Raed Safadi Deputy-Director, OECD Trade and Agriculture Directorate Workshop on Recent Analysis of the Doha Round, Geneva, 2 November 2010 Environmental Aspects of A Successful Doha Deal

OECD Trade & Agriculture 2 Environmental goods and services The struggle to avert climate change is one of the greatest challenges facing the international community today. Strong and urgent action is needed to stabilize greenhouse gas concentrations. Access to clean air, clean water, efficient sanitation, and modern forms of energy are problems that cannot be solved by technological fixes, but for which environmental technologies and services are likely to play an important role. Trade liberalization in goods and related services can and should support actions to safeguard the environment.

OECD Trade & Agriculture 3 Meanwhile, environmental goods are made more expensive/prohibitive as a result of trade barriers Responses to an OECD survey of 77 companies across 10 OECD and non-OECD countries have confirmed the presence of significant barriers (i.e. rated major or prohibitive): –Testing and certification (27 firms) –Customs procedures (24) –Regulations on payments (23) –Adequacy of intellectual property protection (19) –Government procurement procedures (14) –Product standards and technical regulations (13)

OECD Trade & Agriculture 4 A triple-win agreement A win for increased trade through a reduction or elimination of tariff and non-tariff barriers (NTBs). Domestic purchasers, including business and governments at all levels, would be able to acquire environmental technologies at lower costs and have facilitated access to specialized technologies. A win for the environment by improving access to high-quality environmental goods and services. This can lead to direct quality-of-life benefits for people everywhere, to the extent that greater availability of such goods and services helps achieve a cleaner environment and improve energy efficiency, while satisfying basic human needs, such as access to safe water, sanitation or clean energy. A win for development, enabling developing countries to obtain the tools they need to address key environmental priorities as part of their on going development strategies.

OECD Trade & Agriculture 5 The WTO negotiations on EG&S Concern about dual uses (i.e., non-environmental as well as environmental) of many of the goods proposed; The sheer number of goods on the compiled lists (several hundred at one point); and The poor coherence among the three liberalization components: tariff and non-tariff barriers on goods, and barriers to trade in related services.

OECD Trade & Agriculture 6 Counting the benefits According to a World Bank study, International Trade and Climate Change, liberalizing a small number of low-carbon goods (wind turbines, solar PV cells, clean-coal technologies and efficient lighting) in 18 developing countries would lead to: –7% trade gains if only tariffs are removed, and 13% if both tariffs and non-tariff barriers (NTBs) were removed. Another paper, by the IISD, estimated the greenhouse gas emission focusing on the Friends of the EGS list of 153 goods; its conclusion: the impact on GHG emissions is almost exclusively due to the lists inclusion of renewable electricity generation technologies. No other parts of the list would have a comparable material impact on GHG emissions.

OECD Trade & Agriculture 7 Still, a worthwhile exercise Worldwide, studies estimate that increased renewable electricity generation from the technologies whose goods are included within the list of 153 could result in reductions of 0.9–6.5 GtCO2 annually by A rough upper boundary approach to ascribing what share of these savings could result from tariff removal concludes that less than 5% of savings could be ascribed. Whilst relatively small, the analysis does confirm the view that trade liberalization would be beneficial as it would result in higher trade (and thus production) of climate-friendly technologies.

OECD Trade & Agriculture 8 Two key conditions that must be met to maximize the potential A broader coverage needs to be achieved for the goods that are necessary in each relevant technology. Accompanying measures would be necessary to ensure that the potential for uptake offered by tariff liberalization is actually exploited: –Attention to non-tariff barriers. –Attention to the capacity of host states to absorb new technologies --

OECD Trade & Agriculture 9 Natural resources and agriculture Agriculture is a major user of natural resources and its environmental performance needs to be monitored and evaluated. Impact on environment occurs on and off farm; includes both pollution degradation of soil, water & air, but also the provision of environmental services, such as biodiversity, flood & drought control, & a sink for greenhouse gases Agriculture currently accounts for about 70% of world freshwater withdrawals (45% in OECD countries). In 2004 agriculture directly contributed about 14 % of global GHG emissions. Land use, land use change and forestry account for a further 17%. Agriculture will inevitably be called on to contribute to the mitigation effort. It will also need to apply adaptation strategies in order to avoid significant losses in production.

OECD Trade & Agriculture 10 Relying on markets is key To resolve the different pressures the agro-food sector is facing. To resolve climate change and resource scarcity issues. Land, water and other resource prices will need to reflect the real underlying costs,. Where markets do not exist, they will have to be created.

