------------------------------------------------
RRojas Databank Journal/ January 1997
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TRADE AND SUSTAINABLE DEVELOPMENT
by Robert Repetto
From an economic perspective, both trade liberalization and environmental
protection are inherently important. Trade liberalization allows countries to
specialize in producing goods and services in which they have the comparative
advantage, allowing consumers to purchase goods and services from countries
that produce them most efficiently. Environmental protection ensures the full
incremental costs of production and consumption are reflected in the
decisions that producers and consumers face. The goal is to combine both
trade liberalization and environmental protection to promote sustainable
economic development.
THE AUTHOR
This paper was prepared for the United Nations Environment Programme by
Robert Repetto, President and Senior Economist at the World Resources
Institute and Director of the Institute's Program in Economics and
Population. This paper does not represent the views of the United Nations
Environment Programme. Any errors are the author's.
For more information please contact:
World Resources Institute
1709 New York Ave., NW
Washington, DC, 20006
Phone: (202) 638-6300
Fax: (202) 638-0036
FOREWORD
The 1992 "Earth Summit" found common ground upon which human development can
be put on an environmentally sustainable footing. In 1993, completion of
negotiations for the Uruguay Round set the course for a further
liberalisation of international trade. One of the most pressing and complex
challenges facing our generation is the search for a workable synthesis of
the two, of economic relations and environmental realities. We must embark
upon this course, not because it is easy, but because it is necessary. Our
planet's ecological vital-signs continue to warn us of an accelerating rate
of degradation -- depletion of the ozone layer that shields us from harmful
solar radiation, erosion of productive soils needed to grow food,
contamination of freshwater with hazardous wastes, depletion of fish stocks,
the massive loss of biodiversity, the threat of climate change and global
warming. An important challenge identified at the Earth Summit is ensuring
that trade and environment are "mutually supportive." It is hoped that this
series, providing analysis on selected environmental issues of relevance to
the environment - trade debate, will contribute to the search for solutions
now underway.
Elizabeth Dowdeswell
Executive Director
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CONTENTS
1. Introduction
2. The Effects of Trade Policy on the Environment
- Trade Liberalization,
- Trade Restriction,
- Sugar Protectionism: A Case Study,
3. The Effects of Environmental Policies on Trade
- The "Competitiveness" Issue,
- Process Standards, the Polluter Pays Principle, and the Terms of
Trade,
- Product Standards and "Green Protectionism",
4. Sustainable Development Principles for Trade and Environmental Policy
- Reorient Agricultural Policy and Reduce Agricultural Protectionism
in OECD Countries,
- Reduce Barriers in OECD Countries to Exports of Labor-Intensive
Manufactures from Developing Countries,
- Use Trade and Investment Incentives to Induct Cooperation in
International Environmental Protection,
- Developing Countries Should Enforce Reasonable Environmental
Standards and the Polluter Pays Principle,
- Governments Should Eliminate Natural Resources Subsidies,
- Harmonize Procedural Standards Governing Testing and Risk
Assessment,
5. Endnotes
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1. INTRODUCTION
There's no doubt that international trade liberalization has been crucial to
economic success. This is most obvious in the Asian region. The so-called
Asian "tigers", which have sustained high rates of economic growth for
decades, have provided the model for outward-looking development strategies.
More recent converts to open trade regimes in Southeast and South Asia refute
the often-repeated contention that the experience of the "tigers" is not
replicable, or could not be generalized to all the developing world. Table 1
shows Indonesia, Thailand, and Malaysia have also achieved remarkable growth
rates in exports, manufacturing output, and aggregate income.1 Perhaps even
more striking are the high growth rates achieved in China, by far the largest
East Asian developing countries. Trade liberalization has been only a part of
China's economic reforms, but liberalization, in addition to its direct
benefits, has provided essential support for price rationalization, private
sector development, openness to foreign capital and technology, and other
policy reforms. The question is whether trade liberalization also supports
the goal of environmentally sound and sustainable economic development.
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Table 1
Growth in East and Southeast Asia
AVERAGE ANNUAL GROWTH RATE (percent)
Exports GDP GNP/cap.
1970-80 1980-91 1970-80 1980-91 1960-80 1980-91
Hong Kong 9.7 4.4 9.2 6.9 6.8 5.6
Singapore 4.2 8.9 8.3 6.6 7.5 5.3
S. Korea 23.5 12.2 9.6 9.6 7.0 8.7
Indonesia 7.2 4.5 7.2 5.6 4.0 3.9
Thailand 10.3 14.4 7.1 7.9 4.7 5.9
Malaysia 1.8 10.9 7.9 5.7 4.3 2.9
China 8.7 11.5 5.2 9.4 N/A 7.8
.
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2. THE EFFECTS OF TRADE POLICY ON THE ENVIRONMENT
"Even partial economic accounting for
resource degradation and depletion in
developing countries suggests that
the costs are large - of the order of
4-5 percent of GDP per year"
TRADE LIBERALIZATION
It is indisputable that outward-looking trade policies have had significant
environmental effects. Trade expansion has led to rapid growth in export-
oriented industries. The composition of exports has varied across countries
and over time, depending on the resource endowment and stage of
industrialization. At the early stages of export expansion, internationally
competitive industries have been mostly labor-intensive processing and
assembly operations, or downstream processing of local raw materials.
Extractive and processing industries generate large quantities of wastes.
At later stages of industrialization, exports have included a larger
proportion of machinery, industrial materials, and products with higher
technological content. Many such industries produce large quantities of
hazardous wastes.
Export-led growth has also engendered rapid expansion of industries
providing intermediate industrial materials and equipment, and of
industries _ energy industries, in particular _ serving the domestic
market. Energy industries have many serious environmental impacts.
Industrial employment opportunities have drawn migrants to the cities,
contributing to rapid urbanization. Rising incomes have brought
construction booms and a virtual explosion in motor vehicle traffic. All
these growth-related phenomena have in the aggregate generated new and
increased environmental pressures.1
In Thailand, for example, rapid industrial growth has raised hazardous
waste generation to 1.9 million tons per year in 1990, and industry's share
has doubled to 58 percent in a decade. A four-fold increase in the volume
of hazardous waste is expected by 2001. Conventional biodegradable
industrial wastes are also rising rapidly, severely polluting rivers and
estuaries. Until recently, the government of Thailand did not insist that
new investments include adequate emissions controls.
Energy consumption is growing at 8 percent per year, faster than GDP,
and Thailand is shifting toward domestic lignite, a very dirty fuel, for
electricity generation, with unfortunate implications for air quality.
Bangkok already exceeds WHO health standards for several air pollutants.
Lead, mainly from vehicle emissions, is found in blood samples at levels
three times higher than in the U.S. and Europe, increasing risks of strokes
in adults and mental retardation in children.2
Rapid industrialization in China, much of it associated with increased
openness to international trade, has generated similar problems. Industrial
wastewater discharges more than doubled in the latter half of the 1980s,
far outstripping treatment capacities and heavily polluting surface and
groundwaters. Consequently, most of the urban Chinese population depends on
unsafe drinking water, with severe health consequences. For example, a
massive epidemic of hepatitis A in Shanghai afflicted 300,000 people.
