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Building a Post-Rio North-South Compact: The Role of the United States and Japan

James Gustave Speth
Former President
World Resources Institute
Washington, D.C., USA

A Presentation Made at the United Nations University
on 27 October 1992
Tokyo, Japan

Whether nations are ready or not, world events are pressing forward, driven by powerful currents of change. One such event was the June 1992 Earth Summit in Rio de Janeiro, where outlines of the new world order became clear. President George Bush's vision of that order emphasized mutual security, a goal of extraordinary importance. But Rio suggests that new values, new sources of international strength, and new areas for world leadership are coming to the fore.

First, the Rio conference concentrated on another kind of security-environmental security-and on the need to close the widening gap between the haves and have-nots through accelerated, broad-based development in the poorer countries. In fact, the greatest accomplishment of the Earth Summit may lie not in the actual commitments governments made, which were mostly modest, but in the way that the event has shaped the international agenda for years to come. It defined the new international values-equity and environment-linked them inseparably, and dramatized how powerfully they inject North-South relations into international affairs.

Second, Rio suggested that, with the end of the Cold War, the goal of diplomacy is shifting from conflict management to common endeavor. Earth Summit diplomacy had little to do with superpower conflict; instead, it focused on building a new system of shared international responsibility through inclusive multilateral agreements. By the close of the Earth Summit, 154 countries had signed the climate protection convention; 156 had signed the biodiversity protection convention; and 178 had agreed to Agenda 21, an impressively detailed manual that translates the vague concept of sustainable development into actionable policies and programs.

Third, Rio signaled the rise of an increasingly powerful group in international diplomacy: nongovernmental organizations (NGOs). The Earth Summit brought together an international community of scientists, policy experts, business groups, and activists representing a wide array of interests. Although far from cohesive themselves, NGOs worked together surprisingly well throughout the Earth Summit process, lobbying and educating delegates, helping draft agreements, and communicating with the 9,000 journalists who covered Rio.

Finally, the Earth Summit suggested that the new axis of world affairs is not East-West, but North-South. Summit negotiators from Europe and Japan seemed to understand the rise of North-South issues in the post-Cold War world. The 130-plus developing countries of the South already account for four-fifths of the world's people and one-sixth of its economic output; most of the world's population growth and much of its economic expansion will occur in the South. Today, the gravest problems of hunger, disease, and poverty are there, as is the most serious deterioration of natural resources and local environments. And there is simply no prospect of meeting global challenges like climate change, biodiversity loss, and overpopulation without their cooperation.

In the end, the North-South standoff that many at Rio feared was largely averted because, though it sounds too good to be true, most governments appreciated that the challenges to the global environment and international development can be met only through North-South partnership. In an editorial, "Limping Home from Rio" the Washington Post correctly noted that if the industrial countries want meaningful environmental cooperation from the rest of the world, they will have to propose a North-South compact: "If they want the %poorer countries? not to struggle laboriously through the slash-and-burn, coal-and-sulfur stages of development, the rich are going to have to provide them with the resources to bypass it. That means money and technology." In fact, such a compact began to take shape during the Earth Summit. The foundations were laid for expanded North-South technology cooperation and for new financing for Agenda 21 and global environmental treaties.

How can we build on the progress that was made at Rio? How can we build the North-South compact that is essential for planetary survival and progress?

In answering these questions, I will speak mostly about the United States. But I think what I have to say has great relevance to Japan as well. I believe that we must reinvent U.S. policy toward the developing world. To begin, we should declare a new international mission for our countries. With the Cold War at last over and with democracy emerging around the globe, we should commit ourselves to a new era of concerted international action against world poverty and environmental deterioration. To carry that mission forward, I hope that the U.S. administration and Congress will turn early in 1993 to the task of forging a new U.S. program aimed at cooperating with the developing countries to achieve broad-based and environmentally sustainable growth.

There are seven elements that should be a part of a new U.S. program that reflects the needs of the developing world as well as America's own long-term interests. Japan and other OECD countries should consider their current programs in light of these goals as well.

First, the prime objective of policy toward developing countries must be to promote sustainable development-economic and social progress that both alleviates poverty and protects the environment for future generations. We must move beyond the outmoded concept of the environment as another cost burdening the economy. Many Third World development projects have simply not worked because they were not environmentally sound and were therefore not sustainable.

Bilateral and multilateral programs should therefore stress goals such as these:

•effective family planning and programs to improve maternal and child health care and to raise the status of women, with slowed population growth as one result;
•sustainable agriculture and fisheries, with the aim of meeting food and other agricultural needs while enhancing the natural resource base;
•sustainable energy production, with the goal of providing energy services for rapidly growing economies while reducing urban pollution and helping prevent global warming; •sustainable forestry, with the goal of providing forest resources for community and national development while conserving biodiversity;
•effective pollution control and environmental protection programs, with the objective of protecting air and water and guarding public health.

