10:30 AM Feb 7, 1997

IMPROVE MARKET ACCESS FOR GENERATING RESOURCES

Geneva 7 Feb (Chakravarthi Raghavan) -- The need for special attention and initiatives for improving market access conditions for exports of developing countries to enable them to generate resources for sustainable development has been advocated by the UN Conference on Trade and Development in a report to the Commission on Trade.

Such measures have become more necessary since progress on providing additional financial resources and increased access to and transfer of technology to developing countries (promised at the Rio Earth Summit in 1992) has not been encouraging, the report says.

The trade liberalisation and improved market access, the report says, should pay special attention to low-income, commodity-dependent countries and others who are marginal participants in world trade, such as the least developed countries (LDCs).

Expansion and diversification of export opportunities, including diversification into higher value-added products, could help these countries to reduce poverty and protect the environment.

The report though is somewhat less specific in identifying the problems of diversification into higher value added products faced by the developing countries or solutions.

Though environmental policies in developed countries do not have generalized effects on market access for developing countries, country case studies indicated that environmental measures and requirements may affect competitiveness and market opportunities for firms in some sectors and, in particular, small and medium enterprises (SMEs).

These problems arise from fixed costs of installing environmentally sound technologies which could be high for SMEs, difficulties in passing on increased costs to the consumer, lack of finance and access to technology and difficulties in obtaining environment-friendly input materials (such as dyes and chemicals).

On Eco-labelling, the report notes some progress on building consensus around principles to guide operation of such programs -- the process of developing environmental criteria, procedures on conformity of assessment, transparency, equal access for domestic and foreign companies to the eco-label etc.

The report notes the work of the International Organisation of Standardisation in developing international standards as part of the 14000 series of standards, as providing useful guiding principles in this area.

However, a recent report by the international NGO, World Wide Fund for Nature, on the work of the ISO casts some doubts on the transparency of the ISO work in standards development in the new area of environmental standards, particularly its working groups, and the ISO claim that its standards are based on consensus.

The report suggests that the ISO procedures, for setting technical standards, are insufficient to guarantee access to the many stakeholders in the environment area.

The working groups have convenors, and they meet in various parts of the world, making it difficult for developing countries or NGOs to attend or follow them. The convenors of these working groups have the prerogative to decide on their procedures -- with rules varying from one expert one vote (with a delegation able to have more than one expert) to one delegation or liaison organisation one vote. Some of the working group decisions have been taken by vote, and sometimes very close vote.

However, the ISO which despite its name is not an 'international organization' has status and prestige in terms of the Uruguay Round agreements and the WTO.

The UNCTAD report notes that while there has been some progress on the eco-labelling issues, there has been little progress on the non-product related PPMs (process and production methods) and their treatment which is a critical issue in the debate on eco-labelling.

In the future debates on competitiveness, the issue of border adjustments for PPM-based taxes may also become a contentious issue. PPMs are also likely to be an important factor in many cases in distinguishing environmental requirements from other technical standards.

Since a large part of the environmental effects appear to be associated with the production process, rather than the product, standards on PPMs are of key importance.

But to the extent environmental effects are intrinsically local, using the same standard across countries or regions or even within a country may not be appropriate, more so since standards can be more effective if they take account of environmental and developmental conditions to which they apply.

Hence, the report says, using trade measures based on PPMs may not meet the environmental objectives. And where environmental problems are of a global nature, the principle of common but differentiated responsibilities could be taken to mean either that differing standards could be used to achieve a common environmental goal or that developing countries should receive financial assistance to bear incremental costs of implementing such a multilaterally agreed standard.

In the trade context, applying PPMs to imported products could involve extra-territorial application of domestic environment law. It also raises the question whether use of non-product related PPMs in the context of environment would set a precedent for other non-trade related objectives through use of trade restrictions based on PPMs.

The report does not mention any of these last -- but various groups in the industrial countries have been advocating use of trade sanctions and restrictions to keep out products on grounds of social standards, human rights or other considerations and norms in their production.

The report notes that for these and others, generally conditionalities on market access based on PPMs is generally considered incompatible with existing trade rules.

Also, compliance with specific PPMs may involve use of specific technologies, and the possible discriminatory character of PPM-based standards could be magnified, depending on the degree of patent protection of specific technologies.

Future work on PPMs, UNCTAD suggests, could include consideration of issues such as relationship between PPMs and trade, including trade principles to ensure PPM-based instruments do not result in arbitrary discrimination or unjustified restrictions on trade.

A second issue is whether international standards developed for instruments and measures which extend to PPMs, such as the ISO 14000 series, could provide sufficient guarantees.

And if there is a consensus to move towards a larger consensus of PPMs, what would be the appropriate mechanism for this, and what would be the role of Foreign Direct Investment -- taking into account interests of all parties with different environment endowments and at different levels of development.

The report notes the generally agreed view that unilateral trade restrictions should not be used to influence PPMs outside a country's own territory, and suggests that the debate on PPMs should be based on pragmatic approaches, positive measures, and international cooperation, including in the context of FDI, rather than in the context of trade rules.

SMEs, the report notes, often make a relatively large contribution to industrial pollution, and may encounter special difficulties in responding to environment challenges.

At the same time there is considerable potential for improving environmental management in SMEs, provided proper supporting infrastructure - including access to finance, technology and information - is set up.

The report says there is no empirical evidence that existing environment policies have widespread effects on market access. But effects could be more significant in some sectors, and for SMEs.

While progress has been made on market access, by completing the Uruguay Round negotiations, their timely and full implementation has an important role in promoting sustainable development. Since progress in other areas of Agenda 21 (of UNCED) -- such additional financial resources and access to and transfer of technology -- has faced a number of constraints, trade liberalisation and improved market have become even more necessary.

The effects of trade liberalisation on the environment are unlikely to be either universally positive or negative, and will probably differ by country, sector and commodity in question.

Additional environmental benefits could accrue to developing countries from trade liberalisation on account of income and technology effects. Trade liberalisation could also be a catalyst in implementing domestic policy reforms in both developed and developing countries, resulting in further environmental benefits.

The report says that a wide range of positive instruments, including positive measures, could be used to achieve environmental objectives of the MEAs.

The environmental effectiveness and economic efficiency of individual policy instruments used in MEAs are difficult to assess. But this should not prevent attempts to take stock of the effectiveness of the instruments and their economic and social costs, so as to identify measures to reduce these costs.

There is also need for more empirical analyses on the economic effects of MEAs, and studies are also needed to assess the effects of trade and other policy instruments in MEAs on achievement of their environment goals and on economic development.

While several MEAs have positive measures, these are not generally binding. Initiatives may hence be necessary to promote effective implementation of positive measures. MEAs, for e.g, could provide incentives and specific mechanisms for facilitating technology transfer. There is also need for increased involvement of developing countries in the design and implementation of positive measures.

The report underscores the need for an analysis of the role of FDI in promoting access to and transfer of environmentally-sound technologies, thereby assisting developing countries to respond effectively to environmental challenges, including in the context of MEAs.

More analysis would also be needed to identify policies and measures aimed at maximising role of FDI in supporting developing countries in their efforts to achieve the objectives of sustainable development.