FUTURE RULES OF TRADE IN PLASTIC PRODUCTS AND THE WTO:
POTENTIAL CONFLICT

Communication from the Russian Federation

The following communication, dated 14 November 2024, is being circulated at the request of the delegation of the Russian Federation.

_______________

1  INTRODUCTION

1._       This non-paper explores potential implications for currently existing multilateral rules of trade in polymers and plastic products, as set out in the WTO Agreement, from the eventual agreement on plastic pollution[1] in case current approach of some WTO members to establish specific rules to regulate their trade will be endorsed.

2._       In 2021 global plastic goods exports soared to USD 1.2 trillion (or 369 million tons), accounting for near 4.3% of the world total exports. Remarkably, "if all the world's plastics exports came from one country, say 'plastic nation', it would be the world's fourth-largest exporter without trading any other goods".^[2]

3._       The Intergovernmental Negotiating Committee (INC) has a mandate to address plastic pollution, "based on a comprehensive approach that addresses the full life cycle of plastic". Initial focus on the critical component of negotiations – improvement of waste management – could be significantly diluted in Busan in early December 2024, where next and probably final round of negotiations will take place, because of attempts to include into agreement provisions regulating trade, production, consumption, and internal circulation of virgin polymers, plastic products, and chemicals used in manufacturing. These provisions are aimed inter alia at establishing limits of production, trade and consumption of all kind of plastics.

4._       In particular, following trade restrictions are suggested to be agreed in Busan:

·_        Quotas for the production of primary polymers (PP), including obligation to notify volume of PP production, commitment to discuss "sustainable levels" of PP production and consumption, and potential Conference of the Parties (СOP) decision on quotas for the production of PP, which obviously will be followed by import restrictions to secure balance of PP in the domestic market.

·_        Prohibition of the production, circulation and use of chemicals of concern in the production of primary polymers and finished products (FP). To this end, there is an intention to include in the agreement:

-_         Primary list of prohibited substances;

-_         commitment to create a global mechanism for identifying chemicals of concern;

-_         mechanism of expansion of the list of prohibited substances which may be based on COP's decisions.

·_        Prohibition of circulation of "problematic and avoidable" types of FP (such as disposable packaging), including:

-_         list of prohibitions in the agreement;

-_         mechanism for identifying "problematic and avoidable" FP;

-_         expansion of the list of prohibitions by COP's decision.

·_        Requirements for the design of FP:

-_         mandatory requirements for specific types of products (to be adopted by the COP);

-_         mechanism for developing new product design requirements.

5._       Each provision listed above is aimed at establishing specific rules contrary to those enshrined in the WTO Agreement, including the Agreement on Technical Barriers to Trade and the Agreement on Sanitary and Phytosanitary Measures. It will lead to reformatting international trading rules and, as a consequence, conditions for production and supply chains in food and energy, healthcare and logistics, construction and electronics, thus creating serious burden for producers of raw materials and products as well as consumers. The problem of waste pollution in the oceans and on land, which was the rationale of the adoption of UNEA Resolution No. 5/14, in the meantime will remain, since the current negotiated text lacks proposals for effective waste management and disposal of plastic waste.

6._       The negotiated international legally binding instrument on plastic pollution (ILBI) should not create a precedent that will change rules of production and trade in plastics, which potentially may be replicated in the future in other similar initiatives covering a wide range of other products.

7._       Any international treaty should follow its purpose and avoid collisions with other treaties, including the WTO Agreement. Otherwise, multilateral trading system and economies of WTO Members will face detrimental consequences.

2  HOW a PLASTIC AGREEMENT MAY WORK

2.1  Discrimination of plastic against competing materials.

8._       Under some scenarios in negotiations, production and turnover of plastics should be progressively limited in order to secure its substitution with competing materials (such as paper, aluminum, or glass). A country will be allowed to ban certain plastic products, but keep unrestricted directly substituting products from other materials. The regulation may be non-discriminatory on its face, have "green" purposes, and apply to all plastic products, which are alike, but de facto it may seriously discriminate imports of plastics vis-à-vis directly competing materials of both national and foreign origin.

