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Electronics sector looks to tackle tensions in a globalising world


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Recent EU Directives on waste electronic goods and hazardous substances are leading to tensions with developing countries which export equipment. The global electronics supply chain is now forming an important testing ground for a new initiative on sustainable trade and innovation aimed at overcoming accusations of environmental protectionism. The initiative encapsulates some of the conflicts between governments, set to be played out when trade ministers meet in Cancun, Mexico, on 10-14 September to kick-start the latest round of talks on trade liberalisation.

Electronics businesses operating in the EU market are having to find cost-effective ways to comply with new environmental legislation. The Directive on waste electrical and electronic equipment (WEEE) seeks to tackle one of the EU's growing waste streams. The sister Directive on restriction of hazardous substances (RoHS) addresses the risks posed by chemicals such as lead, cadmium and brominated flame retardants.
Many firms in the sector are finding that to comply with the new legislation they will need the co-operation of their manufacturing suppliers in South and South East Asia and China. If existing suppliers cannot come up with the goods, then alternative ones will have to be located.

The process is proving tricky for many companies. For example, one industry expert says that retailers dealing in low-budget consumer electrical goods, such as alarm clocks and hair dryers, are finding that few of their suppliers in China are aware of the RoHS requirement to substitute lead-based solder by 2006.

Developing country perspective
Looked at from the perspective of developing countries, the WEEE and RoHS Directives seem rather different but no less significant.

Innumerable small and medium-sized electronics manufacturers in countries such as Thailand, Malaysia, Taiwan and China have been slow to appreciate the Directives' requirements. With crucial customers at risk, they now face the challenge of adapting production processes in line with EU requirements. They will either need to find the necessary resources themselves - or persuade their customers to bear the costs on their behalf.

It could be argued that customer demand for greener manufacturing processes is no different to demand for quality improvements or any other change in specifications. If one supplier finds that he cannot meet the new specification then he is abandoned for another who can - that's commercial life.

But the WEEE and RoHS Directives are not the only environmental requirements which electronics suppliers in developing countries need to be aware of. In order to be able to plan even for the short term, they need to have an eye on emerging EU initiatives on eco-design, integrated product policy and chemicals risk assessment.

The same firms are also likely to supply companies in Japan, which has recently enacted its own stringent recycling legislation. In addition, they will need to be aware of the often conflicting demands of national eco-labelling schemes, standards and company policies or sectoral codes of conduct.

Many businesses in developing countries accept that they will have to get better at steering a course through these standards if they want to maintain their share of an increasingly liberalised and globalised market.

Indeed, some countries have little choice given the importance of electronics exports to their economies. Thailand, for example, has created a high-level governmental committee specifically to monitor the WEEE and RoHS Directives and develop a plan of action.

But some companies are complaining that they cannot afford, or do not have sufficient time, to comply with the EU legislation and related initiatives. They argue that they did not have the same opportunity as EU producers to respond to the proposals on the basis of the economic and other conditions in their countries.

Even nominally voluntary standards can become a problem. For example, SMEs manufacturing semiconductors in the Philippines have complained that certification to the environmental management standard ISO14001 has in practice become a prerequisite for supplying companies in industrialised countries, significantly increasing their costs.

Doha agenda
The OECD and the UN Conference on Trade and Development have each published hefty reports over the past year on the implications for developing countries of environmental requirements which restrict market access. The timing is no coincidence.

In their declaration at the last WTO ministerial meeting in Doha in 2001, trade ministers agreed to instruct the WTO's committee on trade and environment (CTE) to examine a number of issues with the prima facie potential to conflict with trade rules and report on whether a clarification of WTO rules needs to be negotiated.

One of these was the effect of environmental measures on market access, especially in relation to developing countries. According to an accompanying 'explanation', the purpose of examining such measures 'is not to get rid of the environmental requirements but to strike an appropriate balance between trade and environmental objectives.'

However, in CTE discussions, the Indian government warned that 'emerging environmental policies and environmental requirements can, and increasingly will, adversely affect developing countries' market access significantly.' Affected governments and industry, it notes, will need to 'safeguard their existing market access against unjustified environmental requirements.'

