The role of international agreements in environmental conservation and its implication to Vietnam

The role of international agreements in environmental conservation and its implication to Vietnam

VIETNAM NATIONAL UNIVERSITY FACULITY OF ECONOMIC -

YASUKATA FUKAHORI

THE ROLE OF INTERNATIONAL AGREEMENTS IN

ENVIRONMENTAL CONSERVATION AND ITS IMPLICATION TO

VIETNAM

Major: Political Economy Code: 62.31.01.01

DOCTORAL PHILOSOPHY OF ECONOMICS

Advisor: 1 Associated Professor, Doctor Phi Manh Hong

2 Doctor Phung Xuan Nha

HaNoi, 2008

VIETNAM NATIONAL UNIVERSITY, HANOI

COLLEGE OF ECONOMIC -

YASUKATA FUKAHORI

THE ROLE OF INTERNATIONAL AGREEMENTS IN

ENVIRONMENTAL CONSERVATION AND ITS IMPLICATION TO

VIETNAM

Major: Political Economy Code: 62.31.01.01

DOCTORAL PHILOSOPHY OF ECONOMICS

Advisor: 1 Associated Professor, Doctor Phi Manh Hong

2 Doctor Phung Xuan Nha

HaNoi, 2008

CONTENTS

Page

Introduction ……… 1

Chapter I: Economic Theories Related to Environmental Conservation……… 14

1.1 Theories of Common Pool Resources ……… 14

1.2 Theories of Collective Actions and International Agreements ……… 23

1.3 Coase Theorem ……… 25

1.4 Game Theory ……….…… 26

1.5 Other Economic Theories ……….… 31

1.6 Application of Economic Theories to Environmental Conservation……… 36

1.6.1 Sustainability and Budget Line – Case Study for Forest Conservation…… 36

1.6.2 Game theory scenarios and possible contribution arrangements of international agreements ……….………

46 1.7 Summary of Results ……….…… 88

1.8 Recommendations ……….… 90

Chapter II: Environmental Conservation in Relation with Trade, ODA and Sustainable Development ……… ………

