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76Chapter III Globalization merits and demerits The East Asian growth overviewed in Chapter I and the business dynamism arising from the IT revolution in Chapter II symbolize the way in which the world economy has continued to develop on the wings of expanding trade and investment and a growing trend toward globalization 1 . At the same time, the swift spread of globalization and the continuous growth of the world economy have amplified a number of distortions within and between countries, provoking environmental destruction, for example, as well as widening the income gap between the rich and poor and causing growing concern over employment. It is argued in some quarters that such distortions are caused by the expansion of world trade and investment. An extreme representation of this position was the series of large-scale demonstrations staged by extremist NGOs at the WTO Seattle Ministerial in 1999. These NGOs target key meetings such as the WTO, which exemplifies the free trade system, and international development institutions such as the World Bank and the IMF under the banner of “anti-globalization”. As such meetings attract world media attention, they are viewed by the NGOs in question as prime opportunities to put across their positions. As the world economy has developed, it has also made more apparent the downsides of globalization. A serious response to these will be vital in ensuring sustainable world economic growth. At the same time, it would be too hasty to draw a conclusion that all problems could be resolved by halting globalization. The particular causes of each problem need to be analyzed and global mechanisms developed accordingly for a more comprehensive response. In terms of policy responses, the best course would be to ensure that distortions simply do not arise, but where these do emerge, safety nets need to be set in place to provide relief. In this chapter, Section 1 overviews the distortions which are accompanying world economic development, as well as the activities of NGOs expressing concern over these. Section 2 discusses employment, the North-South divide, deforestation and food safety. The causes of these problems are highlighted, as well as steps to combat them, followed by a discussion of safety net development. Finally, Section 3 focuses on the environment, one of the most critical issues in ensuring sustained world economic growth amidst ongoing globalization. This chapter looks specifically at the current state and remaining issues for 1 “Globalization” is an abstract concept which is used in different ways by different people. To economists, it signifies a greater tendency toward cross-border economic activities, while politicians and historians use the same term to discuss the post-Cold War global spread of Anglo-Saxon liberalism. In some cases, it is applied more vaguely to recent world economic growth and market economy advocacy. This is evidence of the way in which the growing international movement of goods, money, people and information is impacting globally not just on the economy but a whole range of areas— politics, society, and culture, for example—leading to a greater heterogeneity in the international community and in international relations. This White Paper takes an economic perspective on globalization, defining it as the global penetration of market economy.

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Chapter III Globalization merits and demerits

The East Asian growth overviewed in Chapter I and the business dynamism arising fromthe IT revolution in Chapter II symbolize the way in which the world economy hascontinued to develop on the wings of expanding trade and investment and a growing trendtoward globalization1. At the same time, the swift spread of globalization and thecontinuous growth of the world economy have amplified a number of distortions withinand between countries, provoking environmental destruction, for example, as well aswidening the income gap between the rich and poor and causing growing concern overemployment. It is argued in some quarters that such distortions are caused by theexpansion of world trade and investment. An extreme representation of this position wasthe series of large-scale demonstrations staged by extremist NGOs at the WTO SeattleMinisterial in 1999. These NGOs target key meetings such as the WTO, which exemplifiesthe free trade system, and international development institutions such as the World Bankand the IMF under the banner of “anti-globalization”. As such meetings attract worldmedia attention, they are viewed by the NGOs in question as prime opportunities to putacross their positions.

As the world economy has developed, it has also made more apparent the downsides ofglobalization. A serious response to these will be vital in ensuring sustainable worldeconomic growth. At the same time, it would be too hasty to draw a conclusion that allproblems could be resolved by halting globalization. The particular causes of each problemneed to be analyzed and global mechanisms developed accordingly for a morecomprehensive response. In terms of policy responses, the best course would be to ensurethat distortions simply do not arise, but where these do emerge, safety nets need to be setin place to provide relief.

In this chapter, Section 1 overviews the distortions which are accompanying worldeconomic development, as well as the activities of NGOs expressing concern over these.Section 2 discusses employment, the North-South divide, deforestation and food safety.The causes of these problems are highlighted, as well as steps to combat them, followed bya discussion of safety net development. Finally, Section 3 focuses on the environment, oneof the most critical issues in ensuring sustained world economic growth amidst ongoingglobalization. This chapter looks specifically at the current state and remaining issues for 1 “Globalization” is an abstract concept which is used in different ways by different people. Toeconomists, it signifies a greater tendency toward cross-border economic activities, while politiciansand historians use the same term to discuss the post-Cold War global spread of Anglo-Saxon liberalism.In some cases, it is applied more vaguely to recent world economic growth and market economyadvocacy. This is evidence of the way in which the growing international movement of goods, money,people and information is impacting globally not just on the economy but a whole range of areas—politics, society, and culture, for example—leading to a greater heterogeneity in the internationalcommunity and in international relations. This White Paper takes an economic perspective onglobalization, defining it as the global penetration of market economy.

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integrating sustainable economic growth with environmental protection.

Section 1 Globalization demerits and international NGO action

    【【【【Key points】】】】

1. Globalization merits and demerits While the postwar world economy has grown on the strength of expanding trade andinvestment, a wide range of social problems—employment, the North-South gap,deforestation and food safety, for example—have also become evident. As the worldeconomy develops along the course of globalization, various distortions are beginning toemerge, and we will have to deal with these problems if we are to achieve sustainablegrowth. Concerns over these distortions, which range from employment issues through toenvironmental and cultural issues, have recently come to be collectively labeled “anti-globalization”.

2. NGO action attracts international attention With concern over globalization being a global issue, internationally active NGOs andother groups are playing a greater role in this regard than single sovereign states or certaingroups within a country. NGO areas of concern, agendas and methods are in fact highlydiverse, with some NGOs engaging in large-scale anti-government demonstrations whileothers look for solutions to problems in partnership with government. Some NGOs havedrawn international attention through massive anti-globalization demonstrations atinternational conferences, a prime example occurring at the time of the Seattle WTOMinisterial Conference. Many NGOs, however, are contributing to society specialistknowledge and skills in specialized areas, with the share of NGOs directly or indirectlyinvolved in World Bank projects growing from 20 percent in FY1989 to 52 percent inFY1999.

 The end of the Cold War has gradually broken down information control worldwide, andin recent years information technology and international media have made enormous stepsforward. In consequence, interest in issues such as the environment and poverty is growingworldwide, with international NGO action in these areas becoming more active. Theevolution of the Internet in particular has strengthened NGOs’ ability to communicateinformation and has opened the way for the creation of world networks, elevating NGOsinto an increasingly powerful international force.

1. Globalization merits and demerits(1) Distortions accompanying contemporary world economic development The world economic order which began with the post-WWII Bretton Woods and GATTregimes learnt from the failure of pre-war economic blocs and instead chose marketeconomy and trade and investment liberalization as its guiding principles. As a result, theworld has become much more interdependent, while the world economy has expanded

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substantially. Since the 1980s in particular, when the Cold War began to draw to a closeand trade and investment barriers were lowered or removed worldwide, cross-border flowsof goods, money, people and information have grown on a global scale, deepening theinterdependence of the world economy still further and also powering it ahead. However,the forward progress of globalization and the world economy has also brought to theserious problems such as employment, income disparities, the North-South gap,deforestation and food safety. For example, the North-South gap has actually widened,with the African nations in particular struggling with sluggish economic growth since 1970.In terms of deforestation too, forests a third the size of Japan are being lost every year.World economic development has therefore had its demerits, and the human race must dealwith these promptly to ensure the sustainable growth of the world economy in the years tocome.

(2) Globalization-related concerns A number of concerns regarding the distortions which have accompanied worldeconomic development have been expressed under the banner of “anti-globalization”. Justbefore the introduction of European single currency, the international epitome of regionaleconomic integration, France experienced a wave of opposition to the various economicpolicies which the government had designed to expedite this integration. At the end of1995, a nationwide labor strike threw the country into a turmoil. The WTO MinisterialConference held in Seattle from 30 November through 3 December 1999 drew numerousNGOs from around the world to tout their “anti-globalization” stance. Subsequently, too,NGOs and other “anti-globalization” groups from various countries have gathered atinternational conferences such as the annual meetings of the IMF and the World Bank toregister vociferous protests. Fig. 3.1.1 categorizes the main concerns expressed under theanti-globalization banner, from which it is apparent that the term embraces a wide range ofissues from the economic through to the social.

2. NGO action attracts international attention(1) International NGOs a growing force(a) NGO diversity As seen above, just as problems associated with globalization are occurring on a globalscale, the primary agents in expressing concern over such problems are no longer countriesor certain groups within a country so much as international NGOs and other organizationson the same scale, which have become highly visible. At the same time, the blanket term“NGO” does not reflect the diversity of these groups’ agendas, activities and approaches.Where some NGOs engage in massive anti-government demonstrations, others work inpartnership with government to resolve issues. Two outstanding examples are AmnestyInternational, an international organization for the protection of human rights which wasawarded the Nobel Peace Prize in 1977, and Médecins Sans Frontières, an internationalmedical assistance group which received the same award in 1999. A think tank2 whichdistributed a questionnaire to NGOs expressing their opposition at the 1999 Seattle WTO 2 The Japan Research Institute, Ltd. (2001).

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Ministerial found that by far the greatest area of concern was the environment, followed bypoverty, food safety, agriculture, and then labor (Fig. 3.1.2).

Figure3.1.1 Main concerns over globalizationMain concerns Substance

Trade and investment liberalizationloses jobs.

Trade and investment liberalization takes employment from developed countries with soundlabor conditions to developing countries where labor costs are cheaper.

Mercantilist large-scale agriculturalmanagement ruins micro-farmers.

Mercantilist large-scale agricultural management by corporations brings down agriculturalproduct prices and drives many farmers out of business.

Product manufacture in developingcountries using child laborconstitutes unfair competition.

Developing countries have an unfair competitive advantage in that they use cheap child labor.Products manufactured under such unfair labor conditions should not be imported.

Management of multinationalsencourages "race to the bottom" interms of labor standards, etc., indeveloping countries.

Developing countries are engaged in a competition to lower labor standards, etc., so as to attractforeign direct investment. Multinationals should not place developing countries in the positionof having to compete in this way.

International harmonization bringsfood safety standards down.

The harmonization of food safety standards being advanced in the name of trade liberalization isactually pulling down these standards. Food safety standards should be determined based oneach country’s sovereignty, whereas international harmonization infringes this sovereignty.

The WTO should not be treatingdomestic environmental protectionpolices as trade barriers whichinfringe the WTO Agreement.

As seen in the shrimp and sea turtle cases, domestic environmental protection policiesdetermined under national sovereignty are being cited by the WTO as trade barriers contraveningthe WTO Agreement. This behavior by the WTO infringes national sovereignty.

The WTO lacks transparency. The WTO is dominated by major powers, does not reflect the interests of developing countries,and lacks transparency. WTO dispute settlement procedures do not allow for the participation ofcivilians, the parties directly affected by the matters under dispute, and lack transparency.

The shape of today’s economyencourages global warming.

The problem lies in today’s economy with its massive energy consumption which is encouragingglobal warming.

Trade liberalization causesdeforestation.

Japan and other major importers of forest products are destroying the rainforests.

World Bank and IMF projects causeenvironmental destruction.

Large Dam and other projects supported by the World Bank and the IMF are destroying thesurrounding environment.

Trade and investment liberalizationexpands North-South gap.

Trade and investment liberalization benefits only rich countries, expanding the North-South gap.

Trade and investment liberalizationexpands domestic income gap.

Trade and investment liberalization benefits only the rich, expanding domestic income gap.

Trade and investment liberalizationdestroys national culture.

Trade and investment liberalization floods countries with foreign products and information,leading to the loss of the traditional culture and industry which is a nation’s heritage.

Source: METI.

64.7

23.5

26.5

29.4

38.2

45.6

55.9

60.3

0 10 20 30 40 50 60 70

Other

Chemical substances

Culture

Labor

Agriculture

Food safety

Poverty

Environment

(%)Note: Multi-answer format.Source: The Japan Research Institute, Ltd.

Figure 3.1.2 Areas of concern to NGOs which signed the Statement from Members of International Civil Society Opposing a Millennium Round or a New Round of Comprehensive Trade Negotiations (Seattle, 1999)

Some NGOs also take a relatively confrontational approach to governments andinternational institutions, with certain groups even adopting violent tactics (described

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below as “non-cooperative NGOs), while others participate in policy implementation withgovernments and other areas of the public sector through partnerships, in some cases evenimpacting constructively on official policy-making (described below as “cooperativeNGOs”).

(b) Non-cooperative NGO activities Non-cooperative NGOs first came to the public eye with their protests at the WTOMinisterial Conference in Seattle in 1999, and have since been using similarly largeinternational meetings to stage huge demonstrations against globalization. For example,many non-cooperative NGOs joined forces at events such as the September 2000 IMF-World Bank annual meeting, as well as the Asia-Pacific Economic Summit held by theWorld Economic Forum the same month in Melbourne, using large-scale demonstrations tofurther their anti-globalization campaigns. However, although these NGOs are holdingjoint demonstrations in protest against globalization, they are not necessarily workingtoward the one clear objective, as their respective areas of focus range from environmentalissues through to trade protectionism. This variety is apparent in Fig. 3.1.3, whichexamines the main groups participating in the 1999 Seattle demonstrations and theircentral arguments.

In Seattle in 1999, moreover, large-scale demonstrations escalated into violence on thepart of some extremist elements, creating chaos around the conference area and on Seattlestreets. While the details of the violence in Seattle has yet to become clear, the maininstigators were apparently not non-cooperative NGOs against globalization, but ratheranarchists and other unrelated parties using the anti-globalization movement to furthertheir own agendas3.

Figure 3.1.3 Major groups involved in the large-scale demonstrations in the WTO Seattle Ministerial (1999) and their arguments

Organization ArgumentPublic Citizen (US) The global expansion of trade and investment is sacrificing jobs, health and safety, and the

environment to the benefit only of multinationals and the rich. Public Citizen is totallyopposed to the WTO as the international organization shaping the current world trade andinvestment regime.

Sea Turtle RestorationGroup (US)

The STRG believes that the US should pull out of the WTO in response to the WTO rulingthat the obligation placed by the US government on industry to use protection devices for seaturtles, members of the shrimp family, infringes the WTO Agreement. This ruling is viewed astransgressing against democracy and national sovereignty.

Sierra Club (US) Trade must be fair and environment-friendly. The group is opposed to the WTO, which itviews as threatening the environment, health and safety. It also believes that the WTO shouldbe made more democratic and allow civil society participation in the decision-makingprocess.

Teamsters (US) Trade expansion benefits only multinationals and takes jobs from workers. Teamsters isopposed to WTO expansion in that this ignores workers’ interests.

Confédération Paysanne(France)

Opposed to mercantilist agriculture which puts many small farmers out of business. Alsoopposed to the import of hormone-fed beef from the US in order to ensure consumer safety.

Sources: Newsweek (13 December 1999) and NGO websites.

3 Eagan (1999).

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7782

66

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0

10

20

30

40

50

60

70

80

90

Education Health, food,population

Development Environment

(%)

Note: Ratio by sector for FY1999.Source: World Bank: Civil Society Relations—Fiscal 1999 Progress Report (World Bank).

Figure 3.1.4 Ratio of World Bank projects with NGO involvement

(c) Cooperative NGOs deepen involvement in policy-making and implementation byinternational organizations Many NGOs supply society with expert know-how and skills in specialist areas. NGOshave been a growing force at international meetings since the UN Conference onEnvironmental Development (the Earth Summit) in Rio de Janeiro in June 1992. In recentyears, the United Nations, the World Bank and other international institutions haverecognized the activities of these NGOs and have even reflected their findings to someextent in policy-making and implementation.

The World Bank, the world’s largest assistance institution for developing countries,emphasizes its partnership with civil society, NGOs included, in policy planning andimplementation. A World Bank report4 released in 2000 indicates that the ratio of directand indirect involvement of NGOs in World Bank projects has grown from 20 percent inFY1989 to 52 percent in FY19995. By area too, NGO involvement has risen to 82 percentin all environment-related projects (Fig. 3.1.4). NGOs are also involved in many othermajor areas.

The World Bank’s approbation of NGOs and other such groups arises from their abilityto grasp the changing and diverse assistance needs of the poor due to their close proximityto the grassroots of society, as well as the valuable perspectives, know-how and experiencethey contribute, which often differ from government. As a result, they have become anessential partner in the World Bank’s policy implementation. The Bank has sought theparticipation of NGOs and other elements of civil society in creating the measures basedon its 1998 Comprehensive Development Framework, as well as in formulating thePoverty Reduction Strategy Paper as decided in 1999. Through this kind of dialogue with

4 World Bank (2000).5 The World Bank’s fiscal year runs from 1 July through 30 June the next year.

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NGOs, the Bank aims to deepen shared understanding with civil society regarding povertyreduction projects and to boost the effectiveness of these projects.

(2) Background to flourishing international NGO activities(a) Development of IT and international media While the limits to the welfare state and to the role of government in economicdevelopment number among the factors prompting the recent spurt of NGO activities, themajor cause has been the evolution of information technology and the international mediain recent years6. More sophisticated technology, advancing from telephones and faxesthrough satellite communications and the Internet have greatly facilitated the cross-border,global flow of information. In addition, the worldwide relaxation of information controlwhich has accompanied the end of the Cold War has allowed simultaneous access all overthe globe to world information, as exemplified by the coverage of the Tiananmen SquareIncident in China and the Gulf War in the Middle East. As a result, information ondomestic environmental issues and poverty is also reaching other countries, fosteringinternational concern. In the 1990s in the wake of the Cold War, civil society becameincreasingly focused on the global environment, and the attendant mushrooming of NGOactivities is evidenced by the fact that more than half of the NGOs expressing theiropposition to the WTO Seattle Ministerial were established in 1991 or later (Fig. 3.1.5).

Once geographically-isolated NGOs have also benefited from their new ability totransmit information worldwide, which has allowed them to shape international publicopinion and join forces with similar NGOs in other countries and regions to expand andenhance their activities.

23.5

30.9

20.6

17.6

7.4

0 5 10 15 20 25 30 35

1996 onward

1991-95

1981-90

1971-80

Before 1970

(%)

Source: The Japan Research Institute, Ltd. (2001).

