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A Brief History of Trade, Finance and Sustainable Development

The history of the international trade-sustainable development nexus goes back to the 1992 Earth Summit in Rio de Janeiro when negotiators faced the task of defining how sustainable development would be operationalized. Building on an international consensus that recognized the importance of a supportive international climate of economic cooperation, negotiators made clear in Chapter 2 of Agenda 21 that an open, equitable, secure, non-discriminatory and predictable multilateral trading system must be ensured to deliver on the promises of sustainable development. Signatories also agreed at the time that trade policy should not operate at cross-purposes with international efforts to curtail environmental degradation or promote development.

Ten years later, the World Summit on Sustainable Development, held in Johannesburg, South Africa, in September 2002, revisited the links between trade, finance and sustainable development. On this occasion, participants evaluated progress on links between trade and sustainable development, noting the need to support the conclusion of the Doha Round of negotiations within the World Trade Organization (WTO), and the implementation of the Monterrey Consensus on financing for development, to promote “open, equitable, rules-based, predictable and nondiscriminatory multilateral trading and financial systems that benefit all countries in the pursuit of sustainable development.”

The adoption of the Millennium Development Goals (MDGs), drawn from the United Nations Millennium Declaration, also presented a global social compact whereby developing countries would do more to ensure their own development, and developed countries agreed to support them through aid, debt relief and better opportunities for trade.

Progress in each of these fronts has moved at a slower pace than expected. Further to the global economic crisis, Doha negotiations remain stalled and the achievement of the MDGs, despite some progress in key developing countries, remains a substantive challenge, especially in Sub-Saharan Africa. Likewise, the Monterrey Consensus has not delivered the promises expected. The UN is monitoring the achievement of the Millennium Development Goals. Its 2009 MDG Report notes that the indicators related to Goal 7, “Ensuring Environmental Sustainability,” are still far from meeting the target, with growing concern over the growth of greenhouse gas emissions and forest losses in Sub-Saharan Africa and Latin America and the Caribbean.

Despite the major impact of trade and investment on economic activities that impact the environment – and responses to related problems like climate change – there is no single institution at the global level tasked with ensuring the mutual supportiveness of the international trade regime with sustainable development. Most aspects of trade – from intellectual property rights to agricultural policy – are addressed by different international processes, such as multilateral environmental agreements including the UN Framework Convention on Climate Change (UNFCCC), organizations like the WTO or the International Maritime Organization (IMO), and UN processes and institutions like the UN Environment Programme (UNEP), the UN Development Programme (UNDP) and the UN Food and Agriculture Organization (FAO), with varying degrees of attention to the links with sustainability.

On the investment front, most UN-related institutions promote sustainable development within their respective mandates. The UN Climate Change Gateway provides an example of the number of institutions that deal with the climate change issue and support projects to further this objective. In addition, regional development banks (IDB, the African Development Bank (AfDB), ADB, EBRD, EIB), the Global Environment Facility (GEF), and international cooperation institutions at the national level, provide specific funding to support global environmental goals.
Trade and Environment in the WTO

On 15 April 1994, member states to the General Agreement on Tariffs and Trade (GATT) signed the Marrakesh Agreement, committing themselves to the results of the Uruguay Round of Trade Negotiations. As a result of the Marrakesh Agreement, the World Trade Organization and the results of the Uruguay Round entered into force on 1 January 1995.

Although the WTO was designed to regulate trade, as opposed to the environment or development, Uruguay Round negotiators nevertheless recognized the growing importance of sustainable development in the international policy domain. As a result, a reference to sustainable development appears in the chapeau of the Marrakesh Agreement, stating that trade and economic endeavors should make optimal use of the world’s resources in accordance with the objective of sustainable development. In addition to this reference, several annexes to the Marrakesh Agreement contain provisions akin to the principles of sustainable development.

For example, Article 5 of the Agreement on the Application of Sanitary and Phytosanitary Measures specifies the use of risk assessment in determining appropriate levels of domestic regulation to protect human, animal and plant health. Some have argued that Article 5 is a trade-specific version of the precautionary principle.

Similarly, Article 2.2 of the Technical Barriers to Trade Agreement sets out which policy objectives provide legitimate justification for a technical regulation. These include: protection of human health or safety, animal or plant health, and the environment.

From its inception as the GATT, international trade rules contained two general exceptions in its Article XX (General Exceptions) that have been put to a test in most trade and environment disputes. Article XX thus allows countries to impose measures that do not comply with GATT rules (such as those discriminating among two similar products) if such measures are deemed “necessary to protect human, animal or plant life or health” (art XX(b)); and those “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption” (art XX(g)). The exceptions are not absolute, however, and must comply with the limits set in Article XX’s chapeau to ensure they are applied in a non-discriminatory and non-arbitrary manner.

