WORLD TRADE
ORGANIZATIONWT/CTE/W/105
2 February 1999
(99-0409)
Committee on Trade and Environment Original:  English
TRADE LIBERALIZATION AND THE ENVIRONMENT:  A POSITIVE AGENDA
FOR TRADE REFORM
Submission by Australia
Item 6
I. INTRODUCTION
1. The Marrakesh Decision on Trade and Environment included on the work programme of the
Committee on Trade and Environment examination of the environmental benefits of removing trade
restrictions and distortions.  The Singapore Minist erial Declaration drew attention to work of the
Committee in examining the scope of the comple mentarities between trade liberalization, economic
development and environmental protection.  Discussions in the Committee have recognized the
complexity of the issues involved  in the relationship between trade liberalization and the environment.
At the same time, many delegations have drawn attention to the potential for a “win-win” strategy
where trade reform could contribute to improvements in both trade and environmental conditions.
2. Delegations have also pointed to the need to situate the debate in the context of sustainable
development and have drawn attention to the impor tant development dimensions involved, so that
trade reform should be seen as offering opportunities for “win-win-win” outcomes which contribute to
development and social equity objectives as well as trade and environmental improvements.
3. There are many areas where the linkages between economic activities, trade and the
environment are still not adequately understood.  However, the seriousness and severity of many
environmental, social and economic problems also point to the urgent need for early action to beginthose reforms which are clearly necessary to help ensure more positive synergies between economic
activities, the trading system and environmental protection.
4. This paper seeks to highlight some major issues that should be included in a positive agenda
for trade reform in future WTO work because of the contribution these reforms could make to the
promotion of sustainable development.
II. SUBSIDIES
5. Extensive subsidies are provided to a range of economic activities.  It has been estimated that
the global resource cost of subsidies for energy, transportation, water, agriculture and fisheries is in
excess of US$ 870 billion.
1  These subsidies take a variety of forms, including subsidies to inputs,
market price support and direct income support.  Some subsidies may be justified on efficiency orequity grounds – to address market failures, reward positive externalities or meet social objectives.
However, many studies have identified major inefficiencies with existing support policies, so that
often they are ineffective in achieving their objectives, accelerate depletion of natural resources and
                                                     
1 V.P. Gandhi, D. Gray and R. McMorran, “A Comprehensive Approach to Domestic Resource
Mobilization for Sustainable Development”, in UN/DPCS D, Finance for Sustainable Development:  The Road
Ahead (New York:  United Nations, 1997), p. 196.WT/CTE/W/105
Page 2
degradation of the environment, and are distributionally regressive in mainly benefiting the more
affluent.2
6. Consequently, there must be considerable sc ope for reform to subsidy policies that would
deliver economic, trade, environmental and equity benefits.  Given the amount of resources involved
in current subsidy policies, reforms that reduced the support provided, ensured that those subsidiesthat could be justified are well-targeted, and made better use of the resources saved, could make a
major contribution to the promotion of sustainable development.
7. In particular, support which is “coupled” to input and output levels may have adverse
environmental consequences through stimulating high levels of resource use, promoting inefficient
production processes and generating greater levels of pollution and waste than in the absence of the
support.  Furthermore, subsidies may have pervasive and far-reaching effects on prices and incomes
throughout an economy, particularly subsidies on products and services used in many sectors, forexample energy, materials and transport.  Subsidies on these products and services may have very
widespread environmental consequences, such as the effect of energy subsidies on pollution and other
externalities.
3
8. In some cases the positive environmental effects of support removal may only become fullyapparent after a relatively long time span, particularly where past support has encouraged investmentin long-lasting infrastructure.  At the same time, the potential environmental benefits of support
removal will be enhanced by the fact that this could stimulate technological change that may lead to
increased resource productivity and less impact on the environment.
4  This benefit arises because
subsidies may often hinder technological change by locking-in particular production processes or
inputs.
9. Reforms to trade distorting support should reduce the direct environmental impacts associated
with these policies in those countries with high levels of support.  In  addition, subsidies can have
more indirect environmental impacts through their implications for the export opportunities of other
countries.  In particular, subsidies can reduce trading opportunities for countries with efficient
industries, which receive low levels of support, and this could harm their economic development andadversely affect their ability to adopt appropriate environmental and social policies.
