The U.S., EU, China and 11 other countries announced a plan on January 24 to negotiate a sector agreement that would eliminate tariffs on environmental goods. The intent is to negotiate a plurilateral deal which other WTO members could choose to sign on to or not. Negotiators will begin with a list of 54 products such as wind turbines and solar panels. According to the White House, countries involved in this effort account for some 86 percent of global trade in these environmental goods.
Negotiators in the Doha Trade Round have been trying unsuccessfully to negotiate an agreement to eliminate tariffs on environmental goods for the past dozen years. With that round now stalemated, however, a plurilateral agreement looks like a good way to move this issue forward. Successful negotiations could be a win for promoting trade and a win for promoting better environmental stewardship; however these negotiations face some difficulties.
In addition to the U.S., EU and China, other countries that have agreed to launch these negotiations are Australia, Canada, Costa Rica, Hong Kong, Japan, Korea, New Zealand, Norway, Singapore, Switzerland and Chinese Taipei. These negotiations are open to any WTO member that would like to participate, and the hope is that a number of other countries will join the negotiations or sign on to the eventual agreement.
The intent of eliminating tariffs on environmental goods is to make them cheaper and more accessible, which will particularly help developing countries with limited budgets to devote to environmental protection. The White House announcement of this initiative noted that “Tariffs add unnecessary costs to the technologies needed to fight pollution and protect the environment, such as water filtration and renewable energy technologies. Total global trade in environmental goods totals nearly $955 billion annually, and some countries currently apply tariffs as high as 35 percent.”
The list of 54 products that will initially be considered was developed by the Asia Pacific Economic Cooperation (APEC) forum. The 21 nations in APEC declared their intent to reduce their tariffs on these products to 5 percent or less by the end of 2015. One difficulty, however, is that the Harmonized System (HS) of tariff codes used by customs officials around the world does not generally list environmental goods in specific baskets. In fact environmental goods are spread out in several dozen baskets, and very few include 100 percent environmental goods; in some instances some codes may only include 5 or 10 percent environmental goods. Some products that have environmental uses also have other uses.
Another issue is that tariffs on these products by most of the 14 participants are already very low, often the level economists consider as nuisance tariffs. Even so, eliminating these tariffs can have some impact in reducing costs and simplifying paperwork, and eliminating these duties can also have some symbolic benefits. Importantly, many environmental goods are produced from parts and components that may cross a number of borders. Nuisance tariffs can add up in these supply chains; for example, windmills may contain gear boxes, towers, blades, advanced batteries and other parts and components that cross borders multiple times. Finally, the participation of China is significant, since China has high tariffs on a number of environmental products. Hopefully China’s participation will encourage other countries with high duties on environmental goods to join the negotiations in the future.
The environmental community in the U.S. seems cool to these negotiations at this time, although they are just beginning to focus on them. Chris Flavin of World Watch Institute views the potential impact of these negotiations as small “since tariffs are already low, but having China involved is a plus. Far more important than these negotiations are the TPP and TTIP negotiations on harmonizing regulations – will these be harmonized to the lowest common denominator or the highest.” Sierra Club’s Ilana Solomon is skeptical of the World Trade Organization and worries that these negotiations could detract from the UN work on climate change.
To gain support, it will be desirable to have more countries participate and to ensure the list of products includes all appropriate environmental goods.
Reducing non-tariff barriers on environmental goods is not currently on the agenda for these negotiations, and including them could complicate the negotiations. However, there might be some potential for including some non-tariff barriers. For example, the OECD’s Ronald Steenblik notes that “standards are similar across countries . . . [but] an additional burden comes from testing. What would really help would be to agree to have some kind of process towards mutual recognition of test results.”
It is also not contemplated to include environmental services at this time. However, liberalizing services barriers would be helpful in promoting good environmental stewardship. At this time, a number of countries are seeking to negotiate a new agreement on services (see our February 25 blog on these negotiations) and it is hoped that these negotiations will liberalize trade barriers on environmental services. If the services negotiations do not fully address environmental services, then these could be addressed at a later time in the environmental sector negotiations, along with tariffs on environmental goods.
Image Credit: “Windmills in Hokhaido” courtesy of Flickr user thedailyenglishshow.
This article was originally published on the Wilson Center's blog, "America's Trade Policy".