Promoting Trade in Environmental

1
Promoting Trade in Environmental Goods How Can
RTAs Contribute? Mahesh Sugathan Workshop on
Regional Trade Agreements and the
Environment OECD-UNU-IAS and Ministry of
Environment, Japan (Tokyo, 19-20 June 2007)
2
Overview of presentation

• The Doha Mandate
• What are environmental goods?
• EGS and Sustainable Development
• WTO negotiations-value-addition, developments and
  state of play
• Main Challenges faced by WTO Negotiators
• Domestic and Crosscutting Challenges
• Relevance of RTAs to EGS
• Trade creation and trade diversion
• Examples of RTA Provisions and Activities
  Relevant to EGS
• Promoting EGS Trade through RTAs Opportunities
  and Constraints

3
The Doha Mandate on Environmental Goods and
Services

• Para 31 (iii) Doha Ministerial Declaration calls
  for the reduction or, as appropriate,
  elimination of tariffs and non-tariff barriers on
  environmental goods and services.
• No prior definition of environmental goods.

4
What are environmental goods?

• No universally accepted definition.
• Lists developed by APEC and OECD (illustrative)
  used as starting point for discussions.
• Both lists derive from OECD/Eurostat definition
  of environment industry agreed in 1995
• The environmental goods and services industry
  consists of activities which produce goods and
  services to measure, prevent, limit, minimise or
  correct environmental damage to water, air and
  soil, as well as problems related to waste, noise
  and eco-systems. This includes cleaner
  technologies, products and services that reduce
  environmental risk and minimise pollution and
  resource use.

5
What are Environmental Goods (..contd?)

• In addition some would include environmentally
  preferable products within the scope of
  environmental goods. UNCTAD defines these as
• Products which cause significantly less
  environmental harm at some stage of their life
  cycle than alternative products that serve the
  same purpose, or products the production and sale
  of which contribute significantly to the
  preservation of the environment. (UNCTAD, 1995),

6
Traditional Environmental Goods vs
Environmentally Preferable Products (EPPs)
Main purpose
Traditional Goods
To address an environmental problem
Main purpose
EPPs
Other uses
Production E.g. Organic agriculture
To note For every EPP there exists a substitute
or like product or substitute with a similar
use that is not as environmentally friendly
But environmental benefits arise during
Consumption/Use E.g. Solar cars
Disposal E.g. Jute Bags
7
EGS and Sustainable Development

• Lower trade barriers to EGS can contribute to
  increased access.
• Increased access can yield
• positive environmental benefits in terms of
  source- resource-use efficiency and
  sink-pollution prevention, control of air and
  water pollution and CO2 emissions.
• Positive social benefits better health, lower
  mortality and pollution-induced diseases
• Positive economic benefits economic growth and
  employment through trade and investment in EGS

8
But trade liberalisation may also have adverse
impacts

• Job losses in incumbent EGS industries especially
  SMEs
• Loss of tariff-revenue
• If domestic regulation is weak access to EGS
  may result but not equitable access
• Lack of meaningful technology transfer or
  absorption
• Inherent tension may arise between most efficient
  environmental protection methods and other
  sustainable development concerns.
• Hence need for crafting trade policy in the
  context of domestic sustainable development
  framework

9
What is the value-added in WTO Negotiations on
EGS ?

• Argued that environmental benefits through trade
  in EGS can be realised unilaterally
• Reciprocal exchange of concessions
• However WTO rules can act as a global instrument
  to shape trade-flow dynamics and lock-in
  polices affecting EG flows.
• Also has scale effect of collective action as
  opposed to unilateral initiatives
• Greater predictability and stability of
  trade-flows

10
What has happened in the WTO?

• ENVIRONMENTAL GOODS
• At a meeting of the CTE special session in March
  2002, Members agreed that paragraph 31(iii)
  should be implemented in the context of NAMA and
  Services negotiations but that the CTE could
  contribute by examining what constituted
  environmental goods.
• Annex B of the General Council Decision of 1
  August 2004 encourages the Negotiating Group on
  NAMA to work closely with the CTE Special Session
  with a view to addressing the issue of
  non-agricultural environmental goods covered in
  Paragraph 31(iii) of the Doha Ministerial
  Declaration.
• Currently specific goods submitted by WTO Members
  are all industrial.

