EU accession: Negotiating “environmental dumping”?

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von Homeyer, Ingmar; Klaphake, Axel; Sohn, Hans-Dieter

Article

EU accession: Negotiating 'environmental dumping'?

Intereconomics

Suggested Citation: von Homeyer, Ingmar; Klaphake, Axel; Sohn, Hans-Dieter (2001) : EUaccession: Negotiating 'environmental dumping'?, Intereconomics, ISSN 0020-5346, Vol. 36,Iss. 2, pp. 87-97, http://hdl.handle.net/10419/41129

ENVIRONMENTAL STANDARDS

Ingmar von Homeyer,* Axel Klaphake,** Hans-Dieter Sohn***

EU Accession: Negotiating"Environmental Dumping"?

"Environmental dumping" is a concern frequently raised in discussions on thepotential risks involved in the eastern enlargement of the European Union1 (EU).2

There is a general concern that the Central and Eastern European accession countriesmay be neither willing nor able to fully apply the EU's environmental acquis

communautaire, the body of Community environmental legislation, once they havejoined the EU. As a result, these countries would benefit from a competitive advantagewhen selling their goods on the Internal Market. This article asks whether, and in which

specific cases, such concerns may be justified.

The so-called Copenhagen criteria constitute thegeneral conditions under which the accession

countries may join the EU. Among other things, theyrequire the candidates to be able to "take on theobligations of membership". In practical terms the EUinterprets this to mean that, in general, the accessioncountries must fully apply EU legislation from the dateof accession. Consequently, the EU will only allow fortransitional periods in a strictly limited number ofcases. In the framework of the ongoing accessionnegotiations the EU and the accession countriesidentify these cases and agree on the concrete termsunder which transitional periods will be granted.

Against this background we focus on those piecesof EU environmental legislation for which the CzechRepublic, Estonia, Hungary, Poland or Slovenia haveso far applied for transitional periods. These candi-dates belong to the "first wave" of accessioncountries, the so-called Luxembourg countries (LCs).Accession negotiations with the LCs started in March1998 and are significantly more advanced than thenegotiations with the second group of candidates, theso-called Helsinki countries.3 The LCs are officiallyaiming to join the EU in January 2003, although it isgenerally believed that the first accessions are unlikelyto take place before January 2005.

We shall first discuss the problems which the LCsface in implementing those directives for which they

* Research Fellow, Ecologic - Centre for International and EuropeanEnvironmental Research, Berlin, Germany.

** Research Fellow, Institute for Management in EnvironmentalPlanning, Technical University, Berlin.

*** Research Assistant, Ecologic - Centre for International andEuropean Environmental Research, Berlin, Germany.

have applied for transitional periods. On the onehand, there are a number of directives for which theEU will probably grant transitional periods. On theother hand, the LCs have also applied for transitionalperiods for several directives for which it seemsunlikely that transitional periods will be allowed. Intheory both sets of directives may cause distortions ofcompetition and, therefore, give rise to "environ-mental dumping". We shall then provide a briefoverview of the literature dealing with the effects ofdiffering environmental standards on trade flows. Inaddition to the economic implications we shall alsoconsider the potential environmental effects. Againstthis background we give a preliminary generalassessment of whether, and to what extent, transi-tional periods may lead to distortions of competitionor negative transboundary environmental effects.

The Need for Transitional Periods

As mentioned above, the EU uses various criteria todecide whether, and under which conditions, a transi-tional period may be granted. Generally, the EU insiststhat "all requests for transitional measures [...] belimited in time and scope and be accompanied by a

1 In the following the term "European Union" will be used for reasonsof simplicity, although in several cases the term "EuropeanCommunity" (EC) would be the correct one from a historical or legalperspective.2 Cf. E u r o p e a n C o m m i s s i o n : Strategy Paper, RegularReports from the Commission on Progress towards Accession byEach of the Candidate Countries, Brussels 8 November 2000,European Commission, p. 5.3 In addition to the five Central and Eastern European countriesCyprus also belongs to the LCs. Bulgaria, Latvia, Lithuania, Malta,Romania and Slovakia are Helsinki countries. Although Turkey is alsoan official candidate for EU membership accession negotiations withTurkey have not yet begun.

INTERECONOMICS, March/April 2001 87


Table 1Requests by the LCs for Transitional Periods for Community Environmental Directives

Nature Conservation

Habitats Directive (92/43/EEC)

Water Quality

Urban Waste Water Directive (91/271/EEC)

Groundwater Directive (80/68/EEC)

Nitrate Pollution from Agricultural Sources (91/676/EEC) «

Discharge of Dangerous Substances (76/464/EEC)

Abstraction of Drinking Water (75/440/EEC)

Drinking Water Directive (80/778/EEC)

Industrial Pollution and Risk Management

Integrated Pollution Prevention and Control (96/61/EC)

Air Pollution from Industrial Plants (84/360/EEC)

Large Combustion Plants (88/609/EEC)

Chemicals and Genetically Modified Organisms (GMOs)

Control of Major Accident Hazards (Seveso II) (96/82/EC)

Air Quality

Ozone Depleting Substances (EC/3093/94)

VOC Emissions from Petrol (94/63/EEC)

Quality of Petrol and Diesel Fuels (98/70/EEC)

Waste Management

Waste Framework (75/442/EEC)

Hazardous Waste (91/689/EEC)

Hazardous Waste Incineration (94/67/EC)

Landfill (99/31/EEC)

Packaging and Packaging Waste (94/62/EC)

Shipment of Waste (EEC/259/93)

Disposal of Waste Oils (75/439/EEC)

CZ

1.12.2005

31.12.2010 .

31.12.2006

31.12.2008

31.12.2006

30.10.2012

-

-

-

-

-

-,

-

-

-**

31.12.2005

-

-

. EST

-

31.12.2010

31.12.2006

2008

31.12.2006

- '

31.12.2013

-

-

-

-

-

1.1.2007

-

-

-

-

16.7.2013

-

-

-

HU

-

31.12.2015

30.10.2007

-

31.12.2009

-

-

*

30.10.2007

31.12.2008

31.12.2004

-

- •

-

-

30.6.2005**

31.12.2005

-

-

PL

-

31.12.2015

-

31.12.2010

2007

31.12.2010 .'

