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Project Description Print

The IP 6 research agenda is to deal with all issues in the energy sector that may be relevant in the WTO context. To enable us to gain a better understanding of the diverse issues that will be covered under this broad topic, we will focus on the following categories:

1. Conventional issues of energy in WTO law and policy

The general misperception that the WTO rules do not apply to petroleum may arise from the fact that major petroleum-exporting countries were not originally parties to the GATT 1947. However, it is widely recognized that the GATT also applies to energy and petroleum products. Despite the ‘gentleman’s agreement’ that is said to have existed during the GATT days not to include petroleum products on the agenda, perhaps due to the huge political implications, the GATT 1947 neither included nor excluded petroleum and petroleum products from its scope of application. Later on, certain issues related to the energy sector were discussed in the Tokyo Round. With the more active participation of petroleum-exporting countries in negotiations over the Uruguay Round period, the implications of GATT/WTO membership for petroleum-exporting countries were considered more seriously. It is interesting to note that the very first case brought to the WTO was related to a petroleum product.
In light of the above and owing to the increasing number of petroleum-exporting countries acceding to the WTO, the Individual Project (IP) 6, seeks to address the following relevant issues: 
- The status of energy and petroleum products in the WTO.
- Practices of the OPEC under WTO law. 
- The effect of WTO rules on state trading on the energy sector and in particular its implications for national oil companies.
- Energy taxation and border tax adjustments under WTO law. 
- WTO rules on subsidies relevant to the energy sector including the practice of ‘dual pricing’ under the SCM Agreement and with a view to recently acceded petroleum exporting countries such as Saudi Arabia.  
- The Agreement on Government Procurement and its effect on the energy sector.
The WTO/GATT is mainly market access oriented which mainly seeks to remove import restrictions. However, it has been recognised that in the energy sector it is mainly ‘export barriers’ that need to be addressed. Therefore in addition to above-mentioned discussions which have their main focus on the examination of the status quo, the IP 6 provides a forum for experts to speculate on the way forward within the WTO system in addressing the issues of energy security and promoting dialogue between producers and consumers.

2. Evolving issues in the energy sector and the role of the WTO

Energy services and competition in network-bound energy industries (electricity and gas) are two issues that are emerging in the world energy market.

2.1. Competition in network-bound energy industries
The energy sector is currently undergoing a major transformation throughout the world. In a move away from its traditionally monopolistic structure, the industry is becoming less protected and more open to competition. This is mainly due to a shift in fundamental assumptions underlying the structure of these markets in developed and some developing countries. The conventional belief that the ‘natural’ monopolistic structure of these sectors, which had led to vertically integrated monopolies, does not leave room for competition has been seriously challenged.
It is now more generally accepted that promoting competition in the production/generation and the supply segments of these markets by allowing third-party access to networks will result in lower costs and more technological advances. The major example of this transformation at the regional level is the EU liberalization initiatives aimed at the establishment of a single internal energy market. In this case, the basic model followed is rather similar to that of the telecommunications sector.
However, the recent trends in the Commission towards complete unbundling of national electricity and gas markets being pursued through attempts to break up vertically integrated monopolies by forcing them to sell the networks has attracted much criticism. The critics maintain that such attempts might remove incentives necessary to invest in building and maintaining networks.  

2.2. Energy Services
Energy Services as part of the GATS negotiations are the main part of the DDA that reflects on the WTO and energy nexus. Based on the proposals for negotiations that were submitted by the delegations of various countries, two main fields of research on this area are planned within IP6.
The classification issues: the fact that there was, and still is, no separate category defined for the energy services sector has attracted the most attention in negotiations. Different countries have proposed various approaches ranging from the basic question of whether there is really a need to create a separate new category for energy services as such, or a simple check-list approach listing the energy-related services, currently scattered in the UNCPC, for negotiation purposes would suffice. The other question would relate to the coverage of energy services. Again there are various proposals ranging from limited coverage of upstream oil and gas services, core and non-core energy services and comprehensive broad coverage.
Energy Reference Paper: two proposals on energy services negotiations suggested that the Telecommunications reference Paper could also serve as a model for energy services. Although those proposals did not provide any details, some commentators have attempted to add weight to this idea by providing guidelines on this issue, especially on making the Reference Paper relevant to the network-bound energy sectors which have similarities with the telecom sectors.

