Voluntary Trade Standards:The role of Cleaner Production

[DATE][SPEAKERS NAMES]

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Introduction & Motivation

However, for enterprises that export goods (or which hope to do so), production efficiency is necessary, but not sufficient.

We have learned about CP as a management approach to increase the efficiency of the production process, and thus the competitiveness of enterprises

So far. . .

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Introduction & Motivation

Exporting enterprises must. . .

meet the mandatory trade standards of the markets they sell to.

Increasingly, they must also consider meeting voluntary trade standards that concern environmental and social aspects of the production process.

!

!

Why? Meeting these standards may allow them to sell to certain customers, or to price their goods at a premium.

We will define trade standards

later in this presentation

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Introduction & Motivation

As we will see,

meeting environmentally related trade standards is increasingly imperative in making African SMEs competitive in export markets.

Meeting any such standard poses real challenges to African SMEs that BDS providers must address.

Cleaner Production is an essential management tool to help meet these challenges.

!

!

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Overview of this module

This module will:

1. Provide a basic briefing on trade standards

2. Discuss trade standards and trends that affect export-oriented African SMEs

3. Demonstrate how CP helps to achieve environmentally related trade standards

4. Discuss the most important/significant aspects of these standards in more detail

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Definitions:What are “International Trade Standards”?

A standard is defined as "a document, established by consensus and approved by a recognized body, that provides, for common and repeated use, rules, guidelines or characteristics for activities or their results.”*

A “STANDARD” is. . .

*BSI (British Standards Institution)

STANDARDS that are applied to goods and services which originate in one country, but which are sold or consumed in another.

International trade standards can apply to the characteristics of the product itself, or to the production process.

“International Trade Standards” are. . .

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Definitions:Voluntary vs. Mandatory standards

Mandatory international trade standards. . .

In the international trading system, mandatory standards generally apply to the characteristics of the product, not the process that produced it.

However, food safety requirements (“phytosanitary standards) are a “grey area.”

are embodied in trade treaties and agreements, and in national law.

specify product characteristics (e.g., pesticide residue levels) or labeling.

are legal requirements.Failure to comply prohibits a product or service from being sold in a given geographic market.

Products vs. production processes:

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Definitions:Voluntary vs. Mandatory standards

Voluntary international trade standards. . .

A voluntary standard can become mandatory for all intents and purposes if required by enough customers in a particular market.

This is increasingly common for certain standards.

Are “voluntary standards” always voluntary?

can apply to the characteristics of the product, its production process, or both.

Are not legally required to export to a particular geographic market

allow producers to sell into higher value-added markets, or to meet the requirements of key customers.

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Some examples of voluntary standards

Fair TradeStandards/certification regime to assure that developing-country producers receive fair prices for agricultural products

Note: Use of these examples does not imply USAID endorsement.

ISO 14000 Environmental Management StandardsStandard/certification regime to assure basic good environmental management practices in organizations*

Forest Stewardship Council Standards/certification regime to assure that forest products are produced from sustainably managed forests

Farm-level standards and certification to assure food safety, worker health and safety, animal welfare, and environmental management.

All require independent verification

!

*functions as a trade standard when it affects access to export markets

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Why voluntary standards?

Voluntary and mandatory trade standards traditionally serve different objectives:

Foster trade and economic growth

Encourage competition

Protect consumers against unsafe or substandard products

Mandatory standards

Develop markets for socially or environmentally responsible products

Promote other environmental social and environmental objectives

Compensate for the lack of local or national regulatory capacity

Voluntary standards

But as we shall see, objectives are beginning to overlap. . .

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Sources of standards

Many standards, many sources:Standards are set and administered by. . . national, regional and

international organizations

Which may be. . . Governmental Multilateral Non-profit

This module is not a comprehensive guide to standards, but it will help familiarize you with the range of standards in existence

My head hurts.

Etc.Etc.

Etc.

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WAIT!Why should

African SMEs and BDS providers

care about voluntary

standards?

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Why should African SMEs and BDS providers care about voluntary standards?

Consider. . . The number and market

power of voluntary standards concerning the environmental and social aspects of production is growing dramatically

Some voluntary standards are effectively becoming required in certain markets.

The best example of this trend is EurepGAP.

“Market power” means that in rich-country markets, goods and producers conforming to these voluntary standards enjoy an advantage.

Why?

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Why should African SMEs and BDS providers care about voluntary standards?

