Trade and Environment Newsletter: Issue 16, January 2013

EU/Singapore conclude “green FTA”

The EU and Singapore recently concluded the “first green FTA.” The agreement enshrines the principles of sustainable development and includes measures specifically designed to “promote green growth in line with the EU’s 2020 strategy for a competitive economy.”

While the agreement is comprehensive (covering trade in goods and services, investment, government procurement  and intellectual property), according to the European Commission, it includes “solid commitments on environment services, new rules on green tendering and provisions cooperation to address illegal fishing and timber.”  It “enshrines the principle sustainable development” and establishes a special Board to oversee labour and environment rights, which will involve the participation of civil society.  In addition, a “novel discipline to tackle barriers to trade and investment in renewable energy generation has been developed.”

Some of these provisions are new to FTAs – such as provisions on renewable energy; some are being tacked in other areas – such as reducing barriers to environmental goods and services in APEC; while others reflect the longstanding policy of the EU, supported by environmental NGOs, to regulate illegal activity and enforce environmental protection through trade measures in bilateral agreements.

Labour rights, environmental protection and sustainable development now feature in recent EU trade agreements, including the EU/Peru FTA and the EU/South Korea FTA. They can be expected to form an integral part of future agreements negotiated by the EU. The Peru FTA for example, contemplates the use of certification systems and mechanisms for the control of timber production to encourage “sustainable trade” in forest products (see related story EU-Peru FTA contemplates controls on timber trade). The Korea FTA includes two chapters on environment and sustainable development which oblige parties to enforce their own environmental laws (akin to provisions in US FTAs), encourage high levels of environmental protection and to cooperate on trade and sustainable development matters.

The agreement with Singapore is Europe’s first trade agreement with an ASEAN member country. Singapore is an advanced economy where levels of environmental protection are already relatively high.

Most other ASEAN countries would not go along with “green provisions” which condition trade on the basis of compliance with environmental policies.WTO rules do not generally permit controls on trade related to the compliance of a product with the laws of another country. ASEAN’s FTAs with other countries tend not to regulate environment, recognising this is better managed through environmental policy rather than trade.

The specific scope of the provisions will not be known until the final text is publicly released. The draft agreement is still to be debated by the Council and European Parliament and approved by the Singaporean Government before being signed into law. This is expected to occur by March 2013.

OECD: economic incentives more effective in reducing than trade ban

A new report by the OECD “Illegal Trade in Environmentally Sensitive Goods” finds that national governance systems and environmental policy regimes are key to constraining illegal trade. Greater use of economic incentives may help to reduce illegal trade flows.

The study reviews the evidence on the key drivers of illegal trade in environmentally sensitive goods, assesses the role of national and international policy mechanisms to reduce illegal trade flows and discusses the role of national environmental policy measures on illegal trade.

The study notes that there is great uncertainty about the scale of illegal trade in environmentally sensitive goods. The size of the problem is difficult to quantify. Illegal timber production for example, is estimated to be anywhere between US$ 10 -23 billion, and illegal timber trade about US$5 billion. The estimated global economic impacts of illegal trade range from US$ 5 billion annually in losses of govtrevenue to– US$10 billion annually in terms of the cost of undermining legitimate industry. It is also small compared to international illegal trade in other activities (narcotics $322 billion and counterfeit goods $200 billion) and only a tiny proportion of global timber trade – worth over $600 billion in 2008.

While regulatory controls through licensing systems (such as the EU FLEGT VPAs) and import prohibitions (such as the US Lacey Act and Australian Illegal Logging Prohibition Act) have been advanced to address the problem, the report points out that national governance systems are the most important factors in abetting and constraining illegal trade.

It notes that trade controls can have a significant impact but may not completely solve the problem, particularly when they cover only a small percentage of the trade. Direct trade measures such as export duties and bans are likely to encourage, rather than limit, illegal trade.

Effective national policy regimes are vital for addressing the problem. The report concludes that the use of economic incentives at the national level may reduce illegal trade flows.

“Revenue generated by economic instruments (i.e. environmental taxes) can be used to reinforce enforcement capacity. ‘Formalisation’ of property rights implicit with the use of economic instruments can provide incentives for a longer-term view of resource management, and can even provide incentives for self-enforcement among those exploiting the resource.” However, it cautions that economic incentives “can only work fully in a framework of good governance and law enforcement, and as part of a package of measures to address the full range of causes of illegal trade.”

Illegal trade is about the failure of governance and law enforcement in national economies. Policy measures which improve the capacity of developing economies to address this, rather than those which control trade, contribute to the development of sustainable trade and economic growth.

Vietnam, India consider raising tariffs on palm oil imports

Vietnam is reported to be considering putting ‘emergency import tariffs’ on soyoil and palm oil to prevent surging imports from damaging its own producers. India also announced it would impose duties on imports of crude palm oil to shield domestic oilseed growers from cheap supplies.

Known as “safeguards” in the WTO – emergency tariffs are designed to protect a specific domestic industry from a sudden increase in imports of any product which is causing, or which is threatening to cause, serious injury to the industry.

According to Reuters, the Vietnamese Government is considering imposing safeguard measures on imports of refined soy oil, RBD (refined bleached and deodorised) palm olein oil and RBD palm stearin oil in response to a requests from the National Company for Vegetable Oils, Aromas and Cosmetics of Vietnam (VOCARIMEX).  VOCARIMEX, a state run company, has reportedly submitted data to the Government showing “a situation of sharply declining in domestic production and market share, productivity, and profits or losses, in conjunction with the increase in imports.”

