Rolf J. Langhammer
China’s import ban on some "dirty" solid wastes could be a big contribution to protecting the global environment. The ban could force exporting countries to raise their recycling standards. At the same time, China would have to enforce stricter standards on domestic producers to defend the ban against potential trade disputes.
On July 18, 2017 China notified the World Trade Organization that it would impose a ban on imports of 24 types of environmentally hazardous solid waste by the end of 2017. China’s State Council has also announced that it will phase out imports of non-hazardous solid waste that can be replaced by domestic resources by the end of 2019.
The announcements have rattled the global market for recycled waste for which China is by far the world’s largest target market. The ban refers to waste paper, plastics, as well as raw textile materials. According to the International Solid Waste Association, 56 percent of the world’s waste plastic is exported to China. A total of 87 percent of Europe's waste plastic ends up in China.
This is why the US Institute of Scrap Recycling Industries (ISRI), which represents the interests of affected US export companies, has labeled the announcement "devastating" and "catastrophic" for employment. At a WTO meeting in October, the United States, the EU, Australia, Canada and South Korea expressed concerns over the Chinese import ban and demanded clarification on whether China planned to extend it to other products, in particular waste of ferrous and non-ferrous metals.
Can China’s measures help raise global standards for recycling?
China argues that inspected foreign garbage has often contained dirty or even hazardous waste, leading to environmental pollution and endangering publich health. An import ban would provide incentives to foreign exporters to raise their recycling standards and at the same time improve the quality of Chinese products made from recycled material.
The poor state of domestic production of waste is the critical issue both for the Chinese government as well as for the trading partners. China’s domestic waste market is known as fragmented, unregulated, and dominated by small family businesses that use low-tech equipment and pay no attention to pollution. Illegal landfills and toxic waste incineration are frequently cited causes of environmental degradation in China. Research suggests that more than three quarters of Chinese plastic waste are mismanaged and enter the oceans.
A ban against imported waste of presumably better quality than local waste could drive up domestic prices for waste as China’s increasingly advanced industrial production needs recycled waste of much higher quality than in the past. Such price increases would become a strong incentive to improve the quality and environmental standards in China’s local waste market. Yet the enforcement of stricter standards would very likely come at the cost of driving small labor-intensive family-run businesses out of the market.
Import ban does not necessarily violate global trade rules
A new domestic market structure for recycled waste would become the basis of the designed import substitution strategy. But this strategy could also open the door to trade cases directed against China at the WTO, if trading partners can argue that discriminates against foreign suppliers and protects domestic suppliers with equal or even lower standards.
Trade protection and environmental protection are conflicting targets that are both addressed in WTO rules. In the early days of GATT and WTO, trade protection was the dominant target. According to WTO rules on "like products," trade restrictions based on environmental or health grounds could not result in discrimination between products with otherwise identical properties and functionality, regardless of how they were produced. Should Chinese trading partners substantiate their point that local Chinese waste is physically "like" imported waste, China could face a loss in a trade dispute. The WTO might reject China’s position in total or it could at least request that China seek a less trade-damaging alternative to an import ban.
Yet, in recent years, the protection of the environment laid out in Article XX of GATT has become a more legitimate justification for exceptions from free trade, thus weakening the "like" product principle. A famous EU-Canada trade dispute on a French import ban against asbestos products from Canada in early 2000 led to a sea change in the ruling on trade measures for protecting the environment. Both a panel and an appellate body ruled that the ban was justified as an exception under the GATT article.
So far, Chinese trading partners are reluctant to condemn the import ban as inconsistent with WTO rules. They are aware of the low quality of their waste exports, which have often been criticized for benefitting from permissive Chinese import practices while not meeting domestic standards in their countries of origin.
These times are over. The costs of a new era of much higher waste quality and even waste reduction will burden both Chinese family businesses and Western waste exporters. The more this burden will be equally shared, the more likely it is that trade policy conflicts can be avoided to the benefit of a better global environment.