11
Brief State of Play on Negotiations

• Originally WTO Members submitted 480 products at
  the 6-digit HS level.
• Friends of EGS Group have revised down their
  collective number of products to 153.
• Problems of dual-use, environmental relevance,
  NTBs
• WTO Members deadlocked over approach to
  liberalisation or how to liberalise list vs
  project approach

12
Main challenges faced by WTO Negotiators

• 1.Ensuring environmental relevance and
  end-use-what to liberalise and how to liberalise?
  
• 2.Broadening the export basket for developing
  countries
• 3.Effects of EGS on Domestic Industries
• 4. Uncertainty with regard to non-tariff barriers
• 5.Creating and Enhancing Domestic Capacities and
  Technology Transfer
• 6.Coherence and linkage with other negotiating
  bodies especially environmental services

13
Dual-Use Type 1 Example-6 digit HS category
14
Dual-Use Type 2 Example-Specific Good itself

• Pipe- a single product but can be used both for
  removing wastewater (environmental use) as well
  as transporting oil and gas (non-environmental
  use) .

15
Brief State of Play on Negotiations (..contd)

• Main features of Project Approach
• Project which meets criteria agreed by the
  Special Session of the CTE to ensure
  transparency, would be considered by a Designated
  National Authority (DNA).
• Temporary Binding Liberalisation If approved,
  the goods and services included in a project
  would qualify for specified concessions for the
  duration of the project.
• Scope of Concessions include, inter alia,
  equipment, services, investment, financial aid
  and transfer of technology.
• Commitments that Members agree to undertake may
  include reduction or elimination of
• tariffs on import of all project related goods
• reduction, elimination or appropriate treatment
  of standards, licensing restrictions, non-tariff
  barriers and other related issues
• specific commitments required in all modes of
  service delivery.
• Temporary Concessions to be subject to WTO
  Dispute Settlement

16
Domestic Considerations Important

• Trade Policy applied through WTO has collective
  impact.
• But Trade Policy is determined by domestic
  considerations responds to economic, social and
  environmental priorities. (Claro and Lucas,
  2007).May involve trade-offs but win-win-wins
  also possible.
• Sometimes uncertainty of ex-post impacts of
  liberalisation on sustainable development may
  also influence trade policy-i.e. information
  gaps.
• These determine immediate challenges faced by
  negotiators.

17
Crosscutting considerations

• Coherence between different committees in WTO and
  between goods and services negotiators
• Framework to deal with NTBs and changes of
  technology
• Framework for technical assistance

18
The Relevance of RTAs to EGS?

• Many RTAs have shared ecosystems affected by
  regional trade.
• Geography and regional dynamics important in much
  of trade flows in EGS. Eg US accounted for 60
  of Mexican imports of water-pollution equipment.
  Japan leading supplier of solid, hazardous
  waste-treatment equipment in Malaysia.
• South-South trade in EGS has regional
  significance. Hubs of EGS could establish
  presence in region through RTAs. Eg Malaysian
  firms like Sadec Consortium active in
  water-treatment facility in Vietnam. Brazils
  CETESB provided consultancy services to other
  Latin American countries.
• Need to determine how much of regional and
  North-South trade in EGS is influenced by RTAs
  and how much by actual (applied) rates of
  tariff-protection.

19
Trade Creation and Trade Diversion

• RTAs signed that involve competitive producers of
  EGS will imply trade creation otherwise may
  lead to trade-diversion if RTAs give preference
  to less competitive producers
• On the other hand RTAs, strategically concluded
  could open up regional markets for both developed
  and developing country EGS producers much more
  rapidly than WTO liberalisation.

