- Mahesh Sugathan , International Centre for Trade and Sustainable Development (ICTSD)

1. Environmental Goods and Services negotiations:Challenges and opportunitiesWTO Workshop on Environmental Goods:Para 31 (iii) of the DDAGeneva 11 October 2004 -Mahesh Sugathan, International Centre for Trade and Sustainable Development (ICTSD)

2. Introduction • Environmental goods and services (EGS) always on ‘trade-liberalisation’ agenda but specifically singled out in Doha Ministerial declaration • Para 31(iii) calls for “ the reduction or as appropriate elimination of tariff and non-tariff barriers to environmental goods and services.” • What does this mean in actual negotiating terms- a mandate for accelerated liberalisation? Not clear. No deadlines set and no multilaterally accepted consensus on what constitutes ‘environmental goods’.

3. Diffusion of Para 31 (iii) Mandate • Negotiations on environmental goods as mandated by Para 31 (iii) has been assigned to the negotiating group on Non-Agricultural Market Access (NAMA) • Negotiations on environmental services are under the auspices of the Special Sessions of the Council for Trade in Services (CTS) • The special sessions of the Committee on Trade and Environment (CTE) has been given a monitoring role over progress and is to contribute by examining the definitional aspects and scope of Environmental goods and services

4. Overview of Environmental goods negotiations: definition vs lists • On Environmental goods, no clear agreement among WTO Members on definitions and coverage of such goods despite reference to definition of environment industry by the OECD as “activities which produce goods and services to measure, prevent, limit, or minimise or correct environmental damage to water, air and soil, as well as problems related to waste, noise and ecosystems.”

5. Modalities for environmental goods negotiations • OECD and APEC lists used as starting point for discussions on Environmental goods in the WTO. APEC list based on goods proposed by Member countries-heavily focussed on end-of pipe pollution treatment and monitoring equipment. OECD list broader and includes goods and services under 3 headings-pollution management, cleaner technologies and products and resource management. APEC list has broader support including Members such as Canada, Singapore, US, Australia and New Zealand. • OECD Classification Group C category “Resource Management” is broad and includes sustainable agriculture, forestry and fisheries. However the reference is to goods (equipment, technology or specific materials) that are inputsrequired for sustainable agriculture, forestry and fisheries and not outputs emergingfrom these activities

6. Many members propose ‘list-based’ approach instead of seeking a prior defintional clarity on environmental goods. Eg:U.S proposal on ‘core-list’ (on which consensus exists) and ‘complementary list’ for which individual countries could nominate products. Faster liberalisation ‘envisaged’ for core-list products (zero tariffs by 2010) and liberalisation of a minimum of x% on goods in complementary list (which Members could choose) [US-TN/TE/W/3] US proposal is the only one on concrete modalities so far for EG negotiations.

7. China (TN/TE/W/42) has called for a ‘common-list’ including goods of export interest to both developed and developing countries and a ‘development list’ (or S&D) list which would include those goods from the common list eligible for lesser reduction commitments • On specific products only Japan (TN/MA/W/15) and Qatar (TN/TE/W/19) and Taiwan have submitted proposals. Japan’s list includes products from both APEC and OECD lists plus some additional products. Energy efficient consumer equipment notable. Qatar has proposed efficient, lower carbon pollution emitting fuels and technologies. Taiwan’s submission focuses on pollution control equipment.

