Tariffs and Trade in Environmental Goods WORKSHOP ON ENVIRONMENTAL GOODS Geneva, 11 October 2004 Bijit Bora and Robert Teh WTO Secretariat

Outline Trade in environmental goods Link between trade in environmental goods and environmental quality Tariffs on environmental goods –Will not cover non-tariff barriers Summary and conclusions

I. Trade in environmental goods

Definitions Environmental goods in this paper will refer only to goods defined by APEC and OECD lists –Lists are products of long international effort –One list has been created for the purpose of trade liberalization –They cover a wide range of subsectors that alternative lists will most likely contain some subsets of these goods Trade and tariff data are aggregated at the HS 6 level. Trade and tariff data based on UN Comtrade and WTO IDB sources

Differentiating between APEC and OECD lists There are some differences such as: –Large group of chemicals are excluded from APEC list –Clean technology is in OECD but not APEC list But otherwise many more similarities –Sectors in one list can be easily mapped into sectors in the other list –Bulk of trade is in common tariff subheadings

APEC and OECD lists

Bulk of trade is in tariff subheadings common to both lists Common Subheadings 76% APEC-only 24% Common Subheadings 68.6% OECD-only 31.4%

Trends in overall trade in environmental goods In 2002, total exports of environmental goods amounted to about $ ($ 215.3) billion when one uses the OECD (APEC) defined list, representing between 3.6 to 4.0 per cent of world exports. It is smaller than textiles trade; a third the size of chemicals trade; and a tenth of trade in machinery and transport. But n the past dozen years ( ), trade in environmental goods has grown more than twice as fast (14%) as total merchandise trade (6%). Factors fuelling this dynamism –Greater awareness of the value of the environment and concern about pollution (Conca and Dabelko) –Institutionalization of environmental protection in countries around the globe (series of OECD country studies)

Env. goods compared to other sectors

Growth of environmental goods trade,

Trade by regions and level of development The major traders are Western Europe, Asia and North America making up over 90 per cent of exports of environmental goods and over 80 per cent of imports of environmental goods. Western Europe alone accounted for almost half of environmental goods exports and is a net exporter whether the APEC or OECD definition is used. Asia is the second largest trader of environmental goods and is a net importer whether the APEC or OECD definition is used. North America is a net exporter only if the APEC definition is used. All the other regions are net importers of environmental goods, whichever definition is used. Developed countries make up 79% of environmental goods exports; developing countries about 20%; and LDCS less than 1%. Developed countries make up 60% of environmental goods imports; developed countries 39%; and LDCs less than 1%.

Regional distribution of trade, 2002

Share of env. goods trade, by level of development Developed 78% Developing 22% LDCs 0.04% Developed 62% Developing 37.7% LDCs 0.2%

Trade in env. goods by level of development

Top traders of environmental goods A list of the top 20 exporters and importers of environmental goods for the year 2002 has been drawn up. 19 of the top 20 exporters are the same (although the ordering is slightly different) whether the APEC or OECD list is used. For importers, the top 20 countries are the same. There are a fair number of developing (mostly from Asia) and transition countries in the top 20 traders. The top 20 exporters of environmental goods accounted for about 93 per cent of world exports in those goods while the top 20 importers comprised nearly 87 per cent of world imports of environmental goods. This degree of concentration is greater than in overall merchandise trade where the top 20 exporters in 2002 accounted for just a little over 82 per cent of world exports.