10. The trade reform process should result in shifts in production to countries with low levels of
support that should be better able to exploit th eir comparative advantage in response to changes in
market prices.  In general, production processes should be more efficient and less resource intensive
in these countries although the overall environmental impacts of shifts in production will depend on
the extent to which market failures exist and the use of appropriate policy interventions to address
these failures.
11. Two of the sectors where subsidies have been significant, agriculture and fisheries, are
discussed in more detail below.
                                                     
2 Many of the relevant studies have been reviewed  in the notes prepared by the WTO Secretariat on
“Environmental Benefits of Removing Trade Restrictions and Distortions”, WT/CTE/W/1, February 1995 andWT/CTE/W/67, November 1997.
3 Jan H.M. Pieters, “Subsidies and the Environment: On How Subsidies and Tax Incentives May Affect
Production Decisions and the Environment”, in UN/DPCSD, Finance for Sustainable Development:  The Road
Ahead (New York:  United Nations, 1997), pp. 328-29.
4 OECD, Improving the Environment Through Reducing Subsidies.  Part II: Analysis and Overview of
Studies (Paris:  OECD, 1998), pp. 103, 106.WT/CTE/W/105
Page 3
III. TARIFF PEAKS AND TARIFF ESCALATION
12. Since the 1940s successive rounds of multilateral trade negotiations have contributed to the
reduction in average tariff rates to low levels.  However, high tariffs – tariff peaks – remain a
significant problem in a number of sectors.  These tariff peaks may place important limits on the
benefits of the multilateral trading system for those WTO Members that have a comparativeadvantage in these sectors.  In addition, to the level of the tariff, the tariff structure may impose
constraints on market access.  Tariff escalation occurs if tariffs increase with successive stages of
processing of the imported product.  Tariff escalation may hamper the ability of countries that export
unprocessed resource-based commodities to innovate and diversify their export structures through
moving into greater value-added production activities.
13. Studies on the post-Uruguay tariff situation have identified a range of sectors where tariff
peaks and/or tariff escalation are significant.  A substantial number of high tariffs remain, particularlyin six sectors
5:
− major agricultural staple food products;
− fruit, vegetables, fish, etc.;
− the processed food industry;
− textiles and clothing;
− footwear, leather and travel goods;  and
− the automotive sector and a few other transport and high technology goods such as consumer
electronics and watches.
14. Implementation of the Uruguay Round should result in some significant decreases in tariff
escalation.  However, high levels of tariff escalation would appear to remain for a wide range of
product chains, particularly in the following sectors6:
− agricultural products;
− metals;
− textiles and clothing;
− leather products;
− rubber products;  and
− wood products and furniture.
15. The environment issues raised by tariff peaks and tariff escalation are similar to those raised
by subsidies.  Reductions in tariff peaks and tariff escalation could have particularly important
indirect impacts through their effects on market access opportunities.  As pointed out for the fisheries
sector:
“The result of … tariff escalation is that, in order for exporting developing countries to
maximize their fish exports and their foreign exchange receipts, a greater quantity ofunprocessed product is exported to achieve a similar level of earnings as the export of
processed or value-added product.  This could, in the absence of an effective management
system, contribute to fisheries over-exploitation and stock depletion.  In addition, it impedes
                                                     
5 UNCTAD/WTO Joint Study, “The Post-Uruguay Round Tariff Environment for Developing Country
Exports”, TD/B/COM.1/14, (Geneva:  UNCTAD, October 1997).
6 Ibid.; “Tariff Escalation”, Note by the WTO Secretariat, March 1996, WT/CTE/W/25;
Jostein Lindland, “The Impact of the Uruguay Round on Tariff Escalation in Agricultural Products”, (Rome,
FAO, ESCP/No. 3, September 1997).WT/CTE/W/105
Page 4
harvesting countries from exploiting what might be their comparative cost advantages in fish
processing, to the economic loss of both the exporting and importing countries".7
16. Improved export earnings and export diversification could provide a more favourableeconomic and trade framework that could facilitate the adoption of improved resource management
policies by countries with large commodity and natural resource sectors.  At the same time, anincrease in commodity processing and value-added activities in exporting countries could pose new
environmental challenges in these countries and require appropriate policies to ensure that new or
expanded economic activities in these sectors are ecologically sustainable and effectively contribute
to improved social welfare.  Trade-supported growth could be an importance source of income for
financing these improvements.
