Trade Negotiations on Environmental Goods and Services in the LDCs Context

1. Trade Negotiations on Environmental Goods and Services in the LDCs Context by Fahmida Khatun, PhD Additional Director Centre for Policy Dialogue (CPD) 24 September 2009

2. Introduction • In view of the increased intensity of global environmental problems, and as a result of the integration of the global economy environmental issue has emerged as an important area of concern for policy makers. • Since the beginning of the 1990s when trade liberalisation took place at a faster pace, environmental aspects became a prominent phenomenon in the context of its interface with trade policies.

3. Introduction • The relationship between trade openness and the environmental quality has been discussed at length both theoretically and empirically by several authors during the last twenty years. • An ideal situation would require compatible trade and environment policies as a result of which trade, environment and sustainable development can join paths in one direction.

4. Doha Ministerial Declaration on environment • Paragraph 31(iii) of the Doha Ministerial Declaration (DMD) mandated negotiations on “ the reduction or as appropriate elimination of tariff and non-tariff barriers to environmental goods and services” as part of single undertaking. • Environmental goods and services have been specifically singled out in DMD though it was always on trade-liberalisation agenda of the WTO. • Trade-environment issues as laid out in the work programme of the Doha Declaration are of critical importance to LDCs particularly in terms of market access opportunities for its exports to the global market.

5. Challenges of LDCs • LDCs face multiple problems in the areas of environment which range from air and water pollution to soil degradation and desertification to depreciation of forest and fish resources to loss of biodiversity and ecosystem to urbanization and congestion. • Some of the LDCs are also vulnerable to the risk of climate change which is feared to lead to sea level rise with severe impact on the lives and livelihoods of a large number of people in the country. • For LDCs the challenges are (1) how to get market access without degrading the environment, and (2) how to protect the environment without affecting economic growth adversely and make progress in the trade liberalisation process.

6. Challenges of LDCs • LDCs can tackle many crucial environmental problems through increased access to EGS at a lower tariff rate and Non Tariff Barrierss. • This can contribute to their economic growth as well as to the improvement of social indicators, such as health. • Access to EGS at a lower cost gives an opportunity to access to technology and know how. This can also induce energy and resource-efficiency in the economy.

7. Rationale for the study • There is a dearth of adequate capacity in terms of general awareness as well as in terms of understanding on the issues of EGS negotiations among LDCs. • These lacunae may undermine their policy efficacy in the related area in terms of identifying their export and import interests of EGS. • It will be useful for LDCs to engage themselves in exploring the benefits and costs associated with liberalization of the EGS in order for them to be able to engage themselves fully in the negotiations.

8. Objectives of the study • Based on secondary data the paper estimated the pattern of EG trade in LDCs, their share in global EG trade, and major EG exports and imports by LDCs. • Meaningful statistics on trade of ES are not available for LDCs on the basis of which any analysis can be made.

9. Definition and coverage of environmental goods • No clear agreement among WTO Members on definitions and coverage of environmental goods. • OECD and APEC lists used as starting point for discussions on EGs in the WTO after the Doha Declaration. • Member countries continued to submit their own proposals. • In 2007 the ‘WTO 153 list’ has been proposed by the Friends of EGs (mainly developed countries). This list is currently under discussion.

10. EGs according to WTO 153 list

11. Definition of environmental services • Similar to EG there is no clear cut universally accepted definition of environmental services. • The General Agreement on Trade in Services (GATS)’s Services Sectoral Classification List, W/120, sorts environmental services as: (a) sewage services; (b) refuse disposal services; (c) sanitation and similar services; and (d) other (cleaning services of exhaust gases, noise abatement services, nature and landscape protection services, and other environmental services).

12. Trade of EGs by regions, WTO 153 lists • The market of EG trade is dominated by the developed countries with a share of 69% • Developed countries make up 76.4% of EGs exports; developing countries 23.5%; and LDCs only 0.1%. • Developed countries make up 61.2% of EGs imports; developed countries 37.9%; and LDCs 0.8%.

13. Trade of EGs by Regions Growth of Environmental Goods Export, 2001-2007 Source: ITC Trade Map.

14. Trade of EGs by Regions Growth of Environmental Goods Import, 2001-2007 Source: ITC Trade Map.

15. Trade of EGs by Regions Share of Environmental Goods Trade, 2007 Export Import Source: ITC Trade Map.

16. Trade of EGs by Regions Trade in Environmental Goods, 2007 Source: ITC Trade Map.

17. EG export according to WTO 153 product lists, 2007 (in mln USD)

18. EG import according to WTO 153 product list, 2007 (in mln USD)

19. Trade of EGs by LDCs, 2007 • On the basis of WTO 153 list of EGs the share of EG export in total EG exports was 0.08% in 2007 and the share of EG import in total EG import was 0.82% in 2007.

20. Trade of EGs by LDCs, 2007

21. Export Value of EG in Top 10 EG Exporting LDCs

22. Import Value of EG in Top 10 EG Importing LDCs

23. Top 10 LDC EGs Exporters • Among LDCs the share of Asian LDCs in total LDCs’ EG export was 67.8% and of African LDCs was 32% in 2007. • However, in case of imports Asian LDCs’ import share of EG in all LDCs’ EG import was 26.9% while of African LDCs it was 77.2% in 2007. • Top 10 LDC exporters of EGs are Bangladesh, Tanzania, Nepal, Uganda, Liberia, Yemen, Angola, Madagascar, Senegal and Myanmar. • These 10 LDCs export 88.7% of all LDC EG exports.

