by Korinna Horta

M

r. El-Ashry's article acknowledges that protecting the environment is not separate from development and poverty reduction, but that, indeed, it is the basis for all economic activity and ultimately human survival. This represents an important departure from the still widely held view of a tradeoff between economic development and environmental quality. Equally important is Mr. El-Ashry's recognition that environmental concerns must be fully taken into account by mainstream economic decision making.

However, the real task at hand is bridging the gap between the rhetoric of sustainable development and what is actually happening. The same institutional barriers that prevented the World Bank from financing environmentally sustainable programs in the past continue to be at work today.

The World Bank, the world's largest development agency, is widely viewed by both environmental and development organizations as an institution that

continues to be incapable of promoting environmentally sustainable development. Environmental organizations in both developed and developing countries have accumulated widespread evidence that World Bank financed projects often lead to environmental destruction and social disruption and that very little attention is being paid by the World Bank to the degradation of

(Horta is an economist with the Environmental Defense Fund.)

natural resources and increasing poverty that arise from many of the policy reforms the bank promotes through its structural adjustment programs. World Bank forestry-sector loans to the West Africa countries of Ghana and the Ivory Coast are examples of a lack of attention to the environment and the needs of local people.

After years of international criticism and pressure on part of nongovernmental organizations and some parliaments, including numerous legislative efforts by the U.S. Congress, the World Bank launched in 1987 widely publicized environmental reforms. While these reforms have led to vastly increased environmental staff at the bank and to several positive policy statements, such as the one strengthening the requirements for environmental impact assessments, there is mounting evidence that their impact in field projects has often been marginal at best.

Interestingly, a recent internal World Bank report, known as the Wapenhans Report, named after the bank's now retired vice president who headed the task force that wrote the report, identifies the bank projects' lack of sustainability in much the same way that environmental organizations have. The Wapenhans Report carried out an internal review of the bank's $140 billion loan portfolio and reached the disturbing conclusion that, according to the bank's own criteria on adequate economic rate of return, nearly 40 percent of recently evaluated projects are failures. The underlying problem,

according to the report, is that the bank emphasizes only rapid loan approval and pays scant attention to the actual implementation of projects. Environmental organizations have pointed out for several years that the bank's overwhelming priority to meet certain lending targets and its internal structure, which rewards staff for rapid loan processing, prevents the institution from promoting the long-term viability of its development projects. It also leads to pervasive violations of the bank's stated policies, which require consultations with populations affected by projects, because these are time consuming and therefore not conducive to career advancement of bank staff.

The World Bank's policy of withholding project documents and reports from the public in both donor and recipient countries and from lawmakers and government entities is another key institutional barrier that stands in the way of sustainable development. While the need for confidentiality of certain documents may be legitimate for the borrowing country's national sovereignty, there is no justification for keeping secret relevant environmental and social information related to World Bank programs.

There are, for example, no provisions to ensure that the environmental impact assessments and national environmental action plans, mentioned by Mr. El-Ashry as key elements in the bank's strategy to achieve sustainable development, are made public systematically. The World

Bank refuses to make this environmental information available to the public, stating that it is up to the recipient governments to decide what to do with it. However, not many governments in recipient countries choose to grant access to information and involve the communities and resource users that are directly affected by the environmental plans. More often than not, these planning exercises are carried out in a top-down fashion by foreign experts on short-term missions, and their on-the-ground impact is questionable. Development will be sustainable only when local people are actively consulted. How this can be achieved without public access to project information is incomprehensible.

The Global Environment Facility (GEF) is largely run by the World Bank, which administers, chairs, and coordinates the facility and handles all GEF investment projects. The other two participating agencies, the U.N. Development Program and the U.N. Environment Program, are very junior partners in the GEF. As such, the GEF suffers from many of the same problems as regular World Bank lending, namely a highly centralized management struc

ture focused on rapid project processing and not on the actual project impact on the ground, and an overall lack of access to information and accountability.

In addition, about 80 percent of all GEF investment projects are mere components of much larger World Bank loans, which often undermine the very same global environmental goals that the GEF seeks to address. Yet neither the governments participating in the GEF nor the GEF's Scientific and Technical Advisory Panel, which evaluates GEF project proposals, have full access to information on the associated World Bank loans.

Environmental organizations have documented that, especially in forestry and energy projects, World Bank loans are often at odds with the objectives of biodiversity conservation and reduction of greenhouse gas emissions that the GEF seeks to achieve. For example, the World Rainforest Movement, an international environmental organization based in Malaysia, recently produced a study on a GEF biodiversity protection project that is attached to a World Bank forest loan for Laos. The study found that the World Bank was violating its own policies

designed to protect indigenous peoples, and that its top-down management planning for the forest resources of Laos would reduce access to the forest for about 50 percent of the country's population that relies on traditional forest uses.

Some of the findings of the World Rainforest Movement were corroborated by an internal World Bank report. Although local community involvement is essential to any long-term conservation efforts, the internal World Bank report found that no provisions were made for a participatory development process in and around the areas to be protected by the GEF project.