8. Environmental goods: Challenges and opportunities for developing countries • Negotiations on environmental goods presently taking place in Negotiating group on non-agricultural market access (NAMA) with the definitional aspects being examined by Committee on Trade and Environment (CTE)-special session

9. 1. Operationalisng Para 16 for the Doha Mandate • Challenge in NAMA for developing countries is how to operationalise Para 16 of the Doha Ministerial Declaration in the case of environmental goods • Para 16 of the DMD provided the mandate for the negotiations on market access for non-agricultural products which requires: • Reduction or elimination of tariff-peaks, tariff-escalation as well as non-tariff barriers with emphasis on products of export interest to developing countries • Take fully into account the special needs and interests of developing and least-developed country participants including through less than full reciprocity in reduction commitments, • Take fully into account the principle of special and differential treatment for developing and least-developed countries

10. 2. Identifying products of export interest to developing countries: What about agriculture? • OECD/APEC lists mostly contain products of which developing countries are net importers • Some of the few products in the OECD/APEC which developing countries (as a group) were net exporters eg: Methanol, ethanol, mats and screems, fluorescent lamps, plastics. Most top exporters are middle income or emerging economies (Mexico, Singapore, Korea, Malaysia and Brazil)( UNCTAD-TD/B/COM.1/EM.21/CRP.1)

11. If agricultural products of export interest are discussed as part of Para 31 (iii) where would they be negotiated and what modalities would apply? [ See proposal by Kenya, Ghana, Mauritius and others-TN/MA/W/40] The 1st August General Council decision (WT/L/579) in Annex B encourages the NAMA group to “work closely” with the Committee on Trade and Environment(CTE) “with a view to addressing the issue of non-agricultural environmental goods.” Whether thisexcludes NAMA as a forum for discussing ‘agricultural’ environmental goods is an open question. • Para 49 of Annex A (framework for establishing modalities within agriculture) within the Ist August decision also lists ‘sectoral initiatives’ among other issues of interest. WTO Members may wish to explore the possibility of using this to consider ‘agricultural’ environmental goods in case it is decided that such goods will be part of negotiations on agriculture

12. 3. Tackling the issue of Environmentally preferable products (EPPs) • EPPs distinct from pollution-control goods and technologies as environmentally beneficial effects arising during course of production, use or disposal in terms of less pollution or greater resource-efficiency. They are not used to treat or deal with environmental problems as such. • For most developing countries, products of export interest lie in EPPs rather than environmental equipment, per se. However a number of EPPs eg: those based on energy-efficiency ( refrigerators) raise issues of appropriate classification and evolving technologies • Many developing countries including India (TN/MA/W/10) have supported inclusion of environmentally friendly products such as jute products or those based on biodiversity, but no specific list has been submitted to NAMA.

13. Many developing countries interested in organic agriculture exports-here the PPM issue is contentious if it is ‘non-product’ related. Most Members (including both developing and OECD countries) would avoid a PPM-based criteria. [MERCOSUR-TN/MA/W/23] [India-TN/MA/W/10]. Certification and labelling issues need to be addressed in the context of NTBs. • In most cases of EPPs, ‘like’ or ‘close substitutes’ exists which is environmentally less benign. Here the question to ask is “ Does the Doha mandate intend to extend a trade-preference for such EPPs as opposed to their non-environmental counterparts? If so, for how long?( as ultimately the intention is to remove tariffs and NTBs for all goods.) • EU for instance has advocated deeper cuts (TN/MA/W/11/Add.2) while Chile for example advocates cuts as part of overall exercise of tariff reduction on all goods. Any additional reductions in Envtal goods should be ‘compensated’ in other areas (TN/MA/W/17)

14. Also if the intention is to provide such preference, how can this be reconciled with already existing free trade for many EPP-substitutes(eg: within Preferential agreements or Free Trade Areas) • 4. Gains from an ‘import-perspective’ • Developing countries could tackle many crucial environmental problems like air-pollution, water-pollution etc through increased access to Environmental goods resulting from lower tariffs and NTBs-consequently beneficial health indicators-a step forward in facilitating Millennium Development goals. • Greater access to environmental goods also induce energy/resource-efficiency within productive sectors of the economy • Access to technology and ‘know-how’ embedded in imports; however affordability and suitability to local conditions is important

15. Lower trade-barriers may not necessarily make these goods affordable if other costs remain high such as licensing fees. This could impede access by and tech-transfer for SMEs-IPRs may be an important consideration. • The Investment channel for environmental goods also needs to be considered in addition to trade channels as these could be more significant for building domestic capacity in developing countries, create jobs and build backward and forward linkages in the economy. • Imports of certain environmental goods may lead to greater capacity to comply with environmental requirements in export markets. Countries may wish to look at which environmental goods are critical in this regard. • Capacity building, infrastructure and training for customs officials will be important particularly if further tariff-classifications or sub-divisions are created for environmental goods.

