Trade and Environment Newsletter, Issue 11

Russian accession to WTO opens market for timber, oilseeds and paper – palm oil?

Russia has agreed to lower its tariffs on a range of agricultural and food products as part of its accession to the WTO, including wood and paper, oilseeds, fats and oils. Russia will officially join the WTO on August 22 of this year.

Current duties on products such as plywood, furniture, paper and margarine range between 9 and 15 percent. Upon WTO membership, duties will be reduced in phases until 2016. Duties on paper and paperboard products will reduce by 5 percent over the four year transition period. Duties on palm oil (not-for-industrial consumption), which are currently equal to 0.4 euro per 1 kg, will be five percent upon accession, falling to three percent by 2014.

According to the WTO, after full implementation of tariff reductions, average duties will be 10.0 percent for cereals (current applied tariff 15.1 percent); 7.1 percent for oilseeds, fats and oils (current applied tariff 9.0 percent); 5.2 percent for chemicals (current applied tariff 6.5 percent) and 8.0 percent for wood and paper (current applied tariff 13.4 percent).

A more open market for timber is expected to benefit European pulp and paper makers. Greater market access for oils and oilseeds should boost exports of tropical oils from South East Asia.

Increasing exports of palm oil however may be hindered by the implementation of Russia’s technical regulation on milk and dairy products. This prohibits the use of palm oil in products that are called ‘dairy.’

In the last five years Russia has become one of the largest importers of palm oil. Tropical oils are used as a replacement for milk fat while manufacturing various food products. According to Russia’s Ministry of Economic Development, 99.5 percent of dairy producers use vegetable oil to decrease production costs and compensate for a shortage of high-quality milk fat.

As a WTO member, Russia will need to abide by rules which govern the use of technical regulations, including ensuring they are not trade restrictive or designed to protect the domestic industry.


US Guitar maker feels full force of illegal logging campaign

Gibson Guitars has reached an agreement with US federal agencies to avoid a criminal case against it for importing illegal ebony wood for use in its guitars. Gibson was charged with breaching the US Lacey Act.

The Act makes it illegal to import into the US plants and plant products, including wood, which have been harvested and exported in violation of the laws of another country.

Gibson acknowledged its purchase and importation of ebony from Madagascar was in violation of a Madagascan ‘ban’ on exports. The admission was made despite there being some ambiguity as to the ban and its application to Gibson’s product, now acknowledged by US authorities. The company agreed to pay US$300,000 in penalties, forfeit claims to over $260,000 worth of wood seized by federal agents and contribute $50,000 to the National Fish and Wildlife Foundation, a private organisation, to promote the conservation of protected tree species. In exchange federal agents dropped the criminal investigation against the company.

CEO Henry Juszkiewicz stated Gibson felt compelled to settle to avoid the excessive costs of continuing with litigation. He denounced the actions of US officials as “overzealous regulation”. “ultimately costing the company US$ 2-3 million worth of products and lost productivity” and “costing the taxpayer millions of dollars and putting job-creating US manufacturers at risk and at a competitive disadvantage.”

Environmental NGOs hailed the agreement a victory for conservation laws. A broad coalition of US manufacturing businesses and associations called for the Lacey Act to be amended to reduce its scope. Only last week an amendment was voted down by the US Congress (see recent story).

Gibson will now resume business, continuing to source rosewood from India.

The case is indicative of US plans to include in trade agreements substantive measures to restrict trade in forestry products which are illegally harvested in foreign countries. The US-Peru FTA permits the US to restrict imports of Peruvian timber unless they can be legally verified. The US is proposing similar measures be included in the Trans Pacific Partnership Agreement (see recent story).


WWF favours trade controls for investment in “sustainable commodities”

WWF is encouraging China and African countries to give preferential treatment in trade to products that have been certified as sustainable under certification schemes it has developed.

A recent WWF briefing note on the Forum on China-Africa Cooperation (FOCAC) favours the granting of preferential tariff treatment to food and fibre products such as timber and palm oil that are certified under sustainability certification schemes such as the FSC and RSPO.

The note puts forward proposals which aim to “ensure that environmental considerations underline the development opportunities carried by China-Africa cooperation.” It favours making investors accountable for ensuring the food and fibre commodities which are the subject of investments are sustainably sourced and traded. A list of certification schemes, those developed and are managed by WWF (such as FSC, RSPO, MSC), are cited as the means for doing this.

Termed “sustainable commodities,” the underlying notion is to restrict trade to products that meet environmental and social criteria imposed by such schemes.

Encouraging governments to give preferential tariff treatment to certified products not only encourages discrimination in trade based on environmental and social criteria but also discourages trade and investment in food and agriculture which is important to developing countries. Palm oil for example, is a food staple in China and Africa – costs matter.

Certification schemes should be used to verify appropriate and agreed environmental standards for products rather than used as instruments to control trade.


Rising environmental regulations still a concern for WTO members

Environmental trade restrictions continue to rise, remaining a concern for WTO members.

