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)

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

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’.

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.

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),

‘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

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

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

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

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.

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

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

‘Dual-Use’: Type 1 Example-6 digit HS category

‘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) .

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

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.

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

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. Brazil’s 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.

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.

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: NACEC’s 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

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

Key Challenges Related to Env Goods Liberalisation 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

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’ S&DT; 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.

Key Challenges Related to Env Goods Liberalisation 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 S&DT 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.

Key Challenges Related to Env Goods Liberalisation 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

Key Challenges Related to Env Goods Liberalisation 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.

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