|Environmental Technologies Industries
|International Market Access Issues Affecting US Environmental Companies|
This paper was prepared by the Market Access Subcommittee (MAS) of the Environmental Technologies Trade Advisory Committee (ETTAC) to identify the major market access obstacles to trade that confront the U.S. environmental industry and to express the views of the industry with respect to issues that affect environmental technology exports. ETTAC is a private-sector advisory committee that was created by Congress to advise the federal government on policies and programs to expand U.S. exports of environmental goods and services. The industry the committee represents is made up of more than 110,000 private sector companies that employ over 1.3 million people. Over the past several decades, this industry has contributed to America’s economic growth and sustainable development by helping to make our domestic environment one of the cleanest in the industrialized world.
As the industry matures, it becomes increasingly important to look to markets outside the U.S. for future growth and survival. In reaching out to foreign markets, the private and public sectors of the environmental industry must work together in partnership to assist other countries in managing their resources and encouraging environmentally responsible growth. Through public/private cooperation, the U.S. environmental industry can play as significant a role in achieving sustainable development globally as it has domestically.
Congress recognized the need for cooperation between the public and private sectors in 1994 when it passed the Jobs Through Trade Expansion Act. Under this act, Congress authorized the creation of the ETTAC to provide advice to the Department of Commerce and other federal agencies on how government policies and practices affect the export of U.S. environmental products and services. Pursuant to this mission, the committee has prepared the following paper to address market access obstacles that confront U.S. companies seeking to compete against suppliers of environmental technologies from other major industrialized nations. The members of ETTAC are listed below. MAS members are identified with an asterisk (*).
As with any committee endeavor this project has been a group effort that required inputs and views from a number of people. But also, as with any endeavor of this sort, there were particular people that stood out in their contributions to the paper. As a collaborative piece between the ETTAC and key members of the US Government’s negotiating team on market access issues, both private and public-sector people should be mentioned.
Public sector officials that deserve our thanks include Sage Chandler, the ETTAC Designated Federal Official and all the staff of the Department of Commerce’s Office of Environmental Technology Industries. We especially appreciate the hard work and dedication of Carlos Montoulieu through the years. We would also like to thank George Litman for his insight and Skip Jones for his concise summaries of the US Government’s positions on international trade negotiations. Within the US Trade Representative’s (USTR) Office, we would like to thank Dave DiGiovanna for his engaging support and dialogue. Our thanks also go to David Ingersoll of the US International Trade Commission and Chris Rosettie of the USTR.
Of the private sector contributors, the ETTAC acknowledges the hard work and persistence of Howard Schirmer, Jr., the Chairman of the Market Access Subcommittee. Also, Jane Ginn, the Chief Editor should be singled out for her endurance and tenacity. Kent Troup, the ETTAC Chairman made many substantive comments that strengthened the overall report. Kim Arnold, Jack Legler, Michael Marvin and Richard Carr all contributed key chapters that helped to move the dialogue along. Also, the initiative and dedication of Paul Goltz and his staff in shaping the sections on product exports brought tangible data to the White Paper that helped to substantiate our key points. In addition, the comments of Gordon Binder were especially helpful. Finally, Linda Schmid of the Coalition of Service Industries helped the ETTAC members understand the negotiating framework of the WTO and how that related to the various recommendations we have put forth.
The world watched in awe as the first round of new global trade talks were held at the 1999 World Trade Organization (WTO) Ministerial in Seattle and at the World Bank and International Monetary Fund meetings in Washington, DC in 2000. Scenes of protestors clashing and skirmishing in the streets with heavily armed policemen and National Guard units in these normally peaceful metropolitan areas left glowing reminders that there still exist many differences of opinion about how, or even if, world leaders should be empowered to organize and institute commercial trade rules and practices and banking and monetary policy for the world community. It was woefully apparent that there still remain great divisions of ideologies about how to address these kinds of issues, especially those relating to the global environment.
Meanwhile the activists, not the official negotiators, ultimately stole the limelight in Seattle and Washington, DC. They effectively portrayed these global institutions as being notorious, demon-like entities responsible for causing most of today's global economic inequities and environmental ailments. Unfortunately, neither the opponents nor the proponents really seemed to offer any substantive or acceptable solutions about how to address these important issues.
As key agencies within the US Government reformulate a trade negotiation strategy for the newly resumed World Trade Organization (WTO) Millennium Round talks, the environmental industry recognizes that the US is poised to exhibit genuine leadership in further refining the rules-based trade regime. The recommendations of the Environmental Technologies Trade Advisory Committee (ETTAC) regarding the future of world trade in the environmental goods and services (EGS) sector are provided in this White Paper to assist these US Government agencies in reformulating their strategies. It is intended that this paper will also help educate the general public on the issues affecting US exporters of EGS.
The Organization for Economic Cooperation and Development (OECD), estimated the total size of the world market in EGS was estimated to be over $453 billion in 1999 with an estimated 5% growth in the sector. The US share of that market is also expected to grow over the next few years as a result of the strength of the US economy. As a world leader in trade liberalization and a technical leader in the development of environmental protection products and concepts, the US should play a key role in defining the global agenda for EGS trade.
ETTAC, as a private sector advisory board to the US Government, has had the opportunity to study the evolving landscape of trade in EGS during an especially active time in the world trade negotiation process. Although EGS companies seeking to sell their goods and services overseas have seen repeatedly how trade barriers and limited market access can cripple transactions and delay or cancel projects, they also recognize that important progress has been made in outlining the key issues facing the industry. Progress to date, specifically with respect to the agreements achieved during the Asia Pacific Economic Cooperation (APEC) early voluntary sectoral liberalization, the forward looking schedule for a Free Trade of the Americas Agreement, and certain specific national schedule commitments that have been made under the WTO have all contributed to market opening, increased transparency, and greater adherence to rules-based regimes. However, there still remains much to be done to bring increased order and rationality to EGS trade.
On February 7, 2000 the WTO's Secretary General Michael Moore announced that the organization would proceed with the Uruguay round built-in agenda for Agriculture and Services or, The Millennium Round. This movement, seen as a positive step forward after the acrimony of the Seattle talks, will provide the EGS industry and the US Government an opportunity to push for stronger national commitments with respect to services under the General Agreement on Trade in Services (GATS). This agreement consists of four modalities: Mode 1 -Cross-border*; Mode 2 - Consumption abroad; Mode 3 - Commercial presence; and Mode 4 - Presence of natural persons.
*Mode 1 - (Cross-border); From the territory of one member into the territory of any other member. Example: wherein a service provider mails, electronically transmits, or otherwise transports a service across a national border. Mode 2 - (Consumption abroad) In the territory of one member to the service consumer of any other member. Example: wherein a consumer, such as a tourist or student, travels across national borders to consume a service. Mode 3 - (Commercial presence) By a service supplier of one member, through commercial presence in the territory of any other member. Example: wherein a service supplier establishes a foreign-based corporation, joint venture, partnership, or other establishment, to supply services to foreign persons. Mode 4. (Presence of natural persons) By a service supplier of one member, through presence of natural persons of a member in the territory of any other member. Example: wherein an individual, functioning alone or in the employ of a service provider, travels abroad to deliver a service.
Some progress has been made in defining the liberalization principles for financial services and accounting services under GATS, and there have been important mutual recognition agreements in the telecommunications and information technology sectors. However, to date, the environmental sector provisions have generally been covered through general provisions that affect all sectors equally. The ETTAC would like to see that condition changed. One step toward promoting a higher profile for the sector in the international dialogue would be for the US Government to develop a 'reference paper' that would specifically identify pro-competitive regulatory principles and promote a framework for transparency of monopolistic providers.
The EGS sector will benefit if the US Government is able to continue to promote the Accelerated Tariff Liberalization (ATL) package that had been negotiated in APEC and now rests in the WTO. If adopted, this package would apply to product transactions covered under the General Agreement on Trade and Tariffs (GATT). The ATL includes a list of 109 environmental goods that were agreed upon for submission to the WTO in Seattle. The ETTAC believes that the environmental portions of the ATL package are sound and that they should be included in any follow-up negotiations.
