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)
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
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’.
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.
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),
‘Traditional’ Environmental Goods vs
Environmentally Preferable Products
(EPPs)
Traditional
Goods
EPPs
Main purpose
To address an
environmental
problem
Main purpose
Other uses
Production
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
E.g. Organic
agriculture
Consumption/Use
E.g. Solar cars
Disposal
E.g. Jute Bags
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
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
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 tradeflows
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.
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
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
‘Dual-Use’: Type 1 Example-6 digit HS
category
6-digit HS code entry
(841360) :
Pumps for liquids,
whether or not
fitted with a
measuring device; other
rotary positive
displacement pumps
Environmental Good
Ex-Out:
Pumps for Sewage
and Wastewater treatment
Non-environmental
good
Other pumps
Non-environmental
good
Other pumps
‘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) .
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:
i. tariffs on import of all project related goods
ii. reduction, elimination or appropriate treatment of standards, licensing
restrictions, non-tariff barriers and other related issues
iii. specific commitments required in all modes of service delivery.”
 Temporary Concessions to be subject to WTO Dispute Settlement
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.
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
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.
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.
Examples of Provisions and Activities
relevant to EGS in RTAs
• EGS Specific
 US-CAFTA DR Envt Coop Agreement: refers to developing 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
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
Promoting EGS trade through RTAs: What are
the opportunities and constraints?
Key Challenges Related
to Env Goods
Liberalisation
WTO Negotiations
Regional Trade
Agreements
1.Mandate
•Specific mandate for
liberalising EGS
•Usually no separate mandate;
subsumed within overall
liberalisation for goods
2.Impact on trade
•‘Trade-creating’ through
MFN Liberalisation
• Trade-creating or trade
diverting depending on
participating countries
3. ‘Dual-use’ problem and
environmental relevance of
goods
• Mostly ‘dual-use’ products at
HS 6-digit; reluctance to
liberalise among many
Members-entail lower
ambition
•Harmonisation of HScodes/descriptions difficult to
achieve
• ‘Dual-use’ may not be a
problem due to ambitious
liberalisation at HS-6 digit
• Even if ex-outs are selected,
harmonisation of codes,
descriptions may be easier
Promoting EGS trade through RTAs: What are
the opportunities and constraints?
Key Challenges Related
to Env Goods
Liberalisation
WTO Negotiations
Regional Trade
Agreements
4. Standards and Non-tariff
barriers (NTBs)
• NTBs may be subject to
multilateral disciplines at
WTO.
•Harmonisation/mutual
recognition more difficult.
• Greater potential for
harmonisation and mutual
recognition-this makes it
easier for internal trade and
3rd parties-but pull effect of
stringent standards may
require investment.
5.Expanding products of
interest to developing
countries
• May imply ‘offensive’
S&DT; preferential access to
EPPs relative to less-envtally
friendly substitutes.
• May result in greater access
to all developing country
products-but both EPPs and
non-EPPs; lesser scope for
trade-based discrimination for
EPPs incl third country
EPPs.
Promoting EGS trade through RTAs: What are
the opportunities and constraints?
Key Challenges Related WTO Negotiations
to Env Goods
Liberalisation
Regional Trade
Agreements
6. Impacts on Domestic
Industries in developing
countries
• Scope for general
flexibilities including S&DT
greater.
•Ambition of RTAs imply
lesser scope for ‘protection’
related flexibility but
tailoring to suit specific
needs of partners possible.
7. Supply-side
considerations, institution
and regulatory building,
technology-transfer and
technical assistance
• May imply broader
modalities and flexibilities;
but operationalisation could
be a challenge.
• Specific tailoring to suit
needs of partners possible;
depth of integration and
partner countries important;
bilateral and regional aid
flows could be key vehicle.
Promoting EG trade through RTAs: What
are the opportunities and constraints?
Key Challenges Related WTO Negotiations
to Env Goods
Liberalisation
Regional Trade
Agreements
8. Linkage with other areas
of negotiations.
• Separate mandate increases
scope for negotiating
linkages
• May be difficult to finetune coordination between
env goods and env services.
• May not be possible to
have linkages as EGs
negotiated within industrial
or agricultural goods-unless
negotiated as a separate
sector.
•Easier to coordinate env
goods and env services
liberalisation.
9. Viability of ‘projectapproach’
• Has raised questions with
regard to compatibility with
WTO rules.
• May be easier to negotiate
and implement in a regional
context if bound import
tariffs are not already
liberalised under RTAs
Promoting EGS trade through RTAs: What are
the opportunities and constraints?
Key Challenges Related WTO Negotiations
to Env Goods
Liberalisation
Regional Trade
Agreements
10. Negotiating Asymmetry
• Less
• More
11. Dispute Settlement
• Available
• Transparent and accessible
dispute settlement
mechanisms are essential.
Thank You