Figure 3.1.5 Timing of NGO establishment

6 Salamon (1994).

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(b) Internet development and expansion of activities The advance of Internet technology in the late 1990s in particular—websites and e-mail,for example—impacted heavily on international NGO activities. More than anything else,world NGO networks became incomparably easier to form, and NGOs’ ability tocommunicate the goals and content of their activities soared.

According to the questionnaire mentioned earlier in regard to NGO activities andInternet use, websites are the most popular tool for communicating information on NGOactivities and arguments. Mailing lists also stand alongside newsletters as the mostcommon means of providing information (Fig. 3.1.6). The top responses in terms of theeffect of website utilization were greater linkages with other groups involved in the sameissues and a greater number of participants involved in NGO activities. Websites haveevidently boosted NGOs’ ability to communicate their goals and policies and expand theirnetworks with groups involved in similar areas, as well as to attract new members (Fig.3.1.7). Addressing the effect of mailing lists, the bulk of NGOs felt that the lists had

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25.0

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0 10 20 30 40 50 60 70 80

Other

No response

Chat sessions

Advertisements

Direct mail

Leaflet distribution

Contributions to newspapers and magazines

Mailing list

Newsletter

Website

Figure 3.1.6 NGO means of communicating information

(%)

Source: The Japan Research Institute, Ltd. (2001).

22.9

60.4

37.5

45.8

29.2

20.8

0 10 20 30 40 50 60 70 (%)

Figure 3.1.7 Effect of website use on NGO activities

Source: The Japan Research Institute, Ltd. (2001).

Wider range of themes addressed

Deeper discussion on group’sthemes

Greater number of participants

Greater influence

Linkage with other groupsinvolved with the same themes

Other

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increased their presence and deepened discussion on their key themes, suggesting an activeexchange of information among those involved and that deeper discussion can bepromoted by the lack of temporal and physical restrictions in cyberspace. The closerdiscussion also appears to be widening understanding of NGO goals (Fig. 3.1.8).

Further, the Internet has greatly facilitated the organization and execution of symposia,demonstrations and other protest activities. In particular, the instant transmission andreception of information all over the world through e-mail and the accompanyingdissolution of temporal and physical constraints means that NGOs now need only a fewpeople and a tiny budget to plan and mount their protest activities, a development whichhas enormously strengthened NGOs’ ability to communicate information on their activities.

18.2

81.8

66.7

45.5

60.6

45.5

0 30 60 90 (%)

Figure 3.1.8 Effect of mailing-list use on NGO activities

Wider range of themes addressed

Deeper discussion on group’sthemes

Greater number of participants

Greater influence

Linkage with other groupsinvolved with the same themes

Other

Source: The Japan Research Institute, Ltd. (2001).

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Column 4: NGO coordination advances village electrification

Education and human resource development are undeniably crucial in combatingpoverty in developing countries. In remote areas in particular, correspondence courses viatelevision, radio and the Internet have a key role to play. However, even today, anestimated two billion people live in villages without electricity. Supplying power isobviously a prerequisite for remote learning, but stringing and extending transmission linesas far as remote areas is ineffective and costly. It also does little to combat increasinglyserious global environmental problems. One answer has been electrification projects usingnew, dispersed-type energies, such as the solar home system (SHS), a solar powergenerator. The World Bank and the Global Environment Facility have been workingactively on SHS dissemination to villages without power, but have experienced problemsnot only in garnering the understanding of villagers, but also with equipment installationand maintenance, and lending and collection. Before SHS units can be commercialized anddisseminated on a massive scale, social systems need to be set in place and a myriad ofproblems resolved.

In Vietnam, this difficult task has been addressed through a collaboration between theUS Solar Electric Light Fund (SELF) and the Vietnam Women’s Union (VWU) inVietnam. SELF is a non-profit organization established in 1990 to bring SHS to developingcountry villages without power. Aside from Vietnam, SELF has already implemented pilotprojects in China, India, South Africa, Brazil and Indonesia (http://www.self.org). TheVWU is a women’s group for the protection of the rights of Vietnamese women. As theVWU has around 10 million members, virtually all housewives in Vietnam’s population ofaround 70 million would seem to belong to the organization. The VWU addresses issuessuch as education, medical care and the development of transport infrastructure, in whichcontext village electrification is obviously a major prerequisite. This concurrence ofinterest has brought together two groups with different goals to provide power to the sixmillion Vietnamese whose villages are still in the dark.

The collaboration began on an experimental basis in 1995. In 1997, SELF establishedthe Solar Electric Light Company (SELCO) in Ho Chi Minh, bolstering the project. Thedivision of roles between the two groups is as follows. SELF (SELCO) handles SHSmanufacture, installation, maintenance and after-sales service. Because of the difficulty ofdispatching engineers to remote mountain areas, engineers are trained locally and givenresponsibility for maintenance. SHS packages cost around 30,000 to 70,000 yen whencontrollers, batteries, lights and other peripherals are included, a great expense forhouseholds which do not even have electricity. In most cases, therefore, local branches ofthe Vietnamese agricultural bank and SELCO itself provide financing. Next, the VWUexplains the SHS concept to local residents, and also mediates between SELCO andhouseholds buying SHS units. In terms of financing, the VWU helps households with theirfinancing applications for the agricultural bank, and where households are turned down inthe subsequent financing investigation, can also underwrite repayments. The VWU alsoacts for the agricultural bank in collecting loans to avoid the substantial costs which would

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be incurred by the bank if it had to handle the collection of small sums of money fromremote areas.

The way in which the two NGOs have combined their respective strengths has led to theinstallation of around 1,000 SHS units annually. Many issues have yet to be resolvedbefore the remaining six million villagers, around one million households, finally havepower—a larger budget and lower interest rates on financing, for example—but this NGOcollaboration to achieve the difficult task of building viable social systems and bringingelectricity to rural villages in the form of SHS is certainly a model for the rest of the worldto follow.

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Section 2 Globalization demerits and policy issues

【【【【Key points】】】】

1. Labor issues Forced labor, child labor and other employment conditions in developing countries aresaid to take jobs from developed countries. This argument derives primarily from twopositions: (1) human rights protection (protecting workers in exporting developingcountries), and (2) trade protectionism (sheltering industries and jobs in importingdeveloped countries).

Developing countries are said to have a negative impact on labor conditions due to theunfairly low labor standards they set to attract foreign direct investment, allowing low-wage labor which takes jobs away from developed countries. In fact, countries with lowlabor standards are not primary recipients of direct investment, the bulk of whichconversely goes to countries with high labor standards. Countries with high income levelsalso tend to have high labor standards, revealing a strong correlation between laborstandards and income levels. As higher labor standards and trade- and investment-basedeconomic growth are mutually complementary, to raise labor standards in developingcountries, it will be important to encourage economic growth through expanded trade andinvestment.

2. North-South gap The post-war world economy has moved ahead strongly on a wave of globalization, butas is evident in many African countries, the benefits of this growth are not necessarilybeing enjoyed by all countries; in fact, income disparities between developed anddeveloping countries are burgeoning. Looking at the relationship between economicgrowth disparities and trade and investment, as noted in Chapter 1, the East Asiancountries have grown on the strength of trade expansion, whereas the African countriescontinue to stagnate in terms of both trade and economic growth. Key factors in povertyreduction will include capital accumulation, human resource development, technologicaldevelopment, and the development of both “soft” and “hard” infrastructure. Designingpolicies to stimulate trade and investment will also be vital to developing countries’economic growth.

3. Globalization and deforestation Currently, the world loses an area of forest equivalent to a third of Japanese nationalterritory every year. Ongoing deforestation, particularly in developing regions, is not onlyan issue involving the countries and regions in which such forests are located, but can alsolead to global issues such as less biodiversity, world climate fluctuations, and increasingdesertification. International concern about the world’s forests is therefore growing. SomeNGOs sounding the alarm in this area assert that international trade is a major cause ofglobal deforestation. However, given that only just over 10 percent of the total productionvolume of forestry products is traded, it seems unlikely that international trade alone is

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such a significant agent of destruction. Deforestation is a far more complex issue, arisingfrom a combination of socioeconomic factors—swift population increases and poverty, forexample, as well as slash-and-burn farmland development accompanying more vigorouseconomic activity. Saving forests will therefore require a more comprehensive approachwhich addresses the various elements behind deforestation, including trade policy, forestpolicy and agricultural policy. Active engagement in international efforts will also be keyin tackling this kind of global-scale issue.

4. Food safety While the need for international harmonization to promote trade facilitation is growing,biotechnology advances have raised the question of the safety of genetically-modifiedorganisms (GMOs), while a country’s sovereign right to improve public hygiene is alsoimportant. In this situation, it is proving difficult in some cases to balance the two policies.The advance of globalization is therefore spurring calls to reduce and eliminate barriers tocross-border corporate activities, while, on the other hand, a balance has to be foundbetween this demand and the domestic disciplines and socioeconomic systems which arepart of a country’s sovereign rights. Harmonization of trade liberalization and domesticsystems, and of international disciplines and domestic positions, will become a moreimportant issue in a globalizing world.

5. Background to concerns over globalization and development of safety nets Concerns over globalization are highly diverse, and include issues which are notnecessarily directly related to trade and investment expansion. Issues which have resultedfrom greater trade and investment can be broadly grouped into (1) employment issues,whereby countries believe other countries are taking away their job opportunities, and (2)issues involving clashes between individual countries’ ideas of “fairness” in terms ofdeveloping socioeconomic systems in response to international corporate activities.

These issues have arisen partly because the fruits of globalization-backed economicgrowth have not been shared equally amongst all individuals and all countries. To lock inthe sustained development of the world economy, efforts must be made to design systemswhich will keep the emergence of globalization-induced disparities, tensions and otherstrains to a minimum. Further, when strains do appear, safety nets addressing these must beset in place to assuage unease over rapid socioeconomic changes. Rather than completeavoidance of globalization, it will be vital to respond appropriately to any strains createdwhile also using the momentum of globalization as a springboard for economicdevelopment.

In terms of safety nets addressing changes in the domestic labor environment, activelabor market policies, and particularly those adopted by the EU countries, currently hit bystructural unemployment, are coming under close scrutiny. Labor market policies havetraditionally been passive and ex post facto in nature—providing unemploymentcompensation, for example—whereas active labor market policies focus on matchmaking

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labor supply and demand and developing the work skills of the unemployed, aiming atenhancing labor market mobility.

In terms of international safety nets, it will be important to back ex post facto assistancesuch as food aid with support for the construction of socioeconomic systems in developingcountries to help them keep pace with the globalizing world economy. The world’s largesteconomic development assistance institution, the World Bank, has recently been workingto boost aid effectiveness through, for example, partnerships with civil society.

1. Labor issues(1)Background of labor issues Looking first at labor issues, it is argued that forced labor and child labor in developingcountries take jobs from developed countries. There are two main positions in this regard.One camp is interested in human rights protection, namely the protection of workers inexporting developing countries. The other camp is more trade-protectionist in nature,seeking to shelter jobs and industries in importing developed countries. Discussion ontrade and investment and labor issues has never adequately separated these two arguments.Confusing them, however, will simply advantage protectionists in developed countrieswhile developing countries miss out on the economic growth which would have resultedfrom greater trade and investment, conversely worsening employment conditions. Caretherefore needs to be taken that labor issues do not degenerate into disguised tradeprotectionism. The same holds for the debate on environmental standards.

(2) Argument for the protection of workers’ rights in developing countries Workers’ rights include abolition of forced labor, freedom of association, the right toorganize and the right of collective bargaining , and the elimination of child labor, and areuniversal rights transcending the state. However, it is primarily the task of the sovereignstate to work toward reification of workers’ rights. The key international institution in thisarea is the International Labor Organization (ILO), which establishes internationally-recognized core labor standards. If ensuring workers’ rights is to be made into aninternational issue, it should be discussed by the ILO from the perspective of basic humanrights; trade rights should only be brought into the debate with the greatest of care.Developing countries which do not have workers’ rights properly in place should beassisted with a view to protecting those rights through technical cooperation provided bythe ILO or by other countries.

(3) Argument supporting trade protectionism(a) Trade protection argument The main argument of NGOs such as protectionist unions in developed countries is asfollows. Developing countries making no effort to improve their poor labor conditions aresecuring the advantage of low-cost production through worker exploitation. Maintainingsuch inferior labor conditionss comprises unfair competition on the part of developingcountries, and developed countries should limit their imports from those parts of thedeveloping world which are taking jobs from them through this practice. Developing

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countries are also said to be engaging in a “race to the bottom”—in other words, pullingdown labor standards to attract foreign direct investment, and this further unfairness isagain taking developed country jobs.

This argument grows out of trade protectionism, the desire to maintain industries andemployment in developed countries importing from their developing counterparts. From adeveloping country standpoint, however, low-cost labor is playing a major role as acornerstone in economic development, while from a global perspective, developingcountry production is creating an efficient international specialization structure. Developedcountries have gone through the same economic growth process themselves, and shouldtherefore hardly be criticizing developing countries in terms of the fairness of competition.Developing countries too are concerned that labor standards and trade-related issues willbe confused for protectionist purposes.

(b) Examination of labor standards and foreign direct investment One theory is that the “race to the bottom” spurred in developing countries in the effortto attract foreign direct investment will create further low-wage employment and takeaway developed countries’ jobs. What is the actual relationship between labor conditionsand foreign direct investment. The OECD (2000a) used data on freedom of association tocategorize national core labor standards into four groups7 and demonstrate the relationwith direct investment. According to this analysis, rather than countries with low laborstandards receiving the lion’s share of direct investment, it was actually those countrieswith high labor standards which were attracting the greater amount (Fig. 3.2.1).

Rodrik (1996) analyzes the relation between labor standards and direct investment fromUS-affiliated manufacturers, and finds that those countries with lower labor standardsreceive less direct investment, a result diametrically opposed to the argument that lowlabor standards are leading to more direct investment and thus to the unfair creation ofemployment.

Although they have global production networks, multinationals too do not necessarilyselect countries with low labor standards as production bases. If multinationals did chooselocations purely on the basis of the low wages allowed by poor labor conditionss, thedeveloping countries in question would succeed in attracting foreign direct investment,with the resulting economic effects boosting economic growth. However, the resultsproduced by both the OECD (2000a) and Rodrik (1996) suggest the opposite—that factorsother than wages are crucial in determining where companies will channel their directinvestment abroad. These factors no doubt include transport and telecommunicationsinfrastructure development and the existence of a transparent and stable legal system.

7 Group 1 includes countries where freedom of association is practically non-existent. Group 2 includescountries where restrictions on freedom of association are significant or it is difficult to fromindependent workers’ organizations or union confederations. In Group 3 countries, some restrictionsexist but it is possible to establish independent workers’ organizations and union confederations. Group4 consists of countries where freedom of association is generally guaranteed in law and practice.

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(c) Examination of labor standards and income levels The OECD has also investigated the relation between labor standards and income levels,basing its comparison on labor standard categories created according to freedom ofassociation restrictions. According to the study, the higher the income levels, the higher thelabor standards a country tends to have, revealing a strong correlation between laborstandards and income levels (Fig. 3.2.2). It would seem that labor standards improve intandem with economic growth, while measures restricting trade and investment, whichcould have a negative impact on economic growth, produce the opposite effect.

Figure 3.2.1 Labor standards and FDI inflows

0

30

60

90

120

150

(Labor standard category based on freedom of association)

(US$ billion)

Notes: 1. Average values for 1995-99.Notes: 2. See Appended Note 3.2.1.Sources: IFS (IMF), WDI (World Bank).

Group 1 Group 2 Group 3

Group 4

Low laborstandards

High laborstandards

Figure 3.2.2 Labor standards and per capita GNP

0

10,000

20,000

30,000

40,000

50,000

(Labor standard category based on freedom of association)

(US$)

Notes: 1. 1999 data.Notes: 2. See Appended Note 3.2.1.Source: WDI (World Bank).

Group 1

Group 2 Group 3

Group 4

Low laborstandards

High laborstandards

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Figure 3.2.3 Child labor and per capita GDP

0

10

20

30

40

50

Per capita GDP(1992; US$)

Child labor rate(1995; %)

20,00010,0005,0001,000 2,000500Note: Per capita GDP is expressed as a logarithm.Source: Krueger (1997).

In this context, Krueger (1997) used data on income levels and child labor to meet withthe same result. Krueger found a negative correlation between income levels and childlabor, with child labor decreasing as income levels rose (Fig. 3.2.3).

Better labor standards and economic growth through expanded trade and investmentwould therefore appear to be mutually complementary, with the improvement of laborstandards in developing countries not due to measures restricting international trade andinvestment, but rather achieved through the economic development produced by greatertrade and investment.

2. North-South gap(a) Current status of the North-South gap The postwar expansion of world trade and investment brought about a globalizationtrend which in turn lent enormous momentum to the world economy, but the benefits ofthis growth have not necessarily been shared equally to all countries. Going into the 21st

century, the human race has achieved an unprecedented level of economic growth, and yet,of a world population of around six billion, 1.2 billion are still living in poverty8. Povertytherefore remains severe. In sharp contrast to their dazzling leap forward to independencein the 1960s, many African countries have seen their economic growth stagnate since the1970s, with the bulk recording minus growth (Fig. 3.2.4). In some countries, more thanhalf the population is living on less than a dollar a day, and Sub-Saharan Africa inparticular is the poorest region in the world (Fig. 3.2.5). Moreover, in terms not just ofAfrica but the entire world, while world income may have increased, the benefits of thishave not necessarily been extended equally to all countries; rather, income disparitiesamong countries have grown. In terms of per capita GDP (PPP), a comparison of the 8 World Bank (2000).

