EXECUTIVE SUMMARY
This report is the third annual report of the Working Group on Trade and Environment to the CCICED during Phase Ⅱ. We would like to take this opportunity to report to the Council the activities of the Working Group since November 1998,its research
results, new findings and major recommendations.
The 19981999 year has been a very active and productive year for the Working Group on Trade and Environment. The principal work this year includes four major research projects:
1. Policy research on the interaction between foreign trade and environmental protection in China;
2. Impacts of EU environmental standards/requirements for China's textile exports;
3. China's perspectives on international investment rules and sustainable development and;
4. Clean coal technology transfer: present situation , obstacles, opportunities and strategies for China.
The first three studies began last year.
The Working Group has initiated a further 5 research projects with the focus on:
1. International perspectives on clean coal technology transfer to China;
2. APEC trade liberalization and sustainable development;
3. Packaging materials and the sustainable growth of China's foreign trade;
4. Trade liberalization in the environmental services sector; and
5. Integration of trade, investment and sustainable development in selected statelevel economic and technological development zones.
These studies will continue during the next year.[LM]
The work of the Working Group over the past four years has helped build a consensus between international and Chinese members and other participants on the relationship between trade and the environment. The Working Group has reached some major conclusions. These include:
1. The development of foreign trade and the its impacts on the environment in China shows that trade development is closely related to environmental protection and sustainable development. The integration and mutual reinforcement of trade policies and environmental policies require close and continuing attention by Chinese policy makers.
2. Environmental standards and requirements in foreign countries, even for the purpose of protecting human health and the environment, may sometimes cause trade difficulties for Chinese exports, particularly in sectors such as textiles, leather and packaging. The central government will need to strengthen environmental regulations and standards in China's major exporting sectors, bringing Chinese standards in line with internationally accepted standards to minimize impacts of foreign environmental regulations and standards on China's major exports.
3. Trade liberalization promotes industrial restructuring. Integrating environmental considerations into industrial restructuring and strengthening the environmental management systems of exporting firms can eventually bring competitive advantages to Chinese exporters.
4. There is some evidence that a number of small and medium sized foreignfunded firms,many of them from Hong Kong,Taiwan and other Asian countries,have been established in China's southern provinces to take advantage of either lower environmental standards or the lax enforcement of existing laws.The central government should ensure that the inflows of foreign investment to China do not lead to the lowering of environmental standards and environmental deterioration.
5. Discussions on trade and environmental issues in various international forums and decisions being taken by these organizations could have profound implications for China's trade,economic growth and environmental protection.It is important that China be closely engaged in international discussions and negotiations.In particular,China needs to be cautious when it engages in international discussions about investment.
The Working Group has so far addressed the problems and the importance of integrated policy formulation and implementation.In its recommendations,the Working Group stresses and integrated approach for sustainable trade development,which requires strengthening trade and environmental legislation and putting in place some mechanisms to promote sustainable trade.The Working Group will further address both what legal aspects should be stressed and what other mechanisms can be put in place to strengthen policy implementations.The Working Group has also come to realize that implementing higher environmental standards in exporting sectors may only be a shortterm policy and may exacerbate the gap between modern and traditional sectors.The Working Group will continue to search for the longterm policy of promoting the integration of chains of production to the final exporting sectors in order to mitigate negative tendencies and to have wider postive impact of trade development into environmental protection.
The Working Group on Trade and Environment recommends:
1. Developing National Strategies for Sustainable Foreign Trade
China's strategies for sustainable foreign trade should contain the following two key elements:
1) Guiding principles for sustainable foreign trade
Integrate environmental and longterm social concerns into the formulation of trade development strategies.Ensure that foreign trade and economic cooperation support and enhance environmental efforts and sustainable development in China;
Shift from the traditional mentality of nonsustainable development(focusing on the pursuit of fast trade growth and shortterm economic interest)to a long term vision of sustainable trade development,ensuring economic,social and environmental benefits of trade.
2) Concrete contents and measures for sustainable foreign trade
Provide incentives for the import of environmentally friendly products and technology;strictly control environmentally harmful products and technology;
Formulate a strategy for sustainable foreign investment,including the encouragement of environmentally friendly technology transfer;
Monitor the trends of environmentally related barriers to trade in sectors where China has an export interest;provide timely information to Chinese exporters;provide technical assistance to exporters that have difficulties with these environment trade barriers,and help them to find solutions and alternatives;
Reinforce environmental regulation and enforcement in China's major exporting sectors;bring Chinese standards for these sectors into line with internationally accepted standards so as to minimize the impacts of foreign environmental regulations and standards on China's exports;
Strengthen environmental management systems of major exporting sectors;and Establish a coordination mechanism between trade and environment departments in dealing with trade and environmental issues.