Illustration A

A good example is polycarbonate headlamps for motor vehicles, which have squeezed glass headlamps out from the market. For safety of drivers and pedestrians, vehicle headlamps should not crack or shatter in the event of an accident. Moreover, to ensure traffic safety, they should not glare the oncoming traffic and thus must ensure consistent light distribution even after the inevitable impacts from small stone chips along the road. As a high-performance engineering plastic, polycarbonate ensures bright light and simultaneously meets all the requirements for durability, transparency and weight as well as impact and heat resistance. Therefore, any attempts to limit the production or consumption of polycarbonate, including through "horizontal" restrictions of chemicals without taking due account of one of the main applications of such plastic in headlamps – durable products with minimal exposure to humans – would lead to a "regrettable substitution" of polycarbonate with glass. Eventually, in automobile industry it would compromise the safety of pedestrians and traffic because of fragility and other disadvantages of glass as an alternative material for vehicle headlamps.

Illustration B

Another example is paper with polymer coating as a substitute to plastic packaging. For end users, such material looks appealing due to "environmentally friendly" image, including "natural" paper texture and brownish color. However, in terms of price, it is times more expensive than plastic substitutes. In order to "level the playing field" for polymer-coated paper, governments may introduce plastic bans under the pretext of "combatting plastic pollution". However, there is no commercially viable solution to ensure barrier properties of paper and its resistance to grease, oil, and water, except through adding to the main paper layer a polymer coating, such as carboxylated styrene butadiene latex, polyethylene, or others, thus making it almost non-recyclable. In such case, a possible trade distortion due to bans of plastic would be exacerbated by a "regrettable substitution" due to increased landfill or incineration of used non-recyclable polymer-coated paper packaging.

2.2  Discrimination of imported plastic products based on trading patterns

9._       Based on criteria for determination of "problematic" products within the ILBI, Members under some current proposals may be allowed to construct their national rules in such a way that types of plastic products, which are predominantly imported, face the most stringent prohibitions. At the same time, directly competing plastic products, which are mostly produced by the domestic industry, would be subject to none or relatively soft regulation (such as monitoring, establishing easily achievable thresholds for chemical composition etc.).

10._    Given that prohibitions would apply to products, which are mostly imported, while rules that are more lenient would apply to those products, which are mostly produced domestically, imports would be subject to de facto discrimination vis-à-vis domestic like products. Such competing goods with similar consumer properties, for example, may be made from different types of plastic, contain a different set of additives, or have a slightly different set of physical or chemical properties. Such differences would not affect competitive relationship, but can be portrayed by the national authorities as defining features in terms of determination of "problematic" products (the majority of which would de facto be imported).

2.3  Discrimination between recycled plastics based on production processes

11._    Different recycling technologies, given various additional factors (plastic waste types, sorting at the source of waste, chemical complexity of inputs etc.), would deliver recycled materials with different levels of purity. In light of the level of development of the national recycling facilities, countries may introduce regulations for the use of secondary plastics, which favor products that can be predominantly delivered by the national recycling industry and disadvantage imported secondary plastics.

Illustration C

For example, a country may establish a certain percentage of recycled materials in plastic products. Failure to meet the statutory threshold (X % of recycled content) may lead to denial of market access or disadvantages within national regulations. If a country establishes a too high threshold to favor its own advanced processing industry and cutting-edge recycling technologies, producers would be forced to use secondary plastics from domestic sources or from countries with similar levels of development of the recycling industry. However, in reality plastic product with 15% of recycled content deserves similar treatment as a product with > 25% of secondary components as both are manufactured with the best recycled materials and technologies available within their countries of origin. Therefore, the exact percentage of secondary plastics may serve as an unjustified restriction of market access obstructing global goals of building circular economy.

