Integrating Environmental Protection into the Global Economy

The concept of sustainable development requires the integration of environmental concerns into the fields of international trade, investment, and finance. Since the Earth Summit, environmentalists have made significant advances. Environmental issues are now legitimate concerns for discussion at such organizations as the World Bank and the WTO. Indeed most of the international financial institutions, e.g., the World Bank, have adopted new environmental policies and increased their environmental staffs. Even the IMF has created an environmental unit (albeit thus far with only one person).

Despite these policy and staffing advances, the successful practical integration of the environment and the global economy lags far behind. The approach of the international financial institutions (IFIs) continues to emphasize mitigating environmental impacts from poorly designed and inappropriate projects, rather than finding ways to proactively promote environmentally sustainable development. More importantly, the IFIs and trade institutions have not fundamentally reconsidered their general approach to building a global economy in light of the constraints implied by the concept of sustainable development. As a result, these institutions have failed to reduce significantly their adverse impact on the global environment.

Global Financial Architecture and the Environment. In light of the role that foreign capital flight played in precipitating the Asian and Russian economic crises, an increasing number of people have begun to question the dominant global economic prescription offered by the IMF and the World Bank. This prescription has long been promoted by the U.S. Department of Treasury as a critical component of U.S. foreign economic policy aimed primarily at maintaining stability on Wall Street by protecting foreign (i.e. U.S.) capital investments in developing countries. As these capital investments have increasingly become short-term and speculative, the social utility of protecting capital flows is increasingly questionable. Speculative, "hot flows" of capital are not intended for long-term productive investments. Protecting the rights of countries to impose capital controls, particularly on short-term investments, may be critical for ensuring both long-term stability and increased benefits from natural resources for local people.

Over the past decade, environmentalists have also shown that the IFIs frequently saddle developing countries with loan conditions that increase the pressures on natural resource exploitation with devastating environmental consequences. Among other things, these structural adjustment policies (SAPs) significantly increase the rate of forest harvesting, mining, and fishery harvests. While these SAPs are increasing natural resource exploitation, many governments are also being directed to reduce public spending, including funds for environmental protection and natural resource management.

To make matters worse, large structural adjustment loan packages heap additional debt onto already heavily indebted countries. Due in large part to civil society pressure in the past few years, some limited debt relief may be on the way for the world’s poorest countries. But the United States must take a much greater leadership role in prodding the World Bank and the IMF to make broader and deeper cuts in developing country debt. Such a step could help alleviate the pressures on low-income countries to exploit their environments in order to service their foreign debts.

Greening International Trade. Shortly after the 1992 Earth Summit, the United States, Canada, and Mexico signed the North American Free Trade Agreement (NAFTA). Negotiated by the outgoing Bush administration, NAFTA originally avoided addressing the environmental or labor aspects of free trade. Pressure from environmentalists ultimately led to negotiation of an environmental side agreement, which ostensibly reflected the Clinton administration’s increased commitment to integrating the goals of environmental protection and trade liberalization. Following closely on NAFTA, the Clinton administration also promised to green the WTO in a 1993 speech by Vice President Al Gore. Unfortunately, this would later prove to be the high-water mark of the Clinton administration’s commitment to integrating trade and the environment.

Despite occasional promises to the contrary, free trade has become the paramount value driving most U.S. international relations under the Clinton administration. Lost is the balanced goal of integrating environment and trade as pronounced at the Earth Summit and subsequently in the environmental side agreement to NAFTA. A case in point is the administration’s effort to railroad the so-called fast-track trade bill through Congress in 1997. The president’s proposal largely ignored environmental issues and was thus universally opposed by all environmental groups (even those who had previously supported NAFTA). Nor has the United States shown any leadership in promoting sound environmental policies at the WTO. Although the WTO did create a Committee on Trade and the Environment shortly after Vice President Gore’s 1993 speech, that committee has been largely ineffectual in catalyzing any meaningful trade and environment policy.