2. Promoting clean coal technology transfer while fostering China's own domestic research and innovation
China needs to promote clean coal technology by strengthening its environmental laws and their enforcement and its intellectual property rights protection.Policies and measures(such as economic incentives that capture externalities)should be taken to accelerate the diffusion and market penetration of these new technologies.At the same time China should strengthen the development of its own clean coal technology research and innovation.
China should also strengthen its international cooperation on clean coal technology transfer,and explore other opportunities such as AIJ and CDM to support its own clean coal utilization efforts,particularly in steel plants,limestone thermal power plants,etc.At present,90% of the international efforts in China are focused on electric power plants at the expense of other sectors which use coal intensively.There is a need to strengthen action in these other coalburning sectors,for example,coal accounts for 41% of the energy needs of various Chinese industries including chemicals,manufacturing and building materials.
I. BACKGROUND
Foreign trade and economic cooperation have played a significant role in China's fastpaced economic growth and its integration into the world economy since its reform and openingup two decades ago.Its gross domestic product(GDP)has grown to become the seventh in the world and its exports of goods and services account for about 20% of its GDP.Although affected by the Asian financial turmoil,China still managed to inch up its exports slightly in 1998 and increased its total trade volume the first half of 1999.Given the importance of trade in its future development,the Government of China has now taken measures to speed up its trade liberalization process both by exploring new ways of expanding its exports and by making serious commitments to the WTO accession.
However,the process of trade liberalization of China encounters a two fold environmental challengeincreasingly stringent foreign environmental standards and various voluntary environmental measures undertaken by China's largest customers and serious domestic environmental pollution and ecological deterioration at home.Environmental measures being taken by foreign governments and international organizations can have profound impacts on Chinese exports.Trade without adequate environmental measures can lead to environmental degradation.
The most desirable solution emerging from the trade and environment debates is to incorporate a sustainable development perspective a joint consideration of environment,economy and human wellbeing into trade and investment activities.This approach should be seen as consistent with China's two fundamental policies economic reform with a special focus on the opening policy and environmental protection with an emphasis on sustainable development.Balancing economic development and environmental protection and making a transition to wards sustainable development are crucial to China's future development.
The transition to sustainable development will require substantial amounts of capital. Greater access to foreign markets and increased foreign investment inflows could provide substantial sums of capital needed for achieving sustainable development in China.However,Trade expansion and foreign investment utilization need adequate environmental polices in place to protect the environment.As China continues its reforms,trade liberalization and its WTO accession,it needs to incorporate the sustainable development perspective economy,environment and social welfare into its trade and investment development.This requires China to effectively address adverse impacts of rapid economic and trade growth on the domestic environment,and to avoid the possible boycotts of Chinese exports by foreign countries due to environmental concerns.China also needs to grasp opportunities arising from green consumers of major developed country markers,and to make use of foreign investment to support its sustainable development strategies.China'sactive participation into the debates and discussions at various international forums concerning trade and environmental issues is also very important.
Objective and Approach
The Working Group on Trade and Environment was established in 1995 during Phase I of CCICED.Its objective is to provide necessary assistance and support to China in developing and implementing longterm,comprehensive and integrated trade and environmental policies and measures that are supportive of sustainable development The Working Group has been operated through regular meetings,policy related research and analysis,reporting to the Council,and issuespecific workshops.
The Working Group normally meets twice a year,identifying priority topics,planning work programs and commissioning research and background studies.It carries out policy related research leading to practical recommendations for consideration by the CCICED,and then by the Government of China.The vast majority of these research projects are suggested and undertaken by the Chinese members with assistance of the international members.The results are reviewed and debated at the Working Group meetings,and then drafted into format recommendations and submitted to the CCICED.
The Working Group also organizes issuespecific workshops,such as the ISO 14000 symposium in conjunction with the China Centre for Environmental Management Systems and UNEP.
Some of the research papers have been published for a broad dissemination,and some are planned to be published.
Focus of the Working Group
In its first two years during the Phase I of the CCICED,the Working Group focused on various topics,including a)voluntary environmental measures and their trade implications for China;b)dirty industry migration in relations to foreign investment;c)the relationship between green agriculture and environmental protection;and d)technology transfer and the possibility of implementing activities implemented jointly(AJJ)under the United Nations Framework Convention on Climate Change.
The work of the Working Group in Phase Ⅱ of the CCICED is continuously guided by its mandate of providing advice to the Government of China on incorporating a sustainable development perspective into its trade liberalization process.The workplan identifies a number of priority targets for the first three years of Phase Ⅱ including 1) suggesting actions and measures to be taken to enhance trade and environmental policies and institutional building that support the integration of trade sustainable development;2)determining China's perspective on foreign direct investment in promoting sustainable development;3)recommending actions an measures to be taken to address impacts of foreign environmental standards on certain sectors;4)promoting environmental and sustainable technology transfer and 5)providing support for China to explore and define workable approaches to addressing climate change through marketbased mechanisms and technology transfer,in particular the Clean Development Mechanism of the Kyoto Protocol.
