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									Chapter 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 globalization1. 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

 “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.

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 and
investment, a wide range of social problems—employment, the North-South gap,
deforestation and food safety, for example—have also become evident. As the world
economy develops along the course of globalization, various distortions are beginning to
emerge, and we will have to deal with these problems if we are to achieve sustainable
growth. Concerns over these distortions, which range from employment issues through to
environmental and cultural issues, have recently come to be collectively labeled “anti-

2. NGO action attracts international attention
   With concern over globalization being a global issue, internationally active NGOs and
other groups are playing a greater role in this regard than single sovereign states or certain
groups within a country. NGO areas of concern, agendas and methods are in fact highly
diverse, with some NGOs engaging in large-scale anti-government demonstrations while
others look for solutions to problems in partnership with government. Some NGOs have
drawn international attention through massive anti-globalization demonstrations at
international conferences, a prime example occurring at the time of the Seattle WTO
Ministerial Conference. Many NGOs, however, are contributing to society specialist
knowledge and skills in specialized areas, with the share of NGOs directly or indirectly
involved in World Bank projects growing from 20 percent in FY1989 to 52 percent in

   The end of the Cold War has gradually broken down information control worldwide, and
in recent years information technology and international media have made enormous steps
forward. In consequence, interest in issues such as the environment and poverty is growing
worldwide, with international NGO action in these areas becoming more active. The
evolution of the Internet in particular has strengthened NGOs’ ability to communicate
information and has opened the way for the creation of world networks, elevating NGOs
into 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 GATT
regimes learnt from the failure of pre-war economic blocs and instead chose market
economy and trade and investment liberalization as its guiding principles. As a result, the
world has become much more interdependent, while the world economy has expanded

substantially. Since the 1980s in particular, when the Cold War began to draw to a close
and trade and investment barriers were lowered or removed worldwide, cross-border flows
of goods, money, people and information have grown on a global scale, deepening the
interdependence 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 the
serious 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 deal
with these promptly to ensure the sustainable growth of the world economy in the years to

(2) Globalization-related concerns
   A number of concerns regarding the distortions which have accompanied world
economic development have been expressed under the banner of “anti-globalization”. Just
before the introduction of European single currency, the international epitome of regional
economic integration, France experienced a wave of opposition to the various economic
policies which the government had designed to expedite this integration. At the end of
1995, a nationwide labor strike threw the country into a turmoil. The WTO Ministerial
Conference held in Seattle from 30 November through 3 December 1999 drew numerous
NGOs from around the world to tout their “anti-globalization” stance. Subsequently, too,
NGOs and other “anti-globalization” groups from various countries have gathered at
international conferences such as the annual meetings of the IMF and the World Bank to
register vociferous protests. Fig. 3.1.1 categorizes the main concerns expressed under the
anti-globalization banner, from which it is apparent that the term embraces a wide range of
issues 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 global
scale, the primary agents in expressing concern over such problems are no longer countries
or certain groups within a country so much as international NGOs and other organizations
on 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 in
partnership with government to resolve issues. Two outstanding examples are Amnesty
International, an international organization for the protection of human rights which was
awarded the Nobel Peace Prize in 1977, and Médecins Sans Frontières, an international
medical assistance group which received the same award in 1999. A think tank2 which
distributed a questionnaire to NGOs expressing their opposition at the 1999 Seattle WTO

    The Japan Research Institute, Ltd. (2001).

Ministerial found that by far the greatest area of concern was the environment, followed by
poverty, food safety, agriculture, and then labor (Fig. 3.1.2).
                                            Figure3.1.1 Main concerns over globalization
            Main concerns                                                           Substance
Trade and investment liberalization     Trade and investment liberalization takes employment from developed countries with sound
loses jobs.                             labor conditions to developing countries where labor costs are cheaper.
Mercantilist large-scale agricultural   Mercantilist large-scale agricultural management by corporations brings down agricultural
management ruins micro-farmers.         product prices and drives many farmers out of business.
Product manufacture in developing       Developing countries have an unfair competitive advantage in that they use cheap child labor.
countries using child labor             Products manufactured under such unfair labor conditions should not be imported.
constitutes unfair competition.
Management of multinationals            Developing countries are engaged in a competition to lower labor standards, etc., so as to attract
encourages "race to the bottom" in      foreign direct investment. Multinationals should not place developing countries in the position
terms of labor standards, etc., in      of having to compete in this way.
developing countries.
International harmonization brings      The harmonization of food safety standards being advanced in the name of trade liberalization is
food safety standards down.             actually pulling down these standards. Food safety standards should be determined based on
                                        each country’s sovereignty, whereas international harmonization infringes this sovereignty.
The WTO should not be treating          As seen in the shrimp and sea turtle cases, domestic environmental protection policies
domestic environmental protection       determined under national sovereignty are being cited by the WTO as trade barriers contravening
polices as trade barriers which         the WTO Agreement. This behavior by the WTO infringes national sovereignty.
infringe the WTO Agreement.
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 of
                                        civilians, the parties directly affected by the matters under dispute, and lack transparency.
The shape of today’s economy            The problem lies in today’s economy with its massive energy consumption which is encouraging
encourages global warming.              global warming.
Trade liberalization causes             Japan and other major importers of forest products are destroying the rainforests.
World Bank and IMF projects cause       Large Dam and other projects supported by the World Bank and the IMF are destroying the
environmental destruction.              surrounding environment.
Trade and investment liberalization     Trade and investment liberalization benefits only rich countries, expanding the North-South gap.
expands North-South gap.
Trade and investment liberalization     Trade and investment liberalization benefits only the rich, expanding domestic income gap.
expands domestic income gap.
Trade and investment liberalization     Trade and investment liberalization floods countries with foreign products and information,
destroys national culture.              leading to the loss of the traditional culture and industry which is a nation’s heritage.
Source: METI.

                   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)

                        Environment                                                                         60.3

                              Poverty                                                                55.9

                         Food safety                                                      45.6

                         Agriculture                                               38.2

                                Labor                                     29.4

                              Culture                                 26.5

               Chemical substances                                 23.5

                                Other                                                                          64.7

                                        0        10       20       30        40             50         60          70 (%)
                                        Note: Multi-answer format.
                                        Source: The Japan Research Institute, Ltd.

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

below as “non-cooperative NGOs), while others participate in policy implementation with
governments and other areas of the public sector through partnerships, in some cases even
impacting constructively on official policy-making (described below as “cooperative

(b) Non-cooperative NGO activities
   Non-cooperative NGOs first came to the public eye with their protests at the WTO
Ministerial Conference in Seattle in 1999, and have since been using similarly large
international 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 the
World Economic Forum the same month in Melbourne, using large-scale demonstrations to
further their anti-globalization campaigns. However, although these NGOs are holding
joint demonstrations in protest against globalization, they are not necessarily working
toward the one clear objective, as their respective areas of focus range from environmental
issues through to trade protectionism. This variety is apparent in Fig. 3.1.3, which
examines the main groups participating in the 1999 Seattle demonstrations and their
central arguments.

   In Seattle in 1999, moreover, large-scale demonstrations escalated into violence on the
part of some extremist elements, creating chaos around the conference area and on Seattle
streets. While the details of the violence in Seattle has yet to become clear, the main
instigators were apparently not non-cooperative NGOs against globalization, but rather
anarchists and other unrelated parties using the anti-globalization movement to further
their own agendas3.
              Figure 3.1.3 Major groups involved in the large-scale demonstrations in the WTO Seattle
                                                                               Ministerial (1999) and their arguments
      Organization                                                Argument
Public 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 totally
                       opposed to the WTO as the international organization shaping the current world trade and
                       investment regime.
Sea Turtle Restoration The STRG believes that the US should pull out of the WTO in response to the WTO ruling
Group (US)             that the obligation placed by the US government on industry to use protection devices for sea
                       turtles, members of the shrimp family, infringes the WTO Agreement. This ruling is viewed as
                       transgressing against democracy and national sovereignty.
Sierra Club (US)       Trade must be fair and environment-friendly. The group is opposed to the WTO, which it
                       views as threatening the environment, health and safety. It also believes that the WTO should
                       be made more democratic and allow civil society participation in the decision-making
Teamsters (US)         Trade expansion benefits only multinationals and takes jobs from workers. Teamsters is
                       opposed to WTO expansion in that this ignores workers’ interests.
Confédération Paysanne Opposed to mercantilist agriculture which puts many small farmers out of business. Also
(France)               opposed to the import of hormone-fed beef from the US in order to ensure consumer safety.
Sources: Newsweek (13 December 1999) and NGO websites.

    Eagan (1999).

                          Figure 3.1.4 Ratio of World Bank projects with NGO involvement
                                                82                                          82
             80           77

             70                                                       66

                       Education           Health, food,         Development            Environment
              Note: Ratio by sector for FY1999.
              Source: World Bank: Civil Society Relations—Fiscal 1999 Progress Report (World Bank).

(c) Cooperative NGOs deepen involvement in policy-making and implementation by
international organizations
   Many NGOs supply society with expert know-how and skills in specialist areas. NGOs
have been a growing force at international meetings since the UN Conference on
Environmental Development (the Earth Summit) in Rio de Janeiro in June 1992. In recent
years, the United Nations, the World Bank and other international institutions have
recognized the activities of these NGOs and have even reflected their findings to some
extent 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 and
implementation. A World Bank report4 released in 2000 indicates that the ratio of direct
and indirect involvement of NGOs in World Bank projects has grown from 20 percent in
FY1989 to 52 percent in FY19995. By area too, NGO involvement has risen to 82 percent
in all environment-related projects (Fig. 3.1.4). NGOs are also involved in many other
major areas.

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

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

NGOs, the Bank aims to deepen shared understanding with civil society regarding poverty
reduction 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 economic
development number among the factors prompting the recent spurt of NGO activities, the
major cause has been the evolution of information technology and the international media
in recent years6. More sophisticated technology, advancing from telephones and faxes
through satellite communications and the Internet have greatly facilitated the cross-border,
global flow of information. In addition, the worldwide relaxation of information control
which has accompanied the end of the Cold War has allowed simultaneous access all over
the globe to world information, as exemplified by the coverage of the Tiananmen Square
Incident in China and the Gulf War in the Middle East. As a result, information on
domestic environmental issues and poverty is also reaching other countries, fostering
international concern. In the 1990s in the wake of the Cold War, civil society became
increasingly focused on the global environment, and the attendant mushrooming of NGO
activities is evidenced by the fact that more than half of the NGOs expressing their
opposition 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 to
transmit information worldwide, which has allowed them to shape international public
opinion and join forces with similar NGOs in other countries and regions to expand and
enhance their activities.
                                        Figure 3.1.5 Timing of NGO establishment

          Before 1970                    7.4

              1971-80                                          17.6

              1981-90                                                  20.6

              1991-95                                                                     30.9

          1996 onward                                                         23.5

                        0         5            10      15         20          25     30          35 (%)
                        Source: The Japan Research Institute, Ltd. (2001).

    Salamon (1994).

(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 to
communicate the goals and content of their activities soared.

   According to the questionnaire mentioned earlier in regard to NGO activities and
Internet use, websites are the most popular tool for communicating information on NGO
activities and arguments. Mailing lists also stand alongside newsletters as the most
common means of providing information (Fig. 3.1.6). The top responses in terms of the
effect of website utilization were greater linkages with other groups involved in the same
issues and a greater number of participants involved in NGO activities. Websites have
evidently boosted NGOs’ ability to communicate their goals and policies and expand their
networks 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
                   Figure 3.1.6 NGO means of communicating information

                                  Website                                                            69.1

                               Newsletter                                                  57.4

                              Mailing list                                                 55.9

Contributions to newspapers and magazines                                                51.5

                       Leaflet distribution                        25.0

                               Direct mail                       20.6

                          Advertisements                  11.8

                            Chat sessions           5.9

                              No response         1.5

                                     Other                                   35.3

                                              0     10      20     30        40     50     60     70        80    (%)
                                              Source: The Japan Research Institute, Ltd. (2001).

                                     Figure 3.1.7 Effect of website use on NGO activities

                   Wider range of themes addressed

                       Deeper discussion on group’s

                      Greater number of participants                                                             45.8

                                    Greater influence                                                37.5

                          Linkage with other groups
                      involved with the same themes                                                                      60.4

                                                   Other                               22.9

                                                            0           10        20       30          40         50    60      70 (%)
                                                            Source: The Japan Research Institute, Ltd. (2001).

increased their presence and deepened discussion on their key themes, suggesting an active
exchange of information among those involved and that deeper discussion can be
promoted by the lack of temporal and physical restrictions in cyberspace. The closer
discussion 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 and
reception of information all over the world through e-mail and the accompanying
dissolution of temporal and physical constraints means that NGOs now need only a few
people and a tiny budget to plan and mount their protest activities, a development which
has enormously strengthened NGOs’ ability to communicate information on their activities.
                         Figure 3.1.8 Effect of mailing-list use on NGO activities

            Wider range of themes addressed                              45.5

               Deeper discussion on group’s

              Greater number of participants                             45.5

                          Greater influence                                           66.7

                  Linkage with other groups
              involved with the same themes                                                   81.8

                                     Other                18.2

                                              0                  30             60                  90 (%)

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

Column 4: NGO coordination advances village electrification

   Education and human resource development are undeniably crucial in combating
poverty in developing countries. In remote areas in particular, correspondence courses via
television, radio and the Internet have a key role to play. However, even today, an
estimated two billion people live in villages without electricity. Supplying power is
obviously a prerequisite for remote learning, but stringing and extending transmission lines
as far as remote areas is ineffective and costly. It also does little to combat increasingly
serious global environmental problems. One answer has been electrification projects using
new, dispersed-type energies, such as the solar home system (SHS), a solar power
generator. The World Bank and the Global Environment Facility have been working
actively on SHS dissemination to villages without power, but have experienced problems
not only in garnering the understanding of villagers, but also with equipment installation
and maintenance, and lending and collection. Before SHS units can be commercialized and
disseminated on a massive scale, social systems need to be set in place and a myriad of
problems resolved.

