5:54 AM Nov 9, 1995

TRADE INTERFACE WITH DEVELOPMENT STRESSED

Geneva 8 Nov (Chakravarthi Raghavan) -- The importance of injecting the development dimension into the interface of trade and environment and creating a consensus on international measures, and need for positive trade measures rather than restrictive actions were stressed at the meeting this week of UNCTAD's Ad Hoc Working Group on Trade, Environment and Development.

Secretariat documents before the Group have brought out beneficial effects of positive trade measures to encourage actions by developing countries to protect environment and promote sustainable development as also ineffectiveness of achieving this objective by negative and discriminatory trade-restrictive measures.

The documents also brought out that such trade-restrictive measures, whether regulatory in terms of recycling requirements or processes used in production, not only proved to be protectionist and discriminatory, but could even harm the differing environment situations of the developing countries.

Addressing the Working Group, UNCTAD Secretary-General Rubens Ricupero said that UNCTAD's comparative advantage would lie in bringing the development dimension to the interface between trade and environment, thus complimenting, without duplication, the WTO's Committee on Trade and Environment.

Effects of environmental policies on trade and competitiveness can be positive, Ricupero said, if there was adequate technological progress, innovation, open markets, economic growth and a climate fostering exports from developing countries.

In looking at the impact of environment policies on developing countries, it was hence necessary to reflect upon the role of trade policies such as elimination of trade distortive subsidies, the role of the trade-related intellectual property rights (TRIPs), the effects of tariff-escalation and the role of trade in domestically prohibited goods., the UNCTAD Secretary-General said.

The trade and environment debate, the UNCTAD head said, became even more complex when the development dimension is added. For developing countries, it was not only a problem of allocating resources between different priorities, including poverty alleviation, but also a question of judging whether a response to trade-related environment measures met their own development and environment priorities.

A unit of investment in infrastructure, Ricupero pointed out, often yielded far higher marginal benefits to the environment than a comparable unit of investment in pollution abatement.

When trade measures in pursuance of environmental objectives in Multilateral Environment Agreements (MEAs) have differentiated effects as between the industrialized and developing countries, such measures should not undermine the principle of "common but differentiated responsibilities" -- a principle that the member-States of the UN had endorsed at the 1992 UNCED Summit at Rio de Janeiro, Ricupero stressed.

Carlos Fortin, Deputy to the Secretary-General and Director-in-Charge of UNCTAD's Trade division, suggested the discussions should focus on positive measures including financial and technical assistance, access to environmentally friendly technologies on favourable terms, promotion of use of environmentally preferable substitutes, market-based instruments and voluntary mechanisms on foreign direct investment.

If trade and environment problems were not analyzed in the broader context of development, they will be both iniquitous and inefficient, Colombia speaking for the Group of 77 and China told the Working Group.

The Colombian delegate questioned the effectiveness of use of trade measures for the achievement of environmental objectives of MEAs and called for full analysis of the secondary effects before such measures were implemented.

Positive measures such as investment-related mechanisms, relaxation of intellectual property rights and other market-related mechanisms were preferable to trade measures, the G77 and China said. Also, the Rio principle of "common, but differentiated responsibilities" should be adhered to and constantly reviewed.

The G77 and China were concerned that environmental standards were emerging in sectors where comparative advantage has shifted from developed to developing countries. New regulations were being imposed in sectors like textiles and clothing, footwear, electronics and furniture and all such measures would erode the gains achieved by the countries of the South through the Uruguay Round tariff reductions.

To mitigate the possible negative effects on trade, environment measures have to be made transparent and formulated in consultation with trading partners and special mechanisms established to reduce the vulnerability of small- and medium-scale enterprises.

There would also be a need to examine closely environmental measures to ensure that their benefits are proportional to the costs of imposing them. The principle of proportionality is implicit in the WTO/GATT law of least trade restrictiveness in relation to invoking 'general exceptions' provisions, and also implicit in some MEAs and even in national environmental policy. The United States, for example, decided to exclude from its toxic chemical register some products containing these chemicals since it felt that the environmental benefits may be insignificant in comparison to the costs involved.

Egypt, speaking for the African Group, underscored the difference in competitiveness impact of similar environmental policies on developing and developed countries. About one-third of value of total exports, and around one-half in value of total manufactured exports, from developing countries were potentially affected by the environment requirements.

