21.1 The Chinese legal framework on energy regulation Since 1979, China has been progressively reforming its economic system, with a view to establishing and improving a "socialist market economy". Accordingly, China has been actively promoting market-oriented reform in the energy sector by giving more relevance and effect to the fundamental role of the market in the allocation of resources. Domestic laws China is yet to adopt a comprehensive or basic Energy Law (despite its Draft Energy Law in 2007). In the meantime, energy is regulated in various specialized legislations, as well as in some general legislations, while energy issues are regulated by several governmental authorities (including NDRC, NEA, MOFCOM, and the Ministry of Land and Resources).International treaties The ECT covers all aspects related to energy, though its main focus is trade, transit and investment. On trade and transparency issues, the ECT regime is compatible with the WTO (including TRIMs), of which China became a member in 2001. To deliver its WTO commitments, China has systematically amended or abolished relevant laws and regulations that were incompatible with WTO obligations. Therefore trade issues with both WTO members and non-WTO who are parties to the ECT would be regulated by the WTO regime. On investment, China has been very active entering into several IIAs. Since the first BIT with Sweden in 1982, China has signed 130 BITs, among which 100 have entered into effect. While the first generations of BITs signed by China had a limited scope of protection (including a limited resort to international arbitration), recent BITs signed by China (after 1998, when the Chinese government decided to implement a "Going Abroad" strategy focusing on investing abroad) provide comprehensive access to investor-state dispute settlement mechanisms and substantial post-admission national treatment commitments. Moreover, with negotiations with the USA and the EU making good progress, the fourth generation of Chinese investment treaties is taking shape, featuring concrete market access commitments, clarified and balanced substantive rules, detailed and decommercialised procedural rules, and complimentary social clauses.21.2 Compatibility of Chinese laws with ECT provisions Trade China has made tremendous efforts to fully comply with its WTO commitments. As a result, the Chinese trade regime is deemed to be WTO compliant, and thus also in harmony with ECT trade obligations. It includes also transparency requirements, similar to Article 20 ECT. Investment The ECT investment regime is similar to recently signed Chinese investment treaties, such as the China-Canada BIT (2012). Indeed, China has committed to pre-establishment national treatment on a negative list approach, which actually goes beyond the existing ECT obligations. China’s domestic FDI regulatory system is currently under transformation. On 19 January 2015, the Ministry of Commerce released the Draft Foreign Investment Law for public consultation, which marks a major change to China’s investment regulatory regime. Once coming into effect, the Foreign Investment Law would consolidate the existing EJVL, CJVL and WFEL into one uniform statutory regime whilst unifying the corporate legal requirements for both foreign and domestic investments in China. Also, the Draft Foreign Investment Law would incorporate the pre-establishment national treatment plus a negative list approach, whilst devising a national security review mechanism. As a result, the Chinese investment protection regime should in general be considered compatible with the framework of the ECT. Transit The ECT regime contains a unique transit provision prohibiting the transit country from interrupting flows of energy materials and products, as well as providing for a fast conciliator-centred dispute settlement mechanism for transit disputes. The obligation to facilitate transit is consistent with the principle of freedom of transit and without distinction as to the origin, destination or ownership of such energy materials and products, or discrimination as to the pricing on the basis of such distinctions, and without imposing any unreasonable delays, restriction or charges. It also stipulates that contracting states shall not interrupt or reduce, permit any entity subject to its control to interrupt or reduce, or require any entity subject to its jurisdiction to interrupt or reduce the existing flow of energy materials and products prior to the conclusion of the dispute resolution procedures, in the event of a dispute. The transportation system in China is regulated by several subsector legislations and under the authority of different Ministries. The Ministry of Transport is responsible for the overall planning of developments in rail, road, waterways and civil aviation, so as to accelerate construction of a comprehensive transportation system. There is no specialized legislation regulating the freedom of transit with distinctions as to the origin, destinations or ownership of energy materials and products. The Maritime Code and the Regulation on International Maritime Transportation provides the general regulatory framework of maritime transport. There are no financial subsidies or cargo preferences for domestic shipping companies-domestic and foreign companies enjoy equal market access with regard to maritime transport services. None such Chinese legislation seems to contradict relevant ECT obligations. Other energy related commitments Other best-efforts obligations covered by the ECT are also compatible with current domestic Chinese legislation. As an example: - China made significant progress in improving access to capital (Article 9 ECT) particularly by making the Chinese currency fully convertible in current account transactions. China is also making efforts to realise RMB convertibility in capital accounts. - China has also established an advanced legal and institutional system on competition (Article 6 ECT) and its competition authorities are actively cooperating with relevant authorities of other states. Also, China is further reforming its SOEs, making sure that they operate more fully on a commercial basis and in full compliance with any international commitment of the state (Article 22 ECT). - China has already adopted the principle of Polluter Pays (Article 19 ECT) and is developing an extensive regulation regarding environmental impact. 21.3 Safeguard and flexibility mechanisms of the ECT for Chinese accession The Energy Charter Treaty is a comprehensive constellation of rules concerning international energy regulation and cooperation. The ECT provides both State-State Dispute Mechanisms and Investor-State Dispute Mechanisms for investment disputes as well as a unique set of rules concerning transit and the settlement of pertinent disputes. The ECT is a legally binding international Treaty which means that by acceding to the ECT, China would be legally obliged to fulfil its commitments and obligations thereunder and take international responsibility for any breach thereof. Among others, it is of particular significance for China to note that: (1) Claims submitted to arbitration under Article 26 ECT shall be considered to arise out of a commercial relationship or transaction for the purposes of Article I of the New York Convention. Therefore, arbitral awards under Article 26 ECT would be enforceable in China under the New York Convention; (2) China shall be subject to a unique mechanism for protecting the flow of energy, including a fast dispute resolution mechanism. However, the ECT is equipped with several safeguard and flexibility mechanisms for any contracting states to individually tailor its obligations according to its own diverse and specific policy preferences and development stages. These safeguard and flexibility mechanisms enable contracting states to better balance the competing interests, policies and values underlying international energy cooperation and regulation, to retain and reserve enough policy space of legitimate public objectives while actively participating in the comprehensive international governance system concerning energy
