Ministerial talks to clinch Environmental Goods Agreement hit stumbling block

8 December 2016

A ministerial-level meeting of several WTO members aimed at concluding talks for a tariff-cutting deal on environmental goods finished without agreement on Sunday 4 December, leaving the next steps unclear for the time being.

The 3-4 December meeting in Geneva, Switzerland, came immediately following a week of negotiations aiming to set the stage for when ministers arrived in town.  The ministers’ meeting was co-chaired by the US and EU.

“Many EGA participants engaged constructively and brought new contributions to the table,” said EU Trade Commissioner Cecilia Malmström and US Trade Representative Michael Froman in a joint statement issued Sunday afternoon at the ministerial’s close. The two trade chiefs referred to good progress over the week, while noting that participants would now need time to discuss with their capitals what may come next.

“Participants negotiated in good faith and made good progress towards an agreement,” said WTO Director-General Roberto Azevêdo, who was on hand at the ministerial meeting. “I urge participants to show whatever flexibility they can to help conclude the deal.”

The EGA negotiations have been underway for over two years, having been launched in July 2014. The group of WTO members negotiating the EGA includes Australia, Canada, China, Chinese Taipei, Costa Rica, the EU (counted as one), Hong Kong, Iceland, Israel, Liechtenstein, Japan, New Zealand, Norway, Singapore, South Korea, Switzerland, Turkey, and the United States.

Competing lists

Recent EGA negotiating rounds had worked on the basis of a so-called “landing zone” product list, also referred to as an L-list by negotiators. This list covered just over 300 tariff lines and related ex-outs, and was narrowed down from over 600 tariff classifications that had been nominated by participants earlier in the process.

During the negotiations leading up to the ministerial – which included ambassadors’ level meetings – that 300-plus list was subsequently split into two, with one “A list” of over 250 items that were deemed to have reasonable levels of consensus, along with another “B” list of more sensitive items that would require political decisions. These were prepared by Andrew Martin of Australia, who chairs the talks in his personal capacity.

Among the more political issues, sources said, included how to treat bicycles in the final agreement – a key demand by China that was reportedly difficult for the EU, though the option of including bicycle parts was among the potential scenarios discussed. Among the other sensitive goods that proved especially difficult last week were wood, which is reportedly a difficult area for several members including Japan, and gas turbines.

The co-chairs of the EGA ministerial subsequently issued their own list, sources say, adding some tariff lines to the original A list.

“The Chairs issued documents designed to stabilise the text of the agreement and produced a revised products list that balances priorities and sensitivities,” stated Malmström and Froman in their joint announcement.

Later on Sunday, China reportedly put forward its own list of products, after deeming that the earlier A/B list approach and the subsequent list by the US and EU ministers had both “failed to reflect the balance of interests of all participants and was unable to form the basis for negotiation,” according to Chinese Vice Minister of Commerce Wang Shouwen.

“In order to break this impasse, China made tremendous efforts in presenting a third product list within two hours, which demonstrated China’s flexibility and served to address the core concerns of all participants,” said the Chinese official in an interview with the Xinhua news agency.

China has consistently argued throughout the negotiations that they have higher tariffs on many of these environmental goods, and that therefore the concessions being made would be much larger for them than for other participants.

Sources familiar with the Chinese list said that it contained some items that had been deemed “red lines” for other participants, along with missing some of the items that were deemed key offensive interests for others. Others referred to the timing of the submission – on the second day of the ministerial – as also leaving little time for building convergence or consensus around it.

However, a few sources suggested that the timing of the earlier list from the ministerial co-chairs also proved difficult, and that the issue of balance is a subjective one, with the A/B list approach potentially being more balanced for some participants than others.

While the emphasis throughout the week was on the product list, other areas discussed included an EGA text, which covers issues such as the timing for phasing out tariffs, along with what constitutes a “critical mass” threshold of the percentage of trade in goods in order to prevent free riding when the final deal’s benefits are extended to the full WTO membership, as well as a possible revision mechanism.

Whereas multiple sources said that the text was relatively advanced, despite having some unresolved areas, there are also reports of a second text, hence indicating that there was no consensus yet.

No in-depth discussions on either of these texts took place though, as resolving those outstanding issues would largely depend on sorting out a final product list.

Next steps, global climate landscape

Despite the setback at the ministerial, sources affirmed that there is a shared willingness to continue with the negotiations, describing last week’s talks as still being productive. They generally suggested that the remaining issues can likely be resolved should participants demonstrate the necessary political will.

