5:57 AM Nov 25, 1994

US CRITICISED OVER UNILATERALISM STAND

Geneva 24 (Chakravarthi Raghavan) -- The United States stand that environmental protection may warrant unilateral trade measures came in for strong criticism Thursday at the Sub-Committee on Trade and Environment of the Preparatory Committee for the World Trade Organization.

The Sub-Committee chaired by Brazil's Amb. Felipe Lampreia also discussed the follow up to the UNCED Agenda 21 -- the introduction and section A of Chapter 2 there -- the effect of environmental measures on market access and environmental benefits of removing trade restrictions and distortions, as well as eco-labelling and technical barriers to trade.

At the last meeting of the sub-committee, the US had made a statement implying that unilateral trade measures may be necessary for pursuing policies of environmental protection.

A number of delegations spoke in criticism of this US stand and made clear that any unilateral trade restrictions, for whatever reasons, would be contrary to the rights and obligations flowing from the World Trade Organization. It would not also contribute to environment protection, but would harm it.

On the market access issue, agricultural subsidies in the industrialized countries was identified by a number of participants as the principal element causing distortion in the price formation and thus interfering with the real cost and free play of supply and demand.

Argentina which presented both a theoretical and practical view, quoted OECD studies for the view that trade was not at the root of environmental problems which were caused by defects in the market (such as failure to internalize environmental costs) and policy defects (such as trade barriers and subsidies).

While not all subsidies affected commodities through negative environmental externalities -- incentives for technological change towards environmentally sustainable production processes, for example. had positive effects -- no serious attempt to look at trade-environment relationships could overlook the fact that the hundreds of millions of dollars of agricultural subsidy in industrial countries were far from neutral.

The fisheries sector, with annual subsidies of about $54 billions, was another example of negative impact of subsidies on environment.

Such subsidies encouraged inefficient allocation of resources -- and come even ahead of internalization of environmental costs in prices which distort the price formation system for commodities. The restrictions on market access for commodities also had negative environmental consequences.

If this were not so it would be difficult to explain why products generating either neutral or less negative environmental externalities -- such as 'organic' foods should be more expensive than those with negative or more negative environmental externalities. Even the willingness of consumers to pay this 'green rent' could not easily be incorporated in the price.

While raising the incomes of agricultural producers in developing countries would not be enough to guarantee better environmental practices, this was a pre-requisite for implementation of policies to encourage ecologically sustainable farming practices.

It would not be enough to merely repeat that there was no contradiction between international trade and environment. This was only a half-truth. Nor could it be said that "we are not prepared to accept environmental measures distorting international trade without accepting at the same time the need to eliminate environmental distortions transmitted through international trade".

If there was to be a serious attempt to deal with relationship between trade and environment, the first, logical and indispensable step was to identify and agree on a framework to eliminate subsidies with negative environmental externalities in commodity production process.

With some limited effect, the distorting effects of subsidies on international trade had been dealt with in the Uruguay Round. What GATT was now concerned with was the benefits to be derived from elimination of this type of trade distortion.

Brazil said the issues of market access and environmental benefits should examine the question of internal taxation on tropical commodities. Since there was no production of such commodities in temperate zone countries, such taxes even if in formal conformity with Art III of GATT, in reality distorted competition and were equivalent to a tariff on imports.

This issue had been dealt with in the past in the GATT before without any significant results, Brazil noted in a reference to the efforts dating back to the 60s and the Haberler Committee report and recommendations. In the light of the repeated calls, in Chapter 2 of Agenda 21, for expansion of market access in favour of developing countries, the issue should now be dealt with -- starting with an examination of how it had been dealt with in the past.

Subsidies for agricultural production and export depressed world prices and generated over-exploitation of resources in developing countries needing hard currency. The huge money involved in subsidization could be put to better use by supporting sustainable development in the Third World.

There was also need to support the diversification efforts -- both horizontal to diminish dependence on a restricted number of commodities, as well as vertical diversification efforts since processed products were less subject to price fluctuations.

But vertical diversification efforts, among others, faced obstacles of tariff escalation in the main markets. Though dealt with in the past in the GATT, and even in the Uruguay Round where it had the status of an objective in market access, there had been no systematic treatment.

The GATT secretariat, Brazil said, should prepare papers on the past GATT treatment of local taxes on tropical products as well as the tariff escalation problems on vertical diversification.

In a separate intervention, Brazil also raised the problems arising out of so-called 'eco-labelling' and the EU's finalisation of its proposals in this on paper.

The EU eco-labelling in this provides for such labelling in respect of paper using partly recycled waste paper. While this encourages recycling of the enormous waste-paper generated in Europe and could be environmentally-friendly, it does not make sense when applied to paper imported from tropical countries using fast-growing plantation forests as raw material. In many of these countries, the use of recycled waste paper is not only a more costly exercise, but could even be unfriendly to the environment in terms of chemicals that have to be used, and discharged as wastes, for getting rid of print-ink etc.

Brazil is one of the countries that made representations to the EU, but the EU has now made final its 'standards' for eco-labelling in this regard, and Brazilian pulp and paper industry has been concerned it would have negative impacts for it.