Rapidly increasing energy generation from coal, three-quarters of
which is for industrial or electric power use, has led to some of the
world's highest concentrations of fine particulates and sulphur oxides,
some of the most acidic rainfall in the world, and chronic obstructive
pulmonary disease five times more prevalent in urban populations than in
the United States. Problems of untreated and improperly discharged toxic
and hazardous wastes are also of great concern to drinking water supplies
and fisheries.3
In Indonesia, industrial output has increase 8-fold since 1970 and is
expected to grow another 13-fold by 2020. Three-quarters of all industry is
located on the small island of Java, 60 percent in urban areas. Industrial
and household effluent loadings have grossly polluted most urban surface
and groundwater supplies. Consequently, even after treatment, most drinking
water supplies are contaminated. Rapid growth of energy use, especially by
vehicles, has degraded urban air quality beyond health limits: in Jakarta,
for example, 28 percent of women and children suffer from respiratory
disease. Projections of future industrialization suggest that total
emissions of conventional air and water pollutants will increase six-fold
over the next twenty years.4
These growing environmental problems by no means imply that trade
liberalization and its associated outward-looking development strategy have
been a mistake or are inconsistent with sustainable development. Outward-
looking strategies, especially in the Asian region, have dramatically
reduced poverty and raised living standards for a large fraction of the
world's population. They have provided the financial resources,
technological capabilities, and institutions with which environmental
problems can be managed. By raising living standards and strengthening
communications, they have also created social and political conditions in
which people demand environmental improvements.
The challenge is to ensure that newly created resources and
capabilities are used to contain and diminish environmental pressures.
Countries that are industrializing rapidly with access to international
technologies are in a decidedly advantageous position, in that a large part
of their capital stock is relatively new. New plants can readily
incorporate up-to-date process technologies that use materials and energy
more efficiently, minimize emissions, improve product quality and reduce
costs. The costs of building environmental controls into new plants are
much less than the costs of retrofitting pollution abatement equipment onto
old plants. Companies are more willing and able to meet strict emissions
standards when building new facilities. For example, most first-rank
multinational companies' policies are to build overseas facilities to their
own environmental standards or the host government's, whichever is higher.
Countries that apply demanding environmental standards to new investments
can rapidly improve the environmental performance of an industry.*
(* Competitive pressures on environmental standards are discussed below.)
Rapidly industrializing countries can control environmental
degradation if they apply effective environmental regulations, provided
they are consistent, reasonable, and enforced effectively and even-
handedly. Most firms can reduce emissions substantially at modest cost.
Even in OECD countries, where regulations are strict, pollution control
costs rarely exceed two percent of the value of sales. Problems are
encountered in industrializing countries because standards are vague;
monitoring is inadequate; and enforcement is lax, discriminatory, or
sometimes non-existent.
Land use regulations can also go far to minimize environmental
degradation, but are weak in many developing countries. With effective land
use controls, ecologically vulnerable and vital areas can be protected,
environmentally damaging activities can be restricted to locations where
they do the least harm or where their effects can be mitigated more easily,
and residential development can be kept apart from potential exposure to
environmental hazards. However, even where elaborate urban and regional
development plans and land use guidelines have been drawn up at substantial
expense, implementation is often inadequate. Industrial locations -
especially of small and medium enterprises - are typically haphazard;
zoning regulations are weakly enforced; and supposedly protected areas
often are not.
In many rapidly industrializing regions, infrastructure development is
unbalanced. For example, many such regions have no safe and approved
facilities for the collection, treatment, storage and disposal of hazardous
wastes. In such regions, although the chemicals, metal fabricating, fabric
finishing, and other industries that generate significant volumes of
hazardous wastes are growing rapidly, there are no environmentally sound
facilities to receive those wastes. Consequently, they are stored or
disposed of improperly on land or into water bodies. The resulting
poisoning of aquifers and sediments is difficult or impossible to remedy,
and may produce long-lasting damages to human health or ecological systems.
Similarly, development of urban infrastructure to serve the rapidly
growing urban population in such regions lags behind. Water and sanitation
facilities remain inadequate for much of the expanding population. Urban
transportation infrastructure is overwhelmed, leading to growing costs of
congestion and air pollution.
In effect, countries suffer from underinvestment in institutional
capacity and infrastructure for environmental management. The problem is
one of underinvestment, in that the averted damages and costs would
generously repay the needed expenditures. It is often implicitly overlooked
that the costs of environmental degradation, in terms of increased sickness
or reduced productivity, are real costs to the economy, although they may
not be adequately captured by market valuations.
Trade economists are fond of pointing out that trade restrictions are
not the first-best measure with which to address environmental market
failures.5 The best approach is to tackle the market failure at its source,
through appropriate environmental regulations, policies, or infrastructure
investments. While this proposition is undoubtedly true in theory, few
countries that have experienced a rapid growth spurt fueled by trade
liberalization have adequately invested in environmental management or
established effective regulations.
It is also true that the second-best policy, in the absence of
effective domestic environmental policy, is not necessarily to go ahead
with trade liberalization anyway.6 The increased environmental damage
generated by expanded exports might outweigh the increased gains from
trade. This is not merely a hypothetical theoretical curiosity. Even
partial economic accounting for resource degradation and depletion in
developing countries suggests that the costs are large _ of the order of
4-5 percent of GDP per year.7 Country case studies of previous trade
liberalization programs suggest that the expansion of export sectors,
absent effective domestic policies, can exacerbate these damages
significantly.8
The implications for development institutions, such as the Asian
Development Bank, seem clear. In order to ensure that rapid export-led
growth in the region is environmentally sound and the potential economic
gains from trade expansion are realized, increased investments are required
to strengthen institutional capacity and to provide necessary
infrastructure. These investments should be made in anticipation of export-
led growth, because the costs of preventing environmental degradation are
much less than the costs of remediation, or environmental degradation's
economic damages. Unfortunately, decades of underinvestment in
environmental protection and significant unmet needs for infrastructure and
institutional strengthening let damages accumulate.
TRADE RESTRICTION
The argument that environmental protection has been neglected should not be
interpreted as an attack on the outward-looking development model.9
Continued inward-looking, trade-restricting development policies might have
produced equally serious environmental problems along with significantly
lower living standards. Certainly, China in the years prior to economic
reform experienced severe environmental degradation.10 Inefficient state-
owned heavy industries generated enormous pollution. Misguided centrally-
planned management of agriculture, forests, and other sectors led to severe
resource degradation.
Similarly, India, which has only begun to dismantle its inward-looking
development regime, has experienced slow growth in incomes and substantial
environmental degradation. Much of this degradation stems from the
persistence of widespread rural and urban poverty. In the industrial
sphere, obsolete technologies, overemphasis on highly polluting heavy
industries, financial constraints, and lack of effective environmental
controls, have combined to produce pollution problems.11 By comparison to
the Indian experience, outward-looking development has more rapidly
increased the resources, technological and institutional capabilities with
which environmental problems can be addressed.
