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Climate, energy and trade in EU–China relations: synergy or conflict?

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Abstract

This article aims at assessing the state of Sino–European energy relations in light of the common challenges they face in the areas of energy security and sustainability, while providing some insight on whether international trade rules are well-equipped to encourage and facilitate cooperation, on the one hand, and defuse potential conflicts, on the other, between China and the EU. Section 1 introduces the topic. Section 2 gives an account of the climate and energy profiles of both China and the EU with a view to highlighting their shared interests in the field and the potential for synergies in the areas of energy security and energy sustainability. Section 3 illustrates how energy cooperation between China and the EU has evolved over the years and identifies its main strengths and weaknesses. Section 4 discusses the role that international trade rules can play in fostering China–EU energy cooperation and provides a case study on the how World Trade Organization (WTO) rules on export restrictions could enhance energy security. This is followed by some conclusions on the potential of the WTO system to advance Sino–EU energy relations and, more generally, global energy governance.

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Notes

  1. Europe-China Clean Energy Centre (2015), p. 27.

  2. European Commission (2016), p. 14; International Energy Agency (2015), p. 26.

  3. See European Commission (2014) and U.S. Energy Information Administration (2015).

  4. Europe-China Clean Energy Centre (2015), p. 27 and Europe-China Clean Energy Centre (2015), p. 17. See also Daojioing (2013), p. 2.

  5. Robinson (2013), p. 20.

  6. See Ghosh and Gangania (2012).

  7. Europe-China Clean Energy Centre (2015), pp. 10–11.

  8. European Commission (2016), p. 14 and p. 18.

  9. Ibid., p. 10.

  10. U.S. Energy Information Administration (2015), p. 2.

  11. European Commission (2016), p. 13.

  12. U.S. Energy Information Administration (2015), p. 2.

  13. In 1995, oil accounted for 39% of the EU’s overall energy consumption, followed by coal (22%) and natural gas (20%). European Commission (2016), p. 22.

  14. See Eurostat (2016).

  15. European Commission (2016), pp. 24–26.

  16. China’s foreign oil dependence is almost 60%. Europe-China Clean Energy Centre (2015), p. 27.

  17. U.S. Energy Information Administration (2015), p. 11.

  18. Europe-China Clean Energy Centre (2015), p. 27.

  19. U.S. Energy Information Administration (2015), pp. 21–22.

  20. The US$400 billion gas supply deal was signed in May 2014 after a decade of negotiations between China’s National Petroleum Corporation and the Russian national champion Gazprom. Under this agreement, Russia will start exporting 1.3 trillion cubic feet of natural gas per year to China for a span of thirty years starting in 2018. Ibid., p. 22.

  21. U.S. Energy Information Administration (2015), pp. 26–28.

  22. Ibid., p. 27.

  23. European Commission (2016), p. 18.

  24. Ibid. and U.S. Energy Information Administration (2015), p. 2.

  25. European Commission (2016), p. 18.

  26. Li (2014).

  27. Xinhua News (2014).

  28. U.S. Energy Information Administration (2015), p. 2.

  29. Ibid., p. 30 and Sun et al. (2016), p. 826.

  30. U.S. Energy Information Administration (2015), p. 32.

  31. Ibid., p. 30. On the importance of network development to facilitate the integration of increasing share of renewables into the grid, see Cottier and Espa (2017), pp. 1–14.

