Friday June 7,2002

The Business Standard

Western protectionism has become like the manifestation of Narayana in the Bhag-wad Gita: it comes in a thousand forms and the forms change continually. Possibly the most spectacular of these manifestations is the linking of trade with the environment.

The Doha Declaration has further deepened the relationship. It says that the multilateral trading system and efforts towards environmental protection and sustainable development “can and must” be mutually supportive.

The declaration also proposes the launch of negotiations on the relationship between WTO rules and trade obligations set out in Multilateral Environmental Agreements (MEAs). The developing countries are upset at the enlargement of the environmental window in the WTO.

The overall result of all this is a highly complex debate. Experience over the last decade shows that an important aspect of this debate is the problem of the enforcement of agreements and, therefore, the problem of what to do if compliance by the developing countries is absent or weak.

One school of thought believes in the sock-it-to-the-sods method, while another thinks that a softer approach has a better chance of succeeding. In a recent research report on multilateral environmental agreements and the issues and policy options concerning compliance and enforcement, Eric Neumayer* of the London School of Economics argues that the latter method is probably a better one: “Problems with compliance and enforcement in developing countries are likely to stem from insufficient capacity rather than wilful violations of MEA rules. As a consequence, the carrots approach is much more appropriate to deal with compliance and enforcement problems than the sticks approach.”

Since it is in the interests of the developed countries to teach the developing countries how to get the environment thing right, they must “step up the assistance for administrative, financial and technical capacity building in developing countries for achieving the goals of the MEA under negotiation and that the developing countries should insist on provisions similar to the ones contained in the Montreal Protocol in negotiating new agreements.”

However, he recognises that for political reasons this approach may not work. But, he adds, “there will often be no other way if one is serious about tackling non-compliance and non-enforcement”.

Indeed, he goes so far as to say that non-compliance with MEA rules in developing countries is a consequence of the non-compliance of developed countries with their commitment to provide adequate assistance to developing countries.

The paper contains a number of policy recommendations, some of which are summarised below.

1. The sticks approach employing trade measures is not suitable for tackling non-compliance and non-enforcement in MEAs. It
does not address the root causes of non-compliance and non-enforcement.

2. Increased use of trade measures could also clash with WTO rules, so WTO members should take into account the unsuitability
of trade measures for tackling non-compliance and the non-enforcement of MEAs in their negotiations.

3. Generous assistance provisions (the carrots approach) address the root cause of non-compliance and non-enforcement, which is
usually limited financial and managerial capacity.

4. The Montreal Protocol is the most successful MEA so far precisely because of its generous assistance provisions.

5. If policy makers and treaty negotiators want to seriously tackle non-compliance and non-enforcement, then they have to give
generous assistance provisions a more prominent role in MEAs.

6. Compliance and enforcement of MEA obligations by developing countries is possible only if developed countries comply with
their obligations to provide assistance.

7. Compliance and enforcement do not come cheap, but without generous assistance the call for greater compliance and
enforcement is merely cheap talk.

8. Developing country negotiators should insist on amendments to existing MEAs or in negotiations for new MEAs so that
generous assistance provisions are considered an integral part of the agreement.

In the final analysis, it seems hard to understand how the developing countries can be made to adhere to environmental standards without the injection of generous doses of technology at reasonable terms. There are two ways of doing this.

One is to hugely increase the flow of foreign direct investment (FDI), which usually brings in newer and cleaner technology. The other is to not insist on the same standards for goods produced in the developing countries as in the developed ones, provided the minimum norms are met.

On balance, the FDI route is a better one because it would also simultaneously lead to higher growth in the developing countries. But that solution takes the debate into another arcane area of the WTO: of investment policy and trade-related investment.

In short, it is a very beastly can of worms which only trade fundamentalists will try to open or clean.