INTERNATIONAL. World Trade Organization (WTO) Director General Pascal Lamy, in his speech at the 20th World Energy Congress on 15 November 2007 in Rome, said that 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.

He asked participants to call on governments to “take bold steps to run the last mile” in the Doha Round of trade talks. He said that the vision of the founding father of World Energy Congress, Daniel Dunlop, continues today through the actions of the Council whose goal — the promotion of sustainable supply and use of energy for the greatest benefit of all people — is more relevant than ever.

"In our collective search for a better global governance on energy, we must now recognise that market mechanisms have proved their value," Lamy said.

"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."

He added 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, said Lamy. Yet since the 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.

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, Lamy said, 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 1970s and 1980s, 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 categorise 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 plus 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.

Lamy said that the WTO rules are living creatures, well capable of adjusting to changing realities.

He added: "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 1960s and 1970s we had no disciplines on agriculture subsidies. This issue was introduced in the WTO during the negotiation in the 1980s 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, Lamy said. 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 WTO members are discussing energy as a specific services sector.

Energy was not addressed in any comprehensive manner during the Uruguay Round, because the liberalisation 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 WTO 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 comes under the “trade facilitation” negotiations. Here WTO members have been discussing possible improvements and clarification to the “transit” obligation contained in the old GATT rules that oblige member states 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, Lamy said, 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.

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.

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 jeopardise development prospects or food security. The magnitude and the difficulty of the task calls for building further global governance.

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

• Top news
• Business News
• Company News