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Expert Opinion: Liberalization of Environmental Goods: A Doubleedged Sword or a Panacea?

By Beatrice Chaytor

When I first wrote about the issue of environmental goods and services in 2002, my premise was that the negotiations could serve as a model for so-called “win-win” scenarios in the trade and environment debate. Wins for both environment and trade objectives and wins for both developed and developing countries. A third win—for development—was seen as possible through the generation of new markets in environmental goods and services. A few years down the line, however, the negotiations continue without much progress, mired in clashes over definition and classification.

Win-win scenarios are still possible following the liberalization of environmental goods in particular, but all World Trade Organization (WTO) Members must find viable economic and environmental interests in the negotiations. Firstly, the lists put forward by the Organisation for Economic Co-operation and Development (OECD) and the Asia Pacific Economic Cooperation (APEC) forum must be updated to reflect the current state of the environmental goods industry, and include environmentally preferable products (EPPs). In this way, developing countries can use the update exercise as a way of mainstreaming some of their core interests in the multilateral trading system; the focus on development and equity with technology transfer and capacity building as essential aspects of the negotiations.

Secondly, the definitional discussion is superficial if it fails to substantively address some of the most critical issues at the heart of the trade and environment debate: such as “like product,” process and production methods (PPMs) and eco-labels. Naturally, there is wariness about the consideration of PPMs in broadening the definition of environmental goods; this could be the slippery slope to the entry of PPMs generally in trade and environment issues and into the WTO. At the same time, liberalization of environmental goods may present considerable gains in international trade for some developing countries. Moreover, these gains would not just be restricted to traditional areas, such as organic or sustainably harvested goods.

Developing countries must surmount the psychological hurdle of PPMs and be strategic in defining their interests within the negotiations. In what products do they have specific comparative advantage? What distinguishes those environmental goods from other products? What specific trade barriers are faced by categories of these environmental goods? Are they tariff or non-tariff barriers? PPMs should be tackled head on as a useful tool for creating space for comparative advantage, particularly where there is a widening of the scope and definition of environmental goods. Developing countries must decide how to advance their desired outcome at both the national and international levels. They should achieve their “wins” one step at a time, taking a medium to long-term view.

At the national level, what particular environmental issues need addressing? For instance, with respect to cleaner energy, water treatment, air purification and fuel efficiency. Can these issues be addressed through the use of environmental goods? If so, those environmental goods need to be assigned customs codes at the national level to distinguish them from other products. At the international level, developing countries across the economic spectrum must participate fully in the World Customs Organization (WCO) to harmonize these national codes to ensure that environmental products for which developing countries have a competitive advantage are included in the various classifications. For example, products dealt with under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) and the Basel Convention on the Transboundary Movements of Hazardous Wastes and Their Disposal have already being included in customs codes developed by the WCO.

That said, things are not that simple, especially where huge economic interests are at stake. There is general consensus that the environmental industry in OECD countries is well organized, with a fairly mature industry in traditional environmental goods. The entry into force of the Kyoto Protocol will only add to the demand for cleaner energy and energy/fuel efficient products that will widen the market for such goods. Add to this the rise of biotechnology products and the environmental goods industry potentially widens. Industry analysts suggest that OECD countries will not dominate the environmental goods industry for long. Some countries in Latin America and Asia are already competitive in technology that addresses air pollution, health and sanitation and water quality. I would hazard a guess that, even if the definition of environmental goods is restricted to the narrow OECD-APEC lists, the more advanced developing countries are still likely to emerge as the biggest winners in the environmental goods trade. Even though the vast majority of least developed countries do not yet have well developed markets or industry in such products (making them “slow winners” in this trade), South-South trade in green products would enhance the wins among a wider group of developing countries.

All WTO Members need to take a realistic look at the liberalization of environmental goods that is underway. The industry, far from exhibiting the static nature inherent in the APEC and OECD lists, is a fast moving, dynamic sector that has the potential to allow some countries to leap frog the current technological divide, contrasting the impasse in the WTO with the dynamism of the environmental goods industry. Developing countries have a lot to play for here. While they discuss widening the definition of environmental goods in the WTO and work on harmonization of customs codes in the WCO, developing countries should make sure that the domestic regulatory and market environment exists for their products (whether technological or otherwise) to remain competitive and innovative.

Beatrice Chaytor, from Sierra Leone, served as a trade negotiator for her country and is now the Director of the Policy, Planning and Research at the Sierra Leone Ministry of Trade and Industry. This essay is written in her personal capacity.