RESEARCH PAPER NUMBER: X6
RESEARCH PAPER MNEMONIC: XRECYC
RESEARCH PAPER NAME: Recycling and Trade
DRAFT AUTHOR: Kerry Schwed
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I. AbstractWhen countries regulate their own product standards, often times, little attention is paid to the external ramifications of these measures. In the case of recycling, there are many examples of how internal regulation affects international trade. An advanced industrialized nation such as the United States has a far easier time meeting high standards for the recycling of material such as waste paper or glass, than does a country such as the Czech Republic, who is trying to stabilize the overall working of its society before making vast improvements. For the United States, the money is more easily accessible and can be better allocated for environmental programs.
When countries that are in better positions to take charge of environmental reform pass laws to which only they can realistically adhere, international tension may soon follow. This disregard for the ability of others to meet certain minimum levels, whether international or not, can lead to severe trade problems, and even diplomatic strains. This analysis will look at internal recycling regulations and their effect on the trading partners of the country involved. By looking at similarities and differences in this selection of cases, it may be possible to see what recycling programs have benefited both the country who implements the measures and its trading partners. In addition, case studies can serve to highlight potential outcomes of future policy-making.
II. Issue
BackgroundBoth trade and recycling are practices that date back hundreds of years. Yet, in recent years, these two practices have increasingly collided, resulting in international trade problems. With the stiffening of recycling regulations, more and more countries are unable to meet rising standards, and competition is compromised. If a country like the United States strengthens its laws to improve the quality of the product or the environmental side effects, it is possible that the result will shut a less developed country out of the trade loop. The ramifications of this are much farther reaching than merely settling disputes over trade prices.
Substantially different means and standards of production could lead to extremely drastic differences in product safety standards. A country that is not fully able to meet the recycling requirements of a trading partner may cut corners in order to come as close to the mandated levels as possible. An alternative problem may be that a country fully realizes its inability to meet certain levels, and will cut corners as a way to save on production costs in the event that they are penalized for failure to comply with the law. These possibilities have the potential to increase both domestic and international tension. If production costs go up for a country, and the industry is unable to absorb it, the domestic prices will reflect the change. Often times, consumers look at the direct effect that the change has on them rather than the long term picture. It is difficult to explain to the average consumer that prices increased so that production may become more efficient in a global attempt to preserve the environment. Instead, many people will only see that their costs increased. Similarly, international tensions may rise if trading partners feel as though they have been dealt an unfair blow. A less technologically capable partner of the United States will likely be upset at a change in US trade law. This could serve to increase hostility or tension on other matters, such as general diplomacy and tourism, which is also trade.
In some cases, such as the situation with Germany and the European Union with the issue of packaging laws, the countries are all developed and industrialized. The problem in this type of case is that every country has different priorities for recycling and waste management. While Germany may have advanced capabilities for recycling automobile parts, it is not as capable of having an effective paper recycling facility. Therefore, if countries continue to tighten the recycling laws for the products at which they are most successful in terms of recycling, it possible that fair trade will end. The difficulty lies in trying to reconcile making sure that many countries get the chance to participate in trade, and ensuring that measures are implemented to protect the resources in the environment.
III. Relevant TED
Cases
There are several cases that serve as good examples for how an environmental policy change in one country will affect trade with other countries. The first case pertains to the strengthening of United States paper recycling laws and the subsequent impact these laws had on Canada. In the past five years, the United States government has passed a series of laws designed to increase the usage of recovered paper in the manufacturing of newspapers and other paper products. The new laws have led to an increase in the required recycled paper content for US paper producers. Congress found that 90% of all newspapers were not recycled and thus ended up in the already over-burdened waste stream (1).
Unfortunately for both the United States and Canada, Canada s recycling requirements and abilities are substantially lower. The saturation of Canadian landfills is not as critical as it is in the United States, and the technology for recycling is not as advanced. Therefore, paper producers in Canada would like to maintain the status quo, at least for the time being. It will cost millions of dollars for Canada to align their production and recycling facilities with those of the United States. While in the long run, recycling will arguably be a better solution, making production less costly, in the short term it is difficult to justify the enormous expense. If Canada does not adapt to US regulations, it will find itself squeezed out of the market. The penalties for those who do not comply with the new standards are quite severe and costly. This serves to make US producers highly unlikely to use paper and paper products that are not up to these mandated levels.
