the eu-china cooperation in sustainable development

8/6/2019 The EU-China cooperation in sustainable development

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THE EU-CHINA COOPERATION IN SUSTAINABLE

DEVELOPMENT

Supervisor: Andr Feldhof

Frederic Bouder ID 502243

Coordinator: Pigeonhole 155

Patrick Bijsmans Date: 17-06-10

Paper Dossier II

Version: Final Draft


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Table of Contents

Introduction p. 2

1. Theoretical framework p. 3

1.1 Sustainable Development p. 3

1.2 Externalities The reason for EU action p. 4

1.3. Reconciling environmental and economic

sustainability p. 5

2. Bilateral programs with China in environmental sustainability p. 7

2.1 Chinas environmental challenges p. 7

2.2 Chinese environmental policies p. 8

2.3 European involvement in Chinese environmental

sustainability p. 10

2.4 Bilateral EU-China projects: Two case studies p. 12

2.5 Evidence from the case studies p. 15

3. Trade Liberalization and Environmental Sustainability:

The Partnership and Cooperation Agreement (PCA) p. 17

3.1 The pollution-haven theory revisited p. 17

3.2 Reasons for negotiating the Partnership

and Cooperation Agreement p. 18

3.3 Trade liberalization and the environment in China p. 20

3.4 Trade liberalization through the Partnership

and Cooperation Agreement p. 22

Conclusion p. 23

References p. 25


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Introduction

Many international commentators have seen the Climate Change Conference in

Copenhagen in December 2009 as a failure of the international community to find an

agreement on CO2 reductions (cf. Lynas, 2009). Even though negotiators reached a

so-called Copenhagen Agreement, experts believe that it is not enough to give a

sustainable future to the world.

Sustainable development is a matter of global concern (OECD, 2001, p. 11).

Environmental damage or poverty-induced migration flows do not make halt at

national borders. Hence, it is common to talk about environmental damage in terms of

negative externalities (discussed below). Citizens all over the world bear the cost of

pollution, but regulations can only be implemented on a national level. This makes it

necessary for the global community to work together and to find common agreements.

Yet, the international system is often described like a system of anarchy (Hyde-Price,

2006, p. 220) where national interests predominate. As a result, it depends on skillful

negotiators to reach an agreement in which all states can assert their interests.

Journalists, policy-makers and scholars have cited the national interests of

China as a particular reason for the failure of the conference. As a fast industrializing

country, China aims to drive forward industrial development and growth of its

economy, potentially to the detriment of its own environment. In opposition to China,

the European Union acted as the most fervent supporter of sustainable environmental

development and pushed for ambitious emission reductions. However, it was

remarkably unsuccessful in convincing China of stronger environmental

commitments in Copenhagen (cf. Lynas, 2009).

In addition to multilateral negotiations in the UN or the WTO, China and the

EU maintain a long diplomatic relationship with cooperation in several fields,

including sustainable development. Since the EU was unsuccessful in influencing

China in multilateral negotiations, this paper will answer the question how

successfully the EU has promoted sustainable development through the bilateral EU-

China relationship.

To do so, the paper takes a twofold view at EU contributions in China,

offering an insight into bilateral capacity-building programs as well as the positive

impact of increased EU-China trade upon the Chinese environment. The paper is

consequently divided into three parts. The first part presents the concept of


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sustainable development and discusses the theoretical outline of the paper. The

second part focuses on the enforcement of sustainable development in China,

highlights the Chinese efforts and shortcomings, presents the EU interests and uses a

case study in the region of Liaoning to show in how far these interests have been met.

The third part focuses on the Partnership and Cooperation Agreement currently

negotiated between the EU and China, and shows in how far trade liberalization

between the EU and China can benefit the Chinese environment. In following, the

author will give a conclusion to these points.

1. Theoretical framework

1.1 Sustainable Development

The term sustainable development has gained particular importance during the last

four and particularly in the last two decades (OECD, 2001, p. 11). While there are

different definitions of the concept, the most common one from 1989 defines it as

development that meets the needs of the present without compromising the ability of

future generations to meet their own needs (OECD, 2001, p. 38). According to the

OECD (2001), there are three different dimensions to sustainable development,

namely economic, environmental and social sustainability (p. 36). The first, economic

sustainability, is concerned with strong and durable economic growth as well as

financial stability and low inflation (ibid.). Hence, measures that provide a good

investment climate for companies can be considered economically sustainable. The

second dimension, environmental sustainability, mainly focuses on the maintenance

and resilience of biological and physical systems and the preservation of a healthy

environment (ibid.). In practice, environmental policies restrict polluting companies,

control the level of water pollution in lakes and rivers and ensure that other policies

take the environment into consideration. The third dimension, social sustainability,

finally emphasizes the importance of high employment, social security and

democratic participation of the people (ibid.). As state-owned enterprises (SOEs) still

play an important role in the Chinese economy and much employment directly

depends on the state, social sustainability places high pressure upon policy-makers. It

must be noted that the three fields of sustainable development are closely intertwined;