Consumer demand in rich countries (and increasingly in developing countries) is starting to reflect non-economic values & preferences

In addition, these consumers are increasingly concerned about food and product safety

Changes in CONSUMER VALUES.

such as concern for child labor practices, fair payment to farmers, and the environmental impacts caused by the production of goods.

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As a result. . .

2

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Why should African SMEs and BDS providers care about voluntary standards?

An increasing number of consumers are willing to pay more for “green goods”

Increasingly, consumers put pressure on the private sector to provide “safe goods” above and beyond regulations.

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2Imposed environmental, social, and product-safety requirements on their suppliers.

Developed “green product lines” and selected suppliers who can conform to their requirements

(These requirements are sometimes existing voluntary standards; sometimes a new voluntary standard is developed.)

In response, the private sector has. . .

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consumer demand for “green products”

particularly affects FOOD, FIBER, ANIMAL &

FOREST PRODUCTS.

Demand for “Safe products” particularly

affects FOOD.

!

These are key African exports.

And they are also targeted for commercialization and growth in many SME-centered developed schemes.

Why should African SMEs and BDS providers care about voluntary standards?

As a result. . .

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Why should African SMEs and BDS providers care about voluntary standards?

As a result. . . primary producers in the developing world increasingly find that compliance with voluntary standards is essential in order to: 

Increase the value-added of their products/become

less of a commodity supplier. 

Gain access to new markets.

Enhance their ability to act as suppliers to developed-country

companies.

Maintain access to/share in old markets and with

old customers.

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What is the relationship to CP?

FIRST, some disclaimers. . .

The CP process does NOT provide technical knowledge of trade standards

Adopting any standard requires detailed technical knowledge of the standard,

Getting business benefits from a standard often

requires marketing that exploits the standard

The CP process does not build marketing skills

Nor does the CP process help identify standards relevant to a business/product

HOWEVER. . .

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CP facilitates adoption of trade standards

.

. .. And CP prepares a business for change in important ways. . .

Why?

Because adopting any standard requires changing business & production processes. . .

?

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CP prepares a business for change

changes to business & production processes necessarily have cost implications.

therefore an enterprise must carefully evaluate the business case for adopting any standard.

The business case examines:

“costs of adoption” (internal costs of change and operating costs under the standard)

revenue potential after the standard is adopted.

CP helps evaluate the business case for standards1

Linkage to CP

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This gives the enterprise the basic information needed to assess the internal costs of change and the cost of operations under the standard.

CP gives the enterprise a detailed understanding of the true costs of production, and of its inputs and outputs.

CP prepares a business for change

The business case: evaluating costs of adoption

1

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CP prepares a business for change

Making and managing change is far easier, cheaper, and more certain when production processes are well-understood and well-controlled

That is, it is absolutely essential to have one's "house in order" to implement any of these standards.

CP gets production processes under control2

CP does exactly this!

CP is prevention-based and focuses decision-making on total costs

CP minimizes costs of change3 CP helps identify the

way to make changes with minimum cost

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CP supports adoption of trade standards

the company that internalizes CP is better able to evaluate whether a standard makes business sense, and can minimize the costs of adoption.  

This is particularly true of environment-related standards.

Summing up: “So as BDS providers, we

should see environmental trade

standards and cleaner production as closely related

issues.”

Now. . . Some voluntary standards in more detail

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Fair trade

Fair TradeStandards/certification regime to assure that developing-country producers receive fair prices for agricultural products

(also emphasizes environmentally responsible production techniques)

Fair Trade Products

from AfricaTea, Coffee, Wine,

Honey, Nuts and fruits, Palm and virgin coconut

oil, Shea butter, African black soap,

Cocoa products such as cocoa butter,

Musical instruments, Basket, Beads, Books,

Arts and crafts, Home decorations,

Textiles, Musical recordings.

(2004/05 figures)

60 developing countries, 464 producer organizations, 515 registered traders

Africa is the fastest growing region within the Fair Trade network (124 producers)

Worldwide Fair Trade product sales 2004 is estimated to be in excess of €800m; growth ~50%/year

Note: Use of these examples does not imply USAID endorsement.

Not perfect: sometimes fair trade product volume exceeds demand (e.g., coffee.)

!

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Sustainable Wood Products

As of Oct 2004 more than 116 million acres of forest in 61 countries

have received FSC certification.

(58% Europe, 21% N. America,

13% Latin America, 4% each Africa &

Asia/Pacific.)

