Identifying Environmental Goods and Services Relevant to Trade and Sustainable Development: A Case Study of Colombia

Transcription

1 Identifying Environmental Goods and Services Relevant to Trade and Sustainable Development: A Case Study of Colombia Executive Summary By Diego Alejandro Martínez Researcher of Universidad Externado de Colombia Germán Sanz Consultant in Trade and Sustainable Development A study commissioned by the International Centre for Trade and Sustainable Development (ICTSD) with the support of Fondo Biocomercio Bogota, October 2007 The objective of the Colombia country study on Environmental Goods and Services (EGS) is to identify those environmental goods and services of export and import interest to Colombia in the context of its sustainable development needs and priorities and compare these with the products and services that have already been submitted to date by WTO Members in the ongoing EGS negotiations. Nowadays, there is no agreed definition about EGS for trade at the multilateral level. This study is not trying to propose any new definition but to approach EGS relevant to trade and sustainable development from the following criteria. For this study EGS are: Goods and services required to confront environmental problems and accomplish environmental policies; Goods and services required to promote a better quality of the environment, the sustainable use of natural resources and a better environmental performance of all economic sectors; Those with export potential and the attributes previously described on point a) and b). This study primarily relies on secondary information and available statistical data. In addition, a participatory workshop was held with experts and stakeholders of public and private sectors with the aim of discussing its preliminary findings and conclusions. The following methodology was used: 1. Identification of main environmental problems and priorities of the country, major environmental policy commitments and the subsequent EGS that might be involved. 2. Identification of the general features of the domestic environmental industry.

2 3. Examination of the Potential Convergence Set list of environmental goods 1 in terms of its trade and environmental relevance for Colombia. That includes: a) Evaluation of technical implications in verifying the environmental end use of the goods of the list, regarding the current Harmonised System 6-digit entries and above classifications of goods at the national level. b) Identification of imported goods of the list that granted tax exemptions due to environmental investments in c) Identification of tariffs revenues of imported goods of the list during 2005 and d) Analysis of total export values of the goods of the list during the last two years. 4. Identification of possible implications of environmental services trade liberalization. 5. Identification of EGS with export potential. The main findings of the study are: In contrast to many developed countries, Colombia does not have a classification for the environmental industry or a specific sector of the industry that represents it. Thus, there is a lack of information and statistical data, as well as non clarity about trade interests. This is a difficult situation for negotiators and decision takers of the government. According to one of the few studies about the industry of EGS in Colombia, the suppliers can be typified by environmental consultancy services, environmental technology, solid waste management, potable water services and waste water management. Most of these services are currently classified by the Colombian law as public domiciliary services. The current legal setting is open to private and foreign participation in the provision of public services. Moreover, small and medium companies have been identified as important domestic stakeholders with the potential of having a broader participation of the Colombian market of public services. The demand on EGS is closely connected to main environmental problems and priorities. Colombia has important needs for water and sanitation services in rural areas. Most of the waste water remains untreated affecting human health, many sources of potable water and natural ecosystems. There are salient problems with the management of solid and hazardous waste and a lack of infrastructure in many municipalities. Air quality of many Colombian cities has significantly worsened. In this respect, Colombia needs legal and policy reforms that promote better environmental practices and proper environmental 1 Canada, the European communities, Japan, Korea, New Zealand, Norway, the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu, Switzerland, and the United Status of America. (2007). Continued Work under Paragraph 31(III) of the Doha Ministerial Declaration, Committee on Trade and Environment Special Session, JOB(07)/54, April.

3 technologies. Prevention and mitigation of natural disasters still are a great challenge for the country. However, the demand on EGS greatly depends on the management of local governments (Municipios), the enforcement of the environmental law and consumers and market pressures for a better environmental performance of industries. Regarding the analysis of the Potential Convergence Set of environmental goods that was proposed by developed countries, the study found that: 1. The environmental categories used in the list correspond to the environmental priorities of the country. Nevertheless, this list does not include many goods that the government is trying to promote. For instance, most of the goods of Plan Nacional de Mercados Verdes (National Plan of Green Markets) are not in the list. 2. There are technical difficulties in identifying the environmental goods within the HS 6-digit entry classification and above (for domestic classifications). None of those classifications described products according to environmental features or the final environmental end use of the goods. 3. If trade liberalisation of all goods within a HS 6-digit entry level is agreed, that will open the gate for extending low or cero tariffs for products that are not necessarily used for environmental purposes. Thus, any negotiation within the list approach needs agreements about the creation of new product classifications that differentiate environmental goods specifically. 4. Colombia imports and exports most of the products of the list (HS 6-digit entry) as it has been found for the last two years. The total value of imports of the list was around USD millions in 2005 and USD millions in The exports total value was USD 214 millions in 2005 and USD 237 millions in 2006, which represented less than 1% of total exports and 2% of total non-traditional exports of Colombia. 5. To identify which goods of the lists might be used for environmental purposes, this study compared the imports of the list with the goods that granted tax exemptions (of VAT) for environmental investments (environmental control and monitoring systems, development of plans, programmes or environmental policies). In 2006, the total value of the goods that granted tax exemptions due to environmental investments represented less than 3% of the total value of imports of the list. More specifically, around 1% of the imported goods of the list granted tax exemptions, measured in terms of total value. In conclusion, according to the use of an economic incentive (tax exemptions), most of the goods that are imported of the list do not have a final environmental end use. 6. Nevertheless, three products of the list scored high participations on environmental tax exemptions in That shows that of 153 products of the list just three are being notoriously used for environmental purposes, according to information about tax incentives.