   In Vietnam, this difficult task has been addressed through a collaboration between the
US Solar Electric Light Fund (SELF) and the Vietnam Women’s Union (VWU) in
Vietnam. SELF is a non-profit organization established in 1990 to bring SHS to developing
country villages without power. Aside from Vietnam, SELF has already implemented pilot
projects in China, India, South Africa, Brazil and Indonesia ( The
VWU is a women’s group for the protection of the rights of Vietnamese women. As the
VWU has around 10 million members, virtually all housewives in Vietnam’s population of
around 70 million would seem to belong to the organization. The VWU addresses issues
such as education, medical care and the development of transport infrastructure, in which
context village electrification is obviously a major prerequisite. This concurrence of
interest has brought together two groups with different goals to provide power to the six
million Vietnamese whose villages are still in the dark.

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

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

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

Section 2   Globalization demerits and policy issues

     Key points
1. Labor issues
   Forced labor, child labor and other employment conditions in developing countries are
said to take jobs from developed countries. This argument derives primarily from two
positions: (1) human rights protection (protecting workers in exporting developing
countries), and (2) trade protectionism (sheltering industries and jobs in importing
developed countries).

   Developing countries are said to have a negative impact on labor conditions due to the
unfairly 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 low
labor standards are not primary recipients of direct investment, the bulk of which
conversely goes to countries with high labor standards. Countries with high income levels
also tend to have high labor standards, revealing a strong correlation between labor
standards and income levels. As higher labor standards and trade- and investment-based
economic growth are mutually complementary, to raise labor standards in developing
countries, it will be important to encourage economic growth through expanded trade and

2. North-South gap
   The post-war world economy has moved ahead strongly on a wave of globalization, but
as is evident in many African countries, the benefits of this growth are not necessarily
being enjoyed by all countries; in fact, income disparities between developed and
developing countries are burgeoning. Looking at the relationship between economic
growth disparities and trade and investment, as noted in Chapter 1, the East Asian
countries have grown on the strength of trade expansion, whereas the African countries
continue to stagnate in terms of both trade and economic growth. Key factors in poverty
reduction will include capital accumulation, human resource development, technological
development, and the development of both “soft” and “hard” infrastructure. Designing
policies 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 national
territory every year. Ongoing deforestation, particularly in developing regions, is not only
an issue involving the countries and regions in which such forests are located, but can also
lead to global issues such as less biodiversity, world climate fluctuations, and increasing
desertification. International concern about the world’s forests is therefore growing. Some
NGOs sounding the alarm in this area assert that international trade is a major cause of
global deforestation. However, given that only just over 10 percent of the total production
volume of forestry products is traded, it seems unlikely that international trade alone is

such a significant agent of destruction. Deforestation is a far more complex issue, arising
from a combination of socioeconomic factors—swift population increases and poverty, for
example, as well as slash-and-burn farmland development accompanying more vigorous
economic activity. Saving forests will therefore require a more comprehensive approach
which addresses the various elements behind deforestation, including trade policy, forest
policy and agricultural policy. Active engagement in international efforts will also be key
in 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-modified
organisms (GMOs), while a country’s sovereign right to improve public hygiene is also
important. 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 to
cross-border corporate activities, while, on the other hand, a balance has to be found
between this demand and the domestic disciplines and socioeconomic systems which are
part of a country’s sovereign rights. Harmonization of trade liberalization and domestic
systems, and of international disciplines and domestic positions, will become a more
important 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 not
necessarily directly related to trade and investment expansion. Issues which have resulted
from 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 of
developing socioeconomic systems in response to international corporate activities.

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

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

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

   In terms of international safety nets, it will be important to back ex post facto assistance
such as food aid with support for the construction of socioeconomic systems in developing
countries to help them keep pace with the globalizing world economy. The world’s largest
economic development assistance institution, the World Bank, has recently been working
to 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 developing
countries 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 in
exporting developing countries. The other camp is more trade-protectionist in nature,
seeking to shelter jobs and industries in importing developed countries. Discussion on
trade and investment and labor issues has never adequately separated these two arguments.
Confusing them, however, will simply advantage protectionists in developed countries
while developing countries miss out on the economic growth which would have resulted
from greater trade and investment, conversely worsening employment conditions. Care
therefore needs to be taken that labor issues do not degenerate into disguised trade
protectionism. 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 to
organize and the right of collective bargaining , and the elimination of child labor, and are
universal rights transcending the state. However, it is primarily the task of the sovereign
state to work toward reification of workers’ rights. The key international institution in this
area is the International Labor Organization (ILO), which establishes internationally-
recognized core labor standards. If ensuring workers’ rights is to be made into an
international issue, it should be discussed by the ILO from the perspective of basic human
rights; 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 be
assisted with a view to protecting those rights through technical cooperation provided by
the 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 as
follows. Developing countries making no effort to improve their poor labor conditions are
securing the advantage of low-cost production through worker exploitation. Maintaining
such inferior labor conditionss comprises unfair competition on the part of developing
countries, and developed countries should limit their imports from those parts of the
developing world which are taking jobs from them through this practice. Developing

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

  This argument grows out of trade protectionism, the desire to maintain industries and
employment in developed countries importing from their developing counterparts. From a
developing country standpoint, however, low-cost labor is playing a major role as a
cornerstone in economic development, while from a global perspective, developing
country production is creating an efficient international specialization structure. Developed
countries have gone through the same economic growth process themselves, and should
therefore hardly be criticizing developing countries in terms of the fairness of competition.
Developing countries too are concerned that labor standards and trade-related issues will
be 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 effort
to attract foreign direct investment will create further low-wage employment and take
away developed countries’ jobs. What is the actual relationship between labor conditions
and foreign direct investment. The OECD (2000a) used data on freedom of association to
categorize national core labor standards into four groups7 and demonstrate the relation
with direct investment. According to this analysis, rather than countries with low labor
standards receiving the lion’s share of direct investment, it was actually those countries
with high labor standards which were attracting the greater amount (Fig. 3.2.1).

   Rodrik (1996) analyzes the relation between labor standards and direct investment from
US-affiliated manufacturers, and finds that those countries with lower labor standards
receive less direct investment, a result diametrically opposed to the argument that low
labor standards are leading to more direct investment and thus to the unfair creation of

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

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

(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 of
association restrictions. According to the study, the higher the income levels, the higher the
labor standards a country tends to have, revealing a strong correlation between labor
standards and income levels (Fig. 3.2.2). It would seem that labor standards improve in
tandem with economic growth, while measures restricting trade and investment, which
could have a negative impact on economic growth, produce the opposite effect.
(US$ billion)          Figure 3.2.1 Labor standards and FDI inflows

                                                                                Group 4


 60                 Group 1             Group 2             Group 3

       Low labor                                                                           High labor
 30    standards                                                                           standards

                                      (Labor standard category based on freedom of association)
Notes: 1. Average values for 1995-99.
Notes: 2. See Appended Note 3.2.1.
Sources: IFS (IMF), WDI (World Bank).

          (US$)               Figure 3.2.2 Labor standards and per capita GNP
      50,000                                                                              Group 4


                                                  Group 2             Group 3
                              Group 1


                  Low labor                                                                         High labor
      10,000      standards                                                                         standards

                                                  (Labor standard category based on freedom of association)
      Notes: 1. 1999 data.
      Notes: 2. See Appended Note 3.2.1.
      Source: WDI (World Bank).

            Child labor rate          Figure 3.2.3 Child labor and per capita GDP
               (1995; %)





                           500          1,000           2,000           5,000       10,000          20,000
            Note: Per capita GDP is expressed as a logarithm.                                Per capita GDP
            Source: Krueger (1997).                                                           (1992; US$)

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

   Better labor standards and economic growth through expanded trade and investment
would therefore appear to be mutually complementary, with the improvement of labor
standards in developing countries not due to measures restricting international trade and
investment, but rather achieved through the economic development produced by greater
trade 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 globalization
trend which in turn lent enormous momentum to the world economy, but the benefits of
this 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. Poverty
therefore remains severe. In sharp contrast to their dazzling leap forward to independence
in the 1960s, many African countries have seen their economic growth stagnate since the
1970s, with the bulk recording minus growth (Fig. 3.2.4). In some countries, more than
half the population is living on less than a dollar a day, and Sub-Saharan Africa in
particular is the poorest region in the world (Fig. 3.2.5). Moreover, in terms not just of
Africa but the entire world, while world income may have increased, the benefits of this
have not necessarily been extended equally to all countries; rather, income disparities
among countries have grown. In terms of per capita GDP (PPP), a comparison of the

    World Bank (2000).

      Figure 3.2.4 Economic growth in the Sub-Saharan countries
       countries/regions                          1960s                        1970s                            1980s                  1990s 1975-95 average
Botswana                                              4.3                         11.0                              7.9                    2.7            6.7
Mauritius                                             0.8                          5.1                              3.2                    4.2            4.2
Seychelles                                            0.5                          5.8                              1.7                    2.7            3.0
Swaziland                                             8.2                          7.0                              2.8                    2.1            1.8
Lesotho                                               4.7                          8.8                              0.3                    0.3            1.6
Burkina Faso                                          1.1                          0.7                              1.1                    0.1            0.8
Cameroon                                              0.0                          3.3                              1.8                 ▲ 5.8             0.6
Kenya                                                 2.2                          3.1                              0.5                 ▲ 1.0             0.5
Benan                                                 0.4                       ▲ 0.3                            ▲ 0.4                     1.1            0.3
Burundi                                               0.2                          3.2                              1.3                 ▲ 3.7             0.1
Republic of Congo                                     1.3                          1.9                              2.6                 ▲ 3.0          ▲ 0.1
Mali                                                                               2.9                           ▲ 2.0                  ▲ 0.6          ▲ 0.2
Sudan                                              ▲ 1.0                           0.9                           ▲ 1.6                     2.4         ▲ 0.2
Mauritania                                           4.7                           0.3                           ▲ 0.4                     0.1         ▲ 0.2
Gambia                                                                             1.4                           ▲ 0.1                  ▲ 0.8          ▲ 0.2
Guinea Bissau                                                                                                    ▲ 0.1                     1.3         ▲ 0.2
Malawi                                               2.5                                      2.5                ▲ 1.2                     0.4         ▲ 0.4
Ghana                                              ▲ 0.4                                    ▲ 0.8                ▲ 1.5                     1.2         ▲ 0.5
Rwanda                                             ▲ 0.8                                      1.7                   0.0                 ▲ 6.1          ▲ 0.5
Senegal                                                                                     ▲ 0.2                ▲ 0.6                  ▲ 0.6          ▲ 0.6
Zimbabwe                                                                                      0.8                   1.2                 ▲ 1.2          ▲ 0.6
South Africa                                         3.7                                      0.9                ▲ 0.2                  ▲ 1.1          ▲ 0.7
Nigeria                                            ▲ 0.7                                      3.9                ▲ 3.0                     1.3         ▲ 0.8
Chad                                               ▲ 0.7                                    ▲ 3.4                   2.4                 ▲ 2.3          ▲ 0.9
Togo                                                 5.8                                      0.3                ▲ 0.5                  ▲ 3.2          ▲ 1.4
Central Africa                                     ▲ 0.2                                    ▲ 0.3                ▲ 1.7                  ▲ 1.7          ▲ 1.5
Cote d’Ivoire                                        3.9                                      3.2                ▲ 4.5                  ▲ 1.2          ▲ 1.9
Niger                                              ▲ 0.6                                    ▲ 1.2                ▲ 3.1                  ▲ 3.5          ▲ 1.9
Madagascar                                           0.4                                    ▲ 0.9                ▲ 3.1                  ▲ 2.0          ▲ 2.3
Gabon                                                6.0                                      4.8                ▲ 2.0                  ▲ 0.9          ▲ 2.5
Zambia                                               0.5                                    ▲ 1.6                ▲ 2.1                  ▲ 2.5          ▲ 2.5
Sierra Leone                                                                                  0.3                ▲ 1.1                  ▲ 6.5          ▲ 2.7
Democratic 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                                        0.5
Note: Average growth rates for per capita GNP (1995 US$).
Source: WDI (World Bank).

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












                                                   Central Africa


                                                                             Burkina Faso













                                                                                                                                                                                                                        Cote d’Ivoire

                                                                                                                                                                                                                                        South Africa


                   Source: WIR (World Bank).

