TED Case Studies

Rio Trade Implications

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          CASE NUMBER:         122 
          CASE NAME:          Rio Trade Implications


1.        The Issue

     The UN Conference on Environment and Development (UNCED) in
Rio de Janeiro, June 1992, mobilized more than 100 world leaders
for a special round-table summit, with 178 governments
represented in all.  It brought out five separate agreements
signed by most of the participating nations, which includes two
legal binding conventions and three non-treaty agreements.  The
agreements covered wide range of issues.  The case here intends
to focus on Agenda 21 and the associated cost of implementation. 
It will also address some of the recent UNCED follow-up
activities undertaken in the General Agreement on Tariffs and
Trade (GATT).  It will capture sparingly the issues of other
agreements in the area associated with trade and environment and
update some of these Rio initiatives such as climate change and
biodiversity, migratory fish stock, desertification, forests, and
hazardous wastes within the context of the case structure. 

2.        Description

     The emerging importance of environmental concerns to
international security emphasized at the United Nations Security
Council in January 1992 brought on the international forum in Rio
de Janeiro for UNCED in June 4-14 1992.  The Rio event was also
built on the 1972 Stockholm conference with primitive knowledge
of environmental pollution control and little consensus and
understanding between industrial countries and developing
nations.  This "truly historic gathering" approved the giant
Agenda 21, intended as a blueprint for a sustainable future, a
statement of forest principles, the Rio Declaration, and two
treaty conventions: Framework Convention on Climate Change and
Convention on Biological Diversity (see BIODIV case).

     Agenda 21 touched on the broad issues of environmental,
trade, and cost-benefit relations.  For example, Chapter 2
brought out the issue of "an open, equitable, secure, non-discriminatory and predictable multilateral trading system". 
Tariff and non-tariff barriers should be removed to allow
developing countries access to markets for their export goods,
opportunities can be seen particularly for agricultural products. 
Declining commodity prices have reduced export earnings.  In the
future, developing countries should be assisted in adopting
appropriate commodity policies, and international agreements for
commodity markets are supported.  Diversification of export
markets should be strengthened and the efforts of the Uruguay
Round of the GATT talks on trade liberalization are addressed.

     By enhancing competition and a more efficient use of
resources, open international trade is considered as supportive
to environmental protection.  National and international
environmental policies "should address the root causes of
environmental degradation so as not to result in unjustified
restrictions on trade."  Trade and environment should be made
"mutually supportive" and the role of multilateral fora such as
GATT, UNCTAD, etc. in dealing with trade and environment should
be clarified.  

     Adequate financial resources should be provided to
developing countries.  Investment should be enhanced to achieve
economic growth and to fulfil basic needs, but favorable
conditions for private foreign investment are required.  The
indebtedness of developing countries and their heavy repayment
burdens undermined their own development activities, so debt
reduction schemes are needed.  Additional funding for developing
countries is needed and the efficient use of such resources are

     Macroeconomic policies and management practices are to be
reformed to promote efficient planning and utilization of
resources for sustainable development.  It is important to ensure
that structural adjustment programs do not have negative impacts
on the environment and social development.  Fiscal policies in
all countries need to be disciplinary.  A "balance between
production for domestic and export earnings" should be promoted,
while export earnings should be improved and import substitution

     This chapter presents something of a "wish list" on some of
the most complex and long-standing difficulties underlying the
North-South divide.  It has a strong commitment to a free
international trading system, which extends substantially the
difficulties on protecting the  environment.  The follow-up GATT
Uruguay Round negotiations at the recent UN Commission
particularly focuses on this chapter of Agenda 21, which states,
"the international community should...strengthen the
international trade policies system through an early, balanced,
comprehensive and successful outcome of the Uruguay Round of
multilateral trade negotiations."  The Commission tries to
harmonize the GATT's provisions and regulations with the UNCED
standards.  It also attempts to bring in World Trade Organization
(WTO) to justify some of the rules and to seek some other
necessary funding mechanisms.  Whether it is going to work or not
needs time to approve.

