Development Assistance, Export Promotion,

and Environmental Technology

August 1993

OTA-BP-ITE-107

NTIS order #PB93-218907

GPO stock #052-003-01332-1
Recommended Citation:

U.S. Congress, Office of Technology Assessment, Development Assistance,

Export Promotion, and Environmental Technology--Background Paper,

OTA-BP-ITE-1O7 (Washington, DC: U.S. Government Printing Office,

August 1993).

For sale by the U.S. Government Printing Office

Superintendent of Documents, Mail Stop: SSOP. Washington. DC 20402-9328

ISBN 0-16 -041852-6
Foreword

P

olicymakers--both in the United States and in other countries that provide foreign assistance-are examining possible links between environmental export

promotion and foreign assistance. As developing countries address their environmental problems, sizable markets for environmental technologies and services

could emerge. With their long experience in environmental management, developed

country firms could be a vital source of environmentally preferable technologies and

know-how.

While most resources for environmental improvement will need to come from

developing country sources, U.S. foreign aid and that of other donors could serve a

potentially catalytic role in fostering technology transfer, with commercial benefits to

donors in the form of exports and the potential for continuing trade after such aid ends.

Yet, the commercial features of foreign aid programs, if undertaken with insufficient

attention to developing country needs, could promote exports of inappropriate technologies at the expense of sustainable development. The role of foreign aid in encouraging

technology transfer is receiving added attention as countries consider follow up measures

to the 1992 United Nations Conference on Environment and Development, a major

world event attended by the heads of state from more than 100 countries.

This Background Paper provides an overview of developing country environmental problems and markets for environmental technologies and services. It discusses

preliminary estimates on the amount and purposes of environmental aid provided by

donor countries in 1991. The Paper discusses the commercial implications of other countries’ aid for U.S. environmental firms, and the Helsinki package adopted by the OECD

in late 1991 to limit commercial advantage from use of tied aid credits. Japan’s aid program, which seems likely to become the largest bilateral source of development assistance and environmental aid, receives the most attention. The Paper’s appendixes discuss

environmental markets in developing and newly industrialized countries, and U.S. export

promotion programs pertinent to environmental technologies and services.

The Background Paper is the second of three publications in OTA’S American

Industry and the Environment assessment, which was requested by the House Foreign

Affairs Committee, the House Energy and Commerce Committee and the Senate Finance

Committee. The Paper was prepared to meet the specific request of the House Foreign

Affairs Committee for interim information on environmental industry issues. The initial

product of the assessment, Trade and Environment: Conflicts and Opportunities, was

published in May 1992. The final report of the assessment will address U.S. environmental industry competitiveness in detail. It will also discuss interactions between environmental regulations and technology, and their implications for U.S. manufacturing industry competitiveness.

a’+- -

Roger C. Herdman, Director
Advisory Panel

Roland W. Schmitt, Chairman Jeffrey Leonard

Rensselaer Polytechnic Institute Global Environment Fund

Edgar Berkey

National Environmental

Technology Applications

Corporation

Judith Dean

School of Advanced International

Studies

Johns Hopkins University

Robert E. Driscoll

U. S.-ASEAN Council for Business

and Technology, Inc.

Peter Emerson

Environmental Defense Fund

Harry L. Foster

General Motors Co.

Stewart J. Hudson

National Wildlife Federation

David S. Marsh

Marsh Plating Corporation

Jessica Matthews1

World Resources Institute

Robert S. McNamara

U.S.-Japan Foundation

J.A. Meyer

Chevron Corporation

T.C. Parsons

Center for Industrial Services

University of Tennessee

Martyn Riddle

International Finance Corporation

Paul Relis

California Integrated Waste

Management Board

Lawrence Ross

Center for Waste Reduction

Technologies

American Institute of Chemical

Engineers

Maxine Savitz

Garrett Processing Division

Allied-Signal Aerospace

Samuel A. Schulhof

General Electric Company

James Selover

Selover Associates

Peg Seminario

AFL-CIO

John J. Sheehan

United Steelworkers of America

Sally Shelton

Georgetown University

Mary Kelly

Texas Center for Policy Studies

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel

members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents.

iv
Project Staff

Peter D. Blair, Assistant Director, OTA

Energy, Materials, and International Security Division

Audrey B. Buyrn, Program Manager

Industry, Technology, and Employment Program

Wendell Fletcher, Project Director

Robert Weissler, Senior Analyst

Madeleine Costanza, Consultant Sebastian Remoy

Takashi Mashiko Rodney Sobin

Robert D. Atkinson Susan H. Lusi

ADMINISTRATIVE STAFF

Carol A. Guntow, Office Administrator

Diane D. White, Administrative Secretary

v
contents

1

2

3

4

5

Summary 1

Aid for the Environment 4

Environmental Markets 5

Environmental Aid in Competitive Context 6

Current Policy Context 9

Developing Country Environmental Needs

and Aid 13

Developing World Environmental Problems 13

Environmental Markets in Developing Countries 16

ODA and the Environment 18

How Aid Can Promote Exports 31

Practices That Increase Reflow 31

Practices That Help Firms Tap Multilateral Funding 33

Practices That Encourage Long-Term Commercial

Relationships 34

Aid and Exports: Selected Country

Practices 35

Composition of Aid 36

Geographic Focus 37

Tying of Aid 38

Use of Loans 46

Tied Aid Credits and the Helsinki Package 47

Donor Country Profiles 55

United States 55

Japan 59

France 64

Germany 65

United Kingdom 67

APPENDIXES

A Environmental Markets in Developing and Newly

Industrialized Countries 71

B U.S. Export Promotion Activities and Environmental

Technologies 81

C List of Acronyms 93

INDEX 95

vii
Summary 1

A

s more countries begin to address environmental problems, new markets for environmental technologies and

services are emerging in the developing world. Developing countries often need technologies and expertise from

developed countries in addressing their many serious environmental problems. The potential for exports of U.S. environmental technologies and services to developing (and other)

countries is attracting increased attention from policymakers.

One issue is whether the U.S. government should do more to

promote environmental exports. A related issue is whether the

Federal government should use foreign assistance to encourage

environmental exports, either as a specific focus for action, or as

part of a broader strategy to link aid and export policies more

closely.

Developing countries vary greatly in their ability and/or

willingness to pay for the costs of environmental protection.

Most poorer developing countries have not chosen to use their

scarce financial resources to address environmental issues

without financial assistance from developed countries. The more

prosperous developing countries have more resources; several

fast-growing developing country economies in Southeast Asia

and Latin America plan multi-billion dollar investments in

environmental infrastructure in the next few years. However,

some still receive bilateral aid to address global environmental

problems that might not otherwise be among their priorities.

Several laws passed in the 102d Congress call for closer

coordination of U.S. aid and export promotion efforts, including

environmental exports. Additional export promotion measures

have been proposed in the 103d Congress. (See box 1-A for

discussion of recent laws and Executive Branch initiatives;

1
2 Development Assistance, Export Promotion, and Environmental Technology

I

Box I-A-Recent U.S. Initiatives on Environmental Export

Promotion and Development Assistance

Enactments in the 102d Congress:

. The Export Enhancement Act of 1992 (Public Law 102-429) directs the President to set up an

“environmental trade working group” under the interagency Trade Promotion Coordinating Committee

(TPCC) which was given statutory status. The working group-which includes, among others, the

Commerce Department, the U.S. Agency for International Development (USAID), the Environmental

Protection Agency (EPA), the State Department, the Department of Energy, the Trade and Development

Agency (TDA), the Overseas Private Investment Corporation and the U.S. Export-Import Bank

(Eximbank)-is to develop a government strategy for expanding exports of environmental technologies,

goods, and services. The working group is to assess how its activities advance the goals of Agenda 21,

the guiding policy and implementation document for the U.N. Conference on Environment and

Development. President Clinton recently announced that he was directing the Commerce Department the

Department of Energy, and the Environmental Protection Agency to develop a strategic plan for

environmental trade development, promotion and technical assistance.

The law also authorizes placement of environmental commercial officers in countries that are promising

markets for exports or competitors for U.S. environmental technologies and services. Another provision

in the law directs Eximbank to use its programs to support “the export of goods and services that have

beneficial effects on the environment or mitigate potential adverse environmental effects.” in addition, the

law authorizes a major expansion of the Eximbank “War Chest” a fund designed to match tied aid credits

offered by foreign governments (see ch. 4).

. The Aid, Trade and Competitiveness Act of 1992 (Title III of Public Law 102-549), among other things,

establishes an office of capital projects in USAID. One function will be to develop a program of

“developmentally sound” capital projects for basic infrastructure to deviate poverty impacts or promote

environmental safety and sustainability at the community level, taking account of host countrydevelopment

needs and export opportunities for U.S. goods and services. Such projects include basic sanitation, water

supply and treatment systems, and pollution control. Projects should have measurable, positive effects for

indicators of human and environmental health. The program is to be coordinated with other agencies, USing

TPCC. Congress urged the President to spend $650 million of the USAID appropriation in fiscal year 1993

and $700 million in fiscal year 1994 to implement the capital projects program

Continued

pertinent U.S. programs are described in more Congress examines linkages between aid and

detail in chapter 5 and appendix B.) environmental export promotion. It discusses:

This background paper, part of a larger OTA

■ estimates of the size of the market for environ- assessment of American industry and the environ- mental goods and services (EGS) in developing ment,l provides information that maybe useful as

1 The final report in this assessment, to be completed later in 1993, will discuss the market opportunities and competitive position of U.S.

firms that sell environmental technologies and services, and related export promotion issues. The final report will also discuss connections

among environmental technology, environmental regulations, and manufacturing industry competitiveness.

This background paper draws in part on a contract report prepared for OTA, entitled “Environmental Export Promotion and Official

Development Assistance,” by Madeleine Costanza.

Another background paper prepared for this assessment examined trade and environment issues, including the developing country context;

see U.S. Congress, Office of Technology Assessment Trade and Environment: Conflicts and Opportunities, OTA-BP-ITE-94 (Washington,

DC: U.S. Government Printing Office), May 1992.
Chapter 1-Summary 3

Box l-A-Recent U.S. initiatives on Environmental Export

Promotion and Development Assistance--Continued

● The Foreign Operations and Export Financing Appropriations Act for Fiscal Year 1993 (Public Law

102-391) earmarks $650 million of USAID’s fiscal year 1993 appropriation to environment or energy

activities related to global warming. The law also urges USAID to aim $10 million in assistance at activities

related to the Committee on Renewable Energy Commerce and Trade (CORECT), the Environmental

Technology Export council (ETEC), and the International Fund for Renew% Energy and Efficiency.

CORECT and ETEC are bodies that attempt to coordinate government export activities with private

companies and trade associations (see app. B).

. several provisions in the National Energy Policy Act of 1992 (Public Law 102486) emphasize

energy-related environmental technology transfer to developing countries, in part to boost U.S. exports.

The law directs the Secretary of Energy, through USAID, to undertake programs of technology transfer to

developing countries for renewable energy technoiogies, dean coal technologies, and innovative

environmental technologies associated with reduced greenhouse gas emissions. Each program is

authorized at a level of $100 million per year for several years. The law also authorizes funds for

interagency working groups on renewable energy and energy efficiency, as well as training for developing

country officials, at an annual level of $10 million for fiscal years 1993 and 1994. Funds have yet to be

appropriated for any of these initiatives.

Executive Branch Initiatives

Numerous programs and projects undertaken by one or more Federal agencies fund activities pertinent to

environmental assistance or energy and environmental exports. Two of the larger initiatives (discussed further in

app. B) are:

● The United States-Asia Environmental Partnership. This public-private partnership seeks to help Asian

countries address environmental needs using U.S. technology, and participation of U.S. firms. Seed money

for the partnership has been provided by USAID; other Federal, state, and nongovernmental agencies also

are involved.

* The United States Environmental Training Institute. This nonprofit organization arranges for training of

developing country public and private officials in the United States by U.S. firms and agencies. companies,

which have the opportunity to demonstrate their technologies to the officials, pay for operating costs and

sponsor courses. EPA, USAID, and TDA provided some startup funds for the institute.

countries and in the newly industrializing sion focuses on official development assistance

countries; (ODA)2 provided by Japan, and to a lesser

■ estimates of environmental aid as a component extent Germany, and some other European

of development assistance; countries which are members of the Develop-

■ how the aid programs of several major donors ment Assistance Committee (DAC) of the

may affect environmental exports. The discus- Organisation for Economic Cooperation and

2

"ODA" is a term used by the Organisation for Economic Cooperation and Development (OECD) to identify one type of foreign assistance.

As used here and by OECD, it refers to aid given by a government chiefly to promote the recipient country’s economic development and welfare

that has a “grant element” of at least 25 percent. (A pure grant would have a grant element of 100 percent; a pure commercial loan, 0 percent).

The term “aid,” as used in this paper, may denote either ODA or some broader category of foreign assistance depending on context.
4 I Development Assistance, Export Promotion, and Environmental Technology

Development (OECD).3 While there is some

discussion of U.S. aid practices, the discussion

is illustrative rather than a comparison.

The background paper is not intended to be a

comprehensive analysis of the many ways in

which a donor’s aid could promote exports, or the

degree to which such export promotion is compatible with meeting recipients’ environmental and

development goals.

4 The export promoting effects of aid depend on many factors, including

(among others) the geographic emphasis; the

kinds of projects supported (whether power plants

and sewage treatment plants or technical assistance for land management and training); the way

in which projects are planned and approved; and

whether formal policies or informal practices

make it likely the aid will be spent in the donor

country.

Whether export promotion is compatible with

recipients’ environmental and development goals

depends as well on additional considerations.

These include, among others, the extent to which

a country’s aid follows environmentally and

developmentally sound criteria; whether a recipient country has the technical information and

resources needed to make an appropriate choice

among alternative technologies and approaches;

and whether adequate provision is made for

training, operation and maintenance after equipment is installed or projects are completed.

The complex administrative structure of aid

and variations in aid missions further complicates

analysis. For example, a single development

project may be supported by several bilateral and

multilateral agencies and sources. Japan’s aid

system involves four major policy-making agencies and two implementing agencies. Development assistance is only one of several missions for

U.S. foreign assistance, and many specific objectives vie for the limited development assistance

project budget of the U.S. Agency for International Development (USAID), the primary U.S.

ODA agency.

Major findings and conclusions from subsequent chapters are summarized below.

AID FOR THE ENVIRONMENT

(SEE CH. 2)

While precise estimates do not exist, developing countries could need to invest amounts

exceeding 1 percent of their gross domestic

products (or over $50 billion annually by the end

of this decade at projected growth rates) to factor

environmental objectives into their development

requirements. 5 Most of these investments would

need to come from developing country sources, or

from private investment and trade. But, as was

brought out at the 1992 United Nations Conference on Environment and Development (UNCED),

developed country governments could catalyze

developing country environmental efforts by

providing technical assistance and help with

project financing. Additional aid could help

3 OECD members account for about 90 percent of OD& several Arab countries account for most of the rest. The DAC, established in 1961,

provides aforumforOECD donors to discuss and coordinate their bilateral aid policies. Unless othemise stated, statistics on ODA in this paper

are from the Organisation for Economic Cooperation and Development Development Cooperation 1992 Report (Piuis: OECD, December

1992).

4 fro, env~omen~ ~d ~a=Ad ~d exports to ~tern Europe ad the former Soviet union me not adtissti h detail h W p-r.

AnotherOTA assessment on these subjects is in progress; its first report is U.S. Congress, OffIce of lkchnoIogyAssessmenL Energy-E&ciency

TechnoZogiesfor Central and Eastern Europe, OTA-E-562 (WashingtorL DC: U.S. Government Printing OffIce, May 1993). Environmental

export issues with Mexico associated with the proposed North American Free Trade Agreement also are not addressed. For discussion of

U.S.-Mexican trade issues, see U.S. Congress, Oftlce of ‘lkchnology Assessment, U.S. -MexI”co Trade: Pulling Together or Pulling Apart?,

OTA-IT13-545 (Washington, DC: U.S. Government Printing Offke, 1992).

5 Such a level of investment would be roughly comparable as a portion of GDP to investments made by several advanced industrial nations

for environmental protection during the 1970s.
Chapter l-Summary I 5

developing countries address global issues such

as stratospheric ozone depletion, greenhouse gas

emissions, and loss of biodiversity-issues not

necessarily perceived by developing countries as

requiring their independent action.6

Preliminary information suggests that donors

provided over $2 billion in bilateral aid in 1991

for environmental projects or projects with an

environmental component as defined by the

donor. (Total aid in 1991 was $57 billion.)

Environmentally-related aid and loans from multilateral sources exceeded $3 billion, so that the

total in bilateral and multilateral assistance exceeded $5 billion in 1991.

The two largest aid donors—Japan and the

United States—probably provided over $600

million each in bilateral aid for environmental

projects or for projects with an environmental

component; Germany provided about $500 million in direct environmental aid.7 Because common definitions and baseline data from other

years are not available, it is difficult to know how

much of the donors’ environmental aid relabels or

replaces pre-existing programs or constitutes

“new and additional resources. ”

Much of the environmental aid assists in

developing human resources and institutional

capacities for addressing environmental concerns. Such environmental capacity building includes technical and financial help for country

studies and strategies; for training, education, and

public awareness campaigns; for environmental

monitoring; and for developing ways to devise

and enforce regulations.8

Several donors help developing countries finance infrastructure, including infrastructure that

can contribute to environmental objectives. Examples are basic infrastructure for public health

and environmental quality (e.g., water supply and

wastewater treatment systems, sanitary landfills)

and pollution control equipment for factories and

power plants. The United States devotes only a

small share of its bilateral aid to such capital

projects (whether environmental or otherwise).

To date, donors have focused little aid on

helping developing countries adopt pollution

prevention approaches and cleaner production

processes or technologies. Even when they have

greater front-end costs than conventional pollution control technologies, cleaner technologies

can be less costly in the long term because they

use materials and energy more efficiently and

produce less waste for treatment. Pollution prevention has yet to receive much attention from

development agencies, although some United

Nations activities are underway and a few bilateral technical assistance projects have recently

been initiated (including a major new project by

USAID).

ENVIRONMENTAL MARKETS

(SEE CH. 2 AND APP. A)

The world market for environmental goods and

services was estimated by OECD to be $200

billion in 1990. Developing countries now account for only a small part of this market.

However, several fast-growing developing countries in Asia and Latin America may become

G Some multilateral aid for addressing global environmental issues is provided through the Global Environment Facility (GEF),

administered by the World B~ the United Nations Environment PrograuL and the United Nations Development Programme. The GEF is

not discussed in detail in this paper.

T The estimates for the United States, Jap~ and Germany are subject to change. As is discussed in chapter 2, these donors were not among

the nine DAC countries that had reported estimates of environmental aid to OECD by April 1993.

s For a review of DAC member activities up to 1990, see Development Cooperation 1990 Report, op. cit., pp. 71-82.
6 I Development Assistance, Export Promotion, and Environmental Technology

important markets for environmental goods and

services. This has happened in some newly

industrializing countries which were themselves

considered developing countries a few years agog

Partly fueled by aid, environmental business

opportunities in the developing world are growing. The six ASEAN nations currently represent

an environmental market of about $1.8 billion per

year.

10 The 1992 environmental market in six

Latin American countries is estimated to be $2.4

billion. ll Some lower income countries, including India and China, are increasing their investments in environmental protection and pollution

control. China plans to spend $15 billion on

environmental protection or projects that include

related environmental improvements in its current five-year plan that ends in 1995.

Difficulties in obtaining financing could limit

growth of developing country environmental

markets. In many developing countries, government funding for environmental protection will

likely remain sparse. Private or mixed publicprivate funding sources will be key to the growth

of environmental markets. Financial packages—

drawing on private funds, official assistance, and

innovative approaches for project financing--can

be the determiningg factor in contract awards. The

opening of various developing country economies to greater foreign investment and the loosening of state controls on energy, transport, and

manufacturing industries-including privatization-provide growing possibilities for environmentally favorable investment.

ENVIRONMENTAL AID IN

COMPETITIVE CONTEXT

(SEE CHS. 3-5)

While a few U.S. environmental firms operate

worldwide, most are inexperienced in doing

business outside the United States. Many are

small or medium-size businesses that have focused exclusively on the U.S. market, the largest

in the world. Some other aid donors—including

Japan, Germany, and several other European

countries-have large environmental industries

that are actively seeking export opportunities.

Environmental aid, like aid in general, can help

donor country firms sell goods and services

abroad, adding to their domestic employment.

Aid to help developing countries with environmental monitoring, standard setting and enforcement, and training can bring commercial benefits

to donor country firms while building developing

country capabilities. Moreover, such technical

cooperation for projects can develop into lasting

business relationships that lead to future sales by

donor country firms after aid ends.

Donor country consultants or citizens often

conduct project feasibility studies and engineering studies. Industrialized country engineering

and construction firms are often involved in

project design and management, and may use

personnel and engineering services headquartered in donor countries. Some environmental

projects (such as wastewater treatment facilities

and stack gas scrubbers) are very expensive to

build. Although local materials (e.g., concrete,

sheetmetal, pipes) and labor comprise a substan9 =Ples of me magni~de of tie MC env~~en~ markets ~clude about$11 biwon of environmental projects k ~WaI1’S CUlTt31t

Six-Year Development Plan and over $10 billion in South Korea’s 1991-95 investment plans. See American Institute in ‘IkiwaIL “Listing of

~wan’s Six-YearDevelopment Plan Projects (partial List) & Status Report on Selected Major Projects,” August 1991, and Republic of Kor=

Ministry of Environment White Paper 1990, 1991, as cited in ‘M Woo Lee, “Perspective of Environmental Industq in Kor+” paper

presented at GLOBE ’92, lhncouver, B.C., Cana@ Mar. 16-20, 1992.

10 Jom~ Menes, ~~g Assistant S-tary for Trade Developmen~ U.S. Department Of Commerce, ~stimonY Before tie ‘oWe

Committee on Merchant Marine and Fisheries, Subcommittee on Environment and Natural Resources, Feb. 25, 1993. ASEAN is the

Association of South East Asian Nations, consisting of Branei, Indonesi& Malaysia, Philippines, Singapore, and Thailand.

11 uS~,E~vir~~~~t~l~~rketco~itionsa~B~”nessop po~unities in Kq~tinAmtican Countries, Business FOCUS SerieS, OCtObfZ

1992. The six countries are Argentina, Brazil, Chile, Colombia, Mexico, and Venezuela.
Chapter l--Summary I 7

tial portion of the project costs, environmental

and energy infrastructure projects may use imported equipment and technology transferred

from developed countries, with some return of

project monies to the donor country.

Most donor countries (including the United

States) seek benefits from their aid for their

domestic economies and firms. Many U.S. consultants and contractors benefit from U.S. project

aid, such as grants and technical assistance for

institution building, education, and training. However, the United States spends a high portion of its

aid on debt relief and “program assistance’ (aid

not linked to particular projects), which as discussed in chapter 4 have limited potential to

increase exports. Moreover, since the 1970s,

relatively little U.S. bilateral aid has gone to large

capital projects.12 Large capital projects often

require imports of engineering services, equipment and technology, and can be conducive to

building long-term business relationships. Much

of the bilateral aid provided by Japan and

Germany supports such capital projects.

To varying degrees, donors formally or informally ‘‘tie’ the aid so that funds from the donor

are used to purchase its goods and services (box

l-B). Tying of aid tends to increase exports,

though it is difficult to say by how much; in some

cases, the recipient country would have spent the

money in the donor country anyway.

Tied aid is sometimes offered not as a pure

grant but with a loan component; assuming the

loan is paid back, such “tied aid credits” enable

more exports for a given amount of net aid

expenditure. While tied aid credits can be a

powerful export promotion tool, they can skew

aid in ways that promote donor country commercial interests at the expense of recipient country

development and environmental interests. The

United States, which has used tied aid credits less

than several other major donors, for many years

negotiated for tougher OECD rules to lessen

commercial advantage from their use. The latest

OECD rules, as amended by the Helsinki Package

adopted in December 1991, show promise in

limiting the commercial effect of tied aid credits;

however, even these rules are likely to permit

substantial use of tied aid credits for commercial

advantage. Some environmental projects may fall

in this category (see ch. 4).

Questions are arising about how and when

donors should cooperate on the environment and

how and when they should act to foster business

opportunities for their domestic firms. These

issues are especially conspicuous in the ongoing

debates about the respective trade, aid, and

environmental policies of Japan and the United

States—the largest donors of aid in general and

environmental aid in particular. More cooperation

between Japan and the United States on environmental issues could be a promising area of

common interest as the two countries begin to

consider possible new frameworks for restructuring their economic relationship.13 The commercial ramifications of such cooperation for environmental firms is not clear.

Environmental aid has emerged as a key focus

for Japan’s aid in the 1990s. Japan has announced

plans for major increases in its environmental aid

in the next few years. The major Japanese aid

agencies provide support for environmental research, training, and technical cooperation with

developing countries and financing for environmental infrastructure. In addition, Japan’s MinisIZ AS is discussed inchapter5, U.S. aid at one time placed major emphasis oncapitalprojects. This changed during the 1970s, inPw ~cause

of concern that some large development projects supported by U.S. loans had not made a contribution to development goals (such as alleviation

of poverty) commensurate with their size and had potential to contribute to corruption. For discussion of this history, see Curt ‘Ihrnoff and Larry

Q. Newels, “Foreign Assistance and Commercial Interests: The Aid for Trade Debate,” CRSReport to Congress, May 24, 1993, p. 17, pp.

22-26.

13 Such a possibili~ ~w ~s~at the Apfl 19$)3 mee~g in w~~gton ~tween president Clinton ~d Japaese prime Minister ~Chi

Miyazawa. See Weekly Compilation Of Presidential Documents, Apr. 16, 1993, p. 598. For discussion of some of the issues, see Pat Murdo,

“Cooperatio~ Conflict in U.S.-Japan Environmental Relations,” JEIReport, Japan Economic Institute, Washington DC, May 28, 1993.
8 Development Assistance, Export Promotion, and Environmental Technology

Box l-B-Aid Practices that Can Enhance Exports

Aid that is formally "tied,” that is, conditioned on the funds being used to purchase goods and services from

a donor country, has received a great deal of attention over the years. However, even if aid is not formally tied,

many practices used by donors make it more Iikely that funds will be spent in the donor country. For example,

donors might chose to fund projects In sectors where their firms enjoy a competitive presence.

Numerous other practices, sometimes called “informal” tying, can increase the export-enhancement effects

of bilateral ODA. Recipients may m to a tacit understanding that tomorrow’s aid depends on spending a good

part of today’s aid in the donor country. Donors may ascertain procurement intentions before aid is offered. Several

countries, including the United States, at times make grants to developing country governments to fund preliminary

studies (such as feasibility studies) by donor country firms. While funds for subsequent stages of the project may

not be tied, the firm doing the study will tend to recommend familiar home country technologies and services. Firms

doing the studies may have an advantage in bidding for the main project In the same vein, some countries have

at times untied most of a construction project but tied to some extent the engineering management component;

a donor country management firm could steer other components of the project to donor country firms.

Donor country governments may work with t heir national firms to identify potential aid projects and areas with

promising export opportunities, and to parlay particular grants of aid (including grants for training or for research

and development) into long-term business relationships. Most donors use such approaches to some extent. The

U.S.-Asia Environmental Partnership and the U.S. Trade and Development Agency discussed in box I-A and

appendix B are examples of American efforts to use aid to build business relations. Box 2-B gives examples from

Europe and Japan.

In addition to directly promoting exports, bilateral aid can indirectly promote exports by assisting national firms

in winning contracts from untied multilateral development aid. Multilateral aid is an important source of

environmental assistance, involving over $3 billion in loans in 1992. Countries monitor the programs of the World

Bank and the regional development banks; some have standing grant facilities for the banks to draw upon to pay

for preliminary studies for multilateral projects. These grants are Sometimes earmarked for hiring donor country

firms or citizens, who again are likely to recommend hem-country technologies and services.

Donors also directly contribute funds to some multilateral projects (called cofinancing), and fund related but

separate projects (canal parallel financing). While not directly influencing who wins contracts for multilateral

projects; these practices could make a recipient country government more receptive to a national firm’s bid (in the

case of cofinancing) or help familiarize national firms about the multilateral project (in the case of parallel financing).

While most multilateral funds per se are untied, there is an important exception. European Community

countries offer some multilateral aid (about $3 billion worth in 1992) through a common fund that is largely tied

to purchases from firms In EC countries. About 10 percent of the EC multilateral funds-or $300 million--is

environmental aid.

try of International Trade and Industry (MITI) tured goods. It has successfully targeted indusprovides its own “green aid” and has launched

programs for environmental technology development to address global environmental issues.

It is hard to determine the degree to which

commercial considerations underlie Japan’s environmental aid. The Japanese government has a

history of successful promotion of exports, including use of aid to promote exports of manufactries it considers strategic, such as automobiles

and computers, substantially accelerating their

growth and increasing their exports. Some see

MITI’s green aid and R&D measures as an early

indicator that the environment could become a

strategic focus for Japanese industrial policies.

MITI’s activities are in their early stages and are

expected to grow substantially.
Chapter l-Summary I 9

However, Japan’s overall aid program is evolving. Japan has, at least officially, been taking

steps to open up more of its ODA to participation

by non-Japanese firms. A recent U.S. Executive

Branch report to Congress, coordinated by the

State Department, expressed cautious optimism

that U.S. (and other foreign) firms “will be able

to increase their participation in Japan’s ODA

contracts over the next few years. ’14

Whether “cautious optimism” is in order in

the case of environmental aid remains to be seen.

Japan appears to be using its environmental aid

both as a showcase and as a testing ground for

new aid approaches. Japan’s stated interest in

international environmental cooperation may suggest receptivity to participation by U.S. firms. To

benefit from opportunities arising from Japanese

aid, U.S. firms normally would have to establish

a sustained presence in Japan and make persistent

efforts to understand Japan’s ODA system; few

U.S. firms to date have made such efforts. Some

U.S. environmental firms could be in a position to

benefit by focusing on areas where they provide

superior goods or services pertinent to Japanese

aid objectives.

Even if some U.S. firms might benefit from

Japan’s aid, the greater commercial benefits

flowing to Japanese firms could have long-term

ramifications for the competitiveness of U.S.

environmental firms. Japan’s environmental aid,

like its aid overall, is focused on East Asia--a

region with promising potential to emerge as an

important environmental market independent of

aid. Japanese firms are already more established

in East Asian developing countries than the firms

of any other industrialized country. With its

emphasis on capital projects, Japan’s ODA can

help build long-term commercial ties and relationships for its firms that may last after aid ends.

While some recent U.S. initiatives such as the

U.S.-Asia Environmental Partnership (see box

l-A) could help, U.S. firms seeking to compete in

the East Asian market may face an uphill battle.

CURRENT POLICY CONTEXT

(SEE CH. 5 AND APP. B)

The appropriate role of U.S. aid in encouraging

exports of U.S. goods and services has been a

subject of continuing debate.15 Promotion of

exports of U.S. manufactured goods has not been

a primary thrust of U.S. development aid. The

U.S. Department of Commerce and several other

government agencies administer a number of

programs to promote and finance U.S. exports;

these programs (discussed in appendix B) are

limited in scope, especially for manufactured

goods. Through enactment of several 1992 laws,

such as the Export Enhancement Act, the National Energy Policy Act, and the Aid, Trade and

Competitiveness Act, Congress authorized Federal agencies to place more emphasis on export

promotion (including environmental export promotion).l6 The degree of emphasis will depend, of

course, on funding and commitment to implementation. These and other actions, such as the

United States-Asia Environmental Partnership

launched by the Bush Administration in January

1992, are discussed in box l-A.

Some of these measures authorize a greater

USAID role in fostering U.S. exports, especially

for environmental and renewable energy or energyefficiency technologies. Whether U.S. aid should

14 u-s. D~~ent of Stite ~ ~orfition~th o~er ~mutive branch agencies and dep~~tsin respom to a request by the hkd

States Semte, “Japan’s Foreign Aid: Program Trends and U.S. Business Opportunities,” Feb. 18, 1993, mirneo., p. 6.

15 For a more de~ed discwsion of issues and legislative propos~s, s= cm Tarnoff md Larry Q. Newels, “Foreign AsSiStanMand

Commercial Interests: The Aid for Trade Debate,” CRSReportfor Congress, U.S. Library of Congress Congressional Research Service, May

24, 1993.

16 ~ditio~ eXpOII prOmOtiOn m

easures have been introduced in the 103d Congress. Proposala that focus speciilca.lly on environmental

exports include H.R. 1830, the proposed Global Environmental Cleanup Act; H.R. 2112, the proposed National Environmental Trade

Development Act, introduced on May 12, 1993; S. 978, the proposed National Environmental ‘lkchnology Act and S. 979, the proposed

Greentech Jobs Initiative Act.
10 I Development Assistance, Export Promotion, and Environmental Technology

take on a more commercial orientation continues

to be debated in the development community. As

a practical matter, the efficacy of using aid

projects to promote exports is ultimately limited

by aid budgets. While the United States in some

years may still be the largest overall aid donor, its

ODA budget has declined as a portion of GNP

over time, and is now well below the DAC

average. Moreover, development assistance

that part of the aid budget most relevant to direct

promotion of environmental exports--counts for

only part of the total U.S. foreign assistance

budget.

Some question whether there is any need for

direct government action to promote exports

through aid. For example, a 1992 policy review

by USAID states that since 1985 U.S. exports to

developing countries have grown faster than that

of major competitors. 17 (Data for particular sectors

may differ; the USAID policy review did not

discuss whether environmental exports shared in

this strong growth in exports to developing

countries.) Instead of direct action to promote

exports, the USAID review saw continuing efforts to encourage developing countries to open

markets and make other policy reforms as a better

way to encourage exports, albeit indirectly.

Of course, market-opening approaches would

not necessarily promote U.S. exports more than

exports from other industrialized countries. And,

despite the recent progress noted by USAID, the

United States was still behind the EC and far

behind Japan in 1990 merchandise exports to

developing countries as a percentage of GNP.18

There is also no guarantee that the United States

will maintain its current market shares if other

countries pursue aid practices that promote exports to a greater extent than the United States.

While the precise export promotion effect is hard

to determine, such practices are widely used by

other major donors, many of which also provide

substantial non-aid-related export promotion for

manufactured goods.19 In principle, it might be

preferable for all donors to agree to change these

practices-for example, to forgo tying their aid,

letting development priorities and the market

determine where aid money is spent. However,

such an agreement is not likely to be achieved any

time soon; and for the United States alone to forgo

use of such practices could mean U.S. exports

would suffer in time.

Opinions are divided about whether orienting

U.S. aid more toward direct promotion of environmental exports would compromise or further

environmental protection and development goals.

There is a similar division of opinion about the aid

practices of other countries.

Supporters of closer links might hold that a

focus on exports could further the goals of

economic development and environmental protection. Promotion of exports may create a

stronger constituency for aid in donor countries,

making continuation of aid more likely. Linkages

between aid and exports also might encourage

continuing business relationships between donor

country firms and developing countries—

relationships that could be conducive for transfer

of environmental technology and practices. Also,

involvement of donor country firms in aid planning might help screen out some projects that are

ill-founded from a business sense. The prospect of

exports to developing country markets may encourage donors to support research and development to adapt environmental technologies more

17 T’heUSAIDr~~chis discussed in “Aid, Trade and Development: Implications of the Background Papers for the Trade pOficY Working

Group,” mimeo., June 1992.

18 The Pmen~ges me: United S@tes, 2.4; EC, 2.8; and Jap~ 3.9. These figures are derived from USAID, “U.S. Trade Trends ~dlssu~,”

mimeo., June 1992, p. 11, table 2 (presenting data on 1985 and 1990 merchandise exports to developing countries), and U.S. Department of

Commerce, Statistical Abstract of the United States 1992, p. 830, table 1370 (1990 GNP data).

19 For ~mple,~ is d~us~ ~ app. B ~d ~1 & ~dressed more fily in ~f~report for mmsessment, U.S. gov ernment-assisted

export fmcing appears more limited than that in Japan and several European countries; private export financing by U.S. banks is also very

limited.
Chapter 1--Summary I 11

specifically to developing country needs, and to

support training. It also could encourage more

effort to evaluate the performance of environmental technologies, either by individual countries or possibly through evaluation activities

undertaken with multilateral support.

Others contend that the use of aid for export

promotion can compromise both environmental

and developmental goals. They point to increased

costs for purchases restricted to bidding only

among donor country firms. This increases the

costs of capital projects and reduces the amount

of real aid.20 A capital projects orientation could

diminish direct aid for basic human needs, such as

food, medicine, or reducing poverty. At least for

some environmental projects, the division between capital projects and basic human needs is

not clear; for example, capital projects may be

needed to assure safe drinking water and to treat

waste in order to protect against health threats.

