An Overview of Key Markets, Tariffs and Non-tariff ... · Figure 1: Wind Turbine Sales in China by Manufacturer, 2003 16 iii ... particularly, non-tariff measures prevalent in key

By Rokiah AlaviInternational Islamic University of Malaysia

March 2007 ICTSD Programme on Trade and Environment

www.ictsd.org

Issue Paper No.4

An Overview of KeyMarkets, Tariffs andNon-tariff Measures onAsian Exports of SelectEnvironmental Goods

The ICTSD project on Bridging Trade and Sustainable Development in Environmental Goods and Services aims toenhance developing countries' capacity to understand Trade and Sustainable Development issue linkages with respectto Environmental Goods and services (EGS) and reflect regional perspectives and priorities in regional and multilateralTrade negotiations. project publications include:

• Defining Environmental Goods and Services: A Case Study of MexicoBy Enrique Lendo, 2005.

• Options for Liberalising Trade in Environmental Goods in the Doha Round.By Robert Howse and Petrus van Bork, 2006.

• Trade in Environmental Services: Assessing the Implications for developing countries in the GATS.By Colin Kirkpatrick (2006).

For further information, visit http: / /www.trade- enviroriment.org/page/ictsd/projects/egs_desc. htm

ABOUT ICTSD

Founded in 1996, the International Centre for Trade and Sustainable Development (ICTSD) is an independent non-profitand non-governmental organization based in Geneva. By empowering stakeholders in Trade policy through information,networking, dialogue, well-targeted research and capacity building, the Centre aims to influence the international Tradesystem such that it advances the goal of Sustainable Development.

Environmental Goods and Services Series

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An Overview of Key Markets, Tariffs and Non-tariffMeasures on Asian Exports of Select EnvironmentalGoods

By Rokiah AlaviInternational Islamic University of Malaysia

March 2007 ICTSD Programme on Trade and Environment

Issue Paper No.4

ICTSD_Trade_Paper4_2007_E 7.3.2007 15:17 Page i

Published by

International Centre for Trade and Sustainable Development (ICTSD)International Environment House 27 Chemin de Balexert, 1219 Geneva, SwitzerlandTel: +41 22 917 8492 Fax: +41 22 917 8093E-mail: [email protected] Internet: www.ictsd.org

Chief Executive: Ricardo Meléndez-OrtizSenior Programme Manager: Moustapha Kamal GueyeProgramme Officer: Mahesh Sugathan

AcknowledgementsWe are grateful to Mahesh Sugathan, Ulrich Hoffmann, Hu Tao, Sanjay Kumar, Joy Kim, RobertHamwey and Arick Chang for their useful comments and assistance. This project is made possiblethrough the support of the Luxembourg Ministry of Foreign Affairs and the Ministry of Foreign Affairs(DGIS) of the Netherlands.

For more information about ICTSD's work on Environmental Goods and Services, visit our web site:www.trade-environment.org

ICTSD welcomes feedback and comments on this document. These can be forwarded to MaheshSugathan, [email protected].

Citation: Alavi, Rokiah. (2007) An Overview of Key Markets, Tariffs and Non-tariff Measures on AsianExports of Select Environmental Goods, ICTSD Trade and Environment Series Issue Paper No. 4.International Centre for Trade and Sustainable Development, Geneva, Switzerland.

Copyright © ICTSD, 2007.

The views expressed in this publication are those of the author and do not necessarily reflect theviews of ICTSD or the funding institutions.

ISSN 1816-6970

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CONTENTS

ACRONYMS iv

FOREWORD v

EXECUTIVE SUMMARY vii

1. INTRODUCTION 1

2. POLLUTION ABATEMENT/TREATMENT EQUIPMENT INDUSTRY 32.1 Production and international trade 32.2 Trade Barriers 10

3. WIND TURBINE INDUSTRY 133.1 Production and trade 133.2 Trade Barriers 17

4. BIOFUELS 214.1 Production and trade 214.2 Trade barriers 22

5. WOOD AND WOOD BASED PRODUCTS 255.1 Production and trade 255.2 Trade barriers 25

6. CONCLUDING REMARKS 30

ENDNOTES 32

REFERENCES 34

TABLESTable 1: Global market for environmental goods and services, 1998 3Table 2: Trade by categories of environmental good (OECD Definition) 4Table 3: Global environmental goods market share by major country of

origin, (percent) 1999 5Table 4: Export market share to US-AEP countries, 1999 (percent). 6Table 5: Market share of international markets held by environmental exporters (percent) 7Table 6: Chinese Taipei’s market for recycling equipment, 1999 (USD million) 8Table 7: Major import and export destinations of selected environmental sectors

in India (OECD Product List) 9Table 8: Average tariff levels for environmental goods, 2002 10Table 9: Top ten wind turbine manufacturers by country 13Table 10: Percentage of Turbines Sold Abroad by Manufacturer (2003) 16Table 11: Regional distribution: New installed wind power capacity in 2004 (percent) 16Table 12: Potential trade barriers for wind turbine 17Table 13: Highest tariff applied to wind powered electric generating sets 18Table 14: Import duty reduction for wind turbine parts and equipment 19Table 15: International standards and rules for wind energy 20Table 16: Leading ethanol producers in the world, 2003 and 2004 21Table 17: Costs per litre bioethanol and biodiesel 22Table 18: Tariff rates in selected importing countries 26Table 19: Main existing forest certification schemes (percent) 28Table 20: Summary of findings 30

FIGURESFigure 1: Wind Turbine Sales in China by Manufacturer, 2003 16

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ACRONYMSFS Australian Forestry StandardAPEC Asia-Pacific Economic CooperationASIMAD Asociacion de Industriales de la Madera in ChileATFS American Tree Farm SystemCE Conformité EuropéenneCEN Comité Européen de NormalisationCERFLOR Programa Nacional de Certificação Florestal of BrazilCERTFOR Organización de Certificación Forestall of ChileCFP Certified Forest ProductCO2 Carbon DioxideCSA Canadian Standards AssociationDANIDA Danish Development AgencyEG Environmental GoodEGS Environmental Goods and ServicesEPA Environmental Protection Agency of the United StatesEPP Environmentally Preferable ProductEUR EurodollarEWTS European Wind Turbine StandardsFSC Forest Stewardship CouncilGATT General Agreement on Tariffs and TradeGSP General System of PreferencesIEC International Electro Technical CommissionIPPC International Plant Protection ConventionJAS Japan Agricultural StandardJBIC Japan Bank for International CooperationJEXIM Japan Export Import BankJICA Japan International Cooperation AgencyLEI Lembaga Ekolabel IndonesiaMFN Most-favoured NationMTCC Malaysian Timber Certification CouncilMW MegawattNTMs Non-tariff MeasuresNTBs Non-tariff BarriersOECD Organisation for Economic Cooperation and DevelopmentOECF Overseas Economic Cooperation FundPEFC Pan European Certification SystemPROINFA Programme for Alternative Electric Generation Sources of BrazilR&D Research and DevelopmentSDT Special and Differential TreatmentSFI Sustainable Forestry InitiativeSOE State Owned EnterpriseSPS Sanitary and PhytosanitaryTBT Technical Barriers to TradeTEST Trade and Environmental Services and Technologies of the United StatesUNCTAD United Nations Conference on Trade and DevelopmentUS-AEP United States – Asia Environmental PartnershipUSAID United States Agency for International DevelopmentUSD US DollarUS TDA United States Trade Development AgencyWTO World Trade Organization

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FOREWORD

Environmental goods and services (EGS) as a subset of goods and services was singled outfor attention in the negotiating mandate adopted at the Fourth Ministerial Conference of theWorld Trade Organization (WTO) in November 2001. Increasing access to and use of EGS canyield a number of benefits including reducing air and water-pollution, improving energy andresource-efficiency, and facilitating solid-waste disposal to name a few of the benefits.Gradual trade liberalisation and carefully managed market opening in these sectors can alsobe a powerful tool for economic development by generating economic growth andemployment and enabling the transfer of valuable skills, technology and know-howembedded in such goods and services. In short, well-managed trade liberalisation in EGS canfacilitate the achievement of sustainable development goals laid out in global mandates suchas the Johannesburg Plan of Implementation, the UN Millennium Development Goals andvarious multilateral environmental agreements.

Developing countries are clearly interested in including, as part of ongoing WTO negotiations,products of export interest that could provide environmental benefits, export earnings andlivelihoods to local populations. At the same time, many developing countries lack acomparative advantage in the so-called ‘traditional’ environmental goods and services that arereflected in lists developed by the OECD and APEC and are often capital and technology-intensive. This has also led experts to point to environmentally preferable products (EPPs) asan export category worth consideration by developing countries. The global market size andexport share of developing countries in these products is, however, still relatively small.Hence, there is scope for further export growth for many EPPs from their present levels.

Asian developing countries account for the greatest share of both traditional environmentalgoods exports and EPPs among developing countries. Thus, identifying key markets and tradebarriers are critical for these countries if they wish to leverage opportunities for exportingthese products. Barriers to trade in environmental goods comprise tariffs as well as non-tariffmeasures (NTMs). While tariffs remain significant on certain EPPs such as biofuels, tariffs on‘traditional’ environmental goods are relatively low, particularly in developed countrymarkets. Tackling tariffs will be easier as they are transparent and quantifiable. However,tackling non-tariff measures which become non-tariff barriers (NTBs) will be a much greaterchallenge as these may not be easy to identify or pin down and may also evolve and diversifyrapidly. It is worth bearing in mind that in many cases, non-tariff measures are used to pursuelegitimate policy goals.

Identifying and dealing with NTBs has been a significant challenge in multilateral trade policymaking even before the Uruguay Round and continues to be so during the Doha Round. Theknowledge-gap that exists on NTBs in the sector of environmental goods has persisted dueto a notable lack of focussed and meaningful research.

This paper is a pioneering initiative towards redressing that gap by identifying the tariffs andparticularly, non-tariff measures prevalent in key markets and select environmental goods ofexport interest to Asian countries. It examines the status and trend of select ‘environmentalgoods’, such as pollution abatement and treatment equipment, wind turbines, biofuels andwood and wood-based products produced by Asian countries and analyses the tariff and non-tariff barriers faced by Asian exporters in key markets. The paper finds that NTBs such ascertification and local-content requirements, subsidies and tied-aid along with technical,sanitary and phytosanitary and environmental measures are the main obstacles to Asian

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environmental goods exports to developed countries; market access in developing countriesis mainly restricted by high and escalating tariff rates with local content requirements beingthe main NTB.

It is hoped that a preliminary identification and focus on trade barriers in specific sectors ofenvironmental goods will permit a greater depth of analysis and provide useful lessons forsimilar work in other sectors as well.

Dr. Rokiah Alavi is an Associate Professor at the Department of Economics, InternationalIslamic University Malaysia, and her research interests are in the area of international tradeand development economics.

The paper is part of a series of issue papers commissioned in the context of ICTSD’sEnvironmental Goods and Services Project, to address a range of cross-cutting, countryspecific and regional issues of relevance to the current EGS negotiations,. The project aims toenhance developing countries’ capacity to understand trade and sustainable developmentissue linkages with respect to EGS and reflect regional perspectives and priorities in regionaland multilateral trade negotiations. We hope you will find this paper to be stimulating andinformative reading and useful for your work.

Ricardo Meléndez-OrtizChief Executive, ICTSD

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EXECUTIVE SUMMARY

Asian countries have emerged as global producers of environmental goods (EGs). In 2003,Asian developing countries accounted for 12 percent of the world export market and 22percent of world imports of EGs under the Organisation for Economic Cooperation andDevelopment (OECD) and Asia-Pacific Economic Cooperation (APEC) category. Theircontribution is much more significant in Environmentally Preferable Products (EPPs) trade,with a share of 45 percent of the world trade and 90 percent of developing countries’ exports.The key producers in Asia are the Republic of Korea (hereafter ‘Korea’), China, India andChinese Taipei, while some Southeast Asian countries such as Singapore, Malaysia, Thailandand Indonesia are also actively involved in this industry.