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Figure 3.2.4 Economic growth in the Sub-Saharan countries(%)

countries/regions 1960s 1970s 1980s 1990s 1975-95 averageBotswana 4.3 11.0 7.9 2.7 6.7Mauritius 0.8 5.1 3.2 4.2 4.2Seychelles 0.5 5.8 1.7 2.7 3.0Swaziland 8.2 7.0 2.8 2.1 1.8Lesotho 4.7 8.8 0.3 0.3 1.6Burkina Faso 1.1 0.7 1.1 0.1 0.8Cameroon 0.0 3.3 1.8 ▲ 5.8 0.6Kenya 2.2 3.1 0.5 ▲ 1.0 0.5Benan 0.4 ▲ 0.3 ▲ 0.4 1.1 0.3Burundi 0.2 3.2 1.3 ▲ 3.7 0.1Republic of Congo 1.3 1.9 2.6 ▲ 3.0 ▲ 0.1Mali 2.9 ▲ 2.0 ▲ 0.6 ▲ 0.2Sudan ▲ 1.0 0.9 ▲ 1.6 2.4 ▲ 0.2Mauritania 4.7 0.3 ▲ 0.4 0.1 ▲ 0.2Gambia 1.4 ▲ 0.1 ▲ 0.8 ▲ 0.2Guinea Bissau ▲ 0.1 1.3 ▲ 0.2Malawi 2.5 2.5 ▲ 1.2 0.4 ▲ 0.4Ghana ▲ 0.4 ▲ 0.8 ▲ 1.5 1.2 ▲ 0.5Rwanda ▲ 0.8 1.7 0.0 ▲ 6.1 ▲ 0.5Senegal ▲ 0.2 ▲ 0.6 ▲ 0.6 ▲ 0.6Zimbabwe 0.8 1.2 ▲ 1.2 ▲ 0.6South Africa 3.7 0.9 ▲ 0.2 ▲ 1.1 ▲ 0.7Nigeria ▲ 0.7 3.9 ▲ 3.0 1.3 ▲ 0.8Chad ▲ 0.7 ▲ 3.4 2.4 ▲ 2.3 ▲ 0.9Togo 5.8 0.3 ▲ 0.5 ▲ 3.2 ▲ 1.4Central Africa ▲ 0.2 ▲ 0.3 ▲ 1.7 ▲ 1.7 ▲ 1.5Cote d’Ivoire 3.9 3.2 ▲ 4.5 ▲ 1.2 ▲ 1.9Niger ▲ 0.6 ▲ 1.2 ▲ 3.1 ▲ 3.5 ▲ 1.9Madagascar 0.4 ▲ 0.9 ▲ 3.1 ▲ 2.0 ▲ 2.3Gabon 6.0 4.8 ▲ 2.0 ▲ 0.9 ▲ 2.5Zambia 0.5 ▲ 1.6 ▲ 2.1 ▲ 2.5 ▲ 2.5Sierra Leone 0.3 ▲ 1.1 ▲ 6.5 ▲ 2.7Democratic Republic of Congo 0.6 ▲ 2.7 ▲ 2.1 ▲ 11.2 ▲ 5.4

Sub-Saharan Africa average 2.4 3.0 0.6 0.5 0.5Note: Average growth rates for per capita GNP (1995 US$).Source: WDI (World Bank).

0

10

20

30

40

50

60

70

80

Ghana

Mali

Zambia

Nigeria

Central A

frica

Niger

Burkina Faso

Gam

bia

Lesotho

Mozam

bique

Uganda

Zimbabw

e

Rw

anda

Nam

ibia

Botsw

ana

Ethiopia

Kenya

Senegal

Tanzania

Cote d’Ivoire

South Africa

Mauritania

Ratio ofpopulation(%)

Source: WIR (World Bank).

Figure 3.2.5 Ratio of persons in Sub-Saharan Africa living on no more than US$1/day

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Sub-Saharan Africa

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1960s 1970s 1980s 1990s

Share(%)

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East Asia (excluding Taiwan)

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1960s 1970s 1980s 1990s

Share(%)

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Growthrate(%)

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Figure 3.2.6 Trends in economic growth and share of world trade of Sub-Saharan Africa and East Asia

averages for the five poorest countries and the five richest countries reveals that thedisparity grew from 1:19 in 1950 to 1:37 in 19929. It has in fact been argued thatdeveloping countries are being drawn deeper into poverty as a result of expanded trade andinvestment. However, greater trade and investment has indisputably had a positive impacton the economic growth of developing countries. Countries such as those in East Asiawhich have responded to the global expansion of trade and investment have in factachieved high economic growth. Even in the African countries where little growth hasbeen evident, the slump in their economic growth parallels the timing of the slump in theirshare of world trade (Fig. 3.2.6). It is those countries which have not been able to gearthemselves to world trade and investment expansion which have struggled with theireconomic growth. This pattern in the world economy suggests that greater trade andinvestment has in fact provided significant momentum behind economic growth.

(2) Resolving the poverty issue(a) Developing the foundations for economic growth Of course, a country’s economic growth is not determined simply by cross-border tradeand investment with other countries, but by a combination of factors, including factorproductivity and technological levels, as well as macroeconomic policies and socialpolicies such as income redistribution. Constructive discussion toward eliminating povertymust consequently go further than the limited scope of trade and investment policy toembrace a country’s situation in its entirety, including its social systems and economicpolicies.

To achieve economic growth, a country also needs to accumulate capital and humanresources and promote technology development. The most critical elements to this end areto foster the human resources who will engage in economic activities and to develop thesocial “hard” and “soft” infrastructure to form the foundations for highly predictable andfree economic activities, thus allowing stable, low-cost business operations10. Specific 9 Calculated from Maddison (1995).10 Collier and Gunning (1999) give comprehensive consideration to factors dragging down theeconomic growth of the African countries. According to their analysis, in addition to the geographical

Source: WDI (World Bank).

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steps which must be taken therefore include improvement of public education levels toensure the necessary human resources and development of the following softinfrastructure: creation of a corruption-free government which maintains completetransparency in its decision-making and procedures, development of a fair and enforceablelegal system and social safety-nets, establishment of a stable financial system,implementation of stable macroeconomic policies encouraging investment and savings,development of a competitive market environment, and reduction and elimination of tradeand investment barriers. Necessary “hard” infrastructure includes waterworks, seweragesystems and other infrastructure related to daily life, a stable energy supply, and transportand telecommunications.

Eliminating poverty will mean setting in place comprehensive and integrated social andeconomic policies in the areas noted above, which will promote economic growth.Moreover, rather than developing countries distancing themselves from trade andinvestment, the battle against poverty will be far better served by establishing theeconomic foundations which will allow them to rise to the challenge of the globalexpansion of trade and investment.

(b) The East Asian economic growth experience Where Indonesia, Thailand and other East Asian countries numbered among the poorestin the world around 40 years ago in the 1960s, they subsequently achieved such aremarkable level of growth as to be lauded as the “East Asian miracle”. By sharp contrast,many other developing countries in Latin America and Africa were struggling withdepressed economies over the same period. Of the various factors which have contributedto East Asia’s strong growth, we focus below on the accumulation of human resources andcapital and the deepening of external economic relations.

Starting with the accumulation of human resources, trends in East Asian schoolenrolment ratios reveal countries in the region as ahead of the developing country average,and indeed the world average, at primary, secondary and tertiary levels (Fig. 3.2.7). In

Figure 3.2.7 School enrolment ratios in East Asian countries(%)

Elementary education Secondary education Tertiary education1970 1980 1990 1997 1970 1980 1990 1997 1970 1980 1990 1996

East Asian average 90.9 93.7 97.3 96.2 36.9 57.3 62.3 70.0 4.8 8.3 14.4 21.5Developing country average 71.1 78.3 81.1 84.1 25.9 53.6 57.9 61.4 9.8 12.6 14.7Japan 85.7 92.9 96.8 99.9 99.5 99.9 99.9 99.9 18.0 30.5 29.6 42.7World average 73.7 80.2 83.2 84.7 32.7 58.0 61.9 65.7 12.2 15.8 18.7Notes: 1. See Appended Note 1.1.1.Notes: 2. Elementary and secondary education figures comprise the net enrolment ratio (ratio of children of official school age),      tertiary education figures the gross enrolment ratio.Source: WDI(World Bank).

problem, domestic policies have also had a major impact. Fundamental issues include inefficient andpoorly functioning government sectors, the product of non-democratic government regimes. Theresulting lack of the hard (in sectors such as transport, telecommunications and energy) and soft(absence of laws ensuring contract fulfillment, economic regulations constraining competition,excessive financial market regulation, inappropriate taxation, human resource shortages in areas suchas education and medical care) infrastructure needed for economic activities on the part of individualsand companies is noted as a cause of sluggish economic growth in Africa.

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Figure 3.2.8 Savings and investment rates in East Asia

Note: See Appended Note 1.1.1.Source: WDI (World Bank).

Savings rates

010203040

% of GDP

East Asia(excluding Taiwan)

Developing country average

World average

Investment rates

0 10 20 30 40

1965

1970

1975

1980

1985

1990

1995

1997

(Year)

% of GDP

World average

Developing country average

East Asia(excluding Taiwan)

Figure 3.2.9 Changes in exports and income levels

Export growth rate(%)

Per capita GNPgrowth rate(%) Developed countries

East AsiaOther developing countries

China

Korea

ThailandHong Kong

Malaysia

Indonesia

Philippines

Singapore

Notes: 1. See Appended Note 1.1.1.Notes: 2. Average growth rates 1975-95.Source: WDI (World Bank).

▲5

▲10

10

10 200

terms of capital accumulation too, stable macroeconomic policy operation has lifted EastAsian savings and investment rates head and shoulders above those of other countries (Fig.3.2.8).

Another factor behind East Asia’s success has been the way in which countries in theregion have deepened their external economic relations in the course of their economicgrowth. Fig. 3.2.9 shows the growth in exports and income levels of various countries.Most East Asian countries are concentrated in the upper right-hand corner, with highimport growth levels reflected in similarly high income growth levels. This is evidence of

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the strong economic growth which East Asia has achieved through trade.

East Asia’s investment in public education and stable operation of macroeconomicpolicies have allowed injection into the economy of a high-quality labor force andabundant capital, two productivity factors vital to economic growth, while burgeoningtrade and investment have moved regional economies on to a strong growth trajectory. EastAsia’s experience suggests that developing countries should not reject global trade andinvestment, but instead explore policies open to the outside world, working towardeconomic growth through comprehensive economic policies not limited to trade.

3. Globalization and forestation(1) Current status and causes of deforestation(a) Current status of deforestation International concern is growing over the state of the world’s forests. Forests continueto dwindle and deteriorate11 in developing regions in particular, an issue relevant not just tothe countries and regions in which forests are located, but also to the world at large due todiminishing biodiversity, global climate changes (global warming) and ongoingdesertification. As a result, the international concern about world’s forests is growing .Data on deforestation, which is effectively the loss of an international public good, revealsthat the approximately 3.5 billion hectares covered by the world’s forests is beingdeforested at a rate of around 11 million hectares a year, an area equivalent to around athird of Japan’s national territory (Fig. 3.2.10).

11 Deforestation is defined as the change of forest with depletion of tree crown cover to less than 10percent (in the case of developing countries; less than 20 percent in developed countries). Changeswithin the forest class, e.g. from closed to open forest, which negatively affect the stand or site and, inparticular, lower the production capacity, are termed forest degradation and are considered apart fromdeforestation.

Figure 3.2.10 Annual fluctuations in world forest area

Annual fluctuation in area (1,000 hectares)

Rainforest regions Temperate regions,etc. Total

Africa ▲ 3,695 ▲ 53 ▲ 3,748 ▲ 0.7Asia ▲ 3,055 154 ▲ 2,901 ▲ 0.6Oceania ▲ 151 60 ▲ 91 ▲ 0.1Europe 519 519 0.0 Northern Europe 8 8 n.s. Western Europe 358 358 0.6 Eastern Europe 153 153 0.0 Russia n.a. n.a. n.a.North and Central America ▲ 1,037 763 ▲ 274 ▲ 0.1South America ▲ 4,655 ▲ 119 ▲ 4,774 ▲ 0.5

World total ▲ 12,593 1,324 ▲ 11,269 ▲ 0.3

Notes: 1. Annual fluctuations in area are calculated by comparing forest area in 1990 and 1995 and dividing the difference by five.Notes: 2. Forest area in the Middle East is included in temperate Asia.Notes: 3. European figures comprise a total of Northern, Western and Eastern Europe, as well as the former Soviet Union.Notes: 3. Because continuous data were unavailable for forest area in Russia, it has been excluded from figures on area fluctuationNotes: 3. and the rate of fluctuation.Notes: 4. n.s. = Such a small figure as to be insignificant.Notes: 5. n.a. = Data unavailable.Source: State of the World’s Forests 1999 (FAO).

region Annual rate offluctuation (%)

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0

40

80

120

160

1980 1985 1990 1995 1998 (Year)

(US$ billion)

OtherAsiaNorth AmericaEurope

Figure 3.2.11 Trends in value of forest products by region

Note: Forest products here is the total of logs, sawn wood, plywood, wood chips, pulp and other products derived from wood.Source: FAOSTAT Forestry Data (FAO).

(b) Background to and causes of deforestation While international trade is often blamed as a major culprit in deforestation, it is in factdifficult to pinpoint any relation between deforestation and trade. Trends in trade in forestproducts (value base) are shown in Fig. 3.2.11. In terms of the relation between productionand trade volumes, where world wood (log) production is around 3.4 billion cubic meters ayear, only around 500 million cubic meters of this is traded, or just over 10 percent of totalproduction12, which suggests that international trade alone is not necessarily a major factorbehind deforestation.

While the world’s forests, and particularly rainforests, are certainly diminishing anddeteriorating, causes vary according to the region and are often compound in nature. It isimpossible to single out any single factor, in fact, when population growth, poverty,inadequate land use plans and systems, inappropriate commercial logging, overgrazing,excessive wood-gathering and mountain fires are just some of the many elements in thedeforestation equation.

Empirical studies of the causes of deforestation have been conducted, but have not beensufficiently conclusive. Amelung and Diehl (1992) discovered that slash-and-burn farmingand other aspects of agriculture were responsible for around 90 percent of deforestation inall rain-forest countries, by far the largest share, where the direct impact of forestry-relatedactivities was a minor 10 percent or less (Fig. 3.2.12)13. While this result is not in itselfenough to conclude that export-oriented commercial logging and other aspects of forestryhave virtually no impact on the loss of rainforests, it does imply that the major factor indeforestation is not international trade but in fact slash-and-burn farming and otheragricultural development. Moreover, population growth, poverty, traditionally shared land

12 Ministry of Agriculture, Forestry and Fisheries calculations.13 This result does not include forest deterioration.

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and land-holding rights are all issues closely intermeshed with deforestation in developingcountries in particular, demanding a comprehensive response to all the issues behinddeforestation, including trade, forestry, agricultural and land-development policies.

(2) International efforts toward sustainable forest management In addition to their economic function of supplying forest products, forests also performa public function—for example, protecting national territory, cultivating water resources,preventing global warming and preserving biodiversity—as an international publicresource. Sustainable forest management which balances forest protection and use andcontinues to respond to forest needs is therefore a critical task for the internationalcommunity. Recognizing this, international moves are being launched toward sustainableforest management.

In 1990, the International Tropical Timber Organization (ITTO) began to produceguidelines on sustainable forest management toward the Year 2000 Objective which itproposed for tropical forests. The organization is currently engaged in a number of projectsaimed at achieving these goals. The Earth Summit, held in Rio de Janeiro in June 1992,also spurred work on criteria and indicators for the sustainable management of the world’sforests, and considerations have been launched on international mechanisms andagreements such as forest conventions. The final Intergovernmental Forum on Forestsconference was held in 2000, producing a report which included the proposal that a UnitedNations Forum on Forests (UNFF) be set up under UN auspices to consider internationalefforts toward sustainable forest management. The first UNFF meeting will be held in June2001, and expectations are high over the new group’s role in this context. It will also beimportant that Japan participates actively in international efforts. The G8 Communiquéproduced by the Kyushu-Okinawa Summit in July 2000 announced that G8 memberswould examine ”how best we can combat illegal logging, including export andprocurement practices” toward achieving sustainable forest management. This statement isindicative of the growing international consciousness of the need to deal with illegallogging, international trade issues included, and as a G8 member, Japan too will need tomake an appropriate response.

As observed above, deforestation is a complex issue involving a number ofsocioeconomic circumstances, among them an upsurge of economic activities such asslash-and-burn farming and other agricultural land development, as well as swift

Figure 3.2.12 Causes of deforestation in tropical countries(%)

  Brazil Indonesia Cameroon All main tropicalcountries

Forestry 2 9 0 2-10Farmland development 91 90 100 86-94

Slash-and-burn farming 15 59 79 41-49Permanent farming 76 31 21 45Pasture 40 0 0 24Permanent crops 4 3 3 3Arable land 32 28 18 18

Mining (including related industries) 3 0 0 1Dam construction 2 0 0 1Other 2 1 0 2Note: Figures indicate the degree of contribution to deforestation 1981-90.Source: Deforestation of Tropical Rain Forests (Torsten Amelung & Markus Diehl).

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population growth and poverty. A fundamental solution to deforestation will therefore notbe found in trade policies alone, but rather in a comprehensive response to the variousissues behind our dwindling forests, including trade and forestry policies. In terms ofglobal efforts, then, bilateral and multilateral technical and capital cooperation in efforts toachieve sustainable forest management in developing countries, as well as efforts based onthe G8 Communiqué reference, need to be undertaken, while active use should also bemade of international fora for dialogue such as the UNFF, which is directly handling thisissue.

4. Food safety(1) Food safety standards(a) Growing trade in agricultural, marine and food products and internationalsystemic harmonization Standards and conformance systems determining the conformance of domestic orforeign products with technology and safety criteria are established and operated bynational governments to ensure quality and safety, for example, as well as to protect theenvironment. However, disparities in countries’ respective standards and conformancesystems force exporters to tailor their products in line with the regulations of the importingcountry. This can lead to higher manufacturing and sales costs than are incurred wherestandards and conformance systems have been internationally harmonized, detracting fromthe potential trade-based profit to consumers. Further, while standards and conformancesystems were not originally designed to restrict trade, where it is more difficult for foreignproducts to meet national standards and be recognized as such, this effectively throws up abarrier to market entry. The growth in international trade in goods has spurred movestowards international systemic harmonization designed to maximize the benefits of tradeliberalization and remove unnecessary trade barriers.

In terms of food-related health protection systems too, Codex Alimentarius Commission(CAC), an FAO/WHO advisory body established to remove unnecessary trade barriers inline with the growth in international trade of agricultural, marine and processed foodproducts , has been working on criteria harmonization (Fig. 3.2.13). The WTO’s efforts inthis area include the Agreement on the Application of Sanitary and Phytosanitary Measures,designed to prevent phytosanitary measures from becoming disguised trade restrictionsand harmonize national standards with international standards.

(b) International harmonization and domestic systems The SPS Agreement aims to ensure that member countries do not adopt phytosanitarymeasures ”in a manner which would constitute a means of arbitrary or unjustifiablediscrimination between Members where the same conditions prevail or a disguisedrestriction on international trade”. More specifically, the agreement stipulates that membercountries should implement measures which are based on international standards,guidelines and recommendations created by the CAC, while countries are also allowed toadopt standards of a higher level than international standards based on their own riskanalysis.

