Part 2 of article:


(a) Dangers of increasing WTO's scope through 'TREMs'

The 15 Dec 1993 decision of the Trade Negotiations Committee of GATT proposing a Trade and Environment Work Programme states that whilst desiring that there be coordination of trade and environment policies, this should be done 'without exceeding the competence of the multilateral trading system, which is limited to trade policies and those trade-related aspects of environment policies which may result in significant trade effects for its members.' The GATT Contracting Parties have thus recognised that it is important to ensure that GATT/WTO does not exceed its competence in trade and environment matters. Issues relating to the use of trade measures such as sanctions and penalties should be discussed in fora beyond GATT/WTO in order to determine what is the area of competence (if any) of GATT/WTO. Therefore the work programme should not rush into creating a role and instruments like Trade-related Environment Measures (TREMs) under the WTO's ambit.

A number of concepts and ideas have been put forward for being addressed through the work programme. Many are well-intentioned and reflect the concerns of the environment and development NGOs. But some of these proposals, in an unintended way, could result in shifting the burdens of environment protection, which for political and economic reasons must necessarily involve burdens on the North, on to the South via the instrumentality of trade and trade sanctions. This will add another burden of adjustment to the already over-burdened South suffering from the structural adjustment policies of the Bretton Woods institutions, and the closing of some development options by the Uruguay Round.

They could also change the basic principles of non-discrimination and the character of the multilateral trading system and change the basic rules of the game and the conditions of competition under the guise of protecting the environment and promoting sustainable development. In practice H will add additional burdens on the South.

Concepts like process production methods (PPMs), eco-dumping and 'internalization' of costs are yet to be adequately studied and analyzed in all their economic and social ramifications, particularly in the international trade context. 'PPMs' refer to the process or method by which a product is produced. 'Eco-dumping' implies that a country where environmental standards are lower is having an unfair competitive advantage when exporting its goods which are produced by environmentally inferior methods or technologies. 'lnternalizing external environment costs' refers to the inclusion in price of a product the estimated adverse ecological effects of producing/distributing it.

The three concepts are thus inter-related. When discussed in the GATT/WTO context, the implication is that if a country has lower environmental standards in an industry, the cost of that country's product is not internalized and the prices are thus too low, and that country is practising 'eco-dumping'. As a result, a second country that is importing from the first would have the right to impose trade penalties, such as levying countervailing duties, on goods exported by the first country. This set of ideas poses complex questions relating to concepts, estimations and practical application, particularly as they relate to the international setting.

The concept of 'internalization of external costs" has been usefully applied at the micro-level, for instance in environment and social assessment of projects that may adversely affect communities and the ecosystem. However, the application and operationalization of this concept at the international level is fraught with many problems. In a transnationalized production system, there are serious inherent problems involved in deriving correct estimations of the "internalization of external costs'.

And when this is all sought to be fashioned into an international trade policy instrument within the inherently asymmetric GATT/WTO trading system, the setting of standards and norms and trade-restrictions and retaliations to secure compliance, become a part of the manipulative protectionist process for maintaining and extending the asymmetry of the system.

There are also other problems about "internalization of costs" and these need detailed study and analysis. There have been some studies, many superficial, about "internalizationN of costs of tropical timber, or the commodity exports of the Third World and labour-intensive manufactures like textiles and leather products. But there has been very little on internalization of costs of final Northern exports which pass through several production, processing stages.

For example, in terms of internalization of costs in the international context, what would be the real costs of nuclear power generation and the storage of the radioactive wastes (with some having half-life of thousands of years) and how would they be reflected in the agricultural and industrial production processes and the prices of the end products, and subsidies to maintain such production or employment?

Again "security" and policies and actions on grounds of national security are not challengeable in GATT. However, there are many defence and other activities falling under the "national security" rubric which do have negative environment effects. Many industries and production units, including some high tech ones, have both defence/security and civilian uses. "Internalization" of these costs pose problems. Not internalising them would give an unfair advantage to the major Powers.

Or would the "difficulties" of internalizing the costs of what is now being "externalized" by the industrial countries lead to indefinite postponement of their internalization, while the exports of the South, capable of much easier "internalization" of costs by the Fund/Bank economists be immediately forced to be reflected in their export prices?

Again would the WTO system be able to enforce any of these internalized costs of Northern products, which are not actually reflected in the product/process prices? Or would the WTO shrug its shoulders and keep quiet -- as in the Nicaragua sugar dispute (of the early 80s) when the US cited national security arguments to block GATT actions or the EC actions in the Argentine-UK Malvinas/Falklands war -- and the actions of the powerful become unchallengeable on national security grounds?