24. Top 10 LDC EGs Importers • Top 10 LDC importers of EGs are Angola, Sudan, Bangladesh, Yemen, Zambia, Ethiopia, Myanmar, Tanzania, Senegal and Democratic Republic of the Congo. • These 10 LDCs import 70.2 % of all LDC EG imports.

25. Top 10 LDC EGs export products At 6 digit level HS code top 10 EG export products comprise 69.5% of all LDC EG exports • Jute and other textile bast fibres, raw or retted, • Sacks & bags,for packg of goods,of jute or of other textile bast fibres • Buoys, beacons, coffer-dams, pontoons and other floating structures • Twine, cordage, ropes and cables, of jute or other textile bast fibres • Tubes, pipe & hollow profiles,i/s,welded,of non circ cross sect, • Tubes, pipe & hollow profiles, iron or welded,of circ cross sect, • Parts and accessories for use with the apparatus of heading No 90.15 • Prisms, mirrors & other optical elements of any material unmounted, • Machines & mechanical appliances nes having individual functions • Turbines, output , 40 MW

26. Top 10 LDC EGs import products At 6 digit level HS code top 10 EG import products comprise 33% of all LDC EG imports • Towers and lattice masts, iron or steel • Machines & mechanical appliances nes having individual functions • Parts for diesel and semi-diesel engines • Taps, cocks, valves and similar appliances, • Articles, iron or steel, • Parts of electric motors, generators, generating sets & rotary converters • Crushing/grinding machines for earth/ stone/ores o oth minerals subs etc • Static converters, • Boards, panels, including numerical control panels, for a voltage <=1000 V • Tubes, pipe & hollow profiles, iron or steel, welded

27. Tariffs on EGs • It has been estimated that complete elimination of tariffs and non-tariff barriers would lead to an average increase of trade in clean coal technology, wind/solar power generation and efficient lighting technology by 13.5 percent (World Bank 2008). • Tariffs on EGs are already low in developed countries. The effective applied tariff on LDCs’ top 10 export and import EG products range between 0-2% • LDCs still stands to benefit from liberalization of EGs since much of LDC exports of EGs are destined to a number of developing countries where they face high export duty for EGs. • Tariff rates for EGs on the WTO ‘153’ list at six digit level HS codes for top 10 products exported from LDCs face up to 31 percent tariffs in the developing country markets.

28. Average applied tariffs

29. Preference Erosion • LDCs benefit from preferential duty free treatment on nearly 84 percent of dutiable MFN tariff lines on average (WTO 2009). • It is likely that many of the EGs will fall under various preferential programmes offered to LDCs by developed countries. • Therefore, if these products are listed as EGs, tariff will be reduced at a faster pace for these items which will erode LDCs’ preferences in those markets and reduce their competitiveness.

30. Non-Tariff Barriers • Standards, certifications, and environmental regulation limit trade to a great extent. • Products from LDCs face difficulties in entering foreign markets due to a lack of appropriate standards for their products, which may be quite stringent to protect domestic suppliers. • The lack of uniformity of environmental requirements and technical regulations in different national markets are known to affect the type of environmental goods that are used to meet environmental requirements, and thus act as an NTB.

31. Liberalisation of environmental services • The main way to trade in ES through commercial presence (Mode 3) and temporary movement of natural persons (Mode 4). • Export of ESs by LDCs is not very significant though some LDCs may extract economic benefits by exporting environment related professional services in the form of studies, assessments and consultancies. • However, increased export of ES also requires less stringent regulations of importing developed countries as regards movement of service providers.

32. LDC strategy for EGS negotiations • The negotiating strategy of LDCs should stem from their own requirements for import and potential for export of EGS. • Additionally, domestic social, political and economic factors need to be kept in mind in arriving at a decision on liberalising EGS market in LDCs. • Opportunities and challenges for liberalisation of EGS should be examined through in-depth benefit-cost analysis on a case by case basis.

33. LDC strategy for EGS negotiations • LDCs have, to certain extent, undertaken autonomous liberalisation, thus significant further liberalisation of EGS may not be necessary. • LDCs may work out an approach for the negotiations of EG to make it suitable for their domestic conditions. Considerations of narrow list of EGs, preference erosion, DFQF should be made. • The common goal is poverty alleviation through employment generation and income distribution.

34. LDC strategy for EGs negotiations • Identification, harmonisation and elimination of NTBs for products identified as EG are needed in order to facilitate trade in such goods by LDCs. • LDCs should be exempted from the obligation of patent protection of EGs for a longer period.

35. LDC strategy for EGS negotiations • Commitments by LDCs on Mode 3 and Mode 4 related to various infrastructural sectors of LDCs should stipulate the degree of market access of foreign firms, regulation, and standards on the basis of which companies should be allowed to access such sensitive areas in the economy of LDCs. • This is important in order to ensure accessibility and affordability of essential products and services such as drinking water and sanitation

36. LDC strategy for EGs negotiations • In order for LDCs to take full advantage of liberalisation of EGS technical and financial assistance is essential. • Such considerations should be part of LDCs’ priority areas for resource mobilisation in the context of AfT initiative. • In LDCs SME dominate the industrial sector and thus are not in a position to buy clean technologies.

37. Thank you for your attention