WORLD TRADE
ORGANIZATIONS/CSS/W/42/Suppl.3
4 October 2001
(01-4772)
Council for Trade in Services
Special SessionOriginal:  English
COMMUNICATION FROM JAPAN
Negotiation Proposal on Energy Services
Supplement
The following communication has been received from the delegation of Japan with the
request that it be circulated to the Members of the Council for Trade in Services.
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I. INTRODUCTION
1. Japan presents this proposal with the intention that energy services should be included in the
discussion for the negotiations on trade in services, given the importance of energy services for
economic activities.  The proposal is submitted  in accordance with paragraph 2(b) of the “Roadmap”
adopted at the Special Session of the Council for Trade in Services on 25 May 2000, which allows
Member Countries to make further or more detailed proposals in the future.  The proposal hereafter
should be read in conjunction with the Communication from Japan on the Negotiations on the Trade
in Services (S/CSS/W/42) dated 22 December 2000, which includes sectoral issues as well as Japan's
position on the current negotiations on trade in services.
2. The proposal, as set out below, consists of two parts: “II. Importance of Energy Services and
Issues to be Considered” and “III. Expectations from the Negotiations”.  The former chapter states the
importance of energy services and the issues to be taken into consideration in the current negotiations.
The latter chapter raises the issues that are necessa ry to be tackled in the negotiations with a view to
achieving a gradually higher level of liberalization.  These issues are by no means exhaustive.
3. Based on paragraph 2(b) of the “Roadmap”, Japan reserves its right to make additional
proposals in the future.
II. IMPORTANCE OF ENERGY SERVICES AND ISSUES TO BE CONSIDERED
4. It has already been pointed out in a number of proposals submitted by Member Countries that
securing an efficient and stable supply of energy is of great importance for achieving economic andsocial development.  In addition, in order to pursue economic growth, it is of prime importance to
increase the efficiency of providing energy services, as well as other services.
5. Despite such economic importance of energy services, there does not exist an energy-specific
division in W/120, the classification list for scheduling commitments under the General Agreement on
Trade in Services (GATS), and there have been very few commitments made by Member Countriesthat can be clearly defined as energy services.  The reason for such absence could be due to the factS/CSS/W/42/Suppl.3
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that energy services have been exclusively supplied by state-owned enterprises or companies with a
monopoly position, based on the regulatory environment in each country, and that energy services are
hardly recognized by negotiators as being negotiable.  However, since the conclusion of the Uruguay
Round, there have been repeated trial and error atte mpts to promote regulatory reform in the energy
services sector, resulting in the reorganization of the energy sector.  In Japan also, liberalization of theenergy market is proceeding, with continuous efforts being made to improve efficiency in energy
services.
6. Trade in energy services is, together with t he liberalization of the energy market, gradually
beginning to play an important role.  However, in a number of countries, the regulatory framework for
energy services has yet to be sufficiently developed, and there are cases where implementation of
those regulations lacks transparency and where the trade environment for energy services has not yet
been established.  The lack of transparency in energy services regulations reduces predictability fortrade in the sector.  In addition, a system with in sufficient transparency leads to increased doubts on
the part of those from the outside as to whether trade barriers do exist, thus resulting in a deterioration
of market confidence in the country concerned.  Accordingly, it is in the interest of all Member
Countries to improve the regulatory transparency of energy services.
7. At the same time, in any country, since energy services provide the basic infrastructure for
sustaining the modern economy, in cases where confidence in the supply has been lost, there is the
fear that this could not only damage consumer benefits, but also have a significant negative impact on
the economic growth of the country concerned.  When taking into consideration the following three
points, i.e., countries with scarce energy resources; developing countries whose energy services
industry is still at the developing stage; and the existence of differences in capital scale by country,energy security itself should continue to be of great importance in national energy policy.  In
particular, in light of the recent cases where liberalized markets have faced difficulties in supply, thus
causing heavy burdens in a country in which regulatory reform of energy services is ongoing, it is also
necessary to make efforts to ensure energy securi ty and supply reliability when pursing regulatory
reform and business reorganization.
8. In addition, among the changes that are currentl y surrounding energy policies, the issue of the
environment, and in particular the influence on the global environment, has been raised in global
discussion s since the end of the 1980s.  In 1997, the Third Session of the Conference of the Parties to
the Framework Convention on Climat e Change (COP3) was convened in Kyoto, Japan, where a goal
was agreed for developed countries to make reductions to their greenhouse  gas emissions.  It was
therefore decided that Japan would reduce its average emissions' level for the years 2008 - 2012 by
6% of the 1990 level.  In Japan’s case, almost 80% of its greenhouse gas emissions are caused by CO
2
energy generation-related substances.  Discussions are currently ongoing concerning global
environmental issues, and Japan believes that efforts should be made in all countries to harmonize
energy policies with environmental policies, and that those countries undertaking these measures
should not in any way be disadvantaged in energy services trade.
