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Trade, Environment and Sustainable Development

Geneva, 17 March 1998 - Statement by Mr. Klaus Topfer Executive Director, UNEP, to the WTO Symposium.

Excellencies, Distinguished Delegates, Ladies and Gentlemen,

This is the first time that the head of the United Nations Environment Programme has addressed either this organization or the GATT. This is an important sign of cooperation between the trade and environmental officials. It is also an important opportunity to identify areas of mutual interest and mutual cooperation. Let me state at the outset that there are many areas in both environmental and trade policy which share common objectives, and which can benefit from coordinated approaches.

The trade and environment debate has been under way here at the WTO, and in a different version in the GATT, for almost seven years now.

Much has been accomplished during that time.

Both trade and environment officials realize that the linkages between the two issues are highly complex, progress is incremental, and that suspicions still remain.

While we can look back at what has thus far been achieved, we acknowledge that economic globalization has delivered economic growth to many. It has helped alleviate poverty in many countries. It has helped build economic cooperation and better international cooperation among nations. And it has helped bring new discipline to economic relations.

In looking at the accomplishments of economic globalization, the role of trade has indeed been pivotal. Growth in trade has outpaced other indicators of economic growth. It has been an important engine of economic growth in the last fifty years.

In May this year, the world trading system will celebrate its first fifty years. It is an occasion to be proud of. It is also an occasion to look ahead, as Members consider the right time to launch a new round of multilateral trade negotiations.

At the same time, we know all too well that economic globalization in general, and trade liberalization in particular, continue to present new concerns, concerns for which we do not have precedent. The record shows that globalization is proving more difficult, and more turbulent than previously imagined. Following the deregulation of the markets and the establishment of regional trading agreements, there is an increasing competition in vital sectors of the economy. Waves of privatization have hit diverse sectors of the economy. National governments have less influence than they had before.

The success of over four decades of the multilateral trading system has predominantly been built on the success of shallow economic integration among a relatively small number of countries. With the WTO in place, we together face the challenge of unexplored deeper economic integration. As an economist, let me stress that deeper economic integration poses far more complex public policy issues than a gradual elimination of tariffs and the tariffication and reduction of various non-tariff measures. Elimination of tariffs is not an end in itself. These are complex issues, and the record shows impressive strides forward.


Deeper economic integration poses difficult questions about where trade integration ends, and where other aspects of public policy begins. To what extent does the drive for further liberalization confront various public policy preferences which invariably have secondary economic effects? And what is the marginal return in seeking to liberalize such policy choices?

Looking at the larger picture, environment is an important component of the public policy. Environmentalists are not against trade. And economists are becoming increasingly aware of the fact that neglecting environmental repercussions in economic decision-making is poor economics.

We must focus on developing a win-win agenda. Trade can be a tool in shaping a world that is environmentally sustainable and socially just. Poverty is the most poisonous substance for sustainable development, for social stability and for environmental responsibility. Policymakers must get on with the task of determining how the rules of trade can be revised to help achieve it.

These questions are difficult, and become even more so when the traditional role of governments themselves is being fundamentally reassessed. The public sector is grasping to understand, let alone regulate, the quickening pace of economic integration.

New rules in economic relations are not written in these rooms, but by the practices of the private sector. For those who believed that governmental approval of the principle of sustainable development at Rio six years ago was sufficient to ensure its implementation have been deeply disappointed by the actual implementation of Agenda 21.

And so after years of false congratulations, we now recognize the hard truth that sustainable development is not built by political statements, by legal promises and photo-opportunities. Those who take solace that sustainable development has become a forceful foundation of international relations at the end of this half-century should well recall that belief that collective security formed the basis of international relations in the previous one, founded on the optimism of the League of Nations.

Our task is to ensure that the responsibility of governments is to pace as quickly and as innovatively what is taking place in actual markets. These are difficult issues, ones both Messrs. Ruggiero and Ricupero continue to examine thoughtfully. These are also questions of profound importance in addressing the linkage between trade liberalization and environmental policy.

Having followed the debate on trade, I believe that in the last seven years, there has been progress. Many of the environmental conventions, that have been forged by the global community have clear links with the issue of trade. I refer to the Basel Convention, CITES and the Convention on Biological Diversity. The trade community has thus already been dealing with environmental concerns.

