Going Global, Going Green CCICED on Investment, Trade, and Environment GOING GLOBAL, GOING GREEN – China Investment, Trade and Environment By Pan Jihua and John M. Forgach ISBN: 978-1-894784-55-9 © 2012, China Council for International Cooperation on Environment and Development CCICED Secretariat: No. 5 Houyingfang Hutong, Xicheng District, Beijing 100035, China Tel: (8610) 8226 8651 Fax: (8610) 8220 0535 Web site: www.cciced.net The China Council for International Cooperation on Environment and Development (CCICED) is a high-level, non-profit, international advisory body established with the approval of the Chinese Government in 1992. The main functions of the CCICED are: exchanging and disseminating successful international experiences in the field of environment and development; studying key environment and development issues in China; advancing forward- looking, strategic, and precautionary policy recommendations to the leaders of the Chinese government and policy-makers at all levels; and support- ing and facilitating the implementation of sustainable development strategies, and the development of a resource-saving and environmentally friendly society in China. This book summarizes the work of the CCICED Task Force on Investment, Trade, and Environment. The two authors, who served as Chinese and International co-chairs, were supported by 10 Task Force members, all serving in their personal capacity, plus a number of researchers and two very helpful coordinators. In addition, there were cooperating teams in both Indonesia and Africa. All of these contributors are acknowledged in the text. The work was carried out during 2010 and 2011, with a final report submitted to the CCICED in November 2011. Key recommendations were sub- mitted to the government of China in December 2011. The authors wish to thank the CCICED Secretariat and its International Support Office, the Chief Advisors to CCICED, Prof. Shen Guofang and Dr. Arthur Hanson, for their input and advice, and the members of the CCICED for their interest and help at various stages. Several individuals associated with the IISD participated in the work. IISD wishes to highlight the product since it is significant to its own mission, and to furthering long-standing cooperation with CCICED on trade and environment issues. Published by the International Institute for Sustainable Development. Head Office: 161 Portage Avenue East, 6th Floor, Winnipeg, Manitoba, Canada R3B 0Y4 Tel: +1 (204) 958-7700 | Fax: +1 (204) 958-7710 | Web site: www.iisd.org The International Institute for Sustainable Development (IISD) contributes to sustainable development by advancing policy recommendations on international trade and investment, economic policy, climate change and energy, and management of natural and social capital, as well as the enabling role of communication technologies in these areas. We report on international negotiations and disseminate knowledge gained through collaborative projects, resulting in more rigorous research, capacity building in developing countries, better networks spanning the North and the South, and better global connections among researchers, practitioners, citizens and policy-makers. IISD’s vision is better living for all—sustainably; its mission is to champion innovation, enabling societies to live sustainably. IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the United States. IISD receives core operating support from the Government of Canada, provided through the Canadian International Development Agency (CIDA), the International Development Research Centre (IDRC) and Environment Canada, and from the Province of Manitoba. The Institute receives project funding from numerous governments inside and outside Canada, United Nations agencies, foundations and the private sector. This book was printed on recycled paper. Task Force Members Co-chairs* • Jiahua Pan, Director and Researcher, Institute for Urban Development and Environmental Studies, Chinese Academy of Social Sciences • John M. Forgach, McKluskey Fellow, Yale University Graduate School of Forestry & Environmental Studies, Chairman of ForestRe Ltd, U.K. Task Force Members* • Shantong Li, Research Fellow, Department of Development Strategy and Regional Economy, Development Research Center of the State Council • Guomei Zhou, Deputy Director, China – ASEAN Environmental Cooperation Center • Yansheng Zhang, Director of the Institute for International Economics Research of the National Development and Reform Commission • Yuyan Zhang, Director and Researcher, Institute of World Economics & Politics, Chinese Academy of Social Sciences • David Runnalls, Former President of the International Institute for Sustainable Development; Distinguished Fellow, Centre for International Governance Innovation; Acting Director, Sustainable Prosperity • Simon Zadek, Senior Fellow, Global Green Growth Institute; Senior Fellow, Centre for International Governance Innovation • Motoko Aizawa, Sustainability Advisor, Business Advisory Services Vice Presidency, International Finance Corporation • Valli Moosa, South African Member of the CCICED and Former South African Minister of Environmental Affairs and Tourism • Ismid Hadad, Senior Advisor on Climate Finance and Carbon Trade, Indonesia’s National Council for Climate Change • Li Lin, Deputy Representative at the World Wildlife Fund (WWF) China Research Support Team • Ying Chen, Head and Research Fellow, Research Office of Sustainable Development, Institute for Urban Development and Environmental Studies, Chinese Academy of Social Sciences • Jianping Zhang, Director and Research Fellow, Institute for International Economics Research, National Development and Reform Commission • Tao Hu, Research Fellow, Policy Research Center, Ministry of Environmental Protection • Xia Li, Associate Research Fellow, China – ASEAN Environmental Cooperation Center • Jianwu He, Associate Research Fellow, Development Research Center of the State Council • Ying Zhang, PhD, Institute for Urban Development and Environmental Studies, Chinese Academy of Social Sciences 1 • Zhe Liu, PhD, Institute for Urban Development and Environmental Studies, Chinese Academy of Social Sciences • Laihui Xie, PhD, the Institute of World Economics & Politics, Chinese Academy of Social Sciences • Changyi Liu, PhD candidate, Institute for Urban Development and Environmental Studies, Chinese Academy of Social Sciences Coordinators • Ying Chen, Head and Research Fellow, Research Office for Sustainable Development, Institute for Urban Development and Environmental Studies, Chinese Academy of Social Sciences • Huihui Zhang, Project Manager, International Institute for Sustainable Development * Co-Chairs and Task Force members serve in their personal capacities. 2 Background Significant progress has been made in achieving sustainable development in China, but there are still many challenges ahead. In this study we examine the impact of international investment and trade on the environment and analyze how China could leverage its international trade and investment activities to advance a “green shift” of the economy. The China Council for International Cooperation on Environment and Development (CCICED) has carried out numerous related studies over the years, including research into the illegal trade of endangered species in China; China’s application for accession to the World Trade Organization (WTO) and its impact on the environment; international environmental certification standards; environment-related non-tariff trade barriers; and an environmental analysis of the value chain of certain commodities. However, as the country increases its global presence, the nature of its trade is evolving. China must carefully measure how it can mitigate the current and potential environmental impacts of this changing landscape. China must also manage a rapidly growing volume of goods traded and produced through its investment activities. The impacts on the environment are continuously changing, and the role of these activities vis-à-vis sustainable development is becoming more complex to understand by the day. The rules of the game must also be constantly examined; the non-stop review of regulations and their environmental provisions has made compliance more challenging. It is important to pay close attention to this rule-making process as some of the new measures could lead to new rounds of green protectionism. Following these changing policy dynamics is essential for a country like China, which is not only a latecomer to the business of international investment and trade but has become one of the major players in international trade and investment. In such a dynamic context, China must rapidly identify the changing opportunities to implement new trading and investment policies that will help accelerate its shift towards the green development goals it has established for itself. As energy and natural resources become scarce and expensive, it is imperative that China make use of its strategic position as a large emerging economy in transition to engage in the green transformation process. This engagement will help the country achieve clean, sustainable, and competitive economic development. As it engages in the process of “going global,” China must embrace its responsibilities as a leading player and become a proactive actor in promoting its environmental programs both at home and abroad. China’s policies for absorbing foreign direct investment (FDI) have started to change. However, a much greater