Lack of global classification and clear bioenergy trade statistics

The lack of a clear classification for biofuels within the HS is another key factor restricting global trade. Import standards vary from country to country and it is not even known whether biomass fuels should be considered as an agricultural or industrial good. Trade classification has important implications for countries' tariff reduction commitments as well as the national support schemes they can apply.

The WTO does not currently have a trade regime specific to biofuels: International trade in biofuels falls, therefore, under the rules of the General Agreement on Tariffs and Trade (GATT 1994), which covers trade in all goods, as well as under the rules of other relevant WTO Agreements, such as the Agreement on Technical Barriers to Trade, the Agreement on the Application of Sanitary and Phytosanitary measures, the Agreement on Subsidies, etc. As far as trade in agriculture products is at stake, the Agreement on Agriculture provides additional discipline. More specifically, agricultural products are subject to the GATT and to the general rules of the WTO insofar as the Agreement on Agriculture does not contain derogating provisions.

Thus far, fuels made from crops, such as bioethanol, are classified as agricultural goods in the HS. This may in some cases enable farmers to benefit from relatively high tariff protection for them. Biodiesel is considered to be an industrial product. From a WTO point of view, the main difference between agricultural and industrial products is linked to regime on subsidies. Wood pellets are currently not included as separate category in the HS system, but fall under wood wastes. The joint UNECE / FAO working party on forest economics and statistics and other bodies have pointed out the need for some changes to the HS in order to show the role of wood in energy supply. The next revision of the HS is scheduled to be implemented on 1 January 2012. The Inter secretariat Working Group (IWG) on forest sector statistics (FAO, Eurostat, ITTO) will attempt to have wood pellets added to the HS 2012 revisions (UNECE Secretariat, 2008).

A fundamental problem is that for many bioenergy carriers, several end-uses are possible, and thus it is hard to determine how much exactly is traded for energy purposes. Biomass commodities traded almost exclusively for energy end-uses are ETBE (bioethanol), FAMAE (biodiesel or solvent), fuelwood and charcoal. These commodities have their own HS-codes, and therefore their trade can be monitored rather straightforward. Categorizing new bioenergy commodities (such as pyrolysis oil, pellets from various agricultural residues, torrefied pellets etc) are challenges for the future. Especially problematic are agricultural commodities like cereals and oilseeds, animal or vegetal fats and oils (e.g. palm oil), which can all serve as feedstock for biofuel. Thus, it practically impossible to determine how much is traded of energy purposes, and estimates have to rely on crude assumptions and interviews with market parties.

WTO developments - In the past years, Brazil was pushing hard under the (currently stalled) 'Doha Round' of multilateral trade negotiations to get biofuels classified as an environmental good. This would have qualified it for an accelerated phase-out of tariffs. On the other hand, a joint EU-US proposal to fully eliminate tariffs on a list of 43 products identified as "environmentally friendly" by the World Bank, including solar panels and wind turbines, does not include biofuels (EurActiv, 2008). To justify the exclusion of ethanol from their joint proposal, the United States and the EC have argued that trade liberalization in ethanol should be negotiated as part of the separate WTO market access negotiations for agricultural goods.

One argument put forward by the EU and the US is that in the context of constantly changing technology, they must take into account the question of "relativity" of green products – the so-called "clean vs. cleaner" debate. What may seem environmentally-friendly now may not be perceived in the same way in five years' time. The concern is that if tariffs are fully eliminated on relatively green products such as bioethanol, cleaner technologies that become available in the future, such as second generation biofuels made from non-food, woody crops, will lose the possibility of enjoying additional trade advantages. But Brazil and other bioethanol exporting developing nations, including Pakistan and Egypt, say the EU and US are merely being protectionist and attempting to put their own producers at an advantage (EurActiv, 2008).

The debate is linked to another key question that will need tackling: Whether different types of biofuels should be considered as "like products" or not, seeing as they present different benefits and flaws in terms of greenhouse gas reductions, energy efficiency and sustainability. While the most favoured nation (MFN) principle incorporated into GATT article I requires equal treatment among different countries, the national treatment obligation incorporated into GATT article III requires the treatment of imported goods, once they have entered the country and cleared customs, to be no worse than for domestically-produced “like” goods, especially in regard of internal taxes and regulations. MFN and National Treatment make together the “non discrimination” principle. Based on the principle of "non discrimination", WTO law demands that its members apply the same tariff rates and the same taxes and regulations to all imports of products that are close substitutes of domestic products, regardless of their country of origin. Countries that do not respect these principles are liable to legal action in the WTO (EurActiv, 2008, van Dam et al. 2008). The legitimacy of product differentiation based on how goods have been manufactured and on their impact through the life cycle is still an open issue under WTO rules (Zarrilli, 2008).