20th World Energy Congress, Rome

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Ladies and gentlemen,

It is a pleasure for me to participate in this 20th World Energy Congress. The vision of your founding father Daniel Dunlop continues today through the actions of the World Energy Council whose goal — the promotion of sustainable supply and use of energy for the greatest benefit of all people — is more relevant than ever.

It is good to see the business community taking the lead and assuming its collective responsibility vis-à-vis one of today's biggest challenges: responding to the world's exploding need for energy and its impact on sustainable development.

In our collective search for a better global governance on energy, most now recognize that market mechanisms have proved their value. As noted by your in-coming Council Chairman, markets remain the most efficient way to allocate resources. But markets must be governed by transparent and predictable rules. And this may be where the WTO, as a forum for the negotiation and enforcement of multilateral trade rules has a role to play. The Report you have prepared on trade rules and energy is a timely contribution to this debate.

Today I would like to share with you how the WTO can contribute to a more efficient allocation of energy resources and generally a better trading environment for energy.

Let me start by saying that today a large part of big world energy actors such as Russia, Iran, Kazakhstan, Ukraine, Iraq, Algeria or Libya are not yet WTO Members. Other big players such as Saudi Arabia and several other Gulf States, have just recently joined the organisation. It is therefore no surprise that energy has not been singled out as a specific sector of trade within WTO.

When the rules of the GATT — which preceded the WTO - were negotiated 60 years ago, opening trade in energy was not a political priority. World energy demand was a fraction of today's and you could buy a barrel of crude oil for 20$ at current prices.

So the rules of the WTO do not deal with energy as a distinct sector. Yet since our basic rules are applicable to all forms of trade, they also apply to trade in energy goods and services. And these rules can be enforced through the WTO dispute settlement mechanism even if they were not negotiated with energy in mind.

For example, we have a general rule on transparency mandating governments to publish domestically all trade-related regulations and to notify relevant legislation to the WTO. We have a rule that generally prohibits exports restrictions. We also prohibit discrimination on the basis of origin or destination of products. We also have rules on freedom of transit, on actions by state-trading enterprises, and on trade-distorting subsidies. In certain circumstances, Members may invoke exception provisions which allow them to implement restrictions if they “relate to the protection of exhaustible natural resources”. Under our security exceptions, Members can “take any action considered necessary to protect essential security interests, including action relating to fissionable materials”. As you can see many of these rules can become relevant for trade in energy goods.

The same is true with respect to our rules on trade in services. The WTO General Agreement on Trade in Services (GATS) covers generally all services, including energy services and can protect investments in energy services.

But we must also recognise that there are certain specificities of the energy sector that makes it different from other economic activities in several respects.

For instance, physical characteristics of energy goods affect the way in which they are transported across borders and distributed to final consumers. The existence of natural monopolies, and the role of state-owned enterprises, also raise particular challenges.

Existing WTO rules, which were not negotiated with the specificities of the energy sector in mind, may not address appropriately all the needs of energy trade. Back in the 70s and 80s, governments tried but did not manage to tackle the issues of dual pricing practices and export restrictions on raw materials. Disputes arose concerning the exact scope of the transit obligation, and were eventually settled between the countries concerned.

The lack of comprehensive international competition rules, and the fact that government procurement disciplines apply only to a fraction of the membership, may also be seen as a weakness.

Moreover WTO rules are based on a distinction between goods and services, but it is not always easy to categorize transactions as “goods” or “services” trade, in the energy sector. And, the nature of some energy products, such as electricity, is still not clearly defined.

Recently several reasons have led energy to appear on the radar screen of WTO Members, and conversely, the WTO to be on the radar screen of the energy business community.

  • Several energy-exporting countries have recently acceded to the WTO (Saudi Arabia, Oman) and others (Russia, several Central Asian countries, Algeria, Libya, Iran, Iraq or Ukraine) are currently asking for or negotiating their accession, bringing with them a substantial part of energy trade.

  • With increasing energy needs, issues relating to the use of international pipelines have contributed to a renewed interest in the provisions on freedom of transit

  • Reforms in the energy sector and technological developments have created room for private operators, which has allowed energy services to be identified as a negotiating topic in the Doha Round.

  • The interaction between trade and climate change, the role of bio fuels, and, more generally, increasing energy needs and concerns surrounding energy security, have also contributed to raise the profile of energy in the remit of multilateral trade rules.

WTO rules are living creatures, well capable of adjusting to changing realities and I have therefore no doubt that they will evolve to respond to today's commercial and political needs. We saw many examples of this in the past. In the 60s and 70s we had no disciplines on agriculture subsidies. This issue was introduced in the WTO during the negotiation in the 80s leading to the Uruguay Round and the on-going negotiations under the Doha Development Round will take them a step beyond, by agreeing to sharp reductions in trade-distorting subsidies.

