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             Overview of Key Issues on the Globalisation Agenda

                             Background Paper
          Prepared for the Danish Environmental Protection Agency
                                    By
                            Johannah Bernstein

                                   May 15, 2001




This background paper provides an overview of the key issues on the globalisation
agenda, particularly as regards the perceived impacts of globalisation on the
promotion of sustainable development.

This paper is divided into three sections:

Section One: The process of globalisation defined

Section Two: Overview of the key sustainability impacts of globalisation

Section Three: Suggested policy responses to address globalisation impacts
               on sustainable development.

This summary has been drawn from a wide range of sources, all of which are listed
in the Reference Section at the end of this paper.
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                             Section One:
                  The Process of Globalisation Defined


 According to an OECD publication, the term “globalisation” was first used
  in 1985 to characterise the vast changes that have taken place over the past
  two decades in the international economy – the rapid and pervasive
  diffusion around the world of production, consumption and investment
  and trade in goods, services, capital and technology.

 Economic globalisation refers to the increasingly interconnected nature of
  the world economy. This growing integration and interdependence has been
  triggered by technological innovation (in information, transport,
  communications, biotechnology etc) and by the increasing openness of
  world markets of goods and services, including financial markets.

 Globalisation can be seen as a phenomenon of greater capital mobility,
  associated with increased international flows of investment and finance, with
  foreign direct investment (FDI) and international portfolio flows as the two
  prongs of capital mobility.

 A strictly global economy is one dominated by TNCs and financial
  institutions operating independently of national boundaries or domestic
  economic considerations – a world where goods, factors of production and
  financial assets would be almost perfect substitutes everywhere in the world,
  and where a national economy will no longer be identifiable and nation
  states can no longer be considered distinct economic identities with
  autonomous decision-making power.

 The world economy is very far from a supra-national paradigm and the
  current situation is one of increasing interdependence between countries
  where cross-border linkages have reached an extent where economic
  developments in one country are influenced significantly by policies and
  developments outside its boundaries.

 Globalisation is generally seen as a process in the world economy
  propelled by neo-liberal economics, where TNCs are locating their
  production and parts of their production systems in various parts of the
  world to supply markets everywhere. Even as a descriptive process, the
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   actual reality is somewhat different. Financial markets have become
   “globalised”, functioning around the clock and around the world.
   Manufacturing and manufacturing capital are much less so; and even when
   corporations are relocating themselves to supply distant product markets, it
   is a phenomenon confined to a few countries and regions, and is largely
   absent from parts of the Third World. The globalisation process has spread
   to just a few parts of the developing world, mainly in the Far-East and
   South-East Asia, and to some parts of Latin America, and within those areas
   it has spread unevenly. And everywhere there is evidence of increased
   marginalisation. Among the public in the countries of the South
   “globalisation” has become a new word for an old system – colonisation or
   recolonisation.

 The clash of the globalisation and sustainable development paradigms:
  The UNCED approach represents one paradigm for international relations:
  that of consensus-seeking, incorporating the needs of all countries,
  partnership in which the strong would help the weak, integration of
  environment and development concerns, the intervention of the state and the
  international community on behalf of public interest to control market forces
  so as to attain greater social equity and bring about more sustainable patterns
  of production and consumption. The liberalisation “free market” approach
  represents a very different paradigm. It advocates the reduction or
  cancellation of state regulations on the market, letting the free market forces
  reign, and a high degree of rights and freedoms to the large corporations that
  dominate the market.
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                            Section Two:
      Overview of the Key Sustainability Impacts of Globalisation


 The process of globalisation linked to liberalisation has gained so much
  force that it has undermined and is continuing to undermine the sustainable
  development agenda. Commerce, and the perceived ned to remain
  competitive in a globalising market, and to attend to the demands of the
  corporate sector, have become the top priority for governments in the North
  and in certain parts of the South. The protection of the environment,
  welfare of the poor, global partnerships, have all been undermined in
  this wave of globalisation.

 Economic globalisation impacts the environment and sustainable
  development in a variety of ways and through a multitude of channels. (i)
  Globalisation contributes to economic growth and thereby affects the
  environment in many of the same ways that economic growth does:
  adversely in some stages of development, favourably in others; (ii)
  Globalisation accelerates structural change, thereby altering the industrial
  structure of countries and hence resource use and pollution levels; (iii)
  Globalisation diffuses capital and technology; depending on their
  environmental characteristics relative to existing capital and technology, the
  environment may improve or deteriorate; (iv) Globalisation transmits and
  magnifies market failures and policy distortions that may spread and
  exacerbate environmental damage; it may also generate pressures for reform
  as policies heretofore thought of as purely domestic attract international
  interest. (v) While it improves the prospects for economic growth worldwide
  and increases overall global output, globalisation could conceivably reduce
  economic prospects in individual countries, sectors and industries; such
  marginalisation of economies and people may result in poverty-induced
  resource depletion and environmental degradation.