However, overemphasis on export promotion

could bias projects toward overly expensive

infrastructure, with more sophisticated technology than needed to meet basic human needs. Such

technology can be inappropriate to a country’s

level of development, draining resources from

more pressing problems, and can create dependency on developed countries. Furthermore, expensive capital projects paid by soft loans could

aggravate developing country debt burdens or

balance of payments problems. These financial

difficulties could reduce a country’s capacity to

buy environmental goods and services without

aid, and could encourage mismanagement of the

environment. 21

While use of development assistance to promote exports might in some cases hamper environmental or developmental goals, this result is

not inevitable. It would be possible to pursue

export promotion with safeguards to prevent

compromise of environmental or developmental

goals. Under such an approach, projects, however

desirable from an export promotion standpoint,

would still need to meet rigorous environmental

and developmental standards. Some export opportunities might be lost, but it should be possible

to find fully satisfactory projects.

Several steps could be taken to screen projects

for adverse effects, such as might result from use

of inappropriate technology, whether or not

export promotion is the goal. Some of these

procedures have begun to be used by donors.

Among those pertinent to the environment:

1. Environmental studies to identify real needs

and priorities: Donors increasingly fund developing country environmental studies, environmental

profiles, and conservation strategies. DAC has

noted a need for coordination and use of “good

practices” in these assessments. USAID’s approach is worthy of note: increasingly, developing country organizations undertake the studies,

thus building local capabilities for environmental

analysis. Additional measures could be taken to

assure opportunity for public review and input

from nongovernmental organizations in developing and donor countries.

2. Use of guidelines in project reviews: Conscientious efforts by donors to see that guidelines are

applied could reduce transfers of inappropriate

technology. Germany, for example, makes special efforts to assure that developing countries

have trained personnel available before capital

projects are funded. Public export financing

agencies in the United States and in several other

donor countries are developing and in some cases

implementing environmental guidelines for decisionmakers. So are multilateral lending instituZO One survey of went empirical studies concludes that “an average of 15 to 30 percent’ increased costs is the “best aggregate estimate.”

Catrinus J. Jepma, The Z’jing of Aid (Paris: OECD, 1992), p. 58.

21 Developing countries Withheavyburdens on their balance of payments and substantial foreign debt are more likely to overuse (rather than

sustainably manage) their natural resource base to gain foreign exchange. Overharvesting of otherwise renewable resources such as timber and

fisheries are two examples.
12 I Development Assistance, Export Promotion, and Environmental Technology

tions. Some private lending institutions also are

developing environmental criteria.

3. Evaluation of technologies: Better information about the performance of environmental

technologies could help donors assess how projects with export potential would mesh with

recipient countries’ needs. It also could help

recipient countries evaluate alternatives. Some

evaluation programs to serve domestic objectives

in donor countries exist, including several small

programs administered by the U.S. Environmental Protection Agency .22 Such evaluation

programs are likely to provide more objective

information than would be available from firms

with an interest in selling their own technology.

Technology evaluations might be undertaken

multilaterally, under the auspices of an agency

such as the United Nations Environment Programme or the United Nations Development

Programme.

In many cases, developing countries will find

it preferable to use locally available technology,

or to adapt developed country technologies to

local needs. Some donors are working to customize developed country enviromnental technology

to the specific needs of developing countries (see

discussion of Japan’s Green Aid Plan inch. 5).

Regional centers in developing countries might

be tapped to facilitate such adaptations, as well as

to address training needs.23

4. Provision for operation and maintenance:

Donors might also screen projects with export

I potential to assure that adequate provision is

I

made for operation and maintenance of environmental infrastructure once construction is over.

Projects often fall into disrepair because of

inadequate budgeting for maintenance or spare

parts procurement. Skimping on training for

developing country personnel is often a shortcoming in development contracts. The more

complex the technology, the greater the need for

highly trained personnel to operate or maintain

the equipment. Use of aid to support education

and training can serve the environmental and

developmental needs of developing countries and

export promotion objectives.

Through such measures, donor countries could

help strengthen developing country decisionmaking capabilities, while at the same time providing

opportunities for their firms to develop commercial relationships. With stronger technical capabilities and better information, decisionmakers in

developing countries will be better able to make

informed choices about available options. Additional steps by donors, such as effective implementation of the environmental guidelines that

are slowly being incorporated into the policies of

national and multilateral lending institutions, also

could help provide an appropriate balance between export promotion and environmental or

developmental goals. Such efforts may in time

result in more congruence among aid policies,

environmental objectives, and development objectives while contributing to improved economic

conditions in developing countries that will be

essential for healthy long-term trading relationships.

= ~e= ~clude tieSu_d~ov~ve ~~ology Ev~~tion ~o~tie WSSte R~uction innovative -Ologies Evaluation

I

I Program and the Muuicipsl Innovative ‘lkchnology Evaluation Rograms. An EPA-sponsored organization the National EUViI’OIMIRJIti

3kchnologies Application CorporatioXL has evaluated bioremed.iation agents related to oil spills. I1

23 Fordi.s~ssionof ~t~~role of r@o~Wn~ foremr~-efflci~twhology,s= “fi~velyA&tihdoping COUtryFOCUS

for’lkchnologyCooperationRelated to Global Climate Cbsnge,” Conference Statement, Bell@o, Italy, Oct. 28-Nov. 1,1991 (mimeo., Energy

and Climate Program of the World Wildlife Fund, Wasbingtoq DC).
Developing

Country

Environmental

Needs and

Aid 2

R

ecognition is growing that developing countries may not

be able to achieve their development objectives without

also addressing their serious environmental problems.

This chapter briefly reviews developing country environmental problems and their environmental investment needs

(as characterized by the World Bank and the United Nations

Conference on Environment and Development). It also discusses

the environmental market in developing countries, and reviews

estimates of environmental aid as a component of Official

Development Assistance (ODA).

DEVELOPING WORLD ENVIRONMENTAL PROBLEMS

Developing country environmental problems are serious and

wide ranging. Some arise from poverty and the overuse of

resources that can result from poverty. Some result from

development projects and industrialization undertaken with too

little concern for the environment. Some result from the

environmental pressures of urbanization and population growth.

Some reflect global concerns about stratospheric ozone depletion, greenhouse gas emissions, and biodiversity.

The economic and human costs of inadequate environmental

infrastructure or environmental management in developing

countries are vast. According to the World Bank, two million

people, mostly children, die each year from diarreheal diseases

spread through contaminated water. Between 300,000 and

700,000 premature deaths each year could be averted in

developing countries if concentrations of dust, soot, and other

suspended particulate matter from air pollution could be brought

down to levels considered safe by the World Health Organization. Although only recently receiving attention from research13
14 I Development Assistance, Export Promotion, and Environmental Technology

ers, exposure to indoor air pollution may pose

even greater health risks. Solid waste collection

and disposal is inadequate in the cities of many

developing countries; the common alternative of

dumping refuse in waterways or public spaces can

increase the likelihood of exposure to disease

carrying organisms. Health risks and environmental contamination from hazardous waste can

also be a problem, especially where industrial

growth is rapid.l

Serious damage from pollution and overuse of

renewable resources also challenge the developing world’s fisheries, agriculture, and forests,

with significant adverse effects for productivity

and biological diversity. Studies in several developing countries have found that soil erosion

reduced economic output by amounts equal to

between 0.5 and 1.5 percent of GDP-offsetting

a significant amount of annual growth (as measured by conventional means).2 While per capita

measures of resource use and environmental

impact are low compared with that of developed

countries, the fast climb in developing country

populations and the drive to increase incomes

have prompted widespread concern about sustainable levels of growth.

Estimates of the investments needed to address

the environmental needs of developing countries

are imprecise. Often, environmental needs and

basic development requirements overlap. The

World Bank estimates that as little as 2 percent of

sewage in Latin America is treated. Worldwide,

I 1.7 billion people lack access to sanitation

services; even in urban areas, the number of

1 people without such services grew by more than

70 million in the 1980s. Roughly 170 million

people in urban areas lack nearby access to

potable water; in rural areas an estimated 855

million people lack safe water.3 These families

often must buy water from vendors, paying 4 to

100 times more per unit of water (with a median

of 12 times more) than families connected to

municipal water supplies.4

The World Bank, in an effort to put environmental protection costs in context, identified a

sample of benefits that might arise if $75 billion

per year (about 1.4 percent of the projected GDP

in developing countries in the year 2000) were

invested in developing countries for environmental improvement.5 As shown in table 2-1,

these benefits could be substantial. Among them:

reducing child mortality by 3 million per year;

reductions in respiratory diseases; and stabilizing

world population at a lower level than would

otherwise be expected. The costs, according to the

Bank, might seem large in absolute terms, but

would be small in relation to added incomes

produced from “good economic management.”

Moreover, many of the lower cost items (e.g.,

family planning and costs associated with increasing education for girls) could have a high

pay-off. The examples are illustrative; the Bank

did not include programs to, as examples, restore

degraded areas or conduct remedial cleanup of

already polluted sites.

Some of the environmental programs listed in

table 2-1, such as reducing emissions from power

plants and industry, would require more expensive or more sophisticated technology than is

1 Examples cited are from the World B* Development andtheEnvironment: WorldDevelopment Report 1992 (Oxford University Press,

1992), pp. 44-63.

2 Ibid., p. 56.

s Ibid., p. 47.

4 As cited in Johu Briscoq “when the Cup is Half Full,” Environment, VO1. 35, No. 4, WY 1993, P.1O.

S Such investment levels would be comparable as a portion of GDP to commitments made by several advanced industrial economies dwing

the 1970s, whenenvironmental protection emerged as an important priority in these countries. The $75 billion figure cited above assumes rapid

economic growth rates. If developing world growth occurred at the rate prevailing in the 1980s, and if countries committed only 1 percent of

GDP to the environment $50 billion in additional investments would be requhed.
Chapter 2–Developing Country Environmental Needs and Aid I 15

Table 2-l—Estimated Costs and Long-Term Benefits of Selected Environmental Programs

in Developing Countries

Additional investment in year 2000 (in 1990 dollars)

As a

Billions As a percentage of

of dollars percentage of GDP growth,

Program per year GDP in 2000a

1990-2000a Long-term benefits

Increased investment in water 10.0 0.2 0.5

and sanitation.b

Controlling particulate matter 2.0

(PM) emissions from coat-fired

power stations.

Reducing acid deposition from 5.0

new coal-fired stations.c

Changing to unleaded fuels; con- 10.0

trols on the main pollutants from

vehicies. c

Reducing emissions, effluents, 10.0-15.0

and wastes from industry.

Soil conservation and afforest- 15.0-20.0

ation, including extension and

training.

Additional resources for agricultural and forestry research, in

relation to projected levels, and

for resource surveys.

Family planning (incremental costs

of an expanded program to stabilize future world population at

10 billion rather than 12.5 billion).

Increasing prirnary and secondary

education for girls so that as

many girls as boys enroll in primary and secondary education

in low-income countries.

5.0

7.0

2.5

0.04

0.1

0.2

0.1

0.25

0.5

0.2-0.3 0.5-0.7

0.3-0.4

0.1

0.1

0.05

0.7-1.0

0.2

0.3

0.1

Over 2 billion more people provided with

service. Major labor savings and health and

productivity benefits. Child mortality reduced by more than 3 million per year.

PM emissions virtually eliminated. Large

reductions in respiratory illnesses and acid

deposition, and improvements in amenity.

Elimination of pollution from lead; more

than 90 percent reductions in other pollutants, with improvements in health and

amenity.

Appreciable reductions in levels of ambient

pollution, and improvements in health and

amenity, despite rapid industrial growth.

Low-waste processes often a source of

cost savings for industry.

Improvements in yields and productivity of

agriculture and forests, which increase the

economic returns to investment. Lower

pressures on natural forests. All areas

eventually brought under sustainable forms

of cultivation and pasture.

Could contribute to proportionately less

environmental damage resulting from natural resource use, consumption, and waste.

The World Bank maintains that improving

education for girls should be seen as a

critical developing world environmental priority; with the education, women are likely

to have smaller families, and to manage

natural resources (a critical role of many

women in developing countries) more productively.

a The GDP of developing countries in 1990 was $3.4 trillion, and it is here projected to rise to $5.4 trillion by 2000 (in 1990 prices). The projected

GDP growth rate is 4.7percent a year, significantly higher than historic rates except in Asia. If the GDP growth rate for the 1980s of 3.4 percent

continued in the 1990s, developing country GDP in 2000 would total $4.7 trillion.

b Current developing world spending on water and sanitation was estimated by the World Bank to be $15-$20 billion per year.

C Costs may eventually be lowered by the use of new combustion technologies and other measures discussed in ch. 6.

SOURCE: Taken with some modifications from the World Bank, Development and the Environment: World Development Report 7992 (Oxford:

Oxford University Press, May 1992), p. 174, table 9.1.
16 I Development Assistance, Export Promotion, and Environmental Technology

Poor families without access to potable water typically

pay 12 times as much per unit to buy water from

vendors as middle-class families pay for water

supplied through municipal systems.

readily available in many developing countries.

Some of this technology could be obtained from

foreign sources. Table 2-1 emphasizes “end-ofpipe” pollution control technologies (treatment

plants, air pollution control devices, waste incinerators) for power plants and factories. In some

cases (e.g., electric power plants) life-cycle costs

could be reduced through use of cleaner technologies that are much more energy efficient and

generate less pollution. The front-end costs of

such technologies are often higher—an important

barrier to their use in developing countries-but

they otherwise can be an attractive option from

both an economic and environmental standpoint.

ENVIRONMENTAL MARKETS IN

DEVELOPING COUNTRIES

The current market for environmental goods

and services (EGS) in developing countries is

small compared to that of industrialized countries. However, as these countries grow, they are

increasingly addressing environmental needs in

their development strategies. Environmental needs

associated with water supply and wastewater

treatment, electric power, motorized transport,

solid and hazardous waste management, industrial pollution prevention and control, and environmental monitoring could produce growing

business opportunities. These opportunities are

discussed in more detail in appendix A.

It is hard to say how large the developing

country environmental market is or will be as few

estimates separately identify this market. Several

estimates have been made of current and prospective EGS demand in non-OECD countries-a

grouping that includes newly industrialized countries (NICS), developing nations, and the transforming economies of Eastern Europe and the

former Soviet Union. These estimates and projections vary widely. Different definitions of ‘environmental goods and services’ partly explain the

variations in projections.

One study concluded that these non-OECD

countries accounted for $36 billion out of a

$200-billion global EGS market in 1990, and that

these markets could grow to $55 billion by the

year 2000.6 Another estimate concluded that the

non-OECD market could grow to $61 billion by

1996.7 The International Finance Corporation

(IFC), the private sector lending affiliate of the

World Bank, suggests that one-third of the current

G OECD, The OECD Enviro~entlnd~t~: Situation, Prospects and Government Policies, OCDE/GW92)l &fiS: OE~, 1992).

7 Grant Ferrier, President of Environmental Business International Inc., testimony to House Committee on Merchant Marine and Fisheries,

Subeornmittee on Environment and Natuxal Resources, Feb. 25, 1993.
Chapter 2–Developing Country Environmental Needs and Aid I 17

global environmental market is found outside the

United States, Canada, Europe, and Japan.8 The

IFC believes the world market (which it estimated

to be $300 billion) could grow to $600 billion by

the year 2000.

Environmental business opportunities in some

developing countries and regions are already

appreciable. Some of these countries could become important new markets for environmental

technologies and services, as has been the case

with some newly industrialized countries that

were considered developing countries a few years

ago. Environmental markets are growing in the

relatively prosperous, fast-growing countries in

East Asia and Latin America, such as Mexico,

Brazil, Chile, Malaysia, and Thailand. One study

estimated the annual environmental market in the

six ASEAN nations to be $1.8 billion.9 Another

study estimated the 1992 environmental market

in six Latin American countries to be $2.4

billion. 10 Opportunities are also growing in some

lower-income countries, including India and China.

China, for example, plans 80 billion yuan ($15

billion) for expenditures in environmental projects or projects with an environmental component

in its current five-year plan that ends in 1995.11

Lack of financing constrains growth of some

developing country environmental markets, however. Financial packages—private funds, official

assistance and credits, and innovative project

financing approaches-can be the determining

factor in contract awards. The opening of various

developing country economies to greater foreign

investment and the loosening of state controls on

energy, transport, and manufacturing industries—

including privatization--could provide opportunities for environmentally favorable investment.

Some innovative approaches for financing

infrastructure projects have potential to ease

financial strains on developing country agencies

while improving project performance.12 In one

approach, called build-operate-transfer (BOT), a

private company builds and operates a project,

such as a water treatment facility, power plant, or

road, until it achieves an agreed-upon payback. At

that time, the facility is turned over to the local

authority. Payments to the private company may

come from revenues generated by the project

(such as water fees) or from government payments. Financing is often the responsibility of the

private developer, who also may assume the risks

of construction cost overruns or delays, and

inefficient operation. The developer thus has

more incentive to build and operate the facility

efficiently than would be the case with ‘turnkey’

projects transferred upon completion. A training

component may be included in the project.

However, financial risks for developers and

investors can be substantial and the costeffectiveness of the approach has been questioned. The BOT approach is new and evolving,

with little track record to date.

Firms in the United States, Japan, Germany,

the United Kingdom, France, Scandinavia, and

other industrialized countries compete for environmental projects in developing country markets. Some firms have production operations or

subsidiaries in several OECD countries. Environ8 International Fiuance Corporation, Znvesting in the Environment: Business Opportunities in Developing Countries (WashingtorL DC: The

World Bank and the IFC, 1992), p. iii.

g JorMthan Menes, Acting Assistant Secretary for Trade Developmen~ U.S. Department of Commerce, ttitimony kfore the House

Committee on Merchant Marine and Fisheries, Subcommittee on Environment and Natural Resources, Feb. 25, 1993. ASEAN is the

Association of South East Asian Nations, consisting of Brunei, Indonesi~ Malays@ Philippines, Singapore, and Thailand.

10 US~,EnviromntalMarket Co~itiom ~& BWiness Oppo~um”ties inKey~tinA~~canCoun~ies, Bminess FOCUS Series, &tOber

1992. The six countries are Argentina, Brazil, Chile, Colomb~ Mexico, and Venezuela.

11 AS cited in Foreign Broadcast hformXion Service, “China Battles Hard to Clean Up Environment” Erwironmenta/Zssues, Nov. 12,

1992, p. 6.

12 These approaches arediscmsd inIntemtiotiF~ceCorpo~tioq Investing in theEnvironrnent: Bu.n”ness OpportunitiesIn Developing

Coz4ntrz”es, op. cit., box 1, p. 14.
18 I Development Assistance, Export Promotion,

mental infrastructure projects often involve much

locally or regionally provided labor and materials

(e.g., construction labor, cement or other lowvalue materials, and local assembly); in such

projects, prospects for industrial country exports

can be limited to project management and relatively sophisticated goods and services.

The NICS and many developing nations are by

no means wholly dependent on EGS imports; in

some cases local firms produce major portions of

their EGS market needs. The technical capabilities of environmental industries in such countries

as Singapore, South Korea, Taiwan, Mexico,

Brazil, India, and China are expanding. In fact,

environmental goods are sometimes exported by

these countries--often at lower prices than U.S.,

European, or Japanese firms can offer. At the

same time, environmental firms headquartered in

OECD countries are finding opportunities for

joint ventures and licensing with local and

regional companies.

As their environmental investments grow, decisionmakers in developing countries will need to

choose among competing technologies. Some

developing nations may be reluctant to use

equipment that does not meet stringent U. S., EC,

or Japanese environmental standards. Yet, the

most advanced technology and equipment from

the industrialized nations may not be affordable.

Even if the price is acceptable, other considerationssuch as lack of technically trained personnel,

limited resources for maintenance, and inadequate support infrastructure--may make advanced

equipment inappropriate.

Under such circumstances, less expensive but

reliable equipment could be a better choice than

state-of-art facilities. The appropriate mix of

technologies in a given country will depend on

and Environmental Technology

the types and sources of pollution, physical

factors such as climate and geology, availability

of capital, and technical and managerial capabilities. In some cases, it makes sense to modify

technologies to circumstances in developing countries. For instance, Japan is building lower cost

(and lower pollution removal efficiency) flue-gas

desulfurization equipment for Asian markets13

and a number of U.S. firms have lower cost, lower

efficiency air pollution control technologies available.

Developing country decisionmakers also may

be able to keep costs below what they otherwise

might be through use of “pollution prevention”

and cleaner production processes and technologies to complement end-of-pipe approaches (see

box 2-A.) Pollution prevention cannot eliminate

the need for investments in conventional pollution control and equipment or of treatment

facilities. But, when practiced effectively, it can

lead to savings-in some cases, appreciable

savings-relative to what otherwise would be

required. Thus, it can contribute to sustainable

development objectives and could reduce longer

term costs for environmental protection.

ODA AND THE ENVIRONMENT

ODA has long been an important source of

funds for developing countries. In 1991, ODA

amounted to nearly $57 billion-roughly twice as

much as foreign direct investment in developing

countries. 14 About $42 billion of the ODA was

bilateral; $14 billion was multilateral.15 ODA

serves a variety of purposes, such as meeting

basic human needs, and helping lower income

countries to build or rebuild economic infrastructure. The United States and Japan are the largest

donors in absolute terms, although other countries

13 Inter~tionalEnw”roment Reporter, “Japanto Work With China In Developing Cheap Desulfurization Units For Plants,’ July 29,1992,

p. 497; and Kawasaki Heavy Industries, Ltd. information booklet, 1992.

14 OECD, De@Op~nt Cooperation 1992 Report (Paris: OECD, 1992), P. 78.

!

15 M~~at@ aid is provided by a combination of countries aad sources, thnlugh Org@Z8 tions such as the World Bank or U.N. agencies.

Bilateral aid flows from ordy one donor country government. Private development assistance, such as from religious or wildlife conservation

groups, is unofficial and generally operates outside the purview of government.
Chapter 2–Developing Country Environmental Needs and Aid 19

Box 2-A-Assistance For Pollution Prevention and Cleaner Production

Pollution prevention-the practice of first considering ways to prevent generation of pollution or waste, thus

reducing the need for subsequent treament or disposal--accounts for a small but growing part of efforts to deal

with industrial pollution and waste in industrial ized countries.1 While controlling or treating waste and pollution

through remedial measures or end-of-pipe controls is often essential, pollution prevention In many cases is a less

expensive and environmentally preferable option.

As pollution prevention has become more prominent, a few industrial ized countries have begun to support

pollution prevention and cleaner production activities through their development assistance. A modest level of

support for bilateral and multilateral technical assistance for pollution prevention and cleaner production is now

available.

Bilateral Programs

Although no survey has been conducted, the Scandinavian countries and The Netherlands have been

leaders in promoting pollution prevention in developing countries and in Eastern Europe. For example, Denmark,

Norway, and Sweden have initiated pollution prevention programs as part of their follow up to a decision by the

Nordic Council of Ministers to assist Eastern European countries in improving their environment In 1991, the

Danish Ministry of Environment launched its Eastern Europe pollution prevention assistance program. To date,

$50 million has been spent on a variety of projects. While some support is for environmental infrastructure projects

(such as wastewater and sewer systems), a pollution prevention assessment is conducted on all projects; the

assessments may identify opportunities to reduce the size and cost of treatment systems. Increased funding for

the program, on the order of $30 million per year, Is under discussion. Norway and Sweden also have begun

programs.

The Netherlands has funded several pollution prevention projects. One is a joint project operated by the

University of Amsterdam and a university in Indonesia. The objective is to build capacity In Indonesia for the

implementation of cleaner production strategies.

In 1992, USAID launched its own environmental pollution prevention program (EP3). The program also

involves the U.S. Environmental Protection Agency and cooperative agreements with U.S. environmental

associations. These arrangements will be used to tap environmental expertise from industry, consulting groups,

1 us, congress, Office of Technology Assessment, Serious Reduction of Hazardous Wastes: For Pollution

Prevention and Industrial Efficiency, OTA-ITE-317 (Washington, DC: U.S. Government Printing Office, September 1988).

(Continued on next page

provide a larger percentage of their gross national commodity transfers to countries where the United

products (see table 2-2).16 States has special security interests, or debt relief

Donor countries vary widely in their aid (see fig. 4-1).17 There is also considerable variapriorities. For example, only about two-thirds of tion in the geographic distribution of aid (see

U.S. bilateral ODA in 1989 and one-third in 1990 table 2-3). The United States dispersed over 40

was project-specific assistance--lower figures percent of its aid in 1991 to Egypt (a low-income

than other aid donors. The rest involved cash or country) and Israel (a high-income country).

16 Table 2-2 gives figures for “net disbursements,” as defined by the DAC. The DAC defines net disbursements as equal to gross

disbursements, minus repayments of principal on any outstanding aid loans. Interest payments are not subtracted out. Thus, net aid money flows

from a donor country will in general be less than the DAC figures by the amount of interest payments received.

17 OECD, Development Cooperation 1991 Report (Paris, OECD, 1991), p. 152. U.S. debt relief in 1990 was extraordinarily high.
20 Development Assistance, Export Promotion, and Environmental Technology

Box 2-A–Assistance For Pollution Prevention and Cleaner Production--Continued

academia, and professional associations. Activities include pollution prevention audits, training, and assistance

with national program development, as well as broader environmental quality assistance. Core funding of $20

million for EP3 is expected during the five-year life of the project; other agencies may buy in.

United Nations Activities

United Nations agencies---includingthe United Nations Environment Programme (UNEP), the United Nations

Industrial Development Organisation (UNlDO), and the United Nations Development Programme (UNDP)-- have

several pollution prevention and cleaner production activities underway. UNEP’s Industry & Environment

Programme Activity Centre established a Cleaner Production Programme in 1989 to raise awareness in

developing countries about the benefits of prevention. The Centre collects and disseminates information to

facilitate transfer of know-how and cleaner production techniques and technology to developing countries. Donor

countries provide much of this information and often provide bilateral funding to carry out specific activities. For

example, Finland’s international development assistance agency supported preparation of 50 case studies on

cleaner production In the pulp and paper industry, and the United Kingdom has issued a publication, called

“Cleaner Production Worldwide,” in collaboration with UNEP.

UNEP offers training and technical assistance, often in cooperation with other agencies. For example, it is

assisting the World Bank and the Chinese National Environmental Protection Agency with a $15 million cleaner

production project (with half the funds coming from the World Bank). It is anticipated that roughly 100 Chinese

experts will receive training about The Netherland’s systematic pollution prevention process audit procedure

(originally developed by the U.S. EPA). There are also plans to install cleaner process equipment in at least 10

factories. Recommendations maybe made about changes in government environmental and industrial policies

to overcome end-of-pipe biases and to add incentives for cleaner production. A dissemination phase will aim to

prompt more widespread action in China. At certain stages of the project, China will hire foreign consultants as

advisers, and UNEP will convene a special foreign advisory group to assist in the policy review. The project could

encourage the emergence of a market for cleaner process technology in Chinese industry.

Another multilateral activity, a joint UNEP/UNIDO project begun in 1993 to establish National Cleaner

Production Centers in 20 developing counties, also could encourage new markets for cleaner process

technologies. The cost of the centers ($750,000 each, for five years) will be funded by UNEP and UNlDO using

bilateral monies from several European countries (Denmark has pledged $1.6 million). UNIDOand UNEP will train

key personnel for the centers and assist with industry demonstration projects.

Although Japan is diversifying its aid, over 30 environmental groups and other nongovernmenpercent of its 1991 aid disbursements went to five tal organizations (NGOs) for contributing to

Asian countries. serious environmental problems in the developEnvironmental protection emerged relatively ing world. Often, these problems arose from

recently as a prominent ODA issue.18 In the 1970s inadequate attention to the environment in large

and 1980s, development aid from DAC members development projects (e.g., dams, power plants,

and the World Bank was heavily criticized by and industrial facilities).

I

18 Much of the groundwork for including environmental protection as a specific objective in bilateral and multilateral ODA W&3 developed

I by the U.N. World Commission on Environment and Development in its 1987 report, Our Common Future. This document is best known for

presenting a concept of “sustainable development” that stressed the link between economic growth and wise management of natural resources.

World Commission on Environment and Development, Our Common Future (New York, NY: Oxford University Press, 1987). Some of the

groundwork was also developed in the 1972 United Nations Conference on the HumanEnvironment and its Stockholm Declaration of “Only

one Earth.”
Chapter 2–Developing Country Environmental Needs and Aid I 21

Table 2-2—ODA Performance of DAC Countries

1991 Net Disbursements

Percentage

Million $ of GNP

Australia 1,050 0.38

Austria 548 0.34

Belgium 831 0.42

Canada 2,604 0.45

Denmark 1,200 0.96

Finland 930 0.76

Francea

7,484 0.62

Germany 6,890 0.41

Ireland 72 0.19

Italy 3,352 0.30

Japanb

10,952 0.32

Netherlands 2,517 0.88

New Zealand 100 0.25

Norway 1,178 1.14

Portugal 213 0.31

Spain 1,177 0.23

Sweden 2,116 0.92

Switzerland 863 0.36

United Kingdomb3,248 0.32

United Statesb

11,262 0.20

Total DACC

56,709 0.33

Unweighed DAC average — 0.49

a Including overseas territories (TOMS) but not overseas departments

(DOMS).

b Includes forgiveness of non-ODA debt as follows: United States,

$1,855 million in military debt; United Kingdom, $17 million in debt

from export credits; Japan, $7 million in debt from export credits.

Exclusion of these amounts would change the 1991 ratio for the

United States toO.17, but would not appreciably change the ratios for

the United Kingdom or Japan.

c Excludes the amounts shown in footnote b.

SOURCE: OECD, Development Cooperation 1992 Report, pp. A-8,

A-9, table 1.

In 1976, the United States became the first

DAC member to institute formal procedures for

environmental review of its aid.19 Since then,

Congress has required USAID to upgrade environmental considerations in its programs on

Energy recovery from palm oil wastewater treatment,

Malaysia. Environmental projects can create business

opportunities not only for environmental firms but for

providers of other needed equipment, such as the

engine used at this facility.

several occasions. By the late 1980s, several other

donors and multilateral institutions had begun to

consider ways to mitigate or reduce the adverse

environmental impacts of development projects

they fund. In 1992, a DAC Working Party on

Environment and Development, set up in 1989,

issued guidelines to help its members incorporate

environmental considerations into their development assistance.20

In addition to seeking to avoid environmental

damage from ODA, DAC members fund projects

or project components specifically aimed at

improving the environment and encouraging

sustainable management of resources in developing countries. Many DAC members contribute

bilateral or multilateral aid to help developing

countries address global environmental issues

such as depletion of stratospheric ozone, global

climate change, and biological diversity.

1P OECD, Deve/op~nt Cooperation: 1990 Reporz (OECD, Paris, 1990), p. 52. These procedures, adopted in response to tie Natio~

Environmental Policy Act of 1969, can be found in 22 Code of Federal Regulations 216.

m “Guidelines on Good Ractices for Environment and Aid for Aid Agencies,“ “Guidelines for Environmental Impact Assessments and

Surveys, “ “Guidelines for Aid Agencies on Involuntary Resettlement Related to Aid Projects,’and ‘Guidelines for Aid Agencies on Global

Environmental Rojeets.’ All “Guidelines” are OECD, Development Assistance Committee, 1992.
22 I Development Assistance, Export Promotion, and Environmental Technology

Table 2-3—Top Five Recipients of ODA From Major Donors (Gross Disbursements, 1990-1991)

Percentage Percentage

Donor and the top five recipients of total ODA Donor and the top five recipients of total ODA

United States:

1. Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.1

2. Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.3

3. Honduras . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4

4. Nicaragua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2

5. Jamaica . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1

France:

1. Cote d’lvoire . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5

2. New Caledonia . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2

3. Polynesia, French . . . . . . . . . . . . . . . . . . . . . . . . . 3.8

4. Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.6

5. Senegal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4

Japan:

1. Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8

2. Philippines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4

3. China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1

4. Thailand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.8

5. Malaysia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.5

United Kingdom

1. India . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Malawi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Germany

1. Kenya . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Turkey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Ghana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total DAC:

1. Egypt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Israel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Bangladesh . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.1

3.2

2.4

1.8

1.8

6.1

5.1

4.2

4.0

3.5

9.4

3.2

2.5

2.3

2.0

SOURCE: OECD, Development Cooperation 7992 Report, pp. A-58, A-60, A-64, A-65, table 43.

This environmental aid takes several forms:

support for institution and capacity building

and training. Examples include technical assistance and cooperation for development and

implementation of environmental management

procedures, identification of environmental priorities, and training or education of personnel

and officials (box 2-B). As is discussed in

chapter 5, much U.S. environmental aid is of

this sort. Although the purpose of such aid may

be to build up capabilities in developing

countries, much of the experience and technical

background on environmental management resides in developed countries. Developed country consultants often are hired to carry out these

activities.

support for environmental infrastructure and

for mitigation of environmental impacts in

development projects. This can include grants

for pre-project studies (such as feasibility

studies), often conducted by donor country

firms, and confessional financing of capital

projects. While the United States routinely

funds feasibility studies, its provision of confessional financing for capital projects is less

frequent than many other donors.

Much environmental aid has been undertaken

in rural areas, often as part of rural development

programs. With increased migration and population growth in urban areas, urban environmental

problems are becoming a more significant concern and focus for aid. (Most of the population

and much of the aid continues to be rural,

however).

In some developing countries, environmental

problems associated with rapid industrialization

(e.g., air and water pollution, hazardous and toxic

waste) have become a focus for environmental

aid. Most projects focus on treatment and control

of waste after it is generated without first considering means to prevent waste or pollution in the

frost place. Such means, usually called pollution

prevention or cleaner production approaches,

often can achieve environmental goals in a more

cost-effective way than conventional treatment

alone. While pollution prevention and cleaner
Chapter 2–Developing Country Environmental Needs and Aid 23

Box 2-B--Technology Cooperation and Technical Assistance

Bilateral Activities

Many donor countries help developing countries with training, support collaborative research and

development and assist with developing environmental standards and regulations. While primarily intended to

strengthen developing countrycapacities, such activities may contribute to longer term commercial relationships.

Technical training may expose developing country technicians and managers to equipment sold by donor country

firms. People from donor countries that are engaged in collaborative research and development may gain a better

understanding of how to adapt products to developing country needs. Donor country officials or consultants, in

advising on environmental regulations, may be partial to their own national environmental standards and

regulations; if their advice is followed, subsequent regulations may, to some degree, favor technologies known

to be able to meet the donor country’s standards.

Many different public and private agencies and institutions from donor countries may engage in such

cooperative activities with their developing country counterparts. {Some activities qualify as “official” development

assistance; others do not). Examples from the United States, such as the United States Environmental Training

Institute and the United States-Ada Environmental Partnership, are discussed in appendix B. A sampling of

activities from other countries:

Germany: The German government funds the Carl Duisberg Gesellschaft (CDG), a non-governmental

organization with close ties to German industry, for developing country environmental training. About half the

training takes place in Germany; the remainder in the developing country. Since 1990, the CDG has been working

with developing country manufacturing associations and planning or manufacturing ministries on environmental

improvements in industrial processes. It also undertakes training pertinent to industrial water pollution and water

use in several Saharan countries, and industrial energy efficiency in members of the Southern African

Development Cooperation Countries. (Germany’s environmental aid is discussed further in chapter 5.)

Japan: Several Japanese programs provide environmental training for developing country officials. Japan

has provided funds for environmental management centers in Thailand, China and lndonesia, which, among other

functions, undertake and provide training for environmental monitoring. Japan also is cooperating with Indonesia

and China on joint projects to adapt, develop and transfer simplified desulfurization equipment for developing

country use. (Japan’s environmental ODA, including the “green aid plan” administered by the Ministry of

International Trade and Industry, are discussed in chapter 5.)

The Netherlands: A 40-million-guilder fund (known as MILIEV) was set up in 1993 for transferring

environmental technologies to developing countries. Private sector projects that would contribute to sustainable

development are eligible for government financial support that could cover up to half the costs of the project. The

projects must benefit the environment and in time must be managed by the recipient country.

Continued on next page

production approaches could become an impor- Estimates of Environmental A id

tant part of developing country environmental The 1992 United Nations Conference on Envistrategies, they have received little attention from

development assistance agencies until very reronment and Development (UNCED) gave additional prominence to the role of environmental aid cently. Box 2-A describes recent activities by in development assistance. UNCED’s Secretariat some donor nations and the United Nations

Environment Programme, timated that it could take $125 billion per year which has had a small in aid to catalyze annual investments of $500 to program to promote cleaner production since

1990. $625 billion to achieve the conference agenda
24 Development Assistance, Export Promotion, and Environmental Technology

Box 2-B--Technology Cooperation and Technical Assistance-Continued

United Kingdom: A government-sponsored Technology Partnership Initiative, launched in March 1993, aims

to give developing country business representatives better access to United Kingdom technologies and

management techniques that would further sustainable development. A guide to United Kingdom environmental

technology and services has unprepared. United Kingdom companies also may get help for training developing

country business personnel. UK and dveloping country firms can gain access to an information network through

British Embassy or High Commission commercial sections, or participating trade associations. (see chapter 5 for

further discussion of the United Kindom's environmental aid.)