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changes to economic sustainability will also have an impact upon environmental and

social sustainability. In consequence, sustainable development requires a balancing

between all fields to minimize the negative effect that a policy in one of them may

have upon the others. Although this paper attempts to strike a balance between all

three fields, it will maintain a deliberate focus on environmental sustainability.

1.2 Externalities The reason for EU action

Environmental sustainability is a pressing issue for the EU because the EU is directly

concerned by pollution in China. This not only applies to CO2 emissions but also

regards pollution in a more general sense. Most scholars frame cross-border

environmental degradation as an externality, a cost experienced by a party that is

external to the decision about how much of a good to produce or consume

(Dytianquin, 2008). In other words, neither a polluting company nor the final

consumer of the good bear the cost of pollution. Instead, the atmosphere, trees, lakes

and rivers of the polluting country and other countries absorb pollution, which leads

to a degradation of the environment in other countries. Hence, the cost for abatement

falls upon the other state or upon private donors.

To make a polluting firm responsible, Pigou (2009) has proposed that the

externality be included into the production process. He suggests imposing a tax upon

the polluting enterprise which reflects the exact cost that the enterprise imposes upon

the society a so-called Pigouvian tax (Pigou in Dytianquin, 2009). Pigous idea is

enshrined in an international principle of sustainable development, the polluter-pays

principle, which was formally agreed upon in the Rio Declaration at the Sustainable

Development Summit in Rio de Janeiro in 1992 (Rio Declaration, Principle 16, 1992).

The EU subsequently implemented it through the European Emission Trading

Scheme (ETS) which created a market for emission rights (Euractiv, 2010). This

allows the European Union to subject pollution to a market mechanism, which

ensures that economic growth is not suppressed and thereby reconciles economic and

environmental sustainability.

It follows from the theory of externalities, that abatement in the EU itself is

not sufficient. The EU also needs to persuade other global actors in particular China

to give greater importance to environmental sustainability. It is remarkable that the

Chinese State Council already adopted the polluter-pays principle in 1979 and


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2. Bilateral programs with China in environmental sustainability

2.1 Chinas environmental challenges

Before talking about EU contributions in China to reduce externalities, it is important

to define the problems that press upon China. The Middle Kingdom is not only faced

with environmental issues but also with significant social and economic challenges. It

is home to 22% of the worlds population but has only 7% of the worlds arable land

at its disposition (Rogers, Srinivasan, 2008, p. 53). Due to large-scale migration, the

metropoles on the Eastern coast in particular undergo massive population pressure.

Hald (2009) has found that the

population density in the vicinity of Chenghuang Temple in downtown Shanghai is 80,000

persons per square kilometer, while some parts of urban Tianjin densities are over 50,000 to60,000 persons per square kilometer . . . For comparison, the population density of urban NewYork City and Tokyo in the late 90s was 9,109 and 15,600 persons per square kilometer,

respectively (p. 24).

Migrants from the rural areas in Western and Central China are looking for work in

the metropoles, putting the central government and local governments under pressure

to provide them with employment. Buijs (2009) asserts that the Chinese government

derives a large part of its legitimacy from its capacity to provide jobs; consequently, it

prioritizes economic sustainability over environmental sustainability (p. 49).

Nonetheless, environmental problems in China are severe. A city

infrastructure built for private automobiles (Hald, 2009, p. 26) and sheer population

intensity lead to massive air pollution in the mega-cities on the Eastern coast. As a

result, the average Chinese city experiences pollution levels amounting to double or

even triple the level of larger European capitals (SIA, 2008, p. 87). A Chinese

participant in a lecture on China at the London School of Economics (LSE) stressed

that if you go to Beijing, you see the clogged traffic. You cant move, and its very

painful. If I were still in Beijing, my eyes would be very painful (Fu Ying, 2009).

Nonetheless, Jahiel(1998) holds that the worst pollution occurs in the industrial

sector outside the metropoles, adding that this sector is the fastest growing and the

most difficult to regulate (p. 783).

