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Economic growth and high quality employment, if they are to be sustainable, must fully incorporate ecological considerations from the start, and integrate them at all levels of decision making. Effects of population, increased consumption and economic output, and the stress these variables put on world resources, combined with a global economy that is increasingly borderless, mean that one must incorporate these considerations up front. As this is done, questions arise about the capacity of the international system to meet these challenges and adequately manage the new and complex interdependencies associated with them.
There is a strong link between growth, employment, ecological processes, and poverty in the world. Indeed, the shift of growth to highly populated areas of the the world, in particular in the rapidly developing countries, poses an unprecedented problem for the use of natural resources.
For a long time it was thought that economic growth and prosperity would come from the proper macroeconomic management of national economies with appropriate attention to microeconomic concerns, and through the international coordination of such processes amongst highly interdependent economies such as those of the G7.
The G7 itself reflected this understanding both by conducting itself in a way that segregated various issues, and separated discussions of macroeconomic issues and environmental issues at the annual Summits, and by creating a separate supporting informal institutional mechanism for finance ministers and deputies.
Following the NRTEE's workshop on February 27, 1995, and considering the background materials prepared by and for the Task Force on Foreign Policy and Sustainability, the members of the Task Force identified six broad areas for recommendations and initiatives.
What has been accepted as the core lesson of sustainable development intellectually should be fully incorporated into the G7 institutionally. It is critical that the G7 continue to address on a regular basis, and in a systematic fashion, their members' and the globe's ecological interdependencies as well as, and as part of, their collective economic deliberations.
The G7 System
The G7 could move in such a direction not only by referring global or domestic environmental issues to their ministers of environment, but by taking this process to its next stage. This is especially timely for Canada, in light of the recent commitment of the Canadian government to include sustainable development as a major pillar of Canadian foreign policy. Sustainable development includes integrated decision making at all levels as one of its major tenets.
The leaders should discuss and endorse the need for a strengthened and sharpened focus on, and expanded and\or reformed institutional support for, their global environment and sustainable development agenda.
Under the chair of either ministers of foreign affairs or finance, before each Summit, there should be a meeting on the following three issues:
1. The state of global environmental issues (e.g., climate change, biodiversity, desertification and global fish stocks);
2. Domestic responses to global environment issues in the G7 (e.g., harmonization of legislation);
3. Quality and quantity of Official Development Assistance (ODA) (e.g., to ensure greater equity and social justice, to discuss emerging sustainable development priorities, notably migration and population, and to improve the quality and better coordinate adjustments in the quantity of official development assistance).
These meetings should include environment ministers, natural resource ministers, trade ministers and heads of the G7 development agencies, to integrate a broaderbased approach to growth and prosperity issues, and make a major input into the leaders meeting. These Summit portfolio ministers should continue to meet separately. The Chair of the meeting should formally report on the discussions to the leaders prior to the Summit.
National Commissions on Sustainable Development now exist in over 40 countries, including all G7 countries and the European Union. In Canada, the NRTEE was established in 1988 by the Prime Minister of Canada. In the US, President Clinton established the President's Council for Sustainable Development in 1993 as an advisory body to the President. In 1994, a Round Table for Sustainable Development was established in the United Kingdom.
In order to mobilize the expertise of a broader range of stakeholders, the G7 should support the creation of a G7 sustainable development multistakeholder dialogue that would include representatives from business, labour, government, environmental groups, development groups, the aboriginal community, research institutions, the subnational governments, and others, to discuss key agenda items for the Summits.
The theme of international institutional reform as articulated in the Naples communiqué is ambiguous in its breadth. However, at the very least, it will include the two Bretton Woods Institutions, the IMF and the World Bank, and could well extend to the international economic institutions more broadly, to take in the regional development banks and other bodies.
