WORLD TRADE WT/CTE/W/70
21November 1997
ORGANIZATION(97-5137)
Original: English Committee onTrade andEnvironment
LIBERALIZATION OFTRADE INENVIRONMENTAL SERVICES
AND THE ENVIRONMENT
Contribution bytheUnited States
I. INTRODUCTION
1. Thispaper examines thepotential benefits ofliberalizing trade inenvironmental services.
Through thispaper wearetaking afirststeptowards examining therelationship between improved
market access forservices totrade andtheenvironment. Environmental services isaunique sector
given thattherelationship between suchservices andtheenvironment isdirect andquite obvious on
itsface. Similarly, thislinkbetween tradeissues andenvironmental quality isalsopresent withrespect
toenvironmental goods. Webelieve itisuseful fortheCTEtoexamine thisareaaspartofitswork.
II. WHAT ARE ENVIRONMENTAL SERVICES?
2. Environmental services canbedescribed asthose which generate revenue byfeesforaservice
related toaproject which benefits theenvironment. Theenvironmental services industry supplies
pollution control, reduction, clean-up andwaste handling services, andagrowing range ofother
environmental services.1
3. AnOECD report prepared asbackground fora1994meeting ofenvironmental industry experts
inWashington noted thattheindustry could bedescribed byconsidering theusage ofgoods andservices
withrespect toenvironmental protection indifferent domains: e.g.,water, air,soil,noise, natural
resources, etc.Aresulting listing ofindustry functions would include:2
- waste handling andfacility operations;
- implementation andinstallation ofneworexisting systems forenvironmental clean-up;
- remediation, pollution prevention, source reduction andmonitoring;
- implementation ofenvironmental quality control andpollution reduction services;
- maintenance andrepair ofenvironment-related systems;
- on-site environmental investigation, evaluation andmonitoring;
- environmental research anddevelopment;
- technical andengineering services;
- analytical, monitoring andrelated conservation andprotection services;
- environmental training andeducation;
- accounting andlegalservices; and
- consulting related tothese areas.
1OECD Secretariat, “Background Paper: Meeting ofExperts ontheEnvironment Industry ”,Co-sponsored
bytheOECD, U.S.Department ofCommerce andU.S.Environmental Protection Agency, 13-14 October 1994,
Washington, DC(hereafter “Background Paper ”),p3.
2Ibid.,pp5-8.WT/CTE/W/70
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III. WHAT ARE ENVIRONMENTAL GOODS?
4. Building ontheabove definition ofenvironmental services, theenvironmental goods industry
produces arange ofproducts related to:water pollution andeffluent treatment; remediation/clean-up;
airpollution control; waste management andrecycling; noise reduction; environmental assessment
andmonitoring; scientific, research andlaboratory equipment; natural resource conservation/protection
andurban amenities; energy efficiency andrenewable energy, etc.
IV. ENVIRONMENTAL INDUSTRY STRUCTURE AND GROWTH OUTLOOK
5. Itisexpected thatenvironmental services andgoods willcontinue toexpand rapidly asasector
worldwide welloverthemedium tolong-term. Private sector surveys haveestimated theenvironment
industry willgrow fromthecurrent US$420 billion toUS$600 billion bytheyear2010andcontinue
togrow atanunprecedented ratethrough the21stcentury. Some sources havepredicted slightly higher
ratesofgrowth fortheenvironmental services subsector. Thescale andpotential ofthisindustry is
suchthatithasattracted theinterest ofprofessionals whopreviously ignored investment orbusiness
promotion activities inthissector.
6. Initial survey work bytheOECD suggests that,apart from asmall number oflarge firms
dominatingafewmarketsegments,theindustryispredominantlymadeofsmallandmediumenterprises.
Thedegree ofdiversification ofproduction/service provision isquitehighinthemore mature sectors
ofthisindustry andforthelarger companies.
7. Furthermore, thetrendistowards providing “packaged ”environmental solutions incorporating
bothproducts andservices: fromdesign andequipment production, toproviding theservices related
toinstallation andapplication oftheequipment. Thisispartially inresponse toanongoing change
inthestructure ofindustry, withashiftfromend-of-pipe equipment andclean-up services tointegrated
and“clean”environmental technologies. Thisreinforces theneedforcomplete solutions calling for
firms toemploy broader approaches involving greater competencies indifferent fields.
