Fern’s comments on: The EU’s Sustainability Impact Assessment, Phase One and Two (1999) Colin Kirkpatrick, Norman Lee Institute for Development Policy and Management and Environmental Impact Assessment Centre, University of Manchester

Focus

The aim of the study is to develop a methodology for carrying out a sustainability impact assessment (Phase 1) and to use this methodology to make a broad assessment of the potential impacts on sustainability of a new trade round (Phase 2). The methodology developed for a sustainability impact assessment (SIA) aims to analyze the economic, environmental and social impacts of trade liberalization. The underlying assumption of the sustainability impact assessment is that further trade liberalization will lead to economic growth; this is equated to sustainable development.

Forests are not the main focus of the SIA. However, reference to the impact of further trade liberalization on forests is recognized under different sections.

The findings of the Phase 2 report also indicate where the need for measures to reduce or eliminate significant negative impacts are most likely to arise. As a follow up to Phases 1 and 2, the European Commission will start sectoral analyses, looking in more depth at the impact of trade liberalization on different sectors, phase 3.

Methodology

The Phase 2 report is a preliminary assessment of the impact of 15 trade measures that were expected to be negotiated during a new trade round. These include changes to the agreement on agriculture, the development of a multilateral framework for investment rules, measures relating to tariffs on non-agricultural products and clarification to the relationship between the WTO and multilateral environment agreements. The trade-off for this breadth of analysis is the lack of depth of each sector analysis.

Sustainability is divided into three aspects: economic, environmental and social. A list of nine sustainability indicators, three for each sector, and a set of significant criteria to be used in their interpretation were developed[1].

Each trade measure analysis is divided into three geographical areas: the European Union, developing and least developed countries, and a global analysis. Three different policy scenarios were used: a base scenario (current situation, no new agreement reached); an intermediate scenario (the EU’s negotiation position); and a liberalization scenario (greater and faster liberalization).

Input was provided by consultation meetings and the creation of a website open for comments.

The methodology developed attempts to combine both quantitative (e.g. regression analysis) and qualitative (e.g. case studies) impact assessment techniques. However, due to time constraints faced by the consultants, the preliminary SIA is mainly based on common sense judgment derived from the literature review and discussions with experts.

Findings

The Phase 1 report that aims to develop the methodology of the SIA does not develop a new methodology to assess the impacts of liberalization on sustainable development. It simply reviews different tools available and concludes that economic impact assessments are well developed and that great improvements have recently been made in environmental impact assessments. However, social impact assessments are still at an early stage of development. The report concludes that all 15 measures that are part of the EU’s proposal for a new trade round will have an environmental or social impact and therefore must be included in Phase 2.

In general the Phase 2 report concludes that, for the EU, the impact of the new trade round the EU proposed are positive and considerable. By contrast, the outcome is less positive for developing and least developed countries: welfare losses can be experienced and might have significant negative social and or environmental impacts. “A faster process of liberalization, if not accompanied by considerably strengthened supporting measures, is likely to result in a much sharper division between countries and socio economic groups into gainers and losers in economic welfare. The majority of the social and environmental impacts are likely to be significant and particularly during the transitional period, negative impacts are likely to be experienced”[2].

In relation to forests the Phase 2 report points out that further liberalization of tariffs on non- agricultural products, in the intermediate scenario is “likely to have negative environmental impacts in resource-based industries if increased trade liberalization encourages increased rates of depletion of natural resources, such as fish stocks and forests”[3]. These impacts will be more severe in countries that lack an effective environmental policy and regulatory framework to mitigate impacts. Furthermore, the economic gain to the least developed countries is unlikely to be significant. However, under the base scenario the SIA also concludes that tariff escalation contributes to an increase in environmental pressure in terms of natural resources: “higher tariffs on plywood than logs may increase the extraction rate from forests in exporting countries”[4].

Comments

Over 40 NGOs, including WWF, Fern, and Friends of the Earth, presented a joint statement on the EU’s SIA raising concerns with the Phase 1 and 2 reports. The statement calls for regular reporting mechanisms, the creation of inter-departmental consultations and the development of an ambitious programme for Phase 3, in close co-operation with civil society.

WWF, Oxfam UK, Save the Children and Action Aid commissioned a consultant to draft a critique of the EC's SIA. The critique acknowledges the complexity of undertaking an SIA and commends the Commission’s efforts. Nonetheless, it highlights the fact that the framework developed for the SIA is too broad and has a pro-liberalization bias. The suggestion is made to develop a more rigorous analasys that would require the development of additional scenarios, better sustainability indicators and the inclusion of more policy options allowing for less trade liberalization or a different sort of trade liberalization.

The most fundamental critique of the SIA came from Friends of the Earth-Finland, who described the study as a public relations exercise for EU policies, attacked the methodology as biased towards trade liberalization and the EU’s agenda, and discredited the assumption that increase in trade leads to an increase in economic growth and thereby a more sustainable society. FoE Finland argued that a proper assessment would also include scenarios with a decrease of liberalization.

Comments identified by Fern are:

·         The indicators used are not always appropriate or applicable to the different countries/regions. The manner in which the indicators are developed and the sub-indicators used will not produce comparable results, as admitted by the consultants.

·         The scale of impacts, which varies from -2 to +2, is too narrow to enable social, environmental and economic impacts to be correctly interpreted. A wider scale of impacts, e.g. from +7 to -7, would have permitted a better inclusion of social and environmental impacts and helped to distinguish between the impacts

·         At present too much emphasis is given to economic aspects. This is a consequence both of the underlying assumption that economic growth equals sustainable development and the fact that economic impact assessment is more developed than environmental and social assessment of trade liberalization.

·         The SIA does not attempt to review past agreements since the European Commission has asserted that it is not possible to assess the sustainability impact of the Uruguay round^[5]. However, the implementation of past agreements is used as the baseline scenario in the sustainability analysis.

Conclusions

I. Focus: The study is a broad preliminary assessment of the EU's proposed agenda for the New Trade Round: it aims to review the economic, social and environmental impacts of trade liberalization on sustainable development. However, the study is biased towards an economic analysis of trade liberalization.

II. Methodology: Three scenarios are developed (base scenario, the EU's proposal for a new trade round, and total liberalization) as well as 9 indicators, 3 for each sustainability aspect. However, the analysis is mainly based on a review of available literature and expert opinions.

III. Findings: In general the Phase 2 report concludes that, for the EU, the impact of a new trade round is positive and significant. The outcome is less positive for developing and least developed countries where welfare losses may be experienced and significant negative social and or environmental impacts may occur. In relation to forests, the phase 2 report points out that further liberalization of tariffs on non-agricultural products, in the intermediate scenario is likely to have negative environmental impacts on forests. These impacts will be more severe in countries lacking an effective environmental policy and regulatory framework.

IV. Comments: The study is a broad review of the sustainability impact of the EU's agenda for a new trade round, it does not provide for an in-depth analysis of the impact of trade liberalistion on any sector. However, the SIA does make a first attempt to combine environment, social and economic aspects to determine the sustainability of further trade liberalization. The outcome is based on a literature review and common sense judgment by the consultants. However, the excessive weighting given to the economic aspects and the underlying assumption that economic growth is equal to sustainable development undermines the results.