Any reform of the IMF and International Bank for Reconstruction and Development (IBRD), and the macroeconomic and development systems they govern, has a large and direct relevance for the prospects of realizing sustainable development in the international community and within Canada itself. As the recent case of Mexico demonstrates, major devaluations of a national currency raise the costs of imports of needed environmental technologies or more efficient and environmentally friendly production equipment; reduce foreign markets for the major producers and exporters of such equipment (the US, Japan, Germany and other G7 countries); and thus impede ecological modernization and technological diffusion at both ends. If currency devaluation (or the preceding current account deficits) leads to higher interest rates in, or capital flight from, the devaluing country, the pool of savings for ecological investments on the part of the often fragile private sector is further reduced, especially among small and medium enterprises without the capacity to engage in sophisticated techniques for managing foreign exchange risk.
Reciprocally, a movement toward sustainable development is important if the IMF and IBRD of the future are not to be overwhelmed by demands for resources which neither they nor their deficitridden major contributors can mobilize and deploy. Most countries of the G7 are running large fiscal deficits, and trends in ODA indicate that while they have risen in all of the G7 countries since 1971 (except Italy), apart from Japan, these increases have been marginal.
National and international macroeconomic policies (such as balance of payments, economic growth and fiscal balances) have clear implications for sustainable development and environmental policies. Certainly one can argue that to the extent that the IMF promotes macroeconomic stability and the removal of price distortions, it also facilitates the protection of the environment. Macroeconomic policy permits increased economic growth which, in turn, makes addressing environment, poverty and other objectives of sustainable development more feasible. Indeed, macroeconomic stability is one condition for attaining sustainable development.
However, macroeconomic stability is not sufficient. A stable macroeconomic situation must be coupled with meaningful domestic environmental policies as well as a market wherein prices properly reflect social and environmental costs. Without all the necessary conditions, macroeconomic policies can promote the production and consumption of resourceintensive products beyond levels which would be sustainable over the long run.
The state of environments and environmental policies in various countries can have important implications for fiscal and macroeconomic balances. Serious and continuing environmental damage can threaten the longterm balance of payments and growth prospects of a country. Macroeconomic stability can be hurt by reducing potential output levels and economic growth. As well, environmental considerations have, in recent years, played an increasingly important role in international trade. Environmental considerations are beginning to play a role in shaping trading relationships, involving recourse to remedial trade action, sometimes in an effort to offset perceived competitive advantages. Similarly, environmental charges and taxes have the potential to impact upon fiscal balances and prospects for economic growth. Indeed, the magnitude of revenue from environmental taxes, such as carbon, or energyrelated taxes, could become increasingly important for financing development in various countries.
Canada is the G7 economy most dependent on natural resource exports for its economic growth. Thus the Canadian economy is particularly vulnerable to exchange rate fluctuations, competitive devaluations, unsustainable development, and overconsumption of scarce ecological capital. Dumping underpriced commodities on world markets in ways that depress prices take traditional markets from more responsible Canadian producers, and encourage overconsumption among the rich. The case of Russian behaviour in the aluminum sector over the past year provides a striking example of precisely this threat.
The current set of international economic and financial institutions is replete with overlapping jurisdictions, behaviours and activities, and uncoordinated priorities. They do not systematically consider sustainable development in all of their decisionmaking processes. This situation calls for a review which understandably could not be completed during the Halifax Summit but must be started through the establishment of a process which could undertake a review of how they can deal with the challenges of the 21st century. This could be accomplished through the creation of a Task Force following the Summit.
A high level Task Force should be struck to systematically review and consider whether the activities of the IMF, the World Bank, the World Trade Organization, the regional development banks, and other specialized agencies are consistent with the practice of sustainable development.
Such a review should begin by assessing performance based on the four criteria identified by G7 heads at the 1994 Naples and 1993 Tokyo Summits:
* the environmental appraisal of projects and public reports thereon;
* the incorporation of environmental considerations into their programs;
* the promotion of local participation; and
* the provision of growing resources for health, education, family policies and environmental protection.
Additional questions that the Task Force should consider include:
* The integration of environmental considerations, systematically, into all of the economic and lending decisions of the World Bank and regional development banks; and
* The creation within each institution, of an environmental "auditor general" or commissioner for sustainable development, modelled on the recent creation of the position reporting to the Parliament of Canada, so that an ongoing review and screening process could be institutionalized, transparency increased, and a procedural guarantee provided that sustainable development will be seriously considered in the implementation of all policies and programs of the international financial and economic institutions.
