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Global Environment

Harmonizing Environment and Trade Policies


The issue of environment and trade can be characterized as the question of how to make environmental conservation and promotion of free trade compatible in the present situation where national economies are increasingly interdependent and the solution of global environmental problems is an issue of international concern. The basic principle in coordinating environmental and trade policies should be the idea of "sustainable development," which has been firmly confirmed at the UNCED. In future, trade should aim at the optimal, not full, use of the world’s resources in order to ensure sustainable development.

The key to making environmental and trade policies mutually supportive is to make use of the market mechanism while reflecting environmental costs in the prices of goods and services (internalization of environmental costs) in promoting trade. In order to do so, appropriate environmental policies should be put in place. In this connection, it should be confirmed that each country has a right and the responsibility to design and implement appropriate environmental policies to conserve its environment taking into account its own socio-economic conditions, etc.

One important coordination issue between environment and trade is the validity of introducing trade restrictive measures for environmental purposes. In order to solve certain environmental problems, it is sometimes effective to use trade restrictions, although the introduction of unilateral trade restrictions to cope with extra-jurisdictional environmental problems is not desirable because it has the effect of imposing one country’s policies and judgements on other countries. When trade restriction measures are needed to address global environmental problems, efforts should be made to form a multilateral consensus. In such a case, it would be necessary to give special status to multilateral environmental agreements (MEAs) within trade rules, while deciding what constitutes legitimate MEAs, in such a manner that would enable legitimate MEAs to use trade measures against non-parties when necessary to secure the effectiveness of the agreement. In this connection, it is also necessary to discuss internationally how to effectively prevent and settle environmental disputes such as those caused transboundary pollution, etc.

PPM-related requirements, which are a type of product regulation based on the product’s processes and production methods (PPMs), are an important environmental policy instrument. At the same time, it is important to give special consideration to the content and operations of the system so that it -does not become unnecessarily trade-restrictive. When there is a need to introduce trade measures based on PPMs that do not affect physical characteristics of a product in order to cope with global environmental problems, those measures need to be placed in multilateral environmental agreements as a rule. Eco-labeling, packaging and recycling requirements also constitute important environmental policy instruments, but care should be taken in their implementation such as ensuring transparency.

On the other hand, the issue of "environment and trade" for developing countries has an aspect different from that for developed countries. In the least developed countries, it is necessary to promote economic development, While minimizing negative environmental impact in order to escape from the vicious cycle of population growth, poverty and environmental degradation. To that end, it would be necessary to promote free trade in a manner conductive to the economic development of those countries while extending assistance for them to get out of an industrial structure Where they are excessively dependent on commodity exports. For the more advanced developing countries, which are often confronted with various kinds of environmental problems at once. it is important to give assistance to them so that they can overcome a lack of institutional capacity to address environmental problems.

With a view to making environment and trade compatible in developing countries, it is up to developed countries to cooperate effectively with those countries so that they can take appropriate environmental policies in accordance with their respective developmental stages. Through the adoption of appropriate environmental policy in each country it would become possible to remove concerns expressed about possible "eco dumping" or "pollution havens." When introducing trade restriction measures within the framework of MEAs, it is desirable to include financial and technological assistance that would contribute to achieving sustainable development in developing countries.

When considering the issue of environment and trade,there is a need to give special -consideration to trade in agricultural and forestry products, in comparison with trade in industrial products, because agricultural and forestry products take into policy consideration environmental values associated with agriculture and forestry. In particular, Japan needs to base its policies on the environmental conservation functions of paddy field agriculture. Also, as the biggest importer of tropical timber, Japan should further promote cooperation aimed at establishing sustainable management of forests including tropical forests.

In order to expand the market for environmentally friendly products ("Green Market"), it is desirable to enhance public environmental awareness and to give assistance to efforts by the private sector. In addition, so that private firms may give appropriate consideration to the environment of receiving countries, especially developing countries, when making investments and conducting businesses and trade in those countries, governments should assist voluntary efforts by private firms through providing information, etc.

In the process in which Japan has achieved high economic development heavily dependent on trade, it has experienced and overcome severe industrial pollution. It is important for Japan, therefore, to make use of its experience when participating in international rule makings on environment and trade with a view to making environmental and trade policies mutually supportive.

First, Japan should actively participate in and contribute to discussions on "environment and trade" in relevant international fora such as WTO, CSD, OECD, UNEP, UNCTAD, UNDP, and ITTO.

Second, Japan should play a positive role in formulating multilateral environmental agreements to address global environmental problems.

Third, Japan should actively promote environmental cooperation with developing countries so that they can enhance their capacity for environmental conservation: In this context, consideration should be paid to the close relations between Japan and the countries in the Asia Pacific region.

Fourth, Japan should make special efforts toward APEC so that the environmental and trade policies can be made mutually supportive in this region as APEC promotes regional trade liberalization.

Fifth, in order to back up the above-mentioned efforts, it would be useful to conduct the following mainly empirical studies, especially focussing on the Asian region:

(i)The impact of environmental policies on the competitiveness of industries, etc., including analysis of positive impacts.
(ii)The policy mix of regulatory and economic instruments in the context of "environment and trade."
(iii)The relationship between environmental conservation functions of a agriculture and "environment and trade"
(iv)The relationship between sustainable forest management and trade.
(v)Cost-benefit analysis of policies pertaining to environment and trade.
(vi)The impact of economic instruments on international competitiveness as well as their adjustment mechanisms
(vii)The relationship between material and energy cycle and trade.

Discussion about the issue of environment and trade, a relatively new issue, is expected to continue in various fields. In order to respond to such a situation, the Japanese government must provide urgent assistance to relevant studies in the fields of international law and environmental economics. Also it is important to establish the institutional capacity to deal with international discussions in an appropriate manner by building close contact and exchange of opinions among relevant government agencies, research institutions, industries, non-governmental organizations (NGOs), and non-profit organizations (NPOs). To this end, the Environment Agency, which is in a position to design, implement and coordinate basic policies concerning the environment, should play a leading role. It is extremely important for the agency to follow up on this report.

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