IV. AGRICULTURE
17. The environmental benefits of further agricultural reforms have been discussed in papers
submitted to the Committee by Argentina, Australia and the United States.
8  While there has been
some reduction in levels of agricultural support in  OECD countries in recent years, agriculture
remains the sector with the largest level of support and improvements in market-orientation have been
small.  Total transfers to agriculture in OECD co untries have continued to be around US$ 300 billion
or more each year.
18. There has been some shift away from commodity-based market price support policies and
towards direct payments and other support policies.  However, market price support continues to
constitute some 60 per cent of agricultural support in OECD countries as measured by the producer
subsidy equivalent (PSE).  This means that most support still takes the form of production-linked
assistance that encourages overproduction and environmentally-harmful farm practices and which hasoften led to the expansion of agriculture onto environmentally sensitive land.  Furthermore, the
decline in market price support has largely been caused by a rise in world prices, with little change in
producer prices.
9
19. The environmental benefits of agricultural policy reform depend critically on both reductionsin the level of support and changes in the form in which support is provided.  As noted in a recentOECD report:
“…replacing support measures conditional on levels of input or output by forms of direct
income support, as is taking place in many OECD Member countries, will generally lead to
environmental benefits.  However, if the direct income support is not fully severed from past
or present input or production levels, the potential environmental benefits of the change in the
composition of the support will be reduced.  Direct payments that are linked to previous
levels of production or input use may significantly lock-in the previously used practices, thus
                                                     
7 Sevaly Sen, “The Environmental Effects of Trade in the Fisheries Sector”, in OECD, The
Environmental Effects of Trade (Paris:  OECD, 1994), pp. 115-116.
8 “Non-Trade Concerns in the Next Agricultural Negotiations:  Submission by Argentina”, August
1998, WT/CTE/W/97;  “Communication from Argentina on Item 6 of the Committee’s Work Programme”,March 1996, WT/CTE/W/24;  “Trade Liberalization, the Environment and Sustainable Development:Submission by Australia”, July 1996, WT/CTE/W/36;  “Trade Liberalization and the Environment:  AContribution by the United States”, July 1996, WT/CTE/W/35.
9 OECD, Agricultural Policies in OECD Countries: Monitoring and Evaluation 1998 (Paris:  OECD,
1998), p. 17.  Total support as measured by the PSE remains at some US$ 150 billion or more each year.WT/CTE/W/105
Page 5
diminishing the potential for these measures to encourage the recipients to reduce input
intensity…".10
20. The argument has been advanced that agriculture may have positive environmental benefits,and that these benefits should be enhanced through policies that maintain agricultural production,
including the provision of agricultural support.  Furthermore, in recent years many countries haveintroduced agri-environmental measures aimed at providing financial incentives to farmers to deliver
environmental services in excess of those provided by adhering to good farming practices.
21. If it is considered that environmental or other social objectives require maintenance of some
agricultural practices, this would be achieved most effectively by policies targeted at these practices
and the desired environmental or social benefits.  However, the possible association of such benefits
with some agricultural practices would seem to be a poor justification for most existing forms of
agricultural support.
22. In particular, it is a significant fact that agri-environmental measures generally remain a small
part of the overall support provided to agriculture and the effectiveness of these measures has been
limited by their coexistence with support policies that promote overuse of resources and wasteful
farming activities.
11  This means that the resources spent in agri-environmental measures may often be
directed at addressing the environmental problems created by other policies, so that there is a higheroverall cost to achieving improvements in environmental performance.
12   In such cases removal of the
distorting policies would generally be a more effective and efficient response, combined, if necessary,
with appropriate policies targeted at addressing environmental costs and benefits.  Trade reform can
facilitate the move to more effective and consistent policy approaches by reducing overall levels of
support and providing for the elimination or substantial reduction of the most distorting forms ofsupport.  Savings made from support reduction could also be a source of funding for improved
environmental policies.
23. As pointed out in a recent OECD report:  “Environmental measures in agriculture should be
transparent, targeted to the objective and tailored to the environmental situation, and subject to regular
monitoring and evaluation to ensure that they are effective and cost-efficient, and do not distortproduction and trade".