India also contended that 'environmental requirements are highest in the sectors of export interest to developing countries and where they have comparative advantage.'

This point is echoed in UNCTAD's report, which investigated the electronics sector among others.1 It highlights the view of some experts that the increase in environmental and health requirements affecting key developing country exports appears to have 'coincided' with moves by developed countries to reduce traditional tariffs on agricultural and industrial goods.

In other words, environmental measures are regarded as a hidden form of protectionism practised by developed countries to cut their losses.

Sustainable innovation
Amid this divergence of opinion, South Africa launched a project at last summer's World Summit on Sustainable Development to set up a network of Sustainable Trade and Innovation Centres.2

Their mission is to connect buyers and sellers in supply chains globally. They intend to foster information flows in developing countries about environmental requirements as well as enabling them to participate in standard setting. Launch partners in STIC included the European Commission's Trade Directorate, the Dutch environment ministry and two UN agencies.

STICs have been or are being established for regions in Asia, Africa, South America and the Caribbean. In Europe, the 'hub' for STIC is hosted by European Partners for the Environment - a long-standing stakeholder forum comprising multinationals such as Dow Europe, Monsanto, Coca-Cola and Unilever, agencies such as the UN Environment Programme, and NGOs including the European Environmental Bureau.

STICs are being trialled in three pilot projects addressing three key export areas for developing countries - textiles, electronics and agri-food.

A first meeting of the electronics pilot project took place in July. Participants included Sony, United Technologies, Fujitsu, India's Deki Electronics and Intellect, the UK trade body for electronics. Also involved were the UK Centre for Sustainable Design and Eco-tex, the German Institute for Applied Ecology,

The meeting discussed the WEEE and RoHS Directives and other legislation affecting the electronics sector. It confirmed that there is 'very little awareness' among SMEs in the electronics sector in the main exporting countries, while few developing country governments have begun to take on board the implications of new requirements from buyers for eco-design, hazardous materials substitution and recycling.

In August, the South Asian STIC forum met in India and decided to start work on building national and regional frameworks for implementing the WEEE and RoHS Directives. This may, for example, take the shape of national standards or trade association codes based on the EU legislation in order to inform and enable the electronics industry.

A parallel step will be an attempt this autumn to create a 'buyers' group' comprising electronics businesses which obtain goods from developing countries. One of the first questions facing the group will be whether they can mutually recognise each other's supplier policies or codes in order to simplify the situation for suppliers selling to more than one firm.

A more ambitious goal is the creation of a broader European buyers' group under STIC whose aim will be to achieve dramatically increased participation by developing country producers in discussions that shape the environmental and social elements of firms' purchasing strategies. The goal has been dubbed 'escalator 51(%)' in a bid to articulate the need for developing countries to have meaningful control in such decisions.

The goal may seem unrealistic from an EU perspective. However, Veena Jha of UNCTAD signalled the level of developing country indignation in June when she told a WTO symposium that 'standards developed without involvement of both producing and consuming countries should have a default assumption of being discriminatory to trade.'

India's submissions to the CTE go further, arguing, for instance, that developing country producers should be allowed more time to comply with environmental requirements in order to maintain their export markets.

In July, the STIC's chairman, South African Minister Ben Ngubane, observed that there is a 'deficit of trust' between developed and developing countries and remedying this may be the most difficult thing for STIC to achieve. The ultimate goal, he said, should be to achieve an increased volume of 'sustainable trade.'

According to Ritu Kumar of STIC, its key strength is its business-to-business interaction, which means that progress can be made regardless of governmental input. 'It's a new way of doing business that can bring economic rewards to developing country exporters.'

Nevertheless, STIC's mission goes to the heart of tensions between trade and environmental protection measures that are likely to emerge at a policy level in Cancun. In recognition of this, the EU has scheduled a short 'mini-ministerial' session on STIC during the Cancun meeting.

The aim is to build a coalition of willing states, companies and NGOs. EU Trade Commissioner Pascal Lamy is due to address the STIC meeting to urge chief executives to get involved in the initiative.