Prior to any international negotiations two key issues in defining the sector should be addressed by the US Government: They are:
1. A functional classification of the goods and services within the sector must be deployed. It must reflect the highly interdisciplinary nature of environmental problem solving; and
2. The use of ‘point-of-consumption’ instead of ‘point-of-origin’ definitions of services for purposes of tariff-setting for cross-border (Mode 1) trade should be set.
This White Paper presents key recommendations to the US Government for addressing these definitional issues, as well as other issues of concern to the manufacturing and services sectors of the EGS industry. This White Paper also provides recommendations to the US EGS industry for improving intra-sector communication and recommendations to the public-at-large for improving public education.
Recommendations to the US Government are as follows:
I The DOC and USTR should seek to consolidate the functions of the various committees and sub-committees within the WTO with ‘environmental’ responsibility into a separate, but equal, sister organization. This organization could serve as a central clearinghouse for the disparate functions spread across multiple agencies and committees of the WTO.
II The US Government should:
III The DOC and USTR, using the resources of NIST, should encourage a cooperative effort with the ANSI in developing an environmental services component to their existing activities.
IV The DOC and USTR should fully support the development of the proposed North American Product Classification System, and integrate into their long-term planning and negotiations strategy the development of service-product codes for the 2002 census, and the broader objective of a complete system for all products by 2007.
V The US trade delegation should propose the development of a point of consumption system under GATT rules for environmental goods.
VI The USTR and DOC should promote through the WTO’s Working Party on Domestic Regulation the establishment of a ‘Professional Environmental Services’ code under GATS rules and this code should be designed to address the NTM issues discussed in this report. As a precursor to this code, the US Government should develop a reference paper that identifies pro-competitive regulatory principles to promote transparency. Also the US Government should incorporate NTM issues in DOC export assistance workshops and publications; and develop a forum for small to medium-sized enterprises on NTM issues for facilitating dialogue on identification, management and resolution.
VII The USTR and DOC should:
Recommendations to the US environmental industry are as follows:
I Industry should:
II The ETTAC should:
Recommendations to the public-at-large include:
I Educational institutions should provide a balanced view of the social and political implications of development and show how an effective environmental policy can help to ensure sound development along the path toward globalization.
The full recommendations are given in this White Paper.
The ETTAC believes that a successful solution in this increasingly globalized market economy is through liberalized trade in EGS. The authors of this White Paper hope to advance the dialogue toward that end.
The purpose of this White Paper is to discuss the international market access issues affecting US environmental goods manufacturers and distributors of environmental goods and services (EGS). These views have been developed by members of the Market Access Subcommittee (MAS) and approved by the members of the Environmental Technology Trade Advisory Committee (ETTAC). ETTAC members are private sector individuals appointed by the Secretary of the US Department of Commerce (DOC) to advise the Secretary and the other agencies of the federal government. Appointed members of the ETTAC represent a cross-section of US EGS companies by size, geographic location, and subsector. ETTAC has been in active dialogue with US Government agencies on the effectiveness of their programs overseas since its inception in 1994. ETTAC members are appointed under the authority of the 1994 Jobs through Trade Expansion Act.
A Brief Historical Note
US policy-makers have long seen trade and investment liberalization as key to the development of the world’s national economies. Trade liberalization refers broadly to measures instituted by sovereign nations in cooperation with one another to reduce market barriers (e.g., tariffs on imported products), and increase ‘transparency’ in transactions. Investment liberalization refers broadly to measures instituted to improve market access by institutional and individual investors. The premise is that liberalized trade conditions improve the efficiency of national economies.
The Uruguay Round of trade negotiations brought together 111 nations and spanned the period of September 1986 to April 1994. The Uruguay ended with the establishment of an organization meant to succeed and champion the trade and investment initiatives originally started under GATT and GATS. This was seen by some as a major accomplishment by the US and other western nations in promoting liberalized trade and investment. The Geneva-based WTO was subsequently established in 1995 as a multinational institution that would succeed GATT and would serve to direct, enforce, and adjudicate worldwide trade liberalization efforts well into the 21st century.
While the WTO provides an important umbrella organization for trade liberalization negotiations on the global scale, there are also a number of regional trade pact initiatives, which hold great promise for increases in intra-regional trade. Many of these pacts such as the European Union came into being in the past few decades and are examples of advanced trade alliances. Other pacts have been formulated more recently to support and to enhance regional economic development and trade including MERCOSUR, the North America Free Trade Agreement (NAFTA), and the Asia Pacific Economic Cooperation (APEC) organization. Talks on environmental issues in these organizations represent an initial step forward in the reduction of market access barriers to EGS.
The US, as a member of both NAFTA and APEC, has used its position to promote liberalized trade, introduce EGS into the dialogue, and to structure the debate on what constitutes a non-tariff measure (NTM). The experience of the US, Canada, and Mexico with the environmental sidebar agreement of NAFTA has illustrated both the importance of including environmental issues in trade agreement talks and the operational difficulties encountered when establishing new multilateral organizations. Also important in the policy developments on environmental sector trade was the series of discussions held among the APEC nations beginning in 1996. This series of negotiations specifically included the environmental sector, along with eight other industries sectors, and included expert-level talks on both products and services. Details of the negotiations are provided below.
The ETTAC hopes that the recommendations of this White Paper will advance the dialogue in a productive and fruitful way.
Promoting Trade Liberalization
It has become evident in the recent economic crises in Asia and Africa, the currency crises in Russia and Brazil, and the growing signs of political discontent in China, Indonesia, and many African countries, that there are significant challenges to the trade liberalization agenda. Issues stemming largely from the poor distribution of wealth in developing regions threaten to stall progress on this agenda. Irrespective of these problems, the official US position continues to be antagonistic toward trade protectionism and to advocate trade liberalization.
Given the significance and extent of the disparity of wealth between developed nations and developing nations and, the volatility of the global economy, the US has begun to recognize the need for some overarching institution that can serve as an information clearinghouse and early warning signaling device for aberrations in global capital flows that might initiate political upheavals. The US recently agreed to the establishment of a Financial Stability Forum (FSF) to discuss international capital flows and the interaction of these flows with the policies of national economies. This development is enhanced in the multilateral context with the GATS agreements on Financial Services and Accounting Services, major legislative banking reform in the US, and the agreement on Trade Related Investment Measures (TRIMs).
There is, however, no specific analogue organization or single world body for harmonizing agreements for the complex environmental issues facing countries. There are currently several institutions that have a global reach including the standard-setting function of the International Standards Organization (ISO), which among other tasks, designs and administers the ISO 14000 environmental standards. There is also a Committee on Trade and the Environment within the WTO which seeks to outline principles for pro-competitive policy. There is the United Nations Environmental Program which identifies and studies world ecological issues and seeks to form partnerships to care for the environment, in part, through an alliance with the World Bank in their joint program called the Global Environment Facility. There are also numerous private, non-profit initiatives such as the Business Council for Sustainable Development.
However, there is nothing at the level of the International Labor Organization (ILO) which serves as a global advocate for labor and an adjudicator of labor-related complaints. In the absence of such an organization, US companies often find themselves promoting products and services that are well beyond the financing and institutional capacity for many third-world buyers. The ETTAC as a private sector advisory board to the US Government is in a unique position to advance the concept of such a body. It is the recommendation of the ETTAC that the US Government seek to consolidate the various functions of the various committees and sub-committees within the WTO with ‘environmental’ responsibility into a sister organization of the ILO. This organization could, then, serve as a central clearinghouse for the disparate functions spread across multiple agencies and committees of the WTO.
In the early 1990’s in the US, advocacy through public/private cooperation was characterized as a form of industry sector ‘promotion.’ However, at the beginning of the new millennium, the views expressed throughout the industry indicate a much more comprehensive understanding of the mutual benefits that can be accrued between the lesser developed countries (LDCs) and the exporting developed nations through robust trade in the EGS sector.
Within the WTO there are still other issues which illustrate the significant differences between the developed countries and the LDCs. Principal amongst these are issues as to whether labor and environment should even be included in trade talks. Furthermore, the WTO’s domain and terms of reference are under dispute. Nonetheless, the basic architecture of WTO has been well established under GATT and is even now being used to frame the most contentious issues, including those affecting the EGS sector.
