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Bringing together members of the former WTO Director General's advisory group (formed to provide expert advice before and after the Doha Ministerial Conference), nine experts explore issues pertinent to the ongoing progress in negotiations. The volume offers a comprehensive summary of key issues facing the WTO as it moves forward and should prove essential reading for trade negotiators and scholars concerned with the post-Cancoun agenda.
Trade and sustainable development in the Doha Round
KONRAD VON MOLTKE
1 The 'trade' agenda
The 'trade' agenda has grown inexorably since 1980. In an initial stage, trade negotiations moved from addressing border measures that represented obstacles to trade in goods to behind-the-border measures such as non-tariff barriers (NTBs) or technical barriers to trade. The Uruguay Round took this development one stage further by taking up issues such as trade in services and intellectual property rights (TRIPs) and opening the door on foreign direct investment (FDI). The Doha Declaration may extend this process even further to include competition.
In this expanded trade agenda, the linkages between trade and the environment are everywhere. Indeed, they are so obvious that they are invisible to many. The relationship is largely defined by two fundamental realities:
Both trade - in the narrow sense of 'trade in goods' and in the broader sense of the expanded 'trade' agenda - and environmental policy are essentially international in character. Much of their interface requires international action, creating unique challenges for trade and international environmental regimes alike.
Trade policy and environmental policy both impact on economic development in complex ways. Ultimately they both create structural economic change, favouring some economic actors over others.
In many instances, trade and environmental policy work in congruent ways that reinforce each other. That is an ideal condition that requires no policy intervention. When they work at cross-purposes, however, the resulting conflicts are particularly difficult to resolve because they strike at the heart of what each is trying to achieve. Policy intervention becomes essential, and must frequently occur at the international level.
Despite the overlap and symmetries between trade and environment, the international regimes that have emerged to deal with these issues are dramatically different. The institutional character of these regimes reflects the problem structure of the issues they are designed to address. The liberalization of trade in goods requires entirely different institutional mechanisms than protection of biodiversity, or the management of water resources, or the protection of the stratospheric ozone layer, or the avoidance of climate change. The trade regime is built around the principle of non-discrimination, which is achieved through Most Favoured Nation (MFN) treatment, national treatment, certain measures for transparency and dispute settlement. Environmental regimes are based on scientific research and use a wide range of institutions such as assessment, monitoring, information, transparency and public participation. The institutions of transparency and public participation play a central role in the implementation process, comparable in importance to dispute settlement in the trade regime. These differences render the relationship between trade and environment particularly intractable at the international level.
In addition, the trade regime has not expanded its institutional capabilities as decisively as its agenda. The original GATT focused on trade in goods. Its sparse institutional arsenal reflected the fundamental reality that under the principle of comparative advantage all that negotiators needed to be concerned about was a process of trading 'concessions' where the beneficiaries of such concessions were just as often those making them as those pressing for them. Participants in the regime were united against the common enemy of protectionism, which they were largely helping one another to combat.
Negotiations on 'trade-related' issues such as trade in services, intellectual property rights, or competition policy are entirely different. They reach into the very fabric of each member's society and can also raise difficult issues of rent creation and consequently of distribution. Where liberalization of trade in goods is concerned with increasing economic efficiency by eliminating the rents associated with protectionism, parts of the newer trade agenda actually legitimizes certain rents and consequently contributes in complex ways to their distribution. Yet the institutions of the trade regime are quite unsuited to such a task, exposing it to accusations of increasing inequality rather than just contributing to economic growth. The trade and sustainable development agenda has become the fulcrum for many of these debates.
2 The trade and environment interface
The Doha Ministerial Declaration has the virtue of recognizing the trade and environment interface both explicitly and implicitly. The challenge is now to structure negotiations to ensure that the ultimate outcome represents an appropriate balance between the numerous conflicting interests that are at stake in the trade and sustainable development debate.
Some observers have argued that economic growth alone will create the necessary impetus to deal with environment and sustainable development, and that the contribution of trade liberalization to growth represents the trading system's most important contribution to environmental management.1 This argument is beguiling because it suggests that policy intervention is not needed to ensure that the environmental outcomes from trade liberalization are positive. Unfortunately, it does not hold up to scrutiny.