Trade restrictions in the OECD countries also have adverse
environmental and economic consequences, for their own societies as well as
for their Third World trading partners. Tariff escalation by the stage of
processing inhibits the development of finishing industries that add value
to raw materials produced in the South. The Multi-Fibre Agreement and other
trade barriers impose serious quantitative restrictions on exports of labor
intensive manufactures from developing countries. Such barriers affect not
only textiles and apparel, but also footwear and other relatively labor-
intensive products. By impeding the access of low-cost producers with
comparative advantage in these manufactures to industrial country markets,
these restrictions substantially lower incomes in developing countries and
raise consumer prices in industrial countries. In the 1980s, American
consumers paid about $18 billion per year in excess costs just for clothing
and textiles, for example.12 Protection reduces potential employment in
developing countries but has done little to save jobs in industrialized
countries, where producers have rapidly automated production to raise
productivity.13
At the same time, these trade barriers exacerbate environmental
pressures in developing countries by forcing them to intensify exports of
natural-resource based commodities. Most newly industrializing countries
have a comparative advantage in the production and export of labor-
intensive or resource-intensive commodities, but can't compete in high-
technology or capital-intensive industries. In the late 1980s about half of
all developing country exports still comprised fuels, minerals, and other
primary commodities. By impeding exports of labor-intensive manufactures
and downstream processing industries, especially when pressures on
developing countries to meet high debt-servicing requirements are intense,
these trade barriers virtually force developing countries to raise exports
of natural-resource based commodities. Eliminating these trade barriers
would have significant economic and environmental benefits. Output would
expand in labor-intensive processing industries, enabling developing
countries to add more value to their exported primary materials. Growth of
alternative sources of foreign exchange earnings would mitigate the
overexploitation of natural resources for export.
Trade restrictions imposed by OECD countries also damage their own
environments, while reducing incomes domestically and abroad. Agricultural
protectionism in Europe, the United States, and Japan leads to much more
intensive farming in these regions than is environmentally or economically
justified. By inflating prices and per acre revenues, while (in some cases)
limiting the acreage that can be planted, agricultural policies induce
farmers to use more inputs on each acre planted than they otherwise would.
Driven by these incentives, farmers adopt chemical-intensive monocultures
that lead to more soil erosion, chemical runoff, loss of biological
diversity, and conversion of once-natural ecosystems to cropland than would
otherwise take place.14
These domestic agricultural policies are supported by barriers to
imports and subsidies to exports _ trade distorting measures that impose
heavy costs on domestic consumers and taxpayers, as well as on third-
country producers. Within the OECD countries, agricultural protectionism
costs consumers and taxpayers around $150 billion annually, more than
double what farmers in these countries gain.15 Current policies grossly
distort world agricultural trade patterns, sacrificing static gains from
trade of roughly $70 billion annually in the OECD countries alone.16 In
addition, lower world prices depress returns to developing country and
other exporting country producers, inhibit badly needed investments in
agriculture in those countries, and result in the spread of low-yielding
farming and ranching into ecologically vulnerable tropical forests.
SUGAR PROTECTIONISM: A CASE STUDY
U.S. protectionism against sugar imports is an egregious example. Domestic
price supports linked to a tariff-quota system keep U.S. sugar prices two
to three times world levels and have reduced imports, predominantly from
developing countries, by three-quarters since the 1970s. The sugar
industries in Caribbean Basin and other low-income countries have been
crippled, with a loss of 400,000 jobs in Caribbean countries alone.17
These levels of protection are equivalent to a subsidy to U.S
producers of 60-79 percent, and a tax on U.S. consumers of 43-59 percent.18
The industry in the U.S. is highly concentrated. Thus, the largest 1
percent of producers obtain 58 percent of all producer benefits, - more
than a million dollars per producer per year - and the largest 10 percent
obtain more than 80 percent.19 Large producers also benefit from subsidized
irrigation and flood control works. The welfare cost to U.S. consumers has
been estimated in various studies to fall between 1 and 4 billion dollars
per year. The overall economic loss, net of benefits to U.S. producers,
probably lies between 100 million and 1 billion dollars per year. The sugar
protection program is a highly inefficient means of transferring income to
large U.S. growers and processors from sugar producers in low-income
countries and average U.S. consumers.
The environmental consequences are most dramatic in South Florida,
where water and chemical uses by Florida sugarcane growers have imperilled
the unique Everglades ecosystem. Two large companies are responsible for
the entire crop in the Everglades Agricultural Area. The Everglades is a
freshwater wetland of marshes, wet prairies, swamps, and tree islands.
Described as a "River of Grass", it once flowed in a 65x170 km basin from
the southern shore of Lake Okeechobee to the mangroves on Florida's
southwestern coast. Rainfall, formerly the main nutrient source, provided a
slow, continuous sheetflow through the basin into Florida Bay, feeding
North America's only living coral reef and a tremendous diversity of marine
life.20 Since the turn of the century, 65 percent of this wetland has been
drained; the sheetflow has been channelized and diverted; water quantity
and quality have drastically decreased; and severe ecological deterioration
has occurred.
Only about one-half of the original Everglades ecosystem remains,
divided into three Water Conservation Areas and the Everglades National
Park. The Park, - a Biosphere Reserve, World Heritage Site, National
Wilderness Area, and Wetland of International Significance - supports
sixteen endangered species, including wood storks, snail kites, Florida
panthers, and American crocodiles. This remnant is threatened by sugar
producers in the Everglades Agricultural Area to the north, formed by
draining and irrigating nearly one-third of the original Everglades.
Without major changes in water management and agriculture, the remaining
Everglades could become an oxygen-starved cattail marsh supporting none of
the original diversity of plants and animals. The downstream mangroves and
estuaries could continue disappearing until the well-spring of Florida
Bay's reefs and fisheries are gone.21
Because water has been diverted for irrigation and urban use, the
Everglades now receives less than half its historic flow, and instead of a
long-continuous flow of rainwater, stagnant water is released from
impoundments in massive pulses in the wet season and the marsh lacks water
in the dry season. Drainage water from the agricultural area is massively
enriched by fertilizers and nutrients released from exposed soils to a
concentration hundreds of times higher than natural background levels. The
sawgrass-dominated wetland ecosystem, adapted to a nutrient-poor
environment, is taken over by phosphorus-tolerant cattails, which have
already intruded far into the National Park. The cattails choke the aquatic
ecosystem, disrupting the food chain and extinguishing species at all
trophic levels, including the snails, shrimp, insects, crustaceans and
fish. Higher on the food chain, the population of wading birds has already
declined by 93 percent since the 1930s, for lack of food and nesting sites.
With enough nutrient enrichment, a foul-smelling, anaerobic mat of green
filamentous algae takes over, in which only cattails and few other species
can survive.22
The likely extinction of the Florida panther, of which only 30 to 50
individuals now survive, is due partly to food chain disruption but mainly
to bioaccumulation of mercury deposited in ash from burned sugarcane fields
and bagasse and released from exposed peat as it oxidizes. Infant mortality
from mercury poisoning in these top predators is high. In the Bay, high
salinity and temperatures caused by interruption of freshwater flows have
produced massive seagrass die-offs and algal blooms, lowering dissolved
oxygen levels and killing corals, sponges, and other marine animals. The
shrimp harvest has fallen 80 percent in the last decade, destroying an
important commercial fishery.
Attempted solutions have focussed on complex water and nutrient
management systems, rather than the fundamental problem: highly uneconomic
sugarcane production by large, heavily protected corporations. If sugar
price supports and protectionist barriers to imports are dropped, and the
industry faced is forced to pay the full costs of its water and drainage
works, sugar production in South Florida (and other high cost producing
areas) will fall dramatically. Consumers will benefit; efficient foreign
producers will benefit; and the principal threat to the Everglades will be
resolved. This is a prime example of complementarity between trade and
environment objectives. Trade liberalization accompanied by strengthened
environmental protection and better resource management can be a "win-win"
option for countries in the North and South.