Top 20 exporters of env. goods (OECD list), 2002

Top 20 importers of env. goods (OECD list), 2002

Major categories of environmental goods trade Biggest traded sectors are waste water management, environmental monitoring and analysis, solid waste management, air pollution control, noise and vibration abatement

Trade by categories of (OECD) environmental goods Solid waste management 13% Remediation and clean-up 5% Noise and vibration abatement 12% Waste water management 34% Air pollution control 10% Environmental monitoring analysis and assessment 15% Cleaner Technologies 1% Resource Management 10%

Trade by categories of (APEC) environmental goods Air Pollution Control 12% Other Recycling Systems 1% Solid/Hazardous Waste 9% Heat/Energy Management 1% Potable Water Treatment 5% Waste Water Management 26% Monitoring/Analysis 35% Remediation/cleanup 0% Noise/vibration abatement 7% Renewable Energy Plant 4%

II. Trade in environmental goods and environmental quality

Trade in environmental goods and environmental quality It would strengthen the argument that liberalization of environmental goods would not only increase trade in these goods but also improve environmental quality if we can find econometric support that countries which trade more environmental goods also achieve better environmental outcomes. Environmental indicators analyzed: nitrogen oxide (NOx), biochemical oxygen demand (BOD) and per capita energy consumption. International data (from over 200 countries) on environmental indicators is available only for 1995 & Source: The Emission Database for Global Atmospheric Research (available from World Resources Institute) and the World Bank.

Results and qualifications Equation: Q i = α 0 + α 1 (GDP/Cap) i + α 2 (GDP/Cap) i 2 + α 3 (GDP/Cap) i 3 + α 4 (Envtrade) i + α 5 Z i + u i Explanatory Variables: GDP per capita (following Grossman and Krueger), value of environmental goods trade, land area, OPEC membership, etc. Conclusion: There is a negative (i.e., α 4 < 0) and statistically significant link between trade and environment. Countries which trade more environmental goods have less pollution or consume energy more efficiently. This holds whether the OECD or APEC list is chosen as the explanatory variable in the regressions. Qualifications: This is an ongoing exercise. Need to expand the range of environmental indicators beyond those indicated. There is a need to look at more recent international data.

Environmental goods trade and nitrogen oxide emissions

Environmental goods trade and biological oxygen demand

Environmental goods trade and energy consumption

III. Tariffs on environmental goods

Tariff issues Level of tariffs based on APEC and OECD definition Cross-country distribution of tariffs Binding coverage Modality by which tariff reductions on environmental goods will be addressed.

Binding coverage

Average applied tariff

Applied and bound Rates APECOECD

Avg applied tariff by category

DDA and environment Mandate from para 31 (iii) Broader mandate for NAMA in para 16 Tariff issues –Binding –Tariff reductions –Less than full reciprocity

Approaches to tariff reductions Formula –Line by line reduction –Will not target environmental goods Sectoral approach –Deeper reductions on agreed sectors –Environmental goods have not been discussed

July package No agreement on specific elements Broad contours of interest to para 31(iii) mandate –Exempt LDCs from tariff reductions –Exempt low binding countries [35%] from formula reductions

July Package 16. We furthermore encourage the Negotiating Group to work closely with the Committee on Trade and Environment in Special Session with a view to addressing the issue of non- agricultural environmental goods covered in paragraph 31 (iii) of the Doha Ministerial Declaration.

Summary of tariff issues Binding coverage is high for most countries and slightly better than the non-agricultural average. Applied tariffs on environmental goods are lower than the Non-agriculture average for most countries. Large gap between bound and applied rates. Developed countries have lower tariffs on environmental goods than developing and LDC countries.

IV. Summary and conclusions Trade –Env. goods trade is still small but growing rapidly –Mostly intra-developed country trade –Developing countries are net importers of environmental goods Trade and environment –there is some statistical evidence that link more trade in env. goods to lower pollution levels Tariffs –Binding coverage is slightly better for environmental goods than for non- agricultural goods –Applied tariffs on environmental goods are also lower on average than on non-agricultural goods –Binding coverage of developed countries is high and applied tariffs low. Binding coverage is lower in developing countries, but higher applied tariffs.

Summary and conclusions (cont.) DDA and environment –Continue to enhance co-operation between NAMA and Trade and Environment (SS). –Sequence environment and non- environment, or do together?