Another important environmental challenge that shall be mentioned is water

scarcity, which will increase in many parts of Northwest China according to Freeman


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and Holslag (2009, p. 9, cf. Crossick, 2008, p. 16). This is connected to the pollution

of many lakes and river basins (Rooij, 2006, p. 1ff, SEPA, 2005) which could provide

drinking water to the population. Indeed, the National Eleventh Five Year Plan of the

Peoples Republic of China (2007) acknowledges that 26% of Chinese water fails to

meet Grade V national surface water quality standard; 62% could not meet Grade III

water quality standard1 (p. 2).

2.2 Chinese environmental policies

The government aims to tackle the shortcomings of environmental protection through

a range of strict regulations. While other developing countries like India long focused

exclusively on economic growth, leaving aside sustainable development (Kjellen,

2008, p. 10), Chinese policy-makers already formulated a national policy on

environmental protection in the 1970s (Wang, Morgan, Cashmore, 2003, p. 544).

Since then, the State Council and regional lawmakers have issued more than 2000

laws in the area of environmental protection (SIA, 2008, p. 95). The 2002 Cleaner

Production Law, the 2005 Renewable Energy Law, the 2008 Energy Conservation

Law and the 2008 Circular Economy Promotion Law on recycling have become

important milestones of environmental progress in China(Freeman, Holslag, 2009, p.

14). Most importantly, the National Eleventh Five-Year Plan arguably the most

important document of economic planning in China for the first time set an

ambitious agenda for the reduction of greenhouse gases and the improvement of water

resources (ibid.). In very clear language, the documents states the deficiencies of

sustainable development and names specific targets such as a reduction of 20% in

energy consumption between 2005 and 2010 (Eleventh Five-Year Plan, 2007, p. 5). It

stresses the importance of market mechanisms in environmental policy as well as its

adherence to the polluter-pays principle (p. 3) and is remarkably open towards the

restriction of economic growth in some regards: China will put more efforts in the

supervision and control of enterprise's pollution in rural areas and ban the movement

of industrial solid waste, hazardous waste, urban garbage and other pollutants into

1The Chinese grade III means that water can be used for drinking, fishing and swimming, while

everything worse than grade V means that the water is essentially useless (WorldBank, 2006, p. 8). It

has to be noted that Chinese water standards are by far more lenient than European water standards. InEurope, grade III water would not even be open for fishing, leave alone swimming or drinking (ibid.).


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enterprise (ibid.). Secondly, EPBs are often restricted in exercising their watchdog

function. Many scholars (Wang, Morgan, Cashmore, 2003, p. 547f, Ma, Ortolano in

Harrington, 2001, Rooij, 2006, p. 264, Jahiel, 1998, p. 759) see it as a significant

problem that EPBs are financed by local or regional governments, rather than the

Ministry of Environmental Protection (MEP, formerly SEPA). Given that many local

and regional governments are skeptical towards environmental protection, EPBs often

have to behave very carefully so as to retain their funding (Ma, Ortolano in

Harrington, 2001, p. 398). Many EPBs are also significantly underfunded and

understaffed for the work that they need to do. Rooij (2006) has observed this in the

municipality of Kunming:

The Kunming municipal EPB headquarters is located in one of the citys drabbest areas in arun-down building that badly needs a paint job. Most offices lack computers, and thecomputers available are old. In stark contrast, the municipal SLBs staff is happy in its

recently novated building. Marble floors welcome visitors on the ground floor, and luxuriousand spacious offices are found on the floors above. All rooms visited had the newestcomputers and shining comfortable furniture (p. 276f).

The same accounts for the national MEP. While the National Environmental

Protection Agency in the US, a country with a similar amount of land, employs

17,000 full time employees, the Chinese counterpart had only about 200 employees,

potentially increasing them to 400 by 2008 (SIA, 2008, p. 97). It appears, therefore,

that China does not have the institutional structure to cope with environmental

problems on its own.

2.3 European involvement in Chinese environmental sustainability

As a result of Chinese enforcement problems, policy-makers expect help from more

advanced economies in the world such as the EU. In Chinas first EU Policy Paper

(2003), policy-makers put it rather blunt: China welcomes more EU development

aid, especially in such fields as the environmental protection, poverty-alleviation,

public health and hygiene and education. China also welcomes a stronger and more

active role of the EU in human resources development, in particular, personnel

training (Chinas EU Policy Paper, 2003, p. 7). In practice, the Chinese government

and the Chinese economy have been very eager to obtain European technologies, be it

through official cooperation in capacity-building, through cooperation between


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Chinese and European enterprises requiring technology transfer to the Chinese firm

(SIA, 2008, p. 35, Liu, 2009, p. 72) or through theft of European patents such as car

models (Landler, 2007) or capital goods (Bialdiga, 2008, Crossick, 2008, p. 165).

