Export of Recyclable Materials and the Japanese Recycling System: The Case of Used Plastic Bottles

Transcription

1 THE INTERNATIONAL ECONOMY No.14, 2010, Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles Mso Stke Tohoku University Yosiko Ymshige Seijo University Toru Kikuchi Koe University Astrct In recent yers, the incresed export of recyclle mterils from Jpn to Asi, prticulrly to Chin, hs rised questions regrding Jpnese recycling system for continers nd pckging, which hd ssumed no trnsoundry movement of these mterils when first implemented. Fcing significnt outflow, the Jpnese government dded the policy to the revised lw to encourge locl governments to trnsfer used plstic ottles to designted recyclers who process them for domestic mnufctures of finl products. However, it is questionle whether such policy is eneficil s well s sustinle. This study ttempts to provide n nswer to this question y constructing simple model of plstic ottle recycling nd conducting positive s well s normtive nlysis of the export of recyclle mterils in the context of incresing import demnd nd interntionl mrket fluctution. JEL clssifiction: F13; F18 Keywords: trde of recyclle mterils; recycling system; crowding out 1 Introduction Ten yers fter the enctment of the Bsic Lw for Promoting the Cretion of Recycling-Oriented Society, Jpn continues to pursue the development of recycling-oriented society to chieve sustinle development. Received 10 Octoer 2010; received in revised form 7 Novemer 2010; ccepted 10 Novemer We re deeply grteful to the referee of this journl for mny constructive comments. An erlier version of this pper ws presented t the 2009 Annul Meeting of Society for Environmentl Economics nd Policy Studies nd the 2009 Annul Meeting of the Jpn Society of Interntionl Economics. The uthors thnk Eiji Hosod, Atsushi Terzono, Tkshi Sito, Keisku Higshid, nd prticipnts t the meetings for their helpful comments. The reserch of the first uthor ws supported y the Ministry of Eduction, Science, Sports nd Culture, Grnts-in-Aid for Scientific Reserch, Two of the uthors, Stke nd Ymshige, were students of lte Professor Kiyoshi Kojim, who hd keen insight into the rel world issues, nd emphsized the importnce of dressing the economic prolems ssocited with them. We sincerely dedicte this pper to our mentor, Prof. Kiyoshi Kojim. Grdute School of Environmentl Studies, Tohoku University, Armki, Ao-ku, Sendi , Jpn. E-mil: stke@mil.knkyo.tohoku.c.jp Deprtment of Economics, Seijo University, Seijo, Setgy, Tokyo , Jpn. E-mil: ymshig@seijo.c.jp Grdute School of Economics, Koe University, 2-1 Rokkodi-cho, Nd-ku, Koe , Jpn. E-mil: kikuchi@econ.koe-u.c.jp 113

2 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles However, the recycling system designed y the Jpnese government is fcing questions in the fce of significnt increse in the export of secondry mterils such s iron scrp, wste pper, nd used plstic to Asin countries, prticulrly to Chin, which egn in the lte 1990s. 1 In prticulr, the export of used polyethylene terephthlte (PET ottles hs jeoprdized the recycling system for continers nd pckging y cusing the shortge of nd rise in the price of recyclle mterils, nd ccordingly urging the exit of the designted recyclers processing them for domestic mnufctures of finl products from the mrket. This crowding-out effect of exports on domestic recycling hs influenced the current discussion regrding the mendment of the Recycling Lw for Continers nd Pckging. 2 In the 2006 mendment lw the government dded n rticle ddressing the smooth delivery of wste plstic ottles for sound recycling to the sic policy in order to encourge locl municiplities to trnsfer used PET ottles to the designted recyclers nd not to the non-designted recyclers, who were considered to process these mterils for export. 3 The government sed its policy chnge on two key eliefs tht it held t the time. First, it rgued tht dependence on foreign demnd ws not economiclly sound ecuse of the negtive impct of oth short-term fluctutions in the interntionl mrket nd long-term uncertinty in demnd for secondry mterils mong developing countries. 4 Second, it rgued tht the export of recyclle mterils through non-designted recycling routes my led to environmentl dmge to the trding prtners ecuse of improper processing. In glolized economy, however, it is questionle whether such closed type of recycling system cn e eneficil s well s sustinle. The purpose of our study is to nlyze the positive effects of the export of recyclle mterils on the recycling system, s well s the welfre effects of policy chnge, y constructing simple model of PET ottle recycling in Jpn, in the current context of incresing import demnd nd interntionl mrket fluctution. Few studies hve een conducted in the interntionl trde of recyclle mterils since Grce et l. s (1978 pper ws pulished. While few reserchers such s Duripph et l. (2002, Bigsten nd Wicks (1996, Hgglde (1990, nd Vn Beukering (2001 hve discussed the crowding-out effects of imports on the domestic recycling mrket in the importing country, no study to dte hs nlyzed the crowding- or hollowing-out effects of exports on the domestic recycling mrket in the exporting country. This study mkes the first ttempt to nlyze this issue. The pper is orgnized s follows: Section 2 chrcterizes the PET ottle recycling system in Jpn. Section 3 formlizes the municiplities nd recycling usiness sectors into simple frmework. Section 4 presents model 1 See Kojim ( The forml title of lw, which ws encted in 1995, is the Lw for the Promotion of the Sorted Collection nd Recycling of Continers nd Pckging. 3 See the 2006 Press Relese y the Ministry of the Environment. 4 A recent exmple of short-term fluctutions is tht Chin suddenly decresed imports of secondry mterils during the economic crisis following the Lehmn shock in 2008, lthough the mrket recovered within few months. 114