The main fear among trade officials, that any linking of environment with carefully balanced trade rules would invite the "slippery slope" by which protectionist impulse would undermine basic tenets of free trade, have been unfounded. At the same time, many hypothetical legal scenarios - such as how to address a dispute between the WTO and a Multilateral Environment Agreement - have remained entirely that, hypothetical.

And yet seven years later, more work remains to be done. And it needs to be done with a sense of urgency. While I appreciate keenly that the pace of multilateral trade negotiations rests on a careful balance of many interests, we in the environmental community are faced with a different timetable, based not on a balance of economic trade-offs, but on indicators of environmental degradation. Those indicators drive home the fact that time is not on our side, that environmental degradation is accelerating. It has reached global proportions. And that for each environmental problem that is solved somewhere, new ones emerge, and that critical ecological thresholds are in increasing danger of being breached.

While this institution has discussed the trade-environment interface, the costs of not integrating environmental costs have increased several times in their impact. Degradation of soil affects 43 million hectares every year. 7.1 billion tonnes of carbon dioxide, 375 million tonnes of methane, 3 to 8 million tonnes of nitrous oxides are released into the atmosphere every year. 13.7 million hectares of forest are felled every year. 100 to 300 species may be getting extinct every year. Over 400 million tonnes of hazardous wastes are generated every year. 35,000 children die from environmentally related diseases every year.

Ladies and Gentlemen, in the face of these and hundreds of other clear indicators of environmental degradation, arguments which demonstrate an absence of tangible trade problems arising from legitimate environmental problems are not evidence of meaningful progress on trade-environment integration.

Environmentalists continue to look to this and other institutions with a sense of urgency, not because we challenge the basic assumptions of trade liberalization, but rather because we are faced with how best to tackle ecological degradation.

During the last seven years, steps forward have been made in building international environmental cooperation. The Global Environmental facility -- with triennial financing of $ 2.3 billion was established and is up and running; the Conventions on Climate Change and Biodiversity were negotiated, signed and entered into force, together with the Convention on Desertification; the Law of the Sea also entered into force; international legal agreements such as CITES, the Montreal Protocol and Basel have undergone numerous and important amendments; the Protocol on Biosafety is near completion,together with new agreements on Prior Informed Consent. And three months, ago, the Kyoto Protocol to reduce greenhouse gas emissions in Annex 1 countries was completed.

The forging of these global conventions - which are all instruments to influence trade - suggests that it is not a Trade versus the Environment issue that we are faced with, rather that a sound environmental approach is a precondition for economic growth.

The Kyoto Protocol is just one example which underlines the economic implications of international environmental agreements. And one lesson we have learned is that economic approaches to environmental policy implementation help achieve complementarities between the innovation, reducing deadweight losses, and most crucially, getting the prices right as a first step in getting the policy right. The adoption of the Clean Development Mechanism in Kyoto emphasizes the market-based approaches, including tradeable emissions permits, joint implementation, as well as the development and diffusion of cleaner and more efficient energy technologies. It is my intention that UNEP provide analysis and support, in particular to the developing countries, in following through on the CDM decision.

What is of importance to this meeting is that these examples of environmental progress also mean that new questions should be posed by the trading system. The narrow question is whether there will be trade-distortion or other effects. For example, an unexplained area is to what extent could or even should tradeable emission schemes fall under WTO disciplines, such as the Services Agreements? Yet the wider question, which I feel is missing from the current trade-environment debate, is to what extent can the trading system support and improve the implementation of the Kyoto agreement, and other agreements? That is changing. The work of Commission on Trade and the Environment in identifying the environmental costs of price-distorting subsidies and trade restrictions at the sectoral level has been a long- standing area of environmental economics. Environmental and developmental NGOs should urge this organization to use its binding legal powers to bring to bear legal discipline concerning, for example, identification of actionable subsidies to get at the worst culprits of pricing distortions.

Clearly, more empirical and analytical work is needed in this area, and work by the OECD, UNCTAD, the World Bank should be taken into account. At the same time, we have long known the order of the magnitude of pricing distortions, as well as their subsidies, over $300 billion in energy subsidies, to name just three areas.

Agricultural subsidies and distortions create unsustainable patterns of consumption.

Let us also not forget that these numbers are often the tip of the iceberg. Unless they are tackled, any attempt at cost internalization will be thwarted.