-

31.12.2010

-

-

-

31.12.2005

31.12.2009

31.12.2009

2012

2012

-**

31.12.2007

31.12.2012

31.12.2005

SVN

-

31.12.2017

-

-

-_

-

31.12.2011

-

-

-

-

2005

31.12.2004

-

-

-**

31.12.2007

-

-

As of November 2000, ©Ecologic 2001.

* Hungary seeks to apply a different cut-off-date. This would result in a permanent derogation from certain requirements for certain installations.

** The Landfill Directive has only recently been adopted. Some LCs may still decide to apply for a transitional period.

plan with clearly defined stages for application".4 Inaddition, the EU has specified several cases in whichtransitional periods will not be accepted: transitionalperiods will not be granted for legal transposition ofthe acquis into national law and for the administrativecapacity-building that is necessary to implementEuropean legislation; they must neither hinder thefunctioning of the Internal Market nor lead to adistortion of competition; in cases where transitionalperiods have negative effects on transboundaryenvironmental pollution, they will be denied; finally,

4 See, for example, C o u n c i l of the Eu ropean U n i o n :European Union Common Position, Conference on Accession to theEuropean Union - Czech Republic, CONF-H 63/99, Brussels. 1999,Council of the European Union, p. 2.

they must not undermine the EU's international oblig-ations. Whereas there is a long list of circumstancesrestricting the acceptability of transitional periods, theEU has also stated during the accession negotiationsthat transitional periods may be granted if theexpected costs of implementing particular provisionsof EU environmental legislation are very high.5

Table 1 lists the directives and regulations for whichthe LCs have indicated during the accession negotia-tions that transitional periods will be necessary.6 The

5 These conditions were drawn up on the basis of the CommonPositions of the European Council for the accession negotiations (theEU negotiating positions).6 The table is based on the LCs' Position Papers for the accessionnegotiations and the EU's Common Positions.

88 INTERECONOMICS, March/April 2001


requests for transitional periods are based on the LCs'official working assumption that accession takesplace in January 2003. The Commission of theEuropean Communities (CEC) has already made itclear that transitional measures will usually not begranted for the implementation of a directive as awhole. If, as is often the case, a request for a transi-tional period only refers to particular provisions of adirective, the date given in the table reflects thelongest transitional period. Poland, for example,requests three different transitional periods for theimplementation of the requirements of the UrbanWaste Water Treatment Directive (UWWT). The periodshown in the table is the longest one: it lasts until theend of 2015 and applies to the construction of wastewater treatment plants for small and medium-sizedtowns.

Potentially Successful Bids

Investment requirements constitute the mostsevere problem which the LCs face in implementingthe environmental acquis. The EU has alreadyindicated that it may allow for transitional periods forthose cases where the compliance costs are veryhigh. In addition, as illustrated further below, theaccession negotiations so far suggest that in excep-tional cases - e.g. the Packaging and PackagingWaste Directive - transitional periods may also begranted for other problems.

The CEC estimates that the financial resourcesneeded for full implementation of the environmentalacquis amount to about € 120 billion for all tenaccession countries, of which about € 65 billion arefor the LCs.7 The bulk of the resources will have to beinvested in air pollution abatement, water and wastemanagement.8 Implementation of the UWWT Directive

7 There are several methodological problems involved in estimatingcompliance costs. The most difficult one is probably the problem ofconstructing a hypothetical "baseline scenario" which provides for anestimate of costs for environmental protection in the absence ofaccession. See A. C a r i u s , I. von Homeyer , S. Bar: TheEastern Enlargement of the European Union and EnvironmentalPolicy: Challenges, Expectations, Speeds and Flexibility, in:K. Ho lz inger , P. Knoep fe l (eds.): Environmental Policy in aEuropean Union of Variable Geometry? The Challenge of the NextEnlargement, Basle 2000, Helbig & Lichtenhahn, pp. 161-162.Soil and Water Ltd.: Development of Synthesis Reports forApproximation of EU Environmental Legislation, Final Report DISAEMC-112, Vantaa2000.8 European Commission: Communication from the Commission onAccession Strategies for Environment: Meeting the Challenge ofEnlargement with the Candidate Countries in Central and EasternEurope, COM(98) 294, Brussels 1998, European Commission, p. 4. Itshould be pointed out that cost estimates for environmental approx-imation are inherently problematic. For a discussion of this point, seeA. C a r i u s , I. von Homeyer , S. Bar, op. cit., pp. 163-164,note 7.

is expected to be particularly expensive.9 Thedirective requires the extension of sewerage systemsand waste water treatment facilities. All, LCs arerequesting transitional periods for some requirementsof the directive. For example, the costs of imple-menting the UWWT Directive in the Czech Republicare estimated at CZK 70 billion (€ 1.9 billion).10 TheCzech Government has requested a transitionalperiod until 2010. However, it seems questionablewhether the Czech Republic will be able to fullyimplement the directive by the end of 2010. Accordingto the World Bank a "further expansion of theaccession period and deadlines up to 2016-2017 willmost probably be needed"11 because sharply risingwater prices would otherwise result in sociallyunacceptable costs for private households, industryand, in particular, agriculture.12 Against this backrground, Slovenian plans to implement the UWWTDirective may be more realistic. Although Slovenia hasthe highest per capita income of all the accessioncountries, it has applied for a particularly long transi-tional period until 2017.

