Summary report, 6–9 March 1995

The Commission on Sustainable Development's ad hoc open-ended working group on finance opened on Monday, 6 March 1995. During the four-day meeting, delegates discussed a wide-range of issues relating to finance, including: the international policy environment and financial flows; national policies and resource mobilization; innovative international mechanisms for resource mobilization; financing for sectoral and cross-sectoral issues of Agenda 21; and the Matrix of policy options and instruments designed by Harvard's Dr. Theodore Panayotou. While some delegates attempted to move the discussions beyond the usual post-Rio rhetoric and actually discuss new ways and means to finance sustainable development, the debate inevitably returned to the call by the G-77 and China for the developed countries to fulfill their commitments, as contained in Chapter 33 of Agenda 21, to achieve the target of 0.7% of GNP for ODA. By Thursday afternoon, delegates adopted a report prepared by the Chair, which included a series of recommendations to present to the CSD at its meeting in April.

OPENING SESSION

In his introductory statement, the Chair, Dr. Lin See-Yan (Malaysia), noted that it is a year since this CSD intersessional ad hoc working group on finance started its work and we now have to move the process forward and give the framework some body and substance. He asked delegates to give priority in their statements to the following five areas: 1) how can we best reinvent ODA, especially in conjunction with private capital flows? 2) how can we best strengthen the mandate of the Bretton Woods and other international financial institutions to give high priority to financing sustainable development? 3) how can we best proceed and focus attention on the timeliness and feasibility of examining a global environmental user charge or tradeable permits? 4) how best can we encourage governments to give priority to design effective incentives to reduce pollution based on the polluter-pays principle? and 5) how best can we fully utilize and develop the matrix of policy options to facilitate the formulation of optimum strategies for financing Agenda 21?

JOKE WALLER-HUNTER, Director of the Division for Sustainable Development, presented the unedited version of the Secretary-General's Report on Financial Resources and Mechanisms, which provides an overview of current issues and developments. In the follow-up to Rio, the CSD approached the issue of finance from the perspective of the need to monitor commitments and the development of policy options. In this respect, ODA, the role of the private sector and international financial institutions, and debt relief were stressed. One of the innovative approaches to mobilizing resources indicated are tradeable permits. There is need to discuss economic instruments as well as how to integrate the financing of the sectoral and cross-sectoral issues. The report presents a comprehensive picture of the potential role of economic instruments in both developing countries and countries with economies in transition and makes an attempt to address the matrix approach to resource mobilization. The Working Group needs to advise the CSD on how to overcome the problems of: international policies; financial flows, especially on how to increase ODA level to the UN target of 0.7%; external debt; the role of the Bretton Woods institutions with regard to sustainable development; increasing the knowledge base on tradeable permits; the matrix approach; and promoting cooperation and partnerships in national reforms.

After delegates adopted the agenda (E/CN.17/ISWG.II/1995/1), the Chair invited the hosts of the two preparatory meetings to brief the Working Group. The representative from the Czech Republic noted that the conclusions of the Prague meeting would be distributed. Japan gave a brief report on the Second Expert Group Meeting on Financial Issues of Agenda 21, which was the continuation of the 1994 Kuala Lumpur meeting and was cosponsored by Japan and Malaysia, in collaboration with the DPCSD and UNDP, in Glen Cove, New York, from 15-17 February 1995. The main features of the discussion were international financial flows and innovative international mechanisms, mobilization of domestic resources, and the matrix approach. Experts noted that private capital is the largest segment of international financial flows. Acknowledging the vital role of ODA, the expert group discussed leveraging to maximize benefits of ODA resources through joint ventures, co-financing and other sources. Donors and recipient countries need to explore new approaches to increase the effectiveness of ODA and to make progress in reaching the UN target of 0.7% of GNP for ODA. Participants agreed that the CSD should strengthen communication and partnership with the governing bodies of the international financial institutions (IFIs). The expert group also discussed an environmental user charge on air transport, joint implementation, trade in CO2 permits, and other issues.

PRESENTATION ON THE MATRIX OF FINANCIAL INSTRUMENTS AND POLICY OPTIONS

Dr. Theodore Panayotou (Harvard Institute for International Development) presented his matrix of financial instruments and policy options — a new approach to financing sustainable development. Dr. Panayotou noted that to put the world economy on a sustainable development track, a combination of instruments and approaches is necessary. The world economy is at a crossroads between sustainable and unsustainable development and may have already taken the wrong track. We need to change tracks and the longer we wait, the more resources we will need. If we assume a business as usual scenario, the available resources leave an apparent funding gap that was estimated by the UNCED Secretariat to be US$600 billion. However, if we remove barriers to sustainable development (energy, agricultural, chemical and other subsidies in both developed and developing countries) and redeploy existing resources, the funding gap will shrink.

He listed a number of different sources of additional resources to bridge the funding gap. These include: redeployment of resources and a move from unproductive to productive projects; phasing out subsidies; privatization; greening of taxes; marginal cost pricing of services like water and electricity; assigning property rights to natural resources to communities or the State; channeling private capital flows correctly to promote sustainable development; encouraging joint implementation and the use of tradeable CO2 emissions permits; using ecotourism, bioprospecting and tradeable conservation credits; and using other environmental user charges, private voluntary contributions, the GEF and additional external assistance, such as ODA.

The matrix of financial instruments and policy options includes: external resources; the international policy environment; national policy reforms; and innovative instruments. Sources of external resources include ODA and the GEF. Options in the international policy environment include debt relief, trade flows and private financial flows. The matrix of national policy reforms includes: economic and financial reforms, property rights, resource pricing, subsidy reduction, taxation and environmental charges. Innovative instruments at the domestic level could include: ecolabelling, ecofunds, bioprospecting fees, ecotourism fees, scientific tourism fees, watershed charges, tradeable reforestation credits, relocation incentives, tradeable water shares, betterment charges, differential land use charges, tradeable emissions permits, waste delivery incentives, bonds, deposit refund systems, competitive bidding and property taxes. Global innovative mechanisms include: joint implementation, patents, intellectual property rights, water trading across borders, tradeable permits, carbon offsets, carbon taxes, air travel tax, oil spill bonds, and transport bonds. In closing, he noted that the implementation of these options has to take place slowly but must begin somewhere, whether on an experimental or voluntary basis or through joint implementation.

In the discussion that followed, MALAYSIA said that IARCs and CGIAR gene banks are another possible source of finance for developing countries. BRAZIL sought clarification on why the innovative measures, which are so widespread, are not being implemented and added that the paper should have provided a financial assessment of the effects of the instruments in the short-term. He suspects that the instruments could penalize the poor in the short-term, in spite of their potential success in the medium- to long-term periods. Panayotou responded that several factors, including suspicions, lack of capacity, vested interests, time constraints and competitiveness, have delayed the start-up of these processes. However, his concern was not that the process will not eventually start, but the fact that the response to urgent problems is always too slow and the eventual cost too high. Often, the effects of equity and distribution depend on how the process is handled, and mostly relate to how the revenue earned is distributed. The approach requires undertaking neutral revenue taxation. Short-term distribution of revenue also requires further study. He stressed that poverty alleviation, economic growth and environmental conservation must be addressed concurrently.

CHINA clarified that one cannot refer to bilateral initiatives between counties as joint implementation, an approach that has not yet been approved by the Parties to the Convention on Climate Change. There should be a way to integrate environment and development concerns. Resolving environmental problems requires joining hands in a global partnership. Panayotou concurred, adding that over-consumption can be easily resolved by eliminating subsidies. Capacity-building is important in developing innovative domestic instruments, since even if they are successful elsewhere, they still need to be adapted to local situations.

The PHILIPPINES noted that in this matrix there are many options. Now that we know the "what," we need to discover the "how." Panayotou concurred on the need to develop mechanisms to enforce property rights on biodiversity. The paradox is that currently patented products can be reproduced, while those unpatented, such as biodiversity, cannot be recycled.

INDIA stated that the new and innovative ideas were very useful, but how does one deal with the administrative and implementation problems ensuing from new taxation processes and how does one integrate the new taxation concepts with the attempts to simplify taxation, since these can generate a new bureaucracy. Panayotou recommended that the CSD should use case studies from developing countries to find out how these methods have been implemented, the problems encountered and their replicability. To address environmental problems, one could start with other measures, such as removing tax shelters, exceptions and subsidies that harm or do not benefit the poor, the environment and the economy. Alternatively, one could introduce marginal cost pricing or differentiated taxation of products, for instance between leaded and unleaded gasoline.

The UNITED STATES said the new approaches to resource flows have merit, especially in increasing financial flows. Given the inability of existing institutions to undertake new work, who would undertake the proposed studies? Second, why is there a difference between Panayotou's and UNCED's estimates of the finances needed for sustainable development? Panayotou suggested that governments voluntarily undertake the experiments, with coordination by the CSD. With regard to the difference in estimates, UNCED undertook the studies in a rush and was, therefore, not able to take into account certain distortions.

Poland asked three questions. (1) On what basis were Panayotou's funding estimates done and how is it possible to evaluate those instruments that have not been applied? (2) How can an increase in ODA at this stage allow its lowering in the future? (3) Which is better for implementation in the near future — joint implementation or tradeable emissions permits. Panayotou responded that the shrinking of ODA reflects the fact that if the levels were met now, less would be required in the future in relative terms, since most problems will have been resolved, although this may be too much to expect. He said that preference should be international tradeable permits to joint implementation (JI), since the former provides an opening into the international market. However, JI is still useful in the short term, especially if CO2 permits are auctioned.

INTERNATIONAL POLICY AND ENVIRONMENTAL FINANCIAL FLOWS

The PHILIPPINES, on behalf of the G-77 and China, emphasized his group's growing disillusionment with the changing external environment. While the estimates of the funding needs are US$600 billion, only US$125 billion was to come from the North. He stated that: (1) re-inventing new ideas on resources mobilization are good, but they cannot replace commitments to realize ODA targets; (2) in spite of donor fatigue, ODA has to be realized; (3) developing countries shall be competitive in world markets as long as they are open to them; and (4) while international institutions are necessary, the COPs and the CSD should call the shots.

