures Concerning the Importation, Marketing and Sale

of Tuna and Tuna Products, WT/DS381/AB/R, adopted 13 June 2012, DSR 2012:IV, p. 1837

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?DataSource=Cat&query=@Symbol=WT/DS453/R*&Language=English&Context=ScriptedSearches&languageUIChanged=true

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?DataSource=Cat&query=@Symbol=WT/DS453/AB/R*&Language=English&Context=ScriptedSearches&languageUIChanged=true

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?DataSource=Cat&query=@Symbol=WT/DS332/AB/R&Language=English&Context=ScriptedSearches&languageUIChanged=true












https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?DataSource=Cat&query=@Symbol=WT/DS400/AB/R%20&Language=English&Context=ScriptedSearches&languageUIChanged=true












https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx?DataSource=Cat&query=@Symbol=WT/DS285/R&Language=English&Context=ScriptedSearches&languageUIChanged=true








________________________________________________________________________________________

- vii -

LIST OF ABBREVIATIONS

Abbreviation Full Name

AEEG Regulatory Authority for Electricity Gas and Water (Italy)

BEMIP Baltic Energy Market Interconnection Plan

BNetzA Bundesnetzagentur (German NRA)

BOTAS Boru Hatlari ile Petrol Tasima AS

CEF Connecting Europe Facility

Commission European Commission

CRE Commission de régulation de l'énergie (French NRA)

DESFA Hellenic Gas Transmission System Operator S.A.

ENTSO European Network of Transmission System Operators for Gas

ERO Energy Regulatory Office (Polish NRA)

EU European Union

Europolgaz EuRoPol Gaz S.A.

GASCADE GASCADE Gastransport GmbH

GATS General Agreement on Trade in Services

GATT 1994 General Agreement on Tariffs and Trade 1994

Gaz-System Gazociągów Przesyłowych Gaz-System Spółka Akcyjna

HHI Herfindahl-Hirschman Index

IEA International Energy Agency

IGA Intergovernmental Agreement

ISO Independent System Operator

ITO Independent Transmission Operator

jordgas Jordgas Transport GmbH

LNG Liquefied natural gas

LSO LNG System Operator

MEP Member of the European Parliament



________________________________________________________________________________________

- viii -

Abbreviation Full Name

MFN Most Favoured Nation

Nabucco NABUCCO Gas Pipeline International GmbH

NEL Nordeuropaische Erdgas-Leitung

NRA National Regulatory Authority

NSI North-South Interconnections in Central-East and South-East Europe

ONTRAS ONTRAS Gastransport GmbH

OPAL Ostsee-Pipeline-Anbindungs-Leitung – Baltic Sea Pipeline Link

OU model Ownership Unbundling model

PCI Project of Common Interest

RAE Regulatory Authority for Energy (Greece)

Russia Russian Federation

SOCAR State Oil Company of the Azerbaijan Republic

SoS Security of supply

TAP Trans Adriatic Pipeline AG

TEN-E Trans-European Energy Networks

TEU Treaty on European Union

TFEU Treaty on the Functioning of the European Union

TIGF Transport et Infrastructures Gaz France

TPA Third party access

TSO Transmission system operator

UGS Underground Gas Storage

UK United Kingdom of Great Britain and Northern Ireland

UPN Upstream Pipeline Network

VIU Vertically Integrated Undertaking

VNG Verbundnetz Gas AG

WTO World Trade Organization



________________________________________________________________________________________

- ix -

TABLE OF EXHIBITS

Exhibit No. Title

EU-102 Schematic overview of unbundling models in Directive 2009/73/EC

EU-103 Case COMP/M.6111– Huaneng/OTPPB/Intergen, decision of 11 February 2011

EU-104 Case COMP/M.6082 – China National Bluestar/Elkem, decision of 31 March 2011

EU-105 Case COMP/M.6151 – Petrochina/Ineos/JV, decision of 13 May 2011

EU-106 Case COMP/M.6113 – DSM/Sinochem/JV, decision of 19 May 2011

EU-107 Case COMP/M.6141 – China National Agrochemical Corporation/Koor

Industries/Makhteshim Agan Industries, decision of 3 October 2011

EU-108 Russian Gas Imports in the EU (all Member States) 2009-2014, Eurostat

EU-109 Russian Gas Imports in Germany

EU-110 Shareholdings in TSOs in the EU (BCI)

EU-111 Country Factsheet Belgium

EU-112 Country Factsheet Denmark

EU-113 Country Factsheet Sweden

EU-114 Country Factsheet The Netherlands

EU-115

Gazprom's supplies to Germany climb 20.4 per cent in October,

http://www.gazprom.com/press/news/2016/november/article290994/, Boosting

Supplies, http://www.gazprom.com/press/reports/2016/increases-delivery/

EU-116 Gas imports in the EU – all external suppliers 2009-2014, Eurostat

EU-117 Overview of cross border point capacity, ENTSO-G

EU-118 EU Member States' gas production 2005-2014, Eurostat

EU-119 International Energy Agency, Germany,

http://www.iea.org/publications/freepublications/publication/germanyoss.pdf

EU-120

International Energy Agency, Energy Policies of IEA Countries. The Netherlands.

2014 Review,

http://www.iea.org/publications/freepublications/publication/Netherlands2014.pdf

EU-121 Norwegian gas imports in the EU in 2014 - all Member States, Eurostat

EU-122

EU Staff working paper SWD(2016)23,

https://ec.europa.eu/energy/sites/ener/files/documents/1_EN_autre_document_travail_

service_part1_v3.pdf

http://www.gazprom.com/press/news/2016/november/article290994/

http://www.gazprom.com/press/reports/2016/increases-delivery/



https://ec.europa.eu/energy/sites/ener/files/documents/1_EN_autre_document_travail_service_part1_v3.pdf




________________________________________________________________________________________

- x -

Exhibit No. Title

EU-123

Capacities available at certain LNG terminals: Montoir (owned by Elengy, a

subsidiary of Engie),

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELE

NGY_publications_Montoir_2016_11_10.pdf

EU-124

Capacities available at certain LNG terminals: Fos-Tonkin,

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELE

NGY_publications_FosTonkin_2016_11_10.pdf

EU-125

Elengy signs a transshipment long-term contract with Novatek Gas & Power, press

release, https://www.elengy.com/en/news/news/commercial/150-elengy-signs-a-

transshipment-long-term-contract-with-novatek-gas-power.html

EU-126 Basics of Russian Gas Market Regulations,

http://www.fief.ru/img/files/5_Basic_of_RU_Gas_Market_Regulations.pdf

EU-127 Commission proposal for the First Gas Directive (Directive 98/30/EC), Brussels,

21.02. 1992

EU-128 Drafting history of the First Gas Directive (Directive 98/30/EC) (BCI)

EU-129

Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on

the conditions for granting and using authorizations for the prospection, exploration

and production of hydrocarbons. Brussels 30.5.94, L164/3

EU-130

The Norwegian Gas Transportation System, Statoil 2012,

http://www.statoil.com/AnnualReport2012/en/OurOperations/BusinessAreas/Marketin

gProcessingAndRenewableEnergy/NaturalGas/Pages/TheNorwegianGasTransportatio

nSystem.aspx

EU-131

Decree of the President of the Russian Federation No 1285 of 11 September 2012 on

measures to protect the interests of the Russian Federation in the performance of

foreign economic activity by Russian legal persons and implementing measures

EU-132

Commission Opinion of 26 March 2013 pursuant to Article 3(1) of Regulation (EC)

No 715/2009 and Article 10(6) of Directive 2009/73/EC – United Kingdom –

Certification of Interconnector UK Limited

EU-133

Press release: European Network of Transmission System Operators for Gas

(ENTSOG) publishes an addendum to the Annex A of the Ten Year Network

Development Plan 2015, 29 June 2015,

http://www.entsog.eu/public/uploads/files/publications/Press%20Releases/2015/PR00

90-15_150629_Press%20Release_TYNDP2015_Addendum.pdf

EU-134 Guide for Applicants issued by the Innovations and Networks Executive Agency. Call

for proposals CEF-Eenergy-2016-2. June 2016

EU-135 List of actions selected for receiving assistance under the first CEF Energy 2015 call

for proposals

EU-136

"Is Europe's gas supply threatened by the Ukraine crisis?" Jon Henley, The Guardian,

03.03.2014 https://www.theguardian.com/world/2014/mar/03/europes-gas-supply-

ukraine-crisis-russsia-pipelin


http://www.statoil.com/AnnualReport2012/en/OurOperations/BusinessAreas/MarketingProcessingAndRenewableEnergy/NaturalGas/Pages/TheNorwegianGasTransportationSystem.aspx



http://www.entsog.eu/public/uploads/files/publications/Press%20Releases/2015/PR0090-15_150629_Press%20Release_TYNDP2015_Addendum.pdf


https://www.theguardian.com/world/2014/mar/03/europes-gas-supply-ukraine-crisis-russsia-pipelines




________________________________________________________________________________________

- xi -

Exhibit No. Title

EU-137

The Russian-Ukrainian gas crisis of January 2006, Jonathan Stern, Oxford Institute

for Energy Studies, 16.01.2006, p. 9. https://www.oxfordenergy.org/wpcms/wp-

content/uploads/2011/01/Jan2006-RussiaUkraineGasCrisis-JonathanStern.pdf

EU-138 "Russia vows to end gas shortage" in BBC News, 02.01.2006.

http://news.bbc.co.uk/2/hi/europe/4574630.stm

EU-139

Ukrainian gas dispute of January 2009: a comprehensive assessment, Oxford Institute

for Energy Studies, February 2009, p. 22,

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.443.8094&rep=rep1&type=

pdf.

EU-140 Press Release: "Member State general situation according the significance of impact",

European Commission, 09.01.2009

EU-141

The Impact of the Russia–Ukraine Gas Crisis in South Eastern Europe, Aleksandar

Kovacevic, Oxford Institute for Energy Studies, March 2009, pp. 11-12,

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG29-

TheImpactoftheRussiaUkrainianCrisisinSouthEasternEurope-AleksandarKovacevic-

2009.pdf

EU-142 Import statistics for the period 2005-2015, Eurostat and IEA

EU-143 Commission’s comments to the Gate Terminal exemption decision. Exemption

decision No. G/2006/01. Brussels 26.03.2007

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2011/01/Jan2006-RussiaUkraineGasCrisis-JonathanStern.pdf



http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.443.8094&rep=rep1&type=pdf


https://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG29-TheImpactoftheRussiaUkrainianCrisisinSouthEasternEurope-AleksandarKovacevic-2009.pdf



EU and its Member States – Certain measures relating to the energy sector Second Written Submission


________________________________________________________________________________________

- 1 -

1. INTRODUCTION

1. In this dispute, the Russian Federation ("Russia") challenges as allegedly WTO-

inconsistent several aspects of the European Union's Third Energy Package. As

explained by the European Union, this Package has as objective to create a well-

interconnected and competitive European Union gas market, based on free market

and free competition principles.1 The fundamental question that the Panel has to

answer in this dispute is whether the WTO obligations prohibit a WTO Member to

take measures to avoid that a monopoly distorts free and fair competition in the

market and restricts competitors from having access to the market. The European

Union finds it hard to believe that this would be the result, let alone the intention,

of the WTO obligations.

2. In this second written submission, the EU responds in detail to all arguments raised

by Russia in Russia's oral statements at the panel hearing on 5 and 6 September

2016 as well as in its responses to the Panel's questions of 12 October 2016.

3. This submission consists of four main sections, dealing with unbundling (Section

2), third country certification (Section 3), infrastructure exemptions (Section 4),

and the TEN – E measure (Section 5). The European Union has maintained the

structure it relied upon in its first written submission because it believes this

structure corresponds to the claims included in Russia's Panel Request. The

European Union recalls that Russia has sought to expand the number of claims in

its responses of 12 October 2016. In the cases where the Panel has considered that

these claims are within its terms of reference,2 the European Union has also

labelled these claims with the number Russia used in its response to Panel

Question 5.

2. UNBUNDLING

2.1. CLAIM VII: RUSSIA'S CLAIM THAT THE IMPLEMENTATION OF THE UNBUNDLING

REQUIREMENT IN THE DOMESTIC LAWS OF CROATIA, HUNGARY AND LITHUANIA

VIOLATES THE COMMITMENTS UNDER ARTICLE XVI OF THE GATS IN RESPECT OF THESE

COUNTRIES (RUSSIA'S CLAIMS 1 TO 3)

1 Commission Communication on an Energy Policy for Europe (Exhibit EU - 14), p. 6; EU's first

written submission, paras. 14-33.

2 See Preliminary Ruling by the Panel of 10 November 2016.



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- 2 -

2.1.1. Introduction

4. Russia first argues that the unbundling requirement, as implemented in the laws of

Croatia, Hungary and Lithuania, is inconsistent with the EU's market access

commitments for "pipeline transmission services" under paragraphs (e), (a) and (f)

Article XVI:2 of the GATS in respect of these countries.

5. However, Russia's interpretation of the market access obligation in Article

XVI:2(e), (a) and (f) is entirely misguided. The European Union rebuts Russia's

arguments in respect of each of these sub-paragraphs in turn (sub-section 2.1.2)

and then turns to Russia's response to the EU's justification in case the Panel would

find that the unbundling measure in Croatia's, Hungary's and Lithuania's

implementing laws would violate these Members' commitments in respect of

Article XVI of the GATS (sub-section 2.1.3).


requirement would violate Article XVI of the GATS

2.1.2.1 Sub-paragraph (e) (Russia's Claim 1)

6. Russia's first claim is that the unbundling requirement qualifies as a measure

"which restrict[s] or require[s] specific types of legal entity or joint venture

through which a service supplier may supply a service", prohibited under sub-

paragraph (e) of Article XVI:2 of the GATS, to the extent a commitment was

made. However, the unbundling requirement in Directive 2009/73/EC does not

limit the type of legal entity the service supplier can use.3

7. It specifies only certain characteristics of an undertaking providing pipeline

transport services.4 This unbundling requirement, which aims to eliminate any

conflict of interests between the activities of transmission and the activities of

production and supply, does not in any way determine or limit the type of legal

entity that a service supplier may use to provide pipeline transmission services in

the EU territory. Rather, what is disciplined is the combination of activities –

3 See also Japan's third party written submission, para. 15.

4 See EU's first written submission, paras.106-119; EU's opening statement of 5 September 2016,

paras. 14-15.



________________________________________________________________________________________

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production/supply and transmission – that cannot be deployed simultaneously.5

Therefore, the unbundling requirement is not a measure of the type specified in

Article XVI:2(e) of the GATS and thus does not violate any of the EU's

commitments under this provision.

8. In Russia's responses to the Panel's questions, Russia seeks to challenge the

European Union's (as well as Japan's6) legal interpretation of sub-paragraph (e) of

Article XVI:2 of the GATS, namely that this provision only prohibits measures

that require specific types of legal entity to be used to provide a service, or that

prohibit the use of a certain type of legal entity. Hence, sub-paragraph (e) does not

cover measures that lay down characteristics of the legal entity.

9. Russia argues for an extremely broad scope of sub-paragraph (e), which would

cover, in Russia's misguided opinion, any measure that somehow would affect the

possibility of a service supplier from one WTO Member to provide services

through commercial presence in a host WTO Member. Russia suggests that sub-

paragraph (e) would cover "other creative measures, including unbundling, that

Members such as the EU have designed in the past two decades to restrict market

access in sectors such as pipeline transport services".7

10. Russia thereby ignores that the unbundling requirement does not limit the market

access for pipeline transport service providers. This requirement only prohibits a

pipeline transport service provider to control at the same time production and/or

supply (i.e. sale) of gas.

11. Moreover, such interpretation ignores the plain words of sub-paragraph (e), which

only covers measures that restrict or require the use of a specific type of legal

entity through which a service supplier may supply a service. It also ignores past

WTO jurisprudence that has stressed the exhaustive nature of the list of measures

5 See also WTO Secretariat note of 31 January 2005, which provides exactly such measures as

examples of measures that do not fall within the scope of Article XVI of the GATS, but rather

within the scope of Article VI:4 of the GATS. Working Party on Domestic Regulation, Examples

of measures to be addressed by Disciplines under GATS Article VI:4. Informal Note by the

Secretariat, Revision, 31 January 2005, JOB(02)/20/Rev.10 (Exhibit EU - 40).

6 See Japan's third party submission, paras. 14-15.

7 Russia's answers of 12 October 2016, para. 380.



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in Article XVI:2 of the GATS,8 precisely to respect the delicate balance carefully

sought by the drafters of the GATS between the right to regulate and the principle

of trade liberalisation.

12. In its argumentation, Russia incorrectly focuses on vertically integrated

undertakings that would want to provide pipeline transport services in Croatia,

Hungary and Lithuania. However, in case of service supply through mode 3, the

"legal entity" that Article XVI:2(e) is concerned with is the legal entity that is

created in the host territory of the Member States to supply a service.9 It does not

concern the VIU. Japan correctly explains that the term "types of legal entity"

under sub-paragraph (e) of Article XVI:2 of the GATS only concerns the corporate

form of the entity itself through which a service is provided (the commercial

presence), and not the broader structure of the group of companies, or the

assignment of ownership or control.10

Russia explicitly agrees with this

interpretation when it states that "the 'specific types of legal entity' referred to in

sub-paragraph (e) is simply another way to describe different forms of commercial

presence".11

All Russia's arguments, which focus on the VIU rather than the

commercial presence, can thus be dismissed.

13. Other than agreeing with the EU and Japan, Russia makes no further effort to

explain the meaning of "legal entity" in sub-paragraph (e) and thus to identify the

limits of the scope of this sub-paragraph. Rather, Russia merely argues that the

reference to "specific types of legal entity" in sub-paragraph (e) is "broader in

scope than the concept of 'juridical person'".12

Russia seeks to stress that the list of

types of legal entities in Article XXVIII(l) ("corporation, trust, partnership, joint

venture, sole proprietorship or association") is "non-exhaustive".13

While the

European Union never denied that there may be other "legal entities" than the ones

8 See Panel Report, US – Gambling, para. 6.298; Panel Report, China ‒ Publications and Audiovisual

Products, para. 7.1353; Panel Report, China – Electronic Payment Services, para. 7.629; and Panel

Report, Argentina – Financial Services, para. 7.418.

9 See EU's first written submission, para. 112.

10 Japan's third-party submission, para. 15; EU's answers of 12 October 2016, paras. 222-223.






________________________________________________________________________________________

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listed in Article XXVIII(l), the European Union does not consider that the

unbundling requirement challenged by Russia restricts or requires the use of a

specific type of legal entity to provide the services. In fact, the WTO Working

Party on Domestic Regulation has explicitly identified measures that are very

similar to the unbundling requirement as not falling with the scope of Article XVI,

but rather within the scope of Article VI:4 of the GATS, i.e. prohibitions to

combine certain activities.14

Such measures lay down characteristics of the service

supplier.

14. In its responses to the Panel's questions, Russia seeks in vain for measures that

would impose the use of a specific type of legal entity, taking words in Croatia's

and Lithuania's implementing laws out of context and arguing that they would be

different from the unbundling requirement in the Directive. In particular, Russia

argues that Article 14(1) of Croatia's Gas Market Act, which concerns ownership

unbundling,15

would differ from Article 9(1) of the Directive.16

According to

Russia, the requirement that the transmission system operator "shall be organized

as a legal entity, independently of other activities in the gas sector" would mean

that it imposes the use of a "specific type of legal entity".17

Yet, by merely

focusing on the words "shall be organized as a legal entity", Russia ignores that the

TSO can take the form of any type of legal entity. Ownership unbundling in

Croatia's law merely requires that the TSO is "independent[] of other activities in

the gas sector". Croatia's law is exactly in line with Article 9(1) of the Directive.

The requirement thus concerns the characteristics of the service supplier.

15. Russia makes the same mistake in respect of Article 17(4) of Croatia's Gas Market

Act, which concerns the ITO model, arguing that, since Article 18(6) of this Act

14 See Working Party on Domestic Regulation, Examples of measures to be addressed by Disciplines

under GATS Article VI:4. Informal Note by the Secretariat, Revision, 31 January 2005,

JOB(02)/20/Rev.10 (Exhibit EU - 40), referring to: (i) Licensing is conditional upon the observance

of the prohibition for service suppliers in the wholesale sub-sector to undertake retailing activities

simultaneously and (ii) License is conditional upon the observance of the prohibition for service

suppliers acting in the fixed telephony sub-sector to undertake activities in the mobile telephony

sub-sector simultaneously.

15 It does not concern ISO, as Russia erroneously suggests in paragraph 13(a)(i) of its answers of 12

October 2016.

16 Russia's answers of 12 October 2016, para. 13(a)(i).




________________________________________________________________________________________

- 6 -

requires an ITO to "have a special corporate identity, communication, brand name

and business premises clearly separating it from the parent company in the system

of the vertically integrated undertaking", it would impose the use of a specific type

of legal entity.18

Once again, Russia only focuses on the phrase "have a special

corporate identity, communication, brand name and business premises", ignoring

that the essence of the requirement is that the ITO must be "clearly separat[ed]

from the parent company". Again, any type of legal entity is permitted, but the

ITO must be "separate" from the parent undertaking. This is not a measure within

the scope of Article XVI:2(e) of the GATS.

16. Russia further errs when claiming that Article 2(6) of Croatia's Energy Activities

Act, which provides a definition of an ITO, violates Article XVI:2(e) of the

GATS. Russia argues that the requirement that an ITO is "an independent

company separate from a vertically integrated undertaking" would "support[]"

Russia's Article XVI:2(e) claim.19

Yet, once again, there is no requirement to use a

specific legal entity through which the service must be supplied. The only

requirement is that the TSO is "independent" and thus "separate from a vertically

integrated undertaking", which imposes characteristics of the service supplier.

17. Russia also cites Article 41(2) of Lithuania's Law on Natural Gas, which requires

that:

An undertaking performing any of the functions of production or

supply in any other country whose transmission system is

connected to the natural gas transmission system of the Republic

of Lithuania shall not be entitled directly or indirectly to exercise

control or exercise any right over a transmission system operator.

18. The European Union has already explained in its first written submission that

Russia errs when suggesting that this is an additional requirement, not contained in

the Directive.20

This provision follows immediately Article 41(1) of the Law on

Natural Gas, which copies the language contained in Article 9(1) of Directive

2009/73/EC. Article 41(2) clarifies that the prohibition established under Article

41(1) is also applicable in cases where the undertakings perform the respective

18 Russia's answers of 12 October 2016, para. 13(a)(ii).

19 Russia's answers of 12 October 2016, para. 13(b).

20 Russia's answers of 12 October 2016, para. 15(c); Russia's first written submission, para. 198.



________________________________________________________________________________________

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production or supply activities in any other countries which are interconnected

with Lithuania. The unbundling requirement thus does not only apply to

undertakings established in Lithuania. The provision merely specifies what is

already the case under the Directive: namely that no TSO in the territory of

Lithuania may be controlled by the same person that also performs any of the

functions of production or supply; or that can appoint members of the supervisory

board, administrative board or other bodies legally representing the TSO, while at

the same time exercising directly or indirectly control or any right over an

undertaking performing any of the functions of production or supply.21

19. Russia thus also errs when claiming in its responses to Panel Question 3 that this

measure restricts the specific types of legal entity through which a service supplier

may supply its pipeline transport services in Lithuania, in violation of Article

XVI:2(e) of the GATS. The measure merely specifies that the unbundling

requirement also applies in cases where the undertakings perform the respective

production or supply activities in any other countries which are interconnected

with Lithuania. The unbundling requirement is not a measure of the type defined

in sub-paragraph (e).

2.1.2.2 Sub-paragraph (a) (Russia's Claim 2)

20. Russia also argues that the unbundling measures in the domestic laws of Croatia

and Lithuania have the effect of limiting the number of service suppliers, in

violation of Article XVI:2(a) of the GATS.

21. Yet, Russia makes an incorrect interpretation of sub-paragraph (a) of the GATS

that does not fit with the facts at hand. Measures covered by sub-paragraph (a) are

measures intended specifically to limit the number of "service suppliers".22

It does

not cover measures that "indirectly give rise to a quantitative limitation on service

suppliers".23

To qualify as a measure under sub-paragraph (a), the core

characteristic of the measure must be to limit the number of service suppliers.24

21 EU's first written submission, para. 114.

22 Panel Report, Argentina – Financial Services, para. 7.421.

23 Panel Report, Argentina – Financial Services, para. 7.420. This point was not appealed.

24 Japan's third party written submission, para. 11.



________________________________________________________________________________________

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22. Russia argues that under Article XVI:2(a), "consideration should be given to the

substance and effect of a challenged measure and not just its formal

construction".25

Yet, the Appellate Body has precisely stressed that it disagreed

with an interpretation of Article XVI:2(a) of the GATS that any measure having a

quantitative effect would fall within the scope of sub-paragraph (a). The Appellate

Body indeed considered that it disagreed that "the words 'in the form of' [in Article

XVI:2(a)] should be ignored or replaced by the words 'that have the effect of'".26

23. The unbundling requirement does not, in any way, limit the number of service

suppliers that may supply pipeline transport services in the EU, nor does it impose

a monopoly supplier. There is an unlimited number of pipeline transport service

suppliers that can be certified as transmission service operators in Croatia and

Lithuania. The European Union has explained in its first written submission that

there is nothing in Croatia's27

or Lithuania's implementing laws,28

challenged by

Russia, that would limit the number of pipeline transport service suppliers in those

EU Member States.

24. The European Union also recalls that Russia's claim regarding Article 20(5) of

Lithuania's Law on Natural Gas is outside the Panel's terms of reference,29

also

when it concerns its suggestion that it would violate Article XVI:2(a) of the

GATS.30

2.1.2.3 Sub-paragraph (f) (Russia's Claim 3)

25. A final market access claim that Russia makes in respect of the unbundling

requirement is that it would violate sub-paragraph (f) of Article XVI:2 of the

GATS.

26. Yet, prohibited limitations under this sub-paragraph are maximum percentage

limits on foreign shareholding, or a maximum percentage limit of the total value of

25 Russia's answers of 12 October 2016, para. 25 (emphasis added).

26 Appellate Body Report, US – Gambling, para. 232.

27 EU's first written submission, paras. 132-133.

28 EU's first written submission, paras. 134-13

29 EU's Comments Regarding Terms of Reference, 21 October 2016, paras. 12, 28-34.

30 Russia's answers of 12 October 2016, para. 15(a).



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individual or aggregate foreign investment. Sub-paragraph (f) is thus not

concerned with all limitations on capital participation, but is specifically concerned

with limitations tied to the fact that the capital originates outside of the Member

adopting the limitation.31

The unbundling requirement does not impose a

"limitation on the participation of foreign capital"32

and is neither "expressly [nor

indirectly] discriminatory".33

27. The Panel has noted that only sub-paragraph (f) of Article XVI:2 mentions the

word "foreign", no less than three times, in comparison with the other five sub-

paragraphs of Article XVI:2, which do not mention this word at all.34

This contrast

precisely supports the European Union's interpretation that sub-paragraph (f)

prohibits only limitations tied to the fact that the capital originates outside of the

Member adopting the limitation. Once again, Russia engages in an overly broad

interpretation of the scope of the measures defined in sub-paragraphs (a) to (f) of

Article XVI:2 of the GATS.

28. Russia's arguments are not based on the interpretation of the words in sub-

paragraph (f), but merely on Russia's suggestion that historically governments

have tended to impose restrictions on foreign direct investment.35

The European

Union fails to understand why this would imply that the word "foreign" could now

be read out of the text of sub-paragraph (f).

29. Russia also engages in inappropriate speculation on what a Member would do

when it has made a limitation with regard to its market access commitments that

would permit it to maintain a monopoly or exclusive service suppliers. Russia

claims that it "does not seem likely … that a Member would establish a foreign

person as a monopoly service supplier or exclusive supplier in its territory".36

This

statement by Russia is symptomatic of Russia's unfounded assumption – which

infects all its arguments – that WTO Members have a bias against foreign service

31 See Japan's third party written submission, para. 18.

32 Panel Report, China – Publications and Audiovisual Products, para. 7.1394 (emphasis added).

33 Panel Report, China – Electronic Payment Services, para. 7.653.

34 Panel's Question No. 89.





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suppliers. Yet, beyond speculation, Russia is unable to support its assumptions

with evidence.

30. In any event, the unbundling requirement – if it would limit investment at all –

applies without distinction to domestic and foreign investment. Such measure is

not covered by the prohibition in sub-paragraph (f) of Article XVI:2 of the GATS.


requirement is not justified under Articles XIV(a) or (c)

31. The European Union has demonstrated in its first written submission that, even if

the Panel would consider that the unbundling measures in Croatia's, Hungary's and

Lithuania's domestic laws violate the market access commitments under sub-

paragraphs (e), (a) or (f) (quod non), the unbundling requirement is justified under

Articles XIV(a)37

and (c)38

of the GATS.

2.1.3.1 Article XIV(a) of the GATS

Competition in the energy sector is a fundamental 2.1.3.1.1

interest of EU society

32. The unbundling measure is necessary to maintain public order, consistent with

Article XIV(a) of the GATS. Competition in the energy sector, leading to

enhanced network access and increased investment, is a "fundamental interest of

society in the European Union".

33. Russia suggests that the EU has not demonstrated "how competition relates to the

'public order' or a fundamental interest of society or how the TEP unbundling

measures promote competition".39

Such suggestions are simply false. The

European Union has demonstrated, with reference to the provisions in the Treaty

Establishing the European Union, the Treaty on the Functioning of the European

Union, EU Regulations, competition decisions by the EU Commission, case-law of

the Court of Justice of the EU, and EU Commission communications and studies,40

that competition in the energy market is a "fundamental interest" of society in the



39 Russia's first oral statement, para. 17.

40 EU's first written submission, paras. 180-188, and the references in the footnotes to those

paragraphs.



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European Union and thus falls within the European Union's public order, as

clarified in footnote 5 to Article XIV(a) of the GATS. The European Union has

also demonstrated that the lack of effective unbundling of network and supply

activities poses a genuine and sufficiently serious threat to competition in the

energy market, showing how different attempts, preceding the Third Energy

Package, to improve competition in the energy sector were proven to be

insufficient. This was also demonstrated through the study in the Commission's

sector inquiry.41

The European Union has finally also demonstrated that the

unbundling requirement is manifestly "apt to make a material contribution" to the

achievement of increased competition in the energy sector.42

Russia did not and

cannot rebut any of this evidence.

No alternative measures are reasonably available to 2.1.3.1.2

achieve the objective

34. With regard to the existence of alternative measures that would achieve the

objective of ensuring and increasing competition and investment in the energy

market of the EU to the same extent as the unbundling requirement, Russia

suggests that "any contribution attributed by the EU to the unbundling measures is

already achieved by other laws".43

In its response to Panel Question 100, Russia

clarifies that it "does not argue that the existence of 'other laws' makes it such that

the unbundling requirement does not contribute in any way to competition or to

securing compliance with the TPA requirements of Article 32 of the Directive".44

Russia thereby already admits that the unbundling measure does contribute to the

stated objective.

35. Moreover, the "other laws" that Russia attempts to identify are not reasonably

available alternatives that achieve the objective to the same extent as the

unbundling measure. Russia suggests that the TPA requirement in Article 32 of the

Directive would be sufficient to prevent that TSOs provide privileged access to the

network for certain energy companies that are linked to VIUs and would impede







________________________________________________________________________________________

- 12 -

access to other gas producers and sellers. Russia also suggest that the obligation in

Article 22(7) of the Directive for TSOs to execute investments identified in their

ten-year network development plans would be sufficient to ensure sufficient

investment in infrastructure to safeguard competition.45

Russia errs. First, it should

be noted that Article 22 (7) does not even apply to all TSOs, but is part of the ITO

framework. It is thus not an alternative to unbundling, but part of the conditions of

one of the unbundling models. Second, past experience in the EU irrefutably

shows that these obligations, on their own, were insufficient to achieve these

objectives for transmission pipeline networks and that effective separation of

networks from activities of production and supply is necessary.46

36. It should also be recalled that, in addition to the strong link between unbundling

and TPA, unbundling has broader aims and implications than ensuring TPA.