3 THE INTERNATIONAL ECONOMY No.14, 2010, of the mrket equilirium to descrie the conditions tht hve led the price of used PET ottles to ecome negtive nd to nlyze the effects of chnges in export nd domestic prices of recycled products on the prices of used PET ottles. Section 5 discusses some welfre implictions of the cluse the smooth delivery of wste plstic ottles on the policy. Section 6 concludes the study y discussing severl implictions of the findings. 2 The PET Bottle Recycling System in Jpn Jpn s PET ottle recycling system ims to recycle nd reduce ll PET ottles discrded y consumers, which ccount for 60% of the totl volume of continer nd pckging wste. Under the recycling system, consumers, municiplities, nd usinesses re ll expected to ply relevnt roles in reducing wste nd promoting recycling. Figure 1 provides simple illustrtion of the PET ottle s mteril recycling system. The solid lines indicte the flow of used PET ottles while the non-solid lines indicte the flow of money. After the municiplities collect continers nd pckging wste tht hs een sorted y consumers, they position the wste within either designted route or non-designted route in the recycling process. Used PET ottles collected y municiplities re first trnsferred to designted corportion, which then entrusts the collection nd recycling of the used ottles to the designted recyclers. After the designted recyclers use these mterils to produce recycled products such s PET plstic flkes nd pellets, they sell the recycled products to the mnufcturers of finl commodities such s fiers nd sheets. Designted recyclers cn prticipte in pulic tenders of recycling ottles, which re held t designted storge fcilities every yer. The idding price of the mterils my e positive or negtive. When it is positive, the Consumers Designted recycling route Specified usinesses Designted corportion Locl municiplities Designted recyclers Domestic mnufcturers Non-designted recycling route Non-designted recyclers Overses mnufcturers Used PET ottles Pyment Commission Recycled products Figure 1 Recycling System for Used PET Bottles 115

4 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles ton Designted route Non-designted route Source: The Council of PET Bottle Recycling (2008 Figure 2 Volume of Used PET Bottles Trnsferred to Ech Recycling Route designted recyclers py the designted corportion for the ottles, which then trnsfer the pyment to the municiplities. This trnsction is illustrted y the solid nd dotted lines etween the designted recyclers nd the municiplities through the designted corportion in Figure 1. When the idding price is negtive, designted recyclers receive credits from the designted corportion, which chrges commission to the specified usinesses, i.e., PET ottle mnufcturers nd usiness entities using PET ottles. 5 This process is shown y the roken lines from the specified usinesses to the designted recyclers through the designted corportion in Figure 1. Municiplities, however, do not trnsfer the entire quntity of used PET ottles collected, to the designted corportion. They directly trnsfer portion to non-designted recyclers, most of whom sell the mterils overses. Of the severl resons for municipl government to trnsfer these mterils to non-designted recyclers, the most importnt is to ern revenue. The mount trnsferred to non-designted recyclers, which ws meger in the erly period of the recycling system, incresed grdully until it exceeded the mount trnsferred to the designted corportion, s shown in Figure 2. Mny hve rised concerns tht this increse would hve devstting effects on the Jpnese domestic recycling system. 6 The idding price of used PET ottles long the designted route hd een lower thn tht long the nondesignted route for every yer except for the two most recent yers, s indicted in Figure 3. Although grdully incresing, the price long the designted route remined negtive etween 1997 nd A primry feture of these price movements is tht the non-designted price hs moved lmost prllel to the export price of recycled products, wheres the designted price hs moved lmost prllel to the domestic price of recycled products. 5 Note tht the designted corportion, not the municiplities, pys for the negtive idding price of used PET ottles. 6 A certin quntity of PET ottles used y venders nd retil stores is collected not y the municiplities ut y the retilers themselves long the so-clled self-collection route. The remining used PET ottles, collected y neither the municiplities nor the retilers, re either exported or discrded. 116

