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Free Trade Zones with the EAEU

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The EAEU–Singapore Free Trade Agreement was signed at the EAEU summit in Yerevan on October 1, 2019. The document constituted the first step towards the creation of a comprehensive free trade zone between the Eurasian Economic Union (EAEU) and Singapore and, in addition to trade in goods, it will also regulate trade in services and the terms of investment.

The agreement pays due consideration to the experience of working on previously signed documents and also covers possible trade risks in more detail. During the negotiations, particular emphasis was placed on goods that are sensitive for the EAEU market. EAEU Minister for Trade, Veronika Nikishina, stressed that goods such as “beef, cheese, spirits, baby food, dairy products, cars, planes – all these will be exempted from the agreement, we will not be reducing duties on these goods.”

The agreement with Singapore was the third such document the Eurasian Union has signed with third countries.

The Agreement with Vietnam

The EAEU signed its first ever free-trade area (FTA) agreement with Vietnam on May 29, 2015. The agreement entered into force on October 5, 2016. From the outset, the agreement was concluded in the FTA+ format, which stipulates both duty-free trade rules and other interaction formats. Simultaneously with this agreement, the bilateral Russia–Vietnam and Belarus–Vietnam intergovernmental protocols on supporting automotive manufacture in Vietnam entered into force. These agreements established a preferential regime for implementing investment projects for the industrial assembly of Belarusian and Russian automotive equipment in Vietnam.

Since the national economies of the EAEU states need to adapt to the free trade regime, transitional periods of five and ten years were stipulated for certain goods so that import customs duties could be gradually reduced.

According to Nikishina, the EAEU’s trade turnover with Vietnam has grown 40 per cent since the agreement went into force. “Some feared that our exports would remain the same, that we would not be able to take advantage of the Vietnamese market opening up to us; some feared that we would only open our market for Vietnam. These fears proved unfounded: our exports grew by 40 per cent, while imports from Vietnam grew by 34 per cent.” By 2025, duty-free imports of Vietnamese goods will account for 90 per cent of the EAEU’s Common Customs Tariff headings.

For Vietnam, the average customs duties on goods imported into EAEU member states are being reduced from 9.8 per cent to 2.5 per cent over 10 years. Additionally, there is a scale of duty rates for various goods. For instance, the duty on agricultural goods will be reduced from 9.9 per cent to 5.6 per cent, and the duty for industrial products will go down from 8.0 per cent to 1.2 per cent. By 2025, Vietnam’s average customs import duty for EAEU states will have been reduced from 10 per cent to 1 per cent. In particular, import duties on agricultural goods will have been reduced from 16 per cent to 0.2 per cent, and duties for industrial products will have dropped from 8.9 per cent to 0.1 per cent.

Vietnam’s trade with Russia and Kazakhstan is developing with particularly intensity. According to WTO data, the share of Russian exports into Vietnam has been growing dynamically over the past three years: +19.9 per cent in 2016, +34.0 per cent in 2017 and +12.9 per cent in 2018. This growth was due to a sharp increase in exports of grain, mineral resources, iron and steel, fish and seafood, as well as organic chemistry products. Kazakhstan significantly increased its exports to Vietnam in 2017–2018 by 39.0 per cent and 3.6 per cent, respectively. This is due in part to the fact that Kazakhstan started exporting iron and steel, grain, and lead and lead goods into Vietnam.

Vietnam’s exports to Russia grew at an even faster pace: by 53.2 per cent in 2016; 17.8 per cent in 2017; and 58.0 per cent in 2018. Vietnam mostly exported electrical and mechanical machinery and equipment, coffee and tea, shoes, textile goods, and fruits and nuts. Vietnam’s exports to Kazakhstan grew six-fold in 2016 before falling by 13.6 per cent in 2017 and then growing by 20 per cent in 2018. The growth was due to exports of electric machinery and equipment, fruits, nuts and dried fruit, and timber and timber goods.

At the same time, Vietnam would like to increase its trade with the EAEU. Speaking at the Eastern Economic Forum in September 2019, Deputy Prime Minister of Vietnam, Trịnh Dinh Dung, proposed a further reduction of customs barriers in order to improve the opportunities to realize his country’s economic potential.

