Trade and environment set to lock horns at WTO

Less than eight months remain before the Cancun Ministerial meeting and two years before the Doha Round of WTO negotiations is scheduled to conclude. As with most contentious issues, the negotiations on trade and environment are moving nowhere. Yet they are of special significance as they are likely to set in motion the direction for further integration of trade and environmental objectives in the WTO. The Declaration adopted in the last ministerial in Doha, unlike before, contains a large amount of language regarding the environment. It not only designates it as an agenda item in the new trade round but also calls for efforts to promote cooperation between the WTO, the UN Environment Programme (UNEP), and other international environmental and development organisations. Consequently, the two significant items which are currently being negotiated are liberalisation of environmental goods and services, and the ?relationship between trade obligations in Multilateral Environmental Agreements (MEAs) and WTO rules?. The developing countries, including India, who had accepted the inclusion of these issues as a quid pro quo for gains in agriculture now seem to be in a fix. While there seems to be no visible sign of any gains on agriculture, it is becoming increasingly clear that these two issues will have significant trade implications. On the first issue, no agreement has been arrived at on what could be classified as an ?environmental good?. Different opinions on definitional aspects range from a narrow definition to a broader one. According to the narrow definition, environmental goods are those whose use result in a beneficial environmental impact, i.e., capital goods or technologies required for end-ofthe- pipe pollution abatement. The broader definition takes into account environmental characteristic of the goods themselves and/or their production processes. Recognising the cross-sectoral nature of the issue, WTO members have agreed that the negotiations on tariff reduction will take place with a ?list? rather than a ?definitional? approach. The US has supported a list prepared by the Asia Pacific Economic Cooperation (APEC), which includes capital equipment used for air pollution control, waste management, renewable energy, etc. The US has also rejected the inclusion of goods based on process and production methods (PPMs), i.e., the way they have been manufactured. However, it has given its qualified support to the inclusion of goods of interest to developing countries. Incidentally, the US is the world?s biggest producer and consumer of pollution control equipment and services, as well as the second largest net exporter, after Germany and Japan. The US, Japan and the EU together control 85% of the trade in this industry. India, like other developing countries, is also against the recognition of PPM standards in trade regime, but has indicated its support for the inclusion of environmentally friendly natural products like jute, coir, rattan and bamboo in the list of environmental goods. Preliminary trade data analyses reveals that India is a net importer of items mentioned in the APEC list; so India?s interest lies in keeping the list as small as possible, though it might have an advantage if some of the natural products are included into it. On the other hand, an expansion of the list of environmental goods beyond pollution-control capital equipment can prove to be a double-edged sword. There is a possibility of the developed countries insisting on the inclusion of other goods whose use/consumption/disposal is less negative or beneficial for the environment, but whose production mandates technical know-how, on the basis that they are environmentally-friendly natural products. In fact, Japan, in its latest submission to the trade body, has already proposed a list, which includes products like resource-efficient microwave ovens, refrigerators and video projectors. India does not have an advantage in these products and our existing tariffs are quite high compared to those prevailing in the developed countries. The second issue being negotiated in the Doha round ? the MEAs and WTO rules ? is slightly different. Unlike environmental goods and services, it has been deliberated upon in detail in the WTO Committee on Trade and Environment (CTE) for more than five years. At least 20 of the existing MEAs have significant trade provisions to achieve their respective objectives, which might conflict with the WTO. Prominent among these are the Montreal Protocol on Substances that Deplete the Ozone Layer, the Basel Convention on the Transboundary Movement of Hazardous Wastes and Their Disposal, and the Convention for International Trade in Endangered Species of Wild Fauna and Flora (CITES). India is party to most of the MEAs in question, and therefore its position depends on the experiences of the domestic industry. The Indian industry?s experiences on the Montreal Protocol and Basel Convention have been mixed. The Basel Convention, which India ratified in 1992, seems to have adversely affected the Indian lead and zinc recycling industry. Despite having a well-organised system of waste collection, the recycling processes in India often do not incorporate environmentally-sound practices. Moreover, the Basel Convention does not have any specific financial mechanism to facilitate technology transfer, and the technical cooperation fund as well as that for the implementation of the Convention are very low, leaving little hope for support for industry. The Montreal Protocol, on the other hand, is perceived as one of the more successful MEAs, primarily because of generous provisions for financial help and transfer of technology on fair and favourable terms. Nonetheless, some sections of Indian industry are of the view that a substantial portion of the financial burden was passed on to developing countries. In India, for instance, the country programme, prepared with the assistance of the World Bank, estimated grant funds of $2.0 billion. However, so far, the actual amount committed or disbursed is around $127 million ? less than 10% of costs. Therefore, in trade negotiations, India will have to keep in mind the special needs of labour-intensive small-scale enterprises as well as economic development, in general. The importance of transfer of technology and other positive measures firmly need to be roped in firmly. Having said that, it remains to be seen how the environmental and trade regimes are reconciled, and whether the ongoing negotiations result in supporting member countries take measures to improve their environment while aiding their development.