1 Biofuels in the WTO – Challenges and Opportunities for Sustainable Development? Prof Markus Gehring, Dr. jur (Ham) LL.M. (Yale) MA (Cantab) Associate Professor, Vice-Dean Research, University of Ottawa (Droit Civil) & Fellow in Law, University of Cambridge (Robinson College)

2 Biofuels in the WTO – Challenges and Opportunities for Sustainable Development? Lecture Outline: Introduction Qualification of Biofuels Standards – TBT & (Eco-)Labelling Subsidies Conclusion: Biofuels, WTO and Climate Law

3 1. Introduction The biofuel economy Biofuels – ethanol and biodiesel production is on the rise. Trade in biofuels is becoming more lucrative with high fossil fuel prices. But thus far raw materials trade has not significantly increased (with the exception of palm/oil) Key sustainable development challenges Enhanced biofuel use for energy security and climate change / sustainability, reduction of fuel vs. food production, high levels of subsidies Biofuel concerns in the WTO Where do they fit? How do they relate to climate change? Do they foster or frustrate development? Can they be labelled? What subsidies disciplines apply? Main questions for this presentation What should change in the WTO regime? How do existing rules influence domestic decision-making?

4 2. Qualification of Biofuels Agricultural Product Both ethanol and biodiesel are made from agricultural raw material (or better agricultural waste). But only ethanol is currently qualified as an agricultural product in the tariff classifications. Industrial Product Fuels and refined products are classified as industrial products (though traditionally petroleum products were largely excluded from application of WTO rules due to national security exception and lack of OPEC members among original GATT membership, thus no or few liberalisation commitments were made in this field). Biodiesel is currently classified as an industrial product (see Motaal, JWT 2008 p. 61).  Consequence: currently plethora of applicable rules. Environmental Goods Brazil proposed for the Doha environmental negotiations that “…the definition of environmental goods should cover products, such as... renewable energy, including ethanol and biodiesel” (2005) A liberalisation commitment would be the consequence but progress to date is very slow.

5 2. Qualification of Biofuels Like-product problematique Biofuel, such as ethanol or biodiesel, has to be treated as a like product, i.e. WTO members are not allowed to discriminate on the basis of how they were produced because process and production methods (ppms) cannot alone serve as a basis for differentiation. Interesting difference to EU law, where the like product distinction in Commission vs. Italy (Ethanol) recognised that bio-ethanol could be treated differently from petro-ethanol. However, this debate is in flux given that many climate related differentiations run counter to ppm prohibition. For example AB in Asbestos recognised that health considerations can influence the like-product analysis. The panel in the GMO case showed itself open to an MEA based Art. XX exception and the panel in Retreaded Tyres allowed for an exception based on the ‘realities’ in a developing country. Internationally negotiated standards would be desirable and could easier be justified under Art. XX, see AB Art Shrimp

6 3. Standards – TBT & (Eco-)Labelling Opportunities in WTO to regulate biofuels TBT Agreement allows for environmental based standards, but the ppm prohibition is also (to lesser extend) relevant in this field. Standards need to be science-based in order to avoid arbitrary standards. Official labelling schemes are considered to be covered by the TBT agreement and need to be open and transparent. The same rule applies for voluntary labels to which an official legal consequence is attached. Voluntary labelling schemes are largely considered not to be covered and thus could already be used for biofuels.

7 Industrial subsidies (SCM Agreement) Export subsidies are prohibited and production subsidies have to conform to certain disciplines. All subsidies concerning refining facilities or other infrastructure for biofuels fall under the subsidies agreement. Biodiesel subsidies also fall under this agreement. Agricultural subsidies (domestic support) Ethanol subsidies are largely governed by the Agreement on Agriculture. Several civil society organisations have criticised very high levels of biofuel subsidies in general, see IISD publications. Further clarification on the applicable subsidies rules is desirable, see paper by R Howse. 4. Subsidies

8 WTO law provides challenges and opportunities for a transition to more sustainable biofuels. Challenges can be found in the fact that different production methods can not as such serve as a basis for differentiation. Opportunities are the relative openness towards labelling schemes and prohibition of harmful subsidies. National legislators have large margins of discretion and there is ample room for an international agreement in the field (which could possibly claim exception under the commodity agreement exception of Art. XX). The WTO objective of sustainable development further calls for the right balances between economic, social and environmental priorities which can be particularly challenging in the area of biofuels. 5. Conclusion

9 Thank you. Markus W. Gehring

10 Important GATT rules

11 Important WTO rules