The implications of the Basel Convention for developing countries: the case of trade in non-ferrous metal-bearing waste

Resources, Conservation and Recycling 23 (1998) 1–28

The implications of the Basel Convention for developing countries: the case of trade in non-ferrous metal-bearing waste Nick Johnstone * En6ironmental Economics Programme, International Institute for En6ironment and De6elopment, 3 Endsleigh Street, London WC1H 0DD, UK Accepted 16 January 1998

Abstract The decision to introduce a ban on trade in hazardous waste with secondary values between Annex VII countries (the OECD, EU and Liechtenstein) and Annex VIII countries (other signatories) could have important implications for developing countries. The specific case of non-ferrous waste has been chosen for analysis since it is an important component of waste trade flows and since a number of reports have been written which argue that the ban may have adverse economic and environmental effects for a number of developing countries. The study examines some of the relevant trade data as well as the underlying economic factors behind the trade. In particular, the generation of non-ferrous metal (NFM)-bearing waste, the use of non-ferrous metals in manufacturing sectors, and the production of secondary non-ferrous metals in the two areas will be examined. The main findings of the paper are that: metal-bearing solid waste generation amongst developing countries is lower in absolute terms, but the rate of growth is much higher than amongst OECD countries; many developing countries are exhibiting much faster rates of growth in demand for non-ferrous metal than OECD countries due to shifts in the sectoral composition of their economies; international trade in NFM-bearing waste and scrap is relatively significant for some metals, but those types of waste most likely to be affected by the ban do not appear to be important parts of this trade; and, imports of non-ferrous metal waste and scrap help to explain the production of secondary metals, thus indicating that at least some of the trade

* Tel.: + 44 171 3882117; fax: +44 171 3882826; e-mail: [email protected] 0921-3449/98/$19.00 © 1998 Elsevier Science B.V. All rights reserved. PII S0921-3449(98)00002-0

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in waste is motivated by demand for the waste for reclamation. The report concludes that while the ban is far from being an ideal environmental policy instrument, it must be understood as a reflection of both market failures (in the market for hazardous waste treatment and reclamation) and policy failures (in previous efforts to control adverse effects from the trade). If appropriate criteria are applied (mainly waste classifications and Annex classifications) then the environmental implications of the ban may be positive and the negative economic consequences quite small. However, given the rate of growth in generation in many of the Annex VIII countries, such benefits are likely to be slight relative to the problem of the treatment and reclamation of waste generated domestically. Thus, it is argued that if the ban is to be introduced, the dormant ‘positive’ measures in the Convention related to financial and technical assistance need to be revived. © 1998 Elsevier Science B.V. All rights reserved. Keywords: Metal recycling; Hazardous waste; International trade

1. Introduction Since its inception the Basel Convention on the Control of the Transboundary Movement of Hazardous Wastes has gone through a series of important changes. Most recently, and significantly, some of the initial principles of the Convention based on control of trade in hazardous wastes have been superseded by the decision to introduce an outright ban on trade between Annex VII countries (the OECD, EU and Liechtenstein) and Annex VIII countries (other signatories). Depending upon how the ban is applied, this could have important implications for developing countries. This study will concentrate on the economic and environmental effects of the ban on trade in hazardous wastes with secondary values. In addition to examining some of the relevant trade data, this report will also examine the underlying factors behind the trade. In particular, the generation of non-ferrous metal-bearing waste and the production of secondary non-ferrous metals will be examined. This will provide a conceptual framework through which both the economic and environmental implications of bans on different types of hazardous wastes can be examined. In order to give the paper a clearer empirical focus the case of non-ferrous metal (NFM)-bearing waste will be examined in more detail. This class of waste has been chosen since it is an important component of waste trade flows and since a number of reports have been written which argue that the ban may have adverse effects (economic and environmental) for a number of developing countries due to its effects on the metal processing sectors and other manufacturing sectors which use secondary metals [1 – 5]. The main findings of the paper are that: “ Metal-bearing solid waste generation amongst developing countries is lower in absolute terms, but the rate of growth is much higher than amongst OECD countries.

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“

Many developing countries are exhibiting much faster rates of growth in demand for non-ferrous metal than OECD countries due to shifts in the sectoral composition of their economies. “ International trade in NFM-bearing waste and scrap is relatively significant for some metals, but those types of waste most likely to be affected by the ban do not appear to be important parts of this trade. “ Imports of copper, lead and zinc waste and scrap help to explain the production of secondary metals, which would be consistent with the hypothesis that at least some of the trade in waste is motivated by demand for the waste for reclamation. However, more direct forms of data are not available to support this definitively. The report concludes that the while the ban is far from being an ideal environmental policy instrument, it must be understood as a reflection of both market failures (in the market for hazardous waste treatment and reclamation) and policy failures (in previous efforts to control adverse effects from the trade). If appropriate criteria are applied (mainly waste classifications and Annex classifications) then the environmental implications of the ban may be positive and the negative economic consequences quite small. However, given the rate of growth in generation in many of the Annex VIII countries, such benefits are likely to be slight relative to the problem of the treatment and reclamation of waste generated domestically. Thus, it is argued that if the ban is to be introduced, the dormant ‘positive’ measures in the Convention related to financial and technical assistance need to be revived. The report consists of seven sections, including this brief introduction. In Section 2 the role of the Basel Convention as an environmental policy instrument is discussed. In Section 3, evidence on trends in the generation of hazardous wastes— particularly metal-bearing solid waste—will be examined. In Section 4, some data on the industrial use of metal-bearing waste will be examined. In Section 5, some data on NFM waste trade volumes and values is presented. Section 6 provides an empirical analysis of structural characteristics of waste reclamation and the determinants of production of secondary metals, thus casting light on the economic basis for NFM waste and scrap imports. Finally Section 7 reviews the evidence and provides some policy recommendations.

