UNCTAD Environmental Goods and Services

1. UNCTADEnvironmental Goods and Services

2. Where We Are... • Call for liberalization: • “the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services”, Doha Ministerial Declaration, para 31(iii) • Uncertainty about definitions and classifications • Defining negotiations or negotiating definitions?

3. Definitions and Classifications • Historically, each sector is a response to a regulation (demand factor) • All definitions are based on supply side approach • No comprehensive international statistical definitions • No international agreed criteria for classification • Where these exist, differ from from country to country

4. Narrow approach • Technology/capital goods, based on HS • GATS/SSCL W/120, based on CPC • A. Sewage services • B. Refuse disposal services • C. Sanitation and similar services • D. Other

5. Problems with HS • No chapter for environmental goods • Harmonized up to 6 digit - comparison of tariff levels across markets • “National lines” differ • Based on physical characteristics, precludes defining goods through services

6. Problems with GATS W/120 • Only partial correlation with primary media, especially in case of water and solid waste • Water management > sewage services • Solid waste management > refuse and sanitation • “End-of-pipe”, does not cover pollution prevention and sustainable resource management • Includes services provided in operation, but not services that make facilities operable • Overlooks services provided directly to industry

7. Wide Approach: OECD • Definition: • Measuring, preventing, limiting, minimizing or correcting environmental damage to water, air and soil, as well as problems related to waste, noise and ecosystems • Indicative list of goods and services: • all environmental media • three broad rubrics • APEC modeled after OECD

8. Mixed Picture • Cleaner technologies and resource management are key to potential development • Classifications hardly distinguishes between goods and services

9. UNCTAD • Environmental (public) infrastructure (“core”) • water and waste management • APC • design, engineering, installation, operation • Remediation • site clean up, emergency response to specific accidents, remediation, assessment and design • Support • Analytical, monitoring, legal, consulting, auditing R&D

10. Environmentally Preferable Products • More environmentally friendly at some stage in life/cycle • superior to petroleum-based products • PPMs: organic coffee, cocoa, tea, jute, tropical timber from sustainable forests • contribute to preservation of environment, e.g. non-timber forest products – rattan and bamboo • Cross-overs, e.g. jute: superior to polyethylene, organic

11. Global Market • Global market: $550bn (services = 50%) • EU: $183bn (1/3), USA 1/3, Japan: $84bn (5x Asia), Canada: $36bn • USA, Japan and EU = 85% • OECD = 90 %, overcapacity, looking to penetrate emerging markets • Growth in developing countries averages 8 -12% • $ 640bn by 2010, same size as pharmaceuticals and information technology

12. Market Structure • Major structural factors: • technological shift from “end-of-pipe” to clean(er) technologies • privatization (OECD: 50/50, developing countries: 70/30) • Few dominant multinationals, large firms (water treatment) • Large number of SMEs (esp. waste management), including in developing countries

13. Market Trends • “Horizontal” delivery: diversified delivery for a particular medium • “Vertical” delivery: specialized delivery across several media • Trend towards packaged environmental solutions, integrated approaches – favours large firms, market consolidation • Liberalization may include several sectors in a single package • “Packaged” approach makes definitions and classifications particularly relevant

14. Scope for Trade • Increasing tradability owing to • privatization • liberalization • harmonization of standards • Matching trade interests of exporter with importing country’s objectives in: • environmental protection and • building domestic capacity in EGS

15. Trade Flows • In Triad - strong and diverse export sector • EU - biggest exporter • Northern America - EU’s biggest market • SE Asia replaced as a second biggest market by para-EU countries

16. Developing Countries • Few have an industry of their own • Oriented towards the local market • In the top 50: Sabesp (water, Brazil)

17. Winning Propositions • In developing countries: • pulp and paper processing, steel smelting and refining, energy, coal, textiles and footwear • For the moment, developed country firms meet most of the demand • Building domestic capacity depends on: • access to technology • market access in sectors and modes of supply of interest to developing countries • targeting regional markets • offering specialized services • establishing links with foreign firms

18. Market Forecast • Industry: significant technological upgrading in environmental energy sector, set to become the fastest growing sector • Trade: volumes are set to increase, particularly in sectors where sales price is affected by labour costs