5 THE INTERNATIONAL ECONOMY No.14, 2010, Yen/kg Domestic price of recycled products Price of used PET ottles in the non-designted route Price of used PET ottles in the designted route Export price of recycled producs Sources:The domestic price of recycled products is quoted from the price of PET ottle flke shown in Kurit(2009, Tle 6-3 of p.138. The export price is clculted from the trde sttistics of Ministry of Finnce. The price in the designted recycling route is quoted from the Council of PET Bottle Recycling(2008. The price in the non-designted recycling route is the verge of prices otined from the questionnire survey conducted y Kurit(2009. Notes: Export price up to 2005 is otined from dividing the totl vlue of other plstics (H.S code; y the volume of their exports in the ctegory of wste, prings nd scrp, of plstics (H.S code;3915. Export price fter 2006 is derived from the dt of PET (polyethylene terephthlte scrps of other plstics. (H.S code; Figure 3 Export nd Domestic Prices of Recycled Products nd Prices of Used PET Bottles 3 PET Bottle Recycling Model This section considers the ehviors of locl municiplities s suppliers nd those of recycling usinesses s users of used PET ottles. Every fiscl yer, municiplities sumit their plns for the volume of sorted used ottles tht they will collect, to the centrl government. It is ssumed tht the mount of ottles collected y ech municiplity is fixed t nd tht the municiplities collect nd store the used ottles t cost of C g. The municiplities trnsfer the collected ottles either to the designted recyclers, whose products re recycled domesticlly, or to the non-designted recyclers, whose products re entirely exported. It is ssumed tht there re numerous municiplities nd recyclers who ccept the prices of used PET ottles s given. The prices of the used ottles re determined endogenously, while the domestic nd export prices of the recycled products such s plstic flkes or pellets, re determined exogenously. 117

6 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles 3.1 Locl municiplities Municiplities ern revenue when the PET ottles re priced t idding price of long the designted route s well s competitive price of P long the non-designted route. Assuming tht nd X represent the quntity of PET ottles delivered to the designted nd non-designted recyclers, the revenues tht municiplities ern long ech route re nd P X, respectively. Although they cn ern revenue y pursuing the non-designted recycling route, municiplities lso fce the risk of eing unle to sell ll their collected mterils, s most used PET ottles tht re trnsferred to the nondesignted route re exported to foreign mrkets. Moreover, prices nd trnsctions long the non-designted route re susceptile to interntionl mrket fluctutions. When the demnd for used PET ottles declines in rection to fluctutions in the interntionl mrket of recycled products, non-designted recyclers reduce their purchses of used PET ottles, leding to the possiility tht non-designted recyclers my not ccept recyclle mterils from municiplities tht wish to trnsfer them. 7 On the other hnd, s the contrcts tht municiplities hve with the designted corportion re long term in nture, municiplities do not fce the risk of recyclle mterils not eing ccepted long the designted route, s they re confident tht the designted corportion will ccept them. Assuming tht the expected sles rte is α, when X units of PET ottles re delivered long the non-designted route, only αx units cn e sold. As α depends on the demnd for recycled products y the interntionl mrket, it is ssumed tht the given the externl condition α is dependent on the mount of X s expressed in eqution (1: α = α(x, α < 0, α < 0, α(0 = 1, 0 α 1. (1 Eqution (1 implies tht s X increses, the proility of recyclle mterils eing ccepted y nondesignted recyclers decreses, nd the expected revenue from the non-designted recycling route ecomes αp X. If oth nd P re positive, locl municiplity s net revenue B cn e expressed s follows: B = + α(x P X C g ( X. (2 As municiplities llocte the totl mount of recyclle mterils X etween designted nd non-designted recyclers, the totl volume of recyclle mterils is the sum of the volumes delivered to designted nd nondesignted recyclers: 8 7 Used PET ottles unsold to non-designted recyclers re stored y the municiplities. Here, it is ssumed tht there is no storge cost. 8 Municiplities mke lloction decisions regrding used PET ottles sed on expected revenues rther thn ctul revenues ecuse they must mke their decisions efore interntionl mrket conditions re known. At the eginning of the period, municiplities decide on the volume of used PET ottles to e trnsferred to the designted corportion nd nondesignted recyclers, simultneously. Recycling usiness firms then mke output decisions sed on relized interntionl mrket conditions. 118