Provisional Agreement with Iran

The second agreement was signed with Iran in May 2018 and entered into force on October 27, 2019. This is a limited agreement valid for three years. One year after its entry into force, the parties will enter into talks on a full-fledged FTA. The agreement is limited due to a low level of liberalization. Reduced customs duties cover only 50 per cent of the total volume of trade between the two countries. In terms of goods, this translates into 502 HS codes for the Union and 360 HS codes for Iran.

The parties agreed to reduce average customs import duties on industrial goods (Iran undertook to reduce such duties from 22.4 per cent to 15.4 per cent, while the EAEU agreed to cut duties from 8 per cent to 4.7 per cent) and agricultural products (from 32.2 per cent to 13.2 per cent in the case of Iran, and from 9.6 per cent to 4.6 per cent in the case of the EAEU).

The tariff preferences granted to the EAEU by Iran extend to meat and fat-and-oil products, certain types of confectionery products and chocolate, mineral water, grains, tobacco, metals, cosmetics, timber, and individual types of electronic and mechanical equipment. Iran will be granted tariff preferences on many types of foods (including vegetables, fruits and dried fruit), as well as on construction materials, kitchenware, carpets and certain products made of non-ferrous metals.

Armenia stands to benefit most from trade with Iran, as the country is under the economic blockade of Turkey and Azerbaijan and has no common borders with EAEU member states.

The Armenian leadership considered building a third high-voltage power line between Iran and Armenia, as well as the North–South highway, the Meghri hydroelectric power station, and the Meghri Free Economic Zone as the main incentives for Armenia–Iran trade relations. But these projects have stalled in recent years due to economic and domestic political reasons.

Expanding trade and economic cooperation with Iran is also beneficial for Russia. Trade turnover between the two countries totalled USD 1.741 billion in 2018. Russian exports into Iran are estimated at USD 1.208 billion, while Iranian exports into Russia totalled USD 533 million. Deputy Prime Minister of the Russian Federation, Dmitry Kozak, estimates that Russian business will earn additional USD 150 million annually when the provisional agreement is ratified. Other Eurasian countries are also interested in expanding their trade and general economic cooperation with Iran. Given the upcoming signing of the Agreement on Cooperation in Transport in the Caspian Sea and the emergence of a major transportation and logistical hub there, trade with Iran may continue to grow.

At the same time, the agreement with Iran entails certain political risks. In September 2019, the United States imposed sanctions on the Central Bank Iran and 25 Iranian companies. The United States also demands that its allies and the entire global community accede to these sanctions. Mostly likely, sanctions against Tehran will continue to expand.

Agreement on Trade and Economic Cooperation with China

The Agreement on Trade and Economic Cooperation between the Eurasian Economic Union and the People’s Republic of China was signed on 17 May 2018, and will enter into force in late October 2019. This is not an FTA agreement, but it does define a single format for trade cooperation between the EAEU and China. The agreement covers a broad range of issues, including simplified trade procedures (such as the availability of electronic customs declarations, clearing goods within the shortest possible time), which accords with changes enshrined in the EAEU’s new Customs Code: increasing transparency and working on the mutual recognition of standards, technical regulations and compliance assessment procedures; regulating e-commerce; and cooperation in public procurement.

The most important export items in the EAEU’s trade with China are crude oil, including natural-gas condensate (18.6 per cent of the EAEU’s exports), rip-sawn timber (48.3 per cent), coal (12.7 per cent), refined copper and copper alloys (26.3 per cent), turbojet and turbo-propeller engines, gas turbines (62.5 per cent), unprocessed timber (76.4 per cent), and ores and copper concentrates (68.6 per cent). The most significant imports include communications equipment and spare parts for such equipment (China accounts for 64.5 per cent of the imports of EAEU states), computers for automatic information processing (63.4 per cent), equipment for the thermal treatment of materials (47.6 per cent), car and tractor parts and accessories (15.3 per cent), toys (80.3 per cent), and shoes with rubber or plastic sole and top (84.9 per cent).