The empirical evidence to support this thesis draws on emissions data for a number of key industrial pollutants. It says nothing about issues such as conservation or biodiversity loss. With their focus on industrial pollution, the underlying data do not consider the impact of agriculture, forestry, fisheries, or mining, activities that occur in the environment itself while many forms of industrial production can be isolated from the environment to a significant degree. One of the reasons why industrial pollutants per unit of output may fall in concert with economic growth is that industry is a growing sector attracting the highest level of investment. Newer industrial facilities are almost always less polluting than older ones, at least in relative terms. The same cannot be said about the production of commodities. Moreover, the historical data used in these studies cover a period before environmental issues were adequately understood or technologies had become available that permitted pollution reduction, sometimes while increasing production efficiency so as to generate positive rates of return on 'environmental' investments. They tend to overstate the increase in environmental quality that is attributable to economic growth alone.
The notion that environmental quality is somehow a luxury that only the rich can afford is actually counter-intuitive. The poor live in close proximity to the environment. They pay for environmental quality in different ways than the wealthy. They have an intimate understanding of the costs that are being imposed on them. They are likely to spend a larger proportion of their limited resources to deal with the degradation of environmental quality, for example through loss of resources such as fuel wood, through the difficulty of accessing clean water and through the health costs of pollution in all its forms.
Studies that look at the 'ecological footprint' of the world's wealthy minority show that their environmental impact is largely hidden and dispersed.2 Mechanisms exist that hide environmental costs from those who consume the most. They also hide them from most economic analyses.
It is time to take globalization seriously and to raise expectations for its performance. It must deliver not just greater economic efficiency and economic growth but sustainable development, that is environmental protection and the promotion of greater equity. The simple premise is that markets need disciplines to avoid market failure and to promote public goods; international markets need international disciplines.
The emergence of international markets has created new opportunities. It has also changed the way in which governments can provide essential environmental disciplines and obtain the resources that are needed to ensure that economic growth promotes sustainable development. It is time to embark on the task of developing international market disciplines that properly balance private rights and the public interest in environment and sustainable development. That is a demanding task that will require effort and commitment from many parties with important interests at stake. The Doha Declaration may serve to initiate this process of engagement.
Few realize quite how large the Doha Agenda for environment and sustainable development is. It offers several opportunities and entails a number of risks. The ensuing negotiations are the first to have been defined to a significant extent by the EU, with support from other European countries and the USA. This is reflected in many ways in the text of the Ministerial Declaration. The EU called for a 'comprehensive' Round, that is one that includes investment and competition; both issues are scheduled to be integrated into the negotiations following the next Ministerial in 2003. The EU pressed hard to include the environment as an integral part of the negotiations and succeeded in bringing some of its environmental agenda into the final package.
The final Declaration depended on several EU positions. Acceptance of language that envisaged for the first time a complete phase-out of export subsidies for agricultural products was the key EU concession. In the run-up to Doha, the EU had negotiated the Cotonou Agreement, which provided the key to bringing many African countries on board. These were willing to agree to broad negotiations in exchange for formal recognition of the Cotonou Agreement by the WTO. The USA was certainly helpful in getting the Ministerial declaration to support most of the goals of the EU, and was determined to avoid a failure of the Ministerial following the events of 11 September. The EU engaged in a systematic preparatory process for Doha while the USA was preoccupied, first by a close-run election, then by its lack of fast-track authority, and finally by the events of 11 September. US interests were largely defensive: to avoid concessions on textiles; to keep discussion of its anti-dumping practices to a minimum; and to limit the concessions that had to be made on TRIPS and public health.
The vigorous support for inclusion of the environment in the negotiations has been interpreted as a concession to public opinion in the EU. In practice, it is likely that the peculiarities of the institutional structure of the EU also played a role, in particular the complex relations between the Article 133 Committee (which oversees trade negotiations) and the Council (which is the ultimate legislative authority, and the institution where environmental decisions are taken). The central dilemma is that trade is within the exclusive competence of the EU, whereas environment (and for that matter investment and competition) are areas of shared competence. Negotiations that did not include the environment entailed significant risk for institutional conflict within the EU, a risk that the trade negotiators could minimize by pushing hard for the environment.
The role of developing countries in gaining acceptance of the environmental provisions of the Doha Declaration is less well known. Not only was the 'friend of the chair' responsible for crafting agreement on the environment from Chile but by all accounts Brazil played an important role in the final stages of the process. This reflects the fact that many major developing countries have by now fully understood that environmental management is not a rich-country luxury. They face particularly difficult choices in this regard because, unlike wealthy countries, they cannot simply pay their way out of trouble.3 As a result a 'Southern agenda' for trade and environment is beginning to emerge, one much closer to sustainable development than the one pursued thus far by developed countries.
In light of the exceptional role played by the EU in shaping the Ministerial declaration, and its environmental aspects in particular, the EU will presumably also play a key role in the further process. It carries a heavy burden of responsibility for ensuring the success of what it has worked so hard to initiate. Further development of the environmental agenda will pass through Brussels.
