Trade and Sustainable Development Goal (SDG) 15: Promoting "Life on Land" through mandatory and voluntary approaches

Andrew, Dale Working Paper Trade and Sustainable Development Goal (SDG) 15: Promoting "Life on Land" through mandatory and voluntary approaches ADBI Working Paper, No. 700 Provided in Cooperation with: Asian Development Bank Institute (ADBI), Tokyo Suggested Citation: Andrew, Dale (2017) : Trade and Sustainable Development Goal (SDG) 15: Promoting "Life on Land" through mandatory and voluntary approaches, ADBI Working Paper, No. 700, Asian Development Bank Institute (ADBI), Tokyo This Version is available at: https://hdl.handle.net/10419/163199 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0/igo/ ADBI Working Paper Series TRADE AND SUSTAINABLE DEVELOPMENT GOAL 15: PROMOTING “LIFE ON LAND” THROUGH MANDATORY AND VOLUNTARY APPROACHES Dale Andrew No. 700 March 2017 Asian Development Bank Institute The Working Paper series is a continuation of the formerly named Discussion Paper series; the numbering of the papers continued without interruption or change. ADBI’s working papers reflect initial ideas on a topic and are posted online for discussion. ADBI encourages readers to post their comments on the main page for each working paper (given in the citation below). Some working papers may develop into other forms of publication. Suggested citation: Andrew, D. 2017. Trade and SDG 15: Promoting “Life on Land” through Mandatory and Voluntary Approaches. ADBI Working Paper 700. Tokyo: Asian Development Bank Institute. Available: https://www.adb.org/publications/trade-and-sustainable-development-goal-15 Please contact the author for information about this paper. Email: [email protected] Dale Andrew is an international economist, recently retired from the Organisation for Economic Co-operation and Development (OECD) where he was Head of the Environment Division in the Trade and Agriculture Directorate. The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, ADB, its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB official terms. Working papers are subject to formal revision and correction before they are finalized and considered published. Asian Development Bank Institute Kasumigaseki Building, 8th Floor 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan Tel: +81-3-3593-5500 Fax: +81-3-3593-5571 URL: www.adbi.org E-mail: [email protected] © 2017 Asian Development Bank Institute ADBI Working Paper 700 D. Andrew Abstract Sustainable Development Goal 15 deals with “Life on Land.” Its nine targets and three means of implementation cover a vast array of environmentally sensitive issues related to land-based renewable natural resources. This paper explores the channels through which trade can address them. Approaches are categorized as mandatory or voluntary. The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) has over 40 years’ experience in mandatory regulation of trade in nature-based species. CITES has evolved considerably since 1975 to allow sustainable trade as long as it is legal and traceable. Since the international community officially embraced the concept of sustainable use with the Convention on Biological Diversity (CBD) in 1992, other initiatives have promoted international trade in biodiversity-based species. These initiatives nonetheless remain relatively limited. A widespread approach based on a model of voluntary sustainability standards (VSS), which are certified by third parties, has shown phenomenal growth over the past 20 years. But many stakeholders are dissatisfied partly due to less than expected economic benefits, and others are uncertain about the environmental outcomes—as opposed to changes in management practices—for which there is only limited solid evidence. Stakeholders are currently assessing how to improve the situation. Some advocate government involvement, and others wish to leverage large corporations to make transformational changes. The paper proposes a Trade Facilitation Agreement (TFA) for environmentally sensitive products, inspired by the World Trade Organization (WTO) TFA, that would be an “inter-governmental-plus” arrangement bringing together the range of stakeholders currently involved in sustainability standards. JEL Classification: F13, F18, L15, Q28, Q56, Q58 ADBI Working Paper 700 D. Andrew Contents 1. INTRODUCTION ....................................................................................................... 1 2. HOW DOES THE TRADITIONAL ANALYSIS OF TRADE AND ENVIRONMENT APPLY TO TRADE IN NATURAL RESOURCES?..................................................... 1 3. TRADE AS A MEANS OF IMPLEMENTATION IN REGULATING FOR SUSTAINABILITY OUTCOMES ................................................................................ 3 3.1 Evolving Attitudes about Trade in Environmentally Sensitive Products .......... 4 4. MANDATORY REGULATIONS: GOVERNMENTAL INVOLVEMENT IN REGULATING FOR SUSTAINABILITY ................................................................. 5 4.1 40 Years of CITES: Legal, Traceable, and Sustainable Trade ....................... 6 4.2 CITES and the Livelihoods of Local Communities .......................................... 8 4.3 Facilitating Sustainable Trade in Wildlife Products: Support from the International Trade Centre, BioTrade, and Union for Ethical BioTrade ........... 9 5. THE VOLUNTARY PATH: SUSTAINABILITY STANDARDS-CUM-CERTIFICATION ..................................................................... 12 5.1 Accomplishments and Challenges of VSS ................................................... 14 5.2 The Certification Industry ............................................................................. 15 5.3 Other Voluntary Approaches Involving Trade in Natural Resources ............. 17 6. FORESTS: STRADDLING THE CERTIFIABLE AND THE (IL)LEGAL ..................... 19 6.1 REDD+: Results-based Payments ............................................................... 20 6.2 Certification of Voluntary Standards for Sustainable Timber: FSC and PEFC ............................................................................................ 20 6.3 Beyond Certification ..................................................................................... 21 6.4 Legislating against Illegal Logging and Illicit Trade ....................................... 22 6.5 Legal Reform in Producing and Exporting Countries .................................... 23 6.6 Synergies between Certification and Illegal Logging Laws ........................... 23 7. MOVING FORWARD TO STRENGTHEN TRADE-RELATED INITIATIVES FOR SUSTAINABLE USE ....................................................................................... 24 7.1 Trade Facilitation Agreement for Environmentally Sensitive Goods and Relevant Services ................................................................................. 26 BIBLIOGRAPHY ................................................................................................................. 28 ANNEX ............................................................................................................................... 