Although the Agenda 21, which was signed along the Rio Declaration in 1992,

effectively demands transfer of environmental technology from developed to

developing countries (SIA, 2008, p. 31), European companies are afraid to disclose

their expertise to Chinese enterprises due to weak enforcement of intellectual

protection rights (IPR) in China (p. 79). Some have even resorted to calculating the

cost of IPR infringement and adding it to the regular price (p. 31). Stronger EU input

appears crucial for regulating this field.

While the EU is in principle willing to help, it also has a number of interests in

China. It has been mentioned above that the EU sees the fight for sustainable

development as a source of civilian power (Freeman, Holslag, 2009, p. 7, Crossick,

2008, p. 18). European technology and business practices are a powerful carrot from

which the EU can derive soft power and international recognition. Meanwhile, the EU

asserts that it has major economic and political interests in supporting Chinas

sustainable development and successful transition to a stable, prosperous and open

country (European Commission, 2006a, p. 4). A sustainable and prosperous China

will provide a bigger market for European goods and it will reduce global

externalities of industrial production. Hence, in its strategy towards China, the

Commission places the principle of sustainable development directly after the support

for Chinas reform process in those areas covered by sectoral dialogues (European

Commission, 2006a, p. 4). Sectoral dialogues also include the policy fields of

environment and energy and, most prominently, a high-level dialogue on climate

change (Snyder, 2009, p. 556). They are implemented through bilateral working

groups with Chinese government officials and representatives of the European

Commission (ibid.).

Bilateral projects are another component through which the EU can promote

sustainable development in China. However, acknowledging the limits of its

resources, the Commission (2006a) suggests a strong focus on flagship projects and

multiplier effects in order to translate EU experience to China (p. 4). It sees capacity-

building and policy interventions at the appropriate level as the right means to

achieve policy development (ibid.). Following the logic of soft power, the

Commission attempts to make the Chinese government emulate its enforcement


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practices. The Commission holds that it is rather successful, asserting that the Chinese

government has a manifest interest in exploring EU practices and experiences . . .

including the use of regulatory and economic instruments in environmental policy and

public participation in policymaking and implementation (p. 16, cf. SIA, 2008, p.

27).

2.4 Bilateral EU-China projects: Two case studies

The success can be found in various projects in sustainable development, two of

which shall be presented more in detail. In the EU-China Energy and Environment

Programme (EEP), the EU aimed at reducing the energy intensity of highly polluting

industries in China through capacity-building (European Commission, 2009b, p. 14).

As a part of the project, it organized training on correct benchmarking for Chinese

enterprises (Benchmarking Report, 2009, p. III, 5)2. In a first stage of the project, the

project team conducted pilot studies in the important industrial sectors iron and steel,

chemical, building materials, non-ferrous metals and textile (Benchmarking Report,

2009, p. 8). It selected representative enterprises in these industries, analyzed their

energy consumption and compared the findings with international benchmark values

to draw policy recommendations (p. 10). Subsequently, it invited representatives of

energy saving organizations and employees of industrial enterprises with a high

energy consumption for different workshops (p. 24, 28). At these workshops, best

practices were discussed, compared and underfed with European expertise (p. 28ff).

The authors of the Benchmarking Report emphasize that the EU project is a first

initiative with the aim to spark further capacity-building projects: Because this is a

train the trainer type of project, trainees who have received the training this time,

can be the trainer next time (p. 22). They further hope that five pilot projects and

nine demonstration projects will be launched as a result of the first training (p. 23).

The example of the benchmarking training highlights the importance that the

EU gives to flagship projects. According to Hardacre (2010), the EU is very willing to

provide capacity-building because an administrative training comes at a low cost in

2Benchmarking means defining common patterns, standards or best practices in an industry or

across industries by which enterprises can compare one another (Spendolini, 1992, p. 3f). The goal of

finding benchmarks is for an enterprise to compare its own practice to that of the best-performingenterprise and to emulate its technique as much as possible (p. 4).


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terms of finance and technology, while it can entail a large multiplier effect in China.

It meets the interests of the EU and contributes to low-cost environmental

sustainability while it does not compromise economic sustainability. However, it must

also be acknowledged that a veritable spread of best practices across industries

remains dependent on many different factors (and actors) and is subject to many

opposing interests.