~3400 chain‑of‑custody certificates granted in 68 countries (shows wood comes from a certified

forest by tracing all intermediate transport &

processing steps)

(2004/05 figures)

Some of the largest wood and paper products companies in the world are FSC‑certified.

Major U.S and European “market making” retailers have FSC‑certified wood procurement preferences, e.g.:  

Home improvement: The Home Depot; Lowe’s Home Improvement Centers, B&Q PLC (home improvement);

Furniture & home goods: IKEA

Note: Use of these examples does not imply USAID endorsement.

Forest Stewardship Council Standards/certification regime to assure that forest products are produced from sustainably managed forests

Not perfect: the FSC has its critics!

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ISO 14001

(2004/05 figures)

Note: Use of these examples does not imply USAID endorsement.

ISO 14001 certifies a management system, but cannot certify whether the company uses this system to actually improve its environmental performance

!

ISO 14001 Environmental Management StandardA standard specifying /certification regime to assure basic good environmental management practices in organizations*

(not an environmental compliance audit, but a certification of environmental management systems and procedures)

Most common sectors for ISO-14001-certified

companies: Pulp and paper, Textile

and Dyes Iron and Steel, Chemicals and Petrochemicals,

Pharmaceuticals, PowerCement, Paints and

Coatings Automotive, other forms of

manufacturing, mining

As of April 2005, over 88,000 ISO 14001-certified companies world wide.

Some larger multinationals are now requiring their suppliers to be ISO-14001 certified

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EurepGAP

(2004/05 figures)

Note: Use of these examples does not imply USAID endorsement.

EurepGAP is effectively becoming a required standard for exporters to the European market & is shaping national legislation in a number of cases.

!

EurepGAP started in 1997 as an initiative of retailers (super markets in Holland and England) belonging to the Euro-Retailer Produce Working Group (EUREP).

EUREP’s motivation was to assure its customers

of food safety.

Standards now include fruits, vegetables,

flowers, ornamentals, livestock, and aquaculture

All producers for supermarkets associated with EurepGAP were required to be certified by EurepGAP by January 2005. (A number of African countries requested an extension to provide further time to comply.)

As of January 2004, over 1000 EurepGAP-certified African farmers (with the large majority from South Africa).

Farm-level standards and certification to assure food safety, worker health and safety, animal welfare, and environmental management.

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Reputability: a key consideration for adopting any standard

Remember, the business case for adopting a standard examines:

“costs of adoption” (internal costs of change and operating costs under the standard)

revenue potential after the standard is adopted.

Revenue potential depends on how important a “green” product is to the target consumer, AND on how well-known and reputable the standard is.!

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Reputability: a key consideration

We cannot endorse any standard in this course.

However, we can identify the characteristics of standards which have:Tended to be most successful

in the marketplaceBeen most-endorsed and

promoted by social and environmental NGOs

developed by a diverse group of stakeholders and

not only by “industry insiders”

Requires certification by an accredited,

independent 3rd party

A clear, memorable label on the product at

retail

“Chain of custody”

requirements track the product

from source to retail outlet*

Standard requires real changes from “business as

usual” * For product standards

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Closely related trends: DOMESTIC & REGIONAL ECO-LABELS

Some national & regional eco-label symbols:

Criteria are usually based on the life-cycle

impacts of the products.

Products must usually be independently

certified to carry the eco-label.

Nordic swan(Scandinavia).

Blue Angel(Germany).

Green Label(Thailand)

Green Seal(USA)

Home and office appliances, soaps and cleaning chemicals, paints, and clothing are the most common eco-labeled products

National/Regional eco-label schemes establish criteria for “environmentally superior products” in national or regional markets.

EU “Flower”

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Closely related trends: DOMESTIC & REGIONAL ECO-LABELS

In one sense, these eco-labels are not “trade standards:”

i.e., they were not designed especially for internationally traded goods

However, when they affect the ability of traded goods to compete in a particular market, they function as trade standards.

Increasingly, rich-country eco-labels cover categories of goods that Africa exports.

e.g. Fish, Fruits, Cotton, Clothing. . .

Put another way, Fair Trade, FSC & similar standards are really just fully international eco-label schemes.

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Summing up. . .

the “greening of demand” in rich markets

Growth in voluntary standards that increasingly link export success (and even market access) to environmental performance, particularly for Africa’s key goods.

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Summing up.

These standards create challenges for African producers

They also create opportunities.

The important message from this course:Making CP business as usual makes evaluating and adopting standards far easier.

(Photos to be added here)