7 THE INTERNATIONAL ECONOMY No.14, 2010, X = + X. (3 Given tht prices nd P re exogenous, the optiml ehvior of the locl municiplities (i.e., the determintion of X is chrcterized y the following condition: = α (X P X + α(x P = P (α X + α. (4 In Figure 4, the horizontl xis mesures the mount of X, while the verticl xis mesures. When P is positive, the RHS of eqution (4 cn e depicted s downwrd-sloping curve. Given tht P = P 0 holds, the RHS of eqution (4 ecomes P 0 (α X + α, nd P 0 t X = 0. Accordingly, n increse (decrese in P moves the curve upwrd (downwrd. The curves intercept the horizontl xis t α/α, indicted y X α. When P = P 0 nd = P, the locl municiplity lloctes the quntity OX to the non-designted recycling route nd the reminder (X X to the designted recycling route. The nottions indicte the equilirium vlues. ƒ ' {ƒ P ( X 0 P Figure 4 O X X ƒ X X Determintion of the Collected Volume in the Non-Designted Recycling/ Designted Recycling When no revenue is received from the designted route tht is, when 0 eqution (2 cn e modified s follows: B = α(x P X C g ( X. (5 In this cse, locl municiplities sell the quntity OX α of the recyclle mterils to non-designted recyclers nd deliver the reminder (X α X to the designted corportion for ny positive P. On the other hnd, when P 0, locl municiplities trnsfer ll recyclle wste to the designted corportion ecuse they do not hve to py for the delivery of used ottles long the designted route, wheres they must py for delivery long the non-designted route. 9 Using Figure 4, the locl municiplity s supply curve cn e derived. Given the level of P, n increse in 9 This model ssumes tht P does not fll elow zero nd tht there re no trnsctions long the non-designted route. In relity, however, there ws period when P remined negtive nd severl trnsctions occurred etween locl municiplities nd non-designted recyclers, s shown in Figures 2 nd 3. This occurred ecuse the usiness of nondesignted recyclers hs een ffected y fctors other thn the ility to ern revenue such s the flexiility of trde, the formtion of continuous reltionships, nd the support of locl recyclers. See Kurit (2009, p

8 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles induces n increse in the supply of recyclle mterils to the designted recyclers. At = P 0, the supply to the designted route reches its mximum t O X. On the other hnd, when 0, the supply reches the minimum level X α X. The supply curve for the designted route is thus depicted y X S ( in Figures 6 nd 7, which pper in Section 4. The supply curve for the non-designted recycling route cn e otined s follows. If P > P, then n increse in P leds to n increse in the supply of recyclle mterils long the non-designted route. On the other hnd, if P P, the supply of recyclle mterils long the non-designted route ecomes zero, s the locl municiplities would llocte ll of X to the designted recyclers. Their ehviors re summrized y the curve X S (P in Figures 6 nd Recycling usinesses Designted recyclers Designted recyclers otin the used PET ottles y competitive idding nd utilize them to produce recycled products for sle to domestic mnufcturers. Their profit is otined y sutrcting the cost of otining nd processing these ottles from the revenue tht they ern from selling the recycled products. When the idding price is positive, the idding price of the recyclle mterils multiplied y the quntity of the recyclle wste is the cost of otining the used PET ottles. On the other hnd, when 0, represents the revenue designted recyclers receive s recycling fee from the designted corportion. Therefore, the profits Π cn e expressed s follows: Π = P y Y C (Y, (6 where P y represents the price of the recycled products in the domestic mrket, Y the quntity of the recycled products, nd C the cost function. According to oth the production nd cost functions, the following conditions cn e imposed: The first-order condition ecomes s follows: Eqution (8 cn e rewritten s follows: Y =F(, F > 0, F < 0, Ȳ = F( X, (7 C > 0, C > 0, C(0 = 0. F ( = P y C. (8 C = P y F (. (9 Figure 5 depicts the reltionships expressed y the ove equtions. Let the domestic price of recycled products e P $ y. Then the production of recycled products occurs etween 0 nd Y $, where Y $ is the output with P $ y = 120

