RESTRICTED
WORLD TRADE WT/CTE/W/67
7November 1997
ORGANIZATION(97-4873)
Committee onTrade andEnvironment
ENVIRONMENTAL BENEFITS OFREMOVING
TRADE RESTRICTIONS AND DISTORTIONS
Note bytheSecretariat
1. ThisNotehasbeenprepared inresponse totherequest byMembers oftheCommittee onTrade
andEnvironment (CTE) forbackground documentation toassist thediscussion ofthesecond partof
Item6,namely the"environmental benefits ofremoving trade restrictions anddistortions". Itbuilds
onthe1996 Report oftheCTE totheMinisterial Conference WT/CTE/1, andprevious Secretariat
documentation,includingWT/CTE/W/1andWT/CTE/W/25.Inthe1996ReportoftheCTE,Members
expressed aninterest inundertaking further work tobroaden theanalysis ofthepotential environmental
benefits ofremoving trade restrictions anddistortions inspecific sectors. Itisconsidered thattrade
liberalization inthese sectors hasthepotential toyieldbenefits forboththemultilateral trading system
andtheenvironment.
2. ThisNote isorganized asfollows. Theintroduction addresses some general considerations
concerning therelationship between removing trade restrictions anddistortions andtheensuing
environmental benefits. Thissection oftheNote builds onWT/CTE/W/1, which setsoutthelinks
between tradeliberalization andtheenvironment. Inorder tobring some specificity tothediscussion
atthesectoral level, theremaining sections thenaddress therelationship between removing trade
restrictions anddistortions andenvironmental benefits inthefollowing sectors: agriculture, energy,
fisheries, forestry, non-ferrous metals, textiles andclothing, andleather. Thediscussion ofeachsector
isdivided intothreeparts. First, thereisanoverview ofthemaincharacteristics ofthesector; second,
themostprevalent traderestrictions anddistortions arediscussed; andthird, theenvironmental benefits
associated withtheelimination ofthese trade barriers areexamined.
I. INTRODUCTION
3. Identifying theeconomy-wide andsectoral effects oftrade liberalization isinitselfacomplex
task. Establishing therelationship between theseeffects andtherelated environmental benefits iseven
more complex. The1996 Report oftheCTE recognizes thattrade liberalization, including the
elimination oftrade restrictions anddistortions, canyield developmental andenvironmental benefits
byfacilitating amore efficient allocation anduseofresources (paragraph 197). Further, itisgenerally
accepted thatinorder forthese benefits toberealized, andfortrade-induced growth tobesustainable,
appropriate environmental policies determined atthenational levelneedtobeputinplace. Itshould
bekeptinmind thattrade liberalization isnottheprimary cause ofenvironmental degradation, nor
aretradeinstruments thefirst-best policy foraddressing environmental problems. Themostsignificant
partoftherelationship between tradeliberalization andtheenvironment passes indirectly through effects
onlevelsandpatternsofproductionandconsumption.Therefore,theenvironmentalbenefitsofremoving
trade restrictions anddistortions arealsolikely tobeindirect andnotreadily identifiable ingeneral
terms. This isparticularly thecasefortrade policies astheyarebutoneofseveral areas of
policy-making thathaveaneffect oneconomic activity.WT/CTE/W/67
Page2
4. ThebasicpremiseofthisNoteisthatinwell-functioningmarket-basedeconomies,pricesregister
therelative scarcity ofresources andconsumer preferences; theirroleisto,interalia,allocate resources
efficiently.1Thewelfare ofsociety canbeundermined, however, when market prices failtocapture
theeffects ofenvironmentally-damaging activities andtherefore sendmisleading signals relating to
theoptimal useofenvironmental resources. Resource misallocation undermines effective environmental
management.2Distorted prices canobscure theabundance ofunder-utilized environmental resources,
contribute totheexcessive depletion ofexhaustible resources, generate newenvironmental problems,
andcontribute totheexcessive useofenvironmentally-damaging inputs.
5. From anempirical perspective, many studies havedemonstrated apositive correlation between
liberal trade regimes, higher productivity andmore efficient allocation ofresources, andthatopen,
outward oriented economies havegrown morerapidly thanclosed, inward-looking ones.3Thistranslates
intofewer resources being required foragiven output andahigher level ofincome from which to
drawresources toprotect theenvironment. Thus, tradeliberalization hasthepotential tohaveatwofold
positive effect ontheenvironment. Influencing factors willvaryacross countries, depending onthe
stage ofeconomic development ofthecountry concerned, thenature ofthepolicies pursued andthe
prevailing market conditions. Inthisregard, paragraph 198ofthe1996Report oftheCTEnotes that
further work onthisItemintheCTEshould takeintoaccount different country-specific natural and
socio-economic conditions andthespecificity ofthesectors involved.
6. Forthepurposes ofthesectoral analysis which follows, therelationship between trade
liberalization andenvironmental benefits canbedivided intotwocategories. First, there aregeneral
environmental benefits which flowfrom anincrease inpercapita income. There iswideagreement
concerning theclose linkage between poverty andenvironmental degradation. The1996 Report of
theCTEnotes that"[e]mphasis hasbeenplaced ontheimportance ofcooperation intheessential task
ofalleviating anderadicating poverty inorder toachieve sustainable development andtherolethat
increased tradeandmarket access opportunities canmake inthisregard" (paragraph 196). Principle 5
oftheRioDeclaration alsorefers tothetaskoferadicating poverty asanindispensable requirement
forsustainable development. Inaddition, extensive reference ismade inChapter 2ofAgenda 21to
thecontribution trade canmake tothisobjective byraising income levels.
7. The1996ReportoftheCTEacknowledgesthecontributionofthepromptandfullimplementation
ofthecommitments made intheUruguay Round. Theincome-creating effects ofthetradeliberalization
asaresult oftheUruguay Round have been estimated tobeofanorder ofmagnitude ofupto
1There israrely anunambiguous relationship between theremoval oftraderestrictions andrelative pricechanges. Some priceincreases
maybeabsorbed byproducers, while many other parameters (demand andsupply elasticities, etc.)alsoneedtobetaken intoaccount in
determining finalprice levels.
2Therelationship between price distortions andtheenvironment hasbeenanalyzed extensively andforms thebasis ofenvironmental
economics. See,forexample, D.Pearce andK.Turner (1990), Economics ofNatural Resources andtheEnvironment ,Baltimore; M.Cropper
et.al.(1992), "Environmental Economics: ASurvey", Journal ofEconomic Literature, Vol.XXX; T.Panayotou (1993), Green Markets,
SanFrancisco; R.Repetto (1994), Trade andSustainable Development, UNEP Geneva; D.Bromley (1995), Handbook ofEnvironmental
Economics, Oxford; S.Fauchex et.al.(1996), Models ofSustainable Development ,Oxford.
3See,forexample,M.Michaely(1977),"ExportsandGrowth:AnEmpiricalInvestigation",JournalofDevelopmentEconomics,Vol.(4).1;
A.Krueger (1978), Foreign Trade Regimes andEconomic Development, Cambridge; IMF(1993), "Trade asanEngine ofGrowth", in
World Economic Outlook ,Washington; J.Lee,International Trade Distortions andLong-Run Economic Growth ,IMFStaffPapers, No.40,
Washington: World Bank; G.Harrison et.al.(1995), "Quantifying theUruguay Round", inW.Martin, ed.,TheUruguay Round and
theDeveloping Economies ,Discussion Paper No.307,Washington: World Bank.WT/CTE/W/67
Page3
US$510 billion perannum.4Thelevelofpercapita income necessary torealize environmental benefits
varies depending onnotonlythesector andcountry concerned, butalsotheindicator ofenvironmental
quality employed, thegeneral proposition remains thatenvironmental benefits canbelinked toincome
growth.5
8. Second,thereareenvironmentalbenefitsassociatedwiththeremovalofspecifictraderestrictions
anddistortions andthemore efficient allocation ofenvironmental resources. These aresetoutinthe
sectoral analysis thatfollows.6Anunderlying problem when making anygeneralizations about the
environmental benefits which mayflowfromtheremoval oftradedistortions isthat,duetotheabsence
ofcomprehensive environmental valuation techniques, itisdifficult tomake inferences about net
environmental benefits from aneconomy-wide perspective. Moreover, removing trade restrictions
anddistortionsisrarelysynonymouswithanunambiguousimprovementinenvironmentalqualityperse.
Asthesectoral discussions below suggest, while removing atrade restriction ordistortion maybean
important pre-condition forimproving environmental quality, itsremoval isnotinitself aguarantee
ofimproved environmental quality.
9. Three general categories ofenvironmental benefits areidentified inwhatfollows. First, there
canbeabsolute orrelative improvements inenvironmental quality (SeeAnnex). Examples include
areduction intheoverall level ofpollution intensity, areduction inthedegree orperunitlevel of
effluent toxicity, areduced rateofdepletion ofascarce resource, anincreased rateofresource
replenishment, oradecline intherateofspecies extinction. Measuring different types ofenvironmental
benefits isdifficult, given thecomplexities involved inquantifying them. Forexample, few
environmental goods orservices areexchanged inthemarketplace; indeed thecoreassumption of
environmental externalities isthatenvironmental costsandbenefits occur outside themarket framework.
Approaches tointegrating environmental values inpricing schemes include assigning values based on
measuring market behaviour andcreating surrogate markets.7Inorder toimprove themeasure of
4Therange ofUS$109 toUS$510 billion perannum represents 0.31to0.86percentofglobal GDP. However, moststudies emphasize
thatsuchestimates underestimate theexpected gains fromtheUruguay Round forthree reasons: (a)anumber ofdynamic effects leading
toefficiency gains arenotincluded; (b)failure oftheUruguay Round would haveledtoaworsening ofinternational trade relations; and
(c)suchestimates donotinclude gains inother areas oftheRound, including themarket access commitments oftrade inservices, andthe
strengthening oftheWTO rules. TheGATT Secretariat estimates thattheincrease inthevolume ofworld trade ingoods ranges from 9
to24percentonceliberalization isfullyimplemented, representing gains intherange ofUS$244 toUS$668 billion. SeeGATT (1994),
TheResults oftheUruguay Round ofMultilateral Trade Negotiations ,Geneva.
5Several studies haveaddressed theenvironmental consequences ofincome growth, andhavesuggested aninverse relationship (an
environmental Kuznet 'scurve) between growth inpercapita income andtheintensity ofsome polluting effluents. Three patterns of
income-pollution intensity coefficients havebeenidentified bytheWorld Bank: (a)some environmental problems -suchasascarcity of
potable water orinadequate sanitation -decline asincome rise; (b)some environmental problems -likeparticulate andsulphur dioxide
pollution emissions, deforestation orthelossofnatural habitat -initially worsen, butthenimprove asincome risebeyond acertain percapita
income level; and(c)some environmental problems -including carbon dioxide andnitrogen oxide emissions -worsen asincome increases.
Itshould benoted thatcorrelations arealsodetermined bychanges incomposition ofoutput (structural change), changes intechnologies,
andchanges inpolicies. See,forexample, T.Panayotou (1993), Empirical Tests andPolicy Analysis ofEnvironmental Degradation at
DifferentStagesofEconomicDevelopment,ILOWorkingPaper;G.GrossmanandA.Krueger(1994),EconomicGrowthandtheEnvironment,
National Bureau ofEconomic Research, U.K.; D.Stern et.al.(1994), Economic Growth andEnvironmental Degradation: ACritique
oftheEnvironmental Kuznets Curve, University ofYork; I.Goldin andA.Winters (1995), TheEconomics ofSustainable Development ,
Cambridge; G.Grossman andA.Krueger (1995), Environmental Impacts ofaNorth America FreeTrade Agreement ,London; K.Arrow
et.al.(1995), "Economic Growth, Carrying Capacity andtheEnvironment", Science, Vol.268,No.5210; C.Runge (1995), "Trade, Pollution
andEnvironmental Protection", inD.Bromley, TheHandbook ofEnvironmental Economics, Oxford.
6Theuseofthetermsubsidies inthisNote doesnotnecessarily correspond fullywiththedefinition oftheterm"subsidy" setforth
intheWTO Agreement onSubsidies andCountervailing Measures.
7See,forexample, D.Pearce andD.Moran (1994), "The Economic Value ofBiodiversity", Earthscan ;E.Barbier et.al.(1993),
"AnEconomic Valuation ofWetland Benefits" inG.Hollis et.al.,TheHadejia-Nguru Wetlands: Environment, Economy andSustainable
Development ofaSahelian Floodplain Wetland, IUCN; B.Halvorsen (1996), "Ordering Effects inContingent Valuation Surveys: Willingness
(continued...)WT/CTE/W/67
Page4
environmental quality, various indicators arebeing developed both attheeconomy-wide and
sector-specific level.8
10. Second, environmental benefits mayflowfromimprovements intheinstitutional, regulatory,
monitoring orenforcement capacities ofenvironmental agencies linked totrade policy reform. The
political economy oftradeprotection issuchthatalthough traderestrictions anddistortions mayimpose
burdens onsociety asawhole, theyareparticularly difficult toremove duetotheresistance from
domestic coalitions andspecial interest groups.9Welfare gains from trade liberalization, including
improvements intheenvironment, exceed costs when viewed inaneconomy-wide perspective rather
thanfrom theperspective oftheadversely affected interest group. Institutional reform, permitting
tradepolicy tobeviewed inaneconomy-wide perspective along withthenetbenefits tosociety atlarge
-includingenvironmentalbenefits-wouldfacilitatethetaskofremovingtraderestrictionsanddistortions.
11. Third, theremoval oftrade restrictions anddistortions notonlyimproves thefunctioning of
markets, italsoincreases theoverall security andstability ofinternational traderelations bydecreasing
uncertainty surrounding markets. Itisfrequently stated thatuncertainty isamajor non-tariff barrier
totrade. Onefeature ofamore openandliberal trading system isthatitexpands theopportunities
forthesaleanddisseminationofenvironmentally-soundgoods,servicesandtechnologies.Inthisrespect,
although nospecific trade classification ofenvironmental goods andservices exists, recent estimates
suggest thatannual trade ingoods orservices related totheenvironment exceeds US$250 billion
perannum, andincludes awiderange ofequipment, services, andtechnologies. Examples include
energy-efficient machinery, waste water treatment equipment, airpollution scrubbers, andprocesses
toreduce oreliminate chrome inleather tanning. Trade inenvironmental goods andservices continues
togrowrapidlyindevelopedanddevelopingeconomies.10Further,ithasbeenshownthatasaneconomy
grows andaccumulates capital, therateoftechnological change quickens and,therefore, possibilities
toinstall environmentally-friendly technology arecreated.11
7(...continued)
toPayforReduced Health Damage from AirPollution", inEnvironmental andResource Economics, Vol.8,No.4;C.Perrings (1995),
"Economic Values ofBiodiversity" inV.Heywood, ed.,Global Biodiversity Assessment ,UNEP; S.Faucheux et.al.,ed.(1996), "Models
ofSustainable Development", NewHorizons inEnvironmental Economics ;andT.Panayotou (1993), Green Markets: TheEconomics of
Sustainable Development ,HIID.
8A.Hammond et.al.(1995), Environmental Indicators: asystematic approach tomeasuring andreporting onenvironmental policy
performance inthecontext ofsustainable development ,Washington: World Resources Institute; A.Adriaanse et.al.(1997), Resource
Flows: thematerials basisofindustrial economies ,Washington: World Resources Institute; M.Munasinghe (1993), Environmental Economics
andSustainable Development ,World BankEnvironment Paper No.3, Washington. Alsosee,forexample, amatrix ofenvironmental indicators
which isbeing developed byUNEP andOECD illustrates thecomplexity ofquantifying environmental benefits. Thematrix isorganized
according tofourcategories: (i)anenvironmental index (e.g. poorurban environmental quality, diminishing fishresources, soildegradation);
(ii)apressure index (e.g. airpollution emissions, fishcatches, landusechanges); (iii)astateindex (e.g. concentration ofspecified air
pollutants, sustainable fishstocks, topsoilloss); and(iv)aresponse index (e.g.regulatory andurban transport policies, quotas onfishing,
landrehabilitation projects).
9See,forexample, R.Putman (1988), "Diplomacy andDomestic Politics: Thelogicoftwo-level games", International Organizations
Vol.42;andE.Helpman (1995), Politics andTrade Policy ,Washington: National Bureau ofEconomic Research, Working Paper 5309.
10OECD (1996), TheEnvironment Industry, Paris. Also, arecent report which identifies trade opportunities fordeveloping countries
intheenvironmental goods andservices sector notes thatcasestudies "show thatthebenefits ofhigher social andenvironmental performance
ofexports aremany anddiverse, including economic gains (such aspremium prices andincreased sales), social benefits (such asjobcreation),
andenvironmental improvements, aswellasenhanced security through longer-term trading relations". SeealsoIIED (1997), Unlocking
Trade Opportunities ,London.
11Suchchange innotdirectly determined byeconomic changes perse.Thechoice oftechnology isusually endogenously determined,
withdecisions taken atthefirmlevel. SeeN.Stern (1991), "The Determinants ofGrowth", Economic Journal 101; andOECD (1992),
Trade Issues andtheTransfer ofClean Technologies ,Paris.WT/CTE/W/67
Page5
12. Thegeneral conclusion thatcanbedrawn fromthesectoral analysis thatfollows isthatifadverse
production andconsumption externalities areadequately integrated intodecision-making processes,
tradeandenvironmentalobjectivesaremutuallysupportive.Inaddition,povertyreductionindeveloping
countries reduces theeconomic pressure inmany regions toexploit environmental resources inan
environmentally-unsustainable manner. Accordingly, thefocus ofthisNote istheinstitutional and
economic conditions, domestically andinternationally, conducive to"win-win" situations. Inshort,
thesectoral studies point tothepositive relationship between theremoval oftrade restrictions and
distortionsandimprovementoftheenvironmentmanifestsitselfthrough,first,amoreefficientfactor-use
andconsumption patterns through trade liberalization andenhanced competition; second, areduction
inpoverty through trade expansion andencouragement ofasustainable rateofnatural resource
exploitation; third, anincrease intheavailability ofenvironment-related goods andservices through
market liberalization; andfourth, better conditions forinternational cooperation through acontinuing
process ofmultilateral negotiations.
II. AGRICULTURE
A. Overview
13. Theagricultural sector isreplete withexamples ofinstances where externalities arenotreflected
inmarketprices.Theensuingmarketimperfectionsinmanyinstancesareconsideredtohavewidespread
effectsontheenvironment;theseincludesoildegradation,waterdepletion,deforestation,lossofwildlife
habitats andlossofbiodiversity.12Theagricultural sector isalsoconfronted withalarge number of
measures thatdistort pricing signals andresult inaninefficient allocation ofresources. When output
prices areheldartificially highandinput prices heldlow,theeffect istoencourage farmers toincrease
production, which encourages theextension ofproduction tomore vulnerable soilsandstream beds,
leading tovarious problems suchassoildegradation, sediment damage, increased nutrient loadings
inwaterways, etc.Conversely, when farmincomes aretaxed byartificially lowering foodprices to
subsidize consumers, andinput markets aredistorted, deforestation andother landmisuses are
encouraged.13
14. Inmany developed countries, farmers havebeensubsidized toensure foodsecurity andmaintain
income levels. However, itiswidely considered thattheobjective ofself-sufficiency hasbeenexceeded
andoverproduction hastaken place insome countries. Toaddress theproblem ofdomestic surpluses,
export subsidies havebeenintroduced.14Inaddition, inorder tomaintain output prices above world
market prices, governments haveimposed tariffs orother border measures (e.g.variable levies). It
hasbeenreasoned thatthetrademeasures thateachcountry adopts areanadjunct ofitsdomestic farm
policies. Inmost cases, aspecific measure hasbeenadopted, notforitsparticular direct benefits,
butbecause itisadevice thatwillmake itpossible foradomestic policy tofunction.15Asfarasthe
nature oftrade distortions andrestrictions areconcerned, price supports, trade barriers, quantitative
12Forinstance, thecontamination ofgroundwater aquifers which frequently takes place asaresult oftheleakage offarmchemicals,
isaprocess which occurs overlarge numbers ofyears. Theenvironmental damage canoccur farfromthesiteinwhich theharmful activity
takes place (inthisinstance, where actual chemicals areemployed), andthepolluters canbedifficult toidentify. SeeF.Runge (1994),
"The Environmental Effects ofTrade intheAgricultural Sector" inOECD TheEnvironmental Effects ofTrade, Paris: OECD.
13SeeF.Runge (1994), "TheEnvironmental Effects ofTrade intheAgricultural Sector" inOECD, TheEnvironmental Effects ofTrade ,
Paris: OECD.
14SeeJ.Lankoski (1997), Environmental Effects ofAgricultural Trade Liberalization andDomestic Agricultural Policy Reforms ,
(UNCTAD/OSG/DP/126), Geneva: UNCTAD Discussion Paper.
15SeeD.Johnson (1991), World Agriculture inDisarray ,London: Macmillan.WT/CTE/W/67
Page6
restrictions onoutput, subsidies toinputs anddirect budgetary payments, areallcommon inthissector.
Suchmeasuresaffectthedecisionsthataretakenregardingthetypesofcropstogrowandtheirquantities.
These decisions often havesignificant environmental effects.
15. Aprocess ofagricultural reform hasbegan insome countries.16Theobjective hasbeento
move towards policies thatarelessproduction andtradedistorting, andwhich increase thecompatibility
between agricultural activities andtheenvironment, byprogressively reducing agricultural support
anddelinking support fromproduction ortofactors ofproduction. Quantitative restrictions onoutput
canalsoplayapartinreform when theyareusedtorestrict theamount ofproduction receiving support.
Other criteria, suchassocial andenvironmental concerns, maybeimportant considerations inreforming
theagricultural sector.17
16. Ascanbeseenfrom theAppendix Table, world trade inagricultural products in1996 was
US$586 billion. Onaregional basis, thelargest trader wasWestern Europe withtotalexports of
US$246 billion, ofwhich US$186 billion wastraded within theregion. Total agricultural imports
intoWestern Europe were US$260 billion. Exports from North America were US$114 billion and
imports US$28 billion withthelargest export market being Asia(US$44 billion). Thelargest market
forLatin American exports ofagricultural products (totalexports ofUS$62 billion) wasWestern Europe
(US$20 billion) followed byNorth America (US$16 billion). Asian exports ofUS$112billion were
dominated byintra-Asian trade (US$71 billion).
17. Aggregate trade flows forbothproducts andregions mask verydifferent experiences for
individual countries andproducts. Similarly, individual countries havehadmany different experiences
withrespect totheproduction ofdifferent agricultural products. Thefollowing provides more detailed
dataregarding agricultural product categories.
18. Forlivestock production, in1996 approximately 30percentoftotalworld meatproduction
tookplace inChina, followed bytheUnited States (16percent), andtheEuropean Communities
(15percent). Inthesame year, thelargest exporters were theUnited States (28percent),
Western European countries (19percent), andAustralia (9percent). Major milkanddairy producers
were thewestern European countries with37percentoftotalworld production, followed bythe
United States (16percent) andIndia (14percent). Thethree largest exporters inthesector were
theEuropean Communities (36percent), NewZealand (25percent), andAustralia (13percent).18
19. Forcereals, themajor producers in1996 were China, theEuropean Communities, andthe
United States; theyaccounted, respectively, for21percent,19percentand17percentoftheglobal
cereal output. North America andEurope were thelargest exporters ofcereals. World fruits and
vegetables production concentrated mainly intheEuropean Communities (33percent), China
(47percent) andIndia (21percent). Thebiggest exporter wasWestern Europe.19
16Forexample, in1987attheOECD Council ofMinisters, atthemeeting ofAgriculture Ministers in1992andtheHighLevel Meeting
oftheCommittee forAgriculture in1994, thereform measures were further developed.
17Itisimportant tonotethatagricultural policy reform inanumber ofOECD countries hasbeenaccompanied byenvironmental measures,
suchasagri-environmental regulation andsustainable forestry management schemes. Theagri-environmental regulation (Council Regulation
2078/92) requires EUMember states todevelop programmes topromote agricultural production methods compatible withenvironmental
protection andwiththemaintenance ofthecountryside. SeeOECD (1997), TheEnvironmental Effects ofReforming Agricultural Policies,
APreliminary Report, Directorate forFood, Agriculture andFisheries andEnvironment Directorate, Paris.
18FAO (1997), Rapport surlesMarchés desProduits 1996-97 ,Rome.
19SeeFAOSTAT (1997), Agriculture Statistics Database ,Rome.WT/CTE/W/67
Page7
20. Theproduction ofbeverages isimportant fordeveloping countries. Themajor coffee producers
in1996 wereBrazil, Colombia andIndonesia, which accounted respectively 21percent,14percent
and7percentoftheworld coffee production and34percentofthetotalworld coffee exports in1996
collectively. Inthesame year, Côted'Ivoire, Ghana, andIndonesia were themost important cocoa
producers andexporters withrespectively 38percent,12percentand13percentoftotalworld cocoa
output ,and,asawhole, 79percentoftotalexports. In1996, theEuropean Communities (14percent),
India(13percent), andBrazil (12percent)werethelargest sugar producers withatotalshare inworld
sugar production of38.5percent. Themainsugar exporters weretheEuropean Communities, Brazil
andAustralia withrespectively 23percent,18percentand4percentoftotalworld sugar exports.20
21. Teaproduction wasmainly inIndia(29percent), China (23percent)andKenya (10percent).
Overall, these countries accounted forthe62percentoftotalworld teaproduction. Teaexports
originated mainly from SriLanka (22percent), Kenya (21percent) andChina (16percent).
22. In1996, forworld primary fibrecrops production, India, China andtheUnite States ranked
asthetopproducers withrespectively 20percent,19percentand16percentoftotalworld output.
Inthesame year, theUnited States (15percent), Malaysia (11percent), andIndia (10percent)were
themajor producers ofprimary oilcrops.21
B. Trade Restrictions andDistortions
23. TheUruguayRoundAgreementonAgriculturedisciplinesgovernmentsupporttotheagricultural
sector. Under theWTO, agriculture issubject toatariffs-only regime which isbacked byaprohibition
ontheuseofborder measures other thanordinary customs duties asspecified inArticle 4:2ofthe
Agreement onAgriculture.22Boththetariffs resulting fromtheUruguay Round tariffication process,
which represent about twenty percentofallagricultural tarifflines, aswellaspre-existing agricultural
tariffs havebeenbound andaresubject toreduction andother commitments asspecified inMembers '
schedules. Inthecaseoftariffied products, these commitments generally include minimum and/or
current access tariff quotas, aswellastherighttohaverecourse tothespecial safeguard provisions
ofArticle5oftheAgreementonAgriculture.FordevelopedcountryMembers,tariffsarebeingreduced
oversixyears byanunweighed average of36percent,subject toaminimum reduction of15percent
foreachtariffline.Fordeveloping country Members, thecorresponding reductions, where applicable,
are24percentover10years withaminimum reduction of10percent. Least-developed country
Members were notrequired toundertake reduction commitments.
