Consumer demand doesn't let countries ban import of cheap used cars

Despite taking measures, low- and middle-income countries are struggling to stave off cheap vehicle dumping

By Anumita Roychowdhury
Published: Thursday 15 November 2018
Old vehicles
Policies to discourage polluting older vehicles will lead to crowding of the dumped vehicles in the international market. Policies to discourage polluting older vehicles will lead to crowding of the dumped vehicles in the international market.

Countries across Africa, South Asia and Latin America are waking up to the repercussions of used vehicles and are setting up import barriers to contain them. Outright ban on used vehicle import is not immediately possible in many African countries. Due to growing consumer demand for cheap used cars, governments are finding it tough to ban import of old cars or fix improved emissions standards even after adopting cleaner fuels. 

While four African countries—Egypt, Morocco, South Africa and Sudan—have banned used-vehicle imports, another 25 countries have imposed age restrictions on vehicles (see ‘Riding on old cars’,). Currently, age caps vary between 15 to three years. But the emerging opinion in the region is that age cap should not exceed four-five years. If such age cap is implemented along with the introduction of cleaner fuels of 50 PPM sulphur, the region can leapfrog to Euro IV emissions standards for vehicles. Such combined strategies are more evident in South Asian countries. Nepal, Sri Lanka and Bhutan have banned import of used vehicles. Nepal has adopted Euro III emissions standards and Bhutan Euro II emissions standards. Bangladesh has fixed the age of vehicles at five years to eliminate the dirty vehicles and combat dumping. 

Several countries are combining age restriction with tax measures to increase the cost of import of older vehicles. For instance, Kenya while restricting the age at eight years has also imposed incremental tax on older vehicles that has increased the overall cost. In Uganda, environment levy favours import of vehicles that are less than five years. Despite the initiatives, countries are still struggling to stave off cheap dumping. “Current tax measures may not necessarily reduce import of used vehicles. This is a way to increase revenue to finance government programmes and not necessarily lead to any significant corresponding increase in purchase of new vehicles,” says Ronald Amanyire, secretary, National Road Safety Council, Ministry of Works and Transport, Uganda. This requires effective fiscal measures. In fact, Nathan Tumushabe, also from Uganda’s works and transport ministry, further reiterates, “Even though the environmental levy strategy has worked but it’s not a deterrent enough. Even if 100 per cent levy is imposed, an old vehicle still remains cheaper than a new one.” 

Mauritius took more advanced action while introducing age-caps. It started with CO2 emissions based rebate system for cars. But officials found it difficult to enforce this as it was challenging to compare international CO2 standards or verify emissions claims for the purpose of import. This ended up encouraging import of more used vehicles over new vehicles as certificates brought by dealers made dubious claims of fuel economy or CO2 emissions that could not be easily verified. Moreover, in practice, the rebate scheme ended up increasing used vehicle import over new vehicle import leading to exchequer losses. “This scheme had to be discontinued due to a number of operational and litigation issues and this was replaced with more transparent engine size-based excise tax system,” says Nassir Ally Khadun, former acting road transport commissioner of the country’s National Transport Authority. Taxes are now graded according to the engine size with higher taxes on bigger engines that guzzle more fuel. 

Regulations have also restrained the frequency at which an individual can buy a car. The Mauritian government has set up elaborate institutional process to establish the accountability of all car dealers and verification process to ensure imports of only roadworthy vehicles. 

Yet another unique but early trend is the growing interest in tighter action on imports of used vehicles especially in countries that are promoting local manufacturing of vehicles. This is evident in Nigeria, Ethiopia and Zimbabwe that are developing their vehicle-manufacturing and assembly base. Nigeria has ramped up tighter controls and import taxes on vehicles to build its own industry, and protect its balance of payment and improve energy security. Its industrial policy has encouraged tougher practice that has reduced imports substantially. 

As a result, in the last three years, vehicles imported from Europe, Asia and the US have reduced significantly. Some media reports have claimed significant reduction. Jelani Aliyu, director general, National Automotive Design and Development Council, Nigeria, has also made a public statement that at least 60 per cent of the vehicles in Nigeria should be locally produced. Nigeria has also banned polluting two-stroke engines and is in the process of notifying 50 PPM sulphur fuels. 

Ethiopia is also finalising its policy on import taxes to make them more stringent. In South Asia, India had taken the lead to clamp down on used vehicle import to build its own vehicle industry.

There are also strong worries in Africa following the dieselgate controversy in which diesel cars have been found to be emitting much higher in real world than what they are certified to emit. This has triggered strong policies in Europe to phaseout older diesel cars. This will lead to a huge heap of discarded diesel cars and SUVs that will get dumped in low-income countries. A recent study by German think tank Transport & Energy states that there are 43 million grossly polluting diesel cars on the roads of Europe and are still rising. Many of these cars are now being exported eastwards that will ultimately head to Africa. If Europe does not act now, high emitting diesel cars will be polluting the air of cities around the world for decades and, in the process, shortening human lives. Cheaper imports are already pushing markets towards bigger diesel engines in the car market of Africa and South Asia that do not have clean diesel. This requires a strategy to prevent dumping of discarded diesel cars with toxic emissions in low-income countries.

