Trade in energy and environmental goods and services: Where are we heading?

Future of the trade regime in energy, environmental goods and services seems unclear from the present discourse of negotiations. Discussions on environmental, energy goods and services have become important in multilateral discussions of WTO (World Trade Organisation) since 2002. Various lists of environmental goods have been put forward by developed and developing countries. From 2002 to 2005, individual lists of environmental, energy goods and services have been tabled by nine member countries. During 2005–2007, India, Brazil and Argentina tabled alternative proposals. Brazil forwarded requests and offers whereas Argentina brought in an integrated approach. Following that, China proposed a consensus based development list in the recent past.

Environmental goods fit into segments like renewable energy, waste management, air pollution control, environmental technologies for energy conservation, monitoring and efficiency, carbon capture and storage, biofuels. In the trade fora, Japan indicated LEDs as environmental goods whereas Argentina followed a flexible stance of identifying these goods on the basis of particular country specific CDM (Clean Development Mechanism) projects. Challenge of dual usage was identified in these goods and it got aggravated by - a) lack of definition of environmental good, b) technological evolution and tariff classification norms. Large definitional spectrum of environmental goods has been a causal factor behind lack of clarity in goods identification process. For instance, listed environmental goods like wind turbines, solar water heaters, biogas production tanks and methane collection liners have got overlapping dual usages. Environmental services generated from these range of goods would belong to categories like – a) sewage, b) disposal, c) sanitation, d) cleaning, e) pollution abatement and f) environmental protection.

Energy goods considered for trade negotiations include coal, oil, gas. Services for energy goods have got subclasses. For example, "transportation of fuels" like coal, oil and gas has been put into the broad category of transport services. Further, "services incidental to mining" comes under "other business services" and has mentioned upstream activities for oil and gas. Several service activities like drilling, derrick building, repair, dismantling, oil and gas well casings and exploration, cementing, mineral prospecting, seismic, geophysical and geological surveying rendered through a fee and contract basis have been clustered under energy services.

Within the international trade regime, developing countries have been negotiating in energy and environmental service sectors to enhance participation of domestic firms across value chain of energy generation, transmission and its final distribution to end consumers. Major part of energy services are still guided by trade in goods and GATT (General Agreement on Trade and Tariff) principles. For instance, for an energy good like coal involving least amount of services, trade negotiation is driven by the principle of trade in goods. However, establishments undertaking coal mining and preparatory services associated with such mining on a contract or fee basis will come under the purview of services. Negotiations for those services should be guided by GATS (General Agreement on Trade in Services) principles. So, a clear basis of energy goods and service trade negotiations is yet to be determined. Practical challenges are being faced owing to non exhaustive classification of energy service sector. Energy service comprises a chain of interrelated activities and sectors. For an equitable trade negotiation in an energy service, a supplier will require market access in all interrelated services and sectors. Many of these interrelated services and sectors are spread throughout the services, sector classification system. Any access for a given energy service will depend on nature of market access in interrelated services and sectors. In the current situation, it is difficult to determine the extent of the level of actual access in the interrelated services.

A well laid out negotiation can open doors for domestic service providers though it will vary across countries depending on their future strategic interests, stakes. For example, Venezuelan proposal on energy services strive for increasing participation of domestic service providers in foreign markets to enhance market access. However, it may not be suitable for other developing countries based on their own resources and infrastructure situation within the country. Developed countries are bargaining hard to use energy service negotiations as a leverage to get market access in developing country markets. Proposals from developed countries like USA strictly seek broad market access and national treatment commitment from developing member countries of WTO for facilitating entry of specialized personnel in developing country markets. Developed countries have highlighted reduction of existing energy monopolies in developing countries along with application of GATS rules in these monopolies and are seeking support of developing countries towards scheduling national treatment, market access and non discriminatory measures. European countries through plurilateral approach are pushing for access in all sectors and subsectors of developing countries using modes of services starting from Mode-1 to Mode-3.

In contrast, developing countries like Venezuela have suggested that the nature of energy services (viz. core and non-core) should be defined on basis of energy sources used for provision of such services. Further, based on the source, type of energy generating associated services, core and non-core energy services can be defined. Such definition can include range of upstream services related to discovery, development and downstream services delving with processing, distribution of energy goods.

Any opening up of a sector, subsector through these modes of services should not mean dominance of some new market entrants from developed countries leading to withering of market share of domestic firms of developing countries. Finally, energy and environmental service sector negotiations have to comply with the Article XIX, Article IV of GATS complemented by fair, equitable technology transfer regimes. A way forward to create an equitable trade regime in environmental and energy goods, services have to internalize equitable technology transfer and market access principles to address fair trade goals and development concerns of developing countries.

Tags: trade in energy and environmental goods, free trade, GATS