Relationship of the Global Political Economy and Environment

• Sarah Katz

A critical perspective on the Relationship of the Global Political Economy and the Environment within leading Economic Institutions

In the long term, the economy and the environment are the same thing. If it’s unenvironmental it is uneconomical. That is the rule of nature.

— Mollie Beattie, former director U.S. Fish & Wildlife Service–

We are all facing serious changes within our environment: The weather is playing up, the sun is getting stronger, diseases are spreading faster, commodity prices are increasing and the list goes on. In deed there is not a single day without a debate about the environment and our world economy in the newspapers. Climate Change, Ozone Depletion, Biodiversity loss, Deforestation, Desertification and others have become serious issues and need to be addressed on a global scale. The current economic globalization promotes steady growth, rising consumtion levels and increasing production. This leads to an exploitation of resources and pollution of our environment. As environmental issues go hand in hand with the global economy, we need to look at them from an political economical perspective and incorporate them when taking action. This leaves us with the question whether we can actually create a global economic system that enables a sustainable future. The finite character of our world also imposes that we cannot maintain a functioning economic system without preserving a functioning environment, which will eventually lead to increasing efforts in saving the planet. Let’s take a look at environmental concern as an internal part of political economics and how we deal with it. I will focus international economic institutions and evaluate their impact on environmental issues.

The Bretton Woods Institutions and environmental concern:

The three main international organizations approaching economic issues on a global scale – the World Trade Organization, the International Monetary Fund and the World Bank – have evolved from the Bretton Woods era and have been dealing with economic globalization and matters of trade, finance and international development since then. As they are the main actors (besides national governments) within the wolrd economy, I want to take a closer look at if and how environmental issues affect the their field of operation.

After the Bretton Woods System collapsed in the 80ies, there hasn’t been any successfull development of a substantial monetary system or even global economic governing system. Although deep globalization would demand a form of global economic governance, there are too many issues amongst individual interests that challenge the global political order. Yet, the Bretton Woods institutions remain with the most legitimacy and influence within the field of political economy on an international scale. Although, they still do not function in the sense of global economic governance they can be seen as key institutions to international collaboration on economical interests, especially concerning the monetary system. It does appear that these Institutions are not primarily focussing on environmental issues, but rather on free market trade and financing in terms of capitalism. But as environmental concern is growing the demand for „a more environmentally and socially responsible agenda (and for gathering) potentials (to restructure) the global economy to one that is (more sustainable for the environment and our society)“ (p. 136 kate o neill, international Relations), increases and these insitutions are becoming a regular target of criticism. The main areas of operation that highly impact environmental politics and trigger criticism, are the liberalization of trade conducted by the WTO and development funding as well as debt handling by the IMF and the World Bank.

How does the WTO address environmental issues?

Over the last 20 years the WTO has promoted free trade through a multilateral trading system. The debate about the WTO’s effects on environmental policies is not new and has been ongoing for several years now. Both – positive and negative reporting – has been flooding the news. The institution has achieved many successes, such as implementing non-discrimmination policies like the „most-favored nation“ obligation as well as a number of bilateral agreements. The WTO basically follows these principles that encourage development and economic reform:

• „Trade without discrimination
• Most-favored nation (MFN): treating other people equally
• National treatment: treating foreigners and locals equally

• Freer trade: gradually, through negotiation
• Predictability: through binding and transparency
• Promoting fair competition“ (http://www.greenrising.com/2006/12/26/the-world-trade-organization-and-sustainable-development-2/)

None of them specifically talks about how the WTO trading system contributes to the environment. This creates suspicion and dubiousness about whether the WTO has environmental issues incorporaed in their system and whether they see it as part of their agenda.

Never the less, they claim that „sustainable development (,) protection and the preservation of the environment are a fundamental goal of the WTO“( http://www.wto.org/english/tratop_e/envir_e/envir_e.htm). The core problem that the WTO has to face is, how to enable trade liberalization and economic development, without harming the environment.