The CTE's work on identifying environmental benefits in removing trade restrictions and distortions is one important element in plotting how to internalize costs. Clearly, there is the other side to the question: that is, what are the overall environmental effects -- both costs and benefits -- of liberalization? This is a quantitative as well as policy question, in terms of what we know about environmental quality during the sequence of liberalization, as well as its effects on domestic environmental regulations. There is a need to deepen current analysis based on robust empirical data, coupled with economic and other modelling.

UNEP has been working with UNCTAD in understanding sectoral implications at the country level, with ongoing work for example in the automotive sector in India and the forestry sector in Romania. We have formally been asked by governments to undertake environmental reviews of trade policies, and this is a request I take seriously.

It is important at the outset that we get the economic methodologies right, and we look to cooperation at the Secretariat level with the WTO and other organizations, including the World Bank, in helping to ensure this work is rigorous and analytical sound. UNEP has extensive environmental data, including its GIS-based environmental data, as well as data of GEMS and GRID. Environmental data need to be applied to economic data, including strengthening corrections between trade- induced growth and changes in environmental indicators.

In looking at environmental reviews of trade policy, let me also be clear that the dichotomy of either trade liberalization on the one hand or an absolute return to protectionism, on the other hand, is an obsolete one.

The real question posed by such reviews ought to be: can we make the outcome of liberalization better in terms of general welfare gains? When environmental costs are known, can we identify appropriate policies at the outset. And is there scope of adjusting the sequence of trade liberalization to take account of such costs? This question becomes more pressing, given the erosion of trade preferences by developing countries in recent years. This question of sequencing also becomes increasingly important, not only for WTO, but also the Bank and the IMF, given what we know about ecological destruction.

Let me return to what I characterized as a major hesitation among trade officials about the so-called slippery slope: that by introducing environmental considerations into trade policies we run the risk of introducing other, protectionist considerations. I believe that we can address issues like production and process methods, costs of environmental standards harmonization and other issues with balance, discipline and equity.

Let me repeat here that we share one common goal, which is maximizing social welfare. Let me also note that concerns about slippery slope run both ways: environmentalists are becoming increasingly concerned about where the dimensions of a trade dispute end, and where the weighing of sovereign public policies outside of the trade orbit begins. A recent case in which various aspects of differing scientific risk assessment and its implications for the burden of proof and the precautionary principle is a case in point.

In looking at these issues, institutional issues especially globalization and liberalization of the financial markets should be raised.

It has been argued that no institutional counterweight to the WTO on the environmental side exists. This is abundantly clear. The WTO has emerged as the most powerful international organization ever devised: its membership near universal, its mandate based on the compelling economic benefits stemming from the creation of neutral trade policy is clear, and its dispute settlement and appeal process has already shown to have real teeth.

By contrast, UNEP's position and budget have eroded steadily in recent years. One sign of that segmentation and fragmentation is the continued diffusion of independent Secretariats of international environmental conventions. This would be comparable to having independent secretariats of the agreements such as TBT, SPS, TRIPS and other WTO agreements not only operating independently, but actually located in different cities. This weakens the collective voice of the international environmental community, especially with regard to legal matters. It is my intention that UNEP and its Secretariats speak with one, cohesive, coordinated voice on a number of issues -- including trade and the environment -- so that trade officials understand the objectives and actions which their government colleagues in the environment ministries have taken to make these agreements more effective. UNEP must use the synergetic power of the Convention Secretariats especially with regard to the legal field.

This leads me to a final point, and that is about public process, public transparency and intergovernmental coordination.

This dialogue with NGOs is crucially important, both for the organizations present, as well as for the accountability of this organization. The agenda of trade liberalization is no longer a specialized one, in which officials negotiate tariffs. The new agenda touches directly and increasingly profoundly on sovereign public policies in a wide range of areas, including investment, competition policy, intellectual property rights and other areas.

Let me repeat that our goal is to make these policies better. Our experience from the environmental arena is that partnerships with NGOs make for better public policy. Not always, and not easily, but the net result is clear. Indeed, the environmental agenda itself took shape almost 30 years ago because of NGO advocacy, NGO pressure and NGO courage to challenge established economic assumptions.

We can work together, and I congratulate you Director-General and your colleagues in the Secretariat for taking this initiative.

Thank you very much.

Monday 06 Apr 1998
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