Eliminating possible conflicts of interests between transmission and

production/supply activities in the TSO ensures that sufficient investments in the

network will be carried out, that all potential suppliers can access the network

which contributes to security of supply and better choices for consumers, etc. It is

thus incorrect to consider TPA and unbundling as equivalent or duplicating rules.

37. The separation of transmission, on the one hand, and production and supply

interests, on the other hand, is achieved through the three unbundling models that

the Directive sets out.47

These three models are each of them necessary to achieve

the objective of ensuring and increasing competition in the energy sector.


46 See Recitals (6) and (7) of Directive 2009/73/EC and Communication from the Commission

Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity

sectors (Final Report), COM (2006) 851, http://eur-lex.europa.eu/legal-

content/EN/TXT/?uri=COM:2006:0851:FIN, para. 1 (Exhibit EU - 11) and a more detailed

Commission staff working document accompanying the Communication from the Commission -

Inquiry pursuant to Article 17 of Regulation (EC) No 1/2003 into the European gas and electricity

sectors (Final Report) (COM (2006) 851 final),

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52006SC1724 (Exhibit EU - 12). Key

arguments uncovered in the course of the investigation relating to the deficiencies of the existing

legal unbundling requirements are summarized in a Competition Policy Newsletter of Spring 2007,

http://ec.europa.eu/competition/publications/cpn/2007_1_23.pdf (Exhibit EU - 13) and see

Commission Communication on an Energy Policy for Europe, http://eur-

lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0001:FIN:EN:PDF (Exhibit EU - 14).

47 For ease of comprehension, the EU provides a schematic overview of the main characteristics of the

unbundling models as Exhibit EU-102.

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2006:0851:FIN

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=COM:2006:0851:FIN

http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex:52006SC1724

http://ec.europa.eu/competition/publications/cpn/2007_1_23.pdf

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0001:FIN:EN:PDF

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2007:0001:FIN:EN:PDF



________________________________________________________________________________________

- 13 -

38. Russia errs already when claiming that the three models under the unbundling

measure have "a restrictive impact on international commerce, contrary to the

requirement of Article XIV(a)"48

(a "requirement" that Russia does not specify

further). However, the unbundling requirement does not, in any way, limit the

number of pipeline transmission services or suppliers that may serve the EU

market. Any transmission service supplier can still access the EU market, provided

that it does not control production and/or supply (i.e. sale) at the same time. The

fact that a VIU may have to "restructure",49

does not limit the supply of services.

Moreover, there is no obligation for a VIU to "divest their EU businesses

altogether".50

39. Further, Russia also focuses on the alleged (and illegal) possibilities for abusing

control over transmission in case of the ISO and ITO models to suggest that these

models would be less restrictive than ownership unbundling. The European Union

has demonstrated in detail that one unbundling model cannot be considered to be

"less restrictive" than another and that none of the models allows producers or

suppliers to control the manner in which the TSO operates the network and grants

access to it.51

Russia's arguments in fact reveal that it does not consider that the

unbundling requirement leads to a limited volume of pipeline transport services or

the number of suppliers.52

Rather, the "restrictiveness" that Russia complains

about is the inability to control gas producing/supplying competitors' access to the

transmission network and thus abuse the monopolistic position of the transmission

system operator. This is not the "trade restriction" WTO law protects against.

Moreover, none of the unbundling models allows the TSO to discriminate between

system users, in favour of its related producers or suppliers. To the opposite, such

a discrimination would be a clear violation of EU law53

– of the TSO obligations

under all unbundling models, as well as of the EU rules for non-discriminatory





52 See Russia's first oral statement, para. 20: Russia admits that "[t]he unbundling measures may not

expressly limit the volume of pipeline transport services or the number of suppliers".

53 See the explicit prohibition in Article 13((1)(b) of Directive 2009/73/EC for a TSO to discriminate

again system users, particularly in favour of its related undertakings, when operating the system.



________________________________________________________________________________________

- 14 -

third party access and capacity allocation. The EU finds it rather worrying that the

alleged "advantage" of the ISO and ITO models which Russia claims would exist

only if EU law is violated.

40. Each of the three models achieves the objective of ensuring and increasing

competition and investment in the energy market of the EU to the same extent. To

the extent that the degree of structural separation required is less, this is

compensated by intense behavioural requirements, increased regulatory oversight

and compliance burdens to achieve the same degree of effective unbundling as

ownership unbundling. Indeed, in the case of ownership unbundling, enforcement

costs and compliance burden for the undertaking are much less than in case of the

ITO model.54

It is therefore entirely incorrect to suggest that the ISO or ITO

models would be less restrictive than ownership unbundling. In terms of

compliance burden for the undertaking and enforcement costs, OU is the most

effective and least restrictive tool.55

The unbundling requirement meets the conditions of 2.1.3.1.3

the Chapeau of Article XIV

41. Russia finally suggests that the EU "barely mention[ed]"56

the requirements in the

Chapeau of Article XIV(a) of the GATS. Yet, as the European Union

demonstrated extensively in its submissions – and Russia failed to rebut – the

unbundling requirements in the domestic laws by Croatia, Hungary and Lithuania

challenged by Russia under Article XVI do not discriminate against Russian

suppliers. Each pipeline transport service supplier that provides or wants to

provide pipeline transport services in one of these EU Member States is subject to

exactly the same unbundling requirements in that Member State. If the Member

State has implemented OU only (e.g. Lithuania), all suppliers are subject to that

requirement. If the Member State has implemented also the ISO and ITO models

(e.g. Hungary and Croatia), the service suppliers could rely on either of these

models (provided the time limit of 3 September 2009 is respected). There is no

discrimination, let alone any arbitrary or unjustifiable discrimination.

54 EU's first written submission, para. 319; EU's answers of 12 October 2016, paras. 156-157.

55 Recital (8) of Directive 2009/73/EC.




________________________________________________________________________________________

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2.1.3.2 Article XIV(c) of the GATS

42. The European Union has also demonstrated that the unbundling requirements in

the Directive, as implemented in the domestic laws of Croatia, Hungary and

Lithuania, are necessary to secure compliance with the third party access

obligation in Article 32 of the Directive, as implemented in the domestic laws of

Croatia, Hungary and Lithuania, and thus also justified under Article XIV(c) of the

GATS.57

43. Russia states that its "response to the EU's assertions [under Article XIV(c)] is the

same [as to the EU's Article XIV(a) defence]".58

As explained with respect to

Article XIV(a), the European Union contests that the contribution of the

unbundling requirement to TPA and enhanced investment is sufficiently achieved

by the other laws that Russia identifies. Evidence based on historical experience

with different past measures shows exactly the opposite.59

44. Moreover, Russia's argument is also logically flawed because it claims that the

compliance with the TPA requirement in Article 32 of the Directive can be

ensured by the existence of the TPA requirement itself. Yet, it is the unbundling

requirement in the Directive (in particular Articles 9, 14-15, and Chapter IV of the

Directive), implemented in the different Member States, that ensures compliance

with Article 32 of the Directive, as implemented by the Member States.

45. The TPA rule requires that all system users have access to the system under non-

discriminatory terms, i.e. the intended regulatory outcome. The unbundling rules

on the other hand, provide one of the mechanisms how this outcome is ensured via

elimination of the conflicts of interests between transmission and

production/supply activities at the level of the TSO or its shareholders. Such rules

are necessary in the context of transmission activities because transmission

networks are natural monopolies and so there is a high risk for discriminatory

behaviour in the operation of the network. There are also other rules in Directive

2009/73/EC and Regulation (EC) No 715/2009, apart from TSO unbundling,



59 See paragraph 35, above.



________________________________________________________________________________________

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which aim to ensure TPA to the transmission network, e.g. rules on how tariffs for

access to the transmission network must be calculated and approved, rules on how

capacity will be allocated, etc. Thus while Article 32 sets the general principle of

TPA which is underpinning the entire EU gas market legislation, it does not

eliminate the need for further rules in order to guarantee that the principle is

applied and respected.

46. The European Union also disputes60

Russia's objection that the unbundling

measure cannot ensure compliance with the TPA obligation because "they are in

fact a part of the same regime".61

A provision in a law or regulation may secure

compliance with an obligation in another provision of the same law or regulation.

This has been explicitly recognized by the panel in Argentina – Financial Services,

when it stressed that Panama had not challenged the two relevant laws as a whole,

but rather specific provisions of the laws.62

The panel stated that the fact that

certain provisions in the laws at issue were inconsistent with the GATS did not

mean that this resulted in the GATS inconsistency of the other provisions of these

two instruments.63

The panel thus accepted that certain provisions in a law that

were found to be inconsistent with the GATS could still be justified if they were

necessary to secure compliance with other provisions in the same law. The

Appellate Body upheld the panel's analysis in this regard.64

2.2. CLAIM VIII: THE PUBLIC BODY SPECIFICATION IN ARTICLE 9(6) OF DIRECTIVE 2009/73

VIOLATES NEITHER DE JURE NOR DE FACTO THE NATIONAL TREATMENT OBLIGATION IN

ARTICLE XVII OF THE GATS (RUSSIA'S CLAIMS 4 AND 5)

2.2.1. Introduction

47. Russia has challenged the public body specification in Article 9(6) of Directive

2009/73/EC, implemented in Croatia's, Hungary's and Lithuania's domestic laws,

as allegedly inconsistent with these EU Member States' national treatment

obligation in Article XVII:1 of the GATS. Russia claims that this measure is both

60 EU's responses of 12 October 2016, paras. 237-238.

61 Russia's responses of 12 October 2016, para. 410.



64 Appellate Body Report, Argentina – Financial Services, para. 6.241.



________________________________________________________________________________________

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de jure and de facto discriminatory (Russia now labels this as claims 4 and 5).65

The European Union has demonstrated that this claim is based on an incorrect and

selective reading of Article 9(6) and is not supported by the facts.

2.2.2. Article 9(6) is not de jure discriminatory

48. Russia claims that Article 9(6) of the Directive, implemented in the domestic laws

of Croatia, Hungary and Lithuania, "arbitrarily exempts government-owned and

controlled VIUs from the requirements of both the OU and ISO unbundling

models".66

49. However, as the European Union has explained, the public body specification is

not an exemption but precisely extends the unbundling requirement to the public

sector.67

The European Union thereby respects the principle of non-discrimination

between public and private sectors.68

The public sector does not escape the

application of the unbundling requirement (in particular paragraphs (a), (b), (c) and

(d) of Article 9(1) and Articles 9(2), 9(3) and 9(7) of the Directive). Such

application is ensured because the NRA must assess, in addition to whether all

unbundling requirements are met, whether the two public bodies controlling the

TSO, on the one hand, and a production or supply undertaking, on the other hand,

are truly separate, i.e. the public bodies must be independent from one another and

not under common influence of another public entity. The Commission also makes

such assessment in its Opinion on draft certification decisions submitted by NRAs

in accordance with Articles 10 and 11 of Directive 2009/73/EC. Effective

separation of transmission, on the one hand, and production and supply (i.e. sale)

interests, on the other hand, is thus ensured.

50. In fact, the absence of Article 9(6) of the Directive would have meant either that

public bodies are not subject to unbundling, or would have amounted to a

requirement to privatise transmission and production/supply activities in order to

65 Russia's responses of 12 October 2016, paras. 28 and 29.


67 EU's responses of 12 October 2016, paras. 3-5; EU's first written submission, paras. 223-226.

68 See Recital (20) to the Directive.



________________________________________________________________________________________

- 18 -

comply with the unbundling rules (which would not have been possible due to EU-

constitutional reasons, as explained below).

51. Russia claims that "the Member State government" is one "person" and that thus

there is no unbundling under Article 9(6) for public bodies.69

Russia thereby

ignores that the Article 9(6) precisely requires that the NRA of the Member State

providing certification ensure that there are indeed two separate public bodies

exercising control over a transmission system operator or over a transmission

system on the one hand, and over an undertaking exercising any of the functions of

production or supply on the other. This must be demonstrated by the TSO to the

NRA.70

Whether the public bodies are "truly separate", and thus not under the

common influence of another public entity in violation of the unbundling rules,71

is

assessed by the NRA as well as by the Commission, based on a detailed

examination of the State's constitutional and administrative law.72

Russia's

argument that TSOs in the public sector would be exempt from the unbundling

requirement is thus entirely incorrect. The Commission certification opinions

concerning cases where Article 9(6) has been applied clearly evidence that no such

exemption exists and that Russia aims to misrepresent the nature of Article 9(6) by

persistently incorrectly qualifying it as an "exemption".

2.2.3. Article 9(6) is not de facto discriminatory

52. Russia further errs when claiming that the public body specification in Article 9(6)

is de facto discriminatory. There is nothing in this provision, or in the Directive in

69 Russia's first oral statement, para. 29; Russia's responses of 12 October 2016, para. 3.

70 EU's responses of 12 October 2016, para. 33.

71 Commission Interpretative Note on Directive 2009/72/EC concerning common rules for the internal

Market in electricity and Directive 2009/73/EC concerning common rules for the internal market in

natural gas. The unbundling regime, 22 January 2010, p. 10 (Exhibit EU - 42).

72 See for instance, Commission Opinion of 9 January 2012 pursuant to Article 3(1) of Regulation

(EC) No 715/2009 and Article 10(6) of Directive 2009/73/EC - Denmark - Certification of

Energinet.dk (gas), C(2012) 88 final, pp. 3-5 (Exhibit EU - 51); Commission Opinion of 1 July

2013 pursuant to Article 3(1) of Regulation (EC) No 715/2009 and Article 10(6) of Directive

2009/73/EC – the Netherlands - Certification of Gas Transport Services B.V., C(2013) 4205 final,

pp. 2-5 (Exhibit EU - 52); Commission Opinion of 17 February 2015 pursuant to Article 3(1) of

Regulation (EC) No 715/2009 and Article 10(6) of Directive 2009/73/EC – Hungary – Certification

of Magyar Gáz Tranzit Zrt., C(2015) 1046 final, pp. 3-4 (Exhibit EU - 53); Commission Opinion of

23 March 2015 pursuant to Article 3(1) of Regulation (EC) No 715/2009 and Article 10(6) of

Directive 2009/73/EC - Lithuania - Amber Grid, C(2015) 2135 final, pp. 1-3 (Exhibit EU - 54).



________________________________________________________________________________________

- 19 -

general, that indicates that third country public bodies cannot rely on Article 9(6)

when seeking certification under Articles 10 and 11 of the Directive. Russia

nevertheless asserts that Article 9(6) of the Directive was "designed to permit

Member States to own and control their entire transmission and supply systems".73

Russia does not provide a single piece of evidence to prove its asserted intention of

this provision.

53. On the contrary, all available evidence demonstrates that third country public

bodies can also rely on this provision. First, the text of Article 9(6) of the Directive

refers not only to "the Member State", but also, in addition, to "another public

body".

54. Second, The European Union notes that the phrase "Member States (or other

public bodies)" also figures in paragraph 192 of the Commission's Merger

Jurisdictional Notice.74

The notice provides that for the purpose of calculating

turnover in Merger Control:

Member States (or other public bodies) are not considered as

‘undertakings’ under Article 5(4) simply because they have

interests in other undertakings which satisfy the conditions of

Article 5(4). Therefore, for the purposes of calculating turnover of

State-owned undertakings, account is only taken of those

undertakings which belong to the same economic unit, having the

same independent power of decision. Thus, where a State-owned

company is not subject to any coordination with other State-

controlled holdings, it should be treated as independent for the

purposes of Article 5, and the turnover of other companies owned

by that State should not be taken into account. Where, however,

several State-owned companies are under the same independent

centre of commercial decision-making, then the turnover of those

businesses should be considered part of the group of the

undertaking concerned for the purposes of Article 5.75

55. Hence, the jurisdictional notice uses exactly the same term as the Gas Directive:

"Member States or other public bodies". The European Commission has applied

those rules to undertakings owned by the Chinese state in several merger control


74 Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on

the control of concentrations between undertakings , Official Journal C 095, 16/04/2008 P 1-48,

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:095:0001:0048:EN:PDF

(Exhibit EU-101).

75 Emphasis added.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2008:095:0001:0048:EN:PDF



________________________________________________________________________________________

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decisions.76

This demonstrates that this language used in Article 9(6) was intended

to extend the provision also to third country public bodies. The public body

specification in Article 9(6) is thus not de jure discriminatory.

56. Russia also claims that this provision results in de facto discrimination because –

according to Russia – Croatia, Hungary and Lithuania, through separate

government agencies or public bodies, actually own and control both the TSO and

supply infrastructure.77

As the European Union has explained in paragraph 51

above, the government does not "control" the TSO and the supply infrastructure.

The TSO must demonstrate to the NRA and the Commission that there are public

bodies that are truly separate and that these bodies fully comply with the

unbundling rules.

57. The European Union has also explained that there is an EU-constitutional reason

for not requiring a State to sell the network to a privately owned company, and

thus to privatise. As Russia itself accepts,78

such would be contrary to Article 345

of the TFEU, which reads:

The treaties shall in no way prejudice the rules in Member States governing the

system of property ownership.

58. Finally, the fact that there has not yet been an example where a third country TSO

has sought to rely on Article 9(6) of the Directive when seeking certification under

Articles 10 and 11 of the Directive, and that there are, at present, only a few

examples of application with regard to public bodies in EU Member States, does

not mean that this provision is de facto discriminatory. Whether situations would

arise where the application of Article 9(6) would be sought by a third country TSO

depends on factual circumstances that the EU legislation does not control. In fact,

Russia itself recognises that no Russian entity has sought to unbundle in

76 See for example Cases COMP/M.6111– Huaneng/OTPPB/Intergen, decision of 11 February 2011

(Exhibit EU-103); COMP/M.6082 – China National Bluestar/Elkem, decision of 31 March 2011

(Exhibit EU-104); COMP/M.6151 – Petrochina/Ineos/JV, decision of 13 May 2011 (Exhibit EU-

105); COMP/M.6113 – DSM/Sinochem/JV, decision of 19 May 2011 (Exhibit EU-106); and Case

COMP/M.6141 – China National Agrochemical Corporation/Koor Industries/Makhteshim Agan

Industries, decision of 3 October 2011 (Exhibit EU-107).





________________________________________________________________________________________

- 21 -

accordance with Article 9(6) or pursuant to the corresponding provision in an EU

Member State’s implementing legislation.79

59. The European Union recalls that the Appellate Body in EC – Seal Products

stressed that, when assessing a measure under a non-discrimination obligation, a

panel looks at the "design, structure and expected operation" of the measure and

that the "focus of the analysis is on the impact of a measure on competitive

opportunities for like imported products, rather than the actual trade effects of a

measure".80

Therefore, even if there are at present no transmission system

operators in Croatia, Hungary or Lithuania that are controlled by third country

governments, nothing in the "design, structure and expected operation" of Article

9(6), or in the implementing measures by Croatia, Hungary or Lithuania, suggests

that third country-controlled transmission system operators would be excluded

from relying on this provision. The European Union refers to its detailed – and

unrebutted – discussion of the application of the unbundling requirement in

Hungary, Croatia and Lithuania in its first written submission.81

2.3. CLAIM IX: THE UNBUNDLING MEASURE DOES NOT VIOLATE THE MOST FAVOURED

NATION OBLIGATION IN ARTICLE II:1 OF THE GATS (RUSSIA'S CLAIM 6)

2.3.1. Introduction

60. Russia also brings a de facto discrimination claim under Article II:1 of the GATS

against the unbundling measure in Directive 2009/73/EC.82

61. Despite the fact that Russia specified that the "unbundling measure in the Directive

is the only measure relevant to this claim", in its responses of 12 October 2016,

Russia added to its "as such" claim against the unbundling measure in the

Directive an "as applied" claim, arguing that Russia "challenges the specific

instance of application of the unbundling measure in Lithuania by the EU and

Lithuania", whereby "Lithuania revoked the license of the Gazprom-jointly

controlled TSO in Lithuania".83

The Panel nevertheless decided in its Preliminary


80 Appellate Body Report, EC – Seal Products, para. 5.95 (footnote 1019) (emphasis in original).


82 Russia's first written submission, para. 307.




________________________________________________________________________________________

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Ruling of 10 November 2016 that this claim ("Claim 7") falls outside the Panel's

terms of reference.84

62. Russia's discrimination claim is unfounded. It is based on an entirely erroneous

understanding of the law and is not supported by the facts.

2.3.2. The treatment service suppliers receive must be assessed in each

EU Member State individually

63. Russia's claim of discrimination is entirely based on the fact that not all Member

States have implemented all three unbundling models provided for in the

Directive. Russia asserts that there would be a violation of the MFN obligation in

Article II:1 of the GATS because a pipeline transport service supplier seeking

access to one Member State would be able to choose between OU, ISO or ITO,

whereas a pipeline transport service supplier in another Member State would only

have the possibility to seek certification under the OU model.

64. Yet, the Directive that Russia has challenged does not determine whether each

individual EU Member State must only implement OU or also the ISO or ITO

models, let alone whether TSOs must choose one or the other model when seeking

certification. It is entirely up for each Member State to decide whether to

implement OU only or also the other unbundling models. Next, it is entirely up to

each TSO to decide under which of the unbundling models set out in national law

to apply for certification before the national regulatory authority. Therefore, the

treatment that a pipeline transport service supplier receives is determined by the

legislation of the Member State implementing the unbundling requirement. That

treatment in the specific Member State is the basis for the MFN assessment. Given

that all service suppliers from all WTO Members are subject to the same

unbundling requirement in the Member State, there is no MFN violation.

65. It is wholly incorrect to compare the treatment received in one EU Member State

with the treatment received in another EU Member State. That would involve in

fact a comparison of the treatment offered by different measures. If a complainant

would want to assess the MFN treatment throughout the European Union, such

assessment can only be based on the treatment offered by a measure that lays

84 Preliminary Ruling by the Panel of 10 November 2016, para. 2.2.



________________________________________________________________________________________

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down such treatment for the entire EU. This would be a Regulation, which by

definition does not require further implementation in the Member States, or

provisions in a Directive that do not permit any options for the Member States for

implementing the measure, and do not involve minimum harmonisation (i.e.

Member States would not have the right to add requirements). The European

Union has explained that, indeed, the regulatory jurisdiction from which a

challenged measure emanates must determine the treatment that is compared.85

In

case of the unbundling requirement in Regulation 2009/73/EC, the relevant

provisions (Articles 9, 14-15 and Chapter IV) do not distinguish based on the

origin of the pipeline transport service supplier. There is thus no MFN violation.

66. Russia's claim follows an unsubstantiated assertion that the Member States (Russia

in fact only refers to Lithuania) and the European Union "acted together"86

in a

"calculated"87

process to adopt a Directive that would discriminate against pipeline

transport service suppliers from certain WTO Members.

67. However, Russia does not provide any evidence to demonstrate that such supposed

"conspiracy" exists. Moreover, the facts directly contradict Russia's assertion.

Russia presents an isolated, incomplete and incorrect overview of the unbundling

regime in the Member States, focusing on the unbundling process in Lithuania and

failing to mention the cases where Russian shareholdings in the TSO have been

subject to the ITO model or have been exempted from the unbundling

requirements. There are several examples where TSOs or transmission system

owners in which Gazprom has shareholdings have made use of the ITO or ISO

model.

68. The European Union recalls that Germany is – and was already before the

adoption of the Gas Directive in 2009 – the largest gas market in the European

Union and the largest export market for Gazprom.88

Yet, Germany has

implemented all three unbundling models. Moreover, three TSOs where Gazprom




88 Russian Gas Imports in the EU (all Member States) 2009-2014 (Eurostat Statistics), (Exhibit EU-

108) and Russian Gas Imports in Germany, (Exhibit EU-109).



________________________________________________________________________________________

- 24 -

has joint control or shareholdings have been certified as ITOs, i.e. GASCADE

Gastransport GmbH, NEL Gastransport GmbH and ONTRAS.89

In addition, the

Opal pipeline which operates under an exemption framework in Germany is not

operated by an unbundled TSO. If the unbundling requirement in the Directive that

Russia now challenges would have been designed to treat pipeline transport

service suppliers from one particular WTO Member less favourably, the Directive

would have allowed for the implementation of the OU model only, or Germany –

where Gazprom's interests were the most significant – would have implemented

the OU model only (under Russia's erroneous assumption that the OU would have

a negative competitive impact, quod non). None of this is the case.

69. Furthermore, three of the Member States where Gazprom had considerable

shareholdings in the TSO at the time of adoption of the Directive – Estonia,

Finland and Latvia – were granted derogations from the unbundling rules as

isolated markets under Article 49(1) of the Directive. If the intention of the

Directive has been to "attack" Russian shareholdings in TSOs, as Russia seems to

allege, no such derogations would have been granted.90

70. Moreover, even in Lithuania, there is no element in the challenged Directive that

compelled Gazprom to stop providing its pipeline transport services in Lithuania.

Russia suggests that the EU has "enable[d] individual Member States like

Lithuania to require the OU model".91

However, Lithuania did not need any

"enabling" by the EU to impose OU. It could have done so without the existence

of any EU measure. Nothing in Russia's story allegedly explaining the background

for the adoption of Lithuania's energy laws92

demonstrates any "acting together" of

89 EU's first written submission, para. 338-341. While Russia stresses the implementation of the ITO

model in France, it mentions its implementation in Germany only to claim that it has been applied

to the TSO jorgas, but omits to mention the more numerous TSOs with Russian shareholding in

Germany that have used the model (Russia's responses of 12 October 2016, paras. 33 and 35)

90 Latvia has subsequently transposed the OU model because the conditions for the exemption in

Article 49(1) to remain in place were no longer met. Estonia on the other hand has decided to apply

unbundling and not make use of the derogation, which under the Directive it is free to do. In any

event, in both cases, nothing has prevented Gazprom from keeping passive minority rights in the

TSO, as allowed under OU rules. Moreover, Finland, where Gazprom had a substantial

shareholding in the TSO, still applies the derogation. While Gazprom has in 2015 decided to sell its

shares to the Finnish state in 2015, in the absence of application of the unbundling rules in Finland,

this choice evidently cannot be attributed to the EU legislation.


92 Russia's responses of 12 October 2016, paras. 152-188.



________________________________________________________________________________________

- 25 -

the European Union and Lithuania. Gazprom could still provide pipeline transport

services in Lithuania, provided it ensured it did not control an undertaking

performing any of the functions of production or supply. The same conditions

apply to any other Russian gas producer or supplier. In fact, this obligation applies

indeed to all pipeline transport service suppliers in Lithuania. There is thus no

MFN violation.

71. Finally, apart from not being supported by the facts at all, Russia's allegations that

the EU and the Member States somehow "conspired" in the adoption in

implementation of the unbundling models in the Directive in order to discriminate

against Russian pipeline transport service suppliers is simply unrealistic. Neither

could the EU have known at the time of adoption of the Directive which Member

State would implement which model several years later (using its sovereign

decision-making process), nor could the EU or its Member States have predicted

how shareholdings in TSO and transmission system owner would develop at the

time the certification of TSOs was to take place, again several years later.

2.3.3. The imposition of the OU model does not alter the competitive

position of pipeline transport service suppliers

72. Russia alleges that, because Lithuania only permits the OU model, "a VIU is

restricted from maintaining anything more than a limited, minority ownership

interest in the transmission system".93

The critical flaw in Russia's argument is that

it equates "a VIU" with "a pipeline transport service supplier". A VIU is a

corporate structure that combines different, separate, activities which may include

pipeline transport, production, and supply (i.e. sale) of gas. A pipeline transport

service supplier is the TSO that operates the transmission network transporting the

natural gas. The question that must be answered under Article II:1 of the GATS is

to what extent a service supplier from a certain origin is treated less favourably

because of the OU requirement, when compared to service suppliers that can rely

on the ITO or ISO models.94

Does the type of unbundling model alter the service

suppliers' competitive relationship?


94 The European Union recalls that it does not agree that such comparison can be made between and

among EU Member States, since the appropriate point of comparison is the regulatory jurisdiction



________________________________________________________________________________________

- 26 -

73. Russia's argument is completely based on the fact that a service supplier that is

part of a VIU would, under OU, no longer be able to control access to its

transmission pipelines,95

and thus no longer be able to give privileged access to

related producers or suppliers that are part of the VIU or foreclose access to

competing producers and sellers of gas that are not part of the VIU.

74. This argumentation is based on a fundamental misrepresentation of the unbundling

rules. First, as already explained by the EU, in the ISO model, the TSO (i.e. ISO)

cannot be controlled by the VIU in any event. It is the system owner which could

be part of a VIU, but even this is not necessarily the case in the ISO model.96

Setting this aside, the Russian argumentation implies that the ISO and ITO models

would allow the service supplier, i.e. the TSO, to favour its relating undertakings

(producers and suppliers in the VIU) when giving access to the transmission

network and allocating the transmission capacity. However, such actions that

involve discrimination amongst system users and an abuse of a monopoly position

are not only equally prohibited under ITO and ISO rules, but will also result in a

clear violation of EU law.97

To the extent that structural separation is less far-

going under these models, this is compensated with strict behavioural requirements

and increased regulatory oversight.98

75. Second, Russia also errs when claiming that there would be financial benefits

when a pipeline transport service supplier would operate under the ISO or ITO

models. Faced with the obligation in the Directive that natural gas undertakings

that has adopted the measure. The European Union discusses this comparison only in subsidiary

order.



97 Article 13(1)(b) of Directive 2009/73/EC, which sets out TSO tasks applicable to all TSOs

irrespective of the unbundling model they apply, explicitly prohibits the TSO to discriminate

between system users or classes of system users, particularly in favour of its related undertakings.

Any discrimination by the TSO between system users will also go against the requirements of

Article 32 of Directive 2009/73/EC for granting third party access under non-discriminatory terms,

also applicable to all TSOs, irrespective of the unbundling model applied. Article 17(2)(c) of

Directive 2009/73/EC, part of the ITO rules, explicitly requires the ITO to grant and manage third-

party access on a non-discriminatory basis between system users or classes of system users. Article

14(4) of Directive 2009/73/EC, part of the ISO rules, explicitly requires that it will be the ISO, i.e.

the TSO and not the system owner (which can in the ISO model be part of a VIU) that has to

manage third party access, precisely in order to eliminate risk for discrimination by the system

owner in relation to related suppliers and producers.

98 EU’s first written submission, paras. 315-322.



________________________________________________________________________________________

- 27 -

must separate their accounts for each of their transmission, distribution, LNG and

storage activities,99

and the prohibition to cross-subsidise between transmission

and other activities,100

Russia has nothing more to say than that it “is not in a

position to assess this claim fully"101

and that “money is fungible”.102

Money is

indeed fungible, and that is precisely why the obligation of separation of accounts

and the prohibition to cross-subsidise, in combination with the unbundling

requirement, are imposed.103

2.3.4. Russia cannot demonstrate that the alleged negative competitive

impact of OU (quod non) is predominantly on Russian service

suppliers

2.3.4.1 Russia asks the Panel to disregard 15 years of WTO

jurisprudence

76. In order to bring a de facto discrimination claim under Article II:1 of the GATS,

Russia needs to (i) show the group of negatively affected service suppliers, and the

group of positively affected (or unaffected) service suppliers; and (ii) demonstrate

that the negatively affected group contains predominantly service suppliers of

Russian origin.104

77. This approach to de facto discrimination claims is firmly established in WTO case-

law,105

where it was indeed stressed by the Appellate Body that WTO Members

may draw distinctions between products which have been found to be "like",

without, for this reason alone, according to the group of "like" imported products

"less favourable treatment" than that accorded to the group of "like" domestic

products.106

This same reasoning applies to the MFN obligation in the GATS: the

non-discrimination obligation does not require Members to accord no less

99 Article 31 of Directive 2009/73/EC.

100 Article 41(1)(f) of Directive 2009/73/EC.

101 Russia’s responses of 12 October 2016, para. 507.

102 Russia’s responses of 12 October 2016, para. 509.

103 EU’s first written submission, para. 323-324.

104 EU’s responses of 12 October 2016; EU's first written submission, paras. 301-303.

105 See Appellate Body Report, US – Tuna II (Mexico), paras. 214-215, 221, 231; Appellate Body

Report, US – Clove Cigarettes, paras. 178-180, 193; Appellate Body Report, EC – Asbestos, para.

100; Appellate Body Report, Chile – Alcoholic Beverages, para. 67.

