Spotlight News: Weak Incentives for Businesses and Local Government Compliance With Environmental Standards Contribute to Ongoing Pollution Threats in China

BSI has recently observed increased instances of businesses and local provincial governments failing to comply with environmental pollution standards, contributing to the significant, ongoing pollution threat in China. China’s Ministry of Environmental Protection (MEP) launched in April a 28-city inspection program, projected to involve 5,600 inspectors and run until March of 2018. This campaign, the largest the MEP has undertaken, has uncovered significant issues in provincial government enforcement, as well as significant issues in enterprise compliance. In a round of inspections which concluded last month, the MEP stated that 71 percent of Beijing facilities were not compliant with national environmental standards. Additionally, the Deputy Minister of the MEP recently publicly cited Langfang, Hebei city officials for failing to take action on a severe pollution warning issued on April 2, and called for a production halt at companies in Langfang that failed to meet emission control requirements or falsified emissions data. Furthermore, BSI has recorded at least seven instances from inspections in the previous two months, in which factory workers either attacked, blocked, or otherwise deliberately hampered inspectors in order to obstruct environmental inspections.

Multiple factors continue to plague the Chinese central government’s capacity to address its pollution problems. China’s government structure gives local governments a significant amount of enforcement power and autonomy, but it also rewards provincial economic success, often incentivizing local governments to focus on economic performance over environmental concerns. Additionally, China’s regulatory system does not properly discourage persistent polluters, nor does it assist polluters in the costly process of upgrading to meet standards. As a result, enterprises find paying for upgrades to be significantly more expensive than paying MEP fines for pollution violations, and will frequently opt to instead pay repeated but relatively small fines. As a result, though the increased push for improved environmental conditions and anti-pollution inspections marks a significant policy initiative, it remains to be seen how effective this new campaign will be with these regulation and enforcement issues persisting.

Authorities in Ajman in the United Arab Emirates seized 158,415 counterfeit car parts intended for sale in the Al Helio area of the city. Officials of the emirate’s consumer protection directorate said that the seized goods falsely bore the trademarks of major Western and Asian car brands. Authorities did not specify the origin of the counterfeit components. However, BSI has noted numerous seizures in recent months of large quantities of counterfeit car parts from warehouses and other facilities in the UAE, in the emirates of Dubai, Abu Dhabi, and Sharjah. Emirati authorities in some of those earlier cases said that the counterfeit car parts had been manufactured in China and were intended for transshipment via the UAE to Australia.

Romanian authorities at the Bors border crossing with Hungary discovered three Syrian stowaways hiding on the chassis of a tractor-trailer. Border guards discovered the young migrants during an inspection of a shipment of automotive parts transiting from Turkey to companies in Hungary and Poland. Two truck drivers of Turkish nationality were detained at the scene on suspicion of migrant smuggling. The pair claimed to be unaware of the stowaways beneath the trailer. The BSI threat rating for stowaway introduction in Romania is Severe, with migrants often attempting to sneak aboard or below cargo trucks when parked at highway rest areas in the country.

Protests by Indian farmers are causing significant disruption to cargo transportation in the central Indian state of Madhya Pradesh. The president of a truck operators’ association in the state said that protesting farmers had burned over 250 trucks and buses in the last week, causing losses to transporters of approximately 200 million rupees ($3.1 million). Protesters have also destroyed shipments of milk and other agricultural products traveling through Madhya Pradesh and the western state of Maharashtra. Although farmers have most often targeted agricultural shipments, shipments of other goods transiting affected states are also likely to face increased risk of disruption in the near term. Disruptions are also likely to spread beyond the currently affected states, with farmers in the western state of Rajasthan launching strikes and protests yesterday. One national farmers’ organization said it would impose a three-hour roadblock on national highways across the country on June 16 to protest the police killing of six farmers in Madhya Pradesh last week. Opposition political parties are also considering calling for a nationwide bandh, or strike, in the near future in solidarity with protesting farmers.

Farmers launched protests in response to falling food prices and increasing financial hardship, and are seeking to push state governments across India to follow the precedent set by the government of Uttar Pradesh and write off loans for small farms. Some protesting farmers have also blamed the cash crunch that followed the Indian government’s demonetization policy late last year for causing their current financial difficulties. The threat of cargo disruption in India is Severe, while the threat of man-made disruption to business continuity in the country is High. BSI will continue to monitor this situation for further developments.