The second project took an even larger role as a prestigious flagship project

for the EU. In the EU Liaoning Integrated Environment Programme (LIEP),

conducted between 1999 and 2004, the EU aimed to help the province reduce

pollution, modernize its economy, and eventually facilitate European firms to invest

into the province (Shin, 2004, p. 283). It pursued its aims inter aliaby establishing a

mass media public awareness campaign (European Commission, 2009b, p. 10). Since

the EKC theory holds that when most aspects of the environment are defined as

property, the community moves rapidly in the race to improve environmental life

(Yandle, Vijayaraghavan, Bhattarei, 2002, p. 4), it can be argued that giving a sense

of responsibility to civil society and media increases pressure on policy-makers to

protect the environment, and thereby gives evidence for the EKC hypothesis. This is

particularly relevant since Liaoning is one of those regions in China that is fast

industrializing but where regulation of pollution is difficult: The Liao River, for

example, is one of the most polluted rivers in China (Li et al., 2009, p. 147).

In order to raise environmental awareness among the people of Liaoning, the

EU took a threefold approach. It targeted public and private policy-makers,

institutions of public education and the media. For cadres in enterprises and

government, LIEP organized workshops on European environmental policy and

management, environmental communication strategy and sustainable development

theory (Gaokui, 2002). It also organized a visit to different European countries for

cadres to give them an insight into European environmental policy-making (Ma,

2006). Overall, 550 public and private decision-makers were trained until 2003

(China Environment, 2003).

In the field of public education institutions, the EU undertook a broad training

program for teachers and students. Thus, the project leaders of LIEP developed

environmental education teaching material and reference books for primary schools,

secondary schools and universities (Gaokui, 2002). While EU experts were asked to

participate in the creation of green schools and green community activities (China


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Environment, 2003), they also developed an international seminar on environmental

education at the local university to explore how to create a green college (Gaokui,

2002). Most importantly, however, the EU attempted to achieve a multiplier effect

through programs for teachers. 1,500 teachers from Liaoning province participated in

environmental trainings (China Environment, 2003) and an environmental education

specialist library was established with help of the EU (SEPA, 2002).

The third part of the awareness campaign targeted the media in Liaoning

province. Under the guidance of LIEP, several local media such as Liaoning TV, the

Liaoning Education TV Station, the newspaper Liaoning Daily and five other media

were educated in environmental journalism, established a closer cooperation among

one another and installed regular programs on environment (SEPA, 2002). Thus,

Liaoning TV opened up a weekly show called Green Home which informs citizens

about environmental protection in their households (Gaokui, 2002). The Liaoning

Daily and the Liaoning Economic Daily News opened up a weekly environmental

column and several other broadcast media took environmental issues into their news

coverage (ibid.). Finally, around 30 journalists participated in training programs until

2003 (China Environment, 2003).

The results of LIEP can be seen through a quantitative study of environmental

awareness in Liaoning province in 2009 (Li et al., 2009). According to the survey,

43.7% of all respondents consider the environment excellent or relatively good,

while 43.5% believe it is fair (p. 146). However, this does not necessarily mean that

citizens are aware of environmental problems. Despite these positive figures, 63.8%

of all respondents perceive that there is a lack of public awareness of environmental

protection3. This lack of awareness can also been seen in the survey results. It has

been mentioned that the Liao River is one of the worst polluted in China. Yet,

46.3% of staff and 40.8% of students wished to use [environmental] funding for planting treesand reforestation, but 39.4% of residents wished to use the funding for garbage disposal.

Fewer people (19.9% and 20.0%, respectively) chose wastewater treatment and air pollutioncontrol as the first target. This suggests that people want to have visual proof of theimprovement in surrounding environmental factors (ibid.).

The fact that citizens want to have visual proof of improvement testifies or a

willingness of civil society to hold policy-makers to account. On the other hand, it

3 Studies by the China Environment Culture Promotion Association (CECPA) have come to the sameconclusion (CECPA in SIA, 2008, p. 98).


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shows that the public cannot fulfill the role of a watchdog, since it does not precisely

know how to weigh the gravity of environmental pollution (p. 147). While citizens

acknowledge that they are not sufficiently informed, there is a vague belief that more

should be done: 50.3% of the respondents believe that policy-makers are not doing

enough for environmental protection and 55.4% see a lack of environmental

awareness with enterprises (ibid.). It appears that citizens expect their policy-makers

to be the drivers of environmental protection rather than becoming drivers

themselves. Yet, it has been highlighted above that attitudes and actions of policy-

makers may often diverge considerably.