3. Renewable energy resources and the WTO

The project seeks to examine the issues related to tariff and non-tariff trade barriers for renewables under the WTO law. It is believed that the renewable energy sector represents one of the rare cases in which free trade and protection of the environment could be mutually supportive.
The project first seeks to examine to what extent measures taken by governments to promote renewables are consistent with WTO law. Second, it will address what changes to the current rules, if any, are needed to remove barriers, especially non-tariff barriers, for this sector. It will also analyse the methods by which WTO rules should be adapted to support measures to promote renewables.  
In the above context, the following issues should be specifically addressed:
- GATT, renewables and differential energy taxation;
- GATT and regulatory incentives to promote renewables;
- renewables, international standard-setting for renewables and the TBT Agreement;
- renewables and the WTO rules on subsidies;
- GATS and trade in renewable energy certificates;
- biofuels project: 
the status of biofuels in WTO law;
biofuels and the WTO rules on subsidies;
   • biofuels, TBT and sustainability criteria in standard-setting procedures.

4. Interlinkages between international trade, energy and climate change

The Intergovernmental Panel on Climate Change (IPCC) 4th Assessment Report, the first volume of which published in February 2007, re-affirms that human activities have indeed contributed to warming of the globe to its present state. Earlier, in 2006, the Stern Review on the economics of climate change, supported by many economists some of whom are Nobel Prize winners, noted that ‘the benefits of strong and early action far outweigh the economic costs of not acting.’ The Stern Review also took into account the scientific uncertainties at the current state of science and  based however its analysis on the economics of risk which proved to be at the heart of the economics of climate change. This reminds lawyers of the notion of the ‘precautionary principle’ in international law which serves a basis for our initiative to take action in the international trade community.
Thus, the research focus is on determining what role the multilateral trading system could play in promoting state participation in the fight against global warming. Already, the WTO Committee on Trade and Environment has been grappling with thorny and controversial issues on the relationship between trade and the environment. However, the research, having taken full account of these discussions, will specifically seek to address the question in the context of climate change, recognizing its particular linkage with global energy security.
Climate change seems to be as much about energy security as it is about the environment. The Annex 1 Parties to the United Nations Framework Convention on Climate Change UNFCCC , facing with obligations to reduce emissions under the Kyoto Protocol, are adopting domestic policies and measures including subsidization; green and differentiated energy taxation; new energy standards; eco-labelling schemes; and government procurement policies. At the international level, carbon permit trading is thriving, in the EU context, with prospects of North America, Australia, Japan and the developing economies of China and India, joining in post-Kyoto.
Scholars and legal experts however, have often expressed fears that many of these actions may be found questionable under the GATT, TBT, SCM and other WTO agreements. The research will thus take stock of these developments and relate them to the extant trade rules. Although not yet tested judicially, some of the questions that will be addressed include:
- Whether and to what extent the WTO rules will support or constrain the climate change response measures?
- Whether the threat of climate change, as it affects global energy security, justifies a measure or set of measures otherwise contrary to the trading rules.
- What are the areas of potential conflict and how may synergy and complementation between the climate and trade regimes be promoted?
- As the Kyoto Protocol expires in 2012, what role might the WTO play in shaping a new climate regime to succeed the Kyoto Protocol?
The theme of the World Trade Forum 2007, in line with the above objectives, is ‘International Trade in a Warming Globe, The Role of the WTO in the Climate Change Debate’. read more...

Thomas Cottier         
Project Leader

Nartova Olga
Acting Alternate Leader 

Berkutova Sofya
Doctoral Student

Malumfashi Garba
Doctoral Student

Z. Bigdeli Sadeq
Doctoral Student

SNF - Swiss National Science Foundation The National Centres of Competence in Research are a research instrument of the Swiss National Science Foundation