2. The Basel Convention as an environmental policy instrument In the 1980s there was a general perception that hazardous waste trade exports from OECD countries had potentially significant adverse environmental impacts on developing countries. As such, many of them began to lobby for international mechanisms whereby the trade could be controlled. The OAU in particular pushed for a complete ban on OECD exports of hazardous waste to its member countries [6]. To some extent this was a reflection of concerns about domestic capacity to monitor such flows and to institute and enforce domestic regulations to ensure adequate treatment [7]. Thus, while they could ban such imports unilaterally, many developing countries felt that an international agreement would reinforce the effects of such a ban [3].

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However, the OECD countries were reluctant to introduce such a ban [8]. Their reservations were two-fold: firstly, they felt that in many cases international trade in hazardous waste would represent an effective means of treating and disposing of waste; and secondly, they felt that a ban on trade in recyclables, in particular, would be counter-productive. The end result was a compromise, composed of the following basic principles1: “ Trade between parties and non-parties was banned, unless there was a bilateral agreement approximately equivalent to the Basel Convention, already in place. “ Exports to countries which had explicitly prohibited their import were banned. “ Wastes could not be exported to countries in which there was ‘‘reason to believe that it will not be disposed of in an environmentally sound manner’’. “ All exporters had to obtain ‘‘prior informed consent’’ from the country in question before proceeding. “ Requests for a shipment had to be accompanied by sufficiently detailed information on the characteristics of the shipment for the importing country to undertake a risk assessment. “ In an effort to reduce the potential for environmental damages en route there were packaging, labelling and transport requirements. “ If any of the preceding were violated then the exporting state would have a duty to reimport the waste. These measures were accompanied by a large list of ‘positive’ measures which were designed to reinforce the regulatory aspects of the Convention. A mechanism was to be established to assist in the international dissemination of information on hazardous waste management systems, a technical cooperation fund was to be established to provide technical and legal assistance for developing countries, assistance was to be provided in the development of regulatory regimes, and compensation funds and a liability regime were to be established to ensure that funds were available for remediation. And finally, a technical working group was established to clarify the concepts of ‘environmentally sound management’, ‘hazardous waste,’ ‘disposal’ and other ambiguous terms in the Convention. More recently, the Convention has been amended radically following the adoption of Decision III/1. In 1994 the parties to the Convention agreed to introduce a ban on all trade in hazardous waste for final disposal from OECD countries to non-OECD countries. Trade in recyclable hazardous waste would be banned 3 years later. Although its legal status was not clear initially, this was rectified in 1995 and the ban will enter into force once three-quarters of the parties to the Convention have ratified the decision. The ban creates a relatively complicated two-world system for the treatment of those wastes which the Technical Working Group (TWG) classifies as being hazardous. Richer countries can not export their waste to developing countries, although trade in the opposite direction (and within the two groups of countries) is allowed [1,5,10]. At the same time the distinction between OECD and non-OECD 1

The basic characteristics of the Convention (and subsequent amendments) have been reviewed in [9].

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was amended to Annex VII countries (OECD, EU and Liechtenstein) and Annex VIII countries (all other signatories). It is this aspect of the Basel Convention which is of particular interest to this study since it has often been argued that trade restrictions are not an effective means of addressing environmental concerns (see [11] for a discussion). Since international trade is not in and of itself a cause of environmental degradation, restrictions on trade do not address the fundamental determinants of degradation. Regulations should instead be targeted directly at the source of the externality, i.e. the method of transport or the means of treatment. For this reason trade restrictions may result in significant resource misallocation for little environmental gain [12]. Indeed, in some cases trade restriction may have unexpected and even perverse consequences. For instance, the ban may drive the trade underground and since waste which is traded illegally is much less likely to be treated satisfactorily than waste which is traded legally, this might mean that the overall standard of treatment falls. Similarly, the creation of a ‘dual’ market amongst Annex VII and Annex VIII countries may mean that efforts to restrict the adverse environmental effects arising from one trade flow are more than offset by corresponding exacerbation of the effects from another trade flow. However, it has been recognised that in the absence of an international regulatory agency there is a case to be made for trade restrictions to address international environmental problems.2 Baumol and Oates [13] emphasise that in a ‘second-best’ situation where markets do not operate perfectly, trade restrictions may approximate the optimal outcome (Beghin et al. [12] discuss a number of studies which review such cases). This latter point is by no means incidental since the market for hazardous waste treatment, reclamation and disposal services is characterised by a number of factors which are clearly not consistent with perfect markets. In particular, the existence of imperfect and asymmetrical information between buyers and sellers of waste creates distortions in the market. In addition, the uncertain and irreversible environmental consequences which arise from inadequate treatment of some forms of hazardous waste means that even if the characteristics of the waste are known, it may not be possible to weigh the costs and benefits of the trade in any systematic manner. In this vein it is interesting to note that the principle means of control of the hazardous waste trade prior to Decision III/1 was through the use of ‘prior-informed-consent’ and associated requirements such as manifest and labelling procedures. These went some way toward ameliorating some of the imperfections in the 2

Given this context, it is perhaps not coincidental that the negotiators of the Basel Convention framed the trade in hazardous waste in a manner analogous to the transfrontier diffusion of pollution (see [10] for a discussion). Trade in hazardous waste was seen as the vehicle through which pollution is diffused internationally. It is this conception which lies behind the application of the ‘proximity principle’ [10]. However, such a case is clearly not tenable since a substance which is contained cannot be said to have an impact upon the ambient environment. Moreover, treatment and disposal in the recipient country may or may not have transboundary effects.