Trading in the global market has been very challenging for EGs exporters from developingcountries, including Asia. The major concern is related to trade barriers. Tariffs, however,were not found to be a serious problem for EGs exporters where the trade-weightedaverage applied tariff rates in 2003 were less than 2 percent for all categories of EGs(Hoffmann, 2006). Nevertheless, tariff rates in developing countries are generally higher,but in many cases tariff reduction or exemptions have been granted for environmental ordevelopmental projects. Trade restrictions that are more challenging and complex are non-tariff barriers (NTBs). These barriers exist in both developed and developing countries’markets.

The aim of this paper was two-fold: to examine the status and trend of environmental goodsproduced by developing Asian countries and to analyse major trade barriers faced by theAsian EGs exporters with an emphasis on NTBs. A case study approach was used for theevaluation, a summary of which is presented on page 30. The sectors taken up for analysisare: (i) The Pollution Abatement/Treatment Equipment Industry (ii) The Wind Turbine Industry(iii) Biofuels and (iv) Wood and Wood Based Products.

The pollution abatement/treatment industry is a mature and large industry. The USA is theworld’s leading producer, consumer and exporter of the pollution abatement and treatmentproducts and technologies. Other key players are Western European countries, Japan and Asia.Ninety percent of the global trade worth USD238 billion is dominated by developed countriesand large share of this trade takes place between them. Asia’s contribution to global trade inthis industry is still small but growing fast. Most of the pollution abatement and treatmentproducts and technologies produced by Asian countries are simple and less technologicallyadvanced. Asia is still highly dependent on imported products and technologies fromdeveloped countries. China, Korea, Chinese Taipei and India are the main players in Asia. Themajor hurdle in penetrating the developing countries market is related to tied-aidcommitments. In some countries, regulatory measures and non-transparent bureaucraticsystems impede trade.

The world’s leading producers and exporters of wind turbine are Denmark, the USA, Germanyand Spain. In 2003, five large turbine manufacturers accounted for about 70 percent of theglobal wind turbine sales including Vestas and NEG Micon of Denmark, GE Wind of the USA,Enercon of Germany and Gamesa of Spain. In Asia, only India and China have ventured intothis industry. Global wind turbine trading is primarily between developed countries, andsouth-south trade is very small. The three largest markets for wind power in the world areGermany, USA and Spain (more than 80 percent of world installed capacity). Tariffs indeveloped countries are at zero, while in developing countries, the range is between zero and

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35 percent. Major non-tariff barriers facing wind turbine exports are local content policy,certification and standards, differentiation of designs and requirements and tied-aid.

Most of the world’s biofuel production is ethanol (Thujl, Ros and Beursken, 2003). The leadingglobal producers of ethanol are Brazil and the USA. Asian countries that are involved in thisindustry are Japan, China, India, Pakistan, and the Philippines. Biodiesel is produced on a largescale in Germany France, Italy, Austria, and Sweden. Germany is the world’s largest biodieselproducer and its biodiesel output has trebled since 2002 to about 1.5 million tonnes in 2005.Thailand, India, Indonesia and Malaysia have emerged as key producers of biodiesel in Asia.Global trade of biofuels consist mainly of ethanol, which accounted for 93 percent of totalbiofuel traded in the world market (Singh, 2005). In general, tariff rates on ethanol are highin many countries, while rates on biodiesel are based on feed-stock used as raw materials.Major NTBs faced by biofuel traders are tax and subsidy measures, standards andcertifications and environment related barriers.

Developing countries account for only 15 percent of world forest product exports. China andSoutheast Asian countries, mainly Malaysia and Indonesia, are the key Asian exporters. Majorimporters are China, Chinese Taipei and Korea. There has been increasing trade amongdeveloping countries, especially between China, Korea, Hong Kong, Chinese Taipei, India,Myanmar, the Philippines, Thailand, Indonesia, Malaysia and Papua New Guinea. Tariffs ontropical timber and timber products are generally less than 5 percent, especially in developedcountries. However, tariffs on timber products are escalating, with a range increase of 5 to 15percent. NTBs confronting wood and wood product exports include quantitative restrictions,sanitary and physosanitary (SPS) standards and technical barriers to trade (TBT) as well asenvironment- related barriers.

This paper finds that NTBs are the main obstacles to Asia’s EGs exports to developedcountries. Many complex and challenging trade barriers have been applied to protect theirdomestic industries which include SPS, TBT, labelling requirements, environment-relatedbarriers, tied-aid, and subsidies. Market access to developing countries, however, is mainlyrestricted by high and escalating tariff rates and the most prominent NTBs are local contentrequirements.

Trade liberalisation offers huge gains for developing countries that have competitiveadvantage in producing EPPs. Nevertheless, the underlying objective for initiatingnegotiations on liberalisation of environmental goods and services is to reap triple “win-win-win” outcomes in trade, environment and development. Thus, improvement in the marketaccess for EPPs must at the same time yield positive externalities in terms of environmentaleffects and overall economic development. This can only be achieved by implementingappropriate national environmental regulations and enforcement in addition to economicpolicies to build domestic production and export capacity.

Unfortunately, developing countries do not have a competitive advantage in the traditionallydefined environmental industry which is mature and dominated by developed countries.Some developing countries have potential in certain EGs sectors, but the main challengesfaced by these industries are related to production capacity and sustainable demand. Thus,various policy measures are needed to support and promote these industries. This can onlybe achieved if policy space for development is allowed and ensured and if developingcountries capitalise on special and differential treatment (SDT) options provided to them bythe World Trade Organization (WTO).

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1. INTRODUCTION

Asian countries are becoming importantplayers in the global environmental goods(EGs) trade. In 2003, Asian developingcountries accounted for 12 percent of theworld export market and 22 percent ofworld imports of EGs under the OECD/APECcategory. In the environmentally preferableproducts (EPP) category, Asian developingcountries’ share in the world export marketwas 45 percent and they account for 90percent of developing countries’ exports.Among the top exporters in Asia are China,Singapore, the Republic of Korea (hereafter‘Korea’), Chinese Taipei, Malaysia, Thailand,Indonesia, and India (UNCTAD, 2003b). Ingeneral, developing countries includingthose from Asia are net importers of mostproducts on the OECD/APEC list. However,there are few products in this list of whichAsian countries are net exporters, notablyrenewable and clean energy products suchas methanol, ethanol, mats and screens,fluorescent lamps, and energy-efficientelectrical sectors. Regarding EPPs such ascertified timber and timber products, non-timber forest products, products made ofnatural fibre and biofuel, developingcountries have trade surpluses and arehighly competitive in producing suchproducts.

Developing countries’ exports of environ-mental goods has been growing rapidly overthe years; the ratio of exports to importsrose from 0.36 in 1996 to 0.52 in 2001(UNCTAD, 2003a). Even though the importsof EGs are still primarily purchased fromdeveloped countries, they largely rely onother developing countries in the region toexport their products (Kim, 2005). In 2000,intra-developing Asian countries’ trade was42 percent of the total trade (UNCTAD,2003a). However, most of the exports of EGsconsist mostly of low and simple technologyproducts, parts and components.

Trade barriers are one of the major concernsin market access for Asian developing

countries’ EGs exporters. Tariff protection,however, was not the major obstacle wherethe trade-weighted average applied tariffrates in 2003 was only less than 2 percentfor all categories of EGs (Hoffmann, 2006).Tariff rates for EGs are generally lower indeveloped countries than in developingcountries. The average tariff rate ofdeveloped countries was less than 2 percent,while the rate for developing countries was10 percent (Hoffmann, 2006). Since theestablishment of the General Agreement onTariffs and Trade (GATT) in 1947, tariffs havenot been a major concern because there hasbeen a gradual and continuous decline intariff rates. What worries the exporters todayis that despite the decline in tariff rates,there has been a rapid expansion in usageand types of NTBs.

In their 2005 analysis on concerns aboutdeveloping countries’ exports, Fliess andLejarrga (2005) noted that developingcountries face NTBs when they trade withboth developed and developing countries.However, they found that the type of NTBsimposed on developed and developingcountries differ to some extent. In trade withdeveloped countries, the common types ofNTBs that exporters have to deal with arecustoms and administrative procedures, andtechnical barriers to trade (TBT) and SPSmeasures. Problems in south-south trade arerelated to customs and administrativeprocedures and custom charges. There arealso many other types of trade barriers suchas local content requirement, tied-aid,certification and standards, trade balancingrequirements and environment-relatedbarriers that are practised by governmentsthat could impede EGs’ market access.

Recognizing the different types of NTBs thatdeveloped and developing countries face,the aim of this paper is to examine theexport markets and potentials of EGs indeveloping Asian countries and to analysekey trade barriers faced by the Asianexporters in both developed and developingcountry markets. This paper focuses on

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NTBs because there is growing interest inand concern about NTBs’ related marketaccess constraints. In addition, nosystematic research has been conducted sofar on this issue. A detailed study in this areais extremely useful as it can contribute todeveloping countries’ understanding of theconcerns of their EGS exporters.Consequently, it should aid in helping themto respond with a proactive and affirmativestrategy. Identification of NTBs could alsoassist in determining policy priorities and inutilising special and differential treatmentoptions effectively. A case study approachwas used for the analysis.

Environmental goods can generally bedivided into two major categories: the‘traditional’ category of environmentalgoods used to ‘measure, prevent, limit, andminimise environmental damage’. These arelargely reflected by goods included in theOECD/APEC list. The second category ofproducts is composed of environmentallypreferable products (EPPs) and is illustrated

in a list created by UNCTAD (UNCTAD,1995). Four products were chosen fromthese lists, two from the OECD/APEC list andtwo from the UNCTAD list. Pollutionabatement/treatment equipment and windturbines were selected from the OECD/APEClist because Asian developing countries’export share of this equipment in worldtrade is on the rise. Currently, they are netimporters of these products. Bio-fuels andwood and wood products were chosen fromthe UNCTAD list because of their tradepotential and the increasing importancegiven to these EGs in Asian developingcountries.

Therefore, this paper is structured as follows:after the introduction in section I, section IIexamines market and trade barriers facingthe pollution abatement/treatmentequipment industry. section III focuses onthe wind turbines sector, section IV coversbiofuel, and section V assesses wood sectors.Section VI summarises the findings of thispaper and draws conclusions.

2Rokiah Alavi — Tariff and Non-tariff Measures on Exports of Select Environmental Goods


The OECD defines environmental goods andservices as “goods and services to measure,prevent, limit, minimise or correctenvironmental damage to water, air, soil aswell as problems related to waste, noise andecosystems” (OECD, 1999). As such,pollution abatement/treatment equipmentcan generally be divided into four categories:water and effluents treatment, wastemanagement, air pollution control and others(noise abatement and soil remediation).

The environmental goods and services (EGS)industry is huge and has been growingrapidly. The global market for EGS hasincreased from USD200 billion in 1990 toUSD600 billion in 2005, with OECD countries

dominating more than 80 percent of themarket. The US market is the biggest with 40percent of the global market share, followedby Western European countries (30 percent),Japan (15 percent) and Asia (6 percent). Theenvironmental services market is muchlarger than the goods sector. In 1998, itrepresented about 50 percent of the globalmarket value, while the environmentalequipment and resources sector eachaccounted for about 25 percent of the total(see Table 1). Also note in Table 1, that in theequipment sector, three important categoriesare water management equipment andchemicals, waste management equipmentand air pollution control equipment.


