Friday, May 01, 2009

This paper was prepared by UNCTAD with a view to assisting the Expert Meeting
in its deliberations. It addresses the following broad issues: the
environmental industry; the demand-generating factors in the environmental
goods and services market; GATS commitments; developing countries’ business
opportunities and constraints in the sector; and capacitybuilding

1. The environmental problems which developing countries face are enormous
and put in jeopardy the ecological equilibrium not only of those countries but
of the entire ecosystem. One half of the world population lacks adequate
sanitation and one person out of five worldwide has no access to safe drinking
water: most of the people living in these conditions are in the developing
world. Air pollution, such as last year’s smog across South-East Asia, causes
premature deaths and chronic illnesses, which have a strong negative impact on
the human and economic resources of the countries affected. As a result of
the increase in transnational trade, travel and migration, environmental
problems which originate in developing countries do not remain confined to the
boundaries of these countries. These problems need to be solved as a matter
of urgency and as a precondition for ensuring sustainable development.
2. Awareness of the importance of environmental problems has led a growing
number of countries, particularly in the industrialized world, to introduce
environmental legislation and taxation, and, more generally, has brought about
the incorporation of the environmental dimension into overall economic and
financial policy. Such action has had a noticeable impact on the expansion of
the market for environmental and environment-friendly goods and services.
While the environmental industry experienced dramatic growth in industrialized
countries during the 1980s and the beginning of the 1990s, reaching
US$ 452 billion in revenues in 1996, it now seems to face stagnation in
demand. Firms in countries which are members of the Organization for Economic
and Development (OECD) may therefore be looking to emerging
countries for new business opportunities.
3. Trade in environmental services appears to be relatively free of
restrictions in comparison with other service sectors. The concern of
exporters of such services would seem to be with the need to achieve greater
market access in terms of commercial presence. Unlike in many other service
sectors, exports of environmental services involve considerable investment in
the importing country and thus ownership and control become a significant
consideration. The movement of natural persons is also a relevant factor.
Thus, additional commitments in the framework of the General Agreement on
Trade in Services (GATS) could offer new market opportunities to firms from
developed countries and provide developing countries with greater access to
such services, to the benefit of the environment, the people and their own
developing environmental services industry.
4. As in other service sectors, trade in environmental services may be
affected by lack of market access in other sectors. Engineering, consulting
and analytical services are almost invariably in the vanguard of the provision
of environmental services. Liberalization would therefore include several
sectors in a single package, where both developing and developed countries
could find a trade interest. However, the benefits of such liberalization,
both in terms of the trade interests of the exporter and the objectives of the
importing country related to environmental protection and building domestic
capacity, may not be realized if certain preconditions are not satisfied. In
particular, appropriate domestic environmental legislation has to be developed
and enforced and economic incentives have to be set up to generate a
sustainable demand for environmental goods and services.
5. The lesson that can be learnt from the experience of developed countries
is that a mixture of command-and-control and economic instruments is perhaps
the appropriate way to deal with environmental problems and to ensure, at the
same time, that compliance with regulations is not decoupled from economic
benefits. Incentives to reduce pollution and to introduce technical
innovation (the so-called “dynamic efficiency”) may be worth introducing, as
well as flexibility in the ways and means to comply with environmental
requirements. However, the effects of environmental policy instruments on
prices, employment, trade and competitiveness should be carefully assessed.
Their political acceptability depends on many factors, such as cost,
simplicity, transparency and public participation.
6. A situation conducive to the transfer of environmentally sound
technologies (ESTs) needs to be established, and domestic firms need to
develop the skill to absorb ESTs and adapt them to local needs. Forging
partnerships between firms in developing and developed countries is proving
to be a viable tool for helping firms from developing countries to acquire
technologies, reach markets that otherwise would be difficult
to access, and become part of an international network. For firms from
developing countries, such partnerships facilitate their activities in
emerging markets, where environmental and business conditions can be quite
different from those at home. Partnerships seem to have dramatically
contributed to enhancing technological capabilities in developing countries.
7. A gap exists in developing countries between their environmental needs
and the resources available to satisfy them. International cooperation and
financing are key factors in enabling developing countries to address their
most pressing environmental problems. Education and information can encourage
public authorities, producers and consumers to adopt more sustainable
approaches. Political willingness and leadership play a crucial role in
making it possible to devote efforts and resources to environmental
improvements. Governments, especially in developing countries where resources
are limited and several key environmental needs have still to be satisfied,
have an interest in ensuring that environmental policy decisions are the
result of a participatory process.
8. Strengthening capacities in the environmental services sector in
developing countries, while primarily aimed at addressing and eventually
solving environmental problems, may also result in their ability to become
international providers in this field. It can also help them to increase
their capacities to meet environmental requirements in the importing markets,
become more appealing destinations for foreign direct investments, have easier
access to capital and strengthen other domestic sectors, such as tourism.
9. Some developing countries have proved able to build up a solid
environmental services sector which has helped them in dealing with
environmental problems. As a by-product, they have also been able to export
their services abroad. In these successful cases, several elements have
played a role, namely, political willingness and leadership, appropriate
environmental legislation and enforcement, financial resources made available
by international agencies, technical assistance provided by developed
countries, cooperation between the Government and the private sector, and a
participative decision-making process.
10. The environmental services sector presents equity problems similar to
those faced in the health services sector. In the environmental sector, as
in the health sector, ultimately all considerations point to the need for
Governments to provide a strong and effective regulatory and incentive
framework for the private actors involved in providing environmental services.
An appropriate framework reinforces both equity and efficiency. Developing
countries may therefore wish to set conditions under which domestic and
foreign private companies are to operate, possibly in the form of
qualifications to marketaccess
commitments under GATS. These qualifications
could focus on measures to ensure equity (e.g. maximum prices for consumers,
percentage of profits that should be reinvested in the infrastructure) or
(e.g. technology transfer, training of personnel, minimum
local content), in conformity with articles IV and XIX of GATS.
11. This note has been prepared with a view to assisting the Expert Meeting
in its deliberations. It addresses the following broad issues: the
environmental industry; the demand-generating factors in the environmental
goods and services market; GATS commitments; developing countries’ business
opportunities and constraints in the sector; and capacitybuilding



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