106 Appellate Body Report, EC – Asbestos, para. 100.



________________________________________________________________________________________

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favourable treatment to each and every service or service supplier from one

Member as compared to each and every like service or supplier from another

country. Under the national treatment and MFN obligations, an aggregate

assessment must be made and it is insufficient to find one or a few products that

are treated less favourably.

78. Russia requests the Panel to disregard 15 years of WTO jurisprudence, arguing

that the application of a measure "on one occasion can be sufficient to restrict the

competitive opportunities of a foreign service supplier".107

Russia cannot provide

any reason why the legal standard for assessing less favourable treatment under the

non-discrimination obligations in the GATS would be different from that under the

non-discrimination obligations in the GATT 1994.

2.3.4.2 Russia cannot demonstrate that any alleged detrimental

impact of the unbundling requirement (quod non) is predominantly

on the group of pipeline transmission service suppliers from Russia

79. Russia also cannot demonstrate that any alleged detrimental impact (if that would

exist at all – quod non) of the unbundling requirement would be predominantly on

the group of pipeline transmission service suppliers from Russia. Russian gas

transport service suppliers are also active in Member States that have implemented

the ITO models. Russian pipeline transport services suppliers in Germany have

made use of the ITO model108

and gas transport service suppliers with substantial

Russian shareholdings have benefitted from derogations from the unbundling rules

granted to Latvia and Finland.109

80. Table 1, below, provides an overview of the unbundling models in each Member

State. It also indicates Russian pipeline transport service suppliers that have relied

on the ITO model or benefitted from exemptions. This evidence shows that OU is

not predominantly imposed on the group of Russian service suppliers. The

European Union also provides a more detailed Table in its Exhibit EU-110 (BCI)



109 See paragraph 69, above.



________________________________________________________________________________________

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with the exact shareholdings in TSOs in the EU, as a response to the table

presented by Russia110

which is erroneous or incomplete in many instances.111

[[ ]]

2.3.4.3 Russia's "evidence" on the implementation of the

unbundling requirement in the Member States is critically flawed.

81. The European Union objects to the large number of incorrect factual allegations

made by Russia throughout its responses, and in particular in its response to Panel

Question 12, as regards the transposition of the OU rules in the EU Member

States. The following errors are a selection of main errors.

82. The allegation that as a result of the transposition of the Directive in Lithuania,

Estonia, UK, Belgium and Latvia, Gazprom was "forced"112

to dispose of its

shares in TSOs in these countries is wholly incorrect. Gazprom could have kept

passive minority rights in the TSOs, which would have been compatible with the

OU rules and this has been done by other producers/suppliers.113

Gazprom has

chosen to sell its shares instead which has been its own decision.

83. Russia also incorrectly claims that "only Gazprom"114

has been subject to OU.

Shareholders from the EU and from third countries active in production and supply

have been similarly affected by the OU rules.

84. For example, in the case of the certification of the Interconnector I-UK cited by

Russia as an example of the alleged effects of OU, it is evident that the other third

110 Russia's responses of 12 October 2016, para. 98 (Exhibit RUS-118).

111 For example, the table incorrectly indicates that in the case of the Yamal pipeline in Poland the

Russian shareholding is in the ISO, i.e. the TSO, while this is not the case. Russia jointly controls

the system owner for Yamal, Europolgaz, but has no shareholdings in the TSO (i.e. the ISO) which

is Gazsystem. Similarly, the Russian table omits to list a number of Russian shareholdings such as

in the case of Opal, as well as the exemption from unbundling granted under Article 49(1) of

Directive 2009/73/EC to Finland, Latvia and Estonia – countries with Russian shareholdings in the

TSOs at the time of adoption of the Directive. The table also fails to indicate the unbundling models

transposed in all Member States and thus available to TSOs on their territories.


113 Sonatrach has accepted such limitation for its shareholdings in the TSO Reganosa in Spain.




________________________________________________________________________________________

- 30 -

country shareholder ConocoPhillips had to comply with exactly the same rules as

Gazprom.115

85. In Italy, the TSO Snam SA was required to switch to ownership unbundling after

their successful but temporary certification under the ITO model and Eni SpA sold

its interest in the company.

86. Shareholdings from other third countries have been subject to OU as well, for

example in Spain, Portugal and France. Indeed, in order to comply with OU in the

case of the TSO Reagnosa in Spain, the rights of shareholders (including the third

country shareholder Sonatrach) were modified to be passive financial rights with

no influence or voting power. In Portugal, the TSO REN Gasodutos SA, wherein

several third country persons have shareholdings, the ownership structure and

rights of individual shareholders were changed (e.g. regarding Board Members) in

order to comply with OU. In the case of the TSO TIGF in France, where GIC

Private Limited (100% controlled by the Ministry of Finance of Singapore) had a

shareholding, OU took place.

87. Furthermore, while Russia fails to acknowledge it, the Member States that have

transposed OU only – Belgium, Denmark, Lithuania, the Netherlands and Sweden

– apply this regime without distinction to all TSOs on their territories and to all

producers/suppliers which wish to attain or keep shareholdings in the TSOs or the

transmission systems. For example, E.ON had to comply with the OU rules in

Lithuania just as Gazprom had to. These Member States produce gas (for instance

the Netherlands, who is the biggest gas producer amongst the EU Members States,

as well as Denmark) and/or import gas from other third countries but Russia (for

instance Belgium imports gas from Norway and Qatar,116

Denmark imports gas

from Norway,117

Sweden imports gas from Denmark,118

the Netherlands imports

115 Moreover, the need to comply with OU in respect of the interconnector I-UK did not result from the

fact that only OU has been transposed in the UK (in fact, the UK has transposed also other models),

but from the fact that the interconnector was a new transmission system which was not part of a

VIU in September 2009. Because of the time limit in Article 9(8) of the Directive this

interconnector could not have been certified under the ISO or ITO model.

116 Country Factsheet Belgium, http://eur-lex.europa.eu/legal-

content/EN/TXT/PDF/?uri=CELEX:52015SC0209&from=EN, p. 3 (Exhibit EU-111).

117 Country Factsheet Denmark, http://eur-lex.europa.eu/legal-


http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52015SC0209&from=EN






________________________________________________________________________________________

- 31 -

gas from Norway119

). Accordingly, EU gas producers and suppliers as well as

producers and suppliers from other third countries but Russia need to equally

observe the OU rules as long as they wish to have shareholdings in the TSO or the

transmission network in those Member States.

2.4. CLAIM X: RUSSIA'S CLAIM UNDER ARTICLE III:4 OF THE GATT 1994 (RUSSIA'S CLAIM 8)

2.4.1. Introduction

88. Russia's discrimination claims under the GATT 1994 also fail on all accounts.120

In making its arguments, Russia again provides an erroneous interpretation of

WTO law. Moreover, Russia also misrepresents the factual aspects of the

unbundling requirement, suggesting that ownership unbundling imposed on

pipeline transport service suppliers means that this would be to the detriment of

Russian gas.

89. In reality, the unbundling requirement has as objective to increase competition in

the market and improve investment in infrastructure. Gas producers and suppliers,

no matter their origin (including Russian), can sell their gas without any limitation

into the EU market. That is precisely the objective of the unbundling requirement.

In fact, evidence shows that the import of gas from Russia into the European

Union has increased since the third energy package entered into force. According

to Eurostat data, imports of gas from Russia to the EU have increased from 114

bcm in 2009 to 115 bcm in 2014.121

In addition, recent Gazprom news items have

highlighted Gazprom's successes in selling record gas volumes to the EU122

and

Russia is the biggest supplier of gas to the EU.123

118 Country Factsheet Sweden, http://eur-lex.europa.eu/legal-


119 Country Factsheet Netherlands, http://eur-lex.europa.eu/legal-


120 The European Union recalls that the Panel ruled that Russia's claims 9 and 11 are outside the

Panel's terms of reference. Preliminary Ruling by the Panel of 10 November 2016, para. 2.2.

121 Russian Gas Imports in the EU (all Member States) 2009-2014, (Exhibit EU-108).

122 Gazprom's supplies to Germany climb 20.4 per cent in October,

http://www.gazprom.com/press/news/2016/november/article290994/, Boosting Supplies,

http://www.gazprom.com/press/reports/2016/increases-delivery/ (Exhibit EU-115).

123 Gas imports in the EU – all external suppliers 2009-2014, (Exhibit EU-116).





http://www.gazprom.com/press/news/2016/november/article290994/




________________________________________________________________________________________

- 32 -

2.4.2. The treatment of gas of different origins must be assessed in

each EU Member State individually

90. Also with respect to its GATT-claims, Russia makes the mistake to compare

treatment that imported gas would receive in different Member States. Yet, by

doing so, Russia is in fact comparing different measures: each Member State has

implemented ownership unbundling into its own domestic laws. It is each Member

State's domestic laws that determine the treatment gas would receive and it is in

each Member State that the treatment must be assessed. EU-wide treatment could

only be assessed in case the measure at issue was an EU Regulation or a provision

in a Directive that would not allow for any diversity in Member State

implementation.

91. Contrary to what Russia suggests, this has nothing to do with "the EU be[ing]

allowed simply to wash its hands of MFN responsibility".124

Permitting Member

States to choose how to implement certain EU requirements is perfectly in line

with the principle of subsidiarity and proportionality in EU law. Article 5(1) of the

TEU indeed provides:

The use of Union competences is governed by the principles of subsidiarity

and proportionality.

92. EU measures must not interfere more into the Member States' national regulatory

autonomy than to the extent necessary to achieve the objectives pursued. EU

action will only be undertaken if the objective cannot be achieved to the same

extent by individual Member State action and can be better achieved at Union

level.125

In fact, Russia's argument suggests that such an approach, which forms

the hallmark of EU law, would not be acceptable: all EU measures would

necessarily need to be Regulations (rather than Directives) involving full

harmonisation without any discretion for Member States to adopt implementing

measures that achieve the objectives set out in the EU measure.

93. Moreover, Russia also errs when claiming that the European Union attempts "to

fragmentize"126

the EU market for natural gas. The European Union has explained


125 See Protocol No 2 to the TEU on the Application of the Principles of Subsidiarity and

Proportionality.




________________________________________________________________________________________

- 33 -

that there is no negative competitive impact of ownership unbundling at all

because (i) OU is not more restrictive than the ISO or ITO models127

and (ii)

Russia has not demonstrated that a measure that regulates a service supplier, i.e.

the TSO, also affects trade in gas.128

94. Russian gas can be imported in any Member State without any restriction and there

is no reason why import in one Member State would be preferred over another. In

fact, many TSOs transport Russian gas without any Russian shareholdings in these

TSOs and many even exclusively or mainly Russian gas.129

Hence, Russia's

argument on the "fragmentation" of the market is simply irrelevant.

2.4.3. Russia cannot show that a particular unbundling model

translates into a competitive disadvantage for gas of a certain

origin

95. At the time of writing this second written submission, Russia has still failed to

explain how a particular unbundling model, which applies to a pipeline transport

service supplier, could translate into a competitive disadvantage for gas of a

certain origin, when the essence of unbundling is precisely to enable free

competition between gas of any origin.

96. Russia does not hide that it considers the control over the TSO as the competitive

advantage that producers and sellers of gas would lose when faced with the

unbundling requirement.130

Russia thereby once more reveals that it attacks the

127 See paragraphs 72-75, above.

128 EU's first written submission, paras. 361-362. Russia keeps stressing an incorrectly assumed

automatic link between the regulation of pipeline transport service providers and trade in gas,

arguing that "whenever a measure affects either the service through which a product such as natural

gas is supplied to the market, or the service suppliers that supply the product, that measure will

automatically also affect the 'sale, offering for sale, purchase, transportation, distribution or use' of

that product". According to Russia, this "is so because these are the very functions carried out by

the service suppliers that sell, transport or distribute that product". (Russia's responses of 12

October 2016, para. 463.) Russia once again confuses the supply of natural gas to the market –

which is the sale of the gas (a good) – with the supply of transport services – which is a service.

The European Union has explained in detail in its first written submission that the sale of a gas

must not be confused with the distinct service of pipeline transport. (See EU's first written

submission, paras. 50-80.) Moreover, as Japan rightly noted, Russia's "automatic link" presumption

risks annihilating any limitations that WTO Members have inscribed with respect to their service

commitments, affecting the legitimate expectations of WTO Members. (EU's responses of 12

October 2016, para. 307, referring to Japan's third party submission, paras. 41-42.).


130 Russia's responses of 12 October 2016, paras. 473-475, 493-495.



________________________________________________________________________________________

- 34 -

very essence of the unbundling requirement: it believes that its gas producers must

be able to illegally exploit a monopoly position in the EU and foreclose access to

transmission networks for gas from competing producers. Its reference to the

Commissions actions against Engie131

only reaffirms that, through its WTO

challenge, it seeks to safeguard such illegal, anti-competitive conduct for its

producers, in particular Gazprom (given the exclusive rights it enjoys for exporting

pipeline gas under Russian law). The European Union finds it hard to believe that

restricting free trade and competition would be the purpose, and effect, of the

WTO obligations.

97. Russia also suggests that one of its gas producers, Gazprom, "had to give up all

transport fees and other revenue associated with the TSO".132

However, the

obligation to separate accounts for each of the transmission, distribution, LNG and

storage activities of a VIU,133

and the prohibition to cross-subsidise between

transmission and other activities,134

shows that, even if a gas producer would own

a transmission network, the "benefit of transport fees and other revenue associated

with the TSO" could not provide a competitive benefit to the producer. Moreover,

nothing in EU law prevents other Russian gas producers from exporting gas to the

EU. The only limitations to such possibility come from the export monopoly for

pipeline gas applied by Russia itself.

98. Faced with the fact that the rules on third party access further prevent TSOs that

operate under the ISO or ITO models from foreclosing access to gas from

competitors or treating more favourably related undertakings,135

Russia only states

that the "TPA requirements do not meaningfully mitigate the detrimental impact

on natural gas that stem from a VIU in one part of the EU, such as Germany

[where the ITO model was available to Russian-owned TSOs], compared to a

131 Russia's responses of 12 October 2016, paras. 480-781, 495.

132 Russia's responses of 12 October 2016, paras. 474, 494.

133 Article 31 of Directive 2009/73/EC.

134 Article 41(1)(f) of Directive 2009/73/EC.

135 See in particular Panel's Questions 115 and 116, which refer to the "effects on natural gas that

would otherwise stem from any control a natural gas suppliers or producer may be able to exercise

over an ISO or ITO, over a LSO, or over the operator of an upstream pipeline network".



________________________________________________________________________________________

- 35 -

VIU, such as Gazprom in Lithuania [where only OU is available]".136

Yet, Russia

does not provide any explanation why TPA requirements would be not meaningful.

99. The contrary is true: gas from any origin can access each EU Member State

without any limitation, no matter the unbundling model that this Member State has

implemented. Any limitation that a TSO would impose would simply be illegal.

Russia acknowledges this itself, when it states that "the TPA provision requires

that all TSOs grant access to the system to all eligible customers, including supply

undertakings".137

Hence, the unbundling requirement in the Directive, no matter

the unbundling model that is implemented, does not alter the conditions of

competition in the EU to the detriment of Russian gas. Nothing in the law of the

EU and its Member States prevents Russian gas produced by Russian gas

producers from being imported in the Union and transported over the transmission

pipeline networks, just like gas from any other origin.

100. Russia's comparison of the specific situation in Lithuania with the situation in

Germany or France does not show any competitive disadvantage for Russian gas

either.138

Russian producers are in no way limited as to the volume of gas it can

sell on the Lithuanian market, just as in Germany and France. Just as to any

Russian (or other) gas producer, this also applies to Gazprom, who may continue

importing the volume of gas to Lithuania demanded by the consumers in the

market. Gazprom is in fact doing so, including under its new marketing strategy of

using auctions.139

The volume of Russian gas imported in Lithuania is entirely

determined by the availability of alternative sources of supply and the competition

in the market and not by the unbundling measure challenged by Russia.140



138 Russia's responses of 12 October 2016, paras. 474-475, 494-495.

139 See EU's first written submission, paras. 370-371.

140 The European Union recalls that the TSO does not control or decide on the volume of gas to be

imported or on the source of gas to be transmitted via its system, but simply transports the gas - and

due to the TPA principle - gives access to the system to all suppliers and to gas of all origin. Its role

is merely of a transporter. Thus whether a Russian or another non-EU country does or does not

have shares in the TSO and what model the TSO applies is irrelevant to how much gas Russia or

the other third country could export to the Member State where the TSO operates. Due to the TPA

principle all suppliers are able to access the transmission network under non-discriminatory terms.

Therefore, the volume of gas Russia or another WTO member exports to the EU, the source from



________________________________________________________________________________________

- 36 -

2.4.4. The alleged negative competitive impact of the unbundling

requirement (quod non) is not predominantly on the group of

Russian gas

2.4.4.1 Russia's argument disregards established WTO

jurisprudence and ignores the essence of unbundling

101. The European Union recalls again that WTO jurisprudence141

has firmly

established that a complainant bringing a de facto discrimination claim under

Articles I and III:4 of the GATT 1994, must (i) show the group of negatively

affected goods, and the group of positively affected (or unaffected) goods; and (ii)

demonstrate that the negatively affected group contains predominantly Russian

gas.142

102. This aggregate approach is precisely to avoid that a measure that happens to have a

negative impact on the competitive conditions of one good on one occasion would

be found to be discriminatory, whereas in reality there is no "genuine relationship"

between the measure at issue and the adverse impact on competitive

opportunities.143

There is no reason to deviate from this well-established WTO

jurisprudence in the present case.

103. The European Union has demonstrated that the particular unbundling model that

applies in a specific EU Member State does not affect the competitive position of

gas sold in that Member State, no matter the origin of that gas.144

Each TSO is

obliged to provide gas from any origin access to its transport infrastructure. There

is thus no link between the origin of the TSO and the origin of the gas that that

TSO transports.145

The third party access obligation in the Directive requires all

TSOs in the EU to give access, and thus transport through the network they

which an EU Member State imports gas, does not depend on the unbundling model that the TSO

but on other, market and economic factors.

141 See Appellate Body Report, US – Tuna II (Mexico), paras. 214-215, 221, 231; Appellate Body

Report, US – Clove Cigarettes, paras. 178-180, 193; Appellate Body Report, EC – Asbestos, para.

100; Appellate Body Report, Chile – Alcoholic Beverages, para. 67.

142 EU’s responses of 12 October 2016; EU's first written submission, paras. 301-303.

143 Appellate Body Report, Thailand – Cigarettes (Philippines), para. 134.

144 See paragraphs 95-100, above.

145 EU's responses of 12 October 2016, paras. 52-54.



________________________________________________________________________________________

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operate, gas of any origin (be it produced in the EU, in Russia or in any other third

country) and of any producer (domestic, Russian or from another third country).

104. The unbundling rules safeguard this third party access principle and ensure the

independent operation of the network. If the TSO, when operating the network and

giving access to it, is giving preferential treatment to certain producers, or to gas of

a certain origin, this would in fact indicate that the TSO tasks and the unbundling

rules, as well as third party access rules, are violated.

105. For this reason already, all of Russia's answers to Panel's Question 25 should be

dismissed. Russia's answers assume that all of the gas that is carried by the

infrastructure of a Russian VIU would be Russian, all of the gas carried by the

infrastructure of a domestic EU VIU would be from EU origin, and all of the gas

carried by infrastructure of a VIU of another origin, would be from that origin.

Because of the above-cited obligations, this assumption is entirely incorrect.

106. Russia's response that the GATT does not require Russia to demonstrate that a link

exists between the origin of gas that flows through a pipeline and the origin of the

service supplier146

misses the point entirely. It is Russia that claims that certain

unbundling models have a detrimental impact on the competitive position of gas of

a certain origin. It is then only reasonable that Russia would explain why a

particular unbundling model, imposed on a service suppliers of any certain origin

that operate in an EU Member State, would necessarily affect the competitive

position of gas of a certain origin. Russia bears the evidentiary burden to

demonstrate this link between the origin of the service supplier, to which the

unbundling requirement applies, and the origin of gas.

107. Such required demonstration has nothing to do with the "introduc[tion] of an

effects test", as Russia wrongly alleges.147

Russia needs to demonstrate how the

imposition of a particular unbundling model in a Member State necessarily

modifies the conditions of competition of gas of a certain (i.e. Russian) origin.

Russia indeed admits that it "is necessary to show only that the unbundling

measure … distorts the conditions of competition to the detriment of Russian





________________________________________________________________________________________

- 38 -

gas".148

Yet, this is precisely what Russia has failed to do. The Appellate Body has

indeed confirmed that under GATT Articles I:1 and III:4, the focus of the analysis

is on the impact of a measure on competitive opportunities for like products. The

Directive, and in particular the unbundling measure, guarantees the competitive

opportunities of gas from any origin, including Russian. Gas, no matter its origin

can enter freely the market of the EU Member States and TSOs cannot foreclose

access of gas of a certain origin.

2.4.4.2 Abundant evidence shows the absence of a link between

the unbundling model and the volume of Russian imports

108. The facts clearly evidence that there is no link between the unbundling model

applied in a Member State and the presence of and volume of Russian imports (or

imports from any other source).

109. This is already demonstrated when one examines the unbundling models available

in the different Member States together with the figures for Russian gas imports

into the EU since the adoption of the Third Energy Package in 2009 until 2014.

The European Union has presented this evidence in Exhibit EU-108.

110. Apart from the most apparent fact – namely that Russian imports into the EU in

total have not decreased since 2009 but are indeed set to reach record levels

according to the assessment of Gazprom top management149

– the lack of a link is

also evidenced by looking at the concrete situation of individual Member States.

111. By way of example, taking the Member States which have transposed OU only –

Belgium, Denmark, the Netherlands, Sweden and Lithuania – one observes that

Russian imports in these countries increased with 30 % from 2009 to 2014. The

share of Russian imports in these countries compared to the total gas imports in

these countries increased from 11.8% in 2009 to 15.42% in 2014. Similarly, the

share of Russian imports in these countries compared to all Russian imports in the

EU increased from 5.99% in 2009 to 7.73% in 2014.


149 Boosting Supplies, http://www.gazprom.com/press/reports/2016/increases-delivery/ (Exhibit EU-

115).




________________________________________________________________________________________

- 39 -

112. If there were decreases in Russian imports at all, those were in Member States

where OU played no role or that were even exempted from unbundling. For

example, in Finland (which applies an exemption from the unbundling rules under

Article 49(1) of Directive 2009/73/EC) Russian imports decreased from 4.28 bcm

in 2009 to 3.06 in 2014. Russian imports have also decreased in Luxembourg

which similarly has an unbundling exemption under the Directive. Imports in

Slovakia, which has transposed all unbundling models, also decreased from 5.83

bcm in 2014 to 4.76 bcm.

113. At the same time, there are examples of Member States where Russia has no

shareholding in the TSO and which have increased their imports of Russian gas,

e.g. Italy and Bulgaria (the latter in fact importing only Russian gas).

2.4.4.3 Russia's "evidence" allegedly linking an unbundling

model to gas volumes is critically flawed

114. Furthermore, the link that Russia alleges between unbundling models, on the one

hand, and the volume of imports, on the other hand, is in no way evidenced by the

data Russia has presented.

There is no link between the unbundling model and 2.4.4.3.1

Russian gas imports

115. In reply to Panel Question 25a), in order to demonstrate the alleged disadvantage

of the OU model as opposed to the ITO and ISO model, Russia alleges that

"Russian natural gas can now be supplied in the EU by TSOs owned by the VIU

that produced that natural gas only in (a) Germany, if supplied via the Greifswald

entry point, either by Opal .. or by NEL..; and (b) Latvia, if supplied by Latvijas

Gaze".150

Russia further argues that the capacity of the above entry points in

Germany and Latvia corresponds to 25% of the capacity of all entry points for

Russian gas.151

Russia refers to Exhibit RUS-127.

116. First, this assertion is directly contradicted by Gazprom's own information

disclosure about its recent gas auction in March 2016 on the Lithuanian-





________________________________________________________________________________________

- 40 -

Belorussian border.152

The EU submits an overview153

of cross-border pipeline

capacity between third countries and Europe that could be used to import gas

produced in Russia to EU Member States. Based on this evidence, the EU finds no

percentages that would correspond to the figures in Russia's submission. In fact,

according to our calculations, based on ENTSOG 2016 transmission capacity map,

Russian undertakings control TSOs operating points which amount to around 30 %

of the capacity of operating interconnection points which are entry points to the

EU gas network for Russian gas.

117. Irrespective of that, the assumption on which Russia's arguments in reply to

question 25a) are based is wrong. Russia seems to suggest that (i) it cannot

transport its gas through TSOs that it does not own as part of a VIU, or that (ii) if a

VIU owns a TSO, it will enjoy a privilege as it can transport more gas through the

TSO's network than its competitors and have easier access to the capacity at the

entry point which the TSO operates.

118. Russia's first suggestion is incorrect because EU law imposes a third party access

obligation and Russian gas is in reality transported by many TSOs in the EU in

which Russian entities have no shareholding's at all.154

119. Russia's second suggestion is also incorrect. Russia seeks to misrepresent the

effects of the unbundling rules and claims a link between the unbundling model

applied by a TSO and the volume of imports a VIU can make into the EU. Such

link which would only exist if EU rules are violated by the TSO and the VIU.

Once again, the EU stresses that there is no correlation between a VIU owning a

TSO and the amount of gas the supplier branch of that VIU might import into the

EU market and transport through that TSO. Under EU law the supply branch of a

VIU enjoys no privilege vis-a-vis other suppliers on the market as regards access

to the transmission network or booking a certain amount of the capacity for

transporting gas via the TSO network.

152 Gazprom Export's gas auction for Baltic States completed,

http://www.gazprom.com/about/subsidiaries/news/2016/march/article269297/ (Exhibit EU-62).

153 Overview of cross border point capacity, (Exhibit EU-117)

154 EU's First Written Submission, para 622.

http://www.gazprom.com/about/subsidiaries/news/2016/march/article269297/



________________________________________________________________________________________

- 41 -

120. To the contrary, such privilege is explicitly prohibited under all unbundling

models. The EU rules on third party access155

and capacity allocation156

(also

applicable to all models) require the TSO – irrespective of who its owner is – to

give access to the network to all system users under non-discriminatory conditions

and to allocate the capacity at the interconnection point it operates under strict and

detailed procedures which guarantee non-discriminatory access to the capacity to

all market plays. These rules apply irrespective of the origin of the supplier that

wants to access the network and book capacity for transporting the gas into the

EU, be it from the EU, Russia or another third country.

121. Trying to show a non-existent privilege, Russia claims that TSOs "control" entry

points, thus implying the TSO can decide on discriminatory behaviour. Yet, TSOs

do not "control" but rather "operate" such entry points into the transmission

system. This distinction is important as they cannot arbitrarily decide to whom and

under what conditions to give access. The EU framework on third party access and

capacity allocation sets out detailed rules in this regard in order to ensure non-

discriminatory access for all network users.


EU-produced gas volumes

122. Further, Russia's allegation in its response to Panel Question 25b) that "92% of the

EU-origin gas in the EU in 2015 has been supplied by VIU that produced that gas

while at the same time having an interest in TSOs operating under the ITO/ISO

models"157

is based on a table (in Exhibit RUS-123) that Russia fabricated in a

misleading way, and that shows several critical flaws. It does not prove at all

Russia's allegation.158

Therefore, the Panel should dismiss this table as well as

Russia's allegation.

123. First, the table presented by Russia suggests that the source is Eurostat. However,

none of the information presented in the different columns comes from Eurostat. In

fact, the only data which seems to be based on Eurostat figures is the 2nd

column

155 Article 32 of the Gas Directive 2009/73/EC, Article 14 of Regulation (EC) No 715/2009.

156 Article 16 of Regulation (EC) No 715/2009.


158 Russia's responses of 12 October 2016 (Exhibit RUS-118).



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with figures for domestic production in each Member State. Yet, even for these

figures no concrete year has been provided. The EU provides a table with

production volumes in each EU Member State from 2005 until 2014 based on

Eurostat data which do not match the figures provided by Russia (Exhibit EU-

118).159

124. Second, regarding the list of producers in each Member State (3rd

column), the

table conveniently mentions only certain producers (no indication of the source on

which this list of producers is based) in the Member State, namely those which are

part of a VIU that at the same time has transmission interests. It fails to list other

producers in the Member States.

125. For example, the Russia indicates only 3 producers for Germany: Bayerngas,

Engie and BEB Erdgas and Erdol GmbH. However, these are neither all, not even

the biggest producers.160

126. Similarly, Russia's table conveniently indicates for the Netherlands – the biggest

domestic gas producer in the EU – only one company, Engie, while ignoring other

producers.161

As a result of this selective approach, the table incorrectly assumes

that all production in the listed Member States comes from the listed producers.

This is entirely wrong and annuls all conclusions that Russia seeks to draw from

the table.

159 EU Member States' gas production 2005-2014 (Exhibit EU-118).

160 The information from the International Energy Agency specifies: "With regard to the production

tier, there are five main companies producing natural gas in Germany. Exxon Mobil accounts for

approximately 46% of indigenous production; Shell for 22%; RWE for 15%; Wintershall for 9%;

and GDF for 5%. There is also a small number of natural gas importing companies including: E.ON

Ruhrgas, Wingas, Shell Deutschland, ExxonMobil, Verbundnetz Gas (VNG), RWE and

Bayerngas." See International Energy Agency, Energy Policies of IEA Countries. The Netherlands.

2014 Review, http://www.iea.org/publications/freepublications/publication/germanyoss.pdf, p. 20,

(Exhibit EU-119).

161 The information from the International Energy Agency provides: "On the upstream side, the largest

producer is NAM, the Nederlandse Aardolie Maatschappij, a 50/50 joint venture of Royal

Dutch/Shell and ExxonMobil. Shell is the operator within this joint venture […]. NAM produces

gas from the Groningen field, which represents two-thirds of total production, and also produces

almost half of gas from small fields. In recent years, a number of other companies moved into the

Dutch market. Other producers include Wintershall, Total, GDF Suez, Chevron. These gas

producers can market the gas by themselves. If they do not want to, they can also decide to offer

their gas to GasTerra. In this case GasTerra has the legal obligation to purchase the gas at a price

that is reasonable and reflects its market." See International Energy Agency,

http://www.iea.org/publications/freepublications/publication/Netherlands2014.pdf, p. 140, (Exhibit

EU-120).





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127. Third, the table wrongly assumes that all production of a given supplier (part of a

VIU) in the Member State of production (3rd

column) is exported to the Member

State where the ISO/ITO is located (4th

column). This is not only incorrect but also

illogical. The gas produced could be used for domestic consumption in the

Member State of production or be exported to an entirely different EU Member

State (or even third country) and is not necessarily exported to the Member State

where the TSO is located. Because the gas producer is prohibited by EU

legislation to obtain any privileged access to the network of the TSO, it will export

the gas to that Member State where that network is located only if there is an

economic rationale to do so, i.e. if there is demand and if it can offer competitive

prices. The direction of exports has thus no link to the unbundling model applied

by the TSO.

128. Moreover, the table does not substantiate this wrong assumption in any way with

references to sources. While Russia refers to Eurostat as its sole source of

information for this table, Eurostat data does not provide figures for the amount of

gas that each gas producer in the EU sells in the country of production and the

amounts exported to other Member States. In fact, such figures generally constitute

commercial secrets.

129. Fourth, the 4th

column refers to "TSOs controlled by the gas producers under

ITO/ISO model". As explained in the EU first written submission, under the ISO

model, it is not the TSO but the system owner which could be a subsidiary of the

VIU and so in the ISO model the VIU cannot be considered to control the TSO.

130. Fifth, as a result of the incorrect data and false assumptions listed above, the final,

5th

column of the table, which indicates as figures of "gas produced by VIU subject

to ITO/ISO" all of the production in the respective Member State, is entirely

incorrect and should be dismissed by the Panel.


gas volumes imported from other third countries

131. The data concerning gas from third countries (Exhibit RUS-125 Excel Sheet on

Gas Imports) provided by Russia in its reply to Panel Question 25c), by which

Russia seeks to demonstrate an alleged disadvantage stemming from the



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unbundling rules for Russian gas, is equally flawed and does not support the

allegations Russia makes.