CHINA reminded delegates of the difficult negotiations of Chapter 33 of Agenda 21 and noted that the paragraph that took the longest time to negotiate dealt with ODA. According to the OECD's Development Assistance Committee (DAC), in 1990, average ODA was 0.35%. Since Rio, however, ODA has not increased but has declined and the 1993 average was 0.29%. Two years and nine months have now elapsed since Rio and regrettably the "new global partnership" is far from becoming a reality. To establish this partnership, it is necessary to: (1) earnestly implement the commitments made at UNCED; (2) adhere to the principle of common but differentiated responsibilities with the developed countries bearing the main responsibility; and (3) join hands to check the harmful tendency of containing the socio-economic development of the developing countries in the name of "environmental protection." While new mechanisms need exploring, they should not replace honoring ODA commitments.

FRANCE noted that: (1) the integration of economic systems and markets has led to an interdependence of nations necessitating new cooperation for development. Thus, partnerships are not just a question of moral obligation but one of mutual interest, which requires the participation of all sectors, including governments, NGOs and the private sector. (2) Some of the developing countries from the middle-income bracket have GNPs that are equal to those of some of the developed countries. This gives rise to the need to consider the role of private investors.

The US said that the focus of this meeting should be on improving the use of existing resources and considering innovative financial mechanisms. The CSD should recognize that the private sector is the largest source of financial flows and that governments can encourage private sector flows by adopting and enforcing environmental regulations, providing a stable and predictable economic environment, and providing adequate technical training to use environmentally sound technologies. Since available resources for foreign assistance are limited, the CSD should look at how to make better use of existing resources through: refocusing bilateral assistance to give priority emphasis to sustainable economic growth and development; encouraging sound multilateral and bilateral policies; enhancing donor coordination; supporting national sustainable development strategies; and promoting environmentally-oriented debt relief programmes.

MALAYSIA noted that since Rio lamenting about ODA commitments has been reiterated at each CSD meeting. He stated the need for: developed countries to articulate their plans on how to increase ODA; undertaking an in-depth review of ODA and exploring new approaches and mechanisms that would enable progress; changing the mindset that repeated calls from developing countries are calls for sympathy; paying attention to the problems in developing countries, especially those related to structural adjustment programmes (SAPs); encouraging discussion on debt, trade and other macro-economic policies in an integrated manner; encouraging the international financial institutions to incorporate social, economic and environmental goals for sustainable development.

DENMARK reiterated her government's commitment to ODA, which is currently at 1% of GNP. Denmark has set a target of an additional 0.5% by the year 2002. The CSD should perform its mandate to implement the Agenda 21 commitments and try to meet the ODA target.

PAKISTAN noted that ODA is crucial for the least developed countries and it is necessary to look beyond the question of political will to other reasons that impede the attainment of UN targets. In spite of macro-economic problems, including the recession and the diversion of resources to the countries with economies in transition, it is necessary to ensure resources get to developing countries. He offered four strategies to accomplish this: (1) build consensus in developed countries to increase ODA, not as a matter of altruism or sympathy, but out of mutual interest; (2) developed countries should recognize and highlight the fact that their ODA does not go to waste and use this approach to generate political commitment; (3) although the Secretary-General's report highlights the Bretton Woods institutions as one of the structures, it is necessary to provide a critique of whether such structures are operating, highlighting whether they have succeeded in realizing sustainable development; and (4) while the ad hoc Working Group was asked to provide an analysis on the interrelationship between the CSD and the Bretton Woods institutions, these institutions should have presented papers and provided an opportunity for interactive discussion on the issues.

NORWAY pointed out that ODA is a safety net for the least developed countries. To maintain high ODA levels takes serious political work. These goals cannot be achieved without using economic instruments and restructuring taxes. He expressed disappointment that the Conventions on Climate Change and Biodiversity have not taken decisions on the permanency of the GEF. The GEF is replenished, restructured and ready to take on these tasks.

COLOMBIA said ODA is in crisis and new political will is needed to carry out commitments. He drew attention to the speculative nature of financial flows to developing countries. The problem of concentration of resources in a small group of countries and sectors has been compounded by greater volatility, as demonstrated recently in Latin America. The instability and volatile nature of capital should be studied. The subject of debt conversion should also receive more attention from the CSD. Despite the euphoria after the completion of the Uruguay Round, there are still dangers to its successful implementation. This Working Group should explore mechanisms to ensure greater effect and avoid duplication of the work done by the UN, the Bretton Woods institutions and national governments.

The REPUBLIC OF KOREA noted the serious need to address mobilization of financial resources. He noted that private sector resources will be limited since their effect has mainly been felt in the middle-income developing countries, hence ODA will play a vital role in the least developing countries. The CSD should promote discussion on the interrelationship between trade and international resource flows.

INDIA noted three issues that need to be addressed. (1) Increasing ODA requires addressing how it can be realized for the OECD countries' self interest. (2) Although private sector resources are increasing, they involve volatility and risk, not only in the developing countries where the investments are made, but in developed countries as well, and for similar reasons, including monetary interest and political factors. This requires addressing volatility in the North. (3) Two aspects of the relationship between infrastructural development and sustainable development should be addressed: there is a gap between private loans, which are short-term (5-10 years) and the often utilized medium- to long-term (15-20 years) loans for developing countries; and appropriateness of user charges, since they cannot cover all infrastructural costs.

SWEDEN said that sustainable development requires international and national, private and government assistance through both established channels and innovative means. The commitment of 0.7% of GNP for ODA should be honored. ODA should be directed to the poorest countries and towards poverty alleviation. There is need for an equitable distribution of resources between and within countries. She noted the multiple fora where financing development is under discussion and stressed the need to address financing in an integrated manner.

The NETHERLANDS regretted the tendency to downplay ODA. He underscored the need to: address the problem of debt; avoid conditionalities when funding sustainable development programmes; and ensure that funding sustainable development is based on the needs of the receiving country. He agreed with the "polluter-pays" principle, but stressed that developed countries are not responsible for all the environmental problems.

The UK said that the spirit of constructive partnership requires efforts on both sides to help achieve the 0.7% target as soon as politically possible. It is up to the taxpayers to determine the amount of new and additional resources that will be made available. Part of the consensus required to increase these resources is proof of the cost effectiveness of those resources. This proof cannot come only from the donor side, but from both sides. He did not share the view that there has been an effort to downgrade the importance of ODA. Rather, there has been a conspiracy of silence on the fact that the net resource flows to developing countries have never been higher and greater efforts are underway to alleviate the debt burden of the poorest countries. There has also been little attention to the fact that in the last few years, the rate of growth in developing countries has been strong.

UGANDA said social and economic progress and the alleviation of poverty are integral to the attainment of sustainable development. He lamented the decline in ODA levels and the growth of the debt burden. Africa still has some "well-founded pessimism" about the outcomes of the Uruguay Round. This Commission must deliberate in a positive way or it risks creating the appearance that it is conspiring against sustainable development.

AUSTRALIA agreed that ODA has an important role to play in achieving sustainable development, however, ODA is only one aspect of the partnership — we need improved effectiveness of all financial flows. It would be helpful if there were some estimate of how resources have been reallocated for sustainable development. Trade liberalization can be a positive force in achieving sustainable development. A priority should be the removal of environmentally damaging subsidies on production and consumption.

JAPAN stated that contrary to the Secretary-General's report, his country has increased its ODA. The CSD should be addressing how to stimulate ODA rather than cite numerical targets. He then outlined the basic principles his government is using to raise domestic support: environment and development are pursued in tandem; ODA is not used for the production of missiles or products of mass destruction, or to accelerate conflicts; and democratization, human rights and trade are enhanced.

GERMANY stressed that there is no reneging on ODA. He noted that official and private financial flows can only be generated in the context of confidence and trust. The German public and parliament adhere to the fact that ODA supplements self-help actions. Thus, contributions from developed countries can only provide an impetus to domestic funds. Other necessary measures that are needed in developing countries include: the promotion of domestic savings, repatriation of capital flight, and promoting participatory development and good governance. According to the World Bank, capital flight in 1990 amounted to US$700 billion, 55% of the foreign debt of developing countries. The OECD principles for ODA are closely linked to participation, accountability, local self government and respect for human rights, all of which provide a good environment for investment.

POLAND thought that this Working Group could be of help in designing economic instruments to finance sustainable development. He questioned whether the Secretary-General has the mandate to assess the work of the Bretton Woods institutions. He called for the IMF and the World Bank to brief this Working Group.

BANGLADESH noted that while developing countries are primarily responsible for their sustainable development and the implementation of Agenda 21, results cannot be expected unless external assistance supplements their efforts. He urged immediate debt cancellation, along the lines of the recommendation of the non-aligned movement experts meeting, but stated that debt-for-nature swaps can serve as debt-reduction strategies. He raised concern about the emphasis on private sources due to distribution problems and added there are no guarantees that their resources will get to those who need them the most, or even that they would be directed to environmentally sustainable activities.

The IMF representative said that the IMF and the World Bank should not be lumped together simply because they have the same birthplace and are housed in the same city; there are major differences between the two institutions. The IMF is not a development institution. It does not have a development paradigm and has no mega-projects or any projects at all. The IMF is a monetary institution. Its main objectives are domestic monetary stability in member countries and international exchange stability. The IMF also gives balance of payments support and support for adjustment. The use of these funds is left to sovereign States. The IMF cannot redirect its own resources towards sustainable development because its mandate does not allow it to. Yet, in an indirect way, the IMF has become more sensitive to environmental issues in member countries.

MEXICO said it is disturbing to note the decrease in ODA flows. It is indispensable for the international community to act together and find a solution to environmental problems. Close cooperation between the CSD and international institutions is a basic requirement to achieve the commitments adopted and contained in Agenda 21 and to avoid duplication of efforts.

SRI LANKA reminded delegates that some of the proposed financial mechanisms are not feasible in some developing countries. Subsidies are safety nets for the poor that cannot be eliminated. Likewise, taxation of industries, which are few and are at an embryonic stage, would realize minimal resources, which would be a self-defeating venture. Therefore, in the short-term, increasing ODA and addressing the debt problem are essential.