The Introduction of EGS into Multilateral Trade Talks
In 1996, the APEC economies agreed to begin a series of negotiations called the Early Voluntary Sectoral Liberalization (EVSL) program, the aim of which was to reduce tariffs in their trading region in specific economic sectors. The nine industry sectors involved in the first round of the APEC EVSL program were:
Since 1997, the office of the United States Trade Representative (USTR) and the DOC have been involved in a series of extensive negotiations on ‘products’ and ‘services’ in the same nine industry sectors included in the EVSL. Discussions centered on tariffs and non-tariff measures (NTMs) in sixteen of the APEC member economies. It is believed that these tariffs and NTMs function as trade barriers thereby reducing market access for exporters from other countries.
Negotiations between the US, APEC, and more recently the European Union proceeded with a view towards eventual incorporation for products in all of these sectors into the work of the WTO. Then, prior to the WTO Ministerial in Seattle the APEC economies combined all of the tariff agreements on all of the sectors into an ATL package that was advanced as a whole to the entire WTO for consideration and adoption in Seattle. Due to the complicated nature of the Seattle WTO Ministerial, little progress was made on this package.
On one other regional front, a precursor to the sector-specific treatment of environment sector issues was negotiated into the NAFTA accord between the US, Canada and Mexico as an environmental sidebar agreement. This move set the precedent for including environmental objectives into regional trade agreements. The ETTAC believes that as trade talks continue within the WTO after Seattle and as other regional negotiations emerge such as the newly announced Free Trade of the Americas Agreement (FTAA), EGS issues should be given a high priority.
The Global Environmental Sector: An Agenda for the 21st Century
As stated earlier in this paper, the environmental sector represents a $453 billion market worldwide. Global annual growth of the sector is around 3 percent, with rates of up to 10 percent in developing country markets. To capture its fair share of this growing market, the challenge of the US environmental industry has been generally two-fold:
The US Government has taken two approaches to address these factors -- export promotion and coordination between and among US federal government programs.
Export promotion represents just one side of the supply and demand equation that is popular in a free-market trade model. Although important, that discussion is beyond the scope of this White Paper. Instead, this White Paper focuses on the specific issues of concern for improving market access for US firms to public and private sector buyers in developing, emerging market and developed countries. We believe that it is the role of this paper to present some anecdotal evidence which supports the view that US environmental sector companies encounter trade barriers in overseas markets. Furthermore, the identification of the key NTMs affecting environmental product manufacturers and service providers is key to developing the definitions of the EGS sector and establishing cogent negotiating strategies that can truly reduce the trade barriers and increase market access.
Last, it is the objective of the ETTAC to provide this information for educational purposes to members of the US environmental sector, both public and private. It is also our hope to continue to provide ongoing recommendations to the USTR and DOC negotiating team for use in achieving trade liberalization within APEC and WTO member economies. To meet this later objective we will provide support in identifying key NTMs affecting sectoral trade between specific countries and the US. This information is intended to assist US negotiators in their efforts to level the playing field for the export of US EGS in the Millennium Round.
Environmental Industry Sector Perspectives
The environmental industry is quickly evolving beyond its traditional emphasis on pollution control, remediation and clean-up activities to incorporating a broader range of integrated systems frameworks using “zero-discharge” and “sustainable development” concepts. This expands the framework of environmental management to include:
Defining the Environmental Industry
Environmental products, technologies and services are increasingly promoted and delivered to clients on an integrated basis. They are delivered “horizontally” through a firm or team of firms bringing together a range of materials and expertise, or they are delivered “vertically” through firms specializing in several environmental fields (e.g., wastewater engineering firms or energy service companies). These notions of vertical versus horizontal delivery of products and services are especially important in environmental and energy trade discussions. As will be discussed in Section 4.0 below, any effort to regulate one part of the system (e.g., reduction in tariff schedules) often causes shifts in policy in other parts of the system (e.g., establishment of quotas). Currently classification systems only provide for EGS vertical delivery. This poses a problem for the purpose of trade standards negotiations for this sector, especially with respect to NTMs applied to services rendered. Chapter 4 provides a detailed discussion of this problem and outlines some possible approaches for resolution.
Moreover, the public interest in EGS is intensifying, as environmental protection becomes a chief policy objective in many countries. The environmental industry sees trade negotiations as an important vehicle to increase the opportunity for national treatment in commercial presence (known as Mode 3 in the context of WTO negotiations) and increase the presence of national persons in foreign markets (known as Mode 4).
The environmental industry faces many of the same trade barriers and NTMs as other industry sectors. However, a distinct disadvantage faced by the environmental industry in addressing these impediments is the relative infancy of the sector, the lack of defined boundaries to delineate the sector, and its dynamic and diverse features. This has hampered efforts by the USTR and DOC to develop a sector-specific identity or negotiating platform for international trade talks on EGS.
With respect to environmental goods, the fact that no specific Standard Industrial Classification (SIC) code had been defined for the sector throughout the past three decades has contributed to the poor characterization of the sector. Nonetheless, through extensive polling of the industry, and with the help of the ETTAC and other industry representatives, the USTR and DOC were able to develop a set of 109 specific environmental and energy products to submit to the APEC countries for tariff reductions. This list is presented in Appendix A. The definitions and classifications were discussed at length by the participating economies. In the end, the countries were able to achieve agreement on over 80% of the products listed.
Unfortunately, the US environmental industry’s views on these issues have been ambivalent, given that the short-term and/or long-term benefits of tariff reductions are difficult to ascertain. Further outreach needs to be done in order to support the negotiating team’s positions as they move into the WTO Millennium Round.
The Impact of Non-Tariff Measures on the Industry
Recent studies involving equilibrium modeling have been conducted to assess the effect that the liberalization of both tariffs and NTMs would have on increasing world trade. Results have indicated that the estimated economic welfare gains from liberalization in the NTM area would substantially exceed those in the more transparent tariff area. In fact, when factoring in the potential of future international investment into these trade models, the dynamic gains from trade liberalization of NTMs could actually be several times as large as those more static gains achieved by removing tariff barriers alone. Therefore, concessions in tariff barriers alone will not mean much unless NTMs are identified and removed as well. This is because without the reduction of NTMs, those products on which tariffs have been reduced still may face problems entering a foreign market.
Quantifiable data on NTMs is not easily obtained. The concept of an NTM is something that is used to classify a whole series of independent actions implemented by governments and non-governmental agencies to serve the particular purpose of maintaining control over the market outcome. An NTM may be defined as any law, custom or practice in a third country, apart from tariffs, which denies exporters from gaining access to export markets or which restricts international marketers from selling products the way they are intended to be sold. NTMs can vary greatly in nature and can include issues as far ranging as intellectual property rights infringements to non-transparency in the application of government regulations. On the whole, government attitudes towards foreign trade (whether restrictive or expansionary in nature) dictate the existence or the absence of national or regional NTMs.
Measures Applicable to Products
To gain a more comprehensive understanding of how NTMs affect environmental product transactions, a developer, manufacturer, and distributor of environmental products polled its worldwide distribution network to ascertain the pervasiveness of practices that are used.
Below are the NTM criteria included in the survey:
Measures Applicable to Services and Products
In addition, based on discussions with environmental technology companies and trade associations, several specific NTMs applicable to both products and services were identified. Included were:
Industry representatives seeking redress of these issues have also been challenged by the growth of e-commerce and the associated technical issues surrounding the development of the telecom and high technology sectors. In engineering services, intellectual property right infringement is a prime concern. Many of the issues currently under review in the e-commerce regulation debates are important in the engineering fields for purposes of intellectual property protection (e.g. security, verification, and system reliability). For example, many emerging markets posses the human skills and industrial capacity to reproduce environmental products or services. These economies mainly lack the design expertise. The widespread use of the Internet for transfers of sensitive data and documents has led to piracy and plagiarism. Under these conditions “copy-cat” practices emerge.
Some environmental companies that offer sophisticated technologies in their industry segments note a high-risk level of operating in certain countries because of the lack of intellectual property protection for their products or services. Further, due to the dynamic nature of EGS, the environmental and energy industries may be more susceptible to risks in market areas where intellectual property rights are not legally enforced. If producers do not expect to generate sufficient returns from their proprietary expertise or technology, they will generally be disinclined to enter such markets. The World Intellectual Property Organization (WIPO) was established to provide a forum for multilateral discussions on this issue. The WTO agreement governing intellectual property is Trade Related Intellectual Property Standards (TRIPS). The ETTAC would like to ensure that WIPO rules and arbitration addresses the needs of the EGS sector as the Millennium Round moves forward.