.
"... the question of competitiveness should be
addressed not at the level of the individual firm,
nor on the level of the indidvidual industry
but at the level of the entire economy."
3. THE EFFECTS OF ENVRIONMETAL POLICIES ON TRADE
THE "COMPETITIVENESS" ISSUE
Firms in OECD countries fear that competitors in developing or transitional
economies where environmental standards are less stringent or less strictly
enforced derive an advantage in the marketplace from lower compliance costs.
Labor unions in OECD countries fear that companies will relocate factories in
developing countries to take advantage of lax environmental standards.
Simultaneously, firms in developing countries fear that if they are forced to
meet environmental standards as strict as those in OECD countries, then they
will be unable to compete in the marketplace because of higher production
costs.
To some extent, such professed fears are designed to bluff, intimidate,
or otherwise influence government decisions regarding environmental
standards. Companies have always used the threat of reduced employment or
investment to deter governments from setting strict standards, oftentimes
successfully. Governments must, therefore, examine carefully the basis for
such implicit threats. Similarly, some environmental groups oppose trade
liberalization because they fear that with lower trade barriers, the risk of
competitive dislocations will force environmental standards in OECD countries
down to some least common denominator. They, too, must examine the basis for
such fears.
First, should potential competitive effects be judged at the level of
the firm, the industry, or the total economy? Although the individual
businessman making representations on environmental policy is interested
primarily in the competitiveness of his own company, this is too narrow a
base for public policy. An interesting case study of the Indian leather
industry illustrates why this is so.1
Exports of Indian leather and leather goods, mostly to the EC, have
increased rapidly and are expected to continue to do so. Much of the tanning
industry, however, still consists of small establishments using backward
technologies. Less than 25 percent of such tanneries treat their effluents
before discharging them into rivers or evaporation ponds. These practices
impair the health of workers and neighboring residents, salinize adjoining
farmlands, contaminate aquifers, and lead to the discharge of organic wastes
and chromium, a toxic metal, into surface waters. Producers of Indian
leathers are being forced to change their tanning processes to meet European
product standards that forbid the contamination of leathers with
pentachlorophenol, a toxic fungicide, and the use of dyes containing
formaldehyde and benzidine. Indian leathers are also subject to packaging and
labelling regulations. In addition, producers are being forced by Indian
environmental regulations to install individual or common waste treatment
plants.
The estimated cost impacts of these measures range from 1.5 to 3.0
percent of finished product prices on average, but they affect different
segments of the industry quite differently. Small tanneries using backward
technologies, located around urban areas, are the most seriously affected.
Larger modern tanneries, which under a liberalized trade policy are able to
import modern equipment and processing chemicals to produce a consistently
higher quality product with fewer effluents, are able to capture a growing
share of the market. Leather manufacturers, who can now import leather
required for production of higher quality products at a labor cost advantage,
are least affected.
Clearly, evaluating the competitive effects of Indian process standards
and European product standards at the level of the individual tannery is
inadequate. Both sets of standards are contributing to the modernization of
the industry, accelerating the replacement of small, inefficient, unsafe and
highly polluting establishments. Such establishments and their workers may be
losers from the change, but other, more efficient, Indian firms are gainers,
and overall, output and employment in the industry are increasing. As modern
technologies replace older ones, productivity and quality of product are
improving, and environmental damages can be controlled.
However, evaluating competitiveness effects at the level of the industry
is also too narrow. Other segments of the Indian economy have suffered
substantial costs as the result of environmental spillovers from the leather
industry. First of all, the 1.4 million people working in the industry,
mostly low-paid women and children, are exposed to unsafe levels of toxic,
carcinogenic, and potentially lethal chemicals, including ammonia,
formaldehyde, and hydrogen sulfide - and suffer numerous health impacts. It
is hardly acceptable to say that in order for the industry to remain
competitive, the lives of those who work in it must be put in jeopardy.
Furthermore, the land and groundwater supplies of the surrounding
villages have been poisoned by salts and other effluents, so that they are
unfit for any other use than as dumping grounds for the tanneries. The
livelihoods of the inhabitants have been destroyed. Finally, every year the
establishments located in Uttar Pradesh discharge, along with other wastes,
at least 10,000 tons of chromium into the river Ganges, which is not only the
source of drinking water for millions of people but also sacred to hundreds
of millions of Hindus.
It would be inconsistent for a government dedicated to poverty
alleviation and development to ignore these significant costs to its own
people. For this and other reasons, the question of competitiveness should be
addressed not at the level of the individual firm, nor on the level of the
individual industry, but at the level of the entire economy. The costs of
pollution abatement forced on the industry are real costs to the Indian
economy, but so are the costs of illness, loss of productive land, and
pollution of ground and surface waters.
Even viewed from the perspective of a single industry, to what extent
are environmental control costs likely to shift competitive advantage in
world trade? It is conventional in this regard to make a distinction between
product standards, which refer to the physical characteristics or composition
of the traded item or its packaging, and process standards, which refer to
the way in which it is manufactured, including the extent and composition of
residual emissions. It has long been held under GATT rules that importing
countries are free to regulate products entering their borders to protect
health, safety, or natural resources, so long as such regulations treat
domestically produced goods and imports alike, do not discriminate among
foreign sources, are not covert protectionist measures, and are not arbitrary
barriers to trade. It has generally been held under GATT rules that countries
are not free to regulate the processes by which imported goods are made,
since that would treat identical products made by different processes
differently and violate the exporting country's sovereign right to set its
own health and safety standards.
Of course, as the Indian tannery example illustrates, the distinction
between product and process standards is becoming less and less sharp. Since
sensitive tests of the product can recognize minute residual amounts of
materials used in the processing, regulations banning those trace chemicals
can force exporters to alter their production methods. Other product
regulations, such as those governing recyclability, energy efficiency, or the
tolerable amounts of pollutants a product can emit when used, can also force
manufacturers to redesign industrial goods and the processes used to make
them.
It is safe to predict that international differences in process
standards will have small competitive impacts in world trade, because even in
the U.S., where regulatory standards are strict but not particularly
cost-effective, pollution control costs average only about 1.5 percent of the
value of the total sales of manufacturing industries. Only in a very few
sub-sectors do they rise above 3 percent of the value of sales.2 Thus, even
if environmental controls brought no benefits whatever to the firm itself
through reduced materials and energy use, or reduced liability or worker
disability; and even if competing firms in other countries incurred no
environmental control costs at all, the resulting cost disadvantage to
American firms would be less than 2 percent of sales price for the large
majority of industries. Compared to other competitive factors in
international trade, such as differences in labor, transportation or
materials costs, differences in productivity and product quality, or
differences in brand recognition and marketing ability, differential
environmental control costs stemming from varying environmental process
standards are unlikely to be noticeable, let alone decisive.
The parallel fear that companies will relocate their operations to
"pollution havens" is equally implausible. The idea that a company will move
its production - a step that involves selling its plant, severing its
workforce, persuading key personnel to relocate, acquiring a new site,
building a new facility, recruiting and training new workers, and undergoing
a shakedown period for a new plant - only to save pollution control costs
totalling less than 2 percent of sales absolutely strains credulity. When
companies move their plants, other forces are at work.