By the same token, the unprecedented strength of the developing countries in Doha will also continue to be a feature of the ongoing negotiations. It is therefore likely that the dynamics of this Round will differ markedly from previous ones, which were largely shaped by US priorities.
The Declaration does not fully recognize the progress that had been made on the environmental agenda prior to Doha, primarily through the dispute settlement process and in the area of transparency. The errors of the tuna/dolphin panel report have largely been rectified and first steps have been taken on the highly contentious issue of transparency - which is, however, not slated for further negotiations, leaving the job half-finished.
The absence of significant environmental expertise in all delegations is recognizable in the final text of the Ministerial Declaration, It gives more emphasis to issues that are of lesser importance (such as the relationship between WTO rules and MEAs). It gives less emphasis to some that are more significant from an environmental perspective (such as cost internalization in traded products, investment, services, TRIPS and external transparency). It is critical to ensure an adequate balance of environmental and trade expertise in the actual negotiations. This can be achieved only if those responsible for the environment at the highest levels make it clear to their counterparts in trade policy that they will personally supervise the environmental aspects of the negotiations.
It is possible to divide the environmental aspects of the negotiations into four categories: issues slated for negotiation; issues to be considered for negotiation; environmental issues likely to arise in the process of negotiating other matters slated for negotiation; and issues not included in the Declaration.
3 Environmental issues slated for negotiation (paragraph 31)
Multilateral environmental agreements
This is one of the issues on which significant progress had been made in the WTO prior to Doha through the dispute settlement process. The major risk is that the negotiations do not confirm the interpretation that underlies recent Appellate Body reports, notably on the shrimp/turtle dispute and the asbestos dispute.4 From these reports it would appear that trade measures agreed by the parties to an MEA will be viewed as acceptable, provided they are not arbitrary or more trade-distorting than necessary. Even certain unilateral trade measures may be acceptable if serious efforts have been undertaken to negotiate or to otherwise achieve an amicable result.
The WTO negotiations will not address the difficult issue of trade measures that affect WTO members not a party to a multilateral environmental agreement, in practice the USA. It is paradoxical that the country with the greatest enthusiasm for unilateral environmental measures is now most at risk from measures that may be adopted against it by countries that are part of the multilateral consensus. The USA has a long history of being unable to participate fully in international environmental negotiations. This includes several major MEAs, notably the Basel Convention on the Transboundary Transport of Hazardous Wastes, the Convention on Bio- logical Diversity (with the Biosafety Protocol) and the Kyoto Protocol to the UN Framework Convention on Climate Change. In addition the Western Hemisphere Convention is largely a dead letter and there is no regional agreement on long-range transboundary air pollution and none to protect migratory species, despite the obvious need for such arrangements. It is important to ensure that WTO rules do not create an incentive for states to stay outside of environmental negotiations and agreements. On the other hand, it remains true that a dispute initiated in the WTO against a member of a widely accepted MEA represents a hazard to the future of the organization and is therefore unlikely to occur.
Information exchange between MEA Secretariats and relevant WTO Committees
This item suggests that the relevant Committees may be permitted to develop special procedures to manage their relationship with the MEA Secretariats. It represents a pragmatic way of dealing with some of the differences in operating procedures of the MEA Secretariats, which are subject to quite broad rules concerning access to information and rights of participation, and the WTO, which is generally very resistant to innovative forms of interaction with outside constituencies. This is one issue where it may be possible to address the fundamental institutional differences between the trade regime and international environmental regimes, but it will require a certain degree of innovation within the WTO context.
Reduction or elimination of tariff and non-tariff barriers to environmental goods and services
This could provide a welcome reduction in the costs of environmental goods and services while promoting their more efficient production in domestic markets. The key to this negotiation will be the definition of 'environmental goods and services'. There are numerous chemicals that are used in wastewater treatment that also have other commercial uses. Many modern environmental technologies are highly integrated with the productive facilities they relate to, so that the more recent and less polluting facilities are also economically more efficient. It remains to be seen how the 'environmental component' of such products or technologies is to be calculated. A similar problem was faced in the Agreement on Subsidies and Countervailing Measures, Article 8.2(c), which is no longer in effect, that dealt with subsidies to promote the adaptation of existing facilities to new environmental requirements.