2.4  Discrimination of plastic products based on rules and procedures of conformity assessment

12._    Some INC participants promote strict global regulation of chemical composition of plastic products. Referring to some research, they advocate that the ILBI should regulate near 16,000 substances used in plastic value chains and put thousands of them into various global lists of chemicals of concern (CoCs). This approach contradicts well-established multi-level system of regulation of chemicals, which is largely driven by the national implementing bodies, which eventually ensure the safety of plastic products once they are placed on the market.

Illustration D

Currently, application of CoCs in plastic products is extensively regulated at the national (or regional) levels, which may be illustrated by the following data:

_             i._        Over 400 regulatory acts around the world control CoCs; those are various national lists of substances prohibited for import, export, and/or placing on the market, toxic substances, aquatic pollutants, persistent organic pollutants, carcinogenic, mutagenic and reprotoxic chemicals etc.;

_            ii._        Over 300 regulations establish sanitary and hygienic standards for chemicals in various environments as well as maximum permissible concentrations of CoCs in different types of materials;

_           iii._        Over 300 sectoral regulations control chemical composition of plastics for different applications, such as automotive, aerospace and mechanical engineering industries, toys and children's goods, cosmetics, food contact materials, medical products and devices, electronics and electrical equipment, footwear and textiles, packaging of pharmaceutical products, and many others.

National regulations relating to CoCs are complemented by global instruments, including:

_             i._         Basel, Rotterdam and Stockholm (BRS) Conventions, which cover most CoCs within a cradle-to-grave approach to protect human health and the environment; because they cover globally recognized CoCs (not necessarily relating to plastics), they are quite prescriptive, their products scope and procedures are clearly defined;

_            ii._         Globally Harmonized System of Classification and Labelling of Chemicals of 2022, which has been implemented or is now in the process of implementation in over 83 countries; as a voluntary tool, it facilitates trade through unification of approaches to classifying chemicals and communicating their properties;

_           iii._         Global Framework on Chemicals adopted in 2023 to develop international regulation of chemicals throughout their life cycle in all possible applications, including plastics.

13._    Normally, CoCs (including toxic substances, aquatic pollutants, persistent organic pollutants, and others) are restricted for trade or placement on the market at the national level; the most dangerous of them are also regulated globally. To implement such regulations and ensure safety of products, countries control application of CoCs in plastic products through technical regulations and standards, which establish, among others, levels of maximum allowable concentration of different substances in specific applications (e.g., toys, food package, industrial goods etc.). Moreover, national laboratories test products for compliance with the afore-mentioned regulations, which allows certification bodies or regulators (whichever is applicable) to issue certificates of conformity. Naturally, any regulatory expansion requires additional investment in capacities (e.g., equipment, staff etc.) of laboratories and certification bodies.

Illustration E

A regulatory blueprint applicable to acrylonitrile butadiene styrene (commonly known as ABS), which is widely used for electronic goods production (e.g. computer mice, keyboards etc.), is quite illustrative. Chemical composition of this plastic within electronic equipment must comply with the Stockholm Convention as well as the Restrictions of Hazardous Substances (RoHS) in electrical and electronic equipment aimed at protecting the environment and public health, which are currently in force at the national or regional level in China, the Eurasian Economic Union, Türkiye, UAE, Vietnam, and other jurisdictions. RoHS regulations prescribe that the use of certain hazardous substances in manufacturing of such electronic goods is prohibited and their absence in ABS plastic must be proven through testing. Moreover, waste of used ABS plastic goods is also subject to RoHS requirements and the Basel Convention, which applies at the global level. Today, tens of billions of electronic items are regulated that way, and the current system reliably ensures constant protection of the environment and health of billions of humans.

