Trade rules in need of closer scrutiny
Saturday, 17 November 2007
Gerald Doucet
FT Syndication Service
LONDON: Trade, energy and climate change are steadily converging. Yet while these three issues are intimately intertwined, scant attention is being paid to how implementing the Kyoto Protocol or a post-Kyoto framework may clash with global trade rules.
World Trade Organisation (WTO) rules are in need of a fundamental review to address the need for cleaner energy, the recent reorganisation of the energy sector, and the rising number of energy-producing countries joining the WTO.
Until now, for historical reasons, energy trade has been mostly handled outside the scope of the General Agreement on Tariffs and Trade (Gatt) administered by the WTO. But that is changing as more oil-producing countries become WTO members. Saudi Arabia and Oman joined the WTO in 2005. Algeria and Libya, plus hydrocarbon-rich countries — Russia, Kazakhstan, Azerbaijan and Tajikistan — are in the process of seeking accession.
Gatt items that must be re-examined, as a result, include exceptions for national security, dual-pricing policies for supplying energy to local industries below international prices, subsidies for local producers whose lower-priced exports disadvantage producers in the importing country, and general exceptions for national measures to protect health and the environment.
The rules must also be re-examined in light of obligations under the Kyoto Protocol or a successor agreement. Already a number of areas of conflict have been identified: taxes for green production processes; eco-labelling that inhibits trade in certain goods; and border tax adjustments, which are tax refunds or tax exemptions by exporting countries on environmental inputs.
International trading of carbon credits is another domain that requires further study to see whether WTO rules or Gatt disciplines could prove useful in designing a global carbon market. Application of these rules is further hampered by the fuzzy legal status of a carbon credit, whether it is a good, a service or a hybrid financial instrument not subject to WTO rules. Biofuels are taking on greater importance yet uncertainties abound on how to apply trade rules and environmental standards. Global ethanol production has doubled in just five years to more than 40bn litres in 2005, and international ethanol trade has taken off.
More research is needed into potential areas of conflict to make sure biofuels trade is not hamstrung by illegal import or export restrictions. Uncertainty on how trade disciplines apply to domestic policies may disrupt rules to create a sustainable biofuels industry. We must also ensure national programmes supporting the production and consumption of biofuels do not breach WTO obligations. National measures favouring some feedstocks over others, based on whether processes or production methods are sustainable or not, could be challenged according to WTO rules on non-discrimination or technical barriers.
National measures to encourage the manufacture and use of biofuels also appear to conflict with anti-subsidy provisions in the WTO agreement. These provisions concern subsidies and measures applied to imports of subsidised products that prove damaging to domestic producers.
The need for new rules is even more crucial because world energy demand is poised to double by 2050.
Our global energy system has undergone a radical transformation in recent years. We have seen a rising tide of energy company re-nationalisations and a build-up of national energy champions. Tensions are mounting between energy-consuming and energy-producing countries.
As talks get under way next month on a post-Kyoto framework at the 13th conference of the parties of the UN Framework for Climate Change, the need to examine energy trade rules takes on fresh urgency. Nothing less is at stake than our capacity to build the sustainable energy future we all want.
FT Syndication Service
LONDON: Trade, energy and climate change are steadily converging. Yet while these three issues are intimately intertwined, scant attention is being paid to how implementing the Kyoto Protocol or a post-Kyoto framework may clash with global trade rules.
World Trade Organisation (WTO) rules are in need of a fundamental review to address the need for cleaner energy, the recent reorganisation of the energy sector, and the rising number of energy-producing countries joining the WTO.
Until now, for historical reasons, energy trade has been mostly handled outside the scope of the General Agreement on Tariffs and Trade (Gatt) administered by the WTO. But that is changing as more oil-producing countries become WTO members. Saudi Arabia and Oman joined the WTO in 2005. Algeria and Libya, plus hydrocarbon-rich countries — Russia, Kazakhstan, Azerbaijan and Tajikistan — are in the process of seeking accession.
Gatt items that must be re-examined, as a result, include exceptions for national security, dual-pricing policies for supplying energy to local industries below international prices, subsidies for local producers whose lower-priced exports disadvantage producers in the importing country, and general exceptions for national measures to protect health and the environment.
The rules must also be re-examined in light of obligations under the Kyoto Protocol or a successor agreement. Already a number of areas of conflict have been identified: taxes for green production processes; eco-labelling that inhibits trade in certain goods; and border tax adjustments, which are tax refunds or tax exemptions by exporting countries on environmental inputs.
International trading of carbon credits is another domain that requires further study to see whether WTO rules or Gatt disciplines could prove useful in designing a global carbon market. Application of these rules is further hampered by the fuzzy legal status of a carbon credit, whether it is a good, a service or a hybrid financial instrument not subject to WTO rules. Biofuels are taking on greater importance yet uncertainties abound on how to apply trade rules and environmental standards. Global ethanol production has doubled in just five years to more than 40bn litres in 2005, and international ethanol trade has taken off.
More research is needed into potential areas of conflict to make sure biofuels trade is not hamstrung by illegal import or export restrictions. Uncertainty on how trade disciplines apply to domestic policies may disrupt rules to create a sustainable biofuels industry. We must also ensure national programmes supporting the production and consumption of biofuels do not breach WTO obligations. National measures favouring some feedstocks over others, based on whether processes or production methods are sustainable or not, could be challenged according to WTO rules on non-discrimination or technical barriers.
National measures to encourage the manufacture and use of biofuels also appear to conflict with anti-subsidy provisions in the WTO agreement. These provisions concern subsidies and measures applied to imports of subsidised products that prove damaging to domestic producers.
The need for new rules is even more crucial because world energy demand is poised to double by 2050.
Our global energy system has undergone a radical transformation in recent years. We have seen a rising tide of energy company re-nationalisations and a build-up of national energy champions. Tensions are mounting between energy-consuming and energy-producing countries.
As talks get under way next month on a post-Kyoto framework at the 13th conference of the parties of the UN Framework for Climate Change, the need to examine energy trade rules takes on fresh urgency. Nothing less is at stake than our capacity to build the sustainable energy future we all want.