13
24. It is doubtful if many of the existing agri-environmental measures meet these conditions.  Inparticular, many appear to have been implemented through payments per hectare or per head of
livestock rather than on the basis of specific environmental outcomes.  This may reduce their
effectiveness or even be counterproductive in achieving the environmental objectives.  Many offer a
‘menu’ of environmental activities from which farmers can choose and “[e]xperience with the
programmes suggests that the options preferred by farmers tend to be those that require relatively littleadjustment in land use or farming practices and relatively small additional nature conservation
benefits".
14
25. The Uruguay Round Agreement on Agriculture has provided a framework for modestreductions in support and for encouraging WTO Members to move from production-linked support to
forms of assistance that should be less distortive from both a trade and an environmental perspective.
                                                     
10 OECD, Improving the Environment Through Reducing Subsidies.  Part II:  Analysis and Overview
of Studies (Paris: OECD, 1998), pp. 62-63.
11 OECD, The Environmental Effects of Reforming Agricultural Policies (Paris: OECD, 1998),
pp. 10-11, 92-93.
12 OECD, Agriculture and the Environment:  Issues and Policies (Paris:  OECD, 1998), pp .22-23.
13 OECD, Agricultural Policies in OECD Countries:  Monitoring and Evaluation 1998 (Paris:  OECD,
1998), p. 35.
14 Environmental Effects of Reforming Agricultural Policies, p. 92.WT/CTE/W/105
Page 6
However, more substantial reductions in support and protection will be needed in the WTO
agriculture negotiations to begin at the end of 1999 if more significant environmental and trade gains
are to be achieved.  In particular, key priorities for reform must include:
− The complete and early elimination of all forms of agricultural export subsidies.  The Cairns
Group has drawn attention to the role of export subsidies in destabilizing markets, depressing
international prices and displacing exports by non-subsidizing efficient suppliers, includingthose in developing countries.
15  Export subsidies are a key policy instrument in the delivery
and maintenance of programmes of market price support.  Their elimination would be a
significant driver of agricultural policy reform away from the most distortive forms of market
price support which have encouraged overproduction and inefficient and environmentally
damaging use of resources in farm production practices.
− Substantial reduction in agricultural domestic support and stronger discipline on support
linked to levels of production, input usage or employment of factors of production.  This
would provide greater encouragement to the reform of agricultural policies towards forms of
support that will be less distortive of production decisions and be less likely to adversely
affect the environment.
− Improved market access opportunities including substantial reductions in tariff escalation and
tariff peaks, and increases in tariff rate quota volumes.  These reforms would be another
important driver in the reduction of market price support and in delivering real improvements
in trade opportunities for efficient agricultural producers with low levels of support.
V. FISHERIES
26. The environmental and trade benefits of reform  to subsidies in the fishing sector have been
discussed in papers presented to the Committee by New Zealand and the United States.16  T h e s e
papers have drawn attention to continuing concerns about the state of the world’s fishery resources
and the role which subsidies may play in contributing to overcapacity in fishing fleets, to
inefficiencies in production and to overfishing.  They noted that while subsidies in the fishing sector
are widespread, the information available about the nature, size and effects of these subsidies remainspoor.
27. A recent review of fisheries subsidies by Gareth Porter has suggested that the best estimate
for global subsidies is that provided by Matteo Milazzo in the range o f US$ 11 billion to
US$ 21 billion.
17  Porter noted the widely quoted estimate by the FAO of a deficit of US$ 54 billion
between total revenue of the fishing industry in 1989 of about US$ 70 billion and its costs of aboutUS$ 124 billion.  Porter noted the FAO estimated that more than half of that deficit was covered by
government subsidies.  Porter concluded that due to the degree of uncertainty with the figures from
which the original FAO estimate was derived the Milazzo estimate appeared to be the best basis for
discussion of the fisheries subsidies problem.