The WTO negotiating agenda is always determined by its Members, based on their economic and political priorities. Once consensus is found on an agenda, negotiations can commence. This is true also for energy. But, short of having a specific agreement on energy trade, energy already features in the on-going Doha negotiations which were launched in 2001.

The first area where energy stands explicitly on the Doha agenda is the services negotiations. For the first time Members are discussing energy as a specific services sector.

Energy was not addressed in any comprehensive manner during the Uruguay Round, because the liberalization of the sector was not yet on the political agenda. As a result, WTO Members undertook limited commitments to open their markets to foreign operators in energy services, including services incidental to mining at oil and gas fields, services incidental to energy distribution — of, inter alia, gas and electricity — and pipeline transportation of fuels. However, progressive unbundling of state-owned integrated utilities and technological developments have created room for private operators. This, in turn, has raised the profile of energy services in the WTO.

The current negotiations on energy services cover a broad range of activities relevant for energy companies and span all energy sources, including renewables. Commitments are sought on activities such as drilling; engineering; technical testing and analysis services; construction work for long distance and local pipelines, and for mining; wholesale trade services and retailing services of fuels.

The negotiations are addressing the establishment of commercial presence as well as easing the intra-corporate transfers of specialists and professionals working for energy services companies.

Furthermore, some Members have proposed to negotiate additional disciplines which would address, for instance, regulatory transparency, non-discriminatory third-party access to networks and grids, the need for an independent regulator, and requirements preventing certain anti-competitive practices. All this is already on the table.

A second area of the Doha Round relevant for you relates to clean technology. The Doha Round aims at opening markets to environmental goods and services. Many of these have a direct application for promoting energy efficiency, such as material needed for production of renewable energy, heat management and pollution control. Examples of environmental goods that have been proposed include wind turbines, solar panels, geothermal energy sensors, fuel cells and electricity meters. Eliminating or reducing tariffs on environmentally-friendly goods and technology would facilitate their wider dissemination.

Similarly, the negotiations on environmental services include negotiations on energy-relevant activities, such as services to reduce exhaust gases and improve air quality, nature and landscape protection services or services for the rehabilitation of mining sites. The environmental chapter of the WTO Doha Round can therefore make a very concrete contribution to the promotion of energy-efficient technologies. It is a contribution in the making that the trade community can bring to the upcoming UN Climate Change Conference in Bali.

A third area of importance to you comes under the “trade facilitation” negotiations. Here Members have been discussing possible improvements and clarification to the “transit” obligation contained in the old GATT rules that oblige Members to allow passage of goods in transit across their territories. This provision was drafted in 1947. In the current Doha Round, proposals have been tabled to clarify the meaning of this obligation and whether it includes fixed installations, such as pipelines.

Energy-related concerns also underlie proposals on export taxes and subsidies. There are proposals on the table addressing export restrictions on energy goods and other raw materials because these restrictions are more prevalent than in other traded goods, and represent a source of concern for importing countries as they increase prices of inputs. The question of subsidies in the form of low-priced energy products, especially natural gas, has recurrently stirred hot debates among WTO Members and is also part of the on-going negotiations.

Finally, the picture would not be exhaustive without a word about bio fuels. While bio fuels can provide us with the opportunity to address climate change, energy security and rural development, careful planning needs to be undertaken to make sure that they do not create new environmental and social problems. The negotiations to cut tariffs and discipline agriculture subsidies have the potential to contribute to the development of orderly trade in bio fuels.

Ladies and gentlemen

Today energy is a global concern, and so should be the solutions. The growth rates in many developing countries will inevitably push up global energy demand. Massive private investments will be necessary to respond to the needs of new technological research. Energy consumption will need to be reconciled with sustainable growth, if we are to tackle the challenges posed to climate change.

The WTO, with its 151 Members, can make an important contribution to the complex energy chessboard.

More predictable and transparent trade rules could benefit both energy-importing and energy-exporting countries, and, beyond them, companies engaged in energy trade and consumers — all of us.

Market forces can play a key role in the optimal allocation of scarce resources and in promoting technological improvements.

Fairer rules of the game may contribute to countering temptations towards energy nationalism and preventing eruption of conflicts.

It is clear that fundamental socio-economic choices will have to be made in the coming years, which will impact our daily life. The challenge will be to design a sustainable energy future, one which guarantees energy security, while respecting human well-being and protecting our environment. One that does not jeopardize development prospects or food security.

The magnitude and the difficulty of the task calls for building further global governance.

The WTO can make a positive contribution to this end. This is why concluding the on-going Doha Development Round is so important for you. Which is why I would like to ask you to call on your governments to take bold steps to run the last mile.

A stronger WTO is needed with new members, such as Ukraine and hopefully Russia, joining the family soon.

I thank you for your attention.

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