News and Analysis • Volume 1 • Number 2 • December 2007

A Doha round deliverable for climate change?

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The Doha round negotiations are proving to be divisive, drawn-out and complicated, with trade delegations expending much of their energy on high profile issues such as agriculture and industrial market access. However, also on the agenda is an area potentially of great interest to climate change negotiators: talks aimed at freeing up trade in environmental goods and services by cutting tariffs and non-tariff barriers.

WTO members have on their plate a set of negotiations that could increase the global flow of clean and energyefficient technologies and renewable energy, speeding up the diffusion of know-how critical in allowing countries to make a shift towards a sustainable energy future. As trade ministers meet during the UNFCCC Conference of the Parties in Bali, they are likely to consider the liberalisation of environmental goods and services as a potential deliverable from the global trading system with regard to the global quest to mitigate climate change. This article provides some background on key issues and the state of the negotiations on environmental goods and services at the WTO.

The mandate

Paragraph 31 (iii) the 2001 Doha Ministerial Declaration calls for the reduction, or as appropriate, elimination of tariff and non-tariff barriers on environmental goods and services (EGS). The mandate does not specify what environmental goods are, nor does it indicate the pace, depth or sequencing of liberalisation in this sector vis-à-vis other goods and services. Discussions on the definition and scope of environmental goods are taking place within the WTO Committee on Trade and Environment special negotiating session. Although many members eventually want to see their commitments reflected in the group at the WTO negotiating access for industrial goods, most developing countries want the issues related to environmental goods to be resolved in the Committee on Trade and Environment.

Defining environmental goods and the challenge of ‘dual use’ goods

The lack of a universally accepted definition of EGS has left trade delegates struggling over the scope of goods and services slated for liberalisation. Several approaches have surfaced, centred on lists, projects, or a request-offer process for bringing down trade barriers. One bone of contention is that of so called ‘dual use’ goods. While the aim of the EGS mandate is to liberalise trade, some say this applies to goods intended solely for environmental protection purposes, and oppose any consideration of dual use goods that can have both environmental and nonenvironmental uses.

Many of the proponents of environmental goods liberalisation – dubbed the ‘Friends of Environmental Goods’ and comprising Canada, the EU, Japan, Korea, New Zealand, Norway, Chinese Taipei, Switzerland and the US – have argued that the benefits of EGS liberalisation would be limited if it was restricted to the handful of products used solely for environmental purposes.

On the other hand, a number of developing countries are concerned about cutting tariffs for goods only vaguely linked to environmental protection, worrying in particular about the impacts of ‘dual-use’ imports on small and medium enterprises (SMEs) in the non-environmental sectors.

The ‘list’ approach to defining environmental goods

Over the years, WTO members have focused quite heavily on different lists of environmental goods that could be liberalised. Countries have considered lists of environmental goods compiled by the Organisation of Economic Cooperation and Development (OECD) and the Asia Pacific Economic Cooperation (APEC) forum. The ‘Friends’ of environmental goods mentioned above have expressed a preference for the list approach under which WTO members would negotiate a reduction of bound tariffs on the agreed list of goods. After coming up with various individual lists, the ‘Friends’ consolidated and trimmed them down into one informal list comprising 153 products. The products are grouped under various environmental categories including renewable energy, heat and energy management, and cleaner or more resource-efficient technologies and products.

Can the list be updated?

If delegates were to agree on a set list of environmental goods, these would have to be updated, as new technologies and solutions appear – a living definition reflecting the real world. The problem here would be how to treat outdated environmental goods. Tariffs lowered and bound once cannot be hiked up again.

The ‘project’ approach to defining environmental goods

An alternative approach, introduced by India and Argentina as a response to the problem of dual use goods, centres on specific projects. Under the project approach, tariff would be temporarily bound at lower levels for agreed goods and services destined for specific environmental projects – for the duration of the project only. The criteria for the projects would be decided multilaterally by the Committee on Trade and Environment. The approach has met with criticism from many of the ‘Friends,’ which say it lacks predictability and would include burdensome procedures. In addition, they question its consistency with WTO rules.