24. Under theAgreement onAgriculture, there isaprohibition ontheuseofexport subsidies on
anyagricultural product which isnotspecified inaMember 'sschedule asbeing subject toareduction
commitment. Domestic agriculture subsidisation orsupport measures which arenotmaintained in
conformity withthevarious exemption criteria provided forintheAgreement onAgriculture areeither
subject toreduction commitments asspecified incountry schedules ortogeneral rule-based deminimis
commitments. There arethree exemption categories: (i)domestic support measures which arenon
orminimally trade distorting (the"Green Box"); (ii)direct payments under production-limiting
programmes (the"Blue Box"); and(iii)certain governmental assistance measures, whether direct or
indirect, toencourage agricultural andrural development asanintegral element ofdevelopment
programmes ofdeveloping countries (the"S&D Box"). TheGreen Boxcontains twospecific provisions
forexceptions inrespect ofenvironmental measures. Thefirstisunder thecategory ofgeneral
20FAO (1997), Rapport surlesMarchés desProduits 1996-97 ,Rome.
21FAOSTAT (1997), Agriculture Statistics Database ,Rome.
22There arealimited number ofproduct-specific exceptions (mainly onrice)tothisprohibition.WT/CTE/W/67
Page8
governmentservicesprovidedtoagricultureortheruralcommunityandrelatesto"researchinconnection
withenvironmental programmes." Thesecond isunder thecategory ofdirect payments toproducers
under environmental programmes.
25. In1995, almost two-thirds oftotal assistance indeveloped countries took theform of
commodity-based market price support. Such support maintains higher market prices forcertain
commodities, encouraging theirproduction relative toothernon-subsidized commodities. Market price
support hasoften beenaccompanied byother policy measures, suchassupply controls andlanduse
restrictions, todecrease thetotalquantities produced ofthesubsidized commodities. Inaddition, it
hasbeenfrequently accompanied byimport tariffs onsimilar commodities toenable higher domestic
prices tobemaintained, aswellasbyexport subsidies toprevent thebuild upofsurpluses.
26. Direct income payments tofarmers areincreasing, andarethesecond most prevalent form
ofassistance indeveloped countries. Comparing the1986-88 period with1996, price support asa
share oftotalassistance toagriculture inindustrial countries decreased from79to60percent,while
theshare ofdirect payments increased from 18to23percent.23While direct payments mayalso
influence theallocation ofresources, theyareseentodistort production decisions lessthanmarket
price support andaremore transparent.
27. Indeveloped countries, subsidies toinputs inagriculture takethefollowing forms: (a)subsidies
tocapital (interest-free loans orloans atconcessional rates); (b)investment grants; (c)subsidies to
irrigation water, fertilizers andpesticides; and(d)government financed services, suchaslivestock
insemination. Invirtually alldeveloped countries, governments finance anumber ofgeneral services
intheagricultural sector. These services include research, extension, training, inspection, andmarket
promotion ofagricultural products.
28. Totakecereal anddairy, forexample, indeveloped countries fourmajor policy instruments
areusedtosupport cereal anddairy producers: (a)market price support; (b)deficiency payments;
(c)production quotas; and(d)direct income support. While market price support fixesthedomestic
market price atalevelhigher thantheequivalent world market price, deficiency payments guarantee
producers aperunitpayment foroutput equal tothedifference between themarket price andan
administrative target price. Using production quotas, governments setasupport pricewhile restricting
production toalevelbelow thatwhich would otherwise occur withthesupport price. Theobjective
istoprevent thebuild upofsurpluses. Direct income support isthepayment made bygovernment
directly tofarmers, which occurs independently ofthelevelofcurrent andfuture production.24
29. Agriculture isasector inwhich technical regulations, andpackaging andlabelling requirements
areapplied extensively inorder toachieve various policy objectives. Because thesector impacts on
human, animal andplant lifeandhealth, various technical regulations andrequirements aredesigned
tominimize potential negative impacts inthedomestic market. Several notifications totheAgreement
onAgriculture listsupport toencourage theconservation ofagricultural lands, toprevent soilerosion,
soilacidification, andtoencourage theuseoforganic fertilizers, andreference isalsomade inseveral
notifications tospecific assistance available concerning wheat, feed, grains, riceandupland cotton
programs provided theyareincompliance withconservation requirements. Anotification tothe
Agreement onSubsidies andCountervailing Measures listsagricultural support policies forsheep and
milkproduction inwhich oneobjective included "integrating environmental issues withagricultural
23OECD (1997), TheEnvironmental Effects ofReforming Agricultural Policies, APreliminary Report ,Directorate forFood, Agriculture
andFisheries andEnvironment Directorate, Paris.
24SeeJ.Lankoski (1997), Environmental Effects ofAgricultural Trade Liberalization andDomestic Agricultural Policy Reforms ,
(UNCTAD/OSG/DP/126), Geneva: UNCTAD Discussion Paper.WT/CTE/W/67
Page9
policy". Another onelinkssupport ofprivatization, restructuring andresearch inagriculture tosupport
of"genetic potential," preservation ofthecountry-side andprotection ofwater.
30. Under theAgreement onSanitary andPhytosanitary Measures (SPS), atotalof365agriculture-
related notifications were received overtheperiod 1995-97. These include notifications made by
Ministries ofAgriculture, aswellasthose thataddress agricultural products andinputs toagriculture.
InSPSnotifications, awiderange ofproduct categories areaddressed, andinclude, biological control
agents, inorganic contaminants ofagricultural products, inputs forlivestock use,andfoodadditives.
Thenotificationsfrequentlysetproductstandards,and/ormandatelabellingandpackagingrequirements.
Theobjective ofthemeasures notified isusually theprotection ofhuman, animal, plantlifeorhealth.
C. Environmental Benefits
31. Several proposals havebeenmade intheCTEregarding theenvironmental benefits ofremoving
trade restrictions anddistortions intheagricultural sector. Reference ismade tothese proposals in
the1996 Report oftheCTE.25
32. Theagricultural sector isimportant from anenvironmental perspective because ofitsdirect
reliance onlandandwater resources usedforagricultural production, andtheeffects ofagricultural
production onthese resources aswellasairquality andbiodiversity. While alarge bodyofliterature
exists ontheeffects ofagricultural production ontheenvironment, there islittleinformation onthe
environmental effects oftrade liberalisation intheagricultural sector. Most studies model theimpact
oftradeliberalization onproduction, andtheninferlikely side-effects ontheenvironment.26Thissection
highlights keyfindings ofsome ofthese studies.
33. Anderson andTyers haveconstructed amodel ofworld foodmarkets, which hasbeenused
byanumber ofresearchers asabasisfromwhich toinferthelikely environmental impacts ofproduction
changes.27Inonescenario, theproduction effects ofremoving allagricultural support inindustrialized
countries in1990 wasestimated, withfulladjustment occurring thesame year. Themodel predicts
thatworld prices ofagricultural products willriseonaverage, while estimated effects onworld food
output isnegligible. Withchanges inrelative prices andworld prices, asmall relocation ofagricultural
production takes place. Forexample, acontraction of5to6percentingrain andmeatproduction
takes place indeveloped countries and3to8percenthigher indeveloping countries. Themost
significant declines inproduction areexperienced inJapan andWestern Europe, which arepartly offset
byincreases inNorth America andAustralasia. While aquarter ofthetotalincrease takes place in
thelatter tworegions, developing countries provide thebalance.28Inadifferent simulation (alsousing
thesamemodel), tradeisliberalized inbothdeveloped anddeveloping countries andagreater relocation
ofproduction takes place. Thedecline inoutput insome industrialized countries ismatched byan
25Reference tothefollowing submissions onItem6which address agriculture iscontained inpages 23to28ofthe1996 Report of
theCTE(WT/CTE/1): Trade Liberalization, TheEnvironment andSustainable Development; Submission byAustralia (WT/CTE/W/36);
Communication fromArgentina onItem6oftheCommittee 'sWork Programme (WT/CTE/W/26); Trade Liberalization andtheEnvironment,
AContribution bytheUnited States (WT/CTE/W/35); Non-Paper bytheEuropean Union onItem6(23July1996); Non-Paper byIndia
onItem6(20June1996); Non-Paper byJapan onItem6(24June1996); and,Non-Paper bytheRepublic ofKorea onItem6(24July1996).
26Different models tendtolookatdifferent liberalizing areas andcommodities andarebased ondifferent assumptions relating to,for
example, import andexport demand andsupply elasticities.
27SeeK.AndersonandR.Tyers(1992),DisarrayinWorldFoodMarkets:AQuantitativeAssessment,Cambridge:CambridgeUniversity
Press.
28SeeK.Anderson andA.Strutt (1994), OnMeasuring theEnvironmental Impacts ofAgricultural Trade Liberalization ,Seminar
Paper 94-06, Centre forInternational Economic Studies, Adelaide: University ofAdelaide.WT/CTE/W/67
Page10
increase inoutput inothers. Asaresult, thetotalquantity ofworld foodoutput doesnotchange, and
inthelong-run, international prices staythesame onaverage.29
34. Under thisscenario, itisargued thatnumerous environmental benefits would ensue fromtrade
liberalization. Themodel suggests thatdeclining agricultural production indensely populated countries
withrelativelyhighlevelsofprotectionwillreduceenvironmentaldegradationbymorethanacomparable
increase inenvironmental degradation inregions withexpanding production. Forexample, theincreased
useofagro-chemicals inexpanding areaswould begin fromalowbase, andisassumed toreach modest
levels compared tointensive useindensely populated areas prior toproduction contraction.30Meat
production would alsobeexpected toshiftfrom densely populated countries, tothemore sparsely
populated ones. Themodel assumes thatdecreases willoccur intheextent towhich thelivestock is
fedgrain andsupplements rather thanfedbygrazing onpastures. Itisreasoned thatrisksofdisease
associated withrange orpasture feeding aresmaller compared torisksassociated withtheproduction
oflivestock inenclosed conditions, sothattheuseofveterinary medicines andgrowth hormones would
shrink, together withhealth riskslinked tochemical residues infood. Themodel suggests thatuse
oflessintensive livestock production methods (associated withrange feeding) willresult inlessair,
soilandwater contamination from thedisposal ofanimal effluent, andinsofar asrelocation leads to
greater useofcrop/leguminous pasture rotation methods, there willbeadecline inthechemical
fertilizers usedand,therefore, adecline inwater pollution fromnitrates andotheragro-chemical run-off
problems (e.g.build-up ofheavy metals orother toxic substances, destruction offishhabitats,
accumulation ofsilt,andincrease inplant andalgal growth). Inareas ofcontracting agricultural
production, asprice supports arereduced, output prices andlandvalues areexpected tofall,andthe
absolute amount offarmchemicals, irrigation water, feedconcentrates andother agricultural inputs
associated withenvironmental degradation willdecrease asagriculture becomes lessprofitable.31
35. Thisargument hasbeensupported bystudies which findthatchemical fertilizer applications
arestrongly correlated withproducer price incentives. Itwasfound inthemid-1980s, thatcountries
withrelatively lowproducer prices usedlessthanone-twentieth theamount ofchemical fertilizer
perhectare when compared tohigh-priced countries.32Withafallinthepriceofagricultural products
incontracting regions, therefore, theuseofchemical fertilizers islikely todecline. Ithasbeenargued
thatinthese regions, landmight revert torecreational andother non-farm uses, withpossible positive
environmental effects.33
29Itisimportant tonote,however, thatunder bothsimulations, developed countries facelower domestic prices foragricultural products
(asaresultofreducingdomesticpricesupport),anddevelopingcountriesfacehigherdomesticprices(atleastintheshort-run,wheninternational
pricesriseandstimulateproduction).SeeK.Anderson(1992),"AgriculturalTradeLiberalizationandtheEnvironment:AGlobalPerspective",
World Economy ,Vol.15,No.1.
30Notethatitisoften counterargued thatprice adjustments flowing fromtrade liberalization willnotnecessarily leadtolessintensive
agriculture. Thiscounterargument restsonthenotion thatfactors other thantrade liberalization, suchgrowth inworld demand forfood,
alsoinfluence thedevelopment ofagricultural markets. World demand forfoodwillincrease withdemographic growth, particularly in
developing countries, andthismayintensify agricultural production.
31K.Anderson andA.Strutt (1994), OnMeasuring theEnvironmental Impacts ofAgricultural Trade Liberalization ,Seminar Paper 94-06,
Centre forInternational Economic Studies, Adelaide: University ofAdelaide.
32Inaddition, aneconometric study conducted on11Asian countries (inwhich thedomestic price ofagricultural products hasbeen
relatively high) hasfound thattheelasticity ofdemand forchemical fertilizer withrespect totherelative priceofricetofertilizer wasbetween
0.4and0.7intheshort-run andhigher stillinthelong-run. SeeK.Anderson andR.Blackhurst (1992), TheGreening ofWorld Trade
Issues ,NewYork: Harvester Wheatsheaf.
33K.Anderson andA.Strutt (1994), OnMeasuring theEnvironmental Impacts ofAgricultural Trade Liberalization ,Seminar Paper 94-06,
Centre forInternational Economic Studies, Adelaide: University ofAdelaide.WT/CTE/W/67
Page11
36. Theargument thatenvironmental benefits would ensue toareas ofcontracting agricultural
production isalsocorroborated bystudies which demonstrate thatsubsidies andprice support have
sentthewrong price signals tofarmers; farmers, when faced withachoice ofgrowing ahighly
subsidized crop, asopposed toagreater annual rotation withlesssubsidy, dowhatisrational andgrow
thesubsidized crops yearafteryear34,untillandeither becomes lessproductive orsubsidies decline.35
Distortions atthefarmlevel, affect farmers 'decisions withrespect towhatcrops toplant, howoften
toplanttheminrelation toother crops, andhowmuch water, fertilizer andpesticides toapply. They
haveprovided farmers withadisincentive torotate crops (focusing onlyonthesubsidized ones), and
tooverapply fertilizers andpesticides.
37. Ithasalsobeensuggested36thatincome growth effects oftradeliberalization canbebeneficial
fortheenvironment. First, therateofpopulation growth generally hasbeenfound todecline asincome
rises, andthiscould reduce animportant source ofpressure onbothurban andrural environments.
Second, demand forpollution abatement policies isincome elastic (atleastbeyond acertain threshold),
andthecostofcompliance fallsasrising incomes andmore openborders allow fortheadoption of
more environmentally-sound production technology, consumer products andinputs.
38. Otherstudiesarriveatsimilarconclusionsbyanalysingtheextenttowhichchangesinproduction
induce changes inthedemand forfactors ofproduction.37Intheshort-run thestrongest adjustment
takes place invariable inputs suchasfertilizers andpesticides. Although theimpact onproduction
isdifficult toforecast, inindustrialized countries, thereisadecline intheuseoftheseinputs withbenefits
totheenvironment, suchasthereduction innitrate andpesticide levels ingroundwater.
39. Inresponse tothedecline intheprice ofagricultural output, other, lessvariable inputs, such
asland,would alsoadjust although ataslower rate. Inindustrialized countries, landunder cultivation
islikely todecline andagradual "idling" ofmarginal lands canbeexpected totakeplace. Thisis
expected toreduce soilerosion inmarginal lands, asweeds andshrubs begin tostabilize thesoil. In
addition, anidling ofmarginal lands would permit some biodiversity toreturn orrecover. Atthesame
time, while some oftheecological properties oflandwould berestored, irreversible damage previously
donetotheenvironment would notbereversed. Forinstance, littlecould bedonetorestore thewetlands
thathavebeendrained andcultivated andthespecies thathavebecome extinct. Different initiatives
areunder wayatthenational leveltodetermine howlongidling lands should remain unused, andto
what extent set-aside landprogrammes canbeadjusted toaccommodate, forexample, various
environmental land-use proposals.
40. Although anumber ofenvironmental benefits arelikely toensue todeveloped countries as
aresult ofliberalization, other, more ambiguous, environmental impacts arealsolikely toarisefrom
removing landfromagriculture. Forexample, afforestation ofabandoned landmayresult inpositive
environmental effects insome areas, whereas inothers theimpact maybenegative, particularly where
itinvolves theplanting ofnon-indigenous species ormonospecies. Moreover, itispossible that
fluctuating prices would result inincreased shifting among crops. While thiswould reduce specialization
andincrease diversification (which ispositive fortheenvironment) shifting intoandoutofcrops could
34F.Runge (1994), "The Environmental Effects ofTrade intheAgricultural Sector", inOECD, TheEnvironmental Effects ofTrade ,
Paris: OECD.
35Asinthefisheries sector, declines inproductivity mayresult inanincrease insubsidy support, agro-chemical inputs orother input
support, thereby creating acircle oflowering yields, andhigher ratesofprotection.
36K.Anderson andA.Strutt (1994), OnMeasuring theEnvironmental Impacts ofAgricultural Trade Liberalization ,Seminar Paper 94-06,
Centre forInternational Economic Studies, Adelaide: University ofAdelaide.
37E.Lutz(1992), "Agricultural Trade Liberalization,Price Changes andEnvironment Effects", Environmental andResource Economics ,
Vol.2.WT/CTE/W/67
Page12
result inaccelerated soilerosion. Inaddition, theabandonment oflands could reduce landvalues,
decrease green buffer zones, andleadtoadecline inthescenic beauty oflandscape.38Inthisrespect,
ithasbeennoted thatadistinction should bemade between landabandonment andlandwhich lies
fallow during croprotation agricultural methods.
41. Studies inthisareasuffer fromanumber ofweaknesses. First, theydonotdistinguish between
different groups ofdeveloping countries. Insub-Saharan Africa andother parts oftheworld where
thegreen revolution hasnottaken place tothesame extent asinother regions, chemicals areonly
minimally employed inagricultural production.39Based onthestudies thatargue thatin
sub-Saharan Africa higher farmoutput prices areunlikely tocause asignificant increase intheuse
ofchemical inputs, some studies show thatincreases intheirapplication areunlikely tocause significant
environmental harm. Itissuggested thatbecause ofintensive land-use methods andsoilnutrient balance
insome countries could actually berestored withtheincreased application offertilizers.40However,
thishasnotbeenempirically determined andconsiderable caution isneeded when speculating ona
return toecosystem balance based onanoptimal agro-chemical input level.
42. Another result ofliberalisation isthathigher international prices foragricultural products in
developing countries could leadtoashiftfrom foodcrops toexports crops. Suchashiftcould have
uncertain environmental consequences, which would depend onthetypeofcrops inquestion.
Commercial crops (andexport crops) arefrequently grown inmonoculture. Monoculture canhave
negative effects onthesoil: forexample, pesticides usedtocombat insects orplagues thatareoften
usedinmonoculturealsokillorganismsthathelpmaintainorganicsoilstructures.Moreover,monoculture
canresult inalowvegetation cover, which canleadtosoilerosion. Theeffects ofagricultural
specialization, ecosystem conversion andbiodiversity lossisanimportant factor indetermining
environmental effects, andmore empirical dataisneeded inthisregard. Itispossible thattheincreased
export production ofcertain crops could accelerate soilnutrient depletion anddisrupt thenatural cycle
ofsoilreplenishment. Insome countries, soilerosion isalready relatively highforcertain crops such
ascotton andsoybeans, andrelatively lowforothers, suchaswheat andrice. Theextent towhich
ashiftinproduction takes place isafactor which mustbegiven adequate consideration inexamining
theimpact ofliberalization ontheenvironment.41
43. Transport-related environmental externalities, duetochanges infreight traffic costs arean
important dimension ofliberalization inagricultural trade anditsenvironmental impact. While there
islittledoubt thatfreight traffic willincrease asaresult oftradeexpansion, themagnitude oftheincrease
willdepend onshifts inthepatterns oftrade, thevolume oftrade andthedistances covered. The
composition ofagricultural tradeandshifts towards higher-value added agricultural commodities could
alsoinfluence freight traffic. However, ithasbeenfound thatchanges infreight traffic associated
38Notethatnumerous positive environmental externalities aresaidtobeassociated withagriculture, suchas:thevalue ofagriculture
inpreventing soilerosion andfloods, adjusting micro-climates, preserving bio-diversity, providing recreational space, andsoon.Other
positive externalities which arenotnecessarily environmental, include maintaining local cultures andcommunities.
39Ithasbeenestimated thatworld fertilizer usein1996 increased to128million tonnes, anincrease of5percentfrom1995. Much
oftheincrease hastaken place indeveloping countries: forexample, China usedanestimated 32million tonnes offertilizers in1995; marginal
increases werereported inIndia, Pakistan andBangladesh, which together reported a4percent increase to17.8million tonnes; inAfrica,
which usesonly2.5million tonnes fortheentire continent, fertilizer useremains unchanged; while inLatin America aggregate usedeclined
marginally, despite significant increases inArgentina in1995. SeeK.SohandK.Isherwood (1997), "TheAgricultural Situation andFertilizer
Demand" cited inVitalSigns,Washington: Worldwatch Institute.
40SeeHeerink et.al.(1996), "Policy Issues inInternational Trade andtheEnvironment withSpecial Reference toAgriculture", in
M.Munasinghe, ed.,Environmental Impacts ofMacroeconomic andSectoral Policies, Washington: World Bank.
41Ibid.WT/CTE/W/67
Page13
withtrade liberalization arelikely tobesmall inrelation tothechanges thatwillresult fromeconomic
growth more generally.42With greater trade flows andmore open borders, ensuing environmental
costscould include increased airpollution, greater riskoftheintroduction ofalienspecies, increased
riskofpestsandanimal diseases being transferred between countries mayarise. Some ofthese issues
arenotnewproblemsforinternationaltrade,andhavebeenaddressedthroughsanitaryandphytosanitary
measures. Bulky, unprocessed agricultural products areusually transported using relatively energy
intensive forms oftransportation. Inaddition, theperishable nature ofmany agricultural products
requires thatfast,energy intensive transport beemployed. Increased transportation duetotrade
liberalization could magnify existing negative environmental externalities.43
44. Therelationshipbetweenpricechangesandsoildegradationindevelopingcountriesisthesubject
ofanumber ofcontradictory views. Oneview isthathigher prices willaffect soilconservation
positively. Astheprofitability ofagricultural production increases, thevalue offarmland willrise.
Asaresult, farmers willhaveagreater incentive todevelop andconserve theirfarmland.44Another
viewisthathigher prices mayhavenegative effects onsoilconservation, whereby better farmprices
could encourage theover-exploitation oflandresources leading toaccelerated soilerosion andnutrient
depletion.45Theneutral viewisthatprice changes willnothavemuch ofaneffect onconservation.46
45. Inorder toanalyze carefully theeffect ofpricechanges onsoilconservation, fourinter-related
elements havebeennoted asrelevant. They include: (a)current versus future production decisions;
(b)farmpractices; (c)productivity versus conservation investments; and(d)farmers 'private discount
rates.47Inmaking production decisions, farmers areconfronted withtwochoices: either cultivate
morelandtoday andgainimmediately attheexpense ofthesoilandofreduced future returns, orproduce
lesstoday andbenefit more inthefuture attheexpense ofshort-term output. Thedecision thatfarmers
make isaffected byanumber ofvariables, suchasinput andoutput prices, theirprivate discount rates,
andlandtenurearrangements.Alternatively,certainfarmpracticescouldpreventagriculturalproduction
techniques fromdegrading thesoil. Theeffects ofliberalization andprice risesonsoilconservation
would inthisrespect, therefore, needcareful empirical analysis.
46. With respect toproductivity versus conservation investments, ithasbeenargued thathigher
incomes thatresult fromrising prices allow farmers toundertake bothproductivity investments (such
asinirrigation), andinvestments inconservation (such asinterraces andwindbreaks). Rising output
prices raisethepriceofland,andthereturns tofarmers inthedevelopment andconservation offarmland.
Secure property rights arenecessary toensure thatfarmers willhaveanincentive tomake long-term
investments insustainable landuse.48
42SeeOECD(1997),TheEnvironmentalEffectsofReformingAgriculturalPolicies,APreliminaryReport,DirectorateforFood,Agriculture
andFisheries andEnvironment Directorate, Paris.
43SeeHeerink et.al.(1996), "Policy Issues inInternational Trade andtheEnvironment withSpecial Reference toAgriculture", in
M.Munasinghe, ed.,Environmental Impacts ofMacroeconomic andSectoral Policies, Washington: World Bank.
44R.Repetto(1989),"EconomicIncentivesforSustainableProduction",inG.SchrammandJ.Warford,eds.,EnvironmentalManagement
andEconomic Development ,Baltimore: Johns Hopkins University Press.
45M.Lipton (1987), "Limits ofPrice Policy forAgriculture: Which WayfortheWorld Bank?" Policy Development Review 5.
46S.Barrett (1991), "Optimal SoilConservation andtheReform ofAgricultural Pricing Policies", Journal ofDevelopment Economics 36.
47SeeHeerink et.al.(1996), "Policy Issues inInternational Trade andtheEnvironment withSpecial Reference toAgriculture", in
M.Munasinghe, ed.,Environmental Impacts ofMacroeconomic andSectoral Policies, Washington: World Bank.
48Ibid.WT/CTE/W/67
Page14
47. Inproducing different scenarios oftheenvironmental impacts ofliberalization, inputsubstitution
andtechnological innovation mayalsoaffect theresponse ofagricultural systems tochanges in
production. Suchinnovations might enable agricultural systems toadapt toexpansions orcontractions
ofagricultural activity, withminimal damage totheenvironment. Onestudy suggests thatshifts in
production areunlikely toeither improve ordegrade theenvironment inthelong-run. Thisisconsidered
tobethecaseasonlymodest shifts inproduction areexpected asaresult ofagricultural trade
liberalization.49Atthisstage, asufficient body ofempirical evidence hasyettobeaccumulated.
48. Finally,varioustransboundaryorglobalenvironmentalproblemsareassociatedwithagricultural
production, andinclude global warming, ozone depletion, andthelossofbiological diversity. For
example, agricultural activity hasbeenlinked totherelease ofseveral greenhouse gases50andozone
depleting substances.51However, agricultural activity canactasanimportant carbon sink, andcan
contribute tomaintaining biodiversity habitats. Work isunder wayinvarious foratoassess theseglobal
environmental issues, including intheIntergovernmental Panel onClimate Change, theFramework
Convention onClimate Change, Scientific andTechnical Committees oftheMontreal Protocol, and
theFramework Convention onBiodiversity.
III. ENERGY
A. Overview
49. Between 1986 and1995, totalworld output ofprimary energy -petroleum, natural gas,coal
andelectric power (hydro, nuclear, geothermal, photovoltaic andwind-powered), increased byanannual
rateof1.6percent. In1995, totalworld production wasestimated at361exajoules.52
50. Petroleum continues tobetheworld 'sprimary energy source. In1995, itaccounted for
approximately 40percentoftotalproduction, or142quadrillion Btu. Between 1986 and1995,
49SeeOECD(1997),TheEnvironmentalEffectsofReformingAgriculturalPolicies,APreliminaryReport,DirectorateforFood,Agriculture
andFisheries andEnvironment Directorate, Paris.
