The global drive towards reducing greenhouse gas emissions, the increased availability of green finance, and the associated ambitions of firms and governments to improve their environmental performance are boosting the demand for quality environmental goods and services. UNCTAD data from 2022 shows that trade in environmental goods outperformed global trade in 2022. The rising demand for environmental goods is closely linked to the rapid growth potential in the environmental services sector. This is because the installation and operation of environmental equipment (such as a renewable energy plant) requires the provision of a range of complementary services including consulting, design, engineering, construction, and maintenance services. As green technologies tend to be highly complex, their ancillary services may demand knowledge and skills that are difficult to source domestically (especially in developing and least developed countries). This creates opportunities for cross-border trade in environmental services. Additionally, advances in technology (notably the internet of things) mean that environmental infrastructure, air quality and water quality can be monitored remotely, expanding the potential for these services to be traded.

While it is desirable from a production efficiency and environmental perspective to keep the cost of environmental services low, this objective is impeded by significant trade barriers that remain. This is in part an issue faced by all service sectors: the WTO estimates that the cost of trading services is twice as high as that of goods, with regulation-related factors accounting for more than 40% of these costs^[1]. An OECD analysis shows that higher trade restrictions on environmental and environmentally-related services not only harm imports, but also lead to poorer export performance by firms, stifling the diffusion of cleaner technologies and practices. Opening up trade in environmentally-related services is advantageous for both domestic importers and exporters, lowering the cost of projects that lower emissions, expanding trade in environmental goods, and helping countries meet their emissions reduction commitments under the Paris Agreement.

Trade in Environmental Services work at the WTO

Work in the WTO to liberalise trade in environmental services has been slow and involvement by African states is limited.

As of 1 December 2020, 59 WTO members (counting EU-25 as one) had made commitments in at least one environmental service sub-sector. Specifically, 52 members have undertaken commitments for sewage services; 50 members for refuse disposal services; 51 members for sanitation and similar services; and 51 members for “other environmental services”. 11 African countries have made commitments in at least one environmental services sub-sector:

Source: WTO, 2020

Notable developments within the WTO include the negotiations on the Joint Initiative on Services Domestic Regulation which were launched by a group of fifty-nine WTO members at the 11th WTO Ministerial Conference in December 2017. Currently, 70 WTO members are participating, only two of which are from Africa (Mauritius and Nigeria). The initiative aims to develop disciplines to facilitate services trade and to mitigate the unintended trade-restrictive effects of measures relating to licensing requirements and procedures, qualification requirements and procedures, and technical standards. An OECD report finds that with the full implementation of the disciplines on services domestic regulation, annual trade cost savings could be in the range of USD 150 billion, with important gains in financial services, business services, communications and transport services. On December 20^th 2022, 59 participants in the initiative (accounting for 87% of world services trade) submitted their improved schedules of commitments for certification, accounting for 87 per cent of world services trade. At the start of 2023, both South Africa and India formally objected to the plurilateral nature of the initiative.

The Trade and Environmental Sustainability Structured Discussions were launched in November 2020 to intensify work on trade and the environment in the WTO. Of the 74 members participating in the initiative, only 4 are from Africa: Cabo Verde, Chad, the Gambia, and Senegal.

Developments in SADC negotiations

The South African Development Community adopted the Protocol on Trade in Services (PTIS) in 2012. The Protocol entered into force in January 2022 and provides for the creation of a single regional market for trade in services (TiS) through, inter alia, the removal of substantially all trade barriers and improved regulatory transparency. The liberalisation programme is a progressive process that takes place in successive rounds of negotiations in which member states undertake sector-specific commitments. The first round of negotiations took place from 2012-2019 and covered six priority sectors (communication, construction, energy-related, financial, tourism and transport services). The second round of negotiations is ongoing and will cover the remaining services sectors (business, distribution, education, environmental health and related social services and the recreational, cultural and sports services). As per a Roadmap, this round of negotiations is due to be completed in 2023.

Key issues to be resolved

Defining environmental services

One of the most fundamental issues that will have to be resolved in negotiations relates to how environmental services should be defined. There is an ongoing debate in multilateral and plurilateral forums as to what should constitute an environmentally related service. The traditional approach to classifying services in negotiations is the services sectoral classification list (W/120) used in the GATS. The W/120 is linked to the UN’s 1991 Central Product Classification (CPCP) and defines environmental services as the few sectors included in division 94 of the CPC:

Where ‘Other’ comprises Cleaning services of exhaust gases – CPC 9404; Noise abatement services – CPC 9405; Nature and landscape protection services – CPC 9406; Other environmental services n.e.c. – CPC 9409.

Given that the environmental services landscape has evolved dramatically over the last two decades, the W/120 definition of core environmental services represents an outdated conception of the sector. The range of services used in environmental projects now extends far beyond division 94 of the CPC. Because of this, it is important that negotiations for modern trade in services protocols, including the SADC Protocol, widen the scope of services related to the environment to include activities such as environmental consulting and engineering.

Over the last two decades, there have been several recommendations at the WTO on how environmental services can be classified to reflect this new reality. One of the most comprehensive alternatives is the APEC Reference List of Environmental and Environmentally Related Services. The reference list expands on the ‘core’ environmental services defined in Division 94 to create a broad list of environmentally related services. In the style of HS codes, the reference list creates further ‘subclasses’ in the CPC – there are over 65 Environmental services identified in the list, including many other services normally classified under divisions outside of division 94 of the CPC. It is inspired by the 2007 list prepared by the Friends of the Chair of the 15 EGS Group^[2].

SADC negotiations on environmental services could use this list as the foundation or starting point of discussions. It could be referred to in order to identify which environmental services, when traded within SADC, have the potential to lower the costs of cleaner technologies and practices for firms in the region and facilitate the development of regional green value chains. Identifying those specific services, and establishing what barriers currently impede their trade on the intra-regional level, is an important first step in determining which trade restrictions and on what activities negotiations should be focused.

Improving knowledge of trade in environmental and related services

The aforementioned approach may be easier said than done given that data on the scope, magnitude, and direction of trade in environmentally related services in the SADC region is extremely limited. This is also the case for data that quantifies the magnitude of trade restrictions. Where statistics are available, they are highly aggregated and environmental services are rarely reported as a distinct sector. The lack of data makes it difficult to determine what effect trade opening has on trade in environmental services and the economy and what effect this change has on environmental quality. In preparation for negotiations, SADC countries should allocate additional resources to systematically gather information on companies offering environmentally-related services both domestically and internationally. Improved data collection will be instrumental in the thorough analysis and informed decision-making necessary for successful negotiations. This information could also inform SADC’s Member States’ engagement in WTO initiatives and the bloc’s position in future AfCFTA services negotiations.

^[1] World Trade Organization (WTO) (2019), World Trade Report 2019: The future of services trade, WTO: Geneva. https://www.wto.org/english/res_e/publications_e/wtr19_e.htm

^[2] In a non-paper submitted to the CTE-SS in April 2007, six APEC economies (Canada, Japan, Korea, New Zealand, Chinese Taipei, and the United States), along with the European Communities, Norway, and Switzerland — the self-styled Friends of the Chair of the EGS Group — proposed twelve categories under which environmental goods could be classified.