Also,to raise awareness of the importance of trade and environment of governmental officials in charge of trade and environmental protection,of entrepreneurs of trade an of manufacturing companies,the Working Group plans to organize workshops on trade and environment related policies and practices.
Ⅱ. 1998-99 ACTIVITIES AND RESEARCH PROJECTS
1998-99 has been a productive year for the Working Group on Trade and Environment. It has completed the work launched in 1997-98 on the following subjects:
Policy Research on the interaction of China's foreign trade and environmental policies
Impacts of EU environmental standards/requirements for textiles on China's textile exports
International investment rules and sustainable development:China's perspective
In addition,the Working Group has also undertaken another three research projects with the focus on:
Clean coal technology transfer:present situation,obstacles,opportunities and strategies for China International study on clean coal technology in China
APEC Trade liberalization:integrating trade and sustainable development in China
Most recently,the Working Group has initiated three additional projects on:
Improve outer packaging of export goods for sustainable growth of China's foreign trade
The liberalization of trade in the environmental service sector in China
Demonstrating the integration of trade,investment and sustainable development in selected statelevel economic and technological development zones
The Working Group met in April this year in Beijing.The meeting reviewed and debated the preliminary and final reports of the abovementioned reports,made plans for future program,and discussed recommendations to be submitted to the CCICED
The following are the brief descriptions of the abovementioned research projects the Working Group has completed and is undertaking in 1998-99.The first four have been completed and the reports have been submitted to the Council as the WG's subreports.The last five projects are still underway to various degrees.
1. Policy Research on the Interaction of China's Trade and Environmental Policies
The rapid growth of the economy and foreign trade on one hand has promoted environmental protection work in China,and on the other hand has brought negative impacts on the ecosystem and the environment in some areas.In addition,increasingly stringent environmental standards and consumer preferences for environmentally friendly products in developed countries may create potential difficulties for the Chinese exports to enter international markets.It becomes an urgent task for China to effectively coordinate the relationship between trade development and environmental protection,and to strengthen environmental management in order to gain environmental competitiveness in trading.
The objective of this project is to review the general situation in China on interaction between China's foreign trade and environmental protection.It is aimed at providing policy analysis and support on how to integrate environmental considerations into China's foreign trade and promote integrated trade and environmental policies that enhance sustainable development.
This research project was initiated last year,and a case study on the textile sector was undertaken.This year,the research team from the Policy Research Centre for Environment and Economy and the Chinese Academy of International Trade and Economic Cooperation is undertaking a comprehensive analysis of the present trade and environmental policies and their relationship with trade and environmental protection in China,as well as a case study on the leather industry.This led to a report on Policy Research on Interaction between China's Foreign Trade and Environmental Protection,with two case studies on textiles and leather attached as appendixes. The study analyzes the basic situation of foreign trade and its impacts on the environment and shows the linkage between domestic environmental issues and trade development.Trade policies formulated and implemented since its economic reform have provided the guidance for the trade development for China and made profound achievements. However,due to lack of adequate environmental considerations and coordination with environmental policies,the rapid trade growth has brought some negative impacts and pressures on the environment in some areas.
Existing environmental policies and measures have played an important role in increasing costs of export products,and restricted imports of some products and technologies that are damaging to the environment from entering the country.
The report proposes the formulation of national strategies for sustainable foreign trade.These strategies should include the following principles:a)implement the state basic policy of environmental protection,ensure economic,social and environmental benefits of foreign trade development,and integrate environmental concerns into all foreign trade and economic cooperation activities;b)shift from the traditional trade mentality focusing on scale and speed to a coordinated foreign trade and sustainable development;c)minimize environmental pollution and adverse ecological impacts by relying on advanced technology;and d)integrate environmental management into product quality management.
The new strategies also require the inclusion of other major measures,including the necessity to: a) make necessary adjustment to its foreign trade policies and regulations including import and export of goods and services,foreign direct investment,technology transfer,customs and border inspection to promote sustainable development;
b) encourage the development of green products and technologies and their trade;
c) provide incentives for the import of environmentally friendly products and technology;
d) strengthen investment management;
e) make good use of various "green measures" such as ecolabelling,green packaging,and ISO 14000 certification,and strengthen environmental management of exporting enterprises;and
f) establish a coordination mechanism between trade and environmental departments in dealing with trade and environmental issues.
The report also recommends that environmental policies should be strengthened to pay attention to environmental impacts caused by inadequate trade policies,to include obligations of international environmental agreements and to consider environmental cost internalization.