Compared to the resources needed to implementthe UWWT Directive in the LCs, the investmentrequirements for the Nitrates Directive are relativelymoderate. However, implementation of this directivewill require the building or upgrading of a largenumber of storage containers for fertilisers. As aconsequence, the bulk of investment costs will haveto be borne by farmers. Given the structuralweaknesses of the agricultural sector in Central andEastern Europe (CEE) which is caused, among otherthings, by the large number of small, relatively ineffi-cient farms, the Czech Republic, Estonia and Polandhave applied for transitional periods. Implementationis particularly difficult in Poland, where more than25% of the workforce are still employed in the agricul-tural sector. The Polish government,. which has

9 Cf. Soil and Water Ltd.: Development of Synthesis Reports forApproximation of EU Environmental Legislation, Final Report DISAEMC-112, Vantaa 2000, p. 70.10 Government of the Czech Republic: Additional Informationprovided by the Czech Republic on the Common Position of theEuropean Union, Chapter 22 - Environment, Conference onAccession to the European Union - Czech Republic, CONF-CZ73/00, Brussels 2000, p. 17.11 Carl B ro et al.: Pre-Accession Planning to Meet the Requirementsof EU Legislation in the Water Sector in the Czech Republic, FinalReport, Prague 1999, p. 150.12 The "affordability criterion" applied in the study is based on theassumption that no category of households can afford an increase intariffs representing more than five per cent of the household'sincome. The study does not provide a systematic survey for theindustrial sector. Cf. Carl. Bro et al., op. cit., p.126, note11.



applied for a transitional period until 2010, expectsimplementation costs to amount to € 200 millionannually until 2002 and another € 2 billion between2002 and 2010.13 The World Bank cost estimates aresomewhat higher at US $ 2.6 to 3.3 billion.14

The Drinking Water Directive also requires signif-icant investment in systems which do not yet meet thequality standards set by the directive.15 The CzechRepublic (2006) and Estonia (2013) have thereforeapplied for transitional periods.

While the direct costs of implementing the direc-tives mentioned above largely fall on the publicsector, meeting the standards set out by theDangerous Substances Directive and its daughterdirectives will require considerable investment by theprivate sector which will have to reduce or haltemissions into waters. It will be particularly difficult forsmaller firms to cover the investment costs. Estonia(2006), Poland (2007), the Czech Republic (2008), andHungary (2009) have applied for transitional periodsfor the full implementation of this directive.

Except for Estonia, which will have to invest veryheavily in air pollution abatement due to the fact thatthe country relies strongly on oil shale burning forenergy production,16 the costs of implementingEuropean environmental legislation dealing with airpollution are gauged to be significantly lower thanthose for improving water quality.

The Large Combustion Plants Directive requiresparticularly high levels of investment. To meet therequirements large combustion plants must beequipped with desulphurisation facilities. However, sofar there has only been one request for a transitionalperiod. This may be explained by the fact that the LCshave already invested heavily in the upgrading of mostplants as a result of their commitments under theSulphur Protocols of the United Nations EconomicCommission for Europe (UN-ECE) Convention onLong Range Transboundary Air Pollution. A need fortransitional periods may nevertheless arise because,in addition to meeting the stricter requirements of thelatest Sulphur Protocol, the LCs will also have tocomply with a revised version of the LargeCombustion Plants Directive which is about to beadopted by the EU.

Several LCs have applied for transitional periods forimplementation of the Directive on Volatile Organic

Compounds (VOC). Although the absolute costs formeeting the requirements of the directive aremoderate, they are concentrated in a specificeconomic sector, the oil industry. Compliancerequires, for example, investment in the upgrading ofstorage containers for petrol to limit emissions ofVOC. Estonia (2007), Poland (2009) and Slovenia(2004) have requested transitional measures. Forsimilar reasons Poland (2009) and Slovenia (2004) arealso requesting transitional periods for the Directiveon the Quality of Petrol and Diesel Fuels. In bothcountries practical implementation of the directive isadditionally hampered by ongoing processes ofrestructuring and privatisation in the oil industry.

The Integrated Pollution Prevention and Control(IPPC) Directive constitutes a special case as itsscope is not confined to a particular kind of pollution,such as water pollution, but covers all environmentalmedia. It is a framework directive which seeks tointegrate many of the directives listed in the table intoa single licensing procedure, but which also containsadditional requirements, in particular for the appli-cation of "Best Available Techniques" (BAT). Thedirective only applies to large industrial plants,including agri-industrial facilities, and requires consid-erable investment. However, there is a strong overlapof the costs of implementing the IPPC Directive withthe costs of meeting the requirements of its daughterdirectives, such as the UWWT Directive, the LargeCombustion Plants Directive or the DangerousSubstances Directive. In the LCs many of the facilitiescovered by the IPPC Directive belong to sectorssuffering from structural economic problems, inparticular heavy industries. Moreover, the respectiveplants are often located in regions characterised byhigh unemployment, such as the Ostrava region in theCzech Republic. Consequently, in some cases atimely implementation of the directive may, at least inthe short to medium term and in the absence ofcomplementary measures, have negative socialeffects. Most LCs have applied for transitional periodsfor so-called existing installations which were licensedbefore 1999, although these installations do not haveto comply with the directive until 2007. For example,the Czech Republic has applied for a transitionalperiod until the end of 2012 for so-called existing

13 Government of Poland: Poland's Reply to the Common Position,Chapter 22: Environment, Conference on Accession to the EuropeanUnion - Poland, CONF-PL 53/00, Brussels 2000, p. 13.

14G. H u g h e s , J. B u c k n a l l : Poland, Complying with EUEnvironmental Legislation, World Bank Technical Paper No. 454,Washington 2000, World Bank, p. 26.15 Cf. Soil and Water Ltd., op. cit., p. 40, note 9.16 Cf. Soil and Water Ltd., op. cit., p. 89, note 9.



installations. The justification provided by the Czechgovernment refers to investment requirements ofabout € 2 billion.17

The sector which has so far been most stronglyneglected in the LCs is waste management.Nevertheless, the overall costs of implementing theenvironmental acquis relating to waste managementare lower than those for water management or airpollution control. Table 1 shows that the LCs havenevertheless applied for several transitional periodsfor directives dealing with waste management. Insome cases transitional periods may be granted onthe grounds of high investment requirements.Relevant cases include, in particular, the Directives onWaste and Hazardous Waste Incineration and theLandfill Directive.

