Service Sector:
Environmental Services
Introduction
Environmental services are primarily provided by governments and
normally considered to be either public goods (e.g. road cleaning,
garbage collection etc.) or natural monopolies (e.g. water and
sewage services etc.). Historically there was little if any private
participation in these types of services and virtually no trade
across borders. However, this has changed in many countries. For a
variety of policy reasons governments have begun to allow privately
owned companies to deliver services on their behalf.
Governments have started to open markets for environmental
services, permitting private operators to bid on contracts. Even
where monopolistic market structures cannot be avoided, regulated
private ownership is appearing. Trade in environmental services is
a growing sector due in part to the increased awareness and concern
for the world in which we live and the change in national policies.
Another area of growing importance is environmental services
provided between businesses (B-2-B). There is an increasing number
of small and medium sized enterprises either supplying or using
environmental consultancies and/or sub-consultancy services. These
can be found in most service sectors.
According to an OEDC study (COM/TD/ENV(2000)86/FINAL) three
factors have contributed toward the emergence of international
markets for environmental services. First, increased trade in
environmental-related equipment and technology, involving
associated services to establish or upgrade industrial and public
infrastructure plants, particularly in relation to water treatment,
waste management and air pollution abatement.
Second, is "the adoption of world-wide environmental standards,
which can generate growth in international environmental goods and
services markets (e.g. as demonstrated by the Montreal Protocol in
respect of CFC replacement strategies). Third, the decision by many
countries to begin privatising public utilities and removing
monopoly operators in order to generate foreign investment and
market competition." Consolidation among private operators and the
increasing global reach of large engineering firms has also
impacted the level of international trade in these services.
Economic Value
It was estimated that in 1996, the global environment market was
approximately US$453 billion, of which the services segment
accounted for just over US$229 billion. Solid waste management was
estimated to be US$102 billion and water treatment services US$65
billion.
In 2002 the sector (goods and services) had grown by over 15 per
cent to an estimated value of around US$563 billion, of which 65
per cent was attributed to services. Unchanged from the 1990s are
the leading exporters: the US (39 per cent), the EC (29 per cent)
and Japan (16 per cent). Africa, Asia and Latin America combined
represent only 9 per cent of the market (source: WTO
secretariat).
Services covered
Definition and Classification
In the Services Sectoral Classification List (MTN.GNS/W/120)
developed during the Uruguay Round, and largely based on the United
Nations Central Product Classification (UNCPC, or CPC), the
environmental services sector includes:
a) sewage services (CPC 9401);
b) refuse disposal services (CPC 9402);
c) sanitation and similar services (CPC 9403); and
d) other environmental services.
Even though the "other" category does not explicitly refer to any
UNCPC items, it could be read to include the remaining elements of
the CPC environmental services category:
a) cleaning of exhaust gases (CPC 9404);
b) noise abatement services (CPC 9405);
c) nature and landscape protection services (CPC 9406) and;
d) other environmental protection services not included elsewhere
(CPC 9409).
It should also be noted that many other services are directly
relevant for the provision of environmental services (e.g.
architectural services or construction and engineering). This
should be kept in mind, when reading a Member's schedule.
Modes of supply
It can be difficult to isolate environmental services trade since
they are frequently traded as a component of other services such
as: engineering, construction, distribution, and transport. In
addition to the sub-sectors listed, each of these types of services
can have an environmental component in any of the four modes of
supply.
Cross-border supply (Mode 1) occurs through the transmission of
faxes, mail or via the Internet. Although most of the services
listed in W/120 might not have been technically feasible prior to
wide-spread usage of the Internet and access to real time
communication, today it would be possible. For example, consulting
contracts for sewage or sanitation assessments could be delivered
through this mode of supply. Such services could also be linked to
architectural or engineering specifications during the planning and
design phase.
An example of consumption abroad (Mode 2), where the service is
purchased outside of the home territory, could be waste and refuse
disposal in another country. In this sector, and for this mode,
when commitments are made there are few if any limitations.
Nevertheless, it is possible to see that Members add "Unbound due
to lack of technical feasibility" as a side note.
Mode 3 is the most important mode of supply for this sector.
Commercial presence, refers to the establishment of a juridical
person in the country, which will operate according to local
requirements of the government (at all levels of government).
Presence of natural persons (mode 4), like in other sectors is
normally left unbound, except as listed in the horizontal
section.
Regulatory issues
Regulations in the environmental services sector varies greatly
among WTO Members. This sector is politically sensitive due to
being perceived by many as a public good that has been and should
continue to be provided by governments. However, the reality in
many countries is quite different. According to a report by UNCTAD,
some developing countries have been able to build up a solid
environmental services sector while others continue to lack
effective regulatory frameworks, which results in inequitable and
inefficient provision of these services.
The UNCTAD report notes that for viable trade in environmental
services in developing countries it is critical to have a number of
elements in place. Among other things it includes, "…political
willingness and leadership, appropriate environmental legislation
and enforcement, … cooperation between the Government and the
private sector, and a participative decision-making process
(UNCTAD, Zarrilli, p 292 )." However, in many developing countries
these elements are either lacking or non-existent, making trade
difficult.
Restrictions on government procurement
Government procurement of services is not subject to the MFN
obligation nor to specific commitments (Art. XIII). The GATS
exclusion aside and depending on national regulations, it could be
possible for a foreign company, with a subsidiary in the country
concerned, to qualify to bid on government contracts.
Common limitations
Below is a short list, roughly categorised by mode, of
possible impediments one might encounter in this sector. The list
is intended to be illustrative only and not exhaustive.
Mode 1
- Requirements to obtain authorisation, licences, or permits in
order to market and supply services.
- Establishment of commercial presence required.
- Commercial presence in country required and granted only to
specified "brand-name" entities.
Mode 2
- Permitted only through a designated local partner to maintain a
supply advantage for permitted local providers.
- Consumer is required to use a monopoly or otherwise specified
facility.
Mode 3
Limitations on foreign capital participation and/or on the type of
legal entity.
Existence of monopoly or exclusive provider.
Mode 4
- Limitations on the categories of personnel permitted with
generally applicable time-limits and/or conditions not specified,
such that these may be arbitrarily or discriminatorily
applied.
- Requirements to complete or undertake further training in the
host country in order to be recognised as a specialist.
Scheduling issues
What you will find in GATS Schedules.
Environmental services is one of the least committed sectors
and remains politically sensitive. When commitments are made, modes
1 and 2 are subject to very few limitations other than what is
listed in the horizontal section.
The Members that have made commitments on environmental services
have listed very few limitations for mode 3 (commercial presence),
notwithstanding limitations listed by each Member in the horizontal
section. While most have listed "none", the types of limitations in
the schedules relate to operating licence requirements, limitations
on foreign capital participation and form of legal entity. In one
schedule a limitation has been made on the number of suppliers that
are permitted. In most of the schedules, mode 4 supply (movement of
natural persons) remains very restricted. Commitments are defined
in the horizontal section and apply to all the sectors listed,
including environmental services. In this sector only two Members
have made a full commitment of "none", the rest are "unbound",
except as indicated in the horizontal section.
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