Environmental Goods and Services Environmental Goods and Services negotiations:Cnegotiations:Challenges and opportunitieshallenges and opportunities

WTO Workshop on Environmental WTO Workshop on Environmental Goods:Para 31 (iii) of the DDAGoods:Para 31 (iii) of the DDA

Geneva 11 Geneva 11 OctoberOctober 2004 2004

--Mahesh SugathanMahesh Sugathan,,International Centre for Trade and Sustainable Development International Centre for Trade and Sustainable Development

(ICTSD)(ICTSD)

IntroductionIntroduction Environmental goods and services (EGS) always Environmental goods and services (EGS) always

on ‘trade-liberalisation’ agenda but specifically on ‘trade-liberalisation’ agenda but specifically singled out in Doha Ministerial declarationsingled out in Doha Ministerial declaration

Para 31(iii) calls for “ Para 31(iii) calls for “ the reduction or as the reduction or as appropriate elimination of tariff and non-tariff appropriate elimination of tariff and non-tariff barriers to environmental goods and services.”barriers to environmental goods and services.”

What does this mean in actual negotiating terms- a What does this mean in actual negotiating terms- a mandate for accelerated liberalisation? Not clear. mandate for accelerated liberalisation? Not clear. No deadlines set and no No deadlines set and no multilaterally accepted multilaterally accepted consensus on consensus on what constitutes ‘environmental what constitutes ‘environmental goodsgoods’.’.

Diffusion of Para 31 (iii) MandateDiffusion of Para 31 (iii) Mandate Negotiations on environmental goods as mandated by Negotiations on environmental goods as mandated by

Para 31 (iii) has been assigned to the negotiating group Para 31 (iii) has been assigned to the negotiating group on Non-Agricultural Market Access (NAMA)on Non-Agricultural Market Access (NAMA)

Negotiations on environmental services are under the Negotiations on environmental services are under the auspices of the Special Sessions of the Council for Trade auspices of the Special Sessions of the Council for Trade in Services (CTS)in Services (CTS)

The special sessions of the Committee on Trade and The special sessions of the Committee on Trade and Environment (CTE) has been given a monitoring role Environment (CTE) has been given a monitoring role over progress and is to contribute by examining the over progress and is to contribute by examining the definitional aspects and scope of Environmental goods definitional aspects and scope of Environmental goods and servicesand services

Overview of Overview of Environmental goodsEnvironmental goods negotiationsnegotiations: definition vs lists: definition vs lists

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

Modalities for environmental goods negotiationsModalities for environmental goods negotiations OECD and APEC lists used as starting point for discussions on OECD and APEC lists used as starting point for discussions on

Environmental goods in the WTO. APEC list based on goods Environmental goods in the WTO. APEC list based on goods proposed by Member countries-heavily focussed on end-of pipe proposed by Member countries-heavily focussed on end-of pipe pollution treatment and monitoring equipment. OECD list broader pollution treatment and monitoring equipment. OECD list broader and includes goods and services under 3 headings-pollution and includes goods and services under 3 headings-pollution management, cleaner technologies and products and resource management, cleaner technologies and products and resource management. management. APEC list has broader support including Members APEC list has broader support including Members such as Canada, Singapore, US, Australia and New Zealand.such as Canada, Singapore, US, Australia and New Zealand.

OECD Classification Group C category “Resource Management” is OECD Classification Group C category “Resource Management” is broad and includes sustainable agriculture, forestry and fisheries. broad and includes sustainable agriculture, forestry and fisheries. However the reference is to goods (However the reference is to goods (equipment, technology or equipment, technology or specific materialsspecific materials) that are ) that are inputsinputs required required for for sustainable agriculture, forestry and fisheries and not outputs emerging from these activities

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

China (TN/TE/W/42) has called for a ‘common-list’ including China (TN/TE/W/42) has called for a ‘common-list’ including goods of export interest to both developed and developing goods of export interest to both developed and developing countries and a ‘development list’ (or S&D) list which would countries and a ‘development list’ (or S&D) list which would include those goods from the common list eligible for lesser include those goods from the common list eligible for lesser reduction commitmentsreduction commitments

