Promoting Trade in Environmental Goods: How Can RTAs Contribute? Mahesh Sugathan

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. 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.

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 todeveloping 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

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?

23. Promoting EGS trade through RTAs: What are the opportunities and constraints?

24. Promoting EGS trade through RTAs: What are the opportunities and constraints?

25. Promoting EG trade through RTAs: What are the opportunities and constraints?

26. Promoting EGS trade through RTAs: What are the opportunities and constraints?

27. Thank You