          Figure 3.2.6 Trends in economic growth and share of world trade of Sub-Saharan Africa and East Asia
     Share           Sub-Saharan Africa          Growth         Share      East Asia (excluding Taiwan)      Growth
      (%)                                        rate(%)         (%)                                         rate(%)
     16                                                8        16                                                 8
                                                                        Per capita GNP grow th rate
             Per capita GNP growth rate                                         (right scale)
     14                                                7        14                                                7
                     (right scale)
     12                                                6        12                                                6

     10                                                5        10                                                5
                              Share of world exports                    Share of world exports
                                    (left scale)                 8            (left scale)                        4
      8                                                4

      6                                                3         6                                                3

      4                                                2         4                                                2

      2                                                1         2                                                1

      0                                                0         0                                                0
           1960s     1970s      1980s        1990s                      1960s     1970s          1980s    1990s
      Source: WDI (World Bank).

averages for the five poorest countries and the five richest countries reveals that the
disparity grew from 1:19 in 1950 to 1:37 in 19929. It has in fact been argued that
developing countries are being drawn deeper into poverty as a result of expanded trade and
investment. However, greater trade and investment has indisputably had a positive impact
on the economic growth of developing countries. Countries such as those in East Asia
which have responded to the global expansion of trade and investment have in fact
achieved high economic growth. Even in the African countries where little growth has
been evident, the slump in their economic growth parallels the timing of the slump in their
share of world trade (Fig. 3.2.6). It is those countries which have not been able to gear
themselves to world trade and investment expansion which have struggled with their
economic growth. This pattern in the world economy suggests that greater trade and
investment 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 trade
and investment with other countries, but by a combination of factors, including factor
productivity and technological levels, as well as macroeconomic policies and social
policies such as income redistribution. Constructive discussion toward eliminating poverty
must consequently go further than the limited scope of trade and investment policy to
embrace a country’s situation in its entirety, including its social systems and economic

   To achieve economic growth, a country also needs to accumulate capital and human
resources and promote technology development. The most critical elements to this end are
to foster the human resources who will engage in economic activities and to develop the
social “hard” and “soft” infrastructure to form the foundations for highly predictable and
free economic activities, thus allowing stable, low-cost business operations10. Specific

 Calculated from Maddison (1995).
  Collier and Gunning (1999) give comprehensive consideration to factors dragging down the
economic growth of the African countries. According to their analysis, in addition to the geographical

steps which must be taken therefore include improvement of public education levels to
ensure the necessary human resources and development of the following soft
infrastructure: creation of a corruption-free government which maintains complete
transparency in its decision-making and procedures, development of a fair and enforceable
legal 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 trade
and investment barriers. Necessary “hard” infrastructure includes waterworks, sewerage
systems and other infrastructure related to daily life, a stable energy supply, and transport
and telecommunications.

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

(b) The East Asian economic growth experience
   Where Indonesia, Thailand and other East Asian countries numbered among the poorest
in the world around 40 years ago in the 1960s, they subsequently achieved such a
remarkable 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 with
depressed economies over the same period. Of the various factors which have contributed
to East Asia’s strong growth, we focus below on the accumulation of human resources and
capital and the deepening of external economic relations.

  Starting with the accumulation of human resources, trends in East Asian school
enrolment 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 education
                                1970 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  21.5
 Developing country average       71.1   78.3    81.1    84.1 25.9    53.6    57.9   61.4           9.8    12.6  14.7
 Japan                            85.7   92.9    96.8    99.9 99.5    99.9    99.9   99.9 18.0    30.5     29.6  42.7
 World average                    73.7   80.2    83.2    84.7 32.7    58.0    61.9   65.7         12.2     15.8  18.7
 Notes: 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 and
poorly functioning government sectors, the product of non-democratic government regimes. The
resulting 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 such
as education and medical care) infrastructure needed for economic activities on the part of individuals
and companies is noted as a cause of sluggish economic growth in Africa.

                            Figure 3.2.8 Savings and investment rates in East Asia

                        Savings rates                        (Year)           Investment rates
         World average                                                                            World average

 Developing country                                                                                 Developing country
      average                                                1970                                        average


   East Asia
  (excluding                                                                                                   East Asia
    Taiwan)                                                  1985                                             (excluding



 % of GDP                                                                                                     % of GDP

 40            30            20             10          0           0         10           20            30                40
Note: See Appended Note 1.1.1.
Source: WDI (World Bank).

                                            Figure 3.2.9 Changes in exports and income levels
               Per capita GNP 10                                                                                      China
               growth rate(%)                    Developed countries
                                                 East Asia
                                                                               Indonesia                                        Thailand
                                                 Other developing countries                        Singapore
                                                                                                                       Hong Kong

                    5                   0                                          10                                      20
                                                                                                         Export growth rate(%)

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

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

  Another factor behind East Asia’s success has been the way in which countries in the
region have deepened their external economic relations in the course of their economic
growth. 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 high
import growth levels reflected in similarly high income growth levels. This is evidence of

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

   East Asia’s investment in public education and stable operation of macroeconomic
policies have allowed injection into the economy of a high-quality labor force and
abundant capital, two productivity factors vital to economic growth, while burgeoning
trade and investment have moved regional economies on to a strong growth trajectory. East
Asia’s experience suggests that developing countries should not reject global trade and
investment, but instead explore policies open to the outside world, working toward
economic 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 continue
to dwindle and deteriorate11 in developing regions in particular, an issue relevant not just to
the countries and regions in which forests are located, but also to the world at large due to
diminishing biodiversity, global climate changes (global warming) and ongoing
desertification. 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, reveals
that the approximately 3.5 billion hectares covered by the world’s forests is being
deforested at a rate of around 11 million hectares a year, an area equivalent to around a
third of Japan’s national territory (Fig. 3.2.10).
                                    Figure 3.2.10 Annual fluctuations in world forest area
                                                        Annual fluctuation in area (1,000 hectares)
                                                                                                                       Annual rate of
                      region                                       Temperate regions,
                                            Rainforest regions                                      Total              fluctuation (%)
        Africa                                         ▲ 3,695                     ▲ 53                 ▲ 3,748                     ▲ 0.7
        Asia                                           ▲ 3,055                      154                 ▲ 2,901                     ▲ 0.6
        Oceania                                         ▲ 151                        60                   ▲ 91                      ▲ 0.1
        Europe                                                                      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                      ▲ 0.1
        South 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 fluctuation
        Notes: 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).

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

                              Figure 3.2.11 Trends in value of forest products by region
             (US$ billion)

                 120           Asia
                               North America



                             1980               1985             1990           1995            1998 (Year)
             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 fact
difficult to pinpoint any relation between deforestation and trade. Trends in trade in forest
products (value base) are shown in Fig. 3.2.11. In terms of the relation between production
and trade volumes, where world wood (log) production is around 3.4 billion cubic meters a
year, only around 500 million cubic meters of this is traded, or just over 10 percent of total
production12, which suggests that international trade alone is not necessarily a major factor
behind deforestation.

  While the world’s forests, and particularly rainforests, are certainly diminishing and
deteriorating, causes vary according to the region and are often compound in nature. It is
impossible 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 the
deforestation equation.

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

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

                              Figure 3.2.12 Causes of deforestation in tropical countries

                                                                                                    All main tropical
                                                           Brazil       Indonesia     Cameroon
              Forestry                                                  2              9        0                2-10
              Farmland development                                     91             90      100               86-94
                 Slash-and-burn farming                                15             59       79               41-49
                 Permanent farming                                     76             31       21                  45
                                                                       40              0        0                  24
                                                                        4              3        3                   3
                                                                       32             28       18                  18
              Mining (including related industries)                     3              0        0                   1
              Dam construction                                          2              0        0                   1
              Other                                                     2              1        0                   2
              Note: Figures indicate the degree of contribution to deforestation 1981-90.
              Source: Deforestation of Tropical Rain Forests (Torsten Amelung & Markus Diehl).

and land-holding rights are all issues closely intermeshed with deforestation in developing
countries in particular, demanding a comprehensive response to all the issues behind
deforestation, 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 perform
a public function—for example, protecting national territory, cultivating water resources,
preventing global warming and preserving biodiversity—as an international public
resource. Sustainable forest management which balances forest protection and use and
continues to respond to forest needs is therefore a critical task for the international
community. Recognizing this, international moves are being launched toward sustainable
forest management.

   In 1990, the International Tropical Timber Organization (ITTO) began to produce
guidelines on sustainable forest management toward the Year 2000 Objective which it
proposed for tropical forests. The organization is currently engaged in a number of projects
aimed 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’s
forests, and considerations have been launched on international mechanisms and
agreements such as forest conventions. The final Intergovernmental Forum on Forests
conference was held in 2000, producing a report which included the proposal that a United
Nations Forum on Forests (UNFF) be set up under UN auspices to consider international
efforts toward sustainable forest management. The first UNFF meeting will be held in June
2001, and expectations are high over the new group’s role in this context. It will also be
important that Japan participates actively in international efforts. The G8 Communiqué
produced by the Kyushu-Okinawa Summit in July 2000 announced that G8 members
would examine ”how best we can combat illegal logging, including export and
procurement practices” toward achieving sustainable forest management. This statement is
indicative of the growing international consciousness of the need to deal with illegal
logging, international trade issues included, and as a G8 member, Japan too will need to
make an appropriate response.

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

population growth and poverty. A fundamental solution to deforestation will therefore not
be found in trade policies alone, but rather in a comprehensive response to the various
issues behind our dwindling forests, including trade and forestry policies. In terms of
global efforts, then, bilateral and multilateral technical and capital cooperation in efforts to
achieve sustainable forest management in developing countries, as well as efforts based on
the G8 Communiqué reference, need to be undertaken, while active use should also be
made of international fora for dialogue such as the UNFF, which is directly handling this

4. Food safety
(1) Food safety standards
(a) Growing trade in agricultural, marine and food products and international
systemic harmonization
   Standards and conformance systems determining the conformance of domestic or
foreign products with technology and safety criteria are established and operated by
national governments to ensure quality and safety, for example, as well as to protect the
environment. However, disparities in countries’ respective standards and conformance
systems force exporters to tailor their products in line with the regulations of the importing
country. This can lead to higher manufacturing and sales costs than are incurred where
standards and conformance systems have been internationally harmonized, detracting from
the potential trade-based profit to consumers. Further, while standards and conformance
systems were not originally designed to restrict trade, where it is more difficult for foreign
products to meet national standards and be recognized as such, this effectively throws up a
barrier to market entry. The growth in international trade in goods has spurred moves
towards international systemic harmonization designed to maximize the benefits of trade
liberalization 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 in
line with the growth in international trade of agricultural, marine and processed food
products , has been working on criteria harmonization (Fig. 3.2.13). The WTO’s efforts in
this area include the Agreement on the Application of Sanitary and Phytosanitary Measures,
designed to prevent phytosanitary measures from becoming disguised trade restrictions
and harmonize national standards with international standards.

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

                     Figure 3.2.13 Trends in value of world agricultural and forestry exports
            (US$ billion)






                        1980             1985             1990             1995           1998 (Year)
            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 biotechnology
has advanced. Protecting human health remains an important goal of national
phytosanitary measures, and is a separate issue from trade liberalization. It is therefore not
unreasonable to argue that high-level food safety standards should be adopted regardless of
whether these are consistent with international standards, and that countries have the
sovereign right to preserve this authority. The difficulty arises in coordinating the goal of
international harmonization of phytosanitary measures as a means of minimizing the
negative 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 with
growth hormones. The EU prohibited the use of growth hormones, and banned imports of
beef using these as of 1989. The US took the case to the WTO as an infringement of the
SPS Agreement, where a panel ruled against the EU in that the EU measures were not
based on determination of a scientifically-based threat and comprised discrimination
between members and disguised restriction of international trade. An Appellate Body
subsequently supported the panel’s view that the EU measures were not based on an
adequately-proven scientific threat, but unlike the panel, did not regard the measures as
creating discrimination against international trade or as a disguised restriction. The
Appellate Body also noted that one of purposes of the SPS Agreement was legal
harmonization, and cautioned against interpretations restricting sovereign rights14.

(c) Future directions
   As globalization advances and trade expands, differences in countries’ social systems
are obviously causing certain tensions. It must be fully recognized particularly in pursuing
the economic policy goal of trade liberalization that difficulties will arise in coordinating
this with the quite separate goals of important social policies such as ensuring human

     WT/DS26, 48/AB/R, paras. 163-165.

safety. This kind of harmonization of trade liberalization and domestic systems, and of
international disciplines and domestic positions, will become a more important issue in a
globalizing 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”, the
above included, it becomes apparent that many have no relation to issues resulting from
expanded 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 those
primarily influenced by trade and investment expansion and those not directly arising from
trade 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 labor
standards. When this issue is linked with trade measures, the focus can change in the
course of debate into temporary exclusion of certain products created using low-wage
labor, bringing to the fore disguised protectionism. Before “anti-globalization” concerns
are discussed, therefore, it is vital to determine their true nature to ensure a constructive
approach to resolving the distortions which globalization does create. Care must be taken
to 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 some
which 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 which
growing market integration and market economy penetration in terms of today’s goods,
services and capital are transforming traditional social mechanisms, creating a certain
tension among those people resisting change. Fig. 3.2.14 focuses on employment as one

                                    Figure 3.2.14 Types of concerns over globalization
                                     Main 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
           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 protection
           Source: METI.

