Raw Data Wto Agreement

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[A]n in te rp re ta t i o n a nd a ppl i c at io n o f [a ] s ta t u te wh ic h wo u l d co n fl i c t wi th t he

GATT C o d e s w o u l d c l e a r l y v i o l a te th e i n te n t o f C o n g re s s .

Conclusion

The General Agreement on Tariffs and Trade, Article XI, prohibits U.S. export restrictions on crude oil and natural gas to other

GATT/WTO member countries, except under very limited exigent circumstances. The limited exceptions to the basic prohibition

on export restrictions are narrowly construed and reliance on these exceptions to the GATT prohibition would require the U.S.

to impose onerous restrictions on domestic U.S. production and consumption of crude oil and/or natural gas. In addition, even

delaying exports under protracted export licensing schemes have been found to be violations of the GATT.

These well-established rules of international trade are incorporated in numerous binding international agreements to which

United States is a party. The WTO and other agreements have enforcement mechanisms that enable the parties to these

agreements to compel U.S. compliance.

For all of these reasons, the current U.S. policies and procedures restricting exports of U.S. crude oil and natural gas are highly

vulnerable to legal challenges in WTO as well as other international forums and the U.S. courts.

Alan Dunn served as Assistant Secretary of the U.S. Department of Commerce during the Administration of George H. W. Bush

and as one of the lead U.S. negotiators in the multilateral GATT Uruguay Round negotiations, which established the World

Trade Organization (WTO). He also served as a lead negotiator in the North American Free Trade Agreement (NAFTA)

negotiations with Mexico and Canada. He is a partner at Stewart and Stewart and has been practicing international trade law

for 30 years. This guest post is in conjunction with the Bush Institute's September 12 conference,Energy Regulation: Lessons

about Grow th from the States, the Nation and Abroad.

Comments on the World Trade Report 2010 1

By Joost Pauwelyn, Graduate Institute, Geneva

Thank you, Ambassador Jara. It is an honour to be here. I truly

enjoyed reading the Report, especially the economics part. To be

honest, I found the legal part less appealing. But that is no

surprise given that WTO lawyers traditionally can say far lessthan WTO economists, unless, of course, you are a member of

the Appellate Body.

1. Trade is more, not less, important when it comes to natural

resources

To get the debate going, though, let me take issue with one

recurring theme in the Report: that natural resources are special;

implying that normal trade rules do not and should not apply. I

realize that this is probably not exactly what the authors meant,

but for a non-economist like myself that is the message that many

people may take away from the Report. One such example is at p.

183 of the Report:

natural resources display a number of characteristicsthat make a case for government intervention as
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compared to the free trade outcome.

In my view, however, the problem is not that we have too much

market or trade in natural resources or energy, but rather not

enough. The problem is not that countries have too little policy

space to manage their natural resources, but rather that theycontinue to impose policies that inefficiently restrict or distort

trade, both on the export and import side.

Granted, natural resources raise serious questions of

exhaustibility and externalities, especially environmental

damage, but standard trade theory and trade rules can apply to

that.

So my starting point is this: trade and its advantages are not less,

but more relevant and important when it comes to natural

resources, especially energy.

The core reason for this crucial role for trade is this: naturalresources/energy are un-evenly distributed between countries, aswell as fixed (BP will confirm this: you cannot move an oil well).

So trade between haves and have nots is all the more

important: to the benefit of both; it is a question of pure absolute

advantage.

That said, barriers to this trade in energy are, indeed, different

from those in other products, which raises the question of

whether current WTO rules are appropriate.

Let me say something, first, on this difference in trade barriers,

secondly, explain why WTO rules nonetheless do or could

address these different trade barriers and, finally, address possibleways forward.

2. Barriers to trade in natural resources are different

The core focus of the GATT/WTO system has been the reduction

of import tariffs. Yet, as the Report notes, tariffs are not a big

issue when it comes to trade in natural resources, especially trade

in energy (other than, perhaps, renewable energy): few countries

impose import duties on, for example, oil.

