trade in sustainble energy services

8/13/2019 Trade in Sustainble Energy Services

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Joachim Monkelbaan

September 2013

Trade in Sustainable Energy ServicesTrade in Sustainable Energy ServicesJoachim MonkelbaanOctober 2013


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Trade in Sustainable Energy ServicesJoachim MonkelbaanOctober 2013


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About the International Centre for Trade and Sustainable Development, www.ictsd.orgFounded in 1996, the International Centre for Trade and Sustainable Development (ICTSD) is anindependent think-and-do-tank based in Geneva, Switzerland and with operations throughoutthe world, including out-posted staff in Brazil, Mexico, Costa Rica, Senegal, Canada, Russia,and China. By enabling stakeholders in trade policy through information, networking, dialogue,well-targeted research and capacity-building, ICTSD aims to influence the international trade

system so that it advances the goal of sustainable development. ICTSD co-implements all ofits programme through partners and a global network of hundreds of scholars, researchers,NGOs, policymakers and think-tanks around the world.

About the Global Green Growth Institute, www.gggi.orgThe Global Green Growth Institute (GGGI) is a new kind of international organisation that has beenestablished to accelerate bottom up (country- and business-led) progress on climate changeand other environmental challenges within core economic policy and business strategies. TheInstitute provides an international platform for evidence based learning and policy innovationthat helps to illuminate practical opportunities for progress on the twin imperatives of economicdevelopment and environmental sustainability, while deepening cooperation among developed

and developing countries, the public and private sectors, and practitioners and scholars.Founded in June 2010 and established in Seoul, GGGI is committed to help developing andemerging countries pioneer a new green growth paradigm.


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TABLE OF CONTENTSABBREVIATIONS AND ACRONYMS ............................................................................................. v

FOREWORD ................................................................................................................................ vii

EXECUTIVE SUMMARY .............................................................................................................. 11. SERVICES AND A SUSTAINABLE ENERGY TRADE AGREEMENT........................ ................... 3

2. SCOPE AND OUTLINE OF THIS PAPER ...................... ........................ .......... .... ................ ........ 5

3. INTERNATIONAL NEGOTIATIONS ON TRADE AND THECLASSIFICATION OF SUSTAINABLE ENERGY SERVICES ................................................... 7

4. SERVICES RELEVANT TO THE DIFFUSION OFSUSTAINABLE ENERGY SUPPLY TECHNOLOGIES ......... ........................ ........................ .... 10

5. FOCUSING ON CONSTRUCTION SERVICES AND PROFESSIONAL SERVICES AS KEYTO THE DIFFUSION OF SUSTAINABLE ENERGY TECHNOLOGIES ......................... ........... 13

5.1. Other Professional, Technical, and Business Services ..................... ................... 13

5.2. Construction Services ........................ ......................... ........................ ............... 23

5.3. Commitments on Sustainable Energy Services in Preferential Trade Agreements .... 27

6. SUSTAINABLE ENERGY SERVICES IN THE WIDERCONTEXT OF SUSTAINABLE DEVELOPMENT ................................................................. 29

6.1. Introduction ...................... ........................ ........................ ........................ ............ 296.2. Securing Win-Win Outcomes ........................ ......................... ........................ ..... 31

6.3. Sustainable Energy Services and Green Jobs ........................ ......................... ... 31

7. THE WAY FORWARD FOR SERVICES IN A SETA .... ......... ......... ........ ......... ............ ............... 36

7.1. Background ....................... ........................ ........................ ........................ ......... 36

7.2. Specific Services to Focus on in a SETA ........................ ........................ ............. 36

7.3. The Importance of Legal and Strategic Aspects of Services in a SETA .............. 38

7.4. Political Feasibility of Inclusion of Sustainable Energy Services in a SETA .......... 39

8. KEY FINDINGS .................................................................................................................... 41

9. CONCLUDING REMARKS ..................................................................................................... 45

ENDNOTES ................................................................................................................................ 47

REFERENCES ........................................................................................................................... 52

ANNEX I. COMMENTS AND POSSIBLE QUESTIONS FOR NEGOTIATORS CONSIDERATION ... 56

ANNEX II. CHECKLIST FOR SUSTAINABLE ENERGY SERVICES NEGOTIATORS ................. 57


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Abbreviations and AcronymsAPEC Asia-Pacific Economic Cooperation

AR4 IPCC fourth assessment report

ASEAN Association of Southeast Asian Nations

BRICs Brazil, Russia, India and China

CCS Carbon capture and storage

CDM Clean Development Mechanism

CERs Carbon credits

CFGS Climate-friendly goods and services

CHP Combined heat and power

CO 2 Carbon dioxide

CPC Central Product Classification

CTE SS Special Session of the Committee on Trade and Environment

CTS SS Special Session of the Committee on Trade in Services

EGS Environmental goods and services

EU European Union

EuroStat Statistical Office of the European Community

FTA Free-trade agreement

GATS General Agreement on Trade in Services

GATT General Agreement on Tariffs and Trade

GDP Gross domestic product

GE General Electric Company

GGGI Global Green Growth Institute

GPA Government Procurement Agreement

GHG Greenhouse gas

ICT Information and communication technologies

ICTSD International Centre for Trade and Sustainable DevelopmentIEA International Energy Agency


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IET International emissions trading

ILO International Labour Organization

IPCC Intergovernmental Panel on Climate Change

TISA Trade in International Services Agreement

ITA Information Technology Agreement

kWh Kilowatt hours

LDC Least-developed countries

MFN Most-favoured nation

MOFCOM Chinese Ministry of Commerce

OECD Organisation for Economic Co-operation and Development

PIIE Peterson Institute for International Economics

PTA Preferential trade agreement

PV Photovoltaic

R&DD Research and development

RECs Renewable energy credits or certificates

RGF Really Good Friends of ServicesSCM Subsidies and Countervailing Measures Agreement

SEGS Sustainable energy goods and services

SETA Sustainable energy trade agreement

SETIs Strategic energy trade initiatives

TPP Trans-Pacific Partnership

TRIMS Agreement on Trade Related Investment Measures

UN United Nations

US United States

W/120 GATS sectoral classification list

WTO World Trade Organization


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Foreword

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ForewordServices related to sustainable energy will be crucial for the transition to a low-carbon economy. Infact, the global market for services related to sustainable energy is bigger than the market for relatedgoods. It is staggering, then, that sustainable energy services are largely neglected in international

deliberations. The purpose of this paper is to attract attention to this important topic, first by building anunderstanding of trade in services related to sustainable energy based on an attempt to identify theseservices and analyse specific commitments made by their main traders. The paper moves beyondsuch a static observation by considering the wider sustainable development concerns of sustainableenergy services and suggests innovative ways forward.

The paper focuses on services in a key sector that was identified by the Intergovernmental Panel onClimate Change (IPCC): energy supply. In its analysis, the paper goes beyond the traditional GeneralAgreement on Trade in Services (GATS) issues of market access and national treatment and points toa variety of domestic laws and regulations related to services that can be addressed in a sustainableenergy trade agreement (SETA), including government procurement procedures.

To place sustainable energy services in the wider context of sustainable development, the paperexplores win-win outcomes for socioeconomic development and the environment, and it highlightsopportunities for job creation within the renewable-energy sector.

Finally, the paper proposes specific services that could be included in sustainable energy tradeinitiatives (SETIs) and considers the legal and political aspects of doing this.

Tackling the challenges of climate change while enhancing global access to energy and energysecurity will require fundamental transformations of our economies and the ways we generate anduse energy. Scaling up sustainable energy through a switch to cleaner, low-carbon technologies and

transport fuels, as well as greater energy-efficiency1

measures and renewable-energy generationcould make a positive contribution toward achieving these goals. For international cooperation onsustainable energy to be effective, international regulatory frameworks will be necessary.

Efforts to scale up sustainable energy require generation costs to be as low as possible. This is difficultat present, given the relatively high capital costs associated with renewable-energy investments, thenon-consideration of environmental and health externalities in fossil-fuel pricing, and the enormouslevels of subsidies still granted to fossil fuels.

