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WTO Disciplines and Biofuels: Opportunities and Constraints in the Creation
of a Global Marketplace
Presented at:
World Bank – Rural Day
9 November, 2006By:
Charlotte Hebebrand
International Food & Agricultural Trade Policy Council (IPC)
www.agritrade.org
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Main Drivers for Biofuel Production
Some are predicated on
domestic production and use:• Desire for greater energy independence• Additional market for agricultural commodities• Potential contributor to rural development
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Main Drivers for Biofuel Production
But others are not:• Search for more environmentally-friendly
transportation fuel• Desire for cost-effective biofuels
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Trade in Biofuels May Increase
Given mandates…• US Mandate: 4b gallons in 2006; 7.5b in 2012• EU target: 5.75% of transportation fuel by 2010• JA contemplating 10% blending mandate
…and logic of demand and supplyOECD countries with limited land availability, possibly
higher production costs
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Developing Countries Perceive Opportunities
• Comparative advantage – more land; better climate; more suitable crops; lower labor costs
• Interest in domestic production and use to reduce expenditure on imported oil and to promote rural development
• Endless demand by rich countries offers potential export opportunities
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But Should Proceed with Caution
• Price of fossil fuel• Weigh against other opportunities• Unable to subsidize to the same extent as OECD
countries• Potential trade may be stifled by overly exclusive
focus on domestic production in OECD countries• Sustainability concerns and criteria may limit trade
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Need to Clarify How WTO Rules Apply
• Focus on trade can highlight comparative advantage• Focus on trade can lead to use of biofuels produced
from feedstocks which are most effective at reducing GHGs and are most cost effective
• Transparent trade regime can attract stable financing and capital investment
• Address increased production of by-products• Clarify subsidy issues
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Key WTO Issues
I. Classification – agricultural, industrial or environmental goods?
II. Subsidies/Incentives
III. Domestic regulations and standards
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I. Classification
• WTO rules provide structures and rules for negotiated tariff reduction – countries “bind” tariffs
• Most WTO members use WCO’s Harmonized Commodity Description and Coding System (HS)
Biofuels are produced from agricultural products; replace industrial products; used to achieve environmental benefits
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I. Classification
• HS headings determine whether product is agricultural or industrial product
• WTO Agreement on Agriculture Annex 1: HS Chapters 1-24 (and some others)
• Ethanol in Chapter 22 = agricultural product; no differentiation based on end use
• Biodiesel in Chapter 38 = industrial product
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I. Classification
Negotiation on Environmental Goods & Services• Could Biofuels be considered environmental goods
and thus be subject to faster liberalization?• Difficulty defining parameter of what may be
included• Unresolved whether agricultural goods can be
included or NAMA only
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I. Classification
Policy Responses:• Amend HS to introduce distinctive headings for
biofuels – allows better tracking of trade; liberalization
• Amend Annex I of AoA • Liberalize multilaterally, unilaterally, preferential
arrangements
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II. Subsidies
Importance of Classification – SCM / AoA• Expiration of the Peace Clause• Subsidies and Countervailing Measures
Agreement (SCM)• Prohibits export subsidies and subsidies contingent
upon use of domestic products over imports
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II. Subsidies – SCM: Actionability
• Financial contribution by government: includes range of measures besides direct cash payments
• Benefit received by recipient which confers competitive advantage on recipient (in market shaped by government interventions, “market benchmark” not easy to determine)
• Subsidy must be specific• Upstream and downstream subsidies
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II. Subsidies – SCM: Actionability
Adverse Effects• Injury to domestic producers of like product in
competition with imported subsidized product• Nullification and impairment• Serious prejudice – displace imports of like
products; displace exports to third market; price suppression
• Increase in world market share
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II: Subsidies -AoA
• URAA – amber, blue and green boxes• Capped amber box, unlimited green box• Biofuels support programs (support to industry
and/or to agricultural products??)
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II. Subsides – AoA – Green Box
Green box criteriaI. Fundamental requirements: program publicly
funded; no transfers from consumers; no provision of price support to producers
II. Must meet specific criteria (Annex 2 URAA) – R&D; general services (no direct payments to producers/processors); decoupled income support; payments in exchange for removing land from agricultural production; environmental subsidies
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II. Subsides – AoA – Green Box
• Environmental subsidies limited to those that are intended to compensate producer for costs of complying with governmental environmental programs
• Issue of set-aside land – farmers receive payments for removing land from marketable agricultural production – is biomass an agricultural good?
• Increased production of by-products (glycerine, DDGs)
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III. Regulations & Standards
• Principle of non-discrimination • Most Favored Nation• National Treatment• “like” products – physical characteristics, end uses,
consumer habits• Production-process distinction
WTO approach to domestic regulations
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III. Regulations & Standards
• TBT Agreement – applies to mandatory technical measures that specify characteristics of products and their related processes and production methods
• Urges members to use international standards• Regulations not more trade restrictive than
necessary
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Conclusion:
• Uncertain classification • Wide range of government measures – tax
incentives, high tariffs, subsidies• Web of separate technical and environmental
standards
Potential for trade given increased demand, but need to clarify rules