Call to strengthen environmental institutions

The group recommends that far more attention be paid to strengthening environmental institutions, regulations, and enforcement as countries in Latin America negotiate trade agreements. The report, "Globalization and the Environment: Lessons from the Americas," is the product of a series of studies presented by Working Group members at its first meeting in Brasilia March 29-30, 2004, hosted by Brazil’s Environment Ministry. The Working Group presented its reviews of the environmental impacts of trade liberalization in the hemisphere, drawing from original research and a growing body of so-called "sustainability assessments" – empirical studies of environmental costs and benefits of the free-market policy reforms that have prevailed in most of the region over the last two decades.

Known in the United States as the Washington Consensus and in Latin America as "neoliberalism", the reforms include a package of economic policies that promote economic development by opening national economies to global market forces. Over the last twenty years, governments throughout Latin America have reduced tariffs and other protectionist measures, eliminated barriers to foreign investment, restored "fiscal discipline" by reducing government spending, and promoted the export sector of the economy.

Regional Freetrade-Agreements criticized

These policies, which were advocated by the U.S., World Bank and the International Monetary Fund and enthusiastically endorsed by most governments in the hemisphere, have been advanced by trade agreements.The 1994 North American Free Trade Agreement (NAFTA) between the U.S., Canada and Mexico became the template for a range of subsequent regional and bilateral accords, including agreements on the hemisphere-wide Free Trade Area of the Americas (FTAA), Central America Free Trade Agreement (CAFTA), U.S.-Chile Free Trade Agreement, and negotiations toward a pact between the U.S. and Andean nations.

These agreements have raised concerns, in part because the open-market policies they promote have shown poor results. Economic growth in the region was much slower – less than 2 percent – in Latin America and the Caribbean between 1980 and 2000, the period of the reforms, than in previous periods. Chile and Argentina (before its recent crisis) are the exceptions to the rule.

The Working Group found that the environmental record was not much better. U.N. agencies have documented the region’s growing problems with air, soil, and water contamination, the result of urbanization and the modernization of agriculture. Working Group studies documented and analyzed the environmental track record in specific countries and sectors:

• El Salvador has shifted from an agro-exporter to a labor exporter, with benefits to the rural environment as land pressures eased but with heavy costs in urban areas.
• Central America as a region has seen demand grow for some of the agricultural products – bananas, sugar, melons – that impose the heaviest environmental costs.
• Mexico has transformed itself from a resource-dependent, closed economy to an export-driven manufacturer, but weak environmental enforcement has allowed rising levels of air pollution and unsustainable resource use.
• Brazil has seen rising demand for agro-exports, such as soy, but the expansion threatens fragile lands and ecosystems.
• Argentina has benefited from imported technology through liberalization, but the environmental record has been mixed, with some improved practices in industry and agriculture but little institutional capacity to spread such benefits.
• Chile has been the only country in the hemisphere to see faster growth rates, but its dependence on natural resource-based exports has increased.

The Working Group’s findings are summarized in "Globalization and the Environment: Lessons from the Americas" and documented in full in the Brasilia papers. They include:

• Pollution rates continue to worsen because governments have not provided the level of oversight needed to limit environmental damages.
• The region has seen a gradual shift toward cleaner industrial production, an expected outgrowth of economic development, yet pollution continues to increase because governments lack the institutional capacity to protect the environment.
• With a comparative advantage in resource-based industries – oil, copper, fishing, agriculture, forestry – Latin America has grown more dependent on resource-based exports, putting added pressure on the environment.
• Technological improvements are expected to yield environmental benefits, as foreign firms bring new technology and higher environmental standards. Yet the results are quite mixed. In some cases, foreign firms or technology generated environmental improvements, such as in some large export-oriented firms. Yet other evidence suggests that foreign firms are no more likely to impose strict environmental standards than domestic companies, and small and medium-sized enterprises are largely left behind.
• In some cases, trade-led technical change has brought a net worsening of environmental conditions, such as when modern, chemical-intensive agriculture displaces more sustainable, traditional practices. This can have potentially irreversible impacts on biodiversity, as studies of Mexican maize and Brazilian soy document.
• Rural displacement has in some cases reduced pressure on the land, but internal migration has compounded environmental problems associated with unregulated urbanization. International migration, which has grown dramatically despite the unwillingness of the U.S. government to liberalize labor flows, now assumes a crucial economic role as migrants return wage remittances to family members. For many communities and some countries, these payments are an economic lifeline.

Recommendations: Changing Directions

The Working Group found ample reason to question the prevailing assumptions that trade and investment liberalization will automatically lead to growth and that such growth will naturally lead to environmental improvements. Latin American countries, which have implemented sweeping open-market reforms over the last twenty years, have seen limited benefits from such policies. If trade and foreign investment are going to produce development that is strong and sustainable, governments need to address the environment directly. The report’s recommendations include:

• Strengthen environmental institutions – Strong environmental legislation, regulation, and enforcement must accompany liberalization. While legislation in the region is generally good, the capacity to enforce it is weak.
• Build environmental capacity – Often, open-market reforms impose fiscal constraints on governments, limiting their capacity to finance environmental programs. Developed countries must provide training and financial assistance to help developing countries improve environmental standards and institutions. Such support should include efforts to improve developing countries’ ability to meet international environmental standards so that such requirements do not serve as unfair technical barriers to trade.
• Reduce resource dependence and promote value-added development – Latin America must either reduce or upgrade its dependence on resource-based industries, which has increased under open-market reforms. Trade agreements can promote higher value-added development by, for example, reducing tariff escalation on processed goods.
• Leave governments the capacity to promote sustainable development – Too often trade agreements constrain government’s ability to direct development in general, and foreign investment in particular, toward desired national ends. Agreements must not proscribe these essential tools for development – performance requirements, technology agreements, etc.

The studies in "Globalization and the Environment: Lessons from the Americas" highlight the social and environmental costs of the present approach. Hopefully they also point to some of the ways in which national policies and international trade agreements can be transformed to better meet societies’ goals.

(summarized by Liane Schalatek, HBF Washington office)