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market by allowing importers to undertake risk assessments on the basis of more complete information than had been the case previously. Thus, it appears that parties to the Convention agreed to the ban only after a period in which less draconian — and potentially more effective—measures had been applied. While the previous system had certainly played a role in making the trade more transparent and obviating some of the information problems3, there continued to be significant problems in the trade, and when this was recognised some of the parties to the Convention reiterated their original demands for a ban.

2.1. Conclusions While the Basel Convention was initially developed as a means of regulating and monitoring trade in order to allow signatories to better control the adverse environmental consequences of the trade in hazardous waste, it is fast becoming an explicit trade ban. Indeed Decision III/1 effectively makes all other aspects of the Convention redundant, at least insofar as they relate to trade between Annex VII and Annex VIII countries. To some extent, therefore, the advent of the ban is a reflection of the failure of the parties to regulate the trade in a coherent manner. While such a policy is clearly not optimal, it may well be the most efficient ‘second-best’ instrument available. The rest of this paper is largely concerned with the consequences of the ban for developing countries.

3. Trends and patterns of NFM-bearing waste generation Global generation of hazardous waste has been estimated to be in the region of 300 – 500 million tons per annum [15]. The IMO Global Waste Survey [16] concluded that 3000 – 6000 tons of hazardous waste were generated for each $US billion of output in the OECD. However, comparing generation rates across countries is problematic since countries use different definitions of toxicity in defining hazardous wastes and data collection is often haphazard. In particular, unlike other countries, the United States includes a large variety of mixed wastes which have the potential to leach into groundwaters due to their liquidity. This inflates US figures substantially relative to other countries (see Appendix A for most recent generation rates within the OECD). Data on hazardous waste generation for non-OECD countries is even less readily available. It has been estimated that generation by Eastern European countries is around 19 million tons, while the rest of the non-OECD world generated approximately 16 million tons [15]. Some of the developing country signatories to the Basel Convention have provided data on generation to UNEP and other countries have provided data to the International Maritime Organisation (see Table 1). Given the discrepancies in these figures — i.e. according to the reported volumes Brazil gener3

Johnstone [14] reviews the evidence.

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ates 5% of the hazardous waste of Trinidad and Tobago—it is clear that they tell us considerably more about the means of reporting and the definitions applied than they do about the actual levels of waste generated. Recognising the deficiencies in such data the IMO [16] derived a rather simple indirect proxy to estimate generation rates, using waste/sectoral employment coefficients derived from Canadian data for 11 manufacturing sectors and 14 waste types. This is clearly rudimentary, but is oft-cited in the literature. In an effort to improve upon this, more systematic evidence has been derived using the World Bank’s Industrial Pollution Projection System (IPPS) in conjunction with UNIDO’s Industrial Statistics Database. The IPPS estimates pollution generation rates for 13 classes of pollutants at a considerable degree of sectoral disaggregation (the ISIC 4-digit level includes 79 sectors) on the basis of American pollution generation data.4 Most pertinently figures for metal-bearing solid waste arisings are included. These rates (expressed in lbs of waste/$ value added) can be multiplied by UNIDO data on the sectoral composition of manufacturing in different countries in order to derive rough estimates of the relative degree of pollution-intensity of manufacturing production.5 Table 1 Declared annual hazardous waste generation in non-OECD countries Country

Source

Year

Latin America Argentina Brazil Ecuador Mexico Trinidad and Tobago

[17] [17] [17] [16] [16]

1993 1993 1993 NA NA

400 000 2 791 1 800 000 5 292 000 52 000

Eastern Europe Croatia Hungary Poland Slovenia Middle East and Mediterranean Cyprus Saudi Arabia

[17] [16] [16] [17] [17] [17]

1993 NA NA 1991 1993 1993

203 071 2 007 000 1 300 000 56 000 345 000 230 000

Asia China Philippines

[16] [16]

NA NA

47 000 000 25 023 000

Sub-Saharan Africa Nigeria

[16]

NA

1 057 000

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Volume

Derived from the US EPA’s Toxic Release Inventory. Note that these estimates only relate to waste generation in the course of the production process. For instance, all waste arising from the disposal of imported manufactured products is not included in the analysis. In this sense, the inverted-U hypothesis is a consequence not only of changing consumption patterns, but also changing trade patterns. This issue has been explored in relation to the ‘so-called’ environmental Kuznets’ Curve hypothesis (see [11] for a discussion). 5

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Fig. 1. GDP and change in MBSW intensity of manufacturing.

A total of 24 countries6 had data for 1974, 1984 and 1994, and changes in the metal-bearing waste-intensity in the period 1974–1994 were calculated by the following means: %DMPj =1 −



% ((VAMi.j.t/VAMj.t)*MPIi)

n

/ % ((VAMj.j.t − 20/VAMj.t − 20)*MPIi

0.05

where i’s are sectors, j’s are countries and MPj =metal-bearing solid waste generated per unit of output (lbs/$) in country j VAMi.j.t/VAMj.t =industry i’s proportion of total value added in year t in country j MPIi =metal pollution intensity of sector i (lbs of waste/$ value added) The relationship between the GDP in these 24 countries and the rate of change in relative waste-intensity over the period 1974–1994 are compared in Fig. 1. In general those countries with low per capita GDP have had the highest growth rates in the metal-bearing solid waste (MBSW) intensity of manufacturing. Nine of the 10 richest countries included had negative rates, while the six poorest had positive growth rates.7 The fastest growth rates in the sample were in Algeria, Malaysia and the Philippines.

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Algeria, Austria, Canada, Colombia, Ecuador, Egypt, Finland, Greece, Honduras, Hungary, Japan, Jordan, Korea, Kuwait, Malaysia, Philippines, Portugal, South Africa, Spain, Sweden, Turkey, United Kingdom, United States and Uruguay. 7 Note that the analysis was conducted at the 3-digit level since disaggregation varies greatly across the 24 countries at the 4-digit level. However, comparisons for selected countries of estimated generation rates using the two levels of disaggregation revealed little difference.