Nigeria has been progressive enough to price diesel fuel higher than petrol, which has prevented dieselisation. But other markets across Africa and South Asia are vulnerable. Côte d’Ivoire is another interesting example where the government has not only imposed additional fee for road safety, congestion and pollution on import of old vehicles, but has also equalised the price of diesel and petrol fuels since 2012. This has reduced the share of diesel cars.

Sri Lanka is also levying high taxes on diesel cars. It has been innovative enough to use its import policy to promote clean fuel and vehicle technology. “Due to our import tax policy, the share of diesel cars has dropped significantly, and has simultaneously increased the share of petrol, hybrid and electric cars,” says Thusitha Sugatapala, advisor to the government of Sri Lanka.

Karma Pemba, chief transport officer, Transport Development Division, Road Safety and Transport Authority, Ministry of Information and Communications, Bhutan, says Bhutan plans to design a low-carbon vehicle strategy, promote electric mobility and tap international climate finance to assist in its implementation. Nepal, on the other hand, while adopting Euro III standards for vehicle imports is also encouraging the import of electric and hybrid vehicles, says Ram Chandra Poudel, senior divisional engineer, Department of Transport Management, Ministry of Physical Infrastructure and Transport, Nepal. Both Bangladesh and Pakistan have curbed emissions from on-road fleet by promoting natural gas vehicle programmes.

A lot of regulatory efforts in these countries also get undermined by the grey market. Porous borders make it more challenging. “Most vehicles lack proper documentation as they are smuggled into the country through unapproved routes,” says Baba Bukari Musah, chief, customs division, Ghana Revenue Authority. Ghana faces the challenge of smuggled vehicles coming through unapproved routes. Also, the agreements under the Economic Community of West African States (ECOWAS), a regional organisation of 15 West African countries that was established in 1975 to promote economic integration among its members, allows temporary transit of used vehicles through countries. Under the ECOWAS agreements, Ghana allows used cars that are either originating from or going to the other 14 member countries, to operate in Ghana for 90 days after which they can either be returned to their country of origin or retained in Ghana after paying the customs duty. This has become a loophole. 

Exporters must take responsibility

A congested street in Dhaka, Bangladesh, which is a big market for used foreign cars

Trade in used vehicles is a substantial part of the export earnings of developed countries. In 2014, used vehicles accounted for 14 per cent of the total vehicle exports by the US, among the largest used-vehicles exporters. The share of used vehicles in total exports for Japan in 2014 was 7 per cent, says the 2017 UNEP background paper. Advanced markets have high replacement rates and therefore for considerable length of their useful life vehicles are eligible for trading. But old and damaged vehicles qualify for scrapping. 

Often it is more cost-effective for these countries to export old vehicles than scrap them. This can be seen in the Netherlands, which saw a surge in old vehicle exports between 2000 and 2008 when export was given preference over implementing rules for end-of-life vehicles (ELV). While these countries have implemented legislations to dissuade polluting vehicles in the domestic market, they do not have effective policies to prevent exporting of these vehicles.

Developed countries need to understand that the discarded vehicles lock in enormous pollution and greenhouse gas emissions and just exporting it to another country indirectly negates the effect of their own advanced domestic actions. When steps are taken to actually scrap sizeable number of old cars, used car exports decline substantially. Germany, which is responsible for two-thirds of all used-car exports within the EU, implemented its vehicle scrapping scheme as a stimulus package to fight the economic recession in 2009. This increased domestic scrapping and reduced the export of older vehicles.

To address this issue EU countries have adopted Correspondents Guidelines No 9 on Shipments of Waste Vehicles, which though not legally binding helps officials monitor export and improper disposing of cars to be scrapped that are disguised as used cars, particularly outside the EU. It was also reported that German authorities have discovered illegal schemes through which scrapped vehicles have been exported to Africa and Eastern Europe. Preventing the export of these vehicles to Africa and Eastern Europe will require much tighter export rules and stronger proof of scrapping. In the US, for instance, the cash for clunker programme requires dealers to destroy old engines. But the German programme requires the scrapped vehicles to be sent to the junkyard that becomes the loophole for illegal export. 

Increasingly, policies to discourage polluting older vehicles will lead to crowding of the dumped vehicles in the international market. Restraints on older vehicles in these markets, especially in low emissions zone, age limit on vehicles, retrofitment and repowering requirements of older heavy duty vehicles, incentive for vehicle replacement policies, among others are creating conditions for retiring huge number of dumped vehicles. This is making the challenge more difficult.