33 ADBI Working Paper 700 D. Andrew 1. INTRODUCTION This paper examines how trade can promote Sustainable Development Goal (SDG) 15—“life on land”—and what the limitations of trade are as a means of implementing the Goal. Only one of the 17 SDGs concerns the environment, i.e., SDG 15, which focuses on the terrestrial environment and land-based renewable natural resources. Nine targets (15.1–15.9) followed by three means of implementation (15.a–15.c) 1 are subsumed under the Goal. Despite the deceivingly short title “Life on Land,” the nine targets plus the three means of implementation cover a vast array of environmental issues: ecosystems (wetlands, drylands, mountains); natural resources (forests, genetic resources); environmentally sensitive issues (land degradation, invasive species, wildlife trafficking); and solutions thereto (reforestation, biodiversity accounting, pursuit by local communities of sustainable livelihood opportunities). As the objective of this paper is to understand the potential, and limitations, of trade in contributing to SDG 15, our comments have been organized by means of implementation—15.a, 15.b, and 15.c—rather than surveying all 12 targets. 2. HOW DOES THE TRADITIONAL ANALYSIS OF TRADE AND ENVIRONMENT APPLY TO TRADE IN NATURAL RESOURCES? Before discussing existing and proposed uses of trade to promote the terrestrial environment SDG and its targets, we begin with background on how the interaction of trade and environment have traditionally been analyzed. The classical framework for examining linkages between trade and the environment posits that trade liberalization leads to scale, structural (sometimes called composition), and technique changes, each with environmental impacts of a different extent and nature. 2 The questions to be studied under such a framework are the following: (i) whether increased economic activity from trade will lead to negative effects on the environment (scale effect); (ii) what might be the new mix of dirty or clean goods traded and processes used (composition effect); or (iii) whether cleaner (or dirtier) technologies will be diffused (via a technique effect). Attempts to incorporate this conceptualization of the interaction into quantitative work have focused on the effects, via prices, of the removal of tariffs for manufactured goods.3 Trade in land-based natural resources—the subject of SDG 15—is usually subject to low tariffs but can face nontariff measures, which do not lend themselves easily to quantification in price-based economic models. Matching changes in trade flows with environmental data is even more difficult as such data are patchy in coverage. In addition, they are collected at national level whereas environmental effects are generally local, particularly those arising from the extraction and use of natural resources. Even more importantly, environmental policy boils down to laws and regulations and how they are implemented by institutions, nationally and at the subnational level. Environmental policies reflect the specificities of the biome, ecosystem, and environmental medium addressed. They also respond to the social and political priorities of a state’s polity. If the scale, composition, and technique effects are difficult to translate into environmental impacts 1 The full text of SDG 15 and the associated targets appear in the Annex below. 2 See OECD (1994), OECD (2000), and Grossman and Krueger (1993). 3 See Peters (2011), which matches GTAP (trade data base) with emissions of carbon dioxide (CO2) but not local environmental effects. 1 ADBI Working Paper 700 D. Andrew for the manufacturing sector, they are not well designed to provide guidance of how regulatory policies and their implementation will react to liberalized trade in natural resources. With the mushrooming of regional trade agreements (RTAs) since the mid-1990s, fears were expressed that increased trade and trade-induced growth would be detrimental for the environment. This fear was essentially an expression of the scale effect—more trade would lead to more pollution and natural resource depletion. Defenders of freer trade claimed that trade would shift the product mix and bring better techniques to relieve the increased pressure on air, water, and soil. To have a clearer understanding of what was likely to happen, or had happened, environmental assessments became mandatory, first in the United States (US) and Canada, and later in the European Union (EU) and other European countries. These reviews adopted various methodologies. Some were ex post, reviewing the effects of past trade liberalization to inform the future. Others were ex ante, to predict how trade would affect the environment following liberalization. 4 Because ex ante exercises were potentially so vast, scoping (to circumscribe which aspects of trade liberalization would be examined) and screening (looking at potential hotspots, either geographically, e.g., at border crossings, or by environmental medium) were used to bring the exercise to manageable proportions. Where weak points were identified, the reviews recommended flanking policies to accompany trade liberalization with the objective of mitigating the negative and strengthening the positive aspects associated with greater trade flows. One result of the scoping and screening processes was a tendency for the reviews to become sectoral in nature, focusing on agriculture including forestry, fisheries, and timber, or services sectors such as tourism. In a few cases this led to separate language in the trade agreement on sectoral issues, or an annex thereto. For example, an annex in the US–Peru Free Trade Agreement is on illegal timber trade. 5 The People’s Republic of China–Peru and the People’s Republic of China–Costa Rica Free Trade Agreements include provisions, respectively, on mining and agriculture. The environmental chapter in the EU CARIFORUM Economic Partnership Agreement concludes with a summary list of cooperation priorities, including facilitation of voluntary schemes such as labeling and accreditation schemes, and facilitation of trade in timber and wood products from legal and sustainable sources. In other trade agreements, a separate implementation mechanism or an Environment Committee has been set up to establish a work program on sectoral issues. Some RTAs, in recognition of a general lack of data or the immensity of the interrelationships between trade and growth and environmental effects, mandated a monitoring role.6 The complex relationships between increased trade and impacts on 4 George (2014b) lists the environmental assessments of RTAs carried out by Canada, the US, and the EU. Lists for earlier years can be found at http://www.oecd.org/trade/oecdtradeandenvironment workingpapers.htm. 5 The US–Peru Trade Promotion Agreement. Annex 18.3.4: Annex on Forest Sector Governance. https://ustr.gov/sites/default/files/uploads/agreements/fta/peru/asset_upload_file953_9541.pdf 6 The Commission on Environmental Cooperation was set up in an environmental side agreement with North American Free Trade Agreement. In the case of the US-Central America Free Trade-Dominican Republic (US–CAFTA-DR) trade agreement, the Organization of American States has been used to carry out technical assistance and monitor these activities. An independent audit of the monitoring roles undertaken for US RTAs can be found in US Government Accountability Office (2014). 2 ADBI Working Paper 700 D. Andrew the environment were also checked by testing a series of hypotheses, such as the “race to the bottom” or the pollution haven hypotheses.7 In sum, despite the theoretical literature, the questions posed by trade and environment policy-makers when negotiating new trade agreements have rarely focused on assessing scale, composition, and technique effects. As the interaction of the various effects is in the end an empirical question, without adequate environmental data at local level, the focus of negotiators was to study regulatory effects. How adequate were existing environmental regulations? Was national regulatory capacity, particularly the institutional structure, resilient enough to adapt to the environmental challenges arising from the new trade patterns? 