From Oct 29 to Nov 4, 2015, delegates from 17 WTO member-states met in Geneva, Switzerland, for the tenth round of negotiations on the Environmental Goods Agreement (EGA). Although Malaysia is not a party to the negotiations, it is worthwhile to take a look at the process and consider the potential implications of the EGA on world trade.
The EGA is a plurilateral agreement that aims at removing barriers to trade in environmental or ‘green’ goods, in a broader effort to protect the environment and mitigate climate change.
In the long term, the EGA is envisaged as a ‘living agreement’ that will expand to add new products in response to changes in technology and eventually address environmental services and non-tariff barriers to trade. However, it currently relates only to environmental goods.
The EGA was launched in July 2014 by 14 WTO member-states – Australia, Canada, China, Costa Rica, the EU, Hong Kong, Japan, Korea, New Zealand, Norway, Singapore, Switzerland, Chinese Taipei and the US. The negotiating parties set out to build on a list of 54 environmental goods on which members of the Asia-Pacific Economic Cooperation (APEC) committed to reduce import tariffs in 2012.
Over the course of numerous negotiating rounds, the parties established and reviewed the environmental goods categories (energy and resource efficiency, air pollution control, renewable energy equipment, solid and hazardous waste management, etc) and nominated relevant products for inclusion in these categories. Three more member-states (Israel, Iceland and Turkey) joined the negotiations during this period.
In more recent rounds, negotiating parties focused on product-by-product discussion to refine and secure a list outlined in August 2015. Reportedly, in bilateral and plenary sessions, delegates analysed over 1,000 products and examined over 450 possible tariff lines for inclusion.
The discussions from Oct 29 to Nov 4, 2015 resulted in a ‘draft final list’ of potential products whose tariffs will be lowered under the EGA. The Chair is said to have circulated the list in advance of the eleventh round of negotiations, from Nov 30 to Dec 4, 2015, for review by all 17 parties.
Notable areas of debate
The latest round continued negotiations on sensitive products proposed for inclusion in the list, as well as issues relating to approximately 100 ‘ex-outs’ nominated for inclusion in the EGA.
‘Ex-outs’ are national tariff codes built off more general descriptions of goods provided by the World Customs Organisation’s Harmonised System (HS) tariff lines. They describe specific products or product groups that are particular to individual countries with a level of detail not captured by HS codes.
The debate over competing ‘ex-outs’ suggests that negotiating parties are approaching the task of finalising the environmental goods list with care, in order to ensure that these are indeed beneficial to the environment.
The compiled list of EGA product nominations has not been officially released. But in September 2015, an environmental organisation ‘leaked’ a product nomination list from the EGA negotiations in April and questioned the ‘greenness’ of approximately 100 goods on the list.
Some sources say that these controversial nominations have since been dropped from the ‘final draft list’. Indeed, many of the products included in the April list were criticised due to the potential for certain manufacturing products (general electronic hardware) to be used in non-environmentally friendly ways. The response has been to use ‘ex-outs’ that single out specific products within tariff lines so that non-environmentally friendly products are unable to benefit from the tariff cuts.
Another issue reportedly deals with the relationship between the current EGA list and the APEC Environmental Goods List on which it is based. Although the EGA list appears to be significantly longer than the 54 products in the APEC list, some negotiating parties have pointed to the fact that the inclusion of a products on the APEC list obliges parties to lower such tariffs to 5%.
In this regard, some negotiating parties are concerned with the full elimination of duties on the tariff lines identified in the APEC Environmental Goods List, arguing that lowering tariffs to zero was not the original objective of the EGA.
Nevertheless, this raises the question of whether additional or alternative approaches would be more effective in securing the EGA’s over-arching goal of combating climate change. Though the nomination process and relevant criteria (if any) for product eligibility have remained opaque throughout the EGA talks, reports indicate that ‘environmental credibility’ has been the key consideration in agreeing on which goods to include.
In addition to the use of ‘ex-outs’, negotiating parties could have considered relying on already-established certification schemes and oversight bodies, such as those used in the oilseeds sector.
Such an approach could ensure that goods included in the provisional list that were criticised, such as biodiesel, are included if sourced sustainably. As a result, ‘green’ commodities such as sustainable palm oil, soybean and sugar could rightfully be covered by the agreement.
Although it is unclear whether such goods will be included in the final version of the EGA, given that the negotiating parties intend for the EGA to be a ‘living agreement’, there may still be opportunities in the future for WTO member-states (like Argentina, Brazil, Indonesia and Malaysia) with a genuine interest in the relevant commodities to influence the list of goods covered.
Moving on
Some WTO member-states appear to have opted not to participate in the EGA negotiations due to fears that they would unnecessarily open their markets to competing manufactures of relevant products. In the short term, this may benefit such countries because initially, the EGA will apply in accordance to the ‘Most-Favoured Nation’ principle once a ‘critical mass’ of WTO member-states have agreed to participate.
In the context of the WTO Information Technology Agreement, the ‘critical mass’ is considered to have been met when participants of a plurilateral agreement account for approximately 90% of trade in the relevant products. At this point, the tariff reductions in the participating member-states go into effect for all member-states. Accordingly, non-signatory member-states will benefit from the tariff reductions once the EGA hits the ‘critical mass’.
However, in the long term, it is likely that, through other bilateral discussions or consultations, other WTO member-states will be encouraged or pressured into joining the EGA in return for other trade concessions.
If that is the eventual outcome for a non-signatory WTO member-state, such a country would then have missed the opportunity to participate in the negotiation of the EGA, and to ensure that products relevant to its export industry are included.
In Malaysia’s case, a critically-important green export product is sustainable palm oil. It is unclear whether palm oil is currently included in the list of EGA products, given certain concerns about the potential for unsustainable palm oil to also benefit from the agreement. Although one solution would be to tie certain products to sustainability certification requirements, there is no indication that this has been proposed yet within the EGA context.
Tying the use of a particular certification scheme, such as the Malaysian Sustainable Palm Oil standard, would have increased the recognition and strength of such a standard, and allowed sustainable palm oil to benefit from reduced tariff rates and from the priceless label of ‘green product’.
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