While incentives, such as feed-in tariffs and tax breaks help, lowering the costs of equipment andservices used to produce sustainable power and reducing barriers to trade could also help facilitate

the scale-up process, by enabling economies of scale and cost optimization for renewable-energyprojects. Trade in sustainable energy goods can be hampered by tariffs, subsidies, and diverse orconflicting technical standards, as well as by lack of harmonization or mutual recognition efforts.

Domestic sustainable energy policies are also sometimes designed in a manner that restrictsaccess to competitively priced goods and services for sustainable energy producers. This isbecause policymakers, in striving to lower the costs of sustainable energy production, often seek topromote the domestic manufacturing of renewable-energy equipment and the provision of services.In addition, the sustainable energy sector is seen by many policymakers as a potential engine for

job creation. Balancing all of these objectives, however, may be difficult, and some policies couldtrigger trade disputes.

A number of trade disputes related to support for renewable energy is currently under way at theWorld Trade Organization (WTO). While these disputes can clarify existing rules, a more constructive


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Ricardo Melndez-OrtizChief Executive, ICTSD

long-term effort would require a well-defined, coherent governance regime for sustainable energyand related goods and services, one that is supported by trade rules and robust markets. The currentstalemate in the WTO Doha negotiations, particularly in efforts to liberalize environmental goods andservices, is preventing action to address barriers to sustainable energy goods and services.

Even a successful conclusion of the Doha Round would still leave a number of trade-relatedrules pertaining to sustainable energy such as subsidies unclear, given the lack of a holisticperspective on energy in the Doha mandate. In such a scenario, SETIs in bilateral and regionaltrade arrangements may be a viable option. The agreement in Asia-Pacific Economic Cooperation(APEC) in 2012 to lower tariffs on a range of environmental goods (a major part of them relatedto sustainable energy) can be considered as a first step towards a SETI. Eventually, such anapproach could include a SETA as a stand-alone initiative to address these barriers, enabling atrade policy-supported energy governance regime to advance climate change mitigation effortsand increase sustainable energy supply.

This agreement could be pursued initially as a plurilateral option, either within or outside the WTOframework and eventually be multilateralized. It could serve to catalyse trade in sustainable energy

goods and services while seeking to address the needs and concerns of participating developingcountries, many of which may not be in a position to immediately undertake ambitious liberalizationin sustainable energy goods and services. A SETA could also help clarify existing ambiguities invarious trade rules and agreements as they pertain to sustainable energy and provide focalizedgovernance through effective and operational provisions.

One of the objectives of the SETA project is to provide options for developing trade in sustainableenergy goods and services (SEGS) that effectively contribute to sound environmentalmanagement, while preserving developing countries ability to promote industry and economicdevelopment. The specific purpose of this paper is to identify the role that sustainable energyservices could play in a SETA.

This paper builds on the results of recent International Centre for Trade and Sustainable Development(ICTSD) studies that analyse trade in climate-friendly goods and services 2. Despite the significanteconomic and environmental benefits of liberalizing trade in sustainable energy goods and services,many obstacles remain to realizing such benefits. The benefits that ICTSD modeling has shown canresult from non-tariff liberalization are much greater than the ones that come from tariff removal. Asbarriers to trade in services obviously are related with non-tariff barriers similar to the ones that restricttrade in goods (e.g. local content requirements, subsidies, and government procurement practices),it can be expected that removal of such barriers to trade in sustainable energy-related serviceswill result in not only enhanced welfare and access to such services, but also dissemination ofknowledge and skills.

This paper has been written by Joachim Monkelbaan of ICTSD. The paper is produced as partof a joint initiative of ICTSDs Global Platform on Climate Change, Trade and Sustainable Energyand the Global Green Growth Institute (GGGI). The concept of the research has been informedby ICTSD policy dialogues, in particular, a series of Geneva-based meetings on trade in climate-friendly services; dialogues with European Union (EU) institutions and the Chinese Ministry ofCommerce (MOFCOM) in November 2012; and a round table with WTO Ambassadors in Genevain January 2013.


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these services. Addressing the issue of trade liberalization in complementary services of sustainableenergy technologies in tandem with government procurement issues is crucial in the development ofa SETA. The WTO Government Procurement Agreement (GPA) has just been renegotiated. The textnow covers services. The key question is the extent to which a GPA party includes particular serviceswithin the scope of its market access offer 3. Most GPA parties market access coverage includes onlyprocurement of services on a positive list; only the United States (US) uses a negative list approach

in this context. Most or all parties cover services in the GPA with respect to another party only to theextent that the other party has provided reciprocal access to that service.

Bilateral, regional, and unilateral liberalization of services has advanced in the wake of the lack ofprogress on members new commitments across the three CPC groups of services during the DohaRound. Most recently, the negotiations on a plurilateral Trade in International Services Agreement(TISA) has gathered support. This paper shows how Doha Round commitments, unilateral andbilateral liberalization, industry support, and the ideas for a TISA could feed into a SETA and leveragethe benefits of an enabling trade framework for sustainable energy development.

Energy plays a crucial role in realizing the wider promises embodied by a commitment to sustainable

development. These promises include the mitigation of climate change, the prevention of water andair pollution and related health benefits, global access to modern forms of energy, the transfer ofknowledge and technology, and increased employment opportunities due to the labour intensity ofrenewable forms of energy.

In order to realize such win-win outcomes for socioeconomic development and the environment andto spur job creation in the field of sustainable energy, both domestic and international supportiveframeworks must be conceived.

A SETA could provide for such a framework for the massive scale up of both goods and servicesrelated to sustainable energy, and focusing initially on services related to the construction and ICT

sectors could provide a good starting point for such an agreement.


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eventually a SETA. To lay a stable basis forsuch negotiations, the paper aims to identifythe coverage and classification of services thatare directly related and complementary to thediffusion of sustainable energy technologies,to analyse commitments made unilaterally and

through international negotiations (including inpreferential trade agreements (PTAs) so as toassess the degree of openness of the servicesmarket, and to propose ways to address thesefindings in SETIs and in a SETA. The widerimplications for sustainable development willbe considered as well.

To realise a successful diffusion of SEGS,understanding the synergies between tradein goods and services is crucial, as certain

sustainable energy goods are indispensable fordelivering associated services, and vice versa.For instance, an analysis of environmental goodsassociated with service contracts carried out

by the Organisation for Economic Co-operationand Development (OECD) demonstrates thatmany of these environmental goods are usedin the performance of environmental services(OECD, 2005) 7. In addition, an empiricalstudy shows that trade in sustainable energy

technologies is often impeded by restrictionson trade in associated services (Steenblik andKim, 2008). Furthermore, several empiricalstudies reveal that some of the key servicesrequired for sustainable energy options,ranging from energy efficiency projects toutility-scale wind power projects, are oftenunavailable in the host countries (Steenblikand Geloso Grosso, 2011; Sterk et al., 2007).Box 1, for example, describes the wide varietyof services required in the creation of wind and

solar power projects. Given the complexity anddegree of specialization, local enterprises donot always have the competencies to providethe full range of such services.


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Chapter 2

Because many different services could relate

to sustainable energy, this study narrowsthe scope of services that are subject to theanalysis of the major trading countries andtheir specific commitments, and to capture thelessons that can be learned for a SETA.

At the onset, , this study reviews negotiationsrelated to (sustainable energy) services andhow these negotiations have been challengedby classification issues. Second, the paperprovides an overview of sustainable energy

technologies and practices by exploring theenergy supply sector, which was a key sectorin the IPCC Fourth Assessment Report (AR4).This paper focuses on services that coulddirectly influence the diffusion of sustainableenergy technologies, known as complementaryservices of sustainable energy technologies.Given the inseparable links between sustainableenergy goods and services, it is important tohighlight those services that are directly linkedto sustainable energy technologies.

Third, based on the complementaryservices of sustainable energy technologiesdiscussed in the energy-supply sector, thestudy identifies corresponding servicescategories in terms of the United Nations

(UN) CPC (version 2) 8. The most important

sustainable energy services, in particular,the ones related to solar and wind powerprojects, were composed by ICTSD based onconsultations and sur veys with solar and windenergy companies and industry associations.