Such a Task Force should include members from countries outside the G7.
Issues of equity and social justice are the third component of sustainable development ¾ poverty has significant economic, ecological and social costs. Low income countries ¾ the poorest of the poor, such as the countries of Africa where the economic, ecological, and social pressures are tremendous ¾ are not benefitting from increased global flows of private capital, and are vulnerable to downward pressures in levels of ODA disbursements. In times of large deficits and shrinking resources, as in the immediate future, Canada and other members of the G7 and developed countries may well see a continued reduction in ODA.
With the creation of borderless economies, the systematic competitiveness approach could litter the earth with losers who will then become the flash points of new conflicts.
This must be addressed, for ethical, economic, security and stability reasons. The new flash spots will be characterized by rapid urbanization, poverty, social and political turmoil, and a large push towards migration, pulled by the prosperity in countries of the G7.
Among the instruments available to meet these challenges are concessional lending, official development assistance, more international mechanisms to create more capital flow, debt management and relief, and forms of conditionality.
Concessional Lending
The globalization of financial markets has permitted some developing countries to access more easily the flow of private capital. Private capital markets have taken over some portions of global economic management. Private capital flows contribute to stability in recipient countries and lower real interest rates at home. The dominant source of private capital inflow (largely bonds and foreign and government direct investment) is directed to some 20 middle countries in Latin America, East Asia and China (China is the largest recipient of any developing countries of private capital flows).
However, low income countries ¾ "the poorest of the poor" ¾ have not benefitted from increased global flows of private capital. Yet, the economic and ecological pressures on these countries, particularly in subSaharan Africa, are tremendous. The imbalance in access to available funds should be addressed through increased concessional lending, assistance and trade.
The IDA is the World Bank's softloan window and as such is a critical component of the Bank and is intrinsic to its effectiveness and its ability to carry out its mandate. The IDA supports the poorest of the poor. It is the largest single source of concessional financing for these countries, and is also, for some donor countries the largest annual appropriation they make for foreign aid. Generally an IDA loan is long term, for around 40 years, with a tenyear grace period before payments are due. The loans are interest free. In order to qualify for IDA loans, countries must have an annual per capita income of less than US$1,305, although most IDA borrowers have per capita income levels below US$805.
As of March 1994, the IDA had 155 member countries. The money that IDA lends comes from contributions from wealthier nations, some contribution from the profits of the IBRD, and repayments of IDA credits.
Over the years, the IDA has played a major role in helping to achieve substantial progress in reducing poverty. But continuing poverty is still a problem, particularly in areas such as subSaharan Africa, where one child in every six still dies before the age of five. Poverty has significant economic, political, environmental and social costs. Given the trends in private financial markets, and the lack of concessional funds available from the IMF or the IBRD, the IDA is a critical vehicle to help these sectors, likely to be excluded from any of the benefits of development unless specific efforts are taken.
G7 leaders should declare their support for a replenishment of IDA funds by 1996 for the 19969 period at no less than existing levels and with a stronger emphasis on ecological and sustainable development priorities. The World Bank's resources should be focussed primarily on the poorest and least developed countries. The IDA must pay special attention to Africa.
Official Development Assistance
Given that levels of bilateral assistance do not at present reach Agenda 21's target of 0.7%, a second extremely important issue concerns the quality and efficient use of the aid that is provided. Despite the commitments made in recent Summit communiqués to strengthen ODA expenditures, G7 countries were compelled by financial stringencies to decrease their total in 1993 to US$54.8 million from US$60.8 million. Moreover, the commencement of largescale programs of assistance to Eastern and Central Europe in the 1990s has inevitably squeezed the aid monies potentially available for developing countries. New fields of environmental endeavour in the 1990s have given rise to demands for "additionality" of aid flows to cover them. These demands, which have generally not been met, and debt forgiveness have emerged as a significant category of ODA over the last decade and a half. There has thus been increased pressure on ODA, which is forcing a downward readjustment of traditional bilateral aid expenditures.
