How does the Department meet its responsibility to ensure consistency between policies that affect the environment and sustainable development in developing countries?

  1.  The White Paper on International Development sets out an approach to environmental consistency which embraces action at local, national and international levels. DFID's memorandum to the Committee on "The Greening of Government Initiative" (Memorandum, Department for International Development, Appendix 16, Volume HC51711, February 1998) explains how we are taking this forward. A further copy is attached.

  2.  Within Whitehall, the main mechanism for ensuring environmental policy consistency is the UK's own Sustainable Development Strategy. We are working closely with the Department of the Environment, Transport and the Regions (DETR) on the current revision of the Strategy. We also participate actively in the work of the UN Commission on Sustainable Development, which is due to consider trade and investment issues in the year 2000.

What has the Department done to encourage attention to environmental standards in developing countries within the context of the UK's pursuit of multilateral investment liberalisation?

  3.  Our approach is threefold. First, we are working with our partner governments to help them develop their own national strategies for sustainable development. We see such strategies as the main vehicle for integrating pro-poor economic growth with a responsible approach to environmental management, and thus for setting environmental standards which are appropriate to each country's circumstances. We are also providing direct support to developing countries to help them tackle environmental problems: in the past three years DFID has approved 579 projects worth about £600 million addressing environmental issues.

  4.  Second, we are stongly committed to further multilateral cooperation on the environment, particularly on environmental issues with cross-border or global effects. We are working very closely with DETR on the evolution and implementation of Multilateral Environmental Agreements (MEAs), and supporting developing countries in their efforts to comply with these agreements. DFID provides Global Environmental Assistance funds to help meet the additional costs which realising global environmental targets can impose on developing countries.

  5.  Third, we are seeking new ways of working with business, both in the UK and in developing countries, to promote environmentally responsible investment in developing countries. Our work in this area is at an early stage.

There appears to be a distinction between efforts to create "attractive conditions for private investment" (host country obligations) and efforts to encourage private investment that is "beneficial" (investor obligations). With regard to environmental standards, what is the Department's view on the validity of pursuing a balance between these strands within any agreement on multilateral investment?

  6.  We do not see the process of creating attractive conditions for private investment as an obligation on host countries. Rather, we believe that increased levels of investment leading to faster economic growth are fundamentally in the interests of developing countries, and essential if we are to eliminate poverty. As explained above, we see national strategies for sustainable development as a key part of ensuring that the growth associated with additional investment is sustainable.

  7.  A multilateral investment agreement could help reinforce commitment to environmental standards, for example by including a provision preventing signatories from lowering standards to attract an investment, as was proposed for the MAI. But we would be very cautious about any attempt to use an investment agreement as a means of establishing new binding environmental standards which could have the effect of preventing developing countries from participating in the agreement. We do not believe multilateral investment negotiations can substitute for effective multilateral cooperation on environmental issues.

In what ways did the OECD MAI not take account of the economic and institutional constraints of poorer developing countries?

  8.  Our initial assessment was that accession to the MAI, while potentially beneficial, could pose particular challenges for countries with relatively weak regulatory capacity; with poorly specified domestic laws affecting investment; with small economies in which a single large foreign investor might have a significant impact; or with specific sectors in which few domestic investors were active The MAI would also have needed to allow for appropriate sequencing of capital account liberalisation, for example by ensuring developing countries' financial sectors were sufficiently robust and well-regulated to cope with additional capital inflows; and for situations in which land is communally owned, or land rights are poorly defined.

  9.  Our view was that these issues could be addressed within the scope of the MAI, if the Agreement provided for an accession process which took account of the needs of developing countries (see below).

What input did the Department make on this point to the UK's negotiating position on the MAI, and how was this reflected in propsals put forward by the UK?

  10.  In February 1998 DFID commissioned a report on the development implications of the MAI from a team from Queen Elizabeth House, Oxford. This report concluded that developing countries stood to gain from accession to the MAI; but it also argued that low income contries would require considerable assistance to enable them to accede, and that there was a need for further research to look at transition arrangements for acceding developing countries.

  11.  The report was presented to the MAI Negotiating Group in April. We proposed that the OECD Secretariat should be asked to take forward additional research into the development implications of the MAI, building on the report's initial findings. This was agreed. The UK also hosted an informal meting of the OECD MAI negotiators in London in July to exchange initial views on accession arrangements for developing countries.