India, one of the world’s largest importers of palm oil, has also announced it will charge an import tax on crude palm oil (CPO) for the first time since 2008. The proposed duty on CPO is reported to be between 2.5 percent and 5 percent. There are reports the cabinet may also discuss raising the tariff on refined cooking oils to 10 percent from 7.5 percent.

This follows record imports which are reported to be hurting local oilseed farmers. India’s cooking oil imports, of which palm oil represents almost 80 percentreportedly surged 35 percent in December. India imports palm from Indonesia and Malaysia, and soybean oil from Brazil and Argentina.

The policy justification behind safeguards is that trade should be permitted to be temporarily restricted while the domestic industry takes time to adjust to new trade conditions. The idea is to give the domestic industry some breathing space, not to protect it from competition from imports in the long term. For this reason, safeguard measures are only permitted to be in place as long as they are damaging the domestic industry. Tariffs imposed must match the level of damage and not be set too high.

The WTO rules are technical. Industries or companies may request safeguard action by their government. National authorities must then complete an investigation in order to determine if safeguard action is warranted.

Countries adversely affected by safeguard measures must be provided with adequate compensation, or if not, can take defensive measures in the form of increased duties or volume restrictions under specific conditions.

Safeguard actions are less common among WTO members, compared with other actions to remedy “unfair trade.” According to the WTO, 43 disputes have been initiated alleging breaches of the Safeguards Agreement. This compares with 96 for the Agreement on Subsidies and Countervailing Measures and 95 for the Anti Dumping Agreement.

EU proposes new rights for Commission to enforce trade rules

The Euro Commission is proposing a new framework to give it greater power to take executive action to enforce rights in WTO and bilateral agreements.

Under the ‘Proposal for new enforcement framework for international trade rules’ (the Proposal), the European Commission would be able to take defensive action to impose trade sanctions on other countries when they do not observe disputes rulings, impose safeguard measures (see related story) and suspend trade benefits where agreed concessions under agreements are diminished. This includes measures in the form of new or increased customs duties and quantitative restrictions on imports or exports of goods.  It also contemplates the suspension of concessions in the area of public procurement in the WTO Government Procurement Agreement and relevant bilateral agreements.

Currently enforcement is undertaken in an ad hoc manner with the EU taking action on a case by case basis. Under the Treaty of Lisbon, there is no single authority through which EU can enforce international trade rules. Legislative and executive functions are divided among EU institutions with the Council and the European Parliament. The European Commission proposes new legislation, which is then submitted to the European Parliament and the Council for approval. Regulations authorising action are then adopted, with the Commission overseeing implementation.

A single point for taking executive action would allow the EU to more swiftly take measures against trading partners to enforce rights under WTO and bilateral agreements – the adoption of legislative acts under the current procedure has been lengthy, taking on average between 15 and 31 months.  It will also provide other countries with a single point of authority for dealing with on trade enforcement matters.

Push for trade measures to fight illegal fishing

The US, and NGOs, have proposed that Illegal Unreported and Unregulated fishing (IUU) be addressed in the Trans Pacific Partnership, a free trade agreement being negotiated among countries in Asia Pacific. Trade measures to combat IUU fishing will continue as part of the EU’s reform of its Common Fishery Policy (CFP), approved in December.

 IUU fishing is fishing which does not comply with national, regional or global fisheries conservation and management obligations. It has been a focus of both government and NGOs in the EU and Asia Pacific given the threat it poses for “sustainable management and conservation of world fisheries, legal fishing operations and the economic benefits that would otherwise come from legal fishing”.

The EU has a comprehensive strategy to address IUU which involves the use of trade controls to prevent the importation of illegal product. Under recently adopted rules, (the EU IUU Fishing Regulation which entered into force in January 2010) access to the European Union (EU) market is limited to marine fishery products which have been certified as legal by the relevant flag state or exporting state.

NGOs have also advocated that trade measures be used to regulate illegal fishing, along with labelling and traceability of how marine products are harvested. Some have argued for IUU to be regulated in the TPP FTA. In its Green Paper on Conservation and the Trans Pacific Partnership, USTR has approved that the TPP address IUU fishing in the environment chapter of the agreement but through “obligations to support measures being developed or implemented through relevant regional fisheries management organisations and other arrangements in the region.”

The EU and the US, along with Japan, are the world’s largest importers of fish. Fisheries are important sectors for trade and growth in many TPP countries, including Australia, Malaysia, Mexico, Peru and Vietnam.

Similar to concerns about illegal logging and timber, IUU is best dealt with through international efforts which strengthen the efficiency and enforcement of national laws for the conservation and management of marine resources, rather than measures which restrict trade based on non compliance (see related story). The FAO recognises that such measures can create barriers to trade and limit market access.Furthermore, “they have little or no effect on fish and fish products harvested for domestic consumption or for unregulated markets”.

There are already a number of international conventions within the UN system that establish global, regional and subregional management organisations to manage fish stocks which are now focusing on the problem of IUU. Members of FAO have also developed a voluntary International Plan of Action to Prevent, Deter and Eliminate IUU Fishing (IPOA-IUU). Provisions in trade agreements should support these arrangements, not seek to replace them.

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