3. TRADE AS A MEANS OF IMPLEMENTATION IN REGULATING FOR SUSTAINABILITY OUTCOMES The word trade is not used in the title of SDG 15, nor does it appear in the text of the associated nine targets. Nonetheless the following three means of implementation under SDG 15 are trade-relevant: 15.a Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems 15.b Mobilize significant resources from all sources and at all levels to finance sustainable forest management and provide adequate incentives to developing countries to advance such management, including for conservation and reforestation 15.c Enhance global support for efforts to combat poaching and trafficking of protected species, including by increasing the capacity of local communities to pursue sustainable livelihood opportunities Trade can help to (i) generate financial resources from all sources (15.a), (ii) provide incentives (15.b), and (iii) increase the capacity of communities to pursue sustainable livelihood opportunities (15.c). The question then becomes how to operationalize the various means of implementation and increase their effectiveness and impact. Examples of innovative interventions being used to promote sustainable trade in natural resource products, including biodiversity products and wildlife species, are set out below. These are significant and growing. However, with few exceptions, they remain fairly limited. In attempts to scale up and extend the overall sustainability impacts of the initiatives, problems have arisen. Serious reflection among environmental nongovernment organizations (NGOs), firms, and more recently certain governments is currently underway. In the final section, it will be suggested that building on experience needs to be complemented with novel approaches to scale up sustainable outcomes and make a greater contribution to the fulfilment of the SDG 15 targets. 7 See chapters 2 and 3 in Frankel (2009). 3 ADBI Working Paper 700 D. Andrew 3.1 Evolving Attitudes about Trade in Environmentally Sensitive Products Promoting international trade has in the past been considered at odds—even intrinsically harmful—for natural resources and environmentally sensitive products. Trade was perceived as the driving force for the depletion and even extinction of wildlife and thus had to be strictly controlled. Trade policy instruments, such as quotas and even import bans, were used to bolster conservation by curtailing the international exchange of environmentally sensitive products. For example, on the grounds of biodiversity loss caused by poaching and exports of a few of the “charismatic” mega species, the conservation movement was behind the adoption of an international convention to restrict trade in endangered species. The Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) was adopted in 1976. Based on US conservation laws, it is also known as the Washington Convention. Viewed from this historical perspective, using trade and trade policy to promote sustainable management of natural resources and ecosystem products, as targeted under SDG 15, might appear to be difficult, or even nigh impossible. International attitudes have evolved since the Earth Summit held in Rio de Janeiro in 1992. Agenda 21 adopted at the Rio Summit incorporated the principles of sustainable consumption and sustainable production. It also gave birth to three environmental conventions, including the Convention on Biological Diversity (CBD). In this Convention, conservation and sustainable use are balanced as two separate goals. Many of the CBD initiatives to halt loss of biodiversity—such as offsets, “no net loss,” and payments for ecosystem services8—are national approaches that do not involve international trade.9 The CBD has since developed its tool kit and today is cooperating with a series of trade-friendly initiatives to promote conservation and sustainable use. Which lessons can be drawn from trade-relevant activities in biodiversity environmental agreements about trade’s potential role in promoting SDG 15 targets? In assessing how trade can contribute to promoting sustainable outcomes for the terrestrial environment, and its limitations, this paper examines two separate—and until recently—distinguishable paths. The first group takes a regulatory approach that relies on laws and institutions for implementation and enforcement. That is, it is governmental and has a mandatory character. The second involves standards used by private actors—NGOs, firms, farms, mills, etc. Some prefer referring to these as private sustainability standards (PSS) and others as voluntary sustainability standards (VSS). As they are nongovernmental and voluntary in nature, we will use the latter term to emphasize their nonmandatory nature. Of the two sets of approaches that use trade as a lever to generate financial resources for the sustainable management of biodiversity and ecosystems, the first involves sales of wildlife or natural products, either directly or as inputs to a manufactured product. Since nature-based goods can be over-harvested, they are often protected and subject to legal regulations. In order to remain sustainable, trade in biodiversity products harvested from nature must, on the supply side, respect species-specific biological factors. Governance issues involving traders and institutions are also critical, as is careful attention to market drivers. 8 See OECD (2010), particularly a survey of environmentally effective and cost-effective systems of payments for ecosystem services (none of these involve international trade). 9 Under the CBD, the Nagoya Protocol on Access and Benefit-sharing, adopted in 2010, has traderelevant aspects, as does the Cartagena Protocol on Biosafety adopted in 2000. 4 ADBI Working Paper 700 D. Andrew objective is to mainstream BioTrade in relevant multilateral, regional, and national processes and strengthen the policy and regulatory environment for BioTrade sectors. The aim of the Union for Ethical BioTrade (UEBT), an offshoot started in 2007, is to promote ethical bio-trade practices by offering its business members independent verification, technical support, and networking opportunities for biodiversity-based innovation and sourcing. This association currently stands at 40 companies—mostly in the cosmetics, pharmaceutical, and food sector—and 20 affiliates. In 2015, these companies had a joint turn-over of just over €4 billion. UEBT helps companies negotiate the regulatory minefield of trading with local producers around the world, while ensuring that benefits reach all of those involved, particularly holders of genetic resources in the developing world. Rather than certification, the UEBT offers its Members verification—that is, audits to establish that the private firms are operating in accordance with the Ethical BioTrade Standard (based on the seven BioTrade principles, the first two of which are conservation and sustainable use of biodiversity) (UNCTAD 2007). The UEBT philosophy behind the verification is to replace a pass or fail type audit with a detailed assessment of a member’s biodiversity management system and the progress being made vis-à-vis the work plan. The process also involves an impact assessment standard aligned with the code of impacts of the ISEAL Alliance, 22 of which UEBT is a member. In exchange for verification, member companies may appose the UEBT logo, as well as other sustainability seals for which they have been