92 2.1 Trade Agreements and Environmental Issues ……… … 92

2.1.1 The New Politics of Trade ……… ……… 92

2.1.2 Trade under Commodity Agreements and Environmental Conservation… 96

2.1.3 WTO Dispute Settlement Mechanism and Environmental Conservation 100

2.2 Global Environmental Issues ……….……… 101

2.2.1 Issues and Problems related to Global Environmental Conservation……… 102

2.2.2 World Summit for Environment ……….……… 103

2.3 ODA and Environmental Issues ……… 106

2.3.1 Trade and ODA ……….……… 106

2.3.2 ODA and Environmental Issues ……….……… 107

2.3.3 Problem of International Aid ……….……… 107

2.3.4 Private Sector ……… 109

2.3.5 Transparency ……….……… 109

2.3.6 The Problem of Sovereignty and Economic Forces ……… 110

2.3.7 Capacity Building, Education, and International Treaties ………….…… 110

2.4 Sustainable Management of Environmental Natural Resources ……….… 111

2.4.1 Definitions of Sustainable Development ……… 111

2.4.2 Economic growth for local welfare and conservation ­ Sustainable Development

112 2.4.3 Problems Causing Sustainable Management ……… ……… 114

2.5 Environmental Conservation and International Agreement ……… 116

2.5.1 International Negotiation on Environmental Conservation ……… 116

2.5.2 Fund Raising under the Existing International Agreements ……… 117

2.5.3 ITTO and Forest Conservation ……… 118

2.5.4 Limit in conservation by an international agreement organization ………… 130

2.6 Experiences in Other Countries……… 132

2.6.1 Japan ……… 132

2.6.2 South Korea ……… 133

2.6.3 China ……… 133

Chapter III: Issues Related to Vietnam ……… 137

3.1 The New Trade Debate and Its Implication to Vietnam ……… 137

3.1.1 Vietnam’s New Membership of WTO ……… 137

3.1.2 New Politics of Trade and Vietnam ……… 138

3.1.3 CDM and Vietnam ……… 139

3.1.4 ODA and Environment/Trade Issues for Vietnam……… 141

3.2 Application of Economic Theory - Implication of ITTO Mechanisms to Vietnam - ………

142 3.2.1 Scenario 1 ……… 144

3.2.2 Scenario 2……… 151

3.2.3 Analysis of results ……… 156

3.2.4 Summary of Games ……… 157

3.3 Experiences in Other Countries for the comparison with Vietnam………… 160

3.2.1 Japan ……… 160

3.2.2 South Korea ……….…… 160

3.2.3 China ……… 160

3.2.4 Lessons from other countries ……… 161

Summary Introduction

1 The Necessity of the Thesis Topic

There have been growing concerns in the global community on the degradation of international environmental assets As the reports of Intergovernmental Panel on Climate Change (IPCC) indicate, human activities are considered culpable for the degradation Trade is also often criticized for the depleting precious environmental natural resources such as tropical forests

The purpose of the thesis is to examine how International Agreements envisage to contributing to conservation of the global environmental assets that are diminishing rapidly at an increasing rate

It is very timely and important in three main reasons First, Vietnam has just become a member of WTO WTO system and its rules have been often criticized by environmentalists for the possible impact

on the relations between international trade and global environmental assets Therefore, Vietnam will have

to take into consideration this aspect of WTO as a member Second, Vietnam is expecting to face environmental problems in the future As a country whose economy grows by around 7-8 per cent annually,

it is the natural, predicted and unavoidable course of development Third, the relations between trade and environmental have newly emerged as an important issue in the global community to which Vietnam is rapidly being integrated

It is of absolute importance that Vietnam is prepared for the possible consequences of environmental degradation and responsibilities under international agreements This thesis will introduce some of the possible alternative paths that Vietnam will need to take during its economic development process

2 Research Background

There have been a number of studies related to the relations between trade and environment especially in the context of WTO Doha Round Negotiations There are also a number of studies related to other international agreements such as FTAA and US-Jordan FTA One of the best studies probably the “WTO after Seattle” by Jeffery Schott of which the review is stated below

However, there has been no publication analyzing the impact of trade agreements mathematically in terms of environmental conservation The proposed thesis is, therefore, unique, original and very challenging in this aspect

The followings are some of the important previous

studies related to the issue of trade and environment

(a) Governing the Commons (Elinor Ostrom, 1990)

Ostrom suggested in this Article that the desirable result can be achieved if proper enforcement system is established prior to the games However, Ostrom did not discuss about the introduction of arbitration under International Agreements which this thesis tries to incorporate into the games

(b) The Logic of Collective Action (Olson, 1965)

Olson first introduced the concept of "collective action problem" in this 1965 article This article by Olson constitutes one of the backbones of the theoretical approach

in environmental economics

(c) WTO, after Seattle (Jefferey Schott, 2001)

WTO negotiations became paralyzed at its 3rd Ministerial Meeting held in Seattle in 1999 due partly to environmental issues This book illustrates how the WTO negotiations are affected by environmental conservation movements

3 Objectives

First of all, the focus will be set on the general mechanisms of international agreements This approach

would make it clear how international agreements try to achieve sustainable management of the global environmental assets The mechanisms and arrangements adopted by a number of international agreements must be studied carefully in order to understand the effectiveness and impact of their projects in relation with the global environmental conservation

Second, the results obtained by the above studies will be further examined with the relevant economic theories which are introduced in the Chapter 2 of the thesis

By applying economic theories, the roles and mechanisms

of international agreements in conservation of global environmental assets will become clearer

Third, the Vietnamese context will be deeply examined Vietnam has become a member of WTO in January 2007 and its implication to environment needs to

be assessed properly Apart from trade implications, Vietnam will have to take the path of balancing between industrialization and environmental degradation Japan suffered quite heavily from pollutions during the fast industrialization process during 60‟s and 70‟s Such experience of Japan needs to be properly introduced to Vietnam whose economy is experiencing a very fast economic growth

The methodology of the study will mainly be the researches based on the statistics and other public

documents related the relation between environmental issues and international agreements, especially on trade Some of the evidences will be derived from interviews and the diplomatic experiences of the author of the thesis

4 Scope of Study

(1) International Aspects

First, it is necessary to study the relation between WTO and environmental issues Environmental negotiation is included in the current Doha Development Agenda (DDA) negotiations but to the minimum extent The proposed thesis will discuss how the environmental negotiations under DDA will affect the future global trade Secondly, as a supporting factual background to the DDA negotiations, the efforts that have been made by the international community to conserve global environmental assets need to be examined