  32. U.S. Energy Information Administration (2015), p. 2.

  33. European Commission (2017a).

  34. European Commission (2014), p. 1.

  35. Ibid. pp. 1–18 and European Council (2014).

  36. European Commission (2014), p. 5. See also European Parliament (2017).

  37. European Commission (2015).

  38. European Commission (2017b).

  39. Eurelectric (2015), p. 18.

  40. European Commission Fact Sheet (2017).

  41. Cottier and Espa (2017), pp. 21–43.

  42. Europe-China Clean Energy Centre (2015), p. 13.

  43. Ibid., pp. 17–19.

  44. Ibid., p. 13.

  45. Ibid., p. 22.

  46. Ibid., pp. 16–18.

  47. De Matteis (2010).

  48. Europe-China Clean Energy Centre (2015), p. 13.

  49. Ibid.

  50. EU-China Joint Declaration on Energy Security (2012).

  51. For more details, see infra, Sect. 3.2.

  52. Europe-China Clean Energy Centre (2015), p. 14.

  53. Ibid., pp. 15–16.

  54. Ibid., p. 20.

  55. Ibid., pp. 21–22.

  56. Ibid., p. 22.

  57. Examples include the Smart Cities project. Ibid., 23. See also pp. 24–25.

  58. Ibid., pp. 23–24.

  59. EU-China Joint Declaration on Energy Security (2012).

  60. Ibid., para. 1.

  61. Ibid., para. 4.

  62. Ibid., para. 2.

  63. Ibid., para. 8.

  64. Ibid., para. 9.

  65. Ibid., para. 7.

  66. Ibid., para. 6.

  67. Ibid., para. 11.

  68. Ibid., para. 5.

  69. Ibid., para. 5.

  70. Europe-China Clean Energy Centre (2015), p. 14.

  71. Ibid.

  72. Ibid.

  73. European Commission Fact Sheet (2017); U.S. Energy Information Administration (2015).

  74. See above, Sect. 3.2.

  75. Europe-China Clean Energy Centre (2015), pp. 21–22.

  76. Ibid., pp. 23–24.

  77. Ibid., pp. 24–25.

  78. Ibid., p. 19.

  79. Ibid., pp. 28.

  80. EU-China Roadmap on Energy Cooperation (2016–2020) (2016).

  81. See ibid., Section A, para. 1.

  82. Ibid., Section A, para. 1 (a).

  83. Ibid.

  84. See Cottier and Espa (2017).

  85. Europe-China Clean Energy Centre (2015), p. 28.

  86. EU-China Roadmap on Energy Cooperation (2016–2020), Section A (b).

  87. Europe-China Clean Energy Centre (2015), p. 17.

  88. Ibid., p. 17.

  89. Ibid., p. 28.

  90. See above, Sect. 3.3.

  91. See below, Sect. 4.1. This is much more difficult for the energy sustainability field, as this would require an assessment of a broad range of international trade rules, from subsidies to trade remedies. These topics are addressed separately in the next articles of this Special Issue.

  92. For these aspects see Gardner (1980).

  93. See Marceau (2009), pp. 25–26.

  94. China—Raw Materials (Panel and Appellate Body Reports), China—Rare Earths (Panel and Appellate Body Reports) and China—Raw Materials II (Panel Report pending).

  95. For a more detailed classification of the various types and categories of export restrictions, see Fliess et al. (2014), p. 40.

  96. At the time of writing, six cases have dealt specifically with quantitative restrictions on exports under Article XI:1 GATT: Canada—Herring and Salmon, Japan—Semiconductors, Argentina—Hides and Leather, China—Raw Materials, China—Rare Earths, and China—Raw Materials II. While the latter dispute is pending, all the measures challenged so far were considered to fall within the meaning of ‘prohibitions or restrictions…on the exportation’ under Article XI:1 GATT. For a thorough analysis of Article XI:1 GATT jurisprudence on the export side, see Espa (2015), pp. 169–179.

  97. The term ‘prohibitions’ unambiguously applies to measures that impede exports outright (i.e. export bans). Hence, it has not created interpretative problems. Ibid., p. 170.

  98. In China—Raw Materials, in particular, the Panel clarified that “the very potential to limit trade constitute[s] a ‘restriction’ within the meaning of Article XI:1 of the GATT 1994”. Panel Report, China—Raw Materials, para. 7.1081 (original emphasis).

  99. India—Measures Affecting the Automotive Sector (Panel Report), paras. 7.254–7.263.

  100. Ibid., para. 7.261.

  101. Cottier et al. (2011), p. 235. However, some authors pointed out that this would significantly hamper the principle of sovereignty over natural resources. Crosby (2009), p. 84. Others submit that it would create a conflict between WTO rules and OPEC rules. Farah and Cima (2013).

  102. Ehring and Chianale (2012), pp. 112–117.

  103. Matsushita (2011), p. 273; Qin (2012), pp. 1160–1161.

  104. Australia has negotiated export duty concessions in its GATT schedule by inserting an ad-hoc note referring to 11 HS 8-digit tariff lines—accounting for a predominant share of its exports of mineral products (that is, iron ore, titanium ore, zirconium ore, coal, peat, coke, refined copper, unwrought nickel, nickel oxide, and lead waste and scrap)—in Section 2 of Part I of its Schedule on “MFN [most-favoured nation] import tariff commitments on non-agricultural products.” The note states: “There shall be no export duty on this product.” Australia’s Uruguay Schedule, AUS1-201 through AUS1-204.

  105. See Espa (2015), pp. 156–159.

  106. For a complete overview see Espa (2015), pp. 147–161 and, for an update, Espa (2017).

  107. For an analysis of the systemic implications of the fragmentation of WTO disciplines on export duties, see Espa (2015), pp. 194–208.

  108. See Espa (2015), pp. 111–116.

  109. As per the chapeau of Article XX, measures falling under one of the listed exceptions cannot be applied ‘in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade’. For a more detailed analysis, see ibid., pp. 223–225.

  110. China–Raw Materials (Appellate Body Reports), para. 293; China–Rare Earths (Appellate Body Reports), para. 5.65. For a thorough analysis of the approach designed through WTO case law, see Espa (2015), pp. 194–202.

  111. For more details, see Espa (2015), pp. 202–208.

  112. This has led some authors to speak of ‘multi-tiered’ membership. See Qin (2012), pp. 1161–1162.

  113. Among the newly acceded WTO Members, these are the countries that export their energy products to either China or the EU. See above, Sect. 2.1.