28. In a recent update of his estimates Milazzo has concluded that global fisheries “capacity- and
effort-enhancing” subsidies are in the range of  US$ 14 billion to US$ 20.5 billion, based on separate
estimates of:
                                                     
15 Cairns Group Ministerial Statement on Export Subsidies, September 1998, WT/GC/12.
16 “Item 6:  The Fisheries Sector.  Submission by New Zealand”, May 1997, WT/CTE/W/52;
“Environmental and Trade Benefits of Removing Subsidies in the Fisheries Sector.  Submission by theUnited States”, May 1997, WT/CTE/W/51.
17 Gareth Porter, Fisheries Subsidies, Overfishing and Trade. UNEP Environment and Trade Series 16.
(Geneva:  UNEP, 1998), pp. 39-40.WT/CTE/W/105
Page 7
− budgeted subsidies: US$ 3.5-4.5 billion;
− unbudgeted but direct subsidies: US$ 6-7 billion;
− cross-sectoral subsidies (aids to shipbuilding; infrastructure):  US$ 1.5-2 billion; and
− resource rent subsidies (user fees for access to fish): US$ 3-7 billion.18
29. Milazzo also concluded that given global ex -vessel sales of about US$ 80 billion, these
subsidies amount to about 20 or 25 per cent of world revenues in the fishing industries.  As Milazzo
concluded:
“These subsidies are clearly promoting excessive levels of effort and capacity.  Most of them
promote harvesting operations and capacity, directly and indirectly, through grants, capital
cost subsidies, tax preferences, aids to shipbuilding, and subsidized access to both domestic
and foreign resources.  Therefore, subsidies have to be considered, to some degree at least, a
causal factor of the resource crisis in this sector and not just a symptom of ineffective
management".19
30. Clearly, subsidies are not the only problem contributing to the problems facing world
fisheries.  Inadequate management regimes, particularly in the presence of open access fishery
resources, have combined with the excess capacity in the world’s fishing fleets in affecting these
problems.  Some subsidies may have helped fishing fleets adjust and reduce capacity, but important
questions have been raised about the extent to which such subsidies have been effective.20
Furthermore, as in the agriculture sector, subsidies that may have potential environmental benefitswould seem to be a small component of overall support.  Milazzo estimated that environmentalsubsidies, or at least their major component in the form of vessel buybacks, account at most for about
5 per cent of all subsidies provided worldwide in the fishing sector.
21
31. Improved transparency and greater monitoring and assessment of the size and various formsof fisheries subsidies would seem to be a first step in addressing concerns about their environmental
and trade impacts.  In particular, there needs to be assessment of whether existing WTO disciplinesare effective in limiting the impacts on overproduction and trade of these subsidies and whether
additional disciplines are necessary both to reduce the overall level of support and to ensure it is
provided in less distorting forms.
VI. THE DEVELOPMENT DIMENSION
32. The objective of international efforts to ensure that trade and environment policies are
mutually supportive is to contribute to the prom otion of sustainable development.  In addition to
consideration of the direct environmental impacts of  trade policies, the indirect impacts of these
policies need to be assessed.  These indirect impacts include consideration of the effect of distortions
in the trading system on the ability of developing countries to mobilize resources for sustainable
development and to adopt policies that will achieve economic development, greater social equity andenvironmental sustainability.  It is not only environmental problems which may not respect national
borders.  Trade distorting policies may also have their international repercussions and these can be
just as significant in their implications for the promotion of sustainable development.
33. It is estimated that half of the world’s poor live in “ecologically fragile” rural areas including
tropical forests, upland areas and arid and semi-arid regions.  Poverty and environmental degradation
                                                     
18 Matteo Milazzo, Subsidies in World Fisheries:  A Reexamination, World Bank Technical Paper
No. 406 (Washington, D.C.:  World Bank, 1998), p. 73.
19 Ibid., p.77.
20 Porter, op.cit ., pp. 37-39.
21 Milazzo, op.cit ., p. 74.WT/CTE/W/105
Page 8
can be closely interlinked in these areas.  Poorer  communities tend to suffer most from the effect of
environmental externalities, often lack property rights over natural resources and are least likely to
receive any benefit from subsidy policies.22  Developing countries also contain much of the world’s
remaining stock of natural resources, including much of its biodiversity.