  12.  MAI negotiators were already generally agreed on the need for text to make clear that Parties to the MAI, when considering a request from a developing country to accede to the Agreement, would give full consideration to the possible need for country-specific exceptions to accommodate the applicant country's development interests; and the possibility of time-limited exceptions where a transitional period was necessary to implement reform of the applicant's domestic investment regime. DFID's focus was on ensuring that these arrangements were sufficient to allow accession by developing countries; and that developing countries would have access to the technical assistance they might need to enable them to accede.

What contribution was made by DFID (and the former ODA) to the "outreach" programme for non-OECD countries interested in the Agreement, as well as bilateral contacts with developing country representatives?

  13.  DFID officials were involved in several of the outreach consultations, both in developing countries and at the Secretariat in Paris. At the OECD's presentation to non-member countries in Paris this year, the DFID-commissioned report on the development implications of the MAI provided the focus for discussion. The report's findings were also presented during an UNCTAD Expert Meeting on Regional and Multilateral Investment Agreements and their development dimensions. Through our regional offices we have regular contact with developing country representatives on investment issues in general. We have had specific discussions on the MAI with officials of the Governments of India, Pakistan and Bangladesh, and informal contact with government officials in East Africa and Central Europe.

What is DFID's view of the OECD's performance on integrating economic, environmental and development considerations with regard to the development and negotiation of the MAI?

  14.  The UK would have liked to have seen developmental considerations brought into MAI discussions at an earlier stage. Looking ahead, we believe the OECD has a valuable role to play in integrating economic, environmental and developmental considerations in policy-making. We fully support the statement of OECD Ministers in April this year, in which they requested the Secretariat to submit a report in 1999 on the links between trade and investment and development and the role that the OECD might play in promoting greater policy coherence.

Criticisms of the report commissioned by DFID from Queen Elizabeth House

  15.  The report was commissioned by DFID at a time when it seemed possible that the MAI negotiations might be concluded in April 1998. It was commissioned with a very tight deadline. It was precisely because the report was a relatively rapid desk study that the authors recommended further work, as explained above. We believe that the report was instrumental in getting agreement in the Negotiating Group for the Secretariat to carry out this additional work, thus helping mainstream developmental concerns into the negotiating process.

  16.  Prior to this report as explained in the DTI/DETR memorandum, the UK had proposed in September 1997 that an environmental review of the MAI be conducted. The MAI Negotiating Group decided in October 1997 that further work on the implications of the MAI for environmental law and policy should be carried out. The UK produced a contribution to this review in March 1998. The OECD Secretariat have also produced papers on Foreign Direct Investment and the Environment and the relationship between selected MEAs and the MAI.

What was the Department envisaging in an eventual WTO agreement on investment and how was this to be related to the MAI process within the OECD?

  17.  Our objective has been and continues to be to work towards the establishment of a framework for international investment in the WTO that takes proper account of social and environmental issues, helps developing countries attract the investment they need to support sustainable economic growth and development, and thus helps eliminate poverty.

  18.  WTO discussions have continued in parallel with work in the OECD on the MAI, but are still at the analytical stage. The MAI could have offered an opportunity for developing countries to capture the benefits of participating in a multilateral investment agreement more rapidly than seemed possible through the WTO.

Is the WTO able formally to take account of relevant multilateral agreements and declarations on the environment and on social issues that have been agreed in other fora, principally the UN?

  19.  The relationship between trade measures taken under MEAs and the WTO rules is currently unclear. There has been no WTO challenge against a trade measure issued at implementing an MEA. However it is clear from reports of Dispute Settlement Panels and of the Appellate Body—most recently in the Shrimp-Turtle case that the WTO can take account of MEAs. There is widespread pressure for increased clarity in this area, though there is no consensus on whether WTO rules should be amended, or on the form any amendment should take. Most developing countries strongly oppose a change to WTO rules, claiming that this provides a cloak for protectionism.

  20.  The government is working for the world-wide observance of core labour standards for all workers. We are focusing our efforts at the international level on the ILO, whilst at the same time pressing for more systematic reporting between the ILO and WTO secretariats.

Does WTO have the capacity and expertise to integrate economic, environmental and development considerations in its processes for negotiation, implementation and dispute settlement?

  21.  The WTO has established a specific forum for discussing trade and environment issues in greater depth—the Committee on Trade and Environment—in which all member states can participate. The WTO is also carrying out a number of capacity building seminars in developing countries for trade and environment officials. In a further effort to increase the understanding of trade and environment issues a High Level Dialogue on trade and environment will be held by the WTO Secretariat on 15-16 March 1999. The dialogue will be attended by senior officials and aims to enhance awareness of trade and environment issues and provide a forum for the exchange of ideas.