OECD Trade & Agriculture 11 The WTO is part of the solution Trade and an efficiently functioning international trading system will be a key framework condition allowing global supply to match global demand and meeting consumer requirement for quality and variety. Production patterns globally are likely to shift and the general consensus is that fragile, food deficit areas in parts of Asia and Africa may be even less able to feed their growing populations than before. This implies that trade will become increasingly important in connecting food surplus with food deficit areas. In parallel, development strategies are needed that will create employment outside agriculture for poor populations whose already meager livelihood from farming will come under threat. The multilateral trading system will need to be strong enough and reliable enough to satisfy food deficit countries that trade is indeed a reliable component in a broad food security strategy.

OECD Trade & Agriculture 12 WTO rules necessary though not sufficient Attention to improving the framework policy conditions in many less developed economies is also required, as is increased investment in developing country agriculture. Without improvement in the supply capacity on many poor countries, they will not be able to respond to markets – at either local, regional, national or international levels. Both public and private investment can provide the needed capital for further development, but the private sector has an additional contribution to make with respect to bringing know how and networks to less developed regions. We should always keep in mind that agricultural policy reform and trade liberalization are a necessary but not sufficient condition for sustainable development in agriculture, and they must be accompanied by appropriate environmental policies.

OECD Trade & Agriculture 13 Externalities: positive and negative To a large extent environmental effects are largely determined by farmers choices of how and what to produce, and these decisions in turn can be influenced by the way agriculture policy attempts to integrate environmental concerns. The dilemma faced by the agricultural sector is that the policy failures due to government intervention in agricultural markets tend to reinforce rather than mitigate market failures in agriculture. Agriculture support programmes, import restrictions on efficient biofuels and fossil fuel subsidies have encouraged production methods that did not pay attention to environmental impact. Subsidies have also encouraged over-exploitation of natural resources.

OECD Trade & Agriculture 14 Reforming agricultural policies: A + for the environment OECD countries are responding to the environmental impacts of agriculture through a combination of agricultural and trade policy reform, and specific environmental policy instruments. However, the starting point should always be the reform of agricultural policies in order to reduce the production distortions associated with many forms of agricultural support. Regulations and taxes continue to be important, but OECD analyses show that environmental objectives can be achieved more efficiently by innovative approaches such as cross-compliance and decoupling. In this approach, payments and other forms of support depend on meeting targets other than increased production of specific commodities, for example preserving the landscape.

OECD Trade & Agriculture 15 Looking for win-win solutions The effects on environmental performance of reforming agriculture policies will depend on the type of policy measure in place. Most harmful interventions for the environment are market price support, output payments and input subsidies (such as fertiliser, pesticide and energy subsidies). Cross compliance mechanisms require farmers to fulfil specific environmental requirements in order to be eligible for specific agricultural support payments. In the EU, US and Switzerland, cross-compliance is significant. Agri-environmental payments. Some OECD countries (EU countries, Norway, Switzerland and US) have also developed a wide range of agri-environmental payments under voluntary programmes providing payments to farmers to adopt specific farming practices, with positive environmental effects and/or providing public goods (such as landscape, biodiversity, etc).

OECD Trade & Agriculture 16 The overall burden of agricultural support has declined across all OECD Total support to the OECD agricultural sector, was USD 368 billion in This is equivalent to 0.9% of OECD GDP, down from 2.5% in The reduced burden of agricultural support on the overall economy is characteristic of all OECD countries and primarily is a reflection of the falling share of agriculture in their GDP.

OECD Trade & Agriculture 17 …and more payments are giving greater flexibility to farmers, including no obligation to produce Payments to farmers are less tied to producing a specific commodity, either by allowing a group of commodities or any commodity to be eligible for a payment. In around one quarter of total support to producers in the OECD area was arising from policies that did not oblige farmers to produce any commodity in order to receive support, in particular direct payments in the US or single payments in the EU. However, commodity-specific support is significant for rice, sugar, and some livestock products. In the case of rice, such support amounted to 60% of total producer rice receipts in

OECD Trade & Agriculture 18 Despite notable progress, policy distortions in the OECD area remain large Progress has been made in reforming support policies: –The level of support is down from 37% of farm receipts in to 23% in –The share of the most production and trade distorting support is also down, from 86% of total support PSE to 56%. The implementation of more decoupled policy instruments has played a very important role in the reform process in OECD countries. But more needs to be done Better targeting of policies to specific income objectives or market failures remains a major challenge of ongoing policy reforms.