Environmental Goods and Services

Undoubtedly, the environment has emerged as a distinct industry in recent years. Today, there is a wide range of environmental goods and services. These include products that minimize material and energy use, reduce environmental risk, and prevent pollution right at the source. The global market for environmental goods and services is currently estimated at $335billion and is forecast to grow to $640billion by 2010 (Department of Trade and Industry, UK).

Developed countries in North America, Western Europe and Japan dominate the market. The EU provides a large market that has been estimated by the OECD to be around US $190 billion. However, developing and emerging markets in Asia and Latin America are growing rapidly as protection of the environment becomes a higher priority. The developing and emerging markets’ share of the environmental industry was estimated at less than 10% in 1995, and is expected to be 15% in the 21st century. Growth in this sector, and the greater availability and choice of environmental goods and services will help developing economies address a range of sustainable development challenges.

India’s current spending on environmental protection is approximately to the order of 0.5% of its GNP as against 1-3 % in developed nations. The total environmental market in India was estimated to be around US $8 billion in 2000 and is expected to grow to approximately US $ 13-14 billion by year 2005. Even now, there are many successful joint ventures partnerships with countries like USA, UK, Germany, Netherlands, Canada, and Sweden, etc. The market in India for environmental business in pollution control equipment is estimated to be growing around 10-12% per annum.

In this background, discussions have been going on in the WTO forum with the view to trade environmental goods and services (EGS) at zero or close to zero tariff. The argument for this being that the liberalization of international trade in EGS will rebound to a "win-win" situation for the economies, stimulating economic growth and promoting environmental protection.

A more recent development in this regard is the Doha Declaration. The Declaration arising out of the Fourth Ministerial Conference of the WTO, held at Doha in 2001, noted the following: “ With a view to enhancing the mutual supportiveness of trade and environment, we agree to negotiations, without prejudging their outcome on the reduction or, as appropriate, elimination of tariff and non-tariff barriers to environmental goods and services.”

However, countries like India are arguing that lowering the tariffs in EGS would result in increased imports. India’s balance of trade in this sector is already negative. The problem is compounded by the fact that most of the items in this sector are of multiple industrial use.

One of the major points of consideration is whether India should follow a list-based approach or a definition-based approach in the WTO negotiations on environmental goods and services. Interestingly, none of the countries agree on a definition of EGS. Canada, Japan and the United States have adopted broad definitions of the environment industry. Italy, Germany and Norway, on the other hand, have chosen narrow ones. On the one hand, the European Commission’s definition (1994), for example, includes clean technologies. On the other, other definitions, including that used in the Organisation for Economic Co-operation and Development (OECD) study (1992), tend to exclude clean technologies.

To deal with this problem, many countries favour a list-based approach. The Asia-Pacific Economic Co-operation (APEC) has come up with its own list of EGS. The APEC list has been compiled in view of the trade interests of the APEC members. If India starts negotiations around this list, it would not benefit her. Therefore, India should prepare a list of its own, which should take into view her trade interests. India should put only those items on the EGS list that are critical to clean technologies. Also, India should push for environment friendly goods on the list such as jute and coir. All this would help India shore up its exports.

Apart from the reduction in tariff duties, non-tariff barriers also pose a problem in this area. In a sector where markets are driven by regulations, it is not surprising to hear concerns expressed that such regulations serve as technical barriers to trade. Differences in standards between countries can inhibit imports by eroding economies of scale.

A related issue over which India has strong reservations, which could now take center stage is that of eco-labelling. Ecolabelling started out as a consumer awareness aid wherein the label ensured that the product is environmentally safe. At Doha, the European Union pushed for this. India and other developing countries have held the view that its practice could lead to insurmountable barriers to exports from these countries. India’s stance has been that ecolabels should not be discussed at all at the a WTO forum; it is likely that discussions about liberalization in the EGS industry would inadvertently lead to discussions about ecolabels as well.

The government must consider all these issues seriously before going for negotiations this year at Cancun. Given the size, growth, and trade implications of this sector, it would be unwise to treat the EGS negotiations as a minor issue.