50Themaingreenhousegasesemittedbytheagriculturalsectorarethefollowing:carbondioxide,methane,andnitrousoxide.Agriculture
isthegreatest emitter ofmethane andnitrous oxide globally, andcontributes 50and70percentofworld totals (itisthemost significant
anthropogenic source ofthese twogases). After fuelcombustion, agriculture isthemostsignificant emitter ofcarbon dioxide. Thisincludes
thecarbon dioxide emissions thatresult fromdeforestation. With respect tocarbon dioxide, agriculture isbothasource andasinkofthis
gas.Theagricultural sector contributes tocarbon dioxide emissions mainly through thecombustion offuelsforfieldcultivation. Theclearing
offorests andtheconversion ofprairies tocropland alsocontribute tototalcarbon dioxide emissions. Inaddition, anumber ofother
agriculture-related activities contribute tocarbon emissions. Forinstance, themanufacture ofinorganic fertilizers isenergy intensive and
releases significant amounts ofcarbon dioxide. However, agriculture alsoprovides storage forcarbon dioxide. Grazing results inthefixation
ofcarbon insoils, andafforestation provides asinkforcarbon. Nitrous oxide isprimarily released fromnitrogen fertilizer. Themainsource
ofmethane inagriculture islivestock. Thisgasisproduced aspartofthedigestive process ofruminant animals andfrom theanaerobic
decay oflivestock waste. Ricepaddies alsogenerate methane asaresult oftheanaerobic decomposition oforganic materials inflooded
fields. Emissions perkilogram ofharvested riceindifferent countries varydepending onwater management andcultivation practices.
51Themainozone depleting substance released byagriculture ismethyl bromide. Itisafumigant thatisusedforpestcontrol insoils,
andinthestorage ofcommodities. Ininternational trade, methyl bromide isfrequently usedtoensure thatpestsdonottravel across borders
along withagricultural emissions ofmethane formruminant livestock havedeclined withstocknumbers. SeeWellington (1997), "New Zealand:
TheEnvironmental Effects ofRemoving Agricultural Subsidies", intheOECD 'sHelsinki Seminar onEnvironmental Benefits fromAgriculture;
Country Case Studies ,Paris: OECD.
52Oneexajoule istheequivalent ofapproximately 163million barrels ofoil.WT/CTE/W/67
Page15
petroleum production increased by7.5million barrels perday,or12.5percentovertheperiod. World
demand foroilwasestimated at70million barrels perdayin1995.53
51. Coal isranked asthesecond primary source ofenergy, accounting forapproximately
25.3percentofworld primary energy production in1995. World coalproduction totalled 5.1billion
short tonnes -or91quadrillion Btu-in1995, representing anincrease ofapproximately 1.4percent
since 1986. Coalproduction experienced thelowest annual rateofproduction growth ofanyprimary
energy source between 1986 and1995, increasing bylessthan0.2percentoverthatperiod.54With
coal,solidfuelsareestimated toaccount for27percentoftotalcommercial energy production. Other
examples ofsolidfuelsarelignite, peatandwood. However, unlike petroleum sources, solidfuels
aregenerally consumed inthecountry inwhich theyareextracted duetohighcostsoftransportation.55
52. Natural gasisranked thethirdmostprevalent primary energy source, in1995accounting for
approximately 21.4percentofworld primary energy production. Production ofnatural gaswas
78.3trillion cubic feet,or77quadrillion Btuin1995, representing anincrease from 1986 ofover
23percent,andanincrease ofapproximately 70percentinthelasttwodecades. Estimates suggest
thatnatural gascontinues toundergo thesteepest increase inproduction compared toother primary
energy sources, andin1996 natural gasproduction increased by4.5percent.56Thelargest reserves
ofnatural gasarelocated inRussia which accounts forapproximately 50,000 billion cubic meters of
gasreserves, orroughly one-third oftotalworld reserves. Natural gasiswidely regarded asbeing
apreferredsourceofenergyfromanenvironmentalperspectiveforwhichworldwidedemandisexpected
toincrease.
53. Primary electricity accounts forapproximately 10percentoftotalworld energy consumption.
Hydro-electric, nuclear andother sources (i.e.geothermal, solarandwindpower) ofpower generation
were ranked fourth, fifthandsixth respectively asprimary energy sources in1995, accounting for
7.1,6.5and0.4percentrespectively ofworld primary energy production.57Hydro-electric power
represents thelargest share ofprimary electric power generation, contributing 2.5trillion kilowatt hours
in1995, representing anincrease of22.8percentsince1986. Between 1986and1995, nuclear power
production increased byapproximately 45percent, generating 2.2trillion kilowatt hours in1995.
Between 1995 and1996, nuclear power generation increased marginally, bylessthan1percent.
Renewable sources ofenergy supply -geothermal, solarandwind power generation -haveincreased
significantly since 1986, rising to111billion kilowatt hours, ora225percentincrease. Renewable
energy sources produce energy byconverting natural phenomena (heatoftheearth'score, solarand
wind power) intousable energy forms.58Despite theirsmall share oftotalworld energy production,
solarandwindenergy production haveexperienced relatively largeincreases inrecent years forvarious
reasons (e.g.lower costperkilowatt hour, increased emphasis insome countries onimproved
demand-side management, greater reliance onrenewable energy sources, andincreased environmental
awareness).
53International Energy Agency (1996), World Energy Outlook, Paris: IEA.
54USDepartment OfEnergy (DOE) (1996), International Energy Annual 1995,Washington.
55World Energy Council (WEC) andtheInternational Institute forAdvanced Systems Analysis (1995), Global Energy Perspectives
to2050 andBeyond ,London: WEC.
56USDOE (1996), Monthly Energy Review, Energy Information Administration, Annual Energy Review, Washington.
57USDOE (1996), International Energy Annual, Energy Information Administration, Washington.
58World Resources Institute (1997), World Resources 1996-1997, Oxford: Oxford University Press.WT/CTE/W/67
Page16
54. Theworld 'sfiveleading producers ofprimary electricity in1995, representing over50percent
oftotalenergy production, weretheUnited States, Russia, thePeople 'sRepublic ofChina, Saudi Arabia
andCanada.ThenextfiveleadingproducersforthesameyearweretheUnitedKingdom,Iran,Norway,
India andVenezuela.59Thefivelargest consumers ofprimary energy in1995weretheUnited States,
China, Russia, Japan andGermany, followed byCanada, India, theUnited Kingdom, France andItaly,
which haveacombined energy consumption ofalmost 65percentoftotalprimary energy supplies.
55. Energy consumption incountries witheconomies intransition haveincreased significantly since
1973, despite adecline inconsumption from 1989 to1992: forexample intheformer Soviet Union
andinCentral European countries energy consumption decreased by17percentduring thatperiod.
Energy consumption indeveloping countries hascontinued toincrease inrecent years, although for
many countries thisincrease should bemeasured against arelatively small base. Although totalenergy
consumption hasundergone athree-fold increase since 1973, developing countries asawhole account
forapproximately one-third oftotalenergy consumption. Within developing countries, thecountries
oftheAsiaPacific region consume approximately 60percentoftotalworld energy demand among
alldeveloping countries, accounting forthebulkofdemand increase inrecent years. Latin America
hasdoubled itsenergy consumption since1973, andAfrica hastripled itsenergy consumption. Despite
these increases, Africa accounts for11percentoftotalenergy useofalldeveloping countries, and
evenlesswhen viewed interms ofpercentage ofworld consumption.60
56. According totheInternational Energy Agency, three major trends inworld energy demand
canbeidentified: (a)world primary energy demand isexpected tocontinue thesustained growth it
hasundergone forthelasttwodecades totheyear2010; (b)fossil fuelsareexpected toaccount for
90percentofworld energy demand untiltheyear2010; and(c)astructural shiftinenergy consumption
islikely tooccur, whereby thetotalshare ofenergy consumption bydeveloped countries isexpected
todecline from approximately 55percentin1995 tolessthan50percentby2010, while thetotal
share ofdeveloping country consumption isexpected toincrease fromthecurrent levelofapproximately
28percenttoapproximately 40percentby2010.61
B. Trade Restrictions andDistortions
57. Unlike other sectors addressed inthisNote, production intheenergy sector isnotanendin
itself; energy isanimportant input toalmost alleconomic activities. Reforming energy policies will
impact onvirtually allaspects ofeconomic activity. Estimating theeffect ofchanges inenergy prices
ondifferent economic activities isdifficult, asenergy input requirements varyareacross andwithin
sectors, andbetween countries.
(a) Subsidies
58. Several types ofsubsidies areapplied bothdirectly andindirectly toenergy production. As
inothersectors, different subsidies havevarying economic andenvironmental effects. Given thelinkage
between theenergy sector andvirtually allforms ofeconomic activity, identifying theexistence and
nature ofsubsidies (e.g.whether direct, indirect orimplicit) iscomplex.
59USDOE (1996), International Energy Annual ,Washington.
60World Energy Council andtheInternational Institute forAdvanced Systems Analysis (1995), Global Energy Perspectives to2051
andBeyond ,London. SeealsoOECD (1996), Energy Statistics ofOECD 1994-1995 ,Paris; Worldwatch (1997), VitalSigns 1997-1998 ,
Washington; World Resources Institute (1996), World Resources 1996-1997 ,Oxford: Oxford University Press.
61International Energy Agency (IEA) (1996), World Energy Outlook, Paris: IEA.WT/CTE/W/67
Page17
59. Examples ofenergy subsidies include: (a)direct subsidies; (b)taxconcessions ortax
exemptions; (c)low-cost long-term landconcessions forenergy exploration orproduction activity;
(d)government absorption ofdifferent risksassociated withexploration orproduction (such asliability
waivers); (e)energy-infrastructure subsidies (such aslow-cost power transmission lines, low-cost land
concessionrights,andpetroleumimportorexportfacilities);(f)theprovisionoffreeaccidentinsurance;
(g)theprovision ofloanguarantees; (h)grants ortaxincentives todevelop energy-related technologies;
(i)transfers toupgrade either commercial orhousehold energy sources; (j)grants ortaxincentives
tolower operating costsinvarious energy-intensive commercial production activities; and(k)transfers
tolower household heating bills.
60. Incertain instances, subsidies canalsobeusedtoprovide incentives forthedevelopment and
useofrenewable energy ormore environmentally-friendly technology. AssetoutinWT/CTE/W/46,
several WTO notifications in1996 provided information related toenhancing energy-efficiency,
promoting energy conservation and/or savings orsetting outproduct orperformance-based regulations
forabroad range ofproducts, including electrical appliances, heaters andboilers, energy-saving devices
forfishing vessels, alternative energy sources suchassolarpower, orenergy-related standards covering
automobile engine efficiency performance standards. Suchmeasures havebeenprimarily made under
theTBTAgreement andAgreement onSubsidies andCountervailing Measures (SCM). Inaddition,
aTRIMs notification listsalternative energy sources "likesolar, wind, etc.,andequipment thereof"
including energy-efficient lamps, although noreference ismade toenvironmental objectives. One
notification under theSCM Agreement listssupport ofagricultural processing, including assistance
inthe"applicationofmodernpackagingproceduresaswellasenergysavingsandenvironmentally-sound
technologies". There arealsoTBTnotifications onlabelling andcertification ofelectric motors for
energy efficiency objectives; labelling requirements forenergy-efficiency standards covering air
conditioners. Other notifications included information onassistance insupport oftheresearch,
development anddiffusion ofcleaner technologies, including energy efficient technologies, waste
reduction technologies, theuseofrenewable energy asameans ofreducing negative environmental
impacts linked totraditional energy use.
61. Oneestimate ofannual energy subsidies indeveloped countries isinthevicinity ofUS$70
toUS$80 billion peryear.62InEastern andCentral Europe electricity subsidies range between US$34
toUS$39 billion peryear, although overall energy subsidies inthisregion havebeendecreasing.63
Fordeveloping countries, overall energy subsidies areestimated tobeinexcess ofUS$150 billion
peryear, ofwhich electricity consumption subsidies exceed US$100 billion.64Anestimate ofenergy
subsidies based onasurvey conducted in60developing countries shows thatelectricity ratesareas
lowasUS$0.038 perkilowatt houronaverage, orlessthanhalfoftheelectricity rates applied in
developed countries. Electricity ratesfor80percentoftheutilities surveyed donotcover longrun
marginal cost.65
62A.deMoor (1997), Subsidizing Unsustainable Development ,Amsterdam: Institute forResearch andPublic Expenditure.
63B.Larsen andA.Shah (1992), "World Fossil FuelSubsidies andGlobal Carbon Emissions", intheWorld Development Report ,
Washington: World Bank.
64SeeWorld Bank (1997), Expanding theMeasure ofWealth: Indicators ofEnvironmentally Sustainable Development ,Washington:
World Bank. Itshould benoted thatasignificant, although unquantified proportion oftotaldeveloping country energy subsidies weredirected
atlow-income households toreduce kerosene prices (animportant energy source inmany low-income households indeveloping countries)
ortolower diesel fuelprices.
65World Bank (1997), Expanding theMeasure ofWealth: Indicators ofEnvironmentally Sustainable Development ,Washington;
R.Saunders andS.Gandhi (1993), AWorld BankPolicy Paper: Energy Efficiency andConservation intheDeveloping World ;andWorld Bank
(1990), Review ofElectricity Tariffs inDeveloping Countries During the1980s ,Energy Series, Paper No.32,Washington: World Bank.WT/CTE/W/67
Page18
62. Itisconsidered thatamong themain energy sources which aresubsidized, subsidies tocoal
andrenewable energy arethemostprevalent. Itshould beemphasized thatother sources ofenergy
production alsoreceive subsidies andother indirect support (e.g.infrastructure support). However,
subsidies applied todifferent sources ofprimary energy production aredifficult toquantify.66Asa
casestudythissectionprovidesmoredetailedinformationonthecoalsector.AlmostallOECDcountries
withindigenous coalproduction support theircoalindustry. TheInternational Energy Agency (IEA)
hascalculatedtotalpublicsupporttothecoalindustryinitsmembercountriesusingtheProducerSubsidy
Equivalent (PSE). PSEiscalculated asthesubsidy needed tomake coalproduction competitive in
anunregulated market, andisbased onthefollowing twoelements: (a)direct andfinancial aidto
current production, including investment grants, deficit grants, andsupport tominers 'pension funds,
and(b)price support.67Thefollowing tableprovides anindication ofthetotalPSEinsome countries
forcoal.68
Producer Subsidy Equivalent forCoal
(inMillion US$)
COUNTRY 1993 1994
Germany 7776 8025
United Kingdom 1615 345
Japan 1082 n.a.
Spain 586 962
Belgium 50 nil
France 165 n.a.
Total PSE 9191 ---
Source: ECON Senter forOkonomisk Analyse (1996), Energy Taxes; Trends andStructures inOECD andSelected non-OECD countries ,
Report No.44/96, Oslo.
63. Coalsubsidies havecontributed tomaintaining inefficient domestic production, andreducing
imports ofother fuels. Subsidies havealsoencouraged theuseofcoalresources, andincreased the
useofcoalinelectricity production. According totheECON Centre forEconomic Analysis, "more
coalfiredpower plants havebeenconstructed inthepastandmaintained inoperation thanwould have
beenthecasewithout thesubsidization andtheprotection ofdomestic coalproduction".69Asfaras
subsidies forrenewable energy areconcerned, almost noinformation exists ontheirmagnitude.
(b) Taxes
64. Energy taxesareanimportant source ofrevenue forgovernments andtakeavariety offorms.70
Theyinclude:(a)motorfueltaxes,(b)electricitytaxes,(c)severancetaxes,(d)pipelinetaxes,(e)natural
66ECON Senter forOkonomisk Analyse (1996), Energy Taxes; Trends andStructures inOECD andSelected non-OECD countries ,
Report No.44/96, Oslo.
67Ibid.
68Itisimportant tonoteisthatincertain OECD countries, coalsubsidies amount toalmost fourtimes thecostofimported coal(based
on1994 data). SeeECON Senter forOkonomisk Analyse (1996), Energy Taxes; Trends andStructures inOECD andSelected non-OECD
countries ,Report No.44/96, Oslo.
69ECON Senter forOkonomisk Analyse (1996), Energy Taxes; Trends andStructures inOECD andSelected non-OECD countries ,
Report No.44/96, Oslo.
70See,forexample, OECD (1997), Evaluating Economic Instruments forEnvironmental Policy ,Paris.WT/CTE/W/67
Page19
gastaxes, and,more recently (f)carbon taxes. Anumber ofrationales areadvanced tosupport the
useofthese taxes, suchascompensating thepublic forland-use (thisrationale isrooted inthebelief
thatsub-surface resources belong tothestate, andthatmining andoilcompanies must compensate
thestatewhen these resources areappropriated forprivate use),using these taxes asaproxy foruser
feesortollcharges onroads andhighways, andpaying foradverse environmental orhealth effects
associated witheither themining, transportation, storage orconsumption offossil fuels.71
65. Onesurvey hasfound thatinOECD countries, oilistaxed more thanother sources ofenergy
(e.g. natural gasorcoal). Between 1980 and1995, theaverage taxonoildoubled intheOECD.
ForOECD countries asawhole, theaverage taxonnatural gaswasUS$1.3 perbarrel ofoilequivalent.
Theaverage OECD taxoncoalisidentified aslow.Thesamesurvey identified certain trends inenergy
taxation 14innon-OECD countries. Most ofthecountries surveyed havebrought theprices ofoil
products closer tointernational market prices. Ingeneral, theirtaxes onoilproducts tendtobelower
thanthose intheOECD, butfollow thepattern ofhigher taxes onlightpetroleum products, andlower
taxes onheavy ones. While natural gasprices arecontrolled, theydonotdeviate significantly from
international prices.72
C. Environmental Benefits
66. Itisgenerally feltthattheremoval ofsubsidies andtherestructuring oftaxes tobring energy
prices inlinewithmarginal social costs could result insignificant environmental benefits. Clean
technologies, co-generation gasturbine combined cycles, steam-injected gasturbines, increased reliance
onrenewable energy sources, anddemand-side management areamong themenu ofoptions which
willbeimportant inimproving theenvironmental profile ofenergy inaddition tochanges inrelative
prices.73
67. Inthepastthirty years, environmental policy hasaddressed theadverse environmental
implications ofenergy production anduse.Anextensive bodyofliterature exists identifying different
aspects andmagnitudes ofenvironmental problems inthesector, which istoobroad anddetailed to
summarise inthisNote. Itisworth noting, however, thatdifferent typesofenergy sources raisedifferent
environmental issues bothattheproduction andconsumption stages. Comprehensive domestic and
international environmental policies haveemerged toaddress externalities linked toenergy use,and
include command andcontrol andeconomic-based measures toreduce emissions ofsulphur dioxide,
suspended particulate matter, nitrous oxide, carbon monoxide, carbon dioxide, lighthydrocarbons,
organic andinorganic aerosols, aswellastoxins produced incertain combustion methods.
68. International cooperation toaddress airpollution includes the1979 Geneva Convention on
Long-Range Transboundary AirPollution andsubsequent protocols concerning sulphur dioxide, and
the1992 Framework Convention onClimate Change. Atthenineteenth Special Session oftheUN
General Assembly (June 1997), anopen-ended Intergovernmental Group ofExperts onenergy and
sustainabledevelopmentwasestablished.Inaddition,theGeneralAssemblynotedthe"needtoencourage
thereduction andgradual elimination ofsubsidies forenergy production andconsumption thatinhibit
sustainable development. Suchpolicies should takefullyintoaccount thespecific needs andconditions
ofdeveloping countries, particularly least-developed countries, asreflected inthespecial anddifferential
71Muller et.al.(1994), "Greening State Energy Taxes: Carbon Taxes forRevenue andtheEnvironment", inPace Environmental
LawReview ,Vol.12,No.1.
72ECON Senter forOkonomisk Analyse (1996), Energy Taxes; Trends andStructures inOECD andSelected non-OECD countries ,
Report No.44/96, Oslo.
73SeeM.Munasinghe (1995), Sustainable Energy Development: Issues andPolicy ,Paper No.16,Washington: World Bank.WT/CTE/W/67
Page20
treatment accorded them intheUruguay Round ofMultilateral Trade Negotiations Agreement on
Subsidies andCountervailing Measures."
69. Environmental externalities have alsobeen extensively analyzed with regards toenergy
production. Toillustrate, environmental impact assessment procedures haveformany years identified
andhelped tomitigate problems linked totheconstruction andoperation ofhydro-electric dams.
Assessments weigh longer-term environmental impacts offlooding andriverdiversion oneco-systems,
associated lossoffragile wildlife habitats including wetlands, marshes andold-growth forests, theloss
ofbiodiversityaswellasunforeseenchangesinwildlifemigrationandfeedingpatterns,upstreamchanges
inwatershedsandgroundwateraquiferlevels,longer-termproblemsassociatedwithsiltationculmination,
aswellasenvironmental problems related totheelectricity transmission along corridors. Other energy
sub-sectors poseequally acute environmental problems. Oilexploration, oilrefining, petro-chemical
operations, andoiltransport posedifferent problems, suchaslanddegradation, toxicpollution orspills
frommarine transport accidents. Themining ofcoalpresents problems similar toothertypes ofmining,
including changes inland-use, thedegradation ofadjacent rivers andlakes withvarious pollutants
includingsludge,andairqualityproblemsassociatedwithvariousairpollutants.Environmentalproblems
associated withnuclear energy havebeenlongrecognised, andinclude operational risks aswellas
acute waste treatment problems.
70. Bydistorting prices, energy subsidies exacerbate environmental problems linked toenergy
production anduse.Forexample, some energy subsidies mayencourage theinefficient useofenergy
resources, discourage energy conservation ortheexpanded useofrenewable sources. Inaddition,
subsidies mayencourage obsolete andenvironmentally-inefficient technologies (e.g.older coal-fired
utilities which operate below peakthermal efficiency) tocontinue operation. However, caution is
required when drawing conclusions about theenvironmental impact ofenergy policy reform.74Two
factors which determine theimpact ofreforming energy subsidies ontheenvironment include: (a)the
responsiveness ofinput usetochanges insubsidies; and(b)theamount ofdamage caused byeach
unitofinput used. While itisusually assumed thattheremoval ofenergy subsidies would result in
decreased energy consumption andanimproved environmental situation, toreduce subsidization may
notsubstantially reduce energy consumption because: (a)asenergy isaninput tovirtually allforms
ofeconomic activity, subsidy removal islikely tohavegeneral equilibrium effects, making predictions
about theimpact ofreforms ontheenvironment difficult tomake; (b)where inter-fuel substitution
ispossible, reduced subsidies mayaffect thecomposition rather thanthequantity offuelused
(environmental damage would inthiscasedepend onthecomposition ofthefuelsthatcontinue tobe
used).
71. Different environmental effects havealsobeenidentified intheenergy sector because oftrade
liberalization. According toonestudy, thebenefits thatwould follow from theremoval oftrade
distortions andrestrictions facing primary fossil fuelsovertheperiod 1990-2000 havebeenestimated
tobesignificant.75Changes induced bythereform arecompared to"Business asUsual" (BaU), a
situation inwhich noreform isundertaken. IntheBaUscenario, depletion ofcrude oilreserves takes
placefromtheyear2030onwards,andcrudeoilisprogressivelyreplacedwithcarbon-intensivesynthetic
fuel. Carbon dioxide emissions intheOECD increase faster post2030, reflecting thereplacement
ofconventional oilproducts bysynthetic fuelwhich emits more carbon dioxide perunitofenergy into
74These arguments aredeveloped inWorld Bank (1997), Expanding theMeasure ofWealth: Indicators ofEnvironmentally Sustainable
Development, Washington: World Bank.
75Ibid.WT/CTE/W/67
Page21
theatmosphere. Such areplacement doesnotoccur innon-OECD countries, where significant oil
subsidies make synthetic fuelunprofitable.76
72. When existing traderestrictions anddistortions areremoved, energy demand inthenon-OECD
countries fallsby28percent(compared totheBaUscenario) asaresult ofremoving subsidies, but
energy demand increases by21percentinOECD countries duetotheelimination oftaxes. Forthe
world asawhole, however, primary energy demand declines by16percent. Moreover, when subsidies
areremoved, themost polluting fuels(coal andcarbon based synthetic fuels) arereplaced bycrude
oil.Theimpact ofremoving existing distortions onworld emissions isthussignificant. Based on
themodel described here, whereas intheyear2050 19.3billion tonsofcarbon would bereleased in
theBaUscenario, only15.9billion tonswould bereleased withtotalreform.
73. Anumber ofdeveloping countries relyheavily oncoalasasource ofenergy.77Ithasbeen
argued thatfordeveloping countries, phasing outfuelsubsidies should beaprincipal target toreduce
environmental impacts. Inthese countries, suchreforms would enable thefirstunits ofabatement
tobeachieved atzero, orevennegative (welfare enhancing) cost.78Inaddition, thestudy argues,
thatwhere existing energy taxes aredistortionary, theyshould alsobereformed. Current fueltaxes
fallheavily ononlyonefossil fuel,namely oil.Theintroduction ofcarbon taxes(toaddress theproblem
ofglobal warming) onexisting distortionary taxes, would onlyincrease welfare costs.
74. Inaddition, itispossible thattheremoval ofsubsidies onfossil fuelsinsome casesmayincrease
demand forwood fuel. Thisprovides acaveat tosome oftheexpected environmental benefits from
subsidy reform. Increased wood fuelconsumption could accelerate deforestation, andcontribute to
bothlanddegradation andthelossofhabitats. However, itisexpected thatwood fuelwould only
substitute foranarrow range ofother fuels, andwould onlybeemployed forhousehold consumption
(heating andcooking). Inaddition, theuseofwood fuelbyurban households islikely tobeconstrained
byspace andtransport costconsiderations. Therefore, deforestation maynotincrease significantly
asaresult ofreforming fossil fuelsubsidies.79Reforms inother sectors mayalsoaffect energy use
andenvironmental impact. Forexample, anthropogenic emissions ofnitrous oxides originate from
agriculture, andinparticular chemical fertilizers: agriculture isthelargest single source ofN2O
emissions ofthereporting Parties totheFramework Convention onClimate Change.80TheFCCC
alsonotes thatsubsidy reform would beexpected todecrease emissions ofmethane gasfromcoalmining
operations.
75. Indiscussing theeffects ofreforming energy taxes andsubsidies, theincome effects oftrade
liberalization ontheenvironment intheenergy sector arealsopotentially important. Several studies
suggest thateliminating energy subsidies willincrease realincome globally bythree quarters of
onepercent(which iscomparable totheorder ofmagnitude ofthecontribution oftheUruguay Round
toincreased global GDP).
76Ibid.
77China andIndia, which together account forapproximately 14percentofglobal carbon dioxide emissions, relyheavily oncoal.
78SeeR.Clarke (1993), "Energy Taxes andSubsidies: Their Implications forCO2Emissions andAbatement Costs", International
Journal ofEnvironment andPollution ,Vol.3,No.1/3.
79SeeWorld Bank (1997), Expanding theMeasure ofWealth: Indicators ofEnvironmentally Sustainable Development, Washington:
World Bank.
80Framework Convention onClimate Change (1997), National Communications ,FCCC/SB1/1997/19, Bonn: Subsidiary Body for
Implementation.WT/CTE/W/67
Page22
(a) Coal
76. Coaliswidely viewed asbeing among themore polluting sources ofenergy. Itsmining and
consumption result inamultitude oflocalandglobal environmental problems.