These a priori predictions are borne out by many empirical studies,
dating back two decades and extending up to the present.3 Hardly any of them
find that differences in regulatory stringency or environmental control costs
are at all useful in explaining patterns of international trade and
investment, or changes in the location of production. The gross facts bear
out these statistical findings: Japan and Germany, two countries with strict
environmental standards, have never proven to be uncompetitive in
international trade; India and the former Soviet Union, despite weak or
ineffective environmental standards, have been strikingly uncompetitive in
world markets. Obviously, other factors are determining the market outcomes.
Although there are some reported cases of firms seeking out overseas
production locations with weak environmental standards, by far the greatest
amount of direct foreign investment is in countries that have high
environmental standards.
Indeed, there is evidence that lax environmental standards can act as a
deterrent to foreign direct investment. For example, Western firms have been
unwilling to buy industrial plants in some heavily polluted regions of
Eastern Europe at any price, because the potential liability for clean-up
costs outweighs any reasonable expectation of profit. Regions interested in
attracting industrial investment would do better by simplifying economic
regulations, improving infrastructure and communications, and ensuring a
stable economic, legal and political climate than they would by abandoning
environmental standards.
Although it would be irrational for developing countries to forego
reasonable environmental controls, it would be equally irrational for
Northern environmentalists to demand that developing countries should adopt
the same process standards as OECD countries have. For one thing, identical
process standards in two settings will not achieve the same degree of
environmental quality: other factors, such as the concentration of emissions
sources and the assimilative capacity of the environment, also matter. In any
case, rational developing countries will not have the same priorities for
environmental quality as rich countries have. For example, fear of
carcinogens looms large in U.S. environmental regulations, since cancer is a
leading cause of death in an aging population. However, in most developing
countries, with a much younger age structure and high mortality rates from
poverty-related diseases, cancer is a relatively minor cause of death.
Furthermore, the effectiveness of environmental measures will vary between
developed and developing countries. Would the ambitious and expensive goal of
zero discharges for industrial plants, embodied in the U.S. Clean Water Act,
make sense in India, where less than 20 percent of household sewage is even
collected, let alone treated, and surface waters are highly contaminated with
household wastes? Finally, imposing the same process standards on different
plants would not "level the playing field" in a competitive sense anyway,
since the compliance costs will vary significantly across plants according to
their age, layout, and technology. The principle that national sovereignty in
the design and implementation of domestic environmental standards is sound
and should be respected.
PROCESS STANDARDS, THE POLLUTER PAYS PRINCIPLE, AND THE TERMS OF TRADE
Governments of OECD member countries agreed to the Polluter Pays Principle
twenty years ago to avoid trade displacements and distortions that might
result if some governments subsidized industries' costs of compliance with
environmental standards while others made the polluters pay. This principle
has been useful, even though applied only spottily within the OECD. Non-OECD
countries have not universally adopted even the principle, let alone the
practice.
There are many reasons why they should do so. Developing country
governments do not have the fiscal capability to subsidize pollution control
expenditures to any great extent, and there are far more worthy potential
beneficiaries for limited government funds. The polluter pays principle will
complement market liberalization programs underway in many developing
countries, by ensuring that prices include the full incremental costs of
production, including environmental costs. There would be an additional
economic benefit to developing countries. Developing country trade experts
have long maintained that demand for their natural-resource based exports is
price-inelastic. This is so, at least in the short or medium term. Table 2
provides estimated price elasticities of demand for a large number of traded
commodities. If the price elasticity of demand for a commodity is less than
one in absolute value, an increase in the commodity's price will increase
sale revenue. Moreover, Table 3 shows that production of many internationally
traded commodities is concentrated in developing countries. For this reason,
Third World commodity countries have long attempted - with little success -
to form commodity agreements or international associations to restrict supply
and push up export prices and earnings, often in the name of price
stabilization.
If developing countries collectively adopted reasonable environmental
process standards in commodity producing industries and adopted the Polluter
Pays Principle, the damage to their own natural resources would be curtailed,
and the cost of environmental compliance would be internalized in the prices
of their exports. Certificates and labelling systems indicating the use of
sustainable and environmentally production methods, if organized by Third
World producer groups, would support collective standards.4 Their terms of
trade would improve, because Northern consumers, whose demand is relatively
insensitive to price, would be paying a larger share of the environmental
costs associated with their consumption patterns. To illustrate if
environmental control costs averaged roughly 1.5 percent of production costs,
as they do in the US, then the $500 billion in annual exports from developing
countries would include payments of up to $7.5 billion by importers, mostly
in the North, to help defray the costs of environmental controls. This sum is
far greater than the annual flows of development assistance to the South for
environmental programs. It should be a high priority for commodity
associations such as the International Tropical Timber Organization, and for
international trade forums such as UNCTAD, to promote agreements among Third
World commodity exporters that they will adopt environmentally sound and
sustainable production standards and apply the Polluter Pays Principle.
----------------------------------------------------------------------------
Table 2
WORLD ELASTICITY OF DEMAND FOR LDC EXPORT COMMODITIES
Agricultural Commodities
Coffee -0.27 a
Cocoa -0.19 a
Bananas -0.40 a
Tea -0.20 b
Rubber -0.50 b
Sugar -0.04 b
Cotton -0.18 b
Palm Oil -0.47 b
Non-Agricultural Commodities
Phosphate Rock -0.70 b
Tropical Timber
Non-conifer logs -0.16 c
Non-conifer sawnwood -0.74 c
Non-conifer plywood -1.14 c
Non-ferrous Metals -0.55 d
Ferrous Metals -0.65 d
Aggregate Energy -0.50 d
--------------------------------------------------------------------------
a) N. Islam and A. Subramian (1989). Agricultural exports of developing
countries: estimates of income and price elasticities of demand and supply.
Journal of Agricultural Economics 40:1, 221-231.
b) Demand from developed countries only. MVDJ Karunasekera (1984). Export
taxes on primary products: a policy instrument in international development.
Commonwealth Economic Papers: No. 19. Commonwealth Secretariat, London.
(Annex Table 2, p. 53)
c) E. Barbier, J. Burgess, J. Bishop, B. Aylward and C. Bann (1992). The
economic linkages between the international trade in tropical timber and the
sustainable management of tropical forests. [draft] London Environmental
Economics Centre, International Institute for Environment and Development.
(Table 4.6, p. 31)
d) M.E. Slade (1992). "Environmental Costs of Natural Resource Commodities:
Magnitude and Incidence." World Bank working paper for World Development
Report.
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Table 3
Developing Country Share of World Trade in Major Primary Products
during late 1980's (in percentage terms)
Six Largest LDC
Primary Share in World Exporters' Share
Commodity Gross Exports of World Exports
Coffee 1 89.0 53.0
Cocoa 1 90.2 78.4
Tea 1 82.1 73.8
Sugar 1 74.8 65.2
Beef 1 14.8 8.1
Bananas 2 93.1 75.9
Citrus Fruits 2 48.5 43.0
Rice 1 58.7 50.1
Soybeans 1 24.8 24.6
Copra 1 90.8 79.7
Groundnuts 1 52.1 44.7
Palm Oil 1 77.9 76.9
Cotton 2 54.6 24.3
Jute 2 95.1 75.5
Sisal & agaves 3 96.6 95.2
Rubber 1 97.4 93.3
Tobacco 2 62.2 42.1
veneer/sawlogs 2 85.3 70.7
sawnwood 2 66.0 56.2
Bauxite 1 90.1 80.0
Copper 1 70.0 54.4
Iron Ore 1 59.8 41.0
Lead 1 34.6 27.8
Manganese Ore 1 83.5 56.9
Nickel 1 37.3 30.0
Tin 1 77.8 73.4
Zinc 1 29.5 22.6
Phosphate Rock 1 72.4 63.4
----------------------------------------------------------------------------
1) 1985-87 average for "low- and middle-income economies." From World Bank
(1993). Commodity Trade and Price Trends, 1989-91 Edition.