20
Examples of Provisions and Activities relevant to
EGS in RTAs

• EGS Specific
• US-CAFTA DR Envt Coop Agreement refers to
  developing and promoting environmentally
  beneficial goods and services
• Morocco-US RTA recognize that strengthening
  their co-operative relationship on environmental
  matters can encourage increased bilateral trade
  in environmental goods and services.
• Japan-Mexico (Environmental Cooperation
  chapter) encouragement of trade and
  dissemination of
• environmentally sound goods and services
• APEC Developed lists of EGs influential in Doha
  Round Energy Working Group focuses on energy
  efficiency renewable energy
• NAFTA NACECs Environment, Economy and Trade
  Programme focuses on purchasing of
  environmentally-friendly products
• CARICOM Some regional work on development and
  dissemination of renewable energy technologies
• Singapore-Korea MoU on CNG Technologies

21
Examples of RTA Provisions and Activities
relevant to EGS

• Crosscutting but with potential impacts on EGS
  sectors
• Morocco-US RTA Morocco-EU Partnership Agreement
  Environmental capacity building
• EU-ACP EPA Article 30-Regional cooperation to
  support environment, water resource management
  and energy, disposal of hazardous waste and
  sustainable tourism among others

22
Promoting EGS trade through RTAs What are the
opportunities and constraints?
Key Challenges Related to Env Goods Liberalisation WTO Negotiations Regional Trade Agreements
1.Mandate Specific mandate for liberalising EGS Usually no separate mandate subsumed within overall liberalisation for goods
2.Impact on trade Trade-creating through MFN Liberalisation Trade-creating or trade diverting depending on participating countries
3. Dual-use problem and environmental relevance of goods Mostly dual-use products at HS 6-digit reluctance to liberalise among many Members-entail lower ambition Harmonisation of HS-codes/descriptions difficult to achieve Dual-use may not be a problem due to ambitious liberalisation at HS-6 digit Even if ex-outs are selected, harmonisation of codes, descriptions may be easier
23
Promoting EGS trade through RTAs What are the
opportunities and constraints?
Key Challenges Related to Env Goods Liberalisation WTO Negotiations Regional Trade Agreements
4. Standards and Non-tariff barriers (NTBs) NTBs may be subject to multilateral disciplines at WTO. Harmonisation/mutual recognition more difficult. Greater potential for harmonisation and mutual recognition-this makes it easier for internal trade and 3rd parties-but pull effect of stringent standards may require investment.
5.Expanding products of interest to developing countries May imply offensive SDT preferential access to EPPs relative to less-envtally friendly substitutes. May result in greater access to all developing country products-but both EPPs and non-EPPs lesser scope for trade-based discrimination for EPPs incl third country EPPs.
24
Promoting EGS trade through RTAs What are the
opportunities and constraints?
Key Challenges Related to Env Goods Liberalisation WTO Negotiations Regional Trade Agreements
6. Impacts on Domestic Industries in developing countries Scope for general flexibilities including SDT greater. Ambition of RTAs imply lesser scope for protection related flexibility but tailoring to suit specific needs of partners possible.
7. Supply-side considerations, institution and regulatory building, technology-transfer and technical assistance May imply broader modalities and flexibilities but operationalisation could be a challenge. Specific tailoring to suit needs of partners possible depth of integration and partner countries important bilateral and regional aid flows could be key vehicle.
25
Promoting EG trade through RTAs What are the
opportunities and constraints?
Key Challenges Related to Env Goods Liberalisation WTO Negotiations Regional Trade Agreements
8. Linkage with other areas of negotiations. Separate mandate increases scope for negotiating linkages May be difficult to fine-tune coordination between env goods and env services. May not be possible to have linkages as EGs negotiated within industrial or agricultural goods-unless negotiated as a separate sector. Easier to coordinate env goods and env services liberalisation.
9. Viability of project-approach Has raised questions with regard to compatibility with WTO rules. May be easier to negotiate and implement in a regional context if bound import tariffs are not already liberalised under RTAs
26
Promoting EGS trade through RTAs What are the
opportunities and constraints?
Key Challenges Related to Env Goods Liberalisation WTO Negotiations Regional Trade Agreements
10. Negotiating Asymmetry Less More
11. Dispute Settlement Available Transparent and accessible dispute settlement mechanisms are essential.
27
Thank You