(2) Vietnamese Aspects

The most important element in the Vietnamese context in the proposed thesis will be the Vietnam‟s accession to WTO First, the proposed thesis will discuss the current situation of the multilateral and bilateral negotiations on Vietnam‟s accession to WTO Secondly, the implication of Vietnamese accession to WTO and its obligations related to environmental conservation will be

examined

The detailed analysis of issues Vietnam is now faced with WTO accession, such as SOEs reform and intellectual property rights, will be discussed in detail under the Chapter 3 of the Thesis

5 Study Method

The mechanisms or arrangements adopted by member countries of international agreements can be examined by comparing them with present economic theories, particularly the theories of common pool resources and collective actions combined by the application of game theories In order to examine the theories, mathematical analysis will be employed as a core tool of methodology Particularly, the thesis tries to come up with possible mathematical solutions that are workable even under so-called “prisoners dilemma” under game theories

6 New findings out of the thesis

This thesis presents the following new findings

(1) New findings related to theory

(a) A new economic equation to relate two levels of sustainable management of economic resource

This thesis introduces a new concept of combining two types of sustainable management of natural resource in a single economic equation and also under a single diagram

as represented by:

C ≦ ΔOS*E + S therefore, E ≧ (C – S)/ΔOS1

(b) Introduction of two enforcement factors as the background of games to see the impact on the contribution trade-offs

Within the framework of game theories, this thesis introduces a new factor represented as „a‟ for the arbitration system The games that are assumed to be supported by this factor in the thesis are found to be more successful than normal cases

(2) New findings related to the application of theory

The games played with the new concepts of the thesis turned out to be more successful than the cases without them This outcome rightly confirms that the policy dialogue with information transparency and the proper system of arbitration or dispute settlement are crucially important

1

E stands for Environmental Amenity Likewise, C for Consumption, OS for Original Sustainability, S for Sustainable Level for human activities ΔOS means the marginal increase of consumption against environmental amenity

The degradation of global environment is advancing at

an alarming rate, but still there is no consensus when it comes to the actual implementation plans introduced by international organizations with theories We do not have much time left to take actions but the issue of environmental conservation under the binding principles of international organization is still a future issue In particular, while expansion of trade is an important factor for the degradation of global environment, the issue of

“trade and environment” also remains a future issue, unfortunately

(3) New findings as implication to Vietnam

A number of games played in the thesis turned out be failure for which sanctions may be applied by the organization This implies that Vietnam may also be sanctioned if the negotiation under international organizations fails This thesis tries to provide an answer

to such situations for Vietnam

Some countries in East Asia such as Japan, Korea succeeded in expanding economic growth by keeping balance with environmental conservation China has

succeeded in maintaining a high economic growth rate but still struggles with pollutions and environmental degradation Lessons learnt from the experiences in other countries for Vietnam can be summarized as follows:

- Export-oriented economic growth is a right policy

- The US market is most important for Vietnam

in expanding its export, which will lead to a rapid growth of the entire Vietnamese economy

- The cost of pollution control and environmental conservation could remain relatively cheap if proper measures are introduced in advance of economic development The recovery cost of the lost environmental quality and public health

is much high than the economic gains

- Good governance and democracy is an important factor in strengthening the economic performance of a country

- Setting numerical economic target is nothing

principles will always lead the economy to the

most profitable point in society

Gist of Chapter 1: Economic Theories Related to Environmental Conservation

Various games played above clearly indicated that the better results would be achieved when both producing and consuming member countries accept the similar values

in the environmental values of the environmental resources This can be achieved by patient and frequent consultation

of policies and exchanges of information between producers and consumers under the framework of each international organization Better appreciation of values claimed by each other would lead games to a success Particularly, the emphasis should be on the existence of factor “e” (enforcement of cooperative measures) and “a” (arbitration system) These two factors are proven to be very effective under the games which implied that the exchange of information and policy dialogue together with the self-established arbitration system would lead to a successful conclusion of negotiations within the actual international organizations Various games played in this paper also illustrated that it is possible to reach compromising equilibrium between consuming and producing members, although they became possible only under certain conditions applied for the games The games also illustrated that transfer of funds from consumers to producers could cause favorable effects, which should