2. International Investment Rules and Sustainable Development:China's Perspectives
Foreign direct investment has become a vital part of many countries'development strategies.Countries that attract significant amounts of foreign investment are more likely to succeed in international trade,as frequently foreign investment occurs in facilities that are likely to export much of their output.Investment is also an important indicator of potential to move towards more sustainable forms of production.Industries with high levels of innovation and investment are creating new facilities at a rapid pace and are less environmentally harmful than comparable older facilities.However,environmental benefits associated with new investments do not accrue automatically.They require appropriate policies and measures in place to ensure real environmental benefits.
China over the past years has become the principal recipient of foreign direct investment outside the OECD,and in fact,the second largest recipient of foreign direct investment after the United States.Foreigninvested firms have made obvious contributions to China's rapid economic growth.Many of them,particularly well known multinational corporations in China are environmentally responsible,introducing advanced technology and pollution control facilities and practicing advanced environmental management system in their operation in China.However,about 30% of foreigninvested enterprises are engaged in pollutionintensive industries of the manufacturing sector.Considering the role of foreign direct investment and the need for international rules that support sustainable development,the study on International Investment Rules and Sustainable Development:China's Perspectives
aims to provide insights and recommendations,through empirical studies,to improve the coordination between investment and sustainable development in China,and what position China should take in the development of future international rules on investment.
This study was undertaken by a team at the University of International Business and Economics led by Professor Sun Weiyan and Professor Xia Youfu throughout 1998 and it was completed in April 1999.The final report has been submitted to the Council as one of the WGTE supporting documents.Major recommendations put forward in the final reports include:
1) Effectively coordinate China's two basic state policies of openingup and environmental protection,and develop new strategies for FDI use.The new strategies should include:a)a shift in the existing FDI pattern(focusing on high growth rates and quantity of outputs)to incorporating environmental considerations in FDI use and enhance longterm sustainable development;b)amend the industrial and regional guidance to support sustainable use of FDI;c)encourage multinationals to follow the most stringent applicable standards,either their home country standards or the Chinese standards,and to use environmentally friendly technologies.
2) Adopt a special regulation on environmental management of foreigninvested projects;
3) Strengthen cooperation between departments which regulate investments and those responsible for environmental protection;
4) Establish special control zones for pollutionintensive industries where proper environmental services are available;and
5) Transform various open zones including special economic zones,statelevel economic and technological development zones and hightech industrial parks,etc.into demonstration sustainable development zones.
The Working Group has now taken forward the idea of demonstration sustainable development zones and started a project on the integration of trade,investment and sustainable development in selected statelevel economic and technological development zones.
The study also concludes that it is very important to establish international rules on investment that promote sustainable development from China's perspectives.The paper calls for the establishment of an international institution to take responsibility for rules on investments.It calls for a General Agreement on Investment,a special agreement on investment that integrates sustainable development.It also proposes a series of principles that are fundamental to such an agreement.
3. Impacts of Environmental Standards/Requirements in the EU Countries on China's Textile Exports The WGTE's previous studies on voluntary environmental measures,particularly on ecolabelling,indicate that mandatory environmental regulations and standards in foreign countries were more likely to create trade difficulties for Chinese exports,in particular for products such as textiles,garments and leather.
The WGTE thus decided to undertake a study to examine the impacts of selected foreign environmental standards on Chinese exports.The study on Impacts of Environmental Standards/Requirements in the EU Countries on China's Textile Exportswas initiated last year by a team from the Policy Research Centre for Environment and Economy and completed this year.The final report has been submitted to the CCICED as one of the WGTE supporting documents.
Since 1990s,many countries,particular in the European Union,have adopted environmental standards and requirements concerning the use of chemicals in the production of textiles and garments.Many of these standards and requirements are set out in laws and regulations,while some of them are voluntary in nature.The most wellknown mandatory environmental requirement for textiles and garments is the ban of azo dyes imposed by the Second Amendments to the German Consumer Protection Act.The ban,first came into force in April 1996,has been amended three times and its Fifth Amendments took effect in April 1997.After the German ban,many EU countries followed suit.The Netherlands adopted legislation banning the use of the same 20 carcinogenic aromatic amines as the German law and took effect in August 1996. Other countries in Europe,such as Sweden,Denmark,France and EU are all in the process of formulating such legislation.In addition to mandatory laws,there are a number of ecolabelling schemes that impose voluntary environmental standards for textile products.
The research project reviews environmental problems in the textile industry,environmental standards and requirements in the EU Countries,and the impacts of these standards and requirements on the Chinese textile trade.It focuses on the analysis of the impacts of German azo ban on China's textile exports.It finds that the original intent of the German ban was genuinely to protect human health rather than protecting domestic industries(so called green protectionism).Although the German law has created some positive impacts,it has brought about some obstac
les to China's trade in the textile industry.At the early stage when the law was enacted and in its implementation process,Germany did not fully consider providing relevant information and necessary technical assistance to China.As a result,some of Chinese textile products were greatly affected by the azo ban.