Some G7 countries concentrate their aid much more than others. The United States, for instance, gave almost 40% of its aid to Egypt and Israel in 199192 whereas no recipient of Canadian aid received more than 4% of the total. France allocated most of its aid to countries of La francophonie, and the UK to those of the Commonwealth. ASEAN countries figured prominently among recipients of Japanese ODA. These tendencies were, however, subject to many exceptions. Egypt, for instance, was a major recipient of aid from almost every G7 country except the UK.
In the spring of 1993 the G7, led by US President Clinton, assembled a package of US$43 billion to support overall reform in Russia. The Canadian portion of that assistance package was over $US1 billion. Since then, however, the Russians have chosen to focus their own financial resources on domestic priorities in ways that overwhelm the effectiveness of international assistance.
In times of large deficits and shrinking resources, as in the immediate future, Canada and other developed countries may well see a continuation of these pressures on ODA. G7 countries will doubtless strive to preserve their commitments to multilateral ODA, given the value of these multilateral programs and the political linkages that lie behind them. Bilateral flows will therefore likely be the main targets of any reductions. Means must be found to improve the focus on environmental programs, population activities, and the alleviation of poverty, within available resources. One means of doing so would be to build on existing selectivity among G7 donors to achieve a higher level of coordination of bilateral ODA, both as to geographical destination and functional use. An understanding among G7 countries could subsequently be generalized among other members of the Development Assistance Committee (DAC). The objectives of this coordination would be:
* to preserve programs to a wide range of countries;
* to give priority to environmentally significant programs;
* to elicit a high degree of participation from recipients; and
* to improve the commonalities among programs of G7 countries.
The allocation of ODA must be better coordinated among the major donors for improved quality and maximum efficiency, and to prevent simultaneous withdrawal of, or drastic reductions in, donor countries' contributions. This coordination must attempt to eliminate overlap and weak policies and practices as well as encourage better geographic balance. The World Bank should cooperate more directly with regional development banks and other international agencies to achieve this end. The environmental component of ODA should be reviewed and sustainable development made a priority. Official development assistance should be focussed on projects that private capital flows are not covering, notably health, population, the empowerment of women and aboriginal peoples, and environmental protection and enhancement. The G7 should propose that the appropriate body to coordinate this effort might be the OECDDAC.
In order to meet the inevitable changes in the use of capital for development purposes, the G7 should welcome the innovative new funding provisions in the UN Convention on Desertification which encourage multiple source funding of projects (including private sector, foundation and domestic funds of developing countries), NGO participation and better coordination amongst donors at the national levels.
Debt Relief
A leading area of Canadian and G7 success over the past decade has been the adoption of a cumulative set of practical and effective measures for relieving the debt burden, and thus enhancing the sustainable development prospects, of the poorest of the poor, above all in Africa. As the Commission on Global Governance recently noted, for many low income developing countries the 'debt crisis' is a "live and growing problem" that the G7 addressed with the 1988 "Toronto Terms" on debt reduction, the 1991 enlarged Toronto Terms (involving a 50% forgiveness of the present value of debt service payments) and, more recently, the "Trinidad Terms" (offering more concessional relief for some debtors). The need which inspired these early G7 actions continues and in many respects has been compounded by postCold War developments in Africa.
The Halifax Summit should provide a substantial practical response to alleviating the burden of debt, including debt to multilateral institutions, carried by the poorest countries, particularly in Africa. Such a response should be taken on the basis of a complete analysis, prepared by the G7 finance ministers and discussed by the leaders themselves, of which forms of past debt relief have worked and the reasons for the success of those measures which have been effective.
Military Spending Reductions
Specialists in international development have long known of the advantages which professional military establishments can bring to early stages of the development processes. They also know how large military establishments can divert scarce resources from basic human needs and civilian infrastructure, and how the dominance of military calculations can encourage donors to channel ODA to countries on security rather than basic development grounds. For example, despite the recent moves toward peace in the Middle East, the US still devotes half of its aid budget to Israel and Egypt. Heavy military spending can also create insecurity on the part of neighbours, and generate conflicts that destroy much of the hardwon development that has been achieved. Even in peacetime, large military establishments perpetuate a tradition of closed, secret decision making that contradicts the sustainable development objectives of openness, transparency, and public participation, and diminishes respect for the environment.