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Table 2 presents this relationship as a correlation coefficient (− 0.630). In effect, poorer countries are shifting toward more metal-bearing waste intensive manufacturing, while richer countries are doing the opposite. (Note however that the level of metal-bearing waste intensity (rather than the rate of change) remains slightly positively correlated with GDP.) Of more relevance to the Basel Convention is the relationship between metalbearing waste generation and Annex classifications. In this case the relationship between trends in the waste-intensity of manufacturing and annex classification is even more pronounced (−0.692)—i.e. Annex VII countries are much more likely to have negative trends in waste-intensity. Only two Annex VII countries (Finland and South Korea) have positive trends and only three VIII countries (Kuwait, South Africa and Uruguay) have negative trends. However, this analysis assumes that the waste-intensities of the same sectors in different economies are comparable. In effect, it is only changes in sectoral composition which are being captured, and not changes in the technology of production itself. While there are good reasons to believe that technology does vary markedly by country, there is no primary cross-sectional evidence which can be used to explore this issue. Researchers at the OECD have used the IPPS data in conjunction with inputoutput data for Brazil, China, Indonesia, Japan, Mexico and the USA to explore the technological issue in some detail [21]. Estimating emissions on the basis of material inputs for 14 sectors, they derive coefficients for 13 different classes of pollutant, including metal-bearing solid waste. Comparing across countries they find that Brazil and Mexico tend to have more MBSW-intensive input composition than the other economies, while the USA and Japan are generally lower than the other economies. Indonesia and China exhibit considerable variability across different sectors.

3.1. Conclusions A review and analysis of the evidence indicates that the Basel Convention ban will restrict exports of metal-bearing hazardous waste from those countries which are generating less and less of it to those countries which are generating more and more of it. Effectively, this means that the ban is likely to affect a declining proportion of total potential trade. It also likely to be of decreasing importance in developing countries’ total waste management problem. Table 2 Relationship between GDP, annex classification and metal-bearing waste intensity of manufacturing

MBSW intensity in 25 countries

Level of generation Rate of generation

GDP level

Annex

0.097 −0.630

0.355 −0.692

Sources: derived on the basis of Hettige et al. [18], World Bank [19] and UNIDO [20].

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Fig. 2. The relationship between wastes destined for final disposal and for recycling.

4. The industrial use of NFM-bearing waste The distinction between wastes destined for final disposal and wastes destined for recovery has usually been treated in terms of discrete alternatives. However it is perhaps more accurate to represent it in terms of degrees. In the upper part of Fig. 2, the x-axis represents the volume of treatment/processing services and the y-axis represents the costs of such services. Three relatively elastic supply curves are depicted, varying in terms of qualitative characteristics, with each shift down representing an increase in the secondary values embodied in the waste (i.e. higher BTU value, higher metal concentration, etc.). With sufficient secondary value the equilibrium price will be negative—i.e. the treatment/process facility will pay for

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the waste and the roles of buyer and seller will be reversed. (Note that demand is assumed to be perfectly inelastic—i.e. polluting sectors do not respond to changes in treatment costs by adjusting their generation rates). This relationship is made more explicit in the bottom part of the diagram, in which the equilibrium price curve (not the supply curve) is depicted relative to waste quality on the x-axis. Thus, each point on the curve in the lower part of the diagram represents an equilibrium solution for the schedule of curves in the upper part of the diagram. As the quality of waste increases (i.e. secondary values rise) the amount paid by the generator to the waste processing firm decreases until it crosses the x-axis. At this point the waste is more accurately defined as a commodity to be used as an intermediate input in other sectors. However, the supply schedules for waste treatment services are a function not only of the characteristics of the waste, but also the economic context in which they are generated, treated, and disposed. This is best understood if the supply curve for waste treatment services is recognised as being analogous to a demand curve for waste with secondary values. Firms which process waste with secondary values use metal-bearing scrap, dross, slag, ash and residue as inputs into processes which produce secondary metals. Thus demand for such waste will be a function of both local capacity to process the waste and the local demand for such metals. The latter issue will be dealt with first. Use of wastes bearing particular metals in a particular country can be decomposed as follows: NFMW/Y = % [(Yi/Y)*(NFMIi/Yi)*(SNFMi/NFMI)] where i is the number of sectors and, NFMW = non-ferrous metal-bearing waste used Yi =output in sector i NFMIi =non-ferrous metal inputs in sector i SNFMi =secondary non-ferrous metal inputs in sector i The first component inside the brackets reflects the effects of changes in the sectoral composition of the economy, the second component reflects the effects of changes in material usage within individual sectors, and the third component reflects changes in the proportion of secondary metal usage relative to total metal usage in a given sector. Differences in each of these last three components in Annex VII and Annex VIII countries will be examined in turn. The importance of changing sectoral composition can be documented using American input-output data to determine which sectors use non-ferrous metals intensively as inputs into their production processes. The figures for 1987 are shown in Table 3 [22] (unfortunately the 1992 input-output tables are not yet available). Ignoring own-industry use, the most important commodity destinations are metal containers, heating and plumbing equipment, miscellaneous electrical machinery and various other types of manufacturing equipment and machinery. The top nine sectors account for over 75% of total NFM usage.