During 1995-1996,the German ban created great pressure on many textile,dye and dyeing enterprises and trading companies.Because of a number of uncertainties of the ban itself and lack of knowledge and understanding of this ban,some producers and exporters were forced to stop exporting textile products that contain azo dyes.The ban also increased costs for both producers and exporters,as producers had to import the alternative dyes from abroad and exporters had to go through German designated testing agencies for testing.
After suffering some losses and incurring high costs from the German ban,particularly at the early stage when the ban was imposed,the textile sector has gradually overcome the difficulties of the trade obstacles created by the ban through some necessary adjustment and adaptation.A number of Chinese testing agencies accredited by the German authorities have been established,which substantially reduces the testing costs for exporters.At the same time,the success of the development of environmentally friendly dyes in China has helped to reduce production costs greatly.
The study shows that the German azo ban,although solely for the purpose of human
health protection,has created difficulties for China's trade due to the different environmental standards/requirements and different level of development in the textile sector between Germany and China.Although China has gradually overcome some of the difficulties by actively developing substitutes and by taking other measures,it doesn't mean that all the obstacles have been completely overcome.In order to raise Chinese exporters' competitiveness in the international market, the research team puts forward the following recommendations:
1) Strengthen environmental standards for textile products and establish an environmental indicator system in the textile sector
2) Strengthen environmental management of the textile sector to ensure environmental competitive advantages
3) Actively develop dye substitutes through technology innovation and attract more foreign investment
4) Establish an information monitoring and tracking system and strengthen international cooperation
4. Clean Coal Technology Transfer:Present Situation,Obstacles,Opportunities and Strategies for China
Coal plays a central role in China's economy,accounting for 75% of its energy use.As coal is cheap and plentiful while other alternative energy sources being not immediately available,coal will keep its fundamental role to China's future development.To address severe environmental and health effects of coal use,there is an increasing need for China to adopt clean coal technology widely in order to raise energy efficiency,reduce emissions of gases causing tremendous pollution and health problems,and to contribute to global efforts to tackle climate change.The study on clean coal technology transfer was initiated late last year and completed this year by Professor Jin Yunhui and Professor Liu Xue of Guanghua School of Management,Beijing University.A final report Clean Cola Technology Transfer:Present Situation,Obstacles,Opportunities and Strategies for China has been submitted to the Council as one of the WGTE's supporting documents.
The study focuses on commercial technology transfer,examining the ways,scale,distribution and trend of commercial technology transfer activities in China,after reviewing the present status of Chinese clean coal technology and the gap between Chinese technology and foreign technology.It examines closely three major methods through which China acquires clean coal technology from foreign countriesimports of equipment,license trade and joint ventures.It points out that China seems to overemphasize the imports of clean coal equipment,while not paying enough attention to the acquisition through license trade and direct foreign investment.The imports of clean coal equipment can fill the shortterm gap between supply and demand,but are not good for China's longterm development and for the building domestic innovation capacity.At present the relationship between clean coal technology transfer and the domestic research and development have not been well addressed in China.There is a need to enhance the domestic capacity for research and development through clean coal technology transfer.
China has a great need and potential to transfer clean coal technology. However,there are many obstacles to acquiring such technology from abroad.These hurdles include the reluctance of many foreign firms to transfer the most advanced technology,as they want to maintain their own technological advantages.A lack of incentives for foreign firms to transfer clean technologies to China because of low energy prices.Low emission charges and loose environmental regulation and enforcement;and the lack of capacity of Chinese enterprises to adopt advanced technologies and to import clean coal technology.
To address these problems,the final report proposes the following recommendations:
1) Strengthen international cooperation,encourage developed countries to carry through their commitments made under the Framework Convention on Climate Change(to provide additional financial and technology assistance to developing countries),and in the meanwhile to explore possibilities such as AIJ and CDM;
2) Strengthened macrocontrol of clean coal technology transfer and necessary governmental coordination is needed.The emphasis should be placed on license trade and foreign direct investment over equipment imports.Provide necessary support to enterprises in their efforts to acquire clean coal technology
3) Strengthen the development of its own clean coal technology research while encouraging transfer of new technology.
4) Promote the market for clean coal technology by strengthening environmental laws and their enforcement,raising energy pricing and pollution charges and strengthening intellectual property rights protection
5. International study on clean coal technology transfer in China
The WGTE has also commissioned an international study to support the Chinese study by assessing the experience of foreign suppliers of clean coal technology and identifying the main obstacles to transferring their technology to China.The work is being undertaken by Professor Geoffrey Oldham and Dr.Jim Watson from the Science and Technology Policy Research Unit,University of Sussex,UK.A preliminary report has been submitted to the Council as a supporting document,although the work is still ongoing.