We can see that EAEU export to China is dominated by natural resources. Consequently, the EAEU as a whole faces the task of both increasing and diversifying the trade turnover. The only way that this can happen is if the production of high value-added products is increased and mechanisms of introducing them to China’s market are found. Connecting the EAEU and China’s “One Belt – One Road” programme should promote economic cooperation.

The agreement exceeds the scope of a mere trade arrangement. It also defines promising areas for developing cooperation, such as agriculture, energy, transportation, industrial cooperation, information and communications infrastructure, technologies and innovations, finance and the environment.

The issue of establishing an FTA with China has been discussed for many years, since 2006, when Beijing first proposed it to SCO states. The EAEU has adopted a cautious stance, since “the principal risk lies in the fact that China’s economic power will make China the main beneficiary of reduced duties; therefore, we want to see how non-preferential agreement will work first.”

The Prospects of Developing the FTA Format with other States

Negotiations are currently are underway on the establishment of FTAs with several states. Serbia will be the next country to sign an FTA agreement with the EAEU (the FTA Agreement was signed on October 25, 2019 – Ed.). Deputy Prime Minister of Serbia and the Minister of Trade, Tourism and Telecommunications, Rasim Ljajić, said that the EAEU–Serbia Free Trade Agreement is scheduled to be signed in Moscow in late October 2019. In May 2019, the Supreme Council of the EAEU issued the mandate to sign the agreement.

Nikishina also commented on negotiations with Egypt, which were launched in 2019 and are nearing the final stage.

Talks with Israel are progressing at a slower pace. The first round of negotiations was held in late 2018. It focused on trade protection measures, the rules for determining the origin of goods, customs cooperation, dispute resolution, technical barriers to trade, sanitary and phytosanitary norms, public procurement and commodity trading issues. The main problem is reconciling the positions of the parties. The political differences with Tehran, which already has an agreement with the Eurasian Union, have not significantly affected the course of the talks.

We can thus see that the Eurasian Union is working diligently to sign FTA agreements with interested countries. Such agreements bolster the EAEU’s positions in the regional and global economy and are conducive to expanding the markets for national economies. However, signing such documents is not the EAEU’s goal as such. The point is that they provide mutual advantages. The experience that the Eurasian Commission has gradually accumulated allows it to articulate the interests of its member states more clearly and neutralize the risks for national manufacturers when signing preferential trade agreements. This practice will continue.

From our partner RIAC

PhD in Political Science, head of the post-Soviet countries’ economic development section at the Institute of Economics, RAS

Economy

Connectivity now. Boosting flows of people, information, energy, goods and services

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Northern Dimension

On April 8, St Petersburg hosted the 12th Northern Dimension Forum. This forum, established in 2007, is a major annual corporate business event for cooperative policy and brings business directors and potential investors from Russia and the European Union including the Baltics, and Scandinavia.

The forum was organized by the Northern Dimension Business Council in cooperation with the Association of European Businesses, the Graduate School of Management at St Petersburg State University and the Skolkovo Moscow School of Management.

This forum was devoted to the theme: “Connectivity now. Boosting flows of people, information, energy, goods and services.” It was attended by over 400 representatives of Russian and foreign business circles, government agencies and scientific, education and non-governmental organizations.

Leading business experts of the partnerships of the Northern Dimension, the Institute and the Association of European Businesses discussed topical issues and opportunities for promoting cooperation in environmental protection, the circular economy, energy efficiency, transport and logistics, healthcare digitization, efforts to overcome the aftereffects of the coronavirus pandemic and creative industries.

As expected, the forum helps to take another major step forward in discussing many strategic spheres of business between Russia and those regions. There were plenary meetings as well as sessions working groups. Despite the contradictory signals between Russia and the European Union, it was another opportunity to have some fruitful dialogue, especially in the current difficult conditions, – develop solutions on a wide range of cooperation issues in the North of Europe.

On the other hand, business institutions and the entire system of economic relations are still evolving for these years, indicating that there is no alternative to reasonable cooperation. It is however necessary to find common business language in the fields and other spheres of crucial importance for international cooperation.

