Analysing opportunities in Trade of Environmental Goods
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Analysing opportunities in Trade of Environmental Goods
Article Introduction
Environmental goods and services (egs) have emerged as a distinct industry group in the past decade. It will not only lead to improvements in the trade of these goods, but will also achieve environmental benefits. However, a fair amount of doubt continues to beset the debate regarding the egs sector, and consequently, its liberalisation.

Article Description
Various attempts have been made by different groups to define this sector. Defined in a narrow sense, it would mean those goods whose use results in a beneficial environmental impact i.e., the capital goods or technologies that are required for end-of-the-pipe pollution abatement. However, a broader conceptual framework would take into account the environmental characteristic of the goods themselves and/or their production process. This definition would imply that goods that have relatively less negative impact on the environment at the consumption/disposal stage or even in terms of being produced in an environmentally gentle manner could be classified as EGS. Environmental goods have also been interpreted as goods with inherently beneficial environmental aspects such as bio- degradability, which paves the way for inclusion of products like natural dyes, jute and coir products as well as sustainable harvested forest products under the EGS umbrella.

Global Trade Scenario for EGS
Size of the Market: As per estimates (Bora and Teh, 2003), in 2002 total exports of environmental goods were valued at US$ 238.4bn using the OECD list and at US$215.3 bn as per the APEC defined list, representing between 3.6% to 4% of world exports. In the period 1990-2002, trade in environmental goods has grown at about 14%, which is twice as fast than the rate of growth of merchandise trade in the same period. The main drivers to this growth have been the growing consumer awareness about environment conservation and pollution abatement, coupled with growing legislation in this regard around the world.

Most of the trade in EGS is intra-developed country trade and most developing countries like India are net importers. Region-wise, Western Europe, Asia and North America account for over 90% of exports of environmental goods and over 80% of their imports. Developed countries dominate trade in EGS and make up 79% of environmental goods exports and 60% of their imports. Trade in EGS is highly concentrated and the top 20 exporters of environmental goods accounted for about 93% of world exports in those goods while the top 20 importers comprised nearly 87% of world imports of environmental goods in 2002. In terms of commodities, the biggest traded sectors are wastewater management, environmental monitoring and analysis, solid waste management, air pollution control, noise and vibration abatement.

Tariff Formulation
The current level of bound and applied tariff rates for EGS in developing countries is by and large much higher than those prevailing in the developed countries. For instance, the applied tariff rates for air- pollution control equipment in India are 25% against 0-6 % in the US, Canada and Japan. Also, the level of binding is quite high: as a result, there is a wide gap between bound and applied rates in most countries. However, it must be pointed out that in the case of liberalisation, developing countries might have to make more cuts in tariffs (depending upon the formula applied).

Opportunities for India?
Like most developing countries, India is a net importer of environmental goods. In the event of liberalisation, there is not likely to be much gain in terms of market access for Indian exporters given the already low tariffs in developed countries. In fact, developed countries would gain better access to the Indian market. Another issue is that most of these equipments have multiple uses - the lists include products such as pumps, condensers and refractory bricks, which are predominantly used for purposes other than environmental protection.

As far as WTO negotiations go, India has the room to maneuver given the significant gap between its bound and applied rates of tariff for this product. While the average bound tariff rate for environmental goods stood at 38%, the average applied rate was 29% in 2001 (just after the Doha Round). Instead of concentrating on keeping the list of EGS as small as possible, India should ensure that natural products (e.g. Jute, coir) are included in it.

Additionally, a number of developing and transition countries from Asia feature in the top 20 lists of EGS players in the world. India should look to exploit its geographical proximity with these countries and explore opportunities for exporting EGS goods. An essential precursor to this would be classification and standardisation of commodities as EGS goods. This would require a re-orientation of mindsets along with institutional support.
Posted : 8/12/2005

Analysing opportunities in Trade of Environmental Goods