2. POLLUTION ABATEMENT/TREATMENT EQUIPMENT INDUSTRY2.1 Production and International Trade

Billion Euro % of total

Equipment: 79 24

Water equipment and chemicals 28 8

Air pollution control equipment 22 7

Instruments and information 4 1

Waste management 23 7

Process/prevention technology 3 1

Services: 172 52

Solid waste management 75 23

Hazardous waste management 12 4

Consulting and engineering 20 6

Remediation and industrial 11 3

Analytical services 2 1

Water treatment services 52 16

Resources Management: 79 24

Water utilities 53 16

Resource recovery 22 7

Environmental energy 4 1

Total 330 100

Source: European Commission (1999), “The EU Eco-Industry’s Export Potential”, final report to DGXI of the EuropeanCommission, EG/C1490/SO, http://www.environmental-export.com

Table 1: Global Market for Environmental Goods and Services, 1998


However, environmental goods are tradedmore internationally than environmentalservices. In the EU for example, about 14percent of wastewater equipment isexported, compared to 3 percent ofwastewater treatment services (EuropeanCommission, 1999). Trade in environmentalgoods (EGs) has grown from USD111 billionin 1995 to USD122 billion in 1999 , and by2002 it doubled to USD238 billion. Waterand wastewater treatment equipment is theleading sector, with 34 percent share of the

world’s EGs traded (see Table 2).Environmental monitoring and analysisaccounted for 15 percent of the marketshare; waste management accounted for 13percent, air pollution control amounted to10 percent, and noise abatement’s share was12 percent. Between 1990 and 2002, theinternational trade in the EG sector grew by14 percent, surpassing growth in themanufactured goods trade which was 6percent (Bora and Teh, 2004).

The international trade in EGS is dominatedby developed countries; in 1999 OECDcountries made up 90 percent ofenvironmental world exports. In that year, USfirms captured 26 percent of the world exportmarket, while European and Japaneseproducers controlled 49 percent and 13percent share of the market respectively.

China, Korea and Chinese Taipei eachaccounted for 2 percent of the export market.(See 3).Their presence is especially apparentin the water and wastewater managementsector. Chinese Taipei captured 17 percent ofthe Asian market, while China and Koreasecured 11 percent and 9 percent of themarket share respectively (see Table 3).


Environmental Good Categories Share in Total Exports (%)

Waste Water Management 34

Environmental Monitoring Analysis and Assessment 15

Solid Waste Management 13

Noise and Vibration Abatement 12

Air Pollution Control 10

Resource Management 10

Remediation and Clean Up 5

Cleaner Technologies 1

Source: Bora and Teh (2004)

Table 2: Trade by Categories of Environmental Good (OECD Definition)


Market dominance in the EGS sector,however, varies according to theenvironmental sub-sectors and geography.In terms of product category, Japan and theUSA are the leading exporters of solid wastemanagement equipment with a combinedmarket share of 52 percent in 1999. On theother hand, the USA and Germany are theworld’s major exporters of air pollutioncontrol equipment. In the water andwastewater segment, Germany leads (seeTable 4). Geographically, the marketdominance differs as well. In Mexico, USproducers held 60 percent of water pollutioncontrol imports, while in Morocco, Francedominates 65 percent of the sector. The EU,Eastern European and Russian markets arelargely controlled by Western Europeanproducers.

In Asia , Japan has overall dominance in allcategories of EGs. Japan dominates 50

percent of the solid waste managementmarket, 31 percent of the water andwastewater management sector and 30percent of the air pollution control sector(see Table 4). In Thailand, about 90 percentof wastewater treatment equipment andproducts were imported from Japan andEurope, while products such as submersiblepumps and aerators are normally importedfrom Germany, Sweden, Ireland and Japan.Leading brands in the Thai market are ITTFlygt (Sweden), ABS (Germany), KSB(Germany), Pumpex (Sweden), Awamura(Japan), and Tsurumi (Japan). In Malaysia,Japan is the leading supplier of solid andhazardous waste treatment equipment andwater treatment equipment, with a marketshare of 30 percent and 27 percentrespectively in 2001.


Country of Origin SWM (%) APC (%) WWM (%)

Japan 26 10 10

USA 26 27 19

Germany 16 24 25

Italy 10 9 9

UK 6 8 7

France 3 5 10

Korea 2 1 3

Netherlands 2 4 4

Sweden 2 3 3

Canada 2 3 3

Austria 2 1 1

Chinese Taipei 1 2 2

China 1 2 2

Denmark 1 1 3

Australia 1 0 0

Source: Extracted from Table 3.2, Table 6.2 and Table 7.2, US-AEP (2001)

Note: SWM – Solid Waste ManagementAPC – Air Pollution ControlWWM – Wastewater Management

Table 3: Global Environmental Goods Market Share by Major Country of Origin, 1999 (%)


Although Asia (excluding Japan), LatinAmerica, Central and Eastern Europe accountfor only a small part of the global market,the environmental industry in thesecountries has been growing very fast.Research shows that since the mid-1990s,growth rates in the more mature marketshave slowed, while environmental marketsin developing countries and emergingeconomies in Southeast Asia, East Asia,Central and Eastern Europe haveexperienced a rapid growth (EuropeanCommission, 1999). The size of the EGSmarket in the OECD countries is notexpected to grow significantly, while theannual growth forecast is only about 1-2percent up to 2010. This is in contrast with

the annual growth forecast for developingcountries of 5-10 percent between 1999 and2005 (European Commission, 1999). It isimportant to note that more than 96 percentof the US, Europe and Japanese market iscontrolled by their own local producers (seeTable 5). Therefore, it is obvious that there isgreat potential for south-south trade. SeveralAsian countries such as China, ChineseTaipei, Korea and India have already beenexporting and their export targets are Asianand other emerging economies. Exports todeveloped countries mainly consist ofcomponents and parts produced orassembled by multinational subsidiaries inhost countries or through contract licensing.


WWM APC SWM Total for all categories

1995-1999

Japan 31 31 50 39.3

US 12 30 31 26.6

Germany 5 13 7 8.2

Chinese Taipei 17 3 2 5.4

UK 4 8 2 3.8

China 11 2 1 3.5

Korea 9 2 2 2.9

France 3 2 1 2.3

Source: Extracted from Table 3.4, Table 6.4 and Table 7.4, US-AEP (2001)

Note: SWM – Solid Waste Management, APC – Air Pollution Control, WWM – Wastewater Management

Table 4: Export Market Share to US-AEP Countries, 1999 (%)


China began promotion of its environmentalindustry only in the 1980s under its importsubstituting industrialisation strategy.Emphasis was given to production andassembling of basic and light air, water andsoil pollution measuring equipment (Hirono,2004). Most of these activities were carriedout by state owned enterprises (SOEs) andprivate small and medium enterprises.Imported equipment and technologies beganto enter the Chinese market only in the1990s with the enforcement of morestringent environmental laws and standardsin the country. The imports consistedprimarily of more sophisticated equipmentand technologies that met the environmentalauthorities’ requirements. Subsequently,these products were replaced by locallymade products under China’s importsubstitution policy. Hirono (2004)highlighted that the Chinese environmentalenterprises were mostly small scale andhave less advanced technology, generallylagging 10-20 years behind developedcountries. Currently, about half of thedomestic market requirements are served by

local firms and imports comprise only largescale pollution abatement equipment andtechnologies that are not available in thecountry. China imports environmentalproducts mainly from Japan, the US and EU.China’s share in the world environmentalproducts export market in 1999 was 2percent and in the Asian market it stood atabout 4 percent.

Chinese Taipei is another key producer of EGsin Asia. In 2001, Chinese Taipei had 108environmental equipment suppliers ormanufacturers, 482 environmental servicecompanies and four environmentalmonitoring and testing vendors. Most ofthese are small or medium in size, with lessthan 20 staff and registered capital not morethan New Taiwan Dollar (NT) $30 million.Locally produced equipment such as pumps,blowers, filters, valves and PH meters aregenerally cheaper and less technologicallyadvanced. To meet the environmentalstandards set by Chinese Taipei’s 1998Environmental Act, many local firms madeefforts to collaborate with foreign companies


North America 132 96 2 96 1 1

EU 104 97 97 2 1 1

Japan 62 97 1 2 97 1

China 4 55 12 15 15 3

India 1 50 20 20 5 5

SE Asia 9 48 15 20 15 2

S America 4 44 18 30 5 3

CEE 4 27 45 20 3 5

Australia/NZ 4 59 5 25 10 1

Middle East 2 40 20 35 3 2

Africa 2 33 25 35 2 5

Total 330

Source: A Study for EU Eco-Industries Export Potential for DGXI of the European Commission Final Report, September 1999, EG/C1490/SO. Obtained from http://www.environmental-export.com

Table 5: Market Share (%) of International Markets Held by Environmental Exporters, 1999

MarketMarket

Size(Euro bn.)

IndigenousSupplierShare %

EUSupplierShare %

USSupplierShare %

JapanSupplierShare %

Others %


India is another country which hassignificant potential in the environmentalgoods sector. It has about 350-400 pollutioncontrol equipment manufacturing andenvironmental consulting companies (Katti,2005). Approximately half of the domesticmarket is catered for by local firms (seeTable 5). Similar to China and Chinese Taipei,India largely produces low technologyenvironmental goods and imports large-scale and sophisticated technologies andproducts mainly from the US and Europe.There are many foreign companies whichhave established subsidiaries in India toproduce environmental products with theintention of taking advantage of India’slower labour costs, skilled manpower and tocapture the huge Indian domestic market. Atthe same time, Indian companies such as

Thermax Ltd., Paramount Pollution ControlPvt. Ltd and Flakt India were engaged in jointventures and have licensing arrangementswith foreign firms (Katti, 2005). Many firmsin India have started to export, and theirmajor export destinations are Asia, theMiddle East, Africa, the US and Europe. Asurvey on leading 187 environmentalcompanies in India reported that these firmshave developed various business tie-ups incountries like Britain, the US, Malaysia,Germany, Russia, Austria, Nepal, Bangladesh,Saudi Arabia, Oman, Afghanistan, Kenya andTanzania as a stepping stone to venture inbusiness overseas. Table 7 presents majorimport and export destinations of selectedenvironmental sub-sectors in India.

to upgrade their technology and standards.Chinese Taipei’s share in the worldenvironmental products export market in1999 was 2 percent and it managed to obtain5.4 percent of the Asian market share.

In the water treatment equipment sector,Chinese Taipei exports about 60 percent ofits production mainly to Southeast Asia andChina. Chinese Taipei’s share in the Asianmarket was 17 percent in 1999. Domesticdemand, however, is largely met by import(80 percent), mainly from Japan (32.3

percent of the total imports). BesidesJapanese firms, other foreign competitors inthe market include German, British, Chineseand Korean companies. Chinese Taipei isalso a major producer of waste recyclingequipment in Asia. Generally, localmanufacturers produce equipment that isnot technologically advanced such as wasteloaders, paper shredders, crushers andvibrating screens. More than 80 percent ofdomestic market needs are imported, whileapproximately 70 percent of the productionis exported (see Table 6).


2001 2002 2003

Market Size 438 391 361

Total Imports 380 324 289

% Imported 87% 83% 80%

Local Production 194 227 260

Total Exports 136 160 188

% Production Exported 70% 70% 72%

Source: Based on data extracted from International Market Research (2004), “Taiwan: Industrial Waste Recycling Equipment”, http://strategis.ic.gc.ca

Table 6: Chinese Taipei’s Market for Recycling Equipment (USD million)



Table 7: Major Import and Export Destinations of Selected Environmental Sectors in India(OECD Product List)

Commodity Name CommodityCode

Export Value2003 (Rs lakh)

Main ExportMarket

Main ImportMarket

Waste Water Management:

Oil/Water Separation System

Other centrifuges 842119 2527.8 USA, Oman, Italy Germany, USA

Parts of centrifuges 842191 678.5 Germany, USA Germany, USA,South Africa,Sweden

Water filtering or purifyingmachinery and apparatus

842121 1513.42 Malaysia, USA,Iran, Nigeria

USA, France,Japan, Germany

Other machinery for purifyingliquids

842129 835.7 Korea, USA USA, Germany,Japan

Parts for filtering or purifyingmachinery

842199 3847.08 USA, Oman,Indonesia

USA, Germany,UK, Japan

Solid Waste Management

Recycling Equipment

Machinery to clean, drybottles, etc.