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0

100

200

300

400

500

600

1980 1985 1990 1995 1998 (Year)

(US$ billion)

Figure 3.2.13 Trends in value of world agricultural and forestry exports

Sources: FAOSTAT Agriculture and Food Trade ; Fishstat Plus, Production and Trade 1976-98 (FAO).

The safety of genetically-modified foods has also come into question as biotechnologyhas advanced. Protecting human health remains an important goal of nationalphytosanitary measures, and is a separate issue from trade liberalization. It is therefore notunreasonable to argue that high-level food safety standards should be adopted regardless ofwhether these are consistent with international standards, and that countries have thesovereign right to preserve this authority. The difficulty arises in coordinating the goal ofinternational harmonization of phytosanitary measures as a means of minimizing thenegative impact of such measures on trade with the goal of protecting human health.

One case fought on this point in the WTO was the EU’s ban on beef produced withgrowth hormones. The EU prohibited the use of growth hormones, and banned imports ofbeef using these as of 1989. The US took the case to the WTO as an infringement of theSPS Agreement, where a panel ruled against the EU in that the EU measures were notbased on determination of a scientifically-based threat and comprised discriminationbetween members and disguised restriction of international trade. An Appellate Bodysubsequently supported the panel’s view that the EU measures were not based on anadequately-proven scientific threat, but unlike the panel, did not regard the measures ascreating discrimination against international trade or as a disguised restriction. TheAppellate Body also noted that one of purposes of the SPS Agreement was legalharmonization, and cautioned against interpretations restricting sovereign rights14.

(c) Future directions As globalization advances and trade expands, differences in countries’ social systemsare obviously causing certain tensions. It must be fully recognized particularly in pursuingthe economic policy goal of trade liberalization that difficulties will arise in coordinatingthis with the quite separate goals of important social policies such as ensuring human 14 WT/DS26, 48/AB/R, paras. 163-165.

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safety. This kind of harmonization of trade liberalization and domestic systems, and ofinternational disciplines and domestic positions, will become a more important issue in aglobalizing world.

5. Background to globalization concerns and safety-net development(1) Background to globalization concerns(a) Background to heterogeneity of concerns Looking more closely at the various arguments grouped as “anti-globalization”, theabove included, it becomes apparent that many have no relation to issues resulting fromexpanded trade and investment, which is one reason for the confusion often arising in“anti-globalization” debates. Figure 3.2.14 divides “anti-globalization” concerns into thoseprimarily influenced by trade and investment expansion and those not directly arising fromtrade and investment alone.

The true purpose of some arguments against globalization is in fact trade protection.Take, for example, advocacy of basic human rights such as the protection of core laborstandards. When this issue is linked with trade measures, the focus can change in thecourse of debate into temporary exclusion of certain products created using low-wagelabor, bringing to the fore disguised protectionism. Before “anti-globalization” concernsare discussed, therefore, it is vital to determine their true nature to ensure a constructiveapproach to resolving the distortions which globalization does create. Care must be takento prevent fears over globalization from deteriorating into mere trade protectionism.

(b) Domestic and international tensions arising from globalization Among the wide range of issues raised in the context of “anti-globalization” are somewhich do not necessarily relate directly to trade and investment expansion. However,common to those which are affected by growing trade and investment is the way in whichgrowing market integration and market economy penetration in terms of today’s goods,services and capital are transforming traditional social mechanisms, creating a certaintension among those people resisting change. Fig. 3.2.14 focuses on employment as one

Figure 3.2.14 Types of concerns over globalizationMain types Specific content

Issues primarily affected by trade and investment expansion<Domestic tensions>* Employment issues Protection of specific industries, labor standards,

environment standards, etc.International tensions* International harmonization issues  -Issues arising from disparities in national Standardization of the various national standards socioeconomic systems  -Issues involving the transparency of international WTO transparency institutions Issues not necessarily linked directly to trade and investment expansion alone* Issues primarily involving economic growth Poverty* Issues involving the protection of the global environment Global warming and resources as international public goods Deforestation

Harmonization of economic development and the environment* Other Cultural protectionSource: METI.

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Figure 3.2.15 US and European NGOs participating in the 1999 Seattle WTO Ministerial

Note: Categories are based on the purpose of NGO activities.Source: WTO Secretariat.

US(314)

Industry

Agriculture

Environment

Development and Asistance

Labor

Human rights Other

EU(184)

Industry

Agriculture

Environment

Development and Asistance

Labor

Human rightsOther

issue subject to the impact of growing trade and investment, dividing the resulting tensionsinto the domestic and the international, the latter related to the sovereignty issue.

(Globalization-based domestic tensions) Trade and investment expansion create tensions in certain parts of the economy, namelybetween those elements amenable to cross-border operations and those not as mobile.More specifically, where capital and technology flow across borders with relative ease,labor is not as easy to shift. Capital and technology are beginning to travel in search oflabor as a production factor, while one country’s labor is becoming far easier to exchangewith the labor of another. Tension is accordingly rising between trade and investment andlabor, with the latter exposed directly to the risk of an international industrial structuraladjustment which could see their labor replaced elsewhere. Workers in certain sectors arebeginning to worry that trade and investment expansion will lead to their jobs being takenabroad. Around half of the US and European NGOs participating in the Seattle WTOMinisterial in 1999 were based in industry or agriculture, a clear expression of the tensionarising in certain parts of the economy (Fig. 3.2.15).

(International tensions created by globalization) Trade and investment expansion also causes international tensions. As trade andinvestment burgeon, trade increases among countries with different social and economicsystems and infrastructure, as well as among countries at different levels of economicdevelopment, with pressure rising to reduce and eliminate business-related barriers. Asdescribed in Section 2, Chapter IV, the development of international systems in line withtrade and investment expansion leads to the elimination of offshore barriers—tariffreductions, for example—which in turn gradually fosters differences in perception ofdomestic barriers to economic activity and the “fairness” of economic systems. Economicregulations, labor standards and environmental standards are all developed based on thecircumstances of the particular country, and as governments are forced to harmonize theirsystems as a means of facilitating business activities, tension inevitably heightens betweendomestic rules and socioeconomic systems and the harmonization which must beundertaken. Socioeconomic disciplines and systems are crafted based on each country’s

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idea of fairness, which may not jib with other countries’ ideas. As a result, deepeningeconomic ties among countries can conversely lead to collisions of different perceptions of“fairness” as designed based on national sovereignty. The conflict over food safetystandards noted earlier is an expression of this kind of international tension15. At the sametime, more than a few arguments are rooted in trade protectionism, and care needs to betaken to prevent international tensions from leading to protectionism.

(2) Development of safety nets geared to an era of globalization As observed above, even where the world economy as a whole experiences growth, thebenefits of that growth are not necessarily shared by all people or by all countries. This ishardly a new phenomenon, dating back in fact to antiquity. The particular resistance toglobalization-led economic growth which has emerged in some quarters in recent years isdue to the growing pace of globalization and the greater delineation of global winners andlosers. The sole pursuit of efficiency through competition does boost the size of theeconomy without guaranteeing an equal share to all involved of the fruits of this expansion,sometimes creating substantial disparities. Many “anti-globalization” arguments, as wasexplored above, have emerged from the changes in the social environment and theinternational and domestic disparities which have been prompted by the swift advance ofglobalization over the last decade, creating tensions. At the same time, as technologicalinnovations in transport, telecommunications and other areas expand cross-border flows ofgoods, money, people and information, globalization has become an irreversible trend, andit was noted in the previous section that rather than rejecting globalization, positivelyembracing the trend and linking the momentum it provides to economic growth hasbecome vital in avoiding marginalization. Protectionist measures, therefore, will notresolve globalization-based disparities and tensions. These must be dealt with bydeveloping safety nets to dissipate unease over swift socioeconomic change, while alsotying the energy produced by globalization to the further development of the worldeconomy.

(a) Safety nets geared to changes in the domestic labor environment(Active and passive labor market policies) Many industrialized countries are experiencing growing social concern over ongoinghigh unemployment rates, the emergence of income disparities, and the speed of changesaccompanying globalization, and policies need to be designed to distribute the benefits ofeconomic growth to as many people as possible. Active labor market policies are anexample of safety nets addressing globalization-led changes in the domestic employmentenvironment.

Traditional labor market policies include the provision of unemployment compensation,measures encouraging early retirement and other passive, ex post facto policies addressing

15 While not considered as “anti-globalization” issues, economic negotiations arising from anti-dumping measures and the American Super 301 clause are being legitimized on the grounds ofglobalization-related “fairness”.

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those who have lost their jobs—in other words, negative policies. Active labor marketpolicies, on the other hand, which have been attracting attention recently, aim at enhancinglabor market mobility, promoting labor supply and demand matching and constrainingunemployment, while also prioritizing skills development for the unemployed. Policies ofthis nature generally take three forms—labor market training, job creation and jobbrokerage. These active labor market policies will play a major role in responding to theway in which trade and investment liberalization and technological advance are changingthe labor environment.

(Focus of traditional and active labor market policies) Problems presented by traditional passive, ex post facto negative labor market policiesinclude the “unemployment trap” and the limits of ex post facto responses such asunemployment compensation. The unemployment trap refers to benefit dependency,whereby hefty unemployment compensation discourage the unemployed from looking forwork, thus inviting long-term unemployment. The ex post facto provision ofunemployment compensation is only of limited effect in a labor market with high long-term unemployment and youth unemployment rates and low labor market mobility. The expost facto response has been blamed for the structural long-term unemployment and youthunemployment which the EU experienced in the early 1990s (Fig. 3.2.16).

Figure 3.2.16 OECD long-term unemployment and unemployment among youth(%)

Long-term unemployment (% of unemployed) Unemployment among youth(% of population)

6 months and over 12 months and over 15-24 years old1990 1999 1990 1999 1990 1999

Australia 41.0 48.4 21.6 29.4 13.2 13.9Austria 47.6 31.7 5.9Belgium 81.4 73.5 68.7 60.5 14.5 22.6canada 20.2 21.4 7.2 11.6 12.4 14.0Czech Republic 61.9 37.1 17.0Denmark 53.2 38.5 29.9 20.5 11.5 10.0Finland 32.6 46.4 9.2 29.6 9.4 21.5France 55.5 55.5 38.0 40.3 19.1 26.6Germany 64.7 67.2 46.8 51.7 5.6 8.5Greece 71.9 74.8 49.8 54.9 23.3 29.7Hungary 70.4 49.5 12.4Ireland 81.0 73.6 66.0 57.0 17.6 8.5Italy 85.2 77.2 69.8 61.4 28.9 32.9Japan 39.0 44.5 19.1 22.4 4.3 9.3Korea 13.9 18.6 2.6 3.8 7.0 14.2Luxembourg 66.7 53.8 42.9 32.3 3.7 6.8Netherlands 63.6 80.7 49.3 43.5 11.1 7.4New Zealand 39.5 39.0 20.9 20.8 14.1 13.7Norway 40.8 16.2 20.4 6.8 11.8 9.6Poland 62.8 60.4 39.0 37.4 23.2Portugal 62.4 63.8 44.8 41.2 9.6 8.7Spain 70.2 67.9 54.0 51.3 30.1 28.5Sweden 22.2 49.2 12.1 33.5 4.5 14.2Switzerland 26.2 61.0 16.4 39.8 3.2 5.6United Kingdom 50.3 45.7 34.4 29.8 10.1 12.3United States 10.0 12.3 5.5 6.8 11.2 9.9

EU average 65.3 63.7 48.6 47.5 15.8 17.2

OECD average 44.6 46.2 30.9 31.2 11.6 11.8Note: Single asterisks indicate 1996 data, double asterisks 1997 and triple asterisks 1998 data.Source: Employment Outlook (OECD).

**

****

****

******

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In the 1990s, the OECD issued recommendations focusing on active labor marketpolicies16, stressing these as a way to enhance labor market mobility and improve skilllevels. Countries reinforced their efforts as a result, with the EU in particular pushing upthe share of spending on active labor market policies in total labor market spending17.Enhancement of employability has received particular attention.

(Enhancement of employability) Enhancement of employability entails providing vocational training for not only theunemployed, the focus for traditional passive labor market policies, but also for theemployed and for young people, striving to lower youth unemployment and constrainlong-term employment, as well as to enhancing labor market mobility. The goal, in otherwords, is to provide appropriate education and training so as to enhance skills and abilitiesof workers themselves, widening their job and job-changing options. Faced with highlong-term and youth unemployment and an inflexible labor market, the EU placesparticular emphasis on employability, and has been increasing its public spending on labormarket training and youth measures.

In Germany, which has a relatively low youth unemployment rate compared to other EUmembers, human resource development has been the centerpiece of a training programwhich combines vocational training with in-house training. Denmark too succeeded inreducing both its youth unemployment and long-term unemployment rates in the 1990s,the result of a greater share devoted to vocational training in its public spending on activelabor market policies. These training and education programs are distinguished by theirfocus on workers as a whole rather than just on the unemployed, with a particularconcentration on blue-collar workers, and this has been an important element in realizingsmooth labor transfers18.

Japan too is responding to the labor supply and demand mismatch and tight employmentconditions which have resulted from socioeconomic change, a change in people’s attitudestowards work, and greater job-hopping by shifting its focus from in-house training todeveloping and improving the skills of individual workers. More specifically, a systemproviding education and training has been in place since 1998, with part of the fees paid totraining facilities returned to those who sign up for studies or training approved by theMinister of Health, Labor and Welfare. In addition to a skills certification system primarilyfor blue-collar workers, a business career system is also being operated to support thesystematic acquisition of the specialist knowledge and skills needed in key white-collarareas of employment.

(b) Safety nets addressing international income disparities As the world economy grows, development of international safety nets to deal with 16 According to the OECD (1990), the first OECD reference to the principle of active labor marketpolicies dates back to the 1964 OECD Council Recommendation.17 According to the OECD (2000b), the growth in active labor market policy-related spending by EUmembers from 1985 to 1997 topped the OECD average.18 Per Kongshoj Madsen (1998).

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expanding North-South disparities has become crucial in promoting further globalization.In addition to ex post facto support for developing countries which have been unable tokeep pace with globalization—food assistance, for example—support also needs to beprovided in building socioeconomic systems which can deal with the globalizing worldeconomy.

(World Bank poverty reduction efforts) The World Bank is the world’s largest institution designed to support developing andtransition countries toward the goal of economic development through financing andstudies. Where its sister institution, the IMF, implements relatively short-term economicstabilization policies, the World Bank has undertaken medium- to long-term structuraladjustment programs. In recent years, however, the Bank has reviewed its developmentstrategies to date, and is now working toward the central goal of eliminating poverty withthe IMF, which has similarly bolstered its role as an institution for the assistance ofdeveloping countries. The need to ensure more effective aid has also led the Bank to stresscooperation among all parties involved in development, including both aid donor andrecipient countries, with civil society too becoming more deeply involved in povertyelimination efforts in developing countries.

(World Bank efforts to date) The World Bank initially focused on economic growth, providing assistance forelectricity, gas and other forms of energy and infrastructure development. In the 1970s, anew focus on income distribution changed the priority to human resource development,such as education and health and medical care. The slowdown in world economic growthand fiscal crises in developing countries in the 1980s created a macroeconomic imbalancewhich the Bank addressed by introducing structural adjustment and sectoral adjustmentfinancing, concentrating on the introduction of market principles. In the 1990s, the Bank’skey agendas became post-Cold War support for market economy transition by formerCommunist countries and sustainable development with an eye also to environmentalprotection. However, because poverty has remained despite these efforts, the Bank haschanged its policy of focusing on economic growth and structural adjustment to thedetriment of assistance to the poor and the socially vulnerable, and has adopted a newapproach centered around direct assistance to the poor.

(The new World Bank approach) As poverty derives from a plethora of factors—social, structural and personal, forexample—in 1998, the World Bank came up with a Comprehensive DevelopmentFramework19 which calls for integrated efforts through the creation of a partnership amongthe parties involved in development, including the private sector and civil society. TheWorld Bank is also working on new directions, joining the IMF, for example, in requiringcountries receiving financing to produce Poverty Reduction Strategy Papers designed to

19 The 12 pilot countries are Bolivia, Cote d’Ivoire, Dominican Republic, Ecuador, Eritrea, Ethiopia,Ghana, Kyrgyz, Morocco, Rumania, Uganda, Vietnam, West Bank and the Gaza, and it will beinteresting to observe developments and results in this regard.

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encourage developing country ownership and civil society participation.

In terms of Japanese efforts, in addition to bilateral cooperation for developing countries,it will be important to liaise and cooperate with other donor countries and internationaldevelopment institutions such as the World Bank, providing effective assistance towardridding the world of poverty.

Globalization is proceeding at an increasingly swift pace, bringing about dramaticsocioeconomic changes and, in some cases, creating major disparities. To ensure thatworld economic development makes optimal use of the dynamism which globalizationoffers, the best course would be to ensure that the various disparities do not arise. However,where disparities do emerge, it will be important to rectify these by developing andstrengthening the domestic and international safety nets described above.

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Column 5: Improving the living environment in developing countries: HumanDevelopment Index

Income levels are not necessarily sufficient as indicators of a country’s wealth. Ingauging the situation in poverty-stricken countries in particular, education levels, theaverage life span and other aspects of the social environment must also be taken intoconsideration. To meet this need, the United Nations Development Programme (UNDP)created the Human Development Index to examine social conditions outside income levels.

The HDI comprises the three elements of longevity, knowledge and living standards,looking specifically at life expectancy, the adult literacy rate and primary, secondary andtertiary school enrolment ratios, and real per capita GDP (PPP dollars). The degree towhich these have been achieved is converted to a numerical value between zero and five,and simple averages calculated to produce a compound index. The UNDP (2000) ranks 35countries as poor HDI performers where good performers have an HDI of 0.8 or more andpoor performers have an HDI of less than 0.5.

Using the HDI to look at living standards in developing countries presents a ratherdifferent picture than that derived from income standards data alone. Crafts (2000) hasconducted an interesting piece of research in this regard, finding that between 1950 and1995, the HDI disparity between all developing countries and their developed counterpartsshrank both proportionately and absolutely, a result quite unlike the North-South dividewhich emerges from a comparison of income levels (Fig. 3.2.17).