  114. Working Party Report on the Accession of Oman, para. 74; Working Party Report on the Accession of Yemen, para. 131.

  115. Working Party Report on the Accession of Saudi Arabia, para. 315; Working Party Report on the Accession of Kazakhstan, para. 534. In the case of Kazakhstan, in particular, export duties were applied on, among others, crude oil and gas oils at the time of the accession. See ibid., Table 17(A).

  116. Working Party Report on the Accession of the Russian Federation, para. 738. Part V of the Russian Federation’s Schedule starts with the statement: ‘[t]he Russian Federation undertakes not to increase export duties, or to reduce or to eliminate them, in accordance with the following schedule, except in accordance with the provisions of the GATT 1994’.

  117. See footnote# and footnote##, Part V of the Russian Federation’s Schedule, WT/MIN(11)/2/Add.1.

  118. China’s Accession Protocol, para. 11.3.

  119. Ibid., Annex 6. Annex 6 to China’s Accession Protocol, labelled ‘Products Subject to Export Duty’, lists eighty-four HS 8-digit products for which maximum levels of export duty are provided. With respect to these commitments, a Note to Annex 6 clarifies: ‘China confirmed that the tariff levels included in this Annex are maximum levels which will not be exceeded. China confirmed furthermore that it would not increase the presently applied rates, except under exceptional circumstances. If such circumstances occurred, China would consult with affected Members prior to increasing applied tariffs with a view to finding a mutually acceptable solution’.

  120. Ibid.

  121. The full list comprises iron ore, titanium ore, zirconium ore, coal, peat, coke, refined copper, unwrought nickel, nickel oxide, and lead waste and scrap. Australia’s Uruguay Schedule, AUS1-201 to AUS1-204.

  122. See above, Sect. 4.1.1.3.

  123. Turkey–Textiles (Panel Report), para. 9.63.

  124. See above, Sect. 4.1.1.3. For a more detailed account, see Espa (2015), pp. 208–209.

  125. Even so, the potential of ‘industrial’ Article XX exception to justify export restrictions applied on energy commodities is considered to be quite limited. Ibid., pp. 221–223.

  126. For a full account of the two disputes, see the article by Elisa Baroncini in this Special Issue.

  127. Espa (2015), pp. 180–185.

  128. For more details, see, among others, Howse and Josling (2012), p. 14.

  129. For a full account, see Espa (2015), pp. 209–221.

  130. China–Rare Earths (Panel Report), para. 7.459.

  131. Ibid., para. 7.460. The Panel reiterated that ‘measures adopted for the purpose of economic development … are not “measures relating to conservation” but measures relating to industrial policy’.

  132. Ibid., paras. 7.451–2 and 7.459–60.

  133. China–Rare Earths (Panel Report), para. 7.462. As noted by the panel in China–Raw Materials, ‘a State’s sovereignty is also expressed in its decision to ratify an international treaty and accept the benefits and obligations that such ratification entails. In becoming a WTO Member, China has of course not forfeited permanent sovereignty over its natural resources, which it enjoys as a natural corollary of its statehood. Nor … has China or any other WTO Member ‘given up’ its right to adopt export quotas or any other measure in pursuit of conservation. China has, however, agreed to exercise its rights in conformity with WTO rules, and to respect WTO provisions when developing and implementing policies to conserve exhaustible natural resources’. Ibid., para. 7.270.

  134. See above, Sect. 2.1.

  135. Bonarriva et al. (2009).

  136. Piermartini (2004), p. 8.

  137. This scenario would also ensure more coherence and equity in WTO disciplines on export duties. For a full account, see Espa (2015), pp. 277–282.

  138. Bonarriva, Koscielski and Wilson (2009).

  139. While this analysis was not conducted for the area of energy sustainability as such owing to the reasons explained in Sect. 4 above, it can be preliminarily noticed that the evolution of the Sino-European energy relations seems to have informed the Chinese and the EU attitudes towards the use of trade-related instruments in the area of RE promotion within the WTO legal framework, both as regards the settlement of potential disputes emerging between each other and with other leading renewable energy players. Compared to the recent trends of RE disputes in the areas of subsidies and trade remedies brought before the WTO dispute settlement system until now, China and the EU have in fact appeared as either complainants or respondents several times but only once against each other—and the dispute is still at the consultations stage. For a more detailed analysis see Leal-Arcas and Filis (2014) and de Bièvre et al. (2017).

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  1. World Trade Institute, University of Bern, Hallerstrasse 6, 3012, Bern, Switzerland

    Ilaria Espa

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Correspondence to Ilaria Espa.

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The present article has been written within the research project “EU–China Disputes on Trade Remedies, Climate Change and Natural Resources: A Legal Analysis for A Better Legal Framework and Cooperation”, financed by the China-EU School of Law, under the scientific supervision of Prof. Elisa Baroncini.

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Espa, I. Climate, energy and trade in EU–China relations: synergy or conflict?. China-EU Law J 6, 57–80 (2018). https://doi.org/10.1007/s12689-017-0076-0

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