On specific products only Japan (TN/MA/W/15) and Qatar On specific products only Japan (TN/MA/W/15) and Qatar (TN/TE/W/19) (TN/TE/W/19) and Taiwan and Taiwan have submitted proposals. Japan’s have submitted proposals. Japan’s list includes products from both APEC and OECD lists plus list includes products from both APEC and OECD lists plus some additional products. Energy efficient consumer some additional products. Energy efficient consumer equipment notable. Qatar has proposed efficient, lower carbon equipment notable. Qatar has proposed efficient, lower carbon pollution emitting fuels and technologies. pollution emitting fuels and technologies. Taiwan’s Taiwan’s submission focuses on pollution control equipmentsubmission focuses on pollution control equipment..

Environmental goods: Environmental goods: Challenges and opportunities for Challenges and opportunities for

developing countriesdeveloping countries Negotiations on environmental goods presently taking place Negotiations on environmental goods presently taking place

in Negotiating group on non-agricultural market access in Negotiating group on non-agricultural market access (NAMA) with the definitional aspects being examined by (NAMA) with the definitional aspects being examined by Committee on Trade and Environment (CTE)-special Committee on Trade and Environment (CTE)-special session session

1. Operationalisng Para 16 for the Doha Mandate1. Operationalisng Para 16 for the Doha Mandate Challenge in NAMA for developing countries is how to operationalise Challenge in NAMA for developing countries is how to operationalise

Para 16 of the Doha Ministerial Declaration in the case of Para 16 of the Doha Ministerial Declaration in the case of environmental goodsenvironmental goods

Para 16 of the DMD provided the mandate for the negotiations on Para 16 of the DMD provided the mandate for the negotiations on market access for non-agricultural market access for non-agricultural products products which requires:which requires: Reduction or elimination of tariff-peaks, tariff-escalation as well as Reduction or elimination of tariff-peaks, tariff-escalation as well as

non-tariff barriers with emphasis on products of export interest to non-tariff barriers with emphasis on products of export interest to developing countriesdeveloping countries

Take fully into account the special needs and interests of Take fully into account the special needs and interests of developing and least-developed country participants including developing and least-developed country participants including through less than full reciprocity in reduction commitments,through less than full reciprocity in reduction commitments,

Take fully into account the principle of special and differential Take fully into account the principle of special and differential treatment for developing and least-developed countriestreatment for developing and least-developed countries

2. 2. Identifying products of export interest to developing Identifying products of export interest to developing countries: What about agriculture?countries: What about agriculture?

OECD/APEC lists mostly contain products of which OECD/APEC lists mostly contain products of which developing countries are net importersdeveloping countries are net importers

Some of the few products in the OECD/APEC which Some of the few products in the OECD/APEC which developing countries (as a group) were net exporters eg: developing countries (as a group) were net exporters eg: Methanol, ethanol, mats and screems, fluorescent lamps, Methanol, ethanol, mats and screems, fluorescent lamps, plastics. Most top exporters are middle income or emerging plastics. Most top exporters are middle income or emerging economies (Mexico, Singapore, Korea, Malaysia and Brazil)economies (Mexico, Singapore, Korea, Malaysia and Brazil)( UNCTAD( UNCTAD-TD/B/COM.1/EM.21/CRP.1-TD/B/COM.1/EM.21/CRP.1))

If agricultural products of export interest are discussed as part of Para 31 If agricultural products of export interest are discussed as part of Para 31 (iii) where would they be negotiated and what modalities would apply? (iii) where would they be negotiated and what modalities would apply? [ See proposal by Kenya, Ghana, Mauritius and others-TN/MA/W/40][ See proposal by Kenya, Ghana, Mauritius and others-TN/MA/W/40] The The 11stst August General Council decision (WT/L/579) in Annex B August General Council decision (WT/L/579) in Annex B encourages encourages the NAMA group to “work closely” with the Committee on Trade and the NAMA group to “work closely” with the Committee on Trade and Environment(CTE) “with a view to addressing the issue of non-agricultural Environment(CTE) “with a view to addressing the issue of non-agricultural environmental goods.” Whether thisenvironmental goods.” Whether this excludes NAMA as a forum for excludes NAMA as a forum for discussing ‘agricultural’ environmental goods is an open question.discussing ‘agricultural’ environmental goods is an open question.