CHINA said that he found it a bit bizarre that one delegate says his government's ODA will not be given to a country that expands its military expenditures. What about the need to offset the effect of inflation rates? China's national defense budget is US$6 per head — one of the lowest in the world. We need to work as global partners in the spirit of Rio and oppose irrational conditionalities.

NATIONAL POLICIES AND RESOURCE MOBILIZATION

INDIA said we have talked a lot about the constraints developed countries are facing, but we need to keep in mind that the developing countries are also facing resource constraints that have become more severe over the last three to four years. More factual information is needed to examine the impact of subsidies on the poor and on income distribution.

POLAND commended the Secretary-General's report since it referred to the countries with economies in transition. He outlined several issues of relevance to his region that the report should have covered, including reports on soft loans, financial incentives, and the role of preferential and commercial loans in realizing sustainable development.

GERMANY noted that it is useful to redirect production and consumption patterns towards sustainable development. Taxes and subsidies that encourage unsustainable production and consumption patterns should be taken care of. On improving the operation of national environmental funds, the CSD might draw upon the work done in an inter-agency working group initiated by UNDP. However, placing national budgets in thematic sub-funds is regarded with skepticism. Donors and the IFIs have urged developing countries to organize their budgets according to the cross-presentation method. The splitting up of budgets into funds runs counter to integrating environmental activities into all policies, relieves the actors of the constraints of subjecting their proposals to internal prioritization, and leads to the submission of second rate project proposals. Donors have been urging developing countries to work on national sustainable development strategies. Since these often have conflicting requirements, more coordination is necessary.

The NETHERLANDS said there is need to shift from taxing labor to environmental taxation, while promoting employment. He noted that international competitiveness based on national interests has contributed to the inability to operationalize these principles. The Netherlands will be initiating a tax in 1996 in order to demonstrate how change can take place without destroying national initiatives.

CANADA said greater attention should be paid to the question of national instruments. Canada set up a task force to address this issue and has developed some programmes such as the tradeable permits on menthol-bromide (Montreal Protocol) and auto and tire purchase taxes. He stated that some of these programmes have been difficult to administer due to international competitiveness. He welcomed the Secretary-General's suggestion to undertake further studies on the subject. He also wondered if the CSD Secretariat intended to undertake a more technical study of the subject, what role other commissions might play, and who would implement the recommendations and how.

The PHILIPPINES noted that many developing countries in Latin America and Southeast Asia are actively engaged in the development of economic instruments. The Philippines is experimenting with market-based instruments for sustainable development. The Philippines is also completing its environmental impact assessment system, introducing a public expenditure programme and a core public investment programme, and planning to undertake minimization of subsidies. The problem areas include the government's weak administrative capacity in the implementation of environmental standards.

The US said that a unifying theme can be developed to enable developed and developing countries to work together at the national level. Through this collaboration, programmes and policies that would serve as the basis for sustainable development could be developed, which would form the basis for funding activities by different agencies and donors. Although the issue has not been addressed, domestic resource mobilization is important, in particular in developing countries and countries with economies in transition. Removal of subsidies and energy taxation that the World Bank has advocated should be implemented, as appropriate. The CSD must tread carefully around a multilateral approach to resources mobilization. As a first step, he proposed that UNEP should compile a list of existing data on resource mobilization for provision to a future meeting of the CSD in order to avoid duplication of efforts.

The REPUBLIC OF KOREA noted that economic instruments, such as environmental charges and taxes, are used in OECD countries, countries with economies in transition and some developing countries, including the Republic of Korea. Although economic instruments often have price and market distortions, their use should be encouraged and promoted because they induce changes in behavior. Obstacles to their use, such as concerns about competitiveness, need to be addressed. The CSD should offer solutions about how to overcome these obstacles.

COLOMBIA said that national efforts by developing countries to mobilize resources will only be effective if there is a favorable international economic climate and if international commitments are complied with. The possible protectionist effects of economic instruments, particularly against the exports of countries such as Colombia, have to be examined by the Commission. Economic instruments may lead to unstable macroeconomic policies that could lead to inflation and, thus, cancel their effects.

INDIA explained that while international competitiveness has to be addressed, it is also necessary to deal with economic incentive systems by utilizing technology. Tax imposition has to be complemented by technology transfer, including the provision of basic information on the technology available.

The PHILIPPINES, on behalf of the G-77 and China, said that developing countries should adapt, and not merely adopt, economic instruments, based on the internal conditions and national capacities of developing countries. In the treatment of subsidies, developing countries should not be put in a position where the social needs of their people are compromised. A multilateral consultative process should be avoided since it would give one group of countries an opportunity to dictate to another group. South-South cooperation should not supplant the commitments of the developed countries. He also raised the following points: 1) there should be a balance in environment, development and social objectives and concerns; 2) in the adoption and adaptation of economic instruments, a phase-by-phase approach is recommended; and 3) the international coordination of economic instruments, which could lead to an international superstructure, is unacceptable.

The EC said aid effectiveness depends largely on the recipient countries. She noted that policy dialogue is part of the mid-term objective of the current Lom IV review. Appropriate policies are necessary in increasing domestic resources and private resource flows, although the latter have been concentrated in a few countries. Thus ODA should be directed to those that do not benefit from private resources. There is need to address: whether taxation will raise additional revenue; the necessity for revenue neutrality as changes in economic incentives may change behavior but not necessarily the investment patterns; and the appropriateness of increasing the tax base of some countries.

MALAYSIA said that effluent and emissions charges and other environmental charges based on the polluter-pays principle would induce producers and consumers to change their ways. There may also be savings arising from subsidy reduction. The CSD could provide leadership in promoting interministerial consultations to discuss findings and policy implications of subsidy reductions.

PERU requested studies of the economic and social impacts of various economic instruments. Peru is not opposed to new modalities for the financing of sustainable development, but we should not exclude the commitments or the differentiated responsibilities of countries, as stated in Agenda 21.

JAPAN clarified that it is involved in tri-lateral cooperation and promotes South-South cooperation, not as a substitute for development assistance, but as a way to effectively assist developing countries to develop themselves.

CHINA emphasized that economic instruments, however important, are a means, not an end in themselves, and they should not be stressed as the panacea. They need to be country specific and implemented on a step-by-step basis. He pointed out that his country's attempts to increase the income of farmers by 17% in order to remove subsidies set off a chain reaction in all other sectors, which culminated in 18% inflation. Thus any economic instrument has to be applied with caution.

INNOVATIVE INTERNATIONAL MECHANISMS FOR RESOURCE MOBILIZATION

In opening this discussion, the Chair noted that in the Secretary-General's report there is a wide range of innovative international mechanisms referred to but two were flagged for discussion: the feasibility of an international user charge on air transportation and a pilot scheme to trade CO2 permits on a regional or global basis.

The REPUBLIC OF KOREA said that while these mechanisms deserve special attention, many of the suggestions in the report need to be further elaborated with a focus on feasibility. Three principles should be adhered to: (1) the mechanisms should be based on the polluter-pays principle; (2) they should address global environmental concerns; and (3) they should be implemented gradually after experimentation in developed countries. The air travel tax is an interesting idea and could raise funds, but needs further study on how it could be implemented. The Republic of Korea is willing to discuss joint implementation on the condition that this debate does not prejudice the discussion at the COP of the Climate Change Convention.

GERMANY pointed out that perhaps it is not difficult for people to be taxed only a dollar on an air ticket, but to realize and organize this is difficult and we must be realistic. The chances of actually realizing these ideas politically are not as good as they are imagined scientifically. A realistic assessment of the scale of the operation should be determined. The number of consumers ready to engage in a voluntary scheme is limited and the revenues are meager. People's willingness to donate money and pay higher prices for a good cause is limited and the value to the environment may be lost as other social problems develop. The CSD should encourage other relevant institutions to discuss these issues.

The NETHERLANDS supported the call for a charge on international air transportation. Debt-for-nature swaps require further investigation. He elaborated on the advantages of joint implementation and said that although it is being addressed in other fora, the CSD could undertake further studies on this.

The UK was disappointed that the Secretary-General's report referred to a tax on international air transport instead of a user or pollution charge, based on the "polluter-pays" principle, as recommended at the Glen Cove meeting.

MALAYSIA stated that in the face of shortage of traditional resources, efforts should be made to find innovative means of mobilizing resources, although these should not replace traditional financing. These could include user charges, tradeable permits and joint implementation. He supported the idea of a user charge on international air transport. The CSD could undertake a study of its feasibility that takes into account the environmental, economic, legal, administrative and political aspects. The CSD can also initiate a study on tradeable permits using a pilot scheme. Malaysia also supports joint implementation.

While the US is sympathetic to innovative ideas for financing sustainable development, it does not want to pursue discussions on an air transport tax since airplanes are not major sources of pollution The airline industry is already in economic straits and is faced with many environmental regulations. An additional tax will have a negative impact on the consumer, especially in developing countries. The US has been experimenting with tradeable permit programmes, however, in general, it has not endorsed this idea in the global context, because there must be overall limits and the current Climate Change Convention does not have such a cap system on which permits can be based. Joint implementation offers many of the same advantages in cost savings and efficiency and is more feasible in the short term.

The IMF said that extreme care is needed when thinking about the air transport tax. It is not clear to the IMF why only air transport should be taxed and not other sources of pollution and what would be the basis of such a tax — size of air traffic, freight traffic, use of fuel, etc. The IMF has two basic problems. (1) Many countries, especially developing countries, already have a tax on air travel. If you take away their right to levy a tax, you will affect the fiscal situation of these States.( 2) There is no international tax at this moment and there is no international taxing authority. To monitor and administer an international tax requires skills that existing organizations lack. The possibilities of avoidance and evasion will be massive. Furthermore, if there is any revenue, who will have the authority to disburse it?