Tariff escalation impeded market access for processed raw material and other products from such countries -- adding to difficulties of these countries in undertaking economic diversification and thus limiting potential resources available for environment protection.

Trade bans, applied on the basis of the precautionary principle due to the difficulty and expenses of the importing country on risk assessment was a source of concern. So also was the increasing recycled content and recycling requirements facing exports of developing countries.

Environmental policies, Egypt said, must pass the tests of necessity, effectiveness and least trade restrictiveness and there should full prior consultations with developing countries before environmental requirements affecting their exports are introduced.

For the Group of Latin American and Caribbean (GRULA) countries, Venezuela said it was a fact that cost of adaptation to new environmental requirements was higher for firms in the Third World than in industrialized countries, and this had greater impact on competitiveness of Third World firms.

New environmental requirement affecting developing country export sectors which had concentration of small and medium enterprises, with a high employment capacity. There was need to promote concrete bilateral and multilateral actions to support such SMEs facing growing market obstacles through technical and environmental regulations, the GRULA spokesman added.

Bangladesh stressed the close links between poverty and environment and saw no reason why the environment standards of the developed countries -- with their higher living standards and higher levels of environmental degradation -- should be imposed on the least developed countries. The internalization of environmental costs changed the international competitive conditions. Bangladesh also complained that the comparative advantage of developing countries in labour-intensive, low-value-added products were becoming the subject of environmental regulations in the OECD countries.

Rejecting extra-territorial imposition of environmental standards, India said environment measures relating to products must be arrived at in a transparent manner and should be justified. The Asian region has become most vulnerable to trade-related environmental policies and most environmental measures with trade effects were emerging in sectors where the industrialized countries were losing comparative advantage and where the developing countries had increased their market shares. SMEs account for a large percentage of exports in these sectors and special measures -- exemptions, financial and technical assistance, FDI and other positive incentives.

In sectors where a large proportion of imports in the industrialized countries from the developing countries, there should be an analysis of the economic costs associated with different levels of risk in assessing the impact of the measures on producers in developing countries. UNCTAD should initiate work on a set of principles for voluntary measures such as eco-labelling, technology transfer, codes allowing for exemptions from TRIPs and on voluntary investment codes facilitating investment in environmentally sound technologies.

Mexico said that competitiveness could not measures only at level of isolated sectors and firms, but has to be analyzed at country level, including both losing and gaining sectors. It had to involve not only those having to adapt to new environmental measures, but also those seeking new markets for equipment, services, know-how and environmental technologies. Mexico called for mechanisms to enhance participation of developing countries in the formulation of new measures with a possible trade impact, including voluntary ones, and of environmental management systems.

The United States, while commending the secretariat's "thoughtful documentation", disagreed with some of its statements. It did not seem to be reasonable to conclude that trade and competitiveness effects of MEAs might be relatively high for developing countries. The US had serious doubts about "compensatory mechanisms" in MEAs. The purpose of special provisions in MEAs was not for "compensation", but merely a reflexion of the common but differentiated responsibilities. The US also questioned the assumption that MEAs with trade measures had greater effects on competitiveness than those without them. The secretariat's analysis of the Montreal protocol suggested that the agreements impact arose from its controls on production and consumption rather than trade.

Switzerland viewed as dangerous the links suggested between increased environmental awareness and reduced competitiveness in the industrialized world, and argued that increased environmental awareness and measures were the result of demands of consumers. It was also not necessarily more difficult for SMEs to adapt to new requirements than for large corporations. The Swiss delegate did not see UNCTAD as the appropriate forum to discuss whether trade policies in MEAs were necessary and efficient.

China said that international environmental regulations, with or without trade measures, had a clear impact on the trade and competitiveness of developing countries. Without effective support measures from the international community, it would be difficult for these countries with old technologies to produce substitutes for controlled substances in conformity with the Montreal Protocol, even though they had been granted a delay until 1996.

Developing country enterprises had greater difficult in getting Eco-labels because of important differences in their environmental standards and financial and ecological limitations, China said. If such enterprises had to bear the entire cost of internalizing environmental effects, it would dramatically increase their production costs and their export competitiveness would be seriously eroded, China added.