certified. Examples of UEBT member activities include (i) a Colombian company trading a blue colorant for food and cosmetics from the fruit of the Genipa americana; (ii) a large Swiss company producing hundreds of natural cosmetics and pharmaceuticals that has targeted use of 80% plant-based raw materials from organic and biodynamic cultures and a biodiversity management system that ensures traceability; (iii) a company in Burkina Faso specialized in shea butter for cosmetics working with female producers organized in cooperatives; and (iv) a Vietnamese company, the largest traditional medicine producer in Viet Nam, focusing on improving practices for the sourcing of its natural ingredients and the research and development of medicinal plants. Measured in terms of global trade flows, initiatives like the ITC, BioTrade, and UEBT pale in significance to the many billions of dollars of trade derived from other terrestrial flora and fauna, such as timber, coffee, soy, palm oil. If these initiatives, based on legal regulation, are currently marginal in the overall picture for the conservation and sustainable use of biodiversity, what is their potential to contribute significantly more? Proponents are looking for ways to ratchet up their impact in terms of global trade in not dissimilar ways as voluntary standards movements are talking about increasing overall impact through adopting a more holistic approach to agriculture and rural development. 22 The ISEAL Alliance’s “Code of Good Practice for Assessing the Impacts of Social and Environmental Standards” helps standards systems to better understand the sustainability results of their work, as well as the effectiveness of their programs. See ISEAL Alliance. Impacts Code. http://www.isealalliance.org/ our-work/defining-credibility/codes-of-good-practice/impacts-code 11 ADBI Working Paper 700 D. Andrew 5. THE VOLUNTARY PATH: SUSTAINABILITY STANDARDS-CUM-CERTIFICATION 15.a Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems Voluntary sustainability standards (VSS) combined with certification procedures were set in motion in the 1970s 23 but took off as a concrete approach to fostering sustainability following the Rio Conference in 1992 and adoption of Agenda 21. A congruence of different factors explains the turn to voluntary, nongovernmental schemes. NGOs were disappointed with governments’ refusal to agree to more international conventions, such as that on forests. Other important factors include the belief that the private sector was more closely attuned to production issues and to consumer tastes and the distaste of several large OECD governments for developing regulations. From only a handful in 1970s and 1980s, these have grown to more than 500, as catalogued in recent reports. This section focuses on the use of standards and certification to promote production, consumption, and trade in sustainably managed agricultural commodities. It provides a brief overview on how they have progressed since the Earth Summit as well as the bumpy road they are currently traveling. The number of environmental labelling and information schemes (ELIS) was recently cataloged at 544 in a 2013 OECD study (Gruère 2013), based on a data set managed by Ecolabel Index 24 together with those discussed in OECD reports. Most of the phenomenal growth in ELIS occurred between the late 1990s and 2010. There are many ways to categorize the schemes. The 2013 OECD study dissected the universe of 544 ELIS in a dozen different ways. Most pertinent for this discussion concerns the environmental focus area and mode of governance and ownership, as well as the type of auditing and verification (first, second, or third party). In terms of environmental focus, the relative shares of schemes attributed to biodiversity (11%) and natural resources (20%) had dropped in 2012 from the nearly one-half of total schemes in 1990, due to the increase over this period in energy and climate-related schemes. In terms of modes of governance, nonprofit voluntary schemes clearly dominate over the 32-year period studied. Credibility of the standards, as measured by type of auditing and verification, reveals that while third party certifiers (independent, arms-length accredited bodies) represent about two-thirds of the total universe studied, second-party audited or verified schemes (performed by a party other than the producing firm but with a user interest in the products, such as traders, retailers, or consumers) increased significantly. As discussed below, access to schemes at an affordable price and the quality of certification are currently among the hottest issues in the voluntary standards world. Some figures often used as measures of success of the VSS are set out here for the highly traded commodities—coffee, palm oil, and soya25 (those that have been the focus of extensive standards activity). According to the State of Sustainable Markets compiled by the ITC, FiBL, and International Institute for Sustainable Development (IISD) (ITC 2015), VSS-compliant areas that were planted or harvested for nine commodities and the focus of the 14 standards surveyed continued to show exceptional growth in 2013 and 2014. The Roundtable on Sustainable Palm Oil 23 An exception is the organics movement that dates back to Rudolf Steiner’s writings in 1924. 24 Ecolabel Index is the largest global directory of ecolabels, “currently tracking 465 ecolabels in 199 countries, and 25 industry sectors” (as of mid-November 2016). http://www.ecolabelindex.com/ 25 As forests are the focus of SDG target 15.b, timber is discussed below in section 6. 12 ADBI Working Paper 700 D. Andrew showed a 30-fold increase of its area between 2008 and 2014, and at that point covered some 15% of the global oil palm area. The State of Sustainability Initiatives (Potts 2014) estimated an impressive 41% growth overall for trade in the group of VSS-compliant commodities studied, outpacing by far the 2% growth in the conventional commodity markets. In that review, coffee, cocoa, and palm oil, held the top places in 2012 for market penetration compared with their rankings in 2008. Standard-compliant coffee, which led in terms of market penetration, reached a 40% market share of global production in 2012 (up from 15% in 2008). Other commodities with significant market shares in 2012 include cocoa (22%, up from 3% in 2008) and palm oil (15%, up from 2% in 2008). This incredible success of VSS-compliant commodities in penetrating markets— national and international—also explains why observers are pessimistic about the degree they can continue along the same path. Now facing saturated markets, they are the victims of their own success. There are a number of consequences of the VSS-compliant no longer being just a niche market phenomenon. For a number of the “successful” VSS-compliant commodities, supply is beginning to, or already has, exceeded the market demand for the sustainable variety of the commodity. The excess supply ends up being sold as uncertified, exerting downward pressure on prices. With the withering of the price premia, producers in a market-driven scheme begin to cut costs on the investments made to ensure their commodity is grown or harvested according to the sustainability standards. This is another consequence of what Jason Potts of the IISD termed the Sustainability Paradox (Potts et. al. 2014, Box 4.1). The reliance of such initiatives on market forces leaves the distribution of supply (and benefits) to those who can provide compliant goods at the lowest cost. These tend to be the more well-off producers who have already absorbed