Implementing MEAs: Trade and Positive Measures
The history of recent multilateral environmental agreements (MEAs) shows that their successful negotiation depends on the combination and balance between coercive trade and incentive-driven positive measures. Logic and the cumulation of policy practice with MEAs also show that the more balanced the combination of trade and positive measures, the more effective the MEA.1
Trade measures in environmental policy-making are instruments applied to restrict or prohibit trade in specified products for the purpose of either reducing or eliminating an environmental externality, hence achieving a desired environmental objective. These measures are sometimes considered as negative, coercive, or even punitive. Trade measures may be applied between parties to an MEA, and/or between parties and against non-parties.
Out of the approximately 180 existing MEAs, eighteen - or ten percent - contain explicit trade provisions.2 Indeed, an initial difficulty in evaluating the effectiveness of trade measures in MEAs is that judgements are based on such a narrow sample ten percent is a low basis for far-reaching generalizations. Since the Convention on International Trade in Endangered Species (CITES) in 1973, only five MEAs with trade measures have been adopted and none since the June 1992 Rio Conference. Nonetheless, it is important to keep in mind that the five MEAs adopted since CITES may represent strategic examples of a trend to use trade restrictions in MEAs for achieving environmental objectives. This perspective is reinforced by the fact that these are the most global and actively functioning agreements, on which the attention of the global environmental and trading communities has largely focused.
The different types of trade measures in MEAs currently in use comprise outright trade bans/prohibitions, quotas, certificate arrangements that include import and export permits, Prior Informed Consent Procedures (PlCs) and mandatory labelling schemes.3
The term positive measures is recent but has acquired currency. While it does not appear in any MEA, the term has been used in post-UNCED analysis at UNCTAD, WTO, UNEP and CSD.4 Positive measures are combinations of specific non-restrictive instruments, acts and processes employed by states in cooperative interaction for achieving environmental goals. These measures include the building of expert capacity, granting of grace periods to enable countries to make domestic adjustments necessary for satisfying commitments in MEAs, transfer of environmentally-friendly technology on agreed terms, funding of incremental costs of projects, joint project implementation, environmentally-friendly project subsidies, and improved market access to enhance revenues from exports. These measures can either be domestically designed for use by individual countries, or employed as part of an MEA negotiated on the basis of international cooperation.
Positive measures tend to be considered as second-order supplementary measures, offered as compromises only to weaker countries and firms lacking in capacity. Although developing countries may, on balance, need these non-restrictive measures more than developed countries, positive measures are also required by developed countries and by firms operating in them, even strongly competitive firms. For instance, in the areas of health and safety - including environmental protection - business and industry require transitional periods to make essential technical adjustments to align their operations with technical standards and regulations. These include the installation of pollution abatement devices such as catalytic converters and desulphurization equipment in coal-fuelled power stations. Climate change provides an instructive example in 1992, at Rio, developed countries (Annex 1 countries) agreed (``aimed") to stabilize their greenhouse gas emissions at 1990 levels by the year 2,000. The eight-year grace period for adjustment is a positive measure, even though most of the countries are not on target.
UNCTAD has circulated a paper which proposes an agenda for positive measures,5 highlights the difficulties in giving effect to them, and offers suggestions on their implementation. The case for positive measures in the paper is based on three arguments. Positive measures have been included in MEAs in recognition of the fact that compliance failures are not the result of deliberate policies, but arise from countries' need for assistance to adjust to the socio-economic changes necessary for MEA compliance. These measures can assist in mitigating the likelihood of conflicts between trade measures used in MEAs and the rules of the trading system. Accordingly, positive measures can be used as bargaining chips for undertaking new commitments.
UNCTAD also highlights three difficulties that hinder the implementation of positive measures. First, in the implementation of MEAs, compared to trade measures, no implications ensue from the abandonment of commitments to positive measures. For example, no consequences arise from a breach of the commitment to transfer technology. Second, as several MEA Conferences of Parties (COPs) have noted, the exclusive rights granted under Intellectual Property Rights (IPRs) could increase the cost of acquiring technologies authorized by MEAs. Third, apart from provisions for financial mechanisms in some MEAs, there are no explicit references to mechanisms for technology transfer, for instance, through the purchase of equipment, licensing, foreign investment, application of scientific research results in the public domain for developing technologies for the use of firms. The paper, thereafter, suggests innovative ways of implementing positive measures in capacity-building, technology transfer, transfer of financial resources and market-based instruments.
It must, however, be emphasized that positive measures do have potential weaknesses. Like trade measures, although they are neces-sary and effective - and sometimes may need to be discriminatory - their effects can also bias and distort, as well as lead to unforeseen and unintended effects, resulting in either welfare or environmental losses. Balanced views of positive measures just like trade measures should always be presented. Illustrative examples include
The rebatement of energy taxes on weaker industries has produced unintended effects of increasing pollution levels and causing severe environmental harm.
Long adjustment periods for developing countries and weak producers in developed countries have down-sides. Under the Montreal Protocol, it has been noted that industries phasing out ozone-depleting substances may sell such substances below market price to developing countries, thus creating dependence. In a survey by UNCTAD based on a 1994 Ozone Secretariat data, a sample of 16 developing countries revealed that CFC consumption had increased by 45 percent in the period between 1986 and 1992. The UNCTAD study concludes that allowing developing countries to increase CFC consumption may lead to a higher dependence and higher phase-out costs for the countries concerned, as well as promote the likelihood of the migration of environmentally-harmful industries.