842220 664.88 Qatar, Germany,UAE, Nigeria

Italy

Other machines formixing/grinding etc.

847982 1149 Bangladesh Germany,France, USA,Switzerland

Other machines, n.e.s. havingindividual functions

847289 USA, UAE,Nigeria,Indonesia, China,Bangladesh

Germany

Incineration Equipment

Other furnaces, ovens,incinerators, non-electric

841780 261.6 Thailand Japan, Canada,Germany,Netherlands

Parts of furnaces,non-electric

841790 512.42 China, Sri Lanka,Bangladesh,Nigeria

Germany,Australia, Italy,Japan, France

Industrial or laboratoryelectric resistance furnaces

851410 91.11 Germany,Norway, UAE

Japan, France,USA

Industrial or laboratoryinduction or dielectricfurnaces

851420 378.35 Libya, UAE, Iran,Bangladesh, SriLanka

Germany

Other industrial or laboratoryelectric furnaces and ovens

851430 870.62 UAE, Saudi Arabia Germany, USA,UK, China

Parts, industrial orlaboratory electric furnaces

851490 577.53 Bangladesh, UAE,USA, UK, SriLanka

USA, Germany,UK, Switzerland

Source: Extracted from Annex 2, Katti (2005)


TariffTrade in environmental goods andtechnologies generally are not significantlyimpeded by tariffs and other explicit non-tariff measures such as local contentrequirements (US Office of TechnologyAssessment, 1992). In 1996, the averageimport tariff applied by most OECD countrieson products included under the pollution management group was less than 3 percent(OECD Observer, 2005). However, tariffsapplied by some OECD countries such asKorea, Mexico and Turkey were higher at 9percent on average. The average appliedtariff for a group of emerging economies(Argentina, Brazil, Chile, India, Indonesia,Malaysia and Thailand) was about 20percent.

By 2002, the average applied tariffs in lowand middle income countries fell to about 8percent. Emerging economies in SouthAmerica (Argentina, Brazil, Chile andVenezuela) had the highest average appliedtariff of 11.2 percent (see Table 8). In somemarkets such as China, the Philippines,Malaysia and Brazil, tariffs on environmentalproducts can be as high as 40 percent. InIndia, most of the imported pollution control

equipment faces a 25 percent duty (India,2003). However, Chinese Taipei does nothave import duty on pollutioncontrol/prevention equipment and dutyexemption is granted for equipmentprocured for environmental projects. InKorea, environmental goods are subject to a4 percent import duty and manyenvironmental goods are eligible for a taxreduction of 50 percent. The Philippines hadtariff rates lower than 2 percent on average(Hoffman, 2006). Thailand imposes a 5percent duty on imported environmentalequipment, but an exemption may begranted upon request. Import duties onwater quality monitoring equipment arehigher in Malaysia at approximately 10percent, with an additional 5 percent for

value added tax (Hight and Ferrier, 2006).

In Vietnam, industrial water pumps, waterfilters, liquid filters and purifying machineryare exempt from import duties. Equipmentused for the Overseas DevelopmentAgency’s projects are allowed to enter thecountry duty free. Household pumps andfilters are subject to a 20 percent import tax.Customs duties in Vietnam, however, tend to

2.2 Barriers to Market Entry


Applied MFN (%) Bound End UR (%)

Quad 2.1 2.7

Korea, Mexico, Turkey 8.2 22.4

Four CEECs 7.4 7.0

Emerging South America 11.2 29.2

Emerging Asia 9.7 35.9

Emerging Eastern Europe 5.1 36.0

Source: http://www.oecd.org/dataoecd

Note: Quad – Canada, EU, Japan, USCEECs – Czech Rep., Hungary, Poland, Slovak Rep.Emerging S.America – Argentina, Brazil, Chile, VenezuelaEmerging Asia – China,Chinese Taipei, HongKong, India, Indonesia, Malaysia, Pakistan, Singapore, Thailand, VietnamEmerging Eastern Europe – Estonia, Latvia, Lithuania, Romania, Russia, Slovenia, Ukraine

Table 8: Average Tariff Levels for Environmental Goods, 2002



be unpredictable, especially since theintroduction of value added tax in January1999. In Indonesia, import duties onpollution control equipment range betweenzero and 5 percent and a 10 percent value-added tax is also applied. Duty exemptionsmay be granted by the Government ofIndonesia upon request. However, theprocedures for obtaining this incentive areknown to be rather bureaucratic and time-consuming.

There was a wide gap between applied andbound tariff rates (Fliess and Lejarraga,2005; Bora and Teh, 2004). In Korea, Mexicoand Turkey, the applied tariff rate was 8.2percent while the bound tariff was 22.4percent (see Table 8). In India, the appliedtariff rates for air pollution and waste watertreatment equipment in 2001/2 were 25percent, while the bound tariff rates were 40percent (India, 2003).

Regulatory SystemA regulatory system which is bureaucratic,unpredictable and non- transparent maybecome a non-tariff barrier to market access.In China, transition to a free market systemhas made the approval for tenders andimports very unpredictable (Guerin, n.d.).During the socialist period, all planning anddecisions were made ‘top-down’. Theliberalisation and regulation reforms inChina in the 1990s have led to manydecisions being delegated to provincial andmunicipal authorities. However, Guerin (n.d.)noted that in some cases approvals obtainedfrom the local and municipal authoritieswere over- ruled by the NationalDevelopment and Reform Commission inBeijing. He also asserted that in decision-making, relevant administrators’understanding and perception of laws andpolicies play a bigger role than the writtenlaws. In fact, some Chinese companies haveset up exclusive economic zones where theirproducts are manufactured and sold (Guerin,n.d.). In addition, laws are often weaklyenforced. Weak laws, decisions made on anad hoc basis without transparency, coupled

with a lack of enforcement, create tradebarriers, especially for foreigners who areunfamiliar with the system.

Tied-AidThe key aim of most bilateral assistance is tobuild business networking and linkages inthe host country. Usually, bilateral financialassistance programmes have stringsattached to them. When the host country isrequired to purchase products or hirepersonnel from the donor country this isknown as tied-aid. Therefore, tied-aid cancreate a barrier to trade for local competitorsas well as exporters from other countrieswhich do not have such arrangements orprogrammes in the host country. The USgovernment has various bilateral assistanceschemes to promote EGS trade. For example,the United States Environmental Institutewas established as a joint venture betweenthe US government and the private sector totrain developing countries’ public andprivate sector participants. The objective ofthe training is to familiarise them with USequipment, procedures and expertise and tocreate brand loyalty for US products (USOffice of Technology Assessment, 1992) TheUS Environmental Protection Agency (EPA)provides technical assistance to promote useof US brand equipment. In addition, the EPA,the US Agency for InternationalDevelopment (AID) and the Department ofCommerce work together on trade missionsand other export promotion activities.Recently, the United States-AsiaEnvironmental Partnership (US-AEP)sponsored various environmental projects inAsia to promote the use of US expertise,technology and products. The impact ofbilateral assistance in promoting trade isobvious. In India, US companies managed toobtain substantial business contracts for thepollution control equipment sector becauseof the financial assistance provided byUSAID (Kandra, 2004). The US Trade andEnvironmental Services and Technologies(TEST) provided USD25 million for industrialpollution projects in India over 5 years,between 1992 and 1997. Consequently,


American companies’ sale of air and waterpollution equipment to India totaledUSD33.33 million and exports of theseproducts to India increased by 29 percentper year during that five year period(Kandra, 2004). Today, the United Statesholds a major share in the environmentalgoods market in India. Similarly, the UnitedStates has initiated various bilateralassistance programmes in China to promotetrade in environmental products andtechnologies. For example, the US TradeDevelopment Agency (US TDA)’s programmein China has resulted in USD1.4 billion of USexports to China from a mere USD24 millionaid grant (Gucovsky, 2004).Likewise, tied-aid from the EuropeanCommunity and Member States has beenestimated to contribute to about 40 percent

of EU environmental exports (EuropeanCommission, 1999). EU tied aid assistancemostly went to Central and Eastern Europe,Southeast Asia, India, Africa and SouthAmerica. Anecdotal evidence also show thatmany of the Japanese environmentalmanagement contracts in Asian countriesare also dependent on developmentassistance programmes operated by theirgovernment. Governmental loans, grants,and assistance from such agencies as theJapan International Cooperation Agency(JICA), the Japan Export Import Bank (JEXIMBank), the Overseas Economic CooperationFund (OECF), and the Japan Bank forInternational Cooperation (JBIC) giveenormous leverage to Japanese firmsseeking foreign clients (Greenpeace, 2001).



3. WIND TURBINE INDUSTRY3.1 Production and Trade


Wind turbine is considered as anenvironmental good under the OECD/APEClist and is referred to as renewable energy(Steenblik, 2005). Wind turbine technology isan alternative means of generatingelectricity and it is environmentally friendlybecause it emits zero CO2 while operating.The majority of commercially available windturbines are land-based, three-bladedhorizontal axis designs (on-shore) with 1-2.5MW capacity. However, there are increasinginterests in off-shore wind turbines that have

higher capacity, ranging between 4.5-6 MW.The industry is dominated by Europeanmanufacturers, particularly from Denmark,Germany and Spain. In Asia, India and Chinahave emerged as key manufacturers, mainlyas suppliers of components. In 2003, about70 percent of global wind turbine sales weremade by five large turbine manufacturers:Vestas and NEG Micon of Denmark, GE Windof the USA, Enercon of Germany and Gamesaof Spain (see Table 9).

Denmark

Vestas 8400 1812 21.8 20.0

Bonus 3367 552 6.6 8.0

NEG Micon 6398 855 10.3 15.2

USA

GE Wind 4428 1503 18.0 10.6

Germany

Enercon 5758 1218 14.6 13.7

RE Power 893 291 3.5 2.1

Nordex 2219 242 2.9 5.3

Spain

Gamesa 3935 956 11.5 9.4

Made 1273 243 2.9 3.0

Japan

Mitsubishi 806 218 2.6 1.9

Others 4489 441 5.3 10.7

TOTAL 41966 8331 100.0 100.0

Source: Lewis and Wiser (2005), Table 4, p.26

Table 9: Top Ten Wind Turbine Manufacturers by Country

Company Total InstalledCapacity (MW)

2003 InstalledCapacity (MW)

Global MarketShare, 2003

(percent)

Share of TotalGlobal Turbines

(percent)


Denmark is home to the largest turbineproducers in the world. Vestas, the biggestturbine manufacturer in Denmark, had 22percent of the world market share of turbinesales in 2003. Vestas dominates thedomestic markets of many countries. Forexample, in Canada, Vestas was the solesupplier of wind turbines in 2003 (Lewis and

Wiser, 2005: 42). In that same year, Vestasdominated 93 percent of the Australianmarket, 52 percent of the Netherlands’, 49percent of the UK’s and 41 percent of Japan’s.At the end of 2003, NEG Micon merged withVestas, and supplied large shares ofdomestic market needs in India, China andSpain (see Table 10).