Multilateral Activities

Multilateral agencies and funds support training, institutional development, research, and similar activities,

The Global Environment Facility (GEF) was setup in 1990 to help countries with per capita incomes of less than

$4000 addeess global environmental problems. GEF helps these countries deal with added costs of activitieswith

global environmental benefits. Grants support investments, technical assistance and research related to climate

change, ozone depletion, pollution in international waters, and biodiversity. Administered by the United Nations

Development Programme (UNDP), the United Nations Environment Programme (UNEP)and theWorld Bank, GEF

was funded at a $1.3 billion Ievel during an initial three-year pilot phase; replenishment is now under consideration.

Several multilateral activities have been launched as follow up to the 1992 United Nations Conference on

Environment and Development. A new Commission on Sustainable Development has been setup under the

United Nations Economic and Social Council. Among its missions: to monitor progress in transferring

environmentally sound technology and know-how to developing

Capacity 21, an activity of the United Nation 

countries and others.

Development Programme(UNDP),was setup in 19$3 to help

developing countries implement local sustainable development programs. The focus will be on institution building,

human resource development, public participation, factoring environment into development strategies, and

technology development, adaptation and applications. UNDP has a target of $100 million for initial funding, with

10 developing countries the focal point for the first 18 months of effort.

Another UN agency, the United Nations Environment Programme (UNEP), has provided technical assistance

on the environment for many years. UNEP was recently authorized by its governing council to examine the

feasibility of developing guidelines on information that exporters should provide toimporters on the environmental

impacts of potentially harmful technologies. (UNEP's pollution prevention work is discussed in box 2-As)

UNEP has setup an international environmental technology center in Japan to promote the transfer of

appropriate environmental management technologies to developing countries. Initially proposed and funded by

Japan, the center’s organization, personnel, programs, and international advisory board are supposedtoassure

international origins for technologies and expertise. It will continue to be under UNEP’s supervision.

I (called Agenda 21) for “accelerated and sustain- $750 million to strengthen the capacity of internaable development’ in developing countries. Some tional institutions.21

portion of the needed investment would be UNCED provided new focus for an old debate

environmental, but most would not. The Secretar- about the appropriate level of development assistiat also estimated an additional $15 billion would ance to developing countries. In 1973, the UN

be needed to help developing countries mitigate General Assembly urged donors to increase their

their impacts on the global environment, and ODA to average 0.7 percent of their GNP or more.

21 Report of the Secretary General of the conference, "Financial Resources and Mechanisms “ Preparatory Committee for the United

Nations Conference on Environment and Development, Fourth Sessions, New York, March’ 2 to April 3, 1992, Plenary Session,

AA/Conf.151/PC/101, United Nations General Assembly,
Chapter 2–Developing Country Environmental Needs and AidI 25

However, the DAC has not adopted this goal and,

of DAC members, only Norway, The Netherlands, Sweden, Finland, and Denmark have met it

in recent years. 22 Of the six largest DAC donors,

only France has approached this level in recent

years. Japan has remained at about 0.3 percent for

several years despite steady increases in the

absolute amount of aid. The United States, which

never committed itself to the General Assembly

goal, has seldom exceeded 0.26 percent of its

GNP in aid value since the mid-1970s, and now

spends about 0.20 percent.

All countries at UNCED accepted Agenda 21

financing chapter, which reaffirmed commitments to the 1973 goal and called for ‘‘new and

additional financial resources” to implement

sustainable development.23 As the United States

had not affirmed the earlier goal, U.S. officials

held that its acceptance of the financing chapter

would not be a commitment. However, thenPresident Bush announced an increase in assistance for international forestry and indicated the

United States would increase its international

environmental assistance by two-thirds over the

1990 level. Japan made the largest pledge: it

announced its intention to provide 900 billion to

1 trillion yen ($7.1 billion to $7.8 billion at 1992

exchange rates) over 5 years for global environmental protection (including bilateral and multilateral aid).24

Since UNCED, most donors have continued to

acknowledge the need for “new and additional”

resources, but have pointed out constraints that

have slowed their response. Expanding ODA has

proven difficult in a period of slow economic

growth and intensifying global competition. Developing countries, meanwhile, have continued to

press for “new and additional’ resources, including environmental aid.25 They are concerned that,

without new and additional funding, donors will

divert to the environment other aid now used for

such purposes as basic health care, general

education and small enterprise development.

In followup to UNCED, the DAC is attempting

to track environmental assistance flows to developing countries.26 The initial effort to develop

statistics on environmental aid is still in progress.

One major obstacle is that donors and multilateral

agencies have yet to adopt common definitions

for estimating their environmental aid. The absence of common definitions is a problem in

comparing or assessing what various countries

are doing with their environmental aid. For

example, Japan includes some aspects of natural

22 ~= non.DAc mem~n, Saudi ~b~ KUVV~~ md the U~tcd Arab Emirates, are dSO impotit providers of ODA.= much of

the last two decades, their ODA routinely exceeded 2 percent of their respective GNPs. This proportion declined in the aftermath of the

1990-1991 Gulf war, with Saudi Arabia falling to 1.5 percent and the United Arab Emirates to 1.66 pement of their respective GNPs. The 1991

figures for Kuwait were not cited by DAC.

23 me f~cing chapter Stated: “In gen~ financing for the implementation of Agenda 21 will come from a country’s own public and

private sectors. For developing countries, particulady the least developed countries, ODA is a main source of external funding, and substantial

new and additional funding for sustainable development and implementation of Agenda21 will be required. Developed countries reaillrm their

commitments to reach the accepted United Nations target of 0.7 percent of GNP. . and agree. . .to augment their aid. . .to reach that target as

soon as possible and to ensure a prompt and effective implementation of Agen& 21.” United Nations Conference on Environment and

Developmeq “Financial Resources and Mechanisms,” Agenda 21, Chapter 33, final advance version as adopted by the Plenary in Rio De

Janiero on June 14, 1992, para. 33.15.

24 Jap~eUQ of Foreign A.Hairs, Oflcial Development Asm”stance 1992, VO1. 1 13VWW no Sefi--tSU-Mj0 19921* P“ 217”

25 Jap~’s env~men~~dw= r~ort~ to hve increased to about 280 billion yen ($2.4 billion) iI.I fwci~ Y= 1992+ aPP~~t

tripling over the 1991 level. However, the reported informatio~ contained in a June 1993 United Nations publicatio~ provides few specitlc

details about what is included in this estimate of environmental aid or how it was derived. As cited in Commission on Sustainable Development

Report of the Secretary General, “Addendum: Information provided by Governments on initial f~cial commitments, fmcial flows and

qmentsto give eff~t to the decisions of the United Nations Conference on Environment and Development’ United Nations Economic

and Social Council, E/Ch.17/1993/11/Add.1, 8 June 1993, p.15. The Commissio~ setup in follow up to UNCED, has established an ad hoc

working group on fuces to assess f~cial needs and monitor resource flows.

26 C)ECD, Development Cooperation 1992 Report, 0p. Cit., pp. 1322.
26 I Development Assistance, Export Promotion, and Environmental Technology

disaster relief in its estimates of environmental

aid,27 while other donors may not.

In 1990, the DAC questioned whether an

apparent increase in the number of environmental

projects cited by donors was real or simply the

result of reclassification.28 In the absence of

common definitions, countries are free to “relabel,” or reclassify, projects to claim a larger

volume of environmental aid. Sometimes this

may be justified: certain longstanding kinds of

development assistance (such as help for building

and operating wastewater treatment facilities)

could be considered environmental infrastructure.

Some other aid projects might fall into the

environmental category if environmental protection and/or resource conservation and restoration

are primary objectives. Generalization is difficult,

as is suggested by the case of reforestation, which

can be undertaken for many different reasons. A

project to stock a logged area with commercially

desirable tree species might normally be seen as

forestry development. However, if the prime

objectives were watershed management, control

of soil erosion and introduction of good forest

management on lands degraded by unsuitable

logging practices, a similar activity might qualify

as environmental.

Another question is how to account for development projects that have an environmental

component or aspect. For example, water resource development projects may have mitigation

components to reduce environmental impacts

(e.g., measures for afforestation and to reduce

erosion in reservoir catchment areas). What

portion of project costs should be environmental

before such projects are considered to have an

environmental component?

Many environmental problems can be avoided

if good design practices are used in planning

projects; by anticipating and addressing likely

environmental problems in the planning stage,

project designers can reduce the need to spend as

much on mitigation components. Hence, environmental spending is not always a good indicator of

the environmental care taken in the project.

Further complications arise in classifying aid

for “cleaner production technology” and “pollution prevention” approaches which are an integral part of production technologies. As has been

mentioned, such techniques reduce the amount of

waste or pollution that is generated, and thus

offset the need for subsequent treatment or

disposal, or require less inputs of energy and other

resources. A narrow definition of environmental

spending can mask environmentally favorable

investment in such cleaner production technologies. Indeed, donors attempting to meet their

environmental aid commitments using a narrow

definition could conceivably skew resources from

cleaner production to less effective and more

costly investments in “end-of-pipe” pollution

abatement and waste disposal equipment.

DAC members have begun to introduce “indicators’ or markers of environmental aid as part of

their creditor reports. The guidance for enumerators suggests that DAC members identify the

environmental content of projects using one of

three codes: those undertaken “specifically for

environmental purposes,’ those in which the

content is ‘‘signKlcantly influenced by environmental considerations,’ and those in which the

environmental content is not applicable or known.

Some specific kinds of projects are considered

prima facie environmental.

Some donors are using these guidelines to

report their own calculations for specific environmental projects, and for projects which include an

important environmental component. The DAC

has yet to issue an estimate of environmental aid.

Nine of DAC’S 21 countries had reported their

bilateral environmental commitments for 1991,

the frost year to be covered, as of May 1993. These

27 @v~-~~~ ~fJ~~~E~vi~om~t~~D~~~lo~~nt:J~p~n’~ E~efience a~~hieve~nt,Japan’sNatioml Report to UNCED 1992,

December 1991, p. 22.

28 OE~, Develop~nt Cooperation 1990 Report, Op. cit., P 45.
Chapter 2–Developing Country Environmental Needs and AidI 27

countries estimated that their environmental or

environmentally related projects accounted for

over $375 million of their bilateral ODA (see

table 2-4).

The major donors had yet to report to DAC;

however, some information is available about

spending for environmental aid by four of the five

major donors profiled in chapter 5. (United

Kingdom estimates are not yet available.) Preliminary information about donors’ 1991 aid for

environmental projects and projects with an

environmental component is as follows:

Japan

United States

Germany

France

$779 million29 (includes component projects)

$625-700 million30 (includes component projects)

$511 million + (direct environmental aid only)31

$146 million + (partial report) .32

These estimates, which are further discussed in

chapter 5, should be seen as rough estimates that

could change. Donors do not always define

“environmental’ in the same way, and countries

may vary in the care they have taken to avoid

inflating estimates by double counting or counting the full cost of a project when only a part of

it qualifies as environmental.

Despite these caveats, it is reasonable to

conclude that DAC members committed at least

$2.0 billion of their 1991 bilateral ODA t.

Table 2-4--Bilateral Environmental Aid, 1991

Reported to DAC by Nine Countries

(amount in millions $)

Integrated projectsa,b

Specifically with a substantial

environmental environmental

projectsacomponent

Australia $1.86 $50.3a

Austria 7.39 20.68

Belgium 0.13 2.68

Canada 53.63 43.11

Finland 80.10 ---

The Netherlands 25.17 28.95

New Zealand 1.79 5.72

Norway 33.55 28.67

Sweden 6.70 ---

Total 210.32 177.43

a As defined by donor country.

b Countries vary in how they count totals for integrated projects: some

count the entire project; some count only the portion of the project

that is “environmental”; some have not counted integrated projects.

SOURCE: Unpublished OECD data.

projects they define as environmental or as having

an important environmental component. A fuller

account of financial resources would include

multilateral aid. The European Community (EC)

provided 250 million ECU (roughly $300 million) in 1992 for projects or programs that were

primarily environmental in nature.33 DAC members also contribute to multilateral development

banks (box 2-C), which committed over $3 billion

in loans (some with close to commercial terms

and some on highly confessional terms) in 1992

29 At lggI exc~emta of 135 yenperdollar. Japan’s environmental aid is furtherbrokendown infigures 5-2 and5-3 tichSpter5. Rou@Y

one-fourth of the environmental aid shown in figure 5-2 is for mtural disaster preventio~ an activity not all donors count as environmental.

As noted in footnote 25, a June 1993 United Nations publication cites Japan as reporting 280 billion yen ($2.4 billion as calculated in the

document) in fucial year 1992 environmental aid. While Japan’s overall 1992 aid level was not listed, this level of environmental ai~ if

confiied, would appear to represent some “new” resources.

30 us-is in the process of fme tuning its bmehe estimates of its 1991 environmental outlays. USAID’S iuunud obligations for

implementing its environmental strategy averaged $681 million in Fiscal years 1992 and 1993 (see figure 5-1 in ch. 5 for a breakdown of

obligations by activity).

31 ~c~~~on an exchaugemte of $1 = 1.66 Deutsche IWWkS.Ge rmany’s sizable aid for projects with an environmental component is not

reflected in this estimate.

32 Es@te is for environment spending by only one of four French aid agencies. Calculated on an exchange rate of $1 + 5.66 French

Francs.

33 ~omtionpmvid~by the Co remission of European Communities, Apr. 8, 1993. Much of the EC multilateral aid is tied to EC members.

The environmental aid information provided by the Commission of European Communities, Apr. 8, represented about 10 percent of total EC

multilateral aid.
28 Development Assistance, Export Promotion, and Environmental Technology

1

Box 2-C-The Multilateral Development Banks

The World Bank and the regional multilateral development banks (MDBs) are major sources of infrastructure

financing In developing countries. Their lending terms vary from close to market (in the better off developing

countries)to highly concessional (in the poorest countries). Like bilateral donors, the multilateral institutions initially

paid Iittle attention to the environmental impacts of the projects they financed. This is changing; most MBDs now

use environmental guidelines or assessments in project planning or review. MDBs also are working with

developing countries as they prepare or revise national development plans to take Into account environmental

needs. These plans may identify steps to strengthen environmental institutions or Identify environmental

investment and lending needs for the coming years.

The multilateral institutions now finance many environmental projects. Like bilateral donors, they have found

it difficult to define environmental aid. However, most banks now "mark” environmental projects and projects with

a significant environmental component. As shown in table 2-5, these banks made at least $3 billion in bans for

environmentally related projects in 1992. (This does not include assistance provided through the Global

Environmental Facility or United Nations agencies discussed in box 2-B.)

While the World Bank, other MDBs and the United Nations conduct procurement under rules that generally

prevent discrimination based on nationality, donor countries often supplement multilateral funding with their own

aid money, through use of consultant trust funds, cofinancing, and parallel financing (described below). Some of

the consultant funds and parallel financing maybe tied; cofinancing is not tied (except when provided after a

contract is awarded). All three practices may have a subtle influence on multilateral procurement (see ch. 3).

Consultant trust funds can be drawn on by MDBs to finance pre-project appraisals. Several consultant trust

funds are available to the World Bank. The largest, a Japanese special fund for policy and human resource

development, is untied and is administered by the Bank on behalf of Japan. In 1992, the Bank committed over

$100 million from the fund for feasibility studies and other project preparation work (including work related to global

environmental safeguards). Although Japan signs off on proposed uses for the trust fund, t he Bank’s procurement

rules govern subsequent selection of consultants.

Continuedd on next page

for environmental projects or projects with an Not all environmental assistance would be

important environmental component (table 2-5).

(Financing for MDB loans or credits is obtained

from various sources, including world capital

markets and MDB earnings, as well as contributions from donor countries). Thus, the total

amount committed to bilateral and multilateral

environmental assistance or assistance with an

important environmental component surpasses $5

billion per year, but by how much is not clear.

Given the definitional problems discussed

above, these figures should be treated with

caution. Because DAC reporting on environmental ODA leaves the definition up to the donor,

comparisons will be difficult. Without benchmarks or common definitions, such estimates

shed little light on how much “new and additional” aid is devoted to the environment.

reported to DAC. For example, Sweden’s export

credit agency supports a $15 million credit

facility in Malaysia that provides soft loans for

acquisition of Swedish environmental protection

and control equipment. While offering belowmarket rates, this facility does not meet DAC

criteria for concessionality, and thus would not be

counted in DAC figures. Even counting such

funds, environmental aid probably meets only a

small part of the overall “catalytic” need identified by the World Bank or by UNCED.

Finally, the quantity of aid reveals little about

the quality of environmental aid or whether

developing country needs and priorities are adequately addressed.
Chapter 2–Developing Country Environmental Needs and Aid 29

Box 2-C--The Multilateral Development Banks--Continued

In some other consultant trust funds, donors maintaln more control over their contributions. The U.S. Trade

and Development Agency administers a trust fund for use by the World Bank for project development and

identification studies. When the Bank identifies a need for such a study, it can apply to TDA for funding. If given

the go-ahead by TDA, the Bank must commission a U.S. consultant or citizen to perform the study. The aim of

the fund is to get U.S. consultants involved in World Bank projects at the project planning stage. TDA only funds

studies where it is dear that U.S. contractors would have a fair chance to compete In the bidding for the proposed

project when undertaken. Initially focused on the environment and also Eastern Europe, the fund now is used for

all sectors and regions. TDA has provided about $2.7 million to the fund in the last four years.

Some consultant trust funds are used only for environmental projects. Several countries have together

contributed more than $15 million to the Technical Assistance Grant Program for the Environment, called the

Environmental Trust Fund, since late 1990. Each country contribution is separately maintained; tying policies vary

by country. Also, the Netherlands, Norway, Belgium, Canada, and Sweden have trust fund for technical

assistance or studies; some of the funds are tied, although the proportion is decreasing. Another special

environmental trust fund is being setup by The Netherlands with the inter-American Development Bank.

Cofinancing occurs when additional my is added to multilateral projects, raising the overall budget for

project assistance. Cofinancing can come from another multilateral or a bilateral source. The World Bank

increasingly uses cofinancing; over half of the Bank’s 1992 projects and programs attracted some cofinancing.

The financing includes ODA as well as other financing, such as export credits from export-import banks. If the

additional money is given in a separate transaction (not as part of the multilateral project budget), it is called parallel

financing. An example is a German GTZ (technical assistance agency) grant to China to train maintenance staff

in concert with an MDB loan for bus fleet fuel conversion. With several large MDB environmental programs

in the works, some countries may seek to promote environmental exports through co-or parallel financing. The

subtle ways in which co- and parallel financing can help a country’s firms win MDB contracts are discussed in

chapter 3.

Table 2-5-1992 Environmental Lending by Selected Multilateral Development Banks

Institution a

Environmental and environmentally related lending

World Bank

The Asian Development Bank

The Inter-American Development Bank

Loans for 19 primarily environmental projects amounting to about $1.18 billion were

approved in 1992. Of these projects, 10 were concerned with better management of

natural resources, and six with building institutional capacity. The other three focused

on both priorities. in addition, the Bank funded 43 projects with substantial environmental components.

1992 lending for environmentally oriented projects amounted to $1.1 billion. Technical

assistance for environmentally oriented projects amounted to about $19 million.

1992 loans for 10 projects “specifically designed to resolve environmental problems”

amounted to slightly over $1 billion.

a The European Bank for Reconstruction and Development did not provide information on the extent of its environmental Iending.

SOURCE: Worid Bank, Environment Department, Environmental Assessment Sourcebook, Volume /, Policies, Procedures, and Cross-Sectoral

Issues, WorldBank Technical Paper, No. 139, and The World Bank and the Environment, Fiscal 1992; Asian Development Bank, Information Office,

The Environments Program of the Asian Development Bank, April 1991, and information provided by the Office of the Environment, Asian

Development Bank, May 18, 1993; Inter-American Development Bank, Environmental Committee, Annual Report on the Environment and Natural

Resources, Washington, DC, 1992, and information provided by the Inter-American Development Bank, Feb. 16, 1992.
How

Aid Can

Promote

Exports 3

A

id programs normally promote national exports to some

extent. One way is by “reflow,” the spending of aid

money on goods and services from the donor country. A

second way is that a country’s own aid programs can

help national firms to tap into aid finding from multilateral

organizations. A third way is that the recipient country’s use of

goods and services from the donor country can open the door to

long-term commercial relationships. Certain practices tend to

increase aid’s export promotion effect, whether or not they are

adopted for that purpose. This chapter describes such practices in

the abstract; their actual use is discussed in chapter 4 (for

practices increasing reflow), box 2-C (for practices that help

firms tap into multilateral funding), and box 2-B (for practices

increasing the chance that aid will lead to long-term commercial

relationships).

PRACTICES THAT INCREASE REFLOW

Some reflow occurs naturally. The donor country may offer

the best bargains in goods and services. Also, the recipient

country might prefer to buy from donor country firms because of

a common language, similar culture, or previous commercial

relationships. l The recipient country might also buy from the

donor out of gratitude, or out of a spontaneous belief (not

encouraged by the donor) that to do so will increase the prospects

for future aid from that donor.

Some donor practices can increase reflow, whether or not that

is why the donor adopts the practice. Some of these practices are

at times criticized on the ground that they inappropriately

1 Catrinus J. Jep~ The Z’jing ofAid (Paris: OECD Development Centre, 1991), p. 25.

31
32 I Development Assistance, Export Promotion, and Environmental Technology

subordinate development goals to the donor’s

own commercial goals. One practice, which is not

normally subject to such criticism, is to focus aid

on projects requiring goods and services that

donor country firms can supply competitively.

This practice can substantially boost reflows.

Another practice, which is subject to the

criticism just described, is the ‘tying’ of aid, i.e.,

restricting where the aid can be spent. In collecting statistics, the DAC distinguishes three categories of aid. First, aid that may freely be spent in all

OECD countries and in substantially all developing countries is called “untied.” (Aid earmarked

to finance the recipient’s local costs is also

counted as “untied.”) Aid that is not “untied”

but nevertheless may be spent to procure goods

and services from at least the donor country and

substantially all developing countries is called

‘‘partially untied.” All other aid is called “tied.”

Often “tied” aid is restricted so that it can only

be spent in the donor country; and by “tied aid”

people often mean aid so restricted, even though

the DAC definition is broader, encompassing any

set of conditions not meeting the definitions of

untied or partially untied aid.

Tying generally increases reflow, though it is

usually hard to tell by how much. In some cases,

the recipient country would have spent money in

the donor country even if the aid were untied.

In principle, the tying status of particular aid

funds depends on the actual, practical restrictions

on spending rather than on the formally declared

restrictions. Thus, aid is defined to be tied when

it is “in effect tied to procurement of goods and

services from the donor country.’ This situation

is sometimes called ‘‘informal’ tying, as opposed to the “formal” or openly announced

tying. In practice, however, member countries can

report figures as they wish, and the DAC does not

often revise them; so informal tying might go

unreported. Informal tying would occur, for

example, if a donor invited bids in advance of

finally deciding to fund projects, and consistently

decided to fund only those projects for which its

national firms would win the contract.

Sometimes donors act in ways that do not

guarantee that aid will be spent in the donor

country, but make that outcome more likely. This

too is often referred to as “informal tying.” For

example, a donor might let it be known that if aid

funds are not spent substantially on donor country

goods and services, future aid will be diminished.

Another example is an administrative system that

helps national firms to influence project selection

(see ch. 4).

Sometimes formally tying only a small amount

of aid can informally tie a much larger amount.

One example is tied grants for consultation

services in the pre-project phase. Large social or

capital projects are not normally undertaken

without some preliminary examination of the

project’s context, scope, planned methods of

implementation, and likelihood of success. This

preliminary phase can go by the name of preproject studies, scoping studies, pre-feasibility

and feasibility studies, and (for capital projects)

engineering studies.

The results of these early studies can have a

ripple effect on the entire project. The firm

performing the study might itself be capable of

doing or at least managing the construction; its

work in the pre-project stage would often give it

a substantial advantage in bidding on the project.3

Even if the firm performing the pre-project study

cannot bid on the project, if the project requires

technology (such as for air pollution control

equipment), that firm is likely to be more familiar

with donor country technologies than with for1 z OECD, “DAC Adopts Revised Guiding Principles For Associated Financing and Tied, Partially Tied, and Untied OD~” Press Release

A(87)23, Paris, 1987 (emphasis added).

I

s The Japanese International Cooperation Agency (JICA), forexarnple, “recommends that the recipient country employ the same consulting

fm [to manage a JICA project] that took charge of the Basic Design work [a preliminmy study], “ in order “to secure technical consistency

of the project desi~ etc.” JICA, “Grant Aid and JICA,” undated, p. 12.
Chapter 3-How Aid Can Promote Exports I 33

eign ones and to recommend technical specifications that can be met by donor country vendors.

This could steer the main project to national firms

even if the main project is not formally tied.

Similarly, once a construction project goes

ahead, a donor could tie just the aid for hiring an

engineering consulting firm to manage the project. A national firm in charge of setting specifications, and in a position to advise the recipient

government on procurement, would tend to steer

business toward other national firms.

Another practice that can increase reflow is to

give aid not as a pure grant, but with some loan

component. Assuming the loan is paid back, if the

aid is spent in the donor country, then the amount

of reflow will actually exceed the net cost of the

aid to the donor. The aid can be given in various

forms. For example, the donor might give the

developing country a grant, plus a loan on terms

similar to those for commercial loans.4 Or the

donor might give a “concessiona1 loan,” that is,

a loan at terms better than those available in the

markets Other possible forms include giving both

a grant and a concession loan, or both a

confessional loan and a loan on close to commercial terms. Aid with a loan component is often

used for major projects (such as wastewater

treatment plants), which are normally too expensive to fired by grants alone.

When aid with a loan component is tied it is

● called a “tied aid credit. ”6 (The term “tied aid

credit” is commonly used to include both tied and

partially untied aid; it is so used in this background paper.) Assuming the loan is repaid, tied

aid credits can leverage a given net cost to the

national treasury to yield substantially larger

amounts of exports. Tied aid credits also have the

potential to skew aid in directions that serve

donor country commercial interests over recipient

country development and environmental interests, and their use is limited by international rules

(see ch. 4).

PRACTICES THAT HELP FIRMS TAP

MULTILATERAL FUNDING

A nation’s own aid programs can help its firms

in two ways to win contracts from multilateral aid

sources. First, a nation can provide tied or untied

grants to perform preliminary studies for projects

being considered by a multilateral aid source. If a

national firm does the preliminary study (which is

assured if the grant for it is tied), it may steer the

main project to a national source, as discussed

above in the context of bilateral aid. (However,

multilateral sources normally have strict and

effective competitive bidding rules that could

limit the influence of the firm doing the preliminary study.)

Second, a nation can provide cofinancing or

parallel financing for multilateral projects. Cofinancing is money contributed directly to the

multilateral project. Competitive bidding is run

under the normal rules of the multilateral organization, so in principle the cofinancing gives donor

country firms no advantage. However, especially

if the cofinancing represents a large part of the

total project cost, the recipient country will likely

be especially receptive to bids by firms from the

country giving the cofinancing. Parallel financing

is tied or untied financing for a project separate

from but closely related to the multilaterally

funded project; for example, parallel financing

could be for a training program on how to operate

a facility whose construction is financed multilaterally. Parallel financing cannot directly influence the procurement for the multilateral project;

however, national firms that bid on the parallel

4 ~vernment gwwmtees of commercial loam are also sometimes used.

5 Sucha loan can be thought of conceptually as equivalent to a commercial loan (with a face value equal to the present value of the requhed

repayment stream) combined with a grant and might in fact be built out of those two components by the donor goveamnent.

s me term “aid” signifies there is a grant component, while the term “credit” signifies there is a loan component (Some amOunt mUSt be

repaid).
34 I Development Assistance, Export Promotion, and Environmental Technology

financing can thereby learn about the multilateral

project, for which they might then bid as well.

PRACTICES THAT ENCOURAGE LONGTERM COMMERCIAL RELATIONSHIPS

In the long run, continually giving out aid is an

expensive way to promote exports. A more

profitable way is to let particular aid efforts

mature into long-term, self-sustaining commercial relationships. One practice that can encourage such relationships is to focus aid on countries

with promising markets.

Another practice that can encourage long-term

commercial relationships is ‘‘technology cooperation. This includes technology demonstrations, research and development centers, training

programs, and technical assistance to nascent

institutions, such as a government environment

agency. Aid for these activities is often tied or

partially untied.8 Technology cooperation may

over time both increase a developing country’s

desire and ability to protect the environment, and

increase its awareness of how the donor country’s

technology can help with that task. Technology

cooperation can reach different groups within the

recipient country, including government policymakers, universities, industry, and nongovernmental organizations. While technology cooperation can have significant commercial benefits for

donors, it can also be essential to achieving

broader environmental and development goals.

T The term “technology cooperation” as used here is broader than the term “technical cooperation” used by DAC.

B ~ the ~tent~aid is offm~ ~ ~W& ~d ~mius(e.g.,-,quipm~t) rather ~iII CW& it is by defiit.ion t.kd if tk gOOdS

and services are produced in the donor country.
Aid and

Exports:

Selected

Country

Practices 4

I

t is hard to say how important aid is in promoting exports.

One study found that 14.6 percent of OECD exports to

developing countries during 1987-1990 were aidfinanced. l But what does this mean? On the one hand,

some of these exports would have occurred without the aid

financing. 2 On the other hand, exports directly financed by aid

can lead to other exports not using aid financing, so over time aid

could have a cumulative effect that far exceeds its export

coverage in a given year.

We can, however, examine countries’ practices that tend to

increase or decrease the exports resulting from foreign aid. This

chapter examines practices of the United States, Japan, France,

Germany, and the United Kingdom3 in four areas: the composition of aid (cash transfer, projects in particular sectors, etc.);

geographic focus of aid; tying of aid, both formal and informal;

and the use of loans (especially tied loans). Much of the data is

available only for aid as a whole; but, where possible, environmentrelated aid is discussed. A fifth area of practice, the building of

long-term relationships (such as through technology cooperation), was discussed in box 2-B; and a sixth area, use of a

country’s aid that can help national firms to win contracts under

multilateral aid projects, was discussed in box 2-C.

Among the foreign countries examined, Japan’s aid may pose

the greatest commercial challenge to the United States, and

1 This figure is derived from a restricted OECD documen~ which gives an analysis by

Professor Catrinus J. Jepma. The OECD plana to publish this analysis in a publicly

available form.

z HOW much this happens is explored in Catrinus J. Jepn@ “EC-Wide Un@W,” DE

FoundatiorL University of Groninge~ The Netherlands, 1992, p. 10.

3 The largest aid donors are, in order, the United States, Jap~ France, Germany, Italy,

and the United Kingdom. Italy is not discussed here.

35
36 I Development Assistance, Export Promotion, and Environmental Technology

receives the most attention below. Japan is, with

the United States, the largest donor of aid and

probably of environmental aid, and it has made a

commitment to expand its environmental aid

substantially. Japanese aid continues to be focused on East Asia, with its potentially large

market for environmental goods and services

(EGS), and where Japan has a strong commercial

presence. Japan also may view the environment as

a strategic industry, and has given the environment special attention in its aid programs. While

the competitiveness of the U.S. environment

industry is not discussed in this background paper

(it will be discussed in the final report in this

Assessment), it is worth noting that Japan has a

long history of promoting industries that it

considers strategic through coordinated use of

R&D, export promotion, import restrictions, tax

policy, and other policies.4

At the same time, Japan’s ODA could benefit

some U.S. environmental firms. Japan has, at

least officially, been taking steps to open up more

of its ODA to participation by non-Japanese

firms. A recent Executive Branch report to

Congress, coordinated by the State Department

(referred to below as the “State Department”

study), says, “we are cautiously optimistic” that

U.S. and other foreign firms “will be able to

increase their participation in Japan’s ODA contracts over the next few years. ”5 It remains to be

seen whether this cautious optimism will be

justified. Even if more opportunities exist in a

formal sense, U.S. firms seeking to participate in

Japanese ODA normally will need to make the

effort to understand Japan’s ODA system, and

will need to be persistent.

COMPOSITION OF AID

Figures 4-1 through 4-3 show patterns in the

composition of aid for 1989 and 1990.6 Compared

with other major donors, the United States spends

more on debt relief and program assistance (fig.

4-l). Debt relief constitutes forgiveness, rescheduling, and refinancing of debt, including debt on

an ODA loan or a non-ODA loan.7 Debt relief is

not normally associated with any particular purchases and thus does not directly promote exports. 8 Program assistance is a general category

for aid not linked to specific projects. It is often

given as a simple cash payment, which again does

not directly promote exports.9 A small portion of

U.S. program assistance is given as a grant that

can be spent only to purchase U.S. commodities.

However, this restriction does not necessarily

increase U.S. exports. The recipient country

4 U.S. Conwess, mice of ‘Ikd.nology Assessment, Competing Economies: America, Europe, and the patific Rim, 0~-~98

(Washingto~ DC: U.S. Government Printing OtXce, October 1991), ch. 6.

S U.S. Department of State in coordination with other Executive Branch departments and agencies in response to a request by the United

States Senate, “Japan’s Foreign Aid: Program Trends and U.S. Business Opportunities” (Feb. 18, 1993), mimeo., p. 6.

G The Em USCXI in these figures for different types of aid, some of which are explained below, are defti p=kely i.11 OEm,

“DevelopmentAssistance Committee Statistical Reporting Directives,” Note by the Secretariat, Dec. No. DAC(88)1O, drafted Feb. 22,1988.

This document has unrestricted distribution.

7 Starting with 1991 figures, relief of military debt will not be counted as ODA at al~ and therefore will not show up as debt relief. This

changed accounting will probably reduce U.S. aid f~es significantly.

s Debt dief could indirectly promote exports in various ways. The recipient country might buy from the donor out of gratitude, or out of

a perception (not necessarily encouraged by the donor) that future aid will depend on current spending patterns. The recipient country would

have increased spending ability (although any extra spending that resulted would not necewarily be made in the donor country). The recipient

country might buy more than it normally could afford from the donor on credit because it anticipates debt relief in the future.

g As with debt relief, exports could be indirectly promoted because of gratitude, increased spending power, or a Pmeption titWin the donor country will increase future aid. This third factor may have recently become more important in the case of U.S. aid. Recently,

USA.ID has inmanycases set up special accounts to track how aid money is spent. Jn these cases, because it must tell USAID how it is spending

the money, the recipient may feel pressure to spend it in the United States, even though USAID does not demand this. However, because the

recipient csn choose what particular goods and services to spend the money ou spending the special fund on U.S. goods and services would

not necessarily increase its total purchases from the United States, as discussed in the text below.
Chapter 4-Aid and Exports: Selected Country Practices I 37

Figure 4-l-Percent of ODA Commitments Devoted to Debt Relief and Program Assistance

1989

70 I I

1990

70 , —

i

D Debt relief

60 _ Program assistance (normally

50

A

not project-specific)

~ 40 —

c)

230 –

2 0 –

lo–

0 I I I I

Us. Japan France Germany U.K.

SOURCE: OECD, Development Cooperation 1991 Report (Paris:

OECD, 1991), pp. 202-203, table 30.

normally is permitted a very wide choice of what

commodities on which to spend the aid. Given

this flexibility, in many cases a recipient can use

up its commodity grants on purchases that it

would on its own have chosen to make from the

United States.

In 1990 U.S. debt relief aid was abnormally

large. However, even if debt relief is omitted

entirely, the United States spends a higher proportion of its aid on program assistance than the other

donors (fig. 4-2).

The United States spends much less of its aid

on large capital projects than several other major

donors. Figure 4-3 compares aid spending in

several sectors (such as energy and water treatment) that could involve environmental equipment and services. Figure 4-3 presents percentages that are adjusted to omit debt relief, which in

1990 was so large for the United States that it

skewed all other percentages (such as for capital

projects) downward; even so, the United States

falls clearly at the low end.

;1 I

D Debt relief

60

_ Program assistance (normally

not project-specific)

; 40—

o

z 30–

2 0 –

lo–

0 I 1 1 I

U.S. ‘ Japan ‘ France Germany U.K.

SOURCE: OECD, Development Cooperation 1992 Report (Pans:

OECD, 1992), pp. A-40, A-41, table 30.

U.S. aid (including environmental aid) emphasizes technical assistance.10 Much of this aid is

provided as grants used to hire U.S. consultants

and service providers. Provision of these services

could indirectly promote export of capital goods,

by familiarizing recipient countries with U.S.

products.

GEOGRAPHIC FOCUS

Aid tends to increase exports to a greater extent

when it is focused on countries with substantial

markets for the donor’s exports. Japan’s aid,

despite geographic broadening in recent years, is

still heavily focused on Asian countries. In 1990,

59.3 percent of Japan’s ODA went to Asia,

compared with 70.5 percent in 1980.11 Some

Asian developing countries have relatively large

and fast-growing markets for capital goods, and

could become important markets for environmental goods and services. Moreover, Japanese

firms already have a strong commercial presence

in these countries, which should help them to

pursue aid-related export opportunities. More

10A few ~ge capi~ proj~ts ~ve &n supported through USAID, including major water and wastewater treatnIent ~d power sator

support projects in Egypt.