With the exception of Estonia, all LCs haverequested transitional periods of three to five years forfull implementation of the Packaging and PackagingWaste Directive which, among other things, requiresthe setting up of effective recovery and recyclingsystems. As mentioned above, the EU indicatedduring the accession negotiations that transitionalmeasures might be granted for this directive. Incontrast to the other directives already mentionedorganisational problems rather than costs are themain implementation problem.

Although the CEC has, at least in some of the casesmentioned above, indicated that a transitional periodmay under certain conditions be acceptable, as ofJanuary 2001 no transitional measures have yet beenagreed. The main problems which have inhibitedfaster progress in the accession negotiations are thelack of sufficiently detailed information on investmentneeds and costs, the lack of precise timetables forcompliance, and the lack of information on environ-mental quality and on sources of emissions.

For example, implementation of the UWWTDirective requires the designation of sensitive-areaswhere stricter standards requiring considerably higherinvestment apply. However, as long as these areashave not yet been identified, it is difficult to agree onthe conditions under which a transitional period maybe granted because investment needs remain unclearand detailed implementation plans cannot be drawnup. Poland appears to be a particularly difficult case.The CEC has urged the country to designate its entireterritory as sensitive due to the eutrophication of theBaltic Sea. However, the Polish government hasindicated that it will probably only designate a fewareas along the coast.18 If the entire territory is desig-

nated as sensitive, then it is estimated that capitalinvestment needs will be about 60 per cent higherthan if only selected areas are designated assensitive.19

For similar reasons, the identification of vulnerablezones under the Nitrates Directive is a preconditionfor agreement on transitional periods. However, theCzech Republic, Estonia and Poland, all of whichhave applied for transitional periods, have not yetcompleted the identification of vulnerable zones.

As mentioned above, the CEC insists that transi-tional periods must not negatively affect competitionin the Internal Market and transboundary pollution.These aspects are particularly relevant in the contextof negotiating transitional periods for the large indus-trial installations falling under the IPPC Directive. TheCEC has indicated that it will not accept requests fortransitional periods summarily covering all so-calledexisting IPPC installations. Rather, transitional periodsmay only be agreed for individual plants. However,most LCs have not yet been able to prepare completeinventories of all installations covered by the IPPCDirective. For example, in the case of Poland,estimates of the number of installations range from4,00020 to 5,000.21 In addition, the CEC has requestedinformation on the expected impact of specific transi-tional periods on competition and transboundarypollution. So far, Slovenia is the only country whichhas been able to provide a complete list of the so-called existing installations for which it has asked fortransitional periods, including export data andinvestment plans for each installation. The EU hasindicated that it may accept the Slovenian requestunder a number of relatively strict conditions.

Further Implementation Problems

Given the comments of the CEC on the requests forthe transitional periods mentioned above and the factthat the LCs justify most of the requests in terms ofhigh investment needs, the chances that the CEC will,under certain conditions, agree to a considerablenumber of these requests appear to be high.

17 Government of the Czech Republic, op. cit., p. 33, note 10.18 European Commission: Poland - Screening Results, Chapter 22 -Environment, MD 287/99, Brussels 1999, European Commission,p. 22.19 Cf. the different costing estimates of the World Bank in:G. H u g h e s , J. B u c k n a l l , op. cit, p. 29, note 14.20 European Commission, op. cit., p. 9, note 18.21 Halcrow Group Ltd.: Assessment of Environmental EnforcementStructures and Practices in Estonia and Poland, Final Report DISAE-Project MC-111, Polane 1999, Halcrow Group Ltd.



However, the LCs have not justified all of theirrequests for transitional periods in terms of highinvestment requirements. For example, the CzechRepublic is asking for a transitional period for theimplementation of the Habitats Directive arguing thatit will not be possible to collect the scientific datanecessary for the identification of protected areas bythe date of accession.22 In most of these cases theCEC is unlikely to agree to transitional periods.

More importantly, a number of serious implemen-tation problems are not, or only partly, covered by therequests for transitional periods. In all LCs it seemslikely that it will not be possible to fully apply a numberof directives at the date of accession due to lack ofadministrative capacities. The accession countriesgenerally suffer from weak administrative structures,in particular regarding monitoring and enforcement.The most significant deficits concern the environ-mental inspectorates and the local and regional levelsof administration.23 Relevant environmental directivesinclude cross-sectoral horizontal legislation, inparticular the Directive on Environmental ImpactAssessment. The procedural provisions of thisdirective for evaluation of projects and public partici-pation require competent staff and efficient adminis-trative structures. Furthermore, a fully developed civilsociety comprising, among other things, effectiveenvironmental and industry associations, is necessaryto practically apply the directive. However, the LCsare still in a process of economic and societaltransition and the development of civil societies hasfrequently not yet reached western European levels.24

Similar problems are likely to render implementationof the Directive on Access to EnvironmentalInformation difficult.

The practical application of several other directivesis likely to be negatively affected by weak adminis-trative capacities in the LCs. As mentioned above, theIPPC Directive provides for an integrated permittingprocedure. This requires close co-operation betweenthe. administrative units which are in charge of the

22 Government of the Czech Republic, op. cit., pp. 29-30, note 10.23 OECD: Environment in the Transition to a Market Economy,Progress in Central and Eastern Europe and the New IndependentStates, Paris 1999, OECD, Centre for Co-operation with Non-Members, p. 64. A. C a r i u s , I. von Homeyer , S. Bar, op. cit.,pp., 163-164, note 7.24Susan Baker , Petr J e h l i c k a : Dilemmas of Transition: TheEnvironment, Democracy and Economic Reform in East CentralEurope - An Introduction, in: Susan Baker , Petr J e h l i c k a ,(eds.): Dilemmas of Transition: The Environment, Democracy andEconomic Reform "in East Central Europe, llford 1998, Frank Cass,pp. 11-13.

various environmental media. In addition the IPPCDirective contains several provisions dealing withcomprehensive reporting procedures, public infor-mation and participation.25 In many LCs the imple-mentation of other framework directives, in particu-larly the recently adopted Water Framework Directive,is running into problems because of weak adminis-trative capacities.

