Base on the model of legal and illegal trade in CFC from Ivanova (2007), this paper empirically analyzes the affects of the Montreal Protocol on imports of Halons, and hence their consumption, in developing countries. We show that countries with high income level have decreased their import of Halons, but ratifiers of the Protocol import more Halons than non-ratifiers.

Gairuzazmi Ghani

English

Research Papers in Economics

The Montreal Protocol: Developing Countries Import of
Halons 
Gairuzazmi Ghani
International Islamic University Malaysia
Abstract
Base on the model of legal and illegal trade in CFC from Ivanova (2007), this paper
empirically analyzes the affects of the Montreal Protocol on imports of Halons, and hence
their consumption, in developing countries. We show that countries with high income level
have decreased their import of Halons, but ratifiers of the Protocol import more Halons than
non-ratifiers.
Citation: Ghani, Gairuzazmi, (2007) "The Montreal Protocol: Developing Countries Import of Halons." Economics
Bulletin, Vol. 17, No. 7 pp. 1-5
Submitted: June 23, 2007.  Accepted: July 10, 2007.
URL: http://economicsbulletin.vanderbilt.edu/2007/volume17/EB-07Q20015A.pdf  1 
1. Introduction 
 
The Montreal Protocol was ratified
1 by over 191 countries in 2007. The Protocol requires 
countries to reduce and eventually ban the consumption and production of the main ozone 
depleting  substances  (ODS)   Halons,  Chlorofluorocarbons  (CFC),  Hydrofluorocarbons 
(HCFC), Carbon tetrachloride, Methyl chloroform and Methyl bromide 
 because they resulted 
in the thinning of the stratospheric ozone layer. The thinning increases the intensity of UV 
rays reaching the surface of the Earth, and adversely affects human health and ecosystems. 
The timelines for ODS phase out differs between Non Article 5 (developed
2) and Article 5  
(developing) countries, and among the ODS, but they have proceeded according to schedule 
as detailed in the Protocol. However, in the mid 1990’s, illegal trade in ODS has caused a 
serious concern which was not anticipated in the initial stage of the Protocol. The importance 
of the Protocol in reducing ODS emissions has also been been questioned. Barrett (1994) and 
Murdoch and Sandler (1997) show that non cooperative instead of cooperative behavior is 
more important in reducing CFC emission. Nevertheless, Cole et al. (1997), and Mason and 
Swanson (2003), in measuring the turning point for the environmental Kuznet’s curve, show 
that  the  Protocol  is  important  for  CFC  emission  reduction,  especially  for  developing 
countries. 
Given the harm caused by the ODS, the problems of trade in illegal ODS, and the two 
different viewpoints on the benefit of the Protocol, the objective of this study is to empirically 
analyze the import, and hence consumption, of the ODS, specifically Halons, in developing 
countries. We choose Halons even though its consumption is smaller
3 than CFC, because 
Halons  are  the  “most  dangerous”  of  the  ODS  covered  by  the  Protocol.  Halons’  ozone 
depleting potential are about six times greater than CFC (UNEP, 2000). Moreover, economic 
studies on the Montreal Protocol have focused on CFC. The study also will indicate whether 
the affect of the Protocol differ across substances, and whether we can generalize the results 
from CFC to the other ODS. This is important because there are numeorus ODS governed by 
the Protocol. Developing countries are chosen because developed countries have had zero 
Halons consumption since 1994. 
 
2. Halons in the Montreal Protocol 
 
Halon 1211 (Bromochlorodifluoromethane), Halon 1301 (Bromotrifluoromethane) and Halon 
2402 (Dibromotetrafluoroethane) are in Annex A, Group II of the list of controlled substances 
under the Montreal Protocol. They are mostly used in fire extinguishing agents around highly 
valuable materials. The Protocol required Non Article 5 and Article 5 countries to stop their 
production and consumption of Halons in 1994 and 2010, respectively. Specifically, by 1992, 
Non Article  5  countries  ratifiers’  annual  consumption  and  production  of  Halons  cannot 
exceed that of 1986 levels, except for production for Article 5 countries’ essential use. By 
1994, Non Article 5 countries are not allowed to consume or produce Halons. For Article 5 
countries, they are required to reduce Halons consumption and production to 50 per cent of 
1995 97  average  levels  in  2005,  and  eventually  to  zero  consumption  in  2010.  Table  1 
summarizes the phase out timelines and control measures for Halons. 
 
 
 
                                                 
1 Source: http:\\ozone.unep.org. Not all of the amendments are ratified by all 191 countries. 
2 Also include East european counties which are in transitions. 
3 1081968.4 tonnes for CFC, and 217517.4 tonnes for Halons in 1986.   2 
 
 
Table 1: Summary of Control Measures for Halons 
  Years and the applicable control measures 
  (% change relative to corrsponding baseline year) 
  1992  1994   
Non Article 5  Freeze to 1986 level  100% Phase Out   
       
  Years and the applicable control measures 
  (% change relative to corrsponding baseline) 
  2002  2005  2010 
Article 5  Freeze to average  50% of average  100% Phase Out 
  1995-97 level  1995-97 level   
       
Baseline  year for Non-Article 5 countries is 1986   
Baseline year for Article 5 countries : average for 1995-97.   
 