Fourth, in analysing the major tradingcountries specific commitments under GATSon the services concerned, this study furthernarrows the scope of services by focusing onservices groups that most frequently appear

across multiple economic sectors. Given thedata limitations on trade in these services, themajor trading countries of these services areidentified at the CPC group level. The majortrading countries specific commitments areanalysed at sectoral or sub-sectoral levelswithin each CPC group.

Finally, this study looks at the sustainabledevelopment aspects of trade in sustainableenergy services and how the lessons learnedcan be used for crafting a SETA. This paperbuilds on earlier work by ICTSD on EGS andon climate-friendly goods and services 9 andpresents a more specific focus on a more limitednumber of categories 10 of goods and servicesas displayed in the figure below:

Chapter 2Scope and outline of this paper


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Figure 1 : The relation between EGS, CGS, and SEGS

The different terms of EGS, climate-friendlygoods and services (CFGS), and SEGS willbe used throughout the paper (see figure 2above for a depiction of how these acronymsrelate to one another). While the termsenvironmental goods and services andclimate-friendly goods are used throughout

this paper, the topic of this paper is specificallyon sustainable energy services

One limitation of this paper is that it is basedmostly on the WTO GATS Schedules ofServices Commitments. These Schedulesdate from two decades ago; they were

finalized before the WTO even existed andhave not been touched since except fortelecom and financial services, and theymostly are different for newly acceded WTOmembers. This limits the representativenessof these data. In addition, environmentalservices were not a high priority in the 1990sand were not the focus of the Uruguay Roundof trade negotiations. In sum, analysing thesecommitments, although it is the only sourceavailable for comparing WTO members,has severe limitations. To obviate these, thecommitments in more recent RTAs will beexamined.

Sustainable EnergyGoods and Services(SEGS)

Climate-friendlyGoods and Services(CFGS)

EnvironmentalGoods and Services(EGS)


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Chapter 3

Chapter 3International negotiations on trade and the classification ofsustainable energy services

As trade in goods and services related to sus-tainable energy remains under discussion in theDoha Round for example, under EGS 11 it isimportant to first understand the dynamics ofthese negotiations. The negotiations on EGSare taking place simultaneously in two differ-ent WTO forums: negotiations on environmentalgoods at the Special Session of the Committeeon Trade and Environment (CTE SS) and nego-tiations on environmental services at the SpecialSession of the Committee on Trade in Services(CTS SS).

According to the chair of the CTE SS 12 , one op-tion to reconcile the two sets of negotiations isto draft textual elements cross-referencing thework in the CTS SS related to enhanced com-mitments on environmental services. Anotherpossibility would be to associate enhanced com-mitments on environmental services with the en-

vironmental goods or an agreed set of environ-mental goods 13 .

In any case, the progress of negotiations in bothforums has been slow, as each forum is facingdifferent challenges. The WTO set the request-offer approach for the negotiation of specificmarket access commitments in services. By2008, 70 initial offers and 30 revised offersacross all services sectors were submitted tothe WTO, but since then, few offers have been

received, and they are considered to be out ofdate by now.

According to Van der Marel and Miroudot, thereare several reasons for the lack of domesticexport interest and appetite for multilateral ser-vices liberalization in general:

1. Unilateral services reform before and afterthe Uruguay Round in most countries hadreduced the incentive to lobby for further

commitments. Service exporters perceivethe current climate as relatively open. Ser-vices barriers are still higher, though, for a

number of countries across sectors (trans-port services) and modes (temporary move-ment of labour), both for developing and de-veloped economies.

2. It is difficult to reform services on a discrimi-natory basis. The nature of a services bar-rier makes it harder to distinguish betweenpartner countries.

3. Increased mutual interdependence over thelast several decades has made business in-terests think that a reversal of the currentopenness is unlikely.

4. Services liberalization will be dealt with inthe Doha round only once agriculture andnon-agricultural modalities are resolved.This may motivate the business communityto wait and see what happens before start-ing an active lobby.

5. Developing countries commitments are notas extensive, since most of these countriesshare small markets. They are, therefore,not of great interest to high-income coun-tries, which lowers the incentive for devel-oping countries to negotiate greater marketaccess in GATS.

This underlines the need for innovative ap-proaches to free up the flow in sustainable

energy services. Such novel approaches areneeded all the more, because the negotiat-ing session on environmental goods has beenstruggling with identifying a list of goods thatare of interest to the majority of WTO members.Meanwhile, the negotiations on environmentalservices are facing the challenge of updatingthe current GATS classification, as it does notreflect the rapidly evolving structure of the envi-ronmental services industry.

The biggest challenge of the GATS itself isthat it provides for only positive list commit-ments based on the out-of-date nomenclature


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of W/120 14. The current classification (W/120) ofenvironmental services, for example, focuseslargely on infrastructural services despite thefact that non-infrastructural services such asair pollution control 15 or environmental consult-ing have been emerging as important activi-

ties in recent years, primarily owing to increas-ingly demanding environmental regulations(Cossy, 2011; Cottier and Baracol-Pinhao, 2009;Nartova, 2009) 16. As noted previously, duringthe Uruguay Round, there was an organizedconcept of either environmental services or en-ergy services. In the last 10 or 15 years, thewider energy services business community haslobbied WTO members to obtain commitmentson energy services as part of WTO accessionpackages, but those cover only a few marketsand are focused on fossil-fuel based energy.The fact that these commitments exist demon-strates that it is possible to get WTO-compatiblecommitments that are not tied to W/120.

Several proposals on an updated classifica-tion are under examination by WTO members.Some members have based their proposals onthe classification developed by the OECD/theStatistical Office of the European Community

(EuroStat), which includes three categories ofenvironmental services: pollution management,cleaner technologies, and resource manage-ment 17. The EU proposed seven sub-sectorsbased on the environmental media (air, water,soil, waste, noise, etc.) to supplement the basicclassification scheme in order to preserve themutually exclusive character of the W/120 list.

Despite several proposals on the developmentof a more comprehensive classification system

for environmental services, a dual use problem the overlap between certain environmentalservices and services classified within othersectors presents a serious challenge. Thefact that services related to sustainable energyare spread across multiple sectors classified inW/120 only heightens the issue of dual use.Several proposals have been put forward to ad-dress this issue. The EU, for instance, proposeda cluster approach, in which services used

for environmental as well as other purposes(dual-use services) would be classified sepa-rately and be subject to a checklist during theother sectoral negotiations. Canada supports

the EUs cluster approach, encouraging liber-alization in all modes of delivery. In particular,Canada differentiates between the present listof environmental services (core services) andother related services (non-core or dual-useservices) and stresses the importance of liber-

alizing both services at the sub-sectoral level.The proposals by the US and Switzerland arelargely in line with the classification of core ver-sus non-core services (Nartova, 2009).

Opinions, however, are divided as to whetheran appropriate classification is a pre-requisitefor scheduling meaningful commitments insupporting the development of sustainable en-ergy use and production. For instance, Cossy(2011) argues that the absence of an appro-

priate classification does not prevent Membersfrom negotiating on climate change-relatedservices. What is more important, she stress-es, is to ensure that each schedule is internallycoherent by avoiding overlap among sectorsand defining the scope of the commitmentsclearly and precisely 18 .

In a recent note 19 to WTO members, the WTOSecretariat suggests several ways in whichclean energy services can be classified. The

Secretariat starts by confirming that in bothW/120 and the CPC, there is no explicit refer-ence to services related to renewable energyor energy efficiency and that the classificationof energy-related services is neutral with re-spect to the energy source (sustainable energyservices cannot be distinguished from ser-vices related to fossil fuels). The only explicitreference made to renewable energy is foundin engineering services for power projects(CPC2 83324) 20 .