4 o Parts of centrifuges, including centrifugal dryers (HS ) with around 58% of the import value that granted tax exemption o Filtering or purifying machinery and apparatus for gas (other than intake air filters for internal combustion engines) (HS ) with 32% o Filtering of purifying machinery and apparatus for liquids, for filtering or purifying water (HS ) with 31%. 7. The impacts of trade liberalisation of the Potential Convergence Set lists are not clear. The study found that tariffs of the lists oscillate between 0 and 20%. This shows that the products of the list are not highly protected compare to other goods such as agricultural products. In terms of tariffs tax collection, the list represents around 7% of total imports tariff tax collection in 2005 and However, in order to identify domestic vulnerabilities of the national industry more detailed information need to be gathered to each product and sub-product of the list and the industry that might be involved. 8. The goods of the list have a limited export potential due to the fact that most of them are not manufactured domestically or have a low production. This production can be lower if we consider the environmental specifications of the products of the list ( ex-out ). Moreover, the exports of the list with higher values do not correspond to goods with a defined environmental end use. The main inconvenient of the list approach is its difficult to fully identify environmental goods. In case that list approach is adopted by WTO Members, it would be necessary to create a new classification system that properly identify environmental goods. This might require that Members work with the World Custom Organization or independently at the national level to define this classification. The study found that the classification of Environmental Preferable Products (EPP) might be fit to other environmental goods with export potential that are not considered in the 153 list of products. Taking into account various international approaches to EPP the study found some products with export potential but with current low export values. These products are: a) natural colorants; b) domestic machinery for water filtering; c) animal or vegetal in origin fertilizer; d) rattan and bamboo furniture; e) prefabricated construction products. Other goods that developing countries want to include as EPP are those related to biofuels. However, there is rising criticism around the social and environmental impacts of biofuel production. Other identified goods with export potential are those related to biotrade. Those goods have the same problem that the Potential Convergence Set products, that there is no specific trade classification to identify them. Thus, with the current trade statistical data it is not possible to know much about their trade. Biotrade products with export potential are: a) medicinal plants; b) organic and

5 sustainable agriculture products; c) flowers and foliage; d) natural ingredients for cosmetic and pharmaceutical industry; e) natural products. It must be noted that biotrade products are not highly produced and its industry is in an infant stage in Colombia. Current trade opportunities for these products are limited. Most developed countries such as Japan, the US and the EU do not have significant tariffs for these products, but there are technical barriers. Thus, to include this products as environmental goods in the negotiations would make sense if that makes possible to discuss technical barriers for biotrade products. To take advantage of biotrade products potential will require not just the negotiation at WTO but a strong promotion policy with a set of economic instruments to support the industry at the national level. For instance, the private sector needs to strength their capabilities to cope with international technical standards. The evaluation of environmental goods, including those of the Potential Convergence Set list, shows that Colombia does not have clear strengths in the production of those goods. Thus, we should not expect that trade liberalization boost Colombian exports. It should be noted that the government has been making efforts to promote environmental goods through strategies such as Mercados Verdes, however it is urgent to create a policy on EGS. List approach requires a great technical effort as it has been shown. If WTO Members choose this approach it has to be noted that those lists need to be dynamic and respond to changes in environmental technology. In the practice this means to periodically create groups of experts in different environmental issues and with sufficient knowledge on environmental technologies to identify the relevance of certain goods in the list. This technical effort is greater for developing countries like Colombia with a non-consolidated environmental industry. Project approach need to be considered may be as a more feasible opportunity for developing countries in EGS negotiations. For instance, Colombia has experience on identifying criteria for environmental projects as it is the case of the tax exemption incentives analysed. This seems to be related to a project approach to EGS negotiations. In relation to trade on services and environmental services, Colombia is in a process of gathering statistical information and present data is very poor. Great part of available information is related to traditional environmental services and about the other environmental services information is still poorer. In general terms the service sector is an opened sector in Colombia. The study identified two possible risks in an eventual liberalization of environmental services. Some experts consider that trade liberalization might be limit the ability of small and medium companies to compete at the domestic market, in particular national companies with potential on environmental public services (water and sanitation, solid waste management) and professional environmental services. In addition, current regulatory and institutional flaws

6 can be a problem if there is higher foreign participation of the market. A good regulatory and institution framework is a key factor to successful trade liberalization. In order to support the domestic environmental service sector more financial and technical cooperation is necessary and trade in services liberalization needs to be supportive of this process. In order to have benefits of liberalization it is suggested to adopt a gradual approach to commitments in GATS, responding to national interests and levels of development. At the multilateral level Colombia does not have commitments with traditional environmental services. Some studies have identified that Colombia has export potential in professional environmental services and ecotourism. The first case refers to specialised consultancies with emphasis on natural disasters management, regional planning and integrated water management, cleaning production technologies, environmental management and policies. Trade in environmental services is limited by the existence of normative and generic barriers, in particular for Modes 3 and 4. At the environmental services negotiation at the WTO, developed countries have an offensive strategy, and even they have commitment on these services, they have limitations on the access to their markets and national treatment. Thus, Colombia has to carefully balance the trade offs of service liberalization in a context in which the country is already opened to foreign investments.