One important factor that impacts this relationship has already been introduced during the years of GATT, before being transformed into the WTO. As part of the non-discrimmination policies that prohibit nations to discrimminate foreign goods in order to protect national production, a list of excetions has been enforced. It includes the justification of trade restrictions that ought „to protect human, animal or plant life or health“ or contribute „to the conservation of exhaustible natural resources“ (GATT Article XX, http://www.wto.org/english/tratop_e/envir_e/issu4_e.htm#gatt20). Another step towards environmental protection was made when the Commitee on Trade and Environment was established in 1994. Ist primary focus is on sustainable development and balancing economic and environmental interests. Although the advising character of the CTE has rather limited power within the WTO, it indicates that efforts are being made. It becomes obvious though, that the WTO still has only little meaningful environmental forces incorporated, due to more powerful capitalist interests that encounter environmental protection. This critique has caused and will cause substantial impact on the future path the WTO may take.

Before proceeding with the WTO’s recent actions, it is necessary to take a closer look at the environmental effects caused by the economy and the challenges that the WTO is facing when handling environmental issues.

Economic growth – a double-edged sword

For one, economic growth increases the exploitation of resources and pollution. International trade also increases the spread of species and causes imbalances in regional ecosystems. Moreover, liberalized markets lead to the fact that countries with strict environmental regulation cannot compete with others due to high production costs. As a result, countries may try to keep low regulations as a competitive advantage.

On the other side economic growth means rising GDP levels, which can have a positive impact on the environment. As countries have more financial resources, they can implement new regulations systems and support environmentally friendly technologies.

Market liberalization can also have positive outcome, for instance by transferring environmental standards from a dominating market to others. High environmental standards in a market can lead to an increase of environmental standards in other areas, if the enterprises there try to meet the standards of the leading market.

Economic and environmental discrepancy – the WTO facing Challenges

As the WTO tries to balance economic and environmental needs, it has to face many problems and a lot of critique. Several cases related to environmental concern have been brought to the Dispute Settlement Body. Probably the most famous case was the Shrimp-Turtle case, where the US had banned the import of shrimp from several Asian countries due to unsustainable turtle by-catch. South Asian countries brought the case to the Dispute Settlement Body as they felt discrimminated. At first the Body ruled against the US, because they did not offer any assistance to implement more trutle-friendly fishing practices to those countries, whereas they did so for other countries. Later the case was revised and the WTO acknowledged that the US made good efforts towards the environment. The case gives clear indication that the WTO is trying to promote more sustainable production practices. At the same time the way the WTO handles shows uncertainity and it proves, that the internal conflict between economic and environmental aims challenges the progress. The WTO struggles with the fundamental discrepancy of economic and environmental interest.

We can also experience external conflicts between guidlines imposed by the WTO and other international environmental policies. Environmental agreements that are based on trade restrictions, such as the Basel Convention where the cross-border movements of hazardous wastes was restricted, may in deed conflict with the economic path the WTO is following. As industries and nations try to push for their own economic interests, the WTO finds itself in an antagonist position and yet these interests tend to have stronger influence on the WTO than any environmental counterpart. Rulings like in the Shrimp-Turtle case and other disputes can also lead to a weakening effect when it comes to implementing and negoitiating Environmental Agreements outside the WTO, commonly known as „chilling effect“ (http://www.mitpressjournals.org/doi/abs/10.1162/152638004323074183#.VHmwSMZ7Sc0).

The WTO at present stage: Going green?

Despite the mentioned challenges and obstacles, the WTO it making great efforts to promote and integrate sustainable development as part of their operations. Sustainable development asks for an economic system, where the current living and production standards enhanced by consumption patterns will not affect following generations negatively. As simple as it may sound – it is a highly complicated matter, due to excessive consumption levels worldwide.

Since 2001, the WTO is running their ninth round of multilateral trade negotiation, called the Doha round. The main topic leading this negotioation round is about integrating developing countries in the global market and supporting their economic progress. In Doha, the WTO has also set the target to improve the situation of trade and the environment and made this an explicit topic in their negotiations. To be more precicesly, the objectives were devided into 3 themes: WTO rules interferring with other multilateral agreements (MEA), collaboration between the WTO bodies and MEA secretaries, and elimination of trade barriers for environmental (preferable) goods and services (http://www.wto.org/english/tratop_e/envir_e/envir_negotiations_e.htm). The environmental body of the WTO, has set up a special hearing to receive proposals from member countries. Most proposals so far have been made by fully industrialized countries rather than developing countries, as they still have a tendency to oppose environmental regulations. As we take a closer look at the above-mentionded topic on trading goods and services, there are roughly four main proposals that the WTO is working on:

• Defining a list of industrial goods that contibute to the environment through technoligical advantages.
• Determining a list of environmentally preferable products (EPPs), that benefit to a sustainable development.
• The Environmental Project Approach suggests the construction of a better and faster way to access markets.
• The Integrated Approach, that combines environmental projects with lists of goods and services (http://unctad.org/en/docs/ditcted20084_en.pdf)

The negotiations have not been succesfull and there is no general agreement on how to proceed further. The reason for this roots in the discrepancy between industrialized and developing countries, as they fear unequal treatment and economic disatvantages.