National choices to maintain and expand military spending should lead to reduced aid flows (apart from cases where G7 foreign ministers can identify a legitimate security need). The heads of the G7 development agencies should meet to consider how best to define and introduce such incentives; how best to assist developing countries to move towards more environmentally sensitive military programs; and how a portion of the "peace dividend" enjoyed by G7 countries can be mobilized to support this effort.
The steady reduction of overall national military expenditures (apart from military programs for disaster relief, natural resource protection and environmental remediation) in developing countries should be acknowledged by greater resource flows from the international financial institutions, both in regular programs and in the creation of new support and adjustment programs, and in national development assistance and debt reduction programs. The IFIs should adjust their activities to create an incentive for such reductions.
Trade has been on the agenda at every G7 Summit since it began in 1975. The Uruguay Round of the GATT had been considered and encouraged through the Summit process through to its conclusion in late 1993. In 1994, at Naples, President Clinton indicated he might to go to Halifax in 1995 with the initiative he introduced for "Open Markets 2000" aimed at global trade liberalization. This emphasis has been reinforced by his recent success at APEC and the Summit of the Americas, where he called for free trade among members and within the hemisphere by the years 2000 and 2005, respectively.
Adherents of sustainable development should welcome this increased trade liberalization because it is among the dominant factors that attract new capital inflows, increase prosperity, and allow resources to be directed toward development that might be more sustainable. However, these same adherents must be aware that increased growth through exportled trade liberalization could have serious ecological implications where environmental policies, laws and regulations, and resources for mechanisms to monitor and enforce, are relatively weak. Intensifying economic growth presents a significant threat to the global ecology if pursued without concern for environmental and social protection. At the same time, increasing interdependence presents opportunities to undertake the increased activity in more sustainable ways.
In the Naples communiqué, the G7 leaders stated: "We welcome the work on the relation between trade and environment in the new WTO." The G7 should naturally be concerned about the link between trade and environment. It provides an excellent forum for providing leadership on this issue as its members command a strong plurality of global economic and environmental capabilities. Also, because it is small, it is able to make decisions and its leaders are able to reach agreement often faster than larger, more bureaucratic, institutions. From a Canadian perspective, it is an extremely useful forum for a number of reasons, on trade issues in particular. In the G7 the US represents a minority of capabilities and so the institution has an opportunity to exert effective control over attempts at American unilateralism.
The Uruguay Round of GATT negotiations has laid the framework for the next generation of trading relationships and set the stage to deal with new issues in the postUruguay Round era.
The Uruguay Round agreements that brought about the WTO included a concern for the ecological consequences of increased economic growth and trade.
In response to these concerns, the WTO created a Committee on Trade and Environment. The G7 should show leadership in securing the successful outcome for the Committee's work program in support of the timetable established by the WTO, to report on progress made on issues of trade and environment by December of 1996.
Leaders should consider whether a new transregional dialogue on some of the issues pertaining to the better management of the ecological aspects of increased trade (such as ecolabelling, packaging, and the effects of multilateral environmental agreements) could be helpful to the WTO in determining how to reconcile issues of trade and environment. This dialogue should include bodies such as the OECD, APEC, NAFTA, the EU, MERCOSUR, the Commonwealth, La francophonie and key members of the G15.
Canada should acknowledge the experiment and experience of the North American Commission on Environmental Cooperation and its value in developing a forwardlooking tradeenvironment regime, relying largely on systematic broadbased cooperation, but also on the need to enforce national environment legislation.
Confusion and incoherence characterize the current management of international affairs, as a dozen different UN agencies, the secretariats to various environmental treaties and conventions, the World Bank, and countless national and international NGOs attempt to deal with the globalization of environmental problems. And when environmental issues overlap with and have an impact on economic concerns, there is no institution with the resources, power, or credibility in the international system to ensure that the environmental concerns are dealt with fairly. For example, there is no institutional international organization to protect environmental values the way the WTO protects the principles of free trade.
