Wielding the green whip

  • 14/08/1992

Wielding the green whip GLOBAL trade wars are turning green and, across the world, battles are raging to enforce environmental decisions through the power of trade restrictions and embargoes on the countries deemed responsible for environmentally unfriendly products.

Japan faced punishment for endangering the hawksbill sea turtle whose shell is used to make jewellery. When the US threatened to restrict imports of all wildlife products from Japan, including pearls, it caved in to the pressure. In Denmark, a ruling aimed at promoting recycling, requiring beverages to be sold only in returnable bottles, was seen as trade protectionism because it would favour local enterprise and severely hit manufacturers marketing beverages in cans.

The US ban on imports of fish caught in driftnets -- huge nets that "indiscriminately" kill other fish varieties and dolphins -- has forced the UN to impose a total moratorium on driftnet fishing by the end of this year. A global ban on ivory trade so as to protect the elephant is already in place. The Montreal Protocol, which seeks to protect the ozone layer, bans trade in ozone-depleting chemicals.
Mexican tuna But the fat really hit the fire over whether Mexico should be allowed to sell "dolphin-unfriendly" tuna. In the tropical parts of the Pacific Ocean, dolphins swim above schools of yellow fin tuna and get caught in fishing nets. US environmental groups launched a strong campaign against the marketing of tuna which resulted in dolphins being killed and forced their administration to ban tuna imports from Mexico.

The problem lies in deciding where trade protectionism ends and green morality begins and the tuna controversy has become a test case.

Under the trade ban, Mexico stood to lose not just its tuna exports to the US, but also the bulk of its Italian, French and Japanese markets since the US embargo extended to countries buying Mexican tuna and re-exporting it to the US. Mexico complained the ban was more conomic than ecological -- the US had imposed a six-year embargo on tuna imports because the Mexican government had declared its Exclusive Economic Zone (EEZ) off limits to foreign fleets and the powerful oil and mining lobby in USA wanted access to the Gulf of Mexico. The Mexicans contend that just as they had succeeded in building up the second largest tuna fleet in the world, protectionist barriers have gone up in the name of environment.

The US mechanism for saving dolphins is complex and could give American fisherfolk an advantage over other countries. According to a quota fixed in 1980, US fisherfolk can kill 20,500 dolphins a year. But legally, USA can ban imports from any country whose fishing fleet kills 25 per cent more dolphins than its own in a particular year. To complicate matters, the 25 per cent rule corresponds, not to the number of dolphins killed by the entire US fleet, but only to the number killed in the east Pacific Ocean. As a result, Mexican fisherfolk have to guess the average number of dolphins their US rivals are killing with each cast of the net. It is only when the tuna is canned and the number of dead dolphins counted that Mexico knows whether or not its tuna is "dolphin-safe".

Mexico took the case to the General Agreement on Tariffs and Trade (GATT), complaining the US ban was discriminatory and designed to protect its own fishing industry. GATT's three-member panel ruled that the dolphins were killed in international waters and the US did not have the authority to extend its environmental laws to another nation. If the US arguments on tuna were to be believed, it said, any country could ban imports merely because the exporting country had different environmental or health policies.
Riling USA Although the GATT ruling was in tune with USA's own commitment to free trade, it was nevertheless immediately denounced. The California federal district court directed the government to ignore the GATT decision and ruled that tuna imports must be banned from any country which has not, in turn, embargoed Mexican tuna. Eighty senators, in a letter to the President, demanded that the US reject the GATT ruling because "we cannot sacrifice the future of our planet on the altar of free trade".

US environmental groups argue the country is not imposing anything "extra-territorially" on Mexico. It is merely imposing its laws on its own fisherfolk and consumers and countries who sell their products to USA will, by extension, be covered by the law. Mexican fisherfolk are free to sell their products in their country.

As Jessica Mathews of World Resources Institute, a Washington-based think-tank put it, no country "can protect its own smidgen of air or ocean". It has global responsibilities as well. As some countries have a greater responsibility to protect the interests of the world, trade agreements "must not harness the pace of international progress to that of the slowest marcher".

What really riled US groups is the fact that GATT challenged its laws. They saw it as an attempt to undermine their country's right to manage its own environment. "We have seen GATT actually declaring that a US environmental law must go," says Lori Wallach of Public Citizen, a coalition of consumer and environmental groups run by consumer activist Ralph Nader.

Interestingly, Mexico, eager to sign a free trade agreement with North America, asked GATT to defer action on its ruling as "an act of good faith" with the US and will now solve its dispute at a bilateral level. Mexican President Carlos Salinas de Gortari has announced his government will equip fishing vessels with dolphin-friendly technologies and enacted a law under which dolphin-killers can be imprisoned.