9 THE INTERNATIONAL ECONOMY No.14, 2010, C (Y if > 0. On the other hnd, if 0, the recyclers cn produce n output eyond Y $ will receive recycling fee to cover their deficits. Thus, the optiml output is Y 0 if = P 0 = P 1 0. Depending on the level of Y, the demnd for cn e otined y eqution (7. MC ecuse they > 0, ut Y 1 if C ' ( Y $ P y o 1 /F ( P y $ $ P y o 0 /F ( ƒà ƒá Figure 5 Output 0 $ Y Y Y Y Y O 1 Optiml Output of Recycled Products Produced y the Designted Recycler As decreses, the output Y nd the derived demnd for ecomes lrger. On the other hnd, s n increse in leds to decrese in profits, it leds to decrese in demnd for. In summry, the demnd for used PET ottles y the designted recyclers cn e depicted s the decresing curve X D ( in Figures 6 nd 7, s n increse in the price of the recycled products P y would shift X D to the right Non-designted recyclers Non-designted recyclers purchse the used PET ottles t price P for the production of recycled products tht they export t the fixed export price P e. Assuming tht Y represents their totl output nd C the costs of other inputs, their profits re clculted s follows: Π = P e Y P X C (Y. (10 The following conditions re further imposed on the production function G nd the cost function C : Y = G(X, G > 0, G < 0, C > 0, C > 0, C (0 = 0. The first-order condition cn e otined s follows: P e G (X = P + C (Y. (11 As shown in the usul negtive slope demnd curve X D (P in Figures 6 nd 7, n increse in the export price shifts the demnd curve upwrd. 121

10 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles 4 Equilirium Anlysis 4.1 Mrket equilirium Figures 6 nd 7 depict the comined demnd nd supply curves. Qudrnts I nd IV depict the demnd curve X D nd the supply curve X S for the designted recycling route, wheres qudrnt II depicts the demnd nd supply curves X D, XS for the non-designted route. Figure 6 illustrtes cse in which > 0 nd P > 0 nd Figure 7 illustrtes cse in which 0 nd P > 0, ssuming tht the equilirium prices re P nd P, respectively, nd the equilirium quntities of PET ottles recycled long the designted route nd the non-designted route re X nd X respectively. S ' X ( P ; P = P S X ( P ; P = P P T S ' X ( P ; P = P D X ( P ; P Pe e < ' P P ' D (P ;P y = P y $ D X (P ;P e = P e S (P ;P = P X ' X X O ƒ ' X X T Figure 6 Mrket Equilirium with > 0 X S (P ; 0 D X ( P ; Pe > Pe P T ' P S (P ; P = P ' X X P D S X (P ;P e = P e ( ;P = P X O D (P ; P y < P y $ ' X Figure 7 Mrket Equilirium with 0 T 122