In these and other areas, effective programs should stress the needs of the poor and promote what has come to be called "primary environmental care." Primary environmental care combines three elements: meeting basic human needs, protecting the local environment for future production, and empowering local groups and communities. Projects based on those tenets tend to be small-scale, to use locally developed technology, and to involve local people in project design and implementation.

Second, the traditional development assistance programs, such as those carried out by the U.S. Agency for International Development (AID) and other countries' bilateral aid agencies, will not be sufficient to support sustainable development fully or to ensure cooperation on global environmental challenges. Successful programs must extend to other critical areas affecting the prospects of developing countries, including access to capital and technology on favorable terms, reductions of external debt, mutually advantageous trade initiatives, policy reforms, and cooperative environmental initiatives. National policies toward developing countries must be integrated across a wide front.

To spell out what this would mean, let's consider one such area-technology cooperation-in which cooperation between the United States and Japan is essential. WRI is currently working with several Japanese institutions especially RITE and GISPRI to develop practical ways to improve the speed and effectiveness with which environmentally superior technologies are implemented in developing countries. We are focusing on four broad areas in which rapid progress in the developing world is essential if industrialization in the South is to proceed along a more sustainable path than that taken by the North. Specifically, we will recommend ways in which the United States, Japan, and other OECD countries can help the developing countries through the following four objectives:

•increasing the supply of technology and expertise available to solve environmental problems;
•increasing the demand for environmentally superior technologies;
•changing the pattern of corporate relationships and responsibilities to increase environmental stewardship; and
•creating an intermediary organization that would help bridge barriers to environmentally superior technology cooperation, development, transfer, and adoption.

Nowhere is technology cooperation more urgent than in the area of energy. While the actual transfer of energy technology is important, it will accomplish little unless accompanied by initiatives to strengthen developing countries' capabilities to devise and implement energy-efficiency and renewable-energy strategies-both being fields in which information and training are essential elements of technology transfer.

The United States, Japan, and other OECD countries should work closely with developing countries to promote the establishment of a network of international centers for energy-efficiency and a renewable-energy strategy, with at least one center in each major region of the developing world. These centers would address both commercial and non-commercial energy use, providing education and training in such fields as end-use analysis, least-cost planning, renewable power generation, and efficiency standards. By helping to create a critical mass of support for energy efficiency and renewable energy, the centers would also help stimulate demand for external assistance from multilateral development banks and other sources.

Third, bilateral foreign assistance should concentrate heavily on up-front needs-on building the human and institutional capacities needed for sustainable development. That is pioneering work. We should stress education and training, increased capabilities for local governments and NGOs, national planning and policy development, technical and scientific cooperation, information and monitoring services, private sector partnerships, and demonstration projects in areas such as sustainable agriculture and sustainable energy. Bilateral programs should harness the growing potential of NGOs in delivering primary environmental care, and key institutions, like universities, should receive expanded, stable support.

Fourth, the United States and the other OECD countries should sharply increase overall financial support for development assistance, eventually doubling it. A doubling of U.S. assistance would bring the U.S. contribution as a percentage of GNP into the same league as Canada's, France's, and Germany's. The 1989 report of the Schmidt Commission, Facing One World, called on the OECD countries to double their development assistance, and the Earth Summit's Agenda 21 seeks a similar increase.

The Schmidt Commission also urged donor countries to give special consideration to countries that emphasize poverty-reduction programs, spend less than 2 percent of their GNP on the military, take steps toward efficient family-planning policies, or implement policies aimed at environmental preservation. The United States should follow Japan's recent example and adopt that approach.

As long as bilateral foreign aid remains tied to national security considerations, it will remain strongly influenced by factors other than the honesty, commitment, need, and performance of recipients. With the Cold War over, it is time to restore the integrity of development assistance. Assistance should now be offered only when recipients demonstrate political commitment to performance. Assistance should also be provided in a more "responsive" manner, with recipients taking more responsibility for identifying and justifying the projects they desire.

Fifth, U.S., Japan, and other programs should directly address global environmental threats, in which all countries have a stake. That means helping developing countries produce energy while minimizing the creation of climate-altering greenhouse gases, promoting measures to stop deforestation, and assisting in efforts (like those of Costa Rica) aimed at making the preservation and use of biodiversity an integral part of a national development strategy. To be most effective, assistance must not be restricted to the least developed countries but must extend to middle-income developing countries.

