Bridges Weekly Trade News Digest • Volume 11 • Number 42 • 5th December 2007

EU, US Call For Eliminating Trade Barriers To Climate-Friendly Goods And Services

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Just prior to a United Nations climate change conference in Bali, the EU and US last week submitted a joint proposal at the WTO calling for trade liberalisation in climate-friendly goods and services.

The proposal calls for the elimination of trade barriers facing goods and services directly related to mitigating climate change as part of the Doha Round negotiations on environmental goods and services. Trade liberalisation could lower costs, for instance for clean energy technologies, thus promoting increased use around the world.

US Trade Representative Susan Schwab said that "WTO Members have an unprecedented opportunity to address in a concrete and meaningful way the global environmental challenge of climate change."

Initial responses from developing countries were mixed, with suggestions that the EU and the US were invoking climate change technology to dress up their continuing demands for liberalisation in a wide range of other goods and services.

The EU-US proposal on ‘climate-friendly’ goods and services

The EU and US tabled their joint informal proposal at the WTO on 30 November. "Trade liberalisation can and should support the fight against climate change," it said, "notably by contributing to the necessary deployment of climate and energy friendly goods and technologies as well as services, thereby complementing and supporting the objectives of… the UN Framework Convention on Climate Change (UNFCCC)." Trade ministers from a number of major economies are set to meet during the UNFCCC conference in Bali; the proposal was made as a contribution to their discussions.

Climate-friendly goods and services

The proposal sets out a two-tier approach to environmental goods and services liberalisation. The first tier is for goods and services directly related to climate change mitigation; the second, for a broader list of environmental goods and services.

The first tier would be for goods "directly linked to addressing climate change" as well as "other relevant goods that enjoy consensus on the basis of their clear environmental benefit." These would include some 43 products identified as "climate-friendly" by a recent World Bank report on trade and climate change, covering a wide variety of products such as solar collectors and system controllers, wind-turbine parts and components, stoves, grates and cookers and hydrogen fuel cells. The same report concluded that removing tariffs and non-tariff barriers to key clean energy technologies could boost trade by 7-14 percent annually, and encourage greater investment in cutting-edge technology.

"Building on the analysis by the World Bank," the EU and the US call on Members to "commit to eliminate tariffs on these [climate-friendly] products with the entry into force of the Doha Development Agenda."

The proposal calls on all WTO Members - industrialised, developing, small economies, and least-developed countries - to eliminate such barriers. It says that special and differential treatment for developing countries such as longer phase-in periods could be discussed, but that the "ultimate objective should be a zero tariff world for climate friendly goods in the near future and no later than 2013."

The proposal did not, however, mention several developing country concerns cited in the same World Bank report, ranging from potential damage to domestic industry to the need for technology transfer.

Also in the first tier would be services that "could contribute to [Members'] efforts to address climate change." It suggests that Members could further their climate change objectives by removing obstacles to foreign competition in sectors such as "environmental services (e.g. air pollution and climate control services; technical testing and analysis; energy-related services (e.g. engineering and maintenance services to optimise the environmental performance of energy facilities); and services for the design and contruction of energy-efficient buildings and facilities."

The proposal stresses the importance of liberalising environmental goods and services in parallel. Building more energy-efficient buildings would require, for instance, consulting, design and construction services in addition to, say, solar panels for heating.

Second tier: other EGS

Tier two of the liberalisation process envisioned by the EU and the US involves the negotiation of an "Environmental Goods and Services Agreement." This would involve at least all developed countries and the 30-odd larger developing countries slated to apply the standard tariff reduction formula in the industrial goods talks. Unlike the first tier, least-developed and other particularly disadvantaged countries would be exempt from making commitments.

The wider range of environmental goods slated for liberalisation under this agreement would be based on a consolidated list of 153 products compiled by the ‘friends of environmental goods’, a group of mostly developed countries that has been pushing for Members to agree on a list of products for expedited liberalisation. For these products, the proposal calls on participating countries to "eliminate tariffs and take appropriate actions to identify and address specific non-tariff barriers." It does not set any specific deadlines.

Services in this second tier could include a broad set of environmental and climate-related services, including environmental, energy, construction, architectural, engineering and integrated engineering services. The proposal’s objective would be for Members participating in the initiative to bind existing levels of market access and national treatment commitments, and undertake new liberalisation to remove market access barriers.

Initial developing country reactions

Developing country reactions to the proposal were mixed, at a 30 November meeting of the Committee on Trade and Environment Special Session.

Egypt, among others, noted the importance of climate change and welcomed the short list of goods in tier one. Developing countries asked for more clarification regarding the scope of the products and services within tier two.

Many developing countries have consistently expressed concern about using a list of environmental goods slated for expedited liberalisation, noting that many products on the ‘friends of environmental goods and services’ group’s list are primarily of export interest to industrialised countries. The issue of ‘dual use’ - the fact that many goods that Members want included on an environmental goods list also have non-environmental uses - has been another sticking point.

At last week’s meeting, many developing countries voiced concerns, without questioning the relevance of environmental goods and services to mitigating climate change. They questioned how the goods had been selected, and said the dual use problem had not been fully resolved even for the short list of 43 goods in tier one, although they did acknowledge that the list specified the intended end-use for a number of the products. For instance, clutches and universal joints were included as specifically for wind turbines.

Brazil and others pointed out that the submission contained no products of export interest to developing countries, compromising its development dimension. Brazil would, for example, have liked to see the list include biofuels and biofuel manufacturing equipment, of which it is a major producer. The list also lacked a technical assistance and technology transfer dimension, it said.

Some countries criticised the concept of a ‘one-size fits all’ environmental goods and services agreement that would be mandatory for some Members, saying the objective of the proposal appeared to be market opening rather than environmental protection. Brazil suggested that its ‘request-offer’ approach took into account developing country interests more adequately than the common list put forward the EU-US submission (see BRIDGES Weekly, 7 November 2007). Hong Kong reportedly asked why a new agreement was needed, given that countries could make commitments within existing goods and services schedules.

Some developing countries also questioned the US’ intentions behind raising the issue in Bali, suggesting that Washington was ‘forum-shopping’. Sources report the US said it only wanted to bring up the submission during informal discussions at the trade ministers’ meeting there, but had no intention to circulate the actual proposal.

More criticism of the proposal came this week, when Indian Ambassador Ujal Singh Bhatia said that the EU-US proposal was "a disguised effort at getting market access through other means and does not satisfy the mandate for environment." Reuters reports that he said that India could agree to liberalise trade in goods such as solar panels and windmills, whose sole use would be to combat climate change, but could not accept the possibility that the list would extend over time to include products like cars and refrigerators.

Roberto Azevedo, a senior Brazilian negotiator, was especially critical of the list’s failure to include biofuels, upon which the US and the EU levy steep duties to protect heavily subsidised domestic producers. "We find the proposal modest, we find it biased, and we find it protectionist," he said. "Anything that they don’t produce is not on the list."

ICTSD reporting; "India, Brazil slam new WTO Doha proposals," REUTERS, 4 December 2007.