In a similar vein, Denmark, in 1981, implemented new requirements for the recycling of containers for beer and soft drinks. Like the US regulation, the Danish law aided the native producers while, in essence, it penalized foreign producers. In order to facilitate the recycling of beverage containers, the government limited the types of material allowed in production. By limiting the number of containers allowed in the market, the government was able to regulate the recycling process and make it easier for consumers to return the containers for re-use. When this legislation was introduced, it was supported by Danish manufacturers since they had followed these guidelines for quite some time.
Most of the beer in Denmark is produced domestically, but there is still a sizable import market. The largest of these outside manufacturers is Germany, who complained that the cost of instituting a collection system and then re-using the containers was substantially higher than its current system. The Germans, backed by the European Community, argued that the Danish legislation would hamper free trade and keep foreign companies out of the market.
However, Germany also passed a recycling law that had an impact on its trade with other countries. In April 1991, Germany called for the implementation of a law to require a larger percentage of the collected waste to be recycled. The government estimated that within five years, which would be now, over half the municipalities will have no more landfill space for waste. Target goals were set to recycle or reuse 80% to 90% of collected material by July 1995. Further, the government made it illegal to dump or incinerate materials. Products that can be collected and recycled are marked with a green dot to make it relatively easy for consumers to know which products are environmentally friendly. By labeling products in this way, manufacturers hope to appeal to the increased environmental awareness that many consumers have come to posses in recent years.
Members of the European Union, such as Great Britain and France have pushed for legal proceedings against Germany for unfair trade practices. These countries, on behalf of their packaging industries, have registered formal complaints with the European Union governing commission against the German law because they believe that the requirements present barriers to trade. By mandating the same recycling and collection standards across the board, the countries argued that fair competition is compromised. To get all the countries packaging industries to the same level will be extremely capital intensive, with a fairly small pay off for some time to come. Small companies have the added problem of a lack of resources for the collection of packaging so that it can be recycled. Further, it may be argued that the harmonization of packaging requirements is really a further step toward universality, and therefore undermines the individuality of each of the member countries. The green dot packaging, in addition, will be paid for by increased prices to consumers. And, at this point, such a high number of packages have the green dot label that German retailers may refuse items without the dot because they will have enough material for effective recycling. This will further isolate the market and shut the door to competition.
The fourth case also involves Germany, this time in terms of the regulations the country has in place for recycling automobiles. Since, as was pointed out in the argument in favor of eco-friendly packaging laws, the country is quickly running out of landfill space, the German government proposed legislation mandating that automobile manufacturers recycle the cars parts. Due to the high cost, both in real economic terms, and in environmental terms, of trying to expand landfill space, the government and German car manufacturers want a percentage of automobile parts to be recycled to avoid overburdening the waste-stream.
While other countries, including the United States, are taking steps toward legislating the recycling of automobiles, Germany is far ahead of them. If Germany passed a law requiring the use of recycled parts in new automobiles, as well as the capability of parts to be recycled, foreign companies would be driven out of the market. It would mean that countries would have to invest a substantial amount of capital into restructuring their technology and manufacturing systems in order to bring the automobiles up to par with German legislation. Cars that did not meet the German standards would effectively be barred from being sold in the country (2).
Problems arise when one country s standards are expected to be universally acceptable. Canada is the largest importer of United States paper and paper products, and the United States makes up the largest market for Canadian paper products exports. However, they are unable to meet the high standards that the United States set for recovering paper. The countries who pass stringent regulations must take into account the impact of the legislation on trading partners and the potential international impact. Recycling itself has many pros and cons, especially in terms of the generation or the elimination of employment opportunities. Those in the logging industry may be hurt by the passage of laws increasing the amount of paper to be recycled, for it means less jobs in their field. However, between 1990 and 1992, it is estimated that the recycling industry in the state of Washington added 2,050 jobs (3). Outcomes such as these need to be considered when countries make decisions on implementing or changing their recycling laws.
All four of the cases noted above involved recycling laws in one country and the impact on international trade. The United States law mandating recycled paper content was not a bi-lateral agreement or treaty, but instead a law specifically targeting US paper producers. Less specifically, this law and others like it seek to instigate change in international markets as well. Further, all the cases used regulatory standards to institute change. While in effect all the countries hampered international trade, none implemented import or export bans, nor did they attach quotas of any kind. Rather, all of these things could be achieved through the creation of regulatory standards. By tightening the requirements for product manufacturing, the United States, Denmark, and Germany made it much more difficult for foreign companies to export their products to these countries.
