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Green Transition

TTIP in Green: Free Trade for Ostensibly Eco-goods

By Bernhard Pötter

It sounded like a fantastic promise: “More free trade can combat climate change and overall lead to greater sustainability everywhere,” wrote American lawyer and politician James Bacchus in 2014. Bacchus works for the World Economic Forum in Davos, and believes there is “a very real prospect that the first binding global agreements on environmental protection will come from an unexpected source: the World Trade Organisation (WTO)”.

Bacchus and many other friends of the WTO hope for a new agreement on “green goods”; this is the Environmental Goods Agreement (EGA), currently being negotiated in Geneva in parallel to the controversial Transatlantic Trade Investment Partnership (TTIP). It is being negotiated under extreme pressure and is barely noticed by the public. The EGA is an agreement between the EU and sixteen other states, including the US and China, to cut or completely abolish tariffs on solar panels, wind turbines and sewage works. They came up with the idea two years ago in Davos and it was due to be ready to be signed in parallel with the Conference of the Parties climate summit in December 2015 (COP21) as a TTIP+ for Greens, promising more growth, more free trade and more environmental protection.

Global trade in “green” goods is growing rapidly, with experts estimating that their value will more than double between 2011 and 2020 (from 866 billion to 1.9 trillion dollars). As many countries as possible want to be around the table when this ever-bigger cake is sliced up; twenty-one Asia-Pacific Economic Cooperation Forum (APEC) countries in already agreed in 2012 on a list of fifty-four product groups for which tariffs, currently as high as 35%, will be dropped to a maximum of 5% by 2015; these include solar panels, wind turbines, plants for sorting and combusting waste, steam turbines, water filters and bamboo flooring.

Lists like these are parts which should go into making up a comprehensive and, above all, global agreement in the EGA negotiations. The US Department of Trade is already fantasising about a global market with a turnover of “up to a billion dollars a year”.

The EGA: the ins and outs

Currently, seventeen states or groups of states are taking part in EGA negotiations: the USA, China, the EU, Hong Kong, Taiwan, Australia, Canada, Norway, Switzerland, New Zealand, Japan, Singapore, Turkey, Israel, Costa Rica, South Korea and Iceland. Today, some 90% of global trade in environmental goods takes place within this G17. However, what products will be on the EGA lists – and for what reasons – is just as opaque as it is with TTIP. Conversations are taking place within small circles of diplomats and officials, some of whom are also negotiating the sustainability chapters of TTIP. Protocols are not published.

Annex [1] currently (as of April 2016) lists 380 products divided into ten groups: air pollution control; energy efficiency; resource efficiency; renewable energy; environmental monitoring equipment; environmentally-friendly products; sanitation procedures; noise abatement; water quality and waste management.

The EU is placing the following products on the list, among others: wood; wool and glass insulating material; intelligent power meters; water pipes; floating barriers and robots to combat oil spills; biomass furnaces; conveyor belts for recycling plants; pumps; water turbines; enzymes and microorganisms for water sanitation; heat pumps; metal shredding plants and cameras for environmental monitoring.

As EGA negotiations to date have shown, it’s not so easy to save the world through free trade. The agreement was actually supposed to be ready before the COP21; that didn’t happen. For the WTO conference in Nairobi this December, only a draft agreement may be decided upon; in February and March tough negotiations will continue, because the deadline for agreement is now planned for mid-2016. At the Organisation for Economic Cooperation and Development (OECD) ministerial conference at the end of June, the issue is due to be debated at the highest level: EU trade commissioner Cecelia Malmström has an appointment with US chief negotiator Michael Froman.

Critics view EGA as simply a way to greenwash free trade. The Europeans are hoping above all for the approval of service provisions resulting from exportation of their technologies, for example maintenance contracts for wind power plants or sewage works. However, this is not an area that is being negotiated under EGA; a study from the European Commission states that the EGA may “supplement ongoing Trade in Services Agreement (TiSA) negotiations”, since TiSA has a particular focus on “liberalising service provisions which are necessary for the export of environmental goods”. TiSA, like TTIP, is extremely controversial.[1]

The truth about EGA is revealed in an internal memo for officials in Brussels. Marked “Confidential/Classified”, the German representation to the EU gave information about the attitudes of EU Member States to green free trade in autumn 2015. The wording in several parts makes it clear that Member States view the EGA as an instrument to promote their import/export industries: Sweden, Poland and Spain “again highlight their offensive interests in recycled natural and paper fibres”; Finland is pushing for better export opportunities for gas and bi-fuel engines; Austria is doing the same for its timber sector. Indeed, if other countries seek to protect their interests in this way, the EU Commission interprets this as a “disappointing signal”, as stated in another internal paper from April 2016: “China views EGA from the perspective of its own industrial interests, not in relation to its contribution to environmental protection”.

Many EU countries are also closely guarding their “defensive interests”, i.e. protection from import competition: Italy, Portugal, Bulgaria, Austria and Hungary are concerned about the import of bicycles and their parts, fertilisers, plastic and rubber products, car parts and electric vehicles. Germany is making clear in internal EU documents its opposition to facilitating timber import.

