We live in an interdependent world, and this means that sound national policies, on their own, cannot ensure that outcomes will be efficient: international fisheries may be overexploited, international groundwater resources may become depleted, potentially containable plant diseases may spread and forests and agriculture may he damaged by transboundary pollution. To ensure more efficient outcomes, international cooperation is required. And yet, as the allegory of the "tragedy of the commons" tells us, national incentives may prevent cooperation, even when every nation could be better off by cooperating.
This paper is a contribution towards understanding when cooperation could improve on nationalistic policy, in what areas cooperation has already been manifested and the determinants of successful cooperation. Contrary to the allegory of the commons, this paper shows that cooperative outcomes can be sustained under certain circumstances. This is encouraging, although the paper also argues that cooperation has not always been successful and identifies the features of certain problems - such as the number of countries sharing a resource - that help to explain why. While offering an analytical framework for examining cooperation, the paper also throws up a challenge. The challenge is to devise means for sustaining cooperation, even when the circumstances would seem not to support such an outcome.
T. Kelley White
Director
Policy Analysis Division
Many environmental and natural resources are shared internationally. Examples relating directly to food and agriculture include fisheries in international waters or fish populations, such as tuna, that move from one country's territorial waters to another's; marine mammals, such as whales and seals; terrestrial species, such as the vicuņa, whose territory overlaps national boundaries; and the means of controlling plant diseases and pests. In each case, effective management requires international cooperation. The reason is simple. If countries care only about self interest. they will ignore the international consequences of their actions. When one country harvests tuna, it ignores the fact that its harvest leaves less for others to harvest. Failure on the part of one country to control the importation of pests may damage the crops of other countries in the region. In all such cases, all countries would be better off if they cooperated with each other.
Often, management of international resources affects food and agriculture indirectly. Depletion of the ozone layer and associated increases in ultraviolet radiation are expected to harm the fecundity and growth of marine organisms and reduce both the yields and quality of many crops. Similarly, acid rain emissions affect the productivity of lakes, forests and agricultural lands. Global climate change is likely to affect food and agriculture more than any other economic sector although the magnitude of its effects - especially at the local level - is difficult to estimate. Finally, the experience of Chernobyl shows that safety in nuclear power is also important to agriculture
Since the management of transboundary fluxes' the stratosphere and atmosphere requires international cooperation, it is clear that the distinction between cases where food and agricultural resources are shared directly and cases where the productivity of food and agriculture is dependent on the quality of a shared environmental resource is a technical one. Indeed, while the author is not aware of any study that has estimated the quantitative significance of both types of problem, it is possible that the latter problem is even more important for food and agriculture than the former.
The above environmental problems are examples of reciprocal externalities. If one country harvests more tuna, fewer tuna are left in the sea for other countries to harvest, and other countries are likely to respond to this action by adjusting their own harvest rates. In other words, every country is both the source of the problem and its victim. The reciprocal nature of environmental problems can play an important role in attempts to cooperate in managing the resource more effectively. For example, if all countries harvesting tuna agree to reduce their harvest levels, and one country cheats on the agreement, the others may retaliate by increasing their harvest levels. This retaliation serves to deter cheating and, hence, to support cooperation.
Some environmental problems involve unidirectional externalities.) An example is pollution upstream in country X affecting water quality downstream in country Y. Here, Y is a victim but not a source of the problem. Y cannot influence X's actions by dumping more pollution in the river. To improve the situation, Y may compensate X for the costs of pollution abatement. Alternatively, if X and Y are interdependent in some other way - perhaps through trade - Y may seek to link the issues. Y may respond to increased pollution from X by imposing a duty on imports from X. It is clear from this example that linkage holds certain attractions but may also be dangerous: the effect may be to lose gains from trade while not improving environmental quality.
The conservation of biological diversity is an example of a global environmental problem having unidirectional elements. Most of the earth's biological diversity is found in tropical rain forest countries.
These countries have an incentive to conserve some of their biological resources for nationalistic reasons. But they must accept sacrifices if they conserve all of their biological diversity and, hence, may be reluctant to do so. Other countries, however, benefit from conservation - partly because of the potential value of biological diversity in R&D and partly because of the value attached to the existence of biological diversity. The tropical rain forest countries have no incentive to take the well-being of other countries into account when deciding on their conservation programmes, just as in the above example country X had no incentive to take account of the environmental damage suffered by Y as a consequence of X's pollution emissions. The solution may be for countries that benefit from conservation to compensate the tropical rain forest countries for the incremental costs of conservation.