the costs of transitioning to sustainable practices. The unintended outcome is that VSS are gaining traction in regions and markets where they are needed least. For some internationally traded commodities such as timber, for which market access is increasingly conditioned by certification to a forest management standard, the producer may have no choice but to absorb the costs, even in the absence of a price premium, or lose market. In such cases, the “voluntary” in VSS effectively becomes a mandatory standard (UN Forum on Sustainability Standards [UNFSS] 2016). The outlook for further growth is dampened by market surveys of consumers that often reveal that sustainability is an important but not a dominant factor in decisions to buy. A recent OECD study (Vringer et al. 2015), for example, underscores a certain schizophrenia of consumers. They reply in surveys that sustainability is important to them, but apparently not when confronted with higher prices. The lack of price incentive tilts their decision in favor of the lower priced product, leaving promotion of the collective good to others. In other words, the fuzzy “warm glow” effect of consumers’ values does not necessarily carry over to their buying decisions. Another key consideration is that stakeholders are increasingly demanding that the actual environmental impact be verified and measured. Sunken costs were spent in developing standards and logos; recurrent expenditures for auditing and other verification costs to assess conformity to receive certification are even greater. Those having financed the development of the VSS want to know whether the costs are having a real impact on the ground. Recent reviews conclude that while standards have contributed to a change in farming and harvesting practices, few evidence-based peer-reviewed studies are available to answer the questions about outcome or impact (Steering Committee of the State-of-Knowledge Assessment of Standards and 13 ADBI Working Paper 700 D. Andrew Certification 2012). Existing studies tend to be incomplete, embrace a host of methodologies, and hence are not comparable. They have generally not built in counterfactuals (what would have happened had the standards not been adopted). The ITC/FIBL/IISD experts conclude in The State of Sustainable Markets (ITC 2015) that . . . the degree to which they are improving farm performance remains largely unknown. The absence of consistent data on field level impacts for many standards is one obvious bottleneck to making such determinations. According to the ISEAL Alliance, the situation of collecting data and reports on impacts on actual outcomes (as opposed to outputs) is improving. A special website has recently been launched collecting documentation on impacts: www.sustainabilityimpactslearningplatform.org. 5.1 Accomplishments and Challenges of VSS Generally, the VSS system has served business interests well. Firms have shifted the emphasis over recent years away from statements of their corporate social responsibility and their public image in terms of support to sustainable development. A more recent approach integrates VSS-compliant commodities into supply chains to fully embrace this risk management tool. Recourse to VSS as a key tool for managing their supply chains is no longer a matter of simply burnishing “green” credentials for the public, but has become an integral part of a business model designed to protect their reputation and trademarks—often a sizeable part of a company’s assets. At the same time, complaints are rife that there are too many standards—they are overlapping, duplicative, and bureaucratic (UNFSS 2016). Certain business-to- business (B2B) standards require more than one certification, even if in principle they are “voluntary.” For example, GlobalGAP may require certification to UTZ, Rain Forest Alliance, and Fairtrade, and organic standards, in parallel, for the product to gain access to supermarkets. An obvious response would be to find common denominators and simplifying to meta standards, or to keep the range of standards but seriously work toward mutual recognition of those that are similar or have the same objective.26 Such attempts have run into difficulties and progress has been slow. Reasons include the pride of authorship factor from NGOs that have spent years and enormous sums to develop the standards. Certification to verify adherence to the standard is often a lucrative source of income for large NGOs. Multiplicity of standards and the related confusion and overlap also tend to fuel donor-funded capacity-building projects implemented by NGOs. While willing to promote discussions on process, including promoting consultations with representative stakeholders and the review of drafts, many stakeholders do not wish to negotiate the substance of the standards which have become “holy grail.” Any movement to harmonize has always been difficult in the standards world. On the other hand, greater hope has been put in establishing mutual recognition protocols where there has been some limited progress, for example, in the case of organics standards. Ulrich Hoffmann27 concludes: 26 In the case of timber, the Programme for the Endorsement of Forest Certification (PEFC) is undertaking to bring some 40 national standards together under one meta standard. 27 A former UN official, Hoffmann is one of the founding fathers of the UN Forum on Sustainability Standards (UNFSS) and the FAO/IFOAM/UNCTAD International Task Force on Harmonization and Equivalence in Organic Agriculture. 14 ADBI Working Paper 700 D. Andrew If one attempts to grossly evaluate the effect of PSS in moving towards truly sustainable markets and associated production and consumption patterns, one must realistically conclude that such standards are one, not unimportant tool whose real impact should however not be overrated. More than one observer surveying and following the standards world has set the bar at approximately 15%–20% as the limit for voluntary sustainability standards to penetrate markets.28 Such a prediction is commodity- and market-dependent of course, as well as a function of the national consumer market and its growth potential. The point is not the precise figure but the ambient pessimism about VSS as a panacea. We are far from the optimistic and enthusiastic support for this market-based and consumer-driven means to bring sustainable management to commodity production that was evident when VSS were launched some 20 years ago. All too often the impression is created that the failure to mainstream VSS-compliant production is caused by lack of efficient management of those schemes by producers or insufficient capacity-building support, when the principal reason to get past the 15%– 20% bar is the lack of any progress on internalization of environmental and social costs of conventional production, starting with the removal of misplaced subsidies (see Policy Coherence section below). Another view from one of the strongest supporters of the standards-cum-certification model is revealing: Companies have supported sustainability standards and certification over the last fifteen years to be leading tools in driving a market-based solution to improved social, economic and environmental production, using the power of consumer choice and globalizing supply chains to incentivize farmers and enterprises to improve their practices. . . . However, standards systems and their stakeholders recognise that even with impressive growth and impact, the scale of the challenges that we are collectively seeking to address means that we are unlikely to achieve the transformation we need with a model that recognises better practices at the scale of the individual farm or production unit [rather than at the landscape scale] (ISEAL Alliance 2016). 