The Gatt Effect


Picture of bananas


"I like bananas. You have the climate and the soils to grow them in abundance. The cheaper you make them, the more I will buy. The more you sell, the richer you will become. What could be simpler? Let's call it free trade. Or let's call it the most fundamental environmental issue of our time."



     BY JOHN VIDAL, ENVIRONMENT EDITOR, 
      THE GUARDIAN, LONDON


The trouble with trade today is that no international market accounts for the environmental damage incurred during production and transport of goods. In economic jargon, these costs are "externalized" - i.e. they are passed on to society in general, or left to future generations to pay. The dramatic dismantling of trade barriers ac-complished in the Uruguay Round of the GATT (General Agreement on Tariffs and Trade) will inevitably worsen already serious environmental problems, because the prices of traded goods do not incorporate these environmental costs. This enables consumer countries to import underpriced goods and to export environmental degradation to producer countries.


The Unwritten Principles of Global Free Trade:


  1. The cheaper your product , the more you sell.

  2. Even if cheap means razed forests and acidified lakes, don't worry
    - free trade will make you rich enough to fix everything.


The GATT has one objective - to increase the volume of trade by freeing it of all barriers. Under GATT the consumption of resources and the volume of world trade will increase massively in the next decade. But the global economy cannot grow much more without damaging the natural ecosystem unless GATT is reformed. These impacts will be felt mostly by poor, developing countries.

Economists distinguish growth (an increase in the size of the economy resulting from the use of resources) from development (the evolution of better living standards). Growth and development follow different laws. Global free trade may boost a country's financial turnover (Gross Domestic Product or GDP) and thus enhance its growth, but it currently ignores human and ecological welfare, two vital constituents of development. This means that free trade under GATT's terms encourages countries to exploit resources beyond the point at which they can regenerate.

As a truly global economy is achieved, competitive pressures will further encourage concealment of the full costs of the trade in natural resources.


GATT encourages the underpricing of goods. This enriches already wealthy consumer nations at the expense of poor countries. The environmental damage suffered by hard-up, developing nations forced to sell products at rock-bottom prices will effectively subsidize the consumption of traded goods in rich, developed countries.


GROWTH VERSUS DEVELOPMENT

In the 1970s, experts told the small Central American state of Costa Rica that it could achieve economic growth by exporting beef for the US hamburger market and timber for the world's construction industry. Massive loans were secured, forests were cleared to make way for cattle, and peasant farmers moved to the cities. But as the trees came down, Costa Rica's fragile soils began to wash away. Cattle farmers overstocked their ranches and land became infertile and useless.

Yet the state's cash income grew and economists said that Costa Rica had achieved a miracle. But 20 years on, when they included resource depletion in their calculations, it transpired that the value of the country's forests, soils, and fisheries had dropped by US $4 billion over 20 years. The money Costa Rica received from its exports did not reflect the cost of environmental damage incurred. The country is now left with a legacy of resource depletion and environmental damage which could have reduced the potential for future development by as much as 30 per cent.

For Costa Rica read Ghana, the Cameroon, the Ivory Coast, or 50 other developing countries whose income from the sale of their natural capital does not reflect the damage done to their lands. Forests play a vital role in preventing floods, guaranteeing water supplies, and protecting fisheries - services that are worth billions of dollars but that do not show up in conventional accounting systems.


Companies and countries compete on the world market by minimizing production and transport costs. This sort of competition is encouraged by GATT rules which prevent countries using trade measures to discriminate between goods on the basis of their production methods.

The Uruguay Round may well increase the drift of the more polluting industries to the south. As trade barriers are eroded, trade barriers are eroded, so corporations see the economic advantage of ecological dumping - i.e. setting up in countries with the lowest environmental standards. Poor countries and poor communities which cannot afford to turn work away and which cannot afford to invest in new, clean technologies, will almost certainly become havens of pollution.The GATT and most other free trade initiatives have been directed by the wealthy for the wealthy. Rich countries have set the trade agenda and stand to profit most from its implementation. There are winners and losers in all trade deals, and global trade has favoured the rich over the poor. UN Development Programme figures show that income inequities between rich and poor countries have increased steadily during the last 24 years of progressive trade liberalization.

