WORLD TRADE
ORGANIZATIONWT/CTE/W/172
20 October 2000
(00-4366)
Committee on Trade and Environment Original:  English
ENVIRONMENTAL GOODS AND SERVICES:  AN ASSESSMENT OF THE
ENVIRONMENTAL, ECONOMIC AND DEVELOPMENT BENEFITS OF
FURTHER GLOBAL TRADE LIBERALIZATION
Information Note by the OECD Secretariat
I. INTRODUCTION
1. At the start of the twenty-first century, one  half of the world’s population lacks adequate
sanitation and one person in five has no access to safe drinking water.  Urban and suburban sprawl
and the development of industrial and agricultural capacity in developing and developed nations alike
are putting pressure on air quality, water tables and biological diversity.  The trend towards
technology-led responses to these environmental challenges has created new markets forenvironmental goods and services to remedy and prevent problems of water pollution, waste
treatment, air pollution, habitat protection and sustainable resource use.
1   Accordingly, a key issue for
policymakers is the role which global trade liberalization can play in building international markets
for environmental goods and services to deliver these solutions.
2. This information note is a summary of a recently released Study by OECD entitled:
Environmental Goods and Services: An Assessment of the Environmental, Economic and
Development Benefits of Further Global Trade Liberalization,2  copies of which are with the
WTO Secretariat for Committee Members.  This work examining the potential benefits of multilateral
trade liberalization in the environmental goods and services sectors has been undertaken under the
aegis of the OECD's Joint Working Party on Trade and Environment.  A key conclusion of the
research is the need for policy settings to address both supply and demand-side factors.  Indeed,
supply-side factors, including a diverse and cumulative range of trade barriers, are more significantinhibitors of the deployment of technology and service-based solutions to global environmental
challenges than has been assumed heretofore.  It is hoped that the volume makes a timely contribution
to the debate on how trade liberalization can contribute to the pursuit of concrete results on the
journey to sustainable development.
II. ENVIRONMENTAL GOODS
A. D
EFINITIONAL ISSUES
3. Defining the environmental industry is fraught with difficulties.  In the words of one analyst,
this is less a sector than an agglomeration of providers of many types of goods, services and
technologies that are usually integrated into production processes and are often hard to tease out as
separate items.  Measuring exports and imports in "environmental goods" is therefore difficult.Problems abound in determining the contents of a list of "environmental goods".  These include:  the
multiple use  of products, including non-environmental as well as environmental uses;  the fact that for
customs policy purposes  a good is defined according to its physical characteristics;  the environmental
                                                     
1 The global environment industry was estimated at US$453 billion in 1996 and US$484 billion in
1998.
2  Available on the web at:  http://www.oecd.org/ech/docs/envi.htm.WT/CTE/W/172
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characteristic of a good is often due to its  embedded technology ; the diversity  of the industry
addressing various environmental media as well as natural resource management thus presenting
further challenges to definition and description; the division of the industry according to maturity and
sophistication , covering both low-tech and high-tech goods ; that pollution prevention as a key goal in
environmental policy is usually accomplished by better process control (dual motivation) ; and that
today's cleaner technologies , may become tomorrow's relatively less environmentally friendly
products.  Nevertheless, in order to assess the extent of tariffs applied on environmental goods and in
the absence of any internationally agreed list, the OECD Secretariat set about to develop such a
classification.3
B. AVERAGE TARIFF LEVELS
4. Average tariff levels for the illustrative list of environmental goods are set out in Table 5 of
the Study for three groups: the Quad countries (U S, EU, Japan, Canada); three other OECD Members4
and seven emerging economies.5  I n  Q u a d  markets, average tariff levels are generally low for
environmental goods.  For the entire group of environmental goods (calculated here for six digit
HS categories), applied rates average 4 per cent or lower.  Analysis of the group of three other
OECD members reveals applied MFN tariffs in 1996 at 9 per cent (but bound rates at end of
Uruguay Round implementation still at 25 per cent).  The group of seven emerging economies showsa similar pattern, but with higher levels of protection.  Average applied levels are 18 per cent, and
bound commitments stand at 29 per cent for the sector as a whole.
III. ENVIRONMENTAL SERVICES
A. D
EFINITIONAL ISSUES
5. Increased privatization of traditional environmental services and a shift from “end of pipe”
pollution control to pollution prevention and cleaner production is increasing the relative importance
of a whole range of services for the environmental industry.  It is difficult to delineate the precise
boundaries of the environmental services sector due to similar problems to those discussed above for
environmental goods - such as multiple-use, and embedded environmental technologies and skills.
The classification of environmental services provided by the OECD/Eurostat  manual6  and the W/120
informal sectoral classification list used in GATS discussions are quite different.  The former -
developed by a group of statistical experts from OE CD countries - reflects the evolving, integrated
nature of the environmental industry, whereas the latter takes a traditional and very limited view of
environmental services in the earlier, largely “public infrastructure” form of this sector.  The OECD
Study presents a “framework approach"7  the goal of which is to show the ranges of services involved
in the environmental industry and provide trade policymakers with a necessary overview of the range
of environmental services reflecting today's commercial reality in the industry.
B. EXAMPLES OF BARRIERS TO TRADE IN ENVIRONMENTAL SERVICES
6. To establish an overall picture of barriers in the sector, the Secretariat examined the trade and
investment regimes of, and constructed country inventories for, OECD members and a number of
non-OECD members.  Drawing on that work, the Study sets out a summary of the main types of
                                                     