77. Differences between international anddomestic prices ofcoalaremaintained through anumber
oftraderestrictions anddistortions, some ofwhich include: (a)restricting imports toraisethedomestic
price ofcoal; (b)directly subsidizing coal; and(c)imposing minimum purchasing obligations on
electricity generating utilities, requiring themtobuycertain volumes ofcoalfromlocalmines atabove
international prices.81Coalsubsidies areconsidered tobeamajor problem from anenvironmental
perspective andtheenvironmental benefits ofremoving coalsubsidies maybenumerous. Forexample,
there arelocalandglobal environmental problems associated withcoalmining: theburning ofcoal
releases carbon andsulphur dioxides intotheatmosphere which contributes toglobal warming and
acidrain.Evidence supports thefactthatreducing subsidies would decrease coalconsumption.82In
fact,where subsidies toproducers havedecreased world prices ofcoal,reversing thispolicy isexpected
toincrease international prices andcontribute todecreased demand forcoal. Thiswould reduce the
localandglobal environmental problems associated withthemining anduseofthisenergy source.83
78. There isalsoevidence tosuggest thatdifferences inenergy prices across theworld aredue
togovernment measures toeither taxorsubsidize energy. While OECD countries implicitly taxcarbon
inoilproducts (with taxes exceeding US$200 pertonofcarbon), non-OECD countries implicitly
subsidize carbon (with theimplicit subsidy averaging US$92 pertonofcarbon).84Ithasbeenargued,
forexample, thatreforming thesetaxesandsubsidies would contribute significantly tocombating global
warming.85
(b) Metals
79. Asnoted, reforming trade distorting policies intheenergy sector willhaveanimpact onall
economic activities thatuseenergy. Among themany sectors which willbeaffected bytheremoval
ofenergy subsidies andtariff reductions isthemining sector. Asnon-ferrous metals areaddressed
separately inthisnote, special mention oftheinter-linkages between minerals, energy andthe
environment ismade below.
80. Anything which isextracted, recovered, ormined fromtheearth, andwhich ismostly inorganic,
canbeconsidered amineral. Minerals canbeclassified intofourdifferent categories86:
(i) minerals thatarenotconsumed afterextraction andchemical processing. These include
mostmetal ores, suchasiron, copper andbauxite, which areusedformaking steel,
81SeeK.Anderson (1995), "The Political Economy ofCoalSubsidies inEurope", Energy Policy, Vol.23,No.6.
82Ibid.
83Itisimportant tonoteisthefactseveral countries inWestern Europe havealready chosen toabandon coalsubsidies, andanumber
ofothers arealsoexpected todosointhenearfuture, sothattheprocess ofremoving trade restrictions anddistortions facing thisenergy
source hasalready begun. SeeK.Anderson (1995), "The Political Economy ofCoalSubsidies inEurope", Energy Policy ,Vol.23,No.6.
84SeeP.Hoeller andJ.Coppel (1992), "Carbon Taxes andCurrent Energy Policies inOECD Countries", OECD Economic Studies;
inTheEconomic Costs ofReducing CO2Emissions ,No.19,Paris: OECD.
85SeeOECD (1992), Environmental Impacts ofRenewable Energy, TheOECD Compass Project, Paris: OECD.
86SeeJ.Tester et.al.,ed.,(1991), Energy andtheEnvironment inthe21stCentury ,Cambridge: MITPress.WT/CTE/W/67
Page23
copper andaluminum respectively. These aretheprincipal metals which form the
backbone ofindustrial activity;
(ii) minerals thatareconsumed andnotrecycled. These arereferred toasindustrial
minerals. Some, suchaspotash andphosphate, areusedtomake fertilizers andare
lostaftertheiruse. Limestone, which alsofallsinthiscategory, isusedtomake
cement, andisrarely recycled;
(iii) energy minerals. Themain mineral inthiscategory iscoal, which isconsumed to
fulfil different energy requirements. Minerals containing uranium alsofallintothis
category; and
(iv) minormineralsandoresthatarerequiredforvariousapplicationsintheindustrialworld.
Examples ofthese minerals include: rareearths thatareusedinelectronics, andgold.
81. Asignificant amount ofenergy isrequired toconcentrate andtreatminerals inorder toproduce
intermediate products forfurther chemical processing, which alsoconsumes energy. When minerals
attain asemi-usable form, suchascopper, metal orsteel, additional energy isrequired toturnthese
metals (bythermo-mechanical means) intouseful products. Assetoutinmore detail inSection VI
onnon-ferrous metals, theproduction ofminerals, therefore, isenergy intensive.
Energy Consumption Profile
INDUSTRY ENERGY REQUIREMENT
(106Btu/ton)
Copper 80-100
Nickel (sulfide ore) 200
Zinc 60
Lead 30
Steel 27-30
Nickel (laterite ore) 600
Aluminum 280
Glass 7.4
Lime 6-8
Cement 7.6
Source: Jefferson Tester et.al.(1991), Energy andtheEnvironment inthe21stCentury ,Cambridge: MITPress.
82. Theremovaloftraderestrictionsanddistortionsintheenergysector,accompaniedbyappropriate
environmental policies, willsendcorrect signals totheminerals industry. Energy subsidies encourage
theoveruse ofenergy, andprovide animplicit subsidy toallmineral production activities. Ithasbeen
suggested thatreforming thesesubsidies could reduce energy consumption andpromote more efficient
andenvironmentally sustainable minerals production.WT/CTE/W/67
Page24
IV. FISHERIES
A. Overview
83. Thefisheries sector iscomprised oftwobroad categories: (a)capture fisheries which encompass
theharvesting ofwildfishstocks; and(b)aquaculture which refers totheproduction ofaquatic
organisms. Aquaculture accounts for18percentoftotalworld fishproduction byweight. Theprincipal
focus ofthissection iscapture fisheries, which theFAOsubdivides intoindustrial fisheries andartisanal
fisheries.
84. TheFAOestimates thatin1995thetotalglobal production offishwas112million metric tonnes
(m.m.t.)peryear,ofwhichtotalcapturefisheriesrepresented91m.m.t.andtotalaquaculturerepresented
21m.m.t.. Tencountries accounted forabout 70percentofthevolume oflanding ofcapture fisheries
in1995, withthecontribution oftotalproduction inlow-income foodimporting countries increasing
significantly. In1995, these countries accounted for35percentoftotalproduction, compared with
26percentin1988. Fishsupplies forhuman consumption andfishmeal production havereached record
levels. Ofthetotalproduction offishin1995, approximately 81m.m.t. isusedforhuman consumption,
and31m.m.t. isconsumed forother usessuchascattle andaquaculture feed.87
85. Largescaleindustrialfisheries,whichconstitutethree-quartersofworldcatch,arepredominately
capital-intensive anduseadvanced technologies tolocate migratory fishstocks andrequire complex
infrastructures tolandandprocess fish.88Industrial fisheries aredominated bydeveloped countries,
andinvolve thefullspectrum offishspecies, fromthose thatareofhigh-value, suchastuna, codand
haddock, tothose which arelower invalue butgreater inabundance fishspecies. Thelatter areused
primarily forfishmeal. Small scale, artisanal fisheries represent one-quarter oftotalannual catch,
andarethedominant fishing sector inmany countries. Small-scale fisheries areconcentrated incoastal
andinland waters, andsupply fishandfishproducts predominately forlocalconsumption.89
86. Approximately one-third ofglobal fishproduction enters international tradeandisconcentrated
primarily onhigh-value fishandfishproducts.90Itisestimated thatthetotalvalue oftrade in1995
wasUS$51.7billion, which represents asignificant increase fromthetotalofUS$17billion in1985.
Itisestimated thatthisincrease isduelargely toanincrease intrade inlow-value fishproducts, such
as,forexample, fishmeal. Trade patterns forhigh-value fishproducts aredominated byimports to
developed countries, ofwhich approximately halforiginates indeveloping countries. Anestimated
87percentofindustrialized countries 'exports offishandfishproducts, measured interms ofmarket
value, weredestined forother developed countries. Thetotalvalue ofexports fromdeveloping nations,
forwhom fisheries represents asignificant source ofexport revenue, increased fromUS$5.1billion
in1985 toUS$20billion in1995.
87FAO (1996), TheState ofWorld Fisheries andAquaculture ,Rome.
88Large orindustrial fishing vessels cancatch asmuch as400tonnes offishinlarge nets,andarecapable ofprocessing 50-80 tonnes
offishperday. Although industrial vessels represent onlyonepercentoftheworld 'stotalfishing fleet, theyaccount forapproximately
60percentofthetotalregistered tonnage offishing vessels. SeeG.Porter (1997), TheEuro-African Fishing Agreements: Subsidizing
Overfishing inAfrican Waters ,UNEP-WWF Workshop ontheRoleofTrade Policies intheFishing Sector, Geneva.
89R.Grainger (1996), Recent Trends inGlobal Fishery Production ,FAO, Rome; FAO (1996), TheState ofWorld Fisheries and
Aquaculture ,Rome; andTheMinistry ofForeign Affairs oftheNetherlands (1995), Fisheries inDeveloping Countries: Towards sustainable
useofliving aquatic resources ,Hague.
90Datafrom FAO (1997), TheState ofFood andAgriculture ,Rome.WT/CTE/W/67
Page25
87. Scientific evidence hasconsistently shown adownward trend intheworld 'sfishstocks.91
Fisheries havedeveloped rapidly, withtheresult thatthere arenowfewunder-exploited resources
andanincreasing number ofoverexploited ones. Onaworldwide basis, theFAO estimates that
60percentofthe200major fishspecies arefullyexploited, overfished orintheprocess ofrebuilding
asaresult ofdepletion. Scientific estimates show adramatic decline orcollapse inseveral high-value
fishstocks. Forexample, oneestimate suggests adecline between 1992 andpeak-year yields for
Atlantic Codinthevicinity of69percent,forCape Hake by82percent,forHaddock by80percent,
forSilver Hake by88percent,forGreater Yellow Croaker by80percent,andforAtlantic Herring
by63percent.92TheFAO notes thatthedepletion ofvarious fishstocks hasoccurred invirtually
allcoastal states throughout theworld.93
88. Byallaccounts, theworld 'sfisheries resources continue toundergo analarming deterioration,
whereby theextent ofannual harvesting worldwide isundermining thesustainability offisheries
resources.94Factors which explain fishstock decline aremany andvaried andinclude overcapacity
andoverfishing offishing fleets, openaccess tofishresources asaresult oftheabsence ofproperty
rights forfisheries resources, inappropriate fisheries management practices, marine pollution, fish
by-catch mortality, andincreased ultra-violet radiation onmarine foodchains.95Access tofishstocks,
particularly certain high-value fishspecies which arefound either outside theExclusive Economic Zones
(EEZs) orwhich migrate between EEZs andthehighseas, isanareaofconcern. Concern alsohas
beenraised about theadverse conservation impacts associated withlarge fishing operations andthe
useoffloating driftnet devices which increase mortality ofnon-commercial fishandmarine mammal
by-catch96,andaffect marine biodiversity andtheirhabitats.97
B. Trade Restrictions andDistortions
Trade infishandfishproducts isaffected bytariff andnon-tariff measures, including quotas,
embargoes, license requirements, andsanitary andphytosanitary andtechnical standards.
91FAO(1996), Chronicles ofMarine Fishery Landings (1950-1994): Trend analysis andfisheries potential ,Fisheries Technical Paper
No.359,Rome.
92FAO (1996), TheState ofWorld Fisheries andAquaculture ,Rome. SeealsoG.Porter (1997), Fishing Subsidies, Overfishing and
Trade, UNEP Environment andTrade Series No.15;andP.Weber (1994), NetLoss: Fish,JobsandtheMarine Environment ,Washington:
Worldwatch Paper No.120.
93FAO (1997), Marine Fisheries andtheLawoftheSea:ADecade ofChange, Rome.
94Fisheries management isoneoftheoldest areas ofinternational law. Forexample, theInternational Council fortheExploration
oftheSeawasestablished in1902tofacilitate theexchange ofscientific dataonfisheries. Theconcept ofmaximum sustainable yield(MSY)
forharvesting fisheries resources wasdefined in1958anditsdevelopment wasaprecursors totheconcept ofsustainable development which
came outofUNCED. Theconcept ofMSY dealswiththeoutput perunitofeffort, i.e.leveloffishresources which canbeharvested annually
fromaself-regenerating stock offishspecies while maintaining asustainable stock. See,forexample, A.deFontaibert, D.Downes and
T.Agardy (1996), Biodiversity intheSeas,IUCN Environmental Policy andLawpaper No.32;andP.Birnie andA.Boyle (1992),
International LawandtheEnvironment, Oxford: Oxford University Press.
95UNEP (1997), TheRoleofTrade Policies intheFishing Sector: Summary Report ,UNEP/WWF workshop on"The RoleofTrade
Policies intheFishing Sector", Geneva; andR.McLeod (1996), Market Access Issues fortheNewZealand Seafood Trade, NewZealand
Fishing Industry Board.
96FAOestimated (1994) thatonaverage 27million tonnes offishlandings consisted ofby-catch, representing anaverage ofapproximately
32percentoftotalreported annual production ofmarine capture fisheries; incidental catch ofnon-targeted, vulnerable species isassociated
inparticular withshrimp, prawn andtunafisheries.
97SeeA.deFontaibert, D.Downes andT.Agardy (1996), Biodiversity intheSeas,IUCN Environmental Policy andLawpaper No.32;
andP.Birnie andA.Boyle (1992), International LawandtheEnvironment, Oxford: Oxford University Press.WT/CTE/W/67
Page26
(a) Tariffs
89. Ithasbeenestimated thatapproximately 80to85percentoftotalinternational trade infish
andfishproducts arebound under MFN tariffs; theremaining 20percentfallunder GSPandother
preferential trade arrangements.98Indeveloped countries, pre-Uruguay Round tariffs averaged
6.1percentweighted byimports from allsources and6.6percentwhen weighted byimports from
developing countries. Theaverage trade weighted post-Uruguay Round tariff levels forthree major
markets inthefisheries sector are(onatrade weighted basis) 10.7percentfortheEuropean Union,
4.1percentforJapan, and0.9percentfortheUnited States. Post-Uruguay Round average rates
havebeenreduced to4.5percentand4.8percentrespectively. Oneestimate forecasts thattheincrease
offishandfishproducts exports duetotrade liberalization willrange from 12.9to13.5percent.99
90. Tariff reductions asaresult oftheUruguay Round areslightly morepronounced forunprocessed
productscomparedtoprocessedproducts.Accordingly,tariffescalationisstillperceivedtobeaproblem
faced bymany exporting countries. Higher tariff ratesapplied tosemi-processed orprocessed fish
products induces allocative inefficiencies bothinthecountry imposing thetariffs, andintheexporting
countries. From aglobal perspective, these inefficiencies haveresulted inalarger absolute quantity
ofunprocessed fishbeing exploited toproduce thesame volume ofprocessed fish.
(b) Subsidies
91. Subsidies inthefisheries sector assume avariety offorms andareprimarily provided toreduce
operating andcapital costsofharvesting. Subsidies include those provided toreduce operating costs,
reduce fishing vessel construction ormaintenance costs, orthose provided indirectly bywayofincome
support andaspartoffisheries management schemes.100Subsidies toreduce vessel fuelcosts can
contribute tothelossofhigh-migration orstraddling stocks byencouraging long-range harvesting,
while subsidies tovessel construction willincrease totalfleetcapacity. There aredirect subsidies based
ontotaloutput andmeasured interms ofdaysatseaorasapercentage oftotalcatch andsubsidies
onafleet'sidlecapacity. Inaddition, under bilateral coastal access agreements, fishing licenses are
inmany instances considerably undervalued compared tothecommercial catch andcanbeconsidered
toconstitute anindirect subsidy, particularly ifaquota management system isnotinplace ornot
adequately enforced.101
92. Subsidies alsohavethepotential tocontribute tosustainable fisheries management schemes.
Examples include subsidies toreduce fleetcapacity, retrain fisher people, enhance fishstocks, promote
vessel andfishing buy-backs totakevessels outofuse,andencourage technological improvements.
Determining theimpact ofsubsidies which aredeemed tobeenvironmentally-beneficial willdepend
onhowthesesubsidies areadministered andmonitored. Recent literature suggests thatinsome cases,
98Approximately 300bilateral fishing-related agreements havebeensigned inthelasttwodecades.
99GATT (1994), TheResults oftheUruguay Round ofMultilateral Trade Negotiations, Market Access forGoods andServices: Overview
oftheResults ,Geneva.
100TheFAOCommittee onFisheries hasidentified excessive fishing capacity andinappropriate fishing management asamajor problem
forallgovernments. SeeFAO (1997), Report ofthe22nd Session oftheFAOCommittee onFisheries, Rome.
101See,forexample, G.Porter (1997), TheEuro-African Fishing Agreements: Subsidizing Overfishing inAfrican Waters ,UNEP-WWF
Workshop ontheRoleofTrade Policies intheFishing Sector, Geneva: UNEP.WT/CTE/W/67
Page27
forexample, subsidies forvessel buy-backs maysucceed inretiring oldboats, butthatthese maybe
replaced bynewones.102
93. Although theprecise identification andquantification ofsubsidies inthefisheries sector has
notyetbeenfullyundertaken, consensus exists thatfisheries subsidies arewidespread, tradedistorting
andundermine thesustainable useoffishresources. Oneoften citedestimate suggests thattheorder
ofmagnitude ofsubsidies tothefisheries sector world wideisinthevicinity ofUS$54 billion perannum,
representing 77percentofthetotalvalue offishharvested bytheworld 'sfishing fleet.103Although
thisestimate hasbeensubject tocriticism, itnonetheless remains auseful point ofreference.
94. Work iscurrently underway invarious foratoidentify, classify andquantify different types
andeffects ofsubsidies. Forexample, TheUNGASS concluded thattherewasaneedforgovernments
toconsider thepositive andnegative impact ofsubsidies ontheconservation andmanagement offisheries
through national, regional andappropriate international organizations and,based onthese analyses,
toconsider appropriate action.104Atits79thSession inApril 1997, theOECD Fisheries Committee
agreed tostudy government financial transfers thataffect thetransition toresponsible fisheries.105The
Committee noted thatitisinappropriate toclassify various transfers aseither "good" or"bad" subsidies,
butrather toanalyze therelationship between suchtransfers, fishing capacity andfishing activities,
andfishstock status.106
95. Several environment-related fisheries subsidies havebeennotified byMembers: theseinclude
regional structural adjustment programmes forfisheries inwhich conservation objectives areidentified;
various fisheries support schemes inwhich environmental conservation iscited; andsupport schemes
topromote environmentally-sound fishharvesting methods.107
(c) Non-tariff measures
96. Trade infishandfishproducts issubject tonon-tariff measures including tariff quotas,
quantitativerestrictions,importleviesandsanitaryandphytosanitaryandtechnicalregulations.Non-tariff
measures havebeennotified byMembers under different WTO Agreements, including theAgreements
onSanitary andPhytosanitary Measures (SPS) andTechnical Barriers toTrade (TBT). Anumber
ofmeasures have been notified byMembers under theSPSAgreement, including quarantine
requirements, standards related tofishadditives, foodsafety standards (e.g.theuseofpreservatives
invarious fishproducts), criteria related tofishhealth (e.g.certification forornaments fishandfish
products), andnotifications which refertointernational standards andagreements (e.g.theFishDisease
Commission andCITES).
102J.Gates, D.Holland andE.Gudmundsson (1997), Theory andPractice ofFishing Policies andVessel Buy-back Programmes ,paper
submitted totheUNEP/WWF workshop on"The RoleofTrade Policies intheFishing Sector", Geneva: UNEP.
103D.Doulman (1996), AnOverview ofWorld Fisheries: Challenges andProspects forAchieving Sustainable Resource Use.
104UN(1997), Programme fortheFurther Implementation ofAgenda 21,(E/1997/MISC.3) textadopted atthenineteenth Special Session
oftheGeneral Assembly, Geneva.
105TheOECD expects tocomplete thisstudy in1999.
106OECD (1997), Impact onFisheries Resource Sustainability ofGovernment Financial Transfers ,Fisheries Committee oftheDirectorate
forFood, Agriculture andFisheries, Paris.
107SeeWT/CTE/W/46.WT/CTE/W/67
Page28
97. Various types ofquota restrictions andimport licensing procedures havebeennotified byWTO
Members under theAgreement onImport Licensing Procedures, andinclude licensing schemes covering
livefish,freshfish,chilled orfrozen fish; thecontrol ofimports ofcertain types offishspecies (such
asflying fishorassociated pelagics); import controls onfishproducts usedforanimal feedand
quantitative restrictions ontheimport ofsmoked trout, cod,salmon, lobster, scallops. Under theTBT
Agreement, labelling requirements havebeennotified concerning, forexample, canning methods for
fishproducts, orstandards which donotallow canned products tocontain juvenile species. There
havealsobeennotifications ofmarketing arrangements, packaging requirements, internal taxesonfish
products,technicalregulationsandstandardscoveringminimumlandingsizeoffish,andphysicalcriteria
(such aswhether thefishiscarrying eggs).108
C. Environment Benefits
98. Thefisheriessectorisagoodexampleofthebenefitsforbothtradeandenvironmentofremoving
trade distortions. Toacertain extent, however, thecontribution ofeliminating trade restrictions and
distortions inthefisheries sector isdifficult toisolate relative tothenumerous other factors affecting
thesector. Forthemostpart,itisfisheries management, andnottrade, which plays thecrucial role
indetermining sustainable resource exploitation.
99. Assetoutinthesubmissions totheCommittee onTrade andEnvironment byNewZealand
andtheUnited States, animportant cause ofthedecline infishstocks isoverfishing duetoovercapacity
inproduction andfleets.109Arecent UNEP workshop alsonoted thatthefishcrisis islargely aproblem
ofovercapacity offishing fleets onaglobal scalewhere there exists toomuch fishing capacity fortoo
fewfishstocks.110Thissituation hasarisen asaresult ofthemismanagement offishstocks tothepoint
where theireconomic productivity andenvironmental sustainability hasbeenseverely undermined.111
Overthepastseveral decades, theFAOestimates thecapacity oftheworld 'sfishing fleethasincreased
threefold. Increases inthenumber offishing vessels andsignificant changes infishing boats and
harvesting methods havecontributed tofishing beyond whatareconsidered tobesustainable limits.
Fisheries management atthenational andinternational levels isviewed asbeing crucial indetermining
thelevels ofsustainable resource exploitation.
100. Themeasurement andquantification oftheeffect oftrade distortions, suchassubsidies, is
complex. However, itisargued thatremoving subsidies would increase operating, capital orother
costsandcontributetolessoverfishingbyreducingovercapacityinthefishingsector.Withtheexception
ofthepotentially environmentally-enhancing subsidies noted above, thepositive effects thatwould
follow fromtheelimination ofsubsidies include anincrease incapital oroperating costsfornewentrants
inthesector. Areduction incapital-related subsidies would limittheadoption ofadvanced technologies
thanwould otherwise beadopted; some ofthese technologies dependent oneconomies ofscale. A
reductionofcapital-relatedsubsidieswouldinsomeinstancesalsoreducetherangeoffleets.Areduction
ofsubsidies provided toidlevessels, forexample, would reduce theability ofinefficient producers
tocontinue operating, andencourage thephasing outofobsolete andpotentially environmentally-
damaging equipment. Intheabsence ofincome support andwithanincrease incapital andoperating
108Ibid.
109Seethesubmissions byNewZealand (WT/CTE/W/51) andtheUnited States (WT/CTE/W/52).
110UNEP (1997), TheRoleofTrade Policies intheFishing Sector: Summary Report ,UNEP/WWF workshop on"The RoleofTrade
Policies intheFishing Sector", Geneva.
111Thefisheries sector underlines theclose relationship between environmental science andeconomics. Viable fisheries production
depends onexisting fishstocks orbiomass. Sustainable fishyields arelinked tothelevelofresource biomass insuchawaythatthelevel
offisheries production should correspond tothelevel oftheavailable biomass. Production willdecline when themaximum sustainable
yield offishstocks issurpassed.WT/CTE/W/67
Page29
costs offisheries harvesting operations, short-term profit margins would decrease aswould returns
oninvestment, thereby alsoencouraging theaccelerated retirement ofinefficient operators, andan
overall reduction infleetcapacity.112Considerably more work isneeded intracking andunderstanding
trends inworld prices forhighvalue species, forexample, andtherolewhich pricedistorting policies,
suchassubsidies, playinfisheries trade.
101. Subsidies removal willnotinitselfensure thesustainable useoffishresources; itrepresents
anecessary steptowards removing themostprevalent economic instrument hampering theachievement
ofsustainable fisheries management. Asinother sectors, theintroduction ofappropriate domestic
andinternationalenvironmentalandconservationpoliciesareneeded,andtheremovaloftraderestrictions
anddistortions isbutoneelement inthatregard. Nevertheless, thereduction orelimination oftrade
restrictions anddistortions, suchassubsidies, isanimportant prerequisite towards building sustainable
fisheries management, particularly given theextent towhich suchsubsidies distort world prices and
impact negatively onsustainable resource use.113
102. Since UNCED, themultilateral framework forsustainable useandconservation ofliving aquatic
resources intheoceans hasbeenenhanced. Chapter 17ofAgenda 21ofUNCED addressed the
"Protection oftheoceans, allkinds ofseas, including enclosed andsemi-enclosed seas, andcoastal
areas andtheprotection, rational useanddevelopment oftheir living resources." Multilateral
developments ofrelevance tofisheries, include theentering intoforce in1996 oftheUNConvention
ontheLawoftheSea(UNCLOS), which establishes exclusive economic rights over200-mile coastal
zones.114Other examples ofmultilateral agreements related tofisheries arethe1992UNFramework
Convention onBiological Diversity115;the1993Agreement toPromote Compliance withInternational
Conservation andManagement Measures byFishing Vessels ontheHigh Seas; the1995 Agreement
fortheImplementation oftheProvisions oftheUNCLOS relating totheConservation andManagement
ofStraddling FishStocks andHighly Migratory FishStocks; andthe1995 FAO Code ofConduct
forResponsible Fisheries andtheUNMoratorium onDriftnet Fishing.116
103. Ithasbeenwidely recognized thatfishing subsidies areamajor contributor tothecurrent state
offleetovercapacity andtothemismanagement offisheries resources. Although italsohasbeen
recognized thatsustainable fisheries management goesbeyond removing subsidies, theUNEP workshop
112S.Sen(1994), "TheEnvironmental Effects ofTrade intheFisheries Sector", inC.Runge, ed.,TheEnvironmental Effects ofTrade ,
Paris: OECD.
113SeeFAO (1996), TheState ofWorld Fisheries andAquaculture ,Rome; OECD (1996), TheEconomic Aspects ofManagement
ofLiving Marine Resources ,Fisheries Committee; andthesubmissions totheWTO Committee onTrade andEnvironment byNewZealand
(WT/CTE/W/51) andtheUnited States (WT/CTE/W/52).
