Regulatory Principles for Environmental Services and the General Agreement on Trade in Services
Trade in Services Series Series • Issue Paper 6
Environmental goods and services (EGS) as a subset of goods and services was signaled out for special attention in the negotiating mandate adopted at the Fourth Ministerial Conference of the World Trade Organisation (WTO) in November 2001 that launched the Doha Round. Specifically, paragraph 31(iii) calls for the “reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services”. Within the Doha Round, negotiations on environmental services are taking place in the Special Sessions of the Committee for Trade in Services (CTS), while negotiations related to environmental goods are primarily negotiated in the Committee on Trade and Environment (CTE) and the Negotiating Group on Market Access (NGMA).
Increasing access to and use of EGS may contribute to a significant number of benefits including facilitating access to essential services such as clean water and basic sanitation, improving energy and resource-efficiency, and reducing air and water pollution. It is generally accepted that gradual trade liberalisation and carefully managed market opening in these sectors can serve as a powerful means for sustainable economic development through generating economic growth and employment, specifically in environmental services through Mode 3 (commercial presence), and enabling the transfer of valuable skills, technology and expertise. In short, well-managed trade liberalisation in EGS can facilitate the achievement of sustainable development goals set out in global mandates such as the Johannesburg Plan of Implementation, the UN Millennium Development Goals (MDGs) and various multilateral environmental agreements.
However, liberalisation must be planned carefully and implemented in an appropriate sequence to ensure that it is compatible with national goals and sustainable development objectives with effective competition and regulatory systems are in place. The existence of these systems may be particularly challenging for developing countries, which frequently have weaker regulatory regimes and limited institutional and negotiating capacities. Thus, the provision of effective technical assistance and the necessary capacity for supporting liberalisation is of particular importance to these countries.
An additional challenge, for both developing and developed countries alike, is in defining environmental services as a coherent sector. Traditionally, environmental services have been defined in terms of infrastructure that address basic needs, including water distribution and wastewater and solid waste management. However, more recently some countries are at a stage of economic and environmental development allowing consideration of non-infrastructure environmental services such as air pollution management, and related support services such as environmental consulting and engineering services. Distinction between the two categories is important within the context of the WTO negotiations given the critical nature of infrastructure environmental services in addressing basic needs while non-infrastructure services provide an increasingly important role because they represent new ways in using resources that will contribute to addressing more stringent environmental standards. Infrastructure services, although in the past frequently provided by the public sector, are increasingly offering opportunities for private sector involvement. As governments open infrastructure environmental services to private sector companies, new regulatory mechanisms are required to address pricing and to create appropriate incentives to ensure universal access and maintain standards. At the same time, there is a need for greater knowledge about non-infrastructure environmental services among negotiators and government officials. This is particularly the case since they can produce offensive interests for many developing countries given that they require less capital than infrastructure environmental services.
This paper seeks to contribute knowledge and stimulate further dialogue on the part of policymakers and trade negotiators by examining the principles of regulatory and institutional practice in the environmental services sector, both infrastructure and non-infrastructure categories, and the main issues relating to the regulation of these services within the General Agreement on Trade in Services (GATS). The paper makes clear that GATS can affect governments’ regulatory behaviour, particularly when specific commitments are made. The paper argues that given that the GATS allows WTO Members considerable flexibility to accommodate domestic policies, it is critical that negotiators and government officials carefully examine provisions of the GATS and to adjust specific commitments to fit domestic policy objectives. At the same time, specific commitments should only be made once appropriate regulatory systems have been implemented.
Massimo Geloso-Grosso is Trade Policy Analyst within the Directorate for Trade and Agriculture at the OECD in Paris. He has written extensively on environmental services, trade in services and WTO negotiations.
We hope you will find this paper to be stimulating and informative reading.