Sixth, efforts to promote wise investments will be undermined unless coupled with policy reforms in many areas. To cite one example, studies in numerous countries (including the United States) have shown that substantial direct and indirect subsidies resulting from government policy encourage deforestation and the waste of water, energy, pesticides, and other resources. Economies rich and poor need signals, including prices and national accounting systems, that reflect the true long-term costs of production.

The macroeconomic policies promoted throughout the developing world by the World Bank and the International Monetary Fund are also ripe for revision. Until now, little attention has been paid to the environmental consequences of structural adjustment and stabilization policies. Yet, the effects of this neglect can be quite severe, as demonstrated by WRI researchers in a two-year study of the environmental and development consequences of the macroeconomic policies adopted by the Philippines during the 1980s. This pioneering analysis shows that depreciation in just three sectors-forests, soils, and coastal fisheries-averaged more than 4 percent of gross domestic product (GDP) per year, 0.8 percent higher than the annual rise of external debt as a percentage of GDP.

This study of the Philippines shows how development strategies, often supported by international donors, worked to create this long-term pattern of environmental degradation. In the two decades leading up to the debt crisis, economic policies in the Philippines encouraged immediate consumption of natural resources while the nation piled on more and more external debt. Amid rapid population growth, Philippine policies retarded job creation and penalized agriculture, pushing millions of low-income and landless households into small-scale coastal fisheries or into shifting cultivation in upland forests, overtaxing those fragile natural resources. When the Philippine government sharply contracted the economy to meet IMF stabilization targets, migration into the upland forests accelerated markedly, as more than 2.5 million new migrants fled from unemployment into subsistence farming.

The study's authors conclude that external adjustments must be accompanied by policy changes to ensure sustainable use of natural resources. They outline alternative adjustment measures-including policies to reduce the impacts of stabilization policies on the poor, to correct fiscal imbalances, and to create more equitable and secure land-tenure arrangements-that could have produced growth, employment, and poverty alleviation in the Philippines while reducing environmental pressures.

Seventh, wherever possible the U.S. and Japan should promote multilateral approaches. We should seek to greatly strengthen the capabilities of the agencies of the U.N. system (such as UNEP, UNDP, and the United Nations University), the World Bank, and the regional development banks. The United States and Japan should also join their European allies in supporting the new Global Environment Facility sponsored by UNDP, UNEP, and the World Bank.

The recent emergence of what promises to be a growing family of international conventions on the environment adds a special dimension to multilateral assistance. Several of the conventions-like the ones on climate and biodiversity-establish funds through which industrial countries assist developing countries to meet the additional costs of complying with international agreements. The Global Environment Facility has been asked to administer the funds. Eventually, the sums involved promise to be quite large.

Another area for support is the U.N.'s new Sustainable Development Commission and its role in implementing Agenda 21. We need a strong SDC, and we need a vision of how all of this can work together in the future. Surely, that is an important area for the U.N. University to study.

In the United States, two major steps are needed to implement these seven guidelines. First, the Congress and the President should cooperate in creating a new high-level council located and chaired within the Executive Office to develop government-wide, integrated U.S. policies relating to developing countries and to ensure a concerted interagency effort to carry out these policies.

Second, the President and Congress should collaborate in the total rewriting of the Foreign Assistance Act. Recognizing the need for new directions and a fresh start in development assistance, AID should be replaced by a new agency-the Sustainable Development Cooperation Agency (SDCA). SDCA should be organized into three primary units: a core agency, the Sustainable Development Foundation (SDF), and the Institute for Scientific and Technical Cooperation (ISTC). The SDF would provide grants on a competitive basis for education, training, and capacity building for sustainable development and for technical assistance, strategic planning, and institutional strengthening. ISTC would work to strengthen developing country capacity to design, adapt, and utilize the latest technology to link U.S. private sector capabilities to developing country needs.

In its 1990 report, Our Own Agenda, the Latin American and Caribbean Commission on Development and the Environment called for a new model of development:

"It is essential that [our] countries adopt different models of development which distribute the benefits of economic growth in a more equitable manner, which avoid a high level of environmental deterioration and which truly improve the quality of life-not only the per capita income level-of present and future generations."

As part of its effort to promote such a model, the commission took the far-reaching step of calling for "a pact with the North" and a common North-South agenda for action on economic, environmental, and social challenges. During preparations for the Earth Summit, the Group of 77 and China called for a similar North-South compact. Now it is imperative to channel the energy and momentum generated in Rio into the difficult task of crafting a North-South compact that can make sustainable development a global reality.

Since 1990, I have taken part in an extremely successful effort, the New World Dialogue on Development and Environment in the Western Hemisphere-an independent, nongovernmental group of 28 North and South Americans who have worked out what a compact for sustainable development between our two continents would look like. We are convinced that such a pact is workable and that our Compact for a New World-issued on the eve of the Earth Summit as an open letter to our hemisphere's heads of state-could well serve as a model for the kinds of linked, complementary initiatives that developed and developing nations throughout the world should be negotiating in the post-Rio period.