Why are import tariffs not a big issue? Because oil importing

countries need oil and since they cannot produce it themselves

there is no point to impose import duties so as to stimulatedomestic production. A Swiss import duty on oil will not displaceSaudi oil imports in favor of Swiss oil production. Natural

resources are fixed. No matter how high the import duty on oil,

oil production will not shift to Switzerland.

This illustrates a bigger point: under WTO rules we presume that

countries want to sell or export more, and are keen to restrictimports.

When it comes to trade in natural resources, however, this

fundamental premise disappears:

- The haves do not want to export more but rather


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limit production and export so as to maximize their

return on what are exhaustible resources.

- The have nots, in contrast, do not want to restrict

imports (so as to favour domestic producers, since there

are no domestic producers), but rather want to import

more, and import at a cheaper price.

So whereas in the WTO the demand is normally market access

for exports (say, China seeking export markets for textiles); when

it comes to natural resources and especially energy, the demand

is access to production or imports (say, the EU or Japan

seeking access to, or more/cheaper imports of, gas, oil or scarce

raw materials).

Does this mean that no WTO rules are relevant? No.

3. WTO rules can address the rather unique barriers to

natural resource trade

As the Report notes, at least in the economics section:

Firstly,given that energy producers (the haves) export most

of their production, production restrictions in those countries may

have the same effect as export restrictions, which are regulated,

for example, in GATT Article XI.

Although sovereignty over natural resources and the exhaustible

nature of natural resources may justify certain production andexport restrictions (as provided, for example, in GATT Article

XX(g)), energy producing countries not surprisingly often

overshoot, and impose restrictions to improve their terms oftrade in a beggar-thy-neighbour way, leading, for example, to

domestic energy prices that are inefficiently low, attracting, for

example, energy-intensive fertilizer or petrochemical industriesto, say, Saudi Arabia even though they could perhaps produce

more efficiently in, say, Belgium or India.

Secondly, when these same countries (the haves) impose

export duties on energy, these export duties amount, as the

Report rightly points out, to a consumption subsidy for locally-consumed energy (export duties will make it more expensive to

export, increase local supply and thereby reduce local energy

prices, leading to so-called dual pricing). Once more, however,

consumption subsidies are regulated and could be actionablesubsidies under the SCM Agreement (when they are specificand cause adverse effects to other WTO members).

Thirdly, and conversely, given that energy importers (the have

nots) cannot produce domestically, consumption taxes in those

countries have, as the Report finds, the same effect as import

tariffs (in the absence of local production, the tax only affectsimports). Yet, as we all know, import duties are regulated in

GATT Article II.

When it comes to these consumption taxes (or, in effect, import

tariffs), as with energy producers, also energy importing

countries too often overshoot. Some level of fuel taxation is, no


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doubt, needed to price-in environmental damage including the

cost of carbon. Yet, other parts of this taxation are imposed to

improve the countrys terms of trade, that is, to lower the importprice of energy and to transfer rents from energy producing to

energy consuming countries. Such beggar-thy-neighbour policies

may lead, for example, to energy prices which can be too high,

thereby scaring off energy-intensive activity which could most

efficiently occur in such countries.

In other words, when it comes to trade in natural resources, we

may not see many traditional import tariffs; we do see a lot of

inefficient (i) production/export restrictions; (ii) export duties;

and (iii) consumption taxes. As the Report notes, at p. 116, export

taxes on natural resources are twice as likely as export taxes in

other sectors; and natural resource sectors account for fully one-

third of all export taxes. When it comes to consumption taxes,

anyone filling-up a petrol tank in Geneva or next door France

knows how high they are: respectively, around 50 and 60% of the

price of unleaded gasoline (Report, p. 120).

Whereas the economists writing this Report rightly point out (at

p. 196) that there is no economic basis for regulating these

policies differently, that is, in economic terms, in the present

context, production restrictions are export restrictions, export

duties are consumption subsidies and consumption taxes are

import duties, the lawyers involved in the Report were(understandably) much more careful, finding on p. 166, for

example, that production restrictions are not covered by Article

XI [of GATT on export restrictions] and thus would be

permissible.