Vestas Denmark 98.6 Canada 100

Australia 93

Netherlands 52

UK 49

Japan 41

China 25

Germany 24

USA 21

India 8

NEG Micon Denmark 98.6 India 30

China 29

Spain 12

UK 10

USA 9

Germany 8

Japan 2

Bonus Denmark 69.2 UK 15

Japan 10

Spain 7

Germany 6

USA 1

Nordex Germany 47.3 UK 26

Netherlands 6

China 5

Denmark 1

Table 10: Percentage of Turbines Sold Abroad by Manufacturer (2003)

Manufacturer Home Country Shareof OutputExported

Major ExportMarket*

Market Sharein the Importing

Country* (%)



Enercon Germany 31.2 Brazil 100

India 24

Netherlands 22

Australia 7

Spain 1

Japan 1

Gamesa Spain 11.4 China 13

USA 3

Japan 1

GE Wind USA 41.9 Spain 12

Netherlands 6

Germany 2

Suzlon India 13 USA 1

Goldwind China 0

Source: Lewis and Wiser (2005), Table 2, p.15

Note: *These data were extracted from discussions in Lewis and Wiser (2005)

Manufacturer Home Country Shareof OutputExported

Major ExportMarket*

Market Sharein the Importing

Country* (%)

India and China are newcomers in theindustry. In 2004, India had about 12manufacturers engaged in the production ofwind turbine equipment. (Shikha, Bhatti andKothari, 2004: 69). The only Indian companywhich made it to the world market wasSuzlon Energy. It has internationalheadquarters in Aarhus, Denmark and salesoffice in Australia, China and the US, andR&D centres in Germany, the Netherlandsand India (Lewis and Wiser, 2005). Suzlonwas the 7th largest wind turbinemanufacturer in the world and had 4.5percent of global market share in 2004(Shah, 2005). It was the largest supplier ofwind turbines in India in 2003, with a shareof 34.6 percent of the domestic market(Lewis and Wiser, 2005). Suzlon has won theconfidence of foreign investors such asCiticorp International Finance Corporationand ChrysCapital III, each of which injectedRs 50 crore (approximately USD11 million)in 2004 (The Financial Express, 2005). It hasalso expanded its manufacturing facilitiesoverseas by acquiring the world’s second

largest wind turbine gearbox producer,Belgium’s Hansen TransmissionsInternational NV for EUR465 million in cashin 2005. In addition, it invested USD60million in China in an integrated windturbine generator manufacturing base and atechnology centre. In the US, Suzlonestablished a rotor blade manufacturing andturbine repair facility in Minnesota.Currently, Suzlon Wind Energy Corporationin Chicago is supplying 157 MW of turbinecapacity for Edison Mission Group. It isplanning to expand its business in Europe,especially in France, Italy, Germany, Portugaland Spain, and the USA. Suzlon’s strategy forgrowth in the international market is toobtain 25 percent of sales from the Indianmarket, 25 percent from China, 25 percentfrom Europe, and the remaining 25 percentfrom the USA (The Financial Express, 2005).

China is an emerging wind turbine producerin the developing world. Its local productionis primarily focused on small wind turbines.The leading wind turbine manufacturer in


China is Goldwind (Jinfeng) which hascaptured 24 percent of the domesticmarket. Chinese companies so far have onlybeen supplying the domestic market andhave yet to venture into the internationalmarket. Local demand is largely met byimports, while 90 percent of installed windturbines in China are imported or suppliedthrough joint-venture arrangements (Lewisand Wiser, 2005). Danish manufacturers,NEG Micon and Vestas, dominated with 54percent of the market share in 2003 (seeFigure 1). The Spanish company, Gamesa,captured 13 percent of the market, while

the share of the German manufacturer,Nordex was 5 percent.

Global wind turbine trading is primarilybetween the developed countries and thesouth-south trade is very small. The threelargest markets for wind power in the worldare Germany, USA and Spain (more than 80percent of world installed capacity). Interms of new installation, Europe accountedfor 72.4 percent in 2004, while Asia, NorthAmerica and the Pacific region accountedfor 15.9 percent, 6.4 percent and 4.1percent respectively (see Table 11).


NEG Micon29%

Vestas25%

Goldwind24%

Gamesa13%

Nordex5%

Others4%

Figure 10: Wind Turbine Sales in China by Manufacturer, 2003

Source: Lewis and Wiser (2005)

Region MW % of the Total

Europe 5774 72.4

Asia 1269 15.9

North America 512 6.4

Pacific Region 325 4.1

Latin America and Caribbean 49 0.6

Africa 47 0.6

World Total 1976 100.0

Source: Global Wind Energy Council, 2005

Table 11: Regional Distribution: New Installed Wind Power Capacity in 2004 (percent)


Wind turbine manufacturing is an industrythat receives substantial governmentsupport. In countries such as India, China,Canada, Spain and Brazil, the governmentsseem to have adopted direct policies such astariff protection, local content requirement

and tax incentives to promote thedevelopment of the industry. In advancedcountries like Denmark, Germany and theUSA, government support was in the form ofindirect policies including tied-aid, exportpromotion assistance, feed-in-tariffs andmandatory renewable energy targets. Varioustypes of policy measures implemented bygovernment to support the industry issummarised in Table 12.

The following discussion examines how

some of these government policies may limitwind turbine trade. Policies that are seen asmajor trade barriers for wind turbineexporters are local content policy, tied-aid/soft loans and lack of internationalstandards for certification and approval.

TariffTariff rates on imported wind turbines aregenerally low in many countries. Exports todeveloped countries face no duty at all.However, several developing countriesimpose high tariffs on imported windturbines (see Table 13), and the highestapplied duty (35 percent) is in the Bahamasand Bermuda which were instituted primarilyto earn revenue.


3.2 Barriers to Market Entry

Local Content Requirement No Yes

Incentives for Local Content No Yes

Tax Incentives Yes Yes

Export Assistance (tied-aid, soft loans) Yes Yes

Feed-in-tariffs Yes No

Research and Development Yes Yes

Mandatory Renewable Energy Targets Yes Yes but not extensive

Green Power Market Yes No

Certification and Testing Programmes Yes Yes

Source: European Commission (1999), “The EU Eco-Industry’s Export Potential”, final report to DGXI of the EuropeanCommission, EG/C1490/SO, http://www.environmental-export.com

Policies Advanced Countries Emerging Countries(Denmark, Germany (Spain, Canada,

and the USA) Australia, Indiaand China)

Tariffs No 1. Relatively High Level

2. Favourable/EscalatingCustoms Duties

Table 12: Potential Trade Barriers for Wind Turbine Exporters


Escalating tariff rates on imported productsare common in many countries. Such tariffstructures are usually implemented bycountries that are involved in the productionof wind turbines or electric generators.Lower tariffs are imposed on parts andequipment because these items are used asinput in the production of wind turbines. InChina, import duties were 3 percent onindividual parts, 8 percent for assembledcomponents and 17 percent for entire pre-assembled turbines (Steenblik, 2005:25). InIndia, there is no customs duty on specialbearings, gearboxes, raw components andsensors for the manufacture of windturbines, or on parts and raw materials usedin the manufacture of rotor blades, while acomplete set of wind turbine equipment issubjected to 25 percent import duty. In somecases, imported parts and equipment aregiven tax reductions or exemptions. This isprevalent in India, Bangladesh, China, CzechRepublic and Jamaica (see Table 14).

In India, the government granted reducedtariff rates on brake hydraulics, flexiblecoupling, brake callipers, wind turbinecontrollers and rotor blades for themanufacture of wind turbines. The Indiangovernment also gives excise dutyexemptions for parts used in the manufactureof electric generators (Rajsekhar et al, 1999).

Local Content PolicyOne form of non-tariff barriers facing windturbine exporters is local contentrequirement policy. It is a frequently-usedpolicy measure or incentive to promote localwind turbine industry in the emergingcountries such as Spain, Canada, China,Australia, India and Brazil. Under this policy,manufacturers are required to either shifttheir foreign manufacturing bases to thehost country or to procure a certainpercentage of intermediate inputs from localparts manufacturers to meet the localcontent percentage set by the regulators. Insome cases, local government stipulates toutility companies bidding for power projectsin the country to prove their commitment to


Importers with the highest level of duty Applied Tariff (percent)(Data Year)

Bahamas 35 (2001)

Bermuda 33.5 (2004)

India 25 (2004)

Mexico 3-23 (2004)

Brunei 20 (2003)

Maldives 20 (2003)

Thailand 20 (2003)

Cambodia 15 (2003)

Nepal 15 (2004)

Nigeria 15 (2002)

Romania 15 (2001)

Tanzania 15 (2003)

Yemen 15 (2000)

Source: Steenblik (2005), AnnexTable 4

Table 13: Highest Tariff Applied To Wind Powered Electric Generating Sets


meet the local content requirement. Thus,such requirements turn out to be barriers totrade for wind turbine exporters, especiallythose who do not have local manufacturingfacilities or networking.

In Spain, the government presented acondition to Vestas (a Danish firm) toprocure a certain percentage of inputs fromlocal companies in order to get approval fora joint-venture license with Gamesa (a localcompany). The authorities in Galicia Provincein Spain, for example, require utilitycompanies applying for licenses to submit a‘strategic wind power plan’ (Connor, n.d., 7).The plan must contain the applicant’scommitments to support regional growth ofthe turbine manufacturing industry, eitherby establishing subsidiaries or purchasingequipment and parts from localmanufacturers, in the region. The policy wassuccessful in promoting local manufacturingcapabilities, and by the year 2000, 12 plantsproducing turbine equipment wereestablished. In another province, Chubut,the local government has offered anincentive of $0.005 kWh if local contentrequirements are fulfilled. The companiesare also subject to progressive rates of localcontent. These increased from 30 percent in2001, to 60 percent in 2003, and 80 percentin 2005. From 2007 onwards, 100 percentlocal content will be required to qualify forthe incentive (Lewis and Wiser, 2005: 35).Again, this policy was successful instimulating local wind turbine production.Local firms that are registered in the province

are Gamesa, Ecotecnia, Corporacion EnegiaHidroelectrica de Navarra and MTorres. Toovercome possible market entry barriers dueto the local procurement policy, foreigncompanies such as Vestas, GE Wind, Enercon,Nordex, REpower, NEG Micon and Bonusmoved to Spain to be directly involved in theproduction of parts and complete units ofwind turbine.

Canada is another country which uses localcontent requirements to support its localwind turbine industry. Quebec regulators, forexample, set requirements for achieving 40percent local content of the total costs of thefirst 200 MW, 50 percent for the next 100 MW,and 60 percent for the remaining 700 MW(Lewis and Wiser, 2005:43). The governmentalso requires that turbine nacelles beassembled locally and that all energy projectbidders get a statement from a turbinemanufacturer guaranteeing that it will set upassembly facilities in the region. GE Wind, forexample, obtained an energy developmentproject in Quebec by confirming that it wouldattain 60 percent local content (Lewis andWiser, 2005). In this case, the requirement canbe perceived as a trade barrier because ithinders GE Wind’s potential exports of its ownparts and equipment to Canada or couldrestrain sales of other foreign firms whichhave been supplying to GE Wind.

Similar cases were found in Brazil and China.For example, the Brazilian government hasalso implemented stringent local contentrequirements to ensure the development of


Country Import Duty Reduction (percent)

Bangladesh 100 percent

China 82 percent parts, 65 percent turbines

Czech Republic Up to 100 percent

India Varies

Jamaica 83 percent

Source: Extracted from Clement et al., 2005, p.13, Table 6.

Table 14: Import Duty Reduction for Wind Turbine Parts and Equipment


its domestic wind power industry. Starting in1995, the Brazilian Incentive Programme forAlternative Electric Generation Sources(PROINFA) required bidders for powerprojects to prove their ability to meet atarget of 60 percent local contentrequirements. From 2007 onwards, thepercentage is set to increase to 90 percent(Lewis and Wiser, 2005:53).

The Chinese government encouraged powersuppliers to use locally made turbines, butinitially it was not mandatory to do so.Between 1996 and 2000, the policy was notobligatory because the future of thecountry’s wind power energy productionposition was still vague and most of thewind power projects were financed byforeign governments, particularly Denmarkand Germany through tied-aid programmes.In 2003, China granted 25-year concessionsfor 100 MW projects using 600 kW capacitywind turbine with a minimum of 50 percentlocal content requirement (Steenblik, 2005:25). After September 2004, bidders for newprojects have had to prove their ability touse wind turbines with 70 percent localcontent (Lewis and Wiser, 2005:8).

The above examples clearly show that thelocal content policy has been successful innurturing local manufacturing capacity.Implementing successful local procurementpolicies, however, means that foreign firms,particularly those from developing countriesthat are relatively small in terms of size andcapacity, will find it hard to penetrate the hostcountry’s market when they do not have localmanufacturing arrangements or networking.