Figure 3.2.17 HDI trends by region

1870 1913 1950 1995Oceania 0.539 0.784 0.856 0.933North America 0.462 0.729 0.864 0.945Western Europe 0.374 0.606 0.789 0.932Eastern Europe 0.278 0.634 0.786South America 0.236 0.442 0.802East Asia 0.306 0.746China 0.159 0.650South Asia 0.055 0.166 0.449Africa 0.181 0.435Source: Crafts (2000).

However, while the HDI disparity may be shrinking, poverty in developing countries isstill a major international issue. Efforts to address poverty in developing countries need tobe made based on a comprehensive grasp of the current status of poverty and the issuesinvolved, including the overall social environment, factors which, as seen above, are notnecessarily adequately reflected in income levels alone.

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Section 3 Remaining issues for harmonizing sustainable growth and environmentalprotection

【【【【Key points】】】】

1. Current state of environmental issues The advance of globalization, while growing the world economy, is also imposing aburden on the global environment. Environmental issues cover a wide spectrum fromwaste disposal and other issues close to home through to global-scale issues such as globalwarming, acid rain, and destruction of the ozone layer. In recent years, environmentalissues have been characterized by (1) their widening temporal and spatial scope (lastinglonger and covering greater areas), (2) the expansion of polluters from the industrial sectorout to the non-industrial sector, and (3) the emergence of new types of issues such asdioxin. As environmental issues grow more complex, not only are domestic environmentalregulations being strengthened, but global responses are also emerging, as seen in recentefforts based on various multilateral environmental agreements.

2. Voluntary approaches of industry sector As concern over environmental issues heightens, companies are engaging more activelyin environmental protection by, for example, acquiring ISO14000 series certification andissuing environment reports. This trend reflects growing corporate recognition that takingenvironmental measures boosts corporate profits, or that such measures are still essentialin meeting social responsibilities even where corporate profits decline as a result. As seenin the case of Exxon Valdez oil spill, these environmental measures are also increasinglyimportant in minimizing risks where a company causes pollution, due to the massive costof restoring the environment. In addition, other factors accelerating corporate efforts toprotect the environment include higher consumer interest in ecological goods and services,as well as stronger monitoring of corporate activities by environmental NGOs and otherelements of civil society.

3. Remaining issues for harmonizing sustainable growth and environmentalprotection While voluntary corporate efforts to protect the environment continue to gainmomentum, policy responses are still necessary, particularly in areas where market-basedmechanisms have little effect in encouraging environmental protection. These include (1)energy costs in the transport and non-industrial sectors and waste disposal in developedcountries, (2) the simultaneous emergence of global environmental issues and industrialpollution and urban pollution in developing countries, as well as the vicious cycle ofpoverty and environmental destruction, and (3) cooperation to address wide-rangingenvironmental concerns such as transboundary and global environmental problems. Indeveloped countries, progress is being made in efforts to lock in self-sustainingmechanisms to address these issues. However, in developing countries, such mechanismsare still functioning far from adequately as a result of generally limited personnel,technological, and capital resources. To harmonize sustainable growth and environmental

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protection in the years ahead, it will be vital to establish international rules, domesticregulations and enforcement, integrating these with economic instruments (e.g.environmentally related taxes, charges, and deposit systems), as well as voluntarymeasures by industry, to develop the momentum for self-sustaining environmentalprotection.

1. Current state of environmental issues(1) Growing interest in environmental issues The advance of globalization, while stimulating the development of the world economy,is also creating a burden on the global environment. This situation must be redressedthrough the harmonization of sustained economic growth and environmental protection.

The great interest in environmental issues in postwar Japan was stirred by the fourpollution-triggered diseases plaguing Japan at the time—Minamata disease, Yokkaichiasthma, itati-itai disease and Niigata Minamata disease20. The 1970 “pollution Diet” passed14 laws, including legislation amending the Public Nuisance Countermeasures Basic Law,and the Environment Agency was established in 1971 to bring pollution-relatedadministration under the auspices of one agency. In response to this legislation, companiesintroduced wastewater facilities and developed desulfurizers, bringing about a gradualreduction in industrial pollution. The subsequent leap in energy prices caused by the twooil shocks impacted heavily on the international competitiveness of Japanese companies,spurring technology development and plant and equipment investment designed to increaseenergy efficiency. In 1979, the government formulated the Law concerning the RationalUse of Energy (the Energy Conservation Law), promoting energy-saving for factories,vehicles and electric equipment. The energy-saving technology developed and introducedduring this period contributed to both lower energy consumption and greater productivity,opening the way for substantial cost-cutting.

In the 1980s, the mass-production, mass-consumption economic system which haddeveloped led to global environmental issues such as waste disposal, destruction of theozone layer and global warming, with the scope of environmental issues beginning toexpand. This expansion continues today, with recent new issues including dioxins andendocrine-disruptors.

In the US and Europe, it was apparently the string of environmental pollution incidentsof the 1980s which boosted interest in environmental issues21. Specific examples includethe gas leak from a Union Carbide plant in Bhopal, India in 1984, the Chernobyl nuclearpower plant accident in 1986, and the Valdez incident in 1989. The Union Carbide accidentspurred the formulation of the “right-to-know” law in the US, while the Valdez incidentprompted formulation of the Oil Pollution Act of 1990 and review of the International

20 As to the historical background of the environmental issues and renponses of industry sector in Japan, see IGES(2000), chapter 1, and Committee on Japan's Experience in the Battle against Air Pollution (1997).21 Yamaguchi (2000), p.18.

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Convention for the Prevention of Pollution of the Sea by Oil, as well as the establishmentof the Valdez Principles (renamed the CERES principles22) on corporate responsibility forenvironmental protection. These experiences laid the ground for integrated government,corporate and NGO efforts to resolve environmental issues.

(2) Characteristics of recent environmental issues Characteristics of recent environmental issues include: (1) the temporal and spatialextension of their impact (taking longer to impact and covering a greater area); (2) thewider range of polluting entities; and (3) the emergence of new types of environmentalissues such as dioxins and endocrine-disruptors.

Turning first to the temporal and spatial extension of the impact of environmental issues,the latter half of the 20th century saw environmental issues widen in scope from domesticair, water and soil pollution and protection of the natural environment to cross-borderpollution issues such as the pollution of international rivers and acid rain, and further toglobal-scale issues such as global warming and destruction of the ozone layer23 (Fig. 3.3.1).As a result, it now takes longer before environmental problems impact on the surroundingnatural environment and human health. Where pollution problems in specific areas neverlasted more than several years, global environmental problems span 100s to 1000s ofyears24, and accordingly require a long-term perspective in their resolution.

Secondly, where most pollution was once produced by industry as a result of swiftindustrialization, more recently it has been the waste and wastewater emitted byhouseholds, as well as the greater energy consumption of transport and non-industrialsectors, which have become the more serious issues. As a result, the former paradigm

National Transboundary GlobalAir Pollution Acid rain Global warming

Ozone layer destructionRiver and lake pollution Pollution of int'l riversOcean pollutionGroundwater pollutionPollution by chemical substancesDeforestation / DesertificationNoise Transboundary movement of

hazardous wastesOffensive smellsVibrationsDamage to human healthEcosystem destruction

Source: METI.

Figire 3.3.1 Current state of key environmental issues

Others

Air

Water

Land

22 Ten principles produced in 1989 by the Coalition for Environmentally Responsible Economies (CERES; a USorganization) for companies to observe in protecting the environment. These principles comprise: (1) Protection of theBiosphere; (2) Sustainable Use of Natural Resources; (3) Reduction and Disposal of Wastes; (4) Energy Conservation;(5) Risk Reduction; (6) Safe Products and Services; (7) Environmental Restoration; (8) Informing the Public; (9)Management Commitment; and (10) Audits and Reports. (For details, see http://www.ceres.org/about/principles.html).23 Acid rain, one instance of cross-border pollution, was already noted in England in the late 19th century, but it was notuntil the late 1960s that severity of the damage caused by acid rain was recognized among developed countries.24 P. 293, ??Fiscal and Monetary Research Institute, Ministry of Finance (1998).

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whereby industries were the perpetrators of pollution and local residents the victims is nolonger as relevant, with a response now required to environmental issues not only bycompanies, but also in non-industrial sectors.

The third characteristic is the emergence of new and unforeseeable types ofenvironmental issues such as dioxins and endocrine-disruptors. Endocrine disruptors (so-called “environmental hormones”) are exogenous substances which are thought to impacton reproductive and other functions by imitating or obstructing normal hormones,distorting the workings of these. However, many scientific issues still remain unresolvedin regard to the operation, mechanisms and concrete effects of the these “environmentalhormones”, and further research will need to be undertaken, not least an examination oftheir effect on human health.

(3) Environmental regulations tightened worldwide The growing diversity and complexity of environmental issues are demanding thedevelopment of appropriate legislation and agreements at domestic and international levels.

Japan’s environmental regulations in the 1990s reveal the following characteristics: (1)energy-saving efforts were bolstered in response to growing concern over global warming;(2) measures toward the creation of a recycling society were systematically developed; and(3) “soft” regulations such as assessments and information disclosure came into use inprotecting the environment (Fig. 3.3.2).

Figure 3. 3. 2 Japan's key environment-related laws enacted or amended since 1990

Year Name of law Enactment/Amendment Area Entry into force

1991 Law for Promotion of Effective Utilization of Resources(Recycling Law)

Enactment Recycling October 1991

1991 Waste Disposal and Public Cleansing Law Amendment Waste July 19921993 Basic Environment Law Enactment Promotes comprehensive and systematic

policies for environmental conservationNovember 1993

1995 Law for promotion of Sorted Collection and RecyclableContainers and Packaging (Containers and PackagingRecycling Law)

Enactment Recycling April 1997 (Full entry intoforce in April 2000)

1997 Waste Disposal and Public Cleansing Law Amendment Waste Entry into force one and ahalf years after promulgation

1997 Environmental Impact Assessment Law Enactment Environmental impact assessment Full entry into force in June1999

1998 Law Concerning the Rational Use of Energy (EnergyConservation Law)

Amendment Energy conservation April 1999

1998 Law Concerning the Promotion of the Measures to Copewith Global Warming

Enactment Global Warming April 1999

1998 Law for Recycling of Specified Kinds of HomeAppliances (Home Appliances Recycling Law)

Enactment Recycling April 2001

1999 Law Concerning Reporting, etc. of Release of SpecificChemical Substances to the Environment and Promotionof the Improvement of Their Management (PRTR Law)

Enactment Chemical substances April 2001

1999 Law Concerning Special Measures against Dioxins Enactment Chemical substances January 20002000 Basic Law for Promotion of the Creation of a Recycle-

Oriented SocietyEnactment Recycling June 2000

2000 Law for Promotion of Effective Utilization of Resources(Recycling Law)

Amendment Recycling April 2001

2000 Waste Disposal and Public Cleansing Law and Law toPromote the Devlopment of Specified Facilities for theDisposal of Industrial Waste

Amendment Waste October 2000

2000 Construction Materials Recycling Law Enactment Recycling June 20022000 Food Recycling Law Enactment Recycling June 20012000 Law for Promotion of Procurement of Recycled Products

by the National Government (Green Purchasing Law)Enactment Green Purchasing April 2001

Note: Names of laws within blackets are those in common use.Source: METI Research.

Concrete examples of these trends include firstly, in relation to global warming, the

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introduction of the “top-runner” regulatory approach25 under the amended EnergyConservation Law (which went into force in April 1999). This was intended to helpachieve the greenhouse gas reduction goals to which Japan agreed at the Third Conferenceof the Parties to the UN Framework Agreement on Climate Change (COP 3) in 1997. InAugust 2000, rules were announced for a labeling system which indicated the degree towhich energy efficiency goals had been achieved. To create a recycling society, the BasicLaw for Promotion of the Creation of a Recycle-Oriented Society and five other laws(amendments included) were passed in 2000. Environment policy tools include theformulation of the 1997 Environmental Impact Assessment Law and the 1999 ChemicalSubstances Management Promotion Law (otherwise known as the PRTR Law26). The lattermarks a shift in policy tools from the traditional regulatory approach of establishing targetsand making companies comply with these to the use of information disclosure toencourage companies’ voluntary efforts.

As for environmental regulations abroad, no legislation has been created or amended atfederal level in the US since amendment of the Clean Air Act in 1990, but some programsfor environmental protection have been set up at state level, such as the regulations onvehicle exhaust emissions established in California. Meanwhile, in Europe, considerableprogress has been made with recycling-related information. In addition to the 1991

Figure 3.3.3 Key Multilateral environmental agreements (MEAs) adopted since the 1980sYear Title No. of parties Content1985 Vienna Convention 175+EC Protection of the ozone layer1987 Montreal Protocol 174+EC Control of substances that deplete the ozone layer1989 Basel Convention 141+EC Control of the transboundary movement of hazardous

wastes1992 UN Framework Convention on Climate

Change185+EC Global warming

1992 Convention on Biological Diversity 179+EC Biological diversity1997 Kyoto Protocol 32 Sets binding emissions targets of greenhouse gases for

developed countries2000 Cartegena Biosafety Protocol 83+EC Promotes the safe transfer, handling, and use of living

modified organisms (LMOs) affecting biological diversity2001 Convention on the Control of Persistent

Organic Pollutants (intergovernmentalnegotiations concluded; the convention isexpected to be adopted in May)

Control of the manufacture, use, and emission ofpersistent toxic chemicals (12 substances)

Notes: 1. The number of parties is as of February 5, 2001.  2. The number of parties to the Cartegena Protocol includes the countries which have signed the convention, in the case of other agreements, the number of countries that have ratified these.Source: Web sites of the Secretariats of the various MEAs.Directive on Batteries and Accumulators Containing Certain Dangerous Substances,directives have also been passed on packaging materials (1994) and end-of-life vehicles

25 This approach requires the performance of home electronics, cars and other products with high energy consumption tobe raised within a certain time above the level of the most energy-efficient products available at the time. Wheremanufacturers fail to achieve this standard, punishments include the public announcement of company names and fines.For example, passenger vehicles have been divided into nine weight categories and fuel consumption standardsestablished for each category which must be reached by 2010.26 The abbreviation for the Pollutant Release and Transfer Register, a mechanism whereby enterprises gauge exactlyhow much of each targeted chemical substance they are releasing into the environment or transferring as part of wasteand register this with the administrative authority through prefectural authorities, with the administrative authoritypublishing the results. The formal title of the Chemical Substances Management Promotion Law is the Law concerningReporting, etc. of Releases into the Environment of Specific Chemical Substances and Promoting Improvements inTheir Management.

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(approved by the European Parliament in September 2000), while a draft directive onwaste electrical and electronic equipment was adopted in June 2000 in its fifth incarnation,indicative of a swift tightening-up of regulations on specific product types. Internationalconventions in areas such as protection of the ozone layer, global warming, and protectionof biodiversity are also lending momentum to efforts to resolve the various environmentalissues now facing the international community (Fig. 3.3.3).

2. Voluntary approaches of industry sector(1) Changes in the corporate environment As concern over environmental issues grows, companies are abandoning their formerlypassive stance for a more positive response to the environmental issues.

This is evident in the environment management systems which companies areconstructing in order to minimize the burden on the environment which is imposed by theirbusiness activities. Companies develop their own environmental guidelines and institute anongoing improvement process comprising planning, implementation and operation,inspection and the introduction of remedies, and management review. ISO14001 wasintroduced in 1996 as an international standard on environment management systems, andaccording to the ISO, as of the end of 1999, 14,106 companies in 84 countries hadacquired certification for standards in the ISO14000 series (Fig. 3.3.4). Japan topped the

(1) ISO14000 series registration

Source: The ISO Survey of ISO 9000 and ISO 14000 Certificates – Ninth Cycle (ISO, 2000).

(2) ISO 14001 registration

Note: Industry types are based on Japanese standard industrial classification.

Source: Japan Standard Association research.

Figure 3.3.4 Current status of ISO14000 series registration

Trends in registration numbers

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

1995 1996 1997 1998 1999 (Year)

(No. ofregistrations)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

No. of registrations by year (right scale)

Cumulative total (left scale)

(No. ofregistrations)

Share by region

0%10%20%30%40%50%60%70%80%90%

100%

1995 1996 1997 1998 1999 (Year)

Japan US CanadaEU NIEs ASEAN 4Latin America Other

ISO 14001 inspection and registration trends

0

50

100

150

200

250

300

350

400

(No. ofregistrations)

0

1,000

2,000

3,000

4,000

5,000

6,000

(No. ofregistrations)

No. of registrations by month (right scale)No. of registrations by year (right scale)

As of the end of January 2001 (5,338)

(Year)1995 1996 1997 1998 1999 2000 2001

Registrations by industry

Electrical machinery:22.9% (1,122)

Chemicals:22.9% (506)

Services:7.2% (387)

General machinery:7.1% (379)

Transport equipment:6.8% (361)

Construction:6.1% (325)

Precision machinery:3.4% (180)

W aste disposal: 3.2%(171)

Other:33.9% (1,807)

Total5,338

list, followed by the UK and Germany. Demands from client companies would seem toexplain the high acquisition rate by Japanese companies. According to the Japanese

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Standards Association, manufacturers have been the most eager to acquire ISO14001certification, but figures for non-manufacturing industries such as finance and insuranceare also picking up.

A growing number of companies are also publishing environmental reports as a meansof informing the public on their voluntary efforts to protect the environment, includingspecific pollution-prevention and environmental protection measures as well asenvironmental accounting figures27. Environmental accounting is one means ofquantitatively evaluating a company’s environment protection measures. Introduction ofthis system allows distribution within a company of information on corporate environmentprotection cost management and the effect of environment protection measures,encouraging the institution of more effective measures. Externally too, it is expected toprovide information to consumers, environmental groups, stockholders, investors, financialinstitutions and other parties involved. Major Japanese companies too have begunintroducing environmental accounting.

A standard philosophy and methodology has yet to emerge for environmental accounting,which is being instituted around the world in various forms. In 1999, the EnvironmentAgency produced the Guidelines on Gauging and Announcing Environmental ProtectionCosts (Interim Report) in order to provide just such a common framework and philosophyas a spur to corporate initiative in Japan. Subsequent hearings and consideration of trendsabroad from a working perspective resulted in the March 2000 release of Developing anEnvironmental Accounting System (Year 2000 Report), which included Guideline forIntroducing an Environmental Accounting System (referred to below as the EnvironmentAgency guidelines).