According to the note, members may want togive further consideration to the classificationof services associated with emergingtechnologies. Carbon capture and storage(CCS), for example, involves various services,such as the identification of a suitable geologicalformation or carbon dioxide (CO2) capture atthe point of emission, transport to the reservoir,and storage on a long-term basis 21. On the one

hand, it could be considered that CCS involvesseveral services classified in different sectorsand sub-sectors of W/120, in particular inbusiness and transport services. On the other


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Chapter 3

hand, some CCS-related services - or CCSaltogether might constitute new services, inwhich case they would at a minimum fall undera residual other category, because CPC andW/120 are deemed to be exhaustive (i.e. toinclude all services).

Smart grids is another emerging technologythat may deserve further consideration from aclassification point of view. The IEA defines asmart grid as an electricity network that usesdigital and other advanced technologies to moni-tor and manage the transport of electricity fromall generation sources to meet the varying elec-tricity demands of end-users 22 . Smart grids areexpected to make an important contribution tothe promotion of energy efficiency and to the pro-

motion of renewable-energy sources by allowingconsumers to make informed choices and to di-rectly control and manage their individual elec-tricity consumption. From a classification point ofview, smart grids services are likely to cut acrossseveral W/120 sectors, including telecommuni-cation and computer services, and perhaps alsoservices incidental to energy distribution.

The GATS offers significant flexibility for speci-fying the scope of commitments in members

schedules 23 . All WTO members are subject togeneral obligations under the GATS, includ-ing most-favoured nation (MFN) treatment andtransparency, which apply to all service sectors.The main GATS obligations, however, namelymarket access and national treatment, ap-

ply only in sectors where members undertakespecific commitments listed in their nationalschedules. Members can select the sectors andmodes of supply for which they are ready toundertake specific commitments, with varioustypes of limitations for the purpose of meetingnational policy objectives.

Members, therefore, are free to specify theircommitments on the related services across dif-ferent sectors in their schedules within the cur-

rent structure of classification once they agreeon the scope of services that support sustain-able energy. For instance, members, in theirschedules under engineering services, couldspecify engineering services for power projectsor industrial projects aimed at mitigating climatechange through energy efficiency improvement;building projects that aim at improving energyperformance; or transportation projects that arebased on modal shifts from road transport topublic transport only.


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Chapter 4Services relevant to the diffusion of sustainable energy supplytechnologies

Sustainable energy cuts across almost alleconomic sectors, ranging from energy andtransport to buildings and industry. As theprevious chapter has shown, a variety ofservices across multiple sectors classifiedin W/120 appear to be related to such sus-tainable energy activities. For instance, tele-communication services are relevant to sav-ing energy and improving energy efficiencyin sectors, such as utilities, transport, and

buildings, as smart information and commu-nication technologies (ICT) applications areemerging as useful cornerstones for smartbuildings, smart grids, smart transporta-tion, and smart industrial processes. Re-search and development (R&D) services onnatural sciences are related to a variety ofsustainable energy technologies across al-most all sectors, as technological innovationis an integral part of accelerating low-carbondevelopment.

In an effort to narrow the scope of servicesin this study, this section discusses key sus-tainable energy technologies, along with theassociated services that could be comple-mentary to the diffusion of such technolo-gies. For a further discussion of how a SETAcan contribute to the diffusion of sustainableenergy technologies, also see Brewer (2012),who emphasizes the link between technologydiffusion and trade in services.

Making the energy supply sector more sus-tainable depends on the application of awide range of available low- and zero-car-bon technologies, including the widespreaduse of hydropower, bioenergy, and other re-newables. Several different services can belinked to these sustainable energy options.For instance, pre-construction power plantservices include technical testing and analy-

sis services for a feasibility study as well asservices related to site selection.

Improving the efficiency of power plants throughtechnologies, such as combined heat and pow-er (CHP) would require both construction ser-vices for facilities and engineering services forpower projects that optimize the environmentalperformance of energy facilities 24 . Engineer-ing services for power projects would also beneeded not only to build facilities that generateelectrical power from various energy sources(e.g. nuclear energy, solar power, wind power,

and geothermal power), but also to build so-called capture-ready new power plants (Gibbinset al., 2006) 25 .

Most renewable energy power plants will likelyrequire monitoring services once they are con-structed, which will eventually reduce the op-eration and maintenance costs. The GeneralElectric Company (GE), for instance, providesremote wind-turbine monitoring services to in-crease the reliability and capacity of wind farms(Steenblik and Geloso Grosso, 2010).

In order to promote the use of renewables, gov-ernments could require producers or distribu-tion companies and retail suppliers to buy re-newable energy credits or certificates (RECs),which prove that a minimum share of the elec-tricity generated or supplied to the retail con-sumer comes from renewable energy sources(Delimatsis and Mavromat, 2009). RECs areconsidered intangible financial assets, whichcould be traded in order to comply with the mini-mum obligatory quota related to renewables 26 .

Trading in RECs, therefore, involves various in-termediary financial services, such as broker-age, banking, and insurance services.

Smart grids could improve energy efficiencyfrom both electricity generation and use by in-tegrating both electricity and thermal storagetechnologies and reducing transmission and

distribution losses (IEA, 2010). Successful ap-plication of smart grids, however, requires mod-


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Chapter 4

ifications in the design, operation, and deploy-ment of electricity networks a process that in-volves engineering services as well as servicesrelated to energy distribution.

The services involved in the technical testingand analysis of air are useful both for assessingthe carbon-offset resulting from improved ener-gy efficiency of power plants and for transport-ing CO2 for storage. In the latter case, this test-ing ensures that the possible rupture or leakingof pipelines will not lead to the accumulation ofa dangerous level of CO2 in the air.

The importance and diversity of service trans-actions in the solar and wind power industry aresuggested by the list of services below in Box 1,

which are associated with solar and wind pow-er projects. This list was developed by ICTSDbased on consultations and surveys with solarand wind energy companies and industry as-sociations. Negotiators may want to examinewhere these different services should be clas-sified in W/120.

Table 6 shows the trade commitments keycountries made under GATS on some of thesespecific services related to wind energy.

Providers of other services include both largeenergy and engineering companies that supplya wide range of vertically integrated productsand services, solar and wind farm developers,and a large number of small firms that special-ize in the provision of niche solar and wind en-ergy services such as small-scale solar pho-tovoltaic (PV) installations of up to 3 kilowatthours (kWh). Turbine manufacturers frequentlyparticipate in the wind power services marketby providing services related to the after saleoperation and maintenance of their turbinesor by developing wind power facilities at which

their turbines are installed. The German firmSiemens, for example, provides services, suchas training, repair, and monitoring services inconjunction with the sale of its turbines, whilethe Japanese firm Mitsubishi supplies services,such as design, construction, and installation toits customers.

Assessment of solar and wind resources (i.e. potential for producing electricity);

Site analysis;

Project development;

Real estate services;

Project financing;

Due diligences (technical, regulatory, financial, legal);

Project licensing and legal services;

Project engineering and design;

Environmental impact analysis;Construction of solar and wind power facilities;

Solar field quality and performance testing;

Retail sale of solar panels, mirrors and wind turbines;

Installation of equipment;

Maintenance of equipment;

Operation of solar and wind power facilities;

Transmission, distribution and sale of electricity generated by solar and wind power.

Box 1. Services involved in solar and wind power projects


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Table 1 below shows how the different servicecategories related to the energy supply sectorcan be classified in UN CPC version 2. The ser-vices categories that appear the most frequent-ly in the energy supply sector are other profes-

sional technical and business services [83] andconstruction services [54]. Telecommunica-tion, broadcasting, and information supply ser-vices [84] and Financial and related services[71] also appear in the energy-supply sector.