The WORLD BANK representative said his institution had participated in both the Czech and Glen Cove meetings. The Bank has increased the number of sustainable development projects, related to the credit and lending facilities that it has funded, by 10%. Small scale projects have also increased, some of which are related to defining the implementation and management in sustainable development projects. The Bank is fully accountable to its policy guidelines and is now fully transparent and open to the public. The Bank has 300 environmental experts.

POLAND described its experience with debt-for-nature swaps. For donor countries there are two types of benefits: environmental benefits can be used for projects of international significance and debt swaps are also a possibility for transferring environmentally sound technology. The bulk of money comes back in an indirect manner to the donor country by promoting its industry in the recipient country. Debt-for-nature swaps are more effective than foreign assistance because they are focused on investment projects with international significance, each decision is a result of close cooperation between recipient and donor countries, and they secure the optimum technologies.

The EC made two points about the air transport charge. First, the charge would only be acceptable if it was used on all airlines in all countries, otherwise there would be trade distorting flags of convenience. Second, the tax would bear most heavily on airlines with older, less efficient aircraft, most of which are in developing countries and countries with economies in transition.

The PHILIPPINES welcomed the cautionary statements on international air transport tax, and pointed out that a tax is already imposed on air travel in most developing countries. This proposal may contravene the right to family re-unification, an issue that was addressed at the Cairo Conference, and have repercussions in countries with many islands, such as the Philippines. He noted that tradeable permits would compromise the needs of the developing countries. He stated that conversion of bilateral and commercial debt is very important.

CHINA said that more study is needed on these innovative mechanisms. The CSD, at this stage, is not the forum to deal with joint implementation, because these discussions are ongoing within the context of the Climate Change Convention. According to the Convention, joint implementation should only be for developed countries, but China could have joint projects with developed countries to address climate change, but not for purposes of crediting or offsetting.

The International Civil Aviation Organization (ICAO) mentioned that his agency has been examining a variety of issues dealing with taxation and the environment.

UNCTAD reported that its extensive studies on tradeable permits indicate that they are feasible and can be useful in increasing the resource base of developing countries. He stated that the UNCTAD Secretariat will be looking into the preconditions to moving into the tradeable permit scheme.

The NATIONAL WILDLIFE FEDERATION, in collaboration with several NGOs, said they favored debt-for-nature-swaps, private funds, including those on joint implementation, and the removal of subsidies. The CSD should also look into two other mechanisms — national funds and the transaction fee proposed in 1978 by Professor Tobin.

CANADA noted that a user charge and a tax differ, and each will determine the nature of objectives, and analysis and studies to be undertaken. It is important to also bear in mind the agreements with ICAO and other bilateral agreements on air transport.

FINLAND sought clarification from the World Bank. Based on the output of the experts meetings, what is envisaged as the future role of the Bank and other international financial institutions in bringing forward the work on innovative instruments and nationalizing it, taking into account the comparative advantages and strengths of various institutions, in order to arrive at a strategic approach?

The WORLD BANK said they would prefer to deal with comparative instruments, instead of comparative institutions. The Bank is able to prepare a comparative study of the instruments, as proposed by the CSD, for consideration at a future session.

COLOMBIA said that with regard to the tax on air transport, it is important to determine the economic effect of this type of mechanism on developing countries or on the international aeronautical industry. What could be the benefits for developing countries? What would be the volume of resources? How would these resources be earmarked? What volume of resources could be transferred to developing countries to deal with the needs of sustainable development? With regard to tradeable CO2 permits, the main concern is equity and how the mechanism would benefit developing countries. More information is also needed on joint implementation. The subject of debt swaps for sustainable development has to be targeted in a flexible way.

ALGERIA said that with regard to the question of an air transport tax, it would be very difficult, if not impossible, to establish such a tax unless there was an international authority responsible for that tax. It would be difficult to have such a tax in developing countries and he disagreed with the EC about putting all countries on an equal footing. He supported China's statement on joint implementation and said it is premature to discuss this. As for tradeable permits, Algeria thinks that it is premature to discuss it, since it has to be examined in depth in appropriate fora.

FINANCING FOR SECTORAL AND CROSS-SECTORAL ISSUES OF AGENDA 21

The PHILIPPINES, on behalf of the G-77 and China, focused on three points: capacity building, financing of technology transfer and joint ventures. With regard to capacity building, many developing countries need to enhance their capacity and their capability to implement and develop environmentally sound technologies. If ODA is to be truly cost-effective, donors should enhance the capacity and capability of the recipients. The more cost-effective the funds, the greater the confidence of the constituents of the donor countries. With regard to financing of technology transfer, it is important that governments, NGOs, IFIs, and regional and subregional development banks cooperate and implement technology transfer on concessional and preferential terms. Governments or others should purchase patents from the owners and give them to developing countries or sell them on concessional terms. Governments may be able to develop a scheme for tax incentives for companies and individuals who transfer environmentally sound technologies to developing countries. Developing countries need the financial and technological support of developed countries for joint ventures. Japan has helped a lot in this field by sponsoring a Japan-ASEAN Fund for commercial and productive ventures.

The REPUBLIC OF KOREA said that technology transfer will need to address information, training, education and, in particular, capacity building. He noted that in most developing countries, the private sector and technology ownerships are closely linked. In their studies of financing technology transfer, the CSD should focus on how to combine public sector ownership roles with that of the private sector. He hoped that the action plans recommended by the Seoul Workshop will provide valuable insight into the provision of environmentally sound technologies.

The WORLD CITIZENS GROUP stated three reasons why governments are hesitant to move forward on the proposals. First, there is fear that sovereignty will be lost. The second problem is based on the fact that governments plan incrementally, which necessitates finding means to implement Agenda 21 that is derived from successful pilot projects. And third, the lack of resources requires governments to ensure that available resources are disbursed prudently. Existing bodies should be utilized to generate and monitor resources.

The representative from the SOCIETY FOR CONSERVATION AND PROTECTION OF THE ENVIRONMENT said the NGO community wonders why global military expenditure has not been discussed. If only 25% of military expenditures is diverted to funding sustainable development, there will be enough to feed the poor and provide health, education and jobs for billions.

POLAND noted the importance of converting official and foreign debt for the transfer of technology. The money could be limited to projects improving the environment or serving development. Financial support covers only a small part of the costs of technology, mainly the cost of licenses, but local investors should provide the rest from their own financial resources. Debt-for-nature swaps should be considered a useful mechanism for the transfer of the best technologies from market economies to countries with economies in transition.

INDIA explained two aspects related to the subject: the importance of information on technology and the effects of environmental standards and economic instruments. He noted that information on technology is an important public good that differs from other goods and services. The markets for technology are inherently dynamic, and such information is important for the public. He noted that the proposed rights data bank could be financed and developed in the various developed countries and made available to the South. He explained that industries in the South are generally small, while new and evolving technologies in the North are for large- to medium-sized industries. This presents three problems: the developing countries lack the know-how to utilize the newer technologies; the packaging of technology is not suited to small industries in the South; and it is necessary to have funds for capacity building if new and efficient technologies are to be adopted. Regarding environmental standards and economic instruments, imposing uniform tax regulations poses problems since it would put small industries out of business.

CHINA found the Secretary-General's report unbalanced and weak on financing the transfer of environmentally-sound technology. The developing countries believe that implementation of paragraph 34.18 of Agenda 21 can enable developed countries to play a useful role in protecting, purchasing and transferring technologies to developing countries. Firms could get tax exemptions if they transfer technologies to developing countries.

MALAYSIA said that creating demand for environmentally sustainable technologies through the consistent development of policies that favor their use, such as tax incentives, is essential, and urged that action be taken to increase awareness of financial markets and advantages of environmentally sound technologies. He noted that regional development banks are best placed to encourage financial market reforms to support such transfers. He highlighted the mechanisms that could be utilized to finance technology transfer, and suggested that the CSD undertake further studies on venture capital funds, leasing for environmentally sound technologies, built and orbit transfers (BOTs) and technology guarantees. IFIs should devote more resources to financing environmentally sound technologies. With respect to biotechnology, he suggested the establishment of mechanisms that could enhance industrial development and ensure biosafety concerns are taken into account: establishing an International Capital Fund for Biotechnology; establishing an International Biosafety Trust Fund; using venture capital funds for technology transfer; and increasing ODA for biotechnology transfer.

GERMANY stressed the importance of the subject under consideration and added that there is a need to concentrate more on the different sectors. For example, this year's discussion of forest resources provides additional opportunities to discuss raising financial resources. There is a need for more practical examples from different countries.

COLOMBIA expressed concern over the nature of the proposals in the Secretary-General's report on establishing "new" approaches for the transfer of technology. He added that it is not clear in this discussion what sort of proposals can arise for the financing of the different sectors of Agenda 21. The CSD should also consider intellectual property rights and foreign direct investment. The CSD should evaluate how the GEF is addressing Agenda 21.

The UK stated that the domestic policy framework of the recipient country is the most important factor in determining technology transfer, while the most important disincentive to a developing country is the concern by the inventor that the intellectual property rights will not be observed. Favorable incentives also create an enabling environment for the development of local technologies. He noted that progress will be made when intellectual property rights and foreign property rights are resolved on a non-discriminatory basis by the WTO.

The IMF drew attention to two issues that must be considered in respect to the Philippines' proposal: (1) tax officials and lawyers would be responsible for the mechanisms that are put in place, yet they have no idea what environmentally sound technologies are, thus implementing the transfer requirements would result in administrative and legal problems; and (2) a proposal to provide tax exemption runs contrary to the tax reforms currently being put in place in many countries, which aim at broadening tax bases and lowering taxes. The proposal has hidden and implicit subsidies that run counter to sustainable development.

BRAZIL noted that when we insist on something innovative or creative, it often means something important is failing. We cannot think that the Spirit of Rio is vanishing. In Agenda 21 we can find everything we need from traditional to innovative ideas on finance and technology transfer.

The US said that the FAO meeting on plant genetic resources in June will examine safeguarding the rights of farmers. The CSD should not discuss farmers rights or intellectual property rights until the FAO's negotiations are complete. Many environmentally sound technologies are already publicly available, privatization is a useful option to explore, and commercial arrangements will be an effective vehicle in the transfer and use of environmentally sound technologies. In response to Malaysia's comment on the Biosafety Trust Fund, the US views this as a solution that does not really identify the problem.