Russian Foreign Ministry’s report pointed out to a diversified and multifaceted nature of regional cooperation in Northern Europe. It said the important components include the programs of cross-border and interregional cooperation between Russia and EU countries (Poland, Lithuania, Latvia, Estonia, Finland and Sweden), plus Norway.

There are programs underway within the framework of the current budget cycle that involves over 500 Russian project partners, and new programs are being prepared for the next seven-year period.

They reaffirmed their willingness to broaden versatile and mutually beneficial cooperation for the sustainable development of Europe. It emerged from a number of reports during the forum that trade and economic relations are now remarkably expanding between the European Union and Russia.

Over the years, the business growth has been driven by the efforts of the business community. This has also to do with the quality of economic exchanges and investment, businesses’ interest in expanding to new markets, and their confidence that these markets provide drivers for economic growth. Admittedly, trade decreased for various reasons since 2013, it then reached $417 billion, but later shrank to a mere $200 billion.

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North Macedonia’s Journey to the EU

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macedonia

Prime Minister Zoran Zaev’s new cabinet is confronted with a number of economic challenges, exacerbated by the economic hit to the global economy caused by the pandemic In 2021, North Macedonia will take economic decisions that will shape the course of the country’s future.

The issues Skopje faces

Despite a modest population of 2-million, North Macedonia repeatedly makes headlines, often due to apparently  intractable disputes with neighbouring countries. Athens’s trade embargo imposed on North Macedonia in the 1990s marked the start of a 27 year deadlock between the two countries, which ultimately stalled North Macedonia’s accession to the EU. Only recently did Skopje resolve the dispute with neighbouring Greece over its official name which Greece had previously taken issue with due to the fact that ‘Macedonia’ is also a region of Greece, and the use of this name was interpreted by Greece to be an assertion of territorial ambitions in the region.

This dispute affected the country’s other diplomatic ventures. In 1999, North Macedonia was one of the first post-Yugoslav signatories of the NATO membership action plan, only to have its accession vetoed by Greece in 2008.  Ultimately, North Macedonia’s Stabilization and Association Agreement with the EU has not been the diplomatic catalyst that Skopje hoped would ease  localised tensions and draw it into a closer relationship with Brussels.

Under the leadership of Nikola Gruveski (2006-2016), corruption and state capture were endemic in North Macedonia. Gruveksi was averse to opening negotiations with mainstream governments in Greece and it was not until the centre-left Social Democratic Union of Macedonia ousted  Gruveski out of power, that there was a breakthrough. Gruveski’s successor, Zoran Zaev, capitalised on Greek Prime Minister Tsipras’s reformism to broker the controversial Prespa Agreement which settled the name dispute. Two years later, North Macedonia was finally admitted to NATO, demonstrating that Greece was the final hurdle to NATO membership.

A tamed economy

However, North Macedonia soon found that NATO membership was not a passport to joining the EU. Internal ethnic tensions have created friction with EU member states. Relations with Bulgaria soured during the election campaign for July 2020 during which the campaigns of both main political parties played on anti-Bulgarian sentiment..Zaev managed to gain power by agreeing to a coalition with the main part of the Albanian minority.  The new cabinet’s economic hurdles, specifically fiscal redistribution, could be exacerbated by renewed ethnic tensions between the Slav majority and the Albanian minority. Should tensions reach the levels of the 2001 civil conflict, the deepening of this fracture would   slow down reforms and deter investments.

Bouncing back after the fall

The Balkan countries suffered greatly during the Great Recession due to their proximity to the Greek economy at a time when Athens navigated the worst slowdown of recent history. As Greece’s second largest export partner, the RNM was particularly hard hit(Figure 3a). The region had barely entered recovery before lockdown measures crippled world economic growth. In addition, North Macedonia’s small internal market is heavily reliant  on external demand which the crisis has depleted. In Q1-Q2 2020, exports fell by 22.3% and industrial production by 14.6% compared to the same period of the previous year. Thus, GDP fell by 14.9% in Q2 of 2020 and another 3.3% in Q3 contrary to the  projected 3.2 percent growth (Figure 7). Whilst forecasts suggest growth of 5.5% in 2021, the unpredictability of the pandemic’s economic influence may yet compromise this figure.