 
With regard to Halons production and consumption, UNEP (2005) shows that, except 
for  Russia,  Non Article  5  countries’  productions  are  zero  from  1994  onwards.  For 
consumption,  Russia  and  Kazakhstan  have  positive  consumption  from  1994  onwards. 
Azerbaijan’s consumption of Halon is positive in 1996 and 1997, Turkmenistan in 1995 and 
Uzbekistan in 1996. For Article 5 countries, only China, India, South and North Korea report 
the production of Halon, which means that any consumption of Halons by Article 5 countries 
is imported. For consumption, on average, it has decreased since 1986, except for a period 
between 1995 1997 as shown in Table 2. 
 
 
Table 2: Article 5 Countries Simple Average  
For Halons Consumption (1986 2004) in ODS tonnes   
Halons consumption in 1986  44797.70 
Average Halons consumption from  34964.93 
1989-1994   
Average Halons consumption from  46434.00 
1995-1997    
Average Halons consumption from  18756.60 
1997-2004   
 
 
3. Theoretical Background & Empirical Analysis 
 
Model Specifications 
The theoretical and empirical background of this study is based on Ivanova (2007),
4 who 
analyzes legal and illegal trade
5 of CFC. Following Ivanova (2007), we estimate the model (1) 
using the two ways fixed effects
6: 
   
it it it
f
it it
h
it it
hf
it
f
it it
h x
it it f h f h f h I ε τ β τ β β β τ β β α
τ τ τ + + + + + + + Β Χ + =
'   (1) 
                                                 
4 The model is based on Martin and Panagariya (1984). 
5 Ivanova (2007)  used the results from legal import to infer about illegal import. 
6 Hausman test show fixed effect is the appropriate model.   3 
where I is imports of Halons in ODP tonnes for country i in period t; α is a constant; Xit is a 
vector  of  control  variables;  hit  is  the  country  level  of  honesty;  fit  is  the  expected  fine  if 
smuggling activities are caught; τit is the average tariff for Halon; Β
x is a coefficient vector for 
control  variables;  β  are  coefficients  scalar  for  honesty,  tariff,  expected  fine  and  their 
interaction terms; and εit is the error term. Control variables used are the countries’ income 
(GDP),  squared  of  GDP,  import  of  Halons  in  1986  and  the  ratification  of  the  Montreal 
Protocol.  GDP  is  used  to  take  into  account  the  level  of  economic  development  and  the 
demand for environmental quality in different countries. GDP squared is used to allow for the 
possibility  of  an  inverted U  relationship  (Environmental  Kuznet  curve)  between  Halons 
consumption and income. The 1986 level of Halon imports is also used as a control because 
countries with high initial import levels will incur greater cost in complying with the Protocol. 
The dummy for Montreal Protocol is used because ratifiers are bound by the Protocol, hence 
they are forced to reduce consumption. 
Ivanova (2007) shows that even though tariff decreases legal imports, the size of its 
effect depends on both the level of corruption and the expected fine. However, the interaction 
between tariff and expected fine, and honesty, cannot be determined a priori. She also shows 
the  coefficients  for  honesty  and  expected  fine  to  be  positive,  and  their  interaction  to  be 
negative.  
 
Data 
The data for Halons imports
7 is from the Ozone Secretariat United Nations Environmental 
Program (UNEP) report on the “Production and Consumption of Ozone Depleting Substances 
under  the  Montreal  Protocol  1986 2004.”  We  do  not  include  negative  imports,  as  the 
theoretical model is for import. To measure honesty, we use the index for corruption from the 
International Country Risk Guide (ICRG). The index ranges from 0 to 6 where higher value 
represents less corruption or, in this case, a more honest country. To measure the expected 
fine, we use the index for law and order from the ICRG. The law and order index measures 
the  strength  of  the  court  system.  A  lower  value  indicates  a  weak  court  system,  where 
disagreements are settled by physical force or other illegal means. We expect countries with 
strong court systems to impose higher penalties if smuggling is caught. Instead of a tariff for 
Halons, we use tariff data taken from the Worlds Bank’s “Trends in Average Applied Tariff  
Rates in Developing and Industrial Countries, 1981 2005” as a proxy for average tariffs on 
Halons. The proxy is used even though the tariff data for Halons is available from the Trade 
Analysis  and  Information  System  (TRAINS)  database  maintained  by  the  United  Nations 
Conference on Trade and Development (UNCTAD) because the time period covered by the 
database  is  short  and  has  gaps.  One  of  the  concerns  for  using  an  average  tariff  for  an 
aggregate  of  goods  is  that  environmentally  conscious  countries  may  have  high  tariffs  on 
environmentally harmful goods but low tariffs on other goods. However, our tests on the 
available data show that the correlation between the two tariffs are very high, hence it is a 
good  proxy.  The  data  for  GDP  is  from  the  World  Development  Indicators.  Data  for  the 
Montreal protocol ratification is from the UNEP
8. 
 