Certification and StandardsDiverse rules or practice for certification andapproval procedures in different countrieseffectively act as restrictions to trade and itsuse is becoming more widespread in recentyears. Currently, there are no universalstandards and rules for certification andapproval for wind turbine installation at theinternational level (Parthan, n.d.). However,efforts are being made by the InternationalElectrotechnical Commission (IEC) todevelop common international standardsand rules for wind turbine safety, design,installation and operation. These aresummarised in the Table 15.


Subject Status

Safety requirement for wind turbine generator systems IEC 1400-1

Safety requirement for small wind turbine generator systems IEC 1400-2

Acoustical measurement techniques IEC 1400-11

Power performance measurement techniques IEC 1400-12

Guide on blade testing Ongoing

Certification standards Ongoing

Power quality Ongoing

Load measurements Ongoing

Source: Extracted from Parthan (n.d)

Table 15: International Standards and Rules for Wind Energy


Biofuels are “alcohols, ethers, esters, andother chemicals made from cellulosicbiomass including herbaceous and woodyplants, agricultural and forestry residues,and a large portion of municipal solid andindustrial waste” (Parlak, n.d.). This productis included in the OECD list but not in theAPEC list (Singh, 2005). UNCTAD listedbiofuels as part of Environmentally PreferredProducts (EPP). The Kyoto Protocols acceptedthat usage of biofuels would reduce the netproduction of greenhouse gases (Loppacherand Kerr, 2005) and, therefore, biofuels areconsidered as environmental goods. Biofuelshave become a high priority alternative fuelused for transportation in the US, Europe,Latin America and Asia. Automobilescompanies such as Fiat, General Motors andVolkswagen have all launched Flex-FuelVehicles in Brazil and are also planning

projects in Europe (Licht, 2005). Potentialsources of cheaper biofuels are found inLatin America and Asia (Ryan, Convery andFerreira, 2004).

Most of the world’s biofuel production isethanol (Thujl, Ros and Beursken, 2003). Theleading producers of ethanol are Brazil andthe USA (see Table 16). China has alreadybuilt the world largest ethanol plant andplans to create more. In Asia, the emergingproducers are India, Pakistan, Japan,

Thailand and Malaysia. The Philippineslaunched a project to produce ethanol fromsugar cane in 2004 (Licht, 2005). In Africa,countries like Kenya, Malawi, Zimbabwe,Ghana, Ethiopia and Benin have startedshowing interest in biofuels (Licht, 2005).

The major producers of biodiesel areGermany France, Italy, Austria, and Sweden.Germany is the leading biodiesel producerand its biodiesel output has trebled since2002, to about 1.5 million tonnes in 2005.Several other countries produce smalleramounts, including Austria, Belgium, theCzech Republic, Denmark, Thailand, India,Indonesia, and Malaysia (Martinot, 2005).Thailand started a biofuels programme inthe 1970s, and has recently invested EUR30million to produce biofuels from oil palm,soybeans, peanut and coconut (Licht, 2005).

Malaysia has ventured into production ofpalm oil based biodiesel on a large scale,and has done research and development onpalm oil biodiesel since the 1980s. It hasissued 12 licences to build biodiesel plantsso far. Three plants are already underconstruction. The Malaysian Palm Oil Boardwill sign an agreement with three privatecompanies including Golden HopePlantations Bhd., Kumpulan Fima Bhd. and JCChang Johor Group of Carotino Sdn Bhd. Theplants are expected to produce 60,000


Table 16: World’s Leading Ethanol Producers, 2003 and 2004 (million litres)

Source: Licht (2004)

4. BIOFUELS4.1 Production and Trade

Country 2004 2003

1. Brazil 15338 14428

2. USA 13950 10900

3. China 3650 3400

4. India 2000 190

5. France 830 817


Biofuel is a high technology industry andrequires a huge investment. Therefore,countries that have ventured into thisindustry tend to provide tariff and non-tariffprotection to local firms.

TariffThe international trade in biofuels is mainlylimited to ethanol, which constitutes 93percent of the total biofuels produced(Singh, 2005). Therefore, ethanol importsare more regulated than biodiesel. Tariffrates on ethanol are by and large high inimporting countries. The US imposed aUSD.0.54 a gallon tariff on Brazilian ethanolto discourage competition with domesticethanol, which receives a USD0.54 subsidyfrom the government. The US also has an ad

valorem tax of 2.5 percent (equivalent toUSD0.03.6 per gallon) imposed on importedethanol. In other countries, the ad valoremethanol tariffs are much higher. In Canada itis Can $ 0.19 per gallon, in the EuropeanUnion EUR 0.65 and in Japan USD 1.35 pergallon. However, tariff concessions areprovided in specific cases. In the EU, importsfrom Africa, the Caribbean and Pacificcountries are allowed to enter duty free.

On the other hand, a large share of biodieseltraded internationally is between Europeancountries which have duty-free arrangements.Biodiesel was considered as an agriculturalproduct until March 2005. Therefore, tariffrates on biodiesel have been based on thetype of vegetable oil used as input into the

tonnes of biodiesel per year, all of which isdestined for the export market , especiallythe EU, China, Korea and Japan.

Comparative advantage of biofuelproduction lies principally on the biomassused as raw feed into the productionprocess. Developing countries are the lowcost producers of oilseeds, sugar, corn andsoyabean. Hence, their production costswould obviously be much lower than in theUS and Europe (see Coelho, 2005; Ryan,

Convery and Ferreira, 2004). The world’smost cost efficient producer of bioethanol isBrazil. Table 17 shows that Brazil producesethanol at EUR190 per 1,000 litre, comparedwith the EU15 which produces ethanol fromvarious sources at more than double Brazil’scost. US producers are also not ascompetitive as the Brazilian producers.China and India have entered the industry ina big way and this development shouldpresent more competition in the biofuelsmarket.


Fuel Type Feedstock Source Production Costs (EUR/1000 litre)

Biodiesel Oil seed US 501EU15 621

Bioethanol Wood US 323

Straw EU15 620

Wheat EU15 451

Corn US 235

Sugar Cane Brazil 190

Sugar Beet EU15 513

Source: Haydock (2003). Taken from Ryan, Convery and Ferreira (2004)

Table 17: Costs per Litre Bioethanol and Biodiesel

4.2 Trade Barriers



production process (Loppacher and Kerr,2005). Thus, there is an element ofuncertainty because the Harmonised System(HS) code for the product would be different,depending on the source of the raw materialused. In Canada, sugarcane oil can enter themarket without any duty, while sunflowerseed oil faces a tariff of 9.5 percent, and thetariff on palm oil and rapeseed oil is 11percent. Similarly, in the United States, thetariff for soybean oil is 19.1 percent, rapeseedoil is 6.4 percent, while cotton seed oil is 5.6cents per kilogramme. China imposes a 9percent tariff on all vegetable oils, except onsoybean oil which is at 3 percent. Japanapplies a 21 percent tariff on canola oil andsoybean oil to protect its industry, and only a4 percent tariff on palm oil (Whetter, 2005).Korea has bound tariffs of 5.4 percent onsoybean oil and 36 percent on canola oil. Theactual applied rate for canola in Korea,however, is only 10 percent (Whetter, 2005).India has bound tariffs of 85 percent on palmoil, 75 percent on canola oil and 45 percenton soybean oil. Actual applied tariffs areunknown, but what is clear is that Indiaapplies a higher tariff on soybean oil andpalm oil and has a lower applied tariff oncanola oil (Whetter, 2005).

In March 2005, the World CustomsOrganization HS Committee reclassifiedsubheadings for biodiesel to be under3824.90 (chemical products). It is stilluncertain whether the reclassification willhave any positive impact on the product.

Tax Incentives and SubsidiesSome governments provide tax exemptions,tax incentives and subsidies to promotedomestic investment and consumption ofbiofuel. In the US, E10 blends have partial taxexemption of USD0.052/l if locally producedbiofuels are used (Coelho, 2005). Brazil’s taxstructure favours ethanol usage – governmententities are required to purchase 100 percenthydrated alcohol fuelled vehicles (RFA, 2005).

Examples of production tax incentives aremany. In the US, the Energy Security Act of

1979 allows an ethanol tax credit of up toUSD0.60 per gallon. In 2004, this tax creditwas extended through 2010. Canadaprovides a national fuel tax exemption ofCan$0.10 per litre, and many provinces offersimilar or higher exemptions of up toUSD.0.25 per litre. In Germany, tax exemptionof EUR 0.47 is granted per litre of B5. In Italy,the exemption is EUR 0.40 , France EUR 0.33,and Spain and the U.K. EUR 0.29. A number ofEuropean countries provide fuel or VAT taxexemptions for biofuels, including Austria (95percent exemption for biodiesel), France,Germany (100 percent exemption forbiodiesel), Hungary, Italy (100 percentexemption for biodiesel), Spain, Sweden, andthe United Kingdom.

Production subsidies are also widelypractised. Brazil implemented its Pro-EthanolProgram using subsidies to promote ethanolproduction on a commercial scale as early as1976. The subsidy, however, was terminatedin the mid-1980s as a result of itsliberalisation commitments. In the US, thefederal subsidy is USD0.54 per gallon ofethanol, which is an estimated 30 to 45percent of its production cost. In addition tothe federal subsidy, 14 states provide theirown subsidies for ethanol production (Perry,2006). Missouri grants producers 20 centsper gallon for their first 12.5 million gallons,USD0.05 for the second. In addition to theUSD7 million for an ethanol research centre,the Illinois State Government has alsoinjected USD4.8m into one project to help acompany to raise other capital. Similarly, theAustralian government allocated A$37million to fund capital subsidies for projectsthat provide new or expanded biofuelcapacity (Hockey, 2003). The subsidy is A$0.16 per litre and it is granted to projectsproducing a minimum of 5 million litres ofbiofuel. However, grants are limited to amaximum of A$10 million per project. Thisis in addition to the A$0.38 per litreproduction subsidy given until 2008(Hockey, 2003). In the EU, inefficient sugarproducers are eligible to receive EU fundsunder the sugar reform plan to convert


sugar factories into ethanol plants that useeither sugar beet or grain as inputs (Brough,2005).

RecognitionAnother problem is related to therecognition of biodiesel imported fromdeveloping countries. Presently, in the EU,rapeseed, sunflower and soybean oil arerecognised as raw feed for biodiesel andreceive preferential duties compared tofossil diesel. The EU, Japan and the US havenot fully recognised palm oil as a raw feedfor biodiesel (Zaidi, 2005).

Biotechnology and Barriers to Trade inBiofuelSoya and corn production in the US andChina depends heavily on biotechnology.Biotechnology helps in reducing productioncosts of these grains and, therefore, isimportant in ensuring competitiveadvantage of biofuels originating from theseingredients. However, some countries likethose in the EU, Japan, Mexico, Brazil andSouth Africa oppose products that have usedbiotechnology anywhere in their productionprocess; as a result, they have set strictregulations on these imports. This acts as atrade barrier to biofuels made fromingredients that are produced usingbiotechnology (Loppacher and Kerr, 2005).

Product StandardsDiffering standards has effectively become amajor barrier to trade. It restricts or even

completely blocks international suppliersfrom competing with domestic producers.Most biofuel producers especially fromdeveloping countries are too small todevelop, produce and market more than onetype of biofuel (Loppacher and Kerr, 2005).In the EU, Directive 98/70/EC on the qualityof fuels limits the use of ethanol blends infuel to only 5 percent (Oestling, 2001).Europeans use “B5”, a standard dieselblended with 5 percent biodiesel (made fromrapeseed oil). In Brazil, B25 is common,while in the US and Canada B20 is sometimeused. In the USA, E10 gasohol, a blend of 10percent ethanol and 90 percent petrol, iscommonly used. In Brazil, a 75 percent to 25percent blend is the standard. India uses E5,while in Thailand the requirement in E10.