The Cancun agenda
Trust is likely to be in short supply in Cancun. The ministerial meeting is supposed to renew commitment to a round of negotiations hammered together at the eleventh hour in Doha. Few had thought this possible after the body blow dealt to the WTO's credibility by anti-globalisation protestors at the previous ministerial in Seattle in 1999.

It also takes place in the year that the US and Britain waged a war in Iraq in the face of UN opposition. In June, when negotiations became deadlocked on each of the key strands of the Doha declaration, WTO Director General Supachai Panitchpakdi warned governments: 'We are in a period of growing global uncertainty and profound challenges to multilateralism.'

'The Doha negotiations offer governments an opportunity to demonstrate renewed commitment to multilateral cooperation and to shared responsibility for addressing problems such as poverty and unemployment, which are so closely bound up with issues of international security and stability.'

Shortly after his speech, EU Agriculture Ministers finally reached a deal on substantial agricultural reform, a key principle of which is to decouple agricultural subsidies from production volumes, albeit with several opt-out clauses. The EU has waved this as a sign of its commitment to take account of developing country concerns in the new round.

But in return, the EU, with some support from other G8 countries, will be asking developing countries to accept the need to incorporate a set of new issues in WTO rules on investment, competition, transparency in public procurement and trade facilitation.

This is likely to be one of the most explosive areas of negotiations: a move by OECD countries to secure a multilateral agreement on investment failed spectacularly five years ago largely due to effective NGO lobbying warning that it could result in a 'race to the bottom' on environmental standards.

Most developing countries remain opposed to the EU call for new issues to be negotiated. They are suspicious of what it would entail for them at a time when many still do not have sufficient expertise or resources to get to grips with the many issues on the table.

Environmental NGOs are universally opposed to the introduction of an investment treaty in the Doha round, which comes at the same time as governments attempt to negotiate an expansion of the General Agreement on Trade in Services to new sectors which could have repercussions for environmental protection measures in those areas.

WTO mindset
WWF says it recognises that foreign direct investment is crucial to development and that international rules governing it are desirable, but feels that the WTO is the wrong place to negotiate such a mechanism.

Tom Crompton of WWF says: 'What we are looking for from Cancun is a recognition from governments that the WTO is not the only show in town.' He points to the organisation's undiluted remit to promote trade liberalisation for its own ends rather than sustainable development. An investment treaty should be negotiated through a forum equipped to address investors' responsibilities as well as their rights, he feels.

Concerns about the WTO's mindset are prompting some NGOs to feel that it is a dangerous place to negotiate on environmental matters.

In Doha, one of the unexpected 'successes' claimed by the EU was a deal to introduce discussions on a number of trade and environment issues. These include introducing a right for the secretariats of multilateral environmental agreements (MEAs) with their own trade obligations - such as the conventions on hazardous waste, climate change and biodiversity - to be present at and participate in normally closed WTO meetings.

Another issue is a decision on whether or not a clarification of WTO rules needs to be negotiated to cover eco-labelling schemes which may otherwise pose a barrier to trade.

Other items include decisions on reducing or eliminating tariffs and other trade barriers for environmental goods and services and subsides that promote unsustainable fishing.

Developing countries are opposed to allowing space for MEAs or other environmental measures in WTO rules. Some argue that this has opened the door to new forms of 'covert protectionism.' Liana Stupples of Friends of the Earth fears that they could argue for retrogressive action on environmental measures as the price for their support on other proposals.

A non-agenda item that will nonetheless have a bearing on Cancun is the WTO dispute initiated earlier this year by the US against the EU over genetically modified organisms. In July, the US went on to call for a formal dispute settlement panel to be established.

The GM dispute will add substantially to the dark political cloud drifting towards Cancun. On 11 September, the UN biosafety protocol, which the US has refused to ratify, will also come into force. It enshrines the right of nations to refuse entry to GMOs on environmental, health and safety grounds - the very principle at stake in the US-EU dispute, and which goes to the heart of the growing tensions between trade rules and sustainable development.

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