34. Reform to subsidy policies, and improvemen ts in market opportunities for poor communities
and for developing countries, could be vital elements in the promotion of sustainable development.  In
particular, they could provide resources to facilitate the adoption of policies to address market failures
and advance social objectives and could complement actions to address supply-side constraints such
as lack of infrastructure and weak technological capacity which have affected the ability of least
developed and other low income countries to  take advantage of trade opportunities.23
35. Reforms to trade distorting measures such as subsidies in the agriculture and fisheries sectors,
tariff peaks and tariff escalation, can contribute to the promotion of sustainable development through:
− reducing pressure on natural resources resulting from inefficient policies;
− freeing up fiscal resources for other uses;
− improving economic efficiency and providing a more favourable framework for the adoption
of technological developments that may enhance resource productivity; and
− facilitating an improved distribution of the benefits of trade to countries with low levels of
support and comparative advantages of which they are not able to currently make full use due
to trade distortions.
36. As noted by UNDP in its Human Development Report 1997 , the subsidization of agricultural
commodities “in rich countries hits developing countries hard.  First, it keeps world prices low, so
they can get little for their commodities.  Sec ond, it excludes them from food markets in the rich
countries.  Third, it exposes their domestic food producers to dumping in the form of cheap food
imports, which reduces incentives for food production and thus undermines self reliance and
livelihoods.24  As some three-quarters of the world’s poorest people live in rural areas, raising
agricultural productivity and incomes remains an essential requirement for effectively addressing
poverty.25
37. In particular, agricultural export subsidies may be a major factor in contributing to low pricesin many markets.  The relationship between price changes and soil degradation is complex and
different views have been put forward on whether higher agricultural prices will lead to increased soildegradation or to better soil conservation.
26  Actual outcomes are likely to depend on the degree to
which farmers enjoy secure property rights, have access to appropriate technology and information
and extension services.  But, at the very least, higher agricultural incomes in rural areas would open
up opportunities to undertake both productivity and conservation investments which would not exist
in poverty-stricken communities.
                                                     
22 Mark Rogers, “Poverty and Degradation”, in Timothy M. Swanson ed., The Economics of
Environmental Degradation:  Tragedy for the Commons?  (Cheltenham, UK and Brookfield, US:  Edward Elgar
Publishing and UNEP, 1996), pp. 110-113;  Matti Vainio, “The Effect of Unclear Property Rights on
Environmental Degradation and Increase in Poverty”, UNCTAD Discussion Paper No. 130, March 1998.
23 UNCTAD, The Least Developed Countries 1996 Report (New York and Geneva:  United Nations,
1996), p. 65.
24 (New York and Oxford:  Oxford University Press, 1997), pp. 86-87.
25 Ibid., pp. 7-8.
26 N. Heerink, A. Kuyrenhoven and F. Qu, “Policy Issues in International Trade and the Environment
with Special Reference to Agriculture”.  In Environm ental Impacts of Macroeconomic and Sectoral Policies,
pp. 142-47.  Edited by Mohan Munasinghe.  (Washington, D.C.:  World Bank, 1996).WT/CTE/W/105
Page 9
38. Subsidies in the fishing sector are also mainly provided by more affluent countries and may
also have deleterious impacts on developing countries.  Subsidized fishing operations by distant-water
fleets may reduce the fishing opportunities available for local fishing communities;  it is possible that
subsidized access arrangements are adversely affecting local food needs; and a combination of
subsidies and market access barriers may reduce the trade opportunities available to fish exporters indeveloping countries.
27
39. Tariff escalation is not the only factor that may hinder vertical diversification of developingcountry exports, but it may still be a significant contributor in a range of sectors.  Major challenges
clearly remain in promoting both horizontal and vertical export diversification in commodity
producing countries.  For example, in 1994 advanced processed agricultural exports (i.e. excluding
first stage processed commodities) made up only 16.6 per cent of agricultural exports of developing
countries, compared to 32.5 per cent for developed countries.  For least developed countries the figurewas only 5 per cent.
28  Trade diversification can be an important policy objective for low income
commodity producers, in particular as a means of promoting export earnings stabilization, expansion
of export revenue and increased value-added.
VII. CONCLUSION
40. Ensuring that trade and environmental policies are mutually supportive in favour of
sustainable development is a complex and long-term undertaking.  The interaction between trade and
the environment should not be divorced from cons ideration of broader interactions between economic
activities and the environment.  These interactions are complicated and intricate and defy simple
cause-and-effect arguments.  Yet it is also clear that urgent action is needed to promote more positive
interactions between economic activities, the trading system and the environment.