5.2 The Certification Industry Another aspect of a growing disappointment with the system concerns the conformity assessment segment of VSS, sometimes referred to as assurance schemes. Conceived as the linchpin of the standards model, auditing and certifying are needed to bring credibility to the whole operation. Independent third parties inspect a unit using a testing protocol and then pronounce in a pass or fail manner on whether a production unit is producing in conformity with the standard. But their image has been tarnished by a number of allegations of unfair pricing, less than thorough inspections, and, in some cases, corruption. 28 See also UNFSS Discussion Paper no. 6, which elaborates on this issue: http://unfss.org/ documentation/discussion-paper-series/ 15 ADBI Working Paper 700 D. Andrew The power and influence the specialized services industry exerts has been a cause for complaint, as their activities are often no longer consistent with the founders’ philosophy of the system. Some of the largest certifiers dominate conformity assessment activities simply by marketing their reputation and convince retailers to insist with producers and exporters to use their services. The reality is that often local consultants are used to perform the auditing in the producing countries. Using locally based experts is in most cases the best solution since they are closer to the ground and know local conditions best. Even though such experts are often actually undertaking the verification, retailers refuse to take the “word” on verification directly from developing country-based firms to validate the conformity assessment in question (Rundgren 2015). In sum, the certification industry, including the accreditation business, which sets the norms and decides who may audit and certify according to the norm in question, has been accused of abusing its market power and engaging in anticompetitive practices. Concentration and consolidation also increase the tendencies to cut corners and cheat. The informal trust building, which was formerly an integral characteristic of the organics sector, has often been replaced by paperwork and official licenses. This has led the governments of some countries—for example, Denmark and Finland—to take over inspection and certification. Others have intervened to set the level of fees for certification. In the end, an assessment of VSS effectiveness depends on one’s perspective and the commodity in question (Halle 2014, pp.14–16). There are, however, some clear trends. Businesses are generally pleased in having found a management tool to reduce quality risks in supply chains and reputational risk to their firm. Consumers, on the one hand, should in principle benefit from on-product logos to help guide them in buying sustainable products, however defined. And if occasionally consumers are victims of “greenwashing,” i.e., false claims about the environmental qualities of a product, they have recourse to consumer protection laws, at least in developed countries. At the ground level, actual environmental outcomes have been documented to a limited extent, as discussed above. This is a disappointment for environmental NGOs and donors in OECD countries who have poured millions into the development and operationalization of the schemes. Developing country producers are frustrated in cases of compliant supply outstripping demand and subsequent withering of price premia. Price differentials for sustainable commodities do not necessarily revert to the grower (Potts and Sanctuary 2010). Benefits are not evenly distributed along the supply chain, and certain actors can use their market power to bargain with suppliers and buyers to increase their share of the benefits. Certification costs are burdensome and limit access to small holders, although progress has been made in the case of organics schemes, where group or regional certification schemes have opened access to smallholders. Developing country governments have recently been able to bring their point of view to international organizations such as the UN Forum on Sustainability Standards (UNFSS). The Forum was founded in reaction to the concern that developing producers’ voices were not being heard and to document the uncertainty on market access effects of the schemes. The UNFSS is currently setting up national platforms on effective VSS use. A national platform in India was launched in April 2016, and the launching of such platforms in Brazil and the People’s Republic of China is being planned. 16 ADBI Working Paper 700 D. Andrew For trade to strengthen its role in promoting VSS as a means toward sustainable outcomes in commodity production and fulfilment of SDG 15 targets, other challenges that need to be addressed by relevant players include the following: (i) The more demanding and sophisticated the standards, the greater the tendency to limit sourcing to a relatively small number of better-off and well-managed producers benefiting from good infrastructure. (ii) VSS have not always been demand-driven; rather, donors and environmental and developmental NGOs have been primary advocates without sufficient developing country governmental and business support to national producers. The flip side is that such standards are not financially sustainable, and when donor support is discontinued they are likely to disappear. 5.3 Other Voluntary Approaches Involving Trade in Natural Resources 5.3.1 Zero Deforestation Pledges Another private sector approach to linking exports of internationally traded commodities to the improvement of sustainable management practices has been the growth in zero or no deforestation pledges. Palm oil and soy have been the focus of international attention because the clearing of land in tropical areas in response to demand for these commodities is an important driver of deforestation. Along with soy and palm oil, beef and wood fiber for paper and pulp for export are considered the top four drivers of deforestation. Global Export Values for Important Forest Risk Commodities Source: Forest500. www.forest500.org The type and coverage of the zero deforestation pledges vary. Some are across-the- board no deforestation, some may be net pledges (clearings offset by plantings), while many are commodity-specific pledges (Bregman, et. al. 2015). In the Amazon region, the Working Group on Soy (GTS) of producers, traders, environmental NGOS (including WWF and Greenpeace), and financiers worked out the Soy Moratorium. It has been continuously renewed since its inception in 2006. This initiative prevents major traders who are signatories from selling soya that may be linked to deforestation. Monitoring by the GTS in 73 municipalities that cover the quasi totality of the area of soy produced in the Amazon is widely credited as a major factor in the reduction of 17 ADBI Working Paper 700 D. Andrew deforestation in the Brazilian Amazon. In fact, this voluntary private-led initiative has been analyzed as outperforming the legally mandated Brazilian Forest Code.29 Nestlé had already announced a zero deforestation pledge in May 2010 and has followed through by ensuring its palm oil plantations in Indonesia are uniquely located on lands cleared before that date. The palm oil trading giant, Wilmar, made an anti-deforestation promise in 2013. Unilever and Marks & Spencer have made general deforestation commitments. The Amsterdam Declaration in Support of a Fully Sustainable Palm Oil Supply Chain by 2020 was signed by the governments of Germany, Netherlands, the UK, and Denmark to back a joint European company commitment to support 100% sustainable palm oil in Europe by 2020. ISEAL Alliance reports that the number of various kinds of such pledges has grown to some 300 (ISEAL Alliance 2016). 