Similarly, due to the innovative quality of the environmental sector, certain issues with respect to market access are created by the presence of leading edge technologies. Companies promoting such innovative technologies may have difficulty establishing relationships with government officials or in-country business partners due to a lack of knowledge about the applications of the products. They may also face problems in markets where joint-partnership arrangements are necessary for commercial presence. It is more difficult for a company dealing in a new technology to identify business partners willing to share in that risk, whether the risk is real or perceived. It should be noted here that the commercial officers at every U.S. Embassy are in place to assist companies through such difficulties.
The environmental industry is subject to trade barriers that may not affect other industries. Since many companies in the environmental sector deal with remediation/clean-up activities and pollution management, the lack of strict environmental regulations (and/or the enforcement thereof) in a country may prevent companies from being able to establish a presence there (Mode 3 for commercial presence or Mode 4 for natural persons). Even in areas where there are regulations and interest in environmental services and products, advanced technologies may be overlooked due to lack of in-country knowledge or experience with the advanced environmental technologies sector. And, although government procurement practices affect all industry sectors, certain companies in the environmental sector may be barred from operating at all if they do not coordinate their activities and confirm support of the local, government entities (e.g., government-owned utilities). In an atmosphere of competition, such government decisions and other procurement procedures often lack transparency.
Advancing the Public/Private Agenda
The DOC and the USTR have sought to increase their working knowledge of NTMs faced by the environmental industry by encouraging companies to provide input for the international negotiations that impact tariffs and NTMs. Overall, company participation has tended to be reactive, only seeking US government assistance after coming up against NTM problems. Due to the diversity of the EGS sector, companies often encounter multiple NTMs in trying to establish a presence abroad. Although the environmental industry often faces similar barriers to other industries (i.e., entry and stay of service managers, professionals and experts; licensing requirements; and government procurement practices), the integrated quality of EGS creates a complicated web of barriers for the sector to overcome.
As in most industries, environmental companies do not invest extensive resources into identifying specific trade barriers that they may face in entering a new market. Often, such identification can occur only after the company is confronted with a roadblock. At that point, resources are identified to manage the NTM in the best way possible. Cataloging is generally not practiced except through anecdotal narratives. This may be the case for several reasons, including the fact that such information, due to the infancy of the sector, may be considered proprietary. Making such market entry information readily available to a competitor could incorrectly be viewed as disadvantageous when a company is trying to secure a market presence.
This section has highlighted only a few of the tariffs and NTMs that the EGS sector faces in the global exports markets. Section 4.0 provides greater detail on specific tariffs and NTMs. After discussions with a number of executives who have participated in markets abroad, it became clear that the problems associated with trade seemed inversely proportional to the size of the company and the relative maturity of the industry in question, as well as country specific issues. This is not to imply that large companies in established sectors have no problems. On the contrary, market access restrictions are so pervasive in these technologies and services that it is the exception, not the rule, that a company must overcome one or more issues in order to successfully compete in specific export markets.
On the whole, however, smaller companies, especially those in relatively new fields, tend to tackle market access issues in a reactive mode, which leads to expensive delays and great frustration. Too often, the negative experiences that a small company faces in particular export markets make that company less willing to invest the time and energy to develop those markets. The net effect is reduced competition, increased costs, and limited export opportunities for US goods and services abroad.
The ESG sector needs to come together as a whole to help identify tariffs and NTMs in a greater effort to reduce worldwide barriers to trade. In doing so, the public sector agencies can work more effectively to reduce trade impediments and increase market access and improve overall competitive conditions.
Tariffs: Products Issues
Negotiations on tariffs imposed on products have proceeded at a steady pace since the initiation of the APEC EVSL program. As tangible items with distinct supply and demand characteristics, and distinct constituencies in both the supplier and buyer chains, products represent a significant portion of the bi-lateral trade potential within and beyond the APEC. Wade Armstrong, Trade Advisor, Ministry of Foreign Affairs and Trade, Non-Tariff Barriers, A Paper Presented at the 1998 New Zealand Agribusiness Congress, Christchurch, 9 November, 1998 Lincoln University, International Trade Policy Research Centre. web address: http://www..lincoln.ac.nz./comm/research/trade/speeches/arm1.htm
DOC and USTR, through various consultations with private sector advisors including the ETTAC, have made significant strides in compiling a list of products across the following sub-sectors of the environmental sector:
Both public and private sector reviewers have been the definitions used to characterize the products available within each of these categories. Over 90% of the manufacturers and suppliers of environmental products reside in OECD member countries, especially the US. As such, it has been in the interest of the suppliers to ensure that products were identified and defined to achieve zero-tariff goals by pre-scheduled and agreed upon dates. Reductions in the marginal costs of doing business overseas would help to increase the market potential for ‘zero-tariff’ products.
Countries seeking to import environmental goods often have the greatest need for such products. Often in these emerging markets many goods are sold directly to government buyers for large infrastructure projects. And, in some instances, the use of tariffs as a revenue-generating device is deployed as part of the infrastructure development program. These measures have had a trade distorting effect and the revenue gains to the governments have been cancelled out by excessive demands on the social service frameworks. These effects have been exacerbated by the pervasive use of certain NTMs.
Country-specific negotiations are currently being conducted in an effort to work through the details of tariff reductions on specific items listed in the new Harmonized Trade Standards (HTS). For a public sector official in an emerging market country, a shift in the burden of taxation from an importer to a domestic source may not be optimal in the short run, or for political reasons. However, the logic of liberalized trade and the broader benefits that accrue to the society at large are well documented by the positive effects of several trade and regional economic development models. For example, in Mexico, after the North America Free Trade Agreement (NAFTA) was passed, and even after the 1994 fall of the peso, improvements to public health and welfare through liberalized trade in the environmental sector are increasingly visible. Furthermore, these types of improvements provide a strong basis for positive public relations campaigns for incumbent political candidates. These factors, as well as the urgent need for environmental products in the developing world, have helped negotiating teams reach consensus on strategies for scheduled reductions in tariffs in this subsector.
ETTAC concurs that the strategy of setting zero-tariff goals for products within this sector is a good one. It has the potential for increasing cross-border trade in key products that could have a positive effect on human health, the environment and the quality of life. At the same time a zero-tariff strategy can increase overall trade thereby improving the economy and enhancing the overall quality of life for residents in emerging markets. The ETTAC endorses the efforts of the USTR and DOC in furthering discussions on reducing tariffs in this sector through the ATL and other means.
Under the WTO, negotiations for products proceed in accordance with guidelines issued under the General Agreement on Tariffs and Trade (GATT) and negotiations for services proceed under the auspices of the General Agreement on Trade in Services (GATS). The WTO has also established a Committee on Trade and the Environment (CTE), which reviews and evaluates technical issues and advises adjudication panels on complaints. To date, the guiding principles for trade liberalization have been focused on sustainable development and non-discrimination. As the world leader in trade liberalization the US has often accepted non-reciprocal treatment by our trading partners. The ETTAC has found that for true liberalization to occur in a reciprocal manner, barriers that emerge as NTMs in the EGS sector must be reduced and eventually eliminated.
Within the WTO the GATS Council on Trade in Services (CTS) has four subsidiary bodies that focus on: 1) developing disciplines on domestic regulations; 2) examining GATS rules on safeguards, subsidies and government procurement; 3) developing a methodology for specific commitments; and 4) financial services liberalization. Systemic trade issues that affect market access for environmental service companies are anticipated to continue to be liberalized. Furthermore the ETTAC observes that, like financial services, environmental services cut across all business sectors. Therefore a high priority within the CTS should be given to the environmental sector as well. The CTS’s Working Party on Domestic Regulations could work directly with the WTO’s Committee on Trade and the Environment to establish a set of environmental engineering principles similar to those developed for accounting services.