132. Before considering the tables Russia provided in Exhibit RUS-125, it is important

to stress a striking mistake in Russia's description of the facts. Russia's statement

that Russian gas is not transported and supplied by a VIU that is involved at the

same time in the production and supply of natural gas162

is wholly wrong.

Gascade, NEL and Opal transport Russian gas and the TSOs that operate them are

controlled by Gazprom. In the past, before Gazprom decided to dispose of its

shares in the TSO, this was the case also with the Finnish TSO Gasum, as well as

the TSOs in Estonia and Lithuania and the interconnector I-UK between Belgium

and the UK. Gazprom could have kept passive minority shareholdings under the

OU model in these TSOs but has decided not to do so.

133. In any event, the data presented by Russia as two tables in Exhibit RUS-125 for

pipeline and LNG gas do not evidence in any way whatsoever any discrimination

against Russian gas. This is due to critically wrong presumptions on which the

tables are based. As a result, these tables cannot not lead to the calculations and

conclusions made by Russia, for instance that "up to 56 % of the Norwegian gas is

extracted, supplied and transported within the EU by the VIUs".163

134. First, the table on pipeline gas selectively lists certain produces in Norway and

Libya and omit others (e.g. Shell, ExxonMobil, Total). On this basis, the table

incorrectly suggests that the entire production in Norway and Libya that is

exported to the EU comes from the listed producers. The Russian figures also

seem to include Norwegian LNG, even though the table is entitled "pipeline gas"

(the table refers to all Norwegian gas imports into the EU and these do not come

from pipeline gas only).

135. Moreover, it is incomprehensible that Statoil appears as a gas producer in Norway

and at the same time (in the table presented as Exhibit RUS-123 – Excel Sheet on

Gas Production) as a gas producer in the UK. While Statoil has indeed activities

both in Norway and the UK, Russia fails to distinguish in any way in terms of





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figures the different volumes of gas that correspond to production in the EU and

outside the EU and conveniently uses Statoil in both tables. Similarly, Engie is

presented as a producer in Norway and a producer in the Netherlands and the UK,

without any distinction in the volumes.

136. Second, the table on pipeline gas incorrectly indicates that all of the gas exported

to the EU by Norway (presented as all the gas produced by the listed producers

which, as just explained, is incorrect) is exported to the Member State where the

TSO in which the gas producer has shareholdings is located. The table thus

suggests that all Norwegian exports to the EU go to Germany, Austria, France,

Italy. This is simply incorrect. Apart from being illogical, it is contradicted by the

facts. Based on Eurostat data, Austria did not import any Norwegian gas in 2014.

Most importantly, Norwegian gas in 2014 was imported by a number of EU

Member States not mentioned at all in the table – Belgium, Czech Republic,

Denmark, Greece, Spain, Lithuania, Luxembourg, Poland, Portugal, the

Netherlands, and the UK.164

In fact, the Member States which imported Norwegian

gas in 2014 and are not mentioned in the table amounted for over 50 % of all

Norwegian imports. The table simply omits to reflect this.

137. Furthermore, the table also seems to imply (like the table contained in Exhibit

RUS-123 on pipeline gas imports in the EU) that the TSOs indicated in the 4th

column are all the TSOs in the indicated Member States, so the gas transported via

these TSOs (incorrectly presented to be all the gas coming from the indicated

producers) would equal the share of these Member States' imports of Norwegian

gas to the EU. This is yet another mistake.

138. In particular, the table considers only jorgas as TSO in Germany, only ITG as TSO

in Italy, only GRTgaz as TSO in France. There are many more TSOs in these

Member States as acknowledged even in Russia's own table of TSOs

shareholdings (Exhibit RUS-118). It is thus wrong to assume that the indicated

producers rely exclusively on the pipelines where the VIU has shareholdings. To

illustrate this with few examples:

164 Norwegian gas imports in the EU in 2014 - all Member States, (Exhibit EU-121).



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Russia relies on the assumption that all gas exported by Statoil to Germany is

transported through jordgas' pipeline. In fact, jordgas owns only the NETRA

pipeline, which runs from Dornum on the German North Sea Coast towards

Steinitz. This pipeline has no exit points, but rather feeds into the Gaspool

balancing area, where the gas has to enter pipeline owned by another company

to reach any exit points. The idea that Statoil is somehow relying on its own

grid exclusively is thus unfeasible.

In a similar pattern, the pipeline owned by ITG in Italy, alleged by Russia to be

used for the supply of pipeline gas to Italy from Edison Group's production in

Libya, is in fact a mere 83km connection between a LNG regasification facility

and the remainder of the Italian gas network. There is no possibility of using

this pipeline to supply pipeline gas from Libya to Italy, or even to supply

regasified LNG to anyone without using another operator's network.

Further, Engie owns GRTgas and production facilities in the North Sea. To

supply gas to France however, Engie has to use the Gassco network.

The fact that the Italian State owns shares in both Eni and Snam is equally

irrelevant. Snam is certified under the OU model, requiring the Italian State to

separate control of the two companies in two independent public bodies that

are not under control of one single higher authority. There is also no automatic

correlation between Eni's production and the gas supplied to Italy: Eni is not

the sole producer in Libya and other such producers have equal access to

Snam's pipeline capacity.

Crucially, the gas Statoil transports from the fields to the EU markets is via a

system in which statoil has but a 5% minority shareholding.165

139. The same type of misrepresentation applies to the table in Exhibit RUS-125 for the

LNG sector:

In the case of Algeria, only Sonatrach exports gas and it is thus entirely

inconceivable how Engie would use its interests in LNG terminals for its own

export operation from Algeria.

165 The pipelines are owned by the Gassled consortium in which Statoil has a 5% shareholding and

operated by Gassco in which Statoil has no shareholding.



________________________________________________________________________________________

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In turn, Sonatrach had to accept a limitation of its shareholder rights in

Reganosa to passive financial rights in order to maintain them. This is to

ensure there is no Sonatrach influence on the access to market infrastructure.

In the case of LNG exports from Qatar to UK, those flow through several LNG

terminals, including those owned by National Grid, demonstrating that there is

no correlation between ownership and use of infrastructure. This is evidenced

by the Russian table itself – Nigeria, Norway, Trinidad and Peru are listed as

exporters of LNG to the EU, while they apparently do not have any ownership

in the LNG terminals. The same applies to the US which, while not mentioned

in the table, also exports LNG to the EU.

2.5. CLAIM XI: RUSSIA'S CLAIM UNDER ARTICLE I:1 OF THE GATT 1994 (RUSSIA'S CLAIM

10)

140. Russia's claim under Article I:1 of the GATT 1994 against the unbundling measure

in the Directive suffers from the same flaws as set out in the previous Section with

regard to the claim under Article III:4. The MFN treatment must be assessed in the

Member State that has implemented the unbundling requirement, according to the

domestic law of that Member State. Russia has also failed to explain how a

particular unbundling model, which applies to a pipeline transport service supplier,

would translate into a competitive disadvantage for gas of a certain origin. Finally,

Russia has also failed to demonstrate that the impact of the unbundling

requirement is predominantly on the group of Russian gas.

2.6. CLAIM XII: RUSSIA'S CLAIM OF VIOLATION OF ARTICLE I:1 OF THE GATT 1994

BECAUSE THE DIRECTIVE WOULD ACCORD NATURAL GAS OF OTHER THIRD COUNTRIES

IMPORTED THROUGH LNG FACILITIES AND UPSTREAM PIPELINE NETWORKS AN

ADVANTAGE NOT EXTENDED TO RUSSIAN GAS (RUSSIA'S CLAIMS 12 AND 13)

2.6.1. Introduction

141. Russia makes further discrimination claims under Article I:1 of the GATT 1994 in

respect of the specific application of the unbundling requirement to LNG and

upstream pipeline networks. The European Union discusses first LNG (sub-section

2.6.2) and thereafter upstream pipeline networks (sub-section 2.6.3).

142. Before considering the claims in more detail, it should be stressed that the LNG

and upstream measures do not have the nature of "exemptions" from a generally



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applicable unbundling rule in the Third Package, contrary to what Russia alleges.

The Gas Directive sets out a whole and comprehensive legal regime for the

operation of all types of gas infrastructure in the EU. It contains specific rules for

an exhaustive list of the different types of gas infrastructure (transmission

pipelines, upstream pipelines, LNG facilities, storage facilities, distribution

pipelines, etc.). There are no infrastructure categories which remain out-with the

Directive; all natural gas facilities must be classified within this exhaustive list.

143. While all of the above-mentioned sets of rules share the core principle of third

party access, the rules are not identical. The differences are necessary in view of

the specific functions that the different infrastructures and their operators carry

out. Such differences in the rules applicable to divergent infrastructures are

common for many jurisdictions, including Russia's own regulatory framework.

2.6.2. The LNG measure does not violate Article I:1 of the GATT

1994 (Russia's claim 12)

144. Russia claims that the provisions in the Directive relating to LNG facilities accord

"an advantage to third-country natural gas imported and placed on the EU market

by LSOs through LNG facilities that is not granted immediately and

unconditionally to Russian natural gas imported and sold on the EU market via

various pipelines that were subject to the unbundling requirement".166

145. The European Union recalls that the objective difference between LNG facilities

and transmission pipelines is clear: a transmission network is a natural monopoly.

In contrast, this is not the case for LNG facilities. LNG facilities can be

constructed in any location, provided there is sea access. They can operate in

competition with one another. TSOs are required to connect new LNG terminals

on the basis of a non-discriminatory and transparent procedure.167

146. Operators of LNG facilities are obliged to ensure third party access, according to

Article 32 of the Directive and Article 15 of the Gas Regulation (EC) 715/2009,

meaning that gas from any source and supplier can access the LNG terminal under

non-discriminatory terms. This includes, in particular, the obligation of non-

166 Russia's responses of 12 October 2016, para. 38




________________________________________________________________________________________

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discrimination between system users, as well as the obligation to provide

necessary information (Article 13(1)(b)-(d)), and obligations to allocate the

capacity under transparent and non-discriminatory mechanisms.168

If an LNG

operator is also a TSO, the TSO unbundling and certification requirements in

Articles 9-11 apply in full.

2.6.2.1 LNG and natural gas are not "like"

147. Russia's discrimination claim already fails because it compares the treatment of

LNG and natural gas, which are not "like" products. To determine the "likeness",

the Panel should rely on the following criteria: (i) the product's properties, nature

and quality; (ii) the end-uses of the products; (iii) consumers' tastes and habits;

and, (iv) the tariff classification of the products.169

The question is whether

consumers would consider the products in question to be in a competitive

relationship.170

148. The European Union has explained that LNG situates itself at a different stage in

the gas production process than natural gas.171

The European Union recalls that the

Appellate Body in US – Lamb upheld the panel's finding that "a raw material or

input that is used to produce [a] product" (i.e. live lamb), on the one hand, and the

product itself (i.e. lamb meat), on the other hand, are not "like or directly

competitive products" within the meaning of Article 4.1(a) of the Agreement on

Safeguards.172

The European Union considers that the same analysis underlying

the Appellate Body's finding in US – Lamb applies to LNG and natural gas: two

products at different stages in the production process, namely LNG and natural

gas, are not "like or directly competitive products".

149. The physical characteristics of LNG and natural gas are different: LNG is liquid,

while natural gas is in gaseous form. Moreover, the end-use of LGN and natural

gas is different: LNG is used as fuel for ships. Moreover, consumers of LNG

168 Article 17 of Regulation (EC) 715/2009.

169 Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18.

170 Appellate Body Report, US – Clove Cigarettes, para. 120; Appellate Body Report, Philippines –

Distilled Spirits, para. 125; Appellate Body Report, EC – Asbestos, para. 99.

171 EU's responses of 12 October 2016, para. 280.

172 Appellate Body Report, US – Lamb, paras. 77-96.



________________________________________________________________________________________

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purchase this product in order to transport it by ships or trucks and trade or store

LNG. Finally, LNG and natural gas have a different tariff classification. LNG is

classified under HS 2711.11 while natural gas is classified under HS 2711.21.173

All this evidence demonstrates that LNG and natural gas are not "like" products.

2.6.2.2 Russia cannot demonstrate that the LNG measure alters

the competitive position of gas imported from Russia

150. The European Union recalls that the provisions in the Directive relating to LNG –

which apply to suppliers of LNG services – do not distinguish based on the origin

of gas. Hence, Russia cannot demonstrate that the LNG measure alters the

competitive position of gas imported from Russia.174

151. Russia argues that because "VIUs are exempted from the requirement to unbundle

their LSO's", the Directive "accords natural gas originating in third-countries and

imported and placed on the EU market through EU-based LNG facilities, such of

[sic] those of Engie S.A. ('Engie') in France, an advantage within the meaning of

GATT Art I:1 that is not granted immediately and unconditionally to Russian

gas".175

Once again, Russia claims that the competitive disadvantage that Russian

gas would suffer from would be the lost opportunity to control the access to the

transmission network.176

Russia believes there is "enhanced access to the European

gas market" for other third country gas than Russian gas.177

152. However, Russia thereby entirely ignores that operators of LNG facilities are

subject to the third party access requirement and related capacity allocation rules

and thus fails to recognise that limiting access to gas of a certain origin to a LNG

facility is simply illegal for such operators. The provisions in the Directive relating

to LNG facilities do not treat gas from other origins than Russian origin more

favourably than Russian gas. Russia has in fact itself pointed to action undertaken

by the Commission to address anti-competitive behaviour by Engie.178

This

173 EU's first written submission, paras. 360, 437.



176 Russia's responses of 12 October 2016, paras. 478-482; Russia's first oral statement, para. 52.





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demonstrates precisely that it is not legal for LSOs, like TSOs, to restrict access to

the market.

153. Hence, nothing prevents Russian gas from being imported via LNG terminals in

the EU. Russian gas has, just like gas from any other origin, the possibility to be

imported in the EU via LNG facilities or via the transmission network. Russia

argues in its Response in paragraphs 482 and 503 that "Even if Russian gas were

ordinarily converted to LNG, it cannot access the majority of capacity at Engie's

LNG facilities. Moreover, since TSO capacity in France is based on an automatic

right to enter the transmission network, the majority of transmission capacity

connected to the three Engie-controlled LNG facilities is thus used for Engie's

gas."

154. While it is correct that the French terminals, operated by the Engie subsidiary

Elengy, are underwritten by long-term contracts, there are – due to effective

congestion management measures – significant capacities available to other market

players looking for capacity. EU national regulatory authorities have also been

closely working together to develop such third-party access and congestion

management regimes at essentially all EU terminals. The average rate of LNG

terminal utilisation in Europe (of total installed capacity) has decreased since

2010, from 53% to 25% in 2013. In 2014, no more than 19% of the total send out

capacity was used (compared with a global average of 33 %).179

Therefore, market

players can access a significant share of the yearly 200 bcm regasification capacity

at the EU LNG terminals either because there is readily available capacities (e.g.

no long-term bookings), or because holders of long-term bookings are incentivized

to relinquish their capacity in case they do not make use of it.

155. Hence, publically available information indicates that the terminals are far from

being congested and there are capacities available on various terminals that could

be booked by any entity and for gas of any source.180

The fact that there are no

179 See EU Staff working paper SWD(2016)23

https://ec.europa.eu/energy/sites/ener/files/documents/1_EN_autre_document_travail_service_part1

_v3.pdf. (Exhibit EU-122). GIE, the EU organization of gas infrastructure operators, has also set up

ALSI, the LNG transparency platform, which shows clearly the availabilities at each EU terminal:

https://alsi.gie.eu/#/

180 For example, the capacities available at the following terminals can be found in: Capacities

available at certain LNG terminals: Montoir (owned by Elengy, a subsidiary of Engie):



https://alsi.gie.eu/#/



________________________________________________________________________________________

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obstacles for Russian companies to use the terminals is also evidenced by the fact

that the Russian company Novatek Gas & Power has an agreement with Elengy to

use Montoir LNG facilities.181

2.6.3. The upstream pipeline networks measure does not violate

Article I:1 of the GATT 1994 (Russia's claim 13)

156. Russia also claims that the provisions in the Directive relating to upstream pipeline

networks violate Article I:1 of the GATT 1994.182

Russia argues that these

provisions, of which it erroneously claims Russian pipelines cannot benefit,

modify the conditions of competition to the detriment of Russian gas.183

2.6.3.1 Upstream pipeline networks have a different nature and

role than transmission pipelines

157. The European Union recalls that the reason why specific provisions apply to

upstream pipeline networks is that upstream pipeline networks are directly linked

to the production fields.184

The upstream pipelines thus have the sole role of

ensuring that gas from the upstream production (and production-related) facilities

– be they on- or offshore – are transported to the interconnected transmission

system from where the gas is taken either directly downstream to customers in a

given market or across several borders to other markets.

158. An upstream pipeline is inherently linked to proprietary gas production. It is

ancillary to the production of natural gas and operates, in normal circumstances, in

no direct competition with any other gas producer. It is used to transport the non-

fungible gas from the production field to the processing plant (where the gas is

made fungible) or to a terminal or to a final coastal landing terminal, at which

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELENGY_public

ations_Montoir_2016_11_10.pdf (Exhibit EU-123); Capacities available at certain LNG terminals:

Fos-Tonkin:

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELENGY_public

ations_FosTonkin_2016_11_10.pdf (Exhibit EU-124).

181 Elengy signs a transshipment long-term contract with Novatek Gas and Power,

https://www.elengy.com/en/news/news/commercial/150-elengy-signs-a-transshipment-long-term-

contract-with-novatek-gas-power.html (Exhibit EU-125).




https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELENGY_publications_Montoir_2016_11_10.pdf

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELENGY_publications_Montoir_2016_11_10.pdf

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELENGY_publications_FosTonkin_2016_11_10.pdf

https://www.elengy.com/images/contenu/contratsetoperations/capacitesprimaires/ELENGY_publications_FosTonkin_2016_11_10.pdf

https://www.elengy.com/en/news/news/commercial/150-elengy-signs-a-transshipment-long-term-contract-with-novatek-gas-power.html

https://www.elengy.com/en/news/news/commercial/150-elengy-signs-a-transshipment-long-term-contract-with-novatek-gas-power.html



________________________________________________________________________________________

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point it enters a competitive arena to compete with other sources of fungible gas.

There is often only one producer on a production site (field) and the capacity of the

pipeline is tailored to the production capacity. Hence, there is generally no risk of

foreclosure of competing gas producing or supplying undertakings.185

159. In the exceptional case where there would be such a risk, Article 34 of the

Directive – requiring Member States to ensure that natural gas undertakings and

eligible customers are able to obtain access to these networks – applies.

160. As explained, the regulatory framework on upstream pipeline networks is based on

their objective technical and economic specificities compared to other gas

infrastructure and in particular transmission pipelines.

161. Russia fails to address the core rationale about the different role of upstream

pipelines networks vis-à-vis transmission pipelines. Russia seeks to ignore this

point by focusing on the issue of where the processing plant is located in upstream

pipeline networks. However, what is characterising upstream pipeline networks is

not where the processing plant is located but the fact that they are inherently linked

to the "upstream" sector, i.e. the production of gas. Upstream pipeline networks

are dedicated lines that convey gas either to a processing plant or terminal (where

the gas will be processed) or to a final coastal landing terminal (where the pressure

is reduced and the gas is filtered and heated before being injected into a

transmission network). They are situated alongside production facilities and

connect these facilities to the transmission system.

162. Upstream pipeline networks thus could be seen as a "one-way highway" (after all,

gas does not flow toward the production facility but from it) that is tailored to the

capacity of the linked production facility or facilities. Upstream pipeline networks

have the sole purpose of bringing the gas from the production site to a

transmission network (and not directly to a customer), so that the gas can be

transmitted further downstream. A transmission pipeline, though it may flow in a

predominant direction, may reverse its dominant flow for commercial reasons,186

or may flow contractually in both directions simultaneously because the

185 EU's responses of 12 October 2016, para. 10; EU's first written submission, para. 450.

186 Transmission pipelines can be reversed to flow gas backwards.



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transmission system is comprised of pipelines linking both systems and customers

to those systems. It is clear that a pipeline that is ancillary to production will never

reverse its dominant physical flow.

163. Transmission pipelines concern a further sector downstream – they connect

markets downstream. They collect gas from all possible sources (upstream pipeline

networks, storage facility, processing plant, LNG terminal, etc.), often allowing

flow of gas in both directions of a pipeline, connect to customers, distribution

networks or storage facilities as exit points and have capacity tailored to the

customers and markets they serve.

164. As a result of their different nature and function, the risk to competition in the case

of upstream pipeline networks and transmission pipelines is very different. Due to

their capacity being designed for the production capacity of the production

facilities at their starting point, upstream pipeline networks generally do not

operate in a competitive environment: they are constructed along with production

facilities and cater to the latter specifically. Hence, the use of such networks is of

interest only for the owners of the production sites in question.

165. Moreover, unlike transmission pipelines, upstream pipeline networks do not

deliver gas to individual customers. Therefore, they do not constitute essential

facilities or natural monopolies that would hinder the development of a

competitive market.

166. Furthermore, whereas the shippers in a transmission network compete for the

limited capacity of that network, or for the capacity of an interconnector between

two transmission networks, this is typically not the case for upstream pipeline

networks. Being built to cater to specific production sites, their capacity of

upstream pipelines is matched to the expected level of production of such sites.

Conversely, the design of a transmission network is not directly driven by the

capacity requirements of shippers to flow gas around the network, which would

indeed be impossible, given the wide variety of entry and exit points in such a

system and the complexity resulting from trading between the various participants.

This necessarily leads to situations where shippers compete for access to the

capacity of the transmission system.



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167. The EU rules reflect the above-mentioned technical and economic differences and

resulting different risk for discrimination in the operation of the upstream pipeline

networks. In fact, the distinction between upstream pipeline networks and

transmission networks is not a novelty of the Third Package, but has existed in EU

legislation since the so-called First Energy Package, i.e. Directive 98/30/EC of the

European Parliament and of the Council of 22 June 1998 concerning common

rules for the internal market in natural gas. Such a distinction between upstream

and downstream (transmission) segments is well known in gas and oil activities. In

fact, Russia's own regulatory framework seems to recognise this same

distinction.187

2.6.3.2 Russia errs when claiming that Russian pipelines would

never be eligible to qualify as upstream pipeline networks

168. Russia alleges that only "pipelines owned and controlled by the Norwegian

companies delivering Norwegian and EU-origin natural gas to the EU"188

can be

upstream pipeline networks, and "not any pipelines that deliver gas of Russian or

any other origin to the EU".189

According to Russia, there are "no examples of

Russian pipelines qualifying as upstream pipeline networks under the Directive

even though such pipelines, their operators and the gas they deliver are identical to

the Norwegian pipelines concerned".190

169. The European Union strongly contests Russia's allegations.

The legislative history contradicts Russia's 2.6.3.2.1

allegation that the "upstream pipelines networks" definition is

"tailored to apply solely to Norwegian pipelines"

170. Russia seeks to portray the "upstream pipeline networks" definition as being

"drafted by the Norwegian government" and "tailored to apply solely to the

187 See Basics of Russian Gas Market Regulations,

http://www.fief.ru/img/files/5_Basic_of_RU_Gas_Market_Regulations.pdf (Exhibit EU-126),

referring to "Upstream (exploration & production)", "Midstream (processing, transmission,

storage)" and "Downstream (distribution, supply & use)" segments and the different Russian legal

instruments applicable to them.







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Norwegian pipelines".191

However, the documents that Russia cites are not EU

documents.192

171. In fact, the drafting history of Directive 98/30/EC indicates that the intention of

including the definition of upstream pipeline networks has been precisely the

opposite to what Russia alleges. This definition193

and the corresponding

substantive provision in Article 23 of the Directive have been included not in order

to exempt upstream pipeline networks from the regime of the Directive, but in

order to subject such upstream pipeline networks to legal requirements of third

party access.

172. The original Commission proposal for the Directive did not include rules on

upstream pipeline networks.194

It defined "transmission" as "the transport of

natural gas through a high pressure pipeline in view of its delivery to customers".

In the adoption process for the Directive, it became clear that such a definition

could not include pipelines coming directly from the production field and carrying

the gas to the transmission networks, since, as discussed above, in view of their

function, such pipelines do not deliver gas to customers.

173. It was however considered necessary that such pipelines are also covered by the

regime of the Directive so that a comprehensive legal regime for non-

discriminatory access to all types of gas infrastructure was set out. For these

reasons, the definition of upstream pipeline networks and the corresponding

requirement for fair and open access to such infrastructure were included in Article


192 None of the "Reports" that Russia cites in its response to Panel's Question 10 is an EU document,

but rather a UK source. However, even those documents indicate that the reasons for introducing

the regime of upstream pipeline had been the different competitive concerns that exist in case of

such pipelines and in case of transmission pipelines. These documents also mention that such a

view has been supported by the gas industry and this has been the case precisely because, as

explained above, the distinction between upstream, midstream and downstream gas sectors exists

objectively in the gas sector. Moreover, the reason why the Norwegian offshore pipelines might be

mentioned in documents, such as those invoked by Russia, issued close to the adoption of the

Directive is that such pipelines already existed at the time of the adoption of the Directive. In

contrast, no Russian offshore pipelines existed at the time, which would explain why they are not

mentioned in any documents from that period. Indeed, the Russian offshore pipeline – Nord Stream

1 (the on-shore extension of which are the exempted Opal pipeline and the regulated NEL pipeline),

was built and became operational years later - in 2012.

193 Article 2 Nr. 2 Directive 98/30/EC.

194 Commission proposal for the First Gas Directive (Directive 98/30/EC), (Exhibit EU-127).



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23 of Directive 98/30/EC as adopted. It is evident from the drafting history of the

Directive that the inclusion of such rules has been motivated by a desire to

"achieve a competitive market in natural gas", taking into account the "economic,

technical and operational characteristics of such networks"195

which are not

identical to those of transmission pipelines and which necessitated that the rules

for upstream pipeline networks and transmission pipelines are not identical.196

Several facts contradict Russia's allegation that the 2.6.3.2.2

upstream pipeline networks definition will never be available for

Russian pipelines

174. Setting the legislative history aside, this portrayal by Russia that the upstream

pipeline networks definition will never be available to Russian pipelines is

contradicted by several facts.

175. First, access to the productive regions of the EU is open to Russian companies and

is governed by the Hydrocarbons Licensing Directive,197

under which non-

discriminatory awards of production licenses (and the therefore ancillary right to

build upstream pipelines) is unconditional.198

176. Second, contrary to what Russia argues, the EU definition of upstream pipeline

networks is not overly broad, but in line with the industry understanding of

upstream pipelines. There are many industry definitions similar to the EU one.199

195 Drafting history of the First Gas Directive (Directive 98/30/EC), (Exhibit EU-128) (BCI).

196 See also Recital 25 of Directive 98/30/EC, which indicates that the rationale for the rules on

upstream pipeline networks is based on their operational and economic characteristics: "Whereas,

in order to achieve a competitive market in natural gas, provision should be made for access to

upstream pipeline networks; whereas separate treatment is required as respects such access to

upstream pipeline networks, having regard, in particular, to the special economic, technical and

operational characteristics relating to such networks; whereas the provisions of this Directive do not

in any event affect national taxation rules".

197 Directive 94/22/EC of the European Parliament and of the Council of 30 May 1994 on the

conditions for granting and using authorizations for the prospection, exploration and production of

hydrocarbons (Exhibit EU-129).

198 The European Union has never exercised the powers in Article 8 (3) of the Directive.

199 E.g. https://www.eia.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/process.htm'

"Gathering Lines – These small-diameter pipelines move natural gas from the wellhead to the

natural gas processing plant or to an interconnection with a larger mainline pipeline";

http://www.spectraenergy.com/Natural-Gas-Oil-101/Glossary-of-Energy-Terms/G/ "Gathering

Line – Network-like pipeline that transports natural gas from individual wellheads to a compressor

station, treating or processing plant or main trunk transmission line. Gathering lines are generally

relatively short in length, operate at a relatively low pressure, and are small in diameter.";

http://www.gie.eu/KC/gasinfrastructure.html "Upstream pipeline – Underground or undersea gas



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The logic of these definitions is that an upstream pipeline or a gathering pipeline

has to be treated as such until it brings the gas to a market where connections with

transmission pipeline exists, so that the gas could be transported further

downstream to markets and consumers by transmission pipelines. This connection

could happen already at a processing plant but could happen also at a later stage,

i.e. if the processing plant is located very close to the production site.

177. Third, if there are currently no Russian pipelines that qualify as upstream

pipelines, this is because they do not meet the conditions of the definition. The

reason why the existing Russian pipelines would not fall under the definition of

upstream pipeline networks is not related to the part of this definition challenged

by Russia (that upstream pipeline networks are not only those that connect to a

processing plant but also a final coastal landing terminal) but to the very beginning

of the definition – the fact that upstream pipeline networks connect a production

facility.

178. In fact, Russia itself does not dispute this element of the definition. Russia notes

that "no Russian pipelines are currently 'used to convey natural gas from one or

more such [gas production] projects to a processing plant or terminal or final

coastal landing terminal'".200

According to Russia, this is because "Russian

pipelines that transport Russian-origin gas typically travel overland from Russia to

the EU" and "[e]n route, the Russian gas transported via these pipelines enters the

Russian transmission system."201

This is precisely why it is justified not to treat

these pipelines as "upstream pipeline networks". The underlying reason for the

specific rules for upstream pipeline networks (i.e. the operational specificities and

the related absence of a comparable competitive concern applicable to

transmission pipelines) is thus entirely absent for the current Russian pipelines,

which form a large and interlinked transmission system: the existing Russian

pipelines are connecting a transmission network to another transmission network

rather than a production facility to a transmission network.

pipelines used for the transportation of natural gas from production fields to transmission

networks".





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179. This would have also applied to the planned Southstream project subsequently

cancelled by Russia, to which Russia refers in its responses to the Panel's

questions.202

Southstream would, in fact, have been linked to the Russian

transmission system and the gas transported via SouthStream, after having been

transported for long distances in the general transmission system, combined with

gas from many fields, and using gas storage, would not have been directly

dependent on the current output of any particular gas field.

180. Hence, nothing in the definition prevents that a Russian pipeline that would

directly connect a gas production field in Russia to a processing plant or terminal

or final coastal landing terminal would be qualified as an upstream pipeline

network. In such case, the relevant provisions in the Directive, including the

obligation in Article 34 for Member States to ensure that natural gas undertakings

are able to obtain access to upstream pipeline networks, would apply.

181. Russia is also mistaken when it suggests that Gassco in Norway "is free to develop

its export pipeline network and to control the supply and placement of its gas on

the EU market as it sees fit".203

In practical terms, the Norwegian offshore

pipelines are operated under third party access rules by Gassco,204

as mandated by

Article 34 of the Directive.

2.6.3.3 Russia cannot demonstrate that gas carried through an

upstream pipeline network has a competitive advantage over gas

carried through a transmission pipeline

182. Russia has not demonstrated that the application of Directive 2009/73/EC to

upstream pipeline networks modifies the conditions of competition to the

detriment of gas from Russia. There is no reason why the application of the

unbundling requirement to transmission pipelines would translate into a

competitive disadvantage for gas carried over such pipelines when compared to

gas carried over an upstream network, where only the Member State obligation to



204 Pursuant to the Norwegian legislation such as the Act relating to petroleum activities. See also the

information available at: The Norwegian Gas Transportation System,

http://www.statoil.com/AnnualReport2012/en/OurOperations/BusinessAreas/MarketingProcessing

AndRenewableEnergy/NaturalGas/Pages/TheNorwegianGasTransportationSystem.aspx (Exhibit

EU-130).





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ensure access for competitors according to the provisions in Article 34 of the

Directive applies.

183. Russia in fact argues, once more, that Russian gas producers should be able to

control access to transmission networks in order to foreclose competition in the

gas market,205

leading to higher prices and less choice for consumers. This would

undermine the very core of free competition in the EU market for gas. The

European Union has also explained that, pursuant to Article 34 of the Directive,

Member States have the obligation to ensure competition and prevent the abuse of

a dominant position.206

Hence, equal opportunities are guaranteed to all gas, no

matter its origin.