11 Jap~e IW&try of Foreign Affairs, @j5cial Development Assistance 1991, p. 63.
38 I Development Assistance, Export Promotion, and Environmental Technology

30

25

20

E

$ 15

2

10

5

0

Figure 4-2-Percent of Non-Debt Relief ODA Commitments Devoted to Program Assistance

1989

r I

Us. Japan France Germany U.K.

SOURCE: OECD, Development Cooperation 1991 Report (Paris:

OECD, 1991), pp. 202-203, table 30.

than half of the water purifying and filtering units

exported from Japan in recent years have gone to

Southeast Asian countries.12

TYING OF AID

How do the United States, Japan, France,

GermanY, and the United Kingdom compare in

the extent to which they tie their aid? This

question has no easy answer. DAC statistics on

tying have shortcomings that make comparisons

difficult; also, one can look at the available data

in different ways. In addition, certain circumstances can make tying either more or less likely

to promote exports. Some comparisons for 1990

and 1989 are presented in figures 4-4 and 4-5,13

but they must be understood in this light:

30-

25-

20-

E

a)

p 15-

&’

10-

5-

0-

1990

U.S. Japan France “Germany U.K.

SOURCE: OECD, Development Cooperation 1992 Report (Paris:

OECD, 1992), pp. A-40, A-41, table 30.

■

■

The statistics are based on aid commitments

made-rather than actual funds disbursed—

during a given year. Some commitments never

ripen into disbursements,14 and the percentages

of each that are tied could differ.

Debt relief is counted as untied because it is not

linked to any purchases,● 15 thus, the abnormally

high level of debt relief in the U.S. aid program

for 1990 skews tying statistics downward. For

this reason, the 1989 figures probably provide

a more representative comparison; these show

the United States roughly even with Germany

and France (the United States tending to have

slightly less tied aid, but more partially untied

aid), and tying more than Japan but less than the

United Kingdom. (Japan’s tying statistics are

discussed further below.)

12 As cited in Pat Murdo, “Cooperation Conflict in U.S.-Japan Environmental Relations,” JEI Report, hqmn Economic Institute,

Washington DC, my 28, 1993, pp. 10-11.

Is me r~er ~o~d note tittie ~ing stiticspr~ented ~f~es 4-4 ~d4-5~~erent horn procurement ShdSdCS. (ke~y, b

percentage of aid spent on goods aud serviees fkom the donor emmtry will be greatex than the percentage of tied ai~ beeause some untied aid

(in addition to all tied aid) will be spent on goods and scrviees horn the donor country.

14 Fore-le, 1988 co~~en~rm~ut15 ~rmnt~@er~&s~~men~. ~@UIS Jep~ The~ing ofAid (Pti,FIwNx: OECD,

1991), p. 22.

15 ~ofi~lom ~~t ~ve ~n~~tion~ on pm~s from he donor coun&y, ei~~ tied tid or m non-aid export CK@S. ~ the

original loan was ai~ it would have been counted in the DAC statistics for the year it was given.
Chapter 4-Aid and Exports: Selected Country Practices I 39

Figure 4-3-Percent of Non-Debt Relief ODA Commitments Devoted to Transportation and Communication;

Industry, Mining, and Construction; Water Supply and Sanitation; and Energy

1989

n

U s . Japan France Germany U.K.

❑ Transportation and communication

60

50

40

E

g 30

:

20

10

0

1990

Q

.

m-l

U s . Japan France Germany U.K.

■ Industry, mining, and construction (aid to construction sector)

Q Water supply and sanitation (includes some other social and administrative infrastructure)

❑ Energy

SOURCE: OECD, Developmenf Cooperation 1991 Report (Paris: SOURCE: OECD, Development Cooperation 1992 Report (Paris:

OECD, 1991), pp. 202-203, table 30. OECD, 1992), pp. A-40, A-41, table 30.

■ Impressions about tying among countries will

vary, depending on whether one examines just

bilateral aid or total aid, which would include

aid given through multilateral organizations.

(During 1990-1991, the United States, Japan,

and the United Kingdom each gave 22 percent

of ODA to multilateral organizations, Germany ■

16 percent, and France 10 percent.l6) Normally,

multilateral aid is effectively untied.17 However, there is one important exception: the EC

has a multilateral fired of aid that normally

must be spent in the EC. The EC now spends

about $3 billion annually on such tied aid;

about 10 percent of this is environmental aid.

Figure 4-4 shows tying of bilateral aid; figure

4-5, which shows tying of total aid, shows

slightly less tying by the United States and

Japan, which are not EC members.18

The extent to which tying promotes exports

depends not only on how much is tied, but also

on what is tied. OECD tying statistics do not

separate grants versus loans. Tied aid loans

have greater export promotion potential and are

restricted by OECD rules.19 As discussed

16 OEm, Devezop~nf coopera~o~ J992 Report (Paris, France: OECD, 1992), p. A-16, tibIe 7.

17 Seved MDBs restrict pr ocurernent to member countries, but membership is ve~ wide.

18 ~ fiWe 45, the EC multi~ter~ ~d(which is repfi~ sep~ately ~ DA(J s~~tics) is co~t~ ss tied, m(l dl Otha mdtiaterd iiid

is counted as untied.

19 Atisme &+re~o~y lom tit me pmof ODA. or-(non+id) offlci~ ~prt cr~i& which ~eby definition tied to pUrCb$eS hOII.1

the counhy granting the credit are not part of the DAC statistics.
40 I Development Assistance, Export Promotion, and Environmental Technology

80

70

60

50

E

g 40

$

30

20

10

0

Figure 4-4-Formal Tying

1989

m Partially untied

_ Tied

U s . Japan

SOURCE: OECD, Development

OECD, 1991), p. 206, table 33.

below (under “Use

States has given less

other major donors.

1- 1-

France Germany U.K.

Cooperation 1991 Repent (Paris:

of Loans”), the United

tied aid loans than some

OECD tying statistics also do not separate aid

by purpose (e.g., food, economic infrastructure). For example, the United States ties its

food aid to the purchase of U.S. agricultural

commodities. In 1990, food aid comprised 6.3

percent of U.S. ODA commitments.20 This

substantial chunk of tied aid means that the

United States ties a smaller proportion of its aid

in other areas than its overall average.21 (Some

other major donors might have similar tying

patterns.)

Tying practices can vary geographically, and

tying of aid is most likely to promote exports

when the aid is given to countries with the most

promising markets. For example, as discussed

below, Japan has provided substantial untied

of Bilateral ODA Commitments

80

70

60

50

E

; 40

2

30

20

10

0

1990

n Partially untied

m Tied

1-

U.s. Japan France Germany

NOTE: 1990 Figures for U.K. not available.

SOURCE: OECD, Development Cooperation 1992 Report (Paris:

OECD, 1992), p. A-44, table 33; and unpublished OECD data (minor

corrections to table 33).

grant aid to African nations; this suggests that

Japan’s tying statistics for Asia, which holds

the most commercial interest for Japan, might

be higher than Japan’s overall tying statistics

reported in figures 4-4 and 4-5. Other nations

also might tend to tie aid more in markets of

more interest.

Tying of aid does not always increase exports;

sometimes the recipient country would have

bought the items from the donor even in the

absence of tying. As discussed above (under

“Composition of Aid”), when the recipient

country has a wide choice of what goods or

services to purchase with the tied aid, it often

will be able to spend the tied aid on items that

it would have bought from the donor anyway.

This is true for U.S. commodity aid, and may be

true for some aid offered by other donors.

m OE~,D~eJop~ntcoop~ation 1992 Report, op. cit., p. A-41, table 30. kfkdy- 1991, U.S. fdaid obfigatiom w-$1.87 b~o~

or 15 percent of U.S. aid commitments (excluding military ai@ which is not counted as ODA by the DAC). Derived from Curt lhrnoff, Library

of Congress, Cm.qpessional Research Service, “Foreign Aid: Answers to Basic Questions,” Mar. 2.5, 1992, pp. 1-3,9.

21 nunitiStites wties ahnost all of its military aid, which in 1991 amounted to $4.8 billio~ or 28.3 pement of totd foreign aid

obligations. Curt Thmoff, Library of Congress, Congressional Research Service, op. cit., p. 3. However, military aid is not counted as ODA

under DAC rules, and is therefore not reilected in the DAC data presented here.
Chapter 4-Aid and Exports: Selected Country Practices 141

Figure 4-5--Formal Tying of Total (Bilateral and Multilateral) ODA Commitments

1989

80

70- D partially untied

Jm Tied

60

1-

U.s. Japan France Germany U.K.

SOURCE: OTA. Derived (see text) from OECD, Development Cooperation 1991 Report (Paris: OECD, 1991), p. 206, table 33.

The DAC statistics omit an unknown amount of

informal tying. The DAC defines loans and

grants to be tied when they are “in effect tied

to procurement of goods and services from the

donor country.”22 In practice, however, member countries can report figures as they wish,

and the DAC does not often revise them, The

quoted language is susceptible to different

interpretations, and countries would normally

wish to describe their aid as untied to the extent

possible.23 Also, some practices, while perhaps

not rising to the level of “in effect” tying, at

least make it more likely that purchases will be

made in the donor country. Hence, while

figures 4-4 and 4-5 show Japan with the lowest

percentage of tied aid, Japan’s recent reduction

informal tying does not necessarily indicate an

8 0 -

7 0 -

6 0 -

5 0 -

E

g 40 –

a)

a 30-

2 0 -

10-

0 - ,

1990

D partially untied

m Tied

1

I

I

r

I

U s . Japan France Germany

NOTE: 1990 Figures for U.K. not available.

SOURCE: OTA. Derived (see text) from OECD, Development Cooperation 7992 Report (Paris: OECD, 1992), p. A-44, table 33; and

unpublished OECD data (minor corrections to table 33).

equivalent reduction in the extent to which its

aid program promotes exports.

Partly because Japan’s aid has been expanding

rapidly, the commercial implications of its aid are

receiving much attention. Figure 4-6 breaks

Japan’s aid into multilateral aid, bilateral grants,

and bilateral loans. The multilateral aid, the

smallest portion, is untied; in this regard Japan

resembles the United States but differs from

France, Germany, and the United Kingdom,

which give roughly half of their multilateral aid to

a tied EC fund. Overall statistics on tying of

Japan’s bilateral grant aid do not appear to be

available, though there is some indication that

Japan ties less of this aid than several other major

donors. 24 Japan’s bilateral grant aid, which is

focused on the poorest developing countries, is

220-, ~fDAC~opts ~~~~d@~ciples For ASSOC~~F*~ @Ti~p-yTi@,@UntiedOD~” PrCSS Release

A(87)23, Psris, 1987.

23 @~W J~~ op. CiL, p. 21.

24 s~ticson ~of -t~d ~~ @ & cofi~g,~dt-~~metimes ~~in &erentsenses. ~this paper, “~tid” dates

any aid not involving a loan. This would include debt relief and simple cash transfers, which are untied because they are not linked to any

purchases; technical assistance, which is often given directly as semices from the donor country (e.g., training classes) rather than in c@ in

which case it is tie@ and cash grants to be spent on some particular pupae, which could be tied or untied.
42 I Development Assistance, Export Promotion, and Environmental Technology

Figure 4-6--Japan’s ODA: Multilateral, Bilateral Grants, and Bilateral Loans

Net Disbursements

FY 1990($1 = 145 yen) FY 1991 ($1 = 135 yen)

$9,221 million $11,033 million

multilateral

Its

bilateral loans bilateral loans

$3,920 $5,475

NOTE: Numbers do not add because of rounding.

SOURCES: Ministry of Foreign Affairs (Japan), Wagakuni no Seifu-Kaihatsu-Enjo 1992, Jyokan [Official Development Assistance 1992], p. 101;

Ministry of Foreign Affairs (Japan), Japan’s ODA: Official Development Assistance 1991 (Annual Report), p. 62.

mostly administered through the Japan International Cooperation Agency (JICA); however,

some of the untied aid is administered by nonJapanese agents. For example, Japan gave $500

million of untied grant aid for structural adjustment to African countries during its fiscal years

1

1987-1989, administered in large part by the

1 British Crown Agents and the United Nations !

Development Programme.25

Bilateral loans, the largest category, are issued

through Japan’s Overseas Economic Cooperation

Fund (OECF). Of the bilateral loan commitments,

Japan’s tying figures show a dramatic move

toward more untied aid. For its fiscal years 1986,

1990, and 1991, Japan reported no fully tied aid.

Partially untied aid declined from 51 percent in

fiscal year 1986 to 15 percent in 1990 to 10

percent in 1991, with the rest untied.26

While Japanese statistics may show little is

formally tied, there continues to be skepticism

about the degree to which U.S. and other nonJapanese OECD firms will, as a practical matter,

be able to participate in projects funded by OECF

loans. The recent State Department study noted

that “fairly consistent” impressions from published sources and from U.S. government personnel in the field indicate a pro-Japan bias in

awarding OECF loans, but the evidence is “incomplete and often purely anecdotal,” and “not

systematically documented.” 27 The report also

noted that “it is not clear that other donors do not

engage in similar practices.”28 Of course, to the
Chapter 4-Aid and Exports: Selected Country Practices 143

extent that other non-U.S. donors engage in such

practices, that too poses a greater commercial

challenge to the United States than the formal

tying statistics would suggest.29 To the extent that

the United States engages in such practices, the

United States could be reaping commercial advantages beyond what its tying statistics would

suggest. However, such practices would probably

be primarily for grant aid (since the United States

gives very little loan aid), which has less potential

to promote exports for a given amount of net aid

expenditure.

As is evident from the following discussion,

some Japanese ODA practices that tend to favor

Japanese firms continue to be widely used, while

other practices that once

appear to be changing.

1 Feasibility Studies30

As discussed in chapter

particular country does a

conferred such favor

3, when a firm from a

feasibility study, that

tends to make it more likely that a firm from the

same country will win the contract for the main

project. This is a rationale for the United States’

Trade and Development Agency (TDA), which

ties grants for feasibility studies to help U.S. firms

win contracts for the subsequent development

projects (see app. B). Japan’s practices encourage

the selection of Japanese firms to do feasibility

studies for proposed OECF loan projects, all of

which require a feasibility study before they can

go ahead. Whether intended or not, the use of

Japanese firms to do feasibility studies probably

tends to steer the main projects to Japanese firms.

Feasibility studies for OECF projects can be

done by JICA, the recipient country, or international organizations. JICA studies are paid for by

Japan and constitute grant aid. JICA’S annual

budget for these studies is about $200 million—

many times larger than TDA’s present budget for

feasibility studies (though increases in TDA’s

budget have been proposed).31 JICA hires consultants to do these studies. JICA will hire only

Japanese fins; some participation by nonJapanese nationals is permitted but rare.32 For

some studies not done by JICA, the use of

Japanese firms is probably encouraged by subsidies given to consulting firms by the Japanese

government. For example, in its 1991 fiscal year,

MITI provided 420 million yen (roughly $4

million) to various associations of consulting

firms, for distribution to their members for use on

pre-project studies for possible aid projects.33

29 For e-le,in lg89 the Export-Import Bank of the United StateS report@ “Advance bidding, whereby public*e@p-esthe

f~ conclusion of an aid agreemen~ allows the German government to conclude an agmxnent only if the contract is won by a Germsn firm.”

Export-Import Bank of the United States, Report to the U.S. Congress on TiedAid CredJ”t Practices, April 1989, p. 63. As well as permitting

cancellation (or downsizing) of jobs not won by a German f% this practice could encourage potential aid recipients to seek out and fhvor

German suppliers.

30 me ~o~tion abut lap-e practices in this section is derived primmily tim OEcFAnnuaZReport J99Z P. 1*, JfC4 “JaPm’S

GrantAidBudgetforPY 1992”; JIC& “GeneadInformationfor the Participation OfNon-Japanese Consultants,” undated (given out byJICA

in March 1993); U.S. Department of State in coordination with other Executive Branch departments and agencies in response to a request by

the United States Senate, “Japan’s Foreign Aid: Pmgrsm ‘llends and U.S. Business Opportunities,”op. cit,; and other information from JICA.

OTA could not obtain information from OECF’S Washington office for this repofi because OECF insisted on preconditions that OTA could

not accept.

31 ~~~sfi~~= 1992 ~dget for ‘~development s~dies” w= $226 million ($66 won of which -e from ~.~~ “Japan’s

Grant Aid Budget for FY 1992.” This budget includes not only feasibility studies for particular projects, but “master plan” studies to set

development priorities for a country as a whole. The amount spent just on feasibility studies is not given.

TDA’s fiscal year 1993 budget is $40 million, most of which goes to feasibility studies and rela~ prehninary “definitional missions.”

32 mt-_er must be Japtwse; Japanese nationals must constitute at least half the team members and perform at least half the

person-months of effort. JICAmust approve any use of foreign nationals. From June 1988, when use of foreign nationals was first permiti

through August 1992, 132 foreign consultants were used for development studies. JIC~ “General Information for the Participation of

Non-Japanese Consultants,” op. cit. For compariso~ in fiscal year 1988 JICA development study teams used more thim 3,000 people.

33 Ministry of Finance (Japan), Hojokin Soran [Subsia?es Digest] FY 1991, p. 386.
44 I Development Assistance, Export Promotion, and Environmental Technology

I Tying of a Project’s Engineering

Management

In the last several years, OECF often has

reported projects in several East Asian countries

as untied, except that “consulting services,”

which includes project management, are reported

as partially untied, so that only Japanese and LDC

firms are eligible. Since relatively few LDC firms

possess the necessary experience for management

of a sophisticated engineering project, partial

untying can at times be tantamount to full tying.

Even if some LDC firms win contracts, the rest go

to Japanese firms; U.S. or other OECD country

firms would not be eligible. The presence of a

Japanese firm managing a project could make it

easier for Japanese firms to win other parts of the

project, even if the managing firm did not

consciously try to favor Japanese fins. Some

analysts report that Japanese consulting firms

often write detailed project specifications that

favor Japanese firms.34 OECF maintains that

under its guidelines project specifications “cannot” be drawn to favor particular firms, but has

not cited specific language in those guidelines.35

Japan is reducing its use of LDC-untied project

management; the practice was relatively rare in its

1992 fiscal year except for Indonesia (which

accounted for 14 percent of loan commitments),

for which it was still the norm.36 According to the

State Department study, the Indonesian government has successfully pressed for award of a

substantial portion of engineering service contracts to domestic Indonesian firms.

B Request-Driven Aid System

Traditionally, Japan has made aid decisions

based largely on specific requests from recipient

governments. In the past, it would evaluate each

project on its own, without considering how it fit

into the country’s overall development needs.

(The United States has traditionally worked with

developing countries to prioritize projects within

an overall country plan. USAID has more people

in the field than JICA and OECF, making that

dialogue more feasible.)

Japan’s aid appears to be changing to give more

attention to a country’s overall priorities. Increasingly, Japanese and developing country officials

meet to discuss the country’s development strategy and its relation to Japanese aid. As of March

31, 1991, Japan had sent missions to ten developing countries to establish overall development

priorities, and had sent missions to nine developing countries to establish environmental priorities.37 Also, JICA now sends study teams to

evaluate proposed projects in the context of the

overall development plan. Environmental aid

may be serving as a testing ground for Japan’s

new approach. MITI has stated that its $2.5 billion

Green Aid Plan (ch. 5) will rely on “policy

dialogue’ between Japan and the recipient country to prioritize projects, rather than evaluation of

requested projects in isolation.38

However, Japanese aid is probably still largely

request-driven; this may be true even for environmental aid. The request-driven approach lets

Japanese firms encourage projects of their choosing, if they establish close ties with firms in a

~ For e~ple, Fujim~MU a former employee of the Japan External Trade Association (JETRO), wrote, “IfJapanese ~mmts

are employed for yen-loan projects, they often draw up specifications that only Japanese contractors can meet.” “The Untying of Japanese

Aid: New Opportunities for Trade and Investment,”Private Investment and Trade Opportunities (PITO) Economic Brief No. 9 (Honolulu:

East-West Center Institute for Economic Development and Policy, May, 1992), p. 22. Mr. Fujimura notex however, that because of “yen

appreciation, Japanese consuhancy does not always guarantee procurement from Japam ”

35 U.S. wp~at of Stite in coor~tion with other Executive Branch agencies and departments in response to a request by the United

States Senate, “Japan’s Foreign Aid: Program Trends and U.S. Business Opportunities,” op. cit., p. 35.

36 OECF An~lRepo~ 1992, pp. 87-117.

37 m,Wag&ni no Selfi-Kai~tm-Enjo 1992, Jyokun IO#icial Development Assistance 19921, pp. 6*-69.

38 ~,Ka@o G~utSuIten ~“ Ka~ru sogote~” Shien(Green Aid Plan) No Suishin ni Tsuite (Promotion Of comprehemive Asm”stame

Concerning Environmental Technology Transjkr “GreenAidPlan”), March 1992.
Chapter 4-Aid and Exports: Selected Country Practices I 45

developing country that can influence that government’s requests.39 The State Department has

observed that “in practice recipient countries are

frequently ill-equipped to set priorities, prepare

realistic proposals, and oversee implementation.

Japanese trading firms often step into the vacuum

to assist in project identification and design.”40

Even under the policy dialogue approach, Japanese firms may influence project selection by

influencing the Japanese government’s position;41 U.S. firms similarly might be able to

influence USAID’S project selection process.

S Other Factors

The State Department study states that “recipient country governments often believe that while

Japan’s aid is formally untied, they are obliged to

select Japanese suppliers, either as a gesture of

gratitude or as a pragmatic means of ensuring the

continued flow of Japanese ODA commitments.’ ’42

The same might be said of the United States and

other donors’ ODA. Another factor is accessibility of information on upcoming projects: it is hard

for U.S. firms to learn of opportunities without

having a presence in Japan. Again, the effect is

not limited to Japanese ODA; it takes effort for

non-U.S. firms to learn about U.S. ODA.

Despite the difficulties and apparent barriers,

some U.S. firms could benefit from Japanese

ODA. There have been several recent examples of

successful efforts by U.S. firms to participate in

Japanese ODA, and Japanese contract procedures

are becoming more competitive, according to the

State Department study.43 The U.S. government,

with assistance from the Japanese government, is

providing information to U.S. firms about how to

compete for Japanese ODA.44

Statistics from the Japanese Government seem

to suggest that in fact large quantities of Japanese

aid are spent outside of Japan (and thus to suggest

that the concerns raised above regarding opportunity for non-Japanese firms are misguided). For

example, of its 1990 untied bilateral loans, Japan

reports that only 20 percent of the procurement

went to Japan, with 55 percent going to developing countries and 25 percent going to other OECD

39 ~ p~iple, ~ from oh countries could similarly develop ties with the developing COUntfy to ~umw its r~ests to JW~

However, in practice Japanese fhms have advantages. Firms from other countries might not understand Japan’s request syst~ and thus not

appreciate the need to form such ties to influence requests. Japanese firms might also appear more credible in helping the recipient government

to frame a request in a way likely to gain approval fkom Tokyo. Also, the system favors incumbent donors, those already with strong ties to

developing countries; Japan is already the incumbent in several promising East Asian markets.

40 U.S. Dep~mtof Smte ~ cmr~tion~tho~a~~tiveBr~hagencies ~ddep~entsin response to a quest by the United

States Senate, “Japan’s Foreign Aid: Program Trends and U.S. Business Opportunities,” op. cit., p. 15.

AI ~Smte Department study sties:

~]rivateJapanese firma reportedly “lend” short-term employees to short-staffed JICAandOECF. When secxmdedtoLJXministries

as “technical experts,” these employees often advance proposals in which theirf~ have au interest. For example, in 1991, a JICA

offlcialindicated thatprivate employees comprised some 30% of JICAexperts inIndonesia. Meanwhile, an OECDIDAC survey found

that seconded Japanese experts strongly influenced Indonesia ODA project requests, indeed originated some projects, and an OECF

official echoed that fact to U.S. government visitors to Tokyo in 1991.

Ibid., pp. 34-35.

42 Ibid., p. 32.

43 mid., ~. 1, 6, 54570 ~Stite Dep~ent repofi iden~led my ~es M over $5 ~c)q ~ost m of those W- fOr kICOmOtiVeS,

locomot.iveparts, orlocomotiverehabilitation by Oeneral Electric and General Motors (sometimes by their foreign subsidiaries). In some cases,

General Electric aud General Motors were subcontractors. The report also idmtifkd other types of contracts, including several consulting

contracts.

4 4 @ example is a guide to Japanese ODA for U.S. firms that is part of the State Department stud~ another is the Japan Official

Development Assistance Conference in Tt@o, Nov. 9-11, 1992, sponsored by the Departtmmt of Commerc e, in which Japanese officials

(among others) spoke to 72 U.S. firms about Japanese ODA.
46 I Development Assistance, Export Promotion, and Environmental Technology

countries.45 Of its total fiscal year 1991 loan

commitments, Japan reports that only 31 percent

went to Japan, with 48 percent going to developing countries and 21 percent to other OECD

countries. 46

However, the State Department study reports

that it is impossible to verify such statistics,

though this problem is not unique to Japan.47 Some

skepticism has been expressed about Japan’s

prior statistics on procurement. An American

researcher, after extensive efforts to verify statistics on procurements from non-Japanese firms

during 1986-1990, was left with large gaps

between Japan’s reported statistics and the actual

projects that could be accounted for, and concluded that the gaps could not be explained by the

fact that certain types of data were Withheld.48

Also, Japan counts as non-Japanese any purchases from joint Japanese-LDC joint ventures

with majority LDC ownership, even though much

of the procurement in such cases might ultimately

come from Japan. OECF’S 1992 annual report

shows many such joint ventures.49

USE OF LOANS

As discussed in chapter 3, for a given amount

of net aid expenditure, giving aid not in pure grant

form, but with a loan component, increases the

aid’s potential to promote exports. Loan aid is

typically used for large capital projects (such as

power plants and waste water treatment plants),

which are most often too expensive to fund by

grants alone. Of the five major donors considered

here, Japan uses loan aid the most, and the United

States and the United Kingdom the least (fig.

4-7).50 While loan aid may tend to increase

exports, export promotion is not necessarily the

prime motivation. Japan states that use of loans

rather than grants benefits aid recipients by

making them take more responsibility for their

development, and that loans for inrastructure are

central to economic development (based in part

on its own rebuilding experience after the Second

World War).

Aid loans have the most export potential when

they are tied, in which case they are called “tied

aid credits.” As used in this background paper

and OECD statistics, the term “tied aid credits”

includes partially untied as well as tied loans.

While OECD collects statistics from most member countries on tied aid credit offers, these

statistics are publicly available for recent years

only as a total for all countries combined, and not

on an individual country basis. For the period

1984-1987, the total U.S. notifications of offers

($1.1 billion) were far less than for Japan ($8.0

45~,Kei~iKyo~o~ no Genjo to Mondiriten, Heisei 4 (“Present Situation and ISSUeS in Economic COOpemtiOX4 1992”), P. 28. ~

source does not specify whether these percentages refer to commitments or disbursements.

~ OEC!FAnnual Report 1992, p. 13.

47 Ja~~ ~d~~d r=ipiats ~reluc~tto rev~ ce~ &~ ~use ~ey wish to protect bus~ess proprietary @ w, reC@klltS do

not always adequately record the data. These problems occurwithmost donors. Also, recipient countries could bereluctauttoreveal information

that might reflect poorlyon a major aid donor. U.S. Department of State in coordination with other Executive Branch agencies and departments

in response to a request by the United States Senate,“Japan’s Foreign Aid: Program Trends and U.S. Business Opportunities,” op. cit., pp.

1,25.

4S ~gm~im Doing Good or Doing well: Japan’s Foreign Aid Program (New York NY: Columbti University ~ss) 1992), ch. 3’

.49 OE@’A-/Repo~ ~g$)z, pp. 136.139. OE~ does not fit~ of its con~tors. However, of 54 p~eslis&tf U (k@ COIIStlUCtiOll

work 6 were such joint ventures (including 4 joint ventures involving f- from Jap~ a developing country, and another OECD country);

andof 51 parties listed as doing consulting work 15 were suchjointventures. (For this tally, the same party working on two contracts is counted

as two parties.)

some ~utige of ODA ~ven k ~m ~t form is computed by taking the 1991 “S- of titsin to~ OD&” D~ezop~nt

Cooperation 1992 Report, p. A-43, ‘Ihble 32 (the figure for France, missing from that table, was supplied separately by DAC), and subtracting

the portion of that grant share that (based on O’IA’s interpretation of unpublished DAC data) was combined together with other financing (e.g.,

a commercial loan) in an “associated financing” package (also called “mixed credits”). Figure 4-7 gives the reverse percentage, i.e., the

percentage of ODA not given in pure grant form.
Chapter 4-Aid and Exports: Selected Country Practices I 47

Figure 4-7-Percent of Total ODA Commitments

Not in Pure Grant Form 1991

80

60

E

; 40

2

20

0

NOTE:

3.4

61.9

23.9 23.8

U s . Japan Germany France U.K

J_m

.

xcludes debt relief and reorganization.

SOURCE: OTA, derived from DAC data (see text).

billion), France ($6.4 billion), Germany ($5.8

billion), and the United Kingdom ($5.9 billion).51

(Notifications do not precisely correspond to

credits actually disbursed, as noted in the next

section in this chapter.) It is widely believed that

the United States in recent years has used tied aid

credits much less than Japan, Germany, and

France. 52 Some donors give tied aid credits in a

form called ‘mixed credits,” which typically are

a combination of grant and loan funds. Some

foreign examples are discussed in chapter 5; a

U.S. response (the use of “War Chest” grant

money with Eximbank loans) is discussed in the

next section of this chapter.

TIED AID CREDITS AND

THE HELSINKI PACKAGE

The U.S. government has long sought to reduce

use of tied aid credits to gain commercial

advantage, arguing at OECD that tied aid credits

decrease economic efficiency when they distort

normal trade patterns. OECD’S ‘‘Arrangements

on Guidelines for Officially Supported Export

Credits” (or “Arrangement”) has restricted the

use of tied aid credits (whether or not they

count as ODA as defined by the DAC), largely

by making them more expensive, though it has

not yet reduced the overall volume of tied aid

credit offers. The latest amendments-the

Helsinki Package agreed to at the end of 1991—

further restricted use of tied aid credits for

projects deemed “commercially viable, ” and

strengthened the mechanisms for reporting credit

offers and for resolving disputes. While these

amendments appear to have given the rules more

teeth, the rules are still not all-inclusive; in

particular, the “commercial viability” test may

be interpreted so as to permit tied aid credits for

Abu Rawash Wastewater Treatment Plant, Egypt.

Donor country firms often provide equipment and

engineering services for water and wastewater

treatment projects, even though much of the

material and labor may be locally provided.

51 EXPrt.~pofi Bank of the United States, Report to the u.S. Congress on Tied Aid Credit Practices, APfl 1989, p. 7.

52 somepfi~ 1992 fiweSforp~c~mcoun~es~vebeenpubfish~ in an April 1993 Eximbankreport. Of $3.8 billion total no~cations

potentially subject to challenge and consultation under the Helsinki Package (see the next section), $1.1 billion, or 29 pereent, each came ffom

France and Spain. Other significant providers, in order, were Finland, Jap~ Austriz Auslrali~ and Italy. Of $1.7 billion in notifications not

subjeet to challenge and consultations because they were too smal~ of too high concessionality, or made to least developed countries, the largest

amounts were made by Italy ($667 million or 39 percent) and Finland ($559 million or 32 pereent). Export-Import Bank of the United States,

“Report to the Congress under Section 15(g) of the Export-Import Bank Act of 1945, as Amended,” Apr. 26, 1993, p. 9.
48 I Development Assistance, Export Promotion, and Environmental Technology

Figure 4-8--OECD Tied Aid Credit Notifications

20

16

c 12

.-0

=.-

n

‘8

4

0

a TwelI

D Surges or old rules

(see text)

-r

1986 a 198 7

a 198 8a 1989 1990 1991 1992

months starting July of the year indicated.

SOURCES: Eximbank’s Apr. 26, 1993, report to Congress on tied aid

credits, pp. 8-10; Eximbank’s June 18, 1882, report to Congress on tied

aid credits, Attachment 1.

many environmental projects or components of

projects. 53

Despite the attention focused on tied aid credits,

it is difficult to quantify their use and still more

difficult to determine their effect on U.S. trade. The

main source of information on volumes of tied aid

credits comes from the operation of the OECD

Arrangement. Almost all OECD members participate in the Arrangement: the EC on behalf of its

members, and Australia, Austria, Canada, Finland,

Japan, New Zealand Norway, Sweden, Switzerland, and the United States. Each Arrangement

participant is required to notify other participants

when it makes an offer of tied aid credits, to allow

other participants the opportunity to match the

offer. Figure 4-8 gives total notifications since

1986. 54 (As mentioned earlier, recent country-bycountry figures are not publicly available.) However, these statistics should be interpreted with

caution. The notification data differs in many ways

from the actual tied aid credits disbursed.55

Also, it would be a mistake to extrapolate

future trends from this data, because of the

tightening of the rules on tied aid credits in the

Helsinki Package. The 1991 and 1992 figures

include surges of notifications in advance of the

need for funds, as donors hurried up their

notifications to take advantage of the old rules.

U.S. Eximbank estimated that this surge accounted for $6.3 billion of the $14.9 billion in

total 1991 notifications.56 Some $9.3 billion of

the $15.4 billion in 1992 notifications were made

under the old or transitional rules, with only the

remaining $6.1 billion made under the new

rules.57 The future trend under the new rules is

difficult to predict; it probably lies in between the

slight increase shown by the total bars in figure

4-8 (which include all notifications) and the

dramatic decrease shown by the solid portions

(which do not include the 1991 estimated surges

and the 1992 notifications under old or transitional rules).

53 ~ae=nt,~ ~~d~by the He~fi Package, is printed as OECD Document OCDE/GD/(92)(5) (1992). ~e~%~entw~

fmt promulgated in 1978. The Arrangement gives guidelines fornon-aid government-supported export credit terms and conditions, to ensure

that they are close to those of commercial loans; it also gives guidelines for tied aid credits. Generally, anygovernment-supported export credits

should conform to one or the other of these sets of guidelines. The Helsinki Package strengthened both sets of guidelines.

w ~this pa~ went t. press, a question ~se concerning whether (and if SO, to wht extent) ~= Statistics include offers titwe ~ts

or close to grauta (concessionality level of at least 80 percent). Such offers are of relatively little commercial concern and are largely exempt

from the Arrangement’s restrictions.

55 upw~bim=~t.~efi~s include some p~~pmj~ts~~e~verc~~out,~d ~medupli~~no~lcations by fSVO Or IIiOre

countries for the same project, Downward biases also exist. The figures omit financing of ships, military equipment, and agricukuralprod ucts;

members reportedly do not always notify as they should and members do not have to notify transactions in which the ODA is only for technical

cooperation amounting to less tban both 3 percent of the transaction’s total value and $1 dlion, Also, countries are permitted to report

transaction amounts as falling in ranges, rather than the precise figure; the OECD statistics use the midpoint of the range.

56 F@ort.@ofi Bank of the United States, “Report to the Congress under Section 15(g) of the Export-Import Bank Act of 1945, As

Armmded (Section 19 of the Export-Import Bank Act of 1986, Public Law 99472)”, June 18, 1992, Attachment 1.

57 F@ort.~pofi Bank of the United States, “Report to the Congress under Section 15(g) of the ExporMmport Bank Act of 1945, as

Amended,” Apr. 26,1993, pp. 9-10. Because of peculiarities in the statistics, some items maybe double-cmm~ in the $6.3 and $9.3 billion.
Chapter 4-Aid and Exports: Selected Country Practices I 49

Tied aid credits on balance probably have

lessened U.S. exports, though it is difficult to say

by how much. In the mid- 1980s the United States

probably lost billions of dollars in exports because of foreign tied aid credits, though the figure

is quite uncertain.58 The losses will likely be less

under the latest OECD rules: even if the volume

of total tied aid credit offers does not decline, the

latest OECD rules will likely shift tied aid credits

to projects with less overall commercial effect (as

discussed below).

Since 1983, the Arrangement has imposed

certain minimum “concessionality levels” on

tied aid credits.59 The idea was to make these

credits more expensive for donors, thus decreasing their use and limiting their power to leverage

aid dollars into exports.60 Also, packages with

higher concessionality levels were thought less

likely to distort trade.61 The minimum levels have

been raised three times since (fig. 4-9). However,

the tied aid credits notifications stayed in the $10

to $15 billion dollar range into the 1990s.

In 1988, the DAC (whose membership does not

correspond precisely to the participants in the

Arrangement) adopted Guiding Principles urging

donors to limit use of tied aid credits to “priority

projects and programmes which are carefully

Figure 4-9-Minimum Concessionality Levels for

Tied Aid Credits

Poorest countries

r

/

/ Other countries

2 0 4

0 1 I 1 [ 1 I I I 1

1983 84 85 86 87 88 89 90 91 92 93

Year a

a Minimum levels shown are those in effect as of July of the given year.