  22.  Dispute Settlement Panels are made up of well qualified trade law or policy experts either from governments or NGOs. In the event of a dispute between a developed country and a developing country, and where a developing country so requests, at least one panellist should be from a developing country. This aims to ensure developing country interests are taken into account. On all issues, including environment and developmental considerations, panelists are entitled to seek technical advice or information from any body or individual which they deem appropriate.

  23.  A number of trade and environment disputes have been taken through the WTO Dispute Resolution process, and the jurisprudence is continuing to develop. The most recent case was "shrimp-turtle". In this case, the WTO Appellate Body ruled that a US measure banning imports of shrimps caught in nets that also catch sea turtles was illegal under GATT—not because of the measure's environmental purpose, but because of its discriminatory application by the US (ie its application discriminated between countries). The Appellate Body did not question the environmental legitimacy of the measure, or the urgency of the need to protect sea turtles. The Appellate Body stated that protection and preservation of the environment are of significance to members of the WTO.

  24.  This is probably the most important report on the interface between trade and the environment to emerge from the WTO's dispute settlement mechanism to date. We are studying the ruling and we will be considering its implications.

What is the Department's view as to the likelihood and/or adequacy of the OECD text as a basis for continuing work on investment liberalisation in the WTO?

  25.  The MAI has provided valuable experience on which the WTO process can draw. But any WTO negotiation would be a new negotiation, with different negotiating parties at the table, leading to an agreement with substantively different content.

What is DFID doing to provide developing countries with "technical assistance to enable them to assess the environmental implications of the MAI and strengthen their regulatory capacity" (DTI/DETR memorandum para 18)?

  26.  The DTI/DETR memorandum refers to the potential need for technical assistance for developing countries wishing to accede to the MAI. The particular question of accession to the MAI has fallen away for the foreseeable future. However DFID is continuing to support developing countries in their efforts to strengthen regulatory capacity; and we are also supporting an UNCTAD programme of advice and capacity building for developing countries on the implications of a possible WTO-based multilateral framework on investment. This programme includes production of a technical paper looking specifically at environmental issues.

What is DFID doing to increase the capacity of developing countries to negotiate on environmental and sustainable development issues in the WTO?

  27.  In addition to the UNCTAD programme mentioned above, we have a number of other pieces of work in this area. We are in the process of finalising agreement with UNCTAD and the Foundation for International Environmental Law and Development (FIELD) to carry out a capacity building project for the trade and environment officials of approximately 10 developing countries. The project will help developing countries identify their interests and play a full and active part in negotiations on trade and environment. We have also commissioned research on the opportunities available to developing countries in trade and environment negotiations. This includes looking at possible "win-win" situations, where the removal of trade restrictions and distortions has the potential to yield both direct economic benefits for developing countries and positive environmental results; and exploring the new opportunities for developing country exporters arising from increasing consumer demand for sustainably produced goods and services.

What contribution is DFID making to the review of the OECD's Guidelines for Multinational Enterprises, specifically with regard to environmental standards and sustainable development in developing countries?

  28.  The review of the Guidelines is still at an early stage. [The first substantive discussion of the Guidelines in the relevant OECD committee took place on 23 November. A further discussion is planned for January.] DFID has contributed to preliminary Whitehall consultations on the review, and was represented at the recent OECD Conference on the Guidelines in Budapest (16-18 November ).

  29.  We want to look positively at what role the OECD Guidelines can play as part of a set of policy instruments for promoting responsible investment by British companies in developing countries. Within the OECD, we have been a leading voice stressing the importance of considering the impact of the Guidelines in developing countries, and the extent to which developing countries are involved in the review itself. One key issue will be how far the implementation mechanism for the Guidelines, which is based around government-sponsored "national contact points", can be extended to developing countries. Unlike OECD governments, developing country governments are not party to the Guidelines (with the exceptions of Argentina, Brazil and Chile, which have signed up to the Guidelines).

  30.  On environmental standards, we have recognised that the Guidelines chapter on environmental protection needs to be updated: it could, for example, benefit from the inclusion of recommendations on environmental management and reporting, eco-efficiency, social responsibility and stakeholder dialogue. The UK has indicated the importance of extending the text of the Guidelines to include the broad aims we are pursuing in our wider sustainable development strategy.

November 1998