Environmental Goods Agreement Negotiators Bargain on Coverage

30 June 2016

Delegates from 17 WTO members negotiating an Environmental Goods Agreement (EGA) continued efforts to identify a list of items to be covered by the tariff-cutting deal during a meeting held last week in Geneva, Switzerland, with sources reporting a good atmosphere despite some continued divergences.

Since launching the initiative formally in July 2014, EGA participants have discussed and proposed a range of products related to various categories of environmental goods that could be included in a final deal. More recently, participants have broadly focused on some 350 potential tariff lines in a “convergence list” circulated last December by the chair of the talks, Andrew Martin of Australia. (See BioRes, 9 December 2015)

During the last two rounds – with discussions held mainly in bilateral and small group sessions – EGA negotiators have predominantly focused on products deemed sensitive by one participant or another. Two separate potential lists of goods have been backed by different selections of participants, although with a degree of overlap in coverage. Some participants have also chosen not to support either proposed list.

“We still have some way to go but at least we are all playing the same game more or less. Now for the bargaining and horse-trading,” said one trade official summarising the overall state of play following the latest round.

Several sources also commented on signs of renewed engagement from China last week, which had previously held back from submitting a revised offer on product coverage, along with new proposals to address concerns around “critical mass” and “free-riding.”

The term “critical mass” refers to the concept of establishing a minimum threshold of world trade in goods covered by the deal to be captured by participants. As the agreement will likely be concluded on an “open plurilateral basis,” with most-favoured nation (MFN) treatment on tariff cuts applying to all WTO members, this threshold could help to stave off major traders benefiting from tariff cuts without having to lower their own – a problem known as “free-riding.”

In addition to discussions on China’s revised offer, EGA participants also considered revisions to a draft text sponsored by the EU for the deal’s eventual institutional arrangements, along with a potential built-in work programme on environmental services and non-tariff barriers to trade in these type of goods.

Engagement from China

Reactions to China’s engagement comprised a significant portion of last week’s round. Beijing’s revised product coverage offer reportedly included a separate category for a list of 54 products benefiting from voluntary tariff ceilings of five percent or less by the 21-nation Asia Pacific Economic Co-operation (APEC) group – which EGA participants had signalled plans to “build on” – suggesting that tariffs on these cannot be fully eliminated. 

Although China is an APEC member, it has long argued that reducing tariffs below five percent and on a binding basis would prove too challenging, a position other EGA participants have pushed back against.

However, some sources suggest that Beijing is primarily concerned with just a smaller handful of products from this group, and if solutions were found on those, then the remainder of the APEC list could be included.

On critical mass, China has suggested that the deal should enter into force when this threshold reaches at least 90 percent.

While other EGA participants have not yet indicated what the critical mass threshold should be, this approach mirrors a level found in a tariff-cutting Information Technology Agreement (ITA) and its recent revision at the end of last year, although the latter refers to “approximately 90 percent” and does not condition this on entry into force.

On free-riding, China has reportedly amended a previous proposal for a “snap-back clause,” which would have seen EGA participants restore tariffs in the case of clear free-riding, and is now suggesting that other WTO members identified as free-riders according to pre-determined criteria should seek to engage in the EGA. Should the ensuing accession negotiations prove unsuccessful, EGA participants could seek to pursue a waiver to WTO rules in order to exclude the free-rider from receiving MFN-treatment.

While some sources suggested Beijing’s new free-rider proposal was an improvement over the last, it may continue to prove problematic in some camps, with further negotiations on the matter likely required after consultations with legal experts.

As in the April round, China also reportedly continued to maintain that acceptance of its long-standing bid to participate in ongoing talks for a separate, plurilateral Trade in Services Agreement (TISA) would facilitate the EGA negotiations, a move opposed by the US. (See BioRes, 27 April 2016)

The 23 TISA participants are aiming to conclude talks by year’s end, though sources say that work remains both on market access as well as on the various annexes under discussion. Given the advanced nature of the talks, some say that any new participant wishing to join before a deal is concluded would need to be able to hit the ground running in the negotiations. (See Bridges Weekly, 9 June 2016)

Next steps

The US has indicated plans to convene a ministerial meeting among EGA participants scheduled to attend a 9-10 July meeting of G-20 trade ministers in Shanghai, China.

The gathering will focus on garnering high-level support and direction for swift political conclusion of the deal – at least in terms of product coverage – in time for the G-20 leaders’ summit in September in Hangzhou. Some sources suggested that Washington is among those applying considerable pressure to secure support for this outcome.

A statement released following a meeting of seven EGA participants on the sidelines of a ministerial meeting of the Organisation for Economic Co-operation and Development (OECD) earlier this month also identified the Hangzhou summit as a target delivery date. (See Bridges Weekly, 9 June 2016)

“The group has been working closely together with the aim of concluding an ambitious EGA with all participants ahead of when G-20 leaders meet in Hangzhou in September for the G-20 Summit,” said the statement by Australia, Canada, the EU, Japan, Korea, New Zealand, and the US.

Should consensus on product coverage be secured in September, negotiators will still need to hammer out some of the outstanding technical details, such as the timing of tariff phase-outs and institutional arrangements. EGA participants have signalled willingness to grant different so-called “staging” periods for some products where time for adjustments might be needed, but the precise application still needs to be agreed.

The next round of EGA talks will be held during the last week of July. The focus of these talks will largely depend on the dynamics over the coming weeks.

The latest EGA round also wrapped as news broke of the UK referendum result supporting the option to leave the EU. The current 28-nation EU is negotiating the EGA as one collective participant. Should the UK government trigger Article 50 of the Treaty of Lisbon, thereby starting the process of formal separation from the bloc, experts suggest that Britain would eventually need to participate in the EGA as a separate party. (For more on the “Brexit” vote, see related story in this edition)

ICTSD reporting.

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