RESTRICTEDWORLD TRADE
ORGANIZATIONS/C/W/58
20 October 1998
(98-4051)
Council for Trade in Services Original:  English
COMMUNICATION FROM THE UNITED STATES
Energy Services
The attached paper has been received from the delegation of the United States with the
request that it be circulated to the Members of th e Council for Trade in Services to assist in the
discussion on Energy Services in the context of the information exchange programme.
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GROWTH OUTLOOK AND BENEFITS OF LIBERALIZATION
The variety and amount of energy services available will be supported by liberalization of
energy services.  Liberalization of these sectors lowers prices for consumers, supports economicgrowth and employment, including in emerging market s, and acts as a spur to private investment from
all sources and the transfer of technologies.
For example, estimates of customer savings from liberalization of both wholesale and retail
electricity markets in the United States range from 10 per cent to 30 per cent.  Liberalization of the
gas sector has resulted in similar if not greater price reductions.  And this does not even take into
account other benefits from increased market participation by numerous energy service providersresulting in a much broader array of services available to both wholesale and retail consumers.  In
other countries undergoing energy sector liberalization, similar benefits have been achieved.  Utilities
in New Zealand have reduced prices by 10 per cent to 15 per cent; in Australia, utilities have
improved generating plant availability and reliability by 50 per cent to 60 per cent.  In Argentina and
Chile, wholesale electricity prices have declined by  40 per cent to 50 per cent following liberalization.
And in Norway, wholesale prices have declined by about 17 per cent.
The energy sector is a basic infrastructure sector that also supports economic growth and
creation of wealth in other segments of the economy.  Strong economic growth generates considerable
upward pressure on energy demand.  Sustaining growth  rates necessary to increase standards of living
as well as meet national social and environmental objectives will require significant investments in
the infrastructure system necessary to deliver those increasing energy supplies.  The funds and
technical expertise required to accomplish this task   are substantial - proper market mechanisms will
be necessary in order to ensure that the needed capital and expertise to create and operate the energy
supply infrastructure is attracted, especially from the private sector.
Liberalization of the energy sector can provide significant benefits to WTO Members by
freeing up investment capital for use in other basic infrastructure and public goods sectors of the
economy.  Liberalization also results in  significant environmental benefits through the introduction of
new, efficient and less polluting technologies; improvements in economic efficiency of production,
transport and end-use; and the substitute of electricity and/or natural gas for biomass fuels (e.g., wood
and charcoal).S/C/W/58
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The electricity and natural gas sectors are especially noted for the high degree of government
ownership and intervention relative to most other sectors of the economy and thus particularly are
characterized by numerous governmental interventions  at the national and local levels.  Electricity
and natural gas markets are generally regional rather than global in nature, since delivery of the
energy commodity depends on an interconnected ne twork of facilities that ties production with
transport, delivery and end-use.  In addition, electricity (and to a lesser extent, natural gas) has limitedstorage capabilities, making the coordination of supply and demand a necessity.  However, the
regional nature of these markets does not preclude vigorous and effective competition, as has been
shown through the integration of cross-border markets particularly in North America and to a lesser
extent in Europe. Indeed, the supply pressures, cost imperatives and diversification objective cited
above provide even further incentives for the development of regional markets, unhindered by
artificial restrictions imposed by national boundaries, wherever technologically and economically
feasible.
The realities and challenges to existing national energy supply systems created by these forces
are increasingly well recognized and accepted in various regions of the world.  Many governments are
actively reviewing the alternative reforms to liberali ze energy supply systems that will enable them to
meet the dual challenges of meeting the growth in demand for absolute levels of energy on the most
cost-effective basis.  A further constraint on that examination is the recognition that the funds
necessary to create and operate the supply infrastructure are beyond the resources of governments.
Introduction of more market-oriented private actors providing energy supply on a competitive basis
can have the additional benefit of ensuring that the capacity installation and operation occurs on the
most cost-effective basis.  Numerous questions are currently under consideration as to the mostappropriate operational and regulatory aspects for these evolving energy supply and delivery policies,
especially regarding the future role of government.
Actual liberalization of the energy sector, particularly the electricity and natural gas sectors,
has progressed  significantly over the last decade, particularly in North America and Europe.  Evenhere, liberalization remains a work in progress, although in the case of the United States, the cost
savings achieved already have been measurable and significant.   Liberalization of the energy sector is
in various stages of development in other countries, but certain basic elements of liberalization have
begun to emerge.  These include unbundling (or separation) of the various functions of the sector
(production, transport, distribution, and end-use); privatization of the sector to reduce government
financing requirements and maximize efficiency incentives; development of an independent
regulatory function to develop a competitive market structure, oversee operation of the sector andprovide for consumer protection; and creation of transparent processes regarding data collection,
regulation, pricing and support for public policy objectives.
POSSIBLE AREAS FOR FUTURE DISCUSSION AND WORK
o The scope of energy services needs to be established in a manner which reflects the true
nature of commercial activity in the sector and the realities of the seamless nature of the
energy supply system.  It should recognize that the benefits sought call for examination and
negotiation of commitments on services used in the exploration, extraction, processing,production and delivery (including distribution and transmission) of various forms of energy.
The supply of energy services, particularly electricity, involves many related activities, such
as purchasing, transporting and storing fuel; constructing and operating generating stations
and transport and delivery facilities; trading and marketing bulk power; and end-use services,
such as metering, billing, accounting and energy management services.S/C/W/58
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o Maximum transparency is critical to achieving effective competition in the energy sector.
WTO Members should undertake mechanisms to provide for maximum transparency in all
segments of the sector, including such mechanisms as competitive bidding regimes, wholesale
and retail pricing, waste management and disposal, and energy marketing and brokering.
o The energy sector, particularly electricity and natural gas, is subject to significant government
intervention and regulation at national and local levels.  Government regulation of these
markets must be carried out transparently and  should not constitute a market access
restriction.  Increased international attentio n to the possible development of regulatory
principles for this sector would seem useful.
o WTO members should review the rationale and need for remaining market access and
national treatment restrictions in the energy services sector, including those relating to
commercial presence, consumption abroad, cr oss-border supply, and temporary entry and
movement of natural persons.
U.S. REGIME
The U.S. provides full market access and national treatment for services incidental to energy
distribution and services incidental to mining for Modes 1, 2 and 3; Mode 4 is bound as indicated in
the horizontal section.  The U.S. has not undertaken commitments for pipeline distribution services.
REMARKS ON WTO SECRETARIAT  PAPER
In the Introduction, the paper mentions that the first hurdle in addressing trade in energy
services is to agree on a definition; i.e., what activities are included in the definition of “energy
services.”  The discussion suggests that energy services generally include energy transport,distribution and consulting services, but exclude services which are directly related to energy
production. As described above, the U.S. is of the view that the scope of energy-related services to be
included in these discussions should reflect the reality of the energy supply system, which we believe
would necessarily include some energy production services.
The Secretariat paper usefully summarizes the various categories in the U.N. CPC within
which energy-related services appear.  This is clearly a situation which differs from many otherservices sectors and requires additional examination.  However, the U.S. believes that, in the end, the
marketplace realities regarding energy supply services rather than artificial classification categories
should dictate the appropriate scope for future GATS work.
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