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The sectoral distribution of non-ferrous metal use highlights the importance of capital equipment and some consumer durables in demand for the output from the non-ferrous metal industry. Indeed it is this aspect of metal use which has largely been used to explain the apparent ‘inverted-U’ which is characteristic of metal consumption across countries at different income levels (see [23] for a discussion). According to this hypothesis metal consumption per unit of output rises with income levels until a certain point when it starts to decline. The sectoral composition of NFM use illustrates why this is so—as a country industrialises its investment requirements increase and this tends to result in a shift toward metal-intensive sectors. However, as the economy matures demand for physical capital declines. According to this hypothesis metal consumption per unit of output would be highest for newly-industrialised countries which are investing heavily. In his study Tilton [23] finds a strong link between investment rates and metal consumption. Comparing investment rates, the highest average rates (expressed as a % of GDP) in 1994 were in important Asian Annex VIII countries such as Malaysia (39%), South Korea (38%), Singapore (32%), Thailand (40%) and China (42%). Conversely, amongst the Annex VII countries Portugal had the highest rate (26%), with most other countries having investment rates between 15% and 25% [24].

Table 3 Distribution of non-ferrous metals in the United States by industry (1987 — millions of dollars at producer prices)

Construction Primary iron and steel Primary NFM Metal containers Heating, plumbing, etc Screw machine products Other fab’d metal Engines and turbines General industrial machinery Misc. machinery Computer and office Service industry Electrical industrial eqpmt Electric lighting Electronic components Misc. electrical machinery Truck and bus Aircraft Scientific and controlling Misc. manufacturing Other Source: USDOC SCB [22].

NFM inputs

% of NFM value

6194 1470 17261 3008 3194 980 2049 652 639 910 719 1140 1214 806 1956 1205 3046 3539 1357 1839 4595

10.72 2.54 29.88 5.21 5.53 1.70 3.55 1.13 1.11 1.58 1.24 1.97 2.10 1.40 3.39 2.09 5.27 6.13 2.35 3.18 7.95

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Fig. 3. Changes in the NFM intensity of downstream sectors in the United States.

However, of potentially more significance are changes in the metal-intensity of production within individual sectors. Reduced metal-intensity can arise from two factors: substitution away from metals toward other materials and increased material efficiency in general. An example of the former would be the shift from metals to plastics in the manufacture of consumer durables, while an example of the latter would be reduced material wastage in metal finishing. Very few studies have been done on this issue (Tilton [23] cites one study done on industrial copper use in South Korea). Once again using American input-output data, it would appear that there have been some shifts away from the use of metals in the metal-intensive sectors in the United States [22,25]. For instance five of the 18 most important downstream sectors showed a decrease in the use of non-ferrous metals per unit of value added in the period 1977 – 1987 (see Fig. 3). In some sectors the fall was over 8% per annum. While this may not all be attributable to material savings and/or substitution — i.e. intrasectoral output composition may have played a role—there does appear to have been a decrease in the NFM-intensity of downstream sectors in the decade. This is likely to be true of other OECD countries (and thus Annex VII countries) as well.

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Fig. 4. Production of secondary non-ferrous metals by region.

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Technological change in Annex VIII countries is more difficult to determine since input-output tables are not usually disaggregated to the same degree. However, Tilton [23] examines the case of copper in some detail. Interestingly it is found that the poorer countries in the sample exhibited almost equivalent declines in the intensity of use as the richer countries in the sample. Given that the former would have experienced significant shifts toward a more metal-intensive sectoral composition while the latter experienced the opposite, this finding is quite revealing. In effect it indicates that much of the rise in intensity of use in Annex VIII countries is due to the nature of the outputs produced and not the inputs applied for particular products. The final coefficient of interest is that which relates to the relative importance of the use of secondary and primary inputs in non-ferrous metal production by region. This is also difficult to monitor at the sectoral level. However, using data on production of secondary metals relative to primary metals it is possible to cast light on this issue indirectly since much of the output is destined for domestic consumption. Fig. 4A – C present data on NFM production by secondary and primary inputs for a number of regions [26]. In the case of secondary copper and zinc, the percentages for Europe and North America are the highest, while in the other regions the proportions are much lower and generally either stagnant or falling. In the case of lead, South America and

Fig. 4. (Continued)

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Table 4 Secondary NFM Production in Annex VII and Annex VIII Countries Zinc (%)

1985 1986 1987 1988 1989 1990 1991 1992 1993 1994

Copper (%)

Lead (%)

Annex VII

Annex VIII

Annex VII

Annex VIII

Annex VII

Annex VIII

7.10 6.46 6.65 6.03 6.80 5.81 6.39 6.65 6.09 6.51

0.91 1.34 1.76 1.04 1.33 1.09 6.66 6.38 6.10 6.13

22.73 21.67 21.42 21.05 21.97 21.24 20.67 19.97 20.19 18.31

5.01 5.40 5.39 4.90 5.37 5.54 4.72 4.94 5.02 5.09

27.57 29.15 29.75 27.40 28.66 30.10 21.14 20.23 21.08 22.32

15.38 14.57 16.47 23.39 19.75 19.01 23.58 20.50 20.21 20.64

Source: UN Industrial Commodity Statistics Yearbook. Note that the classification by Annex is retrospective. FSU excluded.

Europe have the highest secondary proportions, while the other regions (except Africa) are all stable at around 10%. More pertinently Table 4 presents estimates of the percentage of copper, lead and zinc production using secondary metal inputs for Annex VII and Annex VIII countries in the period 1985–1994. In the case of copper the use of secondary metal is much higher in Annex VII countries over the entire period. The same was true of both lead and zinc production in the late 1980s, although the gap has narrowed considerably in recent years. Moreover, the proportional figures mask the real differences in absolute terms of production of secondary non-ferrous metals in the two regions. Fig. 5 shows the annual growth rates for the three metals in the two regions over the period 1985 – 1994. In the case of lead and zinc the annual changes are negative for Annex VII countries and for zinc there has been no real change. Conversely, there have been increases for all three metals in the Annex VIII region, and in one case (zinc) the annual percentage change exceeds 20%.

