South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Viewpoint

Trading well-being: Select issues in environmental services

In the broadest sense, development is about improvement in the quality of life. The wellbeing of millions of people still living in absolute poverty depends in part on a wide range of environmental resources, including access to and use of safe drinking water and sanitation. Close to two billion people in Asia lack access to basic sanitation, and over 650 million to safe drinking water. Every day, approximately 3,900 children die of diseases worldwide associated with water and sanitation that are easily preventable. Almost half the people in the developing world have one or more diseases or infections like diarrhoea, intestinal helminth infections and dracunculiasis associated with inadequate water supply and sanitation. This is a colossal drain of human potential.

According to the World Water Council, a huge sum of around US$ 180 billion per year is needed in poor countries to meet growing demands on water and sanitation. Against these glaring challenges, countries with narrow tax bases, modest aid inflows, insufficient public resources, and disparate implementing capacities, have been forced to consider roles for cross-national resource transfers in international trade. This poses a ques question. Is this option realistic and more importantly, desirable?

Opportunities for trade and investment in environmental services have traditionally been limited because of their public monopoly and quasi-public good characteristics. However, the sector has been undergoing significant changes in recent years through deregulation, privatisation of select activities, retrenchment of the state's role in public provisioning, and growing information technology- enabled tradability of services. The environmental industry has grown to over US$ 550 billion in revenues in 2003, half of which is accounted for by environmental services. As markets in Organisation for Economic Development nations reach saturation points, developing countries are emerging as important destinations for the export of environmental services. The significant barriers to this trade pertain to restrictions on the establishment of commercial presence and on the movement or employment of nationals of the operating company. These relate to modes 3 and 4 of services supply in General Agreement on Trade in Services (GATS) of the World Trade Organisation (WTO).

The main policy concern over attempts to open up trade in capital-intensive environmental services is the sweeping nature of multi-generational commitments that countries voluntarily lock themselves into, often without adequate national consultations. This is most sensitive in the case of water distribution. As it comprises around 90 percent of the brain, water is the most important molecule for survival of human life. Issues surrounding its access, quality, utility and affordability thus deserve sensitive scrutiny and restraint in trade talks that conclude with binding commitments.

So far, no country has made any GATS commitment on water distribution. Much of the controversy on GATS appears to be not about its present outcomes, but its possible negotiated shape in the future. There are, however, numerous cases of unilateral privatisation of utilities to treat and distribute water outside of the WTO framework. Their record is mixed.

Proponents of greater private sector involvement argue that users do not pay the full cost of the water cycle, which begins in the skies, is stored in reservoirs and ends as waste-water. When the true value of the environmental resource is not accounted, there is wastage and resource degradation. This is the main reason why water is not treated as a precious (and scarce) commodity and is almost taken for granted. The prices determined by the private sector typically approximate towards charging the true costs of supplying a service, but herein lies a policy dilemma - how should governments permit realistic charges for water without pricing out poor consumers? This requires attachment of human-development pre-conditions - subjecting private suppliers to regulated prices, and setting up ceiling rates and cross-subsidies for the poor.

Wherever this delicate balance between commercial viability and social obligations has faltered, companies have had to deal with fierce public opposition, sometimes leading to costly withdrawals. From a peak of 38 worldwide water and sewerage private projects in 1999, the number was down to 18 in 2002. The examples include investors like Suez quitting the American city of Atlanta and the Philippine capital Manila, Biwater leaving Zimbabwe, and Bechtel having to withdraw from Bolivia's Cochabamba municipal system where rioting followed a 35 percent increase in water tariffs.

The type of political regime also matters in the speed with which these schemes are implemented. China and Vietnam - one-party states with strong governments - have already experimented with water-related projects in major cities like Shanghai and Ho Chi Minh City. In China, Veolia signed a 50- year contract worth nearly US$ 250 million in Shanghai in 2002 to treat, distribute and collect fees for water. This subject is, however, considered too sensitive in countries with active elective politics like India and Thailand, which have retracted policy measures on water and sanitation because of popular opposition.

Discussions on foreign investment often overshadow 'alternative' success models of low-cost service delivery to the poor. Pakistan's Orangi Pilot Project (OPP), for instance, has been working since 1980 to support people's efforts in upgrading a low-income informal settlement with over 1 million residents in Karachi. This comprises internal development such as latrines, lane sewers and collector sewers at the neighbourhood level. Contributing US$ 1.5 million, the people have constructed hundreds of thousands of sewerage lines and sanitary pour-flush latrines in 90,000 houses. The OPP model has been replicated in 42 settlements in Karachi and in seven cities across Pakistan with varying degrees of success. There are similar success stories from China on cooperative non-profit water and sanitation delivery system, and from India on mass sanitation drives that are cost-effective and pro-poor.

As far as the issue of water for human consumption within environmental services is concerned, there is also a strong human rights dimension that must be recognised as on par with rights to basic food and adequate housing. This has been discussed in the United Nations High Commission for Human Rights where countries have been urged to assess how trade policies impact human rights. Over the years, countries have undertaken many international human rights treaty obligations, which need to be respected by WTO members during their negotiations and while implementing commitments to liberalise trade in managing air, water, and waste.

Multilateral negotiations are conducted on the basis of reciprocity, which countries should optimise by seeking concessions in areas of export interest to them in return for considered access to environmental markets. While there is no evidence that GATS commitments automatically lead to increase in foreign direct investment, they could send a signal of sorts to investors. Such commitments could also lock-in not only economic policy, but also development-friendly measures that countries could not retract owing to vested pressures at a later date. The flip side, however, is that reneging on commitments may result in trade sanctions.

With coalition building around experiential learning, developing countries of the Asia-Pacific region could embed reform and investment needs in their national anti-poverty strategies that comprehensively address water, sanitation, and public health challenges through multiple channels: public investments, stage-wise privatisation, scaling up of participatory community-led approaches, and engagement in international trade. A comprehensive strategy that leverages all policy possibilities is the only way countries of the Asia-Pacific region could fill parts of the glaring gaps in access, use, and affordability of water and sanitation. This bottom-up approach assists countries to respond strategically to requests during sectoral trade negotiations at the bilateral, regional and multilateral levels. In fact, governments could use negotiating positions that are a result of broad national consultations with civil society organisations to resist pressures from stronger partners.

(Mr Wagle is Programme Specialist at United Nations Development Programme Regional Centre in Colombo. This article is exerpted from a draft section on trade in essential services from the forthcoming 'Regional Human Development Report on International Trade Policy, to be produced by the UNDP Regional Centre in Colombo in November 2005 )

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