Trade in Environmental Services: Assessing the Implications for Developing Countries in the GATS

Research
Date period
1 September 2006

There is a growing recognition that increased trade in environmental services has considerable potential for contributing to sustainable development. The WTO Doha Ministerial Declaration calls for “the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services” (Para 31(iii)). But the pace of negotiations on liberalisation in environmental services has been slow.

The aim of this paper is to assist in the identification of options for developing countries who are looking for guidance on how to undertake, inscribe or prepare commitments in environmental services as part of the ongoing General Agreement on Trade in Services (GATS) negotiations at the WTO, particularly in the context of Paragraph 31 (iii) of the Doha Ministerial Declaration. It does so on the basis of an analysis of existing market structures and modes of supply in environmental services, the classification of environmental services from a sustainable development perspective and an analysis of relevant issues pertinent to two major issues of interest to developing countries in environmental services, namely issues relevant to developing country imports of environmental infrastructure services and developing country exports of commercial environmental services. The paper highlights the case for conducting a sustainable development impact assessment of the potential benefits and costs to developing countries of making environmental services commitments within the GATS framework, with the aim of ensuring that trade in environmental services contributes to poverty-reducing economic growth, while at the same time protecting the environmental resources on which sustainable development depends.

The importance of many environmental services to human wellbeing is reflected in their inclusion of their benefits in the Millennium Development Goals. For instance, the Millennium Development Goal 7, Target 10, aims to halve by 2015 the proportion of people without sustainable access to safe drinking water and basic sanitation.

Liberalisation of environmental services can contribute to the advancement of these international development goals, but to do so effectively requires greater policy coherence across a spectrum of trade liberalisation areas within the WTO negotiations framework and between the various international bodies with policy responsibilities in this area. Measures to liberalise trade in environmental services need to be designed in a way that is consistent with, and contributes to, the wider goals of poverty reduction and sustainable development. Further clarification of the GATS rules as they affect environmental services is desirable to reduce the risk and uncertainty of making GATS commitments, particularly in environmental infrastructure services. Areas requiring greater clarity include the permissibility of crosssubsidies, price controls and universal service provisions; and the scope for undertaking commitments in services purchased for governmental purposes.

The size of the potential gains from environmental infrastructure services liberalisation, particularly in the establishment of commercial presence by foreign service suppliers, will depend on complementary domestic market and broader regulatory reforms being undertaken, which strengthen the economic environment for private investment and involvement, and support market competition. Regulation is in most cases required to ensure that the potential gains of services liberalisation are maximised. Where these institutional and policy frameworks are not in place, or where environmental services trade liberalisation is not structured in relation to strengthening domestic regulatory capacity, the potential sustainable development gains are likely to be compromised. This suggests that there is a need for capacity building initiatives to support the establishment of an effective regulatory framework.

Progress in Mode 4 (temporary movement of individual service providers) liberalisation of environmental services is likely to be constrained by the political sensitivities of such trade. One way of advancing with meaningful Mode 4 negotiations may be to focus on areas where evidence of the potential gains to the ‘exporting’ and ‘importing’ countries can be clearly shown. The adoption of a detailed process to assess the potential benefits and costs of Mode 4 liberalisation in the particular sub-sectors of environmental services could provide a more solid platform from which to engage in meaningful discussions on Mode 4 liberalisation inenvironmental services.