Sunset Clauses in International Law and their Consequences for EU Law
PE 703.592
7
EXECUTIVE SUMMARY
In the field of international law, the use and utility of sunset clauses has remained largely unnoticed
despite the fact that they have been employed in major international treaties and agreements.
The construction of sunset clauses varies, as there is no specific configuration. However, in specific
types of treaties, the construction of sunset clauses included took a standardized form. The
identification and documentation of the major classifications of sunset clauses is necessary for
understanding, first, their legal effect, and second, the variety of options such clauses provide to policy
makers and drafters of treaties.
The typology of sunset clauses between entire and sectional, direct and indirect, and conditional and
unconditional underlines that they are a flexible legal mechanism that can
fulfill a variety of public
policy purposes.
There is the assumption that the temporary validity of treaties accounts for a number of benefits.
Obviously, the regulation of temporary and transitional issues is one of them, but also such clauses play
a key role in safeguarding the sovereignty of the states. With the utility of sunset clauses in investment
agreements, more benefits emerge. Nowadays, such clauses have become a core feature in
international investment agreements, playing an underappreciated role with the ability to enhance
legal certainly in regards to the tension between stability and flexibility. Moreover, sunset clauses
complement the protection to investors with the entrenchment effect.
However, with the entrenchment effect of sunset clauses in relation to investments, particularly if the
duration is too long, disproportionally burdens future policymakers and lawmakers. This is the
case of
the 20-year sunset clause in the Energy Charter Treaty (ECT), which offers protection to investments
already made in the energy sector. Provisionally, such a clause is triggered in case of unilateral
withdrawal, unless the construction of the clause has defined differently. Such a long duration is not
unique to the ECT. For instance, the recently agreed bilateral investment agreements between the EU
and Singapore, and the EU and Vietnam also contain sunset clauses with long duration, 20 years the
former and 15 years the latter.
The entrenchment effect of the ECT provisions due to the sunset clause, contradicts the Court of Justice
of the European Union (CJEU) on whether Article 26 of the ECT is compatible with EU law clearly stated
in the
Komstroy
decision, and in practice concerns the commitments of the EU and the EU Member
States vis a vis the Paris Agreement.
In relation to the
Komstroy
decision, CJEU on 2 September 2021, stated that
investment arbitration
according to Article 26 of the ECT at the intra-EU level is not compatible with EU law, echoing its
previous ruling in the Achmea decision.
On
the other hand, the Paris Agreement is the reigning legal text on all matters concerning climate
change and the environment under the UNFCCC. Such Agreement requires the members to reduce
their carbon footprint and implement significant changes to their infrastructure to one that is more
sustainable. On the other hand, the ECT protects the usage and sale of fossil fuels (such as coal) as it is
a very lucrative industry. As it stands, if signatory states to the ECT wish to exit the treaty in order to
comply with the provisions of the Paris Agreement may find themselves in the following paradoxical
position.
The ECT’s sunset clause requires signatory states who wish to exit to comply with its provisions for 20
years; hence, posing an immense challenge. On the top of that, what makes the ECT a distinct case is
IPOL | Policy Department for Citizens’ Rights and Constitutional Affairs
8
PE 703.592
the combination of different features. Apart from the 20-year sunset clause, ECT is a multilateral treaty.
By default, multilateral treaties are more difficult to amend with a very rigid amendment procedure
requiring unanimity. Therefore, the entrenchment effect of the ECT and the
limits imposed on the
agenda of policymakers at the EU level is unparalleled.
Fortunately, the legal effect of sunset clauses could be limited if not eliminated under certain
conditions. This study presents different scenarios that could lead to a positive outcome. In particular,
it explores the option of (i) remaining in the ECT, complying with the spirit of the Paris Agreement, and
raising procedural and substantive objections before Investment Tribunals.; (ii) mutual termination of
the ECT; (iii) the amendment of the duration of the 20-year sunset clause; (iv) the revision of the ECT to
make its substantive provisions more compatible with the spirit of the Paris Agreement, and (v) the
unconventional approach of the modification of the sunset clause in ECT between certain of the Parties,
namely between EU Members States and the EU, followed by their withdrawal. Nonetheless, the Treaty
protection for investments already made will endure for the remaining Parties to the ECT according to
the 20-year sunset clause.
The impossibility to foresee every future eventuality when drafting rules that remain in force for an
indefinite period of time creates obstacles. It is advised to avoid very rigid legal frameworks, unless the
drafters of a legal document have a very good reason to establish a
very stable a legal framework;
namely a very stable legal framework is established with sunset clauses with long duration in
combination with other entrenchment mechanisms such as initial validity periods, restrictions in the
withdrawal process, and rigid amendment processes.