Relaxing the terms of transfer of technology under intellectual property rights protection could create competitive anomalies for both the recipient country and the transferring country. The transferring country could acquire competitive export advantage. Furthermore, the competitive potential and creativity of developing country recipients could be blunted by indiscriminate, inappropriate technology transfers.
In the application of positive measures, the ``guilty" - polluters - should never be rewarded, weak capacities notwithstanding. It is also necessary to mention that the trade community has not expended sufficient efforts to fully understand positive measures and their effects. More work is required by the policy research community on positive measures, the scope of their application in either all or selected MEAs, their usefulness and degree of effectiveness, and their impact on countries. Additional work is also required on their pricing and competitiveness effects.
In the resolution of environmental problems, trade and positive measures are inextricably interlocked. The interactive nature of this relationship is significant and needs to be further explored; advocacy of one type of measure against the other is unproductive. For instance, the imposition of a prohibition on an environmentally harmful product ``X" in the absence of readily available substitutes is meaningless. Attention should also be paid to appropriate timing:6 trade restrictions designed to promote environmental goals tend to be effective in the immediate and only over a limited period of time, while their prolonged application tends to generate distortions. Similarly, short phase-out periods for environmentally harmful substances are more effective than prolonged transitional periods which create distortions. A careful study of the complementarities of both types of measures and their possible creative combinations can be used to great advantage in the search for effective implementation of MEAs. In so doing, it is vital to understand that neither type of measure is neutral. They can, and do, have the potential to create distortions.
Discussions in the environmental and trade communities have become overtly biased trade measures are seen as negative and non-trade measures as positive. However, closer examination suggests that trade measures are not always necessarily coercive as evidenced by the interdependent use between countries of import/export permits or the Prior Informed Consent Procedure (PIC), some can be cooperative. Positive measures, however, appear to be consistently cooperative.
The effective implementation of MEAs requires that governments abandon encrusted positions and free themselves from one-sided approaches of either trade measures advocacy or a singular preoccupation with positive measures. While pursuing global environmental goals, environmentalists also need to free themselves from narrow constituencies. Finally, the policy research community needs to be more modest and present its valid research findings only as partial snaps of an exceptionally complex picture.
An integrated, balanced and binding combination of trade and positive measures within the same macro-framework will make MEAs sensitive to changing environmental, technical, scientific, and economic situations, and hence more effective. More effort should be invested in creatively designing the ideal combinations of coercive trade measures and positive measures for individual MEAs. Much less time should be devoted to the debate about the GATT/WTO consistency of trade measures used in MEAs, or about which group of countries most hinders global efforts at environmental protection. Even if all differences at the WTO were to be resolved, and consensus were to be reached on accommodating trade measures pursuant to MEAs within GATT rules, MEAs would not be any more effectively implemented than they currently are. Such an accommodation would simply be legal formalism that only responds to fears and uncertainties over the possibility of legal challenges to trade measures in MEAs.
It should constantly be borne in mind that no challenge has ever been brought by any member of the WTO in respect of trade measures used in MEAs. What has been challenged are instances of unilateral extra-territorial efforts at environmental protection. The risks in this sort of conduct are so high and so potentially destructive of multilateral efforts that they should be challenged. The disciplining effects of globalization combined with multilateral trade and environmental rules present the international community with a unique opportunity to consolidate its efforts in order to secure global environmental dividends.
Cheidu Osakwe is Senior Counsellor for Ecomic and WTO matters at the Permanent Mission of Nigeria, in Geneva, Switzerland.
1 The definition of balance between measures is not necessarily quantitative. It simply refers to an integrated interactive combination of trade and positive measures to ensure that: i) the appropriate mix of measures address all identified legitimate problems within the MEA; ii) measures are mutually reinforcing for the effective implementation of MEA objectives; and, iii) that possible distorting effects by one type of measure will be corrected by the other. Finally, the combination of measures also ensures negotiating compromises essential for compliance within and amongst countries.
2 See, Trade Measures for Environmental Purposes Taken Pursuant to Multilateral Environmental Agreements: Recent Developments. Note by the Secretariat. Preparatory Committee for the World Trade Organization (Sub-Committee on Trade and Environment), PC/SCTE/W/3, 13 October, 1994:1. For the description of the MEAs containing trade provisions up until 1991, see, Appendix I of GATT'S International Trade, Volume 1,1990-1991:45-47.
3 See, TRE/WIl 0 17 March, 1993. (Group on Environmental Measures and International Trade). Agenda Item 2: Multilateral Transparency of National Environmental Regulations Likely to Have Trade Effects.
4 Nature and Extent of GEF Projects in Assisting in the Implementation of Multilateral Environmental Agreements, WT/CTE/W/58, 2nd September, 1997:footnote 1.
5 Positive Measures to Promote Sustainable Development in Particular in Meeting the Objectives of Multilateral Environmental Agreements, Report by the UNCTAD Secretariat, TDIB/COM.l/EM.3/2, 1997.
6 Refers to the period of application of a measure whether short, medium or the long-term. The period of application of measures entails significant differences in effects.