Energy Services in International Trade: Development Implications Simonetta Zarrilli UNCTAD September 2002

Energy Energy “business” Turnover of about US$ 2.4 trillion in 2000 Access to energy 1 billion people in industrialized countries consume 60% of total energy supply; 5 billion people in developing countries consume 40 % The productivity of 1/3 of world’s people is compromised by lack of access to commercial energy. Another third suffers economic hardship due to unreliable energy supplies Energy necessary to achieving sustainable development

Structural reform of the energy sector b Privatization, increasing competition, unbundling of monopolies, deregulation Developed countries: poor performance of state owned energy companies; subsidy burdens; over investment Developing countries: + debt crisis; capital shortages Externalization of services; new services International Trade in Services

What energy services are? b They are required at each step of the energy process from the location of the potential energy source to its distribution to the final consumer Value added in the energy chain

Energy services in the market b “Traditional services” explorationexploration extractionextraction drillingdrilling derrick buildingderrick building pipeline constructionpipeline construction b “Emerging services” gas & electricity transmission and distribution operation of power pools energy trading/ brokering energy management Increasingly technology-intensive Emerging from structural reform

Energy services in GATS Energy services are not listed as a separate category 3 specific entries: transportation of fuel; services incidental to mining; services incidental to energy distribution Energy services present in existing services categories (e.g. engineering, construction, transportation, financial services)

Problems b The energy sector is a chain of interrelated activities but the classification is fragmented and non-exhaustive Market access conditions unclear/unpredictable Commitments made in other sectors may have implications for energy services

The ongoing debate in the WTO b Seven proposals on energy services: United StatesUnited States VenezuelaVenezuela CanadaCanada NorwayNorway European CommunitiesEuropean Communities ChileChile JapanJapan

Common elements Improved market access in the sector can be beneficial for all countries Ownership of natural resources excluded from negotiations The energy sector will continue to be regulated for achieving public goals Countries are in different phases of regulatory development: commitments will reflect the levels of market reform

Common elements Norway & Venezuela: promote trade for all and secure a share for developing countries USA & Norway: reference paper EC: pro-competitive regulatory framework EC, Japan & USA: neutrality of energy sources Canada, Norway & EC: checklist

Specific elements Venezuela: classification according to: sources of energy; phases of energy process; “core” and “non-core” services USA: Index for classification of energy services; Technological neutrality Chile: comprehensive coverage; subsidies Canada: oil & gas services Japan: new classification;comprehensive coverage; “core” and “non-core” services

Present situation b Initial requests: by 30 June 2002 b Initial offers: by 31 March 2003 b Conclusion: not later than 1 January 2005 b Energy services included in the requests of several developed countries b Developing countries are not front-runners

Types of requests b Seeking clarification and technical improvement of existing commitments b Seeking binding of the existing regimes b Seeking further liberalization commitments b Seeking additional commitments under Article XVIII

Developing country challenge Achieving a broader, sustainable, and more reliable and efficient access to energy Obtaining a greater share of the energy “business”

Implications for developing countries b Energy producers developing countries import traditional energy servicesimport traditional energy services few commitments in their GATS schedulesfew commitments in their GATS schedules flexibility to liberalize and seek reciprocal concessionsflexibility to liberalize and seek reciprocal concessions b Developing countries limited experience with reform in the energy sector effective domestic energy policies promoted by a better understanding of market reform

Questions for developing countries b Classification A sufficient degree of precision in the definition of energy services would facilitate specific commitments b Additional provisions Commitments in the energy services sector result in effective access to market Art. IV GATS provisions Public services obligations

Conclusions Access to energy is crucial for development Freer trade in energy services may facilitate access to energy Energy services are the value added in the energy chain: developing countries wish to increase their participation GATS-consistent ways should be found to achieve these goals Rapid developments in the sector: need to better understand the implications