Table 1: Key sectoral mitigation technologies, and correspondingservices categories 27

Sector Key mitigationtechnologiesand practices

currentlycommercially

available*

CorrespondingDivision in the CPC

(ver.2)

Related services at UN CPC (ver.2)class and sub-class levels

Energysupply

Improved supplyand distribution

efficiency; fuelswitching fromcoal to gas;nuclear power;renewable heatand power;earty appliationsof carbon dioxidcapture andstorage (CCS)(e.g. storage ofremoved CO 2 from naturalgas)

Constructionservices [54]

- General construction services ofpower plants [54262]

- Site preparation services [543]- Installation services [546]

Financial and relatedservices [71]

- Financial services, expert investmentbanking, incurance services andpension services [711]- Services auxiliary to financial servicesother then to incurance and pencions[715]- Services auxiliary to incurance andpencions [716]- Services of holding financial assets

[717]Other professional,technical andbusiness services[83]

- Management consulting andmanagement services; informationtechnology services [831]- Engineering services for powerprojects [83324]- Surface surveying services [83421]- Composition and purity testing andanalysis services [83441]- Other technical testing and analysisservices; radiological inspection of

welds [83449]- Other professional, technical andbusiness services n.e.c. [839]]

Telecommunications,broadcasting andinformation supplyservices [84]

- Privat network servies [8414]- Data transmission servies [8415]- Internet ommunication servies [842]- On-line content [843]

Sewage and wastecollection, treatmentand disposal andoter environmental

protection services[94]

- Hazardous waste treatment anddisposal services [9432]


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Chapter 5

Chapter 5Focusing on construction services and professional services askey to the diffusion of sustainable energy technologies

This chapter focuses on two services categories(CPC group level) that most frequently cutacross multiple mitigation sectors: constructionservices and other professional services (alsosee Table 1 above). The major trading countriesin these sustainable energy services andtheir commitments on these services will beillustrated.

Because of the data limitations on trade inservices at the sub-sectoral level, this paper

uses data on major importers and exporters ofservices at the CPC group level and reviewstheir specific commitments on these services 28 .Some trade barriers to services at the grouplevel are also discussed in the following section.

5.1 Other Professional, Technical,and Business Services

Engineering services is key among thecategory of other professional, technical,and business services in effectivly electricitygeneration, transmission and distribution.Engineering services, which predominantlyentail advisory, design, consulting, andproject management functions, complement

construction services. Many firms provideintegrated packages of engineering andconstruction services together. As newchannels of electronic supply continue tocreate new business opportunities and theinternational sourcing of engineering servicesbecomes increasingly common, developingcountry exports of engineering services areon the rise (Cattaneo et al., 2010).

While developed countries have, historically,

dominated the markets in many sustainableenergy services, emerging markets areexpected to provide 14-20 percent of theindustrys estimated USD 1 trillion turnoverin 2020 (Booz Allen Hamilton, 2006). Whiletrade data on sustainable energy services atthe national level is hard to come by, someexisting data reveal that countries, such asBrazil, the Republic of Korea, the RussianFederation, and Singapore, are already largeexporters of other professional, technical,and business services. As an importer,Kazakhstan, in addition to the aforementionedemerging markets, appears to be a big playerin this area (Table 2).

Table 2: Major exporters and importers of architectural, engineer-ing, and other technical services (millions USD)

Exporters Value Importers ValueEuropean Union (27) 39.212 European Union (27) 25.169

Extra-European Union (27)exports

22.657 Extra-European Union (27)exports

10.331

India 7.360 India 2.746United States 5.020 Canada 2.560Canada 4.066 Brazil 1.708Brazil 3.033 Russian Federation* 1.616Norwey 2.144 Kazakhstan* 1.289Russian Federation* 1.571 Singapore 977Singapore 1.398 Norwey 579Australia 955 Korea, Rep. 531Korea, Rep. 253 Australia 370

Source: Cattaneo et al. (2010) derived from WTO (2007).


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14

Most of the services included in this sector areprovided in all four modes of supply (pleasesee Box 2 on the next page for an explana-tion of this term), although the predominant

modes of supply are through commercial pres-ence (Mode 3) and movement of natural per-sons (Mode 4) followed by cross-border trade(Mode 1).

A review of the sectoral commitments made bynine key exporters and importers in this area(see Table 3) during the Uruguay Round showsthat although all nine countries have scheduledcommitments in this sector 29 , only Australia hasmade full commitments across all sub-sectors.Seven of nine countries have excluded ser-vices incidental to energy distribution from theircommitments schedules 30 . Brazil, the EU, India,and Singapore have also excluded related sci-entific and technical consulting services from

their commitments schedules. Several coun-tries have also not made any commitment onintegrated engineering services and techni-cal testing and analysis services (Table 3).Table 4 shows GATS commitments more specif-ically linked to the wind energy sector. It shouldagain be noted that most of these schedulesare out of date and should be placed in the con-text of 1993. Where the commitments are madein the revised offers under the Doha Round ofservices negotiation, these would not be bound.

According to the GATS, service suppliers are either natural or legal persons. The modes ofsupply differ depending on the location of the service provider and the location of the serviceconsumer. The GATS defines the four modes of supply in the trade in services as follows:

Cross-border supply (Mode 1):

Non-resident service suppliers deliver services cross-border into a clients territory. For ex-ample, a Norwegian engineer sends a design sketch of a capture-ready power plant to a clientin Brazil via the Internet.

Consumption abroad (Mode 2):

A service is supplied under mode 2 when consumers from one country make use of a servicein another country. For example, nationals of country A have moved abroad to country B astourists, students or patients to consume the respective service.

Commercial presence (Mode 3):

Foreign suppliers of services establish, operate, or expand their commercial presence in a cli-ents territory, such as a branch, agency, or wholly owned subsidiary. For instance, a Frencharchitectural consulting firm opens an office in China to provide advisory services on building

a smart energy efficient exhibition centre.Movement of natural persons (Mode 4)

This involves the entry and temporary stay in a clients territory of foreign individuals to supplya service.

Box 2. Four Modes of services supply and examples of other

professional, technical and business services.

Source: Derived from Cattaneo, O. et al. (2010)


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Chapter 5

M a j o r

E x p

l o r t e r s

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l i a

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i c e s

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b a s e o n

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d b u s i n e s s s e r v

i c e s

g r o u p .


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Table 4: Snapshot of GATS commitments in services related towind energy

- full commitments

- partial commitments

- no commitments

Most measures regarding the supply of services through the presence of natural persons (mode 4) are addressed ina member countrys horizontal commitments. For the purposes of this table, a full commitment is any commitment thatgrants full market access or national treatment to foreign individuals or firms that provide renewable energy servicesthrough cross-border supply (mode 1), consumption aboard (mode 2), and comme rcial presence (mode 3).

Note: This table is intended as a snapshot of commitments in the listed categories and is in no way a comprehensiveassessment of GATS commitment. In many cases, commitments apply to only part of the sector and specific limitationsmay be in place. For full details regarding commitments, see the GATS schedules of individual countries.

Source: Compiled by the U.S. International Trade Commission from individual countries GATS Schedules of SpecificCommitments.

U n

i t e

d S t a t e s

E u r o p e a n

U n

i o n

C h i n a

I n d i a

C a n a

d a

J a p a n

A u s

t r a

l i a

T u r k e y

B r a z i

l

E g y p

t

Certain related scientific and technicalconsulting services

Services incidental to energydistribution

Certain professional services, includingengineering and integrated engineering

services

Distribution services, includingcommission agents, wholesale trade,and retail trade services that apply tofuels, related products, and brokerageof electricity

Maintenance and repair of equipment,except transport-related equipment

Management consulting and relatedservices

Construction and related engineering

services

Technical testing and analysis services


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Chapter 5

Table 5: Market access and national treatment limitations onMode 1: other professional, technical, and business services

Most of the major exporting and importingcountries have scheduled commitments in allfour modes, except for Brazil and India, whichhave both left Modes 1 and 2 largely unbound.Several EU member states have also left Mode1 largely unbound across all sub-sectors; that

number has recently increased, according tothe revised offer the EU submitted to the WTO(Table 5). The importance of cross-bordersupply in this area is growing, however, asinformation communications and technologysystems (ICT) (e.g. telecommunications and

the internet) are increasingly being used for thetransmission of architectural and engineeringspecifications, design plans for environmentalprojects, reports of specialist environmentalconsultants, environmental quality testingand analysis results, and computer modeling

simulations. Among the key developedcountries in this sector, Canada has madelimited commitments on Mode 1 in almostall sub-sectors by requiring a commercialpresence and residency for accreditation fromcertain service providers 32 .