Meanwhile, rating agencies downgraded North Macedonia’s national debt, in turn raising financing costs. the RNM’s debt was downgraded by some rating agencies, raising financing costs. Fitch, the American credit rating agency, as well as  Moody’s, another US-based credit rating agency, both value North Macedonia’s debt as a non-recommended investment asset to be reserved for short-term gain. Since May 2020 the outlook has been negative, suggesting the situation will worsen. Yet, with one of the comparatively smallest debt-GDPs of the region, these ratings are still the best in South-Eastern Europe after Bulgaria meaning the RNM has a relatively solid economic base (Figure 4).

The country’s effective response to the pandemic is in part the reason that North Macedonia is economically stronger than some of its neighbours. The caretaker government introduced a furlough scheme, worth approximately 5.5 percent of GDP, as well as a helicopter money initiative. Going forward, the government is prioritising policies that will stimulate economic growth such as slashing parafiscal charges and cutting VAT. Yet, since North Macedonia lacks the economic resources to commit to long-term reform, recovery will be slow.

North Macedonia’s Shifting Demographics

North Macedonia is contending with mass emigration in tandem with declining fertility rates  (Figure 5) — both of which reduce human capital. The official estimate of two-million residents is dubitable, with some experts hypothesising an actual figure of approximately 1.5 million. Inaccurate projections of a state’s total population jeopardises effective government decision making. In the RNM, where the resources are redistributed amongst ethnic groups pro quota, this makes fiscal management particularly difficult. If, for example, the proportion of Albanians of the total population was lower than estimated, then this group will be receiving more public resources that they are entitled to.

Given that the EU acts in a starkly-protectionist way by restricting trade with third countries, greater cooperation is in the RNM’s interest. In fact, Brussels could reduce trade barriers in the context of a stronger association with Skopje even before the latter formally joins the Union.

There are steps the government can take to encourage citizens not to emigrate . The first and most crucial step would be to improve the education system. Overall, North Macedonia spends much less of its GDP than the average EU country on education. As a result, few people complete their secondary-level education, and therefore either end up in low-paying jobs or unemployed, andare forced to emigrate for work. Another step would be investment in the underfunded Research and Development (R&D) sector. In fact, North Macedonia’s budget allocates only 0.36% of GDP to R&D, compared to an EU average of 2.2% and neighbouring Bulgaria’s 0.77%. Research and development is essential to creating high-paying  jobs, driving productivity, and boosting the economy through innovation and market competition.

Infrastructures as the drive for future growth

The silver lining in North Macedonia’s economic strategy is infrastructure development. This especially true for roads and highways. Grueveski’s administration was instrumental in the investment into road infrastructure,  starting works for two new highways in 2014.

Still, roads can be rather useless if they do lead nowhere. Thus come trade infrastructures. In addition to new road, the building of new border checkpoints and crossing points with Greece and Bulgaria, will bolster the trade infrastructure that North Macedonia shares with the EU, thereby driving trade with a global economic powerhouse. These investments will also reduce the RNM’s dependence on the Yugoslav-time north-south arteries, which currently present a barrier for the development of the “functioning market economy” that is a requirement for EU membership. To achieve this goal, the RNM needs to improve, road connections towards the west (with Albania) and the east (with Bulgaria, an important trading partner). Building better connections within the country and with non-Yugoslav neighbours will boost the country’s internal cohesion by making it easier to move from one part of the country to another proving supplemental infrastructures to foster international trade.

Figure 6 Highways represent a key segment of the RNM’s investments.

