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Trade and environment
Striking a balance: Are free trade and the environment compatible? Yes, and if certain conditions are met, they can strengthen each other.
by Ronald Steenblik and Dale Andrew, OECD Trade Directorate Trade Directorate
Developing countries want to boost their income through exports. Importers, particularly industrialised countries, want to ensure that imported goods meet their own domestic requirements for health, safety and the environment. Their consumers may also want to minimise the environmental impact of producing and using those goods. In theory, these goals are compatible. In practice, however, it can be more complicated, as there can be different ways to reconcile these objectives, some of which affect developing countries more than others.
Research carried out by the United Nations Conference on Trade and Development (UNCTAD) has shown that some developing countries have suffered considerable export losses due to an inability to respond to developed country environmental standards and regulations. The point was underscored in the Doha Development Agenda adopted by World Trade Organization (WTO) ministers in November 2001. The ministers then instructed the WTO Committee on Trade and Environment (CTE) to pay particular attention to the effect of environmental measures on market access, especially in relation to developing countries and, in particular, the least-developed. As explained on the WTO website, "Abiding by environmental requirements can be burdensome for an exporter, for example when an exporter wants to sells its products in a country that requires recyclable packaging." The WTO goes on to point out that the Committee's work is "not to get rid of the environmental requirements, but to strike an appropriate balance between trade and environmental objectives."
Trade and environmental objectives should be able to reinforce each other, though getting there can be a painstaking process. Take a seemingly straightforward environmental problem such as the drowning of endangered sea turtles in shrimp trawl nets. Having identified the problem, the United States proposed a simple solution: all such nets operating in US waters would be required to be fitted with cages (known as "turtle excluder devices", or TEDs) that let shrimp through into the net but allow turtles to escape.
The problem appeared to have been solved, at least in US waters. But environmental groups and the US shrimp-fishing industry were unsatisfied. US fishermen felt that the measure gave foreign fishing fleets an unfair advantage in their market, while environmental groups wanted to see the scheme enforced on an international level. This soon led to the US authorities extending the measure; embargoes were imposed on shrimp imports from any country without a turtle protection scheme similar to that of the United States.
To protect their exports, several neighbouring countries then passed laws requiring their shrimpers to use TEDs. Costa Rica was one of them. However, the devices, imported from the United States and designed for fishing conditions faced by US fishermen, were soon found to be unsuitable for use in the shallow, debris-clogged waters in which Costa Rican fishermen trawled. Heavy, blocked-up cages meant that more fuel had to be consumed and fewer shrimp were caught. It was found that, in Costa Rican waters, trawling with a TED designed for US conditions yielded on average 70% debris and 30% shrimp.
In such cases, where changes in processes or production methods are required, knowledge about how to meet new standards under local conditions may be lacking, for instance because of insufficient prior research. By not taking into account the special circumstances of particular countries or industries, one-size-fits-all policies are less likely to succeed, and may create resentment even if they do. In the event, the Costa Rican authorities came up with a modified TED that better suited their own local conditions, and were eventually able to convince the US authorities that their device offered an equivalent level of turtle protection.
Cases such as the one on TEDs show that there may be scope for designing regulations that can more easily be adapted to local conditions while still satisfying the environmental objective. A general problem for developing countries, however, is lack of capacity to meet such requirements. This can take many forms: difficulty in tracking and understanding proposed new environmental measures; inadequate technical facilities and expertise to monitor compliance with importers' requirements; or insufficient capital to invest in new, less environmentally harmful processes and production methods.
Where environmental conditions allow, providing developing countries sufficient time to react to a regulation before exports begin to be affected can help address the first problem. Under WTO rules, new technical regulations have to be notified to other members before they come into force. Some OECD countries are going beyond this requirement and consulting with foreign exporters or taking other steps to ensure that their proposed new regulations do not come as a surprise. This trend certainly marks an improvement over earlier practice, when sometimes the first time that a developing-country exporter learned of a new regulation - e.g. a limit on pesticide residues in tea leaves - was when shipments of his goods were rejected at the importer's border.
WTO rules also encourage countries to base their regulations on internationally agreed standards, and many follow that advice. But what if no agreed international standards exist? The number of such situations is more common, perhaps, than is usually perceived. Many countries simply adopt a regulation similar to that already applied elsewhere. Thus many OECD countries, starting with Japan in 1973, have established limits on formaldehyde in garments and similar textile products. However, when the Netherlands recently decided to establish a limit of its own, it undertook new tests to evaluate the potential risks of human exposure to the chemical through clothing. It found that most of the formaldehyde (which is used, for example, in textile finishing as an anti-creasing agent) present in new clothes is removed during the first wash. The Dutch maximum residue limit reflects this distinction and is an easier regulation for developing-country exporters to meet.
But regulations pertaining to food and beverages are where issues related to compliance arise most often. It is more and more common among developing-country farmers, when faced with a stringent pesticide residue limit, to respond by converting to organic production methods. Although in some cases integrated pest management (IPM) would suffice, the cost of applying IPM and the necessary knowledge may be out of reach of the farmer, who can more easily understand and apply organic methods. Farmers who convert to organic production expect to receive higher prices for their produce than they did previously, and that requires being certified to sell under an organic label. Yet the local certification bodies in many countries are not accredited by the importing countries' authorities. It is this accreditation that is at issue, not necessarily the environmental standard itself. And it leaves farmers that want to export with no choice but to pay the high cost of certification by a certifying body recognised by, and usually based in, the importing country.
Just as developed countries and NGOs have genuine environmental concerns about imports, developing countries can face genuine difficulties in responding to those concerns. There are certainly situations where imports of products that threaten health, safety or the environment should be discouraged. But in general, regulators and other standard-setting bodies should give more thought to the possible effects of their measures on exporters. And when an exporting country makes a good-faith effort to embrace emerging environmental norms, OECD countries should do their utmost to help them comply, for instance by providing technical advice in operating cleaner technologies. Then we would have a much better chance of demonstrating that free trade, development and the environment can work together as a coherent whole. That would make us all better off, not just the sea turtles.
References
Identifying good practices to minimise adverse trade impacts from environmental measures, and to help developing-country exporters meet new environmental requirements, is one of the aims of an ongoing project led by the OECD. See www.oecd.org/ech/tradenv