     Chapter 8 emphasizes appropriate integrated environmental
and economic accounting to include "the incorporation of
environmental costs in the decisions of producers and consumers,
to reverse the tendency to treat the environment as a free good
and to pass these costs on to other parts of society, other
countries, or to future generations."  Thus, prices should
reflect the relative scarcity and total value of resources and
help prevent environmental degradation.  The environment has yet
to be included in economic accounting.  International cooperation
and standardization of these accounting systems should be
enhanced.  At national level, the collection of relevant data
should be improved and these accounting methods should be
introduced and established.

     This chapter stresses the need for effective policy dialogue
and better economic-environmental indicators, and for a balance
between regulatory and market instruments for promoting
environmental goals.  It reflects a strong move towards
consideration of economic instruments for environmental policy. 
The recent UNCED follow-up activities emphasized environmental
measures and international trade associated with GATT principles
and provisions, such as the issues of multilateral transparency
of national environmental regulations likely to have trade
effects, and the trade effects of new packaging and labeling
requirements aimed at protecting the environment.

     Some UNCED follow-up work include clarifying the trade
effects of processes and production methods-based environmental
measures and exploring their link to the GATT concept of "like
product"; examining the potential trade effects of economic
instruments such as environmental taxes and subsidies; and the
impact of environmental protection on competitiveness.  It was
broadly recognized that the existing GATT rules in favor of
developing countries, in particular Article XVIII and Part IV,
were relevant to the concepts of sustainable development,
environment and trade.  However, it was felt to be not yet clear
whether the existing rules were sufficient and needed simply to
be interpreted in order to cover environmental issues, or whether
it was necessary to adopt new provisions which would also
incorporate the environment dimension.

     Protection of the Earth's atmosphere in chapter 9 involves
a variety of environmental issues (see MONTREAL case). 
International agreements on ozone depletion and climate change
are recognized.  To promote sustainable development with regard
to air pollution and greenhouse gas emissions, energy,
transportation, industry and terrestrial and marine resources are
addressed.  The convention on Long-range Transboundary Air
Pollution and its programs are supported (see ECCO2 case).

     This chapter of the agreement has proven highly
controversial.  The central disputes concerned energy.  The Arab
group led by Saudi Arabia and Kuwait strongly opposed text
supporting the promotion of energy efficiency and renewable
energy.  The recent follow-up meeting on UNCED climate change
convention, which become legally binding on March 21 1994 and has
been ratified by 71 countries, further delayed the resolution of
the issue till next year.

     The forest chapter, which forms a general and more coherent
backdrop to the Forest Principles, was mainly agreed before Rio. 
The cross-reference to the Forest Principles was renegotiated at
Rio.  Progress on forests has been taken in two joint
initiatives: one sponsored by Canada and Malaysia; the other by
the United Kingdom and India.  Both are designed to prepare for
the Commission's 1995 review of forest-related commitments made
in Rio. 

     Chapters 15 and 16 of Agenda 21 stress conservation of
biological diversity and environmentally sound management of
biotechnology.  These chapters were controversial and awaiting
the final decision of the Biodiversity Convention negotiations. 
Given the political tension surrounding the U.S. refusal to sign
the Convention due to the U.S. benefit from biotechnological
development, national registration of biological resources, and
technology transfer, negotiations on the chapters got off a slow
start.  The Convention finally came into force on December 29,
1993 and has been ratified by 52 countries.  However, because of
the difficulty of working out the details, further sessions were
held at the intergovernmental level.  The most recent one was in
Nairobi from June 20 to July 1, 1994.  

     Chapters 17 through 22 emphasize the environmentally sound
management of sink problems such protection of the oceans,
freshwater resources, toxic chemicals, hazardous, solid, and
radioactive wastes, and sewage-related issues.  In March 1994,
the Basel Convention completely banned the export of hazardous
wastes from OECD to non-OECD countries (see BASEL case).  This
decision, which not directly following from the Earth Summit,
will undoubtedly have impact on the recent Commission's
discussion of toxic chemicals and hazardous wastes.  The first
phase of the ban effects immediately; exports for recycling or
recovery must cease by the end of 1997.