114The1982UNCLOS assigns tocoastal states theexclusive righttomanage andexploit marine resources, including living resources,
intheirexclusive economic zone(EEZ: 200nautical miles from thebaselinefrom which thebreadth oftheterritorial seaismeasured)
andapply regulatory measures within theframework ofacomprehensive management system. Attached totheserights arecertain obligations
withrespect totheconservation andutilization oftheliving resources. Thecoastal statedetermines theallowable catch based onthebest
scientific evidence available. Ifacoastal statedoesnothavethecapacity toharvest theentire allowable catch, itshallgiveother states access
tothesurplus ofthetotalallowable catch inreturn forfishery-related economic benefits. However, asnotallfishstocks arefound within
EEZ, UNCLOS directs thecoastal stateandother states fishing intheregion tocooperate directly orthrough appropriate international
organizations withaviewtoensuring conservation andpromoting theobjective ofoptimum utilization ofsuchspecies throughout theregion,
bothwithin andbeyond theEEZ. SeeUnited Nations (1983), United Nations Convention ontheLawoftheSea,NewYork.
115Ofparticular relevance istheJakarta mandate onCoastal andMarine Biodiversity adopted atthesecond session oftheConference
oftheParties oftheConvention onBiological Diversity inNovember 1995.
116UN(1997),TheReportoftheSecretary-GeneralontheProtectionoftheoceans,allkindsofseas,includingenclosedandsemi-enclosed
seas, andcoastal areas andtheprotection, rational useanddevelopment oftheirliving resources ,(E/CN.17/1996/3) textadopted atthe
nineteenth Special Session oftheGeneral Assembly, Geneva.WT/CTE/W/67
Page30
came toageneral agreement ontheneed torollback subsidies tothefishing sector, forboth
environmentalandeconomicreasons.117TheUNEPworkshoprecommendedthatavarietyofinstitutional
options fordisciplining counterproductive fishing subsidies, including action within theWTO, under
existing environmental agreements, orthrough negotiation ofanewaccord. TheUNGASS agreed
ontheneedfor:"Governments toprevent oreliminate overfishing andexcess fishing capacity through
theadoption ofmanagement measures andmechanisms toensure thesustainable management and
utilization offishery resources andtoundertake programmes ofwork toachieve thereduction and
elimination ofwasteful fishing practices, wherever theymayoccur, especially inrelation tolarge-scale
industrialized fishing."118
104. Toalargeextent, theremoval ofsubsidies which areconsidered tocontribute toovercapacity
andoverfishing would result inareduction ofcapital intothesector, areduction offishing harvesting
levels, andwould facilitate theadoption orincrease theeffectiveness ofsustainable fisheries management
systems.
105. Aquacultureisalsoexpectedtoplayanincreasinglyimportantroleincontributingtofoodsupply,
andineasing pressures onwildfishstocks. Itisusedforhigh-value stocks likesalmon, rainbow trout,
yellow tail,catfish andmilkfish.119There areenvironmental concerns, however, which havebeen
raised inconnection withaquaculture. Some ofthepotentially negative environmental effects include
emissions ofphosphorous andnitrogen nutrients, genetic degradation ofindigenous fishstocks, and
destructionofcoastalhabitats.120Nevertheless,theseproblemspresentlessofathreattotheenvironment
thanthedepletion ofmarine resources caused byoverfishing.
V. FORESTRY
A. Overview
106. Anestimated 40percentoftheworld 'stotallandcover (approximately 5.1billion hectares)
isclassified asforests orother wooded land: thisincludes 3.4billion hectares offorests, and
1.7billion hectares ofother woody vegetation (open woodlands, scrubland andbrushlands, aswell
asareas under shifting cultivation). Temperate andboreal forests account forroughly one-half, and
tropical forests account fortheother half.121
117UNEP (1997), TheRoleofTrade Policies intheFishing Sector: Summary Report ,UNEP/WWF workshop on"The RoleofTrade
Policies intheFishing Sector", Geneva.
118UN(1997), Programme fortheFurther Implementation ofAgenda 21,(E/1997/MISC.3) textadopted atthenineteenth Special Session
oftheGeneral Assembly, Geneva.
119FAO (1996), TheState ofWorld Fisheries andAquaculture ,Rome.
120Mangroves, forexample, areimportant marine habitats which provide foodandcoastal shelter forserval fishspecies. Theloss
ofmangroves asaresult ofvarious factors related tofisheries activities, suchasaquaculture, continues toaccelerate world wide. SeeIUCN
(1996), Biodiversity intheSea,Gland: IUCN.
121TheFAOclassifies forests aslandwithaminimum treecrown cover of20percentindeveloped countries and10percentindeveloping
countries, withcontinuous forest defined astreesusually growing tomore thanabout 7minheight andabletoproduce wood. Thisincludes
bothclosed forest formations where treesofvarious storeys andundergrowth cover ahighproportion oftheground, andopenforest formations
withacontinuous grass layer inwhich treecover atleast10percentoftheground; inthedeveloping countries, aforest isanecosystem
withaminimum of10percentcrown cover oftreesand/or bamboos, generally associated withwildflora, fauna andnatural soilconditions,
andnotsubject toagricultural practices. Thetermforest isfurther subdivided intotwocategories according toorigin: natural forests are
asubset offorests composed oftreespecies known tobeindigenous tothearea; plantation forests are:(a)established artificially byafforestation
(continued...)WT/CTE/W/67
Page31
107. Theprincipal economic andenvironment problems facing theforestry sector worldwide are
deforestation andforest degradation.122Deforestation leads tolocalproblems, suchasadeterioration
insoilcover, aswellasglobal problems, suchasareduction ofcarbon sinks forgreenhouse gases
andalossofbiodiversity. Estimating theextent ofdeforestation isdifficult; dataareoften unreliable
andthemethodological approaches usedtomeasure deforestation differ. Measuring theabsolute rate
oflogging, forexample, isusually unhelpful inthisrespect.123Furthermore, whatconstitutes sustainable
forest management differs depending onthecountry andthetypeofforest under consideration, the
ecosystems within forests, environmental factors, thestage ofeconomic development ofthecountry,
demographic trends inthecountry, theeducation andcultural traditions ofindigenous peoples, land
tenure andotherfactors.124Withthesereservations inmind, however, ithasbeenestimated thatbetween
1990and1995, thenetlossinstanding forests worldwide wasapproximately 56.3million hectares.125
108. Interms ofglobal forestry production, coniferous (softwood) timber comprises 70percent
ofglobal demand forindustrial uses,while broad-leaved (hardwood) timber accounts fortheremaining
one-third. TheFAO identifies sixcategories ofwood products: roundwood (industrial andfuel),
sawn-wood, wood-based panels, wood pulpandpaper products andfuel-wood.126There arealsomany
kinds ofnon-wood forest products, suchasgums, resins, oils,rubber, commercial botanical products,
pharmaceutical products, fruits, andanimals. Inrecent years, industrial roundwood production has
grown toapproximately 1.2billion m3,ofwhich approximately 6-8percentistraded internationally.127
Inthecaseofwood pulp, sawn-wood, wood-based panels andpaper andpaperboard, 20-25 percent
aretraded internationally. While wood pulpasaproportion ofworld trade hasremained relatively
constant since the1960s, theshare ofsawn-wood andwood-based panels thatistraded hasdoubled,
withsawn-wood having increased from 12to23percentandwood-based panels from 12over
25percent. Paper isimportant invalue-added terms: theproportion ofpaper products thatistraded
hasincreased substantially, from 17percentinthe1970s to25percentinthe1990s.128Todate,
121(...continued)
onlands which previously didnotcarry forest within living memory, and(b)established artificially byreforestation oflandwhich carried
forest before, andinvolving thereplacement oftheindigenous species bynewandessentially different species orgenetic variety. SeeFAO
(1990), Forest Resources Assessment ,Rome.
122Foradiscussion, seeIPF(1996), Underlying causes ofdeforestation andforest degradation ,(E/CN.17/IPF/1996/15). TheFAO
defines deforestation aschanges inforests bythedepletion oftreecrown cover tolessthan10percent. Forest degradation isconsidered
tobechanges within theclassification oftypeofforest (e.g.fromclosed toopenforests) which negatively affect aforest stand orsiteand
lower theproduction capacity.
123See,forexample, World Bank (1995), Monitoring Environmental Progress, Washington; World Resources Institute (1996), World
Resources1996-1997,Oxford:OxfordUniversityPress;A.Hammondet.al.(1995),EnvironmentalIndicators,Washington:WorldResources
Institute; E.Barbier (1994), "The Environmental Effects ofTrade intheForestry Sector", inTheEnvironmental Effects ofTrade, Paris:
OECD; andA.Korotkov andT.Peck (1993), Forest Resources oftheIndustrialized Countries: anECE/FAO assessment, Rome: FAO.
124World Bank (1995), Monitoring Environmental Progress, Washington.
125FAO (1997), TheState oftheWorld 'sForests ,Rome.
126Ibid.
127Statistics arefound inFAO(1997), Commodity Market Review ,Rome; FAO(1997), StateoftheWorld 'sForests ,Rome; UNCTAD
(1996), Implications oftheUruguay Round forTrade inWood andWood Products ,Geneva; andIPF(1996), Trade andenvironment relating
toforest goods andservices (E/CN.17/IPF/1996/22).
128IPF(1996), Trade andenvironment relating toforest goods andservices ,(E/CN.17/IPF/1996/22).WT/CTE/W/67
Page32
several countries haveexperienced attimes significant wood shortages, including fuel-wood andother
wood supplies.129
109. Withrespect tointernational trade, theglobal market forforest products inthe1990s waslargely
dominated bydeveloped countries, interms ofbothexports andimports. Trade flows indeveloped
countries comprise approximately 85percentoftotalimports andexports across allcategories offorest
products, withtheexception oftropical industrial roundwood.130
B. Trade Restrictions andDistortions
110. Anumberofmeasuresaffecttradeinthissector,includingtariffsandtariffescalation;subsidies;
certification ofsustainable forest management; labelling offorest products; market transparency for
forest products; promotion ofless-used forest species; andfinancing andtechnology toimprove
sustainable forest management andincrease value-added processing ofwood andwood products. In
assessing theeconomic impact ofvarious policy interventions intheforestry sector, itisimportant
tonotethatgovernment policies playacrucial roleinsustainable forest management given government 's
extensive responsibilities inthissector, suchaslanduseregulatory decisions, environmental and
biodiversity protection aswellasmanaging andowning forest land. Government policies alsoaffect
therateofconversion offorests toother revenue sources, suchasagricultural production orurban
andindustrial development.131
(a) Tariffs
111. While tariffpeaks stillremain, particularly forsome products ofexport interest todeveloping
countries, average trade weighted tariffs onwood andwood products arelowinrelative terms. The
outcome oftheUruguay Round hashadanumber ofimportant implications fortariffs onforest
products.132Theaverage trade weighted tariff applied bydeveloped countries prior totheUruguay
Round was3.5percentforimports from allsources and4.6percentforimports from developing
countries.FollowingtheUruguayRound,averagetradeweightedtariffratesforforestproductsimported
bydeveloped countries (i.e.,wood-based products including wood, cork, softwood, wood pulp, wood
panels, plywood andfibreboard) havebeenreduced to1.1percentforimports fromallsources and
1.7percentforimports fromdeveloping countries.133Tariff-free quotas which wereapplied tosome
unprocessed orsemi-processed products priortotheUruguay Round havenowbeenreplaced bybound
tariff rates, thuspromoting transparency andstability fortrade inthese products andproviding a
quantifiable basis forfuture negotiations toeliminate tariffs. Developing countries havemaintained
comparativelyhighertariffratesfollowingtheUruguayRoundthantheirdevelopedcountrycounterparts.
129WorldResourcesInstitute(1996),WorldResources:1996-1997,Oxford:OxfordUniversityPress;andWorldBank(1995),Monitoring
Environmental Progress, Washington: World Bank.
130UNCTAD (1996), Implications oftheUruguay Round forTrade inWood andWood Products ,Geneva.
131IPF(1996), Trade andenvironment relating toforest goods andservices, (E/CN.17/IPF/1996/22).
132UNCTAD (1996), Implications oftheUruguay Round forTrade inWood andWood Products ,Geneva.
133GATT (1994), TheResults oftheUruguay Round ofMultilateral Trade Negotiations, Market Access forGoods andServices: Overview
oftheResults ,Geneva.WT/CTE/W/67
Page33
112. Estimates oftheimplications ofthereduced tariffs differ considerably.134Forexample, the
FAO hasestimated thatUruguay Round tariff reductions willresult inincreased trade intherange
ofUS$340 million toUS$472 million perannum forselected forest products inkeymarkets.135This
represents apercentage change inimports ofworld forest products resulting from tariff reductions
ofapproximately 0.4percent. AGATT Secretariat study estimated thatexports offorestry products
in2005 willbeintherange of3.7to5.6percenthigher thanthelevelthatwould haveoccurred in
theabsenceoftheUruguayRoundresults.136Ithasbeenreasonedthattheselargedifferencesinestimates
areattributable tothevarious models assigning differing degrees ofimportance totheeconomies of
scale thatwould bereaped from theincreased production following thetariff liberalization, the
importance oftheerosion oftariffpreferences, thestructure ofthenational andworld market forforestry
products andthelowelasticity ofdemand forsubstitutable products.
113. IntheCommittee onTrade andEnvironment, concern hasbeenexpressed withrespect totariff
escalation inthemarket forwood andwood products. Tariffs escalate when theyareimposed ata
higher levelonprocessed andsemi-processed products (e.g.manufactured wood products, furniture,
paper) thanonunprocessed products andrawmaterials (e.g.wood intherough). Forproducers in
theimporting country, thisimplies advantageously lowratesofdutyinimported inputs relative tothe
finalproduct. Their value-added (i.e.wages andreturns tocapital) isthenrewarded toagreater extent
thanwould bethecaseifasingle tariff ratewereapplied across-the-board onallimports, irrespective
ofthestage ofprocessing. Thatcreates anincentive forresources intheimporting country tomove
into,andincrease thesizeof,theprotected industry. Italsocreates amarket access barrier which
tends toprevent foreign suppliers whoareexporting unprocessed products andrawmaterials from
diversifying andmoving intohigher stages ofprocessing, hence reducing theirrelative share offinal
value-added.
114. TheGATT Secretariat hasestimated thatthetariff commitments undertaken asaresult ofthe
Uruguay Round represent amajor steptowards eliminating tariff escalation forwood andwood
products.137Reduction intariff escalation inthecaseofplywood andwood panels, anareaofexport
importance todeveloping countries, could bring about environmental benefits intheimport market
byending theprotection ofinefficient processing operations andbenefit developing country exporters,
bothdirectly byincreasing exports ofplywood andwood panels themselves, aswellasbyimproving
domestic welfare.
134Thisisinfluenced bythefactthatnotalltariffs areMFN. Developing countries, forexample, benefit fromspecial tariffpreferences
asaresult ofbilateral ormultilateral schemes, notably theGSP, which provide forreduced tariffs orduty-free entry ofimports ofwood
andwood products. TheGSPisasystem ofvoluntary concessions byimporting countries whospecify applicable quotas forspecific product
categories. Itshould benoted thattariff preferences offered byGSPoverMFN ratesforwood andwood products indeveloped country
marketswillbereducedwiththefullimplementationoftheUruguayRoundcommitmentsin2005.InformationavailableintheWTOSecretariat;
SeeUNCTAD (1996), Implications oftheUruguay Round forTrade inWood andWood Products ,Geneva; andE.Barbier (1996), Impact
oftheUruguay Round oninternational trade inforest products ,Rome: FAO.
135E.Barbier (1995), Trade inTimber-based Forest Products andtheImplications oftheUruguay Round ,Rome: FAO; andE.Barbier
(1996), Impact oftheUruguay Round onInternational Trade inForest Products ,Rome: FAO.
136GATT (1994), TheResults oftheUruguay Round ofMultilateral Trade Negotiations. Market Access forGoods andServices: overview
oftheresults ,Geneva.
137GATT (1994), TheResults oftheUruguay Round ofMultilateral Trade Negotiations. Market Access forGoods andServices: overview
oftheresults ,Geneva, p.14andAnnex II.Tariff escalation ismeasured bythechange inthetariff wedge, thatisbythechange inthe
absolute difference between tariffs atthehigher andlower stages ofprocessing.WT/CTE/W/67
Page34
(b) Subsidies
115. Forests playanumber ofimportant roles apart from therevenue generation associated with
logging. They areimportant, forexample, insoilfixing, carbon sequetion andeconomic and
non-economicconsiderationsrelatingtobiodiversity.Thus,theconcernsrelatingtoforestrymanagement
onthepartofgovernments areincreasingly broadening toencompass integrated land-use issues. One
result isthatavariety ofdirect andindirect subsidies arenowapplied intheforestry sector which have
considerable direct andindirect implications forthemanagement offorestry resources andeventually
trade. Costs tohelpachieve sustainable forestry, forexample, canbeborne through forgone revenues
caused bycreating news parks andprotected areas, andallocating forests fornon-timber uses, such
asrecreation andbiodiversity values.
116. Theneteffect ofsubsidies onforestry management iscomplex. Concessions ontaxes and
theterms oflogging canconstitute indirect orimplicit subsidies resulting indomestic overcapacity
andoverproduction, theoperation ofinefficient mills, andtheunsustainable useofstanding forests.
Determining stumpage isimportant astheyframe thefeeincentives structure forproduction andrates
ofdeforestation.
117. Environment-related subsidies include theuseofgrants, taxconcessions andother support
schemes topromote research anddevelopment aswellasimplementation ofsustainable forest
management practices. AssetoutinWT/CTE/W/46, several notifications havebeenmade which relate
toforestry products. These include, thenotification ofinformation supporting theintegration of
environmental measures intheforestry sector, including anenvironmental forestry grant; measures
insupport of"quality forests" which included thepromotion offorest-related environmental values;
measures toenhance theconservation andsustainable useofforests; andmore general measures to
encourage the"efficient andsustainable use...ofagriculture andnatural resources, including lands,
water, fishandforest products".138
(c) Non-tariff measures
118. Other non-tariff measures affecting trade inwood andwood products include taxexemptions
ordeferrals forproducers, special export orimport facilities, dutyrelief forforest-related equipment
orsubsidies applied tothedevelopment ofsustainable forest production methods. While many non-tariff
measures directly affect trade inwood andwood products, suchasquantitative import restrictions,
theeffects ofother measures areindirect, suchastaxcredits forplantation forestry andR&D assistance
totheprocessing industry. Given thediversity oftypesofforest species andvalue-added wood products,
identifying andmeasuring thedegree oftrade restrictiveness ofmany ofthese measures (i.e.by
establishing atariff equivalent ofthenon-tariff measure) isparticularly difficult.
119. Export controls, including export taxes, restrictions andbans oncertain products
(e.g.unprocessedlogs)139,arealsoappliedinsomeexportingcountriestoencouragedomesticprocessing
oftropical timber forexport.140Reasons citedforsuchexport measures include compensating exporters
ofprocessed products forbarriers inimporting countries onimports ofplywood andother processed
138SeeWT/CTE/W/46.
139M.Gillis (1988), "Indonesia: Public Policies, Resources Management, andtheTropical Forest", inR.Repetto andM.Gillis, eds.,
Public Policies andtheMisuse ofForest Resources ,Cambridge: Cambridge University Press.
140M.Othman (1995), "Forest conservation anditseffects onpeninsular Malaysian logsupply", ASEAN Economic Bulletin ,Vol.11,
No.3; andR.Broad (1995), "The political economy ofnatural resources: casestudies oftheIndonesian andPhilippine forest sectors",
Journal ofDeveloping Areas ,Vol.29.WT/CTE/W/67
Page35
wood products. Inthiscasethereasoning usedisthatlogexport restrictions result inahigher price
oflogstoprocessors inimporting countries while reducing thecostdisadvantage faced bydomestic
processors intheexporting countries asaresult oftheimport barriers. Another rationale isthatit
isimportant tocreate value-added inthedomestic processing offorest products fordomestic income
andemployment. Bygaining additional income through thevalue-added processing, pressure toharvest
forests would bereduced. Withthisobjective inmind, some forest exporting countries haveimposed
export duties levied according tothedifferent processing stages asanincentive tobuild domestic
value-added wood processing capacities. Some export controls have been usedtoencourage the
conservation ofvarious types offorests, suchasold-growth forests. Onesuggestion ofrelevance in
thiscontext isfora"trade-off" tobenegotiated whereby developed countries would agree toeliminate
theremaining tariffs onprocessed wood products anddeveloping countries would agree toeliminate
logexport restrictions.141
120. Anumberoftrade-relatedenvironmentalmeasureswithpotentialimplicationsforthesustainable
management offorests andtrade inwood andwood products havebeennotified byWTO Members.
These include requirements relating directly totherecycled content ofsome paper products and
regulations specifying types ofallowable packaging materials, aswellasthepercentage ofpackaging
acceptable inrelation toproduct sizeorweight. Packaging reuse andrecycling targets, orpackaging
recovery orreturn schemes alsohavebeennotified.
121. Certification ofsustainable forest management andlabelling offorest products areconsidered
tobecomplementary toforest management policies; todatetheyhaveconcentrated primarily onforest
andforest-based products. There areanincreasing array ofapproaches toforest certification. The
ISOapproach isbased onanaudit ofamanagement system applied byacompany toitsforest
management practices. TheISO14001 EMS requires anauditofthemanagement system against the
specifications ofthestandard. Another approach, exemplified bytheForest Stewardship Council
(FSC)142,which isbased onanauditofforests against regional standards based uponcertain principles,
inthiscasethose approved bytheFSC. Noregional standards haveyetbeencompleted butcertification
andauditing byindividual certifiers isproceeding. Thisapproach triestousechain ofcustody for
forest products andaproduct label.
122. Allapproaches tocertification andlabelling areintended tosupport marketing efforts inmarkets
whereenvironmentalfactorsmayinfluencepurchasingdecisions.Studiessuggestthedemandforcertified
orlabelled forest products issmall andconcentrated inanarrow segment ofthemarket. Also, the
actual trade impact ofcertification andlabelling hasapparently beenverysmall.143TheFAO notes
thatofgreater concern thantheactual tradeeffects ofthese schemes istheuncertainty which mayexist
forexporters concerning theroleofsuchschemes indetermining market access.144Initially, labelling
andcertificationschemesconcentratedontropicalforestproductsbuthavesincebeenextendedtoinclude
temperate and boreal timber products. Concerns have been raised about additional costs which
certification andlabelling impose, including increased auditing, assessing, identifying andmonitoring
management offorestry production, aswellascertifying thechain ofcustody.
141G.Porter (1996), Ananalysis andproposal foranIPFRecommendation ,Environmental andEnergy Study Institute, Washington,
presented tothesecond session oftheIPF,Geneva.
142TheFSCisanon-governmental organization created in1993.
143FAO (1997), "Forest Products Certification", Forestry Information Notes ,Rome; IPF(1996), Trade andenvironment relating
toforest goods andservices ,(E/CN.17/IPF/1996/22); andP.Varangis, C.Primo Braga andK.Takeuchi (1993), Tropical timber trade
policies: what impact willeco-labelling have? ,Washington: World Bank.
144FAO (1997), "Forest Products Certification", Forestry Information Notes ,rome.WT/CTE/W/67
Page36
C. Environmental Benefits
123. Toalarge extent, deforestation haslittletodowithinternational trade. Itisprimarily linked
toother factors suchaschanging production andconsumption patterns, suchasexpanding demand
forfood, landtenure patterns, expansion ofsubsistence agriculture andthedemand forfuel-wood and
charcoal tomeetbasic energy needs.145Totheextent thatdeforestation islinked tolowincomes per
capita andpoverty more generally, aclearcasecanbemade thatadditional economic benefits topoorer
countries hasenvironmental benefits.
124. While theareaoftemperate forest intheworld hasremained broadly stable, netdeforestation
ofthetropical rainforests hasoccurred atanaccelerating pace.146Concern about depletion and
degradationhasfocusedverylargelyontropicaltimberproducingcountries.Fellingtimberforfuel-wood
isconsidered tobeanimportant cause ofdeforestation intropical timber producing countries. Infact,
theproduction ofcharcoal andfuelwood constitutes 55percentofthetotalvolume ofroundwood
production indeveloping countries; lessthan0.3percentofthisproduction enters world trade.147
Thefelling oftrees forsubsistence cropping andlivestock grazing isalsoaprincipal cause of
deforestation oftropical forests.148Other measures which affect theforestry sector include agricultural
subsidies which provide incentives forforestry clearing orlandconversion toagricultural production
andgrazing.
125. While benefits flowtotheenvironment through theremoval oftradedistortions andrestrictions
intheagricultural sector (seeSection IIonagriculture) therecanbepressure foragricultural extension
intomarginal land. Itcould beargued thattheenvironmental problems involved thenextend beyond
deforestation intothedamage associated withmore intensive andextensive agricultural production on
converted forest land.149
126. Thesepotentialproblemsshould,however,beaddressedthroughdomesticresourcemanagement
policies toprotect forest resources andraisethevalue offorest products, notbyforegoing thebenefits
ofagricultural trade liberalization. Agroforestry canbeonesolution, whereby amixture oftreesand
agricultural crops orlivestock areraised onthesame piece oflandandtreesform anintegral partof
thefarm.150Inseveral pilotprojects andother casestudies, agroforestry hasproved tobeaneffective
toolforimproving landuseandincreasing agricultural productivity. Many agroforestry extension
145IPF(1997), Report tothefifthsession oftheCSD,NewYork (E/CN.17/1997/12); IPF(1996), Report oftheSecretary General
ontheunderlying causes ofdeforestation andforest degradation ,NewYork (E/CN.17/IPF/1996/15).
146Barbier (1994), "The Environmental Effects ofTrade intheForestry Section", inC.Runge, ed.,TheEnvironmental Effects of
Trade ,Paris: OECD.
147SeeT.Amelung (1991), Tropical Deforestation and anInternational Economic Problems ,paper presented atthe
Egon-Sohmen-Foundation Conference onEconomic Evolution andEnvironmental Concerns, Austria; S.Narendra et.al.notethatalthough
regional variations aresubstantial, subsistence farmers indeveloping countries account formore than60percentofthelossoftropical forests
annually. SeeS.Narendra, ed.,(1992), Managing theWorld Forests ,Kendall/Hunt.
148Oneestimate isthatthepercentage share ofagriculture indeforestation asover80percentfortropical forests. E.Barbier et.al.
(1993), TheEconomic Linkages Between theTrade inTropical Timber andtheSustainable Management ofTropical Forests, Final Report ,
Yokohama: ITTO Activity.
149AnUNCTAD study identifies oneofthemain problems related totrade inwood andwood products ofdeveloping countries as
being thedepletion offorest resources caused inpartbyproduction destined forexports aswellasfornumerous otherreasons suchasconversion
offorest lands toagricultural orurban uses. SeeUNCTAD (1996), Implications oftheUruguay Round forTrade inWood andWood Products ,
Geneva.
150Foradiscussion ofagroforestry, seeOECD (1995), Forestry, Agriculture andtheEnvironment ,Paris.WT/CTE/W/67
Page37
projects havesuccessfully increased cropproduction by25to100percentbyusing multipurpose trees
toarrest soilerosion, enhance soilfertility, andprovide afavourable microclimate forcrops and
livestock.151Agroforestry, likeplantations, hascertain limitations asregards providing suitable habitat
forconservation ofbiological diversity.