11 THE INTERNATIONAL ECONOMY No.14, 2010, The difference etween these two cses is the position of the demnd curve of the designted recyclers, which is ffected y the domestic price of recycled products P y. my e negtive when P y is sufficiently low. Another possiility of 0 is when the export price is sufficiently low. 4.2 Export price, domestic price, nd recycled volume This susection considers the impct of chnges in P e nd P y on, P, nd the collected volumes. In the cse of positive pyments ( > 0, n increse in the export price P e shifts the demnd curve for the non-designted recyclers X D upwrd, which rises P long the supply curve X S. An increse in P therefore ffects oth X S nd X S. An increse in P increses the municiplity s mrginl revenue from non-designted recyclers (shifting X S upwrd, ut reduces the supply to the designted recyclers (shifting X S upwrd in qudrnt I ecuse X is held constnt. A new equilirium is reched t P nd P, where demnd is equl to supply long the two recycling routes nd X + X = X is stisfied. In summry, n increse in the export price rises the domestic price of recyclle mterils for oth designted nd non-designted recyclers, ut leds to n increse in the volume delivered to non-designted recyclers nd decrese in the volume delivered to designted recyclers, thus producing wht is known s the crowding-out effect of exports on domestic recycling. 10 An increse in the domestic price of recycled products P y lso leds to n increse in nd P s it shifts X D to the right. However, the effect of the increse in the volume of recyclle mterils is the opposite of wht occurs with chnge in the export price; tht is, n increse in P y leds to n increse in the volume of recyclle mterils long the designted recycling route, wheres decrese in the volume long the non-designted recycling route. When 0, chnge in export price ffects the price for non-designted recyclers P, which ffects X S nd thus chnges, s shown y the shift in X D in Figure 7. Thus, chnge in the domestic price ffects ut not the volume of recyclle mterils. 11 This nlysis is consistent with the ctul movements of the prices of used PET ottles shown in Figure 3. The fct tht remined negtive for 9 yers nd showed grdul increse cn e explined y the lower prices of P y nd P e nd the grdul rise in P y, respectively. The prllel movements of with P y nd P with P e in Figure 3 re lso explined y the model, which depicts the mnner in which nd P re directly ffected y P y nd P e, respectively. 10 Techniclly, crowding-out does not occur within the domestic industry producing recycled products, s non-designted recyclers, who re relizing increses in volume, re lso memers of tht industry. However, decrese in the quntity trnsferred long the designted recycling route leds to decline in the domestic mnufcture of finl products due to the shortge of recyclle mterils. 11 Domestic prices re lso ffected y the totl volume of recyclles X. An increse in X shifts TT to the right, decreses nd P, nd increses X. 123

12 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles 5 Welfre Effects of the Smooth Delivery of Wste Plstic Bottles This section nlyzes the welfre effects of ensuring the smooth delivery of wste plstic ottles to designted recyclers, one of the policy chnges dopted in the Continers nd Pckging Recycling Lw. The primry purpose of the smooth delivery of wste plstic ottles cluse ws to remedite the shortge of used PET ottles trnsferred to designted recyclers. To nlyze the impct of this cluse, two enchmrk cses, one without nondesignted recyclers nd one with non-designted recyclers re considered here. The first cse ssumes tht recycling through the non-designted recyclers is prohiited, so tht the entire volume of sorted collection of used PET ottles is processed y designted recyclers. As municiplities would trnsfer ll these ottles to designted recyclers, the supply curve for designted recyclers is given y TT in Figure 6. On the other hnd, the demnd curve crosses the horizontl xis, owing to the ssumption tht the price of recycled products is less thn the mrginl cost t Ȳ, s shown in Figure 5. The supply curve TT nd the demnd curve X D intersect t the negtive price. In the second cse, which llows the prticiption of non-designted recyclers in the mrket for recyclle mterils, the price of used PET ottles is positive if the export price is sufficiently high nd negtive if the domestic price of recycled products is sufficiently low, s shown in Figure 6. Regrding comprison of the level of welfre t the sme domestic price of recycled goods in oth cses, the domestic price P y is ssumed to e P y $. The level of welfre is ssumed to e mesured y the sum of the net revenues of municiplities, the profits of recyclers, nd the commission pyments chrged to the specified usinesses. The export of recycled goods is ssumed to hve no negtive environmentl impct on the importing country. Bsed on these ssumptions, the level of welfre in the first cse is given s follows. Cse 1: Without Non-Designted Recyclers Municiplities net revenue = C g ( X Designted recyclers profits = P y $ Ȳ P X C (Ȳ Commission Pyments y the specified usinesses = P X The level of welfre is given y the following eqution. P y $ Ȳ C (Ȳ C g ( X (12 Note tht the sign of the term P $ y Ȳ C (Ȳ cn e either positive or negtive. The level of welfre in the second cse, in which the price for the designted recyclers P is positive nd the production level of recycled goods Y t P is smller thn Y $, s is shown in Figure 5, is given s follows. Cse 2: With Non-designted Recyclers Municiplities net revenue = P X + α(x P X C g( X Designted recyclers profits = P $ y Y P X C (Y 124