4.1. Conclusions Thus, demand for secondary metals per unit of output is growing faster in Annex VIII countries than in Annex VII countries for a number of reasons: sectoral composition is shifting toward metal-intensive sectors in Annex VIII countries, but away from metal-intensive sectors in Annex VII countries; improvements in material efficiency in Annex VIII countries appear to be surprisingly close to the situation in Annex VII countries; and, the use of secondary materials in non-ferrous metal production is growing much more quickly in Annex VIII countries than Annex VII countries. The combined effect of these factors means that Annex VIII countries are likely to have much higher growth rates in demand for secondary metals for the foreseeable future.

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5. International trade in NFM-bearing waste Trade in hazardous waste represents a relatively significant proportion of total generation. According to Kummer [10] 10% of total hazardous waste generated crosses international borders. In the case of the OECD it has previously been estimated that as much as 15% of hazardous waste generated is exported [27]. However, on the basis of recent OECD data exports of hazardous waste represented 4.3% of wastes generated, while imports represented 6.7% [28] (Table 2). The vast majority of this is imported by other OECD countries. Thus, it has been estimated that 80 – 90% of total international trade in hazardous waste is intraOECD, with 700000 tons traded within Europe and 200000 tons between the United States and Canada [29]. Nonetheless, there are some important trade flows from OECD countries to non-OECD countries. Indeed, prior to the introduction of constraints on the trade through the Basel Convention and other measures, it was estimated that Europe exported approximately 120000 tons of hazardous waste to developing countries [29]. Data on trade in waste with secondary values is even sketchier, but it has been estimated that 95% of waste exports from OECD countries to non-member economies is bound for recycling [3,6]. This compares with a proportion of 58% of total OECD waste exports which were destined for recovery [28]. This indicates that while intra-OECD hazardous waste trade tends to be for final disposal, the converse is true of OECD trade with other countries. More specifically, in the case of metal scrap and residues, trade from OECD countries to other countries is increasing much more quickly than trade between OECD countries [30]. Much of this is destined for relatively rapidly growing countries in East Asia and Latin

Fig. 5. Annual change in secondary NFM production.

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America where demand is high (see Hoffmann [30] for a discussion of the evidence, and see Sheales and Cox [5] for a discussion of the specific case of lead-acid batteries). This is compounded by the fact that the supply of scrap is often quite low since the available stock of obsolete capital equipment and consumer durables is small due to the relatively recent nature of widespread industrialisation and income growth. Thus, it has been argued that the economic effects of a ban on recyclables will be particularly significant for developing countries since it will adversely affect their manufacturing sectors [1 – 3,31]. (Hoffmann [31] provides evidence on the reliance of NICs on OECD metal scrap imports.) Using UNCTAD data [32] it is possible to examine recent trends in the import of NFM waste and scrap imports to ‘developed market economy countries’ (DMECs) and to ‘developing countries and territories’ (DCTs) (see Fig. 6A,B). In both cases copper volumes and growth rates far exceed lead and zinc. However, the relevance of the Basel Convention to these trade flows depends upon the origins of the imports relative to Annex classifications and the definition of those wastes which are subject to the ban. The Technical Working Group is in the process of determining the precise characteristics of the wastes to be included in the various classifications and their deliberations have been reviewed recently (see [7,9] for discussions). While it is unlikely that all ambiguities will be resolved, it is to be hoped that the degree of uncertainty will be reduced when the lists are completed. In this vein it should be emphasised that most of the studies, which foresee significant impacts from the ban have tended to use rather broad interpretations of the waste criteria which are to be applied since there has been considerable ambiguity about the discussions of which wastes are to be affected. However, it is to be hoped that such broad definitions are not consistent with the final criteria which are to be applied by the Technical Working Group. For instance, List A drawn up by the Technical Working Group (which covers wastes to be controlled by the Convention) explicitly excludes scrap metal waste in ‘massive’ form from the impacts of the ban. Thus, in order to obtain a clearer indication of the vulnerability of Annex VIII countries to the ban, the proportion of imports from Annex VII countries in secondary non-ferrous metal-bearing waste which was in the form of ash and residue (HS 2620) relative to that which is in the form of bulk scrap (HS 7404-8002) was calculated (UN COMTRADE data reported in [30]). While the latter is unlikely to be subject to the ban since it is presently on the OECD’s Green List — which was used as an interim classification in the Convention and continues to be used as a reference point by the TWG—some of the former will be since it is on the OECD’s Amber list and the Technical Working Group’s preliminary lists as well. The data indicate that over the period 1990–1994 OECD countries shipped approximately three times more non-ferrous metal-bearing ash and residue to each other as to non-OECD countries. However, proportionally exports to non-OECD countries were considerably more heavily weighted toward ash and residue relative

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Fig. 6. Imports of NFM waste and scrap.

19

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Fig. 7. Percentage of NFM-bearing ash and residue trade in total NFM waste and scrap trade.

to bulk scrap (37.3% and 28.7%) (see Fig. 7). This result is rather surprising given that the technology required to process ash and residue is usually more advanced than that required to process bulk waste [15,33]. Nonetheless this proportion is falling appreciably. Indeed for the last year for which data is available (1994) it fell below the intra-OECD proportion. This indicates that the proportion of waste which is likely to be subject to the ban is falling. (Although it must be recognised that some of this fall may be a reflection of existing restrictions on trade to non-signatories, thus reflecting the effectiveness of the Basel Convention prior to Decision III/1.) In absolute terms the trade in 1994 was only 50% the level it was in 1990. While trade in some particular wastes may be adversely affected (i.e. lead-acid batteries) the majority of NFM waste with secondary values will not be subject to the ban.