Major

Explorters/importers

Sub-sectors Limitation

Market AccessCanada Architectural services [Citizenship requirement for accreditation

(architects)Engineering/ Integratedengineering services

Requirement of a commercial presence foraccreditation (Engineers): [Requirement of acommercial presence for accreditation (consultingengineers)] Requirement of permanent residency foraccreditation (engineers); ([Citizenship requirementfor accreditation (engineers)])

Other businessservices: c.Managementconsulting services

Permanent residency requirement for accreditation(Agrologists): [Citizenship requirement foraccreditation (Professional administrators andcertified management consultants or Professionalcorporation of administrators); Citizenshiprequirement for use of title (Industrial RelationsCounselors)]

Other businessservices: m. Relatedscientific andtechnical consultingservices

Requirement of permanent residency and citizenship(Free miner); Requirement for a commercialpresence, Permanent residency and citizenship foraccreditation (Canadian corporation or a partnershipof the foregoing Land surveyors); Citizenship

requirement for accreditation (Subsurface surveyingservices, Professional technologist, Chemists)EU Architectural services BE, [GR]CY, EL, IT, MT, PT, PL, SI: Unbound

Engineering services [GR]CY, EL, IT, MT, PT: UnboundIntegratedengineering services

CY, EL, IT, MT, PT, PL[GR]: Unbound

Other businessservices: e. Technicaltesting and analysisservices

IT: Unbound for the profession of biologist andchemical analyst. CY, CZ, MT, PL, SK, SE: Unbound

Other businessservices: j. Servicesincidental to energydistribution

All Member States except HU, LV, LT, SI; Unbound(HU, LV, LT, SI; Unbound)


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Source: Derived from the WTO Services Data base on Members Commitments Schedule and Initial Offers as wellas Revised Offers (TN/S/O and TN/S/O rev.1).EU member states: AT (Austria), BE (Belgium), CY (Cyprus), CZ (CzechRepublic), DE (Denmark), EE (Estonia), EL (Greece), ES (Spain), FI (Finland), FR (France), HU (Hungary), IE (Ireland),IT (Italy), LT (Latvia), LT (Lithuania), LU (Luxembourg), MT (Malta), NL (Netherlands), PL (Poland), PT (Portugal), SE(Sweden), SI (Slovenia), SK (Slovak R epublic), UK (United Kingdom).Note: Bold=Added in the revised offer submitted tothe WTO (As of April 2011).

[Bold]=Removed from the revised offer submitted to the WTO (As of April 2011).

MajorExplorters/importers


Korea Architectural services Requirement of a commercial presence;Acquirement of Korean architectural license by

passing an examination; Supply of services byforeign architects through joint contracts witharchitects licensed in Korea

National TreatmentCanada Architectural services Residency requirement for accreditation (Architects;

Landscape architects)Engineering services Engineers: Residency requirement for accreditation

(Engineers)Other businessservices: m. Relatedscientific andtechnical consultingservices

Differential tax measures (Federal and sub-national treatment for expenditures of servicesperformed in Canada related to the exploration anddevelopment of a mineral resource, petroleum ornatural gas (Mineral and Petroleum Explorationand Development); Residency requirement foraccreditation (Applied Science Technologist/Technical); Residency requirement for accreditation(Cadastral surveying); Residency requirementfor accreditation (Geoscientists, Land Surveyors;Requirement of training for accreditation (LandSurveyors))

EU Architectural services DE (Application of the national rules on fees andemoluments for all services which are performedfrom abroad); BE, [GR], CY, EL, IT, MT, PT, PL:Unbound

Engineering services AT, SI for planning services; [GR], CY, EL, IT, MT,PT: Unbound

Integratedengineering services

AT, SI for planning services; CY, EL, IT, MT, PT, PL[GR]: Unbound


IT: Unbound for the profession of biologist andchemical analyst. CY, CZ, MT, PL, SK, SE:Unbound

Other businessservices: j. Services

incidental to energydistribution

All Member States except HU, LV, LT, SI; Unbound


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Chapter 5

While majority of the countries surveyed madecommitments primarly than Mode 3, these wereoften subject to conditions to market access.For instance, six of nine countries scheduledtheir commitments on engineering serviceswith market access limitations largely on

Mode 3. The majority of market accesslimitations in architectural services were also onMode 3.Brazil and Canada restrict foreignarchitectural services suppliers from forminglegal entities by specifying that the suppliers mustjoin Brazilian service suppliers in a specific typeof legal entity and must take the form of a soleproprietorship or partnership. India allows marketaccess of foreign engineering services suppliersonly through incorporation with a foreign equityceiling of 51 percent. Korea requires an economic

needs test for the establishment of a commercialpresence. Specific limitations on Mode 3 thatrestrict market access are summarized in Table 6.

With regional to national treatment limitation,Canada has made a specific limitation, requir-ing non-resident firms to have both a higherpercentage of practitioners in a partnershipin architectural services and residency andtraining for accreditation of certain service

providers in related scientific and technicalconsulting services (e.g. Cadastral survey-ing, geoscientists, and land surveyors). SomeEU member states in particular, Estonia intheir revised offer have added their limitationson national treatment in most of the sub-sec-tors by requiring residency of at least one re-sponsible person 33 . The majority of EU mem-ber states still have left services incidental toenergy distribution unbound, while only a fewmember states have left technical testing and

analysis services unbound (Table 6).




Market AccessBrazil (E/I) Architectural services Foreign service suppliers must join Brazilian

service suppliers in a specific type of legal entity(consorcio); the Brazilian partner shall maintain theleadership. The contract establishing the consorciomust clearly define its objective

Engineering services Same conditions as a Architectural servicesCanada (E/I) Architectural services Commercial presence of architects must take the

form of a sole proprietorship or partnershipOther businessservices: m. Relatedscientific and

technical consultingservices

Permanent residency and citizenship requirementfor a commercial presence for accreditation ofsubsurface surveying Services, Professional

Technologist, Chemists

EU (E/I) Architectural services Restrictions on access of certain natural persons(ES: Access is restricted to natural persons. FR:Provision through SEL (anonym, responsabilit limit e ou en commandite par actions) or SCPonly. IT, PT: Access is restricted to natural persons.Professional associations. (no incorporation) amongnatural persons permitted. LV: Practice of 3 yearsin Latvia in the field of projecting and universitydegree required to receive the licence enabling toengage in business activity with full range of legal

responsibility and rights to sign a project


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EU (E/I) Engineering services ES: Access is restricted to natural persons. IT, PT:Access is restricted to natural persons. Professionalassociation (no incorporation) among naturalpersons permitted.


ES: Access is restricted to natural persons. IT, PT:Access is restricted to natural persons. Professionalassociation (no incorporation) among naturalpersons permitted.


ES: Access for chemical analysis through naturalpersons only. IT: Access for the profession ofbiologist and chemical analyst through naturalpersons only. Professional association (noincorporation) among natural persons is permitted.PT: Access for the profession of biologist andchemical analyst through natural persons only. CY,CZ, MT, PL, SK, SE: Unbound


All Member States except HU, LV, LT, SI; Unbound(HU, LV, LT, SI; None)


All Member States except ES, FR, IT, PT: None: ES:Access to profession of surveyors and geologiststhrough natural persons only. FR: Surveying: Accessthrough a SEL (anonyme, responsabilit limit e ouen commandite par actions), SCP, SA and SARL only.IT: For certain exploration services activities relatedto mining (minerals, oil, gas, etc.), exclusive rightsmay exist. IT: Access to profession of surveyors andgeologists through natural persons only. Professionalassociation (no incorporation) among natural personspermitted. PT: Access restricted to natural persons.