2) 1988 figures. From World Bank (1990). Price Prospects for Major Primary
Commodities.
3) 1989 figures. From UN FAO (1991). Trade Yearbook, Vol. 45.
----------------------------------------------------------------------------
PRODUCT STANDARDS AND "GREEN PROTECTIONISM"
Many developing countries fear that environmental product adopted by advanced
countries will be serious barriers to trade, either because they are designed
and applied as protectionist measures or simply because they are too strict
for Third World producers with limited technology to attain. Although there
is indeed a persistent tendency to use product standards and regulations -
not just environmentally motivated ones - to protect domestic producers,
fears of "green protectionism" are exaggerated.
Safeguards against product standards becoming non-tariff trade barriers
are needed, included such disciplines as those in the GATT text barring
standards that are arbitrary, discriminatory or disguised protectionist
measures. Trade dispute mechanisms are needed so that injured parties can
appeal to impartial bodies for redress. These safeguards must draw the line
between legitimate environmental regulation and protectionism.
However, recent GATT decisions have shifted this line to limit unduly
the scope of environmental policy.5 Trade officials have interpreted the GATT
text to be far more restrictive of environmental policy than that agreement
was originally intended to be. They have, in effect, changed the GATT
agreement through interpretation to circumscribe national discretion in
setting environmental policy.6 Notably, GATT dispute resolution panels have
placed the burden of proof in disputes over environmental standards on
standard-setting countries to justify their environmental measures. This
interpretation in itself weakens the presumption that countries are entitled
to set their own national environmental standards and policies.
In a dispute over Thailand's restrictions on cigarette imports, a panel
ruled that measures for the protection of human health must be "the least
GATT-inconsistent" of all available environmental measures. A variant,
requiring such measures to be "the least trade-restrictive" has been used in
other GATT trade disputes and in the Dunkel draft Standards Code. However,
the GATT text does not require that measures necessary to protect life and
health be the least GATT-inconsistent or the least trade-restrictive of
international trade of all measures available. This criterion might call into
question many existing environmental regulations, on the grounds that they
are not the least trade-restrictive of available measures. Under most
circumstances, for example, a pollution tax would be less trade-restrictive
than a command-and-control regulation or ban, but the former are rarely
adopted by environmental policymakers.
The recently negotiated NAFTA text and side-agreements provide an
improved model for safeguarding both trade and environmental protection. For
example, NAFTA shifts the burden of proof to the party challenging a nation's
environmental standards to demonstrate that they are arbitrary,
discriminatory, or protectionist. It also allows for the use of panelists
with environmental expertise in dispute resolution proceedings. GATT dispute
resolution procedures are flawed in that they make panels composed
overwhelmingly of trade experts, with no environmental expertise, pass on the
legitimacy of environmental regulations.
More important than safeguards against "green protectionism" written
into trade agreements, there are broad and powerful economic forces at work
to discourage the manipulation of product standards for protectionist
purposes. They are summed up in the phrase "globalization of the world
economy". A remarkably large and growing fraction of world trade consists of
shipments between one branch of a company and another, or between a company
and its foreign affiliate. As long ago as the mid-1980s, 52 percent of U.S.
imports and 57 percent of Japan's were intra-company transactions of this
kind.7 Intra-company trade is buffered against the protectionist manipulation
of product standards. The Ford Motor Company, for example, has no incentive
to keep the components made in its Mexican plant out of the United States,
since it built or acquired the Mexican facility precisely to supply those
components to its factories in the U.S. and probably in other parts of the
world as well. Instead, it would want to resist impediments to shipments
among the nodes in its worldwide production network.
A large additional share of world trade in manufactures consists of
"outsourcing" by companies in advanced markets whose own capabilities lie in
design and marketing. Benetton or Bloomingdale's, for example, have clothes
sold under their labels manufactured all over the developing world by
companies operating under contract. Contractors are held to strict
specifications on design, materials, quality, and delivery time. They must
also meet the environmental and other product standards in force in the
import market. Clearly, Benetton and other importers have no incentive to
manipulate such product standards to keep their contractors from selling into
the importing market, since they have developed the "outsourcing"
relationship precisely to find a low-cost and reliable supplier. In this way,
globalization trends in the world economy provide a powerful countervailing
force against the protectionist use of environmental product standards.
Some developing country producers may nonetheless find those standards
hard to meet, and may thus be at a disadvantage to other firms, in the North
or South, with more refined production processes or greater capital and
technical resources. However, environmental standards are no different in
this respect than product standards imposed by the importer with respect to
quality or delivery time. Meeting such standards is the competitive
prerequisite for supplying a demanding market. Not all companies can do so.
However, the virtual explosion of intra-company trade, "outsourcing", and
South to North trade in industrial and manufactured products demonstrates
that many Third World companies are able to manufacture to the high standards
demanded by the importing market. For such firms, product standards are
valuable guideposts, helping potential developing country exporters know what
to do to break into advanced markets.
"Green protectionism" undoubtedly exists, but its extent is relatively
small. In agriculture, which is probably more subject to covertly
protectionist product standards than manufacturing, empirical studies have
shown that less than 5 percent of shipments of fruits, vegetables, fish and
shellfish to the U.S. are detained at the border for non-compliance with
product standards. Of these, at most 15 percent were detained for
environmental reasons, such as the presence of pesticides, heavy metals, or
unsafe additives. A larger fraction were detained for ordinary quality
defects, such as decomposition, presence of salmonella, or contamination by
filth. Other more common reasons for rejection were improper labelling, and
defective canned foods.8 Thus, less than one percent of food shipments are
rejected on environmental grounds, and these are overwhelmingly for
non-compliance with unchallenged U.S. environmental standards.
Today, what threatens the world trading system and market access for
developing countries is not "green" protectionism. It is ordinary "dirty
brown" protectionism. The Uruguay Round could have well failed, and that
would have severely weakened the GATT, the multilateral trading system, and
progress in dismantling barriers to trade in textiles, food, and other
products of concern to developing countries. The Uruguay Round was endangered
primarily but not exclusively by agricultural protectionism, especially in
Europe and Japan. Agricultural protectionism is driven by concern not for the
rural environment but for the rural vote. NAFTA almost didn't pass the U.S.
Congress. Although some environmental groups in the U.S. opposed it, most
would have been the opposition of the labor union movement fearful of
competition in labor-intensive manufacturing processes, and agricultural
interests subject to Mexican competition."
Trade barriers are not maintained today as a "second-best" approach to
environmental protection, a widely accepted policy goal. They are maintained,
as in the past, to protect the incomes of politically well-organized
minorities at disproportionately high cost to the majority. The economic
costs of so-called green protectionism to the developing countries are
trivial compared to the costs of barriers erected in the North against
labor-intensive manufactures such as textiles and apparel, and against
competing agricultural commodities such as sugar or bananas. They are also
tiny compared to the cost of barriers erected by developing countries to the
expansion of South-South trade, or to the costs of biases in developing
countries own trade regimes that reduce their ability to export. Concern over
potential protectionist barriers created by environmental product standards
is excessive, and deflects attention from much more critical trade issues.