 Competitive markets may be the best guarantors of efficiency, but not
  necessarily of equity. Liberalisation and privatisation can be a step to
  competitive markets – but not a guarantee of them. And markets are neither
  the first not the last word in human development. Many activities and goods
  that are critical to human development are provided outside the market –but
  these are being squeezed by the pressures of global competition. There is a
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   fiscal squeeze on public goods, a time squeeze on care activities and an
   incentive squeeze on the environment.

 When the market goes too far in dominating social and political
  outcomes, the opportunities and rewards of globalisation spread
  unequally and inequitably – concentrating power and wealth in a select
  group of people, nations and corporations, marginalizing others. When the
  market gets out of hand, the instabilities show up in boom and bust
  economies, as in the South East Asian financial crisis. When the profit
  motives of market players get out of hand, they challenge people’s ethics
  and sacrifice respect for justice and human rights.

 UNCED, UNGASS and the CSD have all failed to address the regulation of
  the private sector, which for the most part is largely responsible for much
  of the world’s resource extraction, production, pollution and generation of
  consumer cultures. UNCED, UNGASS and CSD have failed to create
  international mechanisms to monitor and regulate these companies. Instead
  their power and outreach have continued to spread exponentially. In
  particular, the Uruguay Round agreements and the establishment of the
  WTO have institutionalised globalisation. Through its strong enforcement
  system, the WTO and its legally binding rules threaten to override all other
  sustainable development agreements, instruments, declarations, action plans.
  Etc


 The sustained promotion of free market policies – trade and investment
  liberalisation, privatisation of state assets, increased labour flexibility – is
  simultaneously integrating and excluding communities and countries
  across the globe. Globalisation has the tendency to marginalize
  systematically the livelihood economy by diverting the asset base of the poor
  towards corporate interests. For example, the corporate economy of
  Bangalore has won privileged access to government funding, land,
  infrastructure and servides, disrupting the local economy which provides
  most of the population with their livelihoods.

 Economic globalisation is fundamentally changing the nature of
  environmental management. On the one hand, globalisation heightens the
  influence of market forces, most importantly, competition, on the making
  and enforcement of environmental policy. On the other hand, globalisation
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   subjects national environmental policy to the discipline – or chaos- of
   international institutions.

 The impacts of globalisation on environmental management capacities
  cut two ways: they constrain governments and they enhance the influence of
  markets on social and economic outcomes. Markets in turn influence
  environmental performance through a variety of channels, including
  technology transfer, changes in the level of demand for environment-
  intensive goods, substitution effects, green consumerism and others.

 Rather than triggering a downward spiral, the primary impact of
  globalisation is to keep environmental policy initiatives “stuck in the
  mud”. On the one hand, the constraints of competitiveness induced by
  globalisation retard the capacity and willingness of nation-states to take any
  unilateral measures, which impose costs of good environmental management
  on domestic producers. On the other hand, the pressures of policy
  convergence mean that measures, which are taken, will only be those in step
  with primary competitors. The net results are first that markets become the
  primary drivers of changes in environmental performance, and second, that
  environmental managers are pressured to maintain the status quo or to
  change it only incrementally.

 The WTO trading system is a rule-based system, with a credible and
  enforceable dispute settlement process. But the 580 pages of rules
  constituting the system are asymmetric and imbalanced and lay an unjust
  and inequitable burden on the poorer countries. Some 30 areas of such
  imbalances and inequities in the rules, (including the dispute settlement
  mechanism, consensus based decision-making, non transparency of the
  decision making process )have been identified as priority areas to be
  addressed if the system is to gain acceptance and provide stability.

 A major reason why UNCED objectives have not been realised is the fact
  that the behaviour and practices of the main economic actors have not
  been brought under any form of effective framework of regulation and
  accountability. The regulatory situation relating to TNCs and business in
  general has worsened in the past years. The efforts to finalise a Code of
  Conduct for TNCs were brought to a halt in 1993 and the agency in charge
  of the Code, the UN Centre on Transnational Corporations was dismantled
  during the UNCED preparatory process. Thus, the main international
  initiative and institution for establishing guidelines for TNCs have
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disappeared. Instead there has been a growing trend to reduce and remove
more and more regulations that governments have over corporations, to
grant them increased rights and powers, while at the same time removing the
authority of states to impose controls over their behaviour, activities and
operations. The Uruguay Round has already granted far higher standards of
intellectual property rights protection to TNCs, thus facilitating further their
monopolisation.
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                           Section Three:
     Suggested Policy Responses to Address Globalisation Impacts
                          on Sustainable Development


 The World Summit for Sustainable Development (WSSD)should engage the
  key economic actors such as TNCs, the WTO, the IMF and the World Bank
  and focus on ways in which globalisation can be harnessed to meet the
  needs of the poor and marginalized to sustain environmental services. In
  particular, it must address this crisis of the battle of paradigms between
  unregulated globalisation driven by individual self-interest and corporate
  greed, versus global partnership between rich and poor towards sustainable
  development.

 The issue of globalisation has become so important and complex, with rapid
  developments taking place in the world trade system, that the WSSD should
  give the issue a very high priority, perhaps by setting up a special sub-
  commission or panel on trade and sustainable development. This body
  should examine and take decisions on globalisation and how it should be
  channelled towards sustainability. This should be a cross-sectoral issue to
  be discussed each year in future.

