AEGIS Europe position on the WTO Trade and Environmental Sustainability Structured Discussions (TESSD) on climate friendly goods
/AEGIS Europe, the umbrella association representing more than 20 key manufacturing industries in the European Union, is closely following the ongoing discussions on trade and environmental sustainability taking place at the WTO within the Trade and Environmental Sustainability Structured Discussions (TESSD). Launched in November 2020 for interested members among them the European Union, to complement the work of the WTO Committee on Trade and Environment, the TESSD deals with topics such as trade and climate change, trade in environmental goods and services, circular economy, and sustainable supply chains. Our membership has been following the progress of the debates held within the TESSD, in particular the ones exploring opportunities for facilitating trade in environmental goods and services (EGS), namely through tariff liberalisation and removal of Non-Tariff Barriers (NTBs). AEGIS Europe is extremely concerned about the turn that the discussions have taken lately.
AEGIS Europe would like therefore to underline some key principles to be considered during the structured discussions to ensure that any liberalisation of trade in climate friendly goods and services occurs in a manner that is truly sustainable and respectful of the need to maintain a level playing field globally:
a. Need to allow measures to maintain a level playing field Discussions about the liberalisation of EGS do not take place in a vacuum. The reality is that due to government-induced distortions and a lack of sufficient local demand, there are major production overcapacities for a number of products in the value chains of climate friendly goods (examples are given below).
These overcapacities, which in many cases continue to grow, in turn have fed waves of dumped and subsidised products in other countries’ markets. At present, the only practical tool to address these consequences of major overcapacities, and unfair trading practices in general, is the trade defence toolbox, and the TESSD should not overlook the critical and positive role that current trade defence measures play in redressing unfair trade practices, including those related to massive government-supported overcapacities. Many goods being considered in the TESSD meetings are subject to trade defence measures in the EU and globally. Those measures are critical to maintaining a level playing field, which in turn is essential not just for avoiding further injury to the industries concerned, but also providing a stable environment that will encourage further local investment in truly sustainable production of goods important for the environment.
Goods produced by AEGIS Europe members and non-members e.g. silicon, biodiesel, electric bicycles, electrical vehicles are subject to trade defence measures or surveillance monitoring in order to ensure a level playing field for the EU producers. AEGIS Europe is also worried by the mention of “inappropriate use of trade remedies” as an example of supply chain bottlenecks. To begin with, there is no indication of what would constitute an “inappropriate use” of trade remedies.
Also, the general principle – as noted above – is that trade remedies are the only practical tool to counter illegal or unfair trade practices, and must by all means remain available. It is true that the EU has seen examples of other countries, primarily China, using trade defence investigations as a means of retaliation and attempted coercion, and that practice is rightfully condemned, but that is not a reason to criticise the use of trade defence measures as a matter of principle.
b. Need to have clarity and consistency with other EU policies With regard to the Statement by the TESSD co-convenors2, issued on the occasion of the 13th WTO Ministerial Conference (February 2024), AEGIS Europe members express several concerns regarding the following:
▪ There is no clear definition of “environmental goods and services”.
▪ The scope of the list of environmental goods, identified by HS codes, is very broad and goes beyond energy-related goods (e.g. agriculture); some of the goods listed have a dual-use which cannot be grasped by the HS classification nor the product description. Therefore, any discussion on trade liberalisation of these goods will go beyond the objectives of the TESSD.
▪European producers are subject to rigorous certification and technical requirements, particularly regarding sustainability criteria, while this is not the case for other third-country producers. Producers need to compete at the same fair level, therefore, no exemptions in sustainability should be accepted: relaxing those rules for third countries would put EU producers in an uncompetitive position and would slow down the achievement of the EU decarbonisation targets.
▪ It is also imperative for the EU to ensure consistency with other EU policies and objectives, such as the Carbon Border Adjustment Mechanism and make sure that no exemptions are granted under the latter since it would ultimately undermine the EU’s Green Deal goals.
▪ Creating exemptions to existing European legislation could create dangerous precedents particularly in the areas of health, environment and safety. This is contrary to the co-decision process involving the European Parliament and the Council in the adoption of European Regulations. In the name of “principles” (in this case: the alleged environment protection) exemptions to other regulations, such as REACH, might be requested precisely to escape any control and thereby jeopardising human health or the environment. This is unacceptable. Moreover, AEGIS Europe has noted that some important topics are not reflected in the document and recommends their inclusion in the discussions, due to their significant relevance in trade related climate discussions:
▪ Massive overcapacities, already anticipated above, combined with aggressive pricing policies are permanently disrupting international markets. This is particularly the case of products 2Statement by the TESSD co-convenors accessible at WT/MIN(24)/11/Add.3 2 made in China and India. The slow development of domestic demand in those countries further pushes their producers to export to large consumer markets like Europe mostly under predatory pricing conditions. Hence the elimination of existing tariffs would jeopardise the European industry, which is operating under stricter standards and rules.