.
"The prospect of substantially increased gains
from trade and investment has induced the
Mexican government to strengthen its
enforcement of its own environmental
regulations and to resolve the
tune-dolphin dispute."
4. SUSTAINABLE DEVELOPMENT PRINCIPLES FOR TRADE AND ENVIORNEMTAL POLICY
IN MANY WAYS, LIBERAL INTERNATIONAL TRADE AND SUSTAINABLE development are
complementary, or could be reconciled through changes in policy. There are
many trade policy changes that would benefit the environment, and
environmental policy changes that would help secure the benefits of
liberalized trade. Implementing such changes would produce significant
economic and environmental benefits. This section identifies some important
principles for integrating trade and sustainable development.
REORIENT AGRICULTURAL POLICY AND REDUCE AGRICULTURAL PROTECTIONISM IN OECD
COUNTRIES
As explained above, if the European Community, the United States and Japan
succeed in liberalizing agricultural trade and decoupling farm income support
payments from production decisions, they will raise farm productivity and
consumer welfare significantly. In addition, they can reduce fiscal burdens,
expand international trade, and improve environmental quality. Developing
countries will improve their market access and terms of trade. This is a
prime example of complementarity between development and environment
objectives.
REDUCE BARRIERS IN OECD COUNTRIES TO EXPORTS OF LABOR-INTENSIVE MANUFACTURES
FROM DEVELOPING COUNTRIES
There would be substantial gains from increased trade in both exporting and
importing countries if tariff escalation that inhibits processing of raw
materials before export were scaled back, and if non-tariff barriers against
labor-intensive manufactures, such as the Multi-Fibre Agreement, were
eliminated. These policy changes would reduce the pressure to over-exploit
natural resources in developing countries.
Some of these complementarities are within reach. The Uruguay Round
negotiators have made progress both in reducing agricultural protectionism
and in increasing market access in OECD countries for labor-intensive
manufactures from developing countries. NAFTA offers similar benefits for
Mexico in North American markets.1 Ensuring these gains by having concluded
and ratified the Uruguay Round and NAFTA agreements, with adequate
environmental safeguards, represents a step forward for environmental
protection as well as for trade liberalization.
USE TRADE AND INVESTMENT INCENTIVES TO INDUCE COOPERATION IN INTERNATIONAL
ENVIRONMENTAL PROTECTION
Using trade sanctions unilaterally or even multilaterally to discourage
non-cooperation in international environmental protection activities is
controversial. For example, the unilateral U.S. ban on Mexican tuna imports
to protect dolphins in international waters led to a GATT dispute. The
provisions in the Montreal Protocol that require signatories to ban imports
of CFCs and products containing CFCs from non-signatory countries is a
multilateral example.
Because of the poor record of compliance with international
environmental agreements, and the long negotiations required to achieve even
weak international agreements, a strong argument can be made that trade
sanctions are needed to deter cheating or free-riding on an agreement, and
that the threat of possible trade sanctions can be an essential incentive to
induce parties to negotiate an agreement.
Many environmentalists fear that, if challenged, such trade measures
could be regarded as inconsistent with GATT obligations, as the Tuna-Dolphin
dispute panel suggested. On the other hand, many developing or small
industrial countries fear that such policies might be used coercively by
powerful nations to impose their own environmental standards or preferences
on other countries. Although they may sometimes be necessary, trade sanctions
are not the ideal measure with which to achieve international environmental
cooperation because they rely on one costly measure (trade restrictions) to
discourage another (non-cooperation in environmental protection). They hold
out no guarantee that the result will be a net improvement in global welfare.
Sometimes, carrots may work better than sticks. Using trade concessions
to elicit international environmental cooperation is much more likely to
generate economic and environmental gains and an overall improvement in
welfare. The North American Free Trade Agreement may be an example. The
prospect of substantially increased gains from trade and investment has
induced the Mexican government to strengthen its enforcement of its own
environmental regulations and to resolve the tuna-dolphin dispute. The
potential gains have also induced the U.S. and Mexican governments to agree
to spend substantially more on badly needed environmental protection in the
border area.
This approach could be applied to a wider round of negotiations over a
Latin American Free Trade Agreement, and incorporated into subsequent
negotiating rounds under the GATT. The Uruguay Round has demonstrated that
agreements on trade liberalization can be linked to negotiations over other
issues, such as intellectual property rights. Why can't agreements on trade
liberalization also be linked to negotiations over transboundary
environmental protection?
DEVELOPING COUNTRIES SHOULD ENFORCE REASONABLE ENVIRONMENTAL STANDARDS AND
THE POLLUTER PAYS PRINCIPLE
If developing countries adopt reasonable environmental standards and adhere
to the polluter pays principle, they can ensure that pollution control and
environmental costs are internalized into enterprise costs and product
prices. The severe damages they are now suffering from environmental
degradation will be mitigated. Trade disputes over hidden environmental
subsidies and "eco-dumping" will be reduced. Concerns over the environmental
consequences of trade liberalization will also be muted, because
environmental control costs will be reflected in market prices.
GOVERNMENTS SHOULD ELIMINATE NATURAL RESOURCES SUBSIDIES
Natural resources, such as water and energy, are very often underpriced in
both industrialized and developing countries. These policies distort
international trade, whether the subsidized resource is directly exported or
used as an input in the production of exported commodities. At the same time,
such natural resource subsidies result in extensive environmental damage by
encouraging the oversupply and overuse of the natural resource in question.
For example, water subsidies in the western US have led to severe
environmental damages, including salinization of soils, contamination of
wetlands, and reduction of fisheries and bird populations. Resource subsidies
of this kind are often not considered to be "environmental policies", but
they significantly affect the use and management of natural resources.
Eliminating them yields trade and environmental benefits.
In such Asian countries as Indonesia, the Philippines, and Papua New
Guinea, failures by government to charge concession-holders adequate
royalties for timber harvested on public forests have led to wasteful
over-exploitation and ecological losses. At the same time, the public
exchequer has been deprived of badly needed funds to finance development
programs.2 Austria and the Netherlands have proposed tariff or non-tariff
barriers to imports of tropical timber harvested unsustainably. These
measures would surely be open to challenge under GATT rules. How much better
it would be for tropical timber producing countries to reform their own
timber royalty structures to reduce incentives for profiteering in tropical
timber exports. The developing country government would receive the revenues
directly, the incentives for improved timber management would apply to all
production, for domestic use and for export to all destinations, and the
measures would be completely consistent with GATT principles.
In Eastern Europe and Russia, underpricing of energy has fostered
grossly inefficient domestic energy use, increased pollution, and deprived
countries of badly needed potential export revenues. Eliminating such
resource subsidies would constrain domestic consumption and release
additional supplies for exports, and provide financial resources for
investment in higher production and efficiency. Eliminating resource
subsidies yields economic and environmental returns.
HARMONIZE PROCEDURAL STANDARDS GOVERNING TESTING AND RISK ASSESSMENT
While countries may understandably and legitimately adopt standards implying
different levels of control over environmental risks, there are many economic
and environmental gains to be obtained if the procedures for risk assessment
are harmonized internationally. Such issues as "How should risks be assessed?