Ultimately, the problem may be that liberalizing trade and investment is too often viewed as a positive goal in its own right. Lost is any critical analysis of whether such liberalization always leads to improvements in human welfare and quality of life. Goals such as environmental protection, human rights, and social equity—which are arguably more closely linked to human welfare than is liberalized trade—have been relegated to the back seat during the drive toward free trade. Only by honestly evaluating the environmental and social impact of liberalizing trade and investment, sector by sector, can we determine whether expansion or contraction of the world trade system is more likely to lead to a sustainable future. Thus the United States should support calls by environmentalists for a thorough analysis of the impacts of current trade policies on environmental sustainability before supporting any expansion of liberalized trade and investment policies.

Average Births per Woman (late 1990s) Source: Population Action International (citing United Nations statistics), Fact Sheet, no. 7, 1998.

Respecting Global Environment Agreements. IFIs and trade institutions also need to do a better job of mainstreaming concerns about the environment into their day-to-day operations. This general issue is highlighted by the way in which these institutions relate to the multilateral environmental agreements (for example, the climate change regime or the Montreal Protocol with respect to ozone depletion). The IFIs have yet to prohibit funding projects that exacerbate the very same problems that these global environmental regimes are meant to address.

The U.S. Overseas Private Investment Corporation (OPIC) has recently adopted a hopeful approach, announcing that it would not finance any projects that are inconsistent with certain international environmental obligations—for example, projects that use ozone-depleting substances controlled by the Montreal Protocol, projects that manufacture certain toxic chemicals, or projects affecting sites listed under the UNESCO World Heritage Convention. Yet OPIC continues to finance projects that have a significant negative impact on the climate system. Similarly, the WTO still struggles with how to dovetail international trade law with international environmental agreements—although in a recent decision, a WTO dispute panel did agree that international environmental agreements should be taken into account when deciding an international trade dispute.

Balancing Investment Rights with Privileges. In promoting broad investment agreements, such as the proposed Multilateral Agreement on Investment (MAI), the United States and other Organization for Economic Cooperation and Development (OECD) countries are trying to formalize into international law a reduction in the power of national and local governments to control the environmental and social impacts of foreign investment. Adoption of "free trade" in investment capital would mean that companies would enjoy all of the benefits of free capital flow and repatriation of profits while accepting none of the environmental and social responsibility inherent in the goal of sustainable development. Sovereign nations should be able to retain the right to regulate how foreign investors operate in their territory and to determine the extent to which local people should be given preferential treatment with respect to local resources. Although this may in some cases lead to reduced environmental protection, ensuring that local people benefit from natural resource exploitation is not only fair but, in the long run, will likely lead to more sustainable development.

Although transnational corporations often operate in developing countries with higher environmental standards than do local companies, transnationals typically follow lower standards than they practice at home. Adhering to lower standards in developing countries raises serious questions of equity and competitiveness. To minimize the impact of lower standards abroad, the United States should ban the export of domestically prohibited technologies and goods and should impose minimum environmental standards on U.S. corporations operating abroad. The United States should also provide fair and equal judicial access to foreign citizens and communities harmed by environmental damage caused by U.S. corporate activities.

Greening Technology Transfers. The markets for environmental investments are large and increasing; for example, investments for global pollution control are expected to reach $300-600 billion per year by 2000; investments in energy efficiency projects are expected to total another $250 billion in the next 20 years. Many of these opportunities for environmental investments are being created or stimulated by international and domestic law. For example, the Kyoto Protocol under the climate change regime now requires a reduction in net greenhouse gas emissions in industrial countries, which may in turn create a massive new market for renewable and efficient energy technologies. Transferring these green technologies to developing countries should be a priority of both U.S. and international finance lending. Such lending should be earmarked for shifting societies to appropriate, nonpolluting technologies and not simply for improving the efficiencies of fundamentally unsustainable technologies, such as coal-fired power plants or nuclear reactors.

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Title/Contents | Promise of Rio | U.S. Leadership | Policy Gaps | Major Treaties | Law Principles | UN Architecture
Integrating Protection | Emphasizing Individuals | Conclusion | Reference Notes | Environment Packet

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