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