41. One area where the need for urgent action is wi dely recognized is in regard to the current
unsustainable use of renewable resources such as land and fisheries.  The FAO has estimated that
60 per cent of the world’s 200 major fish species are fully exploited, overfished or in the process of
rebuilding as a result of depletion.  The harvest of overexploited fish stocks dropped 40 per cent
between 1985 and 1994, with precipitous drops in certain fish stocks.29  In regard to agriculture, there
is an urgent need to move to more resource-effi cient farming systems, with major threats posed by
land degradation due to soil erosion, physical degradation from soil compaction and crusting,
overapplication of agricultural chemicals and poor water management.  By 1990 poor agricultural
practices had contributed to the degradation of 562 million hectares, about 38 per cent of the roughly
1.5 billion hectares in cropland worldwide.  Some of the land was only slightly degraded, but an
appreciable amount was damaged enough to impair its productive capacity.30  The well-being of
1 billion people in 110 countries may be at risk from degradation of drylands.31
42. Trade reform is one factor that can contribute to the promotion of sustainable development.  It
can help address policy failures associated with a range of policy interventions which have too often
exacerbated environmental problems while proving inadequate or inefficient in achieving their
intended objectives.  Furthermore, correcting such policy failures can be an indispensable
complement to other policies directed at addressing market failures that may encourage
                                                     
27 Milazzo, op.cit., p. 78; Porter, op.cit., pp. 58-60.
28 Jostein Lindland, “The Impact of the Uruguay Round on Tariff Escalation in Agricultural Products”,
(Rome, FAO, ESCP/No. 3, September 1997), p. 3.
29 The World Resources Institute, UNEP, UNDP and the World Bank, World Resources 1998-99
(New York and Oxford: Oxford University Press, 1998), pp. 195-96.
30 Ibid., pp. 156-157.
31 UNEP, Global Environment Outlook –1, Global State of the Environment Report 1997, Executive
Summary.WT/CTE/W/105
Page 10
environmentally-damaging practices or overutilization of resources. As pointed out by a recent OECD
study:
“…support removal is viewed here as one step towards the full cost pricing of
environmentally-harmful activities.  As such, it is not a substitute for but a complement to
policies which internalise the social and environmental costs of these activities.  It is thecombination of support removal and the introduction of economic instruments to internalise
the external costs of economic activities that will result in ‘getting the prices right’, and thus
optimizing the economic system".
32
43. There is continuing research to identify environmental externalities and assess theeffectiveness of different policy instruments in addressing them.  Appropriate policies determined at
the national level may be needed to address these market failures if economic growth and
development is to genuinely enhance social welfare.  Appropriate international cooperation can ensurethat the global benefits of environmental resources are addressed in decision-making.  Given the
strong links between poverty and environmental degradation in many countries, policies to ensure that
resources are directed towards poor communities a nd that equity considerations are adequately
addressed can also be vital components in promoting ecologically sustainable patterns of
development.
44. The WTO can make an important contribution to the work of “optimizing the economic
system”.  The WTO’s specific contribution would be to ensure that future trade negotiations give
priority to those trade reforms that either directly  or indirectly can facilitate better environmental
outcomes.  These reforms must include action to eliminate or reduce or ensure adequate discipline is
imposed on trade-distorting subsidies.  The elimination of agricultural export subsidies should be oneimportant goal.  Another must be to ensure better discipline on domestic subsidies in the agriculture
and fisheries sectors, particularly through adequate transparency and monitoring of subsidy
programmes, substantial reduction in support levels and a decisive move away from the most
distorting forms of support.  The elimination or reduction of tariff peaks and tariff escalation in a
range of sectors where these remain significant problems should be another priority.  There is anurgent need for substantial action on all these fronts in view of the serious environmental problems
facing many countries.
45. The Committee on Trade and Environment should bring this important task of prioritising
such trade reforms to the attention of the Ministerial Conference of the WTO when it convenes later
this year.
__________
                                                     
32 OECD, Improving the Environment through Reducing Subsidies.  Part I: Summary and Conclusions.
(Paris: OECD, 1998), p. 8.  Emphasis in original.