9. Regarding rule-making in the energy services se ctor under the GATS, in order to address the
issues of public interest, such as the preservation of energy security and supply reliability,
environmental preservation, and the maintenance of universal service and public safety, Member
Countries should reserve their own rights to adopt  those regulatory measures which are transparent,
competition-neutral and not more burdensome than necessary.  The difference in commitments
scheduled under the GATS should be justified under such Member's rights.
10. Furthermore, the possible rules under the GATS for the domestic regulation of the energy
services sector should recognize the diversity among Member Countries, based on the fact that each
country has a different history of energy services (e.g. whether energy services has been provided by a
state-owned or private provider), and also in accordance with the current industrial structure.S/CSS/W/42/Suppl.3
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However, to the greatest possible extent, rules should be non-discriminatory and should ensure the
maximum transparency.
III. EXPECTATIONS FROM THE NEGOTIATIONS
A. CLASSIFICATION
11. Japan proposes that during the current negotiations, development of a new classification for
the energy services sector be considered for the sake of having comprehensive consultations on
energy services without deflecting to specific sectors/sub-sectors, since the existing Services Sectoral
Classification List (W/120) under the GATS does not recognize energy services in the form of a
specific division as already pointed out by many Member Countries.  Such classification should limit
itself in scope to the energy services sector and should be developed so as to avoid conflict with
existing commitments.
12. Discussions should comprehensively cover the entire range of energy services, from the
wholesale of energy to the final consumption by the consumer.  An initial focus should be placed on
the "core" energy services, namely, wholesale sales, transportation (transmission and distribution of
electricity, pipeline transportation and transmission of heat) and retail sales of energy.  Regarding
energy resource production that could be considered as goods production (mining, refining, power
generation and re-gasification), the classification issue should be explained logically in the Councilfor Trade in Services and its Special Session in conformity with the previous GATS discussions,
including those on classification.
13. Although it is also possible to discuss "non-core" energy services, such as energy related
engineering and construction services, it would be effective to undertake separately the discussions of
"core" and "non-core" elements in order to simplif y discussions and avoid confusion.  In addition,
when "non-core" services are being discussed, in order to avoid duplication on the lists for other
services, it may be useful to  define a classification for energy-related services as a checklist for
reference purposes only.
14. Energy services subject to consideration should be energy neutral and irrespective of the
energy resources.  However, energy services relating to nuclear power may cause a complex debateover the peaceful use of nuclear power, the security measures and nuclear safety, thus careful
consideration is necessary.  In addition, Japan proposes to exclude discussions on the issue of the
public ownership of natural resources.
B. M
ARKET ACCESS AND NATIONAL TREATMENT
15. All Member Countries should consider negotiating  on market access and national treatment
to the greatest possible extent, taking into account the public interest mentioned in paragraph 9 of this
proposal.
16. In addition, in some Member Countries, despite the economic reality that their domestic
market is integrated and interrelated, there are some cases where differences in market access and
national treatment exist at local government level.  In such cases, there is concern that the complexity
of systems at that level may form a barrier agains t invigorated energy services trade in the country
concerned.  From a perspective of facilitating business operations by foreign companies in a givencountry, the central government (including inde pendent regulators) should ensure that local
governments improve market access and national treatment within the market as a whole, in
accordance with the economic reality.S/CSS/W/42/Suppl.3
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17. Furthermore, when providing energy services it is vital that the installation of specific
materials/equipment for energy services and technical experts knowledgeable about the energy sector
can be made available.  Currently, some countries levy high duties on the import of specific
materials/equipment, while others require local procurement or condition the stay of technical experts
to a short-term period.  Moreover, there are cases where regulations may lack transparency, whichresults in less predictability for business operations.  Japan expects that appropriate consideration will
be given to this point with the aim of removing such barriers.
C. R
EVIEW OF REGULATORY FRAMEWORKS
18. There has been no perfect model for a successful introduction of domestic regulations and a
competitive environment for the energy services sector.  On the contrary, every country is progressing
with regulatory reform and business reorganization in the energy market on a trial and error basis.
Recognizing such circumstances, Japan believes th at in the negotiations on energy services, it would
be useful to consider the effectiveness of frameworks 　for domestic regulation, which would
contribute to the creation of a competitive enviro nment taking into account the viewpoint of a non-
discriminate, fair and transparent use of the ne tworks, with due consideration being given to a
Member's obligation under Articles XVI (market access) and XVII (national treatment).
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