The Environment Agency guidelines categorize the economic effects of environmentalaccounting into (1) the “environmental conservation effect”, or the extent to whichenvironmental protection has been achieved, and (2) the “economical effects associatedwith environmental measures”, or the extent to which environmental protection activitieshave resulted in lower costs and greater profit. The “economical effects associated withenvironmental measures” are further divided into the effects which calculated based on acredible basis, and those based on hypothetical calculations. The latter includes thecontribution that environment-related measures are assumed to have had in terms ofboosting the corporate image and, consequently, sales, or the estimated effect of havingbeen able to avoid environmental pollution risks. The Environment Agency recommendsinformation disclosure in relation to the effects on a credible basis, while envisaging in-house utilization of those based on assumed calculations.

27 A number of international guidelines have been published internationally on the goals, principles andcontent of environmental reports. To encourage this trend, Japan’s Environment Agency has alsocreated the Environment Report Guidelines (2000 version) as a manual for companies planning tocreate their own reports.

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(Top row: No. of companies; lower row: %)Scope of calculations of economical effects Deficit Surplus Total

2 41 434.7 95.3 100.0

5 2 771.4 28.6 100.0

2 4 633.3 66.7 100

Notes:

Source: METI research.

Figure 3.3.5 Environmental accounting: Scope of calculations of economicaleffects and balance

1. See Appended Note 3.3.1 on companies included in the various categories.2. “Income and profit from environment-related business” includes sales of

Only effects based on a credible basis

Assumed effects also included

Income and profit from environment-relatedbusiness included

Looking at company environment management reports, where some companies revealonly those figures based on the credible basis, others include the assumed effects. Wherethe scope of calculation of economic effect was examined for 56 Japanese companiescurrently releasing their environmental accounting, it was found that over 10 percentincluded assumed effects, while close to 80 percent did not release these28 (Fig. 3.3.5).Even where assumed effects are included, environment-related income can vary greatlyaccording to the extent to which an economic impact is ascribed to environment-relatedmeasures, and it is therefore difficult to make general assumptions. However, around 70percent of the above cases indicated a surplus, around 30 percent a deficit. Where onlythose effects for which there was definite proof were calculated, just under five percent ofcompanies reported a surplus. Where assumed effects were included in the calculations,therefore, many companies reported making a profit, while calculations excluding assumedeffects still generally left a deficit. However, the very fact that these companies aredisclosing their environmental accounting is evidence that a growing number of companiesare recognizing investment in the environment as necessary in meeting their socialresponsibilities.

(2) Background of voluntary environment protection measures(a) Environment protection measures and corporate profit Companies have tended to regard environment protection measures as a cost factor.However, in recent years, a new perception has begun to develop whereby these measuresresult in a profit, or, even where they create a loss, must be positively embraced as part ofa company’s social responsibilities. To track the relation between environmental protectionmeasures and company profit, below we examine the relation between corporateenvironmental rankings and their operating income ratios to net sales, as well as the stockindexes of companies with eco-funds.

First, we analyze a correlation between environmental rankings and operating incomeratios to net sales. Environmental rankings are indexes created by rating institutions using

28 In addition, around 10 percent of companies calculated income and profit from environment-relatedproducts and services.

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their own formulas to integrate the highly diverse range of corporate environmentinformation available to allow a relative comparison within the same industry. Figure 3.3.6compares the correlation between the environmental rating and the operating income ratioto net sales in 10 information-related companies. On the whole, the higher the companygets the environment rating, the more it gains the profit. While this could indicate thatenvironment-related efforts are adding to corporate profits, another possible interpretationis that those companies recording strong profits which enable them to instituteenvironmental protection measures are the same companies receiving high environmentrankings.

Next, by examining trends in the stock indexes of companies with eco-funds, we candetermine how environment-related measures are evaluated by the market. Eco-funds arestock investment trusts which invest funds in companies making outstandingenvironmental protection efforts or companies providing outstanding environment-relatedtechnology, products and services29, a concept tracing back to US and European socialresponsibility investment30. Eco-funds were first launched in Japan in August 1999, sincewhich time nine have been put on sale, reaching a net asset value of around 150 billion yen(as of 5 January 2001)31. The popularity of these funds indicates that certain investors arestrongly interested in company policy on the environment. Investors’ interest in eco-fundsis said to lie in concern for the environment and also profitability32.

Is there a positive correlation between environmental protection and stock indexes? Fig.3.3.7 compares the Dow Jones Sustainable Growth Index (DJSGI) produced by Dow Jones 29 Nishimura (2000).30 Investment trusts which focus on social and ethical areas such as environmental protection, genderissues and human rights as standards for determining in which companies to invest.31 Adachi (2001).32 Nishimura (2000), Yamaguchi (2000).

Figure 3.3.6 Environmental ratings and corporate profitability

012345678910

012345678910

Corporate profitability ranking

Operating income ratio to net sales: highOperating income ratio to net sales: low

Ricoh

Sony

Canon

MatsushitaElectric

Induatrial

Fujitsu

SharpToshiba

NEC

MitsubishiElectric

Hitachi

Notes: 1. Spearman's rank correlation coefficient = 0.64. 2. Environmantal ratings are as of early 2000, corporate profitability data is as of the 1999 settlement.Source: The Japan Research Institute, Ltd. (based on the environmantal rating report provided by Oekom Research AG) .

Environmental rating ranking

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& Company and the SAM Sustainability Group with the Dow Jones Growth Index (DJGI),produced by Dow Jones & Company, discovering that the DJSGI consistently tops theDJGI. Reasons why company stock prices have been boosted by their environmentalprotection measures may be that (1) the market sees energy and resource conservation andother forms of environmental protection as cutting costs, or (2) the market perceives thatadditional costs will not emerge because of prior avoidance of future environmentally-based risks.

(b) Importance of risk avoidance Taking environment-related measures is important for companies in avoiding futureenvironment risks. Environment investment may push up costs over the short-term, but thetotal cost of restoring a polluted environment, providing compensation for injury to thehealth of local residents, and covering lawsuit costs is far greater. For example, when theValdez, an Exxon tanker, ran aground off Alaska in 1989 and caused a massive oil spill,Exxon was fined US$25 million, and also agreed to pay US$100 million in criminalrestitution (the cost of restoring the ecosystem) and a civil settlement of US$900 millionover 10 years33. Since the incident, many tankers are being double-hull to prevent similarspills.

As noted above, the avoidance of the risk of pollution and lawsuits which is part of the“economic effect” calculated in environmental accounting falls within the category ofassumed economic effects in that it is an “accidental” effect accompanying environmentprotection measures. For example, a chemical leak at a US plant in 1977 spurred IBM toshift all subterranean tanks above ground over the next three years, creating a pool-like

33 Exxon Valdez Oil Spill Trustee Council website(http://www.oilspill.state.ak.us/setlment/setlment.htm).

Figure 3.3.7 Trends in stock price indexes of "green" companies

80100120140160180200220240260280300320340360

Notes: 1. Indexed with December 31, 1993 as 100. 2. See Appended Note 3.3.2 on definition of indexes.Source: Dow Jones Sustainability Group Indexes GmbH.

Dow Jones Sustainability GroupIndex (DJSGI)

Dow Jones GrobalIndex (DJGI)

1994 1995 1996 1997 1998 1999 2000 2001(Year)

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container around each tank. These facilities allowed IBM to prevent tank leakage and thusto avoid soil and air pollution, on which grounds IBM includes the avoidance of spillremediation costs and compliance costs in its environmental accounting34. Because thisavoidance effect is a figure based only on assumption, its accuracy stands examination.However, given the recent increase in “green consumers” (discussed below) and “greeninvestors” (investors favoring environmentally-conscious companies), a greater emphasison the environmentally-conscious performance is becoming vital in ensuring a business’smarket survival.

(c) Growing consumer and user company awareness Growing consumer awareness of the environmental protection is beginning to alterconsumption behavior. In other words, there is a steadily growing number of “greenconsumers”, consumers who consider as part of their purchasing decision whether themanufacturing process was environmentally sound. According to an Economic PlanningAgency research, the ratio of consumers considering the environmental impact whenpurchasing a product was 88.3 percent in the case of home electrical appliances (airconditioners), 96.3 percent for cars, and 96.8 percent for housing (Fig. 3.3.8). In terms ofthe price disparity consumers were prepared to tolerate in purchasing a product which wasenergy-saving or otherwise environment-friendly, 80.4 percent of respondents would payup to 10 percent more for home electrical appliances of around 100,000 yen, while 38.3percent would pay up to 20 percent more. The acceptable price disparity was smaller forexpensive items such as cars and housing, but 24.0 percent of respondents were preparedto pay up to five percent more for cars, 27.9 percent in the case of housing. Theseresponses indicate a segment of the population which will purchase environmentallyfriendly products even where these are slightly more expensive.

0%

20%

40%

60%

80%

100%

Home electric appliances (airconditioners)

Cars Housing

Conscious ofenergy-saving

Conscious ofenergy-savingwhere the price ismore expensive butwithin acceptablelimits

Conscious of price

Conscious of otherfunctions

Source: Risaikuru/shou-ene nado no kakyou taisaku ni kansuru shouhisha no kosutohutan ishiki (Economic Planning Agrncy).

“Green” cars(housing)purchased evenwhere the price ismore expensive butwithin acceptablelimits

“Green” cars(housing)purchased wherethe price is thesame

“Green” cars(housing) notpurchasedunless the priceis low

Other

Figure 3.3.8 Ratio of consumers concerning energy-saving and otherwise “green”

34 Environment Agency (2000), Question 9, and Case Studies (p. 165),.

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Central and local government authorities and companies are also pushing more stronglyfor a certain level of environment-friendliness in making their parts and raw materialsprocurement and office equipment procurement decisions (green procurement and greenpurchasing). Law for Promotion of the Procurement of Recycled Products by the NationalGovernment (Green Purchasing Law) was promulgated in May 2000 for the procurementof environment-friendly products by central and local governments (green procurement),entering completely into force in April 200135. The Green Purchasing Network (GPN) wasalso launched in February 1996 as a voluntary-based network of companies, governmentbodies and consumers with the aim of encouraging the preferential purchase of goods andservices imposing a minimal environmental burden. As to member companies, where theoriginal GPN membership was only 40, this had burgeoned to 1,742 by December 2000,indicative of a steady rise in corporate awareness of buying green (Fig. 3.3.9). GPN hascreated guidelines on 14 products as part of its activities36, and also publishes"Environmental Data Books” on manufacturers’ products in the various areas, providingthis information for consumer reference. When creating such guidelines, the GPN will tryto build in a life cycle assessment (LCA) perspective, evaluating the various impacts aproduct has on the environment through production, use and disposal. At this point in time,“green consumers” are still a minority, but as is evident from the increase in GPNmembership, companies are already taking steps in anticipation of a stronger consumerinterest in environmental issues.

35 This law stipulates that: (1) the government must create basic guidelines promoting the procurementof environment-friendly products by the government and independent administrative bodies; (2) theheads of ministries, agencies and independent administrative bodies must create and announceprocurement guidelines on environment-friendly products every year in line with these basic guidelines,procuring goods, etc., on based on said procurement guidelines, and compiling and publishing anoverview of their procurement performance at the completion of each fiscal year; and (3) prefectures,towns and villages must create procurement guidelines for environment-friendly products and endeavorto base their procurement on these.36 (1) OA and printing paper; (2) copiers, printers, faxes, etc.; (3) toilet paper; (4) tissue paper; (5)computers; (6) refrigerators; (7) stationery and office products; (8) washing machines; (9) lighting(lamps, lighting equipment); (10) cars; (11) air conditioners; (12) office furniture; (13) televisions; and(14) uniforms and other work clothing (as of January 2001).

Figure 3.3.9 Trends in number of companies joining the GreenPurchasing Network

0

500

1,000

1,500

2,000

2 9 12 6 12 6 12 6 12 6 12(month)

(No. of companies)

1996 1997 1998 1999 2000(year)

Source: GPN Secretariat.

40

370 418519

721

1,060

1,2481,346

1,4741,633

1,729

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(d) Growing impact: NGO monitoring of corporate activities NGO monitoring of corporate activities is one factor encouraging companies to protectthe environment. Cases include Shell’s decision to abandon the planned deep-sea disposalof its Brent Spar oil storage rig in response to boycotts and direct action by Greenpeace37

(see Column 6), as well as the Mexican government’s suspension of saltworks expansionin March 2000 because of a boycott by the Natural Resources Defense Council (NRDC)and Mexican environmental groups against Mitsubishi Corporation38 conducted on thegrounds that the project would destroy the ecosystem of the Laguna San Ignacio39 (seeColumn 7). Recently, some groups have also been profiling on their websitesmultinationals whose foreign plants are having an impact on the environment40. Part of thereason for this recent spurt of NGO action has been, as explained in Section 1, the newease with which NGOs and other groups can create global networks and communicateinformation thanks to the advance of information communications technology such as theInternet. With NGOs and other elements of civil society now able to use networks to reacha wider audience, their greater effectiveness as watchdogs is motivating companies to paymore attention to the environment.

3. Remaining issues for harmonizing sustainable growth and environmentalprotection(1) Developed country issues(a) Mass-consumption paradigm created by the pursuit of comfort and convenience The various measures which developed countries have taken to counter industrialpollution have resulted in a much cleaner environment than at one point in time. Since theoil shocks, too, priority has been placed on improving energy efficiency, promoting theadvance of energy-saving technology.

At the same time, energy consumption continues to rise in the transport and non-industrial sectors. A comparison of the final energy consumption by sector in the OECDcountries between 1990 and 1998 reveals that where the share of the industrial sectorshrank from 33.7 to 29.0 percent, transport rose from 31.1 to 34.5 percent, and residentialfrom 18.3 to 19.1 percent (Figs. 3.3.10, 3.3.11). This is thought to be the result of thehigher standards of living which economic growth has allowed, as well as motorizationand the growing popularity of televisions, air conditioners and other household electricappliances (Fig. 4.1.7). In the industrial sector, corporate cost-awareness in regard to

37 Then-German Chancellor Helmet Kohl’s request to then-UK Prime Minister John Major during the1995 Halifax Summit to cease deep-sea dumping is also said to have had an effect.38 According to an article in the Asahi Shimbun (March 4, 2000), the concern expressed in reports byUNESCO and other organizations over the way in which the proposed development project wouldtransform the landscape shaped Mitsubishi’s decision, as well as the prospect of the corporate imagebeing tarnished.39 ESSA, the industrial salt company which was conducting the saltworks expansion project, is a jointventure between the Mexican government and Mitsubishi.40 For example, the “corporate watch” (http://www.corpwatch.org, or the Japanese version athttp://www.corpwatch-jp.org) undertaken by the Transnational Resources & Action Center (TRAC), anAmerican NGO.

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Figure 3.3.10 Final energy consumption of OECD countriesby sector0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1990

1998

Industry Transport Agriculture Comm. and publ.services Residential other

Note: For the sake of comparison, OECD countries here are the 24 belonging to the OECDin 1990 (Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece,Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, Norway, Portugal, Spain,Sweden, Switzerland, Turkey, the United Kingdom, and the United States).Source: Energy Balances of OECD Countries (International Energy Agency).

Note: OECD countries here are those given in Fig. 3.3.10.

Source: Energy Balances of OECD Countries (International Energy Agency).

Fig. 3.3.11 Contribution to final energy consumption by sector in major developed countries

OECD countries

・ 3

・ 2

・ 1

0

1

2

3

4

1991 1992 1993 1994 1995 1996 1997 1998 (Y)

・ %・

Industry TransportAgriculture Comm. and publ. servicesResidential Other

Growth rate on previous year

Japan

・ 6

・ 4

・ 2

0

2

4

6

8

1991 1992 1993 1994 1995 1996 1997 1998 (Y)

・ %・

The United States

・ 5

・ 4

・ 3

・ 2

・ 1

0

1

2

3

4

1991 1992 1993 1994 1995 1996 1997 1998 (Y)

・ %・

The United Kingdom

・ 6

・ 4

・ 2

0

2

4

6

8

1991 1992 1993 1994 1995 1996 1997 1998 (Y)

・ %・

France

・ 6

・ 4

・ 2

0

2

4

6

8

10

1991 1992 1993 1994 1995 1996 1997 1998 (Y)

・ %・

Germany

・ 4

・ 3

・ 2・ 1

0

1

2

3

4

5

1991 1992 1993 1994 1995 1996 1997 1998 (Y)

・ %・

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energy has led to greater energy-saving, but this cost-awareness is much less effective inthe non-industrial and transport sectors. Various attempts are currently underway to useprice mechanisms to promote energy-saving in the non-industrial sector, such as pricingsystems whereby increased electricity usage is matched by an incremental rise in the costunit, as well as “Energy-saving Navi”41 and other systems providing an instant grasp ofelectricity costs.

(b) Waste issue becomes increasingly severe Dealing with the waste created by a mass-production, mass-consumption economicsystem is also becoming an increasingly important issue for developed countries. In thecase of Japan, waste-related issues include constraints in terms of final disposal sites andan accompanying rise in disposal costs, which in turn is leading to more serious illegaldumping and environmental pollution (Figs. 3.3.12, 3.3.13). In terms of general waste, notonly are recycling rates too low (11.0 percent in FY1997, whereas the recycling rate forindustrial waste was 42.4 percent), but Japan also has to work on reducing the amount ofwaste created (Fig. 3.3.14). In addition to promoting recycling and reusing, measures arenow being instituted to prevent the creation of waste based on an extended producerresponsibility42 approach. For example, the Law for Recycling of Specified Kinds ofHome Appliances (which went into force in April 2001), obligates manufacturers to takeback and recycle their refrigerators, washing machines, televisions and air conditioners,retail outlets to take back these machines from consumers and pass them on tomanufacturers, and consumers to pay disposal costs. Bringing into focus disposal costswhich were previously shouldered by local authorities is hoped to encouragemanufacturers to develop products which are cheaper to dispose of (more easily recyclableproducts).

Figure 3.3.12 Trends in new construction of final disposal sites for industrial waste and remaining capacity

41 A system designed to promote energy-saving in offices and homes by measuring the amount ofelectricity, gas and water used by households and the amount of power consumed by offices andtransmitting this data wirelessly to a monitor, which converts the data to money units and displays theresults. A monitoring project has been conducted by the Energy Conservation Center as of FY1998,with 803 household and 492 office monitors set up as of the end of 2000.42 This approach makes manufacturers responsible for the environmental impact of their products notonly in terms of performance, but from production through to disposal (environmental impact of choiceof raw materials, production stage, utilization stage and disposal). (Environment Agency [1997],Dictionary for Global Environment [Third Edition], p.139)

Remaining capacity

0

50

100

150

200

250

Note: FY1998 and FY1999 data are estimates.Source: Sangyou haiki-bustu no haishutu oyobi shori joukyou tou ni tsuite (Heisei 9 nendo jisseki)(Ministry of Health and Welfare).