The international study focuses of 'hardware' technology transfer,but also on software knowledge transfer(for example,the provision of training and advice).The research so far has focused on one major issue.International firms want to sell their technology to the Chinese market,but they also want to maintain their technological and commercial advantages.
The study indicates that most of the international and Chinese research on clean coal technology transfer focuses on the power generation sector,a sector which only accounts for 30% of coal development in China.Therefore,there is a need to also address all other uses by industry,the commercial sector and households.
The paper examines several classes of technologies:
1) technologies where Chinese companies already have real capabilities;
2) technologies which are incremental improvements or not radical technology(those which foreign companies can transfer to Chinese companies relatively easily and quickly);and
3) more advanced technologies which have not been proven or commercially demonstrated in any country in the world.Most international activities have concentrated on the second or 'incremental' category of technology.
The SPRU study further defines incremental technology transfer to developing countries into three 'types'.Type A transfer involves the sale of hardware,Type B involves the transfer of skills to operate and maintain that hardware,and Type C involves the transfer of the knowledge necessary to make further improvements to the hardware.
The challenge for this study is to identify Chinese policies which will encourage Type B and Type C technology transfer in the area of clean coal so that Chinese companies are able to operate,maintain and make further improvements to the technologies they acquire.
Against this background,the report contains a preliminary analysis of activities in three case study areas:more efficient coalfired power plants,cleaner gasification plants for fertilizer production,and efficient industrial boilers.Further analysis of these and other areas will be carried out in subsequent work.The preliminary study also briefly examines China's trade and environmental policies.It states that many foreign companies are constrained by policies,which restrict their ability o to form joint ventures with Chinese companies(for example,through limiting the foreign ownership percentage).Although restrictions have eased in recent years,the approval process is still thought to be long and complicated.
Enforcement of environmental regulations is also perceived to be a problem.Although the 1997 Chinese environmental regulations for power stations are comparable or nearly as strict as some OECD countries,foreign companies believe that these regulations are poorly implemented in China.Although restrictions have eased in recent years,the approval process for foreign investments in the energy industry is still thought to be long and complicated.
The preliminary conclusions of the SPRU study are:
1) The trade in clean coal technology from international companies and countries is substantial; 2) 90% of international efforts are focused on electric power plants.Therefore,there is need to strengthen action in other coalburning sectors;
3) The most immediate potential for clean coal technology transfer is in the area of incremental improvements.Whilst there is large potential and excitement about very advanced technologies(in theory these offer large improvements in thermal efficiency and environmental performance),Chinese companies should be careful about importing such technologies before they are sure that they work well;
4) Although China's environmental laws and regulations are quite strong now,particular in some regions,more attention should be paid to the implementation of those laws and their details to provide incentives for foreign investors;and
5) Despite the desire of both Chinese and international companies to collaborate in the area of cleaner coal,foreign firms are still reluctant to transfer technology since they are worried about issues such as intellectual property rights and the payment of license fees.
Future research will examine the experience of technology transfer more closely,and will lead to fuller conclusions and policy recommendations.
6.APEC trade liberalization and China:Coordination of environmental and trade policies
APEC is the only trade regime of which China is member.During the process of the APEC trade liberalization,the Chinese government has made commitments and taken a number of steps to open up the market.As the largest developing country in the Asian and the Pacific region and the fastest growing country over the last decade in terms of the economy and trade,trade liberalization in the region will inevitably have a major impact on China's industrial restructuring,trade policies and environmental policies.How to coordinate economic development,trade and investment liberalization and environmental protection is the single biggest challenge facing China on its path for sustainable development.
This WGTE study aims to search for right policies and ways for the coordinated development of the economy,trade and environment while accelerating the trade and investment liberalization process in the Asian and Pacific region.It will examine closely the impacts of trade and investment liberalization on China's industrial restructuring,trade development and the environment.It will also review progress achieved and policy measures taken by China in developing the links between economy,trade and environmental protection.It aims to provide recommendations on how to coordinate China's environment and trade policies and to promote sustainable economic growth in the process of the APEC and trade liberalization.
The study is still being undertaken by a team from the Chinese Academy of International Trade and Economic Cooperation and will be carried through until next year.
7. Packaging and sustainable growth of China's foreign trade
With the rapid growth of China's foreign trade and the increasingly stringent environmental requrirements in foreign countries,a number of trade disputes have been triggered by the use of certain packaging materials used by Chinese exports.Most recently,the U.S,Canada,EU and other countries have banned solid wood packaging materials from China unless they meet special treatment requirements.The purpose of the ban is to prevent the entry of Asia longhorned beetles,insects that have been found to damage forests in some areas.
Conflicts such as this incident raise two sets of important issues:1) Are these measures being taken by foreign countries for the purposes of environmental protection and are they consistent with WTO rules?Are they being implemented in a nondiscriminatory manner and transparent way? 2) Faced with increasingly stringent environmental requirements for packaging in developed countries,what are the best strategies for China to improve its packaging materials to minimize their environmental impacts and to maximize its exports?