Implementation of the environmental acquis alsorequires capacity-building in the private sector. Forexample, according to the Seveso II Directive, enter-prises dealing with dangerous substances have todevelop emergency plans in close cooperation withthe competent authorities. In many cases it is not yetclear whether it will be possible to prepare these plansin time for accession.

In addition to the lack of administrative capacitiesand the weakness of civil societies in the LCs, theprocess of implementing Community environmentallegislation is further complicated by the fact thatseveral LCs are undergoing processes of adminis-trative reform. For example, Poland and the CzechRepublic have both recently introduced a newregional level of government. Although the newregional levels of government have already been intro-duced in the Czech Republic, important decisionsregarding their competencies and financial andpersonnel resources are still pending.26 In Poland thereform process has already been completed. Yet, theCEC has recently given a rather sceptical assessmentof the effects of the new structures on administrativecapacities.27

Against this background of insufficient information,administrative problems and the continuous evolutionof the acquis it seems possible that in some casesadditional transitional periods may be needed. Forexample, Slovenia's implementation programmes forthe Nitrates and the Seveso II Directives may have tobe supplemented by transitional periods. However, inother cases new information or a more efficientallocation of resources may allow some transitionalperiods to be significantly shortened or completelywithdrawn. This may, for example, happen to theCzech request for a transitional period for the NitratesDirective.

25 Cf. Soil and Water Ltd., op. cit., p. 39, note 9.26 Cf. Carl B r.o et al., op. cit., p. 13, note 11.27 Europaische Kommission: RegelmaGiger Bericht 2000 derKommission uber die Fortschritte Polens auf dem Weg zum Beitritt,Briissel 2000, Europaische Kommission, pp. 80-81.



While the accession countries are trying totranspose.and implement EU environmental legis-lation, the EU continues to adopt new laws. The factthat Community legislation is a "moving target"constitutes yet another factor which negatively affectsthe ability of accession countries to fully applyEuropean environmental legislation by the date ofaccession. For instance, in 2001 the EU is expectedto adopt a revised version of the Large CombustionPlants Directive. In 1999 and 2000 the EU adopted,among other things, the Water Framework Directiveand the Landfill Directive. Implementation of each ofthese legal acts requires additional major investmentand/or administrative capacity-building.

Given the financial and administrative problems,immediate and complete implementation of theenvironmental acquis in the LCs does not appear tobe feasible. Against this background, the EU has threeoptions: it can delay accession, increase financial andtechnical assistance to the LCs, or accept a consid-erable number of transitional periods. Given that botha further delay to accession and increased assistanceappear politically unacceptable, the EU is likely to optfor the last possibility. In the following areas transi-tional periods seem to be most probable:

• water protection: UWWT Directive, NitratesDirective, and Drinking Water Directive;

• industrial pollution: IPPC Directive (so-calledexisting installations in certain sectors), Directive onLarge Combustion Plants (Hungary);

• air quality: VOC Directive, Directive on the Qualityof Petrol and Diesel Fuels;

• a limited number of directives in the area of wastemanagement (e.g. certain regulations under the WasteFramework Directive and the Hazardous WasteDirective, Directive on Packaging and PackagingWaste), in particular in Poland.

Effects on Competitiveness

The process of negotiating transitional measureshas triggered concerns about economic competi-tiveness in both the LCs and the EU. The LCs arguethat a refusal of transitional periods would lead to anerosion of their overall ability to compete with modernindustries in the EU Member States. Conversely, thepresent Member States also fear a loss of competi-tiveness caused by lower environmental standards inthe LCs.

State of the art empirical research provides littleevidence to support these concerns. Studiesmeasuring the effects-of environmental regulation on

trade flows and industrial location show that theoverall effects are not significant.28 Even in industrieswith relatively high compliance costs environmentalregulations seem to have no significant influence onthe direction or magnitude of trade and investmentflows. Multinational firms, for example, base theirinvestment decisions on many local factors (invest-ment climate, labour costs, human capital, marketaccess etc.), but the level of costs for environmentalprotection appears to be a relatively insignificantfactor.29 In general, environmental regulation does notlead to significant cost differentials among countrieswhich introduce similar standards at roughly the sametime. But even trade and investment in countries withsignificant differences in environmental standards areonly marginally affected by factors which are relatedto these differences.

Some LCs (e.g. Poland, Hungary, Czech Republic)still have comparative advantages in pollution-intensive sectors. But recent empirical studiessuggest that trade flows between these countriesand, for example, Germany have tended to developmore dynamically in less pollution-intensive sectors.30

Similarly, the inflow of foreign direct investment toPoland, the Czech Republic, Hungary and Slovenia isincreasingly directed towards sectors with lowerenvironmental impact. Interestingly, trade betweenMexico and the United States is to some extentcomparable with EU trade with the accessioncountries due to a long common border, significantdifferences in environmental standards and extensivetrade relations. Available empirical evidence suggeststhat high pollution abatement costs in the USA havenot significantly affected US imports from Mexico.31

Against this background, negative impacts oftransitional periods on the competitiveness of industryin the existing Member States should, if anything, belimited to certain cases and sectors. For example,

28 Cf. M. Ra use her: International Trade, Factor Movements andthe Environment, Oxford 1997, Clarendon Press; A. J a f f e ,S. P e t e r s o n , P. P o r t n e y , R. S t a v i n s : EnvironmentalRegulation and the Competitiveness of U.S. Manufacturing: Whatdoes the Evidence Tell Us?, in: Journal of Economic Literature, Vol.33, 1995, pp. 132-163; J. Dean : Testing the Impact of TradeLiberalisation on the Environment, Seminar Paper, Adelaide 1996,University of Adelaide, Centre for International Economic Studies.29Cf. T. P a n a y o t o u , J. R. V i n c e n t : Environment and Compe-titiveness, Global Competitiveness Report, Geneva 1997.30Cf. J. H o r b a c h , T. MeiBner , J. R o t h f e l s , K. H o i s t ,P. Vo ig t : Umweltschutz und Wettbewerbsfahigkeit, Baden-Baden1998, Nomos, pp. 60-81.31 See G. M. G r o s s m a n , A. B. K ruege r : Environmental Impactsof a North American Free Trade Agreement, in: P. M. Garbe r (ed.):The Mexico-US Free Trade Agreement, Cambridge, MA 1993, MITPress, pp. 13-56.