2.5 Evidence from the case studies

The look at Liaoning province shows that the EUs efforts in building a civil society

are a first step towards environmental improvement, but they cannot be considered

sufficient to hold policy-makers to account (cf. Shin, 2004, p. 277f). Although

citizens take a distinct interest in the environment and appear demanding towards

their government, the case facts do not show enough evidence to argue for the

environment as a property, and thereby, the EKC hypothesis. However, these

findings neglect the impact of greater openness to trade in Liaoning province, which

will be dealt with in the third chapter.

Looking at both case studies, the EU approach can be best described as

handing the tools to Chinese policy-makers and civil society, rather than applying

the tools. Although it is impossible to induce general theories about the efficiency of

EU help in China from these two case studies, it is clear that the investment in

flagship projects and train-the-trainer initiatives do not impose serious

conditionality upon China. Although the Chinese government has clearly stated a

need for capacity-building in its EU Policy Paper, it does not appear that the EU can

build up soft power and impact enforcement of norms with capacity-building alone. It

therefore does not appear that a reduction of a pollution haven or the EKC hypothesis

can be achieved through government programs alone4.

4As a sidenote, the EU faces institutional problems in its approach to China. Germany, for example,

spends four times more than the European Commission on bilateral programs with China (Snyder,2008, p. 956). While the Commission undertook 19 bilateral projects in environment and energy until2008, Germany conducted 44, France 7 and Italy conducted 11 projects (p. 955). This dichotomy


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Having discussed EU initiatives in the framework of bilateral projects, this paper

turns to the EU contribution to environmental sustainability in China through trade

liberalization in the next chapter. It is investigated in how far the EU can apply

conditionality towards China in the negotiations of the Partnership and Cooperation

Agreement (PCA).

3. Trade Liberalization and Environmental Sustainability: The Partnership and

Cooperation Agreement (PCA)

3.1 The pollution-haven theory revisited

The PCA will be analyzed with help of the EKC and the pollution-haven theory.

However, the pollution-haven theory has to be extended in order to fit the scenario of

trade liberalization. It has been mentioned above that this theory results from the

global division of labor: As industrialized societies become services economies,

developing countries see a possibility to fill the emerging gap in industrial production,

based on low labor cost and little environmental regulation. However, scholars are

divided when it comes to the impact of trade liberalization between developed and

developing countries upon the environment in the latter. Some scholars assert that

trade liberalization supports the pollution-haven hypothesis (Xing and Kolstad, 2002,

Cole, 2004), but there is also evidence for the assumption that it minimizes the

pollution-haven hypothesis (Eskeland and Harrison, 2003, Neumater, 2001).

Grossman and Krueger have divided the impact of trade liberalization on the

environment into three components, which will be closely followed in this paper

(Grossman and Kruger in Liu, 2009, p. 23). The first is a so-calledscale effect,

describing the negative effects of rapidly increasing industrial activity without

technological progress and economies of scale (p. 8). This will lead to

overexploitation of resources, notably the environment. According to Crossick

(2008), the average energy use intensity in China is much higher than in most EU

countries, due to outdated production equipment and mismanagement of energy use

cannot be investigated more closely in this paper, but it may prove an interesting starting point forfurther research.


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(p. 28). Hence, thescale effectnormally carries negative implications for the

environment. The second effect is the technique effectwhich describes an

improvement of the environment through better technology (Liu, 2009, p. 8). This

effect is normally positive. The third component is the composition effectwhich can

be either positive or negative (p. 17). It refers to the factors influencing the production

process of an enterprise (ibid.). Thus, it can refer to other enterprises in the region, the

attitude and income level of the local population or the behavior of the local

Environmental Protection Bureau (EPB). The composition of these factors determines

whether the impact upon the environment is positive or negative. Following Dean

(2002), the EKC hypothesis and the pollution-haven theory are closely intertwined.

Accordingly, the inverted-U hypothesis states that at low levels of income, the scale

effect outweighs the composition and technique effects (p. 820). It follows from this

observation that an improvement can be achieved via technology spread and capacity-

building, but also via income growth.

3.2 Reasons for negotiating the Partnership and Cooperation Agreement

The negotiations with China for the PCA were launched in September 2006, in order

to adapt the legal basis of EU-China partnership, the 1985 EC-China Trade and Co-

operation Agreement, to the evolution of EU-China relations (Messerlin, Wang, 2008,

p. 15). Negotiations of a Partnership and Cooperation Agreement with a third country

fall under the field of EU Trade Policy and are governed by 218 TFEU. Accordingly,

the European Commission conducts the PCA negotiations after the Council has

formally authorized their opening. Hardacre (2010) holds that an economic agreement

with a third country always consists of three different pillars, namely a trade pillar, a

political pillar and an aid pillar (p. 11). Only when all three pillars have been

negotiated successfully can the Council endorse the agreement.

