Drivers for Environmental Goods Trade

1 November 2007

At a recent ICTSD roundtable held in Geneva trade negotiators and other stakeholders engaged in a frank exchange of views on the market and trade realities of the so-called ‘convergence- set’ of 153 products that has been informally proposed by the Friends of the Environment Goods group for deeper liberalisation in the WTO.

Drawing on the GEO-4 Process

Participants reviewed a new ICTSD-commissioned study1, which analysed how trade flows in the goods on the 153-list were linked to some of the major environmental challenges and priorities faced by developing countries as identified in UNEP’s latest Global Environment Outlook (GEO-4) report. The study examined the main drivers of the trade patterns linked to the 153-list such as tariffs, level of industrialisation, foreign direct investment (FDI), environmental performance indices and the existence of environmental projects.

Among the findings were the following:

  • Trade flows are largely limited to a few middle-income and rapidly emerging developing country economies, notably China, which is the dominant developing country exporter and importer in almost all categories.
  • Tariffs are relatively insignificant determinant of trade flows, and only in a few categories would cutting them be likely to lead to import increases in developing countries. These are clean-up technologies, renewable energy, waste water, natural resources and heat reduction equipment.
  • Africa is not a large importer of goods on the 153-list despite low tariffs and the continent’s many serious environmental problems. For instance, while GEO-4 identified desertification and land degradation as one of the major challenges faced by Africa, no matching category of goods was found in the 153- list.

Another significant finding was that dynamic comparative advantage in certain sub-sectors of the 153-list was clearly moving in favour of a few developing countries. Lower-income developing countries stand to reap few export gains apart from certain environmentally-preferable products. With regard to environmental services, the study pointed to privatisation as being the most significant driver. In terms of exports, opportunities could be found in certain sectors such as consultancy services in both Mode 1 (cross-border supply) and Mode 4 (temporary movement of service providers).

Other ecosystem services – such as carbon sequestration, forestry management and biodiversity conservation – held out possible benefits, but would require the development of markets before significant trade can take place and market access commitments can be reflected within the General Agreement on Trade in Services.

Roundtable participants found the analysis useful, particularly in case WTO negotiators need to further narrow down the 153-list in order to ensure that the products on it are relevant from an environmental and market-access point of view for developing countries. Some participants emphasised that new products of export interest to developing countries must be added to the list. It was also pointed out that the 153-list still contained a number of ‘dual use’ products – i.e. products that are not used only because of the environmental benefits they offer. Although some held that liberalising trade in such goods could still bring environmental benefits, others advocated caution in this area. In Mercosur countries, for instance, many small- and medium-size enterprises manufacture and trade in ‘dual-use’ waste- and water treatment equipment of limited environmental relevance. Liberalisation of such goods could have significant repercussions on employment in the region, some participants warned.

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