Para 49 of Annex A (framework for establishing modalities within Para 49 of Annex A (framework for establishing modalities within agriculture) within the Ist August decision also lists ‘sectoral initiatives’ agriculture) within the Ist August decision also lists ‘sectoral initiatives’ among other issues of interest. WTO Members may wish to explore the among other issues of interest. WTO Members may wish to explore the possibility of using this to consider ‘agricultural’ environmental goods in possibility of using this to consider ‘agricultural’ environmental goods in case it is decided that such goods will be part of negotiations on agriculturecase it is decided that such goods will be part of negotiations on agriculture

3. 3. Tackling the issue of Environmentally preferable products Tackling the issue of Environmentally preferable products (EPPs)(EPPs)

EPPs distinct from pollution-control goods and technologies as EPPs distinct from pollution-control goods and technologies as environmentally beneficial effects arising during course of environmentally beneficial effects arising during course of production, use or disposal in terms of less pollution or greater production, use or disposal in terms of less pollution or greater resource-efficiency. They are not used to treat or deal with resource-efficiency. They are not used to treat or deal with environmental problems as such.environmental problems as such.

For most developing countries, products of export interest lie in For most developing countries, products of export interest lie in EPPs rather than environmental equipment, per se. However a EPPs rather than environmental equipment, per se. However a number of EPPs eg: those based on energy-efficiency ( refrigerators) number of EPPs eg: those based on energy-efficiency ( refrigerators) raise issues of appropriate classification and evolving technologies raise issues of appropriate classification and evolving technologies

Many developing countries including India (TN/MA/W/10) have Many developing countries including India (TN/MA/W/10) have supported inclusion of environmentally friendly products such as supported inclusion of environmentally friendly products such as jute products or those based on biodiversity, but no specific list has jute products or those based on biodiversity, but no specific list has been submitted to NAMA.been submitted to NAMA.

Many developing countries interested in organic agriculture exports-Many developing countries interested in organic agriculture exports-here the PPM issue is contentious if it is ‘non-product’ related.here the PPM issue is contentious if it is ‘non-product’ related. Most Most Members (including both developing and OECD countries) would Members (including both developing and OECD countries) would avoid a PPM-based criteria. [MERCOSUR-avoid a PPM-based criteria. [MERCOSUR-TN/MA/W/23TN/MA/W/23] [India-] [India-TN/MA/W/10]TN/MA/W/10]. Certification and labelling issues need to be . Certification and labelling issues need to be addressed in the context of NTBs.addressed in the context of NTBs.

In most cases of EPPs, ‘like’ or ‘close substitutes’ exists which is In most cases of EPPs, ‘like’ or ‘close substitutes’ exists which is environmentally less benign. Here the question to ask is “ Does the environmentally less benign. Here the question to ask is “ Does the Doha mandate intend to extend a trade-preference for such EPPs as Doha mandate intend to extend a trade-preference for such EPPs as opposed to their non-environmental counterparts? If so, for how opposed to their non-environmental counterparts? If so, for how long?( as ultimately the intention is to remove tariffs and NTBs for long?( as ultimately the intention is to remove tariffs and NTBs for all all goods.)goods.)

EU for instance has advocated deeper cuts (EU for instance has advocated deeper cuts (TN/MA/W/11/Add.2TN/MA/W/11/Add.2) ) while Chile for example advocates cuts as part of overall exercise of while Chile for example advocates cuts as part of overall exercise of tariff reduction on all goods. Any additional reductions in Envtal tariff reduction on all goods. Any additional reductions in Envtal goods should be ‘compensated’ in other areas (goods should be ‘compensated’ in other areas (TN/MA/W/17TN/MA/W/17))

Also if the intention is to provide such preference, how can this be Also if the intention is to provide such preference, how can this be reconciled with already existing free trade for many EPP-reconciled with already existing free trade for many EPP-substitutes(eg: within Preferential agreements or Free Trade Areas)substitutes(eg: within Preferential agreements or Free Trade Areas)

4. Gains from an ‘import-perspective’4. Gains from an ‘import-perspective’

Developing countries could tackle many crucial environmental Developing countries could tackle many crucial environmental problems like air-pollution, water-pollution etc through increased problems like air-pollution, water-pollution etc through increased access to Environmental goods resulting from lower tariffs and access to Environmental goods resulting from lower tariffs and NTBs-consequently beneficial health indicators-a step forward in NTBs-consequently beneficial health indicators-a step forward in facilitating Millennium Development goals. facilitating Millennium Development goals.