13 Non-designted recyclers profits = P e Y P X C (Y By summing these up, we otin THE INTERNATIONAL ECONOMY No.14, 2010, [ (α(x 1P X ] + [ P y Y C (Y ] + [ P e Y C (Y ] C g ( X (13 The first term in eqution (13 represents the expected loss cused y unexpected fluctutions in the interntionl mrket, while the second nd third terms indicte the enefits from sles of recycled products in the domestic nd export mrket, respectively. By sutrcting eqution (13 from eqution (12, we otin eqution (14 s given elow. (α(x 1P X + D (14 where D = P $ y(ȳ Y + C (Y C (Ȳ ( P e Y C (Y. The sign of D is likely to e negtive,12 while the sign of the first term in eqution (14 is positive nd incresing in X. Therefore, when X is smll, the sign of eqution (14 is negtive, nd the level of welfre with the prticiption of non-designted recyclers is higher thn tht without them. However, if X is sufficiently lrge, the sign of eqution (14 ecomes positive, which indictes tht the level of welfre without non-designted recyclers is higher thn tht with them. When the price for the designted recyclers is negtive s result of significnt decrese in the domestic price of recycled goods in cse 2, the results re the sme s the ove. 6 Concluding Remrks This study conducted positive nd normtive nlysis of the Jpnese recycling system for used PET ottles. In terms of positive nlysis, simple model of the recycling system ws presented tht incorported uncertinty in the export mrket nd provided theoreticl explntion of not only the oservtions regrding the movement of prices ut lso the crowding-out effect of exports on domestic recycling. In terms of normtive nlysis, the level of welfre chieved under government policy mndting closed system (i.e., permitting only designted recycling route ws compred to tht chieved under policy llowing n open system vi interntionl trde (i.e., llowing non-designted recycling route. The level of welfre chieved depends on two contrsting fctors: the gins relized from trde versus the uncertinty fced in the interntionl mrket. Therefore, greter stility in the interntionl mrket for recycled mterils leds to higher level of welfre under n open system thn tht under closed system. Despite this fct, some hve rgued in fvor of closed system. First, Hosod (2008, p.350 points out tht 10 to 20% of the totl volume of compressed used PET ottles is refuse nd they re unlikely to e treted properly in overses recycling plnts. Thus, if non-designted recyclers export improperly processed PET ottles, they export 12 The tern P $ y(ȳ Y + C (Y C (Ȳ in D is equivlent to β γ in Figure 5, where Y 0 is regrded s Y. Even if β > γ, P e Y C (X > 0 holds, hence, D is likely to e negtive. 125

14 Mso Stke, Yosiko Ymshige, Toru Kikuchi: Export of Recyclle Mterils nd the Jpnese Recycling System: The Cse of Used Plstic Bottles environmentl dmge s well, nd monitoring their processing to prevent the export of environmentl dmge is likely to e difficult. Theoreticlly, welfre nlysis must consider the environmentl dmge imposed on trding prtners. In prctice, Chin mintins compulsory registrtion system to ensure tht the import of wste mterils conforms to environmentl stndrds nd other regultions. 13 Exporters of wste mterils, including used PET ottles, re required to register with the Chinese uthorities prior to shipping so tht improperly treted wste mterils cn e detected t the order. By dopting such methods, permitting free trde while requiring rigorous inspection t the order my llow mrkets to relize gins from trde while reducing the risk of pollution dumping. Second, Niimiy (2007 rgued tht the designted recycling process contriutes to developing recycling technology, ut furthermore, investing in new technology for using the recyclle mterils nd new products. This rgument implies tht the export of recyclle mterils my hinder the development of the recycling technology nd industry owing to the lekge of secondry mterils through the non-designted route, nd my even led to the collpse of the domestic recycling system. This rgument reminds us of the infnt industry rgument which is pplied to the recycling industry. However, the required technology or industry must e sufficiently technology-intensive to e interntionlly competitive in the future Jpn. An exmple of such technology employing used PET ottles is form of chemicl recycling tht converts old polyester products into new rw mterils of the sme purity s those mnufctured from petroleum. One ppliction of chemicl recycling is ottle-to-ottle recycling, which ws lunched in 2003 y Tei-jin Ltd Co. However, the compny decided to suspend its opertions in 2005 nd end them completely in 2008 ecuse of shortge of used PET ottles nd higher idding prices for them. The question now is whether protective trde policy should e dopted to protect nd nurture such n industry. The stndrd economic nswer is certinly no, even if government intervention ws proven to e necessry. A direct policy of susidiztion to support the development of such technology is preferle to the imposition of trde restrictions. Except such high technology, the dominnt recycling process of used PET ottles is mteril recycle, s nlyzed in this study. A certin numer of finl mnufcturing products mde from plstic flkes or pellets, which include such diverse products s pdding for stuffed dolls, clothes, uckets, nd egg crtons, fce competition with products produced overses. As the mnufcturing process of such products tends to e low-technology-intensive nd high lor-intensive reltive to chemicl recycling, it my e difficult for Jpn to relize comprtive dvntge from this type of recycling industry in glolized world. Finlly, it must e noted tht the domestic price of recyclle mterils long oth the designted nd nondesignted routes does not reflect collection expenses, which re orne y locl governments. This indictes tht the previling prices re lower thn the true prices inclusive of collection costs, nd this my e one reson for the incresed flow of recyclle plstic from Jpn to the developing countries. Rther thn protecting the domestic 13 See the homepge of the privte compny entrusted y the Chinese government to inspect recyclle mterils nd used mchines prior to shipping: 126