Within the Working Party on Domestic Regulation, legitimate objectives for the ‘necessity’ principle (i.e., establishing laws as least trade restrictive as possible) should take a high priority in this round. The full adoption of robust ‘transparency’ and ‘necessity’ principles by member countries, especially the lesser developed countries (LDCs) will be critical to an effective deployment of environmental technologies and services throughout the world.
The following sections outline ETTAC’s concerns on NTMs for products and services. Note that the key differentiating factor between goods and services is the certainty with which a regulatory regime can define the point of origin of manufacture and delivery of the service. Even with this clear demarcation, there are significant NTMs that affect the transfer of both goods and services across international boundaries. The following sections provide some quantitative data on the NTMs affecting goods transfers and qualitative discussions of the key issues in providing services.
Non-Tariff Measures Affecting Products
Empirical evidence on the application of trade barriers through tariffs is widely available on a product-specific basis. The application of an import duty is a formal governmental action that can generate specific information that can be used to analyze the pricing or market share implications of the tariff measure. Typically tariffs are applied to products that move across borders in accordance with the point of origin definitions. This is not the case for NTMs.
While many NTMs are legitimately imposed to protect national welfare concerns (such as the safeguarding of cultural and moral values, maintaining a certain standard of human health, or preventing the introduction of certain non-indigenous species) many more NTMs are more insidious in nature. They are not based on such rational or defensible principles. Rather, they are unpredictable and are most often masked behind a maze of governmental bureaucracy or an obscure set of rules, regulations, or business practices, which act to impede the access to attractive export markets. NTMs are frequently designed to impose technical barriers to isolate domestic producers from international competition. Furthermore some NTMs are the result of many individual actions where government employees seek to maximize his or her access to resources through bribery. NTMs are continuous, ubiquitous and over the short term, impossible to completely identify and eliminate.
NTMs are a true challenge to the value chain in international commerce. While a tariff barrier is a cost to an exporter, at least it is a measurable and a predictable cost, which can be factored into a company’s pricing policy. Tariffs can be planned for while putting together the total business equation and, if the market will bear it, both buyer and seller can share the burden of tariffs. NTMs, conversely, can be either quantitative or qualitative in nature and they are often non-transparent. NTMs are frequently applied in a non-uniform manner and, most often, exporters do not know about them until they occur. From a cost standpoint alone, NTMs can introduce significant, unplanned economic variables and risks to the export transaction. Unfortunately, these variables can far outweigh the actual fixed expenses of the transaction. Therefore, as efforts are made by an APEC member, NAFTA member and other countries to identify and reduce the more obvious tariff barriers, NTMs take on an even greater significance. The relative economic cost to exporters can actually be greater for NTMs than for tariff-related barriers.
While it is difficult to determine if environmental products are actually being subjected to greater or to fewer NTMs than other industrial product classifications, there is no doubt that NTMs can and do affect commercial activities in the environmental business sector. The existence of NTMs in the environmental sector is a significant factor in the relatively lackluster growth in sales of environmental goods to world markets (only 5% growth per annum). Furthermore, the uncertainties in the cost factors discussed above are important reasons why opportunities to solve environmental problems are not being addressed in those markets where the need is the greatest.
ETTAC has attempted to establish a comprehensive list of NTMs that are deployed throughout the world in environmental goods transactions. See Appendix B for expanded definitions of categories. One of the member companies with a worldwide distribution network for environmental products developed a survey based on a review of multiple sources defining NTMs. This survey represents the views of a single company and the reader is urged to exercise caution regarding applying these findings to the entire industry. However, as a worldwide distributor the data can be useful for establish trends. The following classification system was developed:
A series of questions within each of these categories was developed and provided in June and July of 1999 to importers, marketers, applicators and distributors of environmental products in 15 economies in Asia, 9 economies in Africa, and 22 economies in Latin America and the Caribbean. These regions together represent the majority of the world’s population and developing EGS market potential. These data are presented by region on Tables 4-1 through 4-3, below. Finally, the regional data have been summed in Table 4-4 and the 13 categories ranked according to worldwide frequencies found in the survey.
ETTAC hopes that the frequency of occurrence of these NTMs will help USTR and DOC negotiators establish a rank ordering of the most important NTMs for discussion during the WTO Millennium Round. While this methodology does not provide a method for evaluating the magnitude of the effect of certain practices with respect to trade flows across borders, it does indicate the frequency of occurrence and is helpful for prioritizing the emphasis for WTO discussions. The ETTAC has had to rely heavily on anecdotal evidence for interpretation of non-quantitative factors due to the lack of hard data.
Table 4.1 - Product Non-Tariff Measures Survey Results: AsiaCountries
According to respondents in Asia, Marketing Restrictions was the category with the highest frequency of occurrence. This was followed closely by Labeling, Packing, and Documentation requirements and then by Harassment of Imports, Distribution, Logistics and Banking Restrictions, and Sanitary and Phyto-Sanitary Requirements.
Table 4-2 - Product Non-Tariff Measures Survey Results: AfricaCountries
Respondents in Africa, Harassment at Customs and Distribution, Logistics & Banking Restrictions were the categories with the highest frequency of occurrence. This was followed closely by Labeling, Packing, and Documentation, Sanitary and Phyto-Sanitary Restrictions, Standards, and Discrimination Devices.
Table 4-3 - Product Non-Tariff Measures Survey Results: Latin AmericaCountries
According to respondents from Latin America, Technical Standards represented the category with the highest frequency of occurrence, followed by Harassment of Imports.
Table 4-4 - Rank Ordering of 13 Categories by Worldwide Frequency of Occurrence
Table 4-4 sums the data from Asia, Africa and Latin America/Caribbean and ranks the categories by frequency of occurrence. Standards, Harassment of Imports, and Labeling and Documentation Requirements were the most frequently cited NTMs.
These studies present factors that impinge on the movement of tangible goods across borders. The reader should note that the NTMs affecting services, as discussed below, are quite different. A deeper understanding of the interaction between these distinctions will help define the priorities for EGS transactions as we move forward into the next century.
Non-Tariff Measures Affecting Services
Perhaps even more pronounced than in the products sector, environmental services are frequently less identifiable with a unique point of origin. This is especially true in the engineering sector, where many companies, which perform large-scale infrastructure development and design, do so within many industry sectors. An engineering company which bids on a new municipal solid waste landfill or sewage treatment plant could also likely be involved in road building or airport design work. In fact, because there are so many cross-over skill sets required in such infrastructure projects, the same individual who is a mechanical or civil engineer, or other technical professional may well be assigned to both environmental and non-environmental projects. This characterizes the horizontal nature of the company.
In like manner to service companies being horizontally dispersed so too are environmental services less amenable to a discrete method of identification as to their point of delivery. Environmental service activities are an integrated part of virtually every industrial activity, such as installing a recycling operation in an automobile assembly plant expansion, integrating a hazardous material thermal treatment technology into a new refinery, or providing a storm water collection system in a regional shopping mall. This integration is especially true in new projects, where environmental management systems and technology are interconnected with basic engineering from the earliest design phase. This horizontal characteristic of environmental services, as with many products which have multiple uses, presents an ongoing challenge to the liberalization of markets.
For example, a pump used in a wastewater treatment plant moving slurry from a settling tank to a treatment tank could also be used at a petroleum refinery for moving gasoline products through pipelines. Conversely, some products that have unique environmental applications are not included in any list of products for the WTO discussions because they are part of a larger industry sector that has a strong political lobby. For example, a refuse truck has clearly only one application, and that is environmental management. But, it is defined at the 6-digit HTS level as a “truck body”, hence it is considered an automotive sector product and will not be included on a list for trade liberalization. In this case, it is the directed application that makes the product an ‘environmental product.’
As it has been the experience in the APEC talks regarding reluctance or outright opposition to remove barriers on products which have horizontal applications, so too it should be anticipated that services with multiple sector relevance would encounter opposition.
A possible solution to the horizontal conflicts may be the development of a better means of identifying the point of consumption of environmental services. This point of consumption factor may be the more appropriate measure, rather than the point of origin, for the regulation of environmental services delivery. Current economic statistical reporting methods, such as the Harmonized Tariff Schedules, the Standard Industrial Classifications (SIC) Codes, currently being replaced by the North American Industrial Product Classification System (NAPCS), and the United Nations Centralized Product Classification (CPC) system all presume a vertical focus, wherein a product is targeted as a very narrow or exclusive sector of use. A new initiative, unveiled in early February of 1999, seeks to develop a new system to run parallel to NAPCS.