Mr. El-Ashry's article rightly emphasizes the need for integrating global environmental concerns into the development process. The global environment would greatly benefit if the World Bank's annual lending operations of about $25 billion were made consistent with global environmental goals. This will require major institutional reforms, without which sustainable development will continue to elude us.

by Paul Cough

xpansion of world trade and

worsening regional and global environmental problems increasingly bring trade and environmental interests into conflict. NorthSouth tensions, in particular, have become acute, mainly because of differences in the scope, stringency, and cost of national environmental regulations.

These tensions and their root causes are addressed in the Rio Declaration (see box) and in Agenda 21. Trade and environment issues also figure prominently in the North American Free Trade Agreement (NAFTA), in the Uruguay Round of negotiations under the General Agreement on Tariffs and Trade (GATT), and in the work of such international bodies as the United Nations Conference on Trade and Development (UNCTAD) and the Organization for Economic Cooperation and Development (OECD). This article examines the principal trade and environment tensions between developed and developing countries and describes some options for resolving them.

In 1991, a dispute settlement panel under the GATT found that a U.S. ban on imports of tuna from Mexico violated GATT rules. The ban was imposed because the Mexican tuna fleet's "incidental" kill rate for dolphins during tuna harvesting was higher than that permitted under the U.S. Marine

(Cough manages trade and environment issues and the OECD portfolio for EPA's Office of International Activities.)

Mammal Protection Act. The Act also regulates the U.S. tuna fleet's dolphin kill rate.

The GATT panel ruled that the U.S. could not restrict tuna imports based on harvesting methods as long as the methods did not affect the product itself. It also ruled that the ban could not be justified under GATT provisions that allow import restrictions for the purpose of protecting "human, animal, or plant life or health" or to conserve exhaustible resources, because those provisions apply only to protecting life or health and conserving resources within the jurisdiction of the importing country.

The panel's report, which has not yet been adopted by the GATT Council, is very troubling to environmentalists, who are concerned that governments will be deprived of the use of trade restrictions to protect the regional and global environment. While in some cases alternatives may be available, such as assisting the exporting country in changing its production process, lifting the threat of trade restrictions may reduce the effectiveness of these alternatives. The question arises: Should countries be pressured by GATT rules to become part of the problem by providing a market for products made in an environmentally harmful way?

An important factor in the dispute is whether the environmental impacts of the production process are confined to the exporting country or whether they also affect other countries (especially the importing country) or the global commons. Also important is whether the

country imposing the import restriction acts unilaterally, based on its domestic environmental laws, or whether it acts pursuant to an international agreement. In the tuna-dolphin case, the U.S. action was unilateral and was directed at harm to the global commons.

Developing countries, in particular, have characterized the unilateral use of trade restrictions to address the environmental impacts of production processes as "eco-imperialism" and a violation of their sovereignty. In general, countries are more receptive to the use of trade restrictions in connection with international environmental agreements, such as the Montreal Protocol on Substances that Deplete the Ozone Layer. However, it may not always be possible to negotiate an effective international environmental agreement.

The World Bank estimates that a 50percent reduction in agricultural and industrial trade barriers erected by the developed countries would increase developing countries' annual export earnings by $50 billion, which approximately equals the value of official development assistance provided by the developed countries. If concluded successfully, the Uruguay Round of GATT negotiations, discussed below, may significantly increase developing countries' export earnings by reducing such trade barriers, or protectionism.

Under GATT rules, countries are supposed to treat imported products "no less favorably" than comparable goods produced domestically. However, developing countries are con

cerned that some ostensibly environ-
mental standards may actually be
"green" protectionism-standards
designed to favor domestic producers
over foreign competitors.

The Draft Final Act of the Uruguay Round of the GATT contains new rules on the use of technical regulations and standards. These new rules would cover, for example, environment, health, and safety regulations pertaining to agricultural products, chemicals, and motor vehicles. The rules would require countries to use the least trade-restrictive means for achieving environmental objectives and, in most cases, to use relevant international standards instead of national ones. Environmentalists fear that international standards will become a ceiling rather than a floor, and will exert downward pressure on the environmental standards of developed countries. They are also concerned that a least trade-restrictive rule could be interpreted narrowly by GATT dispute panels, threatening domestic regulatory regimes.

Both developed and developing countries are concerned about the risks posed by international trade in hazardous wastes. This trade is addressed, in part, by the Basel Convention on the Control of Transboundary Movement of Hazardous Wastes and Their Disposal. The convention came into force in 1992, but has yet to be ratified by the United States.

Trade liberalization makes it more likely that comparable goods produced under different environmental conditions will compete directly for market share. Environmentalists are concerned that trade liberalization may encourage countries to set low levels of environmental protectionnot only standards, but their enforcement-to reduce production costs and encourage foreign investment. This, in turn, may force other countries to lower their environmental standards to maintain the competitiveness of their exports.

For most environmental problems, the evidence indicates that environmental expenditures have a minor impact on international competitiveness. However, the impact of, say, a large carbon tax to reduce greenhouse gas emissions could be very significant if imposed by some countries and not by others.