The Declaration explicitly notes that fisheries is a matter of concern from an environmental perspective, even though it is likely to be negotiated as part of the interpretation of WTO Rules.5
4 Environmental issues to be considered for negotiation or other action (paragraph 32)
The effect of environmental measures on market access
This is one of the most contentious issues, since there are persistent questions whether environmental measures adopted by developed countries are protectionist. It is an issue that requires careful analysis. Some measures result in the internalization of environmental costs at the point of production (in a developing country). That is desirable, provided it is possible to pass the increased costs to the ultimate consumer (in a developed country). Under these circumstances, environmental measures may act to limit market access to those producers who can meet the standards - but they provide these producers with the financial means to address environmental problems in the country of production and actually increase producer revenues from these products.
The impact of environmental measures on developing countries depends on the markets in which goods are traded, and whether they properly reflect environmental costs along the entire product chain. For most developing countries effective measures to ensure the proper cost attribution along the product chain are likely to be more advantageous than attempts to circumvent environmental requirements. The effect of such measures would be to provide the necessary resources to address the environmental consequences at the point of production, effectively increasing the share of total resources that accrue to the developing country. In markets that do not ensure proper cost attribution, the opposite is true: environmental conditions impose additional costs on producers who are for the most part price-takers in the first place. It will be a welcome departure if the WTO begins to address this aspect of the issue.
Relevant provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS).
Negotiations have been agreed on TRIPS, Article 27.3(b). This item suggests there may be other matters that will arise in relation to TRIPS and the environment. No pressing issues have been raised thus far, although the negotiations on geographic designations may ultimately lead to an environmental agenda. On account of its distributional impacts, however, TRIPS is of great concern from the perspective of sustainable development.
Labelling requirements for environmental purposes
The draft Ministerial Declaration referred only to 'eco-labelling'. By extending the issue to cover all forms of environmental labelling it has become more appropriate and much more difficult to handle. Labelling is a tool to attach information on processing and production methods to a product as it moves through its various stages of production, trade, transformation, use and disposal. It is also the line of first defence in controlling impacts from chemicals, namely by providing hazard information to those who handle or use a product.
The issue of 'processing and production methods' is the most important of all issues of relevance to environment and sustainable development that may arise in relation to trade in goods. It is closely related to the issue of market access, and like that issue responses are likely to vary depending on the nature of the market for certain goods. Identification of processing and production methods is desirable if proper attribution of the environmental costs of production and processing can be ensured. Where this is not the case, such identification is likely to act as a barrier to market access.
Over the past years there have been some notable advances in developing certification and labelling schemes that reflect the environment and sustainable development agenda. In some product chains, notably forest and fishery products, producers, traders, and environmental groups have begun to cooperate in the development of certification schemes. This should open new options for the WTO negotiators in an area that is particularly difficult.
The Ministerial Declaration instructs the Committee on Trade and Environment (CTE) to work on 'all items' on its agenda but then goes on to list the three identified above. While this theoretically leaves open the possibility of raising other issues, it would need to be justified in a very convincing manner, given the extraordinary dimensions of the environmental agenda in the Round and likely resistance to its further enlargement.
The entire mandate on trade and environment (both paragraphs 31 and 32) is carefully hedged to limit its possible impact. Apart from the discussion concerning WTO members not party to certain MEAs, the Declaration states that action on environmental issues 'shall not add to or diminish the rights and obligations of Members under existing WTO agreements, in particular the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), nor alter the balance of these rights and obligations, and will take into account the needs of developing and least-developed countries'. The reference to the SPS Agreement has the effect of excluding negotiations on the precautionary principle This is appropriate insofar as the discussion about the precautionary principle has not matured to the point where it can usefully become the object of negotiations. It is inappropriate if the drafters assume that the question of the precautionary principle has been settled by the existing text of the SPS Agreement. It clearly has not, and the need to negotiate in this regard can arise so quickly that the issue may yet force itself onto the Doha agenda. The remainder of the passage is hortatory rather than binding since it must be recognized that the very act of negotiation changes the balance of rights and obligations.
Notes on contributors; Introduction; 1. Trade and sustainable development in the WTO after Doha Konrad Von Moltke; 2. WTO - the institutional contradictions LeRoy Trotman; 3. China's entry into the WTO and its impact on the global economic system Koichi Hamada; 4. Key challenges facing the WTO Robert E Baldwin; 5. Development dimensions in multilateral trade negotiations T. Ademola Oyejide; 6. External transparency: the policy process at the national level of the two level game Sylvia Ostry; 7. Trading for development: how to assist poor countries Jagdish Bhagwati; 8. Controlling corruption: a key to development-orientated trade Peter Eigen; 9. The impact of EC enlargement on WTO A. Messerlin; Index.