The international community is striving to establish norms concerning the environmental market. It endeavors to secure a free and fair trade order, and contribute to achieving carbon neutrality and sustainability. In this study, we first examine related discussions, then review the current status and market openness of environmental goods and services. Analyzing the effect of market liberalization on the Korean economy, we conclude with policy implications which could contribute to the Korean government’s policy making in the subject.

Chapter 2 examines each country and international organizations’ definition on the environmental industry, goods and services, then it introduces the formation of related trade norms. Environmental goods are generally defined as products contributing to environmental protection and sustainability, and based on the degree of eco-friendliness throughout the product’s life-cycle. However, what constitutes environmental goods is a controversial issue among countries which depends on political and economic interests. As for environmental services, the UN, the OECD, and the EU define them as both including environmental protection and resource management, whereas the WTO focuses on pollution management.

Multilateral organizations such as the WTO, the OECD, the APEC and the UNCTAD have made great efforts to establish the scope of environmental good and services and related trade norms, but these ultimately came to a standstill. Current discussions at the Trade and Environmental Sustainability Structured Discussions (TESSD) involving the liberalization of environmental goods and services, as well as bilateral and regional talks such as the Indo-Pacific Economic Framework (IPEF), are focusing on efforts to form related norms, toward which promising results are being seen.

Chapter 3 examines the status of market openness and trade up to the latest (year 2021) using a broad list that encompasses the discussion of environmental goods and services in the international community. First, environmental goods are already subject to relatively low tariff rates. Second, countries which took part in the environmental goods negotiation had lower tariff rates compared to those which were not. Third, Korea’s effectively applied tariff rates on environmental goods are lower than 5%. While most environmental products Korea imports from the EU, USA and India are duty free, 40% of Chinese goods are subject to tariffs. Fourth, Korea’s top trade partner in environmental goods is China. For environmental services, the concession analysis suggested that Korea’s WTO concession level is low and concessions in subsequently signed FTAs only showed partial improvements.

Chapter 4 considers the liberalization of the environmental industry. Based on the empirical analysis regarding the effect of environmental norms developed to date, we suggest that environmental measures have a negative effect on trade (in this case, imports). Followed by this, our simulations predicted that opening the environmental goods and services’ market would yield positive results. However, this effect was greatly affected by the composition of the participating countries, and particularly the participation of China, which accounts for a large proportion of the global environmental goods and services market.

Accordingly, we expect Korea to benefit from the formation of norms and the lowering of trade costs following the liberalization of environmental goods and services’ market. Based on such reasoning, chapter 5 gives some guidance about future multilateral, regional, bilateral discussions, and domestic actions related to the liberalization of environmental goods and services.