Campaigns Against Biodiesel OriginatingFrom Southeast Asia and Latin AmericaThere are campaigns in the EU againstMalaysian palm oil and Brazilian soybeanbiodiesel. The EU argues that unsustainableproduction of palm oil and soybean oil haveled to major losses of tropical forests andthat further stimulation of the oil palm andsoya markets for biofuel will surely result inirreversible destruction of tropical woodlandand savannas. The EU is also concerned thatescalating deforestation will further affectthe habitat of endangered species ofprimates such as the Orang Utan, as well astigers, Asian elephants and other species offlora and fauna.




Wood and wood-based products areconsidered as environmentally preferredproducts (EPP) by UNCTAD based on itsproduction, end-use and disposalcharacteristics (UNCTAD, 2001; Hoffman,2006). Wood is a sustainable, recyclable,renewable and biodegradable resource.Among all the building materials, furnitureand fixtures, only wood products arerecyclable, biodegradable and come fromrenewable resources. When wood is nolonger usable, it can be recycled at a lowcost and it can be readily absorbed back intothe earth with no environmental harm. Steel,plastic, concrete and aluminium are usuallyused as substitutes for wood, but do nothave these characteristics. Wood and woodproducts, however, can only be consideredenvironmentally-friendly if they arerenewable or originate from sustainableforestry programmes and have noenvironmental effect when disposed ofsafely or recycled at the end of theircommercial life. However, chemicals used totreat and preserve wood can be toxic andthus harmful to human health and the

environment. In fact, wood which is treatedwith certain types of preservatives isactually classified as hazardous waste(Hyvonen, Piltonen and Niinimaki, 2005).

Developing countries account for only 15percent of the world’s forest productexports, while trade by developing countriesin Asia is dominated by Malaysia, Indonesia,and China. Tropical forest productsrepresent only a small share in the totalworld exports for most categories of forestproducts. Primary tropical timber exportscan be categorised into two categories: logsand processed products. Trade has shiftedfrom logs towards processed woodproducts, while the contribution of logs tototal timber exports has fallen from 60percent in the 1980s to about 25 percent in2005 (ITTO, 2004). The major importers areChina, Chinese Taipei and Korea. There hasbeen increasing trade between developingcountries, especially in Asia among China,Korea, Hong Kong, Chinese Taipei, India,Myanmar, the Philippines, Thailand,Indonesia, Malaysia and Papua New Guinea.

5. WOOD AND WOOD BASED PRODUCTS5.1 Production and Trade

Tariff ProtectionTariffs on tropical timber and timberproducts are generally less than 5 percent,especially in developed countries. However,

tariff is escalating on timber products andranges from 5-15 percent (see Table 18).Many developing countries, however, stillenjoy a high level of protection.

5.2 Trade Barriers



Table 18: Tariff Rates in Selected Importing Countries (percent)

Note: C = coniferous or softwoods. NC = non-coniferous or hardwoods. T = Tropical timber

Source: ECE /FAO Forest Products Annual Review, 1998-99

Australia EU Japan United States China Korea Thail.

MFN GSP MFN GSP MFN GSP MFN GSP

Logs 0.0 0.0 0.0 0.0 2.0 1.0 1.0

SawnTimber

0-5 5C 0-2.5 0.0 4.8-7C

7.6NC

0.0 0.0 0.0 3.0 5.0 1-5

Mouldings,etc.

5.0 5.0 1.2 0.0 4.1-6.3

0.0 0-2.7 0.0 20.0 8.0 20.0

Plywood 15.0 10.0 7.6-10 5.3-7 7.5C

7.4-12T

0.0 0-15.2NC

0-8C

0.0 15.0 15.0 20.0

Joinery 5.0 2-4.2 1.4-2.9

2.8-6.3

0.0 0-6.4 0.0 18.0 8.0 20.0

WoodFurniture

15.0 10.0 2.2 0.0 0.0 0-7 0.0 22.0 9.0 80.0

It is expected that tariffs on timber andtimber products will decrease as a result ofthe GATT/WTO negotiations coupled withbilateral and regional trade arrangements.The extent of the reductions will depend onindividual member countries and the natureof their products; in some cases it may takeup to 15 years to fully achieve targets.

In addition to tariffs, a wide range of non-tariff measures are imposed on the forestryproduct trade. These include productstandards, technical and gradingrequirements, phytosanitary requirements,quality certification or test requirements,quantitative restrictions and certification.

Quantitative RestrictionsQuantitative restrictions include measuressuch as total import bans, import quotas, GSPtreatments, and import licensing procedures.The EU imposes import quotas on board andpanel products, and tariff-quotas or tariffceilings on newsprint, fibre-building boards,

builder’s woodwork and selected furnitureitems (Bourke, 2003). Countries like Germany,the Netherlands, and the United Kingdomhave imposed restrictions, total bans andboycotts on tropical timber mainly forenvironmental reasons. Most developedcountries extend GSP treatment to wood andwood product import, while the importerspay duty at a much lower rate than the most-favoured nation (MFN) rate, or zero duty (seeTable 18).

Phytosanitary and Technical Requirementsand Standards Most countries have official building codesand standards which are related to health,safety and strength standards. Japan, forexample, imposes its own standards on woodbuilding materials, i.e. Japan AgriculturalStandard (JAS) Building Standard Law. One ofthe requirements under the law is therestriction on formaldehyde released from theglues which is risky for human health (ITTO,2004). Products affected are plywood,


particleboard, medium-density fibreboard,structural panels, overlaid panel products,flooring and stair treads (ITTO, 2005). Similarrequirement is imposed in the EU under theEuropean Committee for Standardisation(Comite Europeen de Normalisation – CEN)standards. As of April 2004, all structuralwood panels sold within the EU must becertified to carry the European Conformity(Conformitée Européene – CE) standards.

The US and Canada impose stringentinspection and control on solid woodpacking material consisting of pallets,crating and dunnage (USDA, 2002 and ITTO,2005). The United States claims that there isa high risk of pests in solid wood packingmaterial which are used both for maritimeand air shipments. The USA specificallyidentified China and Hong Kong as thesource where the pest, Asian longhornedbeetle, originated from. In 1998, the USgovernment made it mandatory for all solidwood packing materials from China andHong Kong to be treated with preservatives,heat-treated or fumigated prior to arrival inthe United States (USDA, 2002). This law isclaimed to be in line with the InternationalPlant Protection Convention’s (IPPC)Guidelines for Regulating Wood PackagingMaterial in International Trade.

CertificationForest product certification is another barrierthat tropical timer producers face especiallywhen they export to developed countries.The objective of the certification is to ensurethat products that are sold in the marketoriginate from sustainably managed forests.Only products that meet the standards willbe labelled as certified forest product (CFP).There are five certification systems thatdominate forest certification (United Nation,2003). Europe has two systems, i.e. ForestStewardship Council (FSC) and the PanEuropean Certification System (PEFC). Othersinclude the Sustainable Forestry Initiative(SFI) in North America, the CanadianStandards Association (CSA) and theAmerican Tree Farm System (ATFS). However,

there are many other operational forestcertification schemes (Ozinga, 2004).Among others are CERFLOR (Brazil’s nationalforest certification scheme), CERTFOR (thenational forest certification scheme in Chile),MTCC (Malaysian Timber CertificationCouncil), AFS (Australian Forestry Standard)and LEI (Lembaga Ekolabel Indonesia). InAfrica, the certification schemes areunderdeveloped and mostly fall under theumbrella of either the PEFC or FSC.

The cost for operating sustainable forestmanagement schemes and obtainingcertification for timber is extremely high andtime consuming. Therefore, certificationschemes may not be in favour of developingcountries. Eco-labelling requirement canbecome barriers to trade especially whencountries set their own specifications andstandards. Anecdotal evidence also confirmsthat certification schemes have also beenused as a protectionist measure in somecountries.

More than 90 percent of the total areacertified is in the northern hemisphere, withabout half located in Europe and another 40percent in North America (United Nations,2003). The majority of certified forestproducts are temperate softwood (Poku-Marboah et al., 2005), while developingcountries account only around 10 percent ofthe total forest area certified (UnitedNations, 2003). This is ironic because thecertification scheme was originallymotivated by concerns over destruction oftropical forests worldwide, but to date mostof the forest certification schemes have beenimplemented mainly by developed countries(Ozinga, 2004).

Government procurement of certified forestproducts is a new development in developedcountries which worries many developingcountries’ exporters. Europe, the US,Australia and Canada have either institutedor are planning to implement publicprocurement policies that favour thepurchase of certified forest products and



EPPs. The United Kingdom was one of thefirst countries to establish procurementcriteria in 2000 (Poku-Marboah et al., 2005:19). In Canada and the US, manygovernment agencies have implemented EPPprogrammes which require they procurerecycled paper and other certified forestproducts. In addition, construction of publicbuildings and purchase of furniture andfixtures often require the use of FSC certifiedwood (United Nations, 2005). Similarprogrammes are available in the EU andAustralia. The EU uses the term ‘green publicprocurement’, while the Australian State ofQueensland uses the term ‘environmentally

friendly procurement’ (Tothova, 2005).

Another problem faced by tropical timberexporters is the classification of certaintimber and other forest products asendangered species. The Convention onInternational Trade in Endangered Species ofWild Fauna and Flora (CITES), aninternational agreement negotiated in 1975,aims to control international trade inselected critically endangered species and toregulate and monitor trade in other speciesthat are believed to be vulnerable tooverexploitation. CITES members list specieson three Appendices, I, II and III. Appendix I


Certification Scheme Created by YearCreated

Forest Stewardship Council(FSC)

NGOs together with forest industries 1993

Sustainable Forestry Initiative(SFI)

American Forest and Paper Association 1995

Canadian StandardsAssociation (CSA) SustainableForest Management System

Forest Products Association of Canada andthe Canadian Government

1996

Malaysian TimberCertification Council (MTCC)

Malaysia’s Ministry of Primary Industriesand the Malaysian Timber Council

1998

Programme for theEndorsement of ForestCertification (PEC)

National forestry interest groups,particularly associations of small forestowners

1999

CERTFOR Chilean Government and Asociacion deIndustriales de la Madera (ASIMAD), Chile’sWood Manufacturers Association

2002

Australian Forestry Standard(AFS)

Australia’s Ministerial Council on Forestry,Fisheries and Aquaculture and its forestindustry

2003

CERFLOR Brazilian Ministry of Development,Industry and Trade

2003

Table 19: Main Existing Forest Certification Schemes

Source: Ozinga (2004), p.34


species are considered to be highlyendangered and could become extinct ifinternational trade in them is not prohibited,while Appendix II species are not necessarilythreatened by international trade but maybecome so without strict regulations; thus,export permits are required. Appendix IIIspecies require both export permits and

certificates of origin from range states.Appendix III is not associated with the “samedegree of rigour” in monitoring and controlof the other two Appendices (Chen, 2006).Asian tree species listed in CITES Appendicesinclude Ramin, Agarwood, Red Sandalwood,Yellow Wood, Yews and Magnolia.




The summary findings of this paper arepresented in Table 20. Based on the casestudies of four selected EGs, it was foundthat the major developing Asian exporters ofEGs are China, Chinese Taipei, Korea,Southeast Asia and India. Intra-Asian tradeappears to be significant as well, thoughtrade with developed countries plays animportant role. Tariff rates in general arelower in developed countries relative torates in developing countries. Incomparison, tariffs are found to be least

disruptive to EGs trade than NTBs. There aremany types of NTBs facing EGs exporters.Generally, the common types of NTBs indeveloped countries’ EGs market includeSPS, TBT, subsidies, tax exemptions andquantitative restrictions. In developingcountries, the hurdles to EGs trade are localcontent requirements, subsidies, tied-aidcommitments, problems related toregulatory systems, and bureaucratic andquantitative restrictions.