5.2.2 Policy Coherence The expression policy coherence does not appear under SDG 15. It can however be found under SDG 17, which is considered to be the overarching goal insofar as it sets out various means of implementation applying to all the SDGs. Target 17.14 reads: “enhance policy coherence for sustainable development.” This is usually understood to be a synonym for removing perverse incentives, inter alia, for reducing funding to economic activities that go against recognized public policy goals. Targets under two other SDGs address subsidy reform directly, e.g., 14.6 prohibiting certain forms of fish subsidies and 12.c rationalizing inefficient fossil fuel subsidies.30 In a recent study (McFarland, Whitley, and Kissinger 2015), the UK Overseas Development Institute identified 48 subsidies, and was able to estimate the value of half of them, revealing that REDD+ funding is eclipsed, specifically by domestic agriculture and biofuels subsidies. It is clear, they conclude, that REDD+ money to keep forests standing will not have much impact unless the real drivers of deforestation, including subsidies that lead to forest loss, are addressed. The authors call on donors and private investors to identify opportunities to phase out or reform current subsidies that encourage forest loss. The UN Environment Programme Financial Initiative has been working with three countries—Peru, Ecuador, and Indonesia—to understand how subsidies to agriculture are contributing to deforestation (UNEP 2015). 29 Butler, R. 2015. Brazil’s soy moratorium dramatically reduced Amazon deforestation. Mongabay. 23 January. https://news.mongabay.com/2015/01/brazils-soy-moratorium-dramatically-reduced-amazon -deforestation/. On the other hand, a high rate of conversion of the cerrado (savanna grasslands) to soy proceeded over this period. See Poynton, S. 2014. Wilmar's 'no deforestation' goal could revolutionise food production. The Guardian. 29 January. http://www.theguardian.com/sustainable-business/wilmar -no-deforestation-commitment-food-production 30 SDG 12.c: Rationalize inefficient fossil-fuel subsidies that encourage wasteful consumption by removing market distortions, in accordance with national circumstances, including by restructuring taxation and phasing out those harmful subsidies, where they exist, to reflect their environmental impacts, taking fully into account the specific needs and conditions of developing countries and minimizing the possible adverse impacts on their development in a manner that protects the poor and the affected communities. SDG 14.6: By 2020, prohibit certain forms of fisheries subsidies which contribute to overcapacity and overfishing, eliminate subsidies that contribute to illegal, unreported and unregulated fishing and refrain from introducing new such subsidies, recognizing that appropriate and effective special and differential treatment for developing and least developed countries should be an integral part of the World Trade Organization fisheries subsidies negotiation. 18 ADBI Working Paper 700 D. Andrew 6. FORESTS: STRADDLING THE CERTIFIABLE AND THE (IL)LEGAL 15.b Mobilize significant resources from all sources and at all levels to finance sustainable forest management and provide adequate incentives to developing countries to advance such management, including for conservation and reforestation. Under SDG 15, forests are mentioned no fewer than four times, once in the text of overriding Goal 15 itself, then under two separate targets, 15.1 and 15.2, and finally in means of implementation 15.b. Why do forests occupy such a prominent place? Classified into three groups—boreal, temperate, and tropical—forests englobe complex ecosystems with varied environmental, social, and economic attributes. Over one billion people depend on forest and non-timber forest products for their livelihoods (Chao 2012). Issues of national pride and sovereignty associated with forests mean that international discussions run up against strong sensitivities. These technical and political issues explain why it has never been possible to adopt an international convention on forests. They have, however, been the focus of numerous nonbinding international initiatives and texts. Although environmentalists pushed for an international convention, the document adopted at the Earth Summit at Rio in 1992 was a Statement of Forest Principles.31 This was the first global consensus reached on the sustainable management of forests. More recently, in the New York Declaration on Forests agreed at the UN Climate Summit in September 2014, companies, governments, NGOs, and indigenous groups endorsed ambitious targets of cutting forest loss and restoring degraded forests (Gulbrandsen and Fauchauld 2015). Among the trade-related measures were commitments to take steps to eliminate commodity-driven deforestation from their supply chains. Some of the commodity-specific zero deforestation pledges were discussed above in section 5. With the adoption of the Paris Agreement at COP 21 in December 2015, forests have taken on even greater importance. Deforestation and forest degradation is the second leading contributor to global warming, responsible for some 15% of global greenhouse gas emissions. This makes the loss and depletion of forests a major issue for climate change. Despite their importance in terms of greenhouse gas emissions, the role of forests had not been included in earlier UN Framework Convention on Climate Change texts. Their prominent place in the COP 21 Agreement has been heralded as a major step forward, as it recognizes not just the need to reduce emissions from deforestation and degradation but also forests major role in sequestrating carbon and thus in contributing to the overall two-degree target. Even if trade in timber is not explicitly mentioned in the COP 21 text, the links to trade are important. Forest-related emissions come largely from logging or clearing trees for agriculture, such as soy and palm oil, and cattle ranching, two-thirds of which are export-oriented. In the words of the Forest Carbon Partnership Facility, “With all the services that forests provide both to humanity and the natural world, there is now widespread understanding of a simple yet profound fact—that forests are more important left standing than cut.” 32 The Paris Agreement calls for endorsement of 31 The full name is the Non-Legally Binding Authoritative Statement of Principles for a Global Consensus on the Management, Conservation and Sustainable Development of All Types of Forests. 32 Forest Carbon Partnership Facility (2010), p. 2. The FCPF is housed in the Carbon Finance Unit of the World Bank. 19 ADBI Working Paper 700 D. Andrew policies that conserve standing forests and also sustainably manage forests and enhance carbon stocks.33 6.1 REDD+: Results-based Payments Although the acronym REDD+ itself doesn’t appear in the Paris Agreement, the COP 21 text uses the exact definition of REDD+ both in Finance paragraph 55 and Article 5 on forests. 