127. Other governmental measures relevant toforest products include standards andregulations
forsanitary andphytosanitary reasons, theprotection offloraandfauna, ortheprotection ofhuman
health. Border controls areimposed tocontrol, forexample, theimport ofcertain harmful pests or
plant ortreespecies diseases. Measures include quarantine orimport prohibitions ofcertain types
ofwood andwood products. Oneexample istherestriction insome countries ontheimport ofwood
panels which have been produced withformaldehyde glue, because oftherisktohuman health.
Regulations havealsobeenintroduced banning certain processes andmaterials suchaschlorine, which
produces toxicby-products. Determining thepotential traderestrictiveness ofsuchmeasures isdifficult,
anditshasbeensuggested thatwithasufficient leveloftransparency suchmeasures maynotnecessarily
havenegative effects onmarket access.152AnSPSnotification onplantprotection regulations toprotect
theagricultural andforestry sectors included asitsobjective "protection oftheenvironment".153
128. Inspiteoftherelatively minor share oftrade intotalworld production offorestry products,
thecontribution which theremoval oftraderestrictions anddistortions canmake toworld deforestation
andforest degradation isstillimportant. Thelinkbetween tradeandthelossanddegradation ofglobal
forests isanissue which hasbeendiscussed invarious international fora, including theITTO, the
UNCED andtheIPF.154Inthiscontext, theresults oftheUruguay Round inimproving market access
forforestproductsbysignificantlyreducingtariffshavebeennotedasapositivecontributiontoenhancing
sustainable forest management.155
129. Theremoval ofcertain types ofagricultural subsidies, inparticular land-clearing subsidies,
mayalleviate pressures toclearforest foragricultural purposes. Similarly, potential environmental
benefits mayflowfromremoving quantitative restrictions orsimilar measures limiting exports. Export
taxesandrestrictions onunprocessed timber areusedbysome timber-exporting countries toencourage
forest-based industrialization. These arereinforced incertain casesbyothermeasures giving preferential
treatment todomestic processing industries, suchassupplying rawmaterials tolocalproducers atlower
thanworld market prices. Incertain cases theymaybeviewed asameans ofcompensating domestic
processors fortariffescalation andother barriers faced inexport markets. Some results ofusing trade
restrictions, suchasexport bansonlogs, asatoolforencouraging higher value-added exports and
conservingscarceforestryresourceshavebeendiscouraging.156However,insituationswheresustainable
forest management policies include improved landuseobjectives toachieve awider range ofbenefits
fromforestry, measures toincrease thevalue-added processing fromtimber candecrease pressure to
harvest larger volumes.
151SeeCIDA (1997), Tropical Forestry andtheEnvironment ,Ottawa: Canadian International Development Agency.
152IPF(1996), Trade andenvironment relating toforest goods andservices ,(E/CN.17/IPF/1996/22).
153SeeWT/CTE/W/46.
154AttheUNCED Governments adopted achapter onforests inAgenda 21,andasetof"Forest Principles" which, interalia,deals
withtherelationship between trade andsustainable forest management.
155IPF(1996), Trade andenvironment relating toforest goods andservices ,(E/CN.17/IPF/1996/22).
156UNCTAD (1995), Trade, environment anddevelopment lessons fromempirical studies: thecaseofthePhilippines ,Geneva.WT/CTE/W/67
Page38
130. Thelossanddegradation oftheworld 'sforests isthesubject ofongoing discussions atthe
national levelandinvarious international fora. Work ofrelevance totheCTE'sdiscussion under this
Itemwasinitiated inthecontext oftheUNCED, where agreement wasreached on"Non-legally binding
authoritative statement ofprinciples foraglobal consensus onthemanagement, conservation and
sustainable development ofalltypes offorests" (the"forest principles"). (Principles 13and14are
particularly noteworthy).157Aswell, several Chapters ofAgenda 21ondeforestation, land-use and
biodiversity arerelevant toissues raised bysustainable forest management. Tofollow-up onthe
UNCED, anAdHocIntergovernmental Panel onForests wasestablished bytheUNCommission on
Sustainable Development (CSD) to"examine relevant factors affecting trade inforest products and
otherforest andtradeissues inanintegrated andholistic approach thatpromotes asupportive relationship
between trade andenvironment". Extensive work isunderway inother fora(e.g.FAO, ITTO, and
theClimate Change andBiological Diversity Conventions) ofrelevance toforest-related issues and
withrespect toproviding positive incentives forsustainable forest management andconservation.158
TheUNGASS, inJune1997, adopted theIPF'snumerous recommendations ontheconservation and
useofforest resources. Several proposals foraction trade andenvironment weremade, including "to
examine thepossibility offurther initiatives ontradeliberalization within theauspices oftheWTO".159
TheUNGASSestablished,anAdHoc,open-endedIntergovernmentalForumonForeststoworktowards
multilateral consensus onthesustainable development ofalltypes offorests, including theoption of
aforest convention.160TheForum willreport onitswork totheCSD in1999.
VI. NON-FERROUS METALS
A. Overview
131. Thenon-ferrous metals sector iscomprised ofseveral primary metals, themostimportant of
which arealuminium, copper, nickel, zinc,lead,tin,andprecious metals (gold, silver andplatinum).
Theprincipal economic activities inthesector include mining, processing andproduction of
semi-fabricated metal products, suchasmetal sheets, rodsandbars. Semi-fabricated metal products
areprocessed fromprimary andsecondary (recycled) metals andusedinthemanufacturing ofindustrial
andconsumer products.
157Principle 13oftheForest Principles :(a)Trade inforest products should bebased onnon-discrimination andmultilaterally agreed
rulesandprocedures consistent withinternational tradelawandpractices. Inthiscontext, openandfreeinternational tradeinforest products
should befacilitated; (b)Reduction orremoval oftariff barriers andimpediments totheprovision ofbetter market access andbetter prices
forhigher value-added forest products andtheirlocalprocessing should beencouraged toenable producer countries tobetter conserve and
manage theirrenewable forest resources; (c)Incorporation ofenvironmental costsandbenefits intomarket forces andmechanisms, inorder
toachieve forest conservation andsustainable development, should beencouraged bothdomestically andinternationally; (d)Forest conservation
andsustainable development policies should beintegrated witheconomic, tradeandother relevant policies; and(e)Fiscal, trade, industrial,
transportation andotherpolicies andpractices thatmayleadtoforest degradation should beavoided. Adequate policies, aimed atmanagement,
conservationandsustainabledevelopmentofforests,includingwhereappropriate,incentives,shouldbeencouraged;andPrinciple14:Unilateral
measures, incompatible withinternational obligations oragreement, torestrict and/or baninternational tradeintimber orother forest products
should beremoved oravoided, inorder toattain long-term sustainable forest management.
158IPF(1996), Trade andenvironment relating toforest goods andservices ,(E/CN.17/IPF/1996/22).
159Seetherecommendations foraction intheReport oftheSecretary General (1997), Chapter onTrade andenvironment relating to
forest goods andservices ,adopted atUNGASS; andWT/CTE/W/48 which provides anupdate oftheactivities oftheIPF,including excerpts
ofrelevant decisions reached atitssession inFebruary 1997.
160TheAdHoc,open-ended Intergovernmental Forum onForest wasestablished under theaegis oftheUNCommission onSustainable
Development bytheUNGASS withathree-fold mandate to:(i)promote andfacilitate theimplementation oftheIPFsproposals foraction;
(ii)review, monitor, andreport onprogress inthemanagement, conservation andsustainable development ofalltypes offorests; and
(iii)consider matters leftpending ontheprogramme elements oftheIPF,inparticular trade andenvironment inrelation toforest products
andservices, transfer oftechnology andtheneedforfinancial resources. TheForum should alsoidentify thepossible elements ofandwork
towards consensus forinternational arrangements andmechanisms, forexample alegally binding instrument.WT/CTE/W/67
Page39
132. World production andconsumption ofprimary non-ferrous metals hasgrown continuously
overthecourse ofthepastseveral decades.161Rising waste disposal costs, inparticular inOECD
countries, andthegrowing importance ofdeveloping countries inglobal non-ferrous metal consumption
havegradually encouraged recovery andrecycling ofnon-ferrous metals, which nowmeets about 40
to50percentofglobal demand formostmetals. Developing countries account forthebulkofworld
exports ofmany non-ferrous metals, including bauxite (four-fifths) andcopper (onehalf)andtheir
share ofthetotalproduction ofprimary metals hasbeenincreasing. Theshare ofdeveloping countries
inmining several non-ferrous metals hasbeensteadily increasing. Thistrend isexpected tocontinue
asmostnewmines andunexplored regions which arepotentially richinmetals arelocated indeveloping
countries. Trade flows inprimary metals andfinished products show that,despite therecent increase
intheirshare, developing countries account forasmall share oftotalworld consumption. However,
itisprojected thatthemajority oftheincrease inconsumption overthenextdecade willcome from
developing countries.162
133. World trade innon-ferrous metals in1995 wasUS$100 billion (seeAppendix Table 1).On
aregional basis, thelargest exporters were Western Europe (US$ 38billion), Asia(US$17 billion)
andNorth America (US$15 billion). Intra-trade inEurope wassignificant (US$29 billion) andimports
intotheAsian region were US$29 billion andthose intoNorth America were US$17 billion.
134. Given thediverse characteristics ofthevarious metals within thenon-ferrous metals sector,
aluminium andcopper, asthekeynon-ferrous metals, arediscussed below.
B. Trade Restrictions andDistortions
135. Tariffs applied bydeveloped countries onmetal oresandconcentrates, andunrefined andrefined
metals werealready lowprior totheUruguay Round andhavebeenfurther reduced. Uruguay Round
tariffcommitments forbauxite andaluminium weregenerally minimal andareestimated tobeunlikely
inthemselves toleadtomajor changes intrade patterns. Post-Uruguay Round tariff ratesforcopper
fromthemining tosemi-fabricated stage haveremained either unchanged atlowlevels orhavebeen
reduced marginally. Inthecaseoftin,tariff concessions weresignificant; tinisnowtheonlyfully
liberalized basemetal intheworld 'sthree largest import markets (EC,Japan andUS). Although the
experience differs between metals, thereisstillevidence ofhigher average tariffs onfinished products
(4.1percent)thanrawmaterials (0.1percent)fornon-ferrous metals imported intodeveloped countries.
Infact,tariff escalation forleadandzincisestimated tohaveincreased incertain major developed
country markets.163
136. Itshould benoted thatfactors other thantariffs playapredominant roleinshaping market
access inthenon-ferrous metals sector. These include theavailability ofhigh-grade deposits andaccess
tothefinancial resources needed todevelop projects, economies ofscale, energy prices, access to
161Datainthissection hasbeencollected from World Metal Statistics 1997,World Bureau ofMetal Statistics; UNCTAD (1996),
TheUruguay Round andtheWorld Copper Market ,(UNCTAD/COM/78); UNCTAD (1996), Bauxite, Alumina andAluminium andthe
Uruguay Round ,(UNCTAD/COM/79); UNCTAD Commodity Yearbook; andtheAnnual Non-Ferrous Metals 1996,American Bureau
ofMetals Statistics.
162UNCTAD (1995), Analysis oftheevolution ofprices andtrade ofcommodities tobeexpected inthelightoftheresults ofthe
Uruguay Round, withparticular emphasis intheirimplications fordeveloping countries, including theirdiversification prospects ,Geneva.
163GATT (1994), TheResults oftheUruguay Round ;andUNCTAD (1995), Analysis oftheevolution ofprices andtrade ofcommodities
tobeexpected inthelightoftheresults oftheUruguay Round, withparticular emphasis intheirimplications fordeveloping countries, including
theirdiversification prospects ,Geneva.WT/CTE/W/67
Page40
technology, proximity tothemarket forsemi-fabricates, landtechnological change anddevelopments
relating tonewmaterials, substitution re-use andrecycling.164
137. Subsidies inthenon-ferrous metals sector aregenerally applied toinputs intheproduction
process ofametal. Production-related subsidies primarily include subsidies onenergy inputs. Energy
costs represent thelargest single costinsmelting andrefining operations foraluminium andcopper.
Theeffect ofenergy subsidies istodecrease theprice ofenergy inputs, which contributes tohigher
energyusageandenergy-inefficientproductionmethods.Otherexamplesofindirectproductionsubsidies
aresubsidized freshwater inputs forcertain mining andrefining processes which require largefreshwater
inputs; mining rights ongovernment ascompared toprivate owned lands; andtransport subsidies.
138. Theelimination ofpricedistorting subsidies canleadingeneral toamoreefficient useofenergy
andactasanincentive toadopt more energy-efficient smelting andprocessing technologies. However,
asinother sectors, adifficult policy balance exists between removing economically inefficient energy
subsidies,whilemaintainingorincreasingincentivestopromotetheadoptionofenvironmentally-efficient
technologies ormethods which enhance environmental performance.
(a) Aluminium
139. Thealuminium sector isthesecond most important sector ininternational metal trade after
ferrous (steel) metals.165There arethree stages intheproduction ofprimary aluminium: mining of
bauxite; processing ofbauxite intoalumina, andprocessing ofalumina intoprimary aluminium. The
aluminium smelting industry isengaged intheproduction ofprimary aluminium bytheelectrolysis
ofmolten alumina, which isextracted byrefining bauxite ore(approximately 4.5tonnes ofbauxite
yield2tonnes ofalumina, which inturnprovide 1tonne ofaluminium). Theindustry isalsoengaged
intheproduction ofsecondary aluminium fromrecycled industrial andconsumer aluminium products.
Thealuminium isthenprocessed intobillets andingots ofvarious sizestobeusedinthemanufacture
ofextruded orlaminated products orremelted forcasting intoother forms bythesemi-fabricated metal
product industry.
140. Semi-fabricated products arethenproduced fromunwrought aluminium (primary orsecondary
metal) through rolling, extruding orother processes (e.g.bars,rods, wire, sheets, strips, tubes, pipes
andfittings).166Given thefactthatproduction ofprimary aluminum isanenergy intensive process,
oneofthekeyfactors initsproduction isaccess toenergy.
141. Primaryaluminiumandsemi-fabricatedaluminiumindustrydonothavethesamecharacteristics.
Theprimary aluminium industry operates world scaleplants; theprimary locational factor isaccess
tocompetitively priced energy. Thesemi-fabricated aluminium industry tends tooperate plants close
toamajor market, since theprimary locational factor isshipping costs.
164SeeUNCTAD (1995), Analysis oftheevolution ofprices andtrade ofcommodities tobeexpected inthelightoftheresults ofthe
Uruguay Round, withparticular emphasis intheirimplications fordeveloping countries, including theirdiversification prospects ,Geneva.
165Datafrom UNCTAD (1996), Bauxite, Alumina andaluminium andtheUruguay Round ,UNCTAD/COM/79.
166SeeUNCTAD (1995), Analysis oftheevolution ofprices andtrade ofcommodities tobeexpected inthelightoftheresults ofthe
Uruguay Round, withparticular emphasis intheirimplications fordeveloping countries, including theirdiversification prospects ,Geneva.WT/CTE/W/67
Page41
142. Approximately 30percentofworld bauxite production istraded.167Bauxite hasincreasingly
beenrefined toalumina before export, sincetransportation constitutes amajor partofthecostofbauxite.
Developing countries 'share ofworld bauxite exports increased from 72.1percentin1972-74 to
81.8percentin1992-1994.
143. Approximately one-half ofworld alumina production enters international trade. Theshare
ofdeveloped countries 'trade hasrisen from 53to64percent, mainly because ofincreased exports
fromAustralia (which accounts for44percentoftotaltrade). Theshare ofimports continues togrow
inseveral countries, including Brazil, Egypt andIndonesia.
144. Primaryaluminiumisproducedthroughanenergy-intensivesmeltingprocess.Aswithalumina,
approximately 50percentofworld primary aluminium production istraded. Theshare ofdeveloping
countries increased significantly from 10to27percentfrom theperiod 1972-74 to1992-94.
145. Semi-fabricated products areproduced fromunwrought aluminium (primary orrecycled scrap
metal). About aquarter ofworld production ofsemi-fabricated products istraded andthisproportion
isincreasing rapidly. Developed countries account forthebulkofinternational tradeinsemi-fabricated
aluminium(accountingfor72percentofworldimportsand87percentofworldexportsin1992-1994).
Developing countries 'imports ofsemi-fabricated products areincreasing (25.4 percent ofimports and
10percentofexports in1992-94).
146. Tariff commitments forbauxite, alumina andaluminium intheUruguay Round weregenerally
small andanUNCTAD assessment concludes thattheyareunlikely inthemselves toleadtomajor
changes intrade patters. Ofthecountries withsignificant trade intheproducts concerned, anumber
made offers withhigher ratesthantheyalready applied. Tariff escalation hasdiminished marginally.
Erosionofpreferencesisrelativelyunimportant,giventhesmallconcessions,butthiscouldbesignificant
forsevere countries ifaprincipal importer weretoeliminate its6percenttariffonprimary aluminium.168
(b) Copper
147. Copper isthethirdmostimportant sector ininternational metal trade.169Copper production
follows several stages from mining oforesandprocessing toconcentrates, tounrefined copper, to
refined copper, totheproduction ofsemi-fabricated copper andcopper alloyproducts. Refined copper
isbasically consumed bysemi-fabricating mills thattransform unwrought refined copper into
semi-fabricated products suchaswire, plates, sheets, tubes, bars,rods, tubes andpipefittings. These
products aremade either ofpurecopper orofalloys ofcopper andother metals, likezinc, tin,and
nickel. Thus, thebulkofrefined copper consumption consists oftheinput tosuchsemi-fabricating
mills.
148. World copper consumption hassteadily increased inrecent decades, from9.5million tonnes
in1982 toapproximately 13million tonnes ofrefined copper in1995. Thistrend inworldwide
consumption isexpected tocontinue, withdeveloping countries expected toaccount forthebulkof
theincrease asdemand forinfrastructure works, such aspower generation andtransmission,
communication, transportation andbuilding materials, continues toincrease.
167Themain bauxite producers areAustralia, Guinea, Jamaica, Brazil, China, Venezuela andIndia. Theprincipal bauxite exporters
areGuinea, Brazil, Australia andJamaica.
168Datafrom UNCTAD (1996), Bauxite, Alumina andAluminium andtheUruguay Round ,UNCTAD/COM/79.
169UNCTAD (1996), TheUruguay Round andtheWorld Copper Market ,UNCTAD/COM/78.WT/CTE/W/67
Page42
149. World mined copper production grewfrom8million tonnes in1982toover10million tonnes
in1995. Thedifference between consumption andproduction issupplied bysecondary orrecycled
copper. Inindustrialized countries inparticular, market share ofrecycled copper currently exceeds
40percent. Copper losesnoneofitsphysical orchemical characteristics through repeated recycling;
recycled copper requires only5percentoftheenergy ofthecopper oretobeconverted torefined
copper.170
150. There arenotariffs imposed bythemaincopper importers oncopper concentrates andquotas
ornon-tariff measures areapplied tocopper concentrates inanymajor market. Several countries
(e.g.Brazil andKorea) apply verylowtariff rates ofapproximately 1percent. Import duties on
unrefined copper willgenerally bereduced asaresult ofthecommitments undertaken during the
Uruguay Round.
151. Thebulk(62percent)ofinternational tradeinunwrought copper iscarried outinrefined metal
form. Theshare ofworld refined production thatenters tradeis50percent. Tariffs onrefined copper
differ from market tomarket. Forexample, theEUimposes auniform zerotariff withnoother
restrictions andtheUSimposes atariff rateof1percent.171Some importers maintain relatively high
bound tariffs, including forexample Thailand (20percent), andKorea andBrazil (10percenteach).
152. Production ofsemi-fabricated products ishighly concentrated indeveloped countries, although
production hasrapidly expanded insome AsiaPacific countries inthelasttwodecades. Theratio
ofsemi-fabricated products traded ismuch lower thaneither copper concentrates orrefined copper.
Afewcountries withmajor mining andsmelting operations haveextensive production facilities (US,
Canada, andChina). Anotable feature ofthissector isthatnomajor copper producers areamong
themajor exporters ofsemi-fabricates, although Chile andAustralia haveachieved some success in
thelastdecade andcurrently account for3percentoftheworld market share. Asnoted forthe
semi-fabricated aluminium industry, thesemi-fabricated copper industry tends tooperate close toa
major market tominimize shipping costs.
153. UNCTAD studies ontheextent andpatterns ofinternational tradeinmetal scrap andresidues
haveillustrated thatthebulkofOECD shipments ofsuchmaterials todeveloping countries, andthe
overwhelming partoftradeamong developing countries, centred onafewcountries inEast, Southeast
andSouth Asia. These tradepatterns aretheresult ofeconomic expansion inthesecountries combined
withamaterial intensive growth pattern. Industrial andinfrastructral development arefuelling the
demand fornon-ferrous secondary metals.172
C. Environmental benefits
154. From anenvironmental perspective, theeffects ofextraction ofmetals (mining) andtheir
processing (smelting) areofparticular concern. Mining activities havepotential impacts onthelocal
andglobal environment.173Forexample, open-pit mining canresult inlanddegradation, andcontribute
todesertification anddeforestation, ifnotproperly reclaimed andrehabilitated. Mining wastes account
170M.Henstock (1996), Therecycling ofNon-Ferrous Metals ,Ottawa: International Council onMetals andtheEnvironment.
171UNCTAD (1996), TheUruguay Round andtheWorld Copper Market ,(UNCTAD/COM/78).
172U.Hoffman (1997), Socio-economic aspects ofrecycling, particularly inthefast-growing developing countries ofAsia,Mimeo ,
Trade, Environment andDevelopment Section, UNCTAD.
173Mining activities arecategorized aseither surface orunderground. Surface mining includes openpit,opencast,quarry, strip, dredging
andhydraulic methods. Underground mining methods include pillar-and-stope, shrinkage stope, block caving andlongwall mining.WT/CTE/W/67
Page43
forthebulkofglobally generated solid waste. Theprocess ofsmelting ishighly energy intensive,
andofteninvolves highlevels ofsulphur dioxide emissions, which areconsidered tocontribute toglobal
warming.
155. Thedegree andextent oftheenvironmental impacts depend onlocal conditions andextend
from exploration, extraction andprocessing oftheores(cleaning, screening andcrushing) through
topost-closure problems withabandoned mines.174Environmental impacts alsovarydepending on
themetals andprocesses involved. Oneoftheelements discussed arecent International Council on
Metals andEnvironment (ICME) workshop toensure sustainable useofnon-ferrous metals wasthe
importance ofriskassessment andmanagement related tonon-ferrous metals intheir extraction,
production, use,recycling anddisposal. Thepreservation ofeco-systems, including theprotection
offorest resources, agricultural land, habitat andmarine life,isalsoanimportant consideration in
anassessment oftheenvironmental effects ofmining.175Asisillustrated bycasestudies on
environmental policies andmanagement inthenon-ferrous metals sector, theextent oftheenvironmental
effects ofthemining andproduction ofmetals needs tobeconsidered inthecontext ofdomestic
environmental management.176
156. Therefore, theenvironmental effects ofremoving trade-related distorting policies needtobe
assessed onacase-by-case basis. Environmental benefits associated withtrade policy reform inthe
primary metals sectors willaccrue bothtotheprimary mining sector itself, andtoindustries using
metals asinputs. Benefits resulting fromthefollowing areas canbeidentified: (a)subsidies removal;
(b)tariffelimination andreduction oftariffescalation; and(c)development oftradeinrecycled metals.
Inaddition, significant environmental benefits will result from theadoption ofmore
environmentally-sound process andproduction technologies.
157. Production subsidies ingeneral, andenergy andfreshwater subsidies inparticular, contribute
tonumerous environmental problems which result from mining andsmelting non-ferrous metals.
However, energy requirements andsources varywidely among different categories ofmetals production
andbetween countries. Inthecaseofenergy subsidies (discussed inSection IIIofthisNote), studies
havedemonstratedthatenergyunderpricingwhichresultsfromsubsidizationofenergyinputscontributes
toenvironmental problems. These include adeterioration inairquality which islinked toairpollution
emissions suchassulphur dioxide, nitrogen oxides, particulate matter, andgreenhouse gases. Certain
types ofairpollution havealsobeenlinked tosoilandothertypesofacidification (which canforexample
create significant economic impacts inother sectors, suchasforestry andagriculture). Theimpact
ofsubsidies maybetosustain theuseofinefficient andenvironmentally-unfriendly mining andsmelting
facilities.
158. Energy useinprocessing aluminium andcopper, aswellasother non-ferrous metals, isan
important factor which needs tobeconsidered when assessing theenvironmental effects inthesector.
Thevariable costs ofaluminium andcopper smelters areafunction notonlyofthetechnology used,
174SeethecasestudiesonvariousaspectsofenvironmentalproblemsassociatedwithminingintheproceedingsofanUNCTADsymposium
(1994), Theimpact ofmining ontheenvironment: problems andsolutions, Rotterdam: Balkema.
175SeeInternational Council onMetals andtheEnvironment (ICME) (1997), "Reforesting mine sitesinBrazil", ICME Newsletter ,
Vol.5,No.1.
176UNEP andICME (1996), Case studies illustrating environmental practices inmining andmetallurgical processes .Alsosee,for
example, G.Volpi (1997), Managing trade policies forsustainable development: towards aframework forassessing theenvironmental
impact oftrade liberalisation: thecasestudy ofthemining sector inChile,forthcoming UNEP publication; UNCTAD (1994), Environmental
aspects ofbauxite andaluminium production inIndonesia ;UNCTAD (1995), Environmental aspects ofbauxite, alumina andaluminium
production inBrazil ;UNCTAD (1995), Natural resources management andsustainable development: thecaseofthegoldsector inGhana ;
UNCTAD (1994), Environmental legislation forthemining andmetals industries inAsia.WT/CTE/W/67
Page44
butalsovariables suchastheprice ofthemain inputs, including energy andalumina orcopper. Ore
processing requires thephysical separation ofminerals fromwaste andthechemical separation ofthe
metal from associated elements, suchassulphur andoxygen. These processes areenergy-intensive.
Secondary metals arealready intheirmetallic formandgenerally require amuch lower energy input
tobetransformed intosemi-fabricated products. Forexample, primary copper which typically requires
about 140gigajoules pertonne formining andrefining processes, while secondary copper mayuse
aslittleas5gigajoules pertonne tocollect andremelt.177Onesource, forexample, hascalculated
thefigures withrespect tothevolume ofenergy required toconvert primary ascompared withsecondary
(scrap) aluminium.178Theelectrical energy equivalent ofmining, smelting andrefining bauxite,
processing bauxite intoalumina andprocessing alumina intoprimary aluminium is50.7kilowatt hours
perkilogram ofprimary aluminium.179Ofthisamount, theconsumption ofenergy required toprocess
alumina intoprimary aluminium isabout 18.6kilowatt hours perkilogram. Although therecycling
ofsecondary metals provides anopportunity totakeadvantage ofasignificant energy saving, scrap
metal isnotnecessarily pureandtherefore cannot beusedintheproduction ofallsemi-fabricated metal
products.