Estimates suggest that under GATT, the world economy could grow by up to US$6 trillion within 15 years. The winners therefore stand to make significant gains, but the losers - most countries in Africa and some in Latin America - will simply become poorer and, as their natural resources are plundered and their air and water supplies are contaminated, their environments and living conditions will deteriorate.

The Uruguay Round of the GATT will thus reinforce existing economic and environmental trends. Next year, the GATT is to become the World Trade Organization (WTO), an international body backed by a powerful international court and legislation that can authorize trade sanctions against national laws and individual countries' policies on social, environmental, and cultural issues.

Now, however, people and some governments are beginning to wake up to the full implications of global free trade. There is a new appreciation that trade should not just be regarded as something that boosts short-term cash flows, but that it should be directed to serve long-term human needs. This means that it is essential that countries which import traded goods pay a fair price, which covers their full environmental cost.


Unless trade policies and agreements are revised, many of the environmental gains achieved in the 1980s and at the Rio Earth Summit in 1992, will be lost.


It is therefore vital to reform trade policies, starting with the new WTO. This needs to have a binding legal commitment to encourage sustainable development. The WTO should also have a strong, permanent trade and environment committee and must, unlike the GATT, conduct its proceedings in public and respond to the needs and environmental
concerns of local communities.

In addition, the WTO should overhaul existing GATT rules to encourage the inclusion of environmental costs in the price of traded goods. Fair trade measures designed to protect the global environment should be exempt from GATT rules. And finally, GATT rules must not conflict with existing, hard-won environmental agreements.

It is not too late. Sustainable development is now part of every country's development plans. The environment is on the world agenda as never before. Now is the time to reform trade agreements like the GATT so that they reinforce - rather than break - the Rio promises.


ACCOUNTING FOR POLLUTION

European Union (EU) proposals to apply a carbon tax to encourage fuel efficiency and reduce wasteful and polluting energy use have already been delayed for two years because, European industry argues, such a tax would make it less competitive.

When the Dutch government considered adopting a carbon tax before other EU countries, many transnational companies threatened to move out of the Netherlands and direct new investments elsewhere.

German chemical companies are threatening to relocate outside Europe because it costs as much to control pollution in Europe as it does to cover all production expenses in some developing countries.


PATENT CONCERNS

The Trade Related Intellectual Property Rights (TRIPs) agreement in the Uruguay Round promotes the patenting of plant varieties and ways in which plants are used. Farmers in developing countries, particularly in India and the Far East, fear that the world's largest seed firms will, in time, be charging them huge royalties on slightly modified versions of seeds the farmers themselves have developed.

They see the wisdom and skill of generations of farmers
being patented by transnational companies eager to develop new insecticides and crop varieties to sell at huge profit on world markets. They say that as corporations are given the freedom to move into every area of farming, developing countries' agriculture will become as intensive and mechanized as that of the industrialized north. Small fields planted with a variety of crops will be replaced by vast areas planted with single crops, whose growth rates are enhanced by hazardous agrochemicals. The end result: traditional farmers will be forced off the land and into overcrowded cities.
a cartoon
In 1993, half a million Indian peasant farmers demonstrated against the TRIPs agreement in Bangalore.

In return for a partial reduction of farming subsidies in developed countries, developing nations have agreed to drop their most effective import controls. Because developed countries are unlikely to cut production much, underpriced food surpluses from the north could swamp some developing countries' agricultural markets. This would further undermine small-scale farming in these countries, impoverishing rural communities, destroying traditional cultures, and causing widespread environmental degradation.






Published March 1994 by WWF--World Wide For Nature (known in the USA and Canada as World Wildlife Fund), CH 1196 Gland, Switzerland. Any reproduction in full or in part of this publication must mention the title, and credit the above-mentioned publisher as the copyright owner.

Copyright 1996, The World Wide Fund For Nature