India (E/ I) Engineering services Only through incorporation with a foreign equityceiling of 51 per cent


Only through incorporation with a foreign equityceiling of 51 per cent

Korea, Rep.(E/ I)

Other businessservices: e.(Composition andpurity testing andanalysis services)

Requirement of economic needs test for theestablishment of a commercial presence Maincriteria: the number of and impact of existingdomestic suppliers, protection of public health,safety and environment*

Singapore(E/ I)

Engineering services Limited Corporations Only registered ProfessionalEngineers or allied professionals (registeredArchitects or Land Surveyors) shall be director ofthe corporations

United

States (E/ I)

Architectural services Two-thirds of the officers, partners, and/or directors

of an architectural firm in Michigan must be licencedin Michigan as architects, professional engineersand/or land surveyors


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Chapter 5

Source: Derived from the WTO Services Data base on Members Commitments Schedule and Initial Offers as well asRevised Offers (TN/S/O and TN/S/O rev.1).

Note: Bold=Addition from the revised initial offer submitted to the WTO (As of April 2011).

E/I=Major exporter as well as importer.




National TreatmentCanada Architectural services Non-resident firms are required to maintain a higher

percentage of practitioners in a partnershipOther businessservices: m. Relatedscientific andtechnical consultingservices

Residency and training requirement for accreditationof cadastral surveying, geoscientists, land surveyors

EU Architectural services EE: None except that at least one responsibleperson (project manager or consultant) must beresident of Estonia

Engineering services EE: None except that at least one responsibleperson (project manager or consultant) must beresident of Estonia


EE: None except that at least one responsibleperson (project manager or consultant) must beresident of Estonia


All Member States except CY, CZ, MT, PL, SK, SE:None (CY, CZ, MT, PL, SK, SE: Unbound)


All Member States except HU, LV, LT, SI: Unbound(HU, LV, LT, SI: None)


All Member States except EE, FR: None: EE: Noneexcept that at least one responsible person (projectmanager or consultant) must be resident of Estonia.FR: Exploration and prospection services subjectto authorization


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Most of the major trading countries have leftMode 4 unbound, and have indicated horizon-tally applicable limitations predominantly con-cerning restrictions on entry and temporarystay of various services providers, including in-tra-corporate transferees, contractual service

suppliers, business visitors, services salesper-sons, and independent professionals. Otherlimitations, although fewer than those previ-ously mentioned, include limited recognition ofdiplomas in third countries required to practiceregulated professional services; restrictions onforeign nationals or foreign companies acquisi-tion of land and real-estate; restrictions of for-eign service providers on public monopolies;and limited eligibility of foreign nationals forsubsidies, including tax benefits 34 .

A few countries have put specific limitations onMode 4. Canada, for instance, restricts marketaccess by requiring permanent residency andcitizenship for accreditation of certain types ofservices suppliers 35 . Several EU member stateshave also put specific limitations on market ac-cess concerning academic and professionalqualification requirements and membership re-quirements of the relevant professional body inthe home country for certain service providers 36 .

Canada has also placed limitations on nationaltreatment, requiring residency for accreditationof landscape architects and other relevant ser-vice providers related to scientific and technicalconsulting services. A few EU member stateshave limitations on national treatment as well,such as a residency requirement for certainservice providers in architectural and otherbusiness services. In the case of engineeringand integrated engineering services, almost allmember states require residency for certaintypes of service providers.

In the case of engineering services, trade bar-riers are not limited to the issues of market ac-cess and national treatment (Cattaneo et al.,2010). Trade opportunities for engineering firmshinge largely on a variety of laws, regulations,and administrative rules at home and abroadthat can have a substantial impact on firms fi-

nancial options and operation. For instance,national or sub-federal rules that limit engineer-ing firms legal entity or joint venture structure,e.g. arbitrary equity limitations, can create trade

barriers for engineering firms by reducing theirfinancing options. Their trade performance inthe global market also depends on the qual-ity of services, including professional, process,and product standards.

The engineering industry with a 3-4 percentprofit margin typically requires a high demandfor competitive financing typically through creditextension (Tulacz, 2008). Limited access to fi-nance in many developing countries, however,often puts engineering firms at a competitivedisadvantage. In addition, double taxation, ex-cessive capital controls, and limits on foreignequity put financial limitations on engineeringfirms. Limited credit extension based on theirphysical assets rather than a series of vari-

ables, such as forward contracts, intellectualproperty, and probable returns on investmentalso imposes financial limitations on engineer-ing firms. Tunisia, for instance, limits credit to 5percent of the engineering firms output, while10 percent of the output is allowed for credit inother sectors, such as tourism and manufactur-ing (World Bank, 2007b).

Rules concerning public procurement also af-fect trade in engineering services. For instance,

distorted administrative practices, such as a lackof publicly available information about project re-quirements and the bidding process, hamper theintegrity and transparency of the procurementprocess, thereby negatively affecting engineer-ing firms performance. The GPA prohibits theuse of measures discriminating against foreignproviders and addresses various aspects of pro-curement procedures, including criteria for thequalification of suppliers and technical specifica-tions of products and services; tendering proce-dures; and the provisions for transparency 37.

Rules governing the nationality and residencyrequirements for service providers, as well astheir qualification and recognition procedures,can also influence trade in services in this area.While professional qualification requirementsare fundamental drivers in the service indus-try, arduous qualification requirements and li-censing procedures can hamper the delivery

of services (Cattaneo et al., 2010). Excessivelyrestrictive visa fees or unpredictable and time-consuming work permit procedures can alsocreate trade barriers to services in this area.


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Chapter 5

5.2 Construction Services

Construction services are involved with im-plementing various mitigation options acrossmultiple sectors, including energy supply,transport, buildings, industry, and waste.The construction services sector is one ofthe major service sectors in most econo-mies in terms of employment and valueadded. In 2005, global spending on con-struction exceeded USD 4 trillion, repre-senting 9-10 percent of world gross domes-tic product (GDP) (Tulacz, 2005). The mostimportant driver for the development of ser-vices in this sector, particularly in the devel-oped world, is increased spending on infra-structure and non-residential development

(Butkeviciene, 2005).

Transportation (25.6 percent), building (23.8percent), and petroleum extraction (25.8percent) making up three-fourths of the globalconstruction market as of 2008 (ENR, 2008).The public sector is clearly the largest clientsegment for the construction sector. In many

developing countries, almost 50 percentof construction expenditures are throughgovernment procurement (Mburu, 2008) 38 .

While many developing countries largely remainimporters of construction services, severalemerging economies as well as economiesin transition are quickly becoming successfulexporters of these services. The EU, Japan,and the US appear to be major exporters in thissector, followed by countries such as China,

India, Malaysia and Egypt. (Table 7).

The construction sector is characterized by alimited number of large international companiesand a big number of local small- and medium-sized companies. In 2007, USD 310 billion ofthe USD 827 billion revenues generated by thetop 225 international contractors representedexports (ENR, 2008). Fifty-one of the 225companies were Chinese, and 23 were Turkish.Other countries, such as Brazil, China, Egypt,India, Israel, Kuwait, Lebanon, the formerYugoslav Republic of Macedonia, Mexico,Pakistan, the Russian Federation, Saudi Arabia,Serbia, Taiwan, and the United Arab Emirateshave at least one and in some cases, threecompanies on the top 225 list (Engman, 2010).

Table 8 summarizes the sectoral commitmentsmade by the major exporting and importingcountries of construction services during theUruguay Round 39 . A review of these sectoralcommitments reveals that, excluding two non-WTO members (Azerbaijan and Kazakhstan),all nine countries in Table 8 have scheduledcommitments in this sector 40 , but none of themhas made full commitments. India has excludedseveral sub-sectors from its commitments,and Egypt and Turkey have also made nocommitments in one of the sub-sectors.Countries that have made commitments in thissector have, however placed limitations acrossall sub-sectors.

Table 7: Major exporters and importers of construction services(million USD)

Exporters Value Importers Value

European Union (25) 26.142 European Union (25) 18.743Extra-European Union (25) exports 14.171 Extra-European Union (25) exports 7.957

Japan 7.224 Japan 4.765United States 4.139 Russian Federation* 4.034

China 2.593 Kazakhstan* 1.941Russian Federation* 2.209 China 1.619Turkey 882 Azerbaijan* 1.499India (estimated) 828 Angola 1.323Malaysia 811 Malaysia 1.087Singapore 566 United States 1.039Egypt, Arab Rep. 503 India (estimated) 774

Source: Engman (2010) derived from WTO (2008).


