Environmental Impacts of China’s WTO Accession

Haakon Vennemo

Based on joint work with Kristin Aunan, He Jianwu, Hu Tao, Li Shantong and

Kristin Rypdal

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Background

A bunch of studies on economic and social impacts of China’s WTO accession (e.g., Bhattasali et al, 2004)

A bunch of studies on impacts of free trade on environment (e.g., Copeland and Taylor, 2004)

But not much on environmental impacts of China’s WTO accession

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Who cares?

Policy makers in China interested in environmental impacts

To plan countermeasures To plan new policies in the free trade vein

Donor community interested in encouraging Chinese interest

And worried that environmental impacts of accession are negative

Governments, NGO’s etc interested in environmental impacts of freer trade

China an important developing country case study

Many opinions and qualitative statements, not many facts and quantitative assessments

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Free trade in developing countries will:

Increase scale of production, which increases pollution (scale hypothesis)

Change composition of industries, or attract dirty industries (composition/pollution haven hypothesis)

Encourage more efficient technology (technique hypothesis)

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And in symbols

e=ahs e=emissions/environmental indicator

a=emission factor (per output) in polluting industries

h=share of industry that pollutes

s=scale of gdp or similar

ê=â+ĥ+ŝ

ê=change in emissions

â=change in emission factor/technique

ĥ=change in share of polluting industries

ŝ=change in scale

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Key aspects of Chinese WTO-accession

Before accession there were

Quotas on imports and exports

High nominal, but often low effective tariffs

Processing and traditional trade

WTO would not make or break the nation

But a single issue seldom does: Among single issues, WTO has big economic impacts

In addition to political impacts

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After accession we analyse

Tariff reduction and quota elimination on industrial products

Quota elimination on agricultural products

Quota elimination on textile and apparel exports (Multifiber agreement)

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After accession we don’t analyse

Reduction of barriers in service trade (banks and such)

Increased protection of intellectual property rights (DVDs and such)

Security of market access (bureaucracy and such)

Enforcement of commitment

Cooperation in dispute settlement

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The model

Time recursive CGE model with neoclassical closure

Developed at DRC by Li Shantong et al

53 industries, of which 10 agriculture, 29 manufacturing and 6 service

6 factors of production (3 labour, land, capital, land, material input) (nested CES)

Saving and consumption (ELES)

7 pollutants to air

9 health end-points

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Frictions and distortions

Imperfect labour and capital mobility between Guangdong/ROC.

Imperfect labour mobility between urban and rural occupations

Imperfect mobility between processing and traditional trade

In addition to direct effect of quotas and tariffs the impact of WTO depends on its ability to alleviate above frictions and distortions.

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Emission block

j

jji

iii j

jiji XAXPCE ,,

I E m i s s i o n w i t h

i n t e r m e d i a t e c o n s u m p t i o n

I I I E m i s s i o n w i t h

f i n a l c o n s u m p t i o n

I I E m i s s i o n w i t h

s e c t o r a l p r o d u c t i o n

Traditional pollutants: From WB/OECD + calibrated to EDGAR database

CH4, N2O: Livestock, fertiliser…

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Results – significant industry level changeFigure 1 Percentage change in CO2-emissions per industry

-30,00 %

-20,00 %

-10,00 %

0,00 %

10,00 %

20,00 %

30,00 %

40,00 %

50,00 %

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Results – Positive composition effect

Emission change (normalised)

Contribution from technical shift (normalised)

Contribution from composition/green dumping (normalised)

Contribution from income growth/scale (normalised)

PM10 -0.91 0.36 -2.12 1.00

SO2 -0.77 0.50 -2.12 1.00

NOx 1.04 2.35 -2.12 1.00

VOCs 0.10 1.38 -2.12 1.00

CO2 -0.54 0.73 -2.12 1.00

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Results – one scenario at a time

WTO accession package (S5)

Tariff and quota reduction on industrial products (S1)

Agricultural trade liberalization (S2)

MFA elimination (S3)

Automobile Productivity boost (S4)

PM10 -1.24 -0.48 0.92 -1.50 0.18

SO2 -1.05 -0.81 1.00 -1.09 0.16

NOx 1.44 0.20 0.75 0.06 0.20

VOCs 0.16 0.83 0.76 -1.45 0.21

CO2 -0.74 -0.19 0.79 -1.26 0.17

CH4 -3.24 -0.60 -0.34 -1.88 0.09

N2O -0.61 0.30 -1.70 0.71 0.06

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Other impacts

1.39 percent increase in GDP

0.65 percent improvement in public health (monetary equivalent)

But baseline cost to public health is only 2.3 percent of GDP. 0.65% of this is small.

Income distribution deteriorates Urban households in Guangdong gain 8

percent in income

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Further studies

Sensitivity analysis: what matters for results

Three-region version of model (He Jianwu will report)

Inclusion of biomass demand A means of assessing indoor air issues in

macroeconomic setting

Trade- and environmental policy The literature talks about endogenous policy

response

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