184. Russia also misleadingly suggests that the "EU has acknowledged the 'increases in

costs and loss of efficiency' that Gassco would have been subject to"207

if certain

of its pipelines would, rather than being upstream pipeline networks, be qualified

as transmission pipelines. Russia first of all suggests that this statement originates

with the EU, while, in fact, it merely paraphrases (incorrectly) Norway's and gas

industries' views on the First Gas Directive, summarized in a UK House of Lords

paper of November 1997.

185. Moreover, Russia takes the phrase "increases in costs and loss of efficiency" out of

its context, suggesting that objections were made against applying the First Gas

Directive also upstream because it would allegedly deprive the upstream

undertakings from monopoly profits. The contrary was in fact argued: precisely

because there was a "lack of any upstream monopoly and the presence of many

smaller, cost-sensitive enterprises", extending the scope of the Directive upstream

"would do little to contribute to the EU's objectives of increasing competition" in

gas markets in the EU.208

This is perfectly in line with the rationale that the

European Union has explained for not extending the unbundling requirement to

upstream pipeline networks: the competitive concern that exists for transmission

205 Russia's responses of 12 October 2016, paras. 95, 484.

206 EU's first written submission, para. 457; EU's responses of 12 October 2016, para. 9.

207 Russia's responses of 12 October 2016, para. 484, referring to Exhibit RUS-116.

208 Exhibit RUS-116, para. 47.



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pipelines is not present, save for exceptional situations, for upstream pipeline

networks.

186. Moreover, the statements also signal the "technical complexities" and concerns

that arise from allowing, under all circumstances, other gas producers to connect to

the upstream pipeline network.209

Applying the First Gas Directive to upstream

pipeline networks would lead to "increases in costs and loss of efficiency" of the

undertakings because the production at the gas field would be disrupted when

other companies would connect to the pipeline directly connecting the gas field to

the processing plant, terminal and final coastal landing terminal, after which the

pressure could be controlled. Hence, the reason for not extending the Directive

upstream was not to enable gas producers to increase prices for consumers. It was

to ensure that gas extraction would remain technically possible.

2.7. CLAIM XIII: RUSSIA'S CLAIM OF VIOLATION OF ARTICLE III:4 OF THE GATT 1994

BECAUSE THE DIRECTIVE WOULD ACCORD RUSSIAN GAS TREATMENT LESS FAVOURABLE

THAN LIKE DOMESTIC GAS TRANSPORTED VIA UPSTREAM PIPELINE NETWORKS (RUSSIA'S

CLAIM 14)

187. Russia also makes a discrimination claim with respect to upstream pipeline

networks under Article III:4 of the GATT 1994. As explained in the European

Union's first written submission,210

and for the same reasons as explained in

paragraphs 156-186, above, Russia's claim must fail: Russia errs when claiming

that Russian pipelines would never be eligible to qualify as upstream pipeline

networks. Further, Russia cannot demonstrate that the measure at issue provides a

competitive advantage to domestic EU gas when compared to imported gas.

3. THIRD COUNTRY CERTIFICATION

3.1. CLAIM XIV: ARTICLE XVII GATS (RUSSIA'S CLAIM 15)

188. For the reasons set out in the EU's first written submission211

, the SoS certification

requirement provided for in Article 11 of the Gas Directive is justified under

Article XIV(a) GATS. More precisely, the European Union has demonstrated that:

209 Exhibit RUS-116, para. 47.





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i) the policy objective pursued by the SoS certification requirement falls within the

scope of Article XIV (a) GATS; ii) the SoS certification requirement is necessary

to achieve its policy objective; and iii) the SoS certification requirement is applied

in conformity with the requirements of the chapeau of Article XIV GATS.

3.1.1. The policy objective pursued by the SoS certification

requirement falls within the scope of Article XIV (a) GATS

189. The European Union has shown that the security of supply of energy is a

"fundamental interest" of the EU society, as reflected in the EU's law and policies;

and that foreign control of TSOs and transmission system owners poses "genuine

and sufficiently serious threats" to such fundamental interest, as required by

footnote 5 to Article XIV (a) GATS.212

3.1.1.1 SoS is a "fundamental interest" of the EU society, as

reflected in EU's law and policies

190. In its first oral statement, Russia said that "Russia does not necessarily agree that

SoS is an EU fundamental interest".213

By way of justification for this cryptic

assertion, Russia limited itself to state that:

The Directive and Member State laws do not define SoS, nor

describe how it relates either to Article 11, and the third-country

certification provision, or to the prospects of foreign persons

controlling TSOs.214

191. The European Union fails to see why the absence of a legal definition of SoS in

the Gas Directive, or in the transposing laws of the EU Member States, should

have the implication that SoS cannot qualify as a "fundamental interest" of the

European Union. As explained in the EU's first written submission215

, SoS is one

of the core objectives of the EU's energy policy referred to in Article 194 TFEU

and underpins all the legislation enacted by the European Union in the field of

energy. In any event, while Article 11 of the Gas Directive does not define the

notion of SoS, that provision and the accompanying recital do provide criteria for


213 Russia's first oral statement, para. 59. Underlining added.


215 EU's first written submission, paras. 490-491



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applying that notion216

. Moreover, the notion of SoS is addressed in numerous

provisions of the EU's energy legislation, all of which provide context for the

interpretation of Article 11 of the Gas Directive217

. Further guidance can be drawn

from policy documents, as well as from the certification opinions and decisions

already issued by the Commission and the NRAs under Article 11 of the Gas

Directive.218

192. As regards Russia's second objection, the relationship between SoS and Article 11

of the Gas Directive (and the third-country certification provision stipulated

therein) is apparent from the express terms of that provision and has been

described in detail in the EU's first written submission.219

To recall, Article 11(3)

of the Gas Directive sets forth the substantive requirements for the certification of

TSOs within the scope of Article 11. It provides that the certification is to be

refused in two instances: when the entity concerned does not comply with the

relevant unbundling requirements of Article 9220

; and, when it has not been

demonstrated

[…] to the regulatory authority or to another competent authority

designated by the Member State that granting certification will

not put at risk the security of energy supply of the Member State

and the Community.221

193. Thus, by its own express terms, the SoS requirement included in Article 11 of the

Gas Directive is specifically aimed at ensuring the security of gas supply in the

European Union.

194. Lastly, the European Union does not understand what Russia means by the

"prospects of foreign persons controlling TSOs" or how the relationship between

SoS and those "prospects" would be relevant in order to determine whether SoS is

a fundamental interest of the European Union.

216 EU's first written submission, paras. 468-471 and 636-637.




220 Article 11(3) a) of Directive 2009/73/EC.

221 Article 11(3) b) of Directive 2009/73/EC.



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195. In its response to Panel Question 96, Russia attempts a new and different line of

argument. Building upon an observation submitted by Japan, Russia contends that

SoS is an instrument or means to achieve other interests, such as ensuring the

health, life, security and well-being of EU citizens. According to Russia, "it is in

fact the latter concepts that are fundamental interests of the EU society"222

, rather

than ensuring SoS. The European Union finds this distinction artificious and,

ultimately, irrelevant.

196. Russia objects that the concept of SoS is "too general and overly broad"223

to

qualify as a fundamental interest of society. Yet the fundamental interests

identified by Russia are much broader. Indeed, those interests are so broad that

most, if not all, other interests of society could easily be characterized as

instruments or means to achieve them. For example, the panel in US – Gambling

agreed with the United States that preventing criminal activity was a fundamental

interest of the United States.224

Yet, just like SoS, that interest could be regarded as

a means or instrument to protect the life, health, security and well-being of the

U.S. citizens.

3.1.1.2 TSOs controlled by persons of third countries pose a

genuine and sufficiently serious threat to SoS in the EU

197. As explained in the EU's first written submission225

, foreign control of a TSO or,

where it is a different entity, of the transmission system owner poses "genuine and

sufficiently serious threats" to SoS in the European Union. The existence of such

threats can be inferred from the interaction of the following circumstances:

TSOs and transmission system owners play a critical role in ensuring SoS. For

that reason, they may undermine SoS, either by failing to comply with the legal

obligations imposed upon them by the EU energy legislation in order to ensure

SoS, or by failing to act in accordance with their own commercial interest,

222 Russia's response to Panel Question 96, para. 408.


224 Panel report, US – Gambling, para. 6.469.




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contrary to the assumption on which the market based mechanisms stipulated

in that legislation are premised;226

foreign governments have the means to require or induce effectively the TSOs

and transmission system owners controlled by them or by their nationals to

undermine the EU's SoS policies in the fashion described in the previous

bullet;227

and

under certain circumstances, foreign governments have strong incentives to

require or induce the TSOs and transmission system owners controlled by them

or by their nationals to undermine the EU's SoS policies in the ways described

in the first bullet by using the means mentioned in the second bullet.228

198. The threats to SoS are compounded by the fact that, where the TSO or the

transmission system owner is controlled by the government or by persons of a

third country, it will be more difficult in practice for the EU authorities to enforce

effectively the legal obligations imposed by EU law upon the TSOs or the

transmission system owner with a view to ensuring SoS.229

199. Russia contends that the threats to SoS described by the European Union are

"neither genuine nor sufficiently serious"230

and that "the threats highlighted by the

EU are based on pure speculation rather than evidence".231

200. The European Union observes that Russia does not appear to contest that TSOs

and transmission system owners play a critical role in ensuring SoS, or that foreign

governments have the necessary means to require or induce the TSOs and

transmission system owners controlled by them or by their nationals to act in ways

that have the effect of undermining the EU's SoS policies. Nor does Russia dispute

that, where the TSO or transmission system owner is controlled by a government

or by persons of a third country, it will be more difficult to enforce effectively the

obligations imposed by EU law with regard to SoS.









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201. Instead, the thrust of Russia's objections is the allegation that the European Union

merely "speculates"232

that third-country governments may have incentives to

undermine the EU's SoS policies and that the European Union "presents no

evidence that such threats actually exist"233

. Russia does not specify what kind of

evidence should be provided by the European Union to establish the existence of

threats to SoS. Nonetheless, Russia appears to believe that only evidence of actual

disruptions of supply could be relevant for that purpose.

202. Russia's objections disregard the way in which the SoS certification requirement

operates and the reasons which led to its introduction. The threats that the SoS

certification requirement seeks to prevent are largely the result of the liberalisation

measures introduced by the Third Energy Package, of which the SoS certification

requirement is an essential component. Traditionally, the gas transmission markets

of the EU Member States have been dominated by vertically integrated

monopolists controlled by the EU Member States themselves or by persons of the

EU Member States. In that context the threats to SoS resulting from foreign

control of gas undertakings were, depending on the EU Member State, inexistent

or at least very limited. The Third Energy Package, and in particular the

unbundling requirements, has opened new opportunities to foreign investment in

the EU gas transmission market. The European Union welcomes that investment,

which will, as a general rule, contribute to enhance competition and SoS. In

exceptional cases, however, foreign TSOs may, for the reasons recalled above,

pose a genuine threat to SoS. Hence the need to put in place, as part of the Third

Energy Package, a specific mechanism for the certification of third country

controlled TSOs in order to assess in each case whether the TSO concerned poses

a threat to SoS. That mechanism operates in a preventive manner. In other words,

it seeks to detect and prevent ex ante disruptions of supply rather than addressing

the effects of those disruptions once they have already materialised.

203. For the above reasons, the European Union cannot be required to prove, in order to

substantiate the existence of the threats to SoS described above, that such threats

have already materialised in the past. Rather, it is enough for the European Union


233 Russia's first oral statement, para. 60



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to show that the existence of such threats can be reasonably inferred from the

attendant facts. The European Union has done so by showing that the threats to

SoS which it has identified result from potential actions or omissions by foreign

governments which are well within the powers of those foreign governments and

which, moreover, would be in those foreign governments' own interest under

plausible circumstances.

204. More precisely, the European Union has explained why the interests of foreign

governments may come into direct conflict with the interests of the European

Union in ensuring SoS. For example, to say that a country supplying gas to the

European Union may have an interest in limiting supplies from other countries to

the European Union, so as to maximise its own exports, is not mere speculation,

but a reasonable inference based on reasonable expectations about the rational

behaviour of a foreign government. Nor is it mere speculation to say that the

government of a third country facing a shortage will have an interest in diverting

supplies of gas to its own territory at the expense of the users in the European

Union. It is also not speculative to say that a foreign government may seek to use

its control over the supply of energy products in order to advance its foreign policy

objectives. There are well-known examples of this: from the oil embargo in 1973

to the interruption of gas supplies to Ukraine (and, as a result, to the European

Union) in 2006 and, again, in 2009.

205. The European Union agrees that in many cases third country TSOs will not pose a

threat to the EU's SoS. But in assessing the seriousness of a threat for the purposes

of Article XIV (a) GATS account must be taken not only of the frequency with

which a threat may materialise, but also of the potential gravity of the effects,

should the threat materialise in one case. The effects of even an isolated and

temporary disruption of the supply of gas may be very severe, which justifies the

introduction of a preventive mechanism to detect and address in advance all threats

of disruption.

206. Russia further notes that "requiring Gazprom to satisfy the third country

certification requirements in the EU would not address the EU's concerns with



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supply disruptions outside the EU".234

However, the EU's concerns extend also to

the threats of disruption within the European Union. Moreover, the interruption of

gas supplies to Ukraine in 2006 and 2009 provides a compelling illustration of

how foreign governments may find in their own interest to disrupt gas supplies to

another country in order to advance their foreign policy objectives, one of the

types of threats to SoS identified by the European Union.

3.1.2. The SoS certification requirement is necessary to achieve its

policy objective

3.1.2.1 Relative importance of the objective

207. Russia has not contested that that the objective of ensuring SoS is considered of

fundamental importance by the European Union.235

3.1.2.2 Contribution to the objective

208. Russia contends that the SoS certification requirement "makes no contribution,

material or otherwise, to ensuring SoS"236

. By way of justification for this

sweeping assertion, Russia limits itself to argue that "the EU has numerous other

mechanisms in place to address its alleged concerns".237

Russia then cites some

legal provisions included in the Third Energy Package which impose obligations

on all TSOs and other gas undertakings in order to ensure SoS.238

209. Russia's argument fails to recognise the concerns which the SoS certification

requirement seeks to address. The European Union has explained in detail239

that

the Third Energy Package does impose numerous obligations on all TSOs and

other gas undertakings (irrespective of whether they are controlled by EU persons

or persons of third countries) in order to ensure SoS. The threats to SoS identified

by the European Union stem from the fact that the governments of third countries

may require or induce the TSOs or transmission system owners controlled by them


235 See EU's first written submission, para. 527.







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or by persons of those third countries to act in a manner that undermines the EU's

SoS policies, inter alia by failing to comply with the legal obligations to which

Russia refers. The mere existence of those legal obligations does not, therefore,

render superfluous the SoS certification requirement. That requirement is

necessary in order to detect and address in advance the risk that TSOs and

transmission system owners controlled by governments or persons of third

countries will not comply with such obligations.

3.1.2.3 Restrictiveness of the measure

210. Russia argues that the SoS certification measure is trade-restrictive because it

creates "uncertainty".240

But such uncertainty is inherent in any ex-ante

authorization mechanism. Moreover, in the case at hand it is reasonably

circumscribed because the competent authorities must decide within the time-

limits provided in Article 11 of the Gas Directive, which are the same as those

applicable to the certification of other TSOs under Article 10.

211. Russia further argues that the SoS certification measure is trade restrictive because

it "grants Member States essentially unlimited discretion".241

As shown by the

European Union in its response to Russia's claim under Article VI:1 GATS,

however, this allegation is baseless.242

212. Russia also argues that the SoS certification requirement is trade restrictive

because "the Commission recommends restrictions, leading to decisions that

unfairly restrict the supply of services from some Members compared to others".243

Again, as shown by the European Union in its response to Russia's various claims

under Article II:2 GATS, this allegation is unfounded.244

3.1.2.4 Alternative measures

213. The European Union considers that there are no reasonably available alternative

measures which, while being less trade restrictive, would make an equivalent

240 Russia's oral statement, para. 63.




244 EU's first written submission, paras.585-616.



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contribution to achieving the desired level of protection.245

In accordance with

well-established case law, it is for Russia to identify possible alternative

measures.246

214. In its first oral statement Russia said that the European Union could have required

as an alternative measure, the "same set of procedures from all operators,

regardless of origin"247

. As explained in the EU's response to Panel Question 105,

this suggestion is most unclear and fails manifestly to meet Russia's burden of

proof.

215. As an additional alternative measure, Russia mentioned the enactment of what

Russia calls a "blocking statute".248

According to Russia, the European Union

would have used this approach in Council Regulation (EC) No 2271/96.249

However, as explained below, that regulation has a very different purpose and

operates in a very different way.250

216. In essence, Council Regulation (EC) No 2271/96 provides that EU companies and

persons residing in the European Union shall not comply with certain extra-

territorial laws adopted by other countries which affect international trade between

the European Union and third-countries (other than the countries enacting the

extra-territorial laws). This prohibition was enacted because those extra-territorial

laws were regarded by the European Union as incompatible with international law.

Prior to the enactment of Council Regulation (EC) No 2271/96, the EU companies

and persons concerned were not prohibited under EU law from complying with the

extra-territorial laws at issue. In other words, Council Regulation (EC) No 2271/96

does not purport to enforce pre-existing obligations of EU companies and persons

under domestic EU law, but rather to impose upon them a new obligation under

245 Appellate Body Report, US – Gambling, para. 308. See also e.g. Appellate Body Report, Brazil –

Retreaded Tyres, para. 156; and Appellate Body Report, EC – Seal Products, paras. 5.169 and

5.261. 246 Appellate Body Report, Brazil – Retreaded Tyres, para. 156. 247 Russia's first oral statement, para. 62.


249 Russia's first oral statement, para. 62. See also Russia's response to Panel Question 101, paras.422-

423.

250 A copy of Council Regulation (EC) No 2271/96 has been provided by Russia as Exhibit RUS –

156.



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domestic EU law in order to counter the effects of a violation of international law

by a third country.

217. In contrast, the "blocking statute" envisaged by Russia would seek to ensure

compliance with already existing obligations under domestic EU law. In Russia's

own words, its proposed "blocking statute" "would have put the legal onus in the

EU company to comply with EU law".251

But this is wholly unnecessary: TSOs

controlled by third country governments or persons of a third country already have

"the legal onus" to comply with existing EU legal provisions under the Third

Energy Package aimed at ensuring SoS. The "blocking statute" proposed by Russia

would thus merely add a superfluous layer of domestic EU regulation. It would fail

to address the EU's concern that foreign governments may require or induce TSOs

controlled by those governments or by persons of those third countries not to

comply with existing EU legislation. Just like a foreign government can require or

induce a third country TSO not to comply with the obligations of the Third Energy

Package aimed at ensuring SoS, it could do the same with regard to the "blocking

statute" proposed by Russia. Indeed, nothing would prevent the third country

concerned from enacting its own "blocking statute" in order to block compliance

with the "blocking statute" proposed by Russia.252

218. To illustrate this with an example, the European Union recalls that at the first

hearing Russia's counsel emphasised that "Gazprom is Russia and Russia is

Gazprom". In view of this identity, could the European Union really trust that

Gazprom/Russia (or any other gas suppliers controlled and owned by a third


252 This is more than a mere theoretical possibility. For example, Russia already has in place what

amounts to a "blocking statute". In 2012 the government of the Russian Federation adopted a

presidential decree on "Measures to protect the interests of the Russian Federation when Russian

legal entities engage in foreign economic activity". This decree stipulates that certain Russian

entities of "strategic importance" (which include Gazprom), and their daughter companies, shall not

comply with certain types of requirements imposed on them by a foreign country or organisation

without the prior consent of the Russian government. The types of requirements in respect of which

the companies of strategic importance need prior consent include the requirement to provide

information about their activities; the requirement to make changes to contracts with foreign

counterparts or to other documents relating to their commercial policy in foreign countries; and the

requirement to dispose of stakes held in foreign organisations, the right to carry out business

activities in foreign countries and immovable property situated abroad. See Decree of the President

of Russian Federation No 1285 of 11 September 2012 on Measures to protect the interests of the

Russian Federation when Russian legal entities engage in foreign economic activity and

implementing measures (Exhibit EU-131).



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country) would choose to comply with Russia's proposed EU blocking statute,

rather than with the instructions received from Russia/Gazprom, which

instructions could take the form of a "counter-blocking statute"? Of course, with

this theoretical example the European Union is not suggesting that the TSOs

controlled by the Russian government (or by the governments of other third

countries, such as Norway's Statoil, Azerbaijan's SOCAR or Algeria's Sonatrach)

could never be certified under Article 11 of the Gas Directive.253

Nevertheless, this

example illustrates the obvious limitations of the alternative measure identified by

Russia.

219. For the above reasons, the European Union submits that the "blocking statute"

proposed by Russia would fail to address the threats to SoS identified by the

European Union and, to the extent that it did, it would fail to achieve the same

level of protection against those threats as the SoS certification requirement.

3.1.3. The SoS certification requirement is applied in conformity with

the requirements of the chapeau

220. Russia contends that the SoS certification requirement is not applied in conformity

with the chapeau of Article XIV GATS because it discriminates de iure in favour

of domestic services and service suppliers254

and this difference in treatment

cannot be "rationally related" to its stated policy objective of ensuring SoS.255

221. Russia is wrong on both counts. As explained in the EU's first written

submission256

, the TSOs controlled by persons of an EU Member State do not pose

comparable threats to the EU's SoS. For that reason, the difference in treatment

between them is fully consistent with the objective pursued by the SoS

certification requirement. For the same reason, that difference in treatment does

not amount to "arbitrary or unjustifiable discrimination" within the meaning of the

chapeau.

253 It is recalled that, so far, no Russian TSO has applied for certification under Article 11 of the Gas

Directive. In the case of Gaz-System, where the transmission owner was jointly owned and

controlled by Gazprom, the Polish NRA did grant the certification.






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222. Russia does not address the argument and evidence submitted by the European

Union in order to show that domestic and foreign TSOs do not pose comparable

threats to the EU's SoS. Instead, Russia dismisses out of hand that argument and

evidence by asserting that the European Union has not shown that third country

control of TSOs poses any "realistic threat" to SoS.257

The European Union has

demonstrated, however, that Russia's premise is incorrect.258

223. Russia further contends that the SoS certification requirement has been applied

inconsistently with the chapeau because "certain TSO and transmission systems in

which it has interests have been subjected to more restrictive EU certification

conditions than those of other foreign owners"259

and refers to its claims under

Article II:1 GATS. However, as shown by the European Union260

, those claims are

wholly unfounded. The SoS certification requirement does not discriminate, either

de iure or de facto, between service suppliers of different WTO Members, let

alone discriminate in an "arbitrary or unjustifiable" manner.

224. Lastly, Russia argues that discrimination results in part from "ambiguities in the

third country certification standard and the broad discretion granted on NRAS and

the Commission"261

and refers to its claims under Article VI:1 GATS. Again,

however, the European Union has shown that those claims are without

foundation.262

3.2. CLAIMS UNDER ARTICLE XVII GATS CONCERNING OTHER REQUIREMENTS IMPOSED BY

HUNGARY AND LITHUANIA (INCLUDED IN RUSSIA'S CLAIM 15)

225. The European Union reiterates its view that Russia's claims against Articles 20(5)

and 29(4)(3) of Lithuania's Law on Natural Gas and Article 123 of Hungary's Act

on Natural Gas Supply are outside the Panel's terms of reference. 263

The European


258 See Section 3.1.2, above.





263 EU's first written submission, paras. 546-551 and 553-556; EU's comments regarding terms of

reference, paras. 27-45.



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Union takes note of the Panel's decision not to rule at this stage on the preliminary

objections raised by the European Union with regard to each of these three claims.

226. The European Union further notes that Russia has not addressed the EU's rebuttal

on the substance to these three claims.264

3.3. CLAIM XV: ARTICLE II:1 GATS (RUSSIA'S CLAIMS 16 AND 17)

3.3.1. The de jure claim

227. The European Union recalls that the Panel has ruled that the claim under Article

II:1 GATS developed in paragraphs 449-454 of Russia's first written submission

falls outside the Panel's terms of reference.

228. Russia has not submitted any argument or evidence in support of the de iure claim

under Article II:1 GATS set out in the first full paragraph on the third page of

Russia's Panel request. The European Union understands that Russia is not

pursuing this claim.

3.3.2. The de facto claim

3.3.2.1 Terms of reference

229. The European Union notes that Russia has clarified that, contrary to what it had

stated in its response to Panel Question 5, Russia does not challenge under Article

II:2 GATS the third country certification measure as applied in a number of

instances. Instead, Russia challenges that measure as such on a de facto basis.265

230. The European Union, nevertheless, reiterates its view that this claim is outside the

Panel's terms of reference to the extent that Russia alleges that the European Union

applies a more stringent SoS assessment for the certification under Article 11 of

the Gas Directive of Russian TSOs than in the case of TSOs of other countries,

such as TIGF and DESFA. As explained by the European Union266

, this "problem"

is different from the "problem" raised by Russia in its Panel request, where Russia

264 EU's first written submission, paras. 552, 557-558 and 560-562 and EU's response to Panel

Question 102.

265 Russia's response to the EU's comments on terms of reference, paras. 49-51.

266 EU's first written submission, paras. 578-581 and EU's comments regarding terms of reference,

paras. 51-59.



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claimed that the European Union had acted inconsistently with Article II:1 GATS

by exempting from Article 11 of the Gas Directive the TSOs of other countries.

The European Union takes note that the Panel has declined to rule on this

objection at this stage.

231. In its response to the EU comments on terms of reference, Russia does not address

the objection raised by the European Union. Instead, it seeks to sidestep the issue

by attributing to the European Union the view that Russia should have identified

all relevant evidence in its Panel request267

. It will be obvious to the Panel,

however, that this is by no means the EU's position. The European Union does not

contest that Russia would be entitled to submit additional evidence in support of

the claim set forth in its Panel request, in particular in the form of further examples

of decisions or opinions concerning TSOs of third countries which were not taken

pursuant to Article 11 of the Gas Directive. However, the TIGF and DESFA

opinions do not constitute evidence in support of that claim. Instead, as shown by

the European Union, they constitute evidence in support of a separate and different

claim which was not presented at all in the Panel request, let alone presented in a

sufficiently "clear" manner.

3.3.2.2 Europolgaz is not a service supplier - Gaz-System is not

a Russian service supplier


, whereas Gazprom controls

jointly Europolgaz (the owner of the Polish section of the Yamal pipeline), neither

Gazprom nor Eurpolgaz operate Yamal. Instead, Yamal is operated by Gaz-

System under the ISO model. Thus, the relevant "service supplier" within the

meaning of Article II:1 GATS is Gaz-System and not Gazprom/Europolgaz. Gaz-

System is a service supplier of Poland and not of Russia. Therefore, even if the

measure provided less favourable treatment to Gaz-System (quod non), such

difference in treatment would fall outside the scope of Article II:1 GATS.

233. In its response to Panel Question 284, Russia appears to suggest that

Gazprom/Europolgaz is a service supplier because, even though it does not

267 Russia's response to the EU's comments regarding terms of reference, para. 56.




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provide transmission services, it continues to provide "supply services ".269

For

the reasons explained elsewhere, the European Union considers that what Russia

calls "supply services" are not services at all.270

Therefore, it remains true that the

only service supplier is Gaz-System, which is not a Russian service supplier.

234. Russia further suggests that Gazprom/Europolgaz must be deemed a service

supplier because the Gas Directive imposes certain "cooperation" obligations on

the transmission system owner which “require some degree of active participation

on the part of the system owner to facilitate operation of the system by the ISO”.

271 Russia thus implies that in the ISO model the system owner is involved in the

operation of the system. This is plainly incorrect. While the system owner has

certain obligations under the ISO model, it is clear that the tasks of TSO are

performed by the ISO and not by the system owner. Such obligations do not confer

upon the transmission system owner the possibility to influence the decision-

making of the TSO. In fact, such influence is explicitly prohibited by the Gas

Directive.272

Therefore, again, it remains true that Gaz-System is the sole service

supplier.

3.3.2.3 Legal status of the Commission opinions

235. As explained by the European Union, Commission opinions (including the

opinions issued pursuant to Article 11 of the Gas Directive) are never legally

binding.273

Russia's insistence to the contrary is thoroughly misguided and

disregards fundamental provisions of the TFEU.

236. The passage from the "Commission's facts sheet on Intergovernmental Agreements

on Energy" quoted by Russia in its response to Panel Question 20274

lends no


270 See footnote 128, above and EU's first written submission, paras. 361-362.


272 See Article 14(4) of Directive 2009/73/EC, which provides that:

Each independent system operator shall be responsible for granting and managing third-party

access […] the independent system operator shall act as a transmission system operator in

accordance with this Chapter. The transmission system owner shall not be responsible for granting

and managing third-party access, nor for investment planning.

273 EU's response to Panel Question 20, paras. 39-43.




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support to Russia's allegations. To begin with, it is obvious that the legal effects of

the Commission opinions under Article 11 of the Directive cannot be properly

determined on the basis of a mere "facts sheet" without any legal status, which

furthermore concerns a Commission proposal relating to an entirely different legal

instrument.

237. Moreover, the passage quoted by Russia does not say or imply anywhere that

failure by an EU Member State to follow a Commission opinion constitutes in and

of itself an infringement of EU law. The sentence underlined by Russia merely

says that, "should a Member State decide to sign an IGA that would be

incompatible with EU law, the Commission would have the possibility to launch

infringement procedures". This sentence is but a mere restatement of the

Commission's general powers under Article 258 TFEU to launch infringement

proceedings whenever it considers that an EU Member State has failed to comply

with any provision of EU law (e.g. with the provisions of the TFEU or of

secondary legislation in the field of energy or public procurement). That sentence

does not have the implication that Commission opinions on the compatibility of

the IGAs with EU law are binding upon the EU Member States. If the Commission

considers that an IGA is incompatible with EU law, it may, as the "guardian of the

Treaties"275

, bring infringement proceedings against the EU Member State

concerned before the Court of Justice in accordance with Article 258 TFEU. But in

those proceedings the Commission will have to show that the IGA is incompatible

with EU law, rather than with the Commission's own previous opinion.

238. Similarly, the Commission cannot bring infringement proceedings against a EU

Member State on the mere ground that a certification decision pursuant to Article

11 of the Gas Directive is incompatible with a Commission opinion. Instead, the

Commission would have to establish that the certification decision is incompatible

with Article 11 as such.

3.3.2.4 Article 54 of the Gas Directive

239. In its first written submission, Russia alleged that jordgas and NABUCCO had

received more favourable treatment than Gaz-System because the competent NRA

275 Cf. Article 17(1) of the TEU.



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had not conducted a SoS assessment pursuant to Article 11 of the Gas Directive,

even though (according to Russia) both jordgas and NABUCCO are controlled by

persons of third countries.276

240. The European Union has explained277

that Russia's complaint is misguided

because it overlooks that, in accordance with Article 54(1), second subparagraph,

of the Gas Directive, the third country certification regime set forth in Article 11 of

Directive 2009/73/EC did not become applicable until 3 March 2013. For that

reason, all the certifications requested prior to that date were dealt with exclusively

under Article 10 of the Directive, regardless of the nationality of the persons who

controlled the transmission system or the TSO. The applications for the

certification of both jordgas and NABUCCO were made before 3 March 2013,

whereas Gaz-System's application was filed after that date.

241. In its response to Panel Question 73, Russia implies that the date of 3 March 2013

was selected by the EU legislators with the deliberate purpose of exempting

jordgas and NABUCCO from Article 11 of the Gas Directive278

. Russia provides

no evidence to substantiate this accusation. Moreover, Russia's allegations are

contradicted by the following facts:

242. First, it is not uncommon in EU legislation to stipulate different dates of

application for different provisions of the same legal instrument. Often, like in this

case, this is done in order to allow the implementing authorities more time to

prepare themselves adequately for the application of particularly novel or complex

provisions.

243. Second, as of the date of adoption of the Directive on 13 July 2009, the EU

authorities could not have possibly anticipated which TSOs would file applications

before and after 3 March 2013. Nor could they possibly have anticipated the origin

of the persons that would control each TSO at the time where it chooses to file for

certification.