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

          Human rights
                              Other                                             Other
                                                             Human rights
                                              Industry                                            Industry

           Development              US                        Development                EU
           and Asistance           (314)                      and Asistance             (184)

                   Environment                                              Labor

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

issue subject to the impact of growing trade and investment, dividing the resulting tensions
into 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, namely
between 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 of
labor as a production factor, while one country’s labor is becoming far easier to exchange
with the labor of another. Tension is accordingly rising between trade and investment and
labor, with the latter exposed directly to the risk of an international industrial structural
adjustment which could see their labor replaced elsewhere. Workers in certain sectors are
beginning to worry that trade and investment expansion will lead to their jobs being taken
abroad. Around half of the US and European NGOs participating in the Seattle WTO
Ministerial in 1999 were based in industry or agriculture, a clear expression of the tension
arising 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 and
investment burgeon, trade increases among countries with different social and economic
systems and infrastructure, as well as among countries at different levels of economic
development, with pressure rising to reduce and eliminate business-related barriers. As
described in Section 2, Chapter IV, the development of international systems in line with
trade and investment expansion leads to the elimination of offshore barriers—tariff
reductions, for example—which in turn gradually fosters differences in perception of
domestic barriers to economic activity and the “fairness” of economic systems. Economic
regulations, labor standards and environmental standards are all developed based on the
circumstances of the particular country, and as governments are forced to harmonize their
systems as a means of facilitating business activities, tension inevitably heightens between
domestic rules and socioeconomic systems and the harmonization which must be
undertaken. Socioeconomic disciplines and systems are crafted based on each country’s

idea of fairness, which may not jib with other countries’ ideas. As a result, deepening
economic ties among countries can conversely lead to collisions of different perceptions of
“fairness” as designed based on national sovereignty. The conflict over food safety
standards noted earlier is an expression of this kind of international tension15. At the same
time, more than a few arguments are rooted in trade protectionism, and care needs to be
taken 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, the
benefits of that growth are not necessarily shared by all people or by all countries. This is
hardly a new phenomenon, dating back in fact to antiquity. The particular resistance to
globalization-led economic growth which has emerged in some quarters in recent years is
due to the growing pace of globalization and the greater delineation of global winners and
losers. The sole pursuit of efficiency through competition does boost the size of the
economy without guaranteeing an equal share to all involved of the fruits of this expansion,
sometimes creating substantial disparities. Many “anti-globalization” arguments, as was
explored above, have emerged from the changes in the social environment and the
international and domestic disparities which have been prompted by the swift advance of
globalization over the last decade, creating tensions. At the same time, as technological
innovations in transport, telecommunications and other areas expand cross-border flows of
goods, money, people and information, globalization has become an irreversible trend, and
it was noted in the previous section that rather than rejecting globalization, positively
embracing the trend and linking the momentum it provides to economic growth has
become vital in avoiding marginalization. Protectionist measures, therefore, will not
resolve globalization-based disparities and tensions. These must be dealt with by
developing safety nets to dissipate unease over swift socioeconomic change, while also
tying the energy produced by globalization to the further development of the world

(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 ongoing
high unemployment rates, the emergence of income disparities, and the speed of changes
accompanying globalization, and policies need to be designed to distribute the benefits of
economic growth to as many people as possible. Active labor market policies are an
example of safety nets addressing globalization-led changes in the domestic employment

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

  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 of
globalization-related “fairness”.

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

(Focus of traditional and active labor market policies)
   Problems presented by traditional passive, ex post facto negative labor market policies
include the “unemployment trap” and the limits of ex post facto responses such as
unemployment compensation. The unemployment trap refers to benefit dependency,
whereby hefty unemployment compensation discourage the unemployed from looking for
work, thus inviting long-term unemployment. The ex post facto provision of
unemployment 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 ex
post facto response has been blamed for the structural long-term unemployment and youth
unemployment which the EU experienced in the early 1990s (Fig. 3.2.16).
          Figure 3.2.16 OECD long-term unemployment and unemployment among youth

                                                                                          Unemployment among youth
                                Long-term unemployment (% of unemployed)
                                                                                              (% of population)
                             6 months and over                12 months and over               15-24 years old
                            1990           1999              1990            1999            1990           1999
   Australia                     41.0           48.4              21.6            29.4            13.2           13.9
   Austria                                      47.6                              31.7                            5.9
   Belgium                       81.4           73.5              68.7            60.5            14.5           22.6
   canada                        20.2           21.4               7.2            11.6            12.4           14.0
   Czech Republic                               61.9                              37.1                           17.0
   Denmark                       53.2           38.5              29.9            20.5            11.5           10.0
   Finland                       32.6           46.4               9.2            29.6             9.4           21.5
   France                        55.5           55.5              38.0            40.3            19.1           26.6
   Germany                       64.7           67.2              46.8            51.7             5.6            8.5
   Greece                        71.9      *    74.8              49.8       *    54.9            23.3           29.7
   Hungary                                      70.4                              49.5                           12.4
   Ireland                       81.0     **    73.6              66.0      **    57.0            17.6            8.5
   Italy                         85.2           77.2              69.8            61.4            28.9           32.9
   Japan                         39.0           44.5              19.1            22.4             4.3            9.3
   Korea                         13.9           18.6               2.6             3.8             7.0           14.2
   Luxembourg                    66.7           53.8              42.9            32.3             3.7            6.8
   Netherlands                   63.6           80.7              49.3            43.5            11.1            7.4
   New Zealand                   39.5           39.0              20.9            20.8            14.1           13.7
   Norway                        40.8           16.2              20.4             6.8            11.8            9.6
   Poland                        62.8     **    60.4              39.0      **    37.4                           23.2
   Portugal                      62.4           63.8              44.8            41.2             9.6            8.7
   Spain                         70.2           67.9              54.0            51.3            30.1           28.5
   Sweden                        22.2    ***    49.2              12.1    ***     33.5             4.5           14.2
   Switzerland                   26.2           61.0              16.4            39.8             3.2            5.6
   United Kingdom                50.3           45.7              34.4            29.8            10.1           12.3
   United 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         11.8
   Note: Single asterisks indicate 1996 data, double asterisks 1997 and triple asterisks 1998 data.
   Source: Employment Outlook (OECD).

   In the 1990s, the OECD issued recommendations focusing on active labor market
policies16, stressing these as a way to enhance labor market mobility and improve skill
levels. Countries reinforced their efforts as a result, with the EU in particular pushing up
the 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 the
unemployed, the focus for traditional passive labor market policies, but also for the
employed and for young people, striving to lower youth unemployment and constrain
long-term employment, as well as to enhancing labor market mobility. The goal, in other
words, is to provide appropriate education and training so as to enhance skills and abilities
of workers themselves, widening their job and job-changing options. Faced with high
long-term and youth unemployment and an inflexible labor market, the EU places
particular emphasis on employability, and has been increasing its public spending on labor
market training and youth measures.

   In Germany, which has a relatively low youth unemployment rate compared to other EU
members, human resource development has been the centerpiece of a training program
which combines vocational training with in-house training. Denmark too succeeded in
reducing 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 active
labor market policies. These training and education programs are distinguished by their
focus on workers as a whole rather than just on the unemployed, with a particular
concentration on blue-collar workers, and this has been an important element in realizing
smooth labor transfers18.

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

(b) Safety nets addressing international income disparities
  As the world economy grows, development of international safety nets to deal with

   According to the OECD (1990), the first OECD reference to the principle of active labor market
policies dates back to the 1964 OECD Council Recommendation.
   According to the OECD (2000b), the growth in active labor market policy-related spending by EU
members from 1985 to 1997 topped the OECD average.
   Per Kongshoj Madsen (1998).

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 to
keep pace with globalization—food assistance, for example—support also needs to be
provided in building socioeconomic systems which can deal with the globalizing world

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

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

(The new World Bank approach)
  As poverty derives from a plethora of factors—social, structural and personal, for
example—in 1998, the World Bank came up with a Comprehensive Development
Framework19 which calls for integrated efforts through the creation of a partnership among
the parties involved in development, including the private sector and civil society. The
World Bank is also working on new directions, joining the IMF, for example, in requiring
countries receiving financing to produce Poverty Reduction Strategy Papers designed to

  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 be
interesting to observe developments and results in this regard.

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 international
development institutions such as the World Bank, providing effective assistance toward
ridding the world of poverty.

   Globalization is proceeding at an increasingly swift pace, bringing about dramatic
socioeconomic changes and, in some cases, creating major disparities. To ensure that
world economic development makes optimal use of the dynamism which globalization
offers, 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 and
strengthening the domestic and international safety nets described above.

Column 5: Improving the living environment in developing countries: Human
Development Index

   Income levels are not necessarily sufficient as indicators of a country’s wealth. In
gauging the situation in poverty-stricken countries in particular, education levels, the
average life span and other aspects of the social environment must also be taken into
consideration. 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 and
tertiary school enrolment ratios, and real per capita GDP (PPP dollars). The degree to
which 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 35
countries as poor HDI performers where good performers have an HDI of 0.8 or more and
poor performers have an HDI of less than 0.5.

   Using the HDI to look at living standards in developing countries presents a rather
different picture than that derived from income standards data alone. Crafts (2000) has
conducted an interesting piece of research in this regard, finding that between 1950 and
1995, the HDI disparity between all developing countries and their developed counterparts
shrank both proportionately and absolutely, a result quite unlike the North-South divide
which emerges from a comparison of income levels (Fig. 3.2.17).

                              Figure 3.2.17 HDI trends by region
                                      1870       1913       1950       1995
             Oceania                     0.539      0.784      0.856      0.933
             North America               0.462      0.729      0.864      0.945
             Western Europe              0.374      0.606      0.789      0.932
             Eastern Europe                         0.278      0.634      0.786
             South America                          0.236      0.442      0.802
             East Asia                                         0.306      0.746
             China                                             0.159      0.650
             South Asia                             0.055      0.166      0.449
             Africa                                            0.181      0.435
             Source: Crafts (2000).

   However, while the HDI disparity may be shrinking, poverty in developing countries is
still a major international issue. Efforts to address poverty in developing countries need to
be made based on a comprehensive grasp of the current status of poverty and the issues
involved, including the overall social environment, factors which, as seen above, are not
necessarily adequately reflected in income levels alone.

Section 3 Remaining issues for harmonizing sustainable growth and environmental

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

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

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

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

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 redressed
through the harmonization of sustained economic growth and environmental protection.

   The great interest in environmental issues in postwar Japan was stirred by the four
pollution-triggered diseases plaguing Japan at the time—Minamata disease, Yokkaichi
asthma, itati-itai disease and Niigata Minamata disease20. The 1970 “pollution Diet” passed
14 laws, including legislation amending the Public Nuisance Countermeasures Basic Law,
and the Environment Agency was established in 1971 to bring pollution-related
administration under the auspices of one agency. In response to this legislation, companies
introduced wastewater facilities and developed desulfurizers, bringing about a gradual
reduction in industrial pollution. The subsequent leap in energy prices caused by the two
oil shocks impacted heavily on the international competitiveness of Japanese companies,
spurring technology development and plant and equipment investment designed to increase
energy efficiency. In 1979, the government formulated the Law concerning the Rational
Use of Energy (the Energy Conservation Law), promoting energy-saving for factories,
vehicles and electric equipment. The energy-saving technology developed and introduced
during 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 had
developed led to global environmental issues such as waste disposal, destruction of the
ozone layer and global warming, with the scope of environmental issues beginning to
expand. This expansion continues today, with recent new issues including dioxins and

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

   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).
   Yamaguchi (2000), p.18.

Convention for the Prevention of Pollution of the Sea by Oil, as well as the establishment
of the Valdez Principles (renamed the CERES principles22) on corporate responsibility for
environmental 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 spatial
extension of their impact (taking longer to impact and covering a greater area); (2) the
wider range of polluting entities; and (3) the emergence of new types of environmental
issues 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 domestic
air, water and soil pollution and protection of the natural environment to cross-border
pollution issues such as the pollution of international rivers and acid rain, and further to
global-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 surrounding
natural environment and human health. Where pollution problems in specific areas never
lasted more than several years, global environmental problems span 100s to 1000s of
years24, and accordingly require a long-term perspective in their resolution.

  Secondly, where most pollution was once produced by industry as a result of swift
industrialization, more recently it has been the waste and wastewater emitted by
households, as well as the greater energy consumption of transport and non-industrial
sectors, which have become the more serious issues. As a result, the former paradigm
                                   Figire 3.3.1 Current state of key environmental issues

                             National                         Transboundary                          Global
             Air Pollution                        Acid rain                            Global warming
                                                                                       Ozone layer destruction
             River and lake pollution             Pollution of int'l rivers
   Water     Ocean pollution
             Groundwater pollution
             Pollution by chemical substances
             Deforestation / Desertification
             Noise                                Transboundary movement of
                                                  hazardous wastes
             Offensive smells
             Damage to human health
             Ecosystem destruction

Source: METI.

   Ten principles produced in 1989 by the Coalition for Environmentally Responsible Economies (CERES; a US
organization) for companies to observe in protecting the environment. These principles comprise: (1) Protection of the
Biosphere; (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
   Acid rain, one instance of cross-border pollution, was already noted in England in the late 19th century, but it was not
until the late 1960s that severity of the damage caused by acid rain was recognized among developed countries.
   P. 293, ??Fiscal and Monetary Research Institute, Ministry of Finance (1998).

whereby industries were the perpetrators of pollution and local residents the victims is no
longer as relevant, with a response now required to environmental issues not only by
companies, but also in non-industrial sectors.

