Disagreement over Biofuels, Climate-friendly Products

1 November 2007

WTO negotiators are still grappling with the definition of environmental goods, slated for expedited liberalisation under the Doha Round.

In November, the WTO Committee on Trade and Environment (CTE) debated a Brazilian proposal to designate biofuels, including ethanol, as environmental goods. Ethanol has so far been considered as an agricultural product, and developed countries continue to maintain that its liberalisation should be addressed within the Doha Round farm negotiations.

Brazil countered that the environmental negotiating mandate (para.31(iii) of the Doha Declaration) did not exclude the consideration of agricultural products. It also stressed that biofuels were essentially environmental goods since they offered a promising substitute/complement for fossil fuels and other non-renewable energies. Both the EU and the US have described ethanol as an environmental good in reports to the UN Framework Convention on Climate Change. The US ethanol tariff exceeds 14 cents per litre; EU tariffs are roughly twice as high. Both also richly subsidise ethanol production, wich is based on corn in the US and sugarbeet in Europe.

Cuba raised concerns over counting biofuels as environmental goods, citing both food security and environmental considerations. Prices of staple foods are soaring in several parts of the world as farmers shift production to corn – in high demand from the biofuel industry – to the detriment of other food crops such as wheat. Brazil emphasised, however, that sugarcane production for ethanol in Brazil had not affected domestic food availability or nutrition.

Peru Proposes Organics

Peru called for the inclusion of organically grown agricultural products in the environmental goods definition. Increased market access for organic crops would encourage farmers in poor nations to favour environmentally beneficial production methods, Peru argued, as well as help combat poverty and reduce the attraction of growing narcotics. Australia, Norway and Taiwan enquired how Peru proposed to address concerns about differentiating organic agricultural products from others based on process and production methods (PPMs).

A Request-Offer Approach?

Faced with persistent divisions on how to go about meeting the Doha mandate to reduce or eliminate trade barriers to environmental goods and services (EGS), Brazil suggested that complementing the ‘list’ approach favoured by developed countries with a ‘request-offer’ process akin to that used in the services negotiations could offer a way out of the deadlock.

Under this approach, countries would request specific market opening commitments from their trading partners, and any concessions granted through the process would be extended to all WTO Members on a most-favoured-nation basis. Many developing countries welcomed the suggestion, with some proposing to use a combination of a ‘request-offer’ process, a negotiated list of products, and a ‘project’/‘integrated’ approach, which foresees temporary tariff cuts for goods and services to reach specific environmental objectives (as proposed respectively by India and Argentina). Some developed countries expressed concern that a request-offer process would be time consuming and cumbersome.

EU and US Propose Lists of ‘Climate-friendly’ Goods and Services

The EU and the US tabled a joint informal proposal on the liberalisation of ‘climate-friendly’ goods and services. The paper set out a two-tier approach, under which all WTO Members would eliminate tariffs on 43 specific goods ands services ‘directly linked to addressing climate change’ by 2013 at the latest, followed by the negotiation of a plurilateral Environmental Goods and Services Agreement between all developed countries and the 30-odd larger developing countries slated to apply the standard tariff reduction formula in the industrial goods talks.

The first tier comprised products identified as ‘climate-friendly’ in a recent World Bank report on trade and climate change, such as solar collectors and system controllers, wind-turbine parts and components, stoves, grates and cookers and hydrogen fuel cells. The same report concluded that removing tariffs and non-tariff barriers to key clean energy technologies could boost trade by 7-14 percent annually, and encourage greater investment in cutting-edge technology (for more details on the report see page 16). The proposal did not, however, mention several developing country concerns cited in the World Bank report, ranging from potential damage to domestic industry to the need for technology transfer. As for services, the proponents suggested that Members could remove obstacles to foreign competition in sectors such as air pollution and climate control; technical testing and analysis; energy-related services; and the design and construction of energy-efficient buildings and facilities.

The second tier involved products based on a consolidated list of 153 products compiled by the ‘friends of environmental goods’, a group of mostly developed countries (see page 27). The proposal called on participating countries to “eliminate tariffs and take appropriate actions to identify and address specific non-tariff barriers.” Services in the second tier could include a broad set of environmental and climate-related sectors. Participating Members would be required to bind existing levels of market access commitments, and undertake new liberalisation to remove market access barriers. The second-tier proposal did not set any deadlines.

Developing countries expressed concern over several aspects of the proposal. Roberto Azevedo, a senior Brazilian negotiator, was especially critical of the two lists’ exclusion of biofuels. “We find the proposal modest, we find it biased and we find it protectionist,” he said. “Anything that [developed countries] don’t produce is not on the list.” India’s Ambassador Ujal Singh Bhatia called the EU-US proposal “a disguised effort at getting market access through other means.” These views were echoed by several other developing countries, which also noted that the proposal had not fully resolved the fundamental ‘dual use’ problem, i.e. goods that are also used for non-environmental purposes. The proposal was informally discussed at the trade ministers meeting held in the sidelines of the Bali climate change conference, where it came under similar criticism (see page 14).

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