The PCA is still negotiated at the time of writing and in Hardacres (2010)

view, the European Commission faces a difficult trade-off between the political pillar

and the trade pillar. Thus, the Chinese government is not prepared to make

concessions in political matters such as human rights, considering any mention of this

topic an intrusion into its domestic politics (n.p.). Meanwhile, the fiercest European

critic of China, the European Parliament, calls on the Commission to insist on the

strengthening of the Human Rights Clause in negotiations with China (European


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Parliament, 2009, p. 3) and threatens to block the agreement if human rights are not

considered in the agreement (Hardacre, 2010). This paper is concerned with the

provisions for sustainable development instead of human rights; nevertheless, it has to

be acknowledged that the PCA may fail if the political pillar is not sufficiently

covered.

With regard to sustainable development, the European Parliament (2009)

wishes for the Commission to promote trade in environmentally friendly goods and

services . . . and to encourage the development of industry that contributes to a

reduction in carbon emissions (p. 5). It particularly demands a more liberalized

Chinese market in the field of renewable energy (ibid.) and a proper and agreed level

of enforcement of intellectual property rights (p. 4). The Commission itself has duly

taken an assertive stance with a view to reduce tariff and non-tariff barriers for

European investment and European products, to impose market instruments upon

China and to subject technology transfer to clear property rights (Knig, 2010, p. 5).

The stakes for reaching an agreement are high. Both the Commission and the

European Parliament are aware that China is the EUs second largest trade partner in

the world, accounting for 11,4% of the EUs overall trade with the rest of the world

(European Commission, 2009c, p. 5). Without inexpensive manufacturing of clothes

and other goods in China, the EU would see a surge in its consumer prices and would

certainly incur greater unemployment (cf. Crossick, 2008, p. 24). Likewise, a greater

liberalization of the Chinese market would give the EU more opportunities for trade.

But also for China the stakes are high. The EU takes the largest share of its

global imports from China (European Commission, 2009c, p. 5). When it comes to

trade, it can provide a powerful carrot to China in terms of European technology and

business practices. In 2006, the EU was the largest technology exporter to China

with a contracted value of US$ 7.54 billion (SIA, 2008, p. 35). Most of this

technology refers to Environmental Goods and Services (EGS), in which the

European Union holds a strong worldwide comparative advantage (ibid.). In addition

to its carrot, the EU also has a stick. Despite Chinas WTO accession, the EU has not

given China market economy status (MES) yet, which firstly allows it to impose

anti-dumping duties on China and secondly has high political salience (Crossick,

2008, p. 171f, Messerlin, Wang, 2008, p. 14). In consequence, the European Union

has economic and political means to push for tariff reductions. However, the


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protection is largely due to foreign technology and practices rather than higher

income: (H)igh income and its consequences . . . by themselves do not really change

the environmental quality. This is proven by the fact that Shenyangs environmental

quality today is far behind the average with similar levels of income (p. 291).

Yet, for Shin (2004) it is also clear that free trade in turn requires a deliberate

investment in strong environmental institutions. He holds that the city government

and foreign firms in Dalian have concluded an informal agreement ensuring economic

benefits to the foreign firms as long as they respect environmental criteria (p. 287).

This can only endure if the Environmental Protection Bureau (EBP) can make it clear

that the cost of non-compliance for foreign enterprises is high (p. 290).

3.4 Trade liberalization through the Partnership and Cooperation Agreement

It is apparent from these two case studies that European technology can provide a

significant positive impact upon the Chinese environment. The World Bank has

calculated that China currently spends 7.7% of its GDP for environmental damage,

meaning that it offsets large parts of Chinas economic growth (Crossick, 2008, p.

161). Stronger involvement of European enterprises in the Chinese market and a

resulting technique effectcould certainly reduce this figure. To quantify the potential

social, economic and environmental impact of lower tariffs in China, the European

Commission asked a pair of consultants to conduct a Sustainability Impact

Assessment (SIA) in various industrial sectors in China. Using a partial equilibrium

model, they calculated nine different scenarios: a reduction of tariff barriers by 0%,

25% or 75%, combined with the reduction of non-tariff barriers by 0%, 25% or 75%

and other factors (SIA, 2008, p. 9). Most of them entail a growth of European exports

to China while they see Chinese production shrink, especially in the sectors of EGS

and machines. In the most ambitious scenario, machinery imports from Europe grow

by 44% while EGS imports grow by 61%, depending on the subsector (Van der

Geest, 2008, p. 4, 6). Meanwhile, Chinese production could decline by up to 0.9% and

3.5% respectively (ibid.).