 The WSSD should also empower the CSD to initiate closer dialogue with
  the WTO in general and with its Committee on Trade and Environment and
  generate a process by which the WTO can be made more transparent and
  accountable to the larger international framework of cooperation and
  development. This is critical because the rapid developments of the WTO
  have such significant ramifications for sustainable development, and yet
  there is a lack of information and participation from civil society, the
  general public, many sectors of national governments, and from international
  institutions.

 The WSSD should generate processes to assess the implications of existing
  trade agreements as well as new proposals in the WTO from a sustainable
  development perspective. These reviews should provide inputs for the WTO
  process of reviewing key trade agreements over the next few years.
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 Similarly, a process of review should be undertaken to evaluate the impacts
  of the intellectual property rights regime under the TRIPs agreement,
  with a view to relaxing the conditions for the transfer of technology,
  especially environmentally sound technologies to developing countries.

 The legally binding rules of the WTO should be reviewed to assess their
  contribution or impacts to sustainability goals. This can be done through the
  built-in review process of the WTO. However, such an assessment should
  also be done independently through the CSD and other UN bodies. In
  particular, the new issues now before the WTO (i.e. investment and
  competition policy and government procurement) must be subject to serious
  study for their impacts. In this light, the CSD should not confine its attention
  only to the “trade and environment” spectrum of issues.

 Further as regards the WTO: (i) the WTO as a whole must affirm its
  commitment to a sustainable development agenda and address how trade and
  investment could greatly improve economic and managerial capacities; (ii)
  the CTE must resolve the issue of its relationship to MEAs and provide clear
  guidelines to environmental negotiators for the use of trade restricting
  measures; (iii) environmental issues should not be compartmentalised within
  one committee. Policies which impact environmental management are
  relevant to Councils and Committees throughout the WTO and should be
  evaluated and developed with environmental as well as trade goals in mind;
  (iv) there is a pressing need to widen and institutionalise the participation of
  non-state actors, both NGOs and IGOs such as UNEP and UNCTAD.
  Transparency and access are crucial especially to address the increasingly
  interdisciplinary nature of global trade policy, as made clear by the mere
  existence of the CTE.

 The following national-level policies are necessary to ensure that
  globalisation is managed in the interests of the environment and the general
  public: (i) accelerate democratisation and institutional development to keep
  in pace with globalisation; (ii) increase accountability and transparency
  throughout the economy, and especially in the formulation and
  implementation of public policy; (iii) channel more public investment to
  human capacity building; (iv) preserve as much as possible the autonomy of
  the state to exercise fiscal and monetary policies to achieve both
  macroeconomic stability and growth; (v) reform domestic policies that both
  distort trade and have negative environmental impacts (i.e. energy
  subsidies); (vi) correct existing market failures through efficient incentive
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   systems that internalise environmental costs, to avert their magnification by
   trade liberalisation and economic integration; (vii) improve the effectiveness
   of environmental policy through the involvement of businesses and local
   communities in monitoring and enforcement rather than relying on limited
   state budgets and weak regulatory enforcement capacity; (viii) institute
   social adjustment policies to cushion economic dislocation and avert the
   marginalisation of the poor.

 Without effective global governance or effective multilateralism, nation-
  states, subject to the pressures of globalisation drift towards a low-level
  environmental policy convergence that is insensitive to local ecological
  conditions and does not respect the diversity of preferences and priorities
  across and within nations. The challenge is to mobilise collective action
  among governments, firms and civil societies to overcome the gravity
  towards the sterile uniformity and inertia created by narrow competitiveness
  concerns and create a broader environmental policy framework which will
  (i) recognize and allow for the diversity of environmental endowments and
  preferences; (ii) raise the terms of environmental policy convergence; (iii)
  also for continuous improvement in environmental performance.

 The challenge of globalisation in the new century is not to stop the
  expansion of world markets. Rather it is to find the rules and institutions for
  stronger global governance to preserve the advantages of global markets and
  competition, but also to provide enough space for human, community and
  environmental resources to ensure that globalisation works for people not
  just for profits. That is globalisation with: (i) ethics – less violation of human
  rights; (ii) equity – less disparity within and between nations; (iii) inclusion
  – less marginalisation of people and countries; (iv) human security – less
  instability of societies and less vulnerability; (v) sustainability – less
  environmental destruction; (vi) development – less poverty and deprivation.

 The agenda for action to secure human development in the era of
  globalisation should focus on seven key challenges. These include (i)
  strengthening policies and actions for human development and adapting
  them to the new realties of the global economy; (ii) reducing the threats of
  financial volatility – of the boom and bust economy and all their human
  costs; (iii) taking stronger global action to tackle global threats to human
  security; (iv) enhancing public action to develop technologies for human
  development and poverty eradication; (v) reverse the marginilization of poor
  and small countries; (vi) remedy the imbalances in the new structures of
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global governance with new efforts to create a more inclusive system;
(vii)build a more coherent and democratic architecture for global governance
in the 21st century.
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                           Background Paper References


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