V. KEY BARRIERS TOTHEDEVELOPMENT OFTHEENVIRONMENTAL GOODS AND
SERVICES INDUSTRY
8. Inmostcountries, themajority ofthedemand forenvironmental services hastraditionally been
derived from public expenditures andpublic procurement.3Thus, national andinternational
environmental regulation hasbeentheengine ofgrowth fortheenvironment industry. Itstands to
reason, then,thatthebiggest obstacle tothegrowth ofastrong domestic environmental services industry
insome areashasbeentherelative lackofenvironmental regulation, and/or uncertainty andinconsistent
application ofenvironmental regulations andstandards.
9. More recently, there hasbegun ashiftaway from regulations andstandards asthesoleor
overwhelmingly predominant instruments ofenvironmental policy andthegrowing useofeconomic
instruments suchastaxes, charges andother incentives. Inlinewithandreinforcing thischange,
thebusiness sector hasbeenincreasingly focusing proactively onprocess modifications which save
money byreducing consumption ofrawmaterials andenergy, thereby alsoreducing waste andpollution.
10. Nevertheless, there arebarriers tomarket access inthissector thatcanimpede tradeandlimit
governmental andbusiness choices interms ofstrategies toemploy indealing withenvironmental issues.
3Arecent OECD study found thistobetrueforallOECD member countries except theUnited States and
theNetherlands.WT/CTE/W/70
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Some oftheservices barriers arethedirect result ofthefactthatmany aspects ofenvironmental services
areclosely related toconstruction andengineering. Inaddition tobarriers thatmore generally affect
professional service providers (e.g., engineering, consulting, design), othersignificant barriers include
investment restrictions, inadequate intellectual property rights protection, regulatory restrictions based
onoutdated technologies, andgovernment procurement restrictions. With respect toenvironmental
goods, product standards andgovernment procurement issues likely represent major sources ofactual
andpotential barriers tomarket access.
VI. THEEFFECTS OFTRADE LIBERALIZATION ONTRADE AND THEENVIRONMENT
11. Improved market access fortheenvironment industry increases availability ofservices and
goods while lowering theircost. Increased competition, aproduct ofincreased market access, can
spurinnovationwhichcanproduceevenbetterenvironmentalservicesandgoods,whichleadtoimproved
environmental quality. Cheaper andmore efficient environmental services andgoods would alsohave
positive benefits fortheglobal environment inregard todeveloping countries, where domestic financial
concerns mayrequire careful balancing ofenvironmental withotherpriorities. Allcountries canbenefit
from exposure tothenewest technologies andcapacities whether developing ordeveloped.
12. Trade liberalization intheenvironment industry would encourage technology flows thatcan
helpcountries build domestic capacity theyneedtobetter achieve awiderange ofenvironmental goals.
Inthisconnection itshould berecalled thatatthe22-24 September meeting oftheCommittee the
representative oftheGlobal Environment Fund(GEF) identified lackofknowledge about theavailability
ofenvironmental goods andservices asanimportant impediment totechnology transfer.
13. Tradeliberalizationcanalsohavepositiveeffectsontheenvironmentbyleadingtomoreefficient
useofresources. Eliminating market distortions thatcause natural resources tobeundervalued leads
toamore efficient useofsuch resources, andtherefore directly supports increased levels of
environmental quality.
VII. CONCLUSION
14. Trade liberalization intheenvironmental services sector willyieldenvironmental andeconomic
benefits. These canbeexpanded bycorresponding liberalization oftrade inenvironmental goods.
15. Liberalization oftrade inenvironmental services, aswellasenvironmental goods, holds
significant potential toproduce bothtradeandenvironmental benefits. These benefits would berealized
through improved market access, moreefficient allocation ofresources, andthepromotion ofinnovative
services. Inaddition, given thefactthatenvironmental services arequite “knowledge-intensive ”,
experience withglobalization andincreasing intra-industry trade suggests thatincreased international
openness would result inadynamic improvement intheability offirms toprovide highquality services
while minimizing costs.
16. Inaddition, theeconomic andenvironmental gains tobederived fromincreased openness of
marketsintermsofenvironmentalservicescanbeaugmentedthroughsimilarfocusonimprovingmarket
access forenvironment industry goods. Addressing product standards andother market access issues
withrespect togoods could yieldthesametypes ofbenefits asdescribed above withrespect toservices.
Thisisparticularly relevant given thetrend intheindustry towards theprovision ofenvironmental
“solutions ”embodying goods aswellasservices.