What data are relevant, and how should they be collected? What tests and
testing procedures are acceptable?" can be agreed upon internationally
without impinging on each country's authority to decide for itself the level
of acceptable risk. Uncertainty regarding the actual quality of products
entering the country from abroad would be reduced. The workload on
environmental agencies would be reduced. Agreeing on these important
procedural matters would reduce the regulatory costs of international
investment and trade. It would also reduce the scope for trade disputes over
the legitimacy and scientific basis for product standards.
In summary, fears over the impacts of environmental policies on trade
have not been balanced by hopes for potential benefits. The two goals are
potentially complementary. Good environmental policies can help secure the
gains from trade and avert trade conflicts. Trade liberalization can lead to
better environmental quality, if conducted with adequate safeguards. What is
needed is a consistent vision of sustainable development and a coherent set
of domestic and international policies to promote both.
----------------------------------------------------------------------------.
ENDNOTES
1. INTRODUCTION
1. World Bank, The East Asian Miracle, Economic Growth and Public
Policy, Oxford University Press, New York, September, 1993.
2. THE EFFECTS OF TRADE POLICY ON THE ENVIRONMENT
1. French, Hilary F., Costly Tradeoffs: Reconciling Trade & The
Environment, Worldwatch, 1993.
2. Phantumvanit, D. & T. Panayotou, Industrialization and Environmental
Quality: Paying the Price, TDRI, 1990.
3. World Bank, China Environmental Strategy Paper, Washington, D.C.,
April, 1992.
4. World Bank, Indonesia Environment and Development: Challenges for the
Future, Washington, D.C., June, 1993.
5. Low, Patrick, International Trade and the Environment, Overview
Report, World Bank Discussion Paper, no. 159, April, 1992.
6. K. Anderson and R. Blackhurst, eds., The Greening of World Trade
Issues, Chapter 2, Harrester Wheatsheaf, London, 1992.
7. Accounts Overdue: Natural Resource Depreciation in Costa Rica,
Tropical Science Center and World Resources Institute, Washington, D.C.,
1991; Repetto, R.; W. Magrath, M. Wells, C. Beer, and F. Rossini. 1989.
Wasting Assets: National Resources in the National Income Accounts, World
Resources Institute, Washington, D.C.
8. Wilfredo Cruz and R. Repetto, The Environmental Effects of
Stabilization and Structural Adjustment Programs: The Philippines Case, World
Resources Institute, 1992.; David Reed, ed., Structural Adjustment and The
Environment, World Wide Fund for Nature, Boulder, 1992.
9. Broad, Robin and John Cavanagh, Plundering Paradise: The Struggle for
Environment in the Philippines, Berkeley, 1993.
10. Smil, Vaclav, The Bad Earth: Environmental Degradation in China,
London, 1984.
11. Centre for Science and Environment, The State of India's
Environment, The Second Citizen's Report, 1984-85, New Delhi, 1985. p.
362-380.
12. World Bank, World Development Report 1987, Chapter 8, Washington,
D.C. 1987.
13. ibid.
14. Paul Faeth et.al., Paying the Farm Bill, World Resources Institute,
1991; K. Reichelderfer, "Environmental Protection and Agricultural Support:
Are Trade-offs Necessary?", K. Allen, ed., Agricultural Policies in a New
Decade, RFF, Johns Hopkins, 1990; U.S. EPA, Agriculture and the Environment:
OECD Policy Experiences and US Opportunities, Wash. D.C., Jan. 1990, C. Ford
Runge, "Environmental Effects of Trade in the Agricultural Sector", paper
prepared for the OECD, U. of Minnesota, Dec. 1991.
15. Fred H. Sanderson, ed., Agricultural Protectionism in the
Industrialized World, RFF, Washington, D.C., 1990.
16. OECD, "Modelling the Effects of Agricultural Policies", OECD
Economic Studies, no. 13, Winter 1989-90.
17. Tucker, Stuart K. and Maiko Chambers, "U.S. Sugar Quotas and the
Caribbean Basin", Overseas Development Council, 1989.
18. Haley, Stephen L., et.al., "Sugar Policy Reform in the United States
and the European Community: Assessing the Economic Impact", Department of
Agricultural Economics & Agribusiness, Report No. 693, March, 1993; Webb,
Alan J., et.al., Estimates of Producer and Consumer Subsidy Equivalents:
Government Intervention in Agriculture, 1982-1987. U.S. Department of
Agriculture, Economic Research Service, Stat. Bull. No. 803, Washington, DC,
1990.
19. Government Accounting Office, "Sugar Program: Changing Domestic and
International Conditions Require Program Changes", 1993.
20. Rader, R.B., and C.J. Richardson, 1992. The Effects of Nutrient
Enrichment on Algae and Macroinvertebrates in the Everglades: a Review.
Wetlands, 12:121-135.; Everglades Coalition, 1993, The Greater Everglades
Ecosystem Restoration Plan.
21. Redfield, Garth. Director, South Florida Water Management District
Research Program. Personal Communication, 31 September 1993.
22. Nearhoof, F.L. 1992. Nutrient-induced impacts and water quality
violations in the Florida Everglades. Water Quality Technical series 3:24.
Florida Department of Environmental Regulation, Tallahasse, FL. (Draft);
Davis, S.M. 1993. Phosphorous inputs and vegetation sensitivity in the
Everglades. South Florida water management. District Technical Publication
(draft).
3. THE EFFECTS OF ENVIRONMENTAL POLICIES ON TRADE
1. IGIDR, Trade and Environment Linkages: The Case of India, (Draft
Report) for the United Nations Conference on Trade and Development, June,
1993.
2. Pearson, Charles, "Trade and Environment: The United States
Experience", United Nations Conference on Trade and Development, August,
1993.
3. J.M. Dean, "Trade and the Environment: A Survey of the Literature",
Background Paper prepared for the World Development Report 1992, Environment
Department, World Bank, Washington, D.C., 1992; Pearson, Charles, "Trade and
Environment: The United States Experience", United Nations Conference on
Trade and Development, August, 1993.
4. Henk L.M. Kox, "Incorporating Environmental Considerations into
Commodity Agreements", paper presented at OECD workshop, Paris, 29 June,
1992.
5. S. Charnovitz, "GATT and the Environment: Examining the Issues",
International Environmental Affairs, Vol. 4, no. 3, Sept. 1992; pp. 203-233;
R. Repetto, "Trade and Environment Policies: Achieving Complementarities and
Avoiding Conflicts", Issues and Ideas, World Resources Institute, July, 1993.
6. S. Charnovitz, "GATT and the Environment: Examining the Issues",
International Environmental Affairs, Vol. 4, no. 3, Sept. 1992; pp. 203-233.
7. DeAnne Julius, Global Companies and Public Policy: The Growing
Challenge of Foreign Direct Investment, Council on Foreign Relations Press,
New York, 1990.
8. Pearson, Charles, "Trade and Environment: The United States
Experience", United Nations Conference on Trade and Development, August,
1993.
4. SUSTAINABLE DEVELOPMENT PRINCIPLES FOR TRADE AND ENVIRONMENTAL POLICY
1. G.C. Hufbauer & J.J. Schott, North American Free Trade, Institute for
International Economics, Washington, D.C. 1992.
2. R. Repetto & M. Gillis, eds., Public Policies and the Misuse of
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.
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