Records of the WTO Committee on Technical Barriers to Trade (TBT) in March of this year reveal 13 new technical regulations and at least 12 environmental regulations of WTO members that are of continued concern for their impact on trade.

These include Directives of the EU dealing with electronic waste disposal, regulation of chemicals and eco design of imported products; food labelling requirements of Indonesia and Peru; US controls for hazardous materials; energy standard and labelling requirements in Korea and Mexico, and; Colombian laws to promote the use of biofuels, to name a few.

A wide range of members have voiced concerns – EU, US, Japan, Korea, Australia, Indonesia and China.

Regulatory measures in developed countries which impose environmental conditions on traded products, encouraged by NGOs, have proliferated in recent years. There is some frustration over the capacity of the WTO to deal with this. Recent trade disputes, such as that over dolphin friendly labelling of tuna products, attest to the increasing use of environmental standards as barriers to trade. More can be expected in future.


EU trade agenda could harm developing countries

A recent report by the British think tank – the Overseas Development Institute (ODI) – has raised concerns that EU trade reforms will harm the world’s poor.

The criticism follows the release of the European Commission’s proposal on trade policy for the next decade. In addition to promoting market access through trade agreements, the European approach focuses on fostering sustainable development by eliminating trade barriers on environmental goods, and by ensuring producers and traders in developing countries engage in trade schemes based on sustainable criteria.

Contributor to the report, Fredrik Erixon, points out that these reforms are moving towards increased protectionism by threatening the use of trade barriers for green purposes. He notes that the heightened role of EU sustainability requirements, compliance with which may be difficult or unreasonable for developing countries, will limit production and exports. “The EU has or will use ham-fisted restrictions to its own market to force policy changes in developing countries, or as in the case of biofuels, help protect local producers at the expense of foreign producers.”

The ODI report echoes World Growth’s concerns: that the EU is attempting to exclude emerging industries from the trade agenda by restricting competition, including under the guise of sustainability.


Indonesia challenges EU ‘anti-dumping’ measures on fatty alcohols in WTO

The Indonesian Government has lodged a complaint to the World Trade Organisation challenging EU anti-dumping measures on oleochemicals, or fatty alcohols.  Oleochemical exports from Indonesia are almost all derived from palm oil.

The European Commission passed a regulation in November 2011 to impose anti-dumping duties on certain fatty alcohols and their blends originating in India, Indonesia and Malaysia. It claimed that the three countries were exporting fatty alcohols at costs below production or the domestic sales price. The antidumping action was lodged by European-based companies Cognis GmbH (Cognis) and Sasol Olefins & Surfactants GmbH, who together produce 25 percent of the competing product in the EU.

Exports of Indonesian fatty alcohols were worth $US42.73 million in 2009 and constituted 41.12 million tons.  European demand for fatty alcohols is forecast to grow in coming years. EU production is expected to remain stable, making it an important market for Indonesia.

The Indonesian Government has alleged that the EU has miscalculated the margin of anti-dumping duty and breached the WTO Anti-Dumping Agreement. The complaint will trigger a 60-day consultation period after which the case may proceed to a Dispute Settlement Panel if it remains unresolved.

Indonesia has recently been active in pursuing its rights under trade agreements through WTO dispute settlement. Last month Indonesia successfully challenged the US for unfairly discriminating against its imports of clove cigarettes.


‘Overcriminalisation’ of environmental law unfairly penalising growth

‘Overcriminalisation’ of environmental law, such as the US Lacey Act, is unfairly penalizing businesses which operate in foreign markets.

Originally enacted in 1900 to protect US states against poachers who fled across state lines, the Act today makes it a federal crime to import fish, wildlife, or plants in violation of any foreign law of any foreign nation, irrespective of the reasonableness of a person’s conduct.

As the Heritage Foundation points out, the risk of violation of such laws are high, as no one today could know everything that the law prohibits. Individuals can serve a year’s imprisonment for every violation of the Lacey Act.

Gibson Guitars recently faced this prospect for allegedly using wood from Madagascar – in the manufacture of its guitars that was subsequently found to be subject to a ban in that country. The case was settled (see related story) to avoid the cost to the company’s trade and reputation in defending the criminal allegations. CEO Henry Juszkiewicz termed the criminal investigation “an overreach of government authority and indicative of the kinds of burdens the federal government routinely imposes on growing businesses.”

Criminal law is an overly blunt instrument for regulating non-fraudulent business activities. As noted by Edwin Meese III, the former Attorney General of the United States, it has increasingly become nothing more than a convenient tool for the exercise of government power to make sociological changes or to try to change social behavior.

The implications of this are disturbing, not only for personal liberty but also for global economic competitiveness. If business is to fear criminal prosecution for even paperwork errors which turn on detailed knowledge of foreign laws, opportunities for growth and jobs in global markets will be limited. Criminal law was never intended to have this effect.

Companion bills in the US Senate and House were introduced in May for the ‘FOCUS’ Act (Freedom from Over-Criminalization and Unjust Seizures Act of 2012), which would make the Lacey Act enforceable only through civil processes and remove references to foreign laws.

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