Our Compact has several characteristics that make it particularly suitable as a model for worldwide action. First, it is based upon the principle of reciprocal obligations rather than the current concept of conditionality. For example, its climate change initiative calls for 30-percent reductions in per capita carbon dioxide emissions in the United States and Canada by the year 2005, as well as for increased efforts to stimulate energy efficiency and develop carbon sinks in Latin America.

Its forestry initiative calls for drastic changes in forest policies in temperate zones of the United States and Canada, as well as in the tropical forests of the South. International cooperation is essential to bring deforestation under control and to move to sustainable and equitable management of remaining natural forest areas. Under the partnership proposed in the Compact, industrial countries would make known that they "stand ready" to assist countries that move expeditiously to slow deforestation with financial, technical, trade, and debt-relief assistance. At the same time, the industrial countries should set a bold example by taking decisive steps to slow the degradation of their own forests.

The central mechanism for controlling deforestation and forest degradation abroad would be National Forest Stabilization Plans, drawn up by the involved countries themselves, in a process of dialogue with a new consortium of industrial countries and multilateral agencies committed to providing major additional support through a process of country-by-country discussions. Participation would be entirely voluntary, a limited number of truly interested countries would be involved, and commitments to them by donors would cover at least a ten-year period.

There are several other characteristics that make the Compact for a New World a useful model for international actions. One is that it is based on the assumption that economic growth and trade liberalization in Latin America are necessary preconditions for protecting our planet. But the Compact also recognizes that these economic moves must be immediately complemented by equally powerful initiatives that will shift development to sustainable and equitable paths. The industrial nations are promoting trade liberalization, privatization, and other pro-market reforms, but we are not yet promoting complementary initiatives in the environmental and social spheres that can ensure that the resulting growth is both sustainable and equitable.

As I reflect on these matters, I am struck by the many parallels between what I have said here and the very intelligent article I read recently by Saburo Okita on "The Transition to Market Economy." Among other things, he points out that "there are many rooms in capitalism's house" and that environmental protection is "the very basis of mankind's continued survival."

Finally, and perhaps most important in the post-Rio context, the Compact signatories came to terms on a financial initiative to generate the funding needed for sustainable development from new and existing sources. Who would pay for this ambitious list of changes? All of us, beginning with each individual country in the hemisphere. Countries would put up most of the needed money themselves: they would siphon some of it away from unsustainable activities, adopt economic reforms, promote private savings and investment, and reverse capital flight.

Redirecting current military spending is another realistic source of funding. Redeploying part of a nation's defense budget toward sustainable development is a reasonable response to the notion of environmental damage as a security threat. If each nation in the Americas cut its military spending by 20 percent from 1990 levels over the next five years, as proposed in the Compact, the dividend-$50 billion or more in the fifth year-could be used to reduce national debts and fund sustainable development strategies at home and abroad.

Debt must also be used to finance needed changes. Private debt would be reduced through an Inter-American debt management authority created to purchase debt at discount rates on the secondary market and forgive it selectively over five to ten years as the debtor country kept its environmental commitments and moved toward sustainable development.

In addition to a special fund within the Inter-American Development Bank to raise the number and quality of projects that advance sustainable development, the Compact calls for an important new funding source to be created by the hemisphere's governments. This international "ecofund" would be managed by a hemispheric agency and financed along the lines suggested by José Goldemberg, Brazil's former Minister of Education. Nations would agree to raise resources for the ecofund by "making the polluter pay"-that is, by levying taxes pegged to the carbon content of fossil fuels. One advantage of such a funding mechanism is that small levies can raise large sums: a tax of $1.00 per barrel of oil-or its carbon equivalent-would produce $16 billion annually if hemispheric consumption continued at 1989 levels. Another advantage is that such a tax offers an automatic mechanism, determined by formula and not dependent strictly on annual voluntary contributions from each government.

Besides making new funds available, it is crucial that current development assistance funds be spent on more ecologically responsible projects. It will be the planet's loss if the World Bank targets the relatively modest sums committed to the Global Environmental Facility while the vastly larger sums in the rest of its lending portfolio pull in the opposite direction.

Although the task of the New World Dialogue was to design such an agreement for the Americas, many of our agreement's elements could form the basis for the wider global compact that must be the basis for the follow-up to the Earth Summit. I believe that such a compact is workable-and that it is essential for planetary survival and meeting human needs.

JAMES GUSTAVE SPETH is former President of the World Resources Institute (WRI), a center for policy research on global environmental and resource issues, located in Washington, D.C., USA.

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