Environmental goods at WTO - the question of tariff reduction

In WTO, the developed-developing dichotomies are more often than not insignificant, as countries adopt different positions on individual issues that suit their specific interests. At the Doha Ministerial Conference, for instance, the common position of developing countries failed to converge when they gave up on environment at the last moment. Consequently, substantial aspects of the trade-environment debate were made part of negotiations. One of the items on which negotiation was agreed upon was reduction or appropriate elimination of tariffs on environmental goods. While the negotiations on this issue are going on at a slow pace, it has become clear that the developed countries will gain the most in terms of increased market access for their environmental products. For the developing countries, it looks like merely a damage-control exercise as, in the majority of the cases, they are net importers of these products. As of now, there is no internationally accepted definition as to what could be classified as an environmental good. But, generally, the term is used for pollution control and related equipment. The developed countries clearly dominate the market, with the US being the world's biggest producer and consumer of pollution control equipment and services. It is also the second largest net exporter after Germany and Japan. The EU, the US and Japan put together control 85 per cent of the global market in these goods and services. Incidentally, the existing bound and applied tariff rates for majority of developing countries for these equipment are quite high compared to that prevailing in the developed countries. For instance, the applied tariff rates for air-pollution control equipment in India are 25 per cent against 0-6 per cent in the US, Canada and Japan. Therefore, there is little Indian exporters can expect in terms of increased export opportunities in the developed countries. On the other hand, the developed country exporters expect substantial gains in the developing country markets as a result of tariff reduction. In the WTO, the issues are now being negotiated in the Negotiating Group on Market Access (NGMA) for non-agricultural products. Amidst different opinion on the definition of environmental goods ranging from pollution control equipment to the goods produced in environmentally-sound ways, some member countries have preferred to negotiate with a list rather than the definitional approach. The US has supported a list prepared by Asia Pacific Economic Cooperation (APEC), which included capital equipment used for air-pollution control, waste management, renewable energy, and so on. Preliminarily trade data analysis reveals that India is a net importer of these goods. India's total imports of these equipment in 2001-02 was Rs 6,430 crore against exports worth Rs 2,920 crore. Moreover, most of these equipment have multiples uses ? the list includes products such as pumps, condensers and refractory bricks, which are predominantly used for purposes other than environmental protection. However, the US has rejected inclusion of goods based on non-products related process and production methods (PPMs) ? the way they have been manufactured. Article III of GATT, which establishes the nationaltreatment ,rule does not allow discrimination between like products based on production-based criterion. An earlier list prepared by the Organisation for Economic Cooperation and Development (OECD) also includes chemicals used in pollution control, and cleaner technologies, apart from end-of-the pipe pollution control equipment. Japan, in its recent submission to the trade body, added to the bewilderment by proposing a list, which includes such products as resource-efficient microwave ovens, refrigerators and video projectors. India, as is the case with many other developing countries, does not have comparative advantage in trade in these products. India has made it clear that it is against recognition of PPM standards in trade regime, but indicated its support for inclusion of environmentally-friendly natural products of export interest such as jute, coir, rattan, handloom and bamboos in the list of environmental goods. India's annual exports of jute products and cotton handlooms are Rs 700 crore and Rs 2,000 crore respectively. India being a net importer of items mentioned in the APEC list, its interest is in keeping the list as small as possible, but it might have advantage if some of the natural products are included in it. However, it remains to be seen whether India can defend inclusion of cotton handlooms, as most of its export in this category consists of luxury consumer items such as carpets, having little to do with environmental protection. Furthermore, it will also become difficult to counter inclusion of products, whose use/consumption or disposal is less negative or beneficial for the environment, but whose production mandates technical knowhow (for example, the resource efficient products proposed by Japan). It remains to be seen how the environmental and trade regimes are reconciled, and whether the ongoing negotiations result in supporting the member countries in taking measures to improve their environment while aiding their development. Identifying the list of goods is only the first step; the more important task of tariff reduction is going to follow.