Brazil proposes to qualify biofuels as environmental goods - causes a stir in Doha trade talks

Brazil last week created a stir in the Doha Round negotiations on liberalising trade in environmental goods, by calling for specific products to be slated for expedited tariff cuts based on a request-offer process - with biofuels included.

The talks must "encourage a larger participation of developing countries in this [environmental goods] commerce and must promote their capacity to develop environmental goods industries, argues the proposal (JOB (07/146)). To this end, it advocates "improved market access for their exports of agricultural environmental goods" as a result of the negotiations. Brazil, which is one of the world's biggest producers of ethanol, said that "biofuels are essentially an environmental good," suggesting that trade barriers on them should be reduced.

Trade diplomats discussed the paper at a 2 October informal meeting of the the WTO Committee on Trade and Environment special (negotiating) session.

The Doha mandate in 2001 instructed Members to negotiate "the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services." However, governments have remained divided on how to determine which products are eligible for accelerated liberalisation.

A group of primarily industrialised countries want Members to create a 'list' of environmental goods. India and Argentina counter that this may not adequately ensure that products are used for environmental purposes. They instead support tariff cuts for goods used towards a negotiated list of specific environmental activities, which might include air pollution control, water management, soil conservation, waste management, and renewable energy.

The Brazilian submission said the environmental goods list currently under discussion consists primarily of "highly sophisticated industrial products [...] quite beyond the capacity of developing countries," echoing criticism by others in the developing world. It claimed this could be rectified with a greater focus on "agricultural environmental goods," which barely figure on the current list. Sources report that many Members, competitive farm exporters and reluctant importers alike, criticised the concept of designating agricultural products as environmental goods. They included the EU, Korea, Japan, Taiwan, Mexico, Australia and Argentina.

Brazil's suggestion that biofuels were "essentially an environmental good", and thus deserving of expedited tariff cuts, met with a lukewarm response amongst industrialised countries who protect their own, far less efficient biofuels. Several developed country delegates were less than enthusiastic. Canada raised environmental concerns related to biofuel production. The EU, Korea, and Australia expressed skepticism about the idea, and the US did not comment.

Deep tariff cuts on biofuels are unlikely to find favour in industrialised nations, most of which place high tariffs on ethanol. The US, for instance, places a tariff of over 14 cents per litre on ethanol, in order to protect its own politically influential corn-based ethanol industry. EU tariffs are roughly twice as high, at current exchange rates:
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Northern governments currently receive strong political support for subsidising biofuel production, but the ethanol produced in those countries, generally produced from corn, wheat, and rye, is far less efficient at curbing energy use and greenhouse gas emissions than sugarcane-based ethanol produced in tropical countries such as Brazil. Giving the two different tariff treatment would be problematic, due to strictures against differentiating between products on the basis of 'process and production methods.'

Ronald Steenblik, head of research for the Global Subsidies Initiative, which has heavily criticised subsidies for biofuel production said that "cane-based ethanol from existing cane plantations has good energy balance and greenhouse-gas mitigation properties." Given that "many countries have mandated the use of biofuels for environmental reasons, it is right and proper for Brazil to take them at their word, and ask them to level the playing field" between domestic and imported ethanol, he said.

Sources said that the Brazilian proposal broke new ground by suggesting an alternative method for identifying environmental goods. Although describing the 'integrated' approach backed by India and Argentina as "promising," it said that "if Members come to the conclusion" that tariff reduction commitments on specific products are necessary, they could consider a straightforward request and offer approach to do so.

Over the course of a number of "offer rounds," each country would ask its trading partners to slash tariffs on those agricultural and non-agricultural goods it felt would bring environmental benefits. Countries would then determine whether such liberalisation requests might compromise their own development of environmental or other industries, and indicate the environmental goods on which they were prepared to remove trade barriers.

Delegates report that most developed countries were supportive of the 'request-offer' notion, but some developing country representatives suggested that it would be cumbersome and time consuming. The US described it as "helpful," saying that it was not wedded to the concept of a common list for all Members, so long as the outcome of the negotiations was meaningful. Norway and others asked for more information how the 'request-offer' approach would function.

References:
International Centre for Trade and Sustainable Development: Brazil's call for biofuel liberalisation causes stir in environmental goods talks - October 10, 2007.