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

(3) Environmental regulations tightened worldwide
  The growing diversity and complexity of environmental issues are demanding the
development 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 in
protecting 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                                                    Area                        Entry into force
 1991 Law for Promotion of Effective Utilization of Resources    Enactment Recycling                             October 1991
      (Recycling Law)
 1991 Waste Disposal and Public Cleansing Law                 Amendment Waste                                   July 1992
 1993 Basic Environment Law                                   Enactment Promotes comprehensive and systematic November 1993
                                                                        policies for environmental conservation
 1995 Law for promotion of Sorted Collection and Recyclable Enactment Recycling                                 April 1997 (Full entry into
       Containers and Packaging (Containers and Packaging                                                       force in April 2000)
       Recycling Law)
 1997 Waste Disposal and Public Cleansing Law                 Amendment Waste                                   Entry into force one and a
                                                                                                                half years after promulgation
 1997 Environmental Impact Assessment Law                     Enactment Environmental impact assessment         Full entry into force in June
 1998 Law Concerning the Rational Use of Energy (Energy       Amendment Energy conservation                     April 1999
       Conservation Law)
 1998 Law Concerning the Promotion of the Measures to Cope    Enactment Global Warming                          April 1999
       with Global Warming
 1998 Law for Recycling of Specified Kinds of Home            Enactment Recycling                               April 2001
       Appliances (Home Appliances Recycling Law)
 1999 Law Concerning Reporting, etc. of Release of Specific   Enactment Chemical substances                     April 2001
       Chemical Substances to the Environment and Promotion
       of the Improvement of Their Management (PRTR Law)
 1999 Law Concerning Special Measures against Dioxins         Enactment Chemical substances                     January 2000
 2000 Basic Law for Promotion of the Creation of a Recycle-   Enactment Recycling                               June 2000
       Oriented Society
 2000 Law for Promotion of Effective Utilization of Resources Amendment Recycling                               April 2001
       (Recycling Law)
 2000 Waste Disposal and Public Cleansing Law and Law to      Amendment Waste                                   October 2000
       Promote the Devlopment of Specified Facilities for the
       Disposal of Industrial Waste
 2000 Construction Materials Recycling Law                    Enactment Recycling                               June 2002
 2000 Food Recycling Law                                      Enactment Recycling                               June 2001
 2000 Law for Promotion of Procurement of Recycled Products Enactment Green Purchasing                          April 2001
       by the National Government (Green Purchasing Law)
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

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

  As for environmental regulations abroad, no legislation has been created or amended at
federal level in the US since amendment of the Clean Air Act in 1990, but some programs
for environmental protection have been set up at state level, such as the regulations on
vehicle exhaust emissions established in California. Meanwhile, in Europe, considerable
progress has been made with recycling-related information. In addition to the 1991
              Figure 3.3.3 Key Multilateral environmental agreements (MEAs) adopted since the 1980s
Year                   Title                   No. of parties                          Content
1985 Vienna Convention                           175 EC Protection of the ozone layer
1987 Montreal Protocol                           174 EC Control of substances that deplete the ozone layer
1989 Basel Convention                            141 EC Control of the transboundary movement of hazardous
1992 UN Framework Convention on Climate          185 EC Global warming
1992 Convention on Biological Diversity          179 EC Biological diversity
1997 Kyoto Protocol                                 32        Sets binding emissions targets of greenhouse gases for
                                                              developed countries
2000 Cartegena Biosafety Protocol                 83 EC Promotes the safe transfer, handling, and use of living
                                                              modified organisms (LMOs) affecting biological diversity
2001 Convention on the Control of Persistent                  Control of the manufacture, use, and emission of
     Organic Pollutants (intergovernmental                    persistent toxic chemicals (12 substances)
     negotiations concluded; the convention is
     expected to be adopted in May)
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

   This approach requires the performance of home electronics, cars and other products with high energy consumption to
be raised within a certain time above the level of the most energy-efficient products available at the time. Where
manufacturers 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 standards
established for each category which must be reached by 2010.
   The abbreviation for the Pollutant Release and Transfer Register, a mechanism whereby enterprises gauge exactly
how much of each targeted chemical substance they are releasing into the environment or transferring as part of waste
and register this with the administrative authority through prefectural authorities, with the administrative authority
publishing the results. The formal title of the Chemical Substances Management Promotion Law is the Law concerning
Reporting, etc. of Releases into the Environment of Specific Chemical Substances and Promoting Improvements in
Their Management.

(approved by the European Parliament in September 2000), while a draft directive on
waste 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. International
conventions in areas such as protection of the ozone layer, global warming, and protection
of biodiversity are also lending momentum to efforts to resolve the various environmental
issues 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 formerly
passive stance for a more positive response to the environmental issues.

   This is evident in the environment management systems which companies are
constructing in order to minimize the burden on the environment which is imposed by their
business activities. Companies develop their own environmental guidelines and institute an
ongoing improvement process comprising planning, implementation and operation,
inspection and the introduction of remedies, and management review. ISO14001 was
introduced in 1996 as an international standard on environment management systems, and
according to the ISO, as of the end of 1999, 14,106 companies in 84 countries had
acquired certification for standards in the ISO14000 series (Fig. 3.3.4). Japan topped the
                                                 Figure 3.3.4 Current status of ISO14000 series registration

         (1) ISO14000 series registration
                                  Trends in registration numbers                    (No. of                                       Share by region
           (No. of
        registrations)                                                           registrations)
         16,000                                                                        8,000       100%
                            N o. of registrations by year (right scale)                             90%
         14,000                                                                        7,000
                            Cum ulative total (left scale)
         12,000                                                                        6,000        70%
         10,000                                                                        5,000
           8,000                                                                       4,000        40%
           6,000                                                                       3,000        30%
           4,000                                                                       2,000        10%
           2,000                                                                       1,000         0%
                                                                                                                1995            1996        1997           1998             1999 (Y ear)
                0                                                                      0
                                                                                                                 Japan                  US                     Canada
                         1995         1996           1997          1998      1999 (Year)                         EU                     NIEs                   ASEAN 4
                                                                                                                 Latin America          Other


         (2) ISO 14001 registration
           (No. of     ISO 14001 inspection and registration trends     (No. of                                             Registrations by industry
        registrations)                                               registrations)
         400                   As of the end of January 2001 (5,338)        6,000
                                                                                                                                                   Electrical m achinery:
         350             No. of registrations b y month (right scale)                                                                                 22.9% (1,122)
                                                                                       5,000                        O ther:
         300             No. of registrations b y year (right scale)                                            33.9% (1,807)
                                                                                                                                        T otal                 C hem icals:
         200                                                                           3,000                                            5,338                 22.9% (506)

         150                                                                                      W aste disposal: 3.2%
                                                                                       2,000              (171)
         100                                                                                       Precision m achinery:                                          7.2% (387)
                                                                                       1,000            3.4% (180)
          50                                                                                                                                               General m achinery:
                                                                                                                  Construction:                               7.1% (379)
           0                                                                           0                           6.1% (325)      Transport equipm ent:
               1995      1996        1997          1998        1999       2000   2001 (Year)                                           6.8% (361)

        Note: Industry types are based on Japanese standard industrial classification.
        Source: Japan Standard Association research.

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

Standards Association, manufacturers have been the most eager to acquire ISO14001
certification, but figures for non-manufacturing industries such as finance and insurance
are also picking up.

   A growing number of companies are also publishing environmental reports as a means
of informing the public on their voluntary efforts to protect the environment, including
specific pollution-prevention and environmental protection measures as well as
environmental accounting figures27. Environmental accounting is one means of
quantitatively evaluating a company’s environment protection measures. Introduction of
this system allows distribution within a company of information on corporate environment
protection cost management and the effect of environment protection measures,
encouraging the institution of more effective measures. Externally too, it is expected to
provide information to consumers, environmental groups, stockholders, investors, financial
institutions and other parties involved. Major Japanese companies too have begun
introducing 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 Environment
Agency produced the Guidelines on Gauging and Announcing Environmental Protection
Costs (Interim Report) in order to provide just such a common framework and philosophy
as a spur to corporate initiative in Japan. Subsequent hearings and consideration of trends
abroad from a working perspective resulted in the March 2000 release of Developing an
Environmental Accounting System (Year 2000 Report), which included Guideline for
Introducing an Environmental Accounting System (referred to below as the Environment
Agency guidelines).

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

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

            Figure 3.3.5 Environmental accounting: Scope of calculations of economical
                                        effects and balance
                                                     (Top row: No. of companies; lower row: %)
            Scope of calculations of economical effects     Deficit     Surplus       Total
         Only effects based on a credible basis                     2          41           43
                                                                  4.7        95.3        100.0
         Assumed effects also included                              5            2           7
                                                                71.4         28.6        100.0
         Income and profit from environment-related                 2            4           6
         business included                                      33.3         66.7          100

         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
         Source: METI research.

   Looking at company environment management reports, where some companies reveal
only those figures based on the credible basis, others include the assumed effects. Where
the scope of calculation of economic effect was examined for 56 Japanese companies
currently releasing their environmental accounting, it was found that over 10 percent
included 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 greatly
according to the extent to which an economic impact is ascribed to environment-related
measures, and it is therefore difficult to make general assumptions. However, around 70
percent of the above cases indicated a surplus, around 30 percent a deficit. Where only
those effects for which there was definite proof were calculated, just under five percent of
companies reported a surplus. Where assumed effects were included in the calculations,
therefore, many companies reported making a profit, while calculations excluding assumed
effects still generally left a deficit. However, the very fact that these companies are
disclosing their environmental accounting is evidence that a growing number of companies
are recognizing investment in the environment as necessary in meeting their social

(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 measures
result in a profit, or, even where they create a loss, must be positively embraced as part of
a company’s social responsibilities. To track the relation between environmental protection
measures and company profit, below we examine the relation between corporate
environmental rankings and their operating income ratios to net sales, as well as the stock
indexes of companies with eco-funds.

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

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

                                Figure 3.3.6 Environmental ratings and corporate profitability
                    Operating income ratio to net sales: low                Operating income ratio to net sales: high

            10             9        8          7           6       5       4          3          2           1          0

                                                                                                                             Environmental rating ranking
             Corporate profitability ranking                                                                                1
                                                                 Fujitsu                     Sony                           2
                                    NEC                                                                                     3
                                                                                Matsushita                                  4
                     Mitsubishi                                                  Electric                                   5
                      Electric                                                  Induatrial                  Canon           6
                 Hitachi                                       Sharp                                                        8
                                              Toshiba                                                                       9
                 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
                 Source: The Japan Research Institute, Ltd. (based on the environmantal rating report provided by
                         Oekom Research AG) .

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

   Next, by examining trends in the stock indexes of companies with eco-funds, we can
determine how environment-related measures are evaluated by the market. Eco-funds are
stock investment trusts which invest funds in companies making outstanding
environmental protection efforts or companies providing outstanding environment-related
technology, products and services29, a concept tracing back to US and European social
responsibility investment30. Eco-funds were first launched in Japan in August 1999, since
which 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 are
strongly interested in company policy on the environment. Investors’ interest in eco-funds
is 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

   Nishimura (2000).
   Investment trusts which focus on social and ethical areas such as environmental protection, gender
issues and human rights as standards for determining in which companies to invest.
   Adachi (2001).
   Nishimura (2000), Yamaguchi (2000).

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

        320                                   Dow Jones Sustainability Group
                                              Index (DJSGI)
        160                                                                      Dow Jones Grobal
        140                                                                        Index (DJGI)
              1994        1995       1996       1997         1998         1999       2000           2001
              Notes: 1. Indexed with December 31, 1993 as 100.                                       (Year)
                     2. See Appended Note 3.3.2 on definition of indexes.
              Source: Dow Jones Sustainability Group Indexes GmbH.

& Company and the SAM Sustainability Group with the Dow Jones Growth Index (DJGI),
produced by Dow Jones & Company, discovering that the DJSGI consistently tops the
DJGI. Reasons why company stock prices have been boosted by their environmental
protection measures may be that (1) the market sees energy and resource conservation and
other forms of environmental protection as cutting costs, or (2) the market perceives that
additional 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 future
environment risks. Environment investment may push up costs over the short-term, but the
total cost of restoring a polluted environment, providing compensation for injury to the
health of local residents, and covering lawsuit costs is far greater. For example, when the
Valdez, 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 criminal
restitution (the cost of restoring the ecosystem) and a civil settlement of US$900 million
over 10 years33. Since the incident, many tankers are being double-hull to prevent similar

  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 of
assumed economic effects in that it is an “accidental” effect accompanying environment
protection measures. For example, a chemical leak at a US plant in 1977 spurred IBM to
shift all subterranean tanks above ground over the next three years, creating a pool-like

  Exxon Valdez Oil Spill Trustee Council website

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

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

               Figure 3.3.8 Ratio of consumers concerning energy-saving and otherwise “green”
                                            Conscious of other                      Other
             100%                               functions
                                                                               “Green” cars
                                             Conscious of price                (housing) not
              80%                                                              unless the price
                                                                               is low

              60%                           Conscious of
                                                                               “Green” cars
                                                                               purchased where
                                            where the price is
                                                                               the price is the
                                            more expensive but
              40%                           within acceptable

                                                                               “Green” cars
              20%                                                              (housing)
                                            Conscious of                       purchased even
                                            energy-saving                      where the price is
                                                                               more expensive but
               0%                                                              within acceptable
                     Home electric appliances (air                      Cars                        Housing
                    Source: Risaikuru/shou-ene nado no kakyou taisaku ni kansuru shouhisha no kosuto
                    hutan ishiki (Economic Planning Agrncy).

