WTO pushes open trade in environmental goods

Negotiators from 14 member states expected to expand initial list of 54 products
Thursday, February 19, 2015
By Barbara Carss

A push to advance international trade in environmental goods could help Canadian exporters of clean technology, but won’t likely have a significant effect on the price of green building and energy efficiency products and equipment purchased domestically. Supporters of an environmental goods agreement, which 14 member states of the World Trade Organization (WTO) are now negotiating, suggest it’s equally important for the statement it makes.

“The World Trade Organization is not an environmental organization. That’s not its job, but it is seeing that this is important to its members,” says Elizabeth McDonald, president and chief executive officer of the Canadian Energy Efficiency Alliance, one of 48 global non-governmental organizations and industry associations that endorsed the proposed agreement in a letter to the WTO last summer. “We are going into a period, on an international basis, where countries are going to become more active in this area. Most governments are concerned about climate change and aware that one place they can act is through their building and infrastructure sectors.”

The trade talks arise from an earlier agreement among the Asia-Pacific Economic Cooperation Forum (APEC) that set out a list of 54 goods on which tariffs would be reduced to no more than 5 per cent by 2015. These goods — broadly classified as technologies related to: renewable and clean energy; waste water treatment; air pollution control; solid and hazardous waste treatment; and environmental monitoring and assessment — are a starting point for the proposed WTO agreement, with expectations that the final list will be expanded.

List logistics

Negotiators are examining specific categories of goods and have the opportunity to nominate additional products, equipment and/or technology that address environmental challenges.

“The aim is to create a ‘living agreement’ which can respond to new technologies and add new products in the future,” affirms a July 2014 statement from the European Commission Directorate-General for Trade. “It should be possible to include environment-related services and tackle non-tariff barriers, such as local content requirements or restrictions on investment.”

Thus far, APEC-designated goods specifically found in buildings include: bamboo-based flooring, panels and assemblies; heat recovery systems and components; refrigerant recovery and recycling units; solar water heaters; boiler economizers and super-heaters; and various controls and automation equipment. As consumers of energy, drawers of fresh air and emitters of waste, buildings could also indirectly benefit from reduced tariffs on renewable power (wind, solar and biomass) generating technology, and other technologies for reducing, processing and/or treating solid/hazardous waste, waste water and airborne pollutants.

In the U.S., the Air-conditioning, Heating & Refrigeration Institute (AHRI), has made a case for recognizing low global warming potential (low-GWP) refrigerants. Also from the climate change perspective, analysts point to some notable absences and/or yet-to-be negotiated additions to the list.

“There are no adaptation-related goods on there,” notes Aaron Cosbey, a senior associate specializing in trade and international environmental governance with the International Institute for Sustainable Development. “The (APEC) list is about environmental goods, not just climate-related goods, and I’d say the majority of them are not climate-related at all.”

Import-export dynamics

Canada is a mid-sized to smaller player among the negotiating parties, which also include much larger traders such as the United States, China, the European Union, Japan and Korea. In total, participating countries now account for an estimated 86 per cent of world trade in environmental goods. The most recent statistics for Canada peg 2011 export revenues in excess of $5 billion, whereas U.S. exports tallied $103 billion in 2013.

Similarly, Canada’s environmental and clean technology sector is predominantly composed of small and mid-sized businesses, which collectively employed about 52,600 people in 2011. However, the federal government has identified it as a source of economic growth, tagging it as a priority sector in its Global Markets Action Plan, which sets out future directions for trade policy and commercial activity.

“An agreement on environmental goods will secure greater market access and create new jobs and opportunities for Canadian exporters across the country and lower the cost for consumers,” Minister of International Trade Ed Fast announced as the WTO negotiations got underway last summer.

In reality, though, there will be little immediate consumer impact. While some WTO nations currently impose tariffs as high as 35 per cent, the 14 participants in these negotiations generally have low or non-existent tariffs on many of the targeted environmental goods. Canada had already complied with the APEC-pledged tariff reductions by March 2013, largely in keeping with its relaxation of trade barriers over the past 25+ years.

“We’ve come a long way with NAFTA and GAAT and other agreements to dismantle tariffs,” observes Warren Heeley, president of the Heating, Refrigeration and Air Conditioning Institute (HRAI) of Canada. “So much of this has already been taken off the table to support world trade.”

Even on presumably big-ticket items like many of the designated environmental goods, tariffs are rarely a deal breaker.

“5 per cent is about equivalent to where the loony went last week. A fluctuating dollar is probably going to have more of an impact than a tariff,” muses Alex Gill, executive director of the Ontario Environment Industry Association (ONEIA). “I have yet to see somebody say: I would like to implement ‘solution x’ but it’s too expensive because of the trade barriers.”

The manufacturers, R&D enterprises and service providers comprising ONEIA are primarily small companies with fewer than 50 employees, but many of them conduct business outside Canada.

“We have a lot of very good niche companies that do very neat stuff, and they are a very export-oriented group,” Gill says. “When you look at how much they are exporting, it’s about $1 out of every $8 of revenue, which is a good chunk of cash. That’s about $1 billion just in exports for Ontario alone.”

In contrast, the HVAC products sold in Canada largely come from outside the country, although there is still one major manufacturer of furnaces and air conditioners, as well as domestic producers of various component parts. There have  also been some innovative developments aligned with energy efficiency.

“We’ve been somewhat world leaders in the area of ventilation, particularly in single-family homes, because it became a big concern in the late 20th century when we started doing a lot of things to tighten homes up,” Heeley reports.

Market makers

The U.S. is currently Canada’s largest and most lucrative export market for environmental goods — an outcome that Gill suggests is not entirely due to NAFTA and proximity. He foresees trade with the European Union (EU) could mostly flow in one direction, at least initially, simply because other countries may not have a lot to offer the market leaders.

Gill credits the EU as a stimulant of innovation, both through regulatory dictates and buying power, while the private sector has been much more on its own to forge market share in North American.

“Very rarely in the world do you see environmental technology being exported from a lax regulatory environment into a stronger regulatory environment, although China, as a manufacturer of solar cells, is an exception to that,” he says. “Often European governments will back up whatever environmental standard they’ve imposed by being the first customer. They are the market makers for the environment industry.”

Beyond opening up trade, industry advocates say the WTO effort to categorize environmental goods could lend some credence that would benefit compliant producers.

“The words ‘environment’ and ‘environmental’, unfortunately, are starting to get a little diluted. There are no real standards out there,” Heeley says. “These definitions could solve some of that problem, but the interesting and concerning part is going to be what they use as the standard.”

The WTO has no authority to certify environmental goods, although many of the products will meet performance standards set by other certification and/or industry bodies.

“They will just compile a list and agree to it,” Cosbey advises. “I guess being on the list qualifies as being green, though. In that sense, it may help producers market their products, almost like an eco-label.”

Nevertheless, the final list is unlikely to be unveiled any time soon.

“All government processes are like that. It’s not the private sector so it’s going to take time and that’s the reality of it,” McDonald acknowledges. “On the other hand, it’s where the world is going and, as a WTO nation, Canada will have to get on board. It’s not an agreement you sign and then ignore. The WTO can make it very difficult for countries and companies that don’t comply.”

Barbara Carss is editor-in-chief of Building Strategies & Sustainability and Canadian Property Management

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