At the last meeting of the Environmental Goods Agreement in Geneva, in December 2016, participants were unable to close their differences on trade liberalisation of environmental goods (EG). The WTO defines EG as a host of products that can help to achieve environmental and climate protection goals.
The EGA builds on a list of 54 environment-related products on which the negotiating countries are advocating to create a consensus seeking to reduce tariffs. In 2001 when discussions began the list of products was much larger.
Countries originally involved in the discussions are Australia, Canada, China, Costa Rica, Chinese Taipei, Hong Kong (China), Japan, Korea, New Zealand, Norway, Switzerland, Singapore, and the US, and the EU. Israel, Turkey and Iceland are recent entrants. They represent 86 per cent of the annual global market in green products.
India has so far opposed the EGA fearing the developed countries could use it as a new trade-restrictive measure, apart from the fact that it is reluctant to reduce tariff lines for identified goods. Another question that has remained unanswered is the identification of goods, as some of the identified ones can be used for both environmental and general (non-environmental) purposes. A good example is a pipe, which can be used as an input for a renewable energy plant or a waste water treatment plant but can also be used to transport oil.
India needs EGA
Green growth has been part and parcel of India’s economic and environmental policies. Ever since India announced its National Climate Change Policy in 2008, a slew of measures to reduce carbon emissions have been taken. India has implemented the National Solar Mission with the ambitious target of achieving 20 GW of solar energy by 2022, besides taking the initiative to anchor an international solar alliance of all solar-rich countries located between the Tropic of Cancer and the Tropic of Capricorn. India also declared a voluntary goal of reducing the emissions intensity of its GDP by 2030 from the 2005 level, despite facing enormous development challenges.
It is also important for India to explore the possibility of participating in an EGA dialogue which would liberalise trade in EGs. This will help achieve a common global good which has social consequences, not confined to any specific geography.
Some key reasons why India should participate in the EGA are as follows: At the outset, as the benefits arising out of such an agreement would be shared only by the signatories, if India wishes to join at a later stage, there will be a cost involved.
The EGA may facilitate greater import of EGs, technologies, and knowledge-sharing that developing countries could benefit from, but the export potential for India will depend largely on non-tariff barriers (NTBs) being addressed. India’s concerns, therefore, that the developed countries may set up NTBs consequent to an agreement can only be resolved if it is a part of the discussions.
The second issue is India’s concern about tariff reductions, which India believes has commercial appeal for developed countries. India also argues that the developed economies have lower tariffs on many of the identified goods and hence the concessions, if made, would be much higher for developing than developed economies, thereby denting its market. The same may not be completely true, given India has a trade deficit of $6 billion in EGs. If India does not reduce tariffs, its domestic consumers will be bereft of EGs which are affordable. Besides, tariff reduction can have benefits of forward linkages for developing countries as it can lead to investments in the relevant sectors. Should India be part of the discussions it can negotiate to introduce tariff lines over an agreed time-frame over multiple intervals. This will also help domestic firms prepare for competition and give them time to adapt.
No longer a baby
Thirdly, India cannot afford to undertake an ‘infant industry’ approach by protecting renewable and other related industries. Global exports of the identified EGs products as in 2015 stood at $492 billion, while India exported EGs worth just $3 billion. The import of EGs by India on the other hand was three times more, at $9 billion, exhibiting capability or capacity differences. This deficiency can be plugged by allowing investments in products that are causing a trade deficit in EGs for India. India faces a huge electricity demand as industries and communities grow and get connected to grids. Today, few indigenous companies would be able to develop the necessary in-house technologies and components for a finished environmental product. International alliances would be vital for creating strong regional and global EG supply chains.
Fourthly and undeniably, one of the key constraints has been the end-use of the identified goods, which may require introducing varied tariff lines depending upon its varied utility. One that is solely being used for environment purposes could receive greater tariff cuts as compared to multiple lines.
Lastly, it has been observed that the investments of the developing world in renewable energy have increased significantly. In 2015, global investment in clean energy touched a record high of $285.9 billion, exceeding the previous record of $278.5 billion achieved in 2011 (excluding large hydro-electric projects). It was also for the first time that investments in clean energy from the developing world were greater than those from developed countries.
The developing world (including China, India and Brazil) committed a total of $156 billion in 2015, a 19 per cent increase from 2014, while developed countries invested $130 billion, down 8 per cent. Investment in EGs, especially when India suffers from trade deficit, would help India manufacture locally with foreign investments under the Make in India initiative, and possibly even become a manufacturing hub for EG gradually.
Given India’s ambitious clean energy targets, it will be wise to reconsider its participation in the EGA. India’s presence can provide needed balance to the negotiations.
An alternative could be for India to explore the possibility of engaging with the existing members after formally consulting other developing economies. They can also devise a news of EGs. Developing countries such as Mexico, India, Russia, Turkey, Brazil, Indonesia, Argentina, Thailand and South Africa have combined EG exports of $25 billion, and a trade deficit of $37 billion in 2015.
Tariff liberalisation in EGs will help India integrate in global and regional value chains. EGA can boost EGs facilitating clean energy and energy efficiency technologies by lowering costs, and augmenting supply and usage. Opening up trade in EGs will help achieve the desired climate adaptation and mitigation goals of not only India, but also globally, by transitioning to a lower-carbon economy.
If we fail to act now, it is certain that changing climatic conditions will become catastrophic with irretrievable consequences for humanity in the years ahead.
The writer Rahul Mazumdar is an economist with the Export-Import Bank of India. The views are personal
Source: Hindu Business Line