The ‘request-offer’ approach to defining environmental goods

Brazil has informally floated a third approach under which WTO members would negotiate the goods for liberalisation based on a ‘request-offer’ approach. The request-offer approach is used under the General Agreement on Trade in Services (GATS), with countries requesting specific liberalisation commitments from each other, and then extending tariff cuts they deem appropriate equally to all WTO members.

Goods of interest to developing countries

From the beginning of the negotiations, it has been clear that most industrially produced environmental goods are of interest mainly to developed and the most advanced developing countries. Therefore, some developing countries have proposed that agricultural environmental goods also should figure in any basket of goods slated for liberalisation. While African countries expressed some interest in organic agriculture early on in the negotiations, the issue was not taken up by developing countries owing to the fear that discrimination (albeit positive) on the basis of process and production methods (PPMs) would be introduced within the WTO. The issue has recently popped up again, however, both indirectly in an informal proposal by Brazil, and in a draft proposal submitted by Peru.

Are biofuels environmental goods?

The WTO distinguishes between industrial and agricultural goods, with the former subject to a more stringent set of rules related to tariffs, subsidies etc. Due to historic classification reasons, as well as how they are processed, biodiesel is considered an industrial good while bioethanol is considered an environmental good. At a recent meeting of the WTO Committee on Trade and Environment, Brazil – an efficient producer of ethanol that faces major tariff barriers in developed country markets – suggested that biofuels should be considered as environmental goods. Both developed country members such as the US, EU, Australia and Canada, and developing country members such as Cuba, opposed this designation. Peru and some other developing countries fully supported the Brazilian proposal.

Environmental services

Liberalisation of environmental services was an essential element of the Doha mandate, although it has received far less attention than environmental goods since discussions started at the WTO. The environmental services discussed at the WTO refer to human-produced services, such as end-of-pipe pollution control and remediation services and potentially related services such as construction, engineering, technical testing, analysis and management consulting services. They do not include ecosystem services provided by nature.

Unlike environmental goods, environmental services existed as a separate category within the WTO Services Sectoral Classification List even before the launch of the Doha Round. Discussions on environmental services have progressed slowly. A group of countries dubbed ‘Friends of Environmental Services’ have played an active role as demandeurs, both in terms of flagging conceptual issues that need to be worked out and in requests for specific countries to liberalise specific environmental services.

Classification

A number of delegations have said that the current WTO Services Sectoral Classification list needs to be updated to reflect current realities and the evolution of the environmental industry beyond traditional end-of-pipe/ pollution control/ remediation/clean-up towards integrated pollution prevention and control, cleaner technology and resources and risk management.

The EU has proposed an alternative classification comprising ‘core’ services that can undisputedly be classified as purely environmental and where the services are classified according to the environmental media (i.e. air, water, solid and hazardous waste, noise, etc.). In addition, the EU has proposed a ‘cluster’ approach under which services such as design, engineering, R&D and consulting services that have an environmental ‘end-use’ would be subject to a special ‘cluster’ or ‘checklist’. Commitments for these ‘end uses’ could be made within relevant GATS sectors other than the environment. Presently, WTO members are free to make use of their own classifications.

Requests for market opening

Most developing countries have received requests to undertake specific commitments in all environmental services, principally from developed countries. In addition, a group of developed countries made a collective, or plurilateral, request for market opening in 2006, targeting a large number of developing countries. The request covered sewage services; refuse disposal; sanitation; cleaning of exhaust gases; noise abatement; nature and landscape protection; and other environmental protection services in specific ways.

Very few developing countries have formally expressed a willingness to make commitments. Except for Chinese Taipei, no developing economy has requested market access commitments in environmental services. A number of countries have highlighted the close linkage between environmental goods and services, noting that their separation is difficult, owing to their integrated nature. They have suggested that, where appropriate, environmental goods and services should be liberalised in parallel.

Steps ahead

Most delegates agree that the overall approach will be critical to resolve before discussions on the selection and treatment of environmental goods can begin. Members have also called on the Committee of Trade and Environment special session to address issues of non-tariff barriers and transfer of technology. In a broader context, a lack of movement on issues of interest to developing countries, particularly agriculture, also inhibits proactive developing country engagement on EGS negotiations.

Mahesh Sugathan is Programme Coordinator – Economics & Trade Policy Analysis at ICTSD