A second round of talks towards clinching a tariff-cutting agreement on select environmental goods was held last week in Geneva, Switzerland, with sources reporting significant progress on hammering out the substance of the deal, namely on what types of products to include.

Specifically, the group reportedly reached agreement on a number of categories that will serve as a basis for negotiating the final list of products.

In addition, last week saw discussion on two of these categories, namely around products related to the reduction and mitigation of air pollution and solid and hazardous waste management.

The effort to nail down the planned deal, known formally as the Environmental Goods Agreement (EGA), is being undertaken by 14 WTO members, though that group could expand.

The current group counts some of the world’s largest importers and exporters of environmental products in its ranks, including the 28 member states of the EU as one, the US, and China.

“The global challenges we face, including environmental protection and climate change, require urgent action,” EGA participants explained in a joint statement at the initiative’s launch in July.

A first round of negotiations was held immediately following the initiative’s launch, with participants focusing on the framework and structure of the negotiations.

Categories

While the EGA group is aiming to reach agreement on an ambitious and broad range of green goods, participants have indicated that the selection will also be based on a product’s ability to address certain environmental challenges.

As such, the nomination of possible EGA products – and the related discussions – is moving forward based on different environmental goods categories, or sectors.

In addition to the two already discussed last week, the current list of categories set to be reviewed includes goods related to energy and resource efficiency; environmentally preferential products; soil and water treatment; noise and vibration abatement; protection of natural resources; environmental monitoring and analysis; and the scaling up of renewable energy equipment.

Participants will be invited to put forward products relevant to each category, which will then be discussed by the group as a whole, with a view to deciding whether or not it merits inclusion in the negotiations.

Several discussion rounds are scheduled until early next year, at which point delegates are reportedly aiming to have put together a compilation of potential products to be liberalised.

Formal negotiations on tariff lines and the final list are expected to start once each of the sectors has been discussed.

In an effort to bridge the gap between trade negotiators and environmental specialists, the latest round saw experts from the Organization for Economic Co-operation and Development (OECD), the International Energy Agency (IEA), and industry invited to present on various environmental products, their components, and recent market trends.

EGA officials have also explained to ICTSD’s Trade BioRes that while the talks will initially focus on tariff issues related to environmental goods, participants have not ruled out returning to issues such as environmental services and non-tariff barriers (NTBs) at a later stage of the negotiations.

APEC list hurdles

The EGA group first signalled its intention to pursue a green goods trade agreement in January at the World Economic Forum’s annual meet in Davos, Switzerland.

At the time, participants said they would build on a list of 54 environmental goods agreed to by members of the Asia-Pacific Economic Cooperation (APEC) forum.

In late 2012, the 21-nation APEC group announced plans to reduce applied tariffs on a list of 54 green goods – including wind turbines and solar panels – to five percent or less by the end of 2015.

While the deal was welcomed as a significant advance at the time, many were quick to note that this commitment is not legally binding, and includes some products that already have low tariffs.

Given EGA participants’ stated commitment to secure “global free trade” in environmental goods, trade watchers have suggested that this would envisage the reduction of bound tariffs to zero in these talks, in contrast to the APEC format.

Applied tariffs are the actual duty a country levies on goods at the border, while bound tariffs indicate the maximum ceiling level WTO members could potentially apply.

Ahead of last week’s round, the US, Australia, New Zealand, Japan, and Canada – also APEC members – all tabled their initial indicative lists of air pollution and solid and hazardous waste management products that they favour for inclusion in the eventual Environmental Goods Agreement.

In each instance, the nominations are said to feature both relevant products from the APEC list, as well as additional products, consistent with the group’s plans outlined in January.

Some of the other members of the EGA group have reportedly indicated that their respective internal consultations are still ongoing and will follow suit in due course.

Experts have also said that, while the APEC 54 list has provided a useful building block for the new initiative, concerns have been raised about how APEC members have implemented the voluntary cuts to their respective tariff systems and some provisions in that regional agreement.

For example, APEC economies have to decide whether or not to cut tariffs at the Harmonized System (HS) 6-digit level – a World Customs Organization (WCO) classification used to identify traded goods – or pick and choose more specific products from within these categories, creating the so-called “ex-outs” issue.

Although the EGA will not carry forward the provisions of the APEC agreement but rather just its list, WCO officials were invited last week to brief EGA negotiators on the technicalities of “ex-outs” related to environmental goods and their respective HS classifications, according to BioRes sources.

New members to join?

When kicking off the initiative in July, the group stressed that they remained open to working with other trading partners interested in pursuing similar objectives and ambition. 

Israel has been the first to take up the group’s offer and has expressed an interest in joining.

In order for a new participant to join, however, each existing EGA member will need to undertake necessary domestic consultations for approval.

This includes a possible 90-day notification period to Congress for the US that would preclude Israel taking part in the negotiations until the notification period has ended.

Other WTO members that have reportedly shown an interest in joining are Turkey, Peru, and Chile. 

Next steps

The third round of the EGA negotiations is slated for the first week of December in Geneva. Goods and technologies related to water and wastewater treatment, as well as the abatement of noise and vibrations, will be under discussion at that stage.

The planned deal is expected to be negotiated as a most-favoured-nation (MFN) style pact, which would extend the eventual benefits of the EGA to the global trade body’s entire membership once reaching a “critical mass” of participants.

This would build on the precedent set by the WTO’s Information Technology Agreement (ITA), another plurilateral-type initiative whose participants have agreed to eliminate tariffs on select information and communication technology products.

Defining a threshold for a “critical mass,” or a significant enough portion of trade in the list of covered goods to stave off potential free riders seeking to benefit from tariff concessions without offering anything in return, is one of the details that will need to be dealt with in due course with this MFN-style agreement.

This article is published in Bridges, Volume 18 - Number 32, by the International Centre for Trade and Sustainable Development (ICTSD).