The PHILIPPINES, on behalf of the G-77 and China, highlighted some traditional impressions: intellectual property rights often suggest Northern concerns, but what about protecting the intellectual property rights of local and indigenous knowledge and innovations of the Southern people; legally-binding forest principles are perceived within the context of tropical forests and not that of the temperate and boreal forests; and partnerships are determined by issue. There should be mutual respect at all times and attempts to assist those in need. He noted that financing sectoral elements, such as the existing Conventions borne of the Rio process, has also not fared well.

MALAYSIA noted that Wednesday was International Women's Day and said that if women had the power we would not be enacting the same sterile debate here. We would have action, we would have transferred the relevant technologies and we would not have to sit here year after year and repeat the same refrain. In response to the points raised by the US on farmers' rights, she found it difficult to refrain from discussing these issues in other fora apart from the FAO. Biosafety should not be a constraint to getting technologies, but developing countries should not be subjected to unnecessary risks. On the question of forests, she reminded Germany that Panayotou's incentives and disincentives should apply to all forests, not just forests in developing countries.

CHINA noted that material resources are only one of the incentives necessary for the transfer of technology; spiritual, moral and intellectual resources are also essential. He noted that contributions by developed countries, such as Norway and others, to transfer property rights and technology to developing countries was recognized, but it is essential to look at how these transfers are functioning, and what they will attain in the future.

The REPUBLIC OF KOREA noted that while foreign direct investment is increasing, it cannot solve everything and the conditions for transfer of environmentally sound technologies (ESTs) are not always there. The databank system is essential for the capability of developing countries in EST transfer. Economic instruments in the form of tax exemptions are needed. Tax exemptions may have administrative difficulties, but there is a need to encourage companies to transfer ESTs to developing countries.

MATRIX OF POLICY OPTIONS AND INSTRUMENTS

The PHILIPPINES, on behalf of the G-77 and China, said that the Matrix itself is a useful tool, but it is most indicative and illustrative of what can be done. The elements of the Matrix and the concept itself are good as an intellectual exercise, but there is still much of a theoretical, metaphysical "pie in the sky" quality to the presentation. The items in the Matrix are simplistic and cannot capture the complex ramifications of particular issues. There is also a lack of quantification. The elements in the Matrix need more discussion in terms of what measures have been adopted and which have worked out in both developed and developing countries. The Matrix avoids an in-depth analysis of the economic, environmental and social impacts that should be considered by sustainable development. While the G-77 and China welcome inclusion of the Matrix in the report, it is not the solution to our financial problems. The solution we seek is the full implementation of the commitments made in Chapters 33 and 34 of Agenda 21.

FRANCE, on behalf of the EU, said the Matrix has potential and suggested that the CSD study it further by focusing on different sectors and target groups, exploring the most promising options for different countries and regions, and involving different groups when defining the appropriate mechanisms, based on existing case studies. He suggested that the work be undertaken by an intergovernmental panel instead of a multi-year action plan, as proposed in the Secretary-General's report.

CHINA stated that a three-page Matrix oversimplifies a complex matter and added that although individual elements could be taken into account, other issues such as ODA and GEF funding, which is currently "peanuts," must be dealt with. He said the Matrix is illustrative of what is possible, but it only serves as a tool that is subject to the decisions of sovereign States without external interference or imposition. It is premature to initiate any mechanism for the coordination of the Matrix.

FINLAND highlighted the innovative work behind the Matrix and how it can be further elaborated. The challenge is to design such sustainable financial and economic systems that would bring together development objectives and strategies and the basic criteria for provisional rural finance and environmental management. Three models could be tested: (1) a minimalist model on credit provision; (2) an integrated model that provides other technical services; and (3) a financial model that places sustainability at the heart of development for the poor. The target population must participate in the execution and evaluation of the systems and users' needs must be respected.

The UK agreed with many of the points made by the G-77 and China, including the need to further investigate the economic implications of the policy options. We need to ensure that international cooperation and coordination is done on a voluntary basis and is not of a mandatory character. He expressed hope that the CSD will agree to further explore the potential of the matrix.

UGANDA said the Matrix was useful for constructive discussion but it should not divert attention from adhering to Chapter 33 of Agenda 21. The usefulness of the Matrix can only be determined once it adopts a practical approach that takes into account policy issues such as partnerships, domestic attitudes and public participation.

INDIA noted that one of the uses of a Matrix is to simplify things, but this can be disastrous if its context is not understood. This should be pointed out to politicians who may not understand these technical aspects. He said that the impression one gets from the measures is that they are equal and can be substituted for each other, which is misleading. Thus, while foreign direct investment is useful in some cases, such as the telecommunications industry, it could not address issues related to water. He also noted that the Matrix is silent on debt and pointed out that debt-for-technology swaps should be considered.

COLOMBIA said that the Matrix is ambitious and it is impossible at this stage to consider a new conceptual framework. The Matrix is but one technical blueprint or structure and thus can be helpful in managing financial and economic activities in a country. The Matrix could divert attention from areas where progress needs to be made. The Matrix is not a magic wand that will solve all problems, but is an illustrative machinery. The proposal in the Secretary-General's report for a multi-year action plan linked to the Matrix is premature. Since we do not yet have a clear understanding of the nature of the Matrix, we cannot contemplate establishing a programme based on it.

BULGARIA said that the systematization of instruments in the matrix format is extremely helpful, but is not a panacea. We need a number of concrete methodological and economic principles, and the Matrix could serve as a basis for further analysis in this area.

JAPAN concurred with India and said the Matrix provides a framework for further discussion. In order to be effective and understand their nature and purpose, the instruments require common guidelines that are drawn from available experiences, as they lack quantification of their effectiveness. In this respect, the CSD should undertake concerted efforts, at the international level, to encourage the sharing of experiences and develop a common understanding on the issues related to matrices.

The IMF compared the Matrix to a menu card. Each instrument is like a peanut, but every peanut is helpful when one is hungry. The Matrix outlines the various external and internal financial possibilities as well as the multilateral and domestic economic and non-economic decisions that are useful. He noted that some delegates are uptight about these issues since they require policy makers to take tough decisions that have economic and social implications. He supported the idea of an expert group to study the feasibility of the various financial and economic instruments. The IMF would be willing to be part of the group.

The US reiterated its support for work on the matrix concept by appropriate organizations or institutions, such as UNCTAD, OECD, IMF and the World Bank. He agreed with the need to quantify the various elements. It is worth looking at a range of costs and detailed estimates. The US urged the Working Group to support further work on the Matrix so the CSD can explore the most promising options for implementing Agenda 21.

The REPUBLIC OF KOREA warned of the dangers of the oversimplification, ambiguities and lack of balance in the Matrix. He thought it is premature at this time to think about some kind of working group or multi-year work programme.

CANADA noted that the proposed instruments are also sensitive for developed countries. He said the question is not if it is possible to undertake them, but whether governments are ready to consider some of the options. If there is agreement to move forward, the Working Group should discuss how the studies will be undertaken and by whom. If these decisions are not made now, the CSD will only have discussions to show as its achievements at the five-year review of UNCED.

CHINA said that the recommendations to the CSD should indicate that the proposed instruments had not been agreed to, but there was agreement that there should be follow-up. The CHAIR responded that the Matrix is not intended for adoption, but solely as a framework for future work.

The PHILIPPINES said that the G-77 and China agree with the IMF, Japan and the Chair that the Matrix provides a map or a framework that shows various ways of arriving at a destination. We are supposed to arrive at a destination of global rehabilitation through sustainable development, which a framework or map can do, however, in Rio the developing countries were told by the affluent countries that they would be given help. We can reach this destination on our feet, but we were promised roller blades or a bicycle. The CHAIR added that with cooperation, we can even fly.

CHINA insisted that the Matrix should not be included in the report of this meeting because it is the opinion of an individual, not the opinion of sovereign States. The CHAIR objected saying this meeting has been charged to look at innovative approaches to finance sustainable development. At the last session of this Working Group, we saw the embryo of the matrix idea. We asked Dr. Panayotou to expand upon it and, thus, we cannot say it is not part of our process. We should not be afraid of new ideas. We are not asking for a decision to accept the Matrix. It is merely a framework with which we can proceed. He urged delegates not to cast it aside, but to look at it, develop it and push it forward, if it has possibilities.

AUSTRALIA suggested that in the follow-up studies: examples from both developed and developing countries should be used; one sector should be studied, focusing on how a particular instrument was implemented and how it can be utilized; the pros and cons of the instruments should be indicated; and issues such as equity, access and environmental protection should be addressed.

OTHER MATTERS

The WORLD BANK, in response to Finland's earlier question, pointed out that its third Annual Conference on Environmental Sustainable Development is due in September and will consider financing sustainable development and focus on innovative methods. The Bank supports the Matrix and would be willing to provide support for further work on it. The Bank has undertaken studies on the relationship between macro-economic policies and environmental protection. The Bank has various initiatives it has undertaken related to sustainable development: there are studies in some developing countries related to the potential to phase out ozone depleting substances; a paper is being prepared on resource mobilization in biodiversity-related issues; and the proposed renewable and conservation fund of the IFC will assist the COP of the Climate Change Convention on the issue of tradeable permits.

COLOMBIA asked to what extent the creation or establishment of environmental policies by World Bank users and the introduction of reforms by those countries are required for World Bank funding. He also asked how one can coordinate national environmental plans and programmes that result from cooperation between banks and recipient countries.

The WORLD BANK responded that Bank loans are a product of a lengthy discussion process to ensure that the project or policy in question achieves what it set out to do. No amount of good will and resources can induce or encourage players within a sector to act when the rest of the policy framework encourages them to do otherwise. The Bank discusses ways that the project itself can be successful and promotes polices that will let this happen.