A secondary and related benefit of improving connectedness with EU trade routes is reduced economic dependence on Russia. This should reduce Moscow’s potential diplomatic leverage in future disputes in the region. As a matter of fact, pulling out of Moscow’s orbit is almost a precondition to full membership in the EU — which would bring in more funding opportunity and increase financial stability. Yet, Russia’s main asset is not trade tout court, but energy. In fact, the Balkans serve as  a strategic crossroad for oil and gas coming from Moscow and Baku through Bucharest and Ankara. Thus, North Macedonia should also consider developing its energy infrastructure as a route to closer integration with the EU. In order to reduce the Western Balkan’s dependence on Russian fossil fuels, the region needs investments. For cash-strapped countries, like North Macedonia, the opportunity to make real progress in this field may come from ‘green’ funds the EU has earmarked for energy projects in both current member states and candidate countries . In addition, Greece has established an LNG terminal on the Aegean to which links the RNM is planning to adjoin its grid. There are also talks of an electric-grid link to Albania, through which the RNM could import as much as needed and even export eventual surpluses.

Forecast: The RNM can make it… with some help

Without radical reform, the extant corruption, bureaucracy and public-sector inefficiency will stymy growth in the coming years. Luckily, the EU might be the answer to Skopje’s economic woes. The Union is expected to grant €3.3 billion to Western-Balkan countries to kickstart economic recovery following the pandemic. The package does however come with strings attached: the country will have to accelerate progress towards regulatory harmonisation with the EU. This is a notoriously difficult and resource-consuming task, which may hinder other reforms.

Furthermore, North Macedonia must confront pre-pandemic economic struggles. The government could revert to coalition infightings and therefore prolong the process of economic reform. For investors, a cautious approach is recommended, in preparation for positive economic developments.

Acknowledgments The Author thanks Charlotte Millington, parliamentary researcher at the UK House of Commons specialising in European politics and international security for her suggestions.

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How to incorporate the environment in economic ventures for a sustainable future?

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We are in the phase of world history where economic development and protection of environment must go side by side. People living in the developed part of the world will hardly want to give up their current lifestyle and people living in the developing part want to be more like the developed but in this process, we cannot separate environment from economy. Environment provides the incentive for economic growth and prosperity; providing the raw materials and resources we need for production of goods, certain climates and temperatures are required for the growth of specific plants and are very crucial to agriculture industry and the environment is what absorbs the pollution and waste we produce from all this industrialization. Protection of the environment means we mark ourselves safe from economic degradation and provide safe space for healthy functioning of economic and social activities. If we preserve the environment we control the risks of drought, heat waves, cold spells and floods, regulate the air quality, the temperature, the climate, the clean supply of water, the contamination of soil, cycling of nutrients in the ecosystem and management of carbon. Since agriculture can be regarded as the primary industry, crucial to feed people, people who then operate other industries, it is very important to safeguard the environment that feeds us and nurtures us and the environment that we live and grow in. Today, the world economy is facing serious environmental hazards. Climate change, loss of biodiversity and ecosystems are some of the global problems that need immediate collective action by states since this issue engulfs the whole of mankind. Therefore, economists and environmentalists have in the recent years taken this subject with full zest. How can economic growth and environmental protection go hand in hand? Environmental policies integrated with economic policies can be implemented and pursued by states to ensure sustained and prolonged environmental human well-being and continued simultaneous economic growth for states both at the national and international level, ending in a win-win situation.

Natural resources are salient to economic development but at present many prime resources and ecosystems are depleting which poses a grave situation for states and their economies. To tackle this concern, natural resources need to be used in a reasonable manner and adopting and improving technology be propagated in such a way that the use of natural resources is made more efficient and long lasting. Use of newer and modern product designing which meets the needs of the current times, needs to inculcated. The consumption of natural resources beyond the point that hampers economic growth also needs to be avoided. The vitality of technology and innovation in limiting environmental hazards is being stressed, this is also beneficial for businesses and industrialization. This is because preservation of environment is itself a form of economic development and growth. People who come up with the ideas and engineering for environmental friendly products; such as the water and air pollution control, treatment and purification technologies, make money and businesses out of these services, thus contributing to the economy. Similarly, wind mills and solar systems are now a multimillion-dollar business themselves. If environment protection is putting some older technologies and practices out of work, it is also creating incentives for modern technologies and creating more job opportunities in the field. States should thus, make an industrial shift to equipment and products that have a low carbon usage and efficiently use resources. In the real estate sector, places with better and healthier environment and surroundings are priced more than other counterparts for example, a building next to a park or green belt will have higher value than a property which is not next to any place green. This points to the concept of “hedonic pricing.” It refers to the difference in pricing due to the associated environmental aspects, in otherwise similar products. Better environment also contributes to the development of human capital. The presence of a green park will not only add to beauty and better air quality but it will also encourage a lot of people to physically exercise.