     One of the main concerns is the cost of implementing the
agenda set at UNCED and the sources of funding.  The estimated
annual costs (1993-2000) of implementing the activities in Agenda
21 in developing countries are over US$600 billion, including
US$125 billion in international grants or concessional financing,
which roughly equates to the UN goal for Overseas Development
Assistance (ODA) of 0.7 percent of GNP from industrial
countries.  The recent UN Commission on Earth Summit finds slow
progress in terms of funding for Agenda 21 and will investigate
alternative funding mechanism.  The Commission decided to reach
beyond traditional official funding channels to work with the
Bretton Woods institutions, the newly-formed UN World Trade
Organization and the private sector to promote sustainable
development through sound economic policies and favorable
international economic conditions.  The Commission directed its
intercessional working group on finance to explore innovative
methods of raising funds, including taxes on air tickets and
pollution emissions, and the use of tradeable permits. 

     So far, over $2 billion has been pledged to replenish the
Global Environment Facility (GEF), which is a joint project of
the World Bank, the UN Development Program (UNDP), and the UN
Environment Program.  Pledges to Capacity 21 -- a UNDP initiative
to assist developing countries in implementing Agenda 21 have
reached US$30 million, which is still far away from the goal.

     The Rio agreements set the initiatives to bring the two
contending issues together: environmental protection and economic
growth.  The follow-up meeting held in this summer formed a
Commission to monitor agreements adopted at the UNCED and
harmonize the GATT rules with the Agenda 21 provisions.  The
Commission found that liberalized trade policies could contribute
to sustainable development but effective environmental protection
efforts were also essential to ensure a safe and healthy
environment.  It will seek to be represented on WTO's Committee
on Trade and Environment and will review annually developments in
trade and environment to identify gaps and promote coordination
on this issue.  It seems obvious that the problems regarding
detailed projections and sources of funding for Agenda 21 will be
continuing in the future. 

3.        Related Cases

ECCO2 Case

     Keyword Clusters
     (1): Trade Product            = MANY
     (2): Bio-geography            = GLOBAL
     (3): Environmental Problem    = MANY

4.        Draft Author:  Z. Zhen Brayman

B.        LEGAL Cluster

5.        Discourse and Status:  AGReement and INPROgress

     Although the Rio agreements reached a certain degree of
consensus, it reflected wide range of controversies concerning
specific policies and measures to be taken.  The detailed
projections, such as conventions on climate change and
biodiversity, UN Conference on straddling and highly migratory
fish stocks, conventions on desertification, forest principles,
and finance, are still in progress.  Finance issues, in
particular, will be a long-term continuing feature of the
negotiating landscape.  It also remains to be seen whether the
promised funds will be forthcoming.

6.        Forum and Scope:  UN and MULTILATERAL 

7.        Decision Breadth:  178 

8.        Legal Standing:  TREATY

     It includes two legally binding conventions -- the
Biodiversity Convention signed by 155 states plus the EC and the
Framework Convention on Climate Change signed by 153 states plus
the EC at Rio.  The former came to force on December 29, 1993 and
has been ratified by 52 countries; the latter became effective on
March 21 1994 and has been ratified by 71 countries. 

C.        GEOGRAPHIC Clusters 

9.        Geographic Locations

     a.   Continental Domain:      GLOBAL
     b.   Geographic Site:         GLOBAL
     c.   Geographic Impact:       GLOBAL

10.       Sub-National Factors: NO

11.       Type of Habitat:    GLOBAL

     The agreements on the climate, which aims to prevent global
warming and climate change, and the biodiversity protection,
designed to prevent further loss of species, and the Statement of
Principles on Forests in favor of a set of principles on the
sustainable management of all types of forest, from temperate-zone to tropical forests, involve various climatic regions and
modifications.  In degraded areas, forests should be
rehabilitated.  Research on forest pollution, genetic resources,
indigenous knowledge and forest inventories has been undertaken. 
Chapter 11 of Agenda 21 stresses cooperation on trans-boundary
air pollution and information exchange.  Chapter 15 emphasizes
that national strategies for the conservation of biological
diversity and the sustainable use of biological resources should
be developed and integrated into national development plans.

     The conference also touched on the ocean issue and reached
on an uneasy compromise on the conservation of whales and other
cetaceans and a number of other contentious issues.  The
straddling and migratory fish stocks is left unresolved.  Three
substantive sessions were held, in August 1993, and March and
August 1994, to address the serious problem of international
tensions over high-seas fishing and depletion of fish stocks
worldwide.  The economic stakes are high, national sovereignty
has been challenged, and progress has been slow so far. 