159. Inaddition, there areenvironmental effects associated withmetal transport anduseaswell
aswaste management anddisposal.180Some ofthechemicals usedinoreprocessing (such ascyanide,
mercury andstrong acids) areconsidered tobehazardous andtheirhandling, use,storage anddisposal
mayhaveimportant environmental effects. Most non-ferrous metal scrap isnothazardous. Tothe
extent itisconsidered hazardous, andistraded, however, itwould becovered bytheBasel Convention
ontheTransboundary Movement ofHazardous Waste.
160. Awareness oftheneedtobetter manage non-renewable resources andlimitwaste inthemetals
sector hasencouraged thedevelopment ofandtrade inrecycled/secondary metals. Theproportion
ofsecondary refined metals hasbeenincreasing rapidly inresponse tothepotential environmental and
economic benefits ofcollecting andreusing discarded metal materials.181This isanimportant
developmentastheglobaldemandforsemi-fabricatedandfabricatedindustrialmetalproductsisexpected
tocontinue expanding. Recycling hasthepotential tobeanenvironmentally preferable, energy efficient
manner inwhich tousenon-renewable metal resources.182Itneeds tobeborne inmind, however,
thatsome primary material willalways berequired assome metal getslostindissipative uses.
161. Anincreaseinsemi-finishedorfinishedoutputproductionshouldintheoryimplythatshort-term
environmental costsassociated withincreased production willbeoutweighed byenvironmental benefits
associated withhigher value added. Thiswould depend onmany factors outside thescope ofthisNote,
including choice oftechnologies, market proximity andtransport-related pollution, aswellasthe
individual ecological conditions inthelocation oftheexpanding processing.
177M.Campbell (1996), Non-ferrous metals recycling: acomplement toprimary metals production ,Ottawa: ICME.
178Industry Canada (1997).
179Electrical energy equivalent includes thevolume ofenergy ofwhatever form(fossil fuel,electricity) usedinthemining, smelting,
processing, transportation, etc.,converted intoelectricity equivalent.
180SeeWorld Bank (1997), Environmental Assessment ofMining Projects ,Washington: World Bank.
181Forexample, theamount ofrecycled leadandcopper inthefinalconsumption hasrisen to50percent intheUnited States.
182SeeM.Campbell(1996),Non-ferrousmetalsrecycling:acomplementtoprimarymetalsproduction,Ottawa:ICME;andM.Henstock
(1996), Therecycling ofnon-ferrous metals ,Ottawa: ICMEWT/CTE/W/67
Page45
162. Several sources citetheimportance oftheexpanding useofenvironmentally-sound and
economically efficient process technologies inthenon-ferrous metals sector. Forexample, theuse
ofoxygenflashtechnologyisconsideredtobeamoreenergyefficientandenvironmentally-soundmethod
ofsmelting copper.183Therapidity oftheadoption ofenvironmentally-efficient technologies depends
onseveral factors, including insome instances privatization ofmines, ortheincentive, inplace for
mining industries toinvest inmore efficient andenvironmentally-sound technologies.
VII. TEXTILES AND CLOTHING
A. Overview184
163. Thetextiles andclothing sector canbedivided intofourstages ofproduction: (a)theproduction
ofnatural andsynthetic fibres: natural fibres include cotton andwool andvarious vegetable fibres,
andsynthetic orman-made fibres include nylon, polyester, polypropylene andacrylic; (b)yarnmaking
orspinning; (c)fabric making, including weaving, knitting andnon-woven processing; and(d)the
production ofendproducts, comprising household andindustrial textile products andclothing. The
various stages ofproduction, along withdifferences inproduction processes andtechnology usedwithin
stages create avariety ofenvironmental externalities ofvarying magnitude.
World Trade inTextiles andClothing
(US$ billion)
1985 1988 1990 1993 1996
Textiles 56 85 105 113 150
%change +52 +24 +8 +33
Clothing 49 86 108 129 163
%change +76 +26 +19 +26
Source: WTO (1996), Annual Report ,Vol.II,andforthcoming WTO (1997) Annual Report .
164. Seven ofthetoptentextile exporters andseven ofthetoptentextile importers areindustrial
countries. Thesituation isbasically similar inclothing exports where fiveofthetoptenareindustrial
countries; however, inclothing imports, allofthetoptenareindustrial countries.
165. World trade flows intextiles andclothing for1996 arepresented onaregional basis inthe
Appendix Table. Itcanbeseenthatalmost onethirdoftextiles andclothing trade isintra-Western
Europe trade. Intextiles, thesecond largest regional flowistherapidly growing intra-Asia trade;
exports from Asiaaccounted for43percentofworld textiles andclothing trade. Inclothing trade,
almost 40percentofthe1996value ofAsian exports wasaccounted forbyexports toNorth America.
166. While world tradeintextiles andclothing haskeptpacewithworld merchandise tradegenerally
(8percentperannum 1990-95), in1996textile trade growth waszero. This, however, isconsidered
tobeacyclical rather thanastructural shift. Theratesofgrowth fortextiles andapparel exports and
183Thefirstsmelter based onflashsmelting technology wasconstructed inFinland in1949. SeeICME (1997), "Outokumpu 'sHarjavalta
Smelter", ICME Newsletter ,Vol.5, No.2.
184Databased onR.Verret (1996), "Competitiveness: TheInternational Challenge", inTheChallenge ofGlobalization: Textiles
inaNewTrading Environment, International Textile Manufacturing ,Vol.16,Zürich: International Textile Manufacturers Federation.WT/CTE/W/67
Page46
world merchandise exports aresubstantially greater thanworld merchandise production which registered
just1percentaverage annual growth from1990-1995. Between 1985and1995, textiles tradegrew by
167percent,while clothing tradeadvanced 232percent. There hasalsobeenashiftinworld trading
patterns, particularly favouring anumber ofAsian countries. Intra-Asian tradeincreased rapidly over
theperiod from 1990-95; 15percentperannum onaverage inthecaseoftextiles and18percent
inthecaseofclothing. Bycontrast, intra-Western Europe trade during thesame period increased
onaverage byonly2percent perannum fortextiles andclothing.185Inaddition, exports from
Eastern Europe (primarily toWestern Europe) andLatin America (primarily totheUnited States) have
undergone rapid increases inrecent years.186Forseveral developing countries, theshare oftextile
andclothing production intotaldomestic manufacturing output hasreached ashighas50percent.
167. Changing trade patterns reflect thefactthatthetextiles andclothing sector hasundergone
significant structural changes since the1960s. Many industrialized countries have experienced a
substantial contraction inclothing production andmajor restructuration andadjustment intextiles
production. Insome areas, suchascapital andtechnology-intensive primary textile production (for
example synthetic filament-based fibre andyarnproduction) aswellascertain product niches (for
example, highquality endofniche markets), production hascontinued togrow.
168. Since theproduction oftextiles andclothing hastraditionally beenoneofthefirststages in
theprocess ofindustrialization, almost allcountries havesome formofdomestic production capacity.
Onewayoranother, these countries areaffected byintensified international competition, which has
beencharacterised bychanges incapital andlabour intensity intheproduction process and,insome
instances, rapid technological innovation. Thishasbeenparticularly pronounced intextiles production
(such astheintegration ofspinning andweaving, rotorspinning andshuttleless looms insynthetic fibre
production,theuseofcomputer-aideddesignintextilepatterns,productionautomation),theintroduction
ofapre-assembly phase ingarments production, underlying changes inproduct composition, transport
costs andmarketing. Ithasbeennoted thatcompetitive advantage increasingly isbased onfactors
suchasquality, flexibility inproduction processes, andtheability torespond tochanges inconsumer
tastes.
169. Although market structures differ among andwithin countries, aswellasaccording tothesize
ofindividual enterprises, some underlying patterns canbeidentified. Oneoftheprincipal recent
developments intextile production hasbeentheautomation ofmany production processes, energy
conservation, recycling ofchemicals andwaste water, andareduction inthelength oftheproduction
cycle.187Thepossibility tointroduce newenvironmentally-friendly techniques isanimportant
consideration inwhatfollows. Many developing country textile producers aresmall andmedium-sized
enterprises (SMEs), andsome studies suggest thatingeneral, SMEs mayfacedifficulties incomplying
withenvironmental standards andregulations intheirexport markets because ofinsufficient access
toinputs, information, technology, finance, andlackofinfrastructure.188
185Commonwealth ofAustralia (1997), Patterns ofTextile, Clothing andFootwear Trade within APEC, 1990-1994, Melbourne.
186However, levels inEastern Europe andLatin America remain lowcompared toAsia.
187SeeR.Pepper andH.Bhattacharya (1994), "Changing Trends inGlobal Textile Technology", inManaging Restructuring inthe
Textiles andGarments Subsector: AnOverview ,Washington: World Bank.
188UNCTAD (1995), Environment, International Competitiveness andDevelopment: Lessons fromEmpirical Studies ,TD/B/WG.6/10.WT/CTE/W/67
Page47
B. Trade Restrictions andDistortions
170. Thetextiles andclothing sector hasformany years beenheavily influenced bynumerous trade
restrictions anddistortions. These include export restraint measures under theformer Multi Fibre
Arrangement (MFA) which havebeencarried overintotheAgreement onTextiles andClothing (ATC)
andwhich aretophased outover10years (1995-2005). There arealsohightariffs, import licensing
requirements, import prohibitions, andindirect subsidies onsome production inputs. Anextensive
body ofliterature exists ontheeconomic effects ofthese distortions; thecostofprotection hasbeen
estimated onnumerous occasions tobeparticularly high.189
(a) Multifibre Arrangement
171. TheMultifibre Arrangement (MFA) entered intoforce in1974 andextended thecoverage of
therestrictionsontextilesandclothingfromcottonproductstoincludewoolandman-madefibreproducts
(andfrom 1986, certain vegetable fibreproducts andsilkblends). Operationally, theMFA provided
rulesforexport restraint arrangements, either through bilateral agreements orunilateral actions, when
surges ofimports caused market disruption orthethreat thereof inimporting countries.
172. Itisnotpossible togiveadefinite answer astotheextent towhich MFA restrictions limited
trade, orwhattradelevels (orthestructure ofproduction worldwide) would havebeeninitsabsence.190
Animportant partofworld trade inthese products wasnotrestricted atall-suchastrade between
developed countries. Furthermore, where tradewasrestricted, farfromalltextile andclothing products
being traded werecovered byeachMFA bilateral agreement; some MFA quotas werenotfullyutilized;
andanumber ofrestrictions ininternational tradeinthissector existed outside oftheMFA. Thepossible
effect ofrelatively hightariffs (seebelow), forexample, would alsohavetobetaken intoaccount.
Nevertheless, some oftheside-effects oftheMFA regime areevident andarerelevant foranydiscussion
oftheenvironment.
173. TheMFA has,forexample, affected thestructure ofworld tradeandproduction andtherelative
intensity oftheuseofbothcapital andlabour.191Apattern oftheshifting ofproduction facilities has
occurred fromthemore-restricted countries totheless-restricted orunrestricted ones; thecontinued
expansion ofnewexporting areas hasserved toexpand global production capacity. While sustaining
theperformance oftheoriginal, predominant suppliers, thisshifting production andexport pattern
hasstimulated thegrowth ofindustries incountries which, haditnotbeenfortheMFA quota system,
would nothaveentered theinternational market asexporters when theydid.Because oftheprotection
afforded bytheMFA, heavy investments bydeveloped countries inautomated equipment hasbeen
undertaken, particularly inthetextiles sector. Asaresult, textile industries inthedeveloped nations
have become oneofthemost capital intensive areas within themanufacturing sector. Similarly
developing countries subject toquantitative restrictions haveprogressively upgraded thequality oftheir
189SeeR.Pepper andH.Bhattacharya (1994), "Changing Trends inGlobal Textile Technology", inManaging Restructuring inthe
Textiles andGarments Subsector: AnOverview ,Washington: World Bank.
190Navaretti, Giorgio Barba et.al.(1995), Overview inBeyond theMultifibre Arrangement: Third World Competition andRestructuring
Europe 'sTextile Industry ,OECD, Paris; United States (1995) Annual Report -Monitoring and Enforcement Activities ,
http://www.ustr.gov/reports/tpa/1996; Oxfam Policy Briefing ,http://www.oneworld.org/oxfam/policy/papers.
191According toRaffaelli, theeffects oftheMFA onexporting countries include: thelimitation ofcompetitive exports; thedisruption
ofindividual linesofproduction; transference ofresources tolessefficient linesofproduction; discouragement and/or distortion ofinvestment;
switch tolesssophisticated products todifferent, more sophisticated products; improvement inproducts; transference ofproduction to
thirdcountries; fightforguaranteed share ofthemarket; quota ownership andattendant problems; costs andquota management; and
politicalcosts.SeeMarceloRaffaelli(1994),"SomeConsiderationsontheMulti-FibreArrangement:Past,PresentandFuture",inMeyanathan,
Managing Restructuring intheTextile andGarment Subsector, Washington: World Bank.WT/CTE/W/67
Page48
textile andclothing exports inorder tomaximize theireconomic gains. Inshort, thethesis outlined
intheintroductory section ofthisNotewhere aworld market freeoftrade restrictions anddistortions
would allocate resources totheirmostefficient usesandinaccordance withconsumer preferences is
theantithesis ofthepastexperience ofworld trade inclothing andtextiles.
174. There havebeenvarious responses bydeveloping countries toquota restrictions under theMFA.
Although difficult togeneralize, these include thediversification ofmarkets andproducts, soasto
increase thequality andtechnology intensity andmaximize thereturn oninvestment perunitoftextiles
orclothing outputs traded. While many developing country producers haveresponded efficiently to
quota restrictions, ithasbeennoted thatsome producers areconstrained byvarious domestic structural
weaknesses, suchasobsolete equipment andinadequate access tomarketing information. What isclear
isthatthephase-out oftheMFA isexpected toresult inanincrease inexport revenues, inparticular
fordeveloping countries.192
(b) TheAgreement onTextiles andClothing
175. Adecade oftransition fortheglobal textiles andapparel tradeindustry began on1January 1995
withtheentryintoforceoftheAgreement onTextiles andClothing. Overaten-year period theextensive
network ofbilateral quotas builtupovermore thanthree decades ofspecial, discriminatory rules in
thissector, andunder which alarge portion oftextile andapparel exports fromdeveloping countries
hasbeensubjecttorestrictioninthemainindustrialcountries,willbeprogressivelydismantled.Products
which remain under quota during thetransitional process arebeing progressively liberalized through
increases intheannual growth ratesattheoutset andateachsubsequent stage.193Concurrent with
theremoval ofbilateral quotas, tariffs arealsobeing reduced through tariff reduction commitments
undertaken byWTO Members; other forms ofnon-tariff barriers totrade notpermitted under WTO
rules arealsotoberemoved.
176. Theimproved access tomarkets globally willbring thegreatest benefits tothemostdynamic
traders. Butitwillalsoposechallenges forcompanies attempting torespond tothechanging global
structure, requiring them toredefine theircompetitive strategies vis-à-vis oldandnewcompetitors,
andtoformulate appropriate investment, product andmarketing strategies. Changes incoststructure,
technology, innovation, marketing techniques, customers 'andsuppliers 'strategies including those
directed toadopting environmentally-friendly policies, mayalsobedecisive factors.
(c) Tariffs
177. Post-Uruguay Round tariffs onclothing andtextile trade arehighworld-wide, andformany
countries thehighest among allmajor industrial products.194Average tariffs onimported textiles and
clothing products indeveloped countries willbe12.1percentwiththeintroduction oftheUruguay
Round commitments. Theaverage forallindustrial products is3.8percent. IntheUruguay Round,
these average tariffs were reduced by22percent(from 15.5percent) while theindustrial average
192Seeforexample C.Hamilton (1990), Textiles Trade andtheDeveloping Countries: Eliminating theMulti-Fibre Arrangement in
the1990s, Washington: World Bank; N.Kirmani et.al.(1984), Effects ofIncreased Market Access onExports ofDeveloping Countries ,
IMFStaffPapers, Washington: IMF; UNCTAD (1986), Protectionism andStructural Adjustment, Geneva; andI.Trela andK.Whalley
(1990), "Unravelling theThreads oftheMFA", inC.Hamilton, ed.,Textiles Trade andtheDeveloping Countries: Eliminating theMulti-Fibre
Arrangement inthe1990s, Washington: World Bank.
193Aspecial transitional safeguard mechanism, which permits newquotas under strictconditions, isavailable toprotect Members against
damaging surges inimports ofproducts notyetintegrated intoWTO rules. Thesafeguard mechanism wasapplied on23occasions inthe
firsthalfof1995 although inthepast22months ithasbeeninvoked much lessfrequently.
194Datafrom UNCTAD (1996), Trade Analysis andInformation System (TRAINS) ,Geneva.WT/CTE/W/67
Page49
wasreduced by40percent. Inaddition, only4percentoftarifflinesofimported textile andclothing
imports were dutyfreeindeveloped countries; 27percentwere intherange of15to35percent.
Thecorresponding figures forallmanufactured products were49percentandonepercentrespectively.
Tariffs onimported textiles andclothing remain highinmany developing countries.
(d) Subsidies
178. Subsidies arenotusually associated withtextiles andclothing production. However, there
areindirect subsidies toinputs intotheproduction processes. Forexample, inmany countries, cotton
cultivation relies onacomplex mixofprice andincome support schemes, including grants, loans and
other subsidies. Asnoted intheearlier section ofthisNote onagriculture, subsidies applied to
agricultural production ingeneral havebeenviewed ascontributing totheover-use ofchemical fertilizers
andpesticides, while insome instances imposing aheavy financial burden ongovernment authorities
which could bebetter employed toimplement appropriate domestic environmental policies. Another
formofindirectsubsidyistheunder-pricingoffreshwaterinputsusedincottoncultivation.Anestimated
60percentoftheworld 'scotton isproduced using irrigation methods, andthegeneral underpricing
offreshwater inputs isfrequently viewed ascontributing toenvironmental problems, including creating
adisincentive fortheconservation ofincreasingly scarce freshwater resources.
C. Environmental Benefits
179. Themostprominent development leading totheremoval oftrade restrictions anddistortions
inthecoming years -andtherefore anyensuing environmental benefits -isthephase outoftheMFA.
180. Inexploring therelationship between trade liberalization andenvironmental benefits inthe
textile andclothing sectors, potential benefits canbebroadly divided intotwogroups: first,general
welfare benefits which areexpected toaccrue todeveloping countries because oftheMFA removal
andfurther tariff reduction; andsecond, environmental benefits which mayarisebecause ofchanges
inthestructure ofproduction.
181. With respect totheformer, ithasbeenestimated that-asnoted earlier -world income from
theliberalization ofalltrade ingoods willincrease byupto$510 billion annually bytheyear2005.
Thelargest increases areprojected tooccur inapparel (60percent), dueprimarily tothetwo-pronged
liberalization tobeachieved through theremoval ofquotas andtheconcurrent reduction intariffs.
While theremoval oftrade restrictions anddistortions would haveimportant income effects inmany
developing countries, thedistribution ofrevenue gains willdepend onanumber ofeconomy-wide as
wellassector-specific considerations.195
182. Asinothersectors, itisdifficult toquantify changes inenvironmental outcomes duetochanges
inthestructure ofproduction thatresult fromtradeliberalization. Environmental problems thatrelate
tothestructure ofproduction are,however, associated withtheproduction ofcotton andthefinishing
oftextiles. Asinsome other agricultural sectors, subsidies applied directly tocotton production have
ledtotheextensive useofagro-chemicals. Cotton isachemical intensive crop; there isfrequently
195KymAnderson (1993), "Textiles andClothing inGlobal Economic Development: EastAsia'sDynamic Role", World Competition .
Anderson makes thefollowing observation based ondataconcerning production intensity: "(a)thattheshares ofprimary products intotal
exports andoftextiles andclothing inmanufactured exports willbehigher indeveloping economies thaninadvanced industrial economies;
(b)thattheseshares willtendtodecline overtimeinalleconomies; (c)thatthedeclines willbefaster ineconomies thataregrowing relatively
rapidly; and(d)thatwithin eachofthese twogroups, relatively densely populated economies willtendtohavelower shares ofexports,
duetoprimary products, andhigher shares, duetotextiles andclothing."WT/CTE/W/67
Page50
ahighpesticide, herbicide andfertilizer inputintensity applied during thecultivation ofcotton196,which
haseroded thesoilandpolluted water resources.197Changes incotton demand haveinpartbeendriven
bytechnological changes intextile production: forexample, developments inmachine capacity and
automation haveresulted inincreased demand forimproved cotton quality, interms offibrestrength
anduniformity. This, inturn,hasledtochanges incotton breeding inresponse toincreased demand
forhigh-quality cotton varieties, thecultivation ofwhich relies heavily onpesticides.198
183. Therestraint arrangements under theMFA haveledmany exporting countries toproduce higher
quality garments withhigher perunitvalue added andbetter quality yarninputs, thelatter relying on
cotton cultivated withaninput ofpesticides.199Withthephase outoftheMFA, exporters willproduce
according totheircomparative advantage rather thanrespond toincentives distorted bytraderestrictions.
184. Fertilizers arealsousedintensively forlandirrigation purposes incotton production, andseveral
casestudies haveshown extensive use(insome cases 150times therecommended quantity perhectare)
offertilizers, leading tonitrogen-related environmental problems.200Asnoted intheSection IIofthis
Notedealing withagriculture, theremoval ofsubsidies would beexpected toleadtoaprice increase
forfertilizers andpesticides, areduction ininput intensity andacorresponding reduction inthe
environmental damage associated withagro-chemical use.201Similar pricereforms toincrease thecost
ofwater andenergy inputs mayalsohaveenvironmental benefits.
185. Withrespect totextiles production, thetwoprincipal environmental problems arethedischarge
ofdifferent polluting effluents atdifferent stages ofprocessing, andthehighconsumption ofwater
andenergy inputs. Liquid wastes arisefrom textile washing operations andmaycontain substantial
quantities oforganic andsuspended pollution loads suchasfibres, grease andvarious toxic chemical
effluents.202Forexample, theproduction ofsynthetic fibres islinked totherelease ofmonomers in
theairandwater, together withvolatile organic compounds. Polymer andother synthetic fibre
production isalsoenergy-intensive, andremoving energy subsidies would alsorestrain energy use
196Cotton remains theleading textile fibre. Anestimated 19million metric tonnes ofcotton iscultivated eachyear(1994/1995), of
which textile fibreinput comprises more than50percent oftotalproduction. SeeUNCTAD (1995), Guidelines forFacilitating Access to
RiskManagement Markets Through theStimulation ofLocal andRegional Exchanges: TheCase ofCotton intheNear East/CIS/Pakistan ,
(UNCTAD/COM/65), Geneva.
197SeeV.Bharucha (1997), "The Impact ofEnvironmental Standards andRegulations SetinForeign Markets onIndia'sExports",
inV.Jha,G.Hewison andM.Underhill, eds., Trade, Environment andSustainable Development: ASouth Asian Perspective ,London:
Macmillan.
198H.M.Eisaet.al.(1994), Cotton Production Prospects fortheDecade to2005,Washington: World Bank.
199Oneestimate suggests thatapproximately 25percentofworld pesticide useisapplied tocotton cultivation, involving over30different
pesticide varieties, including persistent organo-halogens orarsenic-based pesticides which generate particularly adverse environmental effects
suchassurface anddrainage water contamination, andlakeeutrophication. Cotton production costs haveincreased significantly because
oftheincreased useofbothfertilizers andpesticides required toachieve higher yields andspecified quality targets. Ithasbeennoted that
inmany cases, increased agro-chemical usehascreated additional problems related toinsect control because natural enemies areeliminated
bychemical use,while resistance tomajor cotton pestshascontinued toincrease. SeeM.Lehtonen (1997), Criteria inEnvironmental Labelling:
AComparative Analysis ofEnvironmental Criteria inSelected Labelling Schemes, UNEP Environment andTrade Series, No.13,Geneva:
UNEP.
200A.Daniel andB.vanElzakker (1997), "Cotton andOrganic Cotton Cultivation andProcessing inIndia", Geneva: UNCTAD;
C.Aruoba (1996), "Case Study ofOrganic Cotton andTextiles inTurkey", Geneva: UNCTAD.
201Studies, including contamination ofgroundwater, haveidentified various environmental effects ofpesticides, andlong-term effects
ofbanned pesticides (e.g. 1,2-DCP, DBCP andEDB).
202UNEP (1993), TheTextile Industry andtheEnvironment, Technical Report No.16,Paris: UNEP.WT/CTE/W/67
Page51
inthissegment ofproduction. Production-related environmental externalities include liquid waste
emissions containing organic andsuspended loads including fibres andgrease removed fromrawnatural
fibres during processing, aswellaswater pollution containing chemical residues which maybetoxic.
Totheextent thattheremoval oftradedistortions andrestrictions leadstoacontinuation oftheprocess
ofindustrial restructuring, new investment will provide thepossibility tointroduce more
environmentally-friendly production processes andmachinery.
186. Inanumber ofcountries, standards havebeendeveloped stipulating specific requirements for
textiles interms oftheiruseofcaustic sodaanddermatologically-safe materials insynthetics. These
standards extend todyescontaining carcinogenic components oringredients. Another dimension of
thesector isthecontinued growth inenvironmentally-friendly products. Forexample, theInternational
Federation ofOrganic Agriculture Movements anticipates arapid increase intheworld share of
organically-grown cotton203,withhigher thanaverage growth intheexport performance ofsome
developing country cotton textile producers. Exports from countries which have relied on
environmentally-friendly dyestuffs isexpected tocontinue.204
VIII. LEATHER
A. Overview
187. Inthe1990s South-East Asiaemerged asthemost important supplier ofalarge number of
leather products totheinternational market. Theprincipal exporters ofleather goods inAsiaimport
mostoftheirrawmaterials (hides andskins). Industrialized countries havebecome netexporters of
rawmaterial intheleather sector, andnetimporters ofvalue-added leather products.
188. Theleathersectorcanbedividedintofourbroadcategoriesonaregionalbasis:(a)industrialized
countries inNorth America andtheEuropean Union (except Italy, Portugal andSpain); (b)Australia,
Japan, andNewZealand; (c)countries ofEast, South-East andSouth Asia(China, India, Indonesia,
Pakistan, Republic ofKorea, Thailand, andVietNam), South America (Brazil, Mexico), andPortugal
andTurkey inEurope; and(d)countries inAfrica andsmaller countries ofSouth America and
South/South-East Asia.
189. Leatherproductscanbedividedintosixmaincategories:footwear,garments,upholstery,gloves,
leather goods (defined as,brief-cases, trunks, suit-cases, handbags, wallets, etc.), andheavy leather.205
Footwear accounts forapproximately 60percentofallleather products traded globally, leather garments
about 15percent, leather accessories andmiscellaneous goods another 20percent, while saddlery
andupholstery account fortheremaining 5percent.206Thepattern ofleather consumption hasfollowed
thepattern ofproduction ofleather products. Thefootwear industry absorbs approximately 60percent
oftheworld 'sleather; garments consume 10-15 percent, andgloves 1-2percent. Inresponse to
203Cited inUNEP (1997), Criteria inEnvironmental Labelling, No.13,Geneva: UNEP. AlsoseeITC(1996), Eco-labelling and
Other Environmental Quality Requirements inTextiles andClothing: Implications forDeveloping Countries ,Geneva.