SOURCE: OTA, derived from Eximbank reports and information from

the Treasury Department.

appraised against developmental standards.’ ’62 In

addition to serving development goals, such

limits could, if followed, prevent the use of

trade-distorting tied aid credits in cases where the

project did not meet the developmental standards.

However, these Guiding Principles were nonbinding and had no provision for enforcement,

58A 1989 qofi by the Export-Import Bank of the United States~) egtimates that U.S. firms lost $400-$800 million in exports

annually during 1985-1988 because of foreign tied aid credits. Bxport-Irnport Bank of the United States, Report to the U.S. Congress on Tied

Aid Credz”t Pructices, April 1989, p. 142. This estimate considers only sales lost direetly to offess supported by tied aid credits; it does not

consider any losses in follow-on work. Also, one expert argues that the data presented in tbat report instead support a muchighes estimate

of directly lost sales, $2.4-4.8 billion. Ernest Preeg, The ZI”edAid Cre&”t Issue: U.S. Export Competitiveness in Developing Counm”es (Center

for Strategic and International Studies: WashingtOrq DC, 1989). Whichever figures sreu~ tbis export loss was much greater than the export

gain fkomU.S. use of tied aideredits, which avemg~ aecordingto the%imbankrepo~ at most $250 million annually during this period ($250

million is the average annual value of ull exports made using tied aid credits, whether or not the exports would have btxmmade without them).

59 Conmptiy,the ~mssio~~ level represents the extent to which the aid is a -tM OppOsd to a Iom A Pm -two~d tie

a coneessionality level of 1(K) percen~ and a loan on terms deemed emnrnercial a concessionslity level of O percent. ‘lbchnieally, the

coneessionality level of a soil loan equals the face value of the lotq minus the present value of the future repayment stream (using a reference

discount rate to represent commercial rates), all divided by the face value of the loan.

60 For -le,~th a ~omssio~~ floor of 25 Wmen~ -hdoll~ of ~d ~~ l~~g~at most into 4 do- of CXpOltS; with a

eoneessionality floor of 50 pereen~ each dollar of aid ean be leveraged into at most 2 dollars of exports.

61 T&~~ap-e$5 ~~s5io@~ level (ioe., ~clos~ it is to apme -t),~ more ~ely it is titthe pw~gewill fund P~-

that othenvise would not have been made, rather than divert purchases from one supplier to snother. John Ray, “Commercial Viability In the

Helsinki Pa&age” (mimeo., undated), pp. 4-5.

62 ~~DAC Guidi,ng~iplesfor~m~~ Financing and Ti~ and Partially Untied Official Development Assistance,” tiOptOd Apr.%

1987, attached to press release, “DAC Adopts Revised Guiding Principles for Associated Financing And Tied and Partially Untied CMcial

Development Assistance,” PRESS/A(87)23, Apr. 28, 1987.
50 I Development Assistance, Export Promotion, and Environmental Technology

200

180

160

140

120 K

: 100

~

80

60

40

20

0

Figure 4-10--U.S. Eximbank War Chest Grant Funds

_ authorized

150

78.1

D disbursed

150 150 150

7.6 0

n added USAID grants

53.4

30

150 —14 5150

5.1

1987 1988 1989 1990 1991 1992

SOURCE: Eximbank’s June 18,1992, report to Congress on tied aid credits, Attachment 3; U.S. Congress, General

Accounting Office, Export Finance: The Role of the U.S. Export-Import Bank, GGD-93-39 (Washington, DC: U.S.

Government Printing office, Dee. 23, 1992), pp. 48-49.

and in fact development priorities have not

always been observed.

To provide leverage for U.S. negotiations to

restrict the use of tied aid credits, Congress in

1986 established a “War Chest” of grant money

to be combined with Eximbank loans. The War

Chest was intended to let the United States

respond in kind to foreign tied aid credits.63

! However, the War Chest’s effectiveness has been

limited by its size and manner of use. In its initial I1 five years, the War Chest was authorized at only

$150 million per year (fig. 4-10), much less than 1

I the corresponding sums used by several foreign

i countries, so that only a small fraction of foreign

offers could be matched.@ In three of the six

years, the War Chest was used relatively aggressively to gain leverage in negotiations concluded

in 1987 and 1991. In the other years, the War

Chest was used sparingly if at all, and then only

when a foreign country violated or derogated

from the recently concluded agreement. Recent

legislation has increased the War Chest authorization to $500 million annually for FY 1993-

1995,65 though again the amounts authorized will

not necessarily be spent. Eximbank’s stated

intention is to use the War Chest “selectively,’

with the “focus” on enforcing the new rules.66

Eximbank points out that War Chest use can

disproportionately reduce the funds available for

ordinary export credits. The reason is that the

subsidy component of each Eximbank loan is

counted against Eximbank’s overall appropriations;

loans using War Chest funds are subsidized much

6312 U.s+c. Gqsi.’j.

64 ww~st **~ not ~qw~ly ~ppmpfi~ w= QSt ~~ ~ ~g~ ~fit mw’s OVerall appro~on levels. In some

years, as shown in figure 4-10, some USAID grant funds were added to the War Chest to support additional tied aid credits.

When combined with Eximbank loans, $150 million in War Chest grant funds would typically yield about $430 million in tied aid credits.

This assumes a 35 percent cxmcessionality level.

65 ~~ Enbm&ment Act of 1992, Public hW102429, Sec. 103.

66 fiPfl-~PflBti Of he Unitd Swes$ “Report to the Congress under Section 15(g) of the E!xpofi-hnport Bank Act of 1945, as

Amend@” Apr. 26,1993, pp. 13-14.
Chapter 4-Aid and Exports: Selected Country Practices 151

Figure 4-11 Helsinki Rules

Wealthiest All projects No —

(1991 per capita

GNP over $2,555)

Commercially No —

viable projects

Middle group ———————————————————

Projects not

commercially Yes 35%

viable

Least developed All projects Yes 50%

NOTE: Conditions apply to funding of at least 2M SDR with under 80 percent concessionality.

SOURCES: Summary of OECD rules provided by Eximbank; OECD, Arrangements on Guidelines for Officially

Supported Export Credits (OECD: Pans, 1992), paragraph 8(a).

more heavily than Eximbank’s ordinary export

credits.

While retaining the previous minimum concessionality levels,67 the 1991 Helsinki Package

further limits use of tied aid credits (fig. 4-11).

The additional provisions, given in paragraph

8(a) of the Arrangement, apply only to tied aid

credits with a concessionality level under 80

percent (which is fairly close to a pure grant), and

only to financial packages worth at least SDR 2

million (roughly $2.8 million).68 Paragraph 8(a)

distinguishes three classes of LDCS: the wealthiest, defined in 1993 as those countries that had

1991 per capita GNP above $2555;69 the “least

developed countries” as defined by the United

Nations (sometimes referred to as “LLDCS”);

and a residual middle group. The division between the middle group and the least developed

group is not strictly on the basis of per capita

income. The United Nations’ definition of “least

developed’ considers not only per capita income

but also other factors that can affect development,

such as literacy rate and frequency of natural

disasters;70 also, countries are not automatically

reclassified as their conditions change. The wealthiest group includes, for example, Brazil, Mexico,

and Venezuela; the middle group, China, Indonesia, Thailand, and the Philippines; and the least

developed group, Chad, Haiti, and Yemen.

For the wealthiest LDCS, tied aid credits within

the scope of paragraph 8(a) are prohibited. The

rationale is that those countries should be able to

attract investment for commercially viable projects, and should be able to finance nonGT However, the p~~ge~d change the way in which concessionality is calculated, in order to better represent the Mtud ~ket ~rmsu~

for comparison. In additio~ the requirements for non-aid export credits were tightened somewha~ requhing them at times to be closer to

commercial terms.

Gs A sp~i~ Drawing Right (SDR) is an international money unit based on a weighted average of 16 national eUrreneieS.~ APfi 1993 ~

SDR was worth about $1.40.

@me we~~est LDCS ~ technically defmcd as “countries whose per capita GNP would make them ineligible for 17-or 2@Yw 1o~

fkom the World Bank.” Because of lags in collecting da@ the World Bank bases eligibility in a given calendar year on a country’s per capita

GNP two years earlier. In 1992, when the Helsinki Package fmt took effect the wealthiest LDCs consisted of those with 1990 per capita GNP

over $2,465.

70 Ufitti Nations, co~t~ for D~elopment M-,Rep~~ on t~ ~enq-seventhses~-on (New Yor&, 22-26 April 1991), k.

E/1991/32, Beonomic and Social Counc~ Oftlcial Reeords, 1991, Supplement No. 11 (New Yor~ NY: United Nations, 1991).
52 I Development Assistance, Export Promotion, and Environmental Technology

commercially viable projects on their own. For

the least developed group, tied aid credits within

the scope of paragraph 8(a) are (as before)

permitted with a minimum concessionality level

of 50 percent. Thus, tied aid credits would be a

particularly expensive way to promote exports to

these poorest countries; and these countries’

poverty limits the opportunity for follow-on

business.

The rules are more complex for the middle

group. For these countries, tied aid credits within

the scope of paragraph 8(a), when permitted, must

(as before) have at least 35 percent concessionality. But such tied aid credits are permitted only if

the project is not “commercially viable.” To be

commercially viable, a project must be able to get

financing from the commercial market, and must

be able to generate income sufficient to pay back

the loan. The rationale for this restriction is that

tied aid for commercially viable projects is

unnecessary (since commercially viable projects

could presumably go forward without any aid),

and is more likely to distort trade.71 This provision is considered a key feature of the agreement.

The middle group of countries to which it applies

includes some East Asian countries with promising environmental markets, such as Thailand and

Indonesia. The effect of this requirement is

, difficult to predict. The precise meaning of

,I ‘‘commercially viable’ is only gradually becom1 ing clear, as countries consult about specific cases

(see below).

The strengthened notification and consultation

[

f process set up under the Helsinki Package72 is

1 also a key feature of the agreement. As before,

countries participating in the Arrangement must

notify other participants about contemplated tied

aid credit offers.73 However, there are some new

features. On request of any other participant, the

notification must be supplemented with detailed

information about the project’s development

function, the project’s technical preparation and

appraisal, and the procurement procedures. Also,

notifications are now required more often for aid

credits that the donor considers untied. Other

Arrangement participants can then request information to verify the untied status.

The consultation process has also been strengthened. Consultations among members must always be held for notifications exceeding SDR 50

million (about $70 million) with concessionality

level less than 80 percent. Consultations are also

required if any country objects to an offer on the

ground that it does not meet the requirements of

paragraph 8(a) concerning commercial viability.

The consultations are face to face; and if a

particular proposed aid offer is challenged, the

potential donor must justify its position. In the

consultation, the participants consider “first,

whether an aid offer meets the requirement of the

rules in [paragraph 8(a)],” and “if necessary,

whether an aid offer is justified even if the

requirements of the rules in [paragraph 8(a)] are

not met.” Unless its position receives “substantial support,” the potential donor is advised to

withdraw the offer; if it wishes to proceed, it must

submit a written justification citing the “overriding non-trade-related national interest that forces

this action.’ ’74

In 1992, there were 824 notifications of tied aid

credit offers, totaling $15.4 billion.75 Of these,

137 totaling $3.8 billion were potentially subject

71 Ti~ aid credits might add apmj~t that would not othenvise go forwar~ or might divert a project from One Suppkr to ~oti,~IWW

distorts trademore.Forcommerciallyviable projects, which caugo forward ontheirownwithout aid thelatteraltemative seems more probable

for noncommercially viable projects, which cannot go forward without aiL the former alternative seems more probable.

72 -amC pa. 14 and Annex VII.

73 -em~tpar. 15.

74 --~~Pfl. 14.

75 ~information in this paragraph is from Export-Import Bank of the United States, “Report to the Congress under Section 15(g) of the

Export-Import Bank Act of 1945, as Amend~” Apr. 26, 1993, pp. 5-8.
Chapter 4--Aid and Exports: Selected Country Practices I 53

to the consultation process.76 For many of these,

additional information was requested by the

United States or other participants. In four cases,

the country in question withdrew its offer rather

than have to provide the information and face a

possible formal challenge. Formal consultations

were requested on 41 offers. The United States

initiated or otherwise endorsed all of these

consultations; even when no U.S. firm was

bidding on the project, these cases were important

to the United States because they would become

precedents as to how “commercially viable” is

defined. Of these 41 cases, 36 were completed as

of April 1, 1993. In 13 of these cases, the projects

were deemed not commercially viable. An additional seven projects received “substantial support” primarily because they were each part of an

ongoing project. In the remaining 16 cases, the

project was deemed commercially viable and the

offering country failed to get substantial support.

Of these, in seven cases the country went ahead

with the offer, obligating it to explain in writing

its “overriding non-trade-related national interest” in making the offer. The U.S. Administration

expected such derogations to be concentrated “in

the early stages of the implementation of the new

rules,’ and is not alarmed by the number;

nevertheless, it ‘is signaling its intention that the

current pace of derogations should not continue

beyond the early implementation phase.” In the

only derogation in which a U.S. firm bid on the

project, Eximbank authorized use of the War

Chest to provide matching financing.

Based on the limited sample of completed

cases, it seems that projects in the manufacturing,

power, and telecommunications sectors are

deemed commercially viable except in special

circumstances (such as a local facility serving a

remote area, where operating the facility at a loss

is cheaper than providing a good or service by

long distance). No completed cases have focused

on environmental projects or components of

projects, and it is not always clear when such

projects or components would be deemed commercially viable. It is possible that some environmental projects will be deemed not commercially

viable and thus eligible for tied aid credits. Some

types of projects, such as water and wastewater

treatment facilities serving very poor communities, often might not generate enough revenue to

pay for themselves. New projects with environmental components (such as a factory with a stack

gas scrubber) will be judged on the commercial

viability of the project as a whole; so the project

could be deemed commercially viable unless the

environmental requirements made the whole

project unprofitable. In the case of a retrofit, such

as a stack gas scrubber put onto an existing

factory, the United States expects that the commercial viability standard will be the same (e.g.,

whether the factory with the scrubber is commercially viable), though there is not yet a precedent

addressing this sort of case; it is possible that

commercial viability would instead be judged for

the retrofit in isolation, in which case a finding of

non-commercial viability would be common

(scrubbers do not normally bring in revenue).77

If, as the precedents from OECD consultations

evolve, some types of environmental projects or

components tend to be regarded as not commer76 Everyo~off~w~ exempt for at Ieast Om Of ~= reasom.: it was made before Feb. 15, when the new rules took effecG it was covered

by transitional rules; it was an offer to match a previous offer by another country, and thus not independently subject to consukatioq it was

made to a least developed country, and thus pczmitted as long as the concessionality level was at least 50 pcmxm~ it had at least 80 percent

concessionali~, it was for under2 million SD~ it was for ships (credits for ships are excluded from coverage under the Arrangement and am

covered by a special agreement).

77 Even in isolatiou such environmental modifications might more often be considered commercially tileif environm- costs ~

benefits welt? intelmdized. Thus, a scrubber in isolation could generate revenues if a mechanismexisted such as tradable emissions permits.

Similarly, the modifications to make a plant more energy efficient would more often pay for themselves if the cost of the energy reflected the

environmental costs of its use. Tradable permits, input pricing, and other economic measures to provide incentives to pollute less will be

discussed further in the final report of this Assessment.
54 I Development Assistance, Export Promotion, and Environmental Technology

cially viable, donors could shift aid into those greater role than it does now in international

types of projects, in order to retain the freedom to competition in environmental goods and services.

usw tied aid credits. In this case, aid could play a
Donor

Country

Profiles 5

B

riefly discussed below are the bilateral aid programs of

five major donors—the United States, Japan, France,

Germany, and the United Kingdom. Emphasis is placed

on their bilateral environmental aid. None of these

countries had reported estimates of their environmental ODA to

OECD’S development assistance committee as of May, 1993.

Hence, all of the cited environmental aid figures should be

considered preliminary and subject to change.

Although not discussed in detail here, large projects can

include several bilateral donors and multilateral agencies or

lending institutions (see box 2-C). Donors sometimes coordinate

bilateral aid with other donors on different components of

specific projects.1 Donors also may provide cofinancing or

parallel financing to complement multilateral environmental aid

through such mechanisms as the Global Environment Facility or

Capacity 21, a recently established facility of the United Nations

Development Programme (see box 2-B).

UNITED STATES

Bilateral development aid is only one of several priorities in

the overall U.S. foreign assistance program. It accounted for

about $4.2 billion (25 percent) of overall U.S. foreign aid

1 For example, the United States and Japan are cooperating in establishing an

Indonesian Biodivemity I%otection Center. The possibility of greater United States-Japan

cooperation on environmental matters in gemral is a subject under consideration for

possible joint discussions between the two countries, as mentioned by President Clinton

at his news conference with Japanese Prime Minister Miyazawa on Apr. 16, 1993. For

discussion of recent developments, see Pat Murdo, “Cooperation Conflict in U.S.-Japan

Environmental Relations,” JEIReport Japan Economic Institute, Wasbingto~ DC, May

28, 1993.

55
56 I Development Assistance, Export Promotion, and Environmental Technology

obligations in fiscal year 1991. Other budget

priorities include multilateral aid, food aid, economic support funds (ESF), and military aid.

The U.S. Agency for International Development (USAID), established by the Foreign Assistance Act of 1961, has the major responsibility for

administering and coordinating U.S. bilateral aid.

Some other agencies share aid responsibilities or

undertake closely related activities; these include

the State Department (for ESF allocations), the

Department of Agriculture (for food aid), and the

Trade and Development Agency (support for

development project feasibility studies in developing countries).

USAID’s budget and priorities reflect U.S.

strategic and political goals. Israel (with a per

capita income of over $10,000) and Egypt (with

a per capita income of about $600) have headed

the annual list of U.S. aid recipients since 1980,

and together have accounted for close to half the

entire bilateral foreign aid budget in recent years.2

USAID’s program reflects numerous objectives

added by Congress over the years.3

U.S. development assistance, as administered

by USAID, has undergone several shifts in

emphasis over the last three decades that have a

bearing on its commercial effects. From 1961

until 1973, U.S. development assistance tended to I

finance large capital projects with foreign exchange components. In 1973, USAID took on a

I new direction; priority was given to human

I development and institution building as preconditions for self-sustaining economic growth in the

developing world. More emphasis was given to

issues of equity, alleviation of poverty, and

meeting basic human needs. USAID’s efforts

became more rurally oriented, with small-scale

activities focusing on agriculture, nutrition,

health, and education. In 1981, aid policy shifted

again to place added emphasis on policy dialogue,

promotion of the private sector in developing

countries, institution building, and technology

transfer. In recent years, USAID also has placed

much emphasis on policy reforms in developing

countries.

The portion of USAID’s budget for large-scale

capital projects (projects which often entail major

imports of engineering services and capital goods

from developed countries) has declined over the

years. 4 In the early 1960s, 25 percent of USAID’s

budget was devoted to capital projects. That share

had declined to 6.5 percent in the 1980s.5 Loans,

which are primarily used for capital projects, have

accounted for a decreasing portion of U.S. bilateral aid, dropping from almost half in the 1960s

to less than 5 percent in 1989. Since 1989 almost

all new commitments for bilateral aid have been

grants rather than confessional loans.

Congress has authorized the U.S. ExportImport Bank to combine loan funds with a special

“War Chest” of grant money in order to match

confessional financing by foreign governments.

However, the War Chest is not large and has been

used sparingly. (USAID has occasionally contributed grant funds to be combined with Eximbank’s

loan funds to the same end.)

While Buy American limitations on procurement have been a feature of U.S. foreign assistance since its inception, waivers are permitted

z OECD, Development Cooperation 1992 Report, table 43, P. Au.

3 A 1992 ~~iden~ ~~mmission on tie management of USAID programs found 39 “central” objectives affecting USAID’s mission.

4 one f~tor ~ntribu~g to this change was concern that U.S. aid loans sometimes supported large, highlY visible, cosflY fitruc~e

projects that were unsuited to the needs of the developing country. For discussion of this history, see Curt ‘lhrnoff and Larry Q. Nowels,Foreign

Assistance and CommercialInterests: TheAidfor Trade Debate, CRS Report for Congress, 93-528-F, U.S. Library of Congress Congressional

Research Service, May 23, 1993, p. 23.

5 Export-Import Bank of the United States, Repon to the U.S. Congress on Tied Aid Credit Practices April 1989, p. 15, and OECD,

Development Cooperation 1992 Report, table 30, p. A-41. While capital projects accounted for just 2.8 percent of USAID’s 1990 budget this

number is skewed downward by the abnormally high debt relief in the 1990 figures.
Chapter 5-Donor Country Profiles I 57

under some circumstances.6 Much of USAID’S

grant assistance is used to hire U.S. firms,

nongovernmental organizations or citizens, or

developing country participants. According to

USAID, a majority of U.S. aid (62 percent in

fiscal year 1992) buys goods and services produced in and shipped from the United States.7

However, the portion of aid going to U.S.

procurement has apparently declined since the

early 1970s, when it exceeded 90 percent. At the

same time, USAID has encouraged developing

countries to undertake policy reforms that may

make them more open to trade and investment in

general. Its 1992 policy office review of these

reforms (discussed in ch. 1) found increases in

U.S. exports to developing countries.

Several USAID activities facilitate U.S. business involvement (see table B-2 in app. B). Those

pertinent to environmental export promotion

include, among others: the United States-Asia

Environmental Partnership (described in app. B);

the Project in Development and the Environment

(which is focused on the Near East); the Environmental Credit Program (which helps finance

environmentally preferable projects involving

exports of U.S. technology);8 and the Environmental Improvement Project, aimed at reducing

urban and industrial pollution in the ASEAN

countries. The Environmental Enterprises Assistance Fund aims to promote dissemination of

environmental technologies in developing countries. USAID is also a statutory participant in the

Federal interagency Trade Promotion Coordination Committee and its working group on environmental trade (both described in app. B).

Some other U.S. government agencies (also

discussed in app. B) support activities that may

encourage exports of U.S. technologies and

services, including environmental exports, to

developing countries. Trade and Development

Agency grants to developing countries for project

feasibility studies are used to hire U.S. consultants. As they are likely to be more familiar with

U.S. technologies and products, the consultants

may encourage procurement of U.S. goods and

services for subsequent stages of the project. The

agency estimates that each grant dollar returns

over $25 to the U.S. economy in follow on

exports. (Some portion of those exports is financed by other U.S. government agencies.) The

program is small but growing: $40 million was

appropriated for TDA in fiscal year 1993; the

Clinton Administration is seeking $60 million for

fiscal year 1994.

Many Federal agencies (as well as state and

private bodies) participate with USAID in the

United States-Asia Environmental Partnership,

which is designed to involve U.S. firms in

solutions to Asian environmental problems. The

Department of Commerce, USAID, and several

other agencies are involved in environmental and

energy assistance to Eastern Europe. Partly to

boost U.S. exports, in 1992 Congress authorized

(but has not yet funded) three new U.S. DepartL$ S= ~~fftilarry Q. Newels, Foreign Assistance and Co mmercialhterests: The Aidfor Tradk Debate, op. cit., pp. 26-28, for

discussion of this history. For discussion of the evolution of waivex policies, see U.S. Department of Commerce International Trade

Admit.dstratioq International Financing Programs and U.S. Internm”onal Economic Competitiveness, (U.S. Governmen t Printing office,

Waahingt(xq DC, 1990), pp. 2-3.

T U.S. Ag~cy for ~t~tio~~velop~~ “Buy American I@@: October 1991 @OU@ SqtiMZ”~.sls 1~.usexcluded from this calculation $1.56 billion in cash transfers that were used to repay dew of which $1.43 billion was debt owed to the United

States. USAID states tha~ if debt relief were included, the reflow percentage would increase to 70 percent. However, this is so only if relief

of U. S.-held debt is counted as purchases ofU.S. goods and services. But U. S.-helddebt relief would only promote such purchases undercertain

circumstances, such as purchases made with fkecd up funda or in anticipation of future debt relief. If the relief of U.S.-held debt is not counted

as purchases of U.S. goods and SCMCCS, then including debt relief in the calculation reduces the 62 pement figure to 45 percen~ as obsaved

in Curt Thrnoff and Larry Newels, Congressional Research Sewice, “Foreign Assistance and Comrnercd“ Interests: The Aid for ‘Ihde

Debate,” op. cit.

8 U.S.~~nmental Protection Agency, Global Markets for Environmental Technologies: Dej?ru”ng a More Active Role for EPA Within

a Broader U.S. Government Strategy, EPA 16@R-92-001, Washin@oQ DC, EPA December 1992, p. C-8.
58 I Development Assistance, Export Promotion

ment of Energy programs (to be carried out

through USAID) for transfer of environmentally

preferred energy technologies to developing countries.

Major changes in the scope and nature of U.S.

foreign assistance could be in the offing, reflecting adjustment to the end of the Cold War,

concerns about the Federal budget, and the

emergence of new priorities (such as economic

competitiveness and environmental protection).9

Despite the reflow from grant aid, the U.S.

development assistance program still seems less

commercial in orientation than programs run by

most of the United States’ largest trading partners

and primary competitors. As discussed in chapter

4, other leading donors maintain an emphasis on

capital projects, and continue to use soft loans as

a substantial part of their ODA. Some of the

measures discussed in box 1-A and appendix B

would, in theory, give a more commercial cast to

U.S. foreign assistance if fully funded and aggressively implemented. Given budgetary constraints

and continuing debate about development assistance objectives, such an outcome is by no means

certain.

I U.S. Environmental Aid

Although USAID paid little attention to environmental needs in its early years, the United

States was among the first major donors to begin

to address the environmental impacts of its

development assistance. As early as 1976, USAID

had environmental assessment procedures in

place. For several years it has also supported

and/or carried out environmental or environmentally related projects. USAID’s environmental

effort, like its approach to aid in general, tends to

focus on small-scale projects, often in rural areas.

and Environmental Technology

Recent projects support training of public and

private decisionmakers; environmental institution building; and cooperative research on climate

change, biodiversity, and other global environmental problems. USAID also supports smallscale technology demonstration projects on alternative fuels and energy efficiency. It has not

usually funded large capital projects for environmental infrastructure; exceptions include U.S. aid

for water and wastewater treatment facilities in

Egypt.

In the last few years, USAID has retie

increasing efforts to develop an environmental

strategy. Its most recent environmental strategy

document identifies five priority problem areas:

loss of tropical forests and other habitats

critical for biological diversity;

unsustainable agricultural practices;

environmentally unsound energy production

and use;

urban and industrial pollution; and

degradation and depletion of water and coastal

resources. 10

USAID’S bureaus have issued regional environmental strategies within this overall focus.11

Priorities differ by region. In Africa, for example,

most environmental aid is for sustainable agriculture, tropical forestry, and biodiversity. These

priorities shape much of the environmental aid for

Latin America and the Caribbean region, although energy and urban and industrial projects

have priority in some areas. Latin America also

has been a focus for USAID’s activities carried

out under a global climate change initiative

mandated by Congress in 1990. In Asia, tropical

forest conservation is a key objective, but energy

efficiency, water and coastal resource manage9 ~ ~~aF Wm ~p~for publication in June 1993, tie Chton ~“ “stration was said to be nearing completion of a report on U.S.

foreign assistance reform. See J. Brian Atwood, “Don’t Write Off AID Yet” Washington Post, June 17, 1993, p. A23. Atwood is the

Administrator of USAID.

10 U.S. &enq for ~te~o~Development Enviro~ent StiategyUwPoliq, June 1992, p. 1.

11 MUC. of me &=Wsion ~ thisp-phis ~en from “F-on ~~vironmen~” All). Evaluation News: A Newsletter on Recent

Evaluation Findi”ngs andiUethods, 1992, vol. 4, No. 2.
Chapter 5-Donor Country Profiles I 59

ment, and urban and industrial pollution prevention also receive some priority. In Central and

Eastern Europe, energy efficiency and urban and

industrial pollution prevention are key priorities.

In the Near East Bureau, priorities are energy,

urban and industrial pollution, with sustainable

agriculture also an important objective.

USAID is preparing baseline estimates on the

amount of environmental aid corresponding to

these five problem areas. It faces the dilemma of

determining g which projects and portions of projects to designate as environmental aid. Preliminary lists for fiscal year 1991 identify over 300

projects that are pertinent to the five problem

areas in the strategy. Depending on kinds of

projects included, 1991 outlays would range

between $625 and $700 million. USAID has

supported environmental projects in more than 60

countries, mostly in the poorer developing countries. However, USAID is providing some limited

assistance to middle-income developing countries (including Mexico and Brazil) through the

global climate change initiative mandated by

Congress. As shown in Figure 5-1, USAID’s

annual obligations (as distinguished from outlays) for implementing its environmental strategy

averaged $681 million for fiscal years 1992 and

1993.

JAPAN12

While Japan and the United States provide

roughly the same amount of foreign assistance,

Japan has become the largest provider of projectrelated bilateral development assistance. This

reflects both the growth in Japanese aid and the

high portion of U.S. aid devoted to debt relief and

Figure 5-1—USAID Environment Funding

Fiscal Years 1992-1993

Average Annual Obligations in Millions

Conservation of

tropical forests

Environmentally and biodiversity

sustainable

agriculture

$117 million tal

nd

Water resources, ng

coastal zones, on

and wetlands

management

$31 million

Effici

and renewable $167 million

energy

$152 million

Total = $661 million

SOURCE: USAID.

cash transfers. Japan began providing financial

assistance to other countries in 1955 when it

entered into reparations agreements with Southeast Asian countries. These reparations, paid in

goods and services, helped open markets in

Southeast Asia to Japanese suppliers. Japan views

aid more as economic “cooperation” than development assistance.13 Although no basic law

governs Japan’s foreign assistance, a June 1992

ODA Charter adopted by the Japanese Cabinet set

out a philosophy and principles for Japanese aid.

The frost of four guiding principles is that

“environmental conservation and development

should be pursued in tandem.’ ’14

Japan’s aid has a complex administrative

structure. The ministries of Foreign Affairs (MoFA),

Finance (MoF), International Trade and Industry

12 For more detailed discussion of Japan’s ODA sys~ see Nancy J. Hank@, Yapun’s Foreign Aid, ~WPOrt tO COIWMS, W-494-F,

U.S. Library of Congress Congressional Research Service, May 5, 1993.

13 A&ianHewitt of the ~’s overseas Development Institute, writes, “A pertinent sign is that the normal Japanese term for aid, ‘enjo,’ (or

‘Kaihatsuenjo,’ meaning development assistance) is hardly ever used. In discussions and publications in Japanese the foreign concept acronym

‘ODA’ will be customarily used. Recently the phrase ‘keizai kyoryoku’ has been used more to convey the concept of cooperation with equal

but poorer and needier foreign partnem in development.” Adrian Hewi~ “Japanese A@” Overseas Development Institute Brief@ Paper,

March 1990 @ndOIX ODI, 1990), p. 2.

14 -~ of Foreign Affairs, “Japan’s ODA ChWer,” June 30, 1992, unofficial translation.
60 I Development Assistance, Export Promotion, and Environmental Technology

(MITI), and the Economic Planning Agency all

oversee development of ODA policy and implementation; several other ministries (e.g., the

Environment Agency) play smaller roles. Bilateral ODA is implemented by two agencies: the

Overseas Economic Cooperation (OECF), the

confessional lending arm, and the Japanese

International Cooperation Agency (JICA), which

undertakes technical assistance and administers

grant aid (as does the MoFA).

Japan’s bilateral aid has roughly doubled every

five years since 1961. Although its aid is becoming more geographically diverse, Asian countries

received nearly 60 percent of its aid in 1990. The

majority of Japanese ODA has still gone to

support economic infrastructure and development

of basic industries. Japan devoted 41 percent of its

1991 ODA to economic infrastructure activities,

and 17 percent for production, including agriculture, manufacturing industry, mining, and the

construction sector.

Japanese ODA tends to finance large projects.

It accounted for more than half of DAC aid

projects over $50 million in 1990-1991. Japan

offers confessional loans for the majority of its

ODA. Historically, these loans were provided on

harder, more commercial terms compared with

other donors. Since 1988, Japanese loans have

been offered with terms closer to those of other

DAC members.

In 1990-1991, grants accounted for only 27

percent of its bilateral (and 39 percent of its total)

ODA. The Japanese aid system tends to be

centralized; about 500 people are stationed in

field offices outside of Japan-relatively few

people given the size of Japan’s aid program.

Lack of field personnel may partly explain some

of the difficulties Japan has had in developing

country-specific programs.

JICA, OECF, and Eximbank of Japan operate

financing programs that provide loans to Japanese

companies for investments in developing countries related to their development needs. Examples are public facilities or experimental projects

that might not otherwise be undertaken without

innovation or improvements. The total value of

outstanding JICA loans is $30 million; OECF and

Eximbank of Japan operate larger programs.

Like other donors, Japan has faced criticism

about the adverse environmental impacts of its

loans and projects.

15 Since the mid-1980s, it has

taken several administrative steps to incorporate

environmental considerations into its aid.l6 It has

also announced several dramatic plans to increase

support for environmental ODA and to develop

and transfer environmentally preferable technologies to developing countries. While lowerincome developing countries will be the recipient

of most of this aid, middle-income developing

countries will receive some environment-related

ODA.17 These are part of a broader, technology15 For ~ Ovemiew of tie way in which Japan’s aid system addresses environmental issues, see Richard A. Forrcs4 “JapamseAid ~d the

Environment” The Ecologist, Vol. 21, No.1, J~-Feb. 1991, pp. 24-32. See also Pete Carey and hwis M. Simons, “Japanb lamed for aid

projects that scar the land: Tokyo’s environmental record rouses objections across A@” San Jose AUercuryNews, Apr. 21, 1992; and Edmund

~ “Aid Machine Struggles With Ecology Issues,” Japan EconoITu”c Journal, ‘lMcyo, June 30, 1990, p. 1.

16 JICAestabliahed apanelin 1986 to considexmeasur es to deal with enviromnentalconsiderations inODA. Guidelines ondamconstruction

were issued inearly 1990. JICA has placed environmental oftlcials in each overseas oflice. In August 1989, JICA set up an environment office

in its planning department and designated an oflicial in charge of environmental issues in each operational department. In May 1991, JICA

made its environmental ofiice part of the Environment Women in Developmen~ and Global Issues Division. OECF has also taken some steps

to give more prominence to environmental concerns. The Export-Import Bank of Japan has created an environmental post. For an overview

of these steps, see Govermnent of Jap~ Environment and Development: Japan’s Experience and Achievement, Japan’s National Report to

UNCED 1992, December 1991, pp. 15-30.

17 _les of Jw~= entionmental aid to middle-income developing countries include: a 69.3 billion yen ($540 million) OECF loan

for a sulfur dioxide emission reduction project in Mexico City an additional 10.4 billion yen ($8.1 million) loan to the Government of Mexico

for afforestatiou and a pledge of 99 billion yen ($77 million) in ODA to Brazil for water quality co nservation. Japan also provides technical

assistance to Eastern Europe for environmental improvement. The Overseas Economic Cooperation Fund, The Overseas Econonu”c

Cooperation Fund Annual Report 1992 (OECF, Tokyo, October 1992), p. 7.
Chapter 5-Donor Country Profiles I 61

based approach to address environmental problems at home and abroad that could hold opportunity for its environmental industries. Two aspects

of Japan’s environmental aid are discussed below:

(1) the New Environmental ODA Policy, and (2)

the Green Aid Plan, and other activities under the

broad direction of the Ministry of International

Trade and Industry (MITI).

1 New Environmental ODA Policy

Japan’s new environmental aid policy, announced at the London Economic Summit in

1991, is administered by the Ministry of Foreign

Affairs. The policy calls for cooperation and

collaboration between developed and developing

countries on global environmental problems. It

indicates that the technologies and know-how

Japan used in dealing with its own environmental

problems will be actively used to help developing

countries. The policy emphasizes the importance

of dialogue with developing countries to understand their needs and formulate projects. The

policy identifies several environmental priorities

for ODA: conservation of forests and afforestation, energy conservation and development of

clean energy technology, antipollution measures,

wildlife conservation, soil conservation, and enhancement of developing country capacities to

address environmental issues.

Figure 5-2 shows disbursements of Japan’s

bilateral environmental aid by major priority in

1991. Disbursements for environmental infrastructure fluctuate from year to year. For example,

‘‘anti-pollution’ measures accounted for nearly

half the environmental aid disbursed in 1990, but

very little in 1991. Disbursements for the human

“living” environment (e.g., water and wastewater treatment, solid waste disposal) also fluctuate. The portion of funds allocated to forest

conservation and afforestation has grown.18 As

shown, Japan considers natural disaster prevenFigure 5-2—Purposes of Japan’s 1991

Environmental ODA

(Bilateral Disbursements)

19%

Natural

environment

and other

4 %

Disaster Anti-pollution

. . measures

5%

\

+;:::.. :::::::::::::::,. .:.:.:.:.:.:.:.:.:.. Forest

conservation

15%

Total = 105 billion yen ($779 million)

Dollar-to-Yen exchange rate: $1=135 yen (1991).

Percentages do not add due to rounding.