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Major Explorters/importers

Generalconstruction

work forbuildings

Generalconstruction

work forengineering

Installationand

assemblywork

Oter: siteinvestigation

work

China (E/I) o o o oEU ** (E/I) o o o oEgypt, Arab Rep. (E) x o o oIndia (E/I) x o x xJapan (E/I) o o o o

Malaysia (E/I) o o o oSingapore (E) o o o oTurkey (E) o o o xUnited States (E/I) o o o o

Table 8: Sectoral commitments on construction services


Note: X=No commitment, O=Limited commitment

E/I=Major exporter as well as importer

* Among the new EU member states, Cyprus, Hungary, and Malta have not submitted their commitments schedules onthe construction services sector. Finland has made a partial commitment on this sector.

Construction projects require local production,because they are highly intensive in both labourand materials. Such local characteristics of theconstruction business imply that commercialpresence (Mode 3) is the preferred mode ofsupply, which is complemented by temporarymovement of natural persons (Mode 4).

In general, restrictions on commercial presenceare the most common barriers to trade inthe construction service sector (Table 9).Limitations on market access take the form oflimitations on foreign investment (e.g. ownershiprules); the type of legal entity for a foreigncompany (e.g. mandatory local incorporation);

the number of suppliers; and the value oftransactions or assets. While Egypt, India, andMalaysia restrict the formation of legal entityand foreign capital equity, China restricts thetypes of construction projects that foreign-owned enterprises can carry out. The EUexcludes rights for construction, maintenance,and management of highways and airports incertain member states. Restrictions on nationaltreatment in Mode 3 include registration andauthorization requirements; performance and

technology transfer requirements; licensing,standards, and qualification; and nationalityand residency requirements (WTO, 1998).

China has also made a specific limitation innational treatment, lowering registered capitalrequirements for joint venture constructionenterprises.

Limitations on the temporary movement ofnatural persons, which are often included inlabour market regulations, can impede tradein construction services, given constructionsintensive use of labour. These restrictions takedifferent forms, ranging from bans and quotasto economic needs tests and residencyrequirements. Such restrictions can result in,increasied operating costs, project delays andunpredictability of project execution project

execution unpredictable. The significance ofMode 4 in the construction sector, however,depends largely on the entry strategy used, asthe entry strategy of construction firms variesdepending on the duration of projects (GelossoGrosso et al., 2008). The pattern that has beenevolving over the past two decades. seems tobe one of market establishments aimed at amore permanent presence. Empirical evidenceshows, however, that contractors facing highentry restrictions in the host market tend to

resort to short-term rather than permanent entry(Chen, 2008). The major importing and exportingcountries in this sector have also chosen to keep


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Major exporters/Importers

Limitation

Market AccessChina Restrictions on the types of construction projects by foreign-owned

enterprises (1. Construction projects wholly financed by foreigninvestment and/ or grants. 2. Construction projects financed by loansof international financial institutions and awarded through internationaltendering according to the terms of loans. 3. Chinese-foreign jointlyconstructed projects with foreign investment equal to or morethan 50 per cent; and Chinese-foreign jointly constructed projectswith investment less than 50 per cent but technically difficult to beimplemented by Chinese construction enterprises alone. 4. Chineseinvested construction projects which are difficult to be implementedby Chinese construction enterprises alone can be jointly undertaken

by Chinese and foreign construction enterprises with the approval ofprovincial government)EU Exclusive rights granted for construction, maintenance and management

of highways and the airpor t in a few member states; Nationality conditionfor managers of the board of directors of construction companiessupplying in the public sector.

Egypt, Arab Rep. Restrictions on the formation of legal entity (only through joint venture);Restrictions of foreign capital equity (ceiling of 49 per cent of the totalcapital requirement for the project)

India Restrictions on the formation of legal entity (Only through incorporation);Restrictions on foreign equity (ceiling of 51 per cent)

Table 9: Market access and national treatment limitations onMode 3: construction services

Mode 4 unbound and rely on their horizontalcommitments to provide access 41.

Differential treatment of subsidies, alongwith other incentive schemes that are oftenprovided for export promotions, can also havea discriminatory effect on trade in constructionservices. Restrictions on the movement ofcapital equipment and building materials cannegatively affect trade in construction services,as they may give rise to unnecessary costs

for imports of construction machinery (GelosoGrosso et al., 2008).

A review of specific commitments and limitationsby the major exporting and importing countriesin this area reveals that, with the exception ofSingapore and Turkey, all countries have leftMode 1 unbound. While Singapore has madefull commitments in Mode 1, Turkey has placedextensive limitations on Mode 1 in both marketaccess and national treatment 42 .


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* Restrictions on the formation of legal entity existed until 20 04, which needs to be verified (e.g. Only in the form of jointventures, with foreign majority ownership). Within three years after C hinas accession to the WTO, wholly foreign-ownedenterprises will be permitted should be had been permitted).

** This obligation doesnt apply once within three years after Chinas accession to the WTO.

In terms of national treatment limitations, foreignnationals frequently have limited eligibility

for subsidies, including tax benefits; limitedrecognition of services providers qualificationsfrom third countries; and restrictions on foreignnationals acquisition of land and real estate.Restrictions on land and real estate useor ownership, along with other restrictions,can have a big impact on the provision ofconstruction services, as these restrictionsprevent property developers from acquiring realestate under construction until the completionof the project (Geloso Grosso, 2008).

Many types of domestic regulatory measurescan affect trade in construction services if thesemeasures are discriminatory or unnecessarilyburdensome. For instance, building regulationsand associated technical requirements, as well

as regular inspection requirements for safety,are related to the provision of construction

services. Rules on the temporary admissionof construction equipment can also hinder themarket entry of foreign companies (GelosoGrosso et al., 2008).

Regulations concerning the administrationof construction permits can also affecttrade in construction services. According toEngman (2010), administrative performanceof construction permits tends to vary acrosscountries in terms of the constructions duration,

procedure, and cost (Box 3). Opaque, expensive,and overly bureaucratic administrativeprocesses of construction permits increasetransaction costs and business risks, resultingin lower investment in new infrastructure andbuildings.

Major exporters/Importers

Limitation

Malaysia Restrictions on the formation of legal entity (only through a representativeoffice, regional office, or locally incorporated joint- venture corporationwith Malaysian individuals or Malaysian-controlled corporations orboth): Restrictions on foreign shareholding in the joint-venture (ceilingof 30 per cent)

Turkey Approval requirement of establishing ordinary par tnership under CivilCode (which is not legal entity) excluding the ordinary partnershipformed for international tenders in Turkey by non-residents by theMinistry to which the Undersecretatiat of Treasury [and Foreign Trade(UTFT)] is attached.

National Treatment

China Differential treatment of registered capital requirements for joint venture

construction enterprises: Joint venture construction enterprises havethe obligation to undertake foreign-invested construction projects**

Table 9: Market access and national treatment limitations onMode 3: construction services


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Government procurement practices are alsocrucial to trade in construction services, giventhat the sectors largest client segment is thepublic sector. In Germany and the UK, forinstance, government procurement accountsfor about 35 percent of the share of constructionactivity; it accounts for almost 50 percent in theUS (Kim, 2011).

Preferential treatment for local companies orminimum requirements for financial support thatare favourable to local companies often hindermarket entry for foreign providers, creatingtrade barriers. Excessively strict standardsapplied to government procurement also tend

to exclude many of the small- and medium-sized enterprises from developing countries(Tulacz, G.J., 2000). Some foreign companieshave experienced difficulty in entering the USmarket, as they are required to register andbe licensed in each individual state, often withstrict liability implications on equipment failure(Teljeur and Stern, 2002).

5.3 Commitments on SustainableEnergy Services in PreferentialTrade Agreements

The fact that services liberalization at themultilateral level has been slow does notmean that there has bee

trade in sustainble energy services

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