▪ Many emerging economies allow business to be based on lax social and labour standards. Countries like China, India and Pakistan were found by the International Labour Organisation (ILO) to use child and forced labour3. Liberalisation of tariffs should definitely not cover EGS produced in such conditions.
▪ Third countries engaging in illegal subsidisation4 and government support5, as well as export restrictions that disrupt the global level playing field should not be rewarded with any sort of tariff liberalisation.
AEGIS Europe also expresses concern regarding the statement in the Summary of Discussions issued following the TESSD working group meeting of 15-16 April 2024 according to which members agreed to further refine and expand the indicative lists of environmental goods and services and that such list should be guided by environmental objectives. We reiterate that the environmental objectives of such goods cannot be the only factor under consideration. Other key international policies need to be considered as well, such as whether international labour and social standards have been complied with when manufacturing such goods.
Furthermore, in the Summary of Discussions issued following the TESSD working group meeting of 17-18 June 2024, there is a clear statement about the willingness [of the TESSD members] to work towards tangible outcomes and concrete actions by MC14, which is of high concern for the EU industry.
Practical examples
Below several practical cases about the current status of the EU industries whose products have been part of the discussions at the level of the TESSD.
In what concerns the ethanol industry, the current tariffs are already too low8; they have been set in 2000 and have not been revised since. In addition, only big exporters such as Brazil and USA pay duties whilst the rest of the world is exporting duty-free to the EU since they do not reach the quota. This happens in the context that costs of production for EU producers have skyrocketed since 2000, and the existing tariffs are no longer effective in ensuring a level-playing field for the EU industry. The EU ethanol industry is fighting to raise the tariffs to match the economic realities in the EU. Countries like U.S. and Brazil as an example, regularly revise their tariffs for ethanol to meet the economic realities.
Silicon is on the Critical and Strategic raw materials lists part of the Critical Raw Materials Act since it represents a key raw material in the solar PV value chain, needed to produce polysilicon that then is embedded in the PV cells of solar panels. China is the biggest silicon producer in the world, its current capacities exceed the 7Mt, almost twice the worldwide silicon consumption in 2023. China has plans to expand its silicon capacities by another 4.6Mt. Despite such massive overcapacity threat, Europe has only imposed an anti-dumping duty of 16.8% against Chinese silicon which is definitely not sufficient to preserve a level playing field especially bearing in mind that like-minded countries such as the US and Canada have a duty of 139%, respectively 47-235% imposed on the same Chinese product. Silicon is definitively a strong example of massive overcapacities combined with predatory pricing.
Most recently, the EU imposed provisional anti-dumping duties (12.8%-36.4%) on imports of biodiesel from China, after using trade defence instruments also against unfairly traded biodiesel from Argentina, Indonesia and the United States. In addition, the EU biodiesel market is seriously damaged by fraudulent imports of biodiesel, especially from China, made from palm oil (which the EU wants to phase out) that is mislabelled as made from used cooking oil (or UCO, which the EU wants to favour). This is happening because of inherent problems with verification and certification.9 In this context, there can be no question of removing tariffs for ethanol, biodiesel or silicon or of softening the imposition of Non-Tariff Barriers (NTBs) on the importation of such products, as this would simply lead to the disappearance of the industries in Europe and negatively impact Europe’s green transition. d. Conclusion 8The current ethanol tariffs are: 19,2 EUR/hl for undenatured and 10,2 EUR/hl for denatured.
AEGIS Europe is therefore extremely concerned about the direction of the structured discussions and the embedded risk of pushing for measures which would remove the EU’s ability to take actions essential for maintaining a level playing field, in particular for EU industries that have invested considerably in achieving the objectives of the Green Deal. We urge the Commission to consider with the utmost caution the real added value of these discussions and the underlying role they could have in dismantling existing European legislation. The often-cited barriers to trade with Europe are contradicted by the proven increase in imports into Europe. Regarding future discussions at the TESSD, a Communication10 from the United States raises concern to the extent it may result in premature pressure to adopt measures that have not been properly reflected upon. AEGIS Europe urges the European Commission to bear in mind our concerns and to preserve all means for ensuring a level playing field to the benefit of the EU industry.