D.        TRADE Clusters

12.       Type of Measure:  MANY

     In the discussions on UNCED follow-up Commission on
environment measures and international trade, the agenda
comprised of three issues: (I) trade provisions contained in
existing multilateral environmental agreements vis-a-vis GATT
principles and provisions; (ii) multilateral transparency of
national environmental regulations likely to have trade effects;
and (iii) trade effects of new packaging and labeling
requirements aimed at protecting the environment.  New areas of
trade will be covered by the rules of the World Trade
Organization.  The implementation of these measures are mainly
stressed at the national and industry level.  The funding also
comes from grant or concessional requirements from developed

13.       Direct vs. Indirect Impacts:  INDirect

     The agreements including both legally binding and non-binding conventions emphasize environmental protection and
sustainable development that touched on international trade
measures and related costs.  Some specific mandates, such as the
conventions on biodiversity and climate change and the Statement
of Principles on Forests, have significant impact on future trade
patterns.  Further, the related trade and environment regulations
imposed by GATT and UNCED will inevitably increase related
imports and exports prices. 

14.       Relation of Measure to Environmental Impact

     a.   Directly Related:   YES  MANY
     b.   Indirectly Related: YES  MANY
     c.   Not Related:        NO 
     d.   Related to Process: YES  MANY

     The conference touched on wide range of issues within which
some of them are directly related to certain products.  For
instance, the Convention on Biological Diversity directly related
to products such as research and development of biological and
genetic resources and technology transfer.  Moreover, the
products related to the ban on the Basel Convention mentioned
above also have tremendous impact on trade patterns.

     The agreements have indirect relations to certain trade
activities and substances.  For instance, the regulations on
protection of the quality and supply of freshwater resources
imply that certain activities can not be conducted against the
regulations, and these activities are related to certain
production such as oil drilling in certain ocean areas.

     The consensus reached at the Rio conference focusing on
global understanding and action toward sustainable development
has significant impact on the process of trade patterns between
nations under the restrictions of distribution and consumption of
natural resources and pollution reductions.  The costs of related
industries, for example, will be shown in the process of their
inputs and outputs.

15.       Trade Product Identification:  MANY

16.       Economic Data

     To many negotiators and commentators involved in the UNCED
process, financial issues were of absolute importance.  The
finding at the recent UN Commission on sustainable development on
May 31 1994 indicates that action for sustainable development had
been hindered by a lack of finance.  Debates over the control and
indicative levels of finance, especially that provided for
developing countries from the developed economies, formed some of
the most heated and protracted debates in negotiation of both the
Conventions and of Agenda 21.

     The UNCED agreements clarified the GEF as the interim
funding mechanism for the Conventions.  Few governments announced
specific figures concerning GEF or other means of funding.  Those
that did included:

     o  UK: commitment to play its part in the replenishment of
     the GEF to the tune of about US $2 billion.  This works out
     to about $100 million for the UK.
     o  Germany: commitment to play its part in the replenishment
     of the GEF to the tune of about US $2-3 billion.
     o  Japan: led the field with a declaration that environment
     related ODA for its next five-year cycle would be in the
     range of $7-7.7 billion.
     o  US: announced specific funding of US $150 million for
     protection of forests.
     o  Canada: announced specific funding of US $113
     million for protection of forests.

     It was pronounced by the recent UN meeting to monitor Rio
agreements in May 1994 that over US$2 billion has been pledged to
replenish the GEF, which is a joint project of the World Bank,
the UN Development Program (UNDP), and the UN Environment
Program.  While some developing countries are taking a "wait-and-see" approach to the changes, the GEF will now finance local
activities, such as desertification prevention projects, as they
relate to its mandated funding areas -- protection of the ozone
layer, biodiversity, climate change and pollution of
international waters.

     Financing for Agenda 21 was a key issue.  For developing
countries and China, an increase in levels of official
development assistance (ODA), which now runs about $50 billion
per year, will be necessary.  Until the international economic
climate improves there is unlikely to be an increase in ODA
funding in the near future. 

