SUB-GROUP ON HIDES AND SKINS
Cape Town, South Africa, 9-11 November 1998
TRADE IN HIDES AND SKINS
II. CHANGES IN PRODUCTION AND TRADE PATTERNS
III. LEATHER PRODUCTION AND ENVIRONMENTAL POLLUTION
IV. TRADE LIBERALIZATION AND ENVIRONMENT
1. Trade in hides, skins, leather and leather products has grown steadily over recent decades. Including trade in leather and leather manufactures, the total value of trade in the sector came to more than US$40 billion in 1996, an increase from about US$14 billion in 1980. With this increase in trade, there have been significant changes in production and trade patterns. In developed countries production and processing of raw hides and skins have declined while it has increased in developing countries. While many factors are responsible for these changes, environmental regulation was one of the major reasons for the migration of hides and skins processing from the developed countries to developing countries. In view of the growing interest in linkages between trade, the environment and sustainable development, this document provides a preliminary analysis of the impact on environment of leather processing and the impact which further liberalization of trade in hides, skins and leather manufactures could have on the environment. It follows earlier work by the Sub-Group at its Fourth and Fifth Sessions in 1994 and 1996, and is partly in response to a request by the Committee on Commodity Problems at its Sixty-first Session in 1997 for further work on this subject.
2. Global production of bovine hides and skins increased by 12.7 percent between 1977-79 and 1994-96, as a result of increased production in developing countries, which increased by 49.3 percent while in developed countries it dropped by 7.5 percent (Table 1). Consequently, the developing countries' share in world production increased from 35.6 percent during 1977-79 to 47.2 percent during 1994-96. All developing regions experienced significant increases in production. In particular, the Far East saw its production jump more than 94 percent during this period. At the same time production in most developed countries declined, that in North America and Europe dropping by 12.1 and 16 percent, respectively, between 1977-79 and 1994-96. Production of sheep and goatskins in developing countries also experienced much faster growth than in developed countries during this period.
3. Although production declined, net exports of bovine raw hides and skins from developed countries nearly tripled during the period 1977-79 to 1994-96 (Table 2). Net exports from North America during 1994-96 averaged 663 000 tonnes annually and accounted for more than 66 percent of its production. Imports by the Far East amounted to 719 400 tonnes, more than 96 percent of the total imports by developing countries.
4. Associated with the change in trade patterns in raw material were the substantial increases in processing and exporting of leather by developing countries. As indicated in Table 3, the annual total world exports of light leather from bovine animals reached 7 260 million square feet during 1994-96, nearly four times the level of 1977-79. Exports from developing countries accounted for most of the increase. Their annual exports jumped from 702 million square feet during 1977-79 to 4 382 million square feet during 1994-96. The Far East increased its exports of light leather from bovine animals nearly ten-fold during the same period.
5. Tanning processes may cause environmental problems in several ways. Firstly, they produce a large amount of solid residue. On average, tanning each tonne of raw hides produces about 190 kg of trimmings and flaying from hides in preparation for tanning, 215 kg of cuttings and shaving from tanned hides and 34 kg of trimmings and dust from tanned, finished and coloured hides, although much of this can be utilized in different ways. Secondly, tanning results in large volumes of effluent contaminated with toxic compounds including aluminium, chromium sulphide and caustic soda. Finally, tanning one tonne of raw hides requires about 50 cubic metres of water, which will contain various polluting substances at the end of the process. If these solid and liquid wastes from tanning are not treated before discharge, they will create significant pollution.
6. A study, "Pollutants in Tannery Effluents" prepared by the United Nations Industrial Development Organization (UNIDO) summarized the major scientific findings about environmental damage caused by discharge of effluent from tanning. For instance, if various types of solids from tanning including leather particles and residues from chemical discharges and waste water are discharged into surface water or the ground they cause severe water pollution or even blockage and stagnation of water courses. The high oxygen demand created by effluent discharged directly into surface water may disturb the sensitive ecological balance in the water. The various types of chemicals used in the tanning processes can be major pollution sources if they are discharged directly to surface water or sewerage without any treatment. Sulphide creates odour problems which cause headaches and nausea.
7. Various regulations, including those which set discharge limits to the tannery industry, have been introduced by many countries in recent decades with the objective of protecting the environment. To comply with these regulations, firms have to bear often considerable costs. Although no directly comparable data are available, the costs of compliance in developed countries generally are much higher than in developing countries. For instance, the cost of treating solid residues from processing hides and skins in developed countries would be 2 to 4 times higher than in many developing countries because of tighter pollution limits, higher transportation and waste site costs and higher labour costs.
8. Of course the shift of the processing of hides, skins and leather from developed countries to developing countries over recent decades is not only due to environmental compliance costs but also reflected other economic factors, such as lower labour costs in developing countries.
9. The compatibility of trade liberalization in a manner consistent with protection of the environment is a growing trade issue which has two aspects. Firstly, there is an increasing concern about whether developed countries will have a perceived loss of comparative advantage in "dirty industries" because of their often more stringent domestic environmental regulations compared to developing countries, and secondly whether trade liberalization will promote specialization in "dirty industry" in developing countries, thus causing increased environmental damage there.
10. At present, no clear conclusions can be drawn on these two issues. Several recent studies show that many developing countries can economically undertake activities such as tanning, even if external costs associated with pollution are internalized into production costs because, in general, they have less stringent domestic environmental regulations than developed countries. The reason is partly that economic growth and development have the first priority in most developing countries, while environmental quality has been seen as less important. Moreover, many low-income developing countries also have relatively abundant environmental resources. Therefore, costs involved in meeting environmental regulations by the pollution-intensive industries in these developing countries would generally be less than those in developed countries where consumers place relatively high values on environmental quality.
11. In the short term, freer trade may promote greater development of production and processing of the raw hides and skins in developing countries, resulting in greater pollution in these countries. As a result, for a country with a comparative advantage in processing activities, the effect of trade liberalization would be to cause increased environmental damage, even if suitable environmental policies are in place.
12. However, in the longer term, trade liberalization could eventually reduce pollution. Economic openness in developing countries is generally found to promote the growth of incomes. Income growth in turn stimulates demand for environmental quality which results in environmental regulations becoming more stringent. With higher incomes societies can afford higher environmental control costs and are likely to adopt cleaner production. Thus, higher incomes could eventually result in lower levels of environmental damage.
13. The overall effect of trade liberalization on environment would be different from country to country because the effects which pollution and incomes have on environment are largely determined by the existing environmental condition at any point in time, and upon the income level of the country. In general, trade liberalization will be likely to have a more positive effect on the environment in countries with relatively abundant environmental resources and with higher initial income levels. Also, higher costs of controlling effluent encourage firms to adopt cleaner production processes which tend to reduce emissions.
14. Given the nature of the leather industry and the economic factors driving the changes in world leather production, processing and trade, the industry is expected to continue, with further trade liberalization, to shift from developed countries to developing countries.
15. Although the impact of trade liberalization on the environment will differ from country to country, if there were a technology transfer from developed countries to developing countries as a result of further trade liberalization and if these countries adopted suitable environmental control policies then pollution from processing of hides and skins in developing countries could be contained. For instance, the transfer of more environmentally sound tanning technologies and advanced waste treatment methods from developed countries to developing countries could significantly reduce pollution emissions from the leather industry in developing countries.
16. The effect which further liberalization of trade in hides, skins and leather could have on the environment in any country largely depends on the existing economic and environmental conditions. In view of the importance of continuing economic development and environmental concerns the Group may wish to recommend that detailed studies should be undertaken on the effect which further trade liberalization might have on their environment, and on appropriate strategies to be followed.