But pressures are increasing on GATT. A Green Round on trade discussion is being seriously considered after the ongoing Uruguay Round. US and European environmental groups are hell-bent on getting GATT to change its stand. For instance, Lori Wallach feels no effective environmental or social regime can be established through the use of moral persuasion alone and, therefore, the US should be able to dictate the process by which fish is caught.

Max Baucus, senator and chairperson of the US senate's international trade committee, has warned GATT signatories that his country would consider taking unilateral action if they did not accept an environmental code, which would allow a country to insist that imported products match their own standards. Meanwhile, the Europeans are also getting into the act with the European Free Trade Association taking the lead in initiating discussions.

GATT has, however, maintained its stand. Its report on trade and environment, released earlier this year, argued that free trade can improve a country's ability to invest in and protect the environment. It also reiterated its position on Mexican tuna and states, "A country may not restrict imports of a product solely because it originates in a country whose environmental policies are different." Economist Jagdish Bhagwati from Columbia University, who wrote the report, explained that GATT rules do not permit one nation to impose its environmental standards on another through the use of trade restrictions since it would lead to "chaotic trade conditions".

But should environmental management allow "extraterritorial intervention"? For instance, by restricting ivory imports, a country can destroy the ivory market of another country and force it to stop killing elephants, but GATT provisions say that such a ban is admissible only if it contributes to a legitimate domestic objective, if it can be applied domestically as well; and, if that conservation or sustainable management is the primary aim of this infringement of free trade.

For instance, when Canada prohibited export of salmon, arguing that the species was overfished, the US contention that this was simply a measure to protect Canadian processors was upheld by GATT. It asked Canada why, if it felt that salmon was overfished, did it not limit domestic consumption?

Similarly, the European Community (EC) has challenged, under GATT, Indonesia's ban on export of logs, arguing that Indonesia was aiming at a monopoly over finished goods, such as furniture, which would earn it more revenue. According to EC, this amounted to protectionism. If the Indonesian embargo is challenged by GATT, the country would have to start exporting raw wood, which commands depressed prices in the world market today.

This would end the one "comparative ecological advantage" that Indonesia has -- its timber -- that could have helped it build a stronger industrial base at home. Since the ban was imposed, according to estimates, plywood and other processed wood have become Indonesia's second largest foreign exchange earner, earning it over US $3.5 billion annually.

GATT observed in its report that such bans would not work because countries such as Indonesia would need to harvest more, not less, raw timber just to keep its foreign exchange earnings at a constant. It argued the country should, instead, be paid a compensation or rent for the carbon absorption services provided by its forests.

GATT's position on Mexican tuna could lead to a situation in which recent global agreements like the Montreal Protocol and the ban on ivory stand negated -- trade has been used as the instrument for enforcing decisions across the world in all these cases. But GATT has softened the blow by admitting that while there was a need for international action, these should be multilateral. The Montreal Protocol can, therefore, be exempted from the free trade rules book because it is a multilateral agreement.

Yet another issue befuddling trade regulators and environmentalists alike is whether countries can be allowed to take independent stands in an increasingly globalised economy. The need has been felt for uniform standards to govern behaviour so that tuna served on all tables is "dolphin-friendly", wood used in every house is sustainably harvested and every car in the world has a catalytic converter to keep its emission standards low.

Northern industry wants uniform global standards so as to enable it to get a "level playing field" and so that industry in one country will not have an unfair advantage over industry in another. Environment is one area where the South would have the upper hand because its pollution standards are lower, or its regulating agencies are more lax. Consequently, it would spend less on manufacturing a product, which would cost less. Environmentalists want standards to be harmonised and tightened so as to improve environment quality the world over.

GATT has begun preparing for its role as final arbiter on these issues, so that standards are set multilaterally and uniformly. The final act on Sanitary and Phytosanitary Standards (SPS) is ready for adoption by member-countries at the Uruguay Round. SPS, in GATT language, will examine levels of contamination and the kind of processing, packaging and labelling required for foodstuffs all over the world, among other things. If any country has standards stricter than international ones, it can be challenged for setting up unfair barriers to trade.

Three principles of free trade govern the standards set by GATT: There should be no discrimination between imported and domestically produced goods; sound scientific evidence should govern any decision; and, the only "legitimate" sources of scientific information should be international agencies like Codex Alimentarius Commission, a body charged with setting food standards by the World Health Organisation and the Food and Agriculture Organisation.