     The Secretariat of Conference provided estimates of the
costs associated with each program area.  In a few areas, such as
population and water, detailed estimates had already been agreed
in international fora and could be incorporated.  In some areas,
the estimates were based on detailed commissioned studies.  For
many areas, however, the Secretariat had to make crude estimates
based simply upon discussion and general principles relating to
the scale of different sectors and order of magnitude estimates
of the additional costs which Agenda 21 activities might incur. 
The following table presents the estimated total average annual
cost for implementing Agenda 21 programs intentionally selected
by targeting on environment and trade areas.  As mentioned
before, so far a UNDP initiative to assist developing countries
in implementing the agenda, mostly by integrating environment
concerns into national development strategies, have only reached
US$30 million.  Appendix 1 shows the estimated total average
annual cost for implementing Agenda 21 programs.

17.       Degree of Measure on Trade Competitiveness: HIGH

     Within Agenda 21's projections, $50 billion is supposed to
come from the industrialized countries with the balance to be
made up of existing international commitments and developing
country's resources.  The G-77 had demanded the 0.7 percent of
GNP target for ODA as part of the finances package.  Other
funding would come from international institutions such as the
World Bank.  The sources of the funds from developed countries
have great implication for the price pattern of the business
world in the economy.  Whether it is going to be an adjustment of
fiscal policy for increasing taxes or a rise of interest rates to
attract foreign investment will affect the price of imports and
exports as a whole.

     On broader issues of regulatory policy towards the
environment which affects business behavior and trade, the UNCED
texts emphasize environmental costs and benefits to be included
into market forces.  The agreements contain references to
economic instruments, encouraging governments to examine and
consider their use, and calls for "environmental pricing" which
reflects environmental impacts and resource depletion.  The need
for freer international trade was also reiterated, with
expression of concern that environmental measures should not
impede trade.  This contradictory approach would not offset the
constraints on businesses.  Further, it would naturally make the
environmental work more difficult to handle in a fairly
liberalized trade regime.  Some of the most environmentally
conscious companies have started to stress that there are limits
to how far "self regulation" can proceed before it starts to
affect companies' competitive position.  In this respect it is
unreasonable to expect companies to do more unless their
competitors are required to do so as well.  The clarification and
implementation of the words at Rio thus face serious conflicts,
as illustrated by the fierce industrial opposition to proposals
for implementing environmental pricing in the form of carbon or
other taxation.  The subsidiary bodies of the conference has been
trying hard negotiating with GATT contracting parties aiming to
harmonize the regulations and provisions between GATT and Agenda

     The burden on developing countries is even greater in terms
of costs.  The governments of signatory countries will reinforce
new environmental laws and regulations within their agenda, which
will affect businesses and industries producing environmentally
damaging goods and processes, such as the Basel Convention.  The
need for reducing that damage will increase the costs of related
goods and services.  The cost of implementing Agenda 21 for
developing countries as it shows at the above statement and the
table will be transferred into the markets that will directly
affect the prices of producers who will hand over to consumers. 

18.       Industry Sector:  MANY

19.       Exporters and Importers:  MANY and MANY

E.        ENVIRONMENT Clusters

20.       Environmental Problem Type:  MANY

21.       Name, Type, and Diversity of Species

     Name:          MANY
     Type:          MANY
     Diversity:     NA

     Chapter 17 in Agenda 21 touched on the issue of protection
of the oceans, all kinds of seas, including enclosed and semi-enclosed seas, and coastal areas.  It emphasizes rational use and
development of their living resources.  Further, concerns about
the rapid and accelerating loss of species led to negotiation of
a convention aimed at conserving global biodiversity (Convention
on Biological Diversity).

22.       Impact and Effect: HIGH and MANY 

     The conference projected wide range of the types of
environmental degradation such as deforestation, CO2 emissions,
and Ozone depletion on the planet earth, and the impact of both
sink and source problems is high on a global scale.

     Although foreshadowing the conflict between the mandates of
UNCED and GATT, both Agenda 21 and Rio Declaration touched on the
effects of product (e.g. technological transfer and ban on
exports of toxic chemicals and hazardous wastes), scale (e.g.
transportation), structure, such as the impact of the consumption
patterns on the global environment and restrictions of allocation
and distribution of resources as well as industrial activities
that cause severe environmental degradation, regulations, such as
stressing specific regulatory standards for protection and trade
provisions in environment agreements.