And, within the parameters of an asymmetric system, how would or could the Third World countries be able to promote or enforce full internalization of costs in the prices of products exported to them in these matters when, after seven long years of negotiations, they have had to settle for the continued use by the industrialized countries of subsidies in production and export of agricultural commodities, with only a 20-30 percent cut at the end of the six-year reform period. They have also had to acquiesce in the placing of many other of North's subsidies beyond challenge through the subterfuge of a "green box" and thus enable these countries to provide environmentally unsound support to industrial agricultural production?

These examples merely demonstrate part of the problem of assessing the environmental costs of processes and production methods and estimating their values and need for deeper analysis and study.

Would the North accept the internalization costs of the environmental protection burden or a fair share of it, or because of political and economic reasons that preclude domestic actions, use trade instruments to shift the burden to the South, as it shifted the burden of fighting 'inflation' in the 70s and 80s (and is still doing so) by forcing down energy and raw material prices (produced and exported by the South) in real terms?

And since the ultimate enforcement weapon of the WTO is only "authorized and civilized cross-retaliation', how would the global objectives of environment protection and sustainable development be advanced?

What is the production process in relation to transnational system of production and how can its real costs by assessed when countries, even such powerful countries like the US and its most important State, the State of California, with their capacity to demand or acquire the information, have been finding it difficult to assess the income and levy taxes on Transnational Corporations that evade or avoid taxes through transfer pricing?

Before the adoption of policy prescriptions based on them and the use of trade policy instruments, instead of national market-related instruments, to enforce compliance or compelling their adoption, concepts like PPMs, "internalization of external costs" and eco-dumping as applied in international trade relations need to be analyzed in much greater depth in an interdisciplinary way, and without a priori assumptions. They have to be scrutinized far more closely for their technical adequacy and their impacts on sustainable development options of the South.

(b) Some suggested areas for Work programme

As pointed out earlier, due to the risk of abuse of the concept of "trade- related" in the GATT context, it is best to proceed with caution in the Work Programme and define the Work Programme within these limits of caution.

The following are some of the areas (already covered by the GATT or WTO rules) which could be in the Agenda of the Work programme:

1. The implications of the TRIPS agreement on environment and sustainable development.

The TNC decision on Trade and Environment has already identified "the relevant provisions of the TRIPs Agreement" as an area to note, and thus this should be on the agenda. Environment and development NGOs in the South have identified TRIPS as a major threat to Southern communities' and governments' capacity to protect the environment and promote sustainable development. These concerns need to be seriously addressed.

Articles 7 and 8 of the TRIPs Agreement states there should be a balance between public and private interests; and there should be balance between private returns of the IPR holder and environmental obligations.

In the context of the above, several aspects of TRIPs should be reviewed. Among the relevant subjects are: (a) rights of patent or other IPR-holders vs the public interest and public policy of a State and its people; (b) patenting of lifeforms; (c) the effects of IPRs and the global monopoly created by TRIPs on the transfer of environmentally sound technologies; (d) the danger of the growth of monopolies and thus of protectionism and higher prices in such key areas as agriculture and health care.

2. Trade in Domestically Prohibited goods.

There was a work programme dating back to 1982 (and revived in 1989) and a working group which dealt with this issue to provide at the minimum GATT notification and transparency to enable importing governments to act, and for decisions to be taken along with the Uruguay Round package. But it appears to have been quietly buried because of the position of the US which wanted to except pharmaceuticals, pesticides and other chemicals and also automobile spare parts.

This issue has become one of central importance to environmental movements and policy making in the South, as the export of hazardous goods, substances, technologies and wastes to the South (usually without the South's knowledge) is a major mechanism by which environmental damage is taking place in the South.

3. Export restrictions by developing countries on natural resource products to gain value added and earnings to enable them to protect their environment and promote sustainable development.

4. A definition of the relation between the various multilateral environment agreements such as the Biodiversity and Climate Change Conventions, and the rules of the GATT/WTO. In such an exercise, the objectives of sustainable development should be paramount.


(1) This position paper has been prepared by the Third World Network, with valuable inputs obtained during a consultation, organized with the help of the South Centre in Geneva during the first week of March 1994. The paper has been drafted by the following: Chakravarthi Raghavan (SUNS, Geneva); Martin Khor (Third World Network, Malaysia); Ms. Vandana Shiva (Research Foundation for Science, Technology and Natural Resource Policy, India); Yao Graham (Integrated Social Development Centre, Ghana); Roberto Bissio (Third World Institute, Uruguay); Iqbal Asaria (Third World Network, London); Gurdial Nijar (Third World Network, Malaysia).

(2) A detailed assessment of the Uruguay Round and its outcome is being prepared by the Third World Network and would be available in a preliminary version by the time of the Marrakesh Ministerial meeting.