This reporting system would focus on the point where those services were deployed, rather than at the point of origin, and would allow for a breakout of sub-services that would be performed within the primary activity. Such a system would provide for identification of environmental services that would be internalized in industrial activities, as described above. An illustrative example would be in the case of the construction of a hydroelectric power plant. Currently this construction project would be considered a single service and would include such activities as land reclamation, wastewater treatment design, construction debris removal and disposal. However all of these services could be identified as distinct and different activities, each requiring their own skill set and supporting products. Therefore, with the CPC any products consumed in these sub-processes could be readily identified for tracking, marketing, or quantification purposes. A point of service consumption reporting system would facilitate trade negotiations, in that the objections raised in recent APEC talks regarding the horizontal application of goods (and by inference services) across industry sectors could be effectively countered by being able to associate the services and products with a distinctly environmental outcome (e.g. actual use).
ETTAC believes that, by shifting the focus from a vertical to a horizontal perspective of the sector, many of the NTMs that firms currently encounter in the ‘environmental services’ sector will be easier to identify and, therefore, eliminate.
The following section details some of the NTMs that are currently affecting the ability of US companies to deliver their services overseas. The OECD has identified many of the same issues and priorities that ETTAC has pinpointed as barriers to trade in its 1998 report, Assessing Barriers To Trade in Services: Environmental Services. This publication indicates that these issues are common to all suppliers in countries that have a technologically advanced EGS sector.
Specific Services Issues
There are many NTMs that act as trade barriers and directly effect service organizations. These NTMs restrict the free flow of trade to various degrees. The effective impact to service providers ranges from none in some countries to very significant in others. Often, the individual NTMs add to each other so the cumulative affect can be very large. The OECD OCED Working Party of the Trade Committee report “Assessing Barriers to Trade in Services: Environmental Services” Paris, 1 December 1998. states that the most significant barriers are those that deal with investment/establishment; entry and stay of service managers, professionals and experts; licensing requirements; and government procurement practices. The ETTAC concurs with these views. Presented below is a list of the most significant NTMs that hamper the export of environmental services, some of which also impact the providers of goods.
Cross-border Supply and Purchases or Consumption Abroad
Cross-border supply of environmental services arises through the purchase of such items as specialist consulting services; environmental training modules; engineering designs, plans and specifications; laboratory testing; computer modeling analysis and such items as the repair of environmental equipment sent to another country. Services can come into a country via courier, mail, fax, and telephone and electronically through the Internet. In the case of equipment, shipping can be by air or surface. Electronic forms are particularly difficult for countries to control, while the remainder can be elusive. Under GATS these are known as Mode 1 services.
There are requirements in many countries that engineering designs, plans, and specifications be signed by a professional licensed or registered in the country that would be using the design. In other cases certifications are needed or delivery must be through established professional networks or partnerships. These requirements give rise to barriers to the flow and use of offshore services. In the extreme case, it may be impossible for the service provider to be professionally registered in the country and thus preclude the use of the services if there is no one willing or capable of reviewing the design. The use of an in-country registered professional will always add cost to the environmental services provided.
The GATS schedule allows a country to be bound (claiming restrictions or no restrictions) or to be unbound (undefined and thus open to restrictions that may be arbitrarily applied). More environmental services are unbound than are bound with no restrictions. The OECD report provides considerable detail by country on restrictions for:
A large part of the environmental services trade must take place through a presence in the country by “natural persons“ or GATS Mode 4. Cross border supply and purchases (discussed in the previous section) are typically supporting in nature to owners and organizations located in country. General foreign investment requirements and sector specific regulations are important to market access for both providing environmental services and for conducting research and development (which may have a different set of restrictions). Some of the most important areas are:
Approval of Foreign Investment and Limitations on Amount of Foreign Ownership - The general foreign investment provisions include:
These restrictions on foreign investment create significant NTMs that are barriers to trade. These are known as Mode 3 in GATS.
Type of Legal Entity Required - The form of legal entity allowed may not fit with a company’s legal framework or business desires. In the professional service area, some countries do not allow a corporate form of practice. Many times, only joint ventures with local firms or representative offices are allowed to practice in the environmental field. In some cases, branches of foreign firms are not permitted and a local company must be established. These restrictions lead to a higher cost of operation for foreign firms than for local companies and are a deterrent to trade.
Allowed Scope of Service - The scope of services for a foreign company is restricted in some countries to protect the interests of nationals or residents. For example, in one Asian country the scope of services set forth in the company registration documents must be circulated to trade and professional societies to see if local companies can provide a similar service. If so, the registered scope will be limited to services that cannot be provided locally.
Quotas - The number of operating licenses can be limited and there may be regulation of contracts by value and number through an annual licensing system. Quotas are an effective way to block free trade. They offer the opportunity to be arbitrarily applied and thus discriminatory against overseas companies.
Entry and Temporary Stay of Services Suppliers
Immigration regimes in many countries set restrictions on the length of time for temporary stays of foreign staff. They are usually applied “horizontally” across all industry sectors. These regimes normally fall into two main groups:
These requirements can be quite restrictive where they are used to protect a local work force. At minimum, they add extra cost for legal processing and periodic journeys out of country to renew visas.
Nationality and Residency Requirements
Nationality and/or residency requirements may be applied to the managers of companies as a condition for having a commercial presence, or to specific types of professional service personnel, GATS Mode 4. They may apply to both local and foreign companies or they may be applied only to foreign organizations. These requirements may be aimed at:
Boards of Directors - In some countries, officers would not just need to be nationals but also resident in the province where the company is registered. In one Asian country, at least one member of the Board must be locally resident. Where foreign firms operate public utilities, nationality restrictions can be applied, where none exist in other sectors.
Professionals – In the most restrictive case, both citizenship and residency are needed to become professionally licensed and to offer engineering and architectural services within the country. In other cases, work experience in the country is needed to qualify to take the professional registration examination. Frequently, residency is needed to provide a professional service.
Local Staff – In several Latin American countries, ratios of domestic staff must be maintained to be able to provide professional services. This helps local employment conditions but can hamper an effective practice if suitable local staff is unavailable.
Registration and Licensing of the Business and or Supplier
Registration and licensing for foreign businesses are needed to comply with taxation requirements, stock exchange regulations, or specific industry controls. In the case of professional registration, persons normally need to have their qualifications confirmed to protect the interests of society. These areas have the propensity for creating trade barriers.
Registration and Licensing of Foreign Businesses - Automatic routine business registration and licensing is not discriminatory when it applies to both local and foreign companies. However, in cases where they are non-automatic to the foreign firm and subject to approval and/or quotas, they can be designed to protect local companies from competition. Some countries require foreign companies to notify the government of their presence while others mandate that a special license be obtained to serve a specific sector such as the oil or mining industry. In one Asian country, there is a quota of licenses to operate industrial water treatment systems that limits the total aggregate number of licenses for both local and foreign suppliers. Corruption can emerge when the licenses are not freely available and automatic.
Registration and Licensing of Foreign Professional Service Suppliers – These situations vary considerably, from none required to highly complex processes, procedures, and requirements. Some require registration and licensing on the basis of recognized professional qualifications and expertise, others require formal licensing applications in which the qualifications are taken into account, and yet others require a formal examination and in country interviews. It is very difficult to determine the comparability of university degrees between countries and the registering body uses a great deal of judgment in determining educational qualifications. The registration organization can be an arm of the government or a professional society or institution. This is a very complex area, as in some countries registration is at a national level while in others, like the United States, it is at the state or provincial level. Reciprocity may or may not be allowed. Professional registration is often used as a way to keep out foreign practitioners and protect the local professionals from competition.
Monopolies, Exclusive Providers and Private Cartels
Monopolies and exclusive rights to service supply may be permitted by governments to state-owned or operated entities or to private entities. Governments may also permit private cartels operating from the private sector without explicit government intervention as a result of unregulated private restrictive or exclusionary practices. The situations vary around the world. It is obvious that private enterprise (both local and foreign) can be blocked from some sectors. Utilities such as those that handle water, wastewater, and solid waste lend themselves to monopolistic and restrictive concessions.