34 REDD+, standing for countries’ efforts to “reduce emissions from deforestation and forest degradation, and foster conservation, sustainable management of forests, and enhancement of forest carbon stocks,” was designed as a scheme based on rewards for results, also termed results-based payments. Beneficiaries are required to show that their forest conservation programs have reduced emissions before they receive funds. Originally, REDD+ was to rely mainly on voluntary carbon markets, but with their slow development of these markets and low carbon prices, incentives were not strong to attract participants. Other sources of finance were necessary.35 These have been forthcoming in the form of significant aid money from, e.g., Norway, other bilateral donors, and the World Bank’s Forest Carbon Partnership Facility (FCPF). 6.2 Certification of Voluntary Standards for Sustainable Timber: FSC and PEFC The Forestry Stewardship Council (FSC) was set up in 1993. The forest certification initiative had strong input from environmental NGOs. Originally a global standard setter, it now manages a series of national standards that adapt FSC international standards. It can be viewed as a “top down” approach. It works with national forestry agencies and accredits national certifying bodies. The FSC standard has a focus on the environmental pillar of sustainable development, i.e., sustainable forest management and biodiversity, genetically modified organism (GMO) prohibition, and soil attributes. Set up in 1999, the Programme for the Endorsement of Forest Certification (PEFC), the other major certification scheme, is “bottom up” on the other hand. It works with national certification systems in 40 member countries and acts as a 33 Note that this mirrors the elements in SDG 15.2, the text of which is in the Annex below. 34 Finance 55. Recognizes the importance of adequate and predictable financial resources, including for results-based payments, as appropriate, for the implementation of policy approaches and positive incentives for reducing emissions from deforestation and forest degradation, and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks; as well as alternative policy approaches, such as joint mitigation and adaptation approaches for the integral and sustainable management of forests; while reaffirming the importance of non-carbon benefits associated with such approaches; encouraging the coordination of support from, inter alia, public and private, bilateral and multilateral sources, such as the Green Climate Fund, and alternative sources in accordance with relevant decisions by the Conference of the Parties; [emphasis added] Article 5 1. Parties should take action to conserve and enhance, as appropriate, sinks and reservoirs of greenhouse gases as referred to in Article 4, paragraph 1(d), of the Convention, including forests. 2. Parties are encouraged to take action to implement and support, including through results-based payments, the existing framework as set out in related guidance and decisions already agreed under the Convention for: policy approaches and positive incentives for activities relating to reducing emissions from deforestation and forest degradation, and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries; and alternative policy approaches, such as joint mitigation and adaptation approaches for the integral and sustainable management of forests, while reaffirming the importance of incentivizing, as appropriate, non-carbon benefits associated with such approaches. [emphasis added] 35 See Angelsen et al. (2012) for a detailed discussion of the technical, social, and political aspects of REDD+, including ramifications of its financing moving from carbon markets to donor money. 20 ADBI Working Paper 700 D. Andrew in favor of increasing government involvement. Will the large corporations that are already out in front want to lose a first-mover advantage? For the idea to move forward, a testing ground could prove useful between sympathetic trading partners. Such an opportunity might take the form of a regional trade agreement46 between two natural resource-dependent economies that understand the crucial importance of maintaining the future sustainability of their resource base while providing nature-generated revenues for current generations. This should be an idea worth pursuing to strengthen the positive accomplishments of both voluntary standards and more than 40 years of international experience in regulating wildlife trade. 46 Provisions about VSS in RTAs are relatively recent: Article 3.2(g) of the sustainable development chapter in the Canada–EU Comprehensive Economic and Trade Agreement provides, “Encouraging the development and use of voluntary schemes relating to the sustainable production of goods and services, such as eco-labelling and fair trade schemes.” TPP language is considerably more detailed. It calls on each party to encourage, in accordance with its laws, regulations or policies and to the extent it considers appropriate, the use of flexible and voluntary mechanisms to protect natural resources and the environment in its territory (TPP Article 20.11: Voluntary Mechanisms to Enhance Environmental Performance). 27 ADBI Working Paper 700 D. Andrew BIBLIOGRAPHY Angelsen, A., M. Brockhaus, and W.D. 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Andrew ANNEX Sustainable Development Goal 15 and the 12 Targets Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss 15.1 By 2020, ensure the conservation, restoration and sustainable use of terrestrial and inland freshwater ecosystems and their services, in particular forests, wetlands, mountains and drylands, in line with obligations under international agreements 15.2 By 2020, promote the implementation of sustainable management of all types of forests, halt deforestation, restore degraded forests and substantially increase afforestation and reforestation globally 15.3 By 2030, combat desertification, restore degraded land and soil, including land affected by desertification, drought and floods, and strive to achieve a land degradation-neutral world 15.4 By 2030, ensure the conservation of mountain ecosystems, including their biodiversity, in order to enhance their capacity to provide benefits that are essential for sustainable development 15.5 Take urgent and significant action to reduce the degradation of natural habitats, halt the loss of biodiversity and, by 2020, protect and prevent the extinction of threatened species 15.6 Promote fair and equitable sharing of the benefits arising from the utilization of genetic resources and promote appropriate access to such resources, as internationally agreed 15.7 Take urgent action to end poaching and trafficking of protected species of flora and fauna and address both demand and supply of illegal wildlife products 15.8 By 2020, introduce measures to prevent the introduction and significantly reduce the impact of invasive alien species on land and water ecosystems and control or eradicate the priority species 15.9 By 2020, integrate ecosystem and biodiversity values into national and local planning, development processes, poverty reduction strategies and accounts ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ 15.a Mobilize and significantly increase financial resources from all sources to conserve and sustainably use biodiversity and ecosystems 15.b Mobilize significant resources from all sources and at all levels to finance sustainable forest management and provide adequate incentives to developing countries to advance such management, including for conservation and reforestation 15.c Enhance global support for efforts to combat poaching and trafficking of protected species, including by increasing the capacity of local communities to pursue sustainable livelihood opportunities 33