What about finance and the environment?

Whereas the WTO is concerned with trade liberalization, the IMF and the World Bank cover the financial side of international trade and development. It is now time to evaluate their role in the economy and environmental concern. At first glance, these institutions do not seem to be related to this topic, but if we take a second look we can find several points of interferrence with environmental problems, due to their role in international development and their impact on structural problems.

Overall the IMF seeks to quarantee macroeconomic stability within the global system. The institution initial aim is to regulate and work towards an international monetary system, that last existed under the Bretton Woods system and to help nations overcome hardship by lending money. As the IMF lends money to states, it also places diffferent requirements, such as structural reforms, that come with the credit. It is through these lending programs, that the IMF can push for and support environmental policies. The IMF has officially stated environmental protection to be one one of their concerns and points of focus, and there are several examples for this in their lending programs: In repsponse to the IMF and through ist support, the Brazilian „government has submitted to Congress a multiyear plan that will guide expenditure policies, including environmental programs, during 2000–03“ (April 2000, http://www.imf.org/external/np/exr/ib/2000/041300.HTM, Nov.30 14).

The World Bank also has committed to incorporating environmental concern into their projects. It appears to have more influence on environmental protection than the IMF, as ist main focus lays on developing and poorer countries, where environmental degradation is more dramatical due to a high dependency on natural resources and a lack of resources to protect the environment. In the past, the World Bank had been in critiques for conducting several funding projects that were or are harmful to the environment. The reason why the World Bank is addressed directly by environmentalist critiques lays in the visability of the projects and their direct effects on the environment. One example is the Polonoreste resettlement project in Brazil, where a highway was built that destroyed part of the Amazon rainforest. In response to heavy opposition, the World Bank has gone through a transformation towards a more environmentally friendly institution. They have established an environment department, changed their policies and now require the submission of environmental impact assessments before they agree to funding a project. Still there remains doubt and critique about the World Banks impact on the environment, but they are becoming increasingly aware of the issue and reshaping their ideology towards a more sustainable one.

This proves, that structural reforms and funding programs can have a positive effect on the environment, but there is also concern arising as debt in gerneral can have negative impact on the environment.

• „Basically, the more the developing countries stay in debt, the more they will feel that they need to milk the earth’s resources for the hard cash they can bring in, and also cut back on social, health, environmental conservation, employment and other important programs.“ http://www.globalissues.org/article/34/debt-and-the-environment debt can lead to increase in resource exploitation – short term thinking; „Brazil’s IMF debt and financial problems have severely affected a project to save the Amazon rainforest.“
• Plus side: Marketization of resources – gives them actual value according to their level of sustainability
• IMF – World Bank – debt forgiveness as a strategy to protect the environment

Conclusion:

• The BW institutions have far more points of interference with the environment than expected at first glance.
• Question – possibility to endeavour economic and environmental governance through these institutions one day?
• Due to all the critical points that became obvious in this evaluation: reforms are needed in all BW institutions, turn away from solid neoliberalist perspective to a new form of greener neoliberalism.

References:

Vihar Sheth (2006). The World Trade Organization and Sustainable Development. [ONLINE] Available at: http://www.greenrising.com/2006/12/26/the-world-trade-organization-and-sustainable-development-2/. [Last Accessed 2014-11-27].

Thomas Cottier (2009). WTO Negotiations on Environmental Goods and Services: A Potential Contribution to the Millennium Development Goals. [ONLINE] Available at: http://unctad.org/en/docs/ditcted20084_en.pdf. [Last Accessed 2014-11-28]

unknown (). Negotiations on Trade and the Environment. [ONLINE] Available at: http://www.wto.org/english/tratop_e/envir_e/envir_negotiations_e.htm . [Last Accessed 2014-11-25].

Eckersley, Robin, (2004). The Big Chill: The WTO and Multilateral Environmental Agreements. Global Environmental Politics. Vol. 4, No.2 (), pp.24 ff.