Environmental Impacts of China’s
WTO Accession
Haakon Vennemo
Based on joint work with Kristin Aunan,
He Jianwu, Hu Tao, Li Shantong and
Kristin Rypdal
Background
A bunch of studies on economic and social
impacts of China’s WTO accession (e.g.,
Bhattasali et al, 2004)
A bunch of studies on impacts of free
trade on environment (e.g., Copeland and
Taylor, 2004)
But not much on environmental impacts
of China’s WTO accession
2
Who cares?
Policy makers in China interested in
environmental impacts

To plan countermeasures

To plan new policies in the free trade vein
Donor community interested in encouraging
Chinese interest

And worried that environmental impacts of accession
are negative
Governments, NGO’s etc interested in
environmental impacts of freer trade

China an important developing country case study
Many opinions and qualitative statements, not
many facts and quantitative assessments
3
Free trade in developing countries will:
Increase scale of production, which
increases pollution (scale hypothesis)
Change composition of industries, or
attract dirty industries
(composition/pollution haven hypothesis)
Encourage more efficient technology
(technique hypothesis)
4
And in symbols
e=ahs

e=emissions/environmental indicator

a=emission factor (per output) in polluting industries

h=share of industry that pollutes

s=scale of gdp or similar
ê=â+ĥ+ŝ
ê=change in emissions
â=change in emission factor/technique
ĥ=change in share of polluting industries
ŝ=change in scale
5
Key aspects of Chinese WTO-accession
Before accession there were
Quotas on imports and exports
High nominal, but often low effective
tariffs
Processing and traditional trade
WTO would not make or break the nation
But a single issue seldom does: Among
single issues, WTO has big economic
impacts
In addition to political impacts
6
After accession we analyse
Tariff reduction and quota elimination on
industrial products
Quota elimination on agricultural products
Quota elimination on textile and apparel
exports (Multifiber agreement)
7
After accession we don’t analyse
Reduction of barriers in service trade
(banks and such)
Increased protection of intellectual
property rights (DVDs and such)
Security of market access (bureaucracy
and such)
Enforcement of commitment
Cooperation in dispute settlement
8
The model
Time recursive CGE model with
neoclassical closure
 Developed
at DRC by Li Shantong et al
53 industries, of which 10 agriculture, 29
manufacturing and 6 service
6 factors of production (3 labour, land,
capital, land, material input) (nested CES)
Saving and consumption (ELES)
7 pollutants to air
9 health end-points
9
Frictions and distortions
Imperfect labour and capital mobility
between Guangdong/ROC.
Imperfect labour mobility between urban
and rural occupations
Imperfect mobility between processing
and traditional trade
In addition to direct effect of quotas and
tariffs the impact of WTO depends on its
ability to alleviate above frictions and
distortions.
10
Emission block
E 

i
i, j
C i, j
j


 i XP i


i
j
XA
j
j
I
II
III
Emission with
intermediate consumption
Emission with
sectoral production
Emission with
final consumption
Traditional pollutants: From WB/OECD
+ calibrated to EDGAR database
CH4, N2O: Livestock, fertiliser…
11
Results – significant industry level change
Figure 1 Percentage change in CO2-emissions per industry
50,00 %
40,00 %
30,00 %
20,00 %
10,00 %
0,00 %
-10,00 %
-20,00 %
-30,00 %
12
Results – Positive composition effect
Emission
Contribution Contribution from Contribution
change
from
composition/green from income
(normalised) technical shift dumping
growth/scale
(normalised) (normalised)
(normalised)
PM10
-0.91
0.36
-2.12
1.00
SO2
-0.77
0.50
-2.12
1.00
NOx
1.04
2.35
-2.12
1.00
VOCs
0.10
1.38
-2.12
1.00
CO2
-0.54
0.73
-2.12
1.00
13
Results – one scenario at a time
WTO
Tariff and
accession
quota
package (S5) reduction on
industrial
products (S1)
Agricultural MFA
trade
elimination
liberalization (S3)
(S2)
Automobile
Productivity
boost
(S4)
PM10
-1.24
-0.48
0.92
-1.50
0.18
SO2
-1.05
-0.81
1.00
-1.09
0.16
NOx
1.44
0.20
0.75
0.06
0.20
VOCs
0.16
0.83
0.76
-1.45
0.21
CO2
-0.74
-0.19
0.79
-1.26
0.17
CH4
-3.24
-0.60
-0.34
-1.88
0.09
N2O
-0.61
0.30
-1.70
0.71
0.06
14
Other impacts
1.39 percent increase in GDP
0.65 percent improvement in public
health (monetary equivalent)
 But
baseline cost to public health is only 2.3
percent of GDP. 0.65% of this is small.
Income distribution deteriorates
 Urban
households in Guangdong gain 8
percent in income
15
Further studies
Sensitivity analysis: what matters for
results
Three-region version of model (He Jianwu
will report)
Inclusion of biomass demand
A
means of assessing indoor air issues in
macroeconomic setting
Trade- and environmental policy
 The
literature talks about endogenous policy
response
16
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