SOURCE: Ministry of Foreign Affairs(Japan), Wagakunino Seifu-KaihatsuEnjo 1992, Jyokan [Official Development Assistance 1992], p. 101.

tion an environmental priority, and in some years

this item has accounted for a fifth or more of its

environmental aid.

Figure 5-3 shows changes in the amount of

Japan’s environmental aid going to bilateral

grants and bilateral loans between 1987 and 1991;

it also shows aid specifically earmarked by Japan

to multilateral environmental programs or agencies. Japan’s overall ODA grew rapidly during

this period; hence, the increase in environmental

aid probably represents some new and additional

resources rather than relabeling of existing programs. (Disbursements declined in 1991; however, commitments apparently increased).

At the United Nations Conference on Environment and Development in June 1992, Japan

announced that it intended to extend 900 billion

yen to 1 trillion yen ($7.1 to $7.8 billion)19 in

bilateral and multilateral environmental aid to

developing nations over five years. A June 1993

18 -~ of Forei~ MM,Q)$ci~ ~evelop~nt Assistance 1991, hnual Report (To@o, Japan: Assotition for fiomotion of

International Cooperatio~ 1992), p. 142.

19 At tie 1992 exchange rate of about 127 yen per dollar.
62 I Development Assistance, Export Promotion, and Environmental Technology

Figure 5-3--Japan’s Environmental ODA:

1987-1991

2,500 -

2,000 -

C

0

: 1,500-

.-0

=.-

: 1,ooo0

5oo0“

649.4

($449

million)

1653.8

($1 142

1323.9 million)

1152.4 ($959

n

1126.8

($899 million) ($837 .-

million)

1987 1988 1989 1990 1991

_ Earmarked aid to multilateral funds

m Bilateral grants (nontechnical assistance)

m Bilateral technical assistance grants

~ Bilateral loans

Dollar-to-Yen exchange rate: $1 = 145 yen (1987), 128 yen

(1988), 138 yen (1989), 145 yen

(1990), 135 yen (1991).

SOURCE: Ministry of Foreign Affairs, Official Development Assistance

1992, p. 221

United Nations report cites an estimate that

Japan’s environmental aid increased to about 280

billion yen ($2.4 billion at the exchange rate used

by the report) in financial year 1992.20 (The report

does not discuss the basis for this estimate. It also

I does not provide a breakdown of how this aid was

spent.)

, B Green Aid Plan I

MITI announced this plan in August 1991.21 If

carried out as planned, 300 billion yen (roughly

$2.2 billion at 1991 exchange rates) would be

spent over a 10-year period on grants and loans to

transfer antipollution measures to developing

countries and to support international joint R&D

projects for the global environment. The two

main measures for technology transfer will be

environmental grant aid, and the training of

foreign engineers. The plan is administered by the

Japan External Trade Organization; some other

MITI affiliated organizations, such as the New

Energy and Industrial Technology Development

organization (NEDO) and the Research Institute

for Innovative Technology for Earth (RITE), also

play roles.

Table 5-1 summarizes Green Aid Plan activities for Japan’s 1992 fiscal year, when 2.7 billion

yen (about $20 million) were available. AS

shown, roughly half the funds flowed from the

general account for ODA, which is under the

overall control of the Ministry of Foreign Affairs.

The other half flowed from special accounts more

directly controlled by MITI. Funding for the plan

in Japan’s 1993 fiscal year may increase to 12.9

billion yen (over $100 million) if a MITI proposed budget is approved.

The Green Aid Plan has some noteworthy

features. First, environmental and energy-related

issues will be reviewed with recipient country

officials before aid requests are made. (This

contrasts with Japan’s traditional request-driven

approach to ODA discussed in chapter 4 under

“Tying of Aid.”) Second, the technological

emphasis in the Green Aid Plan is prominent,

especially for activities funded through the “special accounts” budget under greater MITI control. As shown in table 5-1, the special account

funds are used for intermediate development

(adaptation of technology to developing country

needs) and transfer of environmentally preferable

energy technology (such as for energy-efficiency

projects, renewable energy, and clean coal technology).

In early 1992, MITI announced plans to lease

antipollution equipment to developing nations to

I m As cited Q Commiasion on Sustainable Development “Report of the Secretary General: Addendum: Information provided by

I Governments on initial financial commitments, financial flows and arrangements to give effect to the decisions of the United Nations I ~o~emnce on Environment and Development,” United Nations Economic and Social Counci4 E/Ch.17/1993/11/Add.1, 8 June 1993, p. 15.

~ 21 4<Jap~unveils Aid p~ FOr I)eVdOping Countries,” The Reuters Library Report, Aug. 16* 1991.
Chapter 5-Donor Country Profiles I 63

Table 5-l—Ministry of International Trade and Industry’s (MITI) Green Aid Plan, 1992 Activities

(budget figures are shown in parentheses in millions of yen)

Policy Talks/Dialogue Between the Japanese Government and Recipient Country

Activities Funded From General Account for ODA (1,397):

Technical Cooperation (1,298)

Project Planning (672)

1. Feasibility study and project needs assessment

. Environmental Measures Assessment [JICA] (474)

● Environmental Improvement [Japan Consulting Institute] (34)

. Comprehensive study on environmental issues [Asia Economic Institute] (34)

. Energy conservation technology promotion manual [with UNIDO] (19)

2. Master planning

. Comprehensive environmental preservation project in Asia and Pacific region (98)

Personnel Training (163)

1. Dispatching specialists [JODC] (26)

2. Accepting and training engineers (137)

R&D Cooperation (463)

. Development of de-sulfurization equipment for coal-fueled boilers:

Indonesia (261)

. Development of super-absorbent polymer for desert land forestation:

Egypt [Japan Desert Development Association] (128)

. Development of industrial wastewater treatment system: Thailand (15)

. Global Environmental Technology Research Cooperation (59)

China (urban industrial pollution and acid rain from coal combustion)

Brazil (pollution caused by mining in tropical forests)

India (forestation in dry areas)

Energy & Environment Technology Center (99)

China, Thailand (99)

(after 1992 projects are planned for Indonesia, Malaysia Philippines)

Activities Funded From Special Accounts (1,294):

Intermediate Technology Development and Technology Transfer (1 ,294)

● De-Sulfurization Technology (570)

[Electric Power Development Co.; Mitsubishi Heavy Industry, contractor]

● Energy Efficiency Technology [NEDO] (324)

● Clean Energy Technology (380)

(Solar Sell Generation System) [NEDO]

. Clean Coal Technology (20)

NOTE: Agencies other than MITI and JETRO that are involved in particular programs are shown in brackets.

SOURCE: MITI, JETRO, Nihon Keizai Shimbun.

limit acid rain.22 The funding will be provided imported equipment. Japanese ODA has been

through NEDO. The program will help develop- offered for installing equipment to control sulfur

ing country governments and private firms with emissions from coal-powered thermal stations in

low foreign exchange reserves make use of China.

22 ttJapae~e Trade ~~~pl~to be Anti-pollution Devises to Developing co~triest “ The Reuters Library Repo~ July 15,1992.

This is not the fust time that MITI has used a leasing system to facilitate use of Japanese equipment. MITI previously setup domestic leasing

systems to promote its computer and machine tool industries. U.S. Congress, Office of 7kchnology Assessment, Competing Economies:

America, Europe, and the Pacific Rim, OTA-ITE498 (Washington, DC: U.S. Government Printing Office, October 1991), pp. 261-62; U.S.

Congress, office of ‘lkhnology Assessment, Making Things Berrer: Competing in hfamq$acturing, O12MTE-443 (Washington, DC: U.S.

Government Printing OffIce, Februmy 1990), p. 155.
64 I Development Assistance, Export Promotion, and Environmental Technology

In 1990, Japan put forth “New Earth 21,” a

proposal to the world community about the need

for a comprehensive and long-range vision to

address global environmental and energy issues.

An associated “action program” proposed a

variety of near- and long-term responses to global

environmental problems. Many of the long-term

responses would require extensive technological

breakthroughs (e.g., nuclear fusion, solar power

generation from space, reversing desertification

through biotechnology). MITI recently issued 14

proposals to further “New Earth 21” through

domestic and international actions to better integrate energy, environmental, and economic concerns. These include: technological development

for protection of the global environment and

international cooperation in energy and environmental fields, including the Green Aid Plan and

ODA.23

FRANCE

The third largest aid donor is France. Its aid

structure has two main parts: aid to former

colonies and current French Overseas Territories

(TOMS), and aid to other low-income countries.

The Directorate de RelationsEconomiques Extériures (DREE), a division of the Ministry of Finance,

develops “protocols”, longer-term (18-month)

financing plans with lower-income countries. The

Caisse Culturale de Cooperation Économique

(CCCE), the central bank for economic cooperation under the Ministry of Cooperation and

Development, works with former colonies and

TOMS.

24

Aid that is oriented toward the poorest countries and TOMS in Sub-Saharan Africa, the

Caribbean, and the Indian Ocean, tends to be

grant-based and has a human development emphasis. Assistance for education, health and

population, and planning and public administration together account for 40 percent of total

French aid. France’s ODA for education and

training supports programs in recipient countries

and in universities and technical programs in

France.

Aid to the better off developing countries tends

to be commercially oriented, focusing on economic infrastructure development, and often involving aggressive use of mixed credits (see

discussion of “Use of Loans” inch. 4). In 1991,

France targeted 16.9 percent of its ODA to

economic infrastructure projects, and 10.1 percent to productive industries (as defined by

DAC). Roughly 25 percent of French aid is in the

forms of loans and mixed credits. The Treasury

and the Ministry of Finance are integrally involved in the use of mixed credits.

H French Environmental Aid

France has only recently begun to integrate

environmental considerations (such as environmental impact assessment and energy and natural

resource conservation) in its aid program. However, French firms are among the world leaders in

water management technologies, and French aid

to the environment is focused on the provision of

potable water and sanitation.

In January 1993, the Caisse Culturale de

Dévelopement (which is a technical assistance

arm of CCCE) estimated its environmental ODA

commitments to be 825 million French francs

($146 million) for 1992.25 Nearly 60 percent of

this aid was for provision of drinking water. The

rest was for sanitation and water purification,

public health risks associated with household

wastes, industrial pollution control, public awareness and management of natural resources, and

agroindustry irrigation. An additional 80.4 million French francs ($14.2 million) in “environmental’ aid went to the TOMS, where 46 percent

~ SPM COnunitttXS on mer~ and EIwironment Fourteen Proposals for a New Earth, Executive s~, rnimeo, Nov. 25, 1992.

[ x~mmof c-bon~d Developm~t was the successor to the former wS@Y of Coloties.

I n &ICUIatCKI at $1 = 5.66 Freneh francs.

I

i

I

i
Chapter 5-Donor Country Profiles 165

of the aid went for repairs to sources of potable

water, 22 percent went to sanitation, and 31

percent of funding was devoted to restoration of

the natural environment.26 It is unclear whether

these figures are indicative of French environmental aid, as CCCE’S aid accounts for only a

relatively small portion of total French aid.

The Government of France uses a combination

of grants, confessional loans, and mixed credits to

provide its aid. Larger infrastructure programs are

usually formed in association with French industry and provided for through a basket of mixed

credits. A consequence of this policy was to

increase aid recipients’ foreign debt; however, the

French government began a series of debt forgiveness at the Paris Club in 1988, and is continuing

that process currently.

France opposed making OECD’S Helsinki

Package mandatory. (The Package, discussed in

ch. 4, tightened restrictions on use of tied aid

credits for commercial advantage). It also has

resisted efforts by the DAC Working Party on

Environment and Development to impose more

stringent environmental requirements among aid

donors and to improve collective environmental

policies. However, France was one of the strongest early supporters for the European Community

program for Eastern Europe, called PHARE/EEC,

contributing 3 billion French francs ($500 million) over the first three years. This program

provides some support for environmental management, with priority placed on technical assistance and training, particularly for water resources, regional water management agencies,

institutional planning, legislation, and implementation of cooperative agreements with industry,

local authorities, and environmental groups.27

GERMANY

Germany remains the fourth largest aid donor,

and has increased its ODA while undertaking

reunification. 28 Since adopting “Basic Guidelines on Development Policy” in 1986, German

aid has emphasized sectoral and structural adjustment. Germany uses strict development criteria to

review its ODA. For example, countries that do

not receive German technical assistance are not

eligible for projects involving mixed credits. This

policy lessens the chance that large projects will

be funded in countries without the technical

capabilities to manage them. German aid is

mindful of the potential for mutual benefits from

ODA for both recipient and donor. These export

intentions are clearly articulated in the introduction to the Basic Guidelines: “In cases where a

nation’s development program requires it to

obtain goods from industrial countries, we try to

ensure that, if we are the suppliers of assistance,

our own economy and workers benefit. ”29

The ministry of economic cooperation (BMZ)

oversees development policy for its two implementing arms, the German redevelopment bank

(KfW) and the technical assistance agency (GTZ).30

The use of two agencies is meant to deliver the

widest possible base for support. According to

DAC statistics, Germany spends slightly more on

social program aid than on economic infrastructure spending, 24.7 percent versus 22.8 percent in

1991. However, if water supply projects are

counted as economic infrastructure, those figures

26 MmFranc&w de D&eloppemen4 “Reparation T’Mmatique des Op&ations: A Haute M&w Ajout& Environementale Engagt%s Par

la CFD en 1992 (Hors DOM-TOM et hors adjustment)” Jan. 19, 1993, Paris.

27 Friends of the EII.@I of the u.K., 1991 Enviro Sumnu”t:A Critical View of the Environmental Performance of the G7 Countn”es (bnbu

Friends of the ~ U.K. and rIlte17@Ol@ 1991), VO1. 2.

U For an overview Of German development assistance see Burghard Claus and Hans H. Lembke, “The Development Cooperation Policy

of the Federal Republic of GermanYs” Gem Development Institute, Berlin, -hl~o

~ Gmmau Federal Ministry of Foreign AiRdrs, as quoted in ibid.

W ~is the ~~taltfiir wiede~~, and the G’IZ is the Deutsche Gesedlschaft fiir ‘khllkhZM amrnenarbeit. Both are

considered agencies under the Ministry of Economic Cooperation.
66 I Development Assistance, Export Promotion, and Environmental Technology

could change to put infrastructure spending in the

lead.31

1 German Environmental Aid

An early proponent of DAC environmental

guidelines, Germany has pledged to continue to

stress the environment in developing countries as

it works with neighboring countries in Central

and Eastern Europe where power plants and

chemical storage facilities pose an imminent

threat to public health in Germany itself. Germany provides a significant amount of aid for

environmental protection and conservation of

nature. In 1990 and 1991, more than one-fifth of

all German aid was devoted directly to the

environment.32 Environmental aid is expected to

account for over 25 percent of its total aid in 1992

and 1993. The GTZ estimates disbursements of

1,020.7 DM million ($614.9 million) in 1990 and

847.8 DM million ($510.7 million) in 1991, and

commitments of 996.0 DM million ($600 million) for 1992 and 1,001.6 DM million ($603.4

million) in 1993.33

To count as environmental aid, projects must

have protection of the human environment and/or

the conservation of nature as primary objectives.

This includes support to countries for managing

and rationalizing their use of natural resources or

protection of the environment. Examples of

projects include conservation strategies, institution building, sludge and waste management,

environmental impact assessment studies, and

support for recipient country development of

environmental action plans.

Germany’s estimate of its environmental aid,

unlike many other donors, excludes projects that

are undertaken for other purposes that have an

environmental component. For example, a livestock production project with a sub-activity to

train farmers to protect hillsides from erosion

would not count as an “environmental” project.

In general, large inrastructure projects are not

considered environmental, with the exception of

sludge or waste management projects, and some

cases of “necessary“ infrastructure. Depending

upon the level of development in the recipient

country, such infrastructure projects will be

supported through grants in the form of technical

cooperation, confessional loans, and through

mixed credit offerings through the financial

cooperation arm, the KfW.

German aid has standing programs for collaborative technical R&D and for training. Since the

early 1980s, the technical research has been

concerned with the development of technology

appropriate for developing countries. Such technologies often happen to be better at protecting

the human environment or reducing destruction

of natural resources. One example is a low-smoke

or alternative-fuel cookstove, which reduces or

eliminates demand for charcoal and thus lessens

pressures of deforestation. R&D for this technology is carried out in developing countries and

Germany.

Germany is investing in environmental training and awareness for the staff of its aid programs.

It also offers environmental training for developing country personnel in Germany and locally in

recipient countries. It provides financial support

and technical assistance for environmental institution building in developing countries.

Germany recently launched several environmental initiatives pertinent to sustainable development. These include programs on tropical

31 k DAC s~tistics, CCwata WPPIY ~d stitition” me included in social spending under a catego~ called “other.” For W91 Jap~ @

Germany had the highest shares in this “other” categoxy among the major donors presented, 9.9 percent of total ODA commitments for Japan

and 6.3 percent for Germany. If the whole “other” category in Gtmnany’s case were water and water were counted as economic infrastructure,

Germany would have spent 29.1 percent for economic infrastructure.

32 w~cludes mand GTZ technical and f~cird assistance, but not aid provided by German nongovernmental organizations that is I

funded through its aid structure.

33 c~c~at~ on an exchange rate of $l=DM 1.66.
Chapter 5-Donor Country Profiles I 67

forestry, household energy supplies, and institution building for the environment. In cooperation

with Brazil and as a complement to several World

Bank environmental projects, Germany is contributing approximately $172 million (DM 285

million) to an international pilot program for the

conservation of Brazilian tropical rainforests.

UNITED KINGDOM

The United Kingdom aid program is similar in

philosophy and structure to that of the United

States. Administration and policy formulation

are, for the most part, under the auspices of one

agency, the Overseas Development Admini stration (UK ODA), whose minister reports to the

Foreign Secretary .34 British aid makes use of its

own regional missions35 and takes a countryspecific approach to aid policy formulation. The

UK places a high premium on promoting sustainable development and working to help lowincome countries.36

The Overseas Development Administration

provides external assistance under three programs: aid to developing countries, assistance to

Eastern Europe and the former Soviet Union, and

(the smallest by far) “global environmental

assistance. ’37 British aid supports numerous

small-scale training programs in developing countries. The UK ODA also makes use of a mixed

credit facility, the Aid and Trade Provision

(ATP), to aid capital projects in developing

countries. British aid supports water and waste

treatment facilities, power production, and infrastructure projects through loans and associated

financing.

H British Environmental Aid

British aid officials have resisted classifying

their projects and programs as “environmental”

and a meaningful estimate of British environmental aid is not yet available.38 The label is

thought to marginalize concern for the environment, which aid officials see as a cross-cutting

issue which all UK ODA projects must account

for. The UK ODA’S Manual of Environmental

Appraisal, first published in 1989 and revised in

1992, is meant to guide officials in addressing

environmental issues early in the decision cycle

for all projects and programs. The manual provides environmental checklists that could be used

in project conception, formation, planning, implementation, and appraisal. “Policy information

markers” are being put in place to identify aid

projects and programs that are primarily environmental or that have major environmental components. These markers will adhere to UK ODA

policy and will cover poverty, women in development, good government, and other issues as well

as the environment. Thus, a clearer enumeration

of UK aid for the environment may soon be

available.39

UK bilateral aid supports a range of programs

to promote environmental protection and more

efficient use of resources in developing countries.

One focus has been sustainable forestry, with over

$200 million in forestry projects underway or in

~ ~the UK, this agency is generwy refe~to ss “the ODA.” However, internationally ODArefers tO ~lcidDevelOPm=t AsSis*e.

For purposes of clarity, the British agency is referred to here as “UK ODA.”

35 Utie tie expansive coun~mission struc~e of USAID, however, UK ODA has only five regional missions ~d relies on the extensive

in-country diplomatic missions, British Council offices, as weU as the CIown Agents for Overseas GOVernn3tXltS and AdmmIs “ “ rlationso

36 British tid,inclu~ hge capi~ projects, goes to countries with very low per capita incomes. clvem Development -s~tiom

“British Overseas Aid: 1991 Annual Review,” I_nndoq October 1991.

37 ~~emeas Development Arhmms “ “ tratiom “British Aid Statistics 1987/88 - 1991B2,” a publication of the Government Statistical

Service, 1992, p. ii.

38‘l’he only clearly iden~l~ component of its environmental aid is for “global environmental XSiSWlct?. ” h.1 1991/92, this ~ounted to

$7.1 million (L4.9million), or O.25% of total UK ODA external assistance programs. This suppcxts the GEFand Montreal Protocol Fund and

is completely separate from funding for the environment in its bilateral ODA programs.

39 ~ &~ sho~d ~ av~ble from the ~ODA in 1993.
68 I Development Assistance, Export Promotion,

preparation in early 1992. The UK ODA’S scientific agency, the Natural Resources Institute

(NRI), works with developing countries on pesticide management and control, and training for

users of pesticides and other potential sources of

hazardous waste. A “Renewable Natural Resources Strategy, ’ first published in 1989, covers

programs in agriculture, fisheries, forestry, livestock, land resources assessment, integrated pest

management, and post-harvest technology. British aid finds $49 million (34 million pounds

Sterling) worth of research in the renewable

resources sector.40

British aid also funds large capital projects. In

1989, it provided $53 million (39 million pounds

Sterling) for water and sanitation projects, of

which $25 million (17.4 million pounds Sterling)

was devoted to providing clean drinking water in

some 40 developing countries.41 It funds many

huge infrastructure projects through its mixed

credit facility, the Aid and Trade Provision, or

ATP. ATP proposals in principle are subject to

the same appraisal criteria and environmental

considerations as all other aid.42 However, a study

by the National Audit Office (roughly the UK

equivalent of the United States’ General Accounting Office) found abuse of the ATP facility and

subsequent damage to the environment and public

health associated with several large water projects.43 These projects were planned and carried

out before UK ODA issued its 1992 Manual of

Environmental Appraisal. The manual, as well as

other efforts to integrate ATP proposals into the

country’s priorities system, may help bring ATP

projects in line with environmental standards

applied to other UK ODA projects.

and Environmental Technology

Through its research programs and via the

British Council, the UK ODA funds collaborative

cleaner technology R&D, and environmental

training and institution building. The British

Council manages the UK’s Technical Cooperation Training Programme. In 1990-91, roughly

485 persons were trained in environmental subjects at either the technician or higher degree level

(out of a total of 12,600 trainees). The program

works with trainees from developing countries

who are trained at local institutions in their own

countries. Subjects include environmental awareness, impact assessment, environmental law,

engineering, management and planning, wildlife

management, and pollution control.

The British Council also provides fellowships

and training in Britain for professionals from

overseas. A series of high-level international

seminars for senior officials on a range of issues

such as environmental policy and management

and environmental law took place in 1992.

Programs are also already underway to increase

environmental awareness in ODA recipient countries, including environmental protection councils and public awareness campaigns in Ghana

and Guinea Bissau.44

In March 1993, British Prime Minister John

Major announced the United Kingdom Technology Partnership Initiative.45 The Initiative will

seek to encourage firms in developing countries

to use British technologies and expertise that

might contribute to improved performance and

reduced environmental impacts. The 3-year program will foster partnerships between British

companies and private sector firms and associations in developing countries. A network of key

40 UK tim~ Development ~“ “ tratioq “Actionfor the Environment” May 1992 brochure, p. 38.

41 Ibid., pp. 30-31.

42 ~cor~g t. ~OD~ Am ~pplicatiom for -epower.genemtion proj~ts mi@t & “ex~ted” to include ~ environmental hnpwt

assessment or equivalent measure,as Am projects “often involve industrial developments which may require special measures to mitigate

pollution problems.” UK Overseas Development Adrmms “ “ tratiom “Manual of Environmental Apprai@” April 1992, p. 15.

43 Natio~ Audit Office, (jversus Aid: Water and the Environment (report by the Comptroller ~d Auditor @ne@ ~SO).

44 UK ~~e~ Development ~“ “ tratiou “Action for the Environment” May 1992 brochure, p. 40-41.

45 Whnc)lc)gy Partnership secretaria~ “-nxhnology p~“p: the Initiative,” brochure, n.d., n.p.
Chapter 5-Donor Country Profiles I 69

officials from government and industry will help country business personnel. UK firms also can

business personnel in developing countries obtain obtain specific information on the needs of

information about, among other matters, the best developing country businesses. British and develpractices employed by British companies, new oping country firms can access the network

technologies under demonstration in the UK, and through participating trade associations, British

sources of financing and other help. Some assist- embassy or High Commission commercial ofance will be provided to help UK companies fices, or the Partnership’s Secretariat in London.

provide hands on training for key developing
Appendix A:

Environmental

Markets in

Developing and Newly

Industrialized Countries1,2

T

he largest markets for environmental goods

and services (EGS) lie within the industrialized nations that are members of the Organisation for Economic Cooperation and Development (OECD). These countries will continue to

account for most EGS expenditures for the next 10 or

20 years. However, there is likely to be rapid growth

in EGS demand in non-OECD (developing, newly

industrialized, and Eastern European and former

Soviet) countries. Estimates of the current and prospective size of this non-OECD market vary widely.

One study concluded that non-OECD countries accounted for $36 billion out of an estimated $200 billion

global EGS market in 1990; by the year 2000, their

EGS markets could grow to $55 billion (with the world

total projected to be $300 billion).3 Another source

concluded that non-OECD markets amount to $37

billion (of a $270 billion world market); in 1996, the

non-OECD market could reach $61 billion (the world

total was projected to be $408 billion).4 Yet, another

source, the International Finance Corporation, suggests that one-third of the current global EGS market

of $300 billion, which it projects will reach $600

billion in 2000, is found outside the United States,

Canada, Europe, and Japan.5

Differences in the estimates reflect in part different

definitions of the environmental industry. Some analyses include only goods and services for end-of-pipe

control of air and water pollution and disposal and

recycling of wastes (although some pollution prevention consulting may be included). Others include

renewable energy and some energy-efficiency opportunities. Some estimates encompass markets for water

supply, mobile source controls (such as catalytic

converters), noise control, or construction work associated with environmental projects, while others do not.

Perhaps the greatest variable concerns so-called

“cleaner technologies, “ including pollution prevention and energy-efficient equipment. These technologies are generally integrated into processes-such as

industrial production processes, transportation systems, or heating or cooling systems for buildings. Yet

cleaner production and improved energy-efficiency

opportunities are often the most effective and most

1 This appendix draws on preliminary research from the OTA assessment, Amen”can Industry and the Environment: Implicata”onsfor Trade

and Competitiveness. While this appendix focuses on developing and newly industrialized country markets, the final report of the assessment

will contain more in-depth analyses of global markets and U.S. competitiveness in the environmental goods and services sector.

2 This appendix discusses environmental markets related to the industrial and utility sectors, including water supply, wastewater treatmen~

and refuse management. Environmental needs--and market possibilities-associated with land use managemen~ agriculture, foreslry,

f~heries, biodiversity conservatio~ and ecotourism development are not addressed here.

3 OECD, The OECD Environment Industry: Situation, Prospects and Government Policies, OECD/GD(92)l (Paris: OECD, 1992).

d Grant Ferrier, President of Environmental Business International Inc., testimony to House Committee on Merchant Marine and Fisheries,

Subcommittee on Environment and Natural Resources, Feb. 25, 1993.

5 International Finance Comratio% Investing in the Environment: Business Opportunities in Developing Countries (Washington, Dc: ne

World Bank and the IFC, 1992), p. iii.

71
72 I Development Assistance, Export Promotion, and Environmental Technology

cost-effective options for addressing pollution and

waste. While often needed, end-of-pipe and remedial

environmental controls are, by contrast, almost always

a net cost to business and frequently shift pollution

from one medium to another. (Per instance, wastewater treatment and some air scrubbing generates solid

wastes that require disposal, while incinerators turn

solid wastes into air emissions that require control).

Although now only a modest part of the global

market, the environmental business opportunities in

specific developing countries and newly industrialized

countries (NICs) can be quite large. (Environmental

technology opportunities in Eastern Europe and the

former Soviet Union are not addressed here. They are

the subject of a separate OTA assessment.)6 As

developing countries begin to address their environmental problems, environmental business opportunities could grow quickly. Of particular interest to

environmental technology vendors are the middleincome and fast-growing countries in East Asia and

Latin America such as the four NIC “tigers” (Hong

Kong, South Korea, Singapore, and Taiwan), Mexico,

Brazil, Chile, Malaysia, and Thailand. Opportunities

are also growing in some lower-income countries,

including India, Indonesia, and China.

In many developing countries, government funds

for environmental protection will likely remain sparse.

The availability of financing from private or mixed

public-private sources could be a critical determinant

for growth of environmental markets. The opening of

various developing country economies to greater

foreign investment and the loosening of state controls

on energy, transport, and manufacturing industriesincluding privatization-provide growing possibilities

for environmentally favorable investment.

Examples of the magnitude of developing country

and NIC environmental markets include about $11

billion of environmental projects in Taiwan’s current

Six-Year Development Plan,7 over $10 billion in

South Korea’s 1991-95 investment plans,8 an annual

environmental market of $1.8 billion (1993) in the six

ASEAN nations? and a $2.4 billion annual market

(1992) in six Latin American countries.10

The NICS and some developing nations produce

some of their EGS market needs. The technical

capabilities of EGS industries in Singapore, South

Korea, Taiwan, Mexico, Brazil, and some other

countries can be expected to increase. In fact, environmental goods are sometimes exported by these countries--often at lower prices than offered by firms in the

United States, Europe, or Japan. Environmental firms

from OECD countries face increased competition from

developing country and NIC companies as well as

from each other. However, OECD firms also are

finding opportunities for branch operations and joint

ventures in developing and newly industrialized countries.

SECTOR TRENDS

There are several trends in developing and newly

industrialized countries which present vendors of EGS

and cleaner technologies with growing markets:

development of water and wastewater treatment

infrastructure;

electrification;

growing transportation needs;

development of solid and hazardous waste disposal

capacity;

increased industrial production; and

development of environmental monitoring, standard making, and enforcement capability.

6 ne fist rePrt of this other assessment is: U.S. congress, OffIce of lkchnology Assessmen4 Energy-lZJl?ciency TechnOh@fOr cen~al

and Eastern Europe, OTA-E-562 (Washingto~ DC: U.S. Government Printing OtXce, May 1993).

7 ~eficm~ti~te ~ Taiw~ ~~Lis@ of ~wa’s S~-y~Developmentpl~ projects (p-List) & Status Report on !$ekcted MajOr

Projects,” August 1991.

s Republic of Kor~Ministry of Environment White Paper 1990,1991, ti M WOO ~, “Perspective of Environmental Industry in Kor~”

paper presented at GLOBE ’92, Wncouwx, BC, CsE@ Mar. 1620, 1S92.

9 Jom~ Menes,A-Assis~t Secretary for Trade Development, U.S. Department Of Comm-e, testimonY ~fore tie Home

Committee on Merchant Marine and Fisheries, Subcommittee on Environment and Natural Resources, Feb. 25, 1993. ASEAN is the

Association of South East Asian Nations consisting of Brunei, Indones@ Malaysb Philippines, Singapore, and Tbailand.

10 US~,EnYiro_ntal~ar~t Co&”tionsandB~iness Oppo~nitiesinKey~tin A~rican Countries, BUSiIKSS FOCUS SerieS, oCtOh

1992 (available through USAID, Arlingtor.L VA). The six countries are Argen@ B- Chile, Colomb~ Mexico, and Venezuela
Appendix A–Environmental Markets in Developing and Newly Industrialized Countries I 73

I Water Supply and Wastewater

Treatment Infrastructure

LDCS and NICS are expected to make major

expenditures in the next few years to build and upgrade

water supply and to provide sanitary services (see table

A-l). As is discussed in chapter 2, hundreds of millions

of people in the developing world lack potable tap

water. Sewage treatment is rare. Both municipal and

industrial wastewater treatment demand is growing. A

market for smaller treatment systems serving individual apartment buildings and small groupings of

businesses, and for improved septic tank systems, can

arise in areas where centralized sewage treatment

remains too costly. There may also be opportunities for

developing “engineered wetlands” and similar biological systems as low-cost sewage treatment for

smaller communities. Firms from many countries are

involved in providing architecture/engineering and

construction services, water and wastewater treatment

equipment and chemicals, and control and monitoring

instruments to meet these needs.

However, most expenditures in this sector will pay

for locally provided goods and services. Construction

labor and low-value materials like cement are obtained

locally. Relatively simple equipment, such as pipes

and sheetmetal products, can often be provided incountry or by regional low-cost international suppliers.

Thus only a modest portion of water and wastewater

related expenditures-primarily those dealing with

project management and relatively sophisticated goods

and services-would likely be significant for U.S.

exports.

The export performance of U.S. and foreign competitors in this sector varies by country and subsector.

The small size of the current market means that a few

sales may substantially change the picture. In Brazil,

American firms accounted for 20 percent of a $35-

million (1991) industrial wastewater import market,

edging out Germany (19 percent), Sweden (15 percent), the United Kingdom (15 percent), and Japan (7

Table A-l-Selected Water and Wastewater Markets and Expenditure Plans

Argentinaa

National water supply and sewerage program improvements $250 million

Estimated 1992 water pollution control market $100 million

Brazil: a

Major water modernization projects (1992-97) $3,105 million

Estimated 1992 water pollution control market $345 million

Mexico: a

Water supply and sanitation sector (1990-94) $4,504 million

Estimated 1992 water pollution control market $400 million

South Korea:

Water pollution investments planned (1991 -95)b

$4,230 million

1991 Water pollution control expenditures by businessC

384 million

Taiwan:d

Taiwan six-year plan wastewater projects (1992-97) $4,700 million

China: e

Estimated 1991 water pollution control market $433 million

Indonesia: f

Multilateral development bank water/wastewater projects $2,500 million

SOURCES: aUSAID, Enviromental Market and Business Opportunities in Key Latin American Countries, 1992; bRep.

of Korea Min. of Env. White Paper 1990; cYonhap (South Korean news agency) Mar. 9, 1992, in JPRS Report:

Environmental Issues, May 5, 1992; ‘American Institute in Taiwan; eU.S. Department of Commerce; fU.S.-ASEAN

Council for Business and Technology.
74! Development Assistance, Export Promotion, and Environmental Technology

percent).ll In Brazil’s municipal sector, U.S. producers

held 60 percent of a $135-million import market, ahead

of Swedish and Japanese competitors. Complicating

matters are a variety of licensing and joint venture

arrangements between Brazilian and American, British, Finnish, French, Swedish, and Swiss firms.

Mexico’s water pollution control imports seem dominated by the U.S. with a 60 percent share (1989) versus

14 to 15 percent shares for Japan and Germany.12 In

contrast, Japan is the biggest player in China’s water

pollution control import market of $48.9 million

(1991), accounting for 40 to 45 percent, while U.S.

sales were 8 percent, behind Austria’s 25 percent.13

Austrian, Danish, and Canadian exports of water

pollution control equipment to China have been

supported by grants and credits from those countries.

The U.S. is the largest exporter of water-related

equipment to Egypt (36 percent in 1991), surpassing

Japan (21 percent), Germany (17 percent), and Italy

(15 percent) .14 But in Morocco, France dominates with

65 percent of the import market, high above U.S. and

other European suppliers.15 The point of this snapshot

is that it is hard to say who dominates world trade in

the water and wastewater sector except to note that the

United States, Japan, and several European countries

are the key players.

M Electrification16

The World Bank estimates that electric power sector

capital investment in developing countries, Eastern

Europe, and the former Soviet Union during the 1990s

may reach $1 trillion.17 An analysis done for the

1991/1992 U.S. National Energy Strategy projects that

during the years 1990 to 2010, electric power investments of over $1 trillion for 624 gigawatts of new

capacity will occur in the developing countries (not

including Eastern Europe or the former Soviet Union).18

Whether or not growth in electricity demand and

production occurs at this rapid pace, there is increasing

recognition of the need for mitigating or preventing

environmental impacts. Business opportunities will

arise from the need for pollution abatement equipment,

more efficient and cleaner power generating technologies, and improved energy end-use efficiency. Demand for architecture/engineering, construction, and

project management services-areas in which U.S.

firms are strong contenders but face growing foreign

competition-will be increasing.

In the area of air pollution abatement, a relatively

inexpensive initial option is particulate removal by

electrostatic precipitators or fabric filters. U. S., Japanese, and European manufacturers are competitive in

developing country markets and local environmental

industry capacity is growing. End-of-pipe controls for

sulfur dioxide and nitrogen oxides are more sophisticated and expensive and perhaps too expensive for

some developing countries. U. S., Japanese, and German companies appear to be in the lead for these

gas-cleaning technologies, although multinational arrangements can make national comparisons difficult.

For instance, ASEA Brown Boveri (ABB), considered

a Swiss-Swedish conglomerate, owns Combustion

Engineering, a U.S.-based maker of air pollution

control equipment, and Flakt, a Swedish provider of

pollution controls. At the same time, ABB and various

U.S. companies license Japanese technology for selective catalytic reduction (SCR) of nitrogen oxides. A

variety of U.S. companies license or have adapted

sulfur and nitrogen oxide control technologies from

Japan and Europe. In fact, some U.S. air pollution

control firms are concerned about the growing strength

of German and Japanese gas-cleaning technology

~~ Ibid., p. 49.