PAKISTAN noted that structural adjustment programmes (SAPs) have been seen to have negative impacts on the pursuit of activities that would be beneficial to the environment. SAPs show an unfortunate tendency to accentuate impoverishment. What is the World Bank's policy towards this? With regard to putting in place infrastructure development programmes that are required, what is the World Bank's feeling about funding these contradictory impulses in development programmes?

The WORLD BANK responded that the Bank has looked for ways to ensure that the damage is removed and its environmental assessment programme screens all projects for their potential environmental damage and mitigation plans are developed.

The IMF responded that when they go to a country that has a massive fiscal deficit, high inflation, high unemployment and lack of growth, they advise the country to reduce its deficit. The IMF makes suggestions about how to cut expenditures, but these are usually rejected by national authorities. The IMF and the World Bank go back to Washington and ask the concerned government to call when it has made up its mind. What finally gets cut are subsidies and social and education expenditures. Then come the NGOs who complain about what the World Bank and IMF are doing. They do not realize that this is a process of negotiation and the decision is up to the national authorities, not the IMF.

FRANCE, on behalf of the EU, proposed that the Chair's report include the following: (1) the Working Group lacks the competence to address the issue of debt, and bilateral debt issues should be considered in the context of the recent Paris Club meeting; (2) IFIs have provided responses to questions and we do not want to seek additional contributions from them on sustainable development and then accuse them of imposing new types of conditionalities; (3) in resource mobilization, there is need to reflect on the balance between national and external resources, but government and public funding could offer conditions conducive for private flows; (4) regarding mechanisms, in order to supplement the conventional ones, we should approach innovative mechanisms with an open mind; (5) the user charge on air transport needs to be studied scrupulously, taking into account the economic and fiscal implications; (6) capacity building and other supporting measures for technology should be underscored when addressing the financing of sectoral and cross-sectoral issues; and (7) another working group is addressing the issues of farmers rights and indigenous technology and we should be wary of linking them to intellectual property rights. He proposed the addition of a new paragraph that provides for a reconsideration of the work programme to avoid further repetition of work.

The PHILIPPINES, on behalf of the G-77 and China, expressed bewilderment at the tenor of France's remarks. To indicate what the Chair should or should not report is astounding. The Chair has listened to the discussions and noted that there are some areas of agreement and some areas of disagreement, but there has been a dialogue and the summary should reflect this. He noted the following: (1) the need for analytical judgement of assumptions, impressions and assertions; (2) the need for symmetry, for example when we talk of forests, we are not only referring to tropical forests, but also to boreal and temperate forests; (3) the need to list financing and technology transfer measures adopted and implemented by developed countries; (4) the need to consider and respect specific national conditions; and (5) the need to relate new, innovative financial mechanisms to poverty eradication, social integration, productive employment and total development. He also made the following recommendations: (1) enhance access to markets, including technological markets, and improve as much as possible the terms of trade of developing countries; (2) further reduce debt or agree on a final solution for the debt problem through cancellation mechanisms recommended by the non-aligned movement; (3) meet ODA targets; and (4) enhance capacity building in developing countries by living up to the commitments in Chapters 33 and 34.

ADOPTION OF THE DRAFT REPORT

The Chair's draft report was distributed at 10:00 am on Thursday morning, 9 March 1995. Regional groups then had two hours to study the text before the Working Group reconvened at noon and worked straight through until nearly 6:00 pm, with only a 15 minute break, until the entire text was adopted.

The US said they viewed the text as an acceptable compromise and would withhold their suggestions for changes and revisions in the hope that other delegates would show similar restraint. France, on behalf of the EU, noted that there is a tendency to call for numerous studies without noting who will carry them out and that there are governments and organizations already undertaking studies. The Secretariat responded that the CSD will draw from the wealth of work undertaken in different organizations, rather than undertake all of these studies on its own. The Philippines, on behalf of the G-77 and China, considered the text to be well-balanced and objective, however, they will still present numerous comments. Norway said that it could accept the text as presented and hoped that no imbalances would be brought into the text.

The following is a summary of the draft report, highlighting those paragraphs where lengthy debate ensued.

I. INTRODUCTION: There were no major objections to this section. The first three paragraphs note that the report is not a negotiated text. It focuses on the key issues, conclusions and possible policy options. It also outlines the issues covered, including the international policy environment, financial flows and innovative mechanisms, based on three reports — the Secretary-General's, the Glen Cove meeting and the Czech meeting.

The G-77 and China proposed that paragraph 4 should reflect that some of the Working Group's proposals for action had been welcomed and reservations expressed on others.

II. INTERNATIONAL POLICY ENVIRONMENT AND FINANCIAL FLOWS: Paragraph 5 recognizes the disappointing performance with regard to current ODA flows, relative to the accepted target of 0.7% of GNP, but an encouraging picture on private capital flows.

Paragraph 6 observes that ODA is an essential source of funding for the least developed countries and that ODA could play a significant role in addressing sustainable development concerns in these regions "as well as in the social, environmental and certain infrastructural sectors which are not currently favorably placed to attract private funding, including foreign direct investment."

Paragraph 7 was adopted with two amendments by the Philippines, on behalf of the G-77 and China, and modified by the US. It underscores the need to fulfill all financial recommendations and commitments of Agenda 21 "particularly in Chapter 33." Such resources include those related to the provision of "substantial and predictable new and additional financial resources to the developing countries from all sources as well as the need to meet the accepted UN targets."

Paragraph 8 says that the CSD, in monitoring the implementation of recommendations and commitments of Agenda 21 related to ODA should promote: (a) new approaches within relevant bilateral and multilateral mechanisms; (b) improved cooperation and coordination among national institutions in recipient and donor countries, international organizations and NGOs; (c) the use of ODA to leverage additional domestic and external financing resources; and (d) public and political support in donor countries for raising the levels of ODA.

Paragraph 9 notes that, "While the magnitude of the recent increases in private flows is clearly impressive, their concentration in a limited number of developing countries and sectors and their stability and sustainability remain a cause for concern and require monitoring and further study. Developed and developing countries should adopt policies to encourage private foreign investment which can contribute to sustainable development."

Paragraph 10 refers to the need to find a satisfactory solution to the external debt problem of developing countries, in particular in the highly-indebted low income countries. The EU wanted the Naples Plan of the Paris Club referred to, while the Philippines wanted a "once and for all solution" to debt. The Philippines proposal attracted debate on what should or should not be included from General Assembly resolution 49/94. A proposal from Indonesia was finally accepted: Taking into account resolution 49/94 of the UN General Assembly and the recent decision of the Paris Club, additional and innovative measures will need to continue to be explored further for the achievement of an effective, equitable, development-oriented and durable solution to the external debt problem.

Paragraph 11 says that efforts aimed at increasing the flow of financial resources to developing countries, including for the financing of sustainable development, should also include a closer and more critical look at the role of IFIs and development agencies, including regional development banks.

France, on behalf of the EU, wanted paragraph 12 to refer to relevant development agencies rather than IFIs. The Philippines, on behalf of the G-77 and China, argued that IFIs include the UN development agencies and, at this point, we have to single out IFIs and the Bretton Woods institutions. The compromise was to emphasize that both IFIs and development agencies should energize their efforts in support of sustainable development.

Paragraph 13, which called for a shift away from financing unsustainable mega-projects, was deleted.

Paragraph 14 states that the CSD and the policy-making bodies of the IFIs should strengthen communication, interaction and partnership towards meeting the objectives of sustainable development under Agenda 21.

III. NATIONAL POLICIES AND RESOURCE MOBILIZATION: Paragraph 15 states that the Working Group noted that the financing of the implementation of Agenda 21 will come from a country's own public and private sectors. Discussion focused on economic instruments, national environmental funds, the mobilization of private financing and possibilities of international cooperation and consultation in connection with domestic policy reforms. These measures are not a substitute for increased financial flows, including ODA, but that both channels of financing should supplement and mutually reinforce each other.

Paragraph 16 notes that the review of the use of economic instruments in developed countries, countries with economies in transition and developing countries demonstrated clearly that they had, in varying degrees, attempted to achieve a less distortionary tax system by introducing environmental taxes.

Paragraph 17, after amendments by the Philippines and the Republic of Korea, justifies the use of economic instruments based on the polluter-pays principle, in contrast to the traditional regulatory approach, in order to influence the behavior of economic agents, but notes that efficiency and effectiveness depends on the availability of knowledge and technology, particularly when the economic agents are small disbursed producers.

Paragraph 18 highlights economic instruments and obstacles to their implementation. The G-77 and China added new text stating that "the economic and structural conditions inviting their application were discussed. The use of new instruments must be consistent with overall tax reform objectives."

Paragraph 19 recommends that capacity building in the use of economic instruments be supported by governments and international organizations.

Paragraph 20 recommends that the CSD should promote further work on the ways and means of applying the economic instruments through studies, building on experience gained and paying attention to the pre-conditions for introducing instruments, in accordance with specific country needs.

Paragraph 21 states that it was agreed that the phasing out of environmentally unfriendly economic practices, in particular input subsidies, needed careful examination.

Paragraph 22 states that in reviewing national environmental funds, "in many countries the funds play an important and constructive role as an effective financial mechanism. Attention should be given to concerns with regard to the earmarking of funds." India explained that as a matter of general tax theory, policy-makers are against earmarking particular taxes.

Paragraph 23 states that special attention should be given to the particular problems faced by small and medium enterprises in raising financial resources for investment in pollution abatement.

Paragraph 24 calls for further studies to assess the use of tax incentives to promote private investment for sustainable development.

Paragraph 25 notes that some form of international cooperation is needed to overcome the problem of international competitiveness. This statement attracted protracted debate with the G-77 and China insisting that such cooperation should be based on the concept of "common but differentiated responsibilities." It was finally agreed that "joint studies on some form of international cooperation, keeping in mind the principle of common but differentiated responsibilities" could help overcome concerns about international competitiveness as a result of unilateral implementation of domestic policy reforms. The studies should be flexible and undertaken on a voluntary basis, at different levels.

Paragraph 26 was amended to correspond to paragraph 25, and suggests that the CSD should provide leadership in developing further proposals to promote the recommended cooperation.