19. Challenges for Negotiators • Defining negotiations • Doha: negotiations or work programme? • Negotiating definitions • Defining goods through services has its limitations • Classifying sectors in mutually exclusive manner - some environmental activities fall across sectors • Competitiveness concerns and risk of untended commitments • Treaty interpretation • potentially both GATT and GATS apply • links to TBT, SPS, ASCM, TRIPs

20. GATT • Does not define environmental goods • Good is synonymous to product (Articles I, II, III and IX) • WTO members are free to decide what products constitute environmental goods for the purposes of trade liberalization

21. GATS • Defines services by modes of supply • No references to environmental services • Chapter 6 of SSCL, based on CPC (W/120) • W/120: each sector is mutually exclusive • Implications for cross-sectoral approach

22. Environmental Goods • Doha: liberalization in goods to take place in conjunction with services • only goods that are part of the delivery of services? • other types of goods, to be negotiated separately from services, e.g. sustainable agriculture (organic foods), fisheries, forestry and mining? • EPPs fall into cleaner technologies or resource management in OECD (may be integral or incidental to delivery of services)

23. W/120: Scope for Updating • Sewage: + water services for human use, wastewater treatment • Refuse disposal: + (hazardous) waste • Cleaning: + protection of air quality and climate • Noise abatement: +prevention • Nature and landscape protection: + biodiversity and habitat • Other: + remediation and prevention • Other not elsewhere specified: + R&D, design; maintenance and repair • New: Services for sustainable resource use

24. Broadening W/120: Pros and Cons • Environmental benefits • May draw members into commitments beyond their intentions, especially in cases of liberalization across all modes of supply

25. Matching W/120 and OECD • “Core” and “cluster” approach • “Core” W/120, mainly APC and waste management – subset of pollution management group – update, particularly for water • Cleaner technologies and resource management can fall under “Other” in W/120 • Some OECD categories may fall under other GATS sectors, classified elsewhere in W/120 (“cluster”) • Degree of departure from CPC is a collective decision • Mutual exclusive nature is to be preserved

26. GATS: State of Play • EC proposal for re-classification, all environmental media • US proposal to reclassify, not specific • India - opposes reclassification • Opposition of some countries is not specific to environmental services

27. EC Proposal • New classification • 7 sub-sectors - increases the possibility for commitments • “purely” environmental • according to environmental media • does not include “conceptual” services (design, engineering, R&D, consulting) • “checklist” for services with an environmental component

28. EC Proposal (2) • 6A. Water for human use & wastewater management • 6B. Solid/hazardous waste disposal • 6C. Protection of ambient air and climate • 6D. Remediation and cleanup of soil & water • 6E. Noise & vibration abatement • 6F. Protection of biodiversity and landscape • 6G. Other environmental & ancillary services

29. US Proposal • “Core” services, primarily currently classified • Related services - construction, engineering, consulting • Focus liberalization on: • mode 3 (commercial presence) • mode 4 (movement of personnel) plus

30. Pressure Points • Water utilities - selling water to end users: service or resource? • Waste management • Moving recycling to “core” services? • Other changes in the boundaries of GATS classification

31. Treaty Interpretation • GATS governs ALL measures affecting trade in services • Measures that discipline trade in environmental goods (governed by GATT)? • Would give GATS a broad reach • Possibility that measures may be subject to obligations under GATT and GATS • Need a provision for simultaneous, or even earlier liberalization of environmental services under the GATS, when negotiating commitments on market access for environmental goods?

32. GATT and GATS (1) • Major obligations (MFN, national treatment, quantitative restriction, tariff commitments) would attach to EGS • GATT disciplines are based on origin and destination • GATS: crucial issue - presence or absence of supplier • mode 3: durable presence • mode 4: temporary presence • GATT does NOT apply where producer and consumer are in the same jurisdictions

33. GATT and GATS (2) • Large part of trade is through modes 3 and 4, i.e. production and consumption occur inside the territorial/legal jurisdiction of importing state • What about goods produced in importing state as part of delivery of environmental services – “domestic goods” for the purposes of GATT? Like products of national origin within meaning of Article III?

34. GATT and GATS (3) • Recent WTO case law on overlapping GATT and GATS provisions: • Bananas, Canada Periodicals, Canada Auto-Pact • Appellate Body: any measures taken by members to regulate trade in goods also has to comply with member’s obligation arising from GATS

35. GATT and GATS (4) • Commercial or personal presence is key – effective market access requires that disciplines apply to all phases of transaction • Unlike in goods, treatment accorded to persons and PPMs is important • Measures applied to aspect of transactions other than products (persons, legal remedies) have been found to be within the scope of GATT Article III • GATS Article XVII is a voluntary provision (members can opt into and out) - what if it is found to be analogous to GATT Article III?