But global governance is not without its hurdles. Harmonisation of standards, in many cases, means lowering standards to the level of the average participant. In the US, Public Citizen is realising that many Codex standards on pesticides are less strict than their own. Codex, for example, would permit 50 times as much DDT on peaches than the US would. In the US, the "Delaney Clause", for instance, bans the addition of any substance which has been found to cause cancer in laboratory animals. This could easily be challenged under GATT.

Public Citizen representatives argue that GATT's attempts to lower "technical barriers to trade" allow foreign governments to break US laws. For instance, California has a law that bars any pesticide residue on food. If this is challenged under GATT rules, California would have to prove the law rests on "strong scientific principles" before a panel of international experts. What is even worse, according to Public Citizen activists, is "these experts are usually trade specialists, not scientists, and they meet in secret".

GATT is already working overtime to become a more powerful world trade body. It has proposed to set up the Multilateral Trading Organisation (MTO), a new global commerce agency, which will have a legal personality -- similar to the United Nations -- and would require nations to cede substantial sovereignty to it.

David Phillips of the Earth Island Institute feels GATT is made up of "obsure trade bureaucrats sitting in Geneva", who cannot be allowed to override the hard-won protective devices of US society. Others call it "GATTZILLA, the trade monster, which is devouring the globe after smashing the US Capitol building". Over 50 members of the US Congress have signed a resolution stating that, under the GATT proposal, "national sovereignty to set domestic standards will be given away to foreign countries".

No bargaining power
What implications does this emerging lever of power have for the South? The countries grouped under the Organisation for Economic Cooperation and Development (OECD) -- the 24 economically most-powerful nations with 16 per cent of the world's population, which account for over 80 per cent of the world trade -- can negotiate with each other in a situation of relative equality. It's the developing countries which have little bargaining power.

Undoubtedly, responsible consumerism cannot be bad if it forces better natural resource management. But won't these green trade bans make developing countries even more unequal partners in global trade? And will their consumers have the power to bring powerful countries like USA or UK into line? Or will all this only help western middle-class consumers to buy products "which don't cost the earth"?

The countries of the South are caught in a bind. On the one hand, it is totally dependent on the export of primary commodities -- minerals, timber, tea, coffee, fish, to name a few -- to earn foreign exchange. Declining terms of trade for these products forces the South to squeeze its environment further so as to extract even more from it, however unsustainable these practices may be. There is no discussion in or outside GATT, for instance, on ways to compensate developing countries for the ecological cost of such production so that they could eventually move towards sustainable technologies.

The world market system fixes product prices in a way that allows the North to increasingly reflect the ecological costs of production in its pricing structure. Northern countries have made enormous investments in pollution control and all consumers of northern products across the world pay the cost of these investments. However, the developing world is not allowed to do the same. The terms of trade of its various mineral and biomass products -- tea, coffee, cocoa, bananas, pineapples, peanuts and prawns -- have been steadily declining even though they are produced at enormous environmental cost.

At the same time, the increasing environmental concern now being reflected in global decision-making renders southern countries even more helpless. Ironically, US groups who are now crying foul because their own power is being undermined by global decision-making, have rarely found it necessary to examine the implications of their position for the South. Bigger consumers can use their trading power to influence decision-making across the world and bigger consumers exist largely in the North.

If trade is to be used as a global instrument to discipline the environmentally errant, then it must be available at all levels. At present, developing countries have no lever to influence decision-making in western countries where, unquestionably, structural adjustment is desperately needed. Unless this is done, environmental management will become even more one-sided, unequal and unacceptable.

The situation is worsened by the inconsistency of countries such as the US. On the one hand, they swear by free trade, particularly when it comes to opening the markets of developing countries for themselves. On the other, they are not willing to absorb the implications of free trade when it affects their own interests.

Unfortunately, universal rules means that someone overwhelmingly powerful decides what is best for others -- and they may not even be right, as US consumer groups are discovering when in comes to setting food standards. Northern conservationists, in their zeal to protect the elephant, imposed a uniform solution and banned ivory trade globally. But this went against the interests of many African countries who argued that they had a different, and more successful, way of protecting the animal -- by involving local communities in the protection of the elephant and giving them the benefits deriving from this resource. But they might as well be speaking to the deaf.

Clearly, this issue of global trade and environment is not going to go away. Responsible consumerism is a must, but consumer power must be permitted only within a framework of global democracy so that poor consumers and producers also have countervailing levers of power. Until that happens, green trade laws will only make the world even more unequal.

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