5.1. Conclusions The available data indicate that while Annex VIII countries import considerable volumes of NFM-bearing waste and scrap (particularly copper), a small and decreasing proportion of this is likely to be subject to the ban. Some of this fall may in fact be attributable to the Basel Convention’s existing trade control mechanisms and/or in anticipation of the forthcoming ban. However, it is also quite likely that

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Annex VIII countries have less demand for NFM-bearing waste which comes in the forms likely to be subject to the ban (i.e. lower-value ash and residue) relative to other types (i.e. bulk scrap).

6. Empirical analysis of secondary non-ferrous metal production To cast further light on the likely economic and environmental consequences of Decision III/1, efforts were made to determine the factors behind the trade in NFM waste and scrap. It is argued that this will provide indirect evidence of the extent to which the trade can be explained by non-environmental economic factors. If there is a case for the trade on the basis of its use as an input in the production of secondary metals, then fears about its environmental consequences may be overstated. This is approached in two ways: firstly the structural characteristics of secondary metal production is reviewed; and, secondly a statistical analysis of the determinants of secondary NFM production is undertaken. It has been argued that developing countries may well possess a comparative advantage in some forms of metal-bearing waste reclamation [30]. Indirect evidence for this assertion is reflected in the relatively lower value per ton of waste for OECD NFM ash and residue exports destined for non-OECD countries than other OECD countries (see Fig. 8). Moreover, it does appear that secondary NFM

Fig. 8. The value of NFM-bearing ash and residue imports by trade flow.

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Table 5 The structural characteristics of non-ferrous metal production

Employees/plant Employees/value added ($m) Assets ($m)/plant Assets ($m)/value added ($m) Earnings ($)/employee Energy ($m)/value added ($m)

Primary NFM

Secondary NFM

199 10.22 44.12 2.27 38 500 0.50

35 10.69 3.26 0.99 30 300 0.11

Source: USDOC COM [39].

production is less capital-intensive and skill-intensive than primary NFM production. For instance, in the United States, assets per plant, capital-intensity relative to value added and the proportion of skilled workers are all lower for secondary NFM plants relative to primary plants (see Table 5). Nonetheless, it does seem unlikely that the value differences can be explained entirely by the comparative advantage enjoyed by developing countries in secondary metal production. While there may be some forms of labour-intensive NFM reclamation (i.e. some small-scale lead-acid battery recovery) in which this may be the case, most forms of NFM-bearing waste reclamation are technologically-advanced and capital-intensive in nature (see [15,33,34] for discussions). Thus, the difference is probably largely a reflection of differences in the composition of the trade flows by metal type, differences in the metal content of the waste, and differences in the quality of treatment and reclamation employed, and differences in the final destination of the waste. Thus, the most important environmental issue is to determine whether or not the waste is in fact being discarded rather than reclaimed. This was approached indirectly by estimating whether or not waste imports into Annex VIII countries were a significant determinant of secondary metal production. If so, then this would undermine the widespread assertion that most waste with secondary values is imported for ‘sham’ recycling. With production of the relevant unwrought secondary non-ferrous metal [26] as the dependent variables, cross-sectional OLS regressions were estimated using GNP per capita [24], physical capital stocks [35,36]8, imports of NFM waste and scrap [32] and primary non-ferrous mineral reserves [37,38] as the explanatory variables. The first explanatory variable serves as a proxy for structural differences in the economies. The latter three reflect resource availability. It is expected that the signs on capital stock (reflecting availability of old scrap) and waste and scrap imports would be positive, while the sign on primary metal reserves is ambiguous since it may be either a substitute in terms of output (through primary metal production) or a complement in terms of factor inputs (since scrap and primary metals are often mixed). All variables are expressed in logs. 8 In the case of copper and zinc total estimated physical capital stocks [35] are used. However, since almost all recycled lead waste comes from batteries, motor vehicle vehicle stocks [36] were used.

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Table 6 Determinants of secondary copper production Coefficient Intercept GNP PC K stock Reserves Imports Adj R 2 F statistic n

0.274746 0.064563 −0.06629 1.469849 0.865331 0.797383 19.69325 20

t Statistic 0.135792 0.286932 −0.37119 6.731648 4.692472

All of the regression perform relatively well (Table 6 Table 7 Table 8). In all cases the regressions have considerable explanatory power and the statistically significant coefficients are of the expected signs. However, given that the sizes of the samples were significantly constrained by availability of reported values for all five variables it would be unwise to attach too much confidence to the results. Nonetheless, the results are environmentally reassuring insofar as waste and scrap imports for copper, lead and zinc appear to be significant determinants of secondary metal production. The coefficients are positive and statistically significant. In the case of copper and lead, primary reserves are positive and significant indicating complementarity in primary and secondary inputs. In the case of zinc physical capital stock is also positive and significant, perhaps reflecting complementarity of foreign and domestic sources of secondary metal inputs. And finally, given the significant and positive relationship between imports of copper, lead and zinc waste and scrap and secondary production of the metals in Annex VIII countries there may be adverse economic consequences from the ban. However, it must be emphasised that the waste classifications included in the explanatory variable for imports includes a number of wastes which will clearly not be considered hazardous and as such will not be subject to the ban.

6.1. Conclusions While it may be the case that some NFM-bearing hazardous waste being exported from OECD countries to non-OECD countries is being discarded in an unsatisfactory manner (this is also true for OECD countries themselves), the study reveals that there is considerable economic motivation behind the trade which can not be explained entirely in terms of cost savings due to inadequate treatment. In some senses the structural characteristics of secondary metal production may be more consistent with factor endowments and costs in non-OECD countries than primary metal production. Moreover, imports of waste and scrap do appear to be significant determinants of secondary metal production. As such the economic consequences of the ban need to be taken into account. There is no reason why this can not be done through appropriate waste classification.