The Working Group has recently launched a study aimed to examine the above issues and analyze the issues facing China's packaging industry.The industry needs to improve its packaging materials to make sure that they do not pollute or harm the environmental while protecting the goods,and thus to help promote the sustainable development of China's foreign trade.It will recommend ways and policies to develop and improve the packaging materials of Chinese export goods,and to contribute to China's efforts to expand its exports.
8. Trade liberalization in the environmental service sector in China
In response to the rapid globalization and trade liberalization,issues related to trade liberalization in the environmental industry are being discussed in several international form,including WTO,OECD,UNCTAD and APEC.In 1997,APEC decided to pursue early,voluntary liberalization in nine sectors,including environmental goods and services.The European Union has also pushed for the liberalization of environmental services to be a priority area for the forthcoming round of multilateral negotiations under the General Agreement on Trade in Services.
The liberalization of trade in environmental services means the sector will be open to international competition.For developing countries,this industry could be at risk,for any domestic protective policies and measures for the sector will have to be dismantled and foreign companies will receive the same treatment as domestic ones.In China,there are two diverging views on the opening up this sector.The supporters argue that the import of foreign advanced environmental management skills and technologies will promote the development of China's own environmental service sector,while opponents fear that the liberalization will affect the newly established domestic environmental service sector significantly,as foreign companies'management skills and technology are superior to Chinese skills in this area.
The objectives of the WGTE study are to understand the present status of the environmental services sector and trade in environmental services in China;to analyze the potential effects and benefits of differing degrees of liberalization of environmental services in China;and to explore how China should respond to the global and regional trade liberalization trade in environmental services;and to provide a series of related policy recommendations which can be used to guide this liberalization.
9. Demonstrating the integration of trade,investment and sustainable development in selected statelevel economic and technological development zones
Since the economic reform in the late 1970s,a multitier structure of open areas with wide geographic coverage and special emphasis has been formed in China.These open zones and regions are granted various special policies ranging from preferential tax exemption,approval of investment projects,right of importing and exporting and land use. Due to these special policies,economic development has been booming rapidly in these special zones.They have become not only the high growth points of national economic development,but also key points for China's foreign trade,investment inflows and technology transfer.
With the rapid development of exports,foreign investment and transfer of technology in these zones,environmental dimensions of these activities are also apparent.These include both positive and negative environmental impacts.Positive aspects include advanced environmental management skills and technology that have come with foreign investment and increased environmental awareness of some open areas.Many foreign owned firms have adopted sustainable development strategies in their operations
Adverse impacts include the fact that a number of small and medium sized foreign funded firms,mainly from Hong Kong,Taiwan and other Asian countries,cause some serious pollution from their process and the production while exporting manufactured goods abroad.
The WGTE has just launched a study with an aim to demonstrate the potential integration of trade and sustainable development in three selected statelevel economic and technological development zones.The project will also conduct general survey in other important economic zones in order to draw lessons from them.The three zones are the Beijing Economic and Technological Development Area,the Tianjin Economic and Technological Development Area and the Wuxi Economic and Technological Development Zone.
The objectives of the study are:1)to evaluate the current development of China's economic and technological development zones from the perspective of integrating trade,investment and technology transfer with sustainable development;2)to identify good practices and other necessary measures to promote the integration of trade and sustainable development;and 3)to provide concrete recommendations on how to promote sustainable developmentoriented zones in China's open zones,as sustainable development strategies may likely secure better access to international market,attract more foreign direct investment,and lead to other social,economic and ecoefficiency gains.
[JZ]Ⅲ. RECOMMENDATIONS TO THE CCICED The Working Group on Trade and Environment proposes recommendation in two specific areas as follows:
1. Promoting integrated trade and environment policies2. Promoting clean coal technology transfer
On promoting integrated trade and environmental policies,the Working Group recommends:
Developing National Strategies for Sustainable Foreign Trade
China's strategies for sustainable foreign trade should contain the following two key elements:
1) Guiding principles for sustainable foreign trade
a) Integrate environmental and longterm social concerns into the formulation of trade development strategies.Ensure that foreign trade and economic cooperation (including trade in goods and services,use of foreign grants,loans and foreign direct investment,as well as technology transfer)support and enhance environmental efforts and sustainable development in China;
b) Shift from the traditional mentality of nonsustainable development(focusing on the pursuit of fast trade growth and shortterm economic interest)to a longterm vision of sustainable trade development.The new vision of sustainable trade should ensure economic,social and environmental benefits of trade,and minimize environmental pollution and ecological deterioration while maintaining stable trade development.