 
 
 
 
 
 
                                                 
7 The report contains production and consumption of Halons, hence import is consumption minus production. 
8 http://ozone.unep.org/Ratification_status/   4 
Results 
Table 3 reports the results
9. The coefficients for honesty and the expected fine are positive, 
and the coefficients for their interaction are negative, which is as predicted by the theory. 
However, the expected fine is not significant. These mean that honest countries import more 
legal  Halons,  and  that  the  affects  of  honesty  and  expected  fine  are  interdependent.  The 
coefficients for tariff are negative but they are not statistically significant and hence the use of 
tariff  alone  may  not  help  in  reducing  Halons  import.  The  significant  interaction  between 
honesty and tariff suggests interdependency between the two variables, which means that a 
higher tariff reduces import if a country is honest. The negative sign for GDP means that 
countries  with  high  levels  of  economic  development  import  less  Halons,  i.e  they  have 
substituted Halons for other alternatives. GDP squared are not significant, meaning that there 
is  no  environmental  Kuznets  affect.  The  positive  and  significant  coefficients  for  Halons 
import in 1986 mean that the amount of imports reduction depends on the benchmark year. 
The  dummy  for  Montreal  ratification  is positive,  meaning  that  countries  which  ratify  the 
Protocol import more legal Halons, which suggests that the Protocol may not be important in 
reducing Halons emission. 
 
 
   Table 3: Fixed Effects Model Estimates 
   Model 1  Model 2  Model 3  Model 4 
Honesty  212.824**  204.767**  210.356**  203.315** 
  (63.559)  (63.739)  (63.447)  (63.639) 
Honesty*Expected Fine  -30.892**  -28.865**  -32.789**  -30.878** 
  (14.641)  (14.693)  (14.643)  (14.707) 
Expected Fine  68.677  70.531  70.781  72.316 
  (50.149)  (50.126)  (50.062)  (50.052) 
Expected Fine*Tariff  1.202  1.063  0.877  -0.771 
  (1.463)  (1.465)  (1.469)  (1.470) 
Tariff  -0.299  -1.016  -0.117  -0.767 
  (3.969)  (3.995)  (3.962)  (3.990) 
Honesty*Tariff  -3.442*  -3.341*  -3.092*  -3.021 
  (1.904)  (1.904)  (1.908)  (1.908) 
GDP  -4.944**  -8.493**  -4.969**  -8.130** 
  (0.603)  (2.454)  (0.602)  (2.457) 
GDP Squared    0.004    0.003 
    (0.003)    (0.003) 
Halons Import in 1986  0.179**  0.244**  0.177**  0.235** 
  (0.044)  (0.062)  (0.044)  (0.062) 
Montreal      136.116**  128.531* 
      (67.051)  (67.262) 
Constant  -383.216  -416.402  -440.491  467.291 
  (303.018)  (303.603)  (303.765)  (304.270) 
              
Observations  918  918  918  918 
R
2  0.605  0.606  0.607  0.608 
   Country and Time Fixed Effects not reported. 
   Standard errors in parenthesis. 
   *, **: Denote significance and 10% and 5% level respectively.   
                                                 
9 We also use OLS and random effects regression. The results from the OLS are significantly different from the 
fixed and random effects. For example, the coefficients for honesty, GDP and the Montreal Protocol dummy 
have different signs. We focus the discussion on the fixed effects model because panel data is used and, hence 
they are more reliable, and the Hausman test suggests the use of fixed effects model.   5 
 
 
4. Conclusion 
 
The  results  show  that  tariffs  alone  cannot  reduce  the  import  of  Halons  as  the  level  of 
corruption in a country will affect the level of legal import. The results also show that the 
Montreal  Protocol  is  not  significant  in  reducing  the  import  for  Halons  for  developing 
countries. It is GDP and the interaction between honesty, tariffs and expected fine, which are 
the more important coefficients. 
 
 
References 
Barrett S (1994) “Self Enforcing International Environmental Agreements” Oxford Economic 
Papers 46, 878 894. 
 
Cole  MA,  Rayner  AJ,  Bates  JM  (1997)  “The  environmental  Kuznets  curve:  an  empirical 
analysis”  Environment and Development Economics  2,  401 416. 
 
Ivanova, K. (Forthcoming) “Corruption, Illegal Trade and Compliance with the Montreal 
Protocol”  Environmental & Resource Economics. 
 
Mason R, Swanson T (2003) “A Kuznets Curve Analysis of Ozone Depleting Substances and 
the Impact of the Montreal Protocol” Oxford Economic Papers 55:1 24. 
 
Murdoch J, Sandler T (1997) “The Voluntary Provision of Pure Public Good: The Case of 
Reduced CFC Emissions and the Montreal Protocol”  Journal of Public Economics, 63, 331 
349. 
 
UNEP (2000) The Montreal Protocol on Substances that Deplete the Ozone Layer, UNON, 
Nairobi. 

The Montreal Protocol: Developing Countries Import of Halons

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