Since the Earth Summit in Rio, the need for global environmental issues ¾ as well as sustainable development issues ¾ to find an adequate institutional champion has arisen very clearly. The present structures in the UN and elsewhere are characterized by overlap, inefficiency and the difficulty of finding adequate priority setting mechanisms in a context where the recent UN Framework Convention on Climate Change, the UN Convention on Biodiversity, the UN Convention on the Law of the Sea and the UN Convention on Desertification exist among some 900 international treaties or international agreements on environment issues.
The G7 leaders should recognize the need for a modern and effective global institution with an environmental protection and enhancement mandate.
The G7 should call for the creation of a Task Force to review and make recommendations on current environment and development institutions, including questions of jurisdiction, overlap, coordination and efficiency as they pertain to UN agencies and others.
The Task force should also consider the following:
* How best to build on existing institutions, including, above all, how to significantly strengthen and upgrade UNEP so that it might be able to interrelate on a more equal and effective basis with the IMF, the World Bank and the WTO; and
*How such an institution could eventually work closely with the WTO to consider the environmental implications of trade.
The Task Force could be proposed by the environment ministers at Hamilton who could compile a list of the institutions to be examined. This process could be endorsed by the leaders at Halifax. The heads of the G7 development agencies should also be involved in this review. Such a Task Force should include members from countries beyond the G7.
The G7 leaders should acknowledge the need for a new body within the UN system that would be accountable for the administration of the global commons (oceans, outer space and the Arctic) and should consider having a reformed UN Trusteeship Council play this role.
In December 1994, the First Conference of the Parties of the UN Biodiversity Convention was held in Nassau. In March 1995, the First Conference of the Parties of the UN Framework Convention on Climate Change will meet in Berlin. Both meetings were designed to assess progress toward the implementation of the two treaties which were signed at the Earth Summit in Rio in 1992. All of the G7 countries have signed, if not yet ratified, both agreements.
The leaders of the G7 should articulate a renewed sense of purpose regarding sustainable development and the commitments made at the Earth Summit in Rio de Janeiro.
The leaders at the G7 should take the lead in reviewing and reorienting the systems by which they motivate economic behaviour to create incentives for environmentally positive behaviour. This could include examining the design and implementation of economic instruments for the conservation of biological diversity.
The G7 countries have a commanding share of global energy consumption (46%), temperate forests (39%), industrial CO2 emissions (38%), and primary energy production (37%). In the postRio era of global environmental cooperation, with these resources and thus responsibilities, the G7 is an important forum for generating action on critical issues and, in particular, climate change, where energy production, consumption, and CO2 emissions are at the core, and where forests play an important role as carbon sinks.
The leaders of the G7 should reaffirm their support for the UN Framework Convention on Climate Change and rapidly move towards creating and implementing the national plans that it requires, including sharing with other countries ways and means to ensure that production is more energy efficient and nonpolluting, with an emphasis on renewable forms of energy.
At their 1994 Naples Summit, the G7 leaders, in their discussion of climate change, also recognized s"the need to develop steps for the post2000 period." One area where they have a natural advantage in doing so is in pioneering energyefficiency technologies for public and private transportation. At this critical stage there is a need for government support for the development of a host of precompetitive technologies, so that a variety of paths toward producing the "clean car" of the future can be explored and the most economically and environmentally desirable, chosen. Given their shared commitment to control CO2 emissions, and their status as the world's leading automobile producing countries, there is a need for coordinated G7country attention in this area. At a minimum, G7 countries should ensure that the technical standards and regulatory incentives being introduced on a national level to develop environmentally friendly vehicles and fuel systems do not generate barriers to international trade that inhibit the development and diffusion of the best systems. They could further explore how internationally shared research on critical components could advance the process, and which of the new technologies, particularly in the public domain, could be shared on concessional terms with developing countries.
As one way to assist G7 countries meet their commitments for stabilization and reduction under the UN Framework Convention on Climate Change, the leaders should encourage representatives from the G7's national research councils, standardsetting bodies, and automotive industries to meet to consider the need for harmonized standardsetting and coordinated research and technology transfer in environmentally friendly vehicles.
Sarah Richardson is Foreign Policy Advisor at the National Round Table on the Environment and the Economy. John Kirton is an Associate Professor of Political Science at the University of Toronto.
 
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