204IIED (1997), Unlocking Trade Opportunities, London: IIED.
205SeeITC(1993), Leather Goods, APractical Guide forExporters inDeveloping Countries ,Geneva.
206SeeEconomic andSocial Commission forAsiaandthePacific (ESCAP) (1994), Development ofLeather andLeather Products
IntheDeveloping Countries oftheAsian andPacific Region Through Export Marketing andRegional Cooperation ,NewYork: United Nations.WT/CTE/W/67
Page52
growth inproduction ofupholstery andleather goods inthe1980s, theirshare inleather consumption
hasincreased greatly, andisatapproximately 6percentofworld leather.207
190. Alltypes ofleather areusedtoproduce these goods. Thebulk, however, isproduced from
theskin/hide ofcalves, cattle andbuffalo, sheep, goats, reptiles and,toalesser extent, from pigs,
horses, donkeys andcamels, deerandelk,andmany species ofexotic animals. Leaving thereptile
andother exotic hides andskins aside, thebestandmost expensive qualities areusually full-grain
aniline-finished calfskin leathers.208
191. World trade inleather andleather products hasgrown steadily since the1970s: from
US$4 billion in1972, US$16 billion in1985andUS$42 billion in1992toaprojected US$60 billion
intheyear2000.209
B. Trade Restrictions andDistortions
192. Average tariffs onworld trade inleather andleather products remain relatively high, even
aftertheimplementation ofthecommitments undertaken intheUruguay Round. Post-Uruguay Round
average tariffs onimported leather andleather products intothedeveloped countries isestimated to
be7.3percent. Thisisalmost double theaverage forallindustrial products of3.8percent.210
193. Tariffescalationisobservableformostcountriesinvolvedintradingleatherandleatherproducts,
bothdeveloped anddeveloping. However, while fewindustrialized countries levyimport tariffs on
rawhides, import tariffs risewiththelevel ofprocessing; from hides toleather, andfrom leather
tomanufactured leather goods, suchasshoes.211InCanada, theEuropean Union, Japan andthe
United States, forexample, tariffs escalate fromrawmaterials, semi-manufactures tofinished products
ineachofthecountries, evenaftertheimplementation oftheUruguay Round tariff valuations. The
average across thesefourcountries forthestages ofproduction referred toare0percent,4.8percent
and12.1percentrespectively.212
194. Anumber ofcountries which export rawmaterials levyexport taxes toprotect theirdomestic
processing industry. Higher stages ofprocessing areprotected byprogressively lower ratesofexport
taxes, i.e.,rates"de-escalate" asprocessing advances. Export subsidies onmanufactured leather goods
arealsoemployed toencourage higher levels ofprocessing. While export restrictions indeveloped
countries atanyprocessing levelarerare,developing countries commonly restrict theexport ofhides
andleather and,incertain instances, impose export bans.
195. Examples ofnon-tariff measures affecting leather andleather product imports include: sanitary
requirements, import deposits, compulsory national transportation andquotas. Examples ofnon-tariff
207SeeITC(1993), Leather Goods, APractical Guide forExporters inDeveloping Countries, Geneva.
208Ibid.
209SeeESCAP (1994), Development ofLeather andLeather Products IntheDeveloping Countries oftheAsian andPacific Region
Through Export Marketing andRegional Cooperation ,NewYork: United Nations.
210SeeGATT (1994), TheResults oftheUruguay Round ,Geneva.
211SeeFAO(1994), Trade inHides, Skins andtheirDerived Products ,Rome: Committee onCommodity Problems, Intergovernmental
Group onMeat, Sub-Group onHides andSkins, FAO.
212SeeGATT (1994), TheResults oftheUruguay Round ,Geneva.WT/CTE/W/67
Page53
measures affecting leather andleather product exports include: sanitary requirements, prohibitions,
quality controls andlicensing. Theoverall impact ofthesenon-tariff measures onexports ofdeveloping
countriesisdifficulttoestimate,butcouldbesignificant,particularlywhenconsideredalongwithstricter
environmental standards indeveloped countries.
C. Environmental Benefits
196. Theproduction ofleather andleather products hasaconsiderable impact ontheenvironment,
beginning withtheproduction ofhides andextending through theentire leather production chain.
Theprocess ofconverting hides toleather end-products includes thefollowing stages: (a)production
ofhides; (b)chemical processing: liming/deliming, pickling, tanning, dyeing, andfinishing;
(c)mechanical processing: cutting, grading, making-up, sewing; and(d)packaging.213
197. Theproduction ofleather results inanumber oflocal environmental problems: (a)water
pollution: thedischarge ofuntreated effluents tosurrounding waterbodies, andtheresultant pollution
ofgroundwater; (b)soilcontamination: thedischarge ofuntreated effluents tosurrounding fields,
aswellasthedisposal oftoxic andhazardous waste inthese fields; and(c)solid waste generation:
thegeneration ofwaste, including toxicandhazardous waste, intheabsence ofadequate waste disposal
systems.214
198. Fewstudies existontheimpact oftradeliberalization ontheenvironment intheleather industry,
anditisdifficult tospeculate ontheoutcome ofliberalization inthisregard. However, itisargued
thattheincome growth effect oftradeliberalization could result inenvironmental improvements. Trade
liberalization increases national income, contributing topoverty alleviation. Indeveloping countries,
employment typically increases inexport-oriented labour intensive activities, suchasproduction of
leather goods. Increased income leadstoincreased demand forimproved sanitation facilities andcreates
alarger taxbasefromwhich tofundpublic projects. Improved infrastructure, intheformofbetter
sewerage systems andmore waste water treatment plants, could alleviate many oftheenvironmental
problems associated withleather production. Inaddition, trade liberalization could lower thecostof
importing pollution control technologies andmoreeco-friendly inputs, thereby affecting theenvironment
positively.215
199. Arecent study hasconcluded thatalthough therecent focus onenvironmental considerations
hasplaced newrequirements ontheleather industry insome developing countries, there havebeen
some positive effects. Natural products suchasbiocides, oilsandfats,vegetable dyesandprotein
binders havebecome more popular. Vegetable-tanned leather islikely tobeingreater demand by
green consumers. Inshort, while difficulties werefound toexistinhaving domestic tanneries respond
totheenvironmental regulations oftheirtrading partners (inoneparticular case, withcostofusing
PCPsubstitutes being 10timehigher thanthatofusing PCP), itwasfound thattanneries wereable
213SeeFAO(1994), Environmental Aspects ofProcessing andTrade inHides, Skins andLeather ,Rome: Committee onCommodity
Problems, Intergovernmental Group onMeat, Sub-Group onHides andSkins, FAO.
214Ibid.
215Leather tanning hasbeenranked asoneofthemostpolluting activities compared toother manufacturing sectors withahighlevel
oftoxicintensity perunitofoutput (Brandon andRomankitty, 1993). Some studies haverevealed thatcountries which adopt openandoutward
oriented development strategies havereduced thepollution intensity ofproduction astheirincome percapita hasincreased. These countries
haveadopted more readily environmentally sound technologies compared tocountries withclosed economies (Birdsall andWheeler, 1992;
Lucas, Wheeler andHettige, 1992). These results have, however, beenquestioned andanalternative viewhasbeenexpressed (Rock, 1966).
These conclusions weredrawn fromacasestudy ontrade, environment anddevelopment, conducted inthePhilippines, seeUNCTAD (1995),
Trade, Environment andDevelopment: Lessons fromEmpirical Studies; TheCase ofthePhilippines ,Geneva.WT/CTE/W/67
Page54
toadapt tonewmarket segments (green consumers) byusing more environmentally-friendly inputs
intheproduction process.216
200. Small andmedium sizedenterprises (SMEs) characterize theleather industry inbothdeveloping
anddeveloped countries. Despite thesuccess oftheleather industry inmany countries, SMEs suffer
from, limited production capacity, limited product development capacity, andlackofquality assurance.
SMEs donothavealways access totimely information onenvironmental regulations; especially since
theytypically donothavedirect contact withimporting firms, anddonothavetheresources toeasily
adapt theirproduction process.217These problems encountered bySMEs areparticularly acute in
developing countries.
201. Trade liberalization canleadtothestructural transformation oftheleather industry indeveloping
countries. Onecasestudy hasfound thatthefocus hasshifted fromtheexport ofrawhides andskins
totheexport ofhigher value-added goods, suchasshoes.218Trade liberalization hasthepotential to
induce diversification ofexports. With ashifttowards higher value-added goods, production maybe
lesspollution intensive, andenvironmental benefits mayensue. There isalsoevidence thattrade
liberalization mayspurtheestablishment ofmore jointventures, contributing totheadoption ofcleaner
technology. Bangladesh, Italy, Germany, former Czechoslovakia andtheUnited Kingdom arethe
leadingsuppliersofmodernleatherproductionmachineryandequipment,althoughsomelocallyproduced
machinery (such aspaddles, wooden drums, andtoggle driers) arestillused. Anumber ofjointventure
projects havebeenestablished inBangladesh using technology fromfirms located overseas.219However,
appropriate domestic environmental regulations intheleather sector would alsobeneeded toencourage
theadoption ofsuchtechnology.220
216SeeV.Jha(1997), "Protection oftheEnvironment, Trade andIndia'sLeather Exports", inV.Jhaet.al.,ed.,Trade, Environment
andSustainable Development, ASouth Asian Perspective ,London: Macmillan.
217SeeS.Das(1996),The Differential Impact ofEnvironmental Policies onSmall andLarge Enterprises inIndia withSpecial Reference
totheTextile andClothing andLeather andFootwear Sectors.
218SeeV.Jha(1997), "Protection oftheenvironment, Trade andIndia'sLeather Exports", inV.Jhaet.al.,ed.,Trade, Environment
andSustainable Development, ASouth Asian Perspective ,London: Macmillan.
219SeeF.Mahtab (1997), "TheSustainable Development ofLeather Industries inBangladesh", inV.Jhaet.al.,ed.,Trade, Environment
andSustainable Development, aSouth Asian Perspective ,London: Macmillan.
220SeeUNIDO (1993), TheWorld 'sLeather andLeather Products Industry ,Vienna: UNIDO.WT/CTE/W/67
Page55Appendix Table
World Merchandise Trade byProduct andbyRegion, 1996
(Source: WTO (1996), Annual Report )
(Billion USdollars)
Destination World North America Latin America
OriginAgricul. Fuels Non-
ferrous
MetalsTextiles Clothing Agricul. Fuels Non-
ferrous
MetalsTextiles Clothing Agricul. Fuels Non-
ferrous
MetalsTextiles Clothing
World 585.8 415.8 100.2 150.2 163.3 65.8 79.3 16.7 13.7 40.9 31.1 21.6 3.1 7.3 7.0
North America 113.5 32.7 15.1 9.7 8.8 27.7 20.6 8.0 3.7 1.7 13.3 3.6 1.3 2.4 4.9
Latin America 61.8 38.4 10.3 3.8 9.4 15.5 23.2 2.4 1.4 8.3 11.0 11.1 1.3 1.7 0.7
Western Europe 246.3 90.6 37.9 65.3 58.9 10.0 9.4 2.5 3.0 3.2 4.6 0.8 0.3 0.8 0.4
Central/Eastern
Europe/BS/CIS23.8 31.3 14.3 3.8 7.5 0.8 0.4 2.0 0.2 0.4 0.5 0.7 0.05 0.01 0.0
Africa 21.9 47.2 4.0 1.4. 6.0 1.1 13.2 0.8 0.1 0.6 0.3 2.1 0.0 0.0 0.0
Asia
(including
Oceania)111.9 57.2 16.60 64.1 69.6 10.5 1.9 1.0 5.2 25.8 1.5 0.5 0.1 2.3 0.9WT/CTE/W/67
Page56Destination Western Europe Central/Eastern Europe/BS/CIS Asia
OriginAgricul. Fuels Non-
ferrous
MetalsTextiles Clothing Agricul. Fuels Non-
ferrous
MetalsTextiles Clothing Agricul. Fuels Non-
ferrous
MetalsTextiles Clothing
World 265.9 145.2 45.0 59.1 77.6 27.4 16.8* n.a. n.a. 148.6 131.1 28.9 48.0 26.0
North America 18.0 3.3 2.4 1.6 0.7 2.8 0.2 0.0 0.1 0.0 44.3 4.3 3.0 1.4 1.2
Latin America 19.5 2.6 3.1 0.4 0.3 1.6 0.0 0.0 0.0 0.0 10.2 1.2 3.4 0.2 0.0
Western Europe 185.7 72.3 29.1 45 45.9 14.5 2.1 1.0 6.7 3.5 15.0 1.0 3.1 4.6 4.6
Central/Eastern
Europe/BS/CIS11.9 19.3 8.1 2.5 6.7 5.2 8.9 1.1 0.8 0.3 3.4 0.8 2.5 0.2 0.0
Africa 12.4 24.0 1.1 0.8 5.2 0.5 0.5 0.0 0.0 0.0 4.4. 4.6 1.9 0.1 0.0
Asia
(including
Oceania)15.9 1.9 0.9 7.95 17.9 2.1 0.2 0.1 0.8 1.9 70.7 51.6 13.9 41.4 20.1WT/CTE/W/67
Page57Destination
OriginAfrica
Agricul. Fuels Non-ferrous Metals Textiles Clothing
World 20.4 11.2 n.a. n.a.
North America 3.7 0.4 0.0 0.1 0.0
Latin America 2.0 0.2 0.0 0.0 0.0
Western Europe 8.2 1.5 0.5 3.4 1.1
Central/Eastern
Europe/BS/CIS0.5 0.2 0.0 0.0 0.0
Africa 2.7 2.7 0.1 0.3 0.1
Asia
(including Oceania)2.9 0.2 0.1 2.1 0.7WT/CTE/W/67
Page58
ANNEX
METHODOLOGIES
1. Measuringtheneteffectsoftradeliberalizationontheenvironmentiscomplex.Theimplications
oftheremoval ofthetraderestrictions anddistortions willdepend onnotonlythenature ofthemeasure
inquestion butalsothestateoftheenvironment atthetimeofliberalization. Forexample, inaninstance
ofover-consumption ofascarce resource linked tounderpricing, aprice increase associated witha
subsidy removal would beexpected todecrease therateofresource useandwaste, thereby contributing
toanenvironmental improvement. However, areduction intariffs forthesameenvironmental problem
mayhavetheopposite effect, byincreasing therateofconsumption ofthescarce resource.
2. Ideally, anyanalysis ofthelinkbetween trade measures andtheenvironment should bebased
onempirical datawhich quantifies theproportion ofenvironmental externalities which stemfrom
distortionary policies priortoliberalization. Thisisdifficult atbest,given thescarcity ofdatameasuring
theecological effects ofdistortionary economic policies.1
3. Environmental benefits maywellbeviewed innetterms; there maybeanetimprovement
intheenvironment relative towhatwould haveoccurred inthefaceofcontinued distortionary policies.2
Thus, optimal environmental policy doesnotimply production orconsumption activity devoid of
environmental costs, butrather abalance between costsandbenefits. Thisbalance differs bysectors,
countries andecosystems.
4. Environmental sciences canprovide precise dataonvarious aspects ofenvironmental quality;
forexample, levels ofdifferent pollutants, changes inchlorinated compounds, declines inforest cover
andincreases incarbon emissions. While many aspects ofenvironmental changes andtrends in
environmental quality canbemeasured objectively, themeasurement ofenvironmental benefits is
value-laden, asitreflects different societal goals.3Itiswidely assumed thatrealizing environmental
benefits depends notonlyonremoving distortionary tradepolicies, butalsoestablishing complementary
policies, including removal ofnon-trade economic distortions andtheuseofappropriate environmental
policies. These threefacets ofpolicy reform areillustrated inthediagram below showing aone-country
scenario inwhich multilateral trade liberalization hasexpanded production inforestry.4
1Oneapproach maybetocompare theenvironment forgiven sectors between closed andopeneconomies; another could betomeasure
changes inenvironmental dataprior toandfollowing trade liberalization.
2Anumber ofstudies related tostructural adjustment assume thatenvironmental costsinclosed economies aremore pronounced than
those inopeneconomies. SeeUNEP (1995), Economic Policy Reforms andtheEnvironment: African Experiences, UNEP Environment
andTrade No.11,Geneva.
3Ithasbeensuggested thata"vector" ofindicators showing trends towards amore general environmental situation would beuseful.
SeeArthur L.Dahl (1996), "Measuring theUnmeasurable", OurPlanet ,UNEP, Vol.8,No.1.
4Based onM.Munasinghe (1996), "AnOverview oftheEnvironmental Impacts ofMacroeconomic andSectoral Policies" in
M.Munasinghe, ed.,Environmental Impacts ofMacroeconomic andSectoral Policies, World Bank: Washington.WT/CTE/W/67
Page59
5. Lettheinitial rateofdeforestation beQo.Thesustainable rateofforestry management is
assumed tobeQL.Thatis,theleveloflogging prior totrade policy reform isbelow thesustainable
level. Theremoval oftraderestrictions anddistortions isassumed tomove thedemand curve outward
toD1,representing theadditional demand from theworld market. Thisincreases demand toQsat
thepre-reform price ofPs.Since therateoflogging hasmoved beyond thesustainable forestry rate,
corrective domestic policies areneeded toensure thatlogging doesnotexceed QL.Onewaywould
betoraise orintroduce stumpage feestoanappropriate level, coupled withtheintroduction of
well-defined private property rights (which inmostcasesintroduce incentives nottoovertax theresource
base). Theintroduction ofthese measures would more accurately capture theopportunity costs of
theforestry activities, which would bereflected inapriceincrease fromPStoPE.Rather thanrelying
onquantitative restrictions toconstrain supply, theprice increase would decrease thedeforestation
level from QStoQE. Under thisscenario, theenvironmental benefit would betherelative decline
indeforestation fromQStoQE.However, thisisstillasub-optimal result sincedeforestation exceeds
QL.Theroleofenvironmental policy istomove thedeforestation ratefromQEtoQL.Various options
canbeusedtofurther increase price. Ataxcould beusedtoincrease theprice fromPEtoPL,with
thetaxratecalculated byvaluing various external environmental costslinked toexcessive deforestation,
suchasthelossofwetlands, biodiversity orcarbon sinks.
6. Anadditionalconsiderationtobearinmindisthattheremovaloftraderestrictionsanddistortions
andtherelated changes inrelative prices haveeconomy-wide andmulti-sectoral effects. Itisdifficult
toisolate environmental benefits inonesector without taking intoaccount changes occurring inother
sectors. Forexample, anumber ofcasestudies suggest thattrade liberalization alters thepollution
intensity within themanufacturing sector. Anincrease inproduction intensity inonesector canhave
intersectoraleffectswhichinfluenceenvironmentalqualityonothersectorsmanufacturingactivitybecause
tradeliberalization canaffect pollution intensities andinturnaffect, forexample, changes inagricultural
productivity because ofairandwater pollution. Inaddition changes inrelative prices willinduce changes
intheeconomy-wide allocation ofresources; theuseofcapital andlabour willchange inother sectors.
Bywayofexample, thefollowing matrix illustrates therange ofsecondary effects which mayarise
from trade liberalization intheagricultural sector:WT/CTE/W/67
Page60
Countries withexpanding
agricultureCountries withcontracting
agricultureTrans-border and
global effects
Agricultural
productionIncreased value offarmland,
leading toincreased incentives for
conservation.
Increased landconversion from
forests, wetlands and/or marginal
lands toagriculture production.
Mixed outcomes including aesthetic
changes inthelandscape withbenefits
depending onpublic preference.Retirement ofsome agricultural
lands; disused landmaybeleft
idle,planted withforests or
agroforestry projects, usedas
migratory corridors, orleftas
wetlands.
Mixed outcome including
aesthetic changes inthelandscape
withbenefits depending onpublic
preference.Overall effects depend on
possible changes inglobal
ecosystem functions: for
example, possible changes in
carbon sinks because ofan
increase ordecrease in
forests, increase ordecrease
inbiodiversity-rich areas
because oflandconversion or
retirement, changes in
watersheds, etc..
Total useof
pesticides,
fertilizers,
herbicides,
other inputs.Possible increase intheuseof
agrochemicals.Possible reduction intheuseof
agrochemicals.Effects depend onrelative
change intheperunit
intensity ofagrochemicals
andeffects ofrun-off on
transboundary rivers, oceans,
andeffects onbiodiversity,
etc.
Indirect
effectsDepends oneconomy-wide changes inresource allocation. Environmental issues associated withdifferent
sectors, andwhether other sectors expand orcontract asaresult ofagricultural expansion orcontraction.
Income
effectsWorld income increases astariffs arereduced, aseconomies specialize according tocomparative advantage.
Higher income mayhaveindirect effects onproduction technologies, domestic regulations, private property
rights, consumer choice, public policy choice, etc.
7. Another methodological consideration which isimportant inmeasuring therelationship between
theremoval oftrade restrictions andenvironmental quality isthelinkbetween theeconomic growth
engendered bythetrade liberalization andthepollution levels inthecountry inquestion. Oneview
isthatduring manufacturing expansion andgrowth inpercapita income, theabsolute levelofpollution
perunitofwealth increases uptoapoint andthendecreases. Thisisknown asaninverted U-shaped
curve oranenvironmental Kuznet 'scurve5,although various important qualifications haveemerged
withrespect toitsuse.Recent literature suggests thattheincome effects varygreatly depending on
environmental implications being considered (e.g.perunitoutput ofsulphur dioxide emissions versus
greenhouse gasemissions orbiodiversity preservation) andthatconclusions about theincome
growth-environmentaloutcomecorrelationisambiguousatbest.Somehavearguedthatpollutionperunit
5Thetoxicchemical intensity ofGDPusedinLucas, Wheeler andHettige (1992) andWheeler, Martin andStengren (1992) extrapolated
values foreachofthree pollution intensity variables from a1987 USEPA Toxic Release Inventory study of320toxic chemical pollutants
released intotheair,water andlandfrom15,000 factories. Toxic chemicals ontheTRIlistinclude organics, acids, metals, haloorganics,
nonmetallic inorganics andmixtures. Classified intoxicity ascarcinogens, ozone depleters orchloro-organics. Convention pollutants such
assuspended particulates, carbon dioxides, sulphur dioxides, were notincluded intheoriginal matrix based ontheTRI. SeeN.Birdsall
andD.Wheeler(1992),"TradePolicyandIndustrialPollutioninLatinAmerica:WherearethePollutionHarens?"inP.Low,ed.,International
TradeandtheEnvironment,WorldBank:Washington;R.Lucas,D.WheelerandH.Hettige(1992),"EconomicDevelopment,Environmental
Regulation andtheInternational Migration ofToxic Industrial Pollution: 1960-1988" inLow, Ibid. ThisNote includes dataonleather
tanning, textiles andclothing andnon-ferrous metals, eachofwhich exhibits veryhightoxicpollution levels relative toother manufacturing
sectors. According tooneindustry ranking ofperunitchemical toxicity, outof36industries surveyed, tanneries andleather isranked third,
textiles isranked seventh andnon-ferrous metals isranked ninth. Itisunclear whether non-manufacturing sectors -including resource-based
sectors likefisheries andforestry -arerelevant from theperspective oftheKuznet 'scurve. SeeG.Grossman andA.Krueger (1992),
"Environmental Impacts ofaNorth American TreeTrade Agreement", London: CEPR Discussion Paper 644;G.Grossman andA.Krueger
(1995), "Economic Growth andtheEnvironment", Quarterly Journal ofEconomics ,3(110).WT/CTE/W/67
Page61
ofoutput inmanufacturing (orpollution intensive sectors) continually increases withincome.6Some
studies havealsosuggested thattheratioofperunitoutput oftoxicpollution perunitofincome may
decline notbecause oftheintroduction ofcleaner production methods, butrather because ofanabsolute
shrinkage inthemanufacturing sector relative totheservices sector.7Italsoisunclear towhatextent
thecurve effect functions outside ofmanufacturing activities, asinthepast,income-pollution intensity
links haveconcentrated onmanufacturing.8
8. Because oftheintersectoral implications ofchanges intheenvironment, models havebeen
usedextensively inshowing, forexample, theeffects ofchanges inairquality, economic consequences
ofreducing carbon emissions, stratospheric ozone or(inrecent years) insynthesizing hundreds of
thousands ofdataconcerning climate. Models havealsobeenusedtomeasure different environmental
effects ofeconomy-wide policies, inparticular macroeconomic reforms, andinclude non-pricing or
institutional variables suchastheroleofprivate property rights inforestry management.9Among
thefindings ofthegeneral equilibrium modelling isthatgiven thedegree ofintersectoral linkages,
including indirect environmental side-effects ofchanges inbotheconomic andnon-economic variables
which affect theenvironment, optimal environmental policies should payparticular attention tothe
sequencingofliberalization.10Themodelsalsopointtotheimportanceofthespecificityoftheconditions
towhich theypertain. Inparticular, mostmodels arebased oncountry orregion-specific environmental
effects which cannot bereplicated inexamining environmental outcomes inother countries orregions.
6S.VanHijnberger (1992) "Discussants Comments toM.Lopez -TheEnvironment asaFactor ofProduction" inP.Low, op.cit.;
M.Rock (1996), "Pollution Intensity ofGDP andTrade Policy: CantheWorld Bank beWrong", World Development, Vol.24,No.3.
7J.Beghin andM.Potier (1997), "Effects ofTrade Liberalization ontheEnvironment intheManufacturing Sector", inTheWorld
Economy ,Vol.20,No.4.
8C.BrandonandR.Ramankutty(1993),TowardanEnvironmentalStrategyforAsia,WorldBankDiscussionPaperNo.224,WorldBank.
9Inthisregard, arecent World Bank report noted that"Currently, theeconomic analysis ofenvironmental issues relies mainly onproject
levelstudies, using cost-benefit analysis andenvironmental assessments. However, economy-wide policies (both macroeconomic andsectoral)
frequently havemuch more powerful economic effects thanmere project levelinvestments. Some progress hasbeenmade inidentifying
theenvironmental consequences ofsectoral policies involving, forexample, energy, water oragricultural pricing. Nevertheless, theimpacts
ofbroadmacroeconomicreforms(suchasexchangeratedevaluation,tradeliberalization,privatization,andotherfiscalandmonetarystabilization
policies) onnatural resources andpollution management arefarmore difficult totrace." Various models, generally CGE models, have
beendeveloped tocapture different sectoral linkages. Forexample, onemodel includes dataoneconomic activities affecting deforestation
inCosta Rica, which simulates theeffects ofintroducing property rights onforestry management, aswellasmarkets forlogsandcleared
land. A.Persson andM.Munasinghe (1997), "Natural Resource Management andEconomy-wide Policies inCosta Rica: AComputable
General Equilibrium Modelling Approach," inW.Cruzet.al.,ed.,TheGreening ofEconomic Policy Reform ,Washington: World Bank.
10SeealsoK.MalerandM.Munasinghe(1996),"MacroeconomicPolicies,Second-BestTheory,andtheEnvironment"inM.Munasinghe,
ed.,op.cit.;andL.Unemo (1996), "Environmental Impact ofGovernmental Policies andExternal Shocks inBotswana: CGE Modelling
Approach", inM.Munasinghe, op.cit.