Due to the growing scarcity of resources, governments of the world should introduce the policy of “common property regime,” which avers that resources such as land, water, certain habitats and the atmosphere be made common property for all. The problem is that there are no property laws for these resources and people use it as a free dump for human waste and waste products from economic activities. This includes various water bodies for example, irrigation systems and canals, forests, fishing areas etc. Concise and clearly enforced rules should be put in place, exercising the limits put on some activities such as excessive fishing or cutting of forests, putting a limit on the accessibility to these resources, keeping a check on the carbon footprint of some groups, organizations or events or even putting some specifications on their use such as tax or making recycling or reuse mandatory. The shift from already existing practices to newer ones that are more environment-friendly will be costly and it will take time but it is more important now than ever and more beneficial for us in the long run. Environment policies of these sorts reframe the economic structure. The cost of using these resources should be closed in according to the social cost of putting the health of the public at risk. Restructuring of the economic and environmental structure helps a country’s economy by lessening the environmental hazards that the country might face and by making the state more buoyant and resilient in the face of these environmental changes and risks. This can also prove to be a powerful driving force for innovations and ideas.

States are often in the race to increase their GDP. GDP only measures the material values of goods and services and does not take into account the well-being of humans including the health and education quality, living standards, income and environmental conditions. Economic growth, nonetheless, is a prime force for improving human well-being and states incorporate social, political and environmental goals in the well-being domain through these economic activities. The Kuznets curve is a graph to explain the relationship between the growth in economy/GDP and the quality of environment. States can keep this model in mind while reformulating their economic and environmental policies, in accordance to the history of environmental degradation they have endured and the future remodelling they need to follow. It is characterized by an inverted U-shaped relation between GDP per capita and environmental quality. Since we have already crossed the point for environmental degradation, it is now time to think for the decline in the degradation. Initially, when the GDP grows, so does the degradation of environment but after a certain point, the increase in GDP no longer degrades the environment further. This is because at lower income levels, the income is completely spent on meeting the basic survival requirements. When the income increases to a certain point, people and states should start thinking of the bargain that material does with the environment, this should be reflected in their behavioural change. After this point, states should start giving up further unnecessary consumption and focus more on environmental rehabilitation. Another possibility seen through this graph is that industries might see profit in enhancing production quickly, but as demands are met and resources become scarcer, more green, cleaner and resource efficient technology is introduced. Societies, in this way, also go from agriculture-based economy to manufacturing-based economy and finally to service-based economies, releasing the lowest levels of pollution. An example can be of EU rules and regulations. Waste water used to get dumped directly into the streams or rivers, but now it gets treated first before releasing. There are barely any housings left in the EU now that are not connected to solid and water waste disposal and treatment networks.

If states and the firms operating in those states take up eco-innovations and eco-friendly measures, they will actually be at advantage because investors like banks and various funding institutes are more likely to invest in sustainable businesses that will stay operational a long time, than those that are dependent on the environment in these challenging times. Firms that run on eco-friendly terms will also stay ahead of the taxes and regulations charged on using environmental resources. This will prove to be very cost efficient for them and they will not have to change their action plans according to any new regulations or increases in costs. Greener and cleaner practices and equipment can also truly reduce the waste an industry produces, in turn increasing the output and ensuring sustainability. This adaptation to cleaner practices can also lead to innovations and new ideas and practices starting right from the household or individual level. UK is one of the countries that is high on the ranks of eco-innovations, thanks to general understanding and cooperation among firms to pursue sustainable development. Furthermore, statistics show that companies that are currently focusing more eco-innovations are growing at the rate of 15% annually while their counterparts that are not focusing on the same, are not enjoying any climb in their profits[1]. Most of these businesses (based in Europe) are small to medium scaled and they are adaptable in nature. They are benefitting from the European commission’s stance on promoting eco-friendly businesses. Public Relations advantages and marketing superiority is also pretty clear in eco-innovation ventures.