It has long been recognized that subsidized competition can have the effect of restricting or distorting trade. Domestic subsidies can restrict the ability of foreign goods and services to compete in local markets. Likewise export subsidies can distort competitors’ markets and third country markets. These subsidies can take forms such as different insurance requirements for local versus foreign companies, heavier taxation on foreign firms dividends, reimbursement of business development costs in the case of exports, favorable project financing provided through overseas government entities, etc. There appears to be little documentation of these practices in the GATS schedules. The best goods and services may become unavailable due to these practices and trade barriers erected as a result.
Government Procurement Requirements or Exemptions
The principal trade issues for public government procurement of environmental services include local preferences, threshold values for open bids and excluded sectors for foreign companies. These are:
Local Preferences - The mechanisms and practices used to bias procurements vary considerably and can be quite creative. Quotas for local content and awards are used to favor and encourage locally supplied services. They are common. “Buy national” practices are prevalent in many countries, some by law, as are contractual requirements in the case of bilaterally funded projects. Some countries restrict some sectors to companies that have a majority of ownership by nationals. Bilateral agreements can be applied to favor trading between neighboring countries at the exclusion of wider international competition.
Threshold Values for Open Bids - Thresholds are used to assist local companies win procurements. In one Asian country, small contracts are restricted to local companies. One Latin American country uses direct invitations to domestic companies to bid when the size is below a certain level. For larger procurements, an open bidding process is followed. In another case, a country uses a centralized nationally administered process for the larger contracts. These procedures favor local firms and are a NTM barrier to free trade.
Exclusions – These are used to protect domestic enterprises. Some countries will not allow award to foreign companies if there is a local company that can provide the service.
Other Issues – There are a wealth of other protective barriers that are used around the world. In one Middle Eastern country, the selective use of deposit and performance bonds for overseas versus local companies is a deterrent to open and fair competition. Prequalification procedures can be arbitrarily applied to the various competitors, particularly those from abroad. In some cases, a local firm must submit the tender supported by the technical backup of a foreign firm. Pairing requirements are often used to link local and foreign companies. The list goes on.
Intellectual Property Protection Issues
Lack of or weak enforcement of intellectual property rights protection can hinder trade and investment activity and act as a disincentive to foreign investment and technology diffusion. It is important that companies believe that they are adequately protected so that new and effective environmental technologies can be introduced to benefit the global environment and the local conditions. Intellectual property protection includes such items as: copyrighted works, patented inventions, trademarked goods and services, trade secrets, and non-copyrightable databases. The main problems arise from:
These issues are dealt with under TRIPS through WIPO.
Restricted Land Acquisition for Commercial Purposes
The regulation of land acquisition by foreigners is a deterrent to companies that need to invest to have a viable commercial operation under GATS Mode 3. For example, restrictions on investment in land, buildings and specialized facilities, such as laboratories, waste treatment facilities, solid waste landfills, etc. can serve to eliminate foreign interests. Land is normally treated in a “horizontal” manner across all business sectors (i.e., not limited to just environmental industry). Limitations can be imposed as:
Visual and audio advertising are important elements in environmental business promotion for many companies. Advertising by multinational companies through television and radio in local markets requires balancing a local message with the economies of scale in developing the promotional materials for use and distribution in a number of countries. Restrictions on the use of foreign produced advertising materials may involve requirements for the use of local actors in television and radio commercials or restrictions on the amount of paid broadcasting time available for foreign-produced advertising. In one Latin American country, broadcast advertisements must use 50% national labor content in their production while another requires 100% of the sound track to be produced in country. Several European countries prohibit advertisements by engineers and architects. These limitations would be considered by many as restrictive and barriers to business public relations freedom.
Some customs issues, such as duties, that arise from goods movement across borders are not true NTM barriers. Others, however, are. Border and customs delays from the import/export of equipment needed to provide a service puts the offshore company at a competitive disadvantage. To enable prompt availability of shipped goods, corruption can surface during the customs clearance process. Those that need to import/export will often find added costs and hence, barriers in this area.
The life cycle cost issues are becoming more prevalent in the selection process for both goods and services in developed countries. Often, awards are made in developing countries based solely on lowest initial cost. Companies that have built life cycle considerations into their systems may be eliminated as they may have a higher price at the outset but lower total long-term costs. The lack of understanding and sophistication on the part of the buyer can thus create a barrier to the use of a more efficient product.
Conclusions on Significance of NTMs to EGS Trade
As outlined above and suggested by other independent studies, there exists in a number of markets a range of barriers to trade and investment in EGS which are likely to be an inhibiting factor in the potential growth of the global market. An important consideration is the impact these barriers have in terms of the costs added to the price and scope of environmental goods and service activities, and the disincentives this may create for global diffusion of environmental technology, skills and expertise. It is important to remember that the estimated welfare gains from liberalization in NTMs could substantially exceed those in the more transparent tariff area. Agreements on reducing tariffs in environmental goods alone will not help the WTO member countries achieve economic and growth objectives unless the social issues represented by rational environmental management are addressed as well. This cannot be affected unless NTMs are identified and removed as well.
This section presents a summary of the recommendations that could advance liberalization as an integrated package. There are several systemic items that could help to advance the dialogue that could not be properly characterized as recommendations, but are, nonetheless, worth pointing out at this juncture. First, the US Government should commission a Reference Paper analogous to the OECD document that summarizes the status of member countries commitments. Second, the US Government should take action to ensure that prominent members of the environmental industry are represented on the appropriate Industry Sector Advisory Committees (ISACs) and on the TransAtlantic Business Dialogue.
Recommendations to the US Government
Create an Environmental Secretariat
There is no specific organization or single world body for harmonizing agreements for the complex environmental issues facing countries. There are currently several institutions that have a global reach including the standard-setting function of the International ISO. There is the United Nations Environmental Program, which identifies and studies world ecological issues and seeks to form partnerships to care for the environment, in part, through an alliance with the World Bank in their joint program called the Global Environment Facility. There are also numerous private, non-profit initiatives such as the Business Council for Sustainable Development. However, there is nothing at the level of the International Labor Organization (which serves as a global advocate for labor and an adjuratory of labor-related complaints).
Recommended Strategic Action:
DOC and the USTR should seek to consolidate the functions of the various committees and sub-committees within the WTO with ‘environmental’ responsibility into a sister organization of the ILO. This organization could, then, serve as a central clearinghouse for the disparate functions spread across multiple agencies and committees of the WTO.
Continue EGS Liberalized Trade Negotiations
The traditional sources for the predominant share of global trade in EGS have been the US and the European Union (EU) nations, with Japan as an additional significant player. The US and EU have both pursued an open market strategy towards export activity in this sector, with barriers to trade affecting both in similar fashion. The EU, because of its efforts to encourage cross border trade in its market area, has been gradually easing internal restrictions of the type highlighted in this White Paper. Japan, on the other hand, has exhibited a duality of postures, preferring open markets abroad, with restrictive barriers relative to its own domestic market such as in fisheries and forestry. It is notable that Japan has pursued a strategy similar to that of the US and EU with respect to EGS liberalization.
Recommended Strategic Action:
The US Government should:
Establish National Standards
One area where industry has been extremely effective has been in the area of standards. In non-treaty normalization activity, the American National Standards Institute (ANSI) is the designated US representative to all international activities. ANSI participates in the International Organization For Standardization (ISO), the International Electrotechnical Commission (IEC), the Pacific Area Standards Congress (PASC) and serves as the liaison for US input to such organizations as the European Committee on Standardization (CEN), the European IEC and the Central/American Standards group in MERCOSUR, among others. ANSI has begun working directly with these organizations and in cooperation with the DOC’s National Institute for Standards and Technology (NIST) to eliminate many standards related barriers to trade for products. These efforts have resulted in a series of Mutual Recognition Agreements and Memoranda of Understanding affecting products in a number of sectors regarding transparency, single point testing and certification and equivalency demonstrations.
All of these activities, if given support from the environmental industry, could be of significant assistance in helping to break down the NTMs and would provide a significant underpinning for governmental negotiation efforts. ANSI provides US input to the ISO on the ISO 14000 Series standards on Environmental Management Systems. Since the ISO 9000 Series has provided the structural basis for the Mutual Recognition Agreements through the effective use of a single point third party certification, which provides immediate access for across-the-board product introduction. Therefore, similar strategies should be pursued in the environmental services area.