IV. INNOVATIVE INTERNATIONAL MECHANISMS FOR RESOURCE MOBILIZATION: Paragraph 27 states that the discussion on innovative mechanisms for resource mobilization focused on an environmental-user charge on air transport, internationally tradeable CO2 permits, joint implementation and debt-for-sustainable-development swaps.

Paragraph 28 recognizes that the air transport of passengers and cargo represent a source of environmentally damaging emissions. The Working Group recommends that a feasibility study on an environmental-user charge on air transport be undertaken in cooperation with ICAO and other relevant bodies.

Paragraph 29 recommends that this study should address environmental, economic, legal, administrative and political aspects of such a mechanism.

Paragraph 30, after amendments by the Philippines, on behalf of the G-77, and China, notes that the discussion on internationally tradeable CO2 permits and joint implementation reflected the concern about its complexity and clarified that the work undertaken in this regard should be coordinated with future developments in the context of the UN Framework Convention on Climate Change. Interested private parties, encouraged by governments, could launch a pilot scheme to gain practical experiences.

After some discussion of whether the Working Group should "promote" or simply "exchange information" on debt-for-sustainable-development swaps, delegates agreed that paragraph 31 would read: "The Working Group noted successful examples of debt-for-sustainable-development swaps and recommends their further promotion, as appropriate."

V. FINANCING FOR SECTORAL AND CROSS- SECTORAL ISSUES OF AGENDA 21: Paragraph 32 states that many of the financial sources, economic instruments and innovative mechanisms recommended in the Secretary-General's report are applicable to financing sectors and transfer of technology and biotechnology, but that detailed studies on the "matrix approach" are needed in order to identify the most appropriate mix of instruments and mechanisms.

Paragraph 33 emphasizes the important role of transferring environmentally sound technology for the implementation of Agenda 21. However, this would only be effective with adequate capacity building and an enabling institutional environment.

Paragraph 34 suggests that future discussions on funding technology transfer should focus on the adequacy of national policies and the availability of resources from innovative mechanisms.

Paragraph 35 recognizes two prerequisites to fostering investments in environmentally sound technologies (ESTs) — favorable policies and creating a wider framework to encourage investments. In this connection, the problems of small and medium-sized industries were discussed.

Paragraph 36 notes that ESTs could be financed through partnerships between the public and private sector, on concessional and preferential terms. Venture capital funds were emphasized. The feasibility of establishing EST rights banks should be studied.

Paragraph 37 recommends that the CSD encourage the use of the most effective technologies.

Paragraph 38 highlights the funding mechanisms that were considered and which require further study and consultation among interested parties: an international Biosafety Trust Fund; an International Venture Capital Fund for Biotechnology; an Expert Volunteer Corps in Biotechnology; and increased ODA.

Paragraph 39 welcomes the decision of the COP to the Biodiversity Convention to include in its Medium Term Programme consideration of the knowledge, innovations and practices of indigenous and local communities, and welcomes the progress made in revising the International Undertaking on Plant Genetic Resources for Food and Agriculture.

VI. MATRIX OF POLICY OPTIONS AND INSTRUMENTS: Paragraph 40 notes that the expert's presentation on the application of the Matrix, as contained in the report of the Secretary-General, is a transparent conceptual framework to structure discussions on the financial aspects of Agenda 21. The Philippines, on behalf of the G-77 and China, said that while the framework is useful as an intellectual exercise, the existence of all those instruments should by no means dilute or detract from the principle of common but differentiated responsibilities. China added that the paragraph should also note that the Matrix is "illustrative" and "could" prove valuable in identifying the appropriate and most promising options.

Paragraph 41 states that in applying the Matrix, it would be necessary to take into account specific national, regional and subregional conditions, and that the economic and distributive effects arising from the application of various policy options should be carefully evaluated, perhaps by launching pilot projects.

Paragraph 42 states that the Working Group agreed that the Matrix approach deserves further detailed study, including efforts to make the analysis more pragmatic and comprehensive, quantifying the potential resource generated by the use of different economic instruments, as well as from policy reform measures.

VII. KEY PROPOSALS FOR ACTION: The chapeau to paragraph 43 states that the Working Group recommends that the CSD acts, inter alia, on the following key proposals, taking into account more detailed considerations contained above.

In sub-paragraph (i), the G-77 and China proposed that instead of "promote," the CSD should "secure" the implementation of all financial recommendations and commitments of Agenda 21, including meeting, as soon as possible, the accepted target of 0.7% of GNP for ODA. France, on behalf of the EU, supported by the US, said that it is not in the power of the CSD to "secure" commitments. China proposed a compromise using the words from the mandate of the Commission: "to monitor, review and promote."

Sub-paragraph (ii) on debt reduction proved to be the most contentious proposal. The Philippines, on behalf of the G-77 and China, wanted to reference UN General Assembly resolution 49/94. France, on behalf of the EU, supported by the US, wanted to make reference to the recent decision of the Paris Club. The Chair said that he will try to work out compromise text and come back to this later. When discussion on this sub-paragraph resumed, a new formulation was provided by the Chair, but this too was not acceptable due to its references to "alleviation" of poverty and failure to emphasize "highly-indebted low-income developing countries." Indonesia provided the compromise text: "to urge developed countries, taking fully into account General Assembly resolution 49/94, to take further appropriate new measures, towards a durable solution to the external debt problem of developing countries, noting the recent decision taken by the Paris Club."

Sub-paragraph (iii), as amended by the G-77 and the EU, states that the CSD will encourage international financial institutions (in particular, the Bretton Woods institutions) and development agencies to continue to energize and expand their efforts in support of sustainable development. The CSD and the policy-making bodies of the IFIs should cooperate in meeting the objectives of sustainable development.

Sub-paragraphs (iv), (vi) and (vii) were merged into one at the suggestion of the G-77 and China. Although France noted that this new proposal weakened the text, it was adopted. The Working Group recommends that the CSD should "encourage governments, relevant international organizations and the private sector to undertake further work with regard to the application of economic instruments, including tax reforms and phasing out of environmentally unfriendly economic practices, in accordance with the conditions, needs and priorities of each country, and giving full consideration to the potential environmental, economic and social impacts. Such actions could be carried out in the form of workshops to exchange national experiences."

In sub-paragraph (v), the Philippines, on behalf of the G-77 and China, proposed deleting reference to enhancing the use of economic instruments, but the Chair said that this would seriously weaken the recommendation. France, on behalf of the EU, agreed with the Chair and suggested "promote capacity building including to enhance the use of economic instruments." He argued that capacity building can serve many areas, but here the emphasis is on economic instruments. The Philippines and China argued that there is no paragraph that talks about capacity building and the mandate of this Working Group is finance, and capacity building includes the capacity to finance. Malaysia pointed out that the use of economic instruments is important for both developed and developing countries. Delegates finally agreed to promote capacity building in the context of national strategies and policies for sustainable development, including the use of economic instruments, with support of governments and relevant international organizations.

In sub-paragraph (viii), the G-77 wanted to qualify policy reforms as "nationally determined policy reforms" and to ensure that the development of any proposals in this regard take into account the principle of common but differentiated responsibilities. The Chair did not think the latter proposal necessary since it already appears in the body of the text. Australia thought that "nationally determined" takes care of the issue of common but differentiated responsibilities. The Philippines, supported by Algeria and Brazil, responded that this is one of four cardinal points upon which the proposals for action are based and that it must be included. The Republic of Korea pointed out that the principle of common but differentiated responsibilities is already in paragraph 25. The G-77 amendments were finally accepted and the CSD is asked to provide leadership in undertaking joint studies in developing further proposals to promote cooperation, bearing in mind the principle of common but differentiated responsibilities, in the implementation of nationally determined policy reforms through some form of voluntary consultative process that is flexible, processed in stages and addresses sectors and policies that offer the most promising opportunities for environmental, social and economic gains.

Sub-paragraph (ix) recommends the preparation of a detailed study on an environmental user charge on air transport to assess its practical feasibility. The suggestion that the study should focus on its "universality" attracted debate. Developed countries wanted the term retained. The consensus was that the scope of the study should not be defined, leading to the deletion of the reference to universal, environmental, legal, administrative and political aspects.

Sub-paragraph (x) encourages interested parties to undertake a pilot scheme on internationally tradeable CO2 permits in order to acquire experience, "without prejudice to the outcome of the first COP of the Framework Convention on Climate Change."

Sub-paragraph (xi) suggests that future discussion on the financial aspects of ESTs and biotechnology should be based on the availability of external financial resources, innovative funding mechanisms and the adequacy of national policies to facilitate the process. Protracted debate ensued after the Philippines, on behalf of the G-77 and China, proposed that the CSD should promote the implementation of all the recommendations and commitments of Agenda 21 in respect to the transfer of ESTs, and that future discussions focus on the financial aspects of ESTs and environmentally sound biotechnologies, the need for external financial resources, and the potential availability of resources from innovative mechanisms such as co-financing and venture capital funds. Consensus was reached that the proposal will be a reproduction of paragraph 34.

Sub-paragraph (xii) invites appropriate organizations of the UN system to examine the concrete modalities and usefulness of establishing environmentally sound technology rights banks, as well as pilot projects on the practicability of BOTs for promoting environmentally sound technology transfer.

In sub-paragraph (xiii), the G-77 and China wanted to ensure that the detailed study of the Matrix approach would include quantification of potential resource mobilization "for developing countries." France, on behalf of the EU, proposed "to and by developing countries." The Chair noted that the Matrix approach is an analytical tool that can be used for any country. China proposed "sustainable development of developing countries." This was acceptable and the proposal reads: to promote a detailed study of the Matrix approach, including quantification and potential resource mobilization for sustainable development of developing countries, taking into account the social, economic and distributive impacts of instruments and policy options.

Sub-paragraph (xiv) states that the CSD should provide leadership in encouraging governments and organizations to launch specific initiatives aimed at supporting and enriching its work in financing sustainable development.

Sub-paragraph (xv) states that to enhance the effectiveness of its work programme, the CSD should encourage the Working Group to involve private enterprise, research organizations, IFIs, development agencies and NGOs.