Setbacks like these are far from being unusual in trade negotiations – a point which some officials have made both publicly and privately. Daniel Blockert, Sweden’s Ambassador to the WTO, cited the efforts to expand the Information Technology Agreement’s (ITA) product coverage as another process that hit a few roadblocks before reaching a successful resolution. (See Bridges Daily Update, 16 December 2015)

“On the 12th October 2014 on this blog I lamented the fact that we had failed to conclude negotiations on another plurilateral agreement, the Information Technology Agreement (ITA). But on the 17th December 2015 I wrote an article celebrating the fact that the ITA review was finally concluded during the WTO ministerial meeting in Nairobi,” said the Swedish ambassador in a blog post.

“The next WTO ministerial will be held in Buenos Aires in December 2017. So watch this space,” he added.

Other sources similarly raised the prospect of concluding the EGA in time for the WTO’s next ministerial conference in Buenos Aires, Argentina, though whether that will be the new target date has not yet been formally confirmed. A next negotiating session has tentatively been agreed for the first quarter of 2017.

Some negotiators speaking to Bridges said that the timing for next steps will depend partly on how the incoming administration under US President-elect Donald Trump approaches the issue. Trump has shown a range of opinions on climate change, pledging on the campaign trail that he would end the US’ involvement with the UN’s Paris Agreement on climate change, while tempering that assessment after the election, saying that he would “keep an open mind.”

Upcoming elections in major EU member states, including France and Germany, have also raised questions over how these political transitions could affect the EGA negotiations. Similarly, the upcoming “Brexit” is a cause of concern for parties contemplating to enter a trade agreement with the EU.

Even with this political uncertainty, a few sources noted that the EGA does have bipartisan support in the US Congress, along with having the backing of many in the American private sector, which could prove promising. Some US industry groups have publicly urged EGA negotiators to conclude a deal, given the rapid growth in the sector and its significant economic and environmental potential.

“Facilitating trade in environmental goods, which currently is estimated at US$1 trillion annually, would promote the use and development of environmental technologies that will address global environmental goals, supporting jobs and growth in all 18 participants,” said the US-based National Foreign Trade Council’s (NFTC) Coalition for Green Trade after this weekend’s ministerial.

The coalition is chaired jointly by the NFTC, the National Association of Manufacturers, and the US Council for International Business.

Clean energy

In a separate development, Google announced this week that it will move to power all of its data centres on renewable energy in 2017. The technology titan has explained the move as being one that makes sense from both a business and economy-wide perspective. Other large companies like Facebook and Amazon have similarly been working to upscale their use of cleaner energy sources in fuelling their business.

Some trade officials have pointed to estimates which say that the environmental goods market could reach an estimated US$3 trillion by the end of the decade, making it imperative to advance a tariff-cutting accord in this field. For example, the European Commission says that within the 28-nation bloc alone there are already four million people working in the sector, with many more expected.

The EGA’s potential to help support the deployment and increased use of clean energy technologies through eliminating tariffs has been one of its key innovations, and has been welcomed by many in the climate and environment community – particularly in light of other efforts at the international level to pursue more ambitious steps towards climate adaptation and mitigation by transitioning to a lower-carbon global economy.

For example, the UN’s Paris Agreement on climate change has been in force since early November, and has now been ratified by 116 parties representing nearly 80 percent of global emissions. That same month, UN climate negotiators and ministers concurred in Marrakech that they would continue their efforts to increase the “irreversible momentum” at tackling the climate challenge. (See Bridges Special Update, 20 November 2016)

One source familiar with the talks regretted that EGA-members failed to see the bigger picture of climate change and sustainable development as the rationales for action, and rather let themselves get bogged down in haggling over offensive and defensive interests. He argued that the delay may be an opportunity to allow the Paris Agreement and the UN Sustainable Development Goals, adopted after the launch of the EGA talks, to now more fully inform the EGA negotiations forward.

ICTSD reporting; “EU blames China for WTO environmental trade talks collapse,” REUTERS, 4 December 2016; “China makes positive contributions to WTO negotiation on environmental products: Vice Minister,” CHINA DAILY, 6 December 2016; “Google Says It Will Run Entirely on Renewable Energy in 2017,” THE NEW YORK TIMES, 6 December 2016.

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