Some suggest that countries with stringent environmental standards (primarily developed countries) should impose duties on imports from countries with not so stringent standards (primarily developing countries) to compensate for differences in expenditures on environmental protection. Should countries of the North and South have comparable standards to protect the environment, health, and safety? Sustainable development means, among other things, remaining

"within the carrying capacity of supporting ecosystems"; carrying capacity varies from country to country, depending on climate, geography, and other factors, and ecosystems may span national boundaries. Countries also differ in the resources they have available for environmental protection and the priority they assign it compared to, say, improved nutrition. Should a distinction be made between standards that protect environmental carrying capacity, which varies from country to country, and standards that protect human health and safety?

The GATT came into force in 1948; it now has 107 "contracting parties," a majority of them developing countries. The GATT recognizes the urgency of raising the living standards of developing countries and of the "progressive development" of their economies. It promotes increased market access under favorable conditions for their processed and manufactured products. It asks contracting parties to expand trade with developing countries by harmonizing and adjusting "national policies and regulations... [and] technical and commercial standards affecting production."

The Uruguay Round of GATT negotiations has been underway since 1986. A "Draft Final Act Embodying the Results of the Uruguay Round" has been prepared, but has not yet been agreed upon. If concluded successfully, the

Uruguay Round may improve market access for developing countries in such areas as natural resource-based products, tropical products, agriculture, and textiles and clothing.

The North American Free Trade Agreement (NAFTA) between Mexico, the United States, and Canada was signed in December 1992 but has not yet been ratified by Congress. An environmental review of the draft agreement was performed by the United States (with EPA participation) and utilized in negotiations. NAFTA provides that obligations of international environmental agreements on stratospheric ozone depletion, hazardous wastes, and endangered species take precedence over NAFTA obligations, subject to certain conditions.

Promotion of sustainable development is one of the NAFTA's stated purposes. The NAFTA confirms that each country may set standards to achieve the level of environmental protection it deems appropriate. It discourages countries from relaxing environmental standards in order to attract investment. Important environmental issues not addressed in the NAFTA itself are being taken up in parallel and follow-up mechanisms, which include a pollution control program for the U.S.-Mexico border, a North American commission on the environment, and bilateral environmental agreements.

A number of options for reconciling trade and environmental interests are

sustainable development in all countries, to better address the problems of environmental degradation. Trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade." (excerpt from Principle 12)

"States should effectively cooperate to discourage or prevent the relocation and transfer to other States of any activities and substances that cause severe environmental degradation or are found to be harmful to human health." (Principle 14)

being studied and tested. The NAFTA and the parallel and follow-up mechanisms may offer a practical model for pursuing more open trade in concert with environmental protection. UNCTAD is developing case studies on trade-environment linkages in Brazil, Colombia, India, the Philippines, and Turkey and is examining the environmental impact of producing and processing commodities such as cocoa, coffee, and rice. The GATT's Working Group on Environmental Measures and International Trade is investigating the trade impacts of environmental regulations for product packaging and labeling, an issue of particular concern to developing countries. An OECD working group is developing guidelines for improving the compatibility of trade and environmental policies.

An especially promising option is for countries to conduct environmental reviews of trade agreements and trade reviews of environmental agreements as a standard procedure. Such reviews, conducted early in the negotiating process, should help reveal the environmental and economic implications of these agreements and foster public comment and debate on the issues that are revealed.

As to environmental risks from traded products, it has been suggested that countries adopt international environment, health, and safety standards. However, such standards, where they exist, may not provide an acceptable level of protection for countries that

now have stringent domestic standards. One way to reduce trade barriers posed by product standards is to expand international cooperation on product risk assessment and testing, perhaps using as a model the OECD's cooperative program of investigation on chemicals and pesticides. This approach might or might not lead to a larger and more acceptable set of international environmental standards, but it would make it easier to distinguish between legitimate standards and "green" protectionism.

With respect to environmental risks from production processes, one alternative to trade restrictions is international cooperation on environmental labeling of traded products to reflect their life-cycle environmental impact, and thus influence consumer choice. Another option is to provide training and financial/ technical assistance to exporting countries to help them change processes that cause environmental harm. Promotion of trade in environmentally cleaner technologies deserves special attention, as does encouraging multinational corporations to apply their home country standards (if they are more stringent) to their operations in developing countries. As mentioned earlier, these options may work best if trade restrictions are available as a backup.

Finally, countries of the North and South could take concrete steps "to promote the internalization of environmental costs" in the prices of traded products, in keeping with Principle 16 of the Rio Declaration. Progress toward this goal would be a useful measure of the extent to which expanded trade contributes to sustainable development.■

Additional information:

On the policy intersect between trade and environment, EPA's National Advisory Council for Environmental Policy and Technology (NACEPT) has published The Greening of World Trade (March 1993), a 240-page report representing work carried out by the advisory group over a two-year period. It provides an overview of the policy issue through 12 in-depth technical supporting papers and recommendations of the Committee to EPA. Copies are available for sale for $14.00 from the Government Printing Office, Superintendent of Documents, Washington, DC 20402, GPO Order #055-000-00425-1; (202) 783-3238.