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

   Central and local government authorities and companies are also pushing more strongly
for a certain level of environment-friendliness in making their parts and raw materials
procurement and office equipment procurement decisions (green procurement and green
purchasing). Law for Promotion of the Procurement of Recycled Products by the National
Government (Green Purchasing Law) was promulgated in May 2000 for the procurement
of environment-friendly products by central and local governments (green procurement),
entering completely into force in April 200135. The Green Purchasing Network (GPN) was
also launched in February 1996 as a voluntary-based network of companies, government
bodies and consumers with the aim of encouraging the preferential purchase of goods and
services imposing a minimal environmental burden. As to member companies, where the
original 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 has
created guidelines on 14 products as part of its activities36, and also publishes
"Environmental Data Books” on manufacturers’ products in the various areas, providing
this information for consumer reference. When creating such guidelines, the GPN will try
to build in a life cycle assessment (LCA) perspective, evaluating the various impacts a
product 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 GPN
membership, companies are already taking steps in anticipation of a stronger consumer
interest in environmental issues.
                              Figure 3.3.9 Trends in number of companies joining the Green
              (No. of companies)                   Purchasing Network
               1,500                                                        1,346

                                 370    418


                        2        9      12     6      12     6       12      6       12       6      12
                                                             1998           1999                      month)
                       1996                   1997                                           2000
                       Source: GPN Secretariat.

   This law stipulates that: (1) the government must create basic guidelines promoting the procurement
of environment-friendly products by the government and independent administrative bodies; (2) the
heads of ministries, agencies and independent administrative bodies must create and announce
procurement 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 an
overview 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 endeavor
to base their procurement on these.
   (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).

(d) Growing impact: NGO monitoring of corporate activities
   NGO monitoring of corporate activities is one factor encouraging companies to protect
the environment. Cases include Shell’s decision to abandon the planned deep-sea disposal
of 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 expansion
in March 2000 because of a boycott by the Natural Resources Defense Council (NRDC)
and Mexican environmental groups against Mitsubishi Corporation38 conducted on the
grounds that the project would destroy the ecosystem of the Laguna San Ignacio39 (see
Column 7). Recently, some groups have also been profiling on their websites
multinationals whose foreign plants are having an impact on the environment40. Part of the
reason for this recent spurt of NGO action has been, as explained in Section 1, the new
ease with which NGOs and other groups can create global networks and communicate
information thanks to the advance of information communications technology such as the
Internet. With NGOs and other elements of civil society now able to use networks to reach
a wider audience, their greater effectiveness as watchdogs is motivating companies to pay
more attention to the environment.

3. Remaining issues for harmonizing sustainable growth and environmental
(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 industrial
pollution have resulted in a much cleaner environment than at one point in time. Since the
oil shocks, too, priority has been placed on improving energy efficiency, promoting the
advance 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 OECD
countries between 1990 and 1998 reveals that where the share of the industrial sector
shrank from 33.7 to 29.0 percent, transport rose from 31.1 to 34.5 percent, and residential
from 18.3 to 19.1 percent (Figs. 3.3.10, 3.3.11). This is thought to be the result of the
higher standards of living which economic growth has allowed, as well as motorization
and the growing popularity of televisions, air conditioners and other household electric
appliances (Fig. 4.1.7). In the industrial sector, corporate cost-awareness in regard to

   Then-German Chancellor Helmet Kohl’s request to then-UK Prime Minister John Major during the
1995 Halifax Summit to cease deep-sea dumping is also said to have had an effect.
   According to an article in the Asahi Shimbun (March 4, 2000), the concern expressed in reports by
UNESCO and other organizations over the way in which the proposed development project would
transform the landscape shaped Mitsubishi’s decision, as well as the prospect of the corporate image
being tarnished.
   ESSA, the industrial salt company which was conducting the saltworks expansion project, is a joint
venture between the Mexican government and Mitsubishi.
   For example, the “corporate watch” (, or the Japanese version at undertaken by the Transnational Resources & Action Center (TRAC), an
American NGO.

                      Figure 3.3.10 Final energy consumption of OECD countriesby sector
              0%             10%       20%          30%             40%       50%        60%       70%        80%         90%        100%



              Industry          Transport            Agriculture             Comm. and            Residential          other

                 Note: For the sake of comparison, OECD countries here are the 24 belonging to the OECD
                 in 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).

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

                             OECD countries                                                                    Japan
・ %・                                                                              ・ %・
  4                                                                                 8

  3              Growth rate on previous year                                       6

  2                                                                                 4

  1                                                                                 2

  0                                                                                 0

・ 1                                                                               ・ 2

・ 2                                                                               ・ 4
               Industry                          Transport
               Agriculture                       Comm . and publ. services
・ 3            Residential                       Other                            ・ 6
       1991   1992     1993     1994     1995     1996       1997      1998 (Y)          1991   1992   1993   1994   1995     1996    1997   1998 (Y)

                             The United States                                                          The United Kingdom
・ %・                                                                              ・ %・
  4                                                                                 8
  0                                                                                 2

・ 1                                                                                 0
・ 2
                                                                                  ・ 2
・ 3
                                                                                  ・ 4
・ 4
・ 5                                                                               ・ 6
       1991   1992     1993     1994     1995     1996       1997      1998 (Y)          1991   1992   1993   1994     1995   1996    1997   1998 (Y)

                                   France                                                                     G erm any
・ %・                                                                              ・ %・
 10                                                                                 5

  8                                                                                 4
                                                                                  ・ 1
・ 2                                                                               ・ 2
・ 4                                                                               ・ 3
・ 6                                                                               ・ 4
       1991   1992     1993     1994     1995     1996       1997      1998 (Y)          1991   1992   1993   1994     1995   1996    1997   1998 (Y)

Note: OECD countries here are those given in Fig. 3.3.10.
Source: Energy Balances of OECD Countries (International Energy Agency).

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

 (b) Waste issue becomes increasingly severe
    Dealing with the waste created by a mass-production, mass-consumption economic
 system is also becoming an increasingly important issue for developed countries. In the
 case of Japan, waste-related issues include constraints in terms of final disposal sites and
 an accompanying rise in disposal costs, which in turn is leading to more serious illegal
 dumping and environmental pollution (Figs. 3.3.12, 3.3.13). In terms of general waste, not
 only are recycling rates too low (11.0 percent in FY1997, whereas the recycling rate for
 industrial waste was 42.4 percent), but Japan also has to work on reducing the amount of
 waste created (Fig. 3.3.14). In addition to promoting recycling and reusing, measures are
 now being instituted to prevent the creation of waste based on an extended producer
 responsibility42 approach. For example, the Law for Recycling of Specified Kinds of
 Home Appliances (which went into force in April 2001), obligates manufacturers to take
 back and recycle their refrigerators, washing machines, televisions and air conditioners,
 retail outlets to take back these machines from consumers and pass them on to
 manufacturers, and consumers to pay disposal costs. Bringing into focus disposal costs
 which were previously shouldered by local authorities is hoped to encourage
 manufacturers to develop products which are cheaper to dispose of (more easily recyclable
           Figure 3.3.12 Trends in new construction of final disposal sites for industrial waste and remaining capacity

(No. of new
                                     N o. of new licenses                                                                               Remaining capacity
 licenses)                                                No. of new licenses
                                                                                                       (M illion m )
200                                                                                                    250
                                                          New licenses under the amended                       210.7       212.3       209.8       207.7       210.0
                                                          Waste D isposal Law
150                                                                                                    200
              137                                129               130                                                                                                     157.9
100                                                                                                                                                                                     107.6
 50                                                                                   26
                                                                                19                      50
  0                                                                                                      0
           1995              1996              1997               1998               1999 (FY )               1993         1994        1995        1996        1997        1998       1999 (FY)
     Note: g Ne licenses under the amended Waste La w h refers to t h n um o
  Note: “Newwli ce ns es under t he a me nde d W e Ds pos al Disposal Law” refers to nthel inumber
                                                ast   i                        e    ber f   ew c ens
                                                                                                           N FY1998 and FY1999 data estimates.
                                                                                                        Note: ote: FY1998 and FY1999data areare estimates.
      new licenses authorized under the amended New licenses under the went
  of authorized under the am ended New licenses under the am ended Waste Disposal Law, which amended       S ource: Sangyou ha iki-bustu no haishutu oyobi shori shori joukyou tou ni tsuite (Heisei
                                                                                                        Source: Sangyou haiki-bustu no haishutu oyobijoukyou tou ni tsuite (Heisei 9 nendo jisseki) 9
     into fo rce in Jun eLaw, which went into force in June 1998.
  Waste Disposal         199 8.                                                                         nendo jisseki) Health and Welfare).
                                                                                                           (M inistry of
     Source: Sangyou haiki-butsu n o haishutu oyobi shori joukyou to ni tsuite tou ni tsuite (Heisei
  Source: Sangyou haiki-butsu no haishutu oyobi shoriujoukyou(Heisei 9 nendo jisseki) 9                 (Ministry of Health and Welfare).
     (Ministry of H
  nendo jisseki) ealth and W elfare).
  (Ministry of Health and Welfare).

    A system designed to promote energy-saving in offices and homes by measuring the amount of
 electricity, gas and water used by households and the amount of power consumed by offices and
 transmitting this data wirelessly to a monitor, which converts the data to money units and displays the
 results. 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.
    This approach makes manufacturers responsible for the environmental impact of their products not
 only in terms of performance, but from production through to disposal (environmental impact of choice
 of raw materials, production stage, utilization stage and disposal). (Environment Agency [1997],
 Dictionary for Global Environment [Third Edition], p.139)

                       Figure 3.3.13 Trends in number of cases and volume of illegal dumping of industrial waste
                   Cases                                                                                                                                         10,000 tons
                 1,400                                                                                                                                                    70
                                                Volume dumped (right scale)
                 1,200                                                                                                                                                             60
                                                No. of dumping cases (left scale)
                 1,000                                                                                                                                                             50

                    800                                                                                                                                                            40

                    600                                                                                                                                                            30

                    400                                                                                                                                                            20

                    200                                                                                                                                                            10

                        0                                                                                                                                                          0
                                      1993                   1994                    1995                   1996                     1997                     1998           FY
                               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 3.3.14 Trends in total waste emission volume and recycling rates
                                    W aste emission volume                                                                                  Recycling rates
     (10,000 tons)                                                               (g/person/day)      (% )
     5,500               Total amount (left scale)                                       1,400       50              Recycling rate for industrial waste

      5,000                                                                               1,300
      4,500                                                                               1,200
                                       Daily amount per capita (right scale)                         20                                                         W aste recycling rate
      4,000                                                                               1,100      10

      3,500                                                                               1,000       0
               1989 1990 1991 1992 1993 1994 1995 1996 1997 ・ FY ・                                           1990       1991       1992       1993       1994       1995      1996       1997 (FY)
                                                                                                        N otes:
               N ote: W aste em volume = = volum of collected w aste + + directly transported
      Note: Waste emission ission volumevolume e ofcollected wastedirectly transported waste waste       Waste recycling = (v = (volume bulk collection volum e)/(total waste disposal volume waste
                                                                                                     1. 1. Waste recy cling rate rate olume re-used + re-used + bulk collection volume)/(total + bulk
               volum e + of waste processed by households.
      volume + volumevolum e of waste processed by households.                                       disposal volume + . bulk collection volume) .
                                                                                                        collection volume)
      Source: So urce: Heisei 9 nendo noippan haiki-butsu no haishutu oyobi shori jou kyou tou ni
               Heisei 9 nendo no ippan haiki-butsu no haishutu oyobi shori joukyou tou                   Recycling and reuse rate for waste = volume of aste recycled of waste recycled
                                                                                                     2. 2. Recycling and reuse rate for industrialindustrial wastew = volume and reused/total em issionand
                 (Ministry of of Health and W elfare).
      nitsuite tsuite (Ministry Health and Welfare).                                                    volum e .
                                                                                                     reused/total emission volume .
                                                                                                        Sources: H eisei nendo n o no haiki-butsu no haishutu haishutu oyobi shori joukyou tou
                                                                                                     Sources: Heisei9 9 nendo ippa nippan haiki-butsu nooyobi shori joukyo u tou ni tsuite ; Sangyou ni
                                                                                                        haiki-butsu no haishutu oyobi sho ri haishutu ni tsuite (M inistry of H ealth ni tsuite
                                                                                                     tsuite; Sangyou haiki-butsu no jou kyou tou oyobi shori joukyou touand W efare).(Ministry of
                                                                                                     Health and Wefare).

   In Europe too, where steady progress is being made with recycling legislation, Germany
has been a forerunner, creating, for example, a national collection system carried out by
Duales System Deutschland (DSD) through Packaging Ordinance formulated in 1991.
DSD charges extremely high collection fees as a means of encouraging companies to
reduce their packaging, and now collects more than 80 percent of the packaging materials
used by households and small companies43. The success of this system is said to have
affected 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 Asian
countries and other parts of the world experiencing rapid industrialization and urbanization
are having to deal simultaneously with industrial pollution, urban pollution and global
environmental issues. In low-income countries, on the other hand, a vicious circle is often
in place whereby the environment is being destroyed in the pursuit of immediate profit in
order to break free of poverty, which is in fact creating more poverty. In this situation,

     JETRO (1999), pp. 18-19.

