Ensuring that Imported Biofuels Abide by Domestic Environmental Standards: Will the Agreement on Technical Barriers to Trade Tolerate Asymmetrical Compliance Regimes?

Author: Danielle Spiegel-Feld Ensuring that Imported Biofuels Abide by Domestic Environmental Standards_Page_02From an environmental standpoint, not all biofuels are alike.  If produced from sustainably harvested feedstocks using energy efficient production processes, biofuels can help to reduce greenhouse gas (GHG) emissions from the transportation sector. If, however, biofuels are produced from unsustainably harvested feedstocks using energy intensive production processes, biofuels can have the opposite GHG effect, causing significant non-climate related environmental harm as well. After years of undifferentiated support, in 2007 the United States Congress passed the Energy Independence and Security Act (EISA), which sought to selectively promote biofuels that are considered environmentally sustainable.  Citing the added difficulty of policing the conditions under which foreign biofuels are produced, the regulations that the Environmental Protection Agency (EPA) drafted to implement the EISA, known as the “Renewable Fuel Standard Program” (RFS2), require foreign producers to follow some more exacting procedures to demonstrate compliance with the EISA’s environmental requirements than their domestic counterparts.  As described below, EPA’s claim that the added difficulty of foreign enforcement calls for additional compliance procedures is plausible.  Not surprisingly, though, foreign biofuels producers have cried foul.  The harshest criticism has come from the Brazilian Sugarcane Industry Association (UNICA), traditionally the largest ethanol exporter in the world. Specifically, in response to EPA’s proposed RFS2 rulemaking, UNICA submitted comments alleging the imposition of any additional compliance obligations on foreign producers violates the United States’ duties under the law of the World Trade Organization, including Article III and XI of the General Agreement on Tariffs and Trade (GATT) as well as Article 2 of the Agreement on Technical Barriers to Trade (TBT).  The European Commission complained to EPA about the asymmetry in the proposed RFS2 compliance procedures as well, albeit less bluntly. Conventional wisdom suggests that, where it applies, the TBT Agreement imposes more onerous obligations on members of the World Trade Organization (WTO) than does the GATT alone.  Upon close examination, however, it is far from clear that Article 2 of the TBT Agreement covers the compliance measures that UNICA challenges.  In fact, there is good reason to question whether the TBT Agreement applies to the dispute at all.  If it does not, the hypothetical case would be considered under the rules of the GATT alone, with the resulting possibility of justifying the asymmetry under Article XX. It is important for all WTO members who seek to curb the flow of unsustainable biofuels into their markets to understand the ways in which the TBT Agreement may constrain their efforts to craft effective compliance regimes for the implementation of cross-border environmental objectives.  To that end, this article uses UNICA’s challenge to the RFS2 as a case study for examining the extent to which the TBT Agreement prohibits WTO members from imposing asymmetrical compliance burdens on foreign and domestic biofuels producers.  It ultimately concludes that the TBT Agreement leaves sufficient regulatory space for policy-makers to design biofuel compliance regimes as they believe is necessary to confidently implement their sustainability objectives, even where doing so requires imposing a greater burden on foreign and domestic producers.   Download this publication here

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