Willemien Viljoen, tralac Researcher, discusses African countries’ noticeable absence in the ongoing multilateral negotiations on environmental goods

According to the WTO Doha Ministerial Declaration of 2001 the WTO members agreed to negotiate ‘on the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services’ (Article 31 (iii)). However, after this initial positive signal from countries to focus on the nexus between trade and the environment as a way to improve energy efficiency, reduce greenhouse gas emissions and promote green growth and sustainable development the negotiations got bogged down by technical issues: what qualifies as environmental goods and what should the liberalization of these goods entail?

Due to the lack of progress the negotiations impasse led to a group of countries abandoning the idea of a multilateral consensus-based agreement with participation from all the WTO members. Instead, these countries shifted focus to a plurilateral agreement, under the WTO framework, to initially reduce tariffs on a range of environmental goods. However, any deal reached will not be closed; other WTO members can join the agreement. Furthermore, lower tariffs agreed upon will be extended in a non-discriminatory manner to all WTO members, irrespective of whether they are part of the agreed deal or not.

The group of participating countries has slightly increased since negotiations started in 2014 and currently includes 46 WTO countries – Australia, Canada, China, Costa Rica, the EU members, Hong Kong, Iceland, Israel, Japan, Korea, New Zealand, Norway, Singapore, Switzerland, Liechtenstein, Chinese Taipei, Turkey and the US. It is evident from the list, that there is little developing country participation and no participation by least developed economies. No African countries are currently part of the ongoing negotiations. Why? Since this agreement could promote green growth and sustainable development, knowledge transfer and even the diversification of exports, why are African economies not participating in the negotiations? The conventional reason offered for this is that many of these countries are engaging in infant industry protection using high tariffs to protect domestic industries against imports. However, the lack of participation has recently been attributed to other factors – the limited scope of the current negotiations, the significant liberalization already achieved within bilateral and regional trade agreements and the ability of countries to free ride of the negotiations once completed. So what does the trade and tariff data say about these hypotheses?

Currently the starting point for the negotiations is the APEC list of 54 environmental goods (although countries are trying to expand this list to include approximately 411 products) and the focus is tariff liberalization. These products pertain to renewable energy generation, energy and resource efficiency, pollution reduction, noise abatement and monitoring of environmental quality. Non-tariff barriers and environmental services are currently not included in the discussions; areas which are of more importance for African economies.

Using the ITC TradeMap and MacMap databases for trade and tariff data for the APEC list of 54 goods an analysis shows that the total world trade in these products is approximately US$ 978 billion for 2015. The main importers are China (20%), US (11%), Germany (6%), Mexico (4%) and Korea (4%); while the main exporters are China (18%), Germany (12%), US (12%), Korea (8%) and Japan (7%). The total trade in these products for 2015 by all African countries amounted to approximately US$ 15 billion. Thus African trade as a percentage of world trade in these products is relatively insignificant. The top five African importers (Algeria, South Africa, Nigeria, Egypt and Angola) only account for 1.7 percent of total world imports; while the top five African exporters (South Africa, Tunisia, Morocco, Mozambique and Ivory Coast) account for only 0.41 percent of total world exports for 2015. In 2015 African countries mainly exported these environmental goods to Germany, US, Spain, UK and France and imported these goods from the US, China, Germany, Italy and France.

As a percentage of total African exports of the 54 environmental goods South Africa is the dominant Africa exporter, accounting for 81 percent of total African exports. Evaluating the top five environmental export products of the top five African exporters to the three main destination markets and comparing the trade data with the corresponding tariff data exemplifies Africa’s trade in environmental goods:

• South Africa mainly exports environmental products to the US and EU. Other destination markets include Korea, Namibia, Saudi Arabia, India and Liberia. These export products mainly enter the destination markets duty free, except in the case of gas purifying equipment to Korea (8% duty), monitoring machinery to India (7.5% duty) and regulatory machinery to Liberia (5% duty).

• Apart from the EU, Tunisia mainly exports to neighbouring countries including Libya, Algeria and Morocco. The environmental goods enter these markets either duty free (the majority of the cases) or at a low duty of 3 percent. The only outlier is parts of electric motors and generators exported to South Africa with an import duty of 15 percent.

• Morocco mainly exports to the EU and neighbouring countries. Products mainly enter these markets duty free. The only high tariff these products face is exports of liquid purifying machinery to Djibouti with an import duty of 26 percent.

• The top five export products from Mozambique flow to the US, Norway, Cyprus and South Africa. All five the main environmental goods exported to the major destination markets are done so duty free.

• The top five export products from the Ivory Coast are exported duty free to the main destination markets; except for certain instruments used for topography, hydrography and oceanography exported to Angola (2% duty) and parts of gas turbines exported to Morocco (2.5% duty).

A similar analysis on the top five import products of the top five importers from the three major source countries (75 observations) show that most environmental goods are imported from the US, EU, China and Japan. Only 32 percent of the observations are imported duty free into Algeria, South Africa, Nigeria, Egypt and Angola. The majority of imports face low tariffs (between 3% and 5%). In the case of Angola and Nigeria all five main products imported from the three main source countries face import duties of 2 percent and 5 percent, respectively. There are some products which face moderate import duties (between 10% and 15%), while water purifying equipment imported by Egypt from the US is the only product facing a high tariff of 20 percent.

Comparing the sample trade and tariff analysis with the hypotheses above suggests that African countries only use high tariffs selectively to protect domestic industries from imports. Although environmental goods which enter African markets face some tariffs, most are low to moderate with only some outlying high tariffs on very specific products imported by certain countries. This suggests that in most cases tariffs are not used as an instrument for infant industry protection. Trade in environmental goods is mainly concentrated with trading partners where trade agreements already exist, including trade agreements like SACU, SADC, ECOWAS, EU EPAs and the AGOA unilateral arrangement for African exports. Furthermore, the fact that the majority of African environmental goods exported to destination markets enter duty free indicates that tariffs are not the main barrier to environmental good exports and that African countries are more likely faced with production and supply side constraints as well as non-tariff barriers. Lastly, the main export destinations for African countries are those countries which are already part of the environmental agreement negotiations, this makes free riding highly likely. This is except for the fact that these are also the destination markets where African products already enter duty free. Furthermore, there is limited production of the current 54 products under negotiation in the majority of African countries. This does not necessitate African participation. However, the potential benefit and ability to free ride is dependent on the product list under negotiation. In most cases the low to moderate tariffs which are still applicable to African exports are in other African destination markets. Thus the current state and scope of negotiations will not tremendously benefit African countries, neither through free riding or the reduction of tariffs alone.

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Sources

ITC TradeMap (www.trademap.org) and MacMap (www.macmap.org);

WTO Doha Ministerial Declaration (www.wto.org);

Wu, M. 2014. Why Developing Countries Won’t Negotiate: The Case of the WTO Environmental Goods Agreement. Trade Law & Development 93 (2014)