210.7 212.3 209.8 207.7 210.0

157.9

107.6

(Million m3)

19951993 1994 1996 1997 1998 1999 (FY)

No. of new licenses

0

50

100

150

200

(No. of newlicenses) No. of new licenses

New licenses under the amendedWaste Disposal Law

Note: �g Ne w li censes under t he a mended Wast e Di s pos al La w�h refers to t he n umber of n ew l i c ensauthorized under the amended New licenses under the amended Waste Disposal Law, which wentinto force in June 1998.Source: Sangyou haiki-butsu no haishutu oyobi shori joukyou tou ni tsuite (Heisei 9 nendo jisseki)(Ministry of Health and Welfare).

137

193

129 130

265

19

1995 1996 1997 1998 1999 (FY)Note: FY1998 and FY1999 data are estimates.Source: Sangyou haiki-bustu no haishutu oyobi shori joukyou tou ni tsuite (Heisei 9nendo jisseki)(Ministry of Health and Welfare).

Note: “New licenses under the amended Waste Disposal Law” refers to the numberof new licenses authorized under the amended New licenses under the amendedWaste Disposal Law, which went into force in June 1998.Source: Sangyou haiki-butsu no haishutu oyobi shori joukyou tou ni tsuite (Heisei 9nendo jisseki)(Ministry of Health and Welfare).

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0

200

400

600

800

1,000

1,200

1,400

1993 1994 1995 1996 1997 1998 (FY)

(Cases)

0

10

20

30

40

50

60

70(10,000 tons)

Volume dumped (right scale)

No. of dumping cases (left scale)

Notes:1. The volume dumped in each case is the cumulative total of cases over 100,000 tons(including industrial waste under special management).2. FY1998 figures are preliminary.Source: FY2000 White Paper on Health and Welfare (Ministry of Health and Welfare).

Figure 3.3.13 Trends in number of cases and volume of illegal dumping of industrial waste

In Europe too, where steady progress is being made with recycling legislation, Germanyhas been a forerunner, creating, for example, a national collection system carried out byDuales System Deutschland (DSD) through Packaging Ordinance formulated in 1991.DSD charges extremely high collection fees as a means of encouraging companies toreduce their packaging, and now collects more than 80 percent of the packaging materialsused by households and small companies43. The success of this system is said to haveaffected the recycling policies of the EU and other EU member countries.

(2) Developing country issues Developing countries face a variety of environmental issues. For example, those Asiancountries and other parts of the world experiencing rapid industrialization and urbanizationare having to deal simultaneously with industrial pollution, urban pollution and globalenvironmental issues. In low-income countries, on the other hand, a vicious circle is oftenin place whereby the environment is being destroyed in the pursuit of immediate profit inorder to break free of poverty, which is in fact creating more poverty. In this situation, 43 JETRO (1999), pp. 18-19.

Figure 3.3.14 Trends in total waste emission volume and recycling rates

Waste emission volume

3,500

4,000

4,500

5,000

5,500

1989 1990 1991 1992 1993 1994 1995 1996 1997・ FY・

(10,000 tons)

1,000

1,100

1,200

1,300

1,400(g/person/day)

N ote: Waste emission volume = volume of collected waste + directly transported wastevolume + volume of waste processed by households.Source: Heisei 9 nendo no ippan haiki-butsu no haishutu oyobi shori joukyou tou nitsuite (Ministry of Health and W elfare).

Total amount (left scale)

Daily amount per capita (right scale)

Recycling rates

0

10

20

30

40

50

1990 1991 1992 1993 1994 1995 1996 1997 (FY)

(%)Recycling rate for industrial waste

W aste recycling rate

Notes:1. Waste recycling rate = (volume re-used + bulk collection volume)/(total waste disposal volume + bulkcollection volume) .2. Recycling and reuse rate for industrial waste = volume of waste recycled and reused/total emissionvolume .Sources: Heisei 9 nendo no ippan haiki-butsu no haishutu oyobi shori joukyou tou ni tsuite ; Sangyouhaiki-butsu no haishutu oyobi shori joukyou tou ni tsuite (Ministry of Health and Wefare).

Note: Waste emission volume = volume of collected waste + directly transported wastevolume + volume of waste processed by households.Source: Heisei 9 nendo no ippan haiki-butsu no haishutu oyobi shori joukyou tounitsuite (Ministry of Health and Welfare).

Notes:1. Waste recycling rate = (volume re-used + bulk collection volume)/(total wastedisposal volume + bulk collection volume) .2. Recycling and reuse rate for industrial waste = volume of waste recycled andreused/total emission volume .Sources: Heisei 9 nendo no ippan haiki-butsu no haishutu oyobi shori joukyou tou nitsuite; Sangyou haiki-butsu no haishutu oyobi shori joukyou tou ni tsuite (Ministry ofHealth and Wefare).

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increasing the effectiveness of environmental protection measures requires conformancewith environment laws as well as development of the necessary infrastructure fordecreasing the environmental burden while also ensuring profit—a win-win approach.

(a) Emergence of various types of environmental issues The particular environmental issue facing developing countries, particularly in Asia, isthe simultaneous emergence of industrial pollution as a result of swift industrialization, theurban pollution accompanying urban population concentration and motorization, andglobal environmental issues. Comparing the industrial structures (ratio of added value inGDP composition) of China, India and the ASEAN 4 in 1980 and 1988, there has been anobvious shift from the agricultural sector to the industrial and service sectors (Fig. 3.3.15).Indexes for urban populations and vehicle ownership figures for the same period alsoreveal steep rises (Figs. 3.3.16, 3.3.17). At the same time, this industrialization andurbanization is causing severe air and water pollution problems and waste problems, whilealso boosting energy consumption and CO2 emissions (Fig. 3.3.18).

As Japan and other developed countries experienced these problems individually ratherthan simultaneously, it was possible to design countermeasures for each. Developingcountries, however, have to deal with a range of environmental issues at the same time,and are consequently hard-pressed to find the necessary human and financial resources.

(b) Poverty leads to environmental destruction Low-income countries have to deal with a vicious circle of poverty and environmentaldestruction. As income increases fail to keep pace with rural population growth, creating

0500

1,0001,5002,0002,5003,0003,5004,000

1980 1996 1980 1996 1980 1996 1980 1996 1980 1996 1980 1996012345678Total (left scale)

Per capita (right scale)

China ThailandIndonesia Malaysia Philippines IndiaSource: World Development Report (World Bank).

(Million tons)Figure 3.3.18 CO2 emissions in selected Asian countries

(Tons)

0

200

400

600

800

1,000

1,200

1,400

1980 1998 1980 1998 1980 1998 1980 1998 1980 1998 1980 19980

50

100

150

200

250

300

350Total (left scale)Per 1,000 persons (right scale)

China Indonesia Malaysia Philippines Thailand India

Source: Automotive Statistics of Major Countries (Japan Automobile Manufacturers Association), Monthly Bulletin of Statistics (UN).

(10,000 cars) (No. of cars)Figure 3.3.17 No. of cars owned in selected Asian countries

Figure 3.3.16 Urban populations of selected Asiancountries

0

100

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300

400

500

1980 2000 1980 2000 1980 2000 1980 2000 1980 2000 1980 20000

20

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Urban populations (left scale)% of population residing in urban areas (right scale)

Note: Figures for 2000 are estimates.Source: World Urbanization Prospects: The 1996 Revision (United Nations, 1998).

(Millions)

China Indonesia Malaysia Philippines Thailand India

Figure 3.3.15 Comparison of added-value compositionof selected Asian countries

0%

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100%

1980 1998 1980 1998 1980 1998 1980 1998 1980 1998 1980 1998

Services

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Industr

Manufacturin

China IndiaIndonesia Malaysia Philippines ThailandNotes:1. % of GDP.2. “Industry” here includes mining, manufacturing, construction, and electricity, gas and water supplies.Source: World Development Report (World Bank)

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further poverty, conversion of forest to farm land44, slash-and-burn farming and illegallogging are causing deforestation, soil erosion and destruction of the eco-system. Those nolonger able to eke a living in the countryside drift into the cities, forming the urban poorand creating slums. The greater urban population aggravates air and water pollution, withcity peripheries developed for new housing. In rural areas, meanwhile, slash-and-burnfarming and conversion of forest to fields accelerates to compensate for the fallingproductivity of developed farmland, destroying forests.

Simply explaining the importance of environmental protection is unlikely to have mucheffect in such countries. As noted in the previous section in the context of eliminatingpoverty, the vicious circle of poverty and environmental destruction needs to be alleviatedor broken by developing the socioeconomic infrastructure to accumulate capital andhuman resources and promote technology development.

(c) Ensuring urgent and effective environment-related legislation Since the late 1980s, the Asian countries have been moving swiftly to designenvironment-related legislation (Fig. 3.3.19). Laws establishing the basic principles forenvironmental protection policies, regulations on air and water emissions, and laws onwaste and toxic substances are virtually all in place, while some countries establishedenvironmental impact assessment systems even before Japan. Environmentaladministration organizations have also been set up at national level. These moves havebeen in response to: (1) increasingly severe domestic pollution and environmentalproblems; (2) growing concern over global environmental issues; and (3) increasedawareness of the importance of environmental risk management.

However, while the necessary legal systems might be in place, their enforcementremains an issue. Poor enforcement can be explained by: (1) delays in formulatingenforcement orders for the new legislation; (2) limited awareness on the part of politiciansand administrators; and (3) a lack of monitoring equipment and inadequate maintenance45.In addition, compared to developed countries, developing countries lack the necessarybudget and personnel to implement their environmental policies. Fig. 3.3.20 comparesenvironment-related budgets in Asia (China, India, Indonesia, Malaysia, Thailand, andVietnam), Japan and the US. While a straight comparison is impossible because of thediffering extent to which local governments in different countries have the power to designand implement environmental policies, the trend seems to be that the higher the per capitaGNP (PPP), the greater the per capita environment-related budget.

(d) Development of the infrastructure to lock in environment investment Ensuring legal enforceability is not adequate in itself to lock in environment investmentin developing countries. In the 1970s, Japan sought to boost both productivity and 44 According to Kobayashi (1992), the problem lies not so much in the actual conversion to farmland asthe conversion to farmland of forest areas unsuitable for this purpose.45 Other issues affecting the situation include standards set beyond countries’ ability to fulfill, too manyagencies involved in environment policy, inadequate liaison among the related agencies, and theconsiderable power of industry and energy policy agencies.

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Figure 3. 3.19 Key environmental laws in selected Asian countries

China Indonesia Malaysia

1967 Basic Forestry LawMining Law

1979 Environmental Protection Law (trial)

1972 Establishment of the NationalEnvieonment Committee

1973 Regulation on water pollution inmining and energyRegulation on Pesticide

1974 Irrigation Law

1978 Establishment of the Ministry ofDevelopment and EnvironmentPrevention of factory-sourcedpollution

1972 Protection of Wildlife Act

1974 Establishment of the Ministry ofScience, Technology and EnvironmentEnvironment Quality Act

1975 Establishment of the EnvironmentAuthority

1978 Environmental Quality (Clean Air)Regulations

1979 Environmental Quality (Sewage andIndustrial Effluents) Regulations

1982 Marine Environment Protection Law

1984 Water Pollution LawForest Law

1986 Fishery LawMining Resources Law

1987 Air Pollution Law

1989 Environmental Protection Law

1982 Establishment of the Ministry ofPopulation and EnvironmentBasic Environment Management Law

1985 Establishment of the Ministry ofPopulation and EnvironmentRegulations on forest conservation

1986 Regurations on environment impactassessment

1984 National Forest Conservation Law1985 Amendment of Environmental Quality

Act (Introduction of EIA)Environmantal Quality (Control ofLead Concentration in Motor VehicleNoise) Regulations

1987 Environmental Quality (Motor VehicleNoise) RegulationsEnvironmental Quality (EIA) Order

1989 Environmantal Quality (ScheduledWastes) Regulations

1991 Water and Soil Concervation Law

1995 Amendment of Air Pollution Law1996 Amendment of Water Pollution Law

Law on Pollution by Solid Waste

1997 Noise Control Law

1990 Establishment of BAPEDALNatural resources and ecosystemsconservation LawRegulations on water pollution

1991 Regulations on riversRegulations on wetlands

1993 Appointment of the Minister of theEnvironmentEstablishment of EnvironmrntManagement CenterRegulations on environmental impactassessment

1994 Establishment of the Ministry ofEnvironmentRegulations on hazardous wastes

1997 Environment Management Law

1999 Air Pollution Law

1995 Privatization of Air Monitoring1996 Amendment of Environmental Quality

Act (punishments strengthened)Environmental Quality (emissionsfrom vehicles running on gasoline)RegulationsEnvironmental Quality (emissionsfrom diesel vehicles) Regulations

1997 Operation of industrial waste disposalfacilities launchedEnvironmental Quality (sewage,industrial wastewater) Regulations

1998 Amendment of Environmental QualityAct (prohibition of field burn-off)

2000 Amendment of Air Pollution LawSource: METI research.

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Philippines Thailand India

1964 Establishment of National Water andAir Pollution Control CommissionRA3931

1967 Minerals Act1969 Factory Act

1948 Factory Act1951 Industry Act

1977 PD1151 Philippine EnvironmentalPolicyPD1152 Philippine EnvironmentalCode

1975 Establishment of NationalEnvironmental BoardImprovement and Conservation ofNational Environmantal Quality Act

1972 Wildlife (Protection) Act

1974 Water (Prevention and Control ofPollution) Act

1976 The 42nd Amendment of Constitution:[Central government and other publicauthorities have obligation to protectthe environment, the public obligate toconserve the environment]

1977 Water (Prevention and Control ofPollution) Cess Act

1986 Secured "environmental rights" in thenew Constitution

1987 Establishment of Department ofEnvironment and Natural Resources

1981 Policies and Measures on NationalEnvironmental Development

1980 Forest (Conservation) Act1981 Air (Prevention and Control of

Pollution) Act

1985 Establishment of the Ministry ofEnvironment and Forests

1986 Environment (Protection) Act

1987 Air (Prevention and Control ofPollution) Amendment Act

1988 Automotive Act1989 Water (Prevention and Control of

Pollution) Amendment Act1990 Law on Hazardous Substances and

Nuclear Wastes

1999 Clean Air Act

1992 Establishment of the Ministry ofScience, Technology and EnvironmentEnhancement and Conservation ofNational Environmental Quality ActFactory ActHazardous Substance ActPublic Health Act

1991 Public Liability Insurance Act

1995 National Environment Tribunal Act

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Per Capita GNP(US$/PPP Value)

Per Capita Environment-related Budget (US$)

China 3,291 8.45India 2,149 0.10Indonesia 2,439 0.02Malaysia 7,963 0.94Thailand 5,599 2.16Vietnam 1,690 0.38Japan 24,041 48.45US 30,600 27.69

Notes: 1. Per capita GNP (PPP value) figures are for 1999. 2. Figures of environment- related budget are for FY 2000 . (In the case of Thailand, the data comes from FY 2001 budget.)Source: FY 2001 Budget for Global Environmental Protection (Environment Agency of the Japanese Government), Summary of the 2001 Budget    (EPA), Hearings conducted by Green Aid Plan personnel with    environment policy authorities, World Development Report    (World Bank), Monthly Bulletin of Statistics (UN).

Figure 3.3.20 Environment-related budgets in selected Asian countries

environment-related investment as a means of preventing pollution and saving energy,contributing to subsequent development. From this experience, it would seem important tointroduce appropriate environment technology and use market mechanisms to instituteself-sustaining environment investment, attending simultaneously to lightening thepollution burden and to ensuring economic feasibility (boosting corporate profitability).

(Introduction of environment technology geared to national needs) In recent years, developing countries have been designing capital and technologysupport policies in regard to the introduction of environment equipment and technology.However, their efforts have not always produced the desired results due to differentperceptions of environmental issues on the part of management and floor staff, low finelevels, and mismatching between measures and the financial and technological capacitiesof small local companies46.

To update old production facilities into resource- and energy-saving facilities usingenvironment-friendly technology47 which emits fewer pollutants, the savings resultingfrom facility investment need to outweigh the investment cost. Measures providingcompanies with the incentive to make this kind of investment include low-interestfinancing and energy price reviews. Developing the socioeconomic infrastructure is alsoimportant, such as developing the personnel to operate and maintain the machinery,fostering the industries which will provide replacement parts, and providing economicincentives for using the by-products created by environmentally-friendly technology (forexample, the gypsum and heat emerging from desulfurizers). Moreover, smoothdissemination of the technology introduced will hinge on the parties providing thetransfers (developed-country governments and companies) ensuring that the technology ormachinery is specifically geared to suit conditions in the recipient developing countries.

46 Economic Cooperation Department, International Trade Policy Bureau, MITI (1997), Chapter2,Section 1.47 “Cleaner production” or “cleaner technology”, one example of which is Japan’s energy-savingtechnology. UNEP is in the process of creating a framework for this technology.

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(Use of market mechanisms) Environmental policy tools in developed countries are gradually shifting from directregulation to a combination of voluntary measures by industry and use of marketmechanisms. Asia seems to be pursuing the same course, albeit slowly. For example, in thearea of energy-saving, Korea, Taiwan and Thailand have all introduced energy servicecompanies (ESCOs). ESCOs are an American concept, providing everything needed forimproving energy efficiency, from technology through to facilities, personnel and capital.They cover the investment needed for energy efficiency improvement and businessexpenses using the costs saved through energy conservation. Korea instituted its firstESCO as early as 1992 and had 88 registered companies by 2000 (November 4), or aninvestment value of US$58 million (end of September)48.

To encourage ESCO development, developing countries need to review any of theirsystems which could reduce companies’ desire to save energy, such as fuel subsidies.Energy prices have long been held low in Asia and other developing countries because ofthe need to provide cheap energy to the poor and to remote areas. However, subsidies forpetroleum product and natural gas, as well as electricity prices set with no reference to cost,distort price systems and lead to excessive consumption. Developing countries need toconsider gradually lowering subsidies and raising cost-awareness in terms of energyconsumption, while also exploring a shift to other support tools such as income subsidiesfor the poor.

