The WTO and Energy: WTO Rules and Agreements of Relevance to the Energy Sector
Trade and Sustainable Energy Series • Issue Paper 1
Energy and energy products are a central element of world trade. Further advancements in renewable technologies are expected to spawn new dimensions in energy trade at the multilateral level. Such developments, when coupled with predicted growth in oil and gas trade, will have a substantial and escalating impact on the international trade regime.
There has long been a misconception that energy is not governed by international trade rules in the same way that other products are. Such a misunderstanding may have been caused by the fact that energy products and materials do not usually encounter market access problems in their export markets. International trade rules have generally dealt with import barriers more than export barriers. In the energy sector, trade restrictions are more pertinent to export barriers, and as a result, market access discussions have not focused as heavily on energy.
The seemingly limited focus on energy can also be attributed to the fact that until recently, large energy exporting countries including Saudi Arabia, Russia and central Asian nations, were not Members of the World Trade Organization. The accession of Saudi Arabia and the likely accession of Russia and other oil exporting countries is seen as a major development that will affect the profile of energy in the trade system.
This paper attempts to put energy in the context of international trade and provide some clarity as to how international trade rules apply to this sector. First, the paper gives an overview of the energy supply and demand market and the international framework of energy regulation. Then, it goes on to examine the WTO rules and agreements that relate to energy trade; the characteristics of energy resources and products that differentiate them from other goods; the existing energy trade processes that could constitute barriers according to GATT-WTO rules; and issues related to energy security, energy investment, and trade in energy services. To conclude, the paper discusses how the interests of both energy-importing and energy-exporting states can be addressed by the WTO.
The GATT and WTO principles that govern international trade are fully applicable to trade in energy and energy products. These include the most favoured nation (MFN) principle and the national treatment principle. During the Tokyo and Uruguay Rounds, WTO Members discussed issues related to dualpricing practices and resulting subsidies, reverse dumping; export restrictions and export taxes; and problems of natural resource product displacement. The resistance of resource-endowed countries made it impossible to reach an agreement regarding specific rules on these issues, and de facto, the general GATT/WTO rules currently apply to energy issues. WTO agreements that are directly relevant to cross-border energy trade include the General Agreement on Tariffs and Trade (GATT); the General Agreement on Trade in Services (GATS); the Technical Barriers to Trade (TBT) Agreement; the Trade Related Investment Measures (TRIMs) Agreement; the Subsidies and Countervailing Measures (SCM) Agreement; and the Agreement on Government Procurement.
There are, however, specific features of the energy sector which give rise to questions over whether existing GATT/WTO rules and agreements can adequately address relevant energy issues. These aspects relate to security of supply, public service obligations, the existence of quantitative restrictions, requirements of trade in energy services (transportation and access to markets and networks), and environmental implications of different forms of energy.
In the context of growing interests in the development of new sources of energy, a debate has emerged as to whether, in the trade system, a different set of rules and disciplines should apply to renewable energies such as solar, wind and bioenergy. This debate revolves around the issue of “like products” and has critical implications for renewable energy and climate change policies which have proliferated in a large number of countries.
With the remarkable rise in oil prices during the past few years, the issue of quantitative restrictions on energy production and trade has come to the forefront of the legal debate over their WTO compatibility. This paper examines whether quantitative restrictions on energy exports are allowed under WTO rules and on which basis.
It also seeks to provide an analysis of other critical issues related to cross-border trade in energy such as trade in energy services, energy transit, and state trading companies. Energy services are an essential aspect of negotiations on services, which are part of the on-going Doha Round of multilateral trade negotiations. So far, WTO Members have undertaken limited commitments in the area of energy services. Part of the difficulty relates to the fact that there is no single definition or clear notion of what is meant by energy services. As a result, much discussion has taken place on the issue of classification, with WTO Members discussing different approaches to the issue. In the on-going Doha Round negotiations, Members are expected to bring some clarity and respond to the various offers and requests for liberalisation in this area.
The right to transit significantly impacts cross-border trade in energy. While the GATT through Article V provides for freedom of transit, questions remain since many of the states where energy transit problems occur are not yet WTO members. The energy sector is dominated by government-owned or government-controlled companies that sometimes perform regulatory functions. In their negotiations for accession to the WTO some energy exporting countries have faced demands for the unbundling of state-monopolies, which has been criticised as going beyond WTO requirements.
As many energy-endowed countries are in the process of accession to the WTO, the trade system would be called upon to address both the concerns of energy importing and exporting countries. Multilateral trade rules that would address these concerns in an integrated manner are desirable because they would create a transparent and predictable framework.
Yulia Selivanova is an Expert at the Energy Charter Secretariat in Brussels, Belgium. A graduate of the World Trade Institute in Berne, she previously worked in Geneva for the global WTO & International Trade Practice Group of Baker & McKenzie, an international law firm. Before joining Baker & McKenzie, she was a Consultant in the Rules Division of the WTO and also worked at the United Nations Institute for Training and Research (UNITAR) on a project related to Tajikistan’s accession to the WTO. Her professional experience in Russia was related to advising foreign companies on investment projects. She has worked as a lawyer in a leading German law firm Puender, Volhard, Weber & Axster and at Bank Austria Creditanstalt. She has published in the area of the WTO, particularly focusing on Russia’s accession, and trade in energy.
This paper is part of a series of issue papers commissioned in the context of ICTSD’s project on Trade, Climate Change and Sustainable Energy. The project aims to generate policy-oriented and solutionsfocused knowledge on key issues at the interface between the multilateral trading system and various regimes and initiatives promoting the transition to a sustainable energy future.