FOR some time now concerns have been expressed about dual energy pricing and the threat to competitive trade in Caricom because of the perceived disadvantage of this policy for manufacturing industries trading in the region, but also because of its impact on industries attempting to secure competitive advantage in external markets. The practice doubtless threatens the existence of several industries and the well-being of many workers depending on these industries to stay in business.

Existing trade rules seem ill-equipped to provide an easy solution to this issue and, short of political pressure or diplomatic manoeuvrings or moral suasion, there seems to be little that can be done to provide an effective remedy.

To be sure, the issue is not only spotlighted at the regional level within Caricom but farther afield in the World Trade Organisation (WTO), where dual energy pricing (ie providing lower price for energy to domestic market constituents compared to a higher pricing for the export market) is observed as a form of unfair trade practice because the price differential is often regarded as a subsidy to domestic industries.

WTO accession for oil-producing countries (eg Algeria, Iraq, Iran and Russia) is often hamstrung by wrangling over the issue where discontinuance of the practice is sought by non-oil-producing countries as a condition for their acceptance of applications for accession.

The dispute over the practice is often focused on whether it amounts to a subsidy requiring some remedial action to level the competitive playing field. One view is that although dual pricing is a subsidy it is not remediable under current WTO rules, which are replicated in Chapter Five of the Revised Treaty of Chaguaramas, because the subsidy is given to everyone in the domestic market and is therefore not ‘specific’ to an industry within the meaning of the applicable rules on subsidies.

On the other hand, subsidised energy inputs, even if not ‘specific’, have often been countered against in the final goods produced with the energy inputs. There are in fact many examples of countervailing or anti-subsidy measures being maintained against energy intensive final goods by several countries. For example, the United States Department of Commerce (one of the government bodies charged with administering trade defence laws) has treated the provision of electricity at preferential rates as a subsidy remediable with higher import duties on the final goods (steel products from Thailand and Canada) produced by that benefit.

Anti-subsidy measures have also been put in place by other countries for trade in the product itself as a good and not as an input in a final good. In recent times the EC imposed anti-subsidy measures on imported biodiesel, and the United States has obtained undertakings from countries such as France, Germany and Italy to supply uranium at non-subsidised prices.

Of course, we may well admit that the practice of other countries in dealing with the issue of dual energy pricing is not necessarily a recommendation that their practice is consistent with WTO rules. WTO rules, even if replicated in domestic law, may not be followed to the letter in the same manner and pace as the case law is developing within the WTO.

In addition, countries may often impose a measure (on the basis of some adjudicative exercise) and wait for it to be challenged within the dispute settlement mechanism of a regional trading arrangement or within the WTO. This can be done in bad faith, but it may be the result of ambiguity or uncertainty in the applicable rules where the best defence is to put the responding party to proof, that is, you must prove that I am wrong in my application of this measure.

We may admit as well that GATT 1947 (now GATT 1994) was negotiated in a context in which the international trade in energy was dominated by a few multinational firms and cartelised, and this doubtless partly accounts for GATT rules not dealing with energy as a distinct sector.

In the Uruguay Round, WTO members did not reach any resolution on the practice of dual energy pricing and export restrictions, although limited commitments were made for the granting of access to energy markets to foreign service suppliers. Now energy is being discussed as a distinct service sector and its relationship to export taxes and export restrictions on raw materials, but also, equally important, whether it should be classified as a good or a service and what particular trade rules should apply to it.

At the Caricom level, discussions took a turn to treating dual energy pricing as a possible breach of the nationality principle in the Revised Treaty of Chaguaramas. The particular provision requires that discrimination should be on this basis only to constitute a breach, opening the possibility that there could be other considerations governing the pricing that could defeat the argument of breach of the provision.

But there is another consideration. Breach of the principle, if interpreted to include the notion of national treatment, requires an importing country to be discriminating between its own goods and imported goods and would be a counter-intuitive approach to remedy the impasse since the conduct is about exporting at a higher differential price, and not about treating domestic goods differently from imported goods.

Then there is the suggestion that higher tariffs should be imposed to remedy balance of payments difficulties arising from any trade imbalance resulting from dual pricing. For political reasons this may be unpalatable, but meeting the legal criteria could require some approval from the International Monetary Fund (IMF) with whom the WTO has a co-operation agreement to avoid conflict in the application of measures that involve both organisations.

Doubtless, the WTO would certainly seek guidance from that body in determining whether a balance of payment measure is consistent with WTO rules were the measure to be challenged.

So now how much closer are we to solving this issue? To be sure, general GATT rules replicated in the Revised Treaty are sufficiently flexible to accommodate and discipline trade in energy and energy-related products.

We could regard dual pricing as a form of quantitative restriction violating GATT rules if, for example, licensing requirements limit access to export distribution networks. We may even regard dual pricing as possibly violating GATT provisions for state trading enterprises to the extent that non-commercial considerations are factored in the measure.

Finally, let us not forget that the WTO Subsidies Agreement is far more flexible than what is currently claimed based on the developing WTO jurisprudence. Dual energy pricing may doubtless be the prohibited subsidy that non-oil producing Caricom countries should seek to remedy.

Dr Delroy S Beckford is an attorney-at-law specialising in International Economic Law, and lecturer in the Faculty of Law, Mona, UWI. He is the author of the book ‘Power and Judicial Activism in the WTO: The Appellate Body’s Interpretation of Trade Remedy Agreements’. Feedback may be sent to: delroy.beckford@gmail.com