276 Russia's first written submission, para. 465

277 EU's first written submission, paras. 597-599 and 605.




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244. Third, the certifications opinions and decisions concerning GASCADE279

and

NEL Gastransport280

, two TSOs owned to 49.98 % and jointly controlled by

Gazprom, were based exclusively on Article 10 of the Directive and do not include

a SoS assessment in accordance with Article 11, because their applications for

certification were submitted prior to 3 March 2013.

245. Fourth, had an application for certification of Gaz-System being filed before 3

March 2013, it would have been processed in accordance with Article 10 of the

Gas Directive instead of Article 11 (as in the case of GASCADE and NEL

Gastransort mentioned above). The European Union notes that Europolgaz was set

up in 1993 and that Gaz-System was entrusted with the operation of the Yamal

pipeline already in October 2010. As of 2009 the European Union could not have

anticipated that Gaz-System would not file for certification before 3 March 2013.

246. Fifth, as already explained by the European Union281

, BOTAS' minority

shareholding did not translate into joint control of NABUCCO. Therefore, even if

NABUCCO had filed for certification after 3 March 2013, that application would

have had to be examined under Article 10 of the Gas Directive. Similarly, the

applications for certification of ONTRAS282

and I-UK283

, where Gazprom had

minority shareholdings not conferring control, were examined under Article 10 of

the Gas Directive.

247. Sixth, the jordgas certification decision relates exclusively to the operation by

jordgas of the NETRA pipeline. Any application by jordgas made after 3 March

2013 relating to other systems would have to be processed under Article 11 of the

Directive.

279 Commission Opinion of 3 December 2012 pursuant to Article 3(1) of Regulation (EC) No

715/2009 and Article 10 of Directive 2009/73/EC - Germany - Certification of GASCADE

Gastransport GmbH, p. 2 (Exhibit EU - 59).

280 Commission opinion of 18 October 2013 on BnetzA's draft certification decisions for NEL,

Gasunie Ostsee and Fluxys (Exhibit EU - 78).


282 See Commission Opinion of 3 December 2012 pursuant to Article 3(1) of Regulation (EC) No

715/2009 and Article 10(6) of Directive 2009/73/EC – Germany – Certification of ONTRAS VNG

Gastransport GmbH (Exhibit EU – 60).

283 See Commission Opinion of 26 March 2013 pursuant to Article 3(1) of Regulation (EC) No

715/2009 and Article 10(6) of Directive 2009/73/EC – United Kingdom – Certification of

Interconnector UK Limited (Exhibit EU-132).



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248. The European Union is at a loss to understand the new issue raised by Russia with

regard to the certification of Lietuvos in its response to Panel Question 73284

,

where Russia contends that in Lithuania the third country certification measure

"actually applied as of 1 November 2011" because the deadline for completing the

unbundling of Lietuvos was set as 31 October 2014. As a result, according to

Russia, "Lietuvos was legally precluded from applying for designation as a TSO,

and thus for third country certification, prior to that date".285

249. The SoS certification requirement stipulated in Article 11 of the Gas Directive is

different from the unbundling requirements and applies to all entities within the

scope of the provision, irrespective of the unbundling model. Article 11 of the Gas

Directive was transposed into Lithuania's law by Article 29 of Lithuania's Law on

Natural Gas. Whereas that law entered into force on 1 August 2011, its Article 29

only became applicable from 3 March 2013, as provided for in Article 54 of the

Gas Directive.

250. Russia appears to allege that Lietuvos was precluded from coming into compliance

with the ownership unbundling requirements before the deadline set out in

Lithuania's Law on Natural Gas. This allegation is baseless, as all relevant

deadlines were designating latest dates of compliance and nothing in Lithuanian

law or decisions of Lithuanian authorities precluded Lietuvos from complying

with the requirements and applying for certification at any earlier date.

251. Moreover, Russia does not explain why the alleged facts would amount to

discrimination prohibited by Article II:1 GATS. Nor does Russia explain how that

allegation would support Russia's contention that Lithuania "actually applied" the

third country certification measure as of 1 November 2011.

3.3.2.5 The delays in the certification of Gaz-System do not

affect conditions of competition to its detriment

284 Russia's response to Panel Question 73, para. 324. See also Russia's response to the EU' comments

regarding the terms of reference, para. 52.

285 Russia's response to the EU' comments regarding the terms of reference, para.52.



________________________________________________________________________________________

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, Gaz-System was certified by

the Polish NRA on 19 May 2015. The European Union further noted that Russia

had not explained, far less proven, how, in view of this fact, the Commission

certification opinions continued to distort the competitive conditions to the

detriment of Gaz-System (assuming that they ever did so) after the date of

establishment of the Panel (18 July 2015).

253. In response to the Panel Question 30 a), Russia concedes that Gaz-System was

certified by the Polish NRA on 19 May 2015.287

Yet, in response to a further

question from the Panel, Russia is manifestly unable to explain how the

Commission certification opinions continue to affect conditions of competition to

Gaz-System's detriment.288

254. In essence, Russia argues that "the Commission's original delay in issuing a

decision increased the uncertainty regarding Gazprom's supply of its service".289

At the outset, the European Union recalls once again that the Commission does not

issue legally binding decisions, but opinions. Whereas the certification process of

Gaz-System took longer than in the case of DESFA, this reflected the deficiencies

of the initial draft decision notified by ERO, which, unlike RAE's draft decision

concerning DESFA, contained no SoS assessment at all. In turn, this can be

attributed to the particular complexity and novelty of the facts to be assessed in the

case of Gaz-System. Similar delays have occurred also in other cases concerning

the certification of TSOs under Article 10 of Directive 2009/73/EC.

255. Russia has not provided any evidence that the operation of Gaz-System was

impaired in any manner during the process of certification. Gaz-System had

operated Yamal as a TSO well before the application was filed, continued to do so

throughout the certification process and is still doing so at present, without any

apparent interruption or reduction of activity.

256. At any rate, any uncertainty resulting from the delay in issuing the final decision

would have been definitively removed by the Polish NRA's final decision of 19


287 Russia's response to Panel Question 30 a), para. 146.

288 Russia's response to Panel Question 30 b).

289 Russia's response to Panel Question 30 b), para. 146.



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May 2015. Therefore, such uncertainty could not continue to affect conditions of

competition to the detriment of Gaz-System as of the date when the Panel was

established.

3.3.2.6 Press release of the European Parliament's press service

on the occasion of the adoption of the TEP

257. In its first oral statement, Russia cited a press release issued by the press service of

the European Parliament as evidence that Article 11 of the Gas Directive was

enacted with the subjective intent of discriminating against Gazprom.290

258. Needless to say, the press releases of the EP's office press have no legal status

whatsoever under EU law. Nor do they commit in any manner the European

Parliament or its members.

259. Moreover, contrary to Russia's assertions291

, the text quoted by Russia is not part

of the press release issued by the EP's press office "upon the adoption of the Third

Energy Package". Instead, it is part of an earlier press release describing the

personal views expressed by one MEP (Mr. La Russa), who acted as rapporteur for

the Industry Committee. That release was issued while the Commission proposal

(which differed from the current text of Article 11 of the Gas Directive) was still

being debated by the EU Council and the EP and, therefore, cannot be read as a

description of the current text of the Directive.

260. In any event, the press release makes it clear that the envisaged clause would apply

equally to all "foreign companies", rather than to Gazprom alone. If the press

release refers explicitly to Gazprom it is probably because at the time Gazprom

had more shareholdings in EU gas undertakings than other third country entities

and because, as mentioned in the press release, Russia/Gazprom was the most

vocal opponent to the envisaged provision while the proposal was still being

debated by the European Parliament.

3.4. CLAIM XVI: ARTICLE III:4 GATT (RUSSIA'S CLAIM 18)

261. Russia has conceded that this claim is outside the Panel's terms of reference.





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3.5. CLAIM XVII: ARTICLE VI:1 GATS (RUSSIA'S CLAIM 19)

262. In response to Panel Question 85, Russia has clarified that the relevant "acts of

administration" for the purposes of its claim under Article VI:1 GATS are the

national laws enacted by Croatia, Hungary and Lithuania in order to transpose

Article 11 of the Gas Directive, rather than any subsequent act of application of

those laws.292

263. As recalled in the EU's first written submission293

, the Appellate Body has

clarified in EC – Customs Matters that claims under Article X:3(a) GATT may be

addressed not only against the "administration" as such of a legal instrument, but

also against "a legal instrument that regulates the application or implementation of

that instrument".294

In such case, however, the complaining party bears a special

burden of proof. According to the Appellate Body:

If a WTO Member challenges under Article X:3(a) the

substantive content of a legal instrument that regulates the

administration of a legal instrument of the kind described in

Article X:1, it will have to prove that this instrument necessarily

leads to a lack of uniform, impartial, or reasonable administration.

It is not sufficient for the complaining party merely to cite the

provisions of that legal instrument. The complainant must

discharge the burden of substantiating how and why those

provisions necessarily lead to impermissible administration of the

legal instrument of the kind described in Article X:l. 295

264. Russia's claim under Article VI:1 GATS is not addressed against any provision of

Article 11 of the Gas Directive (or of the legal instruments of the EU Member

States concerned transposing that provision into their national laws) that "regulates

the application or implementation" of the SoS certification requirement. Rather,

Russia's claim is addressed against the substantive content of the SoS certification

requirement as such. Therefore, Russia's claim falls outside the scope of Article

VI:1 GATS.

265. Even assuming ad arguendo that Russia's claim could be characterized as being

addressed against legal provisions "that regulat[e] the application or

292 Russia's response to Panel Question 85, paras. 367-371.


294 Appellate Body Report, EC – Customs Matters, para. 200.

295 Appellate Body Report, EC – Customs Matters, para. 201.



________________________________________________________________________________________

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implementation" of the SoS certification requirement, Russia has not met the

burden of proof described by the Appellate Body in EC - Customs. Indeed, Russia

has not shown "why and how" the terms of Article 11 of the Gas Directive

"necessarily lead to an impermissible administration" of that provision. Instead,

Russia limits itself, time and again, to "cite the provisions" of Article 11 of the Gas

Directive and the transposing laws of the Member States concerned and to assert,

without providing any evidence, that the terms of those provisions are not

sufficiently precise. This is not enough to meet Russia's burden of proof. In any

event, as explained in the EU's first written submission296

, Russia's allegations that

the notion of SoS is insufficiently precise are unwarranted.

3.6. CLAIM XVII BIS: ARTICLE VI:5 GATS (RUSSIA'S CLAIM 20)

266. Under this heading, the European Union will address various arguments raised by

Russia in its responses to Panel Questions 79 to 84.

3.6.1. Relationship between Articles VI:4 and VI:5 GATS and Article

XVII GATS

267. In response to Panel Question 79, Russia argues that the SoS certification measure

constitutes an "unnecessary barrier to trade in services" within the meaning of

Article VI:4 GATS for the very same reason already invoked by Russia in support

of its previous claim under Article XVII GATS against the same measure, i.e.

because, according to Russia, the SoS certification requirement discriminates

between domestic service suppliers and services and those of other Members.297

Yet, as explained by the European Union in response to the same Panel Question,

that type of "trade barrier" is specifically addressed by Article XVII GATS and is

to be examined exclusively under that provision.298

3.6.2. Letter (b) of Article VI:4 GATS

268. In response to Panel Question 80, Russia argues that the Disciplines on Domestic

Regulation in the Accountancy Sector (the "Accountancy Disciplines") are






________________________________________________________________________________________

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irrelevant because they are not applicable to the service sector at issue. It is, of

course, true that the Accountancy Disciplines do not apply to the service sector at

issue in this dispute (i.e. pipeline transmission services for gas). But this does not

mean that the Accountancy Disciplines are irrelevant for the interpretation of the

GATS provisions invoked by Russia. As explained by the European Union299

, the

Accountancy Disciplines are relevant for that purpose because they implement

Article VI:5 GATS and reflect the Member's shared understanding of letter (b) of

Article VI:4 GATS. As further explained by the European Union, that

understanding contradicts the reading of that provision put forward by Russia in

support of its claims.

269. In response to the Panel Questions 81 and 82, Russia agrees with Japan that the

"quality" of the services at issue includes "the ability to provide a stable and

reliable supply of energy reliability".300

Russia goes on to assert that the measure

at issue is "more burdensome" than necessary to ensure that objective. But it

makes no meaningful effort to substantiate this assertion, even though it is

undisputed that Russia bears the burden of proof under Article VI:5 GATS.301

Instead, Russia limits itself to make vague and imprecise references to its previous

arguments in response to the EU's defence under Article XIV(a) GATS with

regard to Russia's claim under Article XVII.302

The European Union has already

addressed comprehensively those arguments in section 3.1.1 of this submission.

270. It may be noted, however, that in response to Panel Question 78, Russia appears to

depart from its previous arguments in response to the EU's defence under Article

XIV(a) GATS by identifying as an additional alternative a measure "requiring

either the ISO or ITO models, or even permitting only the OU model".303

In the

absence of any explanation by Russia, the European Union is at a loss to

understand the relevance of this allegedly alternative measure. Russia's claim

under Article VI:4 GATS is not addressed against the "unbundling measure", but


300 Russia's responses to Panel Question 81, para 355; and to Panel Question 82, para. 358.

301 See Russia's response to Panel Question 83, para. 361.

302 See Russia's responses to Panel Question 78, para. 336: Panel Question 79, para. 348; and Panel

Question 83, para. 362




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only and exclusively against the "third country certification measure". The

European Union fails to understand how an alternative to the "unbundling

measure" could provide at the same time an alternative to the third country

certification measure.

3.6.3. Letter (c) of Article VI:4 GATS

271. Russia objects that the Secretariat background paper (S/WPPS/W/9, of 11

September 1999) cited by the European Union is "expressly intended to address

only the accountancy sector"304

. This is simply incorrect.

272. Russia further argues that, "even if the definitions of the Secretariat's background

are applied"305

, the third country certification measure would be a licensing

procedure to the extent that it requires the applicants to provide information in

support of their applications. According to Russia, although Article 11 of the Gas

Directive (and the transposing laws of the three EU Member States concerned) do

not specify such information, this requirement would violate Article VI:5(c) GATS

because applicants are required to provide "far more information than domestic

applicants must provide under Article 10 of the Directive".306

273. Russia's assertion that applicants under Article 11 of the Gas Directive must

provide "far more information" is, of course, mere speculation. In any event, the

fact that applications under Article 11 had to be supported with "far more"

information than applications under Article 10 would not amount to a violation of

Article VI:4(c) GATS. Rather, in order to establish a violation of that provision,

Russia would have to show that that the amount of information required from the

applicants under Article 11 of the Gas Directive goes beyond what is necessary in

order to ensure compliance with the underlying "licensing requirements" provided

for in Article 11 (including the SoS certification requirement), so that the

requirement to provide information creates a trade restriction on its own, beyond

that resulting from the underlying licensing requirements. Russia has not even

attempted to prove this.






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4. INFRASTRUCTURE EXEMPTIONS

4.1. INTRODUCTION

274. Russia contends that the Directive, in addition to the exemption for new major

infrastructure laid down in Article 36, provides for a separate exemption applying

to upstream pipeline networks. According to Russia, upstream pipeline networks

as defined in Article 2(2) of the Directive are fully exempt from the unbundling,

third-party access and tariff regulation provisions.307

275. Russia argues, moreover, that LNG facilities are granted automatic and

discriminatory exemptions from the unbundling provisions of the Directive

pursuant to Articles 9 and 2(20), as well as to Articles 2(2), 2(12) and 2(13).

276. Russia’s contentions, which assert the existence of various "exemptions" from the

EU Directive’s main obligations in addition to the exemption for new major

infrastructure in Article 36, are unsupported. They deliberately ignore the text of

the provisions defining upstream pipeline networks and LNG facilities, as well as

the reasons why those types of gas infrastructure should be subject to specific

rules. Those specific rules are not identical to the rules to which transmission

pipelines are subject, notably the requirement for unbundling of transmission from

production and supply activities. However, they share common requirements, such

as third-party access.

277. More precisely, the purpose of Russia’s assertions in this respect is not to

challenge the WTO-consistency of any specific rules applying to upstream

pipeline networks or LNG facilities, but rather to contest from this angle the

general obligations through which the Directive ensures a level playing field for all

gas undertakings participating in the EU market. As the recitals of the EU

Directive make abundantly clear, non-discriminatory access to gas transmission

networks plays a crucial role in this regard. Unbundling, third-party access and

regulated tariffs’ obligations are tools for achieving the objectives of the EU

Directive.

307 Russia's responses to written questions from the Panel to the parties following the first substantive

meeting, paras. 16-18.



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278. By arguing that there are several "exemptions" to those generally applicable

obligations, Russia suggests that the EU legislation is somewhat illogical. This is

however a misguided and misguiding suggestion. The recitals of the EU Directive

explain the reasons why different rules apply to different types of gas

infrastructure and why the risk of discriminatory behaviour in the operation of

transmission pipelines and networks (which have the nature of a natural

monopoly) is the highest and thus necessitates a requirement for unbundling of

transmission from production and supply interests to be put in place. This is

reflected in the exemption for new major infrastructure, which allows derogations

to the generally applicable obligations in order to promote investment in

interconnectors, as well as in LNG and storage facilities.308

The flexibility built

into the EU Directive does not undermine the rationale for the obligations it

imposes on gas undertakings. It shows, on the contrary, that those obligations only

apply to the extent they are necessary to serve the objectives of the Directive,

creating a well-functioning and sustainable gas market with competitive prices,

new business opportunities and more cross-border trade.309

4.2. THE EXEMPTION FOR NEW MAJOR INFRASTRUCTURE

279. At paragraph 20 of its responses to the Panel’s questions, Russia summarizes

various claims concerning the exemption for new major infrastructure in Article 36

of the EU Directive. As noted in the European Union’s comments of 21 October

2016 regarding terms of reference, one of these claims was not included in

Russia’s request for the establishment of a panel and is therefore outside the

Panel’s terms of reference. The claim under Article X:3 (a) of the GATT 1994,

also mentioned at paragraph 46 of Russia’s responses to the Panel’s questions,

challenges the administration of the infrastructure exemption measure in general,

on the basis of specific instances of application of the measure by the Commission.

However, in the fourth full paragraph of page 4 of its Panel Request, Russia only

identified the OPAL gas release requirement as the measure violating Article

X:3(a).

308 See recital (35) of Directive 2009/73/EC.

309 See recitals (1) and (35) of Directive 2009/73/EC.



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4.3. CLAIM XVIII: RUSSIA’S CLAIM UNDER ARTICLE X:3(A) OF THE GATT 1994 (RUSSIA'S

CLAIM 21)

280. According to what is now presented as Claim 21, Russia contends that the

European Union has failed to administer the infrastructure exemption measure in a

uniform, impartial or reasonable manner.

281. The European Union has pointed out that the Article X:3(a) claim initially

concerned exclusively the 3bcm gas release requirement imposed as a condition

for the exemption granted to OPAL. In the conclusions of its preliminary ruling of

10 November 2016, the Panel has confirmed that the measure challenged by

Russia’s Claim 21 must be understood as limited to the imposition of the 3bcm gas

release requirement as described on page 4 of the panel request.310

282. Nonetheless, Russia’s arguments in support of this claim continue to focus on the

two conditions attached to that individual exemption decision. The comparison

with other individual decisions adopted pursuant to Article 36 of Directive

2009/73/EC (or Article 22 of Directive 2003/55/EC) is more of a prop to force a

review by the Panel of the OPAL decision, than it is a demonstration of an

unreasonable administration of the exemption for new major infrastructure.

283. As a preliminary point, the European Union will recall that it disputes the

characterization of Article 36 of Directive 2009/73/EC, which is undoubtedly a

measure of general application, as a measure “affecting” the sale, distribution and

transportation of natural gas within the meaning of Article X:1 of the GATT 1994.

While the infrastructure exemption measure indirectly enhances competitive

opportunities for all market players and increases cross-border trade,311

its effects

on the volumes and prices of domestic and imported products are however more

indirect and remote. A number of other factors and considerations will determine

to what extent the infrastructure will be used and the source or sources of the

natural gas flowing through it.

310 Preliminary ruling by the Panel (Conclusions), para. 2.3.

311 See recitals (1) and (35) of Directive 2009/73/EC.



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284. The European Union must underline that Russia has not explained, let alone

proven, the effects on the sale, distribution and transportation of natural gas that it

ascribes to the exemption for new major infrastructure.

285. In addition, the European Union has also pointed out that individual exemption

decisions, such as the OPAL decision, are not measures of general application and

cannot, for that reason, be challenged under Article X:3(a) of the GATT 1994.312

286. As regards the substance of the claim, Russia asserts that the OPAL exemption

decision is an example of clear misapplication of the Directive in violation of

Article X:3(a).313

287. Without prejudice to its views on the admissibility of that claim, the European

Union will reiterate, first, that the OPAL exemption decision is perfectly in line

with the criteria set out in Article 22(1) of Directive 2003/55/EC which require,

notably, that the exemption is not detrimental to competition. To ensure that this is

the case, Article 22(3)(b)(ii) provided:

In deciding to grant an exemption consideration shall be given, on

a case by case basis, to the need to impose conditions regarding

the duration of the exemption and non-discriminatory access to

the interconnector.314

288. Second, the conditions attached to the OPAL exemption are perfectly in line with

previous Commission practice, in particular the exemption decisions concerning

312 EU’s first written submission, paras. 689 and 693.

313 Russia’s responses to written questions from the Panel to the parties following the first substantive

meeting, para. 569.

314 The Explanatory Note, paras. 11 and 12 (Exhibit RUS-27) explain further:

(11) When assessing exemption requests national authorities have to strike a balance between the

objectives of, on the one hand, promoting infrastructure investment and, on the other, ensuring

competition through fair, non-discriminatory access to infrastructure which is one of the key

principles of energy market liberalisation.

(12) Based on the above considerations, the national authorities need to assess exemption requests

for new major infrastructure on a case by case basis. It is the particular characteristics of the

investment project and of the markets concerned that determine the need and the scope of a possible

exemption. When assessing an exemption request, the national authority needs to investigate in

detail the impact of the specific exemption on competition, security of supply and the functioning

of the internal market. Moreover, the national authority should take into account the risk of creating

a competitive distortion between regulated and exempted infrastructure. To ensure a consistent

application of the exemption practice and to safeguard the wider European interest, the Commission

reviews the national exemption decisions.



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different sections of the Nabucco pipeline. They are also in line with and very

similar to the conditions subsequently attached to the TAP exemption.

289. Thus, for example, in the Commission’s exemption decision concerning the

Austrian section of the Nabucco pipeline, the following conditions were imposed:

In order to ensure […] that the project enhances competition, the

Austrian regulator is requested to amend its exemption decision to

include the following conditions:

I. […]

II. (a) An undertaking which holds a dominant position in one or

more of the relevant upstream or downstream gas markets

comprising the Austrian Control Area East (Regelzone Ost) shall

not be allowed to book more than 50% of the total capacity at the

exit points in the Austrian section of the Nabucco pipeline.

For the calculation of the capacity cap, undertakings belonging to

the same group (such as OMV and Econgas) shall be considered

together.

(b) In the event of overbooking, capacity allocation shall take

place in a transparent and non-discriminatory procedure, for

example on a pro rata basis, which shall ensure that each bidder is

allocated a minimum amount of capacity.

(c) Where due to the lack of interest by other parties, the capacity

cap prevents the expansion of the pipeline or causes existing

capacity to remain idle, a derogation from the capacity cap shall

apply on condition that the party concerned shall offer the volume

of gas relating to the capacity it holds in excess of the 50% cap to

the market in an open, transparent and non-discriminatory

procedure which is subject to the approval of the regulatory

authority.

The gas volume to be offered to the market shall be calculated as

follows: the percentage points of booked annual capacity in

excess of 50% (e.g. 5% in the case of 55%) shall be divided by

the total share of annual capacity booked by the undertaking

concerned (e.g. 55%). The resulting value (e.g. 9.09%) shall be

multiplied with the total amount of gas which the undertaking

imports through the Nabucco pipeline into Austria in a given year.

III. If the shareholders of Nabucco International change compared

to the situation as described in the application, or if any of the

existing shareholders is acquired by another undertaking,

Nabucco International shall notify such change to E-Control. E-

Control in collaboration with the competent regulatory and

competition authorities shall then evaluate the competitive effects

of this change. Where the change implies the strengthening of a

dominant position in Austria or in a neighbouring country, E-

Control shall impose a capacity cap to counter the negative effect

on competition. Where a change in shareholding is notifiable

under the EC Merger Regulation, it shall not be notified to E-

Control.



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Therefore by virtue of Article 22(4) of the Gas Directive

55/2003/EC, the Commission hereby requests the E-Control to

amend its exemption decision accordingly within four weeks

upon receipt of the present letter and to inform the Commission of

this action.”315

290. In the case of the exemption granted to the TAP pipeline, the Commission

imposed the following condition, among several others:

Condition 4.7.2 in the Joint Opinion shall be amended.

The amended condition shall read:

[…]

4.7.2

[…]

Capacity caps for dominant players in Italy – For the prevention

of the development of a dominant market positions or the

reinforcement of existing dominant positions in the Italian gas

market, without prejudice of requirements established by Article 2

of the Italian decree dated March 13th 2013, the following

conditions shall also apply:

(i) Any undertaking with a share of 40% or larger in any relevant

product market for the supply of gas in Italy, or on the upstream

market of supplying gas for Italy, shall not be allowed to reserve

more than 50% of the capacity on the TAP exit point in Italy.

(ii) In the event that two or more undertakings together hold a

market share of at least 80% and each of these undertakings have

a market share of more than 20% in any relevant product market

for the supply of gas in Italy, or on the upstream market of

supplying gas for Italy, AEEG will have the right to impose a

capacity cap on these undertakings on the TAP exit point in Italy.

(iii) Where, due to lack of interest by other parties, the capacity

caps in (i) and (ii) above prevent the expansion of the pipeline or

causes existing capacity to remain idle, a derogation from the

capacity caps of (i) and (ii) shall apply on the condition that the

undertaking(s) concerned offer to the market the entire volume of

gas in excess of the capacity that the undertaking(s) hold in an

open, transparent and non-discriminatory procedure. The gas

volume release shall be followed by a corresponding capacity

release. The gas volume release and the capacity release will be

subject to a procedure approved by AEEG.

iv) For the calculation of the market share and the percentage of

the capacity cap undertakings belonging to the same group of

companies shall be considered together. The market share shall be

calculated as the average of the last two consecutive years.

315 Exhibit RUS-83, p. 14 and 15.



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(v) Only in case the imposition of the gas and capacity release

will give rise to a situation where the undertaking(s) concerned

has/ve no incentives to utilise the capacity above the capacity cap

imposed, on request of the undertaking concerned or on its own

initiative, AEEG can provide a temporary derogation to provide

for the gas and capacity release. Such derogation shall be subject

to other conditions that maintain the competition enhancing

effects of the investment for competition. Such a derogation is

given by the Regulatory authority, after consulting the National

Competition authority.”316

291. It is therefore abundantly clear that the conditions attached to the OPAL decision

are by no means exceptional. On the contrary, capacity caps imposed on

undertakings holding a dominant position on the relevant gas markets are rather

standard conditions, as specified in the Commission’s Explanatory Note. Referring

to conditions that can be imposed to ensure that the project enhances competition,

the Commission mentions the following type of condition, among others:

A limitation of the maximum percentage of capacity that can be

allocated to an undertaking with significant market power in the

relevant market(s). The condition can be combined with the

requirement to release the capacity share or corresponding gas

volumes exceeding the defined maximum percentage.317

292. Given the predictability of conditions such as the ones imposed on OPAL, it is

difficult to understand why Russia complains so much about those conditions. It is

even more difficult to understand how Russia can pretend that “[t]he EU has

completely failed to justify the discriminatory manner in which the Commission

imposed not only the 50% capacity cap on the OPAL exemption, but also the

3bcm/year gas release requirement, while imposing vague and much less

restrictive conditions on the TAP, Nabucco and Poseidon exemptions and no

conditions whatsoever on the TPA exemptions for LNG facilities such as Dragon

and South Hook in the UK.”318

Statements such as this one are simply baffling.

293. Russia chooses to ignore the detailed explanations that the Commission provided

in the text of the OPAL exemption decision itself, which is fully reasoned. Russia

declines to acknowledge the similarities between the conditions imposed on the

Nabucco and TAP projects, reproduced above, and the conditions imposed on

316 Exhibit RUS-10, p. 59 and 60.

317 Explanatory Note, para. 39.2 (Exhibit RUS-27).


meeting, para. 573.



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OPAL. Russia singles out two decisions exempting LNG facilities where the

Commission found no need to impose similar capacity caps, while failing to note

that, for example in the case of the Dutch LNG terminal Gate, such conditions

were indeed imposed.319

294. The European Union can only draw the attention of the Panel to all these elements

that Russia has intentionally overlooked. They clearly demonstrate that the

conditions imposed on the OPAL decision do not constitute an instance of

unreasonable administration of the infrastructure exemption measure.

295. In its responses to the Panel, Russia argues that Gazprom’s status as a dominant

undertaking in the Czech Republic should have been considered irrelevant because

“Russian gas transported via OPAL does not even enter the Czech gas market; it

flows directly into the Gazelle pipeline and across the Czech Republic back into

Germany and onward to France via the Megal pipeline.”320

296. Russia also argues “that much of the rationale offered by the EU – which was

flawed at the time of the OPAL decision – totally disappeared after the Gazelle

pipeline was completed and all of the gas being transported via OPAL was

required to be transited across the Czech Republic, back into Germany and

onwards to France and elsewhere”.321

297. The European Union considers this statement puzzling and utterly confusing. It is

true that at the time of the OPAL decision, the Gazelle pipeline was planned. It is

important to note, however, that in 2009 construction of the Gazelle pipeline had

not yet started and, in fact it was only completed in 2013. The Commission took

account of existing plans to link OPAL to Gazelle, but obviously could not assume

that all gas flown through OPAL was to be transported onwards via Gazelle and

would not reach the Czech market. The conditions imposed on OPAL aimed at

ensuring that the exemption would not strengthen and further entrench the

dominant positions already held by Gazprom and RWE Transgas in the Czech

319 Commission’s comments to the Gate Terminal exemption decision (Exhibit EU-143).


meeting, para. 547.


meeting, para. 574.



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Republic. None of the conditions imposed on either the OPAL or the Gazelle

exemptions require all the gas transported on OPAL to be transported onwards into

Germany or France. Quite the opposite. One of the conditions attached to the

Gazelle exemption is that the addressee of the exemption decision enables

sufficient bi-directional capacity on Gazelle to safeguard the security of supply of

the Czech market in emergencies based on an opinion of the Competent Authority

in the Czech Republic.322

It is therefore unclear why Russia asserts that “all of the

gas being transported via OPAL was required to be transited across the Czech

Republic, back into Germany and onwards to France and elsewhere”.323

Such

requirement is certainly not imposed by the European Union.

298. Russia accuses the European Union of refusing to consider rescinding or

modifying the conditions attached to the OPAL exemption, which it incorrectly

characterises as “discriminatory restrictions on the volume of gas that may be

imported and transported over OPAL”. 324

299. The European Union has already demonstrated, and will insist on this point below,

when rebutting the claim made by Russia under Article XI:1 of the GATT 1994,

that nothing in the conditions imposed on the OPAL exemption restricts the

volumes of gas that can be transported on OPAL. The restrictions concern

exclusively the supply of pipeline transport services on OPAL by Gazprom and

related companies.

300. Russia also refers to the “the EU’s discriminatory objective of reducing reliance on

Russian gas and pipeline transport services”.325

301. Nothing in the European Union’s administration of the infrastructure exemption

measure seeks to reduce imports of Russian gas or the supply of Russian pipeline

transport services. The first criterion listed in Article 36 of the EU Directive for

322 Commission’s exemption decisions Gazelle I and Gazelle II, Article 3 (Exhibits RUS-81 and RUS-

87)


meeting, para. 574.


meeting, para. 574.


meeting, para. 575.



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granting an exemption is that the investment in new major gas infrastructure must

enhance competition in gas supply and enhance security of supply. The objectives

of increasing competition and security of supply in the EU gas markets are quite

different from the objective identified by Russia in its attempt to assemble a claim

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

302. Because Russia’s claim is in part outside the terms of reference of the Panel, does

not meet the requirements of Article X:1 and is in the whole unsubstantiated, it

must fail.