there may be some negative impact on the powersector which would not, however, affect the economyas a whole.32 Of course, energy costs constitute animportant share of overall production costs for certainsectors of the economy. However, the longest transi-tional periods requested by the LCs do not concernthe power sector but the area of water management.In the years ahead, water prices in the accessioncountries will be influenced by the implementation ofthe UWWT Directive and other water related EU legis-lation. LCs argue that long transitional periods for therelevant water related directives are inevitable, amongother things, to avoid unacceptable effects oncompetitiveness caused by sharply rising waterprices. However, present Member States are reluctantto agree to long transitional periods. Yet, even in thoseeconomic sectors which are vulnerable to water priceincreases elasticity of output with respect to the priceof water is relatively low. and significant impacts onthe LCs' exports are unlikely. Because an increase inwater prices leads to more efficient water consump-tion, the introduction of full-cost recovery water pricesand increased competitiveness tend to go hand inhand. However, these marginal and long-term effectsappear insufficient to justify the present MemberStates' concerns over competitiveness.

Furthermore, the diversification of trade patternsseems to provide a certain safeguard against majoreffects on competitiveness.33 The EU as a large,relatively wealthy economic entity with a highly diver-sified export structure is therefore unlikely to suffersignificant economic losses from transitional periods.Conversely, it is more likely that small accessioncountries showing little diversification of exports willbe negatively affected by any refusal of transitionalperiods. However even for the LCs economic effectsshould be limited, not least because the, necessaryinvestments would have to be made in the context ofa rapidly developing market for cleaner productiontechniques and abatement technologies. This means,for example, that costs for the accession countrieswould be significantly lower than expenditures in theMember States, which often had to meet the samestandards with less developed technologies severalyears ago.

The assumption of a general loss of competi-tiveness in the present Member States as a result ofhigher environmental standards is also not compellingin theoretical terms. Traditional trade theory suggeststhat countries with stricter environmental standardsexperience a loss of competitiveness in high-emissiongoods. But trade flows between the EU and the

accession countries are increasingly characterised byintra-industry trade.34 The new trade theory helps tostudy the effects of differing environmental standardsbecause it takes product differentiation and, conse-quently, increasing returns to scale and imperfectcompetition into account. Relevant models show thatthe effects of environmental regulation on trade andinvestment flows depend on various, often compet-ing, factors. Therefore there is no general orsystematic relationship between environmentalstandards and competitiveness in theoretical terms.35

Since substantial fixed costs in conjunction withtransport costs are considered to constitute crucialand lasting location factors by the new trade theorists,location decisions taken by industrial actors heavilydepend on expectations of future costs.36 Therefore,firms tend to locate in countries which pursue a calcu-lable environmental policy. Initially somewhat higherinvestment costs due to environmental requirementsmay frequently be offset by the positive effects ofcalculability, changes in the degree of competitionbetween producers, and the creation of new marketsfor "green" technologies. Although there is a certainlack of clarity in the new trade theory models, thesemodels succeed in explaining the empirical obser-vation that an active environmental policy does notsimply cause negative growth or trade effects. Againstthis background, transitional measures should notgenerally be considered a competitive advantage forindustries in the accession countries but, rather,should be recognised as leading to effects which mayeven result in a decrease in the medium and long-term competitiveness of industries in the LCs.

Product and Process Standards

To assess the impact of transitional periods oncompetitiveness it is also necessary to differentiatebetween environmental product standards and

32 Cf. W. Hager : The Environment in European Enlargement, Reportof a CEPS Working Party, Centre for European Policy Studies,Brussels 2000.33Cf. J. A l b r e c h t : Environmental Regulation, ComparativeAdvantage and the Porter Hypothesis, FEEM Working Paper, No. 59,Milan 1998, Fondazione Eni Enrico Mattei.34 For an early assessment, see C. A t u r u p a n e , S. D jankov ,B. H o e k m a n : Determinants of Intra-lndustry Trade between Eastand West Europe, World Bank Working Paper, No. 1850, Washington1997, World Bank.35 Cf. S. U. S c h m i d : Umweltpolitik und internationale Wett-bewerbsfahigkeit, Kieler Working Papers, No. 823, Kiel 1997.36 K. W. S t e i n i n g e r : Trade and Environment: The RegulatoryControversy and a Theoretical and Empirical Assessmentof Unilateral Environmental Action, Heidelberg 1994, Physica,pp. 74-77.



environmental process standards. Transitional periodsfor product standards directly affect the functioning ofthe EU's Internal Market and may erect technicalbarriers to trade. Economies of scale cannot be fullyexhausted because several versions of products mustbe produced by the exporting industries to meet therequirements of differing environmental productstandards. The EU therefore insists that transitionalperiods cannot be granted for product standards. Theissue is particularly pertinent for certain pieces of EUwaste legislation. For example, Poland has requesteda transitional period regarding the limit values forheavy metal concentration prescribed by thePackaging and Packaging Waste Directive. Such atransitional period would be problematic because itwould not only affect the Internal Market but wouldalso create environmental pressures in other MemberStates.

Transitional periods for the implementation of theEU directives which harmonise process standardsand licensing procedures, for example the IPPCDirective or the Directive on Large Combustion Plants,could lead to (temporary) barriers to market entry andthe segmentation of the markets for the respectiveabatement technologies and production activities.37

However, these potential effects should not be over-emphasised for three reasons.