These cases were also similar in that they all involved indirect impacts on trade. In this situation, the legislation itself did not necessarily directly impact trade. Rather, the measures were taken for environmental reasons. One externality was that all four cases had an affect on trade. The Danish government did not forbid the foreign countries from exporting beer or soft drinks. Instead, the government passed legislation ordering that containers be manufactured out of certain material to facilitate recycling. As a result of this environmental legislation, it turned out to be harder for foreign countries, such as Germany, to get their products up to this mandated level, thereby affecting international trade. However, the process of tightening environmental legislation across borders has become almost quid pro quo in some cases. Germany, while suffering a market loss in the case of the Danish beer bottling law, did the same thing to its trading partners in the form of both the German packaging law and its beer purity law
Three of the cases used recycling as a substitute for an environmental problem. Rather than getting rid of the product, the laws changed the manner of production, or substituted a more environmentally sound program for one that is less ecological. The paper recycling laws instituted by the United States was intended to cut down on the amount of waste paper dumped in landfills each year. In the case of Denmark, the government also sought to ease the burden on the landfills by recycling glass beverage containers. Suffering from a great loss of space due to overflowing dump sites, Germany encouraged the recycling of automobile parts. In passing the German packaging law, Germany wanted to encourage the use of bio-degradable products as a way to halt landfill expansion.
The United States recycling law affected the smallest number of parties, with only two countries most directly involved. The case directly affects the United States and Canada, though residual affects will be felt by other countries, most specifically Mexico. The other three cases involve a greater number of parties. All three affected the twelve members of the European Community. In many cases, more countries than this are impacted as well, as the United States sells cars in Germany, as well as beer to Denmark.
In terms of the environmental problems that these regulatory standards seek to fix, the cases are evenly divided. The Danish beer bottling case confronts the problem of waste land depletion. By recycling its bottles up to 30 times, Denmark hopes to halt to quickly expanding landfills. Germany, with its packaging law, is recovering about 80 percent of used material, slowing the growth of its landfills. The United States paper recycling program also seeks to cut down on the amount of waste entering the waste stream. In addition to stemming the expansion of the landfills, the United States program also tries to cut down on the pollution generated by the heavy manufacturing of paper products, and instead looks to recycled paper. In the case of German auto recycling, the country hopes to cut down on pollution from manufacturing cars parts from scratch. Instead, it has been found to be more environmentally efficient to recycle certain automobile parts.
Aside from these four cases, many nations are stepping up to institute tougher environmental standards. Basque Country, in Spain, is serious about making improvements in the environment. The environmental industry there contributes two percent of its GDP to a voluntary program made up of companies that are seeking ways to process recycled metals (4). England and Wales are trying to get control of the ever-growing landfills. The Department of Environment set targets to reach this goal. By 2005, the government hopes to reduce the waste in landfills to 60 percent, and to increase the recovery rate of municipal waste to 40 percent (5).
The packaging industry in England took recycling into their own hands and formed RECOUP, a non-profit organization designed to oversee the recycling of plastics. In 1994, RECOUP reported that more than 60 million plastic bottles were recycled, and 37 local authorities announced ambitious plans for collecting bottles. However, while this is certainly a start, there is still much work to be done. Over 350 local authorities stated that there are no plans in the works to implement a plastic recycling program. Initial plans involved reliance upon the consumers to sort their plastics according to three types of materials. However, it proved too difficult to put the burden of sorting materials in the public. Part of the problem with recycling is the financial burden. Now, many cities depend upon private donations to make their recycling programs work. The Britain, along with the European Union, is lobbying to get producers to pay the cost of recycling. While this will initially be felt by the consumers in the form of higher prices, eventually, as the new systems become more efficient, prices will level off and output will continue to increase. This is the overall goal of environmentalists and producers - after time, there will be less waste and greater, more resourceful output at a lower cost. The time element is the crucial factor (6).
V. Further
Information
Trade and Environment Database
Economic Growth Through Recycling
THOMAS - Legislative Information on the Internet
European Recycling and the Environment