Options for Disciplining the Use of Trade Remedies in Clean Energy Technologies

31 May 2017

This article explores and evaluates different options for disciplining or eliminating the use of trade remedies in the renewable energy sector, both within and outside the WTO framework. The author proposes a shortlist of options that could be taken forward. 

Trade in clean energy technologies has grown significantly over the past decade, and trade remedy activity restricting imports, particularly anti-dumping (AD) and countervailing duties (CVD) with respect to clean energy products, has similarly increased. Members of the World Trade Organization (WTO) have reported rising numbers of anti-dumping and countervailing disputes initiated in the area of renewable energy over the last eight years, particularly for solar energy. Over the period from 2006 to 2015, 45 trade remedy cases in the clean energy sector have been notified to the WTO, with almost half related to solar technology.

Studies have estimated that trade remedies in the clean energy sector affected about US$32 billion worth of trade in green products between 2008 and 2012, resulting in an estimated total annual reduction in trade of US$14 billion, accounting for 4 percent of the global trade in the targeted products.

Trade remedy investigations are launched and, in relevant cases, anti-dumping and countervailing measures are introduced, with the rationale of preventing what is alleged to be unfair competition from harming domestic industries. However, in the case of clean energy technology, prior evidence has suggested that the spread of anti-dumping protection cannot be solely explained by an increase in unfair trade practices, but by the strategic behaviour of petitioning firms. The surge in trade remedies may therefore be motivated more by the protectionist inclinations of importing countries pursuant to the quest for enhanced competitiveness in clean technologies. In this sense, anti-dumping and countervailing remedies, if abusively and indiscriminately applied, have the potential to prevent the kind of rapid decreases in cost and price that are necessary to make solar energy, and other clean energy technologies, viable competitors to fossil fuels.

The aforementioned observed developments are at odds with national and international climate ambitions. Under the United Nations Framework Convention on Climate Change (UNFCCC), the Paris Agreement, concluded at the 2015 climate change conference (COP21) and entering into force in November 2016, emphasised the need to enhance climate action to hold the global average temperature rise well below 2°C above preindustrial levels. Similarly, Goal 7.2 of the United Nations Sustainable Development Goals (SDGs) aims at a substantial increase in the share of renewable energy in the global energy mix by 2030.

The mere initiation of national investigations has a chilling effect on trade and investment because of its implications for the predictability and stability of the market. Therefore, in light of the current global imperatives to rapidly scale up renewable energy to address climate change, trade rules and their enforcement should be harnessed to play a positive role by enhancing access to the best technologies at competitive prices.

This article describes different options for disciplining or eliminating the use of trade remedies in the renewable energy sector, to facilitate trade, contributing to a scale-up of clean energy supply for climate mitigation and a transition away from reliance on fossil fuel alternatives.

Policy Options

Recent research has explored ways to discipline the use of anti-dumping and countervailing measures to achieve a better alignment with normal competition, so that such measures target legitimately anti-competitive behaviour, rather than facilitating protectionist aims. Suggestions for addressing the issue range from a better enforcement of existing rules within WTO trade remedy agreements to more systemic reform of these rules, whether universally, across sectors, or by carving out clean energy technologies as a special sector. They further include agreeing to a moratorium or self-restraint among like-minded countries in the use of trade remedies in the clean energy sector. Options for reform have also been proposed to be pursued in fora other than the WTO, including sectoral/plurilateral and regional arrangements (Meléndez-Ortiz 2016).

The options can be divided into three categories: category I focuses on strengthening or improving existing WTO trade rules to apply in an environmental context; category II covers unilateral options for authorities to rethink, ameliorate or mitigate the impact of trade remedy measures; category III involves more far-reaching reform to reduce or eliminate trade remedy use, including WTO-plus provisions.

Category I: Enforcing or strengthening existing rules

Included in this category are options that have a basis in existing provisions of the WTO trade remedy agreements. They focus on strengthening or improving existing rules to apply in an environmental context. The aim is to mitigate or soften the impact of the imposition of a trade remedy measure, once investigations are initiated. The options also encompass what some authors would characterise as “procedural weaknesses” in AD or CVD investigations (product definition, identification of injury factors). They seek to revise trade remedy rules to target specifically anti-competitive behaviour rather than mere price discrimination.

A list of options that have been proposed under category I includes: a proper enforcement of the applicable Anti-Dumping Agreement provisions under Moore’s Law; applying the lesser duty rate on a mandatory basis to environmental products; introducing a climate change criterion in national ex ante public interest tests; and limiting the duration of trade remedies as well as the scope of trade remedy action (for example, by permitting measures only on a certain number of clean energy products at the same time).

Category II: Unilateral measures (behavioural reforms)

This set of policy options includes measures that governments can implement unilaterally. They might cause authorities to rethink, ameliorate or mitigate the impact of trade remedy measures. Since governments can implement these independently, or by negotiating specific provisions in trade agreements, they would have no legal basis in any of the existing WTO agreements and can be effected independently of any rules reform or amendment. Some could be considered WTO-plus, in that they would go beyond what WTO rules require.