14._    Highly ambitious and overly prescriptive provisions of the ILBI on CoCs would lead to exploding number of national regulations applicable to chemicals in plastic products. As a consequence, a cascade of negative trade effects will emerge. First, excessive regulatory burden would make polymers as such less attractive compared to alternatives (paper, aluminum, glass). Second, national conformity assessment capacities would be over-stretched, which would heavily disrupt trade flows (similar to the situation during the COVID-19 pandemic). Third, lack of chemical management capacities in developing countries may lead to de facto prohibition of imports from such countries, since their producers would not be able to obtain internationally-recognized certifications within their jurisdictions. These examples are non-exhaustive.

Illustration F

Common examples of barriers to trade related to conformity assessment rules and procedures include mandatory testing in laboratories, whose number is very limited or whose staff is over-stretched, requirements to disclose the sources of raw materials with mandatory site inspections of suppliers, and obligations to disclose significant amounts of sensitive information, such as product composition and production technologies.

15._    The current system of national, regional, and global regulation of chemicals in plastic products is functional and does not conflict with the WTO's principle of non-discrimination. Overloading this system with new ILBI disciplines on CoCs will likely lead to numerous trade barriers in the area of conformity assessment procedures.

2.5  Discrimination of plastic products due to disregard of WTO mechanisms

16._    Currently, measures related to CoCs or plastic products are discussed within the WTO fora, which in practice serve as efficient tools to resolve the majority of specific trade concerns through consultations without recourse to the WTO dispute settlement. Substitution of these mechanisms with ILBI provisions would open a vast space for "creative" ways of de facto and de jure discrimination of imported products through regulation of chemicals and plastic products.

17._    The ILBI by its nature would not be able to preclude the emergence of trade barriers because if protectionist sentiment grows in a country, national policy-makers would always find practical ways to circumvent the ILBI. Clearly, unlike universal and cross-sectoral WTO rules, the ILBI provisions would be either too prescriptive or too broad, and thus would be easy to ensure formal compliance, while maintaining discrimination of imports. Moreover, unlike the WTO Agreement, the ILBI would not establish trade-specific mechanisms of transparency, monitoring of implementation, consultations, and dispute settlement. Only generic WTO rules, practice, and mechanisms, which for dozens of years have been establishing a common baseline for resolution of trade disputes, can serve as a remedy to non-proliferation of illegitimate trade restrictions on plastic products.

2.6  Lack of stimulating measures.

18._    Global plastic industry needs to accelerate its restructuring towards a circular economy, which would require considerable capital investments. A moderately ambitious scenario of the OECD ("Regional Action") implies combined extra investments of USD 160 billion until 2060 for recycling and reducing mismanaged waste in non-OECD countries, while for the OECD countries this figure would reach more than USD 260 billion.[3]  An ambitious scenario ("Global Action") would bring total cost to USD 3.4 trillion (near 1% of the world GDP).[4] 

19._    Such magnitude of costs necessitates the reduction of regulatory costs for such investments, including barriers to trade in "green" goods and to expansion of "green" technologies. However, the INC pays little to no attention to trade liberalization. To the contrary, the negotiating agenda is heavily tilted towards restrictions, which are mostly aimed at creating strategic advantages for exclusive number of countries.

20._    In particular, the proposed regulations of CoCs are allegedly aimed at prohibiting "hazardous" substances, which lead to negative effects on human health and the environment. Yet in reality, even complete prohibitions would just induce substitution of chemicals with new, allegedly "non‑hazardous" (or "environmentally friendly") alternatives, whose effects have not been studied for years, but which would allow continuation of manufacturing of final products. Moreover, "provisional" listing of any chemical (pending COP decision on final measures) would foster "market deselection", where the global industry would start substituting such chemical and look for alternatives.

3  Conclusion

21._    The afore-mentioned examples are non-exhaustive, and the number and magnitude of trade distortions may amplify amid the absence of effective means of consultation and legal defense. In light of the approaching critical session of INC in Busan, South Korea (25 November – 1 December 2024), WTO Members should engage in substantial discussion of these matters in order to avoid dilution of multilateral trade regulation.

__________