RESEARCH AND ANALYSIS
Energy in WTO law and policy
Thomas Cottier (Managing Director), Garba Malumfashi, Sofya Matteotti-Berkutova, Olga Nartova, Joëlle de Sépibus and Sadeq Z.Bigdeli, World Trade Institute
International trade in energy resources and products traditionally was heavily concentrated, cartelised and controlled by a few multinational companies. Hence the rules of the General Agreement on Tariffs and Trade (GATT), and now the World Trade Organization (WTO), do not deal with energy as a distinct sector. It was felt that general rules, including the disciplines on state trading, could adequately address trade in energy. However, certain features of the energy sector make it different from other industries in many ways and we submit existing WTO rules do not appropriately address all the needs of energy trade today. Ensuring security of supply and addressing climate change mitigation, creating an effective incentives mechanism to reduce CO2 emissions are the first priorities.
The interface of trade and climate change mitigation and adaptation is at the heart of contemporary legal developments in energy law. Yet, the challenges of climate change are merely the tip of the iceberg of unresolved and controversial issues relating to the status of energy in international law. The picture is one of fragmentation with multiple instruments involved. The bulk of regulation comes under domestic law and the role of regional and global law in addressing energy and secure production and supplies has remained unclear and unsettled. Doctrines of multilayered governance have hardly been applied to the sector.
Different and competing forms of energy are therefore subject to strongly divergent international rules, depending on whether they qualify as a good or a service. The same applies to the operation of trade remedies, in particular because of the absence of disciplines on subsidies in services. Moreover, existing disciplines on subsidies in goods may not be suitable to address a distinction between renewable and non-renewable energy under GATT and the Agreement on Subsidies and Countervailing Measures (ASCM). The Agreement on Agriculture again offers different disciplines. It thus makes a fundamental difference whether a product is classified as an industrial or an agricultural product.
There are also unresolved and basic issues related to competition policy and thus about the relationship of WTO law and OPEC as a producer organisation. The crucial question is whether oil exporters, when they join the WTO, will still be able to support oil prices through the regulation of oil production, or whether they could face challenges on the basis of GATT/WTO rules and provisions(1). This leads to the question of whether additional WTO rules on competition are required to properly address the relationship between trade and production in the energy sector.
Finally, the relationship of energy and government procurement remains unclear. WTO law disciplines on government procurement seek to facilitate market access and level the playing fields in purchases of goods and services by governments. The current rules on government procurement both within and outside the WTO do not systematically address the linkage to green procurement. There is therefore controversy as to what extent Members are entitled to condition government procurement in the light of goals set out in the Kyoto Protocol.
WTO law thus leaves a number of basic incoherencies and open questions. They were partly addressed in the papers and the doctoral projects of Individual Project No. 6 of the NCCR Trade Regulation and at the World Trade Forum 2007. The main findings are discussed within the following agenda for reform.
Energy requires an integrated approach and does not lend itself to sectoral negotiations, depending upon different forms of energy applied to competing energy sectors. The sector encompasses fossil and non-fossil fuels and energy including oil, gas, coal, wood, electricity, and renewable sources of energy production (solar, wind, wave and tidal), as well as biofuels. All these forms of energy should be subject to the same rules and thus conditions of competition. The production and transmission of energy is a complex operation which often involves both goods and services. It also entails technology and thus is affected by intellectual property rights. The sector shows a high level of governmental involvement which calls for coherent rules on competition and government procurement.
In the effort to enhance coherence and overcome unnecessary fragmentation in regulating trade in energy, the problems and the shortcomings identified above can best be addressed by seeking comprehensive negotiations within the WTO. In much the same way as the Uruguay Round produced a special agreement on agriculture, we submit that future negotiations should turn towards work on a comprehensive sectoral agreement on energy. Negotiations would enable Members to address all the pertinent problems, ranging from issues of classification of goods and services, to disciplines on subsidies, to issues of competition and state trading, as well as intellectual property rights and government procurement. It allows defining authoritatively the relationship to other international agreements, in particular the UNFCCC and the Kyoto Protocol and future global systems of emissions trading. It would allow the relationship between trade and regulation of production, and thus of WTO and OPEC, to be defined.
A comprehensive sectoral agreement on energy, encompassing both goods and services, would not render the current structure of the WTO Agreements obsolete. Recourse to a framework convention implies that its provisions may refer to pertinent provisions of other agreements of the WTO, in particular GATT and its instruments, GATS, Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the GPA. This is not new and has been done before, for example in defining the relationship of the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) and GATT, or the agreements on agriculture and on industrial subsidies. They may also incorporate provisions of agreements outside the scope of the WTO, as did the TRIPS Agreement for the Paris and Berne Conventions on industrial property and copyright. Or, they allow reference to other provisions without incorporating them, for example a future and revised UNFCCC or Kyoto Protocol. Both reference and incorporation allow the building of a comprehensive and coherent agreement on energy within the WTO. It is within such a framework that the following issues and proposals for reform should be dealt with.
The WTO, with its currently 153 Members (2), can make an important contribution to the complex process of energy reform. More predictable and transparent trade rules could benefit both energy-importing and energy-exporting countries, and will contribute to preventing the eruption of energy conflicts.