Trade Liberalisation in Environmental Goods Experiences from India

Format of presentation ¬ An overview of Indian environmental industry ¬ Autonomous liberalization ¬ Challenges and concerns ¬ Environmentally preferable products

Development of Indian environmental industry Growing awareness ¬ Health issues related to pollution and increased judicial activism ¬ Industry realizes that being environmentally responsible is being economically sound. Improved enforcement of legislation ¬ 1974: Water (Pollution and Control of Pollution) Act ¬ 1974: Central Pollution Control Board ¬ 1985: Ministry of Environment and Forests ¬ 1986: Environment Protection Act

Composition of Indian environmental industry ¬ Equipment Suppliers – Specialized ¬ System Suppliers ¬ Chemical Suppliers ¬ Engineering, Procurement and Construction Contractors/Lump-sum turnkey Contractors ¬ Consultants ¬ Build Own Operate and Transfer (BOOT) and Build Own Operate (BOO) Operators ¬ Analytical Services – Laboratories etc

Characteristics of Indian environmental industry ¬ Industry dominated by small and medium size units (Large- 100 no’s, Medium - 250 ) ¬ Market dominated by end of the pipe treatment plants ¬ Lack of resources: Deficient in capital, R&D, specialized treatment technologies for complex/ special pollutants ¬ Traditional strength (conventional air pollution equipment / waste water management/ environmental consulting/ solar cells and hydraulic turbines)

Characteristics of Indian environmental industry… ¬ Presence of foreign companies (Licensing, Joint ventures, and wholly owned subsidiaries) ¬ Foreign collaboration (US - 33 %, Germany 14 %, UK 13 %, Canada 7 %) ¬ Important Trading Partners (Import): USA, Germany, Japan, UK, Canada, Australia ¬ Important Trading Partners (Export): Middle East, Vietnam, Indonesia, and other countries in South East Asia

The Market (Estimates in US $millions) 2000 2001 2002 (estimated) Total market Size Total Local Production 3294 3788 4166 2061 2272 2499 Total Imports 1233 1516 1667 Imports from the U. S. 431 530 583

Autonomous Liberalisation ¬ FDI with 100% foreign equity allowed through automatic route ¬ Preferential tariffs for pollution control equipments ¬ Duty exemptions for equipments for R&D projects and public funded research institutions ¬ Preferential tariffs for renewable energy equipments ¬ APEC list: Average Bound rates- 25% to 40% (35%) Average Applied rates-10 % to 25% (22%)

Challenges and Concerns ¬ Availability of funds/investment ¬ Availability of technology and its diffusion ¬ Absence of strict enforcement of quality parameters for imported capital equipments ¬ Use for environmental purposes: Electricity meters, liquid flow meters, heat exchangers, conveyors and centrifugal pumps are general industrial equipments ¬ Tackling tariff anomalies i. e. a structure where duties on inputs would be higher than on finished goods

India’s Trade (Goods in APEC list) (million US$) Categories of goods India’s trade in all the items mentioned in APEC list Imports Exports Air pollution control 135. 71 73. 25 Water pollution control 237. 45 155. 83 Solid/ hazardous waste management 137. 32 56. 14 Remediation/ clean-up of soil and water 0. 89 0. 1 Monitoring/ analysis and assessment 588. 00 108. 39 Noise/ vibration abatement 39. 87 37. 57 Potable water treatment 62. 54 37. 57 Other recycling systems 25. 52 3. 56 Renewable energy plant 32. 96 41. 41 Heat/ energy management 8. 09 6. 62

Challenges and Concerns… Export opportunities for Indian companies ¬ Trade data in environmental goods APEC list -Imports US$ 1340 million -Exports US$ 610 million ¬ Technology licensing agreements with market restriction clauses (Indian companies have an edge in pricing structure ) ¬ Lack of proper marketing and distribution network ¬ Applied tariff rates in developed countries are already at a nuisance level.

Inherently environmentally friendly goods ¬ Environmentally friendly Natural products ¬ Non agricultural products ¬ Superior to other products Ø Jute Ø Coir Ø Rattan and bamboo Ø Natural and vegetable dyes

Trend in exports from India (million US$) Year Jute Coir Bamboo/ Rattan Cotton handloom 1998/99 126. 57 64. 48 - 455. 98 1999/00 119. 96 65. 88 3. 91 456. 94 2000/01 150. 21 66. 19 3. 99 465. 68 2001/02 133. 33 - 4. 16 432. 97

The way forward ¬ Balanced approach needed to ensure flow of trade gains, technology and development of local industries. ¬ General industrial items should not get place in a possible of environmental goods. ¬ Transfer of technology at affordable terms. The Working Group on Trade and Technology Transfer could look into the relationship between trade in environmental goods and the transfer of clean technology. ¬ Less than full reciprocity for developing countries