In addition, ANSI and NIST have worked cooperatively in organizing standards related missions to many parts of the world, most recently focusing on ASEAN, China and the Newly Independent States, and working closely with the Transatlantic Business Dialogue. These missions involve leading US standards developing organizations in "marketing" US methods and the concepts of transparency and mutual recognition of the national standards developing organizations in target regions. By involving industry (which develops the majority of domestic standards under the ANSI Federation) with their sectoral counterparts in various parts of the world, solutions are being slowly hammered out for such areas as telecommunications and medical devices. Many of the same issues are being highlighted for EGS. The resources of the industry are thus utilized as the facilitator of baseline technical discussions, which are less prone to political factors. These discussions can then be incorporated into higher level, formal negotiations at political levels.
Recommended Strategic Action:
The DOC and USTR, using the resources of NIST, should encourage a cooperative effort with the ANSI in developing an environmental services component to their existing activities.
Ensure Consistency of EGS Between NAPCS and UN CPC/GATS System
There are significant weaknesses in treatment of EGS in the United Nation's CPC statistical classification system and the GATS guidelines. Negotiators have found that proper definition of the scope of sectoral activities is a significant hurdle that must be overcome to make significant progress on the classification system. The current NAPCS effort is being driven by NAFTA, but is in active liaison with the UN regarding a parallel upgrading of the CPC system. Of particular concern under GATS will be the overlap between other service sectors that also cover environmental management issues (e.g., accounting for quantifying environmental liabilities of publicly-held companies). These issues will need to be addressed through this current NAPCS process.
Recommended Strategic Action:
The DOC and USTR should fully support the development of the proposed North American Product Classification System, and integrate into their long-term planning and negotiations strategy the development of service-product codes for the 2002 census, and the broader objective of a complete system for all products by 2007.
Classify Environmental Goods for Trade Purposes
Further efforts need to undertaken in expanding the product definition and classification for environmental goods to avoid the problem of horizontal versus vertical definition of products used in the sector. Environmental goods often have multiple purposes and hence are not only considered environmental goods for purposes of classification. The solution here would be an ‘application directed’ tariff identification.
Recommended Strategic Action:
The US trade delegation should propose the development of a point of consumption system under GATT rules for environmental goods.
Establish a Professional Services Code Under GATS
Similarly for environmental services; these are even less identifiable with a unique point of origin. However, they are usually an integrated part of every industrial activity. This horizontal characteristic presents an ongoing challenge for the liberalization process. A possible solution to these horizontal conflicts is the development of a better means of identifying the point of consumption of the services rather than point of origin.
This definitional issue and the other NTMs that have been discussed with respect to the environmental services sector could best be addressed through a specific Professional Services Code under the GATS. At present, GATS only covers financial services and accounting services. Although a ‘Professional Services’ working group has been established, the scope of this dialogue is unknown to the ETTAC at this time. The coverage within this code of the issues raised by the unique nature of environmental engineering and scientific consulting and the definitional issues described earlier would significantly address some of the barriers the sector is facing. The liberalization process should continue during the WTO sessions with the same level of dedication and resource allocation by the US government as was provided for during the APEC EVSL. As the industry grows and institutes coordinating activities similar to that of other sectors, information on NTMs will be identified and shared on more comprehensive scale. This may result in the identification of new barriers distinctively faced by the environmental sector only. It will also provide the USTR and the DOC with important information to incorporate into their trade negotiations.
Recommended Strategic Action:
The USTR and DOC should promote through the WTO’s Working Party on Domestic Regulation the establishment of a ‘Professional Environmental Services’ code under GATS rules and this code should be designed to address the NTM issues discussed in this report. As a precursor to this code, the US Government should develop a reference paper that identifies pro-competitive regulatory principles to promote transparency. Also the US Government should:
Develop an EGS Database
Much of the information developed concerning NTM effects on the US Environmental Industry has been anecdotal. The USTR’s negotiation position has been hampered due to this lack of precise and documented information. It becomes crucial, as the ATL process moves forward, that efforts continue to gather information on specific NTMs and a mechanism be developed to qualify and quantify the impacts of the identified NTMs.
Recommended Strategic Action:
The USTR and DOC should:
Coordinate with World Intellectual Property Organization
WIPO was established to provide a forum for multilateral discussions on intellectual property protection. Intellectual property protection includes such items as copyrighted works, patented inventions, trademarked goods and services, trade secrets, and non-copyrightable databases. The WTO agreement governing intellectual property is Trade Related Intellectual Property Standards (TRIPS).
Recommended Strategic Action:
The USTR and DOC should ensure that WIPO rules and arbitration address the needs of the EGS sector.
Recommendations to the US Environmental Industry
Industry Involvement in Public Policy Formulation
Industry involvement needs to be dramatically expanded in order to reinforce the position of government negotiators and to provide more real-time feedback on emerging issues and problems. Historical involvement has tended to be more reactive. In other words, industry has sought government assistance after it has hit roadblocks in project bidding or companies have become embroiled in controversy, thereby diminishing the effectiveness of government intervention. Following are some steps that private sector companies should take to collectively advance their interests in improving market access and reducing market barriers in EGS.
Recommended Strategic Action:
The ETTAC should:
Recommendations to the Public-At Large
Improve Public Education
The worldwide environmental industry is estimated to be over $453 billion in annual revenues. The potential US share of that market could be significant. However, the existence of NTMs is a reality and has affected the willingness of US companies to venture into international markets. Although the worldwide need for EGS is great, few exporters consider NTMs in their plans for global market expansion. All of the NTMs addressed in this White Paper will continue to affect the willingness of US firms to move into the international markets. The virulence of recent protests of the WTO, the World Bank and the IMF show that there is a growing portion of the population that does not understand the subtle interplay between maintaining balance of social infrastructure in developing countries as they proceed independently on their path toward integration into the world economy. As social objectives, including the market implications of environmental management, become mainstream WTO policy, the importance of broad consensus is critical. This broad consensus needs to be focused on the proactive stance that is being suggested here by the ETTAC; that is, by placing an emphasis on reshaping the WTO agenda to include EGS as an important market sector.
Although this logic is well known to the US government representatives working the trade agenda and to the environmental companies that have been actively involved in the ETTAC dialogue, the public-at-large must come to understand the importance of these issues as well. The EGS sector provides domestic jobs and provides products and services that are needed throughout the world. A concerted education and outreach initiative must be undertaken by interested parties to more fully educate the American public.
Recommended Strategic Action:
Educational institutions should provide a balanced view of the social and political implications of development and show how an effective environmental policy can help to ensure sound development along the path toward globalization.
To dispel any further misconceptions about world trade by the public and to further expand the prosperity the world is experiencing as the result of previous trade efforts, the ETTAC believes the US Government and the US EGS industry needs to be more proactive in advancing the environmental trade agenda. The USTR and DOC team representing US industries need to be fully equipped to address the broad range of issues they will be confronted with as they move forward with WTO negotiations. This would include understanding the full range of views of US industry sectors. Although a total laissez faire approach may be useful in industries where pricing for individual goods is covered by the notion of individual consumption, this same approach may not be appropriate for goods and services that benefit a collectivity. This is the case with EGS.
Identification of these specific barriers will benefit the entire EGS industry as it evolves into its place in the global marketplace. The process of NTM identification is in its preliminary stages, but it is clear that environmental companies confront NTMs on a more complex scale than other sectors. The role of standards in international trade and intellectual property right infringements will continue to impact new innovations in the environmental sector. Establishing a presence in new markets with a lack of institutional support will continue to challenge companies. As the environment becomes a more significant policy objective, the presence of environmental regulations and standards may serve to provide access to new markets. When the industry grows and institutes coordinating activities similar to that of other sectors, information on NTMs will be identified and should be shared on a more comprehensive scale. This may result in the identification of new barriers faced by the environmental sector only. It will also provide the USTR and the DOC with important information to incorporate into their ongoing trade negotiations.
U.S. Submission of Goods Included in APEC
Early Voluntary Sectoral Liberalization (EVSL) Negotiations