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Table 7 Determinants of secondary lead production Coefficient Intercept GNP PC K stock Reserves Imports Adj R 2 F statistic n

−2.60664 0.193031 0.331284 0.262093 0.570369 0.549029 8.304617 25

t Statistic −1.47903 0.815142 1.333254 3.143778 2.243388

7. Conclusions and policy recommendations The proposed ban on exports of hazardous waste from Annex VII countries to Annex VIII countries has been criticised for two reasons: firstly, it is not an efficient way to meet the stated environmental objective; and, secondly it will result in adverse economic consequences for the countries who are no longer able to import waste with secondary values. Using NFM-bearing waste as a case study, this report has examined these issues by looking at relative rates of waste generation, demand for wastes with secondary values, the extent of affected waste trade flows, and the economics of secondary NFM production. While it is recognised that the ban is far from being an ideal environmental policy instrument it must be understood as a reflection of both market failures (in the trade in hazardous wastes) and policy failures (in previous efforts to control adverse effects from the trade). If appropriate criteria are applied (mainly related to waste classifications and Annex classifications) then the environmental implications of the ban are likely to be positive.

Table 8 Determinants of secondary zinc production Coefficient Intercept GNP PC K stock Reserves Imports Adj R 2 F statistic n

−4.81875 0.834754 0.198585 0.204353 2.119744 0.723845 15.41633 23

t Statistic −3.57942 2.671363 2.212001 3.089781 5.028372

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Moreover, as long as those waste streams which are likely to be used for reclamation (rather than those which can potentially be used for reclamation) are not subject to the ban then the economic consequences may not be negative for downstream sectors. In this vein, it may be desirable to include economic criteria in the classification of waste streams, and not just environmental criteria. Similarly, the means by which countries are classified into the two annexes needs to be clarified. At present the Convention implicitly assumes that only OECD countries are practising environmentally sound management of hazardous waste whereas all other countries are not. There are, however, a number of developing countries which, from a technical, managerial and regulatory point of view meet environmentally sound management criteria for specific sectors and/or waste groups. Moreover, given the rate of growth in generation in many of the Annex VIII countries the relative environmental benefits are likely to be slight even if the TWG is able to develop appropriate classification systems. With or without the ban imported waste will represent an increasingly small proportion of the total waste management problem in many developing countries. In this light the most telling indicator of the success of the Basel Convention is not so much its ability to reduce trade flows from OECD countries, but the effect that it has on the capacity of developing countries to manage their own wastes effectively. It can be argued that some of the aspects of the Convention actually discourage the development of such capacity. For instance, Sheales and Cox [5] assert that reduced exports of hazardous waste from OECD countries will reduce incentives for OECD countries (who dominate the sector) to transfer waste management technology to non-OECD countries. Thus it is important to add teeth to the positive measures in the Convention which have lain almost dormant since its inception. In particular the Convention’s ‘Technical Cooperation Trust Fund to Support Developing Countries’ has received almost no financial support. This is in marked contrast to the Multilateral Fund in the Montreal Protocol. In addition, the establishment of regional centres for training and technology should be expanded and accelerated. Given the recent establishment of a number of regional waste agreements with trade restrictions (i.e. in Central America and sub-Saharan Africa) this could be coordinated with efforts to coordinate intra-regional specialisation in particular waste streams. In the event that such efforts are not supported there is a danger that the overall environmental consequences of the Basel Convention could indeed prove to be negative. Since developing countries are inevitably going to play an increasingly important role as generators of hazardous waste, and since an ill-conceived ban — i.e. one which is unrelated to actual capacity—may discourage environmentally benign trade in hazardous waste, this outcome is by no means unlikely. What is required is careful formulation and flexible application of the technical guidelines and increased support for those positive measures of the Convention which encourage ESM in developing countries.

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Acknowledgements The author would like to thank Dr. Ulrich Hoffmann of the International Trade and Commodities Division at UNCTAD for a number of helpful suggestions. The financial support of the Environment and Trade Unit at the United Nations Environment Programme and the Department for International Development is gratefully acknowledged.

Appendix A. Estimated generation of hazardous waste in OECD countries

Country

Year

Tons (1000s)

Australia Austria Belgium Canada France Germany Italy Japan Netherlands Spain Sweden Switzerland UK USA

1992 1995 1994 1991 1992 1993 1991 ND 1993 1987 1985 1993 1993 1993

426 915 27 530 5896 7000 9020 3387 666 2600 1708 500 837 1957 258 000

Source: OECD 1997.

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[33] European Commission. Study on the Technical and Economic Aspects of Measures to Reduce (on the Basis of Best Available Technology) The Pollution of Water and Other Environmental Areas from the Non-Ferrous Metal Industry. Office for Official Publications of the European Communities, Luxembourg, 1996. [34] OECD. Recycling of Copper, Lead and Zinc Bearing Wastes. OECD Environment Monograph No. 109, 1995. [35] Nehru V, Dhareshwar A. A new database on physical capital stocks. Rev Analisis Economico 1993;8(1):37–59. [36] International Roads Federation. World Road Statistics. IRF, Geneva, 1997. [37] DiFrancesco CA, Comellisson, G.R., Peterson, G.R. The Availability of Primary Lead and Zinc in Market Economy Countries. Information Circular 9369. United States Department of the Interior, Bureau of Mines, Washington DC, 1993. [38] Porter KE, Peterson GR. The Availability of Primary Copper in Market Economy Countries. Information Circular 9310. United States Department of the Interior, Bureau of Mines, Washington, DC, 1993. [39] United States Department of Commerce, Economics and Statistics Administration. Census of Manufactures: Industry Series (Smelting and Refining of Nonferrous Metals and Alloys). USGPO, Washington, 1995.

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