36. GATT and GATS (5) • GATT prohibits export restrictions • GATS contains no explicit liberalization of export • Absence of disciplines in export – environmental services may be easily used as inputs to other services (mode 1) • Traditional, in situ services would be at a disadvantage

37. Other Aspects • Qualitative restrictions arise from regulatory regimes (corporate responsibility, consumer protection, Article VI of GATS, similar to Article 2 of TBT) • Not necessarily discriminatory, simply different • Will necessary be interpreted the same way as in Article XX, meaning “least trade restrictive”? • Panels resolving conflicts may second-guess regulators

38. Like Products? • Central issue in liberalization • Embedded technologies – distinguishing like products on the basis of PPMs? • Non-product related PPMs (organic foods), not visibly incorporated

39. Meaning of like • Relevant to MFN and national treatment • Technological sophistication makes it a complex issue • Combination of goods and services may involve regulatory distinction based in differences between acts, products and technologies

40. TBT and SPS • TBT, Article 2.2: necessary = least trade restrictive • SPS, Article 2: “based on scientific principles, not maintained w/o scientific evidence…” • The interpretation of necessary is key to determine whether measures were barriers to trade • Significant WTO case law

41. ESTs and IPRs • Trade in service and capital goods - the most direct channel for technology transfer Negotiations: state-to-state • Transfer of technology: firm-to-firm • Disjunction between provisions and their implementation • 90% of ESTs involve proprietary knowledge • Growing misallocation of ESTs between developed and developing countries • Barriers to trade where specific (patented or patentable) knowledge is adopted as standards in industry (licensing under reasonable conditions under Article 31 of TRIPS)

42. Subsidies • Eliminate subsidies for environmentally harmful PPMs • Provide subsidies for: • R&D of new ESTs and products • environmental adaptation • Subsidies for environmental services are subject to disciplines yet to be negotiated under GATS

43. WTO: Environmental Goods • Definitional/conceptual issues: CTE (ss) • Negotiating Group on Market Access for Non-agricultural Products • Committee on Agriculture (CTE to keep track) • No sequencing between the work of CTE and Negotiating Group • CTE to monitor other negotiating groups on para 31 (iii)

44. WTO: Environmental Services • Proceed on the basis of existing definitions • Negotiations: Council for Trade in Services (special session) • Timing and sequencing of liberalization of trade in services in relation to that of goods?

45. Baseline: MFN Tariffs • North America, EU, Japan • applied: 6% or below, few tariff peaks • bound rates lower - downward trend • Developing countries • applied: 18% • bound: higher (29 %) • Malaysia (6%), Indonesia (7%), Thailand (12%), India (61%)

46. Baseline: GATS • Some 50 (1/3) members made commitments on environmental services • In Asia: Australia, Japan, Korea Thailand • Main restrictions: • purchase or rental of property, equity holdings, residency requirements for directors, tax and subsidy measures • Commitments under mode 4 limited to quotas and length of stay • No commitments for low-skill staff (important for refuse disposal, sustainable forestry or fisheries)

47. Preferential Tariffs • Seek to establish presence in regional markets, with similar environmental problems • RTAs • Focus on integration - harmonization of standards • Focus on trade facilitation - cooperation programmes in sectors, e.g. chemicals, waste management (e.g. ASEAN and SAARC) • GSP, e.g. new EU effective 1 Jan 2002)

48. APEC EVSL Initiative • Environmental goods and services - one of the 15 (9 A+) sectors earmarked for early voluntary trade liberalization initiative, complements IAPs • Tariff portion - accelerated tariff liberalization - moved to the WTO • APEC concentrates on non-tariff measures and ECOTECH

49. Conclusions (1) • Avoid being drawn into unintended or burdensome commitments • Avoid onset of later disputes • Preserve “space” for development of own industry

50. Conclusions (2) • Pay attention to all environmental media in negotiations (nature protection and resources use as well as water, waste and pollution) • Carefully set market access goals for “related” services classified elsewhere in W/120 • Establish goals for desire level of market access • Differential approaches for LDCs