The Philippines, on behalf of the G-77 and China, submitted a new proposal, which was accepted: "To further promote the use of debt-for-sustainable-development swaps, as appropriate."

A BRIEF ANALYSIS OF THE MEETING

The second meeting of the CSD ad hoc working group on finance received mixed reviews. While, on the one hand, delegates discussed alternative measures for raising the necessary financial resources for implementing Agenda 21, there is still a fear of the use of innovative measures and a constant return to the familiar territory of the call for achieving the target of 0.7% GNP for ODA.

There was a tendency for developing countries to focus on their need for external funding, in particular ODA commitments, while the developed countries gravitated towards the use of domestic economic instruments. Yet both sides did go one step further and actually discuss other economic instruments and innovative measures for financing sustainable development, and these discussions were not always polarized along North-South lines.

A stimulus for the advancement of the debate was the presentation on the "matrix approach" to resource generation by Dr. Panayotou. Although the Matrix was criticized for its shortcomings, it nevertheless proved to be strategic in various ways. First, it was an enlightening presentation of a broad range of economic instruments through which resources can be generated. The willingness of decision-makers, especially in donor countries, to employ these instruments in order to generate the much debated "new and additional resources" or, at the very least, increase and fulfill ODA commitments, will be a demonstration of their goodwill and determination to realize sustainable development. Second, the wide range of alternative economic instruments is welcome news, especially for the developing countries, as they provide all nations with at least one choice or a mix of instruments that they can tailor to their specific economic, social and political situations to generate resources.

Another positive sign was the call by the Working Group for further studies on the various proposals both within and independent of the Matrix. While there is consensus that subsidizing lifestyles, both in the North and the South, are central to environmental degradation and must be redressed, additional studies may point out that some of the suggested alternatives are not applicable in the South. Neutral revenue taxation is a good strategy that protects industry from collapse, but might lead to a vicious cycle in developing countries. Shifting corporate taxes for use in environmental conservation, no matter how small the portion diverted, will deprive developing country governments of one of their few sources of income.

Another advantage of these studies is that they will demonstrate the appropriateness and applicability of the various economic instruments. Although the scarcity of resources means that not all the proposals can be studied in countries with different social, legal and economic frameworks, the studies will nevertheless provide further understanding of their cost-effectiveness.

Despite the benefits of such studies, there is still the risk that they might function as a delaying tactic. What politicians know is ODA and both developed and developing countries are afraid to take steps forward. For the developing countries, as long as the accepted ODA targets are not met, all other options to generate domestic resource will not receive attention. For the developed countries, as long as studies are being undertaken on innovative instruments for generating new and additional resources, they do not have to provide these resources.

Another problem that was raised, but not adequately addressed, is the CSD's work programme, particularly in view of the fact that it is nearly three years since Rio. As one delegate pointed out, the CSD may only have "discussions" to show for its work by the 1997 five-year review. If the CSD endorses the proposals of the Working Group, the main activity for the next year will be the studies, for which reports will be presented in 1996. Only then can the CSD be expected to promote some options, which means that even by 1997, there may hardly be any concrete activity on the implementation of Chapters 33 and 34 of Agenda 21. The CSD must go at least beyond the call for studies to an examination of areas where pilot projects can be initiated for evaluation in 1997. This, however, depends on the willingness of some developed and developing countries to undertake joint pilot programmes.

The introduction of new economic instruments also raised concern among the developing countries who see these instruments as providing a shift from the provision of resources by the developed countries, to suggesting that funding for Agenda 21 will come from domestic funds. Developing countries also harbor the fear that the emphasis on universal application of these instruments is a tactic by developed countries to tie their ODA commitments to the use of innovative mechanisms. On their part, developed countries emphasize that no country can escape the use of innovative instruments since it was recognized in Rio that financing for the implementation of Agenda 21 will come from a country's own public and private funds. While these arguments seem to polarize the debate, they are nevertheless the best indicators of governments' commitments to realize sustainable development. The instruments provide developed countries with a mechanism to generate more funds to enable them to increase their ODA. On the other hand, developing countries can generate supplemental resources, since external resources alone will be inadequate to attain sustainable development.

Another shortcoming of the session was the failure to closely examine how to resolve the problem of subsidies, both in the North and the South. Developing countries are faced with the conflict of how to eliminate subsidies while attracting foreign and private investors. Providing various forms of subsidies, such as tax exemptions, as well as turning a blind eye to sub-standard technologies, is their way of creating an enabling environment for technology transfer. The mushrooming of Export Processing Zones in developing countries, often at great costs to the environment, are the embodiment of this paradox. But developed countries are faced with the situation where some sectors have to be subsidized in order to survive and generate employment. However, the extent that the issue of subsidies keeps popping up in all other sectors, but especially in financial matters, necessitates consideration.

Finally, perhaps there would have been more progress in the examination of options for resource mobilization if more technical experts participated. What little success there was can be largely attributed to the presence of few, effective government technical experts —either officers from the finance ministries, other practitioners or economic theorists. Too many countries still rely on their New York-based diplomatic staff to attend these "expert" meetings. While this session served to educate members of the UN's Second Committee, it barely advanced the technical aspects of the finance debate. If governments are serious about finding the "new and additional resources" needed to implement Agenda 21 and ensure that sustainable development becomes a reality, perhaps it is time for them to take the CSD seriously and send their finance experts, along with their diplomats, to participate in the future work of the CSD.

CSD ORGANIZATIONAL SESSION

The CSD held an organizational session on Friday morning, 10 March 1995, to discuss changing the pattern of Bureau elections. CSD Chair Klaus Tpfer opened the meeting and noted that his draft decision on this matter would ensure that the Bureau that prepares for the session, chairs the session. This issue came up at the second session of the CSD in May 1994. ECOSOC agreed on 29 July 1994, to permit the CSD to explore the possibility of a change in election patterns and this has been the subject of numerous Bureau meetings and other consultations over the past eight months. Tpfer's draft decision proposes the following: starting with CSD-5, immediately following the closure of the regular session, the Commission will hold the first meeting of the next regular session for the sole purpose of electing the new Bureau; terms of office of the members of the Commission shall begin immediately after the conclusion of the work of each regular session and end at the conclusion of the following year's session; and as a transitional measure for 1996, the terms of the members of the Commission whose terms of office are to expire on 31 December 1995, will be extended until the conclusion of CSD-4 and the terms of office of the Bureau elected at CSD-3 will be extended until the conclusion of CSD-4.

France, on behalf of the European Union, Japan, the United States, the Czech Republic and Poland, on behalf of the Russian Federation, Hungary and Bulgaria, supported the Chair's draft decision. Members of the G-77, however, said that they needed more time to discuss this proposal. Some members of the G-77 wanted confirmation that election of the Chair of the CSD is on the basis of traditional UN regional group rotations. For example, Malaysia (Asia) was the first Chair, Germany (Western Europe and Others), the second and the next chairmanship will probably go to Brazil (Latin America and Caribbean). Thus, the subsequent Chair should be either from Africa or Eastern Europe. If regional group rotations were assured, it appeared as though members of the G-77 could accept the draft decision. Apparently, some OECD countries would prefer that the chairmanship of the CSD rotate between North and South. The chairmanship of the CSD in 1997 — the year the CSD will prepare for the five-year review of UNCED — is at stake. Some believe that a regional group rotation would mean that the likely CSD Chair in 1997 will be from Africa, whereas a North-South rotation would mean that the Chair would be from an OECD or Eastern European country.

Tpfer responded that rotation of the Chair among the regional groups is usually a practice that works over time, but there is no legally-binding decision on this practice. He expressed disappointment that no decision could be taken at this session and suggested further consultations with the aim of adopting a final draft at the third session of the CSD in April.

THINGS TO LOOK FOR BEFORE CSD-3

CONFERENCE OF THE PARTIES FOR THE FRAMEWORK CONVENTION ON CLIMATE CHANGE: The first session of the COP of the UN Framework Convention on Climate Change will be held in Berlin from 28 March - 7 April 1995. From 28 March - 4 April 1995, delegates will continue negotiations on issues that were not resolved at INC-11. The ministerial segment will be held from 5-7 April 1995.

THIRD SESSION OF THE CSD: The third session of the CSD will meet from 11-28 April 1995, at UN Headquarters in New York. Focus will be on the following cross-sectoral components of Agenda 21: Chapters 3 (poverty); 5 (demographics); 8 (integrating environment and development in decision-making);16 (biotechnology); 22-32 (major groups); and 40 (information). Financial resources and mechanisms (Chapter 33) and the chapters on transfer of environmentally sound technology, cooperation and capacity building (34), science (35) and education (36) will also be discussed. The sectoral cluster for this session includes: Chapters 10 (land management); 11 (forests); 12 (desertification and drought); 13 (mountains); 14 (sustainable agriculture); 15 (biological diversity); and the Forest Principles.

According to CSD Chair Klaus Tpfer's briefing on 10 March 1995, the Prime Minister of Norway and the Presidents of the Philippines and the Czech Republic have been invited to speak at the opening session on 11 April. The new Bureau will also be elected that morning. In the afternoon, there will be the presentation of the results of the ad hoc working group on finance, followed by a panel discussion, which will hopefully include three finance ministers, an NGO representative, a CEO of an international company and an official of the Bretton Woods system. On 12 April, there will be a presentation of the work of the ad hoc working group on sectoral issues, followed by another panel discussion. Members of the panel will include the Chairs of the FAO Committees on Forests and Agriculture, the commissioner of the EU responsible for agriculture, the president of the Farmers Association and another NGO representative. On Wednesday afternoon and Thursday, the CSD will discuss trade and environment and changing consumption patterns.

On Monday, 17 April, discussion will focus on education, science, transfer of technology and capacity building. On 18-19 April, there will be exchanges of national experiences. There will also be presentations on local experiences, including officials from at least eight cities. There will then be four days of negotiations (20-25 April) before the High-Level Segment starts on Wednesday, 26 April. During the High-Level Segment there will be two panel discussions: employment and sustainable development on 26 April and mass media and sustainable development on 27 April.