Needed: shared responsibilities

Action in developed countries is important as unilateral action by the poorer world cannot solve this problem of environmental dumping of clunkers. Shared mitigation is important as for a considerable part of the useful life span of vehicles in high-income countries continue to emit in low-income countries. “It takes two to tango. Exporting countries must play an important role just as they must with hazardous waste. Exporting countries have the expertise and the technical capacity to distinguish between safe and relatively clean vehicles and those which are unsafe and highly polluting. On the other hand, some of the importing countries lack that capacity,” says Michael P Walsh, chairperson of the working group set up under the aegis of the Partnership for Clean Fuels and Vehicles of UNEP to assess used vehicle trade. Exporting countries also need to filter out old and damaged vehicles from entering international trade.

While poorer importing countries have started to put up import barriers to fight this toxic trade, exporting countries have not yet woken up to the challenge of dumping. Says Walsh, “In poor countries there will likely be some demand for anything that will roll and the exporting countries cannot allow the citizens in those countries to be exposed to dirty, unsafe vehicles just as they can’t allow them to be recipients of hazardous waste.” Exporting countries need stringent measures to stop old, unsafe, damaged vehicles and vehicles recalled for manufacturing defect from entering the market. Special efforts will have to be made to ensure diesel cars that are being phased out in European markets do not enter markets of Africa and Asia. They must verify vehicles for safety, emissions and road worthiness.

In Europe, companies such as Volvo, Toyota and others have started taking responsibility for the final disposal of their products. Manufacturers have to provide for take back, recycling and final disposal within the domestic economy. There is individual producer responsibility in which the manufacturer or importer takes the responsibility individually for its own products throughout the entire life cycle. In collective producer responsibility, a number of producers, manufacturers, importers, and other stakeholders come together as a consortium to take collective responsibility for end-of-life management of products. It will be worth exploring how automobile manufacturers can replicate such systems globally.

At the same time, importing countries need harmonised action on age caps, fiscal measures, emissions standards and fuel quality across the region. They also need inspection of emissions, roadworthiness and safety; and, harmonised protocol for vehicle registration and verification systems. Fuel economy measures must be combined with improvement in emissions standards to prevent dieselisation. Several countries that are developing their own manufacturing and assembly capacities and adopting restrictive import policies, need to adopt emissions and safety standards and quality control for domestic production.

The low and middle income countries will also have to deal with the final disposal as these vehicles cannot be passed over. The cost of disposal and recycling rests on these countries and place enormous economic burden on them. Most vehicle-importing countries have not even evaluated the magnitude of ELV that they will have to dispose of. India, which uses its own vehicles longer than developed nations, in 2015 had over 20 million vehicles that required scrapping. In fact, ICCT’s estimate for India shows that pre-2003 vehicles are less than 23 per cent of the fleet but account for nearly half of the vehicular particulate matter and third of NOx emissions in 2011. The much-awaited scrappage and ELV regulations in India will have to address this problem. Most low and middle income countries have not even accounted for the infrastructure and costs. This will require support not only for infrastructure for scrapping ELV, but also to establish manufacturers’ responsibilities to take care of the final disposal of the products.

All exporting governments need to label the vehicles, and develop consumer information systems. Global trade also requires transparent consumer information about the emissions and safety status of the vehicles being traded which is a good practice in the high-income countries. Consumers in Africa largely depend on the internet for purchase decisions. In Nigeria, internet-based sales account for 90 per cent of the total purchases. Several trade websites have mushroomed that are not certified. High-income countries including the US and European countries have web-based consumer information system that provide information on environmental impacts, fuel economy, safety status and costs to protect consumers against fraud and unsafe vehicles. This needs to be adapted for importing countries as well.

Even though there is global concern over “environmental dumping” of high-polluting vehicles to the least well-off economies, multilateral forums have not taken this issue on board. The trade pressure from exporting countries can be intense if these are not made accountable and responsible. Multilateral strategies are needed to move away from the conventional linear economy of production and disposal to a well-governed global circular economy around disposal of vehicles and stop accumulation of end-of-the pipe junk vehicles in low-income countries. Multilateral solutions are also needed to recover recyclable products and materials at the end-of-service life. Finally, the issue needs to be taken up at multilateral platforms, free trade zones and other international forums and blocks to prevent the poorer nations from becoming the scrapyard of the world. 

(Inputs from Priyanka Chandola, Vivek Chattopadhyay and Shambhavi Shukla)

(This is the second story in a two-part series on dumping of old cars in low- and middle-income nations due to lax global laws. Read the first here)

(This article was first published in Down To Earth's November 16-30 print edition under the headline 'A losing cause')

Subscribe to Weekly Newsletter :

Comments are moderated and will be published only after the site moderator’s approval. Please use a genuine email ID and provide your name. Selected comments may also be used in the ‘Letters’ section of the Down To Earth print edition.