First, the EU will not accept transitional measuresfor new installations and the most serious implemen-tation problems in the LCs mostly concern olderinstallations. However, many older installations are notinternationally competitive and will sooner or laterhave to be closed or upgraded in any case. Second,even full implementation of the relevant EU directiveswill not lead to complete harmonisation of licensingprocedures throughout the EU. Among other things,relevant directives (e.g. the IPPC Directive) often usevague language and provide guidelines or qualityobjectives rather than strict limit values. Consequent-ly, they leave considerable leeway for interpretationand implementation by national authorities. Many

37 See H. S i e b e r t : Environmental Policy and European Integration,in: H. S iebe r t (ed.): Environmental Scarcity: The InternationalDimension, Tubingen 1991, Mohr, pp. 59-70.38 For a detailed discussion of the flexibility of Community environ-mental legislation, see I. von Homeyer , A. C a r i u s , S. Bar:Flexibility or Renationalization, Effects of Enlargement on ECEnvironmental Policy, in: M. G. C o w l e s , M. Sm i th (eds.): TheState of the European Union, Risks, Reform, Resistance and Revival,Vol. V, Oxford 2000, Oxford University Press, pp. 364-366. See alsoK. Holzinger: Optimal Regulatory Units: A Concept of RegionalDifferentiation of Environmental Standards in the European Union, in:K. Ho lz inge r , P. Krioepfel (eds.): Environmental Policy in aEuropean Union of Variable Geometry? Basel, Geneva, Munich 2000,Helbing & Lichterhahn, pp. 65-107.

directives, for example the Large Combustion PlantsDirective and the Packaging and Packaging WasteDirective, also contain exceptions for certain MemberStates, often with long transitional periods for meetingcertain standards.38 Furthermore, EU environmentallegislation, for example the,UWWT Directive, does notspecify how the necessary investment must befinanced. The choice of financial instruments affectsnot only the total costs of implementation, but alsodistribution of these costs across industries,economic sectors and households. Therefore waterprices would not necessarily rise dramatically even ifthe "user pays" principle was applied. Third, even fullyharmonised process standards would not result in alevel playing-field in an enlarged Union due to differingprice levels and compliance costs between countriesand regions.39 In addition, EU environmental legis-lation, for example the new Water FrameworkDirective or the IPPC Directive, is increasingly charac-terised by a "combined" approach using limit valuesand environmental quality standards. This means thatcompliance costs also depend on regional environ-mental quality. Therefore transitional periods are morelikely to affect competitiveness in regions with a highconcentration of economic activity such as UpperSilesia in Poland, whereas the effects will be lesssignificant in less polluted regions.

Two further issues are worth mentioning becausethey offer ways to reduce the financial burden onaccession countries resulting from implementation ofthe environmental acquis.

First, case studies on meeting SOa emission limitsand reduction targets and on certain requirements inthe water sector in Poland suggest that longer transi-tional periods and "least cost" planning of publicinvestment40 could lead to considerable cost-savings.For instance, it may be advisable to accept a numberof longer transitional periods on the condition thatselected environmental objectives are met. In thewater sector, for instance, financial resources for theimplementation of the UWWT Directive could bechannelled into the construction of sewers andtreatment plants in strategic locations. This could becombined with a significantly faster implementation ofthe financially less demanding Nitrates Directive.

Second, additional financial resources will benecessary to meet EU requirements. In Poland, public

39 Cf. S i e b e r t , op. cit., pp. 59-70, note 37.40See G. H u g h e s , J. B u c k n a l l : Poland, Complying with EUEnvironmental Legislation, World Bank Technical Paper No. 454,Washington 2000, World Bank.



funds (the national budget, municipal budgets andenvironmental funds) have so far covered between 60and 70 per cent of the total costs of implementing theenvironmental acquis.41 However, the environmentalsubsidies which were mostly channelled throughenvironmental funds are generally considered ineffi-cient.42 In addition, compatibility of the funds with EUcompetition rules is not yet clear. Privatisation ofutilities and the introduction of energy and waterprices which cover costs offer many possibilities toreduce the financial burden on public budgets.Additional time gained through transitional periodsshould therefore be used to reform ownership struc-tures and work towards adequate resource pricing.

Environmental Effects

Since 1989 environment quality in the accessioncountries has improved considerably as a result ofenvironmental policy reforms and the transition to amarket economy, which led to a significant fall inproduction, particularly in pollution-intensive indus-tries. Nevertheless serious environmental damagepersists in most LCs.43 The heavy industries andsubstantial coal-based energy production are amongthe key sources of pollution. While air pollution andwater quality are the most frequently cited environ-mental problems, solid waste management,increasing pollution from the transport sector, lowenergy efficiency, and environmental degradationrelated to changing land-use patterns also constitutemajor challenges.

However, it is difficult to predict the environmentaleffects of EU enlargement. On the one hand, environ-mental risks stem, among other things, fromincreasing economic and transport activities. On theother hand intensifying competition, acceleratingcapital rejuvenation and an expected further shiftaway from heavy industries towards less pollution andmaterial intensive production may contribute to areduction of environmental stress.44 In addition, theexpected improvement in real incomes is likely toraise the level of acceptance of environmentalmeasures.

The ambiguous environmental effects of enlarge-ment pose the question whether the overall result ofregional integration on welfare remains positive, inparticular given the fact that trade relations areincreasingly characterised by intra-industry ex-change. Relevant theoretical discussions are still intheir infancy and do not provide clear answers.Recent models suggest that the general economiceffects of regional integration are always positive,

while environmental effects depend on the degree ofcompetition and the nature of pollution (i.e. whetherpollution is mainly local or transboundary).45 As ageneral rule, environmental consequences of regionalintegration vary significantly when increasing trade isattributable to intra-industry trade rather thancomparative advantage. Under certain conditionsenvironmental quality in previously relatively "clean"countries decreases. This may be caused by the avail-ability of specialised inputs or technological spillovereffects in these countries which lead, for example, toa relocation and regional concentration of pollutingproduction activities. Similarly, trade liberalisationmay also alter production patterns in previouslyrelatively polluted countries due to the compositioneffect of trade. As a result transboundary pollutionaffecting environmental quality in the formerly "clean"countries may increase.