          Figure 3.3.15 Comparison of added-value composition                                                                 Figure 3.3.16 Urban populations of selected Asian
                       of selected Asian countries                                                            (Millions)                          countries                                                           (%)
100%                                                                                                          500                                                                                                     100
                                          Services                                                                                          Urban populations (left scale)
  80%                                                                                                         400                           % of population residing in urban areas (right scale)                     80

  60%                                                                                                         300                                                                                                     60
  40%                                                                                                         200                                                                                                     40
  20%                                                                                                         100                                                                                                     20
    0%                                                                                                             0                                                                                                  0
            1980 1998       1980 1998        1980 1998        1980 1998        1980 1998        1980 1998              1980 2000      1980 2000         1980 2000        1980 2000       1980 2000       1980 2000
             China         Indonesia         Malaysia        Philippines       Thailand          India                  China         Indonesia         Malaysia     Philippines         Thailand         India
                                                                                                                       Note: Figures for 2000 are estimates.
 1. % of GDP.
                                                                                                                       Source: World Urbanization Prospects: The 1996 Revision (United Nations, 1998).
 2. “Industry” here includes mining, manufacturing, construction, and electricity, gas and water supplies.
 Source: World Development Report (World Bank)

         Figure 3.3.17 No. of cars owned in selected Asian countries                                                       Figure 3.3.18 CO2 emissions in selected Asian countries
(10,000 cars)                                                                           (No. of cars)               (Million tons)                                                                                (Tons)
1,400                                           Total (left scale)                                350              4,000                                                   Total (left scale)                          8
1,200                                           Per 1,000 persons (right scale)                        300         3,500                                                   Per capita (right scale)                    7
1,000                                                                                                  250         3,000                                                                                               6
                                                                                                                   2,500                                                                                               5
 800                                                                                                   200
                                                                                                                   2,000                                                                                               4
 600                                                                                                   150
                                                                                                                   1,500                                                                                               3
 400                                                                                                   100         1,000                                                                                               2
 200                                                                                                   50            500                                                                                               1
     0                                                                                                 0               0                                                                                               0
                                                                                                                             1980 1996      1980 1996        1980 1996       1980 1996       1980 1996      1980 1996
            China        Indonesia        Malaysia       Philippines Thailand               India                             China         Indonesia       Malaysia Philippines            Thailand          India
         Source: Automotive Statistics of Major Countries (Japan Automobile                                                   Source: World Development Report (World Bank).
                Manufacturers Association), Monthly Bulletin of Statistics (UN).

increasing the effectiveness of environmental protection measures requires conformance
with environment laws as well as development of the necessary infrastructure for
decreasing 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, is
the simultaneous emergence of industrial pollution as a result of swift industrialization, the
urban pollution accompanying urban population concentration and motorization, and
global environmental issues. Comparing the industrial structures (ratio of added value in
GDP composition) of China, India and the ASEAN 4 in 1980 and 1988, there has been an
obvious 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 also
reveal steep rises (Figs. 3.3.16, 3.3.17). At the same time, this industrialization and
urbanization is causing severe air and water pollution problems and waste problems, while
also boosting energy consumption and CO2 emissions (Fig. 3.3.18).

  As Japan and other developed countries experienced these problems individually rather
than simultaneously, it was possible to design countermeasures for each. Developing
countries, 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 environmental
destruction. As income increases fail to keep pace with rural population growth, creating

further poverty, conversion of forest to farm land44, slash-and-burn farming and illegal
logging are causing deforestation, soil erosion and destruction of the eco-system. Those no
longer able to eke a living in the countryside drift into the cities, forming the urban poor
and creating slums. The greater urban population aggravates air and water pollution, with
city peripheries developed for new housing. In rural areas, meanwhile, slash-and-burn
farming and conversion of forest to fields accelerates to compensate for the falling
productivity of developed farmland, destroying forests.

   Simply explaining the importance of environmental protection is unlikely to have much
effect in such countries. As noted in the previous section in the context of eliminating
poverty, the vicious circle of poverty and environmental destruction needs to be alleviated
or broken by developing the socioeconomic infrastructure to accumulate capital and
human 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 design
environment-related legislation (Fig. 3.3.19). Laws establishing the basic principles for
environmental protection policies, regulations on air and water emissions, and laws on
waste and toxic substances are virtually all in place, while some countries established
environmental impact assessment systems even before Japan. Environmental
administration organizations have also been set up at national level. These moves have
been in response to: (1) increasingly severe domestic pollution and environmental
problems; (2) growing concern over global environmental issues; and (3) increased
awareness of the importance of environmental risk management.

   However, while the necessary legal systems might be in place, their enforcement
remains an issue. Poor enforcement can be explained by: (1) delays in formulating
enforcement orders for the new legislation; (2) limited awareness on the part of politicians
and administrators; and (3) a lack of monitoring equipment and inadequate maintenance45.
In addition, compared to developed countries, developing countries lack the necessary
budget and personnel to implement their environmental policies. Fig. 3.3.20 compares
environment-related budgets in Asia (China, India, Indonesia, Malaysia, Thailand, and
Vietnam), Japan and the US. While a straight comparison is impossible because of the
differing extent to which local governments in different countries have the power to design
and implement environmental policies, the trend seems to be that the higher the per capita
GNP (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 investment
in developing countries. In the 1970s, Japan sought to boost both productivity and

   According to Kobayashi (1992), the problem lies not so much in the actual conversion to farmland as
the conversion to farmland of forest areas unsuitable for this purpose.
   Other issues affecting the situation include standards set beyond countries’ ability to fulfill, too many
agencies involved in environment policy, inadequate liaison among the related agencies, and the
considerable power of industry and energy policy agencies.

                            Figure 3. 3.19     Key environmental laws in selected Asian countries
                  China                                       Indonesia                                 Malaysia

                                             1967 Basic Forestry Law
                                                  Mining Law
                                             1972 Establishment of the National        1972 Protection of Wildlife Act
                                                  Envieonment Committee
                                             1973 Regulation on water pollution in
                                                  mining and energy
                                                  Regulation on Pesticide
                                             1974 Irrigation Law                       1974 Establishment of the Ministry of
                                                                                            Science, Technology and Environment
                                                                                            Environment Quality Act
                                                                                       1975 Establishment of the Environment

                                          1978 Establishment of the Ministry of        1978 Environmental Quality (Clean Air)
                                               Development and Environment                  Regulations
1979 Environmental Protection Law (trial)      Prevention of factory-sourced           1979 Environmental Quality (Sewage and
                                               pollution                                    Industrial Effluents) Regulations

1982 Marine Environment Protection Law       1982 Establishment of the Ministry of
                                                  Population and Environment
1984 Water Pollution Law                          Basic Environment Management Law 1984 National Forest Conservation Law
     Forest Law                              1985 Establishment of the Ministry of    1985 Amendment of Environmental Quality
                                                  Population and Environment               Act (Introduction of EIA)
                                                  Regulations on forest conservation       Environmantal Quality (Control of
1986 Fishery Law                             1986 Regurations on environment impact        Lead Concentration in Motor Vehicle
     Mining Resources Law                         assessment                               Noise) Regulations
1987 Air Pollution Law                                                                1987 Environmental Quality (Motor Vehicle
                                                                                           Noise) Regulations
                                                                                           Environmental Quality (EIA) Order
1989 Environmental Protection Law                                                     1989 Environmantal Quality (Scheduled
                                                                                           Wastes) Regulations
                                             1990 Establishment of BAPEDAL
                                                  Natural resources and ecosystems
                                                  conservation Law
                                                  Regulations on water pollution
1991 Water and Soil Concervation Law         1991 Regulations on rivers
                                                  Regulations on wetlands
                                             1993 Appointment of the Minister of the
                                                  Establishment of Environmrnt
                                                  Management Center
                                                  Regulations on environmental impact
                                             1994 Establishment of the Ministry of
1995 Amendment of Air Pollution Law               Environment                         1995 Privatization of Air Monitoring
1996 Amendment of Water Pollution Law             Regulations on hazardous wastes     1996 Amendment of Environmental Quality
     Law on Pollution by Solid Waste                                                       Act (punishments strengthened)
                                                                                           Environmental Quality (emissions
                                                                                           from vehicles running on gasoline)
                                                                                           Environmental Quality (emissions
                                                                                           from diesel vehicles) Regulations
1997 Noise Control Law                       1997 Environment Management Law          1997 Operation of industrial waste disposal
                                                                                           facilities launched
                                                                                           Environmental Quality (sewage,
                                                                                           industrial wastewater) Regulations
                                                                                      1998 Amendment of Environmental Quality
                                             1999 Air Pollution Law                        Act (prohibition of field burn-off)
2000 Amendment of Air Pollution Law
Source: METI research.

                Philippines                                  Thailand                                       India
                                                                                        1948 Factory Act
                                                                                        1951 Industry Act
1964 Establishment of National Water and
     Air Pollution Control Commission        1967 Minerals Act
     RA3931                                  1969 Factory Act
                                                                                        1972 Wildlife (Protection) Act

                                                                                        1974 Water (Prevention and Control of
                                                                                             Pollution) Act

                                             1975 Establishment of National
                                                  Environmental Board                   1976 The 42nd Amendment of Constitution:
                                                  Improvement and Conservation of            [Central government and other public
                                                  National Environmantal Quality Act         authorities have obligation to protect
                                                                                             the environment, the public obligate to
                                                                                             conserve the environment]
1977 PD1151 Philippine Environmental                                                    1977 Water (Prevention and Control of
     Policy                                                                                  Pollution) Cess Act
     PD1152 Philippine Environmental

                                                                                        1980 Forest (Conservation) Act
                                             1981 Policies and Measures on National     1981 Air (Prevention and Control of
                                                  Environmental Development                  Pollution) Act

                                                                                        1985 Establishment of the Ministry of
                                                                                             Environment and Forests

1986 Secured "environmental rights" in the                                              1986 Environment (Protection) Act
     new Constitution
1987 Establishment of Department of                                                     1987 Air (Prevention and Control of
     Environment and Natural Resources                                                       Pollution) Amendment Act
                                                                                        1988 Automotive Act
                                                                                        1989 Water (Prevention and Control of
                                                                                             Pollution) Amendment Act
1990 Law on Hazardous Substances and
     Nuclear Wastes

                                                                                        1991 Public Liability Insurance Act
                                             1992 Establishment of the Ministry of
                                                  Science, Technology and Environment
                                                  Enhancement and Conservation of
1999 Clean Air Act                                National Environmental Quality Act
                                                  Factory Act
                                                  Hazardous Substance Act
                                                  Public Health Act

                                                                                        1995 National Environment Tribunal Act

                      Figure 3.3.20 Environment-related budgets in selected Asian countries

                                     Per Capita GNP     Per Capita Environment-
                                    (US$/PPP Value)      related Budget (US$)
                     China                        3,291                    8.45
                     India                        2,149                    0.10
                     Indonesia                    2,439                    0.02
                     Malaysia                     7,963                    0.94
                     Thailand                     5,599                    2.16
                     Vietnam                      1,690                    0.38
                     Japan                       24,041                   48.45
                     US                          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).

environment-related investment as a means of preventing pollution and saving energy,
contributing to subsequent development. From this experience, it would seem important to
introduce appropriate environment technology and use market mechanisms to institute
self-sustaining environment investment, attending simultaneously to lightening the
pollution 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 technology
support policies in regard to the introduction of environment equipment and technology.
However, their efforts have not always produced the desired results due to different
perceptions of environmental issues on the part of management and floor staff, low fine
levels, and mismatching between measures and the financial and technological capacities
of small local companies46.

   To update old production facilities into resource- and energy-saving facilities using
environment-friendly technology47 which emits fewer pollutants, the savings resulting
from facility investment need to outweigh the investment cost. Measures providing
companies with the incentive to make this kind of investment include low-interest
financing and energy price reviews. Developing the socioeconomic infrastructure is also
important, such as developing the personnel to operate and maintain the machinery,
fostering the industries which will provide replacement parts, and providing economic
incentives for using the by-products created by environmentally-friendly technology (for
example, the gypsum and heat emerging from desulfurizers). Moreover, smooth
dissemination of the technology introduced will hinge on the parties providing the
transfers (developed-country governments and companies) ensuring that the technology or
machinery is specifically geared to suit conditions in the recipient developing countries.

   Economic Cooperation Department, International Trade Policy Bureau, MITI (1997), Chapter2,
Section 1.
   “Cleaner production” or “cleaner technology”, one example of which is Japan’s energy-saving
technology. UNEP is in the process of creating a framework for this technology.

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

   To encourage ESCO development, developing countries need to review any of their
systems 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 of
the need to provide cheap energy to the poor and to remote areas. However, subsidies for
petroleum 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 to
consider gradually lowering subsidies and raising cost-awareness in terms of energy
consumption, while also exploring a shift to other support tools such as income subsidies
for the poor.