Greater access to environmental goods also induce energy/resource-Greater access to environmental goods also induce energy/resource-efficiency within productive sectors of the economyefficiency within productive sectors of the economy

Access to technology and ‘know-how’ embedded in imports; Access to technology and ‘know-how’ embedded in imports; however affordability and suitability to local conditions is however affordability and suitability to local conditions is importantimportant

Lower trade-barriers may not necessarily make these goods affordable if Lower trade-barriers may not necessarily make these goods affordable if other costs remain high such as licensing fees. This could impede access other costs remain high such as licensing fees. This could impede access by and tech-transfer for SMEs-IPRs may be an important consideration. by and tech-transfer for SMEs-IPRs may be an important consideration.

The Investment channel for environmental goods also needs to be The Investment channel for environmental goods also needs to be considered in addition to trade channels as these could be more considered in addition to trade channels as these could be more significant for building domestic capacity in developing countries, significant for building domestic capacity in developing countries, create jobs and build backward and forward linkages in the economy.create jobs and build backward and forward linkages in the economy.

Imports of certain environmental goods may lead to greater capacity to Imports of certain environmental goods may lead to greater capacity to comply with environmental requirements in export markets. Countries comply with environmental requirements in export markets. Countries may wish to look at which environmental goods are critical in this may wish to look at which environmental goods are critical in this regard. regard.

5.5. Capacity building, infrastructure and training for customs officials will Capacity building, infrastructure and training for customs officials will be important particularly if further tariff-classifications or sub-divisions be important particularly if further tariff-classifications or sub-divisions are created for environmental goods.are created for environmental goods.

Other cross-cutting Considerations Other cross-cutting Considerations for developing countriesfor developing countries

The following considerations on The following considerations on environmental goods negotiations could be environmental goods negotiations could be important to ensure a meaningful outcome important to ensure a meaningful outcome for developing countries from EGS for developing countries from EGS negotiationsnegotiations::

1.1. Coherence in WTO negotiations and rule-makingCoherence in WTO negotiations and rule-making: : Reducing tariffs and non-tariff barriers to Reducing tariffs and non-tariff barriers to

Environmental goods and services implies close Environmental goods and services implies close coordination between negotiations taking place in coordination between negotiations taking place in NAMA, CTE-SS, Services, TBT (standards) and NAMA, CTE-SS, Services, TBT (standards) and possibly agriculture.possibly agriculture.

In case organic products (based on whatever criteria) In case organic products (based on whatever criteria) are negotiated as part of the EGS mandate on an are negotiated as part of the EGS mandate on an accelerated, then the relationship to agricultural accelerated, then the relationship to agricultural liberalisation modalities ( export subsidies, domestic liberalisation modalities ( export subsidies, domestic support) on non-organic products must be defined.support) on non-organic products must be defined.

As environmental services and goods are As environmental services and goods are frequently inter-linked it may be important to frequently inter-linked it may be important to coordinate market access in both areas. For coordinate market access in both areas. For example: opening up the solid waste treatment example: opening up the solid waste treatment services sector while maintaining high tariffs and services sector while maintaining high tariffs and NTBs on waste-treatment equipment may not NTBs on waste-treatment equipment may not result in meaningful market-access unless result in meaningful market-access unless perhaps the developing country has an adequate perhaps the developing country has an adequate and competitive domestic environmental goods and competitive domestic environmental goods sector which could supply these servicessector which could supply these services

The role of CTE and CTD under Para 51 of the The role of CTE and CTD under Para 51 of the Doha mandate could be important in ensuring Doha mandate could be important in ensuring such coherence and to identify developmental and such coherence and to identify developmental and environmental apsects of EGS negotiations.environmental apsects of EGS negotiations.