4.4. CLAIM XIX: RUSSIA’S CLAIM UNDER ARTICLE I:1 OF THE GATT 1994 (RUSSIA’S CLAIM

22)

303. Russia’s Claim 22 concerns the infrastructure exemption measure as implemented

by the decision of the BNetzA denying an exemption to the NEL pipeline. Russia

claims that Russian natural gas is accorded de facto less favorable treatment than

like gas of other third-countries, in violation of Article I:1 of the GATT 1994.

304. Russia argues that, as implemented, the infrastructure exemption measure provides

NEL and Russian gas transported via NEL different treatment than Gazelle, TAP

and like Azeri gas transported via TAP. It also contends that, in denying the NEL

exemption, both BNetzA and the Commission narrowly interpreted the

infrastructure exemption measure, including the definition of “interconnector” and

“new” infrastructure.326

In its responses to the Panel’s questions, Russia specifies

that its “Claim 22 challenges the manner in which the EU applied or implemented

the infrastructure exemption measure by denying the NEL interconnector an

exemption from the relevant provisions of the Directive, while granting

exemptions for the Gazelle and TAP pipelines based on an inconsistent

interpretation of Article 36 (and Article 22)”.327

305. The European Union questions whether the infrastructure exemption measure falls

within the scope of application of Article I:1 of the GATT 1994. Russia has failed

to demonstrate how a measure encouraging the construction of new infrastructure,

which is designed to create new opportunities for gas of all sources to compete on

326 Russia’s first written submission, section XIX.B.


meeting, para. 47.



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the EU market, restricts the competitive opportunities for Russian gas as compared

to foreign gas of other sources.328

306. In its first written submission, the European Union has underlined that whereas the

infrastructure exemption measure preserves equality of competitive opportunities

for gas of all sources, including gas imported from Russia or from other third-

countries, it does not guarantee, by contrast, that shares of participants in the EU

market will remain unchanged. In other words, all present and future market

participants must face the enhanced competition brought about by the expansion of

gas infrastructure.329

307. As regards comparisons between the decision denying NEL an exemption and

decisions exempting other pipelines, the European Union has explained why they

are unsuitable to prove that Russian gas was de facto afforded less favourable

treatment. All exemption requests are decided on a case-by-case basis and must

take account of the factual circumstances of each major infrastructure project,

including their physical characteristics in the light of the requirements of Article

36. 330

308. In so far as NEL is concerned, the European Union clarified, in its response to

question 21 posed by the Panel, that BNetzA's decision to deny an exemption to

the NEL pipeline was based on the ground that the NEL pipeline did not meet the

definition of “interconnector” provided in Article 2(17) of Directive 2003/55/EC.

This definition requires the transmission line to cross or span a border between

Member States. Section 2.1.2 of the Ruling provided to the Panel as Exhibit RUS-

61 explains the reasoning followed by BNetzA in this regard.331

309. The NEL pipeline did not reach the border and thus did not qualify as an

“interconnector”. In order for NEL to reach the border, a pre-existing stretch of

pipeline would have to be used. This pre-existing stretch was more than five times

as long as the new pipeline, belonged to another transmission system operator and

was not fully integrated into the NEL project. On the other hand, if that pre-


329 EU’s first written submission, para. 723.


331 European Union’s responses to the Panel’s questions after the first hearing, para. 44.



________________________________________________________________________________________

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existing stretch had been integrated into the NEL pipeline, it would preclude the

qualification of NEL as “new” gas infrastructure.

310. By contrast, Gazelle crosses the Czech/German border at the Rozvadoc/Waidhaus

border station. In paragraphs 19 to 26 of its decision on the exemption of

Gazelle,332

the Commission states the reasons for finding that this pipeline

qualified both as an “interconnector” and as “new” infrastructure within the

meaning of Article 36 of Directive 2009/73/EC. It examined whether the use of 20

km of an existing pipeline between Primda and the German border station of

Rozvadoc/Waidhaus prevented Gazelle from being considered a “new”

interconnector. The Commission concluded that Gazelle qualified as new gas

infrastructure because “[t]he predominant part of the 160 km Gazelle pipeline will

be newly constructed, while only a 20 km stretch will be achieved through the

transfer of an existing pipeline into the exclusive ownership and use by the Gazelle

owner, Brawa” and that building a parallel pipeline next to the existing system

would be uneconomical and also problematic for environmental reasons.333

311. The European Union has also explained that the alleged different treatment of the

NEL and Gazelle pipelines does not restrict the opportunities for Russian gas to

compete on the EU markets. Russia itself recognizes in footnote 942 of its first

written submission that the Gazelle pipeline is intended to transport Russian

natural gas imported via Nordstream and OPAL. Russia clarifies in the same

footnote that “it does not contend that the Commission’s differential treatment of

Gazelle compared to NEL modified the conditions of competition to the detriment

of Russian gas”.334

312. Similarly, there are objective reasons for considering TAP an “interconnector” as

defined in Article 2(17) of Directive 2009/73/EC. TAP is planned to stretch over

three countries: two Member States (Italy and Greece) and one Contracting Party

to the Energy Community (Albania). TAP therefore connects the transmission

systems of two Member States and is not deprived of that quality by the fact that it

crosses a third country, i.e. Albania.

332 Commission’s decision on Gazelle I (Exhibit RUS-81).

333 Commission’s decision on Gazelle I (Exhibit RUS-81), para. 25.




________________________________________________________________________________________

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313. Furthermore, as the European Union pointed out in its first written submission,

TAP is not reserved for exclusive use by Azeri gas from the Shah Deniz II gas

field.335

In its decision on the TAP exemption, the Commission explicitly verified

that the exemption “provides sufficient guarantees that gas from non-SD II sources

is provided access to TAP. These guarantees apply to gas that may be transported

through TAP by the Expansion Capacity through existing entry and exit points as

well as gas that may be transported through TAP via pipelines connecting to TAP

via new entry and exit points”.336

314. The European Union concludes that its interpretation of the term “interconnector”

in the cases of NEL, Gazelle and TAP were consistent with the requirements of

Article 22 of Directive 2003/55/EC and Article 36 of Directive 2009/73/EC. In any

event, the exemptions granted to Gazelle and TAP do not accord to gas from other

Members an advantage that is not immediately and unconditionally extended to

Russian gas transported via NEL. Russia’s Claim 22 must therefore be rejected.


23)

315. According to Russia’s responses to the Panel’s questions, its “Claim 23 challenges

the manner in which the EU applied or implemented the measure by imposing on

the exemption granted for the OPAL interconnector more restrictive conditions

than on the exemptions for Gazelle and TAP, as well as on exemptions for the

Nabucco and Poseidon pipelines”. 337

316. The European Union has already demonstrated in section 4.3 above, at paragraphs

288 to 294, that the conditions attached to the OPAL exemption are perfectly in

line with previous Commission practice, in particular the exemption decisions

concerning different sections of the Nabucco pipeline. They are also in line with

and very similar to the conditions subsequently attached to the TAP exemptions.

317. Further, the European Union will recall that in its first written submission it

contested the inferences drawn by Russia from comparisons between the OPAL


336 Commission’s decision on TAP, para. 224 (Exhibit RUS-10).


meeting, para. 47.



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and Gazelle exemption decisions, on the one hand, and between the OPAL and

Poseidon exemption decisions, on the other hand.338

318. As regards conditions attached to the Gazelle exemption, although it is true that no

capacity cap was imposed, it should be noted that Gazelle does not benefit from a

full exemption. Gazelle has a technical capacity of approximately 33bcm and

capacities above 30bcm are subject to regulation.339

The volume of Gazelle’s

regulated capacities is therefore similar to the 3bcm gas release program foreseen

for OPAL. The absence of a capacity cap among the conditions imposed on

Gazelle is justified by the fact that the physical end point of Gazelle is in

Germany, which is regarded as a competitive market. By contrast, OPAL ends in

the Czech Republic, a market where there is little competition among gas

suppliers.340

319. Moreover, as already noted at paragraph 311 above, Gazelle is used to transport

almost exclusively gas of Russian origin. If, as Russia claims, exemptions created

an advantage for the sale of gas transported through the exempted infrastructure

(quod non), the Gazelle exemption would essentially benefit the sale of Russian

gas.

320. The comparison between the OPAL exemption and the Poseidon exemption is also

unsuitable to prove a violation of Article I:1 of the GATT 1994. Since the

Poseidon pipeline was not built and put into operation by 2012, the exemption

granted to this infrastructure project expired long ago. For this reason, it cannot be

argued that the Poseidon exemption had any effects on the market and provided

more favourable treatment to gas of other origins than that afforded to Russian gas.

In any event, the Commission added stricter conditions to those that had been

imposed by the Italian and Greek regulatory authorities, namely to make available

to third-parties incremental transport capacity.341

321. Russia’s Claim 23 must therefore also fail.

338 EU’s first written submission, paras. 708-710, 728-729 and 732.

339 Commission’s decision on Gazelle I, para. 16 (Exhibit RUS-81).

340 Commission’s decision on Gazelle I, para. 40 (Exhibit RUS-81); Commission’s decision on OPAL,

paras. 45-48 (Exhibit RUS-82).

341 Commission’s decision on Poseidon (Exhibit RUS-86).



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24)

322. In its responses to the Panel’s questions, Russia describes its Claim 24 as

challenging “the manner in which the EU applied or implemented the measure by

denying the NEL exemption and imposing restrictive conditions on the OPAL

exemption, while granting exemptions to various LNG facilities without imposing

any conditions in the case of Dragon and South Hook in the UK”.342

323. The European Union will recall, first, that it disputes that LNG is “like” natural

gas. In its opinion, any supposed advantage accorded to LNG by decisions

granting an exemption to LNG facilities does not discriminate against natural gas

within the meaning of Article I:1 of the GATT 1994.343

324. Second, pursuant to Article 22 of Directive 2003/55/EC and Article 36 of

Directive 2009/73/EC, the exemption of LNG facilities is subject to the same

criteria and conditions applicable to interconnectors and to storage facilities. The

fact that the Directive provides in Article 2(11) for a specific definition of “LNG

facility” does not mean that such facilities are treated differently in this respect

than other major gas infrastructure. Moreover, the origin of the LNG using a

particular facility plays no role in the Directive and in individual exemption

decisions.

325. Third, Russia has not demonstrated how the exemptions granted to the Dragon and

South Hook LNG facilities have conferred an advantage to “like” gas of certain

origins that were not extended immediately and unconditionally to Russian natural

gas flown through NEL and OPAL.

326. Russia’s Claim 24 must therefore be rejected.

4.7. CLAIM XX: RUSSIA’S CLAIM UNDER ARTICLE II:1 OF THE GATS (RUSSIA’S CLAIM 25)

327. Russia’s Claim 25 “challenges the manner in which the EU applied or

implemented the measure by denying the NEL exemption and imposing restrictive

conditions on the OPAL exemption, while granting exemptions to other pipelines


meeting, para. 47.




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and various LNG facilities, without imposing similarly restrictive conditions and

no conditions in the case of Dragon and South Hook in the UK. In Russia’s view,

the EU’s implementation of the measure, as applied in each of the exemption

decisions to date, including both those for interconnectors and LNG facilities,

demonstrates de facto discrimination and resulted in less favourable treatment

being provided to Russian services and service suppliers than like services and

service suppliers of other Members”.344

328. The European Union has rebutted this claim in paragraphs 743 to 751 of its first

written submission. Although the European Union does not dispute that the

infrastructure exemption measure falls within the scope of the GATS and that

Russian and other third-country suppliers of pipeline transport services are “like”

suppliers and supply “like” services, it contests that LNG services and service

suppliers are “like “ pipeline transport services and service suppliers. The

European Union refers to the explanations given in paragraphs 283 to 287 of its

first written submission and recalled in paragraphs 147 to 149, above.

329. As regards the exemptions granted to LNG facilities, the European Union will

nonetheless point out that Russia has not demonstrated that those facilities did not

meet the relevant criteria laid down in the EU Directive for being granted full

exemptions from third-party access requirements. The fact that Gazprom does not

operate LNG facilities and that Dragon and South Hook are partly owned by gas

suppliers of other Members does not suffice to show that LNG services and service

suppliers have been treated de facto more favourably than Russian pipeline

transport services and service suppliers.

330. Neither Article 36 of Directive 2009/73/EC, nor Article 22 of Directive

2003/55/EC before it, draw any distinctions based on the origin of the supplier of

pipeline transport services. The individual decisions implementing those

provisions do not distinguish either between Russian suppliers of pipeline

transport services or “like” service suppliers of any other origin. Russia has not

alleged, let alone proven, otherwise.


meeting, para. 47.



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331. The claim of de facto discrimination is not supported by the facts. It has been

demonstrated in the sections above that the terms of each individual exemption

decision that was adopted under the EU Directive is justified by the specificities of

each infrastructure project and of the gas markets concerned in each case. Because

the Directive requires the competent national authorities and the Commission to

examine the structure and conditions of competition on the relevant gas markets

prior to granting an exemption, they must take account of the identity of the

undertaking supplying pipeline transport services to the extent necessary for

determining the position they hold on those markets. However, the origin of the

undertaking supplying pipeline transport services has no bearing whatsoever on

the analysis that must be conducted for granting an exemption and for deciding to

impose any conditions.

332. The refusal of the exemption requested for NEL was warranted because the project

did not meet the requirements set out in Article 22 of Directive 2003/55/EC. The

conditions imposed on OPAL were necessary to ensure that the exemption would

not have a detrimental effect on competition in the Czech gas markets. Besides,

conditions such as capacity caps and gas release programs are in line with

Commission policy and have been attached to other exemptions, namely to those

granted to Nabucco and TAP, as appropriate in each case.

333. For all these reasons, the European Union submits that Russia failed to prove that

the infrastructure exemption measure discriminates against Russian pipeline

transport services supplied via NEL and OPAL and against Russian service

suppliers.

4.8. CLAIM XXI: RUSSIA’S CLAIM UNDER ARTICLE I:1 OF THE GATT 1994 IN RESPECT OF

UPSTREAM PIPELINE NETWORKS (RUSSIA’S CLAIM 26)

334. Through its Claim 26, Russia challenges “the implementation of the infrastructure

exemption measure to deny the NEL exemption and impose restrictive conditions

on the OPAL exemption, while the Directive automatically exempts UPNs from

the unbundling, TPA and tariff regulation requirements. In Russia’s view, the

EU’s implementation of the infrastructure exemption demonstrates de facto

discrimination. It results in less favourable treatment being provided to Russian

gas transported and sold on the EU market through NEL and OPAL, compared to



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like gas primarily from Norway transported and sold through UPNs, in violation of

GATS Article I:1”.345

335. The European Union contests the basis for this claim, which is Russia’s erroneous

assertion that the Directive provides an “as such” exemption to upstream pipeline

networks.346

336. In addition, the European Union disputes the allegation that the EU Directive

discriminates against gas of a certain origin. The rules in respect of upstream

pipeline networks apply regardless of the origin of the gas. Not all gas flown

through upstream pipeline networks owned or operated by Norwegian gas

suppliers is necessarily gas of Norwegian origin. This may not be the case if other

undertakings are in a position to access those upstream pipeline networks and are

granted that access pursuant to the obligation in Article 34 of Directive

2009/73/EC.

337. In sum, the specific rules in the EU Directive applying to upstream pipeline

networks do not grant to natural gas of other Members, imported through upstream

pipeline networks, an advantage not extended immediately and unconditionally to

like Russian gas sold on the EU market through NEL and OPAL. Russia has not

demonstrated how the rules on upstream pipeline networks grant a competitive

advantage to gas of Norwegian origin to the detriment of Russian gas.

4.9. CLAIM XXII: RUSSIA’S CLAIM UNDER ARTICLE II:1 OF THE GATS IN RESPECT OF

UPSTREAM PIPELINE NETWORKS (RUSSIA’S 27)

338. At paragraph 2.2 of the conclusions of its preliminary ruling of 10 November

2016, the Panel has specifically found that Russia’s Claim 27 falls outside its

terms reference.

4.10. CLAIM XXIII: RUSSIA’S CLAIM UNDER ARTICLE XI:1 OF THE GATT 1994 (RUSSIA’S

CLAIM 28)


meeting, para. 50.

346 EU’s first written submission, paras. 674-675, 755. See also paragraphs 142-143 and 274-278,

above.



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339. Russia maintains that the capacity cap and gas release conditions imposed by the

Commission on OPAL constitute quantitative restrictions in violation of Article

XI:1 of the GATT 1994. It considers that its Claim 28 is an “as applied” claim

challenging the restrictive conditions attached to the OPAL exemption that, in its

view, instituted two quantitative restrictions on the volume of Russian gas

imported into the EU.

340. In its responses to the Panel’s questions,347

Russia stresses the fact, already

mentioned in paragraphs 743 and 744 of its first written submission, that the

OPAL exemption “applies exclusively for connection capacities on the OPAL with

entry in German territory and exit in Brandov”, adding that these are capacities

offered in bundled form. Russia further explains the OPAL exemption applies

equally to the capacity at the Griefswald entry point as it does the exit capacity at

Brandov, in that the “entry and exit capacities…are only offered in bundled form.”

341. The European Union understands that, in Russia’s conception, the Russian gas that

enters OPAL at Griefswald can only proceed from the Nordstream pipeline and

must inevitably continue to be transported on OPAL by Gazprom itself, or by

related companies. Thus, according to Russia, the condition preventing Gazprom

and related companies from booking more than 50% of OPAL’s exit capacities at

the Czech border in any given year would necessarily restrict the volume of

Russian gas that can be imported into the EU market.

342. However, Russia’s insistence on the link between the use of OPAL by Gazprom

and the importation of Russian gas proceeding from Nordstream is fundamentally

flawed.

343. In its responses to the Panel's questions, 348

the European Union has explained that

the capacity cap imposed by the European Commission has a very limited scope. It

does not restrict, and is not intended to restrict, the importation of Russian gas

exceeding the allowed 50% of OPAL’s capacities, provided that the gas is not

transported by Gazprom or to the Brandov exit point giving access to the Czech

market. The capacity cap seeks only to prevent Gazprom and RWE Transgas from


meeting, paras. 531-533.

348 European Union’s responses to the Panel’s questions after the first hearing, paras. 316-323.



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entrenching their dominant position on the Czech gas markets through their

activities as suppliers of pipeline transmission services on OPAL.

344. Consequently, there are various possibilities, also described by the European

Union in its responses to the Panel’s questions, for natural gas from Russia to be

imported into the EU using the remaining 50% capacities of OPAL. These

possibilities include the sale by Gazprom of Russian gas already at Griefswald or

on the Gaspool virtual trading point, allowing the gas to be transported onwards by

the client. If Gazprom supplies the pipeline transmission services on OPAL itself,

volumes of gas exceeding the 50% allowed capacities must be intended for the exit

point near Berlin, at Gross Köris, or they must be sold on the Czech market in a

regulated and non-discriminatory manner, implementing the 3bcm gas release

program provided for in the second condition imposed by the Commission.

345. Importantly, bookings of OPAL capacities by undertakings unrelated to Gazprom

are not restricted in any way. Such undertakings may perfectly use OPAL to

transport Russian gas produced by Gazprom, including gas intended for resale on

the Czech market. In fact, as is clear from its wording, the contested condition

imposing a capacity cap only restricts the supply of pipeline transmission services

by those undertakings found to be dominant on the Czech gas markets. It does not

restrict the quantities or volume of gas that may be imported from Russia.349

346. The European Union therefore fails to see how the fact that the OPAL exemption

applies to bundled entry and exit capacities advances Russia’s claim that the

capacity cap institutes a quantitative restriction on the importation of Russian

natural gas. Again, the origin of the gas is irrelevant for the purpose of applying

the 50% cap on the booking of OPAL capacities by undertakings dominant on the

Czech gas markets. Nothing in the exemption decision prevents Gazprom from

allowing unrelated undertakings to book the remaining OPAL capacities, thereby

increasing the overall volumes of Russian natural gas imported into the EU via

Nordstream and OPAL.

347. Contrary to Russia’s contention, the fact that the capacity release condition in the

OPAL infrastructure exemption has not been used does not confirm the existence

349 European Union’s responses to the Panel’s questions after the first hearing, paras. 323 -328.



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of the alleged quantitative restrictions on imports of Russian gas. It only confirms

Gazprom’s deliberate choice to refuse the use of OPAL by third parties, even if

this implies that 16bcm/year of the capacity of that pipeline is left idle. The

underuse of OPAL is thus a consequence of decisions taken by Gazprom, not of

the conditions imposed by the Commission. Russia admits that Gazprom has been

unwilling to forego the right to transport 3bcm/year of imported Russian gas over

OPAL.350

348. Russia plainly dismisses the possibility that Russian gas may be imported via

Nordstream for transport over OPAL by undertakings unrelated to Gazprom and

argues that imports are restricted by the amount of OPAL capacities – 16 bcm/year

– that Gazprom is prevented from booking under the contested capacity cap.351

349. This line of argument shows that Russia persists in ignoring not only the wording

of the contested conditions but also the reasons why the European Union

legislation requires that gas infrastructure is not sealed off for competitors by

virtue of exclusive or predominant use by dominant undertakings. An exemption

from the generally applicable obligations of third-party access and regulated tariffs

laid down in the EU Directive must be regarded as an advantage for vertically

integrated undertakings owning or operating a pipeline, since the exemption allows

them to freely allocate capacities and charge discriminatory tariffs on competitors

seeking access to the pipeline. The conditions challenged by Russia only restrict to

a limited extent the scope of the advantage that was granted to OPAL at the

request of its planned operator, OPAL NEL Transport GmbH.

350. By arguing that the conditions attached to the OPAL exemption constitute

quantitative restrictions prohibited by Article XI:1 of the GATT 1994, Russia is

implicitly arguing that the absence of an exemption from those obligations would

constitute a quantitative restriction on imports as well. That conclusion is surely

unwarranted. Article XI:1 forbids measures that restrict imports of foreign


meeting, para. 540.

351 Russia’s first written submission, paras. 745-752 and responses to written questions from the Panel

to the parties following the first substantive meeting, para. 539.



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products. It does not forbid measures that allow imports of products from various

sources and foster competition on the market of the importing Member.

351. Moreover, the conditions attached to the OPAL exemption do not have either an

indirect limiting effect on imports arriving from Russia. The test devised by the

panel in Colombia – Ports of Entry refers to measures that create uncertainties and

affect investment plans, restrict market access or make importation prohibitively

costly.352

352. As the European Union pointed out in its responses to the Panel’s questions, the

conditions at issue do not give rise to uncertainties and are not designed to increase

costs affecting the price of Russian gas. In any event, Russia has not demonstrated

such effects.353

353. In sum, Russia’s claim under Article XI:1 of the GATT 1994 is unfounded and

must be rejected.

5. PROJECTS OF COMMON INTEREST

5.1. MEANING OF "RUSSIAN PROJECT"

354. Russia's various claims against the TEN – E measure are premised on the

allegation that the TEN – E discriminates against what Russia calls "Russian

projects". In its first written submission Russia failed to specify what it meant by

"Russian projects". In response to Panel Question 49, Russia has provided various

definitions of that concept.

355. According to a first definition, "Russian projects" are "projects that would

maintain the presence of Russian natural gas, Russian services, and Russian

service suppliers on the EU market".354

356. According to another definition,

352 Panel Report, Colombia – Ports of Entry, para. 7.240.

353 European Union’s responses to the Panel’s questions after the first hearing, paras. 346 -347.

354 Russia's response to Panel Question 49 a), para. 246 (Underlining added). See also e.g. Russia's

response to Panel Question 49 d), para. 254; and Panel Question 49 e), para. 255 ("for the purposes

of the GATT 1994 claims, 'Russian projects' are to be understood as projects that are likely to

maintain the level of the Russian natural gas imports in the EU").



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[…] the adjective 'Russian' should […] be understood as referring

to projects that as they would not contribute to [the overall

objective of enhancing the diversification and security of gas

supply] (for the simple fact that they would benefit the position of

the largest supplier, Russia) would not be eligible for the more

favourable regulatory treatment that is associated with PCI

designation.

357. According to a yet another definition, "Russian projects" would be projects that are

"designed to facilitate or promote the transmission or storage of Russian natural

gas".355

358. The European Union considers that the various definitions of Russian projects

submitted by Russia are flawed and, ultimately, irrelevant for the purposes of this

dispute.

359. Russia's first definition appears to reflect, once again, Russia's fundamental

misconception that the GATT and GATS provisions which it has invoked

guarantee Russia's pre-existing import shares in the EU market. As recalled by the

European Union356

, however, those provisions are not aimed at ensuring that each

Member will "maintain" its previous "level of imports" into another Member, but

instead at ensuring equality of competitive opportunities. Furthermore, even if

Russia's definition had to be understood as referring to such competitive

opportunities (rather than to pre-existing import shares), it would be anticipating

and prejudging the very outcome of the examination to be conducted by the Panel

i.e. whether or not such competitive opportunities are affected by the challenged

measure to the detriment of Russia's goods, services or service suppliers.

360. Similarly, Russia's second definition is circular and self-fulfilling. In essence,

according to Russia, a "Russian project" is a project excluded a priori from

designation as a PCI under the TEN – E measure. It is no wonder that Russia then

comes to the conclusion that no "Russian project" has ever been designated, or

indeed can be designated, as a PCI.357

355 Russia's response to Panel Question 49 b), para. 250. ("In practical terms, [Russian projects] are

designed to facilitate or promote the transmission or storage of Russian gas").


357 See Russia's response to Panel Question No 75.



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361. Lastly, the third definition is unduly narrow because it appears to exclude from the

concept of "Russian project" any project that is either designed or has the effect in

practice of facilitating or promoting also the transmission or storage of gas from

any other source, in addition to Russian gas.358

362. The European Union considers that, ultimately, it is unnecessary to define the

concept of "Russian project". The provisions of the GATS and the GATT invoked

by Russia are not concerned with discrimination between "projects", but instead

with discrimination between goods, services and service suppliers. Russia bears

the burden of proving such discrimination. Russia cannot escape that burden

through the simple expedient of labelling a priori certain projects as "Russian

projects" according to contrived criteria of Russia's own device, such as those used

in the definitions discussed above.

5.2. CLAIM XXIV: ARTICLE II:1 GATS (RUSSIA'S CLAIM 29)

5.2.1. De iure claim

363. As shown in the EU's first written submission359

, Russia's claim that the TEN – E

measure discriminates de iure against Russian services and service suppliers is

unfounded. The origin of the promoter of a project is not among the selection

criteria and plays no role whatsoever in the designation of PCIs. There is nothing

in the TEN – E measure that excludes, either directly or indirectly, the projects

promoted by Russian suppliers of transmission services from being designated as a

PCI.

364. That the TEN – E measure does not discriminate de iure against Russian suppliers

of services is evidenced beyond doubt by the fact that, in practice, many

designated PCIs have been promoted by Russian service suppliers. This includes

also PCIs in the BEMIP Gas corridor.360

More precisely, the European Union has

estimated that, out of the 15 designated PCIs for the BEMIP Gas corridor included

358 See EU's first written submission, para. 816 and paras. 827-828.

359 European Union's first written submission, paras. 782-793, 800 and 808.

360 See EU's response to Panel Question 77.



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in the first Union list, 9 were applied for by entities of third countries, including 7

projects applied for by Russian entities.361

365. In response to Panel Question 48, Russia is able to cite just one single element of a

single provision of the TEN – E Regulation in support of its claim of de iure

discrimination, namely the reference in the legal definition of the BEMIP Gas

corridor to the objective of ending the dependency on a "single supplier".362

However, the "supplier" referred to in that definition is not a supplier of

transmission services, but instead a supplier of gas. Even if the definition of the

BEMIP Gas corridor invoked by Russia discriminated de iure against imports of

Russian gas (quod non – see below section 5.3), this would not translate into de

iure discrimination against Russian suppliers of services or Russian services,

because there is no legal requirement to the effect that Russian gas must be

transported by Russian service suppliers or that Russian service suppliers cannot

transport gas of other origins.

5.2.2. De facto claim

366. The European Union has also shown that the TEN – E measure does not

discriminate de facto against Russian service suppliers or services.363

367. Like its de iure claim, Russia's de facto claim under Article II:1 GATS is based on

the premise that the TEN – E measure discriminates against imports of Russian

gas. As explained below in section 5.3, however, that premise is unfounded. But,

even assuming ad arguendo that Russia's premise were correct, it would not

follow that the TEN – E measure discriminates de facto against Russian service

suppliers or services.


, in practice most TSOs are

controlled by EU nationals, whereas the large majority of gas consumed in the

European Union (66 %) is imported. As a result, the TSOs controlled by EU

persons very often operate infrastructures that are used exclusively or mainly to

361 See EU's Response to Panel Question 77, para. 186.



364 EU's first written submission, paras.810 and 620-624.



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transmit imported gas, including to a large extent Russian gas. The European

Union has provided many examples of such infrastructures.365

Conversely, TSOs

controlled by persons of third countries, such as Singapore's TIGF or Russia's

GASCADE, operate infrastructure used in part to transmit EU gas366

. Russia has

nowhere addressed this argument and evidence.

369. Furthermore, as recalled above, in practice many designated PCIs have been

promoted by entities of third countries, including Russian entities.367

5.2.3. The [[ ]] project

370. In response to Panel Question 48, Russia contends that "de jure discrimination of

Russian natural gas and Russian services and service suppliers is evidenced by the

[[ ]] project".368

However, as part of the same response and within just a few

paragraphs, Russia also advances the argument that the non-inclusion of the [[ ]] in

the first Union list of PCIs would rather constitute evidence of de facto

discrimination.369

Thus, the precise relevance of the [[ ]] project to Russia's claims

remains unclear.

371. At any rate, as explained below, Russia's claims of discrimination reflect a

fundamental misunderstanding of the relevant facts and are wholly unfounded. The

non-designation of [[ ]] was the result of the impartial application of objective

selection criteria and did not involve either de iure or de facto discrimination

against Russian gas or against Russian service suppliers or services.


, the [[ ]] project was

considered eligible according to the "general" criteria in Article 4(1) of the TEN –

E Regulation. Eventually, however, the project was not included in the first Union

list because other projects were ranked higher on the basis of an overall assessment

of the criteria in Article 4(2)(b) and 4(4) of the TEN-E Regulation.


366 EU's first written submission, para.624.

367 See EU's response to Panel Question 47.


369 Russia's response to Panel Question 48, para. 242 in fine.




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373. As noted by Russia371

, all the candidate projects were assessed according to the

criteria specified in Annex IV to the Terms of Reference of the Regional Group for

the NSI East Gas Corridor. Those criteria are analogous to those eventually

included in Article 4(2)(b) and Annex IV to the TEN – E Regulation (which at the

time was still being debated by the EU Council and the European Parliament) and

do not discriminate against Russian gas or a fortiori against Russian service

suppliers or services.372

More specifically, the sub-criterion "diversification of

sources of supply" applies indistinctly, regardless of the origin of the gas.

Moreover, that sub-criterion does not distort market opportunities in favour of

domestic gas (or of gas from other third countries) and to the detriment of Russian

gas. Rather, it contributes to achieve greater equality of competitive opportunities

for gas from all potential sources, including Russia.

374. Contrary to Russia's assertions373

, the PCI candidate projects were not assessed

according to the criteria and weights mentioned in the document provided by

Russia as Exhibit RUS – 147. That document was used as supporting material for a

presentation given by officials of the Commission on 15 February 2002, i.e.

several months before the candidate projects were even submitted. The slide relied

upon by Russia is but a fictional example used to illustrate how the evaluation

could work in practice. The criteria and the weights shown in that slide are not

those eventually used by the Regional Group in its assessment of projects. Instead,

the criteria and weights actually used by the Regional Group are those shown in

the table below:

[[ ]]

375. It will be noted that the above table does not include the sub-criteria

"diversification of external supply" and "lower import dependency" mentioned by

Russia , but instead the sub-criteria "route", "source", "counterpart" and "impact on

capacity HHI", all of which are mentioned in in Article 4(2)(b) and in Annex IV to

371 Russia's response to Panel Question 48, para. 241. The terms of reference of the Regional Group for

the NSI East Gas Corridor have been provided by Russia as Exhibit RUS – 145.





