10:51 AM Feb 20, 1997

NEEDS DEVELOPMENT-FRIENDLY TRADE AND INVESTMENT

Geneva 19 Feb (Chakravarthi Raghavan) -- The future trade, environment and sustainable development agenda should focus on promotion of development-friendly trade and investment, UNCTAD Secretary-General Rubens Ricupero suggested Wednesday, and said this should be done by building on potential synergies between trade liberalization, economic reform and improved management of natural resources and environment.

Addressing the UNCTAD Commission on Trade in Goods, Services and Commodities, Ricupero said his suggestion was prompted by the unfulfilled expectations of the 1992 Rio UNCED Summit and the need to address them in order to build a greater degree of consensus on a common agenda to strengthen mutual supportiveness of trade, environment and development.

In the informal discussions with participation of outside experts, the former head of UNEP, Dr. Mostafa Tolba challenged the view that trade was not cause of environmental degradation, and pointed to the harmful effects in Africa as a result of Lome Convention's encouragement to production of cash crops for exports at the cost of sustainable food production.

Another expert, Dr. Anthony Artuso, an American academic and author of an UNCTAD paper on "bio-trade", held out little hopes for "positive measures" of finance and technology transfers through aid and other programmes at the UN and suggested recourse to "Micro-credit".

The post-UNCED debate on the trade, environment and development issues, Ricupero said earlier, had made some important progress on an understanding of these issues and some positive results, but one should guard against complacency.

A number of expectations generated at UNCED have not been fulfilled and, while avoiding accusations and controversies, it is important to reflect on them and find innovative approaches to correct them.

In terms of unfulfilled expectations, Ricupero pointed out that several developing countries -- those highly dependent on trade preferences and on primary commodity exports, particularly in Africa -- have benefited little from recent trade liberalisation.

The benefits of Foreign Direct Investment have also been uneven and this, in turn, has meant that their access to resources which would make it easier for them to protect their environment and enhance sustainability of their development has not advanced as they could legitimately have hoped.

Little progress has also been made in halting the marginalization of the least developed countries in the world economy and the corresponding weakening of the basis for their sustainable development.

And although no concrete data are available, there is widespread recognition that the level of access to and transfer of technologies to developing countries has, in general, not been realized as it was envisaged. The same could also be said with regard to provision of adequate financial resources to implement Agenda 21.

It is hence necessary to focus the future trade, environment and sustainable development agenda on the promotion of development-friendly trade and investment, building on potential synergies between trade liberalization, economic reform and improvement management of natural resources and environment.

This will require an examination of the roles of investment incentives, economic instruments (and in particular market-based ones), and other initiatives in stimulating sustainable development.

There is a need to involve the business community and the civil society as well, in designing, and effectively implementing "positive measures" for sustainable development, including access to and diffusion of environmentally sound technologies and promotion of trade in environmentally friendly products.

Referring to the recent statement from some two thousand economists, including six Nobel laureates, calling for international cooperation on reforms such as carbon taxes and auctioning of internationally tradeable emission permits, Ricupero said all these measures form part of a "holistic" approach to the trade-environment-development nexus.

Earlier, Ricupero stressed the importance of the process of confidence building and capacity building in order to assure all countries that their interests would be taken on board and their concerns addressed.

He saw some progress in building mutual understanding among the trade, environment and development communities. But the trade, environment and development agenda had to move beyond the still very important consideration of trade rule aspects to a wider holistic appraisal of trade and environment issues.

In particular, innovative approaches have to be sought and found for the effective implementation of incentives and positive measures such as market access, access to and transfer of technology, and finance and capacity building to support developing countries in their efforts to achieve sustainable development.

There had been four points of progress in the post-UNCED debate:

* increasing focus on exploring scope of complementarities between trade liberalization, economic development and environmental protection, with some of the early fears of incompatibility between trade and environment policies set aside;

* greater degree of confidence between the environmental and trading communities, both of whom have fully endorsed the important role of multilateral environmental agreements (MEAs) in addressing transboundary and global environmental problems on the basis of international consensus;

* balanced and integrated approach to the trade and environment agenda by including issues such as market access, access to and transfer of technology, issue of exports of domestically prohibited goods, and enlarging the development dimension in the discussion on most issues;

* the sustainable development and the trade and environment themes have been clearly anchored in the work programmes of UNCTAD, WTO and UNEP, and there is also good coordination and complementarity in the work of these institutions.