Following the consultants, growing imports from Europe and declining

production in China could significantly improve the Chinese environment. Van der

Geest (2008) asserts that the import of energy efficient European goods, depending on

the scenario, would have wide ranging environmental benefits in China (p. 6, cf.


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SIA, 2008, p. 14). Likewise, lower production in China would entail a positive

composition effectand an improvement of public health (p. 4, 6). On the negative

side, however, a decline of Chinese production would also lead to more

unemployment, which reduces GDP (p. 4, SIA, 2008, p. 78). The report does not

quantify the different effects in the same sense as Dean (2002), Shin (2004) and Liu

(2009) have divided them. Yet, the consultants come to the conclusion that most of

the scenarios, except a complete refusal of tariff reductions and the most extreme

reduction, suggest that emissions per unit of Chinese GDP will fall (SIA, 2008, p. 51).

It is clear for Van der Geest (2008), however, that a tariff reduction alone

cannot lead to environmental improvement (p. 5). Instead, tariff reductions have to be

accompanied by capacity-building measures such as best practices, an improvement

of the enforcement system and an adherence to IPR and international environmental

quality standards throughout China (p. 7). In these regards, the European Union

should do all it can to support the Chinese government.

Conclusion

It has been shown that bilateral capacity-building projects between the EU and China

are efficient but they do not allow the EU to impose any conditionality upon China.

Hence, the EU does not have a proof that participants of a flagship project will spread

their knowledge to other companies or industries. In addition, it has become apparent

that a civil society in China is still under construction; EU efforts in providing a mass

awareness campaign in Liaoning have certainly been helpful but civil society is still

little informed about environmental problems. The society still expects policy-makers

to be the drivers of environmental sustainability.

Trade liberalization between the EU and China can effectively bring more

environmental sustainability to China. However, in many scenarios more

environmental sustainability impacts negatively upon economic and social

sustainability. Thus, an increase in EU exports of environmental goods to China

would improve consumer health and the environment, but it would also reduce

economic activity in industrial sectors by up to 3.5%, thereby sending Chinese

workers into unemployment and taking away legitimacy of local and regional

governments.


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In consequence, it can be said that neither capacity-building programs nor

market liberalization can improve the Chinese environment on their own. Both

aspects are crucial for a sustainable future in China, and yet they only become truly

efficient when both come together and are accompanied by further job market

programs. Chinas policy-makers have been very progressive with regard to

sustainable development, but the enforcement structure of the Chinese state is not

sufficiently developed to safeguard this progress. Further EU involvement in training

activities appears crucial. Likewise, reinforced opportunities for trade of EGS, joint

ventures and European investment in China seem to have a lot of potential.

Going beyond these findings, it seems necessary to find a more intelligent

connection between economic opportunities and environmental enforcement than

currently displayed in China. The results that Shin (2004) found in the city of Dalian

suggest that it is possible to achieve economic sustainability and environmental

sustainability at the same time. Hence, the local government and foreign producers

went into a public-private partnership, stating that enterprises could expect

favorable conditions as long as they respected environmental obligations. The

investment in a strong Environmental Protection Bureau (EPB) ensured that foreign

producers obeyed the rules, while their practices and technologies could help to

reduce externalities for all citizens. Rather than a trade-off between growth and

environmental protection, this presented the opportunity of environmental protection

through economic openness.

This paper suggests that economic openness shifts responsibility from policy-

makers, which have been considered the drivers of environmental improvement, to

enterprises. As long as environmental property rights are clearly assigned and can be

enforced through strong institutions, enterprises need not compromise their economic

growth due to the fact that they respect environmental standards. Instead, a market

mechanism like the EUs Emissions Trading Scheme (ETS) in which pollution rights

can be traded like a good, complemented by a sharing of best practices, appears to

offer a possibility for decoupling. Although it can certainly be doubted if the idea

will ever be realized, the authors of the Sustainability Impact Assessment (SIA) have

duly recommended to the Commission to (c)onsider developing a joint approach to

including China in the EUs Emissions Trading Scheme, with special provisions for

each partys emissions in the production of goods supplied to the other (p. 103).


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