12 Ibid., p. 112.

13 U.S. Dep~~t of Commerce National Trade Data BId mid.

15 mid.

16 me O’rA ~=~ment Fueling D~elop*nt: Energy TeChnol~gies For D~eloping co~~”es, O’IA-E-516 (w@dIl@O& ~: U.S.

Oovernrnent Printing Office, April 1992) provides an extensive analysis of developing country energy and related envirurunental issues.

17 World B* “~piti Expenditures for Electric Power in the Developing counties, ” IEN Energy Series Paper No. 21, February 1990,

in World BaulL “The Bank’s Role in the Eleetric Power Seetor,” draft Industry and Energy Department., box 5, p. 10.

la U.S. Department of En=SY, “National Energy Strategy ‘Ikchnical Amex 5: Analysis of Options to Increase Exports of U.S. Energy

lkehnology,” 1991/1992, DOE/S-0096P (Springfield, VA: National Tkdmical Information Service).
Appendix A–Environmental Markets in Developing and Newly Industrialized Countries I 75

suppliers. At the same time, some U.S. firms have their

own proprietary technologies.

American firms are major providers of air pollution

control equipment (for power generators and industrial

facilities) in a number of markets. U.S. firms garnered

a quarter of Brazil’s 1992 air pollution control imports

(Sweden, Germany, and France together accounted for

half). U.S. firms also accounted for over 25 percent of

1989 Mexican air pollution control imports (versus 20

percent for Germany, 14 percent for Japan, and 7

percent for Switzerland) .19 In Singapore, American

products earned nearly 40 percent of the 1991 import

market share, with less than 15 percent from Japan and

under 10 percent from Germany .20

Making environmental technologies affordable is

critical to gaining markets in developing countries.

Japan has embarked on a program to adapt power plant

pollution control equipment to meet less rigorous

emission requirements of developing countries at far

less cost than would be required in Japan, America, or

Western Europe.21 Japan also plans to lease air

pollution abatement equipment in Asian developing

countries.22

Cleaner generation technologies can offer more

cost-effective environmental performance than the use’

of add-on pollution abatement technologies. A variety

of ‘‘clean coal”23 technologies and combustion turbines (gas turbines) can allow developing countries to

use their fossil fuel resources more cleanly and

efficiently. In the clean coal area, the Department of

Energy notes that the United States is at the technological forefront but that U.S. vendors have not been

leaders in marketing abroad. DOE points to German,

Japanese, French, Swedish, and Italian suppliers as the

strong competitors.

24Increasing competition to American suppliers is found in the combustion turbine

business. General Electric is a major supplier in this

sector. GE and its business associates abroad (various

European and Japanese firms) who assemble turbines

using key GE components supply roughly half the

world’s gas turbine market.25 ABB, Siemens (Germany), Westinghouse, Pratt & Whitney, Rolls-Royce

(UK), and Mitsubishi (Japan) are among others

competing for this market. Licensing and joint ventures among competing manufacturers make competitiveness assessments difficult.

In the renewable energy sector, U.S. companies also

face tough Japanese and European competition.26

While the market is now small, it is likely to grow as

renewable energy costs decrease and if increasing

concerns about global climate change force changes in

energy sources. Furthermore, some renewable energy

technologies are well suited to developing country

circumstances where settlements are far from existing

electricity grids. German, Japanese, and Korean firms

are among America’s competitors in photovoltaic cell

production. Siemens of Germany, which recently

purchased ARCO Solar in the United States, is

reportedly the world’s largest photovoltaic cell manufacturer. Siemens exports 75 percent of its U.S.

production. 27 Danish, Dutch, Japanese, and German

companies are among those who make utility-scale

wind turbines. U.S. Windpower has been active in

seeking developing country markets.28 Japan is noted

19 us-,Enviro~ntal Market Opportunities. . . . Op Cit., pp. 44, 105.

~ u.S. Dep~~t of Commerce National Trade Data Bank.

21 “Japantowork~~_kDevelop&g Cheap Desulfurization UtitS fOrphUMS,” International Environment Reporter, July 29, 1992;

Kawasaki Heavy Industries, Ltd., information bookle~ 1992.

n “JapaneseTradeM inistry To Lease Anti-Pollution Devices To Developing Nations, ‘‘ InternationalEnvironmentReporter, July 15,1992,

p. 469.

23 Clem COaI t~hologies refer to a variety of technologies including precombustion cl- g of coal to remove polluting components,

cleaner combustion technologies, and postcombustion clean-up of stack gases. Stack gas clean-up was referred to in the previous paragraph.

w u.S. Department of Energy, “National Energy Strategy lkchnical Annex 6: Clean Coal Export Programs,” 1991/1992, DOE/S-0095P

(Springfield, VA: National lkchnical Information Service), p. 2. DOE’s usage of the term “clean coal” also refers to end-of-pipe controls.

2S Eug~eZIUGenm~Electric, personal colnmticatiou Feb. 3, 1993.

26A fo~co~g OTA ~s~sment, Renewable Energy Technology: Research, Deve[op~nt, and commercial prospects, will @yX

technological and commercial aspects of renewable energy.

27 ~kCmtiord, “seven comp~e~Aw~ded DOE Sok ~ants,” Energy Daily, Apr. 24, 1992, p. 3.

28 J~ Clflke, ‘tu.s.F-Smk to ~ketWhd pow~ fi LDcs,” Energy Daily, NOV. 18, 1992, pp. 1-2.
76 I Development Assistance, Export Promotion, and Environmental Technology

as a leader in the hydroelectric sector.29 Biomass,

geothermal, and solar thermal are other renewable

energy options for electricity production.

Improving energy end use efficiency through better

motors, lights, appliances, controls, heating, cooling

and ventilation, and insulation may lead to other

environmentally preferable business opportunities.

Improving energy efficiency can offer a “least-cost”

option for meeting energy service demand by allowing

countries to avoid installation of expensive additional

electricity generation capacity as well as future fuel

costs. As such, improved energy efficiency can present

lower up-front costs and conserve capital for a country

or utility.30 However, efficiency investments often

have a high first cost for consumers which dissuades

investment. Innovative financing for improved energy

or electricity use efficiency can help overcome the

consumer first cost problems. Pioneered in the United

States by utilities, regulators, “energy service companies,’ and environmental organizations, such ‘demandside management” approaches are being adopted by

developing country utilities (e.g., the Electric Generating Authority of Thailand) .31 The potential for exports

of energy-efficient products to developing and NIC

markets is large-perhaps $4.2 billion annually over

the years 1990-2000 (for both electrical and nonelectrical energy conservation) .32 However, U.S. firms may

not now be well positioned to tap this market because

of tough competition from Japanese and European

vendors already positioned in developing countries

and low-cost Korean and Taiwanese competition.33 In

fact, the United States is a net importer of some

energy-efficient products such as compact fluorescent

bulb ballasts.34 Efforts by American manufacturers

and government export promotion officials to target

energy efficiency export opportunities are in their early

stages.

I Transport

The growth of motorized transportation in developing and newly industrialized countries provides another business opportunity for U.S. environmental

technology. The United States was the first major

nation to institute strong vehicle emissions controls.

The removal of lead from gasoline, installation of

catalytic converters, and desulfurization of fuel were

undertaken in the United States in the 1970s. Japan

quickly adapted some of its requirements to U.S.

standards, in part to qualify its automotive exports to

U.S. markets. Several European countries, Australia,

Canada, and South Korea followed in the 1980s.35

However, only in 1993 has the European Community

(EC) required the types of vehicle controls the United

States has had for nearly two decades. As the United

States continues to strengthen vehicle emission standards and several industrialized nations research electric, fuel cell, and hydrogen-powered vehicles, several

countries in the developing world also appear to be

following the initial U.S. path.

Mexico, Brazil, Taiwan, and South Korea are among

fast-industrializing countries that are requiring catalytic converters on new gasoline-powered cars. Argentina, Chile, Venezuela, Egypt, Turkey, India, Singapore, and Thailand are expected to follow suit later

in the 1990s. Brazil, South Korea, and Taiwan are

projected to join the U. S., Canada, Japan, and Western

Europe in requiring stricter control-including the use

of filters and catalysto--of diesel vehicle emissions.36

These requirements create markets for catalytic comverters and diesel emissions control devices. The

29 U.S. Dep~ent of fim~, ‘tNati~@ Enerw Swegy ~~c~hex 5: ~ysis of Optiom to ~r~eExpo* of U.S. ~rgy

‘Rdmology,” 1991/1992, op. cit., p. 47.

30 U.S. CoWss, ~ce of ~~olog Asxssment, Fueling D~elop~nt: Energy Tech~logy For Developing Coun~”es, OTA-E-516

(Washington DC: U.S. Government Riming OfIlce, April 1992), p. 7.

31 ~bmtio~ ~timte for ~erg CoUmatiom Seizing the Mo~nt: G/o/xz/ Oppo~~”& for the U.S. Energy-E@iency Z-,

December 1992, p. 4.

32 Ibid., p. 69.

33 u-s. ~p~mt of FMXD, “Natio@ Ener~ Strat~lkchnical Annex 6,” oP cit.

~ k~rnatio~rnstimte for Energy Conservation op cit., p. 64.

35 H&w xaentScimm Co@@@ Inter~tio~IMobiIe Source Emissiom Controls Mar~t S&y: U@te No. 1, ~@fOr dle

Manufacturers of Emission Controls Association August 1990.

~ Ibid.
Appendix A–Environmental Markets in Developing and Newly Industrialized Countries I 77

largest producers of catalysts used in vehicle catalytic

converters are Johnson Matthey (British headquartered

with extensive U.S. operations) and U.S. companies

Allied-Signal and Engelhardt; Degussa of Germany

and a number of Japanese and Taiwanese firms have

smaller shares of the market.37 Allied-Signal has

recently expanded operations in France and Mexico

and has a joint venture in Japan. W.R. Grace may enter

the market as it researches electrically heated catalysts

to meet future California standards. The substrates on

which catalysts lie inside catalytic converters are made

by a number of U. S., Japanese, and European firms.

Coming is a major manufacturer with manufacturing

facilities in Germany and licenses to Japanese manufacturers.38 American firms are competitive in the

mobile source controls market.

Catalytic converters require unleaded gasoline. The

technology for producing low-sulfur fuels and unleaded, reformulated, and oxygenated gasoline can

also be a source of revenue for U.S. firms. For instance,

Mexican refineries are being adapted to make lesspolluting fuels. The U.S. companies HRI, Texaco, and

Foster Wheeler are under contract to provide technologies for three Mexican refineries.39 Refurbishment and

replacement of public transit vehicles—including vehicles powered by natural gas-are yet another export

chance created by environmental concerns; and another area where U.S. manufacturers face strong

foreign competition.

9 Solid and Hazardous Waste

Management

Many developing nations have limited capabilities

for safe and efficient waste collection and disposal. For

instance, there are no sanitary landfills in Pakistan.40

Turkey, an OECD member, has neither sanitary

landfills nor incinerators, and Mexico’s landfill capacity is sufficient to meet the needs of only 21 percent of

the population.41 Modem facilities for the management of hazardous and specialized (for instance,

medical) wastes are often lacking; these wastes frequently end up being left at municipal dumps if not in

wetlands, quarries, or along roads. Recycling, however, can occur at relatively high rates within the

informal sector of developing country economies as

poor people salvage materials from the discards of

others. 42

As countries seek to develop waste handling infrastructures, business opportunities arise for architecture/

engineering and construction firms to design and build

landfills and incinerators; for suppliers to sell a range

of products, from landfill liners and trash handling

equipment to incinerator/waste-to-energy technologies and monitoring instruments; and for service

companies to operate disposal sites and recycling

centers. Among larger national waste management

programs are Taiwan’s plans to spend $3.5 billion on

23 solid waste disposal projects during the current

Six-Year Development Plan and South Korea’s 1991-

95 plan to invest $2.6 billion by 1995 on waste

management projects, including 55 incinerators.43

South Korea also plans to construct 34 sanitary

landfills over the next 20 years. Energy recovery and

pollution abatement for existing refuse incinerators in

places like China also present market opportunities.

American and European firms are establishing

hazardous waste treatment facilities in developing

countries. Waste Management International, subsidiary of Waste Management, Inc., operates hazardous

waste facilities in Hong Kong and Singapore and is in

the process of building such a facility in Java,

37 StephenLip-“U.S. fiviro~en~ Companies’ Competitive Strategies: Eleven Case Studies,” OTA Contractor Report, Mirch

1993.

38 Cwton L. smi@ Cohg bc., presen~tion at “The ClearI Air Marketplace,” ~sons Comer, V’ Apr. 22-23, 199.

39 Usm, Energy ~~ E~vjro~mnt Market co~itio~~ in ~~-~o, B~iness FocM series, ~ch 1992 (avdable thro@ USAID ,

AdillgtO~ VA), p. 27.

@ Abm ~kerfi~j~ p~~~s ~pre=n~tive t. the ~t~tio~ Ufion for tie co~ervation Of Nature ~d Natural Resoumes,

Presentation at GLOBE ’92, Mncouver, BC, Cam@ Mar. 16-20, 1992.

41 ~temtio~ Finance Corporatio~ Znvesring in the Environment. . . . Op cit., p. 16.

42 ~ide

43 ~~m ~ti~te h mwm, Op cit.; Republic of Korea Ministry of fiVkOIMIenG Op Cit.
78 I Development Assistance, Export Promotion, and Environmental Technology

Indonesia.44 The Danish company I. Kruger has won

the contract to develop in Malaysia an integrated

hazardous waste treatment and disposal facility along

with three regional collection centers; facilities are

expected to be on-line by 1995.45 In Brazil, a

$60-million facility featuring a $30-million Finnish

incinerator will be built by Ecoclear (Italy) and Gestao

de Empreendimentos (Brazil) in Rio de Janeiro.46

American firms account for over 70 percent of

Mexican imports of solid and hazardous waste equipment (1989).47 U.S. opportunities in waste-to-energy

facilities and hazardous waste incineration are strongly

challenged by German, Japanese, Swiss, and Scandinavian firms.

As in the case of water and wastewater treatment

infrastructure development, most expenditures for

nonhazardous and hazardous waste management are

likely to be spent on locally obtained labor and

materials and on lower-technology components for

which U.S. firms may not be the low-cost supplier.

American companies can be competitive in design,

management, and operation of private or govemmentcontracted facilities, and in the supply of relatively

sophisticated materials handling, treatment, incineration, and monitoring equipment. Incinerators and

waste-to-energy plants present opportunities for supply of air pollution control equipment, while water

pollution treatment technologies may be required for

sanitary landfills.

I Industrial Production

The success of the NICS, which other developing

nations are trying to replicate, depended on rapid

growth in manufacturing industries. Industrial growth

brings increased pollution but also can contribute to

the prosperity needed that can be used to battle

pollution. Polluting industrial activities found in the

NICS and developing countries are too numerous and

heterogeneous to discuss succinctly. They range from

myriad small metal shops and tanneries to large

chemical, petroleum refining, and steel complexes.

Textiles, primary metals, food products, electronics,

automobile assembly, plastic and rubber products,

paper and pulp, cement, and manyotherproducts made

for domestic markets and for export generate varying

levels of pollution when made.

These sectors are increasingly regulated or coming

under other forms of pressure to control wastes and

pollution. Thus, opportunities arise for purveyors of

environmental goods and services to help retrofit,

modernize, and develop newer and cleaner industrial

facilities. For instance, state oil companies plan to

make investments to improve the environmental performance of their refineries in Brazil, Mexico, and

Taiwan.48 Private and state-owned mining and smelting companies in Chile are making or plan to make

investments in scrubbers and new smelting equipment

to lower sulfur dioxide emissions.49 Some U. S.,

European, and Japanese multinational corporations

bring home-country or stricter-than-local corporate

environmental standards to their developing country

operations. Developing countries share with the U. S.,

Europe, and Japan the industrial challenge of phasing

out chlorofluorocarbons (CFCS).

In many cases, the environmental equipment and

services required is similar to that described above for

wastewater, electric power, and waste handling. Dust

and particulate control is often the initial air quality

priority, as standard sewage treatment is for water.

Scrubbing of sulfur and nitrogen oxides, odor and

hydrocarbon emissions control, and control of heavy

metals and other hazardous substances are other

priorities. Designing and equipping wastewater and

solid and hazardous waste facilities for industrial parks

is a promising area. Such environmental facilities

serving numerous industrial waste and effluent generators can effect pollution control at lower costs to

enterprises than if each one had its own treatment

facility.

44 PatrickHein.inger, waste Management International, presentation to theu.s. tivironmentd ~tiOIOgySerninar, Jakartq Indonesia, Oct.

27, 1992.

45 ~vhomen~ -gement and Re~eW~h ~~ociation of ~aysia @NS~CH) Brief% to U.S. ~viroIIIIlenM ~chIIOIOgy and

Business Mission Participants, Oct. 30, 1992.

46 us-, Environmental Market Opportunifl”es. . . . Op. cit., p. 51.

AT ~id., p. Ilg and IJ.S. Department of Commerce National Trade Data Bank.

4S ~~w~ti~te ~ ~wan, “Listing of ‘Ihiwan’s. . .“, op. cit.; and USAID, Environmental Market Conditions. . . . op. cit.

@ Usm, ibid.
Appendix A—Environmental Markets in

Despite certain economic advantages in centralized

treatment and disposal of industrial wastes and effluents, there are also environmental business opportunities at the enterprise level. For instance, metal finishers

and electronic plants generate wastewater containing

heavy metals. Where effluent standards exist and are

enforced facilities typically use chemicals to precipitate metals into a sludge which is then removed for

disposal. In developing countries, as in the United

States, Canada, Europe, and Japan, there is the

possibility of removing and recovering metals from

water by means of ion exchange. American, European,

and Japanese firms produce ion exchange resins and

apparatus and could be competitive suppliers to the

NIC and developing nation markets. The first reported

vendor of an ion exchange effluent control system in

Malaysia is RMC Dornier, a subsidiary of Deutsche

Aerospace (which is owned by Daimler-Benz).50 Ion

exchange is just one example of pollution control and

prevention equipment applicable to particular industries at the plant level. Solvent and aqueous bath

recovery, volatile organic compound recovery or

destruction, odor control, and particulate control are

among others.

U. S., European, and Japanese firms are also the

leading actors in the development of cleaner industrial

production approaches. Often pollution prevention

approaches can save money and improve quality,

whereas end-of-pipe control and disposal is almost

always a cost to business. Opportunities arise for

architecture/engineering firms to design and for American industrial firms to invest directly in cleaner

production facilities in developing countries.

Finally, past industrial activities have resulted in

contaminated sites from which a hazardous substance

remediation market may arise. The United States is a

leader in this area because of strict requirements under

Superfund and the Resource Conservation and Recovery Act. Underground storage tank requirements and

attention to contaminated Defense and Energy Department sites further propel the U.S. EGS industry.

European and Japanese concerns over their contaminated lands have stimulated remedial activities in

those countries, sometimes using American developed

technologies but sometimes employing their own

Developing and Newly Industrialized Countries I 79

technologies (e.g., Dutch soil washing technology).

However, remediation markets in developing and NIC

economies are likely to remain quite modest for some

time. Developing country environmental priorities

generally lie in limiting additional environmental

insult through establishment of wastewater treatment

and waste disposal infrastructure, and requiring environmental controls on new and existing industrial

facilities. Furthermore, many developing countries

have had a relatively short history of activity in toxic

chemical-intensive industries. Although there may be

individual circumstances where contaminated sites

present an extraordinary hazard or where leaked

chemicals and fuels might be recovered for use,

generally remediation will be a lower priority.

H Environmental Monitoring

Although relatively small, the market for environmental monitoring and testing can be the linchpin for

the development of environmental regulations, standards, and enforcement. As such, the use of development assistance and export promotion programs to

target developing and NIC markets in environmental

monitoring and testing instruments may yield longterm commercial dividends.

Countries developing an environmental regulatory

capability need to be able to monitor the state of the

environment, establish quantifiable standards, and

monitor compliance. Pollution-monitoring devices,

analytical instruments, fine chemicals and chemical

test kits, and various laboratory supplies are required

to perform such functions. Instruments and laboratory

protocols adopted by a country’s environmental agency

might determine the types of instruments that will be

used by state or provincial officials, municipalities,

water and sewer authorities, private laboratories, and

regulated industries. American instrument manufacturers compete with Japanese, German, and other

European manufacturers. In southeast Asia, Australian

instruments also compete. Cost as well as precision are

important, so the best technology may not be the best

seller. American technologies are often perceived as

too expensive and overengineered. An advantage the

United States does have is the good reputation the U.S.

EEA and its standards have abroad, and the widespread

m ~aysia~~entof~eBnvimnment Brie@ to U.S. Bnvironrnental ‘Rxbology and Business Mission Participants, KtiaLwpur,

Oct. 29, 1992; and BnviroPm ’92 Conference and Trade Show display, Kuala Lumpur, Oct. 30, 1992.
80 I Development Assistance, Export Promotion, and Environmental Technology

use of American Water Works Association, Water

Environment Federation, and other U.S. industry and

professional standards internationally. America’s European and Japanese competitors are interested in

promoting the use of their standards in developing

country markets.

Japan’s funding of environmental management

centers in several Asian countries has the potential to

strongly influence the choice of instruments and

standards in those countries. For instance, Japan is

financing and equipping the central reference laboratory for the Indonesian environment agency BAPEDAL.51

The use of Japanese manufactured equipment for

official standard-setting and monitoring may influence

provincial and local authorities and private companies

to purchase like equipment from Japan. The provision

of equipment to standard-setting and enforcement

agencies can be a gateway to further sales.

CONCLUSION

The trends point to increased environmental concerns in developing countries. Improvements in infrastructure, expanding industry, and growing environmental administrative capacity point toward an expanding market for environmental technologies and

services. While much of the environmental expenditures will flow to local and regional providers of labor,

materials, and lower-technology products, there will

be important opportunities for American companies to

export their equipment, instruments, and technical and

managerial expertise. U.S. environmental companies

face considerable competition from foreign firms,

chiefly from Europe and Japan but also from developing and newly industrialized country companies with

growing capabilities.

51 BAPEDAL, Briefimg to u.S. Environmental ‘I&hnology and Business Development Mission Participants, Mart% Indonesi% Oct. 26,

1992.
Appendix B:

U.S. Export

Promotion Activities

and Environmental

Technologies

COORDINATION OF FEDERAL ACTIVITIES

F

ederal export promotion and financing responsibilities are divided among many agencies. The agencies with primary or major

missions to promote U.S. exports and interact

with and provide services to U.S. companies are the

Department of Commerce, the Export-Import Bank of

the United States (Eximbank), the Overseas Private

Investment Corporation (OPIC), and the Trade Development Agency (’IDA). The Office of the U.S. Trade

Representative, the Department of State, and the U.S.

Treasury are all important in developing trade policy

and conducting the United States’ policy agenda and

negotiations. The Department of Agriculture plays a

critical role in promoting U.S. agricultural exports.

Other agencies may be active in some trade promotion

activities, but this is not their main mission. Encouraging U.S. private sector involvement in development

assistance is a feature of several U.S. Agency for

International Development (USAID) programs and

activities. The Department of Energy (DOE) and the

Small Business Administration (EPA) are involved in

export promotion to further specific agency missions.

Other agencies, such as the Environmental Protection

Agency @PA), may become involved because of their

special expertise or responsibilities.

With so many programs and agencies, there has

been growing recognition that Federal programs are

poorly coordinated, often duplicative, and that an

overall strategy to guide Federal activities has been

lacking. Recent initiatives by Congress and the executive branch aimed at improving program coordination

and developing a more strategic emphasis are discussed below. Some of the initiatives focus on

environmental goods and services. Table B-1 shows

selected Federal programs pertinent to promotion of

environmental exports.

I Trade Promotion Coordinating

Committee

The interagency Trade Promotion Coordinating

Committee was set up in May 1990 by former

President Bush with the aim of consolidating and

streamlining Federal export promotion activities. Congress, in the Export Enhancement Act of 1992, gave

statutory status to the TPCC, which is chaired by the

Secretary of Commerce. 1 The Export Enhancement

Act also gave statutory direction for an Environmental

Trade Working Group under the TPCC to develop a

strategy to expand U.S. exports of environmental

technologies, goods and services, and to address all

issues related to export promotion and financing of

environmental technologies.2

The Export Enhancement Act identifies 12 permanent members of the TPCC (see table B-2). Box B-A

1 Export Enhancement Act of 1992, Public Law 102-429, Sec. 201. TPCC’s predecessor was the Interagency Task Force on Trade. U.S.

General Accounting Offkx, Export Promotion: Federal Programs Lack Organization and Funding Cohesiveness, NSA.ID-92-49

(Gaithersbuzg, MD: U.S. General Accounting Office, Jan. 10, 1992), p. 7.

z EXpOrt Enhancement Act, 1992, op.cit., SeC. 204(a).

81
82 I Development Assistance, Export Promotion, and Environmental Technology

Table B-l-Selected Federal Programs That Can Promote EGS Exports

Activity Export Market Financing Trade Feasibility Overseas Technology

Education Info. & insurance Missions Studies Presence Training &

& Travel Cooperation

Department/Program*

AGENCY FOR INTERNATIONAL DEVELOPMENT

American Business Initiative x x

Bureau for Private Enterprise x x

Market and Technology Access Project x

U.S.-Asia Environmental Partnership x x x x

Energy Technology Innovation Project x x x

Energy Training Project x x

Environmental Credit Program x

Environmental Enterprises Assistance Fund x

Energy Efficiency Centers in E. Europe x x

Private Investment and Trade Opportunities x x x x

Project in Development & the Environment x x x

Environmental Improvement Project x x x x

Capital Development Initiative x x x

DEPARTMENT OF COMMERCE

U.S. & Foreign Commercial Service x x x x x

Eastern Europe Business Info. Centers x x x x

L. Am./Carib. Business Development Center x x x x

E. Europe Enviro. Business Consortium x

Nat/. Enviro. Technologies Trade Initiative x x x

DEPARTMENT OF ENERGY

Export Initiative Program x x

Coal and Technology Export Program x x x x

Support to Energy Efficiency Centers x x

Committee on Renewable Energy Commerce x x x x x

and Trade (CORECT)

Federal International Trade and Development Opportunities Program x

ENVIRONMENTAL PROTECTION AGENCY

Office of International Activities x x x x

U.S. Environmental Training Institute x x

Regional Environment Center (Budapest) x x x

Caribbean Environmt. & Developmt. Instit. x x x

Clearinghouses x x

Technical Information Packages x

EXPORT-IMPORT BANK I I I x I I 1 I

OVERSEAS PRIVATE INVESTMENT CORP. x x x

Environmental Investment Fund x

(not yet capitalized)

SMALL BUSINESS ADMINISTRATION

TRADE AND DEVELOPMENT AGENCY [ I x I I x I x I I x

● Programs in italics have substantial interagency, state, or private sector participation in managing the program.

SOURCE: Office of Technology Assessment.
Appendix B–U.S. Export Promotion Activities and Environmental Technologies I 83

discusses responsibilities of several key agencies

pertinent to promotion of environmental exports.

The Export Enhancement Act calls on TPCC to,

among other things, propose to the President “an

annual unified Federal trade promotion budget” to

support priority activity and improved coordination

and eliminate funding for areas of overlap and

duplication.

Implementation of the new mandate by the Clinton

Administration was just beginning when this paper

was completed in the spring of 1993. In its initial two

years under the Bush Administration, TPCC functioned through 13 area, sector, or activity-based

working groups that were chaired by a senior Commerce Department official, and were sometimes cochaired by an official of another agency.

The TPCC also setup a one-stop information center,

called the Trade Information Center. The Center

directs inquiries from new-to-export and new-tornarket firms to Federal agency programs for assistance. Firms must still apply separately to the individual agencies for assistance; consequently, one-stop

shopping is far from fully achieved. (Another referral

service, the Center for Trade and Investment Services

administered by USAID’s Bureau for Private Enterprise, focuses specifically on developing countries.)

1 Working Group on Environmental

Trade Promotion

The 1992 Export Enhancement Act declared that it

is the “policy of the United States to foster the export

of United States environmental technologies, goods,

and services. In exercising their powers and functions,

all appropriate departments and agencies of the United

States Government shall encourage and support sales

of such technologies, goods, and services. ”3

Toward this end, the law directs the President to

establish an Environmental Trade Working Group as

a subcommittee of TPCC. Its purposes are to: 1)

“address all issues with respect to the export promotion and export financing of United States environmental technologies, goods and services”; and 2) “to

develop a strategy for expanding United States exports

of environmental technologies, goods and services. ”

Membership is to include representatives from

TPCC agencies and the Environmental Protection

Table B-2—Members of the TPCC

The Department of Commerce

The Department of State

The Department of the Treasury

The Department of Energy

The Department of Agriculture

The Department of Transportation

The Office of the United States Trade Representative

The Small Business Administration

The Agency for International Development

The Trade and Development Agency

The Overseas Private Investment Corporation

The Export-Import Bank of the United States

and other agencies at the discretion of the Presidenta

a Although the Export Enhancement Act does not list EPA as a member

agency, it does stipulate that EPA will partcipate in the Environmental

Trade Working Group.

SOURCE: Export Enhancement Act of 1992, Public Law 102-429,

section 201.

Agency. The working group chair, to be a senior

Department of Commerce employee, is to assess the

effectiveness of current programs, recommend improvements, and ensure effective coordination of

existing programs. The chair is also to assess, with the

EPA representative, the extent to which the working

group’s environmental trade promotion activities advance the environmental goals of Agenda 21, which

was adopted by most nations at the UN Conference on

Environment and Development, held in Rio de Janiero

in June 1992. Agenda 21 includes specific action plans

for cooperation between the developed and developing

world for addressing environment and development

needs in a more integrated fashion.

In April 1993, President Clinton announced that he

was asking the Department of Commerce, DOE, and

EPA to “assess current technologies and create a

strategic plan” for environmental trade development

and promotion, and technical assistance. An Interagency Working Group on Environmental Technology

has been established to work on these tasks. It has three

subgroups: the international (export promotion) subgroup; the technology development subgroup; and the

business development subgroup (developing the internal market). The aims of the international subgroup

`b Utitd states-~~ Environmen@l Partnership, Annual Repo# 1992, p. 3.
84 Development Assistance, Export Promotion, and Environmental Technology

Box B-A-Federal Agencies and Environmental Export Promotion

Agencies with Major Export Promotion Responsibility

The Department of Commerce (DoC)

The secretary of Commerce chairs the Trade Promotion Coordinating Committee. DoC’s International Trade

Administration (ITA) is a principal agent of export promotion. ITA runs the U.S. and Foreign Commercial Service

(US&FCS) which gathers data through foreign posts, and distributes the data through several communication

media and 47 district offices (and 21 branch offices). The US&FCS provides export education, market/sector

reports, and trade leads, and organizes a range of activities including individual company visits to foreign markets,

trade missions, and trade fairs.

U.S. Export-Import Bank (Eximbank)

Eximbank aims to promote U.S. exports by accepting credit risks not accepted by the private sector. It also

administers a small "WarChest” to neutralize the effects of foreigngovernment tied aid credits (ch. 4). The bank

provides the following services: guarantees to repay commercial lenders should foreign buyers fail to pay for Us.

exports; direct and Intermediary Ioans to foreign buyers of U.S. exports to match officially supported foreign credit

competition; export credit insurance to protect exporters against nonpayment by foreign buyers; working capital

guarantees to encourage Ienders to make bans to small companies that need funds to produce and market goods

for export.1 Eximbank is further discussed in the text.

The Overseas Investment Corporation (OPlC)

This Federal agency promotes U.S. private Investment In over 120 developing countries. OPIC assists U.S.

investors to finance investment through direct bans and ban guarantee% insures investment projects against

abroad range of political risks, and provides a range of other investor services. 2 OPIC has recently been attempting

to establish an International Environmental Investment FUnd to stimulate U.S. Investment in developing countries

in environmentai areas. However, the fund has not been capitalized, Kidder Peabody has terminated its

management of the fund, and OPIC is looking for a new fund manager.

The Trade and Development Agency (TDA)

The mission of this small, commercially oriented foreign assistance agency is to encourage project managers

in developing and middle-income countries to use U.S. goods, services, and technologies for major capital

infrastructure projects. TDA grants support studies to establish the economic, financial, and technical feasibility

of proposed projects. Grants go to the host country, which must select (through a competitive process) a U.S. firm

to carry out the study. Other support includes technical assistance grants; orientation visits (reverse trade

missions); helping developing country officials attend symposia displaying U.S. technologies; grants to train

workers and technicians; and grants to multilateral development banks for feasibility studies and other planning

services. TDA’s role is further discussed in the text.3

Other Agencies

U.S. Agency for Internatinal Development (USAID)

While not an export promotion agency, many USAID activities may promote U.S. exports in the broader

context of its development assistance mission. USAID supports project development activities such as feasibility
Appendix B–U.S. Export Promotion Activities and Environmental Technologies 85

Box B-A-Federal Agencies and Environmental Export Promotion--Continued

studies, reverse trade missions, and energy and environmental training. In addition, the Bureau for private

Enterprise works to develop relationships between USAID and the private sectors of the United States and

developing countries, encouraging participation in both publicly and privately financed development projects.

Several USAID activities focus on EGS activities. Those most pertinent to EGS export promotion include,

among others: the U.S.-Asia Environmental Partnership (described in the text); the Project in Development and

the Environment (which provides technical assistance to the Near East on environmental and natural resource

management); the Environmental Credit Program (loans and loan guarantees for environmentally preferable

projects that promote export of U.S. technology);4 and the Environmental Improvement Project, setup in the fall

of 1992, which aims to reduce urban and industrial pollution in the ASEAN countries. The Environmental

Enterprises Assistant Fund receives USAID funding to promote direct loans and equity to promote the

dissemination of environmental technologies in developing countries. USAID’s role in environmental ODA and

environmental export promotion is discussed in more detail in chapter 5.

Departmenf of Energy (DOE)

Several DOE programs promote exports of U.S. energy efficiency technologies and dean energy

technologies. These include the CORECT progam to promote export of renewable energy technologies (see

later), and the Coal and Technology Export Program. DOE also provides support to the Energy Efficiency Centers

in Eastern Europe. The Export Initiative Programs (in DOE’s Offices of International Affairs) promotes the export of

energy-related goods, helping firms identify export opportunities and financing, and coordinating activities with

other agencies. DOE also cooperates with developing and middle-income countries to transfer dean energy and

energy-efficiency technologies. The 1992 Energy Policy Act authorized major new DOE/USAID efforts to transfer

innovative U.S. energy-efficiency and environmental technologies to developing countries, but funds for these

programs have not been appropriated.

Environmental Protection Agency (EPA)

Although not an export promotion agency, EPA is a member of the Environmental Trade Working Group of

TPCC and several EPA offices are involved in technology cooperation activities pertinent to export promotions

EPA was Instrumental in the launching of the U.S. Environmental Training lnstitute (USETI, discussed

subsequently). Foreign companies can use EPA's Vendor Information System for Innovative Treatment

Technologies (VISITT), a database containing information about 154 U.S. companies’ technologies to treat

contaminated groundwater, soils, sludges, and sediments.

EPA, USAID, and DOE cosponsor the Environmental and Energy Efficient Technology Transfer

Clearinghouse (managed by a nonprofitt business organization, the World Environment Center). EPA helped set

up three energy-effiency centers in Eastern Europe; with DOE, it will jointly fund and administer a new center

in Moscow. EPA also helps support the Caribbean Environment and Development Institute and the Regional

Environment Center for Central and Eastern Europe, which promote technology and policy cooperation. EPA

provides funds for the only current environmental attache (export promotion is not the main thrust of this person%

responsibilities, however).
86 I Development Assistance, Export Promotion, and Environmental Technology

appear similar to the environmental trade working

group called for in the Export Enhancement Act.

8 The United States-Asia Environmental

Partnership (USAEP)

USAEP is an export promotion and development

assistance program aimed at helping countries in the

Asia-Pacific region to solve environmental problems

using U.S. environmental goods and services. It is

intended to be a partnership on at least three levels:

between different government agencies, between government and the private sector, and between Asia and

the United States. It is too early to measure USAEP’S

success.

So far, USAEP is funded primarily by discretionary

funding from USAID. USAID plans to contribute $100

million in core funding over 5 years,4 although this

commitment can be withdrawn any time. USAEP also

is in the early stages of identifying alternative sources

of funds and other resources, both public and private.

On the government side, USAEP includes over 20

U.S. government agencies. During the Bush Administration, coordination was facilitated through a special

TPCC working group, co-chaired by USAID and the

Department of Commerce. USAEP is intended to

provide “one-stop shopping” for all areas of U.S.

government assistance, including technology showcasing, training and technology transfer, export financing and risk insurance, and feasibility study funding. A

small secretariat provides technical assistance and

facilitates public-private interaction.