6. CONCLUDING REMARKS

Tariff Non-Tariff Barriers

PollutionAbatement/TreatmentEquipment

China,ChineseTaipei, Koreaand India

Asia High in DevelopingCountriesLow in DevelopedCountriesDuty exemption isgranted uponrequest

Tied AidRegulatory SystemsCertificationrequirement

Wind Turbines India, andpotentiallyChina

US, Europeand Asia

High in DevelopingCountriesLow in DevelopedCountriesTariff EscalationExistsDuty exemption isgranted uponrequest

Local ContentrequirementSubsidiesCertification TBTTied AidTax Exemption

Biofuels China, India,Thailand,Malaysia,Philippines,Indonesia

Asia andEurope

Relatively high inboth developedand developingcountries

Tax ExemptionSubsidiesDiscrimination baseon the types of oilCertificationEnvironmentalRelated BarriersSPS and TBT

Wood andWood Products

Malaysia,Indonesiaand China

Japan andEurope

Very low QuantitativerestrictionsSPSTBTEco-labelling

Product Major Major Trade BarriersAsian ExportExporters Market

Table 20: Summary of Findings



There are no distinct variations in NTBsencountered by traditionally defined EGs andthe EPPs, except for SPS and environment-related measures which are more commonlyfaced by EPP exporters. Environmentalequipment exports, for example, face twomajor NTBs, i.e. commitment related to tied-aid and TBT. NTBs on wind turbine tradeconsist primarily of local contentrequirements, subsidies and TBT. On theother hand, biofuels exporters areconfronted with constraints such assubsidies, tax exemption for using locallymade biofuels, TBT, SPS and environment-related barriers. Export of wood and woodproducts is confronted by quantitativerestrictions, SPS, TBT, eco-labelling, andCITES regulations.

Asia’s EGs export potential lies in resource-based EPPs. Reduction or elimination oftrade barriers offers huge gains fordeveloping counties that have competitiveadvantage in producing EPPs. Nevertheless,the underlying objective for initiatingnegotiations on liberalisation ofenvironmental goods and services is to reaptriple “win-win-win” outcomes in trade,environment and development. Thus,improvement in the market access for EPPsmust at the same time yield positiveexternalities in terms of environmentaleffects and overall economic development.This can only be achieved by implementingappropriate national environmentalregulations and enforcement in addition to

economic policies to build domesticproduction and export capacity. In addition,to get full benefit from the negotiations toreduce or eliminate trade barriers on EPPs,developing countries must be extremelymeticulous and thorough in identifyingexisting and potential barriers especially theNTBs facing their EPP exports.

Developing countries on the other hand, donot have a competitive advantage in thetraditionally defined environmental industrywhich is already mature and dominated bydeveloped countries. However, somedeveloping countries have potential in somesectors. Therefore, building domesticproduction and export capacity is crucial inachieving win-win-win outcomes. Specialand differential treatment (SDT) optionsprovided by the WTO to members fromdeveloping countries should be capitalisedon to realise this objective. SDT may beapplied in the terms of delayed compliancewith regard to the implementation of WTOcommitments negotiated during the DohaRound, less than full reciprocity in terms ofcommitments vis a vis developed countrytrade partners, as well as through theprovision of ‘policy space’ within WTO rules.‘Policy space’ implies that developingcountry WTO Members would be exempt, incertain situations or under certainconditions, from WTO disciplines restrictingthe use of policy instruments such assubsidies they may require fordevelopmental purposes.



ENDNOTES1 For OECD’s definition of the environmental industry, please refer to OECD (1999). For the approach

adopted by APEC, please see WTO Secretariat Document, WT/GC/W/138/Add.1 accessible athttp://docsonline.wto.org

2 The concept of EPP was developed by UNCTAD. For the definition of EPP please refer to UNCTAD(1995).

3 The UNCTAD defines EPPs as products “that cause significantly less environmental harm at somestage of their life cycle than alternative products serving the same purpose”. EPPs are less harmfulto the environment according to the following criteria, (a) use of natural resources and energy; (b)amount and hazardousness of water generated by the product along its life cycle; (c) impact onhuman and animal health; (d) preservation of the environment. UNTAD (1995), “EnvironmentalPreferable Products (EPPs) as a Trade Opportunity for Developing Countries”, Geneva,UNCTAD/COM/70.

4 OECD (1992).

5 ADB (2005).

6 Calculated from data in Table 6, ADB 2005.

7 US-AEP (2001).

8 Bora and Teh (2004).

9 USA-AEP (2001), p.10.

10 Office of Technology Assessment (1993).

11 US-AEP countries - Korea, Hong Kong, Chinese Taipei, Philippines, Indonesia, Singapore, Vietnam,Malaysia, Thailand, Sri Lanka, India.

12 US and Foreign Commercial Service and US Department of State (2004), “Thailand: Water TreatmentEquipment and Services” http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/fr/gr109728f.html 42

13 US and Foreign Commercial Service and US Department of State (2004), “Malaysia: Water TreatmentEquipment and Services” http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/fr/gr120211f.html

14 Chinese Taipei’s Environmental Enterprise Database, h ttp://environet.org.tw .

15 Ibid.

16 US and Foreign Commercial Service and US Department of State (2004), Taiwan: Water TreatmentEquipment and Services. h ttp://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr112168e.html

17 Ibid.

18 US and Foreign Commercial Service and US Department of State (2004), Taiwan: Industrial WasteRecycling Equipment. h ttp://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr109690e.html

19 Indo-Asian News Service (2004), “India Inc. to Export Environmental Goods”,http://in.new.yahoo.com

20 Office of Environmental Technologies Industries, Trade and Development (2002), “GlobalEnvironmental Technologies: Trends, Markets and Prospects”, http://www.ad-mkt-review.com

21 US and Foreign Commercial Service and US Department of State (2004), Taiwan: Industrial WasteRecycling Equipment. http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr109690e.html

22 US and Foreign Commercial Service and US Department of State (2004), Korea’s Solid WasteManagement Market. h ttp://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr109806e.html

23 US and Foreign Commercial Service (2003), Vietnam: Water Treatment Management Market.http://www.exporthotline.com/upload/D7BB6FE6-BDF3-480A-8D53-C878CE46BBA9.html .

24 US and Foreign Commercial Service and US Department of State (2004), “Indonesia: Pollution ControlEquipment”, http://strategis.ic.gc.ca/epic/internet/inimr-ri.nsf/en/gr109519e.html xxv http://www.evec_renewables.org

25 Calculated based on the average 2004 rate of 0.02213 Indian Rupee to 1 US Dollar.(Source:www.oanda.com)

26 Taken from Lewis and Wiser (2005).

27 There are four types of biofuels which are used for transportation. These include bioethanol,biodiesel, biomethanol, and pyrolysis oil. However, the two most common types are bioethanol andbiodiesel. Bioethanol is an alcohol while biodiesel is made mostly from most vegetable oils, animalfats, and recycled greases which are either blended in diesel fuel or used straight in place of fossildiesel in transportation vehicles (Parlak, n.d).



28 Vehicles that can alternately use either normal gasoline or biofuels.

29 Business Times (2005), “IOI Plans to Build Biodiesel Plant”, News Straits Times, December 14, 2005

30 Business Times (2005), “Malaysia’s Biodiesel Plant Venture to be Formalised Monday”, News StraitsTimes, December 10, 2005

31 “Sweet Energy, Sour Politics”, February 2006, http://www.chicagoboyz.net/archives/003960.html

32 RFA, 2005. 43

33 Renewable Energy Policy Network for the 21st Century, “Policy Landscape/Biofuels PromotionPolicies”, http://www.ren21.net/globalstatusreport/gsr4d.asp

34 The Economist (2005), “Stirring Sin the Corn Fields”, May 14-20, pp.71-73.

35 Renewable Energy Policy Network for the 21st Century, “Policy Landscape/Biofuels PromotionPolicies”, http://www.ren21.net/globalstatusreport/gsr4d.asp

36 Reuters (2006), “US May Learn from Brazil Ethanol Sector – Analysts”, http://www.planetark.org/dailynewsstory.cfm/newsid/34851/story.htm


38 A blend of 5 percent biodiesel and 95 percent regular diesel is called a B5 Blend.


40 Ibid.

41 http://forests.org/action/alert.asp?id=biofuel

42 “The Green Choice”, http://www.walkinsawmills.com/green.htm

43 ECE/FAO Forest Products Annual Review, 1998-99.



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SELECTED ICTSD ISSUE PAPERS

International Trade in Agriculture and Sustainable Development

Special Products and the Special Safeguard Mechanism: Strategic Options for Developing CountriesIssue Paper No. 6 by ICTSD, 2005.

Lessons from the Experience with Special Products and Safeguard Mechanisms in Bilateral Trade Agreements. Issue Paper No. 5 by Dr. Carlos Pomareda, forthcoming.

Methodology for the Identification of Special Products (SP) and Products for Eligibility Under Special Safeguard Mechanism (SSM)by Developing Countries.Issue Paper No. 4 by Luisa Bernal, 2005.

Special Products: Options for Negotiating Modalities.Issue Paper No. 3 by Anwarul Hoda, 2005.

Tariff Reduction, Special Products and Special Safeguards: An Analysis of the Agricultural Tariff Structures of G-33 Countries.Issue Paper No. 2 by Mario Jales, 2005.

The New SSM: A Price Floor Mechanism for Developing Countries.Issue Paper No. 1 by Alberto Valdés and William Foster, 2005.

Trade in Services and Sustainable Development

Regulatory Principles on Environmental Services and the GATS.Issue Paper no. 5 by Massimo Geloso-Grosso, forthcoming.

Disciplines on Domestic Regulation and Sustainable Development, Principles and Operational Concepts: The ChallengesIssue Paper No.4 by Julian Arkell, forthcoming.

Opportunities and Risks of Liberalising Trade in Services: Case Study on Bangladesh.Issue Paper No.3 by Ananya Raihan and Mabroor, forthcoming.

Opportunities and Risks of Liberalising Trade in Services: Case Study on South Africa.Issue Paper No.2 by Ian Steuart and Rashad Cassim, 2005.

Subsidies, Services and Sustainable Development.Issue Paper No.1 by Marc Benitah, with David Vivas-Eugui, Alexander Werth and Mahesh Sugathan, 2005.

Intellectual Property Rights and Sustainable Development

New Trends in Technology Transfer: Implications for National and International Policy.Issue Paper No. 18 by John H Barton, 2007.

Exceptions to Patent Rights in Developing Countries.Issue paper No. 17 by Christopher Garrison, 2006.

Protecting Traditional Knowledge: Pathways to the Future.Issue paper No. 16 by Graham Dutfield, 2006.

The International Copyright System: Limitations, Exceptions and Public Interest Considerations for Developing Countries.Issue Paper No. 15 by Ruth L. Okediji, 2006.

Intellectual Property and Economic Development: What Technical Assistance to Redress the Balance in Favour of DevelopingNations?Issue Paper No. 14 by Michel Kosteki, 2006.

Utility Models and Innovation in Developing Countries.Issue Paper No.13 by Uma Suthersanen, 2006.

Intellectual Property Provisions of Bilateral and Regional Trade Agreements in Light of US Federal Law.Issue Paper No.12 by Frederick M. Abbott, 2006.

Technical Assistance for the Formulation and Implementation of Intellectual Property Policy in Developing Countries andTransition Economies.Issue Paper No.11 by Tom Pengelly, 2005.

Fisheries, International Trade and Sustainable Development

Fisheries, International Trade and Sustainable Development: Policy Discussion Paper, by ICTSD, 2006

Aquaculture: Issues and Opportunities for Sustainable Production and Trade.Issue Paper No. 5 by Frank Asche and Fahmida Khatun, 2006.

Market Access and Trade Liberalisation in Fisheries.Issue Paper No. 4 by Mahfuz Ahmed, 2006.

Trade and Marketplace Measures to Promote Sustainable Fishing Practices.Issue Paper No. 3 by Cathy Roheim and Jon G. Sutinen, 2006.

Fisheries Access Agreements: Trade and Development Issues.Issue Paper No. 2 by Stephen Mbithi Mwikya, 2006.

Trade and Sustainable Energy

Linking Trade, Climate and Sustainable Energy. Selected Issue Briefs, 2006.

These and other ICTSD resources are available at http://www.ictsd.org/pubs/series.htm.

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