The World Bank conducted a study in Russia and 19 developing countries whichcompared fossil-fuel related subsidies in 1990-91 and 1995-9649, revealing that subsidyrates and total subsidies have fallen substantially in all these countries in the 1990s (Fig.3.3.21). In 1995-96, China, India and Indonesia had reduced their total subsidy value by

Figure 3.3.21 Subsidy rates and total subsidies for fossil fuels, 1990-91 and 1995-96Subsidy rates (%) Total subsidies

Petroleum products Natural gas Coal Total (US$ million, 1995) % of GDPFuel type

Country/region 1990-91 1995-96 1990-91 1995-96 1990-91 1995-96 1990-91 1995-96 1990-91 1995-96 1995-96                       China 55 2 n.a. n.a. 37 29 42 20 24,545 10,297 2.42India 21 15 n.a. n.a. 32 27 25 19 4,250 2,663 1.06Indonesia 28 21 43 17 n.a. n.a. 29 21 2,071 1,333 0.92Korea 0 n.a. n.a. n.a. n.a. n.a. 0 0 42 12 0.00

Asia

Thailand 10 9 n.a. n.a. n.a. n.a. 10 9 524 459 0.37                     

Bulgaria 43 24 27 23 65 33 54 29 2,003 733 7.05Czech Republic   0 39 29 29 28 24 22 1,173 978 2.96Hungary 2 2 28 34 n.a. n.a. 13 16 548 560 1.47Poland 28 1 40 6 63 26 50 18 4,653 169 1.97

Eastern Europe

Rumania 27 2 64 54 80 33 54 37 4,743 1,876 7.24 

Argentina 4 3 24 3 n.a. n.a. 12 3 659 150 0.06Brazil 26 0 n.a. n.a. n.a. n.a. 26 0 2,193 11 0.00Mexico 32 12 31 39 n.a. n.a. 32 16 5,403 2,271 0.66

Latin America

Venezuela 70 55 86 85 n.a. n.a. 76 66 3,455 2,397 4.00                       Egypt 50 33 70 56 n.a. n.a. 55 40 2,299 1,336 3.39Iran 88 77 82 75 n.a. n.a. 86 77 13,076 9,622 8.68Nigeria 60 38 n.a. n.a. n.a. n.a. 60 38 928 592 1.87Saudi Arabia 63 28 76 61 n.a. n.a. 66 34 3,837 1,720 1.42

Other

South Africa 8 6 n.a. n.a. 20 n.a. 12 4 981 367 0.31Russia 38 16 67 42 48 25 45 31 28,797 9,247 1.50OECD n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 12,453 9,890 0.05Total 36 16 58 44 57 44 45 28 118,632 58,385 0.27Source: Table 4.3 (World Bank, 1997).

48 KAESCO (2000).49 World Bank (1997).

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around 30 to 60 percent of the 1990-91 figure. Fuel subsidies therefore seem to bedecreasing in the Asian countries, but in some instances, prices still heavily undercut theinternational price, such as Indonesia’s official price for regular gasoline (1,150 rupiahs, oraround 15 yen)50. When the Asian currency crisis occurred in 1997, the IMF recommendedto the Indonesian government that the fuel subsidy system be eliminated to help re-establish fiscal soundness51, with the result that review of official prices for petroleumproducts and electricity toward subsidy elimination was included in the financialassistance program agreed in October that year52. The program was subsequently subject toa number of alterations. The September 2000 Memorandum on Economic and FinancialPolicies announced that the Indonesian government would (1) reduce and review fuelsubsidies, and (2) prepare a medium-term plan to eliminate fuel subsidies and raiseelectricity prices to a commercially sustainable level53. This kind of systemic review is anurgent issue in terms of instituting environment-related investment using marketmechanisms.

(3) Responses to wide-ranging environmental issues(a) Transboundary pollution As transboundary pollution and global environmental issues become more severe,regional environmental cooperation and concerted efforts by the world as a whole toreduce the environmental burden are becoming increasingly important. Regionalenvironmental cooperation is gathering momentum in East Asia54 and elsewhere forreasons such as the following: (1) resolving and preventing cross-border air and seapollution and the transboundary movement of hazardous waste necessitates cross-bordercooperation; (2) handling natural resource management and prevention of environmentaldeterioration is more rational on a regional basis (global efforts would be too wide whilenational efforts would not be adequate); and (3) the emergence of regional groupings hasnecessitated formation of common environmental policies and standards55.

There is currently no mechanism handling environmental issues across East Asia as awhole, the result of international organizations such as the UNEP pushing ahead withenvironmental cooperation in sub-regional units such as Northeast Asia or Southeast Asiain acknowledgement of the political and economic diversity of East Asia56. Widening thescope slightly to embrace the Asia-Pacific brings in Eco-Asia (policy dialogue amongenvironment ministers, began in 1991) and the Asia-Pacific Network for Global ChangeResearch (international joint research by scientists). APEC is also creating an environment

50 Price per liter as of March 1, 2001.51 Fuel subsidies comprise around 13 percent of government spending in the FY2001 budget (StateBudget 2000 and 2001, Ministry of Finance).52 Indonesian Letter of Intent, October 31, 1997 (http://www.imf.org/external/np/loi/102197.htm).53 Indonesian Letter of Intent and Supplementary Memorandum on Economic and Financial Policies,September 7, 2000 (http://www.imf.org/external/np/loi/2000/idn/04/index.htm).54 “East Asia” here follows the regional classification used by Takahashi (2000 b), including bothNortheast (China, Japan, North Korea, South Korea, Mongolia, the Russian Far East, and Taiwan) andSoutheast Asia (ASEAN members) .55 Takahashi (2000a, b).56 See Takahashi (2000a, b) on environmental cooperation at the sub-regional level.

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work program in response to the 1994 APEC Environment Vision Statement.

One example of cooperation on specific environmental issues is the Acid DepositionMonitoring Network in East Asia (EANET), proposed by Japan57. EANET was fullylaunched in January 2001 (continuing on from its trial operation period, with 10 countriesparticipating58), aiming to create mutual understanding among the East Asian countries onthe acid rain issue and to develop the infrastructure to prevent acid rain from impacting onhuman health and the environment. Other Asia-Pacific and Northeast Asian efforts includethe Asia-Pacific Migratory Waterbird Conservation Strategy59, which promotes theprotection of biodiversity, and the Northwest Pacific Action Plan (NOWPAP)60, whichprotects the ocean environment in the Sea of Japan and the Yellow Sea.

East Asian regional economic cooperation has, therefore, with the exclusion offrameworks established by international organizations, only just begun. The diversity ofeconomic levels and political systems in the region will also present numerous challengesin achieving the same kind of integrated environmental policies as Europe.

(b) Global environmental issues Since the 1972 UN Conference on the Human Environment (the Stockholm Conference),issues related to the environment and development have been raised frequently atinternational fora. However, it is not proving easy to build international consensus givendifferences in the stances of developed and developing countries, as well as differenceseven among developed countries as to whether a regulatory approach should be adopted orthe emphasis placed on voluntary efforts by companies.

One example of a global warming issue which has attracted attention in recent years isthe way in which developed countries will implement the greenhouse gas emissionreduction targets to which they agreed at the 1997 COP 3 meeting, an issue which is stillunder negotiation. Numerous hurdles have to be overcome in creating global warmingcountermeasures, including reification of the Kyoto Protocol (emission trading, jointimplementation, the clean development mechanism), measures to deal with countrieswhich do not fulfill their commitments, sinks, developing country participation, andtechnology transfer (division of roles between developed and developing countries,creation of new investment mechanisms, etc.). With the exception of those countries whichcould be seriously affected by rising sea levels, developing countries have tended to berather disinterested in the global warming issue, with the strong sense that developedcountries should lead the way as the instigators of the problem61. However, given ongoing 57 Japan’s advocacy of this kind of regional environmental cooperation is said to have been spurred byefforts in Europe as of the 1970s. (Yasnari and Yonemoto [1999], p. 127, and Takahashi [2000b]).58 China, Indonesia, Japan, Malaysia, Mongolia, the Philippines, South Korea, Russia, Thailand andVietnam.59 Aims to protect migratory birds and their habitats in the Asia-Pacific through government-NGOcooperation.60 Part of UNEP’s Regional Seas Programme. Adopted by Japan, China, South Korea and Russia in1994.61 Developed and developing country responsibility for environment issues was an issue also debated at

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(%) (%)Year 1971 1997 2010 2020 Year 1971 1997 2010 2020

OECD 69.5 56.3 50.6 45.1 OECD 65.0 50.8 44.9 39.6DevelopingCountries 30.5 43.7 49.4 54.9

DevelopingCountries 35.0 49.2 55.1 60.4

Source: World Energy Outlook (2000 Edition) (IEA).

〈Share of CO2 Emissions〉

Figure 3.3.22 Final energy consumption and CO2 emissions up to 2020

〈Share of Final Energy Consumption〉

Final energy consumption

0

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2,000

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1971 1997 2010 2020

Middle EastAfricaLatin AmericaSouth AsiaEast A siaTransition economiesOECD

(Million tons of oil equivalent)

Develop ingcountries

(Year)

CO 2 emissions

0

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D evelopingcountries

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industrialization and population growth in the developing countries, greenhouse gasemission reductions by developed countries alone will have limited effect. Fig. 3.3.22shows the IEA’s projections for the energy consumption and CO2 emissions of OECDmembers and developing countries by 2020. Where the OECD countries accounted foraround two-thirds of final energy consumption and CO2 emissions in 1971, by 1997,OECD members and developing countries were almost on a par in terms of CO2 emissions.By 2020, the IEA forecasts that developing countries will be accounting for the greaterpart of final energy consumption and CO2 emissions.

As for the impact of global warming on developing countries, the contribution ofWorking Group II to the Third Assessment Report of the IPCC62 (Summary for PolicyMakers), published in February 2001, suggests how developing countries could be affected.For example: (1) the ability to respond to climate fluctuations is determined by conditionssuch as national and regional economic position, technology, education, information andinfrastructure, with developing countries generally poorly equipped and therefore highlyvulnerable; (2) any rises in average temperature will mean a net economic loss for manydeveloping countries, with the loss increasing according to the extent of global warming;and (3) the impact of global warming is expected to be heaviest in developing countries(particularly those highly dependent on primary products). The same report also concludesthat international cooperation and coordination is particularly vital in not only handlingsuch research issues as quantitative evaluations of the sensitivity, adaptability andvulnerability of natural and human systems to climate change, but also in evaluating theregional effects of and vulnerability to climate change and ensuring effective responses to the 1992 UN Conference on Environment and Development (the Earth Summit). The Rio Declarationadopted by the conference includes reference to “common but differentiated responsibility”.62 The Intergovernmental Panel on Climate Change (IPCC) has three working groups. WG1 assessesscientific information on climate change, WG2 assesses the environmental and socioeconomic aspectsof climate change, and WG3 formulates response strategies.

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this, including monitoring, evaluations, data collection, education and training fordeveloped countries. As noted earlier, while negotiations are underway on various pointsof issue in the Kyoto Protocol, creating a framework which will effectively reduce thegreenhouse gas emissions of not only developed but also developing countries will becritical in boosting the effectiveness of global warming countermeasures.

(4) Harmonizing sustained growth and environmental protection This section has looked at the current status of environmental issues which couldbecome constraints to sustained growth, the upsurge in recent years of voluntary corporateefforts to protect the environment, and areas in which policy responses will be necessary.

Environmental issues have become more complex in recent years, with their impactspreading and lengthening, the variety of polluting entities expanding, and new types ofissues such as dioxins emerging. Environmental regulations are being strengthened atnational and regional level to deal with these increasingly complex issues.

As consumers have become more environmentally conscious and NGOs have boostedtheir watchdog capacities, companies have been abandoning their rather passive stance onenvironmental protection in favor of more proactive measures. One factor lendingmomentum to moves in this regard is the massive cost now entailed where the environmentis polluted, making environmental countermeasures increasingly important to companiesas a means of risk avoidance. The new perception by companies that environment-relatedinvestment, traditionally considered a cost factor, will lead to corporate profit, or else is atleast a social responsibility, is a major step forward in harmonizing sustained growth andenvironmental protection.

However, policy responses are still needed particularly in those areas where market-based mechanisms do not provide sufficient motivation for environmental protection. Suchareas include developed country issues (energy-saving in the transport and non-industrialsectors, waste disposal), developing country issues (the simultaneous emergence of anumber of environmental problems, the vicious circle of poverty and environmentaldeterioration), and wide-ranging environmental issues (acid rain, global warming, etc.).Developed countries are working to introduce self-sustaining mechanisms for dealing withthese issues, but most developing countries are not producing adequate results, lacking thehuman, technological and financial resources needed to implement environment-relatedmeasures. Firmly establishing self-sustaining environmental protection efforts indeveloping countries will mean ensuring the enforceability of environmental laws and alsoproviding incentives for environment-related investment. Further, while developingcountries are not currently particularly interested in the global warming issue, thelikelihood of industrialization and population growth in the years ahead, and the majorimpact which global warming is eventually expected to have, international cooperationwill be essential not only in the formation of appropriate international rules, but also inassistance of monitoring and data gathering, human resources development, and the furtherpromotion of technology transfer. Ensuring that the 21st century is truly the “century of theenvironment” will rest on the development of international rules and domestic

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environment-related laws and mechanisms for the enforcement of these, as well as thecreation of self-sustaining environmental protection by organically combining economicmeasures such as environment taxes, levies and deposit systems with voluntary corporateefforts.

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Column 6 :Brent Spar incident

The “Brent Spar” was a massive buoy used in the North Sea oil fields from 1976 to1991. Crude oil drilled from a North Sea oil field was carried by pipeline to the ShetlandIslands in the United Kingdom, and taken by tanker from there to oil refineries.

Royal Dutch Shell (below, “Shell”) and independent external organizations studiedmeans of decommissioning the Brent Spar from 1991 to 1993, concluding that deep-seadisposal would be less risky and costly than on-shore disposal. Shell accordinglysubmitted a deep-sea dumping plan to the Department of Trade and Industry in December1994. In February 1995, the UK government decided to approve the Shell plan, andinformed the EU and EU members of this decision.

On 30 April, Greenpeace activists occupied the Brent Spar in opposition to the deep-seadisposal, claiming that the oil storage rig was to be dumped without first removing residualoil and toxic substances. The occupation was terminated on 23 May, but Greenpeaceappealed to Europe to boycott Shell products. In Germany, as a result, opponents of deep-sea disposal fore-bombed Shell service stations. In Canada at the Halifax Summit whichwas being held at the time, then-German Chancellor Helmut Kohl even asked then-UKPrime Minister John Major to reconsider the deep-sea disposal. On 20 June, Shellannounced that the plan had been abandoned on the grounds of a changed politicalsituation in Europe, the greater risk from violence by opponents, and the need for moredetailed discussion.

After consideration at a seminar on Brent Spar disposal, in January 1998 Shell decidedto re-use the rig as a ferry quay. Building was completed in July 1999 in Norway, and inSeptember, Shell held a London seminar for all involved, reporting on the details of theoperation.

The Brent Spar incident involved a company attempting to dispose of a maritime facilityin line with a plan approved by the government, meeting with a boycott arranged byNGOs, and, further, being pressured by not only ordinary consumers but also other EUmembers to reconsider the plan, with the result that the company was forced to abandonthe plan it had chosen and review its options. The incident had an impact, to say the least,on European industry in regard to corporate environment-related measures, andparticularly the disclosure of information to civil society and dialogue with NGOs.

References:Yonemoto, Shohei (1996), “Greenpeace as a Political Power”, Kaigai Jijo, No. 44, Vol. 1,

Institute of Foreign Information, Takushoku University)Royal Dutch/Shell website (http://www.shell.com/uk-en/directory/0,4010,25268,00.html)Greenpeace website (http://www.greenpeace.org/)

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Column 7 :Mexican saltworks incident

Laguna San Ignacio on the Baja California peninsula in Mexico is known as one of theplaces where Californian gray whales bear and raise their calves. Exportadora de Sal(ESSA), a joint venture between the Mexican government and Mitsubishi set up asaltworks in the Laguna Guerrero Negro in 1976, but in 1991, reports came out that thecompany was planning to expand the saltworks into Laguna San Ignacio.

In 1995, Grupo de Los Chien, a Mexican environmental protection group, protestedagainst ESSA’s development plan, followed by American environmental NGOs theNatural Resource Defense Council (NRDC) and the International Fund for Animal Welfare(IFAW), which argued that highly saline water would impact negatively on the ecosystem,launching a boycott against the Mitsubishi Group as of September 1999. These groupsbegan a protest campaign, running campaign advertisements in newspapers and ontelevision and setting up a website on the Internet to appeal for the protection of theLaguna San Ignacio ecosytem.

Laguna San Ignacio was designated a World Heritage site by UNESCO in 1993, but thearea where ESSA planned to develop the new salt plant was in a buffer zone (the areaaround the central zone of a wildlife protection area, where all industrial activities areprohibited). The saltworks had been allowed to operate on the condition that it had noimpact on the ecosystem of the central zone. ESSA therefore commissioned environmentalimpact assessments from Universidad Autonoma de Baja California Sur and the ScrippsInstitution of Oceanography in September 1997. In December 1999, the UNESCO WorldHeritage Committee announced that scientific data indicated that nursery conditions werenot threatened and that the number of whales was increasing, but did express concern overlarge-scale transformation of a World Heritage site.

In March 2000, then-President Ernesto Zedillo announced suspension of the plan inorder to protect the landscape and the ecosystem of a World Heritage site. The NRDCtouted the decision as “a triumph of an empowered citizenry over one of the world’smost powerful companies”, and noted that “through e-mails and newspaper ads, we wereable to galvanize people all over the world”. In that sense, the Laguna San Ignacio incidentis a good example of NGO networking.

References:ESSA website (http://www.mitsubishi.co.jp/environment/essa.html)“Whale Nursery saved: Coalition stops Mitsubishi from building a saltworks at Laguna

San Ignacio” (http://www.nrdc.org/wildlife/marine/nbaja.asp)“The whale sanctuary of El Viscaino in Mexico inscribed on the UNESCO World Heritage

list since 1993” (http://www.unesco.org/whc/news/viscaino081299.htm)“El Viscaino whale sanctuary: President of Mexico announces decision to halt saltworks

project at World Heritage site” (http://www.unesco.org/whc/news/viscaino070300.htm)