USAEP activities are intended to encourage technology cooperation between U.S. firms and Asian

businesses. By promoting sales, licensing, and joint

ventures, it hopes to help Asian firms meet environmental requirements while achieving operating efficiencies. It also seeks to transfer U.S. technology and

know-how about environmental and energy-efficient

infrastructure for publicly sponsored infrastructure

projects in Asia. It aims to support training and other

human resource development, as well as institutional

development related to environmental technology

transfer and networking between Asian and American

organizations. USAEP in addition is seeking to support protection of biodiversity.

By late 1992, the Secretariat had 10 projects on-line

and 10 in the planning process. 5 For example, it plans

to set up an Infrastructure Advisory Service to

coordinate U.S. government financing, providing onestop financing to help U.S. companies participate in

development infrastructure projects. It is also planning

a service to gather, organize, and disseminate information about Asian environmental trade and investment

opportunities, in conjunction with other business

information services.

USAEP is in the process of placing “business

representatives “ in nine Asian countries to identify

opportunities and contacts for U.S. companies. It also

may support the personnel costs of placing an environmental infrastructure specialist in the Asian Development Bank and perhaps the World Bank to monitor

Asian environmental projects.

USAEP also has an arrangement with the National

Association of State Development Agencies (NASDA)

called the USAEP/NASDA Technology Fund,

launched Oct. 1, 1992. Through NASDA, state agencies and local trade organizations may apply to USAEP

for matching funds ($10,000-$30,000) for U.S. businesses to develop trade opportunities in Asia. Proposals that target specific commercial opportunities in less

developed Asian nations, including participation of

several companies, and involving small or mediumsize enterprises, will be given greater consideration.

Use of the funding is flexible and can include shipment

of demonstration equipment, travel expenses, training,

technology adaption, etc. As of March 1,1993, the new

environmental fund awarded grants totaling $383,000

for 18 projects. (See subsequent discussion of State

coordination.)

I Committee On Renewable Energy

Commerce and Trade (CORECT)

CORECT was setup in 19846 to coordinate Federal

policy and programs to promote exports in the

renewable energy field. Chaired by the Secretary of

Energy, CORECT includes 14 Federal agencies and

4 United States-Asia Environmental Partnership, Annual RepOn 199z, P. s.

5 i cus.~ ~o- Review ad s~~s Report, cable transmitted Nov. 30, 1992, from USD Asia Bureau to ~1 Posts k ‘i&

6 Renewable E~~gy ~d~~ Development At of 1$)83, Pubfic ~w g&s70, ~end~ by tie Renewable Energy Wd EIler~ ~lCieIICy

Technology Competitiveness Act of 1989, Public Law 101-218.
Appendix B–U.S. Export Promotion Activities and Environmental Technologies I 87

industry (often represented through the Export Council

for Renewable Energy (ECRE)).

CORECT's structure encourages a close relationship between Federal agencies and industry. Industry

representatives influence the priority setting and program planning processes of CORECT through frequent “Focus Group Meetings” with Federal agency

officials. Once a task is identified as meriting support,

each agency can commit resources depending on its

own mission and expertise. Although Congress has

given funds to DOE for administering the process,7

each agency maintains control of its own resources.

It is difficult to evaluate the impact of CORECT on

exports of U.S. renewable energy technologies because public trade data is incomplete and the industry

reveals little about its trading activities.8 A recent U.S.

General Accounting Office report9 notes that

CORECT did not meet a congressional deadline to

formulate a plan for increasing renewable energy

exports. Still, CORECT has identified barriers to

exporting, investigated markets, and sponsored trade

promotion events, which could comprise basic components of a trade plan. CORECT and ECRE have

established a uniform application form to make it

simpler for firms in the renewable energy field to apply

for financing from USAID, Eximbank OPIC, and

TDA. GAO also concluded that CORECT had been

successful in pulling financial resources from Federal

agencies and industry for trade development activities,

as well as from multilateral institutions, and has been

instrumental in developing new financing mechanisms. U.S. renewable energy technology firms must

still, however, compete against very competitive

foreign financing and subsidization schemes.

Recently, there has been interest in extending

CORECT’s approach to include energy efficiency, and

DOE is planning to establish a parallel committee or a

subcommittee of CORECT for this purpose.

TRADE DEVELOPMENT AND TRAINING

Trade development programs cultivate the potential

for trade through such activities as trade missions,

feasibility studies, reverse trade missions, and training.

The Federal government is encouraging U.S. firms to

provide training to developing country officials as a

way to “promote the transfer of environmentally

sound technologies and management principles.”l0

Such training can help establish commercial relations

between U.S. firms and developing countries, and may

help promote sales of U.S. technologies.

I U.S. Trade and Development Agency11

As discussed in Box B-A, TDA supports feasibility

studies for development projects. TDA funds must be

used to hire U.S. firms to carry out feasibility studies

and other planning services. The host country chooses

the U.S. company, however. Because TDA-funded

feasibility studies are conducted by U.S. firms, there is

abetter possibility that the firms will steer their clients

to U.S. technologies for the subsequent development

contract, than if foreign firms conducted the study.

TDA does not fund a study for a project unless U.S.

goods, services, and technology in the sector are

considered internationally competitive. It relies on

consultations with technical advisers, other agencies

and private sector groups to make this judgment.

TDA-funded studies focus on infrastructure development in such sectors as energy, wastewater treatment,

transportation, and telecommunications. In fiscal year

1992,33 percent of TDA’s funding went to energy and

natural resources projects; 12 percent went to water

and environmental projects.12

TDA’s approach can be advantageous to U.S. firms

in the energy/environmental sector. In 1987, Black and

Veatch International of Kansas City won a contract for

a study for a power plant in Bang Pakong, Thailand.

The Electric Generating Authority of Thailand (EGAT)

had received a grant of $350,000 from TDA for the

study. This led to an additional $30 million revenue for

7 co=~~iod ~pprop~atiom for co~~ ati~ation were $1..4.8 million in 1991,$2 million ~ 1992, ~d $2.5 fion in 1993.

8 This section is drawn from U.S. General Amounting Office, Ezport Promotion, Federal Efiorts to Increase Exports ofRenewableEnergy

Technologies, GGD-93-29 (Gaithersburg, MD: U.S. General Aeeounting Of&e, Dee. 1992).

g mid.

10 U.S. Environmental Training Institute, “U.S. Environmental Training Institute: Catalogue of Courses, 1992”.

11 Formerly the Trade Development PIugrIZ U.S. Trade Development Agency, 1992 Annual Report, Washington w, 1993.
88 I Development Assistance, Export Promotion, and

Black and Veatch in further engineering services

contracts with EGAT, and because of pro-U.S. engineering specifications, a $64.6-million contract was

awarded to General Electric for two 300-MW combined cycle gas turbine power plants. This further led

to GE winning a similar contract in Rayong, Thailand.

Black and Veatch was also selected as project management consultant for an integrated pulp and paper mill

project funded at $200 million.13

The TDA funds reverse trade missions. This gener-m

ally means paying for foreign procurement officials to

travel to the United States and visit U.S. companies

and plants, where they are exposed to U.S. technology.

TDA also provides funds for foreign officials to come

to U.S. trade and technology shows, and provides

grants for training. These grants, which amounted to

$2.7 milion in fiscal year 1992, can sweeten U.S. bids

for development projects.

TDA’s fiscal year 1992 appropriation was only $35

million, operating with a staff of under 40 people. For

1993$40 million was appropriated. Considering its

small size, the program is judged by many to yield high

returns in terms of exports per tax payer dollar. TDA

estimates that for every dollar of TDA program

expenditure, over $25 are returned to the U.S. economy in export income.14 However, some of those

exports (it is not known what percent) are themselves

financed by other U.S. government agencies such as

USAID and Eximbank, so the ratio of outlays received

to U.S. government program expenditures would be

lower. The General Accounting Office is currently

conducting an assessment of the effectiveness of

TDA’s activities.

Environmental Technology

U.S. Environmental Training Institute

This organization encourages U.S. firms to provide

training courses to qualified public and private sector

officials from developing countries. Companies are

responsible for funding operating costs and sponsoring

courses. EPA, USAID, and TDA provided some

start-up funds for the Institute, which is a nonprofit

organization. EPA estimates that when in-kind contributions are counted, the Federal government support

exceeds $1 million.15

The company that provides the training has an

opportunity to showcase its technology and promote

its adoption in developing nations. Companies are

chosen on the basis of their technological track record

and training capacity. Their technologies must be

proven. EPA and other Federal agencies advise the

Institute. If the course is approved, it is listed in a

brochure and circulated through embassies and commercial offices. For 1993, 16 training courses are

planned, including such topics as environmental remediation of nuclear sites, industrial wastewater treatment, clean air technologies, air pollution control

technologies.l6

EXPORT FINANCING FOR EGS EXPORTS

Exporting imposes heavy demands on cash flow.

Small and medium-sized EGS firms may not be able

to finance their own exports. Without a strong cash

flow and collateral base, private banks will not finance

export transactions. Comparatively few U.S. banks or

private sector institutions are involved in export

financing. The reasons for their lack of interest maybe

similar to those that prevent companies from export13 ~fl~~bbA~C~, Dir@~r, Tmde ad Development progr~ testimony ath~gs before tie HOW COllldt@ On Foreign Affairs,

Subcommittee on International Economic Policy and Trade on “Reauthorization of the Trade and Development Program,” Mar. 5, 1991,

printed in Foreign Assistance Legislation for Fiscal Years 1992-1993 (Part 6), p. 82.

14 unpub~sh~ ~o-tionpro~id~by~~Feb. 8, 1992, ~dTDA lg~~~Report. The~~Report gives the es~te Of OVer

25:1 (p. 2). TDA program expenditures through f~al year 1990 were $160 million (Annual Repor6 p. B1.) T’DA reports $4.6 bfion in ~es

by U.S. companies through f~cal year 1992 that were associated with TDA projects (Annual Repofi p. 2); TDA has informed OTA that $4.3

billion of those sales were associated with TDA projects funded no later than f~al year 1990. If the sales associated with projects funded

tbrough 1990 ($4.3 billion) are divided by program expenditures through 1990 ($160 million), the ratio is about 27:1. It is likely that as

additional pre-1991 projects mature, additional U.S. sales associated witb such projects will occur, thus increasing the ratio of sales to program

expenditures for expenditures through 1990.

hfucal year 1992, TDA obligated a total of $42.9 rnilliom of which $39.4 rnilliow or 92 percent, was for program activities (inchx@g $8

million in funds transferred fkom other agencies), and $3.5 milliou or 8 percent was for operating expenses.

15 U.S. ~v~o~en~ ~otwtion Agency, Glo~l ~ar~ts for Enviro~ntal Technologies:Defining a More Active Roie for EPA Within

a Broader Government Strategy, December 1992, p. D-5.

16 photocopy sheet from US-ETI, ‘‘1993 USETI Schedule of Training Courses.”
Appendix B--U.S. Export Promotion Activities and Environmental Technologies I 89

ing: a large domestic market, geographic location, and

risk and complexity of financing foreign transactions.

Also, many banks closed their international divisions

in the 1980s in response to the debt crisis in the Third

World.17

While European SMES have considerable access to

export financing, public financing programs in this

country are limited.18 Federal export financing is

comparatively small and difficult to access, especially

for small companies. Efforts are being made, though,

to make federal export financing more available to

SMES.

I Export-Import Bank of the United States

U.S. government assistance for nonagricultural

exports is provided primarily by the Export-Import

Bank of the United States (Eximbank). In fiscal year

1992 Eximbank assisted $14 billion in exports.l9 As

will be discussed in more detail in the final report of

this assessment, U.S. firms get less government help

with export financing than firms in many major

competitor countries.20

Firms have complained that Eximbank is slow in

processing applications and disbursing approved financing, that it is difficult to apply for Eximbank loans,

and that financing coverage in some cases is inadequate. 21 Eximbank has been trying to address these

concerns, especially for small business.22 Eximbank

traditionally relied on commercial banks to reach small

business. However, U.S. banks have been cutting back

on international lending, thus lessening access to small

business. In recent years perhaps about 13 percent of

Eximbank’s assistance (by volume of exports assisted)

has gone directly to small business.23

Eximbank has (among other things) set up a

high-level administrative unit responsible for small

business, streamlined approval of working capital loan

guarantees of less than $2.5 million, and improved

financing coverage in some cases. Under its city/state

program, set up in 1987, state and city development

and finance agencies can help firms to apply for

Eximbank assistance and can add their own financing

to Eximbank’s. Eximbank plans to expand its five

regional offices (which now handle only export credit

insurance) to full-service offices (which would also

handle loan guarantees and direct loans).

In the past, Eximbank did not give special attention

to EGS exports. However, the Export Enhancement

Act of 1992 specifically requires Eximbank to encourage “the use of its programs to support the export of

goods and services that have beneficial effects on the

environment or mitigate potential adverse environmental effects. ” Eximbank is also to report annually

on this effort.24 Pursuant to the statute, the Bank’s

board has appointed an officer to advise it on ways to

use Eximbank programs to support EGS exports.25

17 Martha E. Mangelsdorf, “Unfair Trade, ” ZNC., vol. 13 (April 1991), p. 33.

18 wil~ E. Notidurf~ Going Global: HOW Europe Helps Small Firms Export (Washington, DC: Brookings Institution, 1992) PP. 55-57.

19 Eximb@ Annual Report 1992, p. 2.

~ one indicator is difference invohnne of exports supported. One report for 1989 showed U.S. coverage at about 2 p=ent of toti exports,

compared with 32 percent for Jap~ 4 pement for Germany, 21 percent for France, and 20 percent for tbe United Kingdom. First Washington

Associates, Ltd. (Arlington, VA), “ComprehensiveD irectory of the World’s Export Credit Agencies” (Octobex 1991). Another indicator might

be numbers of offkes. Eximbank has five regional ofilces in the United States; by contras~ France has 22, and Cauada 8, domestic offices.

Eximbank has no overseas ofilces. Japaq in contras~ has 16, including Washington DC, and New York City.

*1 bss to lkimbank pro~ams is also impeded, especially for small business, because, as already discussed, there is no “onestop

shopping” for export services; fm must seek assistance individually from Exirnbank and other agencies involved in export promotion.

22 me~o~onin this and the next paragraph is taken from U.S. Congress, General Accounting Offlce, Export Finance: T~ Role #~he

U.S. Export-Import Bank, GOD-93-39 (Gaithersburg, MD: U.S. General Accounting ~lce, Dec. 23, 1992), pp. 22-29; and Export-Import

Bank of the United States, Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States for the

PeriodJan. 1,1991 through Dec. 31,1991 (July 1992), pp. 27,32-35.

~ GAO reported figures of 12, 14, and 13 percent respectively, for 1989, 1990, and 1991, with the qua.liflcation tit some Of tie data Was

not verifkxi. U.S. Congress, General Accounting Office, The U.S. Export-Import Bank: The Bank Provides Direct and Indirect Asm”stance to

Smu22Businesses, GGD-92-105 (Gaithersburg, MD: U.S. General Accounting Office, Aug. 21, 1992), pp. 2-5, 10. GAO excluded financing

provided to small business subcontractors working through larger businesses that receive Eximbank financing. Eximbank’s figures, which

include indirect financing, are 16, 19, and 18 percent respectively, for the same years.

M The EXpo~ Enhancement Act of 1992, Public hW 102-429, SeC. 106.

~ Eximb@ AnnwlRepo~ 1992, p. 8.
90 I Development Assistance, Export Promotion, and Environmental Technology

PRIVATE SECTOR ATTEMPTS TO

COORDINATE SERVICES

I The U.S.-ASEAN Council for Business

and Technology

The U.S.-ASEAN Council for Business and Technology aims to promote trade and investment between

the United States and member states of the Association

of Southeast Asian Nations (ASEAN).26 The Council,

which is a private nonprofit organization, works with

Federal government agencies to help them strengthen

their support to U.S. business, and does receive some

funding from the Federal government to pursue some

of its activities. It also provides trade information for

and facilitates contacts between U.S. and ASEAN

firms. The Council has identified environmental goods

and services as a major opportunity for U.S. business

in the region and as a result has targeted many of its

activities toward this.

Among other activities, the Council has issued a

publication on available export assistance27 and has

conducted environmental business development seminars to educate companies about U.S. government

assistance programs. It has run several EGS trade

missions to ASEAN countries, involving the participation of several Federal agencies in the missions and

follow up.

B The Environmental Business Council

The Environmental Business Council seeks to

developers trade opportunities for its members. EBC

was started in 1990 as a regional organization, based

in New England where it has sought to expand trade

opportunities by combining the resources of local EGS

firms, academic and technological institutions, and

governments (especially the State of Massachusetts).28

The Council plans to become a national organization,

operating through chapters in regions where environmental businesses are clustered. To that end, an

Environmental Business Council of the United States

was formed in February, 1993. In June of 1993,

EBC-US hosted a meeting to discuss possible strategies and directions for such an organization.

In March of 1992, EBC signed an agreement with

the Confederation of Mexican Industrial Chambers

(CONCAMIN), formalizing technology cooperation

between Mexican industry and EBC. EBC hopes to

duplicate this arrangement in other markets, such as

Eastern Europe. EBC has used the U.S. Environmental

Training Institute (discussed previously) to help organize Environmental Risk Assessment Training for

Mexican officials and plans to expand its cooperation

with DOC, DOE, EPA, and other agencies.

9 The Environment Technology

Export Council

ETEC is a nonprofit business association of over 30

corporations, six national laboratories, and four trade

associations. Established in 1992, it aims to help the

U.S. pollution prevention industry better exploit global

market opportunities. It plans to do this by developing

innovative export financing programs for developing

country markets; ‘‘synthesizing’ both public and

private sector market studies to help exporters learn

about business opportunities; partnering with government agencies to enhance research and travel support

for U.S. firms; and initiating pilot projects in countries

to obtain and distribute environmental policies and

regulations. A primary function of ETEC is to serve as

a network for its members. In its nascent form, it is too

early to assess what sort of impact ETEC will make.

STATE PROGRAMS

States are increasingly helping local businesses gain

access to federal export promotion programs and are

providing their own export promotion services to these

businesses. States are assuming greater responsibility

for helping companies that are new to exporting. With

cooperation from SBA and the US&FCS, state and

local governments have taken on a larger share of

responsibility for export awareness and education. The

states now provide a wide range of export promotion

services to businesses. In 1990, they had over 335

26 As~~~ber ~~es ~ B-iD-- ~do~i~ ~ys@ MPpims, Sillgiipore,id ‘fhihld.

27 Enviro_ntMon~: T~Inte~tio~lBu~~ss~ec~.ve’sG~”& to Govem~ntResoWces. Tids publication provides hlf~.OE on

U.S., foreign and multinational programs of use to exporters.

M Diswssion with Donald Comors,~Board of Directors, Environmental Business Council, Jan. 5, 1993.
Appendix B–U.S. Export Promotion Activities and Environmental Technologies I 91

representatives in overseas offices-an average of 6.5

representatives per state.29

A few states have special export promotion efforts

focused on environmental goods or closely related

sectors. Several states have prepared directories of

their environmental companies that can be made

available to overseas representatives, the US&FCS,

and potential customers.30

The Minnesota Trade Office has its own environmental trade specialist who organizes trade events, and

counsels local environmental companies on export

marketing, export opportunities, and export financing.

A primary responsibility of this person is to coordinate

with the local US&FCS district office and other

Federal trade promotion programs. The MTO’S environmental trade specialist has visited most of the 200

companies listed in its Environmental Trade Directory,

which is targeted at foreign markets. The fact that

states can have such close relationships with companies, and often get to know their capabilities and

interests, means that they can both help them directly

with their own export promotion programs, and

perhaps better connect them to Federal services.31

The State of California has separate programs to

promote and finance exports of both energy and

environmental technologies, as well as an export

financing office that is not sector specific. The

California Energy Technology Export Program, administered by the State’s Energy Commission, promotes exports of energy technologies, including renewable energy technologies and energy efficiency

technologies. By focusing on narrowly defined markets, both technologically and geographically, the

program seeks to help California’s energy firms fill

niche demands.32 It conducts detailed studies of

markets, 33 organizes trade and reverse trade missions

and other customer-buyer forums, and offers technology cooperation to developing middle income countries.

The California Environmental Technology Partnership, which is administered by the State’s Environmental Protection Agency, was initiated in November

1992. The program aims to promote environmental

technologies both nationally and internationally. The

partnership will identify markets and provide export

assistance to environmental firms located in California.

In addition to these sector specific programs, the

California Export Finance Office helps companies34

finance exporting; it is not sector specific. The export

finance office states that it has supported over $500

million of trade since 1985 through its export financing

office.35 It offers loan guarantees and short term loans.

As gateways to Federal export promotion, states

either make bilateral arrangements with federal agencies, or they can access Federal resources through such

organizations as the National Association of State

Development Agencies. In a 1990 review of state

export promotion programs, all states reported having

good relationships with their US&FCS counterparts;

over a quarter said they had developed specific

Federal/state cooperative plans and memoranda of

understanding. 36 States said they were cooperating

with district offices in the following areas:

■

■

9

■

■

—

recruiting for Federal and state-sponsored events,

such as trade fairs and trade missions;

cosponsoring trade shows, export seminars, conferences and meetings, and cohosting foreign buyer

missions, etc.;

calling on potential and active exporters;

exchanging trade leads, opportunities, and market

information;

cooperating on newsletters and publications;

~ The Natio@ Assoc~tion of State Development Agencies, Introduction and Analysis; State Export Program Database, 1990, (NASDA:

Washington, DC, 1990), pp. 12-13.

30 E.g., Colorado,-~, Massachusetts, Minnesota, Oregon31 Discussion with Karin Nelson, Oct. 13, 1992, Minnesota Trade Office.

32 perSOMI Communication% Tim C)lseq Program Manager, Energy lkchnology Export I%ogram, September 31, 1992.

33 Emeither ties a con~actor or send its o-s~ to res~h a ~ket ~d uncover project opportunities, ~d then diSSeIIlhMtes thiS

information to relevant companies.

M Not 5pec&My EGS compdeS.

35 c~ifofi World Tmde codsiow Newsletter, Winter ‘92-’ 93, p.1.

36 Natio~ Association of Stite ~velopment Agencies, Introduction and A~lysi5; State EWOH Program Data&se, ]990 (NASDA:

Washington, DC, 1990), pp. 12-13. NASDA is currently updating this material.
92 I Development Assistance, Export Promotion, and Environmental Technology

developing new programs;

legislation and trade policy analysis;

collocating trade specialists and sharing mailing

lists. 37

States also cooperate with Eximbank to bring

Federal export financing to local businesses. In 1987,

Eximbank developed the City/State Program, in which

participating states assist Eximbank in marketing its

programs and carry out pre-application processing to

expedite turnaround times.38 As of May 1992, this

program had been extended to 22 states.39

1 National Association of State

Development Agencies

States also cooperate with USAID through the

National Association of State Development Agencies.

In September 1992, as mentioned previously, NASDA

jointly established the Environmental/Energy Technology Fund with US-AEP. As of March 1, 1993, the

fund had approved 18 projects. For example:

THE MONTANA MAPPING TECHNOLOGIES

PROJECT IN SOUTH AND SOUTHEAST ASIA

The NASDA/US-AEP fund is providing $20,000

out of a total cost of $51,200 for three workshops to

introduce integrated digital mapping technologies to

Asian countries. Montana company GeoResearch is

the organizer of the workshops and has already

conducted two of the workshops in Malaysia and

Nepal, of which the former resulted in the immediate

sale of two receivers, software, and other equipment.

STATE OF UTAH/TERRATEK, INC. PROJECT IN

MALAYSIA AND PHILIPPINES

The fund is providing $20,150 to Utah for two

workshops in the above countries to promote the sale

of Terratek’s test kits for environmental contaminants

in food crops.

Other projects involve grants to promote midAmerican waste management and recycling technologies in the Philippines; Alaskan and U.S. energy

technology to Mongolia; and U.S. textile technologies

to Indonesia and Thailand.

In 1988 NASDA also established a Business Development Seed Fund with USAID ‘‘to encourage state

development agencies. . .to undertake innovative projects that promote business activity with firms in

developing countries and Eastern Europe.40 The seed

fund operates along the same lines as the US-AEP

fund, except that cooperation is directly with USAID,

and it is neither Asia, nor EGS specific. Through

NASDA, USAID provides grants of up to $20,000 on

a matching basis to state and sub-states for business

development projects.

NASDA is also currently working with USAID and

the Trade and Development Agency to disseminate to

U.S. companies information about procurement opportuni-.

ties through NASDA and the states.

37 p~ap~~fiomtheNAoMI As~iation of State Development Agencies, Zntroducfi”on andAnalysis; State Export Program Database,

1990 (NASDA: Washington DC, 1990), pp. 12-13.

38 Ibid., p. 37.

39 lklephone @u@ to Eximbank marketing divisiom Feb. 2, 1993.

4 NASD& “NASD~SAID Business Development Seed Fund, ” Information Sheet.
Appendix C:

ASEAN — Association of Southeast Asian

Nations (members are: Brunei,

Indonesia, Malaysia, Philippines,

Singapore, and Thailand)

—Aid and Trade Provision (United

Kingdom)

BMZ — Ministry of Economic Cooperation

(Germany)

CCCE — Central Bank for Economic

Cooperation (France)

CONCAMIN— Confederation of Mexican Industrial

CORECT

DAC

DoC

DoE

DREE

DTI

EBC

EC

ECRE

EGAT

EGS

Chambers

— Committee on Renewable Energy

Commerce and Trade

— Development Assistance Committee

(OECD)

— Department of Commerce

— Department of Energy

— Directorate for External Economic

Relations (France)

— Department of Trade and Industry

(United Kingdom)

—Environmental Business Council

— European Community

—Export Council for Renewable

Energy

—Electric Generating Authority of

Thailand

— environmental goods and services

EPA

ESF

ETEC

Eximbank

GAO

GDP

GEF

GNP

GTZ

ICETT

ITA

JETRO

JICA

LDCS

LLDCS

MDB

MoF

MoFA

MTO

93

List of

Acronyms

— Environmental Protection Agency

—Economic Support Fund

—Environment Technology Export

council

— Export-Import Bank of the United

States

—U.S. General Accounting Office

— gross domestic product

—Global Environmental Facility

— gross national product

— Agency for Technical Cooperation

(Germany)

— International Center for

Environmental Technology Transfer

(Japan)

— Intemational Trade Administration (par t

of DoC)

— Japan External Trade Organization

— Japanese International Cooperation

Agency

— German Redevelopment Bank

— less developed countries

— least developed countries

— multilateral development bank

— Ministry of International Trade and

Industry (Japan)

—Ministry of Finance (Japan)

—Ministry of Foreign Affairs (Japan)

— Minnesota Trade Office
94 I Development Assistance, Export Promotion, and Environmental Technology

NASDA

NEDO

NGOS

NOAA

ODA

OECD

OECF

OPIC

SBA

SDR

SMES

TDA

TPCC

— National Association of State

Development Agencies

— New Energy and Industrial

Development Organization (Japan)

— non-governmental organizations

— National Oceanic and Atmospheric

Agency

— Official Development Assistance

— Organisation for Economic Cooperation and Development

— Overseas Economic Cooperation Fund

(Japan)

— Overseas Private Investment

Corporation

— Research Institute of Innovative

Technologies for the Earth (Japan)

— Small Business Administration

— Special Drawing Right (an

international currency unit used by

the World Bank and the International

Monetary Fund)

— small- and medium-sized enterprises

— Trade and Development Agency

— Trade Promotion Coordinating

Committee

U.K. ODA

UNCED

UNDP

UNEP

UNDO

USAEP

USAID

US-ETI

US&FCS

USTR

VISITT

— Overseas Development

Administration, U.K.

— United Nations Conference on

Environment and Development

— United Nations Development

Programme

— United Nations Environment

Programme

— United Nations Industrial

Development Organisation

—United States - Asia Environmental

Partnership

—U.S. Agency for International

Development

— United States Environmental

Training Institute

— U.S. and Foreign Commercial Service

(part of ITA)

— United States Trade Representative

— Vendor Information System for

Innovative Treatment Technologies

(an EPA database)
Index

African Development Bank, 29

Agenda 21,2,21,24,25,83

Aid, Trade and Competitiveness Act of 1992,2

Air pollution, 74-75. See also Pollution prevention

Allied-Signal, 77

Appropriate technology, 18

evaluation, 11-12

Argentina, water supply and wastewater treatment, 73

ASEA Brown Boveri, 74,75

Asian Development Bank, 29

Black and Veatch International, 87-88

Brazil, 72

air pollution control equipment, 75

environmental market, 17

water supply and wastewater treatment, 73

Build-operate-transfer approach, 17

Business involvement in aid, 57

Business opportunities, 17

California Energy Technology Export Program, 91

California Environmental Partnership, 91

California Export Finance Office, 91

Capacity 21. See United Nations Development

Progamme

Capacity building, 22

Capital projects, 11,37

United Kingdom, 68

United States, 56

Caribbean Environment and Development Institute, 85

Carl Duisberg Gesellschast, 23

Chile, 72

environmental market, 17

China, 72

cleaner production project, 20

environmental protection investments, 6

water supply and wastewater treatment, 73

Classification of environmental assistance programs,

26

United Kingdom, 67

Commission on Sustainable Development (United

Nations), 24

Committee on Renewable Energy Commerce and

Trade, 86-87

Competition, 6-9

CORECT See Committee on Renewable Energy

Commerce and Trade

Coming, 77

DAC. See Development Assistance Committee

Debt relief, 36,37,38

Department of Agriculture, 56,81

Department of Commerce, 2,57,81,84

Department of Energy, 2,58,81,85

Department of State, 2,81

executive branch report to Congress, 36,44,4546

Department of the Treasury, 81

Development Assistance Committee, 25-26

environmental protection issues, 20-23

ODA performance of member countries, 21

tied aid, 49-50

Distribution of aid, 19,37-38

Japan, 60

United States, 58-59

95
96 I Development Assistance, Export Promotion, and Environmental Technology

EBC. See Environmental Business Council

Electrification, 74-76

Energy efficiency, 76

Engineering management, 44

Environment Technology Export Council, 90

Environmental aid. See also Multilateral aid; Tied aid

capacity building, 22

composition, 36-37

distribution, 19,37-38,58-60

estimates, 23-29

France, 64-65

Germany, 66-67

Japan, 61-64

United Kingdom, 67-69

United States, 58-59

Environmental and Energy Efficient Technology

Transfer Clearinghouse, 85

Environmental Business Council, 90

Environmental goals, effect of export promotion, 11

Environmental infrastructure, 22

Environmental markets, 5-6, 16-18,71-80

trends, 72

Environmental monitoring, 79-80

Environmental problems, 13-16

Environmental programs, 14-16

Environmental Protection Agency, 2,81,85

Environmental protection costs, 14-16

measurement, 25-26

pollution prevention, 14-16

Environmental studies, 11

European Community program for Eastern Europe, 65

Evaluation

of projects, 11-12

of technologies, 12

Eximbank, 2,56,81,84,89

tied aid credits, 50

Export Enhancement Act of 1992,2,9,83,86,89

Export financing, 88-89

Export-Import Bank of the United States. See

Eximbank

Export promotion

aid practices, 4, 8

Japan, 35-36

legislation, 1-3

reflow, 31-33

tied aid 32-33

United States, 81-92

us policy, 10-11

Feasibility studies, 43,87-88

Japan, 43

Financing infrastructure projects, 17-18

Foreign Operations and Export Financing Appropriations Act for Fiscal Year 1993,3

France, 64-65

environmental aid, 64-65

environmental aid spending, 27

Helsinki Package, 65

General Accounting Office, 87,88

General Electric, 75,88

Germany, 65-67

environmental aid, 66-67

environmental aid spending, 27

sustainable development, 66-67

technology cooperation and technical assistance, 23

training, 66

Global Environment Facility, 24,55

Green Aid Plan, 62-64

Helsinki Package, 47-54

France, 65

Hong Kong, 72

India, 6,72

Indonesia, 72

water supply and wastewater treatment, 73

Industrial waste, 78-79

Inter-American Development Bank, 29

Interagency Working Group on Environmental

Technology, 83

International Finance Corporation, 16

Japan, 7-9,59-61

adverse environmental impact of projects, 60

current policy, 61-62

distribution of aid, 37-38,60

environmental aid spending, 27

export promotion, 35-36

feasibility studies, 43

Green Aid Plan, 6244

Japan International Cooperation Agency, 42

loans, 60

Ministry of International Trade and Industry, 7-9,

44,62-64

Overseas Economic Cooperation Fund, 42

requested aid, 44-45
Index I 97

technology cooperation and technical assistance, 23

tied aid, 41-43

Japan International Cooperation Agency. See Japan

JICA. See Japan International Cooperation Agency

Laws and regulations, 2-4

LDCS. See Least developed countries

Least developed countries, 51-52

Loans, 39-40,41,46-47

Japan, 60

Long-term commercial relationships, 34

Malaysia, 72

environmental market, 17

Mexico, 72

air pollution control equipment, 75

cooperation with EBC, 90

environmental market, 17

water supply and wastewater treatment, 73

Minnesota Trade Office, 91

MITI. See Japan, Ministry of International Trade and

Industry

Montana Mapping Technologies, 92

Multilateral aid, 33-34,39

multilateral development banks, 28-29

for technology, 24

Multilateral development banks, 28-29

National Association of State Development Agencies,

86,91,92

National Energy Policy Act of 1992,3,9

The Netherlands

pollution prevention, 19

technology cooperation and technical assistance,

23-24

New Earth 21,64

ODA. See Official Development Assistance

OECD. See Organisation for Economic Cooperation

and Development

OECF. See Overseas Economic Cooperation Fund

Office of the U.S. Trade Representative, 81

Official Development Assistance, 18-21

bilateral environmental aid, 27

DAC country contributions, 21

environmental protection issues, 20

recipients, 22

Operation and maintenance provisions, 12

Organisation for Economic Cooperation and

Development, 71

Helsinki Package, 47-49

Overseas Economic Cooperation Fund. See Japan, 42

Overseas Private Investment Corporation, 2,81,84

PHARE/EEC, 65

Pollution prevention, 18,22-23. See also Air pollution;

Water pollution

sources of assistance, 19-20

Program assistance, 36-37

Project review guidelines, 11-12

Project screening, 11-12

Regional Environment Center for Central and Eastern

Europe, 85

Renewable energy, 75-76

Requested aid, 44-45

Resource Conservation and Recovery Act, 79

Reverse trade missions, 88

Sanitation services, 14,77-78

Scandinavian countries, pollution prevention, 19

Siemens, 75

Singapore, 72

Small Business Administration, 81

Solid waste collection and disposal. See Sanitation

services

South Korea, 72

water supply and wastewater treatment, 73

State Department. See Department of State

State of Utah/Terratek Project in Malaysia and

Philippines, 92

State programs, 90-92

Superfund, 79

Sustainable development, 24

Germany, 66-67

United Kingdom, 67-68

Taiwan, 72

water supply and wastewater treatment, 73

TDA. See Trade and Development Agency

Technology cooperation, 34

United Kingdom Technology Partnership Initiative,

68

Thailand, 72,87-88

energy efficiency improvements, 76

environmental market, 17
98 I Development Assistance, Export Promotion, and Environmental Technology

Tied aid, 7,8,32-33,38-43

engineering management, 44

exports promotion, 8

grants and bans, 3940,41

Japan, 41-43

State Department study, 4546

Tied aid credits, 33,46-47

Helsinki Package, 47-54

TPCC. See Trade Promotion Coordinating Committee

Trade and Development Agency, 2,8,43,56,57,81,

84,87-88

Trade Information Center, 82

Trade Promotion Coordinating Committee, 2,81-83

Environmental Trade Working Group, 83

Training, 12

Germany, 66

United Kingdom, 68

U.S. Environmental Training Institute, 88

Transport, 76-77

UNCED. See United Nations Conference on Environment and Development

UNDP. See United Nations Development Programme

UNEP. See United Nations Environment Programme

United Kingdom

capital projects, 68

environmental aid, 67-69

Natural Resources Institute, 68

Overseas Development Administration, 67-6 8

sustainable development, 67-68

technology cooperation and technical assistance, 24

training, 68

United Kingdom Technology Partnership Initiative,

68-69

United Nations Conference on Environment and

Development, 2,4-5,23-25,61,83

United Nations Development Programme, 20,24

United Nations Environment Programme, 20,24

United Nations Industrial Development Organisation,

20

United States, 55-59

capital projects, 56

current policy, 9-12

distribution of aid, 58-59

environmental aid, 58-59

environmental aid spending, 27

pollution prevention, 19-20

United States-Asia Environmental Partnership, 3,57-

58,86,89

United States Environmental Training Institute, 3,88

U.S. Agency for International Development, 2,4, 10,

56-59,81,84-85

U. S.-ASEAN Council for Business and Technology,

90

USAEP. See United States-Asia Environmental

Partnership

USAID. See U.S. Agency for International

Development

Utah, 92

War Chest, 50,53,56

Waste Management International, 77

Water pollution, 13-14. See also Pollution prevention

Water supply and wastewater treatment, 73-74

World Bank, 13, 14,28,29

W.R. Grace, 77