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

3.3. Can ‘natural-resources’ be considered environmental goods? Can ‘natural-resources’ be considered environmental goods? Qatar’s proposal on natural gas raisesQatar’s proposal on natural gas raises the question the question as toas to whether natural resources whether natural resources can also be considered an environmental good and benefit from lower tariff and can also be considered an environmental good and benefit from lower tariff and NTBs ( including subsidies to alternative fuels like coal).NTBs ( including subsidies to alternative fuels like coal).If the intention is to If the intention is to promote environmentally friendly fuels, ‘relativity’ considerations must be kept in promote environmentally friendly fuels, ‘relativity’ considerations must be kept in mind. Eg: Hydrogen >Ethanol>Natural Gas>petroleum>coal. What would happen mind. Eg: Hydrogen >Ethanol>Natural Gas>petroleum>coal. What would happen to trade-preferences to natural gas once use of ethanol or hydrogen becomes 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 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 internal taxes, subsidies that may provide strong incentives or disincentives to use a particular fuela particular fuel

4.4. ‘‘Energy-efficient technologies’: Dealing with tariff-classification,‘relativity’ and Energy-efficient technologies’: Dealing with tariff-classification,‘relativity’ and ‘continuous evolution’‘continuous evolution’Japan’s proposal on energy-efficient products raises issues of how appropriate Japan’s proposal on energy-efficient products raises issues of how appropriate tariff classification distinctions and trade preferences will be created, say for tariff classification distinctions and trade preferences will be created, say for example, between a normal and energy-efficient washing machine, the latter which example, between a normal and energy-efficient washing machine, the latter which may become obsolete the following year as technology improves.may become obsolete the following year as technology improves.

5.5. Non-tariff barriers: How and when will they be tackled?Non-tariff barriers: How and when will they be tackled?Tariff levels for most industrial goods are low in developed countries. Tariff levels for most industrial goods are low in developed countries. (NTBs may be more important. Eg: labelling, subsidies, taxes) (NTBs may be more important. Eg: labelling, subsidies, taxes) Identifying and negotiating removal of these various NTBs will take Identifying and negotiating removal of these various NTBs will take time. This needs to be kept in mind given the time-horizon of time. This needs to be kept in mind given the time-horizon of completing the Doha negotiations as well as any accelerated completing the Doha negotiations as well as any accelerated liberalisation, if accepted, of EGS.liberalisation, if accepted, of EGS. The challenge will increase if The challenge will increase if agricultural goods are also negotiated.agricultural goods are also negotiated.

6.6. Coordination and communication between trade-negotiators and Coordination and communication between trade-negotiators and regional policy makers ( trade, industry, agriculture, environmental, regional policy makers ( trade, industry, agriculture, environmental, municipal authorities) as well as among various national stakeholders municipal authorities) as well as among various national stakeholders needs to be consideredneeds to be considered

7.7. Trade-negotiations in EGS could reflect domestic and regional Trade-negotiations in EGS could reflect domestic and regional sustainable development priorities emerging from such sustainable development priorities emerging from such communicationcommunication

55. . Developing countries may want to use certain instruments such Developing countries may want to use certain instruments such as subsidies as incentives to develop the domestic EG sector. as subsidies as incentives to develop the domestic EG sector. Here some form of time-bound special and differential Here some form of time-bound special and differential treatment could be possibly considered.Eg: China’s proposal on treatment could be possibly considered.Eg: China’s proposal on ‘modalities’ (TN/TE/W/42)‘modalities’ (TN/TE/W/42)

6.6.Consideration of bilateral and regional trade negotiations also Consideration of bilateral and regional trade negotiations also important in order to assess environment for market access and important in order to assess environment for market access and investment in EGsinvestment in EGs

7. 7. Even if not directly discussed under WTOEven if not directly discussed under WTO negotiationsnegotiations, , Policymakers and trade negotiators could also keep in mind Policymakers and trade negotiators could also keep in mind mandate from other fora (such as the WSSD Johannesburg mandate from other fora (such as the WSSD Johannesburg mandate and the Millennium Development goals) particularly if mandate and the Millennium Development goals) particularly if access to certain environmental goods are critical to these goalsaccess to certain environmental goods are critical to these goals