I am not saying that all production restrictions, export duties and

consumption taxes violate WTO rules (some may fall outside

WTO rules; others may be excused under exceptions). What I am

saying is that some of them are as harmful, inefficient and

welfare reducing for both exporters and importers of natural

resources as trade restrictions which the WTO explicitly

prohibits. And that, as a result, a trade body like the WTO should

do something about them.

4. A way forward for the WTO

One of the fundamental questions is whether progress at the

WTO will happen through dispute settlement under the current

WTO rules which, as I pointed out earlier, arguably already coverand prohibit at least some of these trade distortions; or whether

we need and can muster the political consensus to refine and add

to the current rules.

Like many, I would prefer for WTO negotiators to clarify and

expand on the rules. This will, no doubt, be difficult but

negotiators should realize that the alternative is that 7 Appellate

Body members do this work for them.

If clarified or new rules are negotiated, should we strive for a

separate General Agreement on Trade in Energy (GATE) or a

General Agreement on Trade in Natural Resources (GATNAR)?

I am not a big fan, and at a recent conference we, the Graduate


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Institute, organized jointly with the WTO here in Geneva (the

proceedings of which are nowavailable for free), very few

participants were in favour of a separate agreement on energy ortrade in natural resources. As I said in the beginning, I find the

mantra of energy and natural resources are special and hence

need a separate treatment or agreement suspect. The same could

be said about textiles, agriculture, audiovisuals, food etc. Yet, the

GATT/WTO track record with such sectorals (with the

exception of the Information Technology Agreement) is not verypromising.

Instead, what we need is rather standard WTO bargaining or

trade-offs whereby, in this or some future Round, energy

exporters limit their production and export restrictions and dual

pricing practices in exchange for commitments by energy

importing countries on, for example, consumption taxes

including excessive carbon-related taxes or restrictions on

imports, and import duties on processed products under so-called

tariff escalation. No separate agreement is needed for that, as

most of these bindings could occur under, for example, GATT

Art. II.

The picture of what might happen if we do not deal with trade

distortions in the natural resources sector is not very pretty:

- land grabs and fights over access to raw materials as,

what the Report refers to as, export restriction-jumping

FDI.

- Massive relocation of energy-intensive industries

towards energy producing countries which keep internal

energy prices artificially low, a practice which, inresponse, may create a wave of anti-dumping and CVD

investigations.

- Punitive carbon tariffs or import restrictions by energy

importing countries not just to address climate change

but also to protect inefficient domestic producers,

Indeed, in the absence of a global price on carbon,

taxing energy or fuel imports as such may not be

sufficient; with the prevailing price wedge of energy

between countries, energy producing countries with lowenergy prices and no carbon tax could simply transform

their energy into, for example, aluminum, and then trade

aluminumwhich really is like canned energy tododge the carbon tax on fuel imports. This underlines

that even where raw energy or natural resources cannot

be traded easily, trade in its downstream products can so

that trade in agricultural products, effectively, becomes

virtual trade in water, trade in electricity can amount

to virtual trade in coal and trade in aluminum may be

virtual trade in hydro-electricity.

Of course, if one is more ambitious and starts tackling also

investment protection, competition and good governance

(including corruption) in the energy sector, then new agreements

would be needed. Yet, even there I am not sure that such

agreements should be limited to energy or natural resources;most, if not all sectors, of the economy could benefit from such
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disciplines.

To sum up,

(1)Trade liberalization is not less but more important

when it comes to natural resources, especially energy.(2)Trade barriers in this sector are fundamentally

different but when interpreted in an evolutionary

manner current WTO rules can address a lot of the

distortions.

(3)The status quo does not present a pretty picture; the

big question on how to move forward is whether it will

be steered by the Appellate Body or, you, WTO

negotiators.

Thank you.

Raw Data Wto Agreement

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