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the TEN – E Regulation. It will also be noted that the sub-criteria "diversification

of sources of supply" is given a weight of just 9 per cent.

376. Contrary to Russia's contention, it is not true that, with a score of 0.19, [[ ]]

"received - by far – the lowest score of all projects"374

. In fact, as shown by the

table below, out of a total of 53 candidate projects, 10 other projects scored lower

according to the quantitative criteria in Article 4(2)(b) of the TEN-E Regulation,

whereas two other projects achieved the same score.

[[ ]]

377. Last, also contrary to Russia's assertions375

, [[ ]] scored low not only on the sub-

criterion "diversification of source of supply", but also on most other quantitative

criteria, as shown by the table below:

[[ ]]

378. Russia further contends that the response given by EU Commissioner Oettinger to

a question from a member of the European Parliament would confirm that "[[ ]]

would never be able to obtain PCI status".376

However, in essence Commissioner

Oettinger limited himself to recall that, unlike NABUCCO, the [[ ]] project did not

fit within the legal definition of the Southern Gas Corridor (SGC). This is

uncontroversial since [[ ]] was not designed to transmit gas "from the Caspian

Basin, Central Asia, the Middle East and the Eastern Mediterranean", but instead

from Russian Siberia. But this does not imply that [[ ]] "would never be able to

obtain PCI status" within a different corridor. Indeed, this was understood by the

promoters of the [[ ]] project, who applied for designation as PCI within the NSI

374 Russia's response to Panel Question 48, para. 243. In support of this assertion Russia cites a table

included in a presentation prepared by the consultant Booz & Co and provided by Russia as Exhibit

RUS – 146. That table is incomplete in two respects: first it includes only pipelines, to the

exclusion of other types of infrastructure; and second, it does not include projects which were

assessed according to the quantitative criteria of Article 4(2)(b) of the TEN – E Regulation, but

were eventually considered ineligible under the criteria of Article 4(1)(c), or projects that were

eventually "clustered" with other projects.


376 Russia's response to Panel Question 48, para. 243, referring to Exhibit RUS – 165.



________________________________________________________________________________________

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East Gas corridor and not within the SGC. To repeat, the [[ ]] project was deemed

eligible for the NSI East Gas corridor, but was not selected only because it

obtained a relatively low score as compared to other projects.

379. In response to Panel Question 74, Russia alleges, without providing any evidence,

that the decision to cancel the [[ ]] project "was a direct consequence of the EU's

decision to score the project so low as to make it unable to ever obtain PCI

designation".377

The European Union does not wish to speculate about the real

reasons for the cancellation of the [[ ]] project. It would note, however, that

Russia's assertion seems implausible in view of the fact that the Commission

Regulation adopting the first list of PCIs had been adopted already on 14 October

2013378

, whereas the decision to cancel the [[ ]] project was not announced until

more than one year later, on 1 December 2014.379

[[ ]] decision to cancel [[ ]]

forced ENTSO-Gas to make an additional call for projects in April 2015 in order

to mitigate the withdrawal of [[ ]]. 380

5.3. CLAIMS XXV AND XXVI: ARTICLE III:4 GATT AND ARTICLE I:1 GATT (RUSSIA'S

CLAIMS 30 AND 31)

380. Russia's claims against the TEN – E measure under both Article III:4 GATT and

Article I:1 GATT raise similar issues and will be addressed together in this

section.

5.3.1. De iure claims

381. For the reasons set out in the EU's first written submission381

, the TEN –E measure

does not discriminate de iure between Russian gas and EU gas or between Russian

gas and gas from any third country.

377 Russia's response to Panel Question 74, para. 327

378 Commission Delegated Regulation (EU) No 1391/2013 (Exhibit EU - 3).


380 Press release: European Network of Transmission System Operators for Gas (ENTSOG) publishes

an addendum to the Annex A of the Ten Year Network Development Plan 2015, 29 June 2015,

http://www.entsog.eu/public/uploads/files/publications/Press%20Releases/2015/PR0090-

15_150629_Press%20Release_TYNDP2015_Addendum.pdf (Exhibit EU-133).






________________________________________________________________________________________

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382. The Panel has asked Russia to identify any language in the TEN –E measure that

would support a finding of de iure inconsistency with either Article I:1 or Article

III:4 GATT.382

In response to this question, Russia limits itself to cite, once again,

the reference in the definition of the BEMIP Gas corridor to the objective of

ending the dependency on a "single supplier".383

As discussed below, however,

this objective does not lead to de iure discrimination against Russian gas.

383. The various priority corridors have been defined so as to cover in a balanced

manner all the main potential sources of supply of gas within and around the

European Union, as well as the supply needs of all EU Member States. For

geographical reasons, it is inevitable that not each corridor (and not each

infrastructure within each corridor) will contribute to facilitate the transmission or

storage of gas from each and every potential source to an identical extent. For that

reason, the existence of discrimination cannot be assessed by considering in

isolation just one of the priority corridors, such as BEMIP Gas. Instead, it is

necessary to make an overall assessment of all corridors, as well as of the already

existing infrastructures outside the current priority corridors. As explained in the

EU's first written submission384

, looking at each corridor or infrastructure in

isolation would lead to manifestly absurd and unacceptable results, as Russia has

been forced to concede in response to Panel Question 51.

384. Until 1991 Estonia, Latvia and Lithuania were part of the Soviet Union. As a

consequence, those three EU Member States are already adequately connected to

sources of gas supply in Russia by infrastructure built or supported by the Russian

authorities and their predecessors. For the same historical reasons, those EU

Member States were, until recently, totally isolated from other EU Member States

and sources of gas supply. One of the objectives of the BEMIP Gas corridor

priority corridor is to remedy this deficiency, by ensuring adequate connections

also between the Baltic States and Finland and other EU Member States. As

already explained by the European Union, those connections will not distort

market opportunities in favour of domestic gas (or of gas from other third

382 Panel Question 48.





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countries) and to the detriment of Russian gas. Rather, they will contribute to

achieve greater equality of competitive opportunities for gas from all potential

sources.385

385. Moreover, while the BEMIP Gas corridor priority is not aimed at improving the

connections between Russia and each of the four EU Member States concerned,

this does not mean that the infrastructures within the scope of the BEMIP Gas

corridor will not benefit also Russian gas. For example, as already explained by

the European Union, both the first and the second Union lists include a project for

enhancing the Underground Gas Storage (UGS) facility in Inčukalns, Latvia (PCI

8.2.4), which is likely to continue to be used to store mainly Russian gas with a

view to supplying users in Latvia, Lithuania and Estonia, as well as in Russia (the

area of Saint Petersburg)386

. Similarly, other BEMIP Gas projects such as PCI 8.5

(gas interconnector Poland – Lithuania GIPL) and PCI 8.1.1 (gas interconnector

Estonia – Finland, Balticonnector) can be used not only to transmit gas into the

Baltic States or Finland from other sources of supply, but also to transmit Russian

gas to other EU markets after transiting through the territory of those EU Member

States.

5.3.2. De facto claims

386. The European Union has also shown that the TEN – E measure does not

discriminate de facto either between Russian gas and EU gas or between Russian

gas and gas from any third country.387

387. As explained by the European Union, all PCIs can be used for gas of all sources,

including Russian gas, and in practice many PCIs are likely to be used for Russian

gas, sometimes to a large extent. The European Union has provided specific

examples of those PCIs.388

The Panel has asked Russia to comment on those

examples.389

In its response, Russia does not dispute that the examples of PCIs

provided by the European Union will facilitate the transmission or storage of





389 Panel Question 126.



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Russian gas. Instead, Russia now claims, for the first time, that those PCIs "are

eligible for only a fraction of the financial support that is provided to the PCIs not

involving the transmission or storage of Russian natural gas"390

. As discussed

below, this allegation has no basis whatsoever on the TEN – E Regulation or in the

co-funding decisions implementing that regulation.

388. In accordance with Article 14(1) of the TEN – E Regulation, all designated PCIs

falling within one of the gas priority corridors are eligible for financial assistance

in the form of grants for studies and financial instruments, irrespective of the

origin of the promoter of the project or the origin of the gas.

389. In turn, Article 14(2) of the TEN – E Regulation provides that all PCIs falling

within one of the gas priority corridors are eligible for EU financial assistance in

the form of grant for works if they fulfil the criteria specified in Article 14(2) of

the TEN – E Regulation. Those criteria do not include, either directly or indirectly,

the origin of the promoter or the origin of the gas to be transmitted or stored.


, in practice only a few among

the eligible PCIs receive financial support from the European Union. The decision

whether to co-fund an eligible PCI is taken according to objective evaluation

criteria, which do not include, either directly or indirectly, the origin of the

project's proponent or the origin of the gas.392

391. The comparison drawn by Russia between the financial contributions made to the

six PCIs mentioned by the European Union and those made to PCIs 8.2.3 and

8.5393

is meaningless because it fails to take into account that not all the projects

concerned were at the same stage of maturity in 2014, when the grants were

applied for, and that the grants being compared cover very different types of costs.



392 The criteria and procedures used for evaluating applications under the Connecting Europe Facility

programme, including those made in respect of gas PCIs, are described in the Guide for Applicants

issued by the Innovations and Networks Executive Agency: Guide for Applicants issued by the

Innovations and Networks Executive Agency. Call for proposals CEF-Eenergy-2016-2. June 2016

(Exhibit EU-134).




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392. The contributions received by PCI 8.2.3 and PCI 8.5 in 2014 consisted of grants

for works made in accordance with Article 14(2) of the TEN-E Regulation. In

contrast, the contributions received by PCI 6.8.2, PCI 6.20.2, PCI 6.1.1 and PCI

6.4 consist of grants for studies pursuant to Article 14(1) of the TEN-E

Regulation394

. Since the contributions consist of a percentage of the eligible costs,

it is only logical if the grants for studies received by PCI 6.8.2, PCI 6.20.2, PCI

6.1.1 and PCI 6.4 were lower than the grants for works received by PCI 8.2.3 and

PCI 8.5. Indeed, the costs of studies are typically within the range of a few million

Euros, whereas the eligible costs of works can reach several hundred millions.

393. Russia's allegations are further refuted by the fact that in 2015 the promoters of

PCI 6.1.1 (one of the two projects which, according to Russia, would have

received less favourable treatment because they facilitate the transmission of

Russian gas) received a grant for works of € 62.659.000395

, which is almost twice

the amount of support provided to PCI 8.2.3.

5.3.3. In the alternative, the TEN – E measure is justified under

Article XX j) GATT

5.3.3.1 Introduction

394. The European Union submits in the alternative that, in the event that the Panel

were to find that the TEN – E measure accords less favourable treatment to gas

imported from Russia than to domestic gas or to gas imported from any other

country in a manner inconsistent with Article III:4 GATT and/or with Article I:1

GATT, respectively, the TEN - E measure would, nevertheless, be justified under

the exception provided for in Article XX (j) GATT.

395. The European Union will first set out the legal standard for the application of

Article XX (j) GATT. The European Union will then apply that standard to the

relevant facts and show that:

gas is a product in "short supply" in the European Union;

394 [[ ]] did not apply for any grants in 2014. [[ ]] applied in 2014 for a grant for works. The application

was not granted because the project failed to obtain the required minimum score in respect of one

of the evaluation criteria.

395 List of actions selected for receiving assistance under the first CEF Energy 2015 call for proposals.

(Exhibit EU-135).



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the TEN - E measure is "essential" for the "acquisition and distribution" of gas;

the TEN – E measure is "consistent with the principle that all Members are

entitled to an equitable share of the international supply" of gas; and

the aspects of the TEN – E measure challenged by Russia are temporary in

nature.

5.3.3.2 Legal standard

396. Article XX(j) GATT provides, in relevant part, that nothing in the GATT shall be

construed to prevent the adoption or enforcement by any Member of measures:

essential to the acquisition or distribution of products in general

or local short supply; Provided that any such measures shall be

consistent with the principle that all Members are entitled to an

equitable share of the international supply of such products, and

that any such measures, which are inconsistent with the other

provisions of the Agreement shall be discontinued as soon as the

conditions giving rise to them have ceased to exist.

397. The Appellate Body has explained that the evaluation of a defence under Article

XX GATT involves a "two-tiered analysis":396

first, the panel must examine whether the measure at issue is provisionally

justified under at least one of the subparagraphs of Article XX; and

second, the panel must determine whether the measure is applied in a manner

that satisfies the requirements of the chapeau of Article XX.

The "first tier" 5.3.3.2.1

398. According to the Appellate Body, in order to justify provisionally a measure under

a paragraph of Article XX GATT, two elements must be shown: first, that the

challenged measure is "designed" to address the particular interest specified in that

paragraph397

; and, second, that there is a "sufficient nexus" between the measure

and the interest protected.398

396 See e.g. Appellate Body Report, US- Gasoline, p. 22, DSR 1996:I, 3, at 20; Appellate Body Report,

Dominican Republic – Import and Sale of Cigarettes, para. 64; Appellate Body Report, Brazil –

Retreaded Tyres, para. 139; Appellate Body Report, EC – Seal Products, para. 5.169; and Appellate

Body Report, India – Solar Cells, para. 5.57. 397 See e.g. Appellate Body Report, India – Solar Cells, para. 5.57 and the case-law cited therein.

398 See e.g. Appellate Body Report, India – Solar Cells, para 5.57 and the case-law cited therein.



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399. More specifically, in the case of Article XX(j) GATT it must be shown that:

the measure is designed to address the "acquisition or distribution of products

in general or local short supply"; and

the measure is "essential" to address that interest.

400. The provisional justification of a measure under Article XX(j) GATT is subject to

the following two additional requirements:

the measure "must be consistent with the principle that all Members are

entitled to an equitable share of the international supply of the products

concerned"; and

the measures must be "discontinued as soon as the conditions giving rise to [the

measure] have ceased to exist".

(a) Meaning of "products in general or local short

supply"

401. The Appellate Body has explained that the assessment of whether a product is in

"general or local short supply" requires "a case-by-case analysis of the relationship

between supply and demand based on a holistic consideration of all relevant

factors." 399

402. In particular, according to the Appellate Body, a panel should examine

The extent to which a particular product is 'available' for purchase

in a particular geographical area or market, and whether this is

sufficient to meet demand in the relevant area or market.400

403. The terms "general" or "local", together with the disjunctive "or", indicate that the

relevant area or market must include all or part of the territory of the Member

invoking the defence.401

As regards the relevant factors for assessing the existence

of a shortage in that area or market, the Appellate Body has specified that the

analysis may, in appropriate cases, take into account

399 Appellate Body Report, India – Solar Cells, para. 5.74.

400 Appellate Body Report, India – Solar Cells, para. 5.71

401 Appellate Body Report, India – Solar Cells, para. 5.67



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… not only the level of domestic production of a particular

product and the nature of the product that is alleged to be "in

general or local short supply"235, but also such factors as the

relevant product and geographic market236, potential price

fluctuations in the relevant market, the purchasing power of

foreign and domestic consumers, and the role that foreign and

domestic producers play in a particular market, including the

extent to which domestic producers sell their production abroad.

Due regard should be given to the total quantity of imports that

may be "available" to meet demand in a particular geographical

area or market. It may thus be relevant to consider the extent to

which international supply of a product is stable and accessible,

including by examining factors such as the distance between a

particular geographical area or market and production sites, as

well as the reliability of local or transnational supply chains.

Whether and which factors are relevant will necessarily depend

on the particularities of each case.402

404. The Appellate Body has further clarified that "a consideration of potential risks of

disruption in supply of a given product may inform the question of whether a

situation of short supply exists".403

(b) The meaning of "essential"

405. The Appellate Body has explained that the "necessity" of a measure under the

various paragraphs of Article XX GATT which use that term must be assessed

through a "process of weighing and balancing of a series of factors".404

In India –

Solar Cells, the Appellate Body confirmed that the same process of weighing and

balancing also is relevant in assessing whether a measure is "essential" within the

meaning of Article XX(j) GATT.

405

406. According to the Appellate Body, the relevant factors to be weighed and balanced

include, in particular, the following:406

the relative importance of the objective pursued by the measure;

the contribution of the measure to that objective; and

402 Appellate Body Report, India – Solar Cells, para. 5.71. Underlining added.

403 Appellate Body Report, India – Solar Cells, para. 5.76.

404 Appellate Body Report, Korea – Various Measures on Beef, para. 164; and Appellate Body Report,

EC – Seal Products, para. 5.169. 405 Appellate Body Report, India – Solar Cells, para. 5.63.

406 See e.g. Appellate Body Report, Korea – Various Measures on Beef, para. 164; Appellate Body

Report, Brazil- Retreaded Tyres, paras. 156 and 178; Appellate Body Report, China – Publications

and Audiovisual Products, paras. 237-249; Appellate Body Report, EC – Seals products, para.

5.169; Appellate Body Report, India – Solar Cells, para. 5.63.



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the restrictive effect of the measure on international commerce.

407. The Appellate Body has stated that panels enjoy certain latitude in setting out their

approach to determine the contribution of a measure to its objective. That approach

may be performed in qualitative or quantitative terms. Ultimately, the choice of the

approach to be followed "depends on the nature, quantity and quality of the

evidence existing at the time the analysis is made".407

408. Following the above analysis, the challenged measure should, in most cases, be

compared with alternative measures that are less trade restrictive, while making an

equivalent contribution to achieving the desired level of protection of the relevant

objective.408

409. The alternative measure must be "reasonably available".409

A measure is not

reasonably available "if it is merely theoretical in nature, for instance where the

responding member is incapable of taking it"410

, or "where the measure imposes an

undue burden […], such as prohibitive costs or substantial technical difficulties"

on either the responding Member411

or the industry concerned.412

The "second tier" 5.3.3.2.2

410. Under the "second tier" the Panel must consider whether the measure is "applied"

in a manner that would constitute

"a means of arbitrary or unjustifiable discrimination between countries where

the same conditions prevail"; or

"a disguised restriction on international trade".

407 Appellate Body Report, Brazil – Retreaded Tyres, paras 145 and 146. Appellate Body Report, EC –

Seals Products, para. 5.221.

408 See e.g. Appellate Body Report, Brazil – Retreaded Tyres, para. 156; and Appellate Body Report,

EC – Seal Products, paras. 5.169 and 5.261. 409 Appellate Body Report, EC – Seal Products, para. 5.258.

410 Appellate Body Report, EC – Seal Products, para. 5.258.

411 Appellate Body Report, EC – Seal Products, para. 5.258.

412 See e.g. Appellate Body Report, EC – Seal Products, para. 5.277.



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411. The European Union refers to the legal standard for the application of these two

requirements which it has described in its first written submission.413

Burden of proof 5.3.3.2.3

412. A responding party invoking an affirmative defence bears the burden of

demonstrating that its measure satisfies the requirements of that defence.414

However, the Appellate Body has clarified that, in establishing the requisite nexus

between the measure and the relevant interest, the responding party does not have

to "show, in the first instance, that there are no reasonably available alternatives to

achieve its objectives".415

Rather, it is for the complaining Member "to identify

possible alternatives to the measures at issue that the responding Member could

have taken".416

If the complaining Member has put forward a possible alternative,

the responding Member may seek to show that the measure in question is not, in

fact, "reasonably available" or that it is not a genuine alternative because it would

fail to achieve the desired level of protection.417

5.3.3.3 Gas is a product in "short supply" in the European

Union

413. As will be explained below, a number of factors coalesce to create a situation of

"shortage" of supply of gas in the European Union within the meaning of Article

XX(j) GATT. Some of those factors reflect the unique characteristics of gas and

are common to all gas markets, whereas others are specific to the EU market for

gas.

414. The supply of gas from any given source, or through any given route, may be

disrupted by events such as infrastructure breakdowns, commercial disputes,

natural disasters, social unrest, political actions or terrorism. As described in the

EU's first written submission418

, major disruptions of gas supply as a result of

413 EU's first written submission, 167-174.

414 See e.g. Appellate Body Report, EC – Seal Products, para 5.169. 415 Appellate Body Report, Brazil - Retreaded Tyres, para. 156. 416 Appellate Body Report, Brazil – Retreaded Tyres, para. 156. 417 Appellate Body Report, Brazil – Retreaded Tyres, para. 156. 418 EU's first written submission, para. 487.



________________________________________________________________________________________

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those events are by no means uncommon occurrences, either in the European

Union or in other countries.

415. As further explained in the EU's first written submission419

, gas is far less fungible

than other sources of energy, such as oil or coal. The transmission of gas

necessitates especially dedicated fixed infrastructure which is both very costly and

time-consuming to build. For that reason, in the event of a disruption affecting a

source of supply of gas or a route of supply of gas, it is not possible to resort to an

alternative source or route of supply unless the required infrastructure is already in

place.

416. In the European Union two additional factors aggravate further the risks of

disruptions of supply of gas:

417. First, the European Union is largely dependent on a relatively limited number of

sources of supply. The European Union imports 66 % of the natural gas that it

consumes. Several EU Member States import all420

or almost all421

their gas needs

from one single external source of supply. As a consequence, the European Union

is vulnerable to disruptions of supply of gas resulting not only from events in its

own territory, but also from events which may take place in the country of origin

of the gas or in the territory of any of the countries through which the gas must

transit before reaching EU territory and over which the EU authorities have no

control whatsoever.

418. Second, for historical reasons, the infrastructure interconnecting the transmission

networks of the various EU Member States is often inadequate, which leads to the

fragmentation of the EU market along national lines.

419. The above factors expose the European Union to genuine and serious risks of

disruption of supply of gas. Those risks have in the past materialised from time to

time. In particular, as explained in the EU's first written submission422

, in 2006423


420 Bulgaria, Finland and Slovakia.

421 Estonia, Latvia and Lithuania.


423 Following a dispute between the Ukrainian oil and gas company Naftogaz Ukrainy and Gazprom,

Gazprom cut off its deliveries of gas to Ukraine on 1 January 2006. The situation deescalated after



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and again in 2009424

some EU Member States were affected by major disruptions

of supply, with dire social and economic consequences, following the interruption

of the transit of Russian gas through Ukrainian territory. Further disruptions have

occurred since 2009, though on a smaller scale than in 2006 and 2009.

420. As recalled above, the Appellate Body has clarified that the "potential risks of

disruption in supply" of a given product are relevant in assessing whether a

situation of "short supply "exists. The Appellate Body has further clarified that, in

assessing whether a situation of short supply exists, it may be relevant to examine

4 January 2006, as a preliminary agreement was found. In these four days, Austria, France,

Germany, Hungary, Italy and Poland reported a reduction of gas pressure in their own pipelines of

as much as 30%. (See Jon Henley, "Is Europe's gas supply threatened by the Ukraine crisis?" in The

Guardian, 03.03.2014. Available at: https://www.theguardian.com/world/2014/mar/03/europes-gas-

supply-ukraine-crisis-russsia-pipelin) (Exhibit EU-136).)

While no EU Member States had to interrupt supplies to customers, the EU Member States in

Eastern and South-Eastern Europe relying heavily on Russian gas saw their supplies fall drastically.

The volumes delivered from Russia were down by 40 % in Hungary, by 14 % in Poland, by 25% in

France, and by almost a third in Austria, Slovakia and Romania (See Jonathan Stern, The Russian-

Ukrainian gas crisis of January 2006, Oxford Institute for Energy Studies, 16.01.2006, p. 9.

Available at: https://www.oxfordenergy.org/wpcms/wp-content/uploads/2011/01/Jan2006-

RussiaUkraineGasCrisis-JonathanStern.pdf )(Exhibit EU-137).)

424 The gas crisis of 2009 began as a result of a similar dispute between Ukraine and Gazprom over the

gas prices and supplies for that year. On 2 January 2009, Poland, Romania, Bulgaria and Hungary

reported a reduction of gas pressure in their own pipelines. From 7 to 20 January 2009, Gazprom

stopped its gas delivery to Ukraine, affecting the supplies to the European Union transiting through

the country (See "Russia vows to end gas shortage" in BBC News, 02.01.2006. Available at:

http://news.bbc.co.uk/2/hi/europe/4574630.stm.) (Exhibit EU-138).)

The most serious effects of the disruption of Russian gas supply were felt in South-Eastern Europe,

which was cut off completely. (Simon Pirani, Jonathan Stern and Katja Yafimava, The Russo-

Ukrainian gas dispute of January 2009: a comprehensive assessment, Oxford Institute for Energy

Studies, February 2009, p. 22. Available at:

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.443.8094&rep=rep1&type=pdf.) (Exhibit

EU-139).)

Russian gas supply to Bulgaria was cut by up to 100 % during the crisis, which caused a loss of

around 9% of Bulgarian GDP. As the country relied exclusively on Russian gas, most major gas

consumers, such as the fertilizer industry, were disconnected. Slovakia saw its imports of Russian

gas cut by 97 %, Austria by 66 %, the Czech Republic by 71 %, Slovenia by 50%, Hungary by 45%

and Poland by 33%. (Press Release: "Member State general situation according the significance of

impact", European Commission, 09.01.2009.) (Exhibit EU-140).)

In Croatia, where the Russian gas supply was reduced by 40 %, the government immediately

declared a state of emergency. District heating companies and electric utilities had to shift to

alternative fuels while gas supplies to industry were disconnected. In Romania a third of the

Russian gas supply was cut, with the consequence that effective supply had to be restricted to some

industrial consumers. (Aleksandar Kovacevic, The Impact of the Russia–Ukraine Gas Crisis in

South Eastern Europe, Oxford Institute for Energy Studies, March 2009, pp. 11-12. Available at:

https://www.oxfordenergy.org/wpcms/wp-content/uploads/2010/11/NG29-

TheImpactoftheRussiaUkrainianCrisisinSouthEasternEurope-AleksandarKovacevic-2009.pdf),

(Exhibit EU-141).)











________________________________________________________________________________________

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"the extent to which international supply of a product is stable and accessible",

including by examining factors such as "the reliability of local or transnational

supply chains".

421. For the reasons explained above, the existing "local and transnational chains" for

the supply of gas into, and within, the European Union can be affected by events

which are largely beyond the control of the EU's authorities and which may

seriously compromise the "stability" and "reliability" of those supply chains. In the

absence of adequate alternatives to the existing supply chains, the risks of a major

disruption of supply of gas in the European Union remain significant. As long as

those risks subsist, gas will be in "short supply" in the European Union within the

meaning of Article XX (j) GATT.

5.3.3.4 The TEN-E measure is essential for the acquisition and

distribution of gas

Relative importance of the objective 5.3.3.4.1

422. The aspects of the TEN- E measure challenged by Russia are designed to ensure

SoS of gas in the European Union. For the reasons explained in section 4.2.3.1 of

the EU's first written submission, SoS is considered a matter of fundamental

importance by the European Union.

Contribution to the objective 5.3.3.4.2

423. The TEN – E measure seeks to facilitate the timely implementation of PCIs with a

view to achieving the various energy policy objectives of the European Union

defined in the TFEU425

, including the objective to ensure SoS of gas.

424. In order to achieve those objectives, the TEN – E measure aims at developing and

improving the connections between European Union and the main potential

sources of supply of gas within and around the European Union, as well as the

interconnections among the traditionally isolated markets of the various EU

Member States. The ultimate goal is "to build infrastructure needed to allow gas

from any source to be bought and sold anywhere in the EU, regardless of national




________________________________________________________________________________________

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boundaries".426

By contributing to that goal, the TEN – E measure contributes to

the "acquisition and distribution" of gas in the European Union within the meaning

of Article XX(j) GATT and, thereby, to ensure SoS of gas.

425. As explained above, the transmission of gas necessitates especially dedicated fixed

infrastructure, which is both very costly and time-consuming to build. For this

reason, in the event of a disruption affecting a source of supply of gas or a route of

supply of gas, it is impossible to resort to an alternative source of supply or route

of supply, respectively, unless the required infrastructure is already in place. The

TEN – E measure facilitates the building of such infrastructure, so that, in case of

disruption of a source or route of supply, it may be possible to switch promptly to

alternative sources or routes of supply of gas, thereby ensuring the continued

"acquisition and distribution" of gas and hence the SoS of gas.

426. More precisely, the priorities and selection criteria challenged by Russia are

necessary in order to ensure that the resources made available under the TEN –E

measure are used to fill infrastructure gaps, rather than in order to promote

infrastructures which would merely duplicate already existing infrastructure. Such

a duplication of transmission capacities would not be "essential" to ensure the

continued "acquisition and distribution" of gas and to achieve SoS.

Trade - restrictiveness of the measure 5.3.3.4.3

427. The TEN – E measure places no restriction on the importation or sale of gas from

Russia or from any other country. On the contrary, by developing and improving

the connections with the main sources of potential supply of gas around the

European Union, as well as the interconnections between the EU Member States,

the TEN – E measure contributes to facilitate and promote trade in gas.

428. As explained above, the ultimate goal of the TEN – E measure is to build the

infrastructure needed to allow gas from any source to be bought and sold anywhere

in the European Union. In order to approach that goal, the TEN – E measure

provides certain regulatory and financial incentives for building missing

infrastructures or improving inadequate ones. But the TEN – E measure neither

prescribes nor prohibits the use of any particular infrastructure. The choice




________________________________________________________________________________________

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between the various sources and routes of supplies is left entirely to the market

operators.

429. To the extent that, as alleged by Russia, the benefits provided under the TEN – E

measure to certain infrastructures distorted competition between gas from different

sources, such distortion would be, having regard to the nature of the benefits

involved, minimal and temporary.

Alternative measures 5.3.3.4.4

430. In accordance with well-established case-law, it is for Russia to identify possible

alternatives.

5.3.3.5 The TEN – E measure is consistent with the principle

that all Members are entitled to an equitable share of the

international supply of gas

431. The TEN – E measure does not seek to replace the current suppliers of gas to the

EU market with new suppliers. Nor does it place any limit on the share which each

supplier of gas may achieve in the EU market. Quite to the contrary, the TEN – E

measure aims at ensuring that gas from all potential sources enjoy equal

competitive opportunities in the EU market.

432. As mentioned above, to the extent that, as alleged by Russia, the benefits provided

under the TEN – E measure to certain infrastructures distorted competition

between gas from different sources, such distortion would be minimal and

temporary and, therefore, would not prevent each Member from achieving an

"equitable" share of the EU market. Thus, Russia's share of imports of gas into the

European Union has remained at the same level, despite some fluctuations,

between 2005, the year preceding the adoption of Decision 1364/2006/EC (the

predecessor of the TEN – E Regulation) and 2015.427

5.3.3.6 The aspects of the TEN – E measure challenged by

Russia are temporary in nature

433. The TEN –E measure seeks to facilitate the timely implementation of PCIs. For

that reason, the Union list of PCIs is established every two years with an

427 See Import statistics for the period 2005-2015 in (Exhibit EU-142).



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amendment of the TEN – E Regulation. Those PCIs which have reached sufficient

maturity cannot reapply and do not appear on the list anymore.428

434. Moreover, the PCIs being implemented in a given priority corridor must contribute

to the priorities defined in Annex I of the TEN – E Regulation for that corridor.

These priorities have been defined in view of the needs identified at the moment

when the TEN – E Regulation was enacted. Accordingly, at some point, the

priorities will be reassessed. Once a given priority is achieved, it will be redefined

or replaced as necessary.

5.3.3.7 The TEN – E measure is applied consistently with the

chapeau of Article XX GATT

435. The priorities and selection criteria challenged by Russia apply indistinctly,

regardless of the origin of the gas. In any event, those criteria are fully consistent

with the TEN – E measure's policy objective of ensuring SoS and do make a

genuine contribution to that objective. Any difference in treatment between

Russian gas and gas from other origin which might result from the application of

those criteria would thus not amount to "unjustified" or "arbitrary" discrimination.

436. In addition, as shown in the EU's first written submission, the selection of PCIs is

carried out in accordance with pre-established criteria stipulated in the TEN – E

Regulation, and in an open and transparent manner.

6. CONCLUSION

437. For all the above reasons, the European Union respectfully requests the Panel to

reject all of Russia's claims.

***

428 Article 3(4) and recital (24) of Regulation 347/20131.

in the world trade organization panel proceedings · 2019-04-29 · in the world trade organization...

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