   The World Bank conducted a study in Russia and 19 developing countries which
compared fossil-fuel related subsidies in 1990-91 and 1995-9649, revealing that subsidy
rates 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 1995-96
                     Fuel type                              Subsidy rates (%)                                  Total subsidies
                                 Petroleum products   Natural gas           Coal         Total     (US$ million, 1995)     % of GDP
 Country/region                  1990-91 1995-96 1990-91 1995-96 1990-91 1995-96 1990-91 1995-96 1990-91 1995-96 1995-96
Asia             China                  55        2    n.a.       n.a.      37     29        42      20 24,545 10,297            2.42
                 India                  21      15     n.a.       n.a.      32     27        25      19   4,250      2,663       1.06
                 Indonesia              28      21      43         17      n.a.   n.a.       29      21   2,071      1,333       0.92
                 Korea                   0     n.a.    n.a.       n.a.     n.a.   n.a.         0      0       42        12       0.00
                 Thailand               10        9    n.a.       n.a.     n.a.   n.a.       10       9      524       459       0.37
Eastern Europe Bulgaria                 43      24      27         23       65     33        54      29   2,003        733       7.05
                 Czech Republic                   0     39         29       29     28        24      22   1,173        978       2.96
                 Hungary                 2        2     28         34      n.a.   n.a.       13      16      548       560       1.47
                 Poland                 28        1     40          6       63     26        50      18   4,653        169       1.97
                 Rumania                27        2     64         54       80     33        54      37   4,743      1,876       7.24
Latin America Argentina                  4        3     24          3      n.a.   n.a.       12       3      659       150       0.06
                 Brazil                 26        0    n.a.       n.a.     n.a.   n.a.       26       0   2,193         11       0.00
                 Mexico                 32      12      31         39      n.a.   n.a.       32      16   5,403      2,271       0.66
                 Venezuela              70      55      86         85      n.a.   n.a.       76      66   3,455      2,397       4.00
Other            Egypt                  50      33      70         56      n.a.   n.a.       55      40   2,299      1,336       3.39
                 Iran                   88      77      82         75      n.a.   n.a.       86      77 13,076       9,622       8.68
                 Nigeria                60      38     n.a.       n.a.     n.a.   n.a.       60      38      928       592       1.87
                 Saudi Arabia           63      28      76         61      n.a.   n.a.       66      34   3,837      1,720       1.42
                 South Africa            8        6    n.a.       n.a.      20    n.a.       12       4      981       367       0.31
Russia                                  38      16      67         42       48     25        45      31 28,797       9,247       1.50
OECD                                   n.a.    n.a.    n.a.       n.a.     n.a.   n.a.      n.a.    n.a. 12,453      9,890       0.05
Total                                   36      16      58         44       57     44        45      28 118,632 58,385           0.27
Source: Table 4.3 (World Bank, 1997).

     KAESCO (2000).
     World Bank (1997).

around 30 to 60 percent of the 1990-91 figure. Fuel subsidies therefore seem to be
decreasing in the Asian countries, but in some instances, prices still heavily undercut the
international price, such as Indonesia’s official price for regular gasoline (1,150 rupiahs, or
around 15 yen)50. When the Asian currency crisis occurred in 1997, the IMF recommended
to 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 petroleum
products and electricity toward subsidy elimination was included in the financial
assistance program agreed in October that year52. The program was subsequently subject to
a number of alterations. The September 2000 Memorandum on Economic and Financial
Policies announced that the Indonesian government would (1) reduce and review fuel
subsidies, and (2) prepare a medium-term plan to eliminate fuel subsidies and raise
electricity prices to a commercially sustainable level53. This kind of systemic review is an
urgent issue in terms of instituting environment-related investment using market

(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 to
reduce the environmental burden are becoming increasingly important. Regional
environmental cooperation is gathering momentum in East Asia54 and elsewhere for
reasons such as the following: (1) resolving and preventing cross-border air and sea
pollution and the transboundary movement of hazardous waste necessitates cross-border
cooperation; (2) handling natural resource management and prevention of environmental
deterioration is more rational on a regional basis (global efforts would be too wide while
national efforts would not be adequate); and (3) the emergence of regional groupings has
necessitated formation of common environmental policies and standards55.

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

   Price per liter as of March 1, 2001.
   Fuel subsidies comprise around 13 percent of government spending in the FY2001 budget (State
Budget 2000 and 2001, Ministry of Finance).
   Indonesian Letter of Intent, October 31, 1997 (
   Indonesian Letter of Intent and Supplementary Memorandum on Economic and Financial Policies,
September 7, 2000 (
   “East Asia” here follows the regional classification used by Takahashi (2000 b), including both
Northeast (China, Japan, North Korea, South Korea, Mongolia, the Russian Far East, and Taiwan) and
Southeast Asia (ASEAN members) .
   Takahashi (2000a, b).
   See Takahashi (2000a, b) on environmental cooperation at the sub-regional level.

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

   One example of cooperation on specific environmental issues is the Acid Deposition
Monitoring Network in East Asia (EANET), proposed by Japan57. EANET was fully
launched in January 2001 (continuing on from its trial operation period, with 10 countries
participating58), aiming to create mutual understanding among the East Asian countries on
the acid rain issue and to develop the infrastructure to prevent acid rain from impacting on
human health and the environment. Other Asia-Pacific and Northeast Asian efforts include
the Asia-Pacific Migratory Waterbird Conservation Strategy59, which promotes the
protection of biodiversity, and the Northwest Pacific Action Plan (NOWPAP)60, which
protects the ocean environment in the Sea of Japan and the Yellow Sea.

   East Asian regional economic cooperation has, therefore, with the exclusion of
frameworks established by international organizations, only just begun. The diversity of
economic levels and political systems in the region will also present numerous challenges
in 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 at
international fora. However, it is not proving easy to build international consensus given
differences in the stances of developed and developing countries, as well as differences
even among developed countries as to whether a regulatory approach should be adopted or
the emphasis placed on voluntary efforts by companies.

   One example of a global warming issue which has attracted attention in recent years is
the way in which developed countries will implement the greenhouse gas emission
reduction targets to which they agreed at the 1997 COP 3 meeting, an issue which is still
under negotiation. Numerous hurdles have to be overcome in creating global warming
countermeasures, including reification of the Kyoto Protocol (emission trading, joint
implementation, the clean development mechanism), measures to deal with countries
which do not fulfill their commitments, sinks, developing country participation, and
technology transfer (division of roles between developed and developing countries,
creation of new investment mechanisms, etc.). With the exception of those countries which
could be seriously affected by rising sea levels, developing countries have tended to be
rather disinterested in the global warming issue, with the strong sense that developed
countries should lead the way as the instigators of the problem61. However, given ongoing

   Japan’s advocacy of this kind of regional environmental cooperation is said to have been spurred by
efforts in Europe as of the 1970s. (Yasnari and Yonemoto [1999], p. 127, and Takahashi [2000b]).
   China, Indonesia, Japan, Malaysia, Mongolia, the Philippines, South Korea, Russia, Thailand and
   Aims to protect migratory birds and their habitats in the Asia-Pacific through government-NGO
   Part of UNEP’s Regional Seas Programme. Adopted by Japan, China, South Korea and Russia in
   Developed and developing country responsibility for environment issues was an issue also debated at

                                      Figure 3.3.22 Final energy consumption and CO2 emissions up to 2020

                          Final energy consum ption                                                                 CO 2 emissions
 (M illion tons of oil equivalent)                                                      (M illion tons)
             M iddle East                                                               40,000
 9,000       Latin Am erica
             South Asia
 8,000       East A sia
             Transition economies                                 Dev elop in g         30,000
 7,000       OECD                                                  c oun tries                                                                       D eveloping
                                                                                        25,000                                                        countries
 5,000                                                                                  20,000
 4,000                                                                                  15,000
     0                                                                                       0
     1971                    1997             2010             2020 (Year)                    1971              1997             2010            2020 (Year)

             〈Share of Final Energy Consumption〉                                                           〈Share of CO2 Emissions〉
                                                                (%)                                                                                (%)
  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      39.6
Developing                                                                              Developing
Countries               30.5           43.7          49.4      54.9                     Countries            35.0         49.2          55.1      60.4

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

industrialization and population growth in the developing countries, greenhouse gas
emission reductions by developed countries alone will have limited effect. Fig. 3.3.22
shows the IEA’s projections for the energy consumption and CO2 emissions of OECD
members and developing countries by 2020. Where the OECD countries accounted for
around 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 greater
part of final energy consumption and CO2 emissions.

   As for the impact of global warming on developing countries, the contribution of
Working Group II to the Third Assessment Report of the IPCC62 (Summary for Policy
Makers), published in February 2001, suggests how developing countries could be affected.
For example: (1) the ability to respond to climate fluctuations is determined by conditions
such as national and regional economic position, technology, education, information and
infrastructure, with developing countries generally poorly equipped and therefore highly
vulnerable; (2) any rises in average temperature will mean a net economic loss for many
developing 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 concludes
that international cooperation and coordination is particularly vital in not only handling
such research issues as quantitative evaluations of the sensitivity, adaptability and
vulnerability of natural and human systems to climate change, but also in evaluating the
regional 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 Declaration
adopted by the conference includes reference to “common but differentiated responsibility”.
   The Intergovernmental Panel on Climate Change (IPCC) has three working groups. WG1 assesses
scientific information on climate change, WG2 assesses the environmental and socioeconomic aspects
of climate change, and WG3 formulates response strategies.

this, including monitoring, evaluations, data collection, education and training for
developed countries. As noted earlier, while negotiations are underway on various points
of issue in the Kyoto Protocol, creating a framework which will effectively reduce the
greenhouse gas emissions of not only developed but also developing countries will be
critical 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 could
become constraints to sustained growth, the upsurge in recent years of voluntary corporate
efforts to protect the environment, and areas in which policy responses will be necessary.

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

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

   However, policy responses are still needed particularly in those areas where market-
based mechanisms do not provide sufficient motivation for environmental protection. Such
areas include developed country issues (energy-saving in the transport and non-industrial
sectors, waste disposal), developing country issues (the simultaneous emergence of a
number of environmental problems, the vicious circle of poverty and environmental
deterioration), and wide-ranging environmental issues (acid rain, global warming, etc.).
Developed countries are working to introduce self-sustaining mechanisms for dealing with
these issues, but most developing countries are not producing adequate results, lacking the
human, technological and financial resources needed to implement environment-related
measures. Firmly establishing self-sustaining environmental protection efforts in
developing countries will mean ensuring the enforceability of environmental laws and also
providing incentives for environment-related investment. Further, while developing
countries are not currently particularly interested in the global warming issue, the
likelihood of industrialization and population growth in the years ahead, and the major
impact which global warming is eventually expected to have, international cooperation
will be essential not only in the formation of appropriate international rules, but also in
assistance of monitoring and data gathering, human resources development, and the further
promotion of technology transfer. Ensuring that the 21st century is truly the “century of the
environment” will rest on the development of international rules and domestic

environment-related laws and mechanisms for the enforcement of these, as well as the
creation of self-sustaining environmental protection by organically combining economic
measures such as environment taxes, levies and deposit systems with voluntary corporate

Column 6 :Brent Spar incident

   The “Brent Spar” was a massive buoy used in the North Sea oil fields from 1976 to
1991. Crude oil drilled from a North Sea oil field was carried by pipeline to the Shetland
Islands in the United Kingdom, and taken by tanker from there to oil refineries.

   Royal Dutch Shell (below, “Shell”) and independent external organizations studied
means of decommissioning the Brent Spar from 1991 to 1993, concluding that deep-sea
disposal would be less risky and costly than on-shore disposal. Shell accordingly
submitted a deep-sea dumping plan to the Department of Trade and Industry in December
1994. In February 1995, the UK government decided to approve the Shell plan, and
informed the EU and EU members of this decision.

   On 30 April, Greenpeace activists occupied the Brent Spar in opposition to the deep-sea
disposal, claiming that the oil storage rig was to be dumped without first removing residual
oil and toxic substances. The occupation was terminated on 23 May, but Greenpeace
appealed 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 which
was being held at the time, then-German Chancellor Helmut Kohl even asked then-UK
Prime Minister John Major to reconsider the deep-sea disposal. On 20 June, Shell
announced that the plan had been abandoned on the grounds of a changed political
situation in Europe, the greater risk from violence by opponents, and the need for more
detailed discussion.

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

  The Brent Spar incident involved a company attempting to dispose of a maritime facility
in line with a plan approved by the government, meeting with a boycott arranged by
NGOs, and, further, being pressured by not only ordinary consumers but also other EU
members to reconsider the plan, with the result that the company was forced to abandon
the 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, and
particularly the disclosure of information to civil society and dialogue with NGOs.

Yonemoto, Shohei (1996), “Greenpeace as a Political Power”, Kaigai Jijo, No. 44, Vol. 1,
   Institute of Foreign Information, Takushoku University)
Royal Dutch/Shell website (,4010,25268,00.html)
Greenpeace website (

Column 7 :Mexican saltworks incident

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

   In 1995, Grupo de Los Chien, a Mexican environmental protection group, protested
against ESSA’s development plan, followed by American environmental NGOs the
Natural 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 groups
began a protest campaign, running campaign advertisements in newspapers and on
television and setting up a website on the Internet to appeal for the protection of the
Laguna San Ignacio ecosytem.

   Laguna San Ignacio was designated a World Heritage site by UNESCO in 1993, but the
area where ESSA planned to develop the new salt plant was in a buffer zone (the area
around the central zone of a wildlife protection area, where all industrial activities are
prohibited). The saltworks had been allowed to operate on the condition that it had no
impact on the ecosystem of the central zone. ESSA therefore commissioned environmental
impact assessments from Universidad Autonoma de Baja California Sur and the Scripps
Institution of Oceanography in September 1997. In December 1999, the UNESCO World
Heritage Committee announced that scientific data indicated that nursery conditions were
not threatened and that the number of whales was increasing, but did express concern over
large-scale transformation of a World Heritage site.

   In March 2000, then-President Ernesto Zedillo announced suspension of the plan in
order to protect the landscape and the ecosystem of a World Heritage site. The NRDC
touted the decision as “a triumph of an empowered citizenry over one of the world’s
most powerful companies”, and noted that “through e-mails and newspaper ads, we were
able to galvanize people all over the world”. In that sense, the Laguna San Ignacio incident
is a good example of NGO networking.

ESSA website (
“Whale Nursery saved: Coalition stops Mitsubishi from building a saltworks at Laguna
   San Ignacio” (
“The whale sanctuary of El Viscaino in Mexico inscribed on the UNESCO World Heritage
   list since 1993” (
“El Viscaino whale sanctuary: President of Mexico announces decision to halt saltworks
   project at World Heritage site” (


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