16. Other cross-cutting Considerations for developing countries • The following considerations on environmental goods negotiations could be important to ensure a meaningful outcome for developing countries from EGS negotiations:

17. Coherence in WTO negotiations and rule-making: • Reducing tariffs and non-tariff barriers to Environmental goods and services implies close coordination between negotiations taking place in NAMA, CTE-SS, Services, TBT (standards) and possibly agriculture. • In case organic products (based on whatever criteria) are negotiated as part of the EGS mandate on an accelerated, then the relationship to agricultural liberalisation modalities ( export subsidies, domestic support) on non-organic products must be defined.

18. As environmental services and goods are frequently inter-linked it may be important to coordinate market access in both areas. For example: opening up the solid waste treatment services sector while maintaining high tariffs and NTBs on waste-treatment equipment may not result in meaningful market-access unless perhaps the developing country has an adequate and competitive domestic environmental goods sector which could supply these services • The role of CTE and CTD under Para 51 of the Doha mandate could be important in ensuring such coherence and to identify developmental and environmental apsects of EGS negotiations.

19. Multiple-use environmental goods Liberalisation of goods having multiple end-uses (including environmental) requires careful consideration as it may be difficult to verify the intended ‘end-use’ for such goods

20. Can ‘natural-resources’ be considered environmental goods? Qatar’s proposal on natural gas raises the question as to whether natural resources can also be considered an environmental good and benefit from lower tariff and NTBs ( including subsidies to alternative fuels like coal).If the intention is to promote environmentally friendly fuels, ‘relativity’ considerations must be kept in mind. Eg: Hydrogen >Ethanol>Natural Gas>petroleum>coal. What would happen to trade-preferences to natural gas once use of ethanol or hydrogen becomes common? Again lowering barriers should also look not only at tariffs but also internal taxes, subsidies that may provide strong incentives or disincentives to use a particular fuel • ‘Energy-efficient technologies’: Dealing with tariff-classification,‘relativity’ and ‘continuous evolution’ Japan’s proposal on energy-efficient products raises issues of how appropriate tariff classification distinctions and trade preferences will be created, say for example, between a normal and energy-efficient washing machine, the latter which may become obsolete the following year as technology improves.

21. Non-tariff barriers: How and when will they be tackled? Tariff levels for most industrial goods are low in developed countries. (NTBs may be more important. Eg: labelling, subsidies, taxes) Identifying and negotiating removal of these various NTBs will take time. This needs to be kept in mind given the time-horizon of completing the Doha negotiations as well as any accelerated liberalisation, if accepted, of EGS. The challenge will increase if agricultural goods are also negotiated. • Coordination and communication between trade-negotiators and regional policy makers ( trade, industry, agriculture, environmental, municipal authorities) as well as among various national stakeholders needs to be considered • Trade-negotiations in EGS could reflect domestic and regional sustainable development priorities emerging from such communication

22. 5. Developing countries may want to use certain instruments such as subsidies as incentives to develop the domestic EG sector. Here some form of time-bound special and differential treatment could be possibly considered.Eg: China’s proposal on ‘modalities’ (TN/TE/W/42) 6.Consideration of bilateral and regional trade negotiations also important in order to assess environment for market access and investment in EGs 7. Even if not directly discussed under WTOnegotiations, Policymakers and trade negotiators could also keep in mind mandate from other fora (such as the WSSD Johannesburg mandate and the Millennium Development goals) particularly if access to certain environmental goods are critical to these goals