3 See Annex 2 of the Study for the full list and corresponding HS Codes.
4 Mexico, Korea, Turkey.
5 Argentina, Brazil, Chile, Malaysia, India, Indonesia, Thailand.
6 OECD/Eurostat (1999), Environmental goods and services industry:  Manual for the collection and
analysis of data, Paris.
7 See Table 4 which compares the OECD/Eurostat and GATS/CPC descriptions and classifications.WT/CTE/W/172
Page 3
supply-side barriers facing the environmental services sector.8  The paper examines barriers to
environmental services for all four GATS modes of supply as well as horizontal restrictions applying
across the board.
IV. EXAMPLES OF “WIN-WIN” FOR ENVIRONMENT, DEVELOPMENT AND
TRADE:  INCREASED TRADE IN WATER AND WASTE MANAGEMENTENVIRONMENTAL SERVICES
7. Unsafe drinking water and inadequate sanitation are among the most serious problems facing
developing countries today.  More than a billion people in rural and urban areas around the world lack
access to the most basic water and sanitation services.  In an investigation of over 50 cases in
developing economies of foreign participation in the provision of water and waste management
services , “win-win” outcomes from trade and investment liberalization were found.  These cases are
detailed in Annex 7 to the document.
A. E
NVIRONMENTAL BENEFITS :
- First and foremost, the roll-out of clean water and waste collection services to much
greater numbers of citizens, leading to healthier human environments;
- Reductions in the wastage of and/or inequitable access to scarce water resources (e.g.
through leaks and ease of bypass/siphoning associated with old/inadequate pipe
infrastructure);
- Increased availability of drinking water from the introduction of recycling of effluent
water for industrial use (which also, once established, produces cost-savings for
industry);
- Use of waste recycling to create alternative sources of energy (e.g. gas and electricity
from garbage recycling systems for use by households, light industry, power stations,
fertilizers for small farms);
- In-country presence of foreign firms creates increased opportunities for environmental
management education and training, and skills transfer, to other commercial sectors,both for the water and waste media and other environmental services;
- Availability of a larger choice of environmental technologies addressing the
environmental problems more appropriately for the country in question which can
often mean a move away from end-of-pipe solutions to preventive ones;
- Reinvestment of a share of profits in research and development of new environmental
technologies and skills, environmental infrastructure upgrades and new
environmental investments.
B. E
CONOMIC EFFICIENCY AND DEVELOPMENT BENEFITS :
- Relief of pressure on government budgets,  including at state and municipal level.
Savings may be reallocated to environmental policy, inspection and enforcement
budgets, to other social services and to the overall budget balance;
                                                     
8 See Annex 5 of the Study for a more detailed, “illustrative list” of measures affecting trade in
environmental services.WT/CTE/W/172
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- Creation of skilled and unskilled jobs for local workers, in design, construction and
long-term operation of the facilities;
- Availability of water and waste management systems attracts foreign and local
investment to the community, bringing more jobs, stable economic growth and an
increased local tax base;
- Local private sector partners extend their experience in big and/or very specialized
projects which can be (and are being) exported to other countries with similar needs
and operating conditions;
- Build-operate-transfer operations revert to local ownership at a specified time, and
comprise significant environmental resource s, and sources of jobs, into the future.
C. TRADE “WINS ”:
- Local and foreign companies participating in this trade gain new opportunities to
deploy their skills and technologies;
- At a global level, trade and investment liberalization will improve resource allocation
through the application of comparative advantage.
V. IMPROVING THE BALANCE BETWEEN THE DEMAND AND SUPPLY-SIDE
FACTORS – THE ROLE OF COMPLEMENTARY MEASURES
8. Liberalizing trade in environmental goods and services can, for many reasons, be assumed
prima facie to bring together the elements of a "win-win " situation.  At the same time, there is a
multiplicity of factors both on the supply side and the demand side which affect diffusion of
environmental technologies and trade in environmental goods and services.  Demand-side factors
dominate, relative to the host of supply side factors such as trade barriers.  These, therefore, need alsoto be taken into account to ensure that trade liberalization becomes a "win-win" situation.
Complementary measures may, therefore, also be necessary.  These four points for complementing
trade liberalization in environmental goods and services are examined below and are suggested as a
possible basis for developing a framework of complementary measures to trade liberalization efforts
for environmental goods and services.
(a) Strengthening the environmental regulatory framework and choice of policy instruments
A framework for complementary measures would:
Reaffirm the consensus on strengthening demand through commitment to pollution
prevention/waste minimization and encourage domestic environmental regulatory
reform to promote use of incentives for improvements in environmental performance.
(b) Relationship of environmental goods and environmental services: ensuring complementarities
of "hardware" and "software".
A framework for complementary measures would:
Address the timing and sequence of liberalization of trade in services in relation to
that for goods when deciding on the scope and modalities of future liberalization in
EGS.WT/CTE/W/172
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(c) Buttressing implementation of pollution prevention by avoiding distortions.
A framework for complementary measures would:
Ensure an enabling environment when liberalizing market access conditions for
environmental goods which is technologically neutral, and promote coherence in other
government support policies, that is, avoid distortions with more favourable price andaccess conditions for end-of-pipe technologies at the expense of cleaner technologies
and processes .
(d) Fostering diffusion of appropriate technology in emerging economies.
A framework for complementary measures would:
Strengthen programmes incorporating provision of information on environmental
services and assistance tailored to the needs of emerging economies on pollution
prevention and cleaner technologies.  Since technology transfer is first and foremost amatter of the private sector, drawing on its experience and enlisting its collaboration is
essential.
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