The UN Commission on Sustainable Development (CSD) has played a useful role in this regard.

But despite these positive results, there was no room for complacency. The mutual understanding among trade, environment and sustainable development communities was still evolving, and a greater degree of consensus still needed to be builtup on a common agenda of mutual confidence. A number of expectations generated at UNCED had not been fulfilled and, while avoiding accusations and controversies, it was important to reflect on the unfulfilled expectations and find innovative approaches to correct them.

Another UNCTAD official, Mr. Jagdish Saigal, Senior Programme Manager of the Division on International Trade in Goods and Services and Commodities (DITC) noted that while there had been progress on key issues, these were uneven. Competitiveness was an area where the debate has evolved most -- and empirical work has helped to set aside issues of conflict such as 'eco-dumping' and calls for 'green countervailing duties'.

The debate has become more pragmatic, focusing on factors determining the relationship between environmental policy and competitiveness and how adverse effects can be mitigated and positive effects strengthened.

An important question related to future environmental policies. such as in the context of climate change, may have larger competitiveness effects. The issue of border tax adjustments may become important in this, he added.

On eco-labelling, while there had been progress on issues like transparency, accessibility and mutual recognition, there had been little progress on building consensus over how to deal with non-product related PPMs (Process and Production Methods). While tools like mutual recognition and equivalency could be useful, they have turned out to be complex and more work was needed, as also on market responses to eco-labelling.

In the area of MEAs, a number of questions have emerged including the range of policy instruments available to achieve the objectives of an MEA, and how the effectiveness of various instruments could be assessed, how the participation of developing countries in an MEA and their economic capacity to meet the objectives be promoted in harmony with the principle of common but differentiated responsibilities.

On trade liberalisation, Saigal said further work was necessary on the promotion of trading opportunities for environment-friendly products and, in a few cases, preferential market access.

And while there was a consensus on positive measures, progress in their implementation had been much slower than anticipated in Agenda 21. Innovative approaches were needed to promote a more widespread and effective use of positive measures and this, Saigal said, could be subject of an expert meeting.

The UNCTAD trade official said that while PPM-based environmental standards were of key importance in removing inefficiencies and promoting environmental quality and sustainable development, the debate should not be situated in the context of trade rules, but in the context of incentives and positive measures. Trade and investment links would seem to promote a larger convergence of PPM-related standards, he added.

FDI, apart from providing additional resources, could play an important role in developing countries in providing easier access to environmentally sound technologies and management practices.

And while small and medium enterprises (SMEs) often made a relatively large contribution to industrial pollution, and face special difficulties in responding to environmental challenges, there was considerable potential for improving the economic management in SMEs -- provided proper supporting infrastructure, including access to finance, technology and information was set up.

In the informal discussions with participation of experts that followed, the former Chairman of the WTO's Committee on Trade and Environment, Amb. Sanchez Arnau of Argentina, noted that while two years of work had not concluded the debate and further work was needed, there was no a consensus that trade was not the primary cause of environmental degradation, but rather production and unsustainable consumption.

The former head of UNEP, Dr.Mostafa Tolba, another expert panellist, challenged this view and noted that when Africa was suffering one of the worst famines and environmental degradation between 1967-1972, peanut production had increased by 70 percent. Similarly, in 1971, Senegal saw a production of 200,000 tons of cotton, a crop it had never produced before. Tolba blamed this kind of 'production' of cash crops for export at the doors of the Lome Convention which provided 40% aid for cash crops for export. "How can we then say that trade does not have a major impact on environmental degradation," asked Tolba.

Arnau had also referred to the CTE's conclusions about subsidies in the agriculture area and had noted that this had been one of the most difficult areas during the Uruguay Round.

Tolba referred to this and noted that agricultural subsidies of all sorts accounted for one trillion dollars while the entire official development aid to developing countries was only $55 billion.

He wondered how 'positive' measures could be promoted and how finance and technology could be made available to SMEs which in a country like Egypt involved a really small establishment with one or two workers.

