BRAZIL'S CALL FOR BIOFUEL LIBERALISATION CAUSES STIR IN ENVT'L GOODS TALKS

Brazil last week created a stir in the Doha Round negotiations on liberalising trade in environmental goods, by calling for specific products to be slated for expedited tariff cuts based on a request-offer process - with biofuels included.

The talks must "encourage a larger participation of developing countries in this [environmental goods] commerce and must promote their capacity to develop environmental goods industries, argues the proposal (JOB (07/146)). To this end, it advocates "improved market access for their exports of agricultural environmental goods" as a result of the negotiations. Brazil, which is one of the world's biggest producers of ethanol, said that "biofuels are essentially an environmental good," suggesting that trade barriers on them should be reduced.

Trade diplomats discussed the paper at a 2 October informal meeting of the the WTO Committee on Trade and Environment special (negotiating) session (CTE-SS).

The Doha mandate in 2001 instructed Members to negotiate "the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services." However, governments have remained divided on how to determine which products are eligible for accelerated liberalisation.

A group of primarily industrialised countries want Members to create a 'list' of environmental goods. India and Argentina counter that this may not adequately ensure that products are used for environmental purposes. They instead support tariff cuts for goods used towards a negotiated list of specific environmental activities, which might include air pollution control, water management, soil conservation, waste management, and renewable energy (see BRIDGES Trade BioRes, 22 June 2007).

The Brazilian submission said the environmental goods list currently under discussion consists primarily of "highly sophisticated industrial products… quite beyond the capacity of developing countries," echoing criticism by others in the developing world. It claimed this could be rectified with a greater focus on "agricultural environmental goods," which barely figure on the current list. Sources report that many Members, competitive farm exporters and reluctant importers alike, criticised the concept of designating agricultural products as environmental goods. They included the EU, Korea, Japan, Taiwan, Mexico, Australia and Argentina.

Biofuels as environmental good

Brazil's suggestion that biofuels were "essentially an environmental good," and thus deserving of expedited tariff cuts, met with a lukewarm response. Several developed country delegates were less than enthusiastic. Canada raised environmental concerns related to biofuel production, as did Cuba. The EU, Korea, and Australia expressed skepticism about the idea, and the US did not comment.

Deep tariff cuts on biofuels are unlikely to find favour in industrialised nations, most of which place high tariffs on ethanol. The US, for instance, places a tariff of over 14 cents per litre on ethanol, in order to protect its own politically influential corn-based ethanol industry. EU tariffs are roughly twice as high, at current exchange rates.

The environmental merits of biofuels are currently the subject of heated debate. Although Northern governments currently receive strong political support for subsidising biofuel production, the ethanol produced in those countries, generally produced from corn, wheat, and rye, is less efficient at curbing energy use and greenhouse gas emissions than sugarcane-based ethanol produced in tropical countries such as Brazil. Giving the two different tariff treatment would be problematic, due to strictures against differentiating between products on the basis of 'process and production methods.'

Ronald Steenblik, head of research for the Global Subsidies Initiative, which has heavily criticised subsidies for biofuel production, allowed that the Brazil's blanket qualification of biofuels as environmental goods was "not very nuanced." Nevertheless, he said that "cane-based ethanol from existing cane plantations has good energy balance and greenhouse-gas mitigation properties." Given that "many countries have mandated the use of biofuels for environmental reasons, it is right and proper for Brazil to take them at their word, and ask them to level the playing field" between domestic and imported ethanol, he said. Steenblik did caution that the emissions-saving benefits of replacing fossil fuels with biofuels could potentially be compromised if large areas of savanna or forest land were to be brought under cultivation, either to directly produce biofuel feedstocks or to make up for displaced food, fibre or feed production.

Request-offer process mooted

Sources said that the Brazilian proposal broke new ground by suggesting an alternative method for identifying environmental goods. Although describing the 'integrated' approach backed by India and Argentina as "promising," it said that "if Members come to the conclusion" that tariff reduction commitments on specific products are necessary, they could consider a straightforward request and offer approach to do so.

Over the course of a number of "offer rounds," each country would ask its trading partners to slash tariffs on those agricultural and non-agricultural goods it felt would bring environmental benefits. Countries would then determine whether such liberalisation requests might compromise their own development of environmental or other industries, and indicate the environmental goods on which they were prepared to remove trade barriers.

Delegates report that most developed countries were supportive of the 'request-offer' notion, but some developing country representatives suggested that it would be cumbersome and time consuming. The US described it as "helpful," saying that it was not wedded to the concept of a common list for all Members, so long as the outcome of the negotiations was meaningful. Norway and others asked for more information how the 'request-offer' approach would function.

Organic foods mentioned in NTB section

Notably, the Brazilian submission raised the concept of making organic food products part of the environmental goods negotiations. Although it stopped short of specifically propose their designation as environmental goods, it did so indirectly by referring to them in a section calling on Members to address non-tariff barriers that impede trade in "products hat are both environmentally sound and capable of promoting sustainable development"

Biofuels with the other class of products singled out for facing "important obstacles related to technical regulations and conformity evaluation procedures."

Brazil said that the CTE should request to the relevant committees of the Codex Alimentarius Commission, which sets global food standards on behalf of the UN, to develop standards for organic foods. Such international standards could then replace WTO Members' "extensive and sometimes conflicting array of standards and legislation," easing the path for exports and encouraging growth in the potentially large organic food sector. The paper suggested that this could remove commercial barriers, and thus "benefit trade, the environment and development." Such 'triple wins' are an explicit objective of the Doha Round.

Some delegates expressed concern about the implications of according special tariff treatment to organic products versus non-organic ones, since it would open the door to a discussion on whether to differentiate between products based on 'process and production methods' (PPMs). Australia and Korea expressed skepticism that organic foods merited classification as environmental goods. They also cited PPM-related concerns.

Many developing countries including Colombia, Cuba, Bolivia, Pakistan and Thailand were supportive of developing Codex-based standards for organic foods. One developing country delegate suggested that organics could not be dealt with in the CTE without simultaneously addressing non-tariff barriers.

One delegate told Bridges that it would be difficult to categorise organic and non-organic products differently for customs purposes.

The Brazilian paper suggested that the negotiations could affect developing countries' industrial transformation towards greener modes of production. "A key issue for sustainable development in developing countries is the establishment of industries that do not reproduce the patterns of energy consumption and natural resource depletion of the developed countries," it said, saying that this would require allowing developing countries to "generate solutions adapted to local necessities and conditions."

The proposal also called for technology transfer to poor countries to promote access to new environmental and clean technologies, suggesting that a mechanism could be created to evaluate technology transfer related to products liberalized as a result of the environmental goods negotiations.

More formal responses to the Brazilian submission are expected at the next session of the negotiating committee, scheduled for 1-2 November. In the meantime, Members say that they are reflecting on the paper. CTE-SS Chair Ambassador Mario Matus (Chile) has indicated that he will engage in consultations with small groups of countries to clarify issues related to the proposal.

Meanwhile, a large number of developing countries drew attention to the the relationship between the environmental goods talks and the broader negotiations on manufactured goods at a meeting of the General Council on 9 October. Addressing the WTO's top permanent decision-making body on their behalf, South Africa stressed that the CTE-SS alone should determine the fate of non-agricultural environmental goods.

The comment was likely in response to a May 2006 proposal from a group of economies, including the EU and the US, calling for tariffs on environmental goods to be eliminated via the sector-specific liberalisation component of the negotiations on manufacturing duties (see BRIDGES Weekly, 17 May 2006).

ICTSD reporting.