From the Tuna-Dolphin Case in 1982, through the Gasoline, Shrimp-Turtle and Asbestos cases, until the latest case on retreaded tyres from Brazil, the WTO has developed a set of precedents on the interpretation of Article XX exceptions that have defined the relationship between international trade rules and the environment.

Other elements of the WTO rules considered immediately relevant to sustainable development objectives include, but are not limited to:

provisions regarding the Special and Differential Treatment of developing countries;
Article 27.3 (b) of the Trade-Related Intellectual Property Rights Agreement relating to the patentability of life forms; and
the Agreement on Agriculture.

In 2001, the WTO held its Fourth Ministerial Conference in Doha, Qatar. At Doha, WTO member States agreed to launch a new round of trade negotiations that would occur alongside the built-in agenda. Under the Doha Ministerial Declaration, WTO members agreed to, inter alia:

clarify the relationship between the WTO rules and multilateral environmental agreements (MEAs);
support the collaboration between the WTO and MEA secretariats;
agree on the elimination of tariffs and non-tariff barriers on environmental goods and services; and to
clarify and improve WTO disciplines on fisheries subsidies.

The WTO’s Committee on Trade and Environment and its Special Sessions on the Doha Mandate, are holding negotiations on the liberalization of trade in environmental goods and services, and interesting proposals were made to liberalize trade in climate friendly technologies, or include biofuels and organic products in the negotiations, but – eight years after the adoption of the Doha Development Agenda – no breakthroughs could be reported.

Meanwhile, regular meetings of the WTO Committee on Trade and Environment continue to address issues such as the effect of environmental measures on market access, especially in relation to developing countries; the relevant provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights; and labeling requirements for environmental purposes.

Links to further information
WTO Environment Negotiations
WTO Committee on Trade and Environment
WTO Article XX Dispute Settlement Practice
International Centre for Trade and Sustainable Development (ICTSD)
The Global Environment Facility (GEF)

The Global Environment Facility (GEF) was established in 1991, and is today the largest funder of projects to improve the global environment. The GEF’s 178 member countries manage a trust fund under the aegis of the World Bank that provides grant and concessional funding to meet the incremental costs of achieving agreed environmental goals, in the areas of biological diversity, climate change, international waters, land degradation, ozone layer depletion and persistent organic pollutants.

The GEF also acts as financial mechanism for four international environmental conventions: the Convention on Biological Diversity, the UN Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol, the UN Convention to Combat Desertification, and the Stockholm Convention on Persistent Organic Pollutants. It helps fund initiatives that assist developing countries in meeting the objectives of these environmental conventions, and also collaborates closely with other related treaties and agreements.

The GEF partnership includes 10 agencies: UNDP; UNEP; the World Bank; FAO; the UN Industrial Development Organization (UNIDO); regional development banks; and the International Fund for Agricultural Development (IFAD). Through 2009, the GEF had allocated US$8.6 billion, supplemented by more than US$36.1 billion in cofinancing, for more than 2,400 projects in more than 165 developing countries and countries with economies in transition. Through its Small Grants Programme (SGP), the GEF has also made more than 10,000 small grants directly to nongovernmental and community organizations.
The Monterrey Consensus

The UN International Conference on Financing for Development was held from 18-22 March 2002, in Monterrey, Mexico, and concluded with the adoption of the Monterrey Consensus document. The preparations for this meeting started in June 1997, when the UN General Assembly (UNGA) adopted the Agenda for Development, which called for consideration of the idea of holding an international conference on financing for development.

In 2008, country representatives met at Doha, Qatar, during the first week of December and adopted the Doha Declaration on Financing for Development, which, inter alia restated commitments by developed nations to achieve the ODA target of 0.7 per cent of gross national product (GNP), and sought to explain what the international community understands for sound international policy on development assistance, debt management and aid effectiveness.
UNEP Finance Initiative (UNEP FI)

UNEP FI is a global partnership between UNEP and over 170 finance, insurance and asset management institutions from around the world. It was established in 1992 to engage financial institutions in a dialogue on the nexus between economic development, environmental protection and sustainable development. UNEP FI collaborates with commercial and investment banks, insurance and re-insurance companies, fund managers, multilateral development banks and venture capital funds. UNEP FI developed two voluntary statements of intent that are signed by institutions joining UNEP FI.
Principles for Responsible Investment

In early 2005, the United Nations Secretary-General invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment (PRI). The Principles for Responsible Investment are a list of voluntary and aspirational principles that emerged as a result of this process. They were signed by more than 600 asset owners, investment managers and professional service partners representing US$18 trillion of assets and 36 countries, confirming a new trend in the integration of environmental, social and corporate governance considerations as an essential part of good business.

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