2) Concrete contents and measures for sustainable foreign trade
a) Make necessary changes to its foreign trade policies and regulations including import and export in goods and services,foreign direct investment,technology transfer,customs and border inspection to support the above guiding principles.Strengthen and continuously adapt domestic environmental regulations and enforcement to achieve equivalency with those of its principal trading partners.This can minimize the impacts of trade and changes in foreign environmental legislation and regulation on China's exports.
b) Provide incentives for the import of environmentally friendly products and technology that promote environmental protection and sustainable development in China,strictly control environmentally harmful products and technology;and impose stringent ban on trade in wild plants and animals that have been banned by related international environmental conventions.
c) Formulate a strategy for sustainable foreign investment,including the encouragement of environmentally friendly technology transfer.Pollutionintensive industries should either be discouraged from entering China or located in special industrial zones where proper environmental services are available.Multinationals investing in China should proper environmental services are available.Multinationals investing in China should be encouraged to follow the most stringent applicable standards,whether these are international standard,home country standards,or Chinese standards. Cooperation between departments which regulate investments and those responsible for environmental protection should be strengthened.Basic policy and guiding principles for foreign investment in Genetically Modified Organisms and related projects should be formed.
d) Foreign environmental requirements and standards,even for the purpose of protecting the environment and human health,can sometimes cause trade difficulties for China's exports.There is a need to monitor the trend of environment related barriers to trade in sectors where China has an export interest,provide timely information to Chinese exporters,and provide technical assistance to exporters that have difficulties with these environment trade barriers,and help them to find solutions and alternatives.
e) Reinforce environmental regulation and enforcement in China's major exporting sectors such as textiles,leather and packaging.Make Chinese standards for these sectors consistent with international standards,minimize impacts of foreign environmental regulations and standards on China's exports.
f) Strengthen environmental management systems of major exporting sectors;and actively promote"green measures"such as ISO 14000,ecolabelling,green packaging,cleaner production,ecodesign and ecoefficiency.Encourage the development of environmentally friendly products and technologies.Integrating environmental considerations in industrial restructuring can eventually bring competitive advantages to China's exports.
g) Establish a coordination mechanism between trade and environmental departments in dealing with trade and environmental issues.Regular meetings and consultation among relevant departments will be useful. On Promoting Clean Coal Technology Transfer,the Working Group recommends:
Promoting clean coal technology transfer while fostering China's own domestic research and innovation
There is real necessity for China to introduce foreign advanced clean coal technology because of its high levels coal consumption,low energy efficiency,high pollution and the gap between Chinese and foreign technologies.The trade in clean coal technology from international companies and countries is potentially substantial.
Chinese trade policy strongly encourages the transfer of technology in all commercial deals.The new Chinese environmental regulations,particularly for power stations coming into force in 1997 are nearly as strict as some OECD countries.These policies are important to encourage foreign investment and technology transfer.China needs to further promote clean coal technology by strengthening its environmental laws and their enforcement and its intellectual property rights protection.Policy and measures(such as economic incentives that capture externalities)should be taken to accelerate diffusion and market penetration of these new technologies.
At the same time China should strengthen the development of its own clean coal technology research and innovation which is reasonable and appropriate in terms of the scale and the price and matches the Chinese market.
China should also strengthen international cooperation on clean coal technology transfer,and explore other opportunities such as AIJ and CDM to support its own clean coal utilization efforts,particularly in steel plants,limestone thermal power plants,etc.At present,90% of international efforts are focused on electric power plants.There is a need to strengthen action in other coalburning sectors,for example,coal accounts for 41% of the energy needs of various Chinese industries including chemicals,manufacturing and building materials.
[JZ]Ⅳ. 1999-2000 WORKPLAN During the next year,the Working Group will hold two meetings as usual,one in spring and another in fall.Research work will continue on:
1. International study on clean coal technology in China
2. APEC Trade liberalization:integrating trade and sustainable development in China
3. Improve outer packaging of export goods for sustainable growth of China's foreign trade
4. The liberalization of trade in the environmental service sector in China
5. Demonstrating the integration of trade,investment and sustainable development in selected statelevel economic and technological development zones
Other proposed work will address:
1. China's WTO accession and its implications for trade and environment
2. Clean Development Mechanism and China's sustainable development strategy
3. Information need for trade,environment and sustainable development in Chinese
4. Capacity building to deal with trade and environment issues,such as organizing workshops on trade and environment policy and practices
[JZ]Ⅴ. FUNDING FOR THE WGTE
The Canadian International Development Agency has provided basic funding for the Working Group on Trade and Environment and its activities.It covers the costs of meetings,foreign members travel to attend meetings,the supporting work of IISD and a small amount for research.During 1998 and 1999,the Working Group received US$ 60,000 from the Norwegian government to support some research activities.The WGTE is thankful for the support from CIDA and the Norwegian government.There is a need for the WGTE to explore other sources of funding for its further work.