From the perspective of existing Member States,transitional periods for EU environmental directivesare less problematic if their negative environmentaleffects are confined to the LCs. For illustrativepurposes the following rough assessment of potentialtransitional periods focuses on legislation whichreduces transboundary environmental pollution.Prominent examples for problems of transboundarypollution tackled by EU environmental regulation arethe pollution of international watercourses and long-range air pollution (carbon dioxide emissions andother greenhouse gases, nitrogen oxide, sulphurdioxide etc.) Other EU environmental directives seekto "produce" international or European environmentalgoods. For example, the Habitats Directive may beconsidered an instrument for the in-situ protection ofbiological diversity in Europe. By contrast, the imple-mentation of certain other directives appears to beless urgent because they have no effects, or onlyweak ones, on transboundary pollution. Examplesinclude the Groundwater Directive, the WasteFramework Directive and the Directive on Hazardous

41 G. H u g h e s , J. B u c k n a l l , op. cit., p. 44, note 40.42 For an empirical assessment of the Polish environmental funds, seeG. A n d e r s o n , T. Z y l i c z : The Role of Polish EnvironmentalFunds: too Generous or too Restrictive?, in: Environmental andDevelopment Economics, Vol. 4, pp. 413-448.43 European Environmental Agency (EEA): Environment in theEuropean Union at the Turn of the Century, Copenhagen 1999.44 W. Hager, op. cit., p. 17, note 32.45 For an assessment of these effects on the basis of a simple modelof intra-industry trade with factor movement, see K. C . F u n g ,A. M. M a e c h l e r : The Impact of Intra-industry Trade on theEnvironment, SCCIE Working Paper 00-4, Santa Cruz 2000,University of California, Santa Cruz Centre for InternationalEconomics.



Waste, the Drinking Water Directive, the IPPCDirective (depending on sectors, location of plantsand the nature of emissions) and the UWWT Directive(in cases where international watercourses or seas arenot seriously affected).

Transboundary pollution and the provision ofEuropean environmental goods are tackled by theDirective on Large Combustion Plants, some require-ments of the IPPC Directive (in particular by provi-sions on bilateral consultation in case of trans-boundary effects), the Seveso II Directiverthe LandfillDirective (the intended reduction of methaneemissions from landfill will contribute towards effortsto curb global climate change), the Nitrates Directive,the UWWT Directive (in particular, reduction of nitrateand phosphorus inflows to the Baltic and Black Seas),the Directive on Discharge of Dangerous Substancesand the Hazardous Waste Incineration Directive (bothdepending on the location of plants and the nature ofemissions), the Directive on VOC Emissions fromPetrol, the Regulation on Ozone DepletingSubstances, and the Habitats Directive. Furthermore,from an environmental point of view transitionalperiods should be avoided for product standards formobile sources of emissions and for market entry ofhazardous products.

Implementation of EU environmental legislation inthe accession countries will contribute to a furtherreduction of transboundary pollution (e.g. air emis-sions46) but the overall benefits should not be over-estimated. In general, the marginal environmentalbenefits of better environmental protection in the LCswill continue to decrease. Some of the morespectacular improvements in environmental qualityover the last decade resulted from the particularhistorical situation. Furthermore, many emissionstandards in the accession countries are alreadysimilar to EU requirements as the LCs are also signa-tories to several international conventions obligingthem to reduce certain types of transboundarypollution. Even if EU legislation imposes even stricterenvironmental standards, it will often remain difficultto monitor and enforce effective implementation in theaccession countries.

Conclusion

Concerns over a loss of competitiveness as a resultof transitional periods for the implementation of theenvironmental acquis in the LCs appear to be largelyunfounded. First, the EU tends to handle the requestsfor transitional periods restrictively, in particular ifnegative effects on the functioning of the Internal

Market or on competitiveness cannot be excluded.Second, most of the requests for particularly longtransitional periods concern EU legislation that tendsto have a relatively small impact on competitiveness,e.g. water-related directives. Third, empirical findingsand theoretical models suggest that the impact ofenvironmental standards on competitiveness isgenerally small. If anything, a significant impact canbe expected in certain sectors, for example heavyindustry or energy production. However, the mostvulnerable production facilities in the LCs are techni-cally outdated. and will have to be closed ormodernised in any case to make them internationallycompetitive. In addition, energy efficiency is still verylow in the LCs. Against this background transitionalperiods may even have a negative impact on themedium to long-term competitiveness of the mostvulnerable industries in the LCs because they lead toa delay of the introduction of higher environmentalstandards, which generally create incentives formodernisation and increased efficiency.

Given the small or contradictory effects of environ-mental standards on competitiveness it seemsdifficult to, use this criterion to decide on transitionalperiods in the accession negotiations. Criteria andmethods such as the impact on transboundaryenvironmental pollution and the selection of transi-tional periods on the basis of an optimal allocation offinancial resources in terms of environmental benefitsappear to be better suited as a basis for decisions ontransitional periods.

Finally, it should be pointed out that an exclusivefocus on transitional periods tends to obscure anumber of difficulties in implementing the environ-mental acquis in the LCs. The CEC has made it clearthat transitional periods will not be granted for admin-istrative capacity building which, in addition to capitalinvestment, is also necessary for the effective imple-mentation of European environmental legislation.Given that strong administrative capacity is crucial forthe practical application of industry-related directivessuch as the IPPC Directive, the Seveso II Directiveand the Directive on Environmental Impact Assess-ment, it cannot be excluded that impacts on compet-itiveness stemming from weak administrative capac-ities in the LCs will be similar or even larger thanimpacts caused by transitional periods.

46 See, for example, European Environmental Agency (EEA):Prospects and Scenarios, No. 1, Environment and EuropeanEnlargement: Air Emissions, Environmental Issues Series, Vol. 8,Copenhagen 1999.


Documents

EU accession: Negotiating “environmental dumping”?