15 THE INTERNATIONAL ECONOMY No.14, 2010, recycling industry y encting deliertive policy under the present system, it my e preferle to improve the present system so tht the price of recyclle mterils reflects their socil costs. References [ 1 ] Bigsten, Arne nd Rick Wicks (1996, Used-Clothes Exports to the Third World: Economic Considertion, Development Policy Review, 14, [ 2 ] Council of PET Bottle Recycling (2008, Annul Report, [ 3 ] Duripph, Annth Kumer, Zhou Xin, nd Pieter J.H. vn Beukering (2002, Issues in Production, Recycling nd Interntionl Trde: Anlysing the Chinese Plstic Sector Using n Optiml Life Cycle (OLC Model, Environment nd Development Economics, 7, [ 4 ] Grce, Richrd, R. Kerry Turner nd Ingo Wlter (1978, Secondry Mterils nd Interntionl Trde, Journl of Environmentl Economics nd Mngement 5, [ 5 ] Hgglde, Steven (1990, The Flip Side of Fshion: Used Clothing Exports to the Third World, Journl of Development Studies, 26(3, [ 6 ] Hosod, Eiji (2008, Design of Mteril Circulting Society (Shigen junkngt shki, in Jpnese, Keio University Press. [ 7 ] Kojim, Michikzu (ed. (2005, Trde of Recyclle Mterils in Asi, (Aji ni okeru junknshigen oueki, in Jpnese, Institute of Developing Economies. [ 8 ] Kurit, Ikum (2009, Economic Anlysis of Recycling Mrket-A Cse of Continers nd Pckging (Risikuru shijo no keizi unseki-youki housou wo Jirei to shite-, in Jpnese Disserttion to Kyoto university. [ 9 ] Ministry of the Environment (2006, Cinet Decision on Bill Prtilly Amending the Lw for the Promotion of Sorted Collection nd Recycling of Continers nd Pckging, [10] Niimiy, Akir (2007, Stop Overses Outflow of PET Bottles-New Regultion on the Revised Continers nd Pckging Recycling Lw, (PET otoru no kigi ryuushutsu wo fusege? Kisei yourihou ni shinkitei, in Jpnese, Nikkei Economy, [11] Terzono, Atsushi, Ay Yoshid, Rie Murkmi-Suzuki, Shinsuke Murkmi, nd Tkyoshi Shinkum (2009, Anlysis of Mteril Cycle Systems for E-Wste nd Plstics in Asi (Aji chi-iki ni okeru hi denkidenshikiki to hi pursuchikku no shigen junkn shisutemu no kiseki, in Jpnese, Finl Report of the Grnts-in-Aid for Scientific Reserch. [12] Vn Beukering, Pieter J.H. (2001, Recycling, Interntionl Trde nd the Environment: An Empiricl Anlysis, Kluwer Acdemic Pulishers, Dordrecht. 127