Is APEC environmentally friendly?
Is APEC environmentally friendly?
By Lyuba Zarsky
This is the first of two articles on free trade and environmental standards under APEC-proposed liberalizations.
BANGKOK: The Asia Pacific Economic Cooperation forum (APEC) has emerged as Asia-Pacific's overarching regional institutions. APEC's eighteen members span East Asia, Australia and the Western Hemisphere. Focussed primarily on economic cooperation, the heart of APEC's diplomatic agenda is the creation of a region-wide, liberal trade and investment regime.
The relationship between trade liberalization, economic growth and the environment in Asia-Pacific has not yet been charted. Conceptual frameworks and evidence from other regions suggest that economic integration generates specific pressures on national environmental policy-making -- and the environment -- which create new demands for regional environmental governance. Given its pivotal institutional role, APEC will be the arena in which a trade-environment policy agenda will be debated and formulated over the coming years.
APEC encompasses one of the most highly integrated economic regions in the world. Nearly 70 percent of total APEC trade is intra-regional, much of it between East Asia and North America and between Southeast Asia and Japan. The sub-region of East Asia, which excludes APEC's North and South American and Australasian members, is also highly integrated. About 45 percent of total East Asian trade is with other East Asian countries.
Total trade statistics mask the importance of economic size and do not measure a "bias factor," viz, the tendency for countries to favor particular trade partners. Another measure of trade interdependence, the gravity model, adjust for size by dividing the share of two-way trade by the partner's share in world trade. Under a gravity model, the intensity of regional trade in East Asia outstrips the intensity of Pacific region trade by some 25 percent. Indeed, the intensity of East Asian trade is the highest in the world.
Economic integration within East Asia, as well as, on a trans- Pacific basis, is also evident in rising foreign direct investment (FDI). Between 1988 and 1992, the stock of FDI in East Asia grew by nearly 22 percent. Investors from North America and Japan, as well as the new capital exporters of Hong Kong, Taiwan and South Korea have targeted Southeast Asia and China as growth poles.
Spurred by market opening in China, Russia and potentially North Korea, economic integration within Northeast Asia is likely to grow rapidly in the coming decade. Rent by ideological and military divides for 50 years, Northeast Asian trade has been skewed away from the high level of integration that has emerged in other regions where borders are friendly. With the end of the Cold War and increasing economic openness, trade and investment flows within the region are predicted to boom. According to one estimate, the value of trade flows within the Northeast Asian region will more than double by 2000 and triple by 2010.
Rapid growth, fueled largely by foreign investment and trade openness, has made East Asia the economic success story of the world. Economic success, however, has come at the expense of severe and rising ecological degradation, including the pollution of water and air systems, rapid depletion of resources including forests, wetlands and fisheries, and loss of flora and fauna. Ecological degradation will impose large financial costs in Asia- Pacific and globally. Moreover, some losses in ecosystem goods and services may be irreversible.
The ecological costs of environmentally unconstrained, export- oriented economic growth are not limited to the rapidly industrializing developing countries of APEC. In Canada, unsustained management, including inappropriate pricing, undermines forest sustainability. In California, water subsidies promote water-intensive crops in arid areas, with negative impacts on water salinity, soil micro-organisms, and flora and fauna. In Australia, farming and grazing practices in some states generate soil erosion and decline of water tables.
Is economic integration itself responsible for environmental degradation? Or should the blame -- and the solution -- be put squarely and solely with national governments? Studies suggest that openness to trade and foreign investment has both positive and negative impacts on the environment. Positive impacts are both dynamic and static. Dynamic gains encompass the transfer of more efficient, cleaner technologies via foreign direct investment; the learning and norm-building that occurs through cross border exchange of goods, services, capital and ideas; and the transmission of higher environmental standards by "large market" countries. Static gains include a more efficient allocation of productions in energy and materials use per unit of output. If the goal of good environmental management is not simply conservation but sustainable development, then the benefits of growth inducing trade openness must also include rises in per capita income and consumption.
On the negative side, trade integration subjects national economies to rising market demand and the pressures of international market prices, which maybe generated in part by running down ecological assets in other countries. Processes of market competition, in turn, can preempt domestic environmental policy. Open markets can be transmission belts not for high and rising but for low and immovable environmental standards. Moreover, "growth" may be a poor measure of improvements in welfare.
Over the longer term, economic integration promotes cross- border convergence in environmental standards. Market-driven convergence, which can drive standards "up" or "down" occurs in one of three ways:
1) through the impacts of large country import requirements;
2) via the standardized production and marketing practices of Multinational Corporations;
3) via cost-cutting practices in competitive, non-large- country markets. The "large market" convergence process in APEC will be complicated by the fact that there are two large-market countries, the United States and Japan. With their very different industrial structures and resource endowments, the U.S. and Japan tend to have different environmental concerns and standards. Moreover, the Asian countries combined with East Asian NICs (South Korea, Taiwan, and Hong Kong) represent a significant economic force.
Finally, China is already an important site for foreign investment and will emerge as a large market country over the next decade. Already the largest economy in Northeast Asia, China is growing at the rate of about 12 percent per year. Under both high and low growth scenarios, China's GNP is expected to triple that of second-place Japan by 2010. Without environmental constraints, increasing integration with China would likely pull environment standards down as foreign companies compete for market share.
Convergence can be driven politically as well as through markets by large-market countries either through unilateral action, especially threats of trade sanctions, or via bilateral, regional and global trade agreements. The best-known instance of unilateral action was the threat of the United States to restrict imports from Mexico of tuna caught with kill rates which exceeded those of U.S. standards.
Whether driven by markets or diplomacy, whether standards rise or fall, convergence in environmental standards is problematic for sound environmental management. Ecosystems (and social priorities) differ enormously by specific locale -- even within, let alone across, borders. Standards imported from elsewhere maybe too low, too high, or simply irrelevant to the sustainable functioning of a local ecosystem or harvesting of local resources. Even within countries, like the United States, there is increasing dissatisfaction with rigid, national standards and a search for more flexible, locale-specific regulatory approaches.
To promote ecologically sustainable development, a liberal trade regime in APEC must be built of three pillars; first, an embrace of the need to design, adopt and enforce common frameworks for the environmental governance of sectors, products and services exposed to trade and investment; and second, a commitment to the pursuit of diverse and flexible approaches to environmental management. Building these two pillars will require a cooperative, consensus-building approach which invites input from scientists and citizen groups from throughout the region.
-- The Nation