The environmental organisation Transport and Environment even finds this list damaging. In their analysis of the expanded EGA list of 665 products from autumn 2015, they conclude that only twenty percent of the products listed help the environment. The “vast majority” of the products do not contribute to an “objective improvement”, and 120 of them would damage the environment or “appear not to be environmental goods at all”. This is true of agro-diesel, nuclear reactors, copper tubes, bamboo chopsticks and air-conditioning systems. At least in the meantime, agro-diesel and nuclear reactors have disappeared from the list, but the EU Member States themselves put a question mark next to some twenty products including fertilisers, turbines, vacuum cleaners and fishhooks in the April 2016 version of the list, due to disputed “environmental credibility”.

EGA supporters don’t find that objection valid: green free trade is needed and that’s all there is to it, says the German Federal Ministry of Economics, because it accounts for 9% of EU external trade. The Commission’s statements are more reserved, admitting in a report that the “potential effects on the macro level may appear small”, because tariffs for green goods are already very low. On the “micro level”, though, liberalising trade in environmental goods could have “significant positive effects”, like concrete projects such as a wind farm in Kenya or a sea water desalination plant in India.

Analysis like this reveals that even advocates of EGA do not expect any great progress for the economy or the environment. The EU, for instance, assumes that a growth in global trade in the products listed will have a maximum value of twenty-one billion dollars – a drop in the ocean of the 12,000 billion turnover in global trade for machines and plants in 2013 alone.

The great greenwash

The arguments in favour of EGA benefitting the environment are also now verging on the incredible. Compared to a world without the agreement, the global economy’s energy intensity would be improved by “0.02% by 2030”, and the “almost ten million tonnes of CO2” which could be saved correspond to only 0.3 per thousand of global emissions from coal, oil and gas combustion.

So who actually wants EGA then? We can expect an answer from Rolf Langhammer, external trade expert at the Kiel Institute for World Economics. For him, the idea of green free trade is principally an attempt by the WTO to revamp the image of their “comatose free trade round”. No-one could possibly object to improved trade in environmental goods and greater sustainability. “EGA sounds like a fantastically green idea, but it only addresses things that are hardly barriers to trade any longer.” Langhammer believes that nowadays currency fluctuations have a far greater influence on trade in goods. Liberalising the agricultural markets would also be more important, but no progress has been made in that area for several years.

It’s worth noting that most of the countries round the table at EGA talks are exporters of green technology. In contrast, according to a study on green free trade published by the UN Environmental Programme (UNEP) in 2012, the most important free trade is free trade “for south-south cooperation” – for precisely those countries which, with the exception of Costa Rica, are not part of EGA.

At the same time, the biggest growth rates in “south-south trade” between developing and emerging countries are worthy of note. In these regions, in contrast to stagnating economies in industrialised countries, there is constantly increasing demand for consumer goods.

Because of this dynamic, UNEP considers south-south trade to be a central part of the “transition to a green economy”. Investors, businesses and respective governments expect such a sustainable economy to deliver new markets, new access to high-value goods and services and millions of better jobs in, for example, sustainable agriculture. In the area of green power technology, improved exchanges will lead to “better access to cheaper energy, and also to greater competition”. UNEP also explicitly states that in order for liberalised trade to be able to promote “a transition to a green economy”, it will require “accompanying measures like taxation or regulation to ensure the positive economic, social and environmental effects of trade”.

Yet measures like these are not provided for in the EGA, which may explain why many emerging countries in the global South – potential import markets – such as India, Brazil, Indonesia, Vietnam or Mexico have so far kept their distance from the deal.

Aaron Cosbey, trade expert at the International Institute for Sustainable Development (IISD) says they are right to do so. He has followed EGA debates for several years, and says that in practice EGA is not all that important: “Those looking to build a solar power station abroad ask about demand, prices, state quotas for renewables and legal safety for their investments, but hardly ever ask about tariffs”.

And what role do “local context” clauses play? Economists hotly debate whether separating domestic markets based on local context regulations in favour of domestic value to the countries in question is beneficial or damaging: yes, it protects a sector, but possibly to the detriment of competition. This can drive prices up and slow down innovation through competition, which can damage jobs and competitiveness in the medium term.

China can serve as an impressively positive counter-example: by protecting domestic producers and granting state aid, it has taken only six years for the country to build up a huge wind power plant industry, making it a global player in the sector: today three out of the world’s ten biggest wind power companies are Chinese.

In any case, local context protection clauses are banned under WTO rules; many countries, though, are also attempting to guide investment into in the potentially huge green technology market in a way that will allow domestic companies and job markets to benefit from it. Many EU Member States, as well as countries such as Brazil, Turkey, South Africa and Canada are suspected of ecoprotectionism. On the other hand, competing industrialised countries continue to insist on WTO rules which ban this type of bulkheading. In early 2016, this led to a scandal between the US and India.

India is seeking to install an incredible 100,000 megawatts (MW) of solar energy provision by 2022, and wants to produce 40% of its rapidly growing electricity consumption from green sources by 2030. The government in Delhi also wants to bring together 120 countries and companies together under a “global solar alliance” to promote a rapid spread of solar energy in all tropical countries.

It took less than three months from the date of a compliant from the USA for the WTO to prohibit India from continuing to build up its solar industry using protectionist measures against foreign competitors. They decided that planned local context regulations breached free trade rules. Once again, free trade trumps environmental protection.

 

Notes

[1] See Raoul Marc Jennar, “Vorsicht, Tisa!”, Le Monde diplomatique, September 2014.

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TTIP in Green: Free Trade for Ostensibly Eco-goods

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