A commendable example of improving the environmental conditions while also not compromising on the GDP and economic development, is that of China. China has been time and again accused of having a huge carbon footprint, which directly impacts the ozone layer which is communal to all mankind. States that are not even at par with the fumes and industrial waste that China produces, are today in the list of states most affected by climate change and global warming, including Pakistan and many of the Gulf nations. China has thus taken the role of global leadership in the field of environmental protection. China has been standing true to its 2015 Paris agreements on cutting down of greenhouse emissions. It was able to do so by spreading awareness and education from the grass-root level. In the period of only a few years, China has drastically improved the air quality in many of its larger cities. Solid waste management and sorting is a major step taken to restrict illegal dumping of garbage. Restrictive policies and heavy fines are imposed if an individual breaks the rules. Renewable energy generators like the wind and solar panels, have been put to use to meet nationwide energy requirements, which ensures cost effective power. In the year 2017, China nationally introduced the concept of “National emissions trading system,” which formed a market for the buying and selling of carbon dioxide emissions allowances. It regulates the quantity of emissions and carbon footprints that an individual, firm or an event is allowed to produce. All of this simultaneously helps China to become more energy sufficient and assists economic reforms while also improving the quality of ground-level air. Some states in the USA are taking up the initiative of green or clean economy with full fervour. California for example, set a target to achieve carbon neutrality by the year 2045, while the clean energy sector is also opening opportunities for jobs. One of the incentive taken in the goal was stricter vehicle exhaust emission rules[2].Nevada also passed a legislation to increase the energy it makes to up to 50% through renewable energy sources, by the year 2030[3]. Rules and regulations have also bene proposed to reduce the emission of harmful air pollutants including those that are short-lived such as methane, CFCs and HFCs. Developing countries like Pakistan have also addressed the climate issue and the Pakistan Premier launched the “Billion Tree Tsunami” plantation campaign to curb deforestation, an issue rampant in the north of the country. In conclusion of this paper, in light of all the examples and recommendations, I would say that the long term benefits, mutual to all, outweigh the costs of taking a leap from existing economic practices to those that are eco-friendlier.


[1]“Eco-innovation for better business,” Business Green, accessed October 23, 2020, https://www.businessgreen.com/sponsored/2409410/eco-innovation-for-better-business

[2] “California Air Quality: Mapping the progress,” U.S News. November 6, 2019.https://www.usnews.com/news/healthiest-communities/articles/2019-11-06/california-air-quality-mapping-the-progress

[3]Chandler Green. “7 ways US states are leading climate action,” United Nations Foundation. May 30, 2019, https://unfoundation.org/blog/post/7-ways-u-s-states-are-leading-climate-action/

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Since the end of second World  the focus on international security has grown, not only state threats but also threats...

New Social Compact1 day ago

Athletes knock the legs from under global sports governance

Sports governance worldwide has had the legs knocked out from under it. Yet, national and international sports administrators are slow...

Americas1 day ago

Biden’s Dilemma: Caught Between Israel and Iran

By all indication, the latest sabotage at Iran’s uranium enrichment facility in Natanz aimed at more than just disabling thousands...

South Asia2 days ago

Pakistan and Germany are keen to Sustain Multifaceted and Mutually beneficial Cooperation

Pakistan has varied history of relationship and cooperation with other countries in international arena. Despite of proactive foreign policy Pakistan...

New Social Compact2 days ago

Disability policies must be based on what the disabled need

Diversity policies, especially when it comes to disabled people, are often created and implemented by decision makers with very different...

WAN WAN
Urban Development2 days ago

Preparing (Mega)Cities for the 2020s: An Innovative Image and Investment Diplomacy

Globalized megacities will definitely dominate the future, in the same way as colonial empires dominated the 19th century and nation-states...

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