Energy-Related Issues in Trade Agreements and WTO Accession Negotiations by Simonetta Zarrilli UNCTAD-DITC March 2008

1. Energy-Related Issues in Trade Agreements and WTO Accession Negotiations by Simonetta Zarrilli UNCTAD-DITC March 2008

2. Past approach • Until the 1980s most petroleum-exporting developing • countries were not contracting parties to the GATT • (exception: Gabon, Indonesia, Kuwait, Nigeria) • « gentlemen’s agreement » • Perception: little to gain from the GATT

3. Accession of energy-endowed countries during and after UR and during DDA Sept 86-March 2008 • Mexico (August 1986 - GATT) • Venezuela (August 1990 - GATT) • Brunei Darussalam (December 1993 – GATT) • Qatar (April 1994 - GATT) • United Arab Emirates (March 1994 - GATT) • Bahrain (1993 – GATT) • Ecuador (Janaury 1996 - WTO) • Angola (January 1996 - WTO) • Saudi Arabia (December 2005 - WTO) • Vietnam (January 2007 - WTO)

4. Energy-endowed countries in the process of • acceding to the WTO • Algeria • Azerbaijan • Cape Verde • Iran • Iraq • Kazakhstan • Lybia • The Russian Federation • Sudan • Uzbekistan • Yemen

5. Almost half of world oil exports, oil reserves and natural gas reserves are accounted for by countries which are not members of the WTO Accession negotiations could be seen as a negotiation between importers and exporters of energy

6. The Doha Ministerial Declaration opens • the multilateral negotiations to • acceding countries (para 48): • Negotiations shall be opened to: • All Members of the WTO • States in the process of accession • and those that inform Members of their • intention to negotiate the terms of their • membership and for whom a WP is • established.

7. Energy-Related Issues in the WTO • Issues of interest for existing Members • Access to energy sources • Domestic prices and pricing policy (dual pricing) • Trade in energy services

8. Energy-Related Issues in the WTO Issues of Interest for Acceding Countries * Binding of tariffs; tariff escalation * Taxation of petroleum products in the consuming countries * Technical regulations and standards * Transfer of Technology

9. Energy security • Security of energy supply is one of the core elements of energy policy and a vital interest to States. It includes geopolitical, economic, social and environmental considerations • Expected 50% increase in primary energy demand between now and 2030. Fossil fuels remain the dominant source of energy • Rising oil and gas demand would accentuate the consuming countries’ vulnerability to supply disruption and resulting price shock. Doubts are expressed about the ability of the energy industry to meet the demand. According to IEA, the threat to the world’s energy security is “real and growing” • More than 90% of new oil supplies will come from the developing world in the next twenty years. As new national players enter the oil supply market, it is inevitable that international energy development will be increasingly influenced by geopolitical concerns • Tools to address energy security: energy efficiency, fuels and sources of fuels diversification, increased production, enhanced and secured physical infrastructure, and regional cooperation and trade. Cooperation and strategic energy corridors between countries that produce and export energy resources, particularly natural gas, are being developed

10. The New Challenge for Energy: The interlinkages with climate change The goal • To favour and encourage the production of alternative energy sources and the “greening” of traditional energy sources (e.g. “green” electricity, limits to GHG emissions for fossil fuels) because of the need to reduce GHG emissions, energy security considerations, increasing energy access, rural development, health considerations The instruments • Trade bans • Technical regulations • Labelling and certification • Carbon taxes • Border adjustment taxes • Subsidies • Public procurement

11. Possible results • Trade may enhance the availability of less-carbon intensive goods and technologies and facilitate access to climate change-related services. EGS negotiations at the WTO • The quest for less carbone-intensive goods and technologies will create new markets and new opportunities from which all countries may in principle benefit • Product differentiation in the market according to some attributes, e.g. carbon content, sustainable production • Unilateral measures

12. Possible implications for international trade • Different sets of rules could apply to different categories of products: ex. • Different energy sources • “Green” and “non-green” electricity • Certified biofuels and non-certified biofuels • Energy-efficient products and energy inefficient products Product differentiation may be linked to market access, market entry, tax breaks and other incentives, and the fulfillment of renewable energy obligations Question Which kind of product differentiation is legitimate and appropriate to reach important non-trade objectives, including climate change mitigation?

13. Some concluding remarks WTO rules cover the energy sector. The energy portfolio plays a key role in the negotiations on accession of energy-endowed countries. Once key energy-endowed countries will join the WTO, the relevance of energy-related issues in the WTO may increase. “Energy round”? “Trade pact” for biofuels? Energy security concerns play an increasing important role in the international debate with possible repercussions on trade negotiations. Access to energy sources. WTO rules are not going to change in the foreseeable future, but they are interpreted through jurisprudence. Jurisprudence is increasing providing flexibility to Members to pursue non-trade goals, including climate change mitigation Trade may facilitate access to less-carbon intensive goods and technologies and to services instrumental to climate change mitigation and environmental protection. New markets may emerge from which all countries may benefit Trade may imply risks of unjustified product discrimination and trade barriers. Genuine efforts to tackle climate change and protectionist measures may end up in the same basket