Ticking the environment box

1 October 2013
ITC News
Making the environment matter in the sustainable economic development of developing and least developed countries.

When Aid for Trade was launched at the World Trade Organization’s (WTO) Ministerial Conference in Hong Kong in 2005, its stated aim was to help developing countries increase their exports and integrate into the multilateral trading system, and as such derive greater benefits from trade. The immediate objective of Aid for Trade is usually stated as increasing trade flows, while the end objectives are economic growth and poverty reduction.
To date, though, Aid for Trade has largely focused on the practical challenges of building trading capacity, increasing exports and promoting market integration. Broader questions, focusing on the ultimate goals of Aid for Trade, have not been explored in much depth.
Fundamental to answering these questions is the extent to which Aid-for-Trade projects take into account the environmental constraints and their implications for the sustainability of economic growth and the poverty reduction that is achieved.
Many practitioners ask themselves why they should pay attention to the environment in Aid-for-Trade programming. It is a fair question. Aid-for-Trade projects already have multiple objectives to achieve, resources are limited and usually non-additional to existing aid flows and, for policymakers already trying to juggle several different demands, addressing environmental concerns can feel like yet another box to tick, or worse, a new conditionality.

Why the environment matters for Aid for Trade

The answer to why the environment matters for Aid for Trade is straightforward: effectiveness. Failing to account for the environment can subvert project goals, while proactively accounting for it can make for good Aid-for-Trade programming.

Project goals, such as increased exports and poverty reduction, can be easily subverted if the economic activity supported by Aid for Trade is undertaken without regard to environmental limits. This is particularly true of cases in which the underlying resource base is renewable but subject to overexploitation, such as fisheries and forestry. It is also true of sectors that rely heavily on the replenishment of water supplies, such as mining and agriculture. And it is true of the tourism sector, in which poorly planned development can mar the natural attractions that draw tourists in the first place.

Project goals can also be frustrated if planning fails to account for environmental impacts from outside the project. People involved in hydroelectricity development and export-related agriculture, for example, need to be conscious of how climate change may reduce water availability in the future. Taking such considerations into account is a simple matter of due diligence.

Aid-for-Trade activities that result in environmental damage may go beyond frustrating the economic viability of targeted sectors, to frustrating the broader goal of poverty reduction. Natural resources and ecosystems are particularly important to the poor, who usually depend disproportionately on free services such as the provision of clean water, fuelwood, forest products and game. Anything that threatens these assets is therefore likely to negatively affect the poor.

On a practical level, Aid-for-Trade practitioners should also be concerned about the extent to which their projects are aligned with non-trade policy objectives. For example, infrastructure development such as road building may run counter to aid projects seeking to safeguard biodiversity, or projects that increase water use might worsen regional tensions over shared water resources. Trade-offs are unavoidable because economic development inevitably has environmental impacts. However, it is critical to have an understanding of what those trade-offs are. Donors and host-country policymakers need to be able to make informed decisions about the nature of the costs and benefits of any given programme.

Finally, proactive thinking about the environment can make for effective Aid-for-Trade initiatives. An example of this type of programming is the fostering of cleaner industrial production. In many trading sectors – including agriculture, manufacturing, mining, tourism and transport – cleaner production goes hand-in-hand with cost savings, as higher efficiency reduces cost inputs for energy and natural resources. Cleaner production also helps companies meet increasingly stringent environmental standards that can be fundamental to market access. Aid-for-Trade projects can help drive cleaner production by providing analytical studies on the potential profitability of cleaner production, and also help develop national capacity to provide viable financing models for producers to improve their performance.

Another example of proactive mainstreaming is the building of exporter capacity to meet foreign environmental standards, which are increasingly important to gaining and maintaining market share. This is particularly true in consumer goods industries, such as textiles and apparel, but also in the extractive industries. Private-sector sustainability standards have grown far beyond niche coverage in sectors such as bananas, cocoa, coffee, forest products and tea, to affect commodities such as oil and diamonds. Where such standards are influential, Aid for Trade should help create and support the work of national standards bodies, help build accredited local capacity for verification and certification, and support producer groups dedicated to meeting foreign quality and environmental demands.

How to take the environment into account

The inclusion of environmental concerns in Aid-for-Trade programming should be part of a broader move away from an overemphasis on the building of hard infrastructure towards the development of soft infrastructure, such as that of supply-side capacity and institutions that are critical to export success. While highways and ports are essential, exporters (particularly small and medium-sized enterprises) also need help in producing and getting their goods to market through those improved facilities. As noted above, this might involve, for example, supporting producers in meeting foreign environmental standards or supporting efforts towards cleaner production.

It should also involve identifying ways in which Aid-for-Trade projects might result in damage to the environment, and ways in which environmental trends such as climate change might affect the economic viability of Aid-for-Trade programming. Making these kinds of connections, which is best done during the project-design phase, requires new tools.

One such tool is strategic environmental assessment (SEA). SEA is a systematic tool that facilitates the thinking through of environmental issues that might be relevant for any given activity. In the context of Aid for Trade, SEAs can help to identify whether or not environmental issues matter for the targeted export sector, suggest ways that negative impacts can be minimized, and reveal ways that adaptation to a changing environment can be built into projects. SEAs cover a broader scope than standard environmental impact assessments in several important ways, including their focus on cumulative impacts of activities beyond the project itself and assessments of alternatives to the proposed activities. A number of guides to conducting strategic environmental and social assessments have been developed in recent years by multilateral and bilateral development agencies, such as the World Bank and the Canadian International Development Agency, which is now part of Canada’s Department of Foreign Affairs, Trade and Development.

Other tools include CRiSTAL, a project-screening tool created by the International Institute for Sustainable Development and partners that identifies and prioritizes climate-related risks that projects might face, and as a result, helps improve project designs.

At WTO's Fourth Global Review of Aid for Trade in July 2013, only one discussion led by the International Trade Centre was held on the relationship between the environment and Aid for Trade. It was not because of lack of interest, as reflected in the number of people who attended. Rather, it seemed to reflect the general state of uncertainty about whether and how the trade community ought to integrate the environment into Aid for Trade.

Ultimately, accounting for the environment in Aid-for-Trade programming is not about spending scarce trade-related resources to pursue non-trade-related environmental priorities. Nor is it about imposing new environmental conditions on financing. It is about looking for ways to effectively use the few resources we have to exploit the power of global trade to foster the sustainable economic development of developing and least developed countries.

This article is based on a forthcoming in-depth guide to integrating the environment into Aid for Trade produced by the authors and other collaborators and supported in part by the Canadian International Development Agency.