Compensation, however, reintroduces a reciprocal externality. If one country compensates a tropical rain forest country for the costs of conservation, a great many other countries benefit. The country paying the compensation has no incentive to take the full global benefit into account when deciding how much compensation it should pay. The same is true of all other countries that benefit from the conservation of biological diversity. Hence, there are incentives for countries to offer too little in the way of compensation. All the countries that benefit from the conservation of biological diversity would be better off if they cooperated in choosing compensation levels. As long as more than one country is affected by a unidirectional externality, the problem also has reciprocal externality elements. It is these that this paper seeks to address.
It should be noted that the problems discussed so far are not the only cases that may call for international cooperation. One country's policy regarding the environment may affect the well-being of other countries even if it does not affect the quality of the environment enjoyed by the other countries. In particular, actions by one country may affect the competitiveness of other countries. As an example, in the 1980s, Canada required inspection, counting and monitoring of all exports of unprocessed herring and salmon, ostensibly to protect these fisheries from excessive exploitation. The United States objected to the requirement, however, arguing that it contravened Article XI of the General Agreement on Tariffs end Trade (GATT) and that it was intended to protect the Canadian processing industry - at the expense of its United States rival - and not to conserve Canada's West Coast fisheries. A GATT Disputes Panel set up to hear the case ruled in favour of the United States. According to Pearce ( 1992, p.14), "most commentators accept that Canada's use of the environmental argument was an attempted disguise of protectionism which the Panel rightly exposed". Had GATT not existed, actions of this kind might have invited retaliation by other countries in the form of further trade restrictions.
In some cases, the aims of international environmental protection and trade may conflict. A recent and well-publicized example concerns the 1988 amendments to the 1972 United States Marine Mammal Protection Act, which restricted the imports of tuna caught using a technology that kills more dolphins than allowed by United States standards. This unilateral action harmed a number of countries, especially Mexico. Mexico complained to GATT and, in this case, a Disputes Panel ruled that Article XX(g) of GATT does not allow restrictions that protect natural resources outside the jurisdiction of the country making the restriction. In contrast to the Canadian regulation, the United States action may have served to protect an international resource (the dolphin) and, hence, been justified on environmental grounds, despite the implications for trade. While trade issues may arise quite independently of the problems considered in this paper, a great many problems exist where trade and environmental issues overlap.
Indeed, trade restrictions are sometimes employed by international agreements governing the management of shared resources. For instance, the Montreal Protocol on Substances that Deplete the Ozone Layer bars signatories from trade with non-signatories in chlorofluorocarbons (CFCs), products containing CFCs or products made using CFCs. This trade ban serves two purposes. The first is to ensure that action taken by signatories to reduce CFC production is not offset by their imports from nonsignatories. The second is to provide an incentive for non-signatories to accede to the agreement. While the use of trade restrictions in this and other international agreements has not been taken to GATT, there is some question as to whether they are GATT-compatible. Clearly, questions of international trade can be important to the analysis of the collective management of shared environmental resources (Anderson and Blackhurst, 1992).
The essential point remains, however, that where countries might be made better off by cooperating in the management of shared resources, strong incentives exist for these countries to free ride on others. It is important, therefore. to know what can be expected of international agreements that codify collective management and how such agreements might be effectively negotiated. The purpose of this paper is to review the economics of international environmental agreements (IEAs) and draw Implications for the international issues that are relevant to the United Nations Food and Agriculture Organization (FAO).
Three chapters follow this introduction. The first of these reviews a number of IEAs that are already in force or are being actively negotiated and have relevance for food and agriculture while the second presents the theory of IEAs, focusing on how countries can agree to cooperate and sustain cooperation despite free rider incentives. Two kinds of problems are considered: the case of a reciprocal externality, such as the management of climate change or plant protection, and the conservation of biological diversity, which has elements of both unidirectional and reciprocal externalities. The final chapter returns to where the paper began, commenting on the ability of IEAs to improve upon the non-cooperative outcome.