A list of options that have been proposed under category II includes: engagement of WTO members in consultations prior to trade remedy action; preparation and publication of an objective study of costs/benefits of trade remedy action; and designation of a portion of the additional tariff revenue collected from trade remedy duties for payment into a fund providing rebates to consumers of the particular CET product.

Category III: Reduction or elimination of trade remedy use

This category addresses more ambitious options where there are currently no corresponding provisions in any of the WTO agreements. They would involve more far-reaching, perhaps even systemic reforms, including WTO-plus provisions, relative to what currently exists within the WTO framework. This group of options typically seeks to halt the initiation of a trade remedy action in the first place, rather than merely ameliorating the effects of a trade remedy measure (Horlick 2013; Meléndez-Ortiz 2016).

A list of options that have been proposed under category III includes: a self-imposed restraint or temporary ceasefire on the use of trade remedies against each other in the context of clean energy technologies; re-introduction of the category of non-actionable subsidies under the Agreement on Subsidies and Countervailing Measures (SCMA) to provide flexibility for environmental or clean energy subsidies, exempting them from challenge at the WTO under SCMA and GATT 1994; introduction of a provision on non-use of trade remedies in a future WTO agreement on environmental goods; and elimination of the trade remedy tool in free trade agreements.  

Analysis and Conclusions

The research and analysis reveal the challenges of bringing about hard law rule changes to existing specific provisions in the current trade remedy agreements, whether applied on a cross-sectoral, generic basis, or more specifically to the clean energy sector. The individual problems identified with regard to the application of trade remedies are not unique to the clean energy sector, but apply generally across all sectors, which complicates the case within the WTO for rule-change with regard to one specific sector. There is the further dilemma of prescribing fixed rules or delineating greater precision, with doubtful efficacy results, versus leaving a modicum of constructive ambiguity to allow controlled subjectivity on the part of investigating authorities to reflect different realities on the ground.

There are practical and political challenges in including environment-specific provisions in trade remedy agreements, or in establishing a designated category of climate or clean energy products in the multilateral forum, for which certain trade remedy provisions would provide differential treatment. On a practical level, it would be difficult to identify and justify which clean energy products should benefit from preferential treatment. Furthermore, such a sectoral focus would generate strong political opposition for fear that it would lead to fragmentation and undermine a comprehensive set of WTO trade remedy disciplines, merely in order to further the liberalisation aims of one sector. Consequently, any rule-based amendments in the WTO would only be viable if effected on a generic basis.

In the medium to long term, renewed WTO negotiations might be able to implement some limited reforms to the trade remedy agreements to enhance transparency and due process. Alternatively, soft law approaches can be explored within the WTO to address many of the category I options in the short to medium term. This could happen either through more detailed notification formats, or through committee work programmes and existing transparency mechanisms.

Though substantive reforms might not be feasible within the WTO context, this does not preclude some options from being taken forward and disciplined in other fora, or by way of alternative means of implementation. Indeed, sectoral and regional initiatives present possible fora in which to discipline or advance the wholesale elimination of use of trade remedy instruments, either on a temporary basis, subject to further review, or permanently. Within a sectoral initiative either within the WTO framework, such as the Environmental Goods Agreement (EGA), or beyond, such as the SETA (Sustainable Energy Trade Agreement), members would need to abide by the MFN requirement and ensure coherence with the WTO-covered agreements. They would also need to be alert to possible institutional challenges. The effectiveness and impact of such initiatives would depend on political will, and achieving enough critical mass to ensure that the major players are incorporated, avoiding free-riding.

Regional trade agreements, including the current trend towards megaregional arrangements, provide a permissive legal framework for eliminating the use of trade remedy measures, as well as for testing innovative approaches to disciplining their use. The advantage of a regional solution is that the most-favoured nation (MFN) problem does not arise and members are generally free to redefine the conditions of use of the trade remedy agreements between themselves, subject to compliance with GATT rules on the constitution of such regional arrangements, including meeting the substantially all trade requirement. These arrangements present an opportunity for far-reaching reform and compromise in how trade remedies are dealt with in this context but also present challenges.

In both sectoral and regional arrangements, securing the agreement of as wide a range of parties as possible to curtail or abolish their use of trade remedies within an enabling environmental framework, would guarantee the most positive impact, by allowing the free flow of trade and dissemination of clean, energy efficient technologies. However, such an achievement would be difficult, given that trade remedies are typically employed as a safety net to facilitate hard fought trade concessions and satisfy domestic constituencies. The ultimate result would depend on trade-offs in other areas, significant commitment, as well as parties managing the constraints of their domestic political economies within their respective jurisdictions.

Kim Kampel is a South African lawyer working as an international trade consultant.

This article is derived from the paper Options for Disciplining the Use of Trade Remedies in Clean Energy Technologies authored by Kim Kampel and published by ICTSD.

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