But Dr. Anthony Artuso, Prof of Public Policy at the University of Charleston (South Carolina, USA) who is doing some work with UNCTAD on the socalled 'bio-trade', said that the prospects of this coming from the United Nations was unlikely in the present climate for foreign aid in the US and until the UN reforms were in place. He suggested that micro-credit as a solution.

Tolba, a micro-biologist by profession, who is now heading the Egyptian delegation to the CSD (and the forthcoming UN Special Session on Agenda 21), also complained that there was no interaction amongst trade, environment and economic experts and negotiators. At the WTO trade officials talked among themselves, and at the UN-CSD delegates from environment ministries and foreign offices interacted, but there was no one from trade and economic wings of government. UNCTAD could provide a forum where all three could interact.

The Mexican ambassador to WTO, Alejandro de la Pe$a, said that while countries might not be able to include everyone in their delegations, but that in his own country for example there was an effort at coordination among the concerned ministries.

Supporting Tolba, the US said that while it sought to bring in its delegation (at WTO and at UNCTAD), this was not the case with other delegations. India noted that the question of financing of experts from capitals of developing countries was before the Trade and Development Board, and hoped that the US would support it.

On the issue of MEAs and the 'least restrictive approach' to trade, Tolba said that where global consequences were involved such as on ozone in the Montreal protocol, actions would have to be put in place irrespective of their trade effects, and trade sanctions would be needed against those countries that refuse to participate in such MEAs. But he was concerned that new terms like 'least trade restrictive' or 'common and differentiated responsibility', 'common concern of mankind' etc were being continually used without a clear definition of the terms creating considerable difficulties and differences.

Tolba also raised the issue of the "seed trade" and noted that for thousands of years farmers had been collecting seeds for their use next year or traded them with other farmers. Over the last 40-50 years, a lot of seeds from various countries have been collected and this has formed the basis for today's annual $100 billion "seed industry". The Convention on Biological Diversity (CBD) had made some provisions to ensure that the countries of origin shared in the benefits of the value-added on these through patents or genetic engineering. Tolba wondered what progress had been made on this.

Prof. Artuso referred to the bio-chemical products market which now exceeded 200 billion dollars, with some fifty percent of the products derived from natural products or ingredients derived from natural products. The cosmetic industry with a $30 billion market was another. At present the benefits derived by developing countries was essentially in the form of sale of raw materials either to the R & D process or the production process. The Bio-trade initiative would address some of these issues, and would enhance the value added of developing countries providing the raw materials.

On the question of operationalising positive measures for transfer of technology, and making them available to small enterprises to enable them to reduce environmental pollution, Prof. Artuso suggested micro-lending as a solution. He did not see any major UN initiative, until the issue of reform and restructuring of the UN and the political questions involved were worked out.

On the view that Foreign Direct Investment would resolve some of the problems of inequity, Tolba pointed out that very little was going to Africa and asked what were UNCTAD's recommendations to bring about a better distribution of FDI.

The Mexican ambassador said trade could not resolve all the problems of environment, and the WTO was not the place to deal with all the environment problems, but could only focus on trade problems.

Prof Artuso said that the trade and environment debate has been characterised by some antagonisms, with the environment community looking at trade liberalisation as resulting in lowering standards, in a "race to the bottom". Hence the call of some NGOs for PPMs and tariffs to compensate for low environment standards and costs. Developing countries have taken the view that these would give substantial scope for new barriers and will come in the way of their economic development, and even sustainable development.

The discussions in the WTO's CTE seemed to have laid to rest some of these controversies. But for many environment groups there is still some substantial concern over decisions within the WTO. There was also the concern about conflicts between MEAs and the WTO rules - a conflict that might have been laid to rest within the WTO, but not outside.

Whatever the merits of these controversies, the trade and environment debate has been cast in terms of an appropriate balance between two conflicting objectives. The UNCED Summit of 1992 and the Agenda 21 had laid emphasis on positive measures.

The environment movement is no longer confined to the industrial world, but is gathering strength in the developing world too, he said. There are also political groups in the US concerned over issues of "political sovereignty" and any restrictions on this that the WTO rules might impose. The trade/environment debate and trade rules have to take account of these, he suggested.