Voluntary Trade Standards: The role of Cleaner Production

1. Voluntary Trade Standards:The role of Cleaner Production [SPEAKERS NAMES] [DATE]

2. Introduction & Motivation So far. . .  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

3. Introduction & Motivation Exporting enterprises must. . . meet the mandatorytrade 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. ! We will define trade standards later in this presentation ! Why? Meeting these standards may allow them to sell to certain customers, or to price their goods at a premium.

4. 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. ! ! 

5. 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

6. Definitions:What are “International Trade Standards”? A “STANDARD” is. . . 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.”* “International Trade Standards” are. . . 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. *BSI (British Standards Institution)

7. Definitions:Voluntary vs. Mandatory standards Mandatory international trade standards. . . 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 givengeographic market. Products vs. production processes: 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.”

8. Definitions:Voluntary vs. Mandatory standards Voluntary international trade standards. . . 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. Are “voluntary standards” always voluntary? 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.

9. Some examples of voluntary standards Note: Use of these examples does not imply USAID endorsement. ! All require independent verification Fair TradeStandards/certification regime to assure that developing-country producers receive fair prices for agricultural products 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. ISO 14000 Environmental Management StandardsStandard/certification regime to assure basic good environmental management practices in organizations* *functions as a trade standard when it affects access to export markets

10. Why voluntary standards? Voluntary and mandatory trade standards traditionally serve different objectives: Mandatory standards Voluntary standards Foster trade and economic growth Encourage competition Protect consumers against unsafe or substandard products 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 But as we shall see, objectives are beginning to overlap. . .

11. Sources of standards Etc. Etc. 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 Etc. My head hurts.

12. WAIT!Why should African SMEs and BDS providers care about voluntary standards?

13. Why should African SMEs and BDS providers care about voluntary standards? “Market power” means that in rich-country markets, goods and producers conforming to these voluntary standards enjoy an advantage. 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. Why?

14. Why should African SMEs and BDS providers care about voluntary standards? Changes in CONSUMER VALUES. 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 such as concern for child labor practices, fair payment to farmers, and the environmental impacts caused by the production of goods. 1 2 As a result. . .

15. Why should African SMEs and BDS providers care about voluntary standards? 1 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. In response, the private sector has. . . Imposed 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.) 2

16. Why should African SMEs and BDS providers care about voluntary standards? ! 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. As a result. . .

17. 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.  Enhance their ability to act as suppliers to developed-country companies. Maintain access to/share in old markets and with old customers. Gain access to new markets.

18. What is the relationship to CP?  FIRST, some disclaimers. . . Adopting any standard requires detailed technical knowledge of the standard, The CP process does NOT provide technical knowledgeof trade standards  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. . .

19. CP facilitates adoption of trade standards ? Why? Because adopting any standard requires changing business & production processes. . . .  . .. And CP prepares a business for change in important ways. . .

20. CP prepares a business for change 1 CP helps evaluate the business case for standards 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. Linkage to CP

21. CP prepares a business for change 1 The business case: evaluating costs of adoption CP gives the enterprise a detailed understanding of the true costs of production, and of its inputs and outputs.  This gives the enterprise the basic information needed to assess the internal costs of change and the cost of operations under the standard.

22. CP prepares a business for change 2 CP gets production processes under control 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 does exactly this! CP minimizes costs of change 3  CP helps identify the way to make changes with minimum cost CP is prevention-based and focuses decision-making on total costs

23. CP supports adoption of trade standards Summing up: “So as BDS providers, we should see environmental trade standards and cleaner production as closely related issues.”  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.

24. Now. . . Some voluntary standards in more detail

25. Note: Use of these examples does not imply USAID endorsement. 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 Africa Tea, 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. • 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 ! Not perfect: sometimes fair trade product volume exceeds demand (e.g., coffee.) (2004/05 figures)

26. Note: Use of these examples does not imply USAID endorsement. Sustainable Wood Products Forest Stewardship Council Standards/certification regime to assure that forest products are produced from sustainably managed forests 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) 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 ! Not perfect: the FSC has its critics (2004/05 figures)

27. Note: Use of these examples does not imply USAID endorsement. ISO 14001 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, Power Cement, Paints and Coatings Automotive, other forms of manufacturing, mining As of April 2005, over88,000 ISO 14001-certified companies world wide. Some larger multinationals are now requiring their suppliers to be ISO-14001 certified ! ISO 14001 certifies a management system, but cannot certify whether the company uses this system to actually improve its environmental performance (2004/05 figures)

28. Note: Use of these examples does not imply USAID endorsement. EurepGAP 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 Farm-level standards and certification to assure food safety, worker health and safety, animal welfare, and environmental management. 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). ! EurepGAP is effectively becoming a required standard for exporters to the European market & is shaping national legislation in a number of cases. (2004/05 figures)

29. 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. !

30. Reputability: a key consideration developed by a diverse group of stakeholders and not only by “industry insiders” Requires certification by an accredited, independent 3rd party 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 marketplace • Been most-endorsed and promoted by social and environmental NGOs 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

31. Closely related trends: DOMESTIC & REGIONAL ECO-LABELS National/Regional eco-label schemes establish criteria for “environmentally superior products” in national or regional markets. Criteria are usually based on the life-cycle impacts of the products. Products must usually be independently certified to carry the eco-label. Some national & regional eco-label symbols: Home and office appliances, soaps and cleaning chemicals, paints, and clothing are the most common eco-labeled products Nordic swan(Scandinavia). Blue Angel(Germany). Green Seal(USA) Green Label(Thailand) EU “Flower”

32. 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. Put another way, Fair Trade, FSC & similar standards are really just fully international eco-label schemes. e.g. Fish, Fruits, Cotton, Clothing. . .

33. 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. leads to

34. Summing up. (Photos to be added here) 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.