23.       Urgency and Lifetime: HIGH and 100s of Years

24.       Substitutes:  MANY

F.        OTHER Factors

25.       Culture:  NO 

26.       Trans-Boundary Issues:  YES

     The nature of the conference touched on the trans-boundary
issues in terms of environment and development in the world as a
whole.  Particular instances were raised in the area of
technology transfer and cooperation between developed and
developing nations, comprehensive strategies on marine pollution
and integrated coastal zone management and migratory fish stocks,
finances, etc.  Disputes were emerged such as the biodiversity
issue with the disagreement of the equitable sharing of benefits
derived from research and development of biological and genetic
resources, rights of countries of origin to benefit from
biotechnological development, national registration of biological
resources, and technology transfer.

27.  Rights: YES

     The conference touched on the human rights issue on several
occasions.  It is particularly exemplified in the Statement of
Principles on Forests with emphasis on local communities and
right to development and environment as a whole.  In principle,
the Rio conference was intended to work towards international
agreements with respect to indigenous people and their
communities as well as other local communities who have a vital
role in environmental management and development.

28.       Relevant Literature

"Earth at the Mercy of National Interests".  New Scientist.
     134/826.  June 20, 1992.
"Earth Summit Approves Agenda 21, Rio Declaration",
     UN Chronicle 29/3, September, 1992.
"Failure at the Earth Summit".  Science 256/5060.  May 22, 1992.
Grubb, Michael, The 'Earth Summit' Agreements: a Guide and
     Assessment, an Analysis of the Rio '92 UN Conference on
     Environment and Development, Earthscan Publications
     Ltd., 1993.
International Environment Reporter, The Bureau of National
     Affairs, Inc., Washington, DC, February 9, 1994, Vo.
     17, No.   3.
Kaplan, Robert D., "The Coming Anarchy", The Atlantic Monthly,
     March 1994.
Matthews, Jessica, "Redefining Security", Foreign Affairs 68/2.
     Spring,1989), Council of Foreign Relations, Inc..
"Rio Declaration on Environment and Development, U.S. Department
     of State Dispatch, 3/4.  July, 1992.
Sands, Philippe, "Enforcing Environmental Security", Journal of
International Affairs 3.  July, 1992.
Speth, James G., "A Post-Rio Compact", Foreign Policy 88.
     Fall, 1992.
Sitarz, Dan, Agenda 21: the Earth Summit strategy to save our
     Planet, United Nations Conference on Environment and
     Development, Boulder, Co.: EarthPress, 1993.
United Nations Dept. of Public Information, "Sustaining the      Future", Press Release, May 31, 1994.
United Nations, Economic and Social Council, "Sustainable
     Development", April 8, 1994.
Valentine, Mark, "Twelve Days of UNCED", U.S. Citizens Network,
     Tides Foundation, July 2, 1992.

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1/11/97 Appendix 1 Agenda 21 Costs by Sector Selected Program Area Developing country cost ($m) Concessions ($m) International trade and national economic policies a. trade liberalization b. trade and environment mutually supportive c. financial resources to developing countries and debt d. national economic policies 8,800 - 0.7%GNP Environmental pollution and hazards Human settlement a. environmental infrastructure b. energy and transport systems c. construction industry 3,000 ch9 50 115 50 ch9 Atmosphere a. energy, transportation, industry, terrestrial and marine resources b. trans-boundary atmospheric pollution 40,000 40,000 20,000 Deforestation a. multiple roles and functions of forests b. protection and conservation c. forestry goods and services 2,500 10,000 160-590 860 3,700 Conservation and biological diversity Biotechnology a. food and raw materials b. human health c. environmental protection d. safety and international cooperation 18,000 3,500 5,000 14,000 1,000 880 1,750 50 130 10 Protection of oceans a. coastal areas b. marine environmental protection c. marine living resources of high seas d. marine living resources in EEZ 6,000 2 50 200 12 Freshwater a. integrated water resources development b. water resources assessment c. water resources protection d. drinking water e. urban water f. rural water 6,000 355 1,000 20,000 20,000 60 115 145 340 7,400 4,500 Solid waste a. recycling b. disposal and treatment c. extended coverage 13,200 15,000 7,500 4,500 850 3,400 Technology transfer Education, public awareness and training Information and capacity building 15,200 2,600 450-600 6,610