Document(s) 9 of 15

Introduction

Environmental concerns have become an established feature of international trade. Consumers around the world (but especially in Europe and North America) are increasingly making choices on the basis of the environmental impact of products. Governments are imposing restrictions on what can be brought into their countries, and multilateral bodies, ranging from the World Trade Organisation to the United Nations and the International Standards Organisation (ISO), are making agreements that regulate the environmental aspects of trade.

At the centre of the trade and environment debate is a problem about how to regulate environmental impact. Each country imposes different environmental laws on its own producers, and environmental standards differ radically between countries. But when countries trade with each other they import not only a product or service, but the embodiment of a production process. The product produced in the exporting country may have very different impacts on the environment—either on the local environment in which it is made, or on the environment of the country into which it is imported and eventually disposed. Given that the actual harmonisation of environmental standards between countries is very difficult, countries have found other ways to influence the environmental performance of companies from which they import. Sometimes this is done through international agreements such as the Convention on International Trade in Endangered Species, which controls trade in wildlife products, or the Basel Convention, which regulates trade in hazardous waste. Domestic regulations represent another mechanism which has been used particularly successfully by the European Union to control the entry of products which may be environmentally damaging. Eco-labels influence companies to modify their production by providing market incentives for producers to meet certain environmental requirements. International management standards are another way to get producers internationally to meet certain environmental requirements.

But what impact does this have on exporters, especially those in developing countries? Are these international pressures helpful ways to nudge exporters towards higher environmental standards? Or are they ways of excluding exporters and providing protection for more sophisticated northern producers? Indeed, do exporters in developing countries have the financial, human and technological resources to meet the new environmental requirements? Will the international environmental agenda prove to be a catalyst that raises standards in the South, or a constraint to developing country exporters?

This study attempts to explore these questions in the context of South Africa. For a country like South Africa, environmental trade measures are fraught with dangers. The country’s balance of payments constraint is a key factor in determining its development potential. South Africa’s export patterns are currently undergoing a major change stemming from the long-term decline in gold exports, and there is pressure to increase semi-processed, agricultural and manufactured exports. If major constraints are placed on South Africa’s ability to export such goods as a result of environmental trade measures, this could have a serious impact on the country’s economy.

There are certain specific features of the South African economy which could make the country vulnerable to environmental measures. Firstly, it has a high concentration of energy-intensive industries and many of these are active in export markets. These industries draw their energy from coal-fired power stations and enjoy the lowest electricity prices in the world. Any action against coal-fired energy (for example, as a result of greenhouse gas emissions,) could have a significant effect on exports. Secondly, due to the low levels of investment in the South African economy (and particularly in manufacturing) from the mid-1980s to the early 1990s, capital stock in industry tends to be old. As a result, environmental protection technologies that have been built into newer capital equipment are often missing. The investment required to install these in some sectors is considerable and may place a large burden on companies in certain industries. Thirdly, the environmental regulatory system is weak and environmental standards in many sectors are lower than they might be with better enforcement of environmental regulation. South Africa may be particularly vulnerable, then, to trade-based environmental measures.

But international environmental pressures may also benefit South Africa by raising the environmental performance of South African exporters. Although environmental pressures are growing in South Africa, the levels of regulatory, consumer and civic pressures on industry are still much lower than they are in developed countries. Processes are currently under way to re-examine environmental legislation and to find ways of redesigning regulatory institutions. But this will take time to implement and will always be subject to resource constraints. In the face of regulatory weaknesses, perhaps environmental trade measures will be helpful because they will exert pressure on export companies to ensure that they raise their environmental standards more quickly and decisively than they would otherwise. In theory, then, environmental trade measures may be seen as a double-edged sword which is as capable of damaging South Africa’s process of development as it is of improving exporters’ environmental performance.

But what is the reality faced by South African exporters? Given the international debate and the potential impacts that we have identified in theory, what are the experienees and expectations of companies active in the export market? This study set out to explore these experiences by interviewing 20 export companies in 12 sectors. The companies were interviewed not only about strictly defined trade measures, but about the effects of all forms of international environmental pressure. These include international labels and management standards, consumer preferences, eco-labels and the effects of international environmental agreements.

The 12 sectors selected for this study represent a sample of South Africa’s largest exporters and include energy-intensive exports, commodities, agricultural and manufactured exports. Some sectors were chosen because their products, such as timber, are especially sensitive to environmental pressures. Others, such as packaging and energy generation, were included because of the critical role they play in servicing exports. Data from the South African Foreign Trade Organisation was used to select large exporting companies in each of the sectors. In most cases two companies were interviewed per sector. While this does not provide a comprehensive look at each sector, it does give us some idea of the dynamics relating to international environmental pressures. The sectors selected were:

• aluminium;
  
• coal;
  
• chemicals;
  
• electricity generation;
  
• fruit;
  
• minerals processing;
  
• packaging;
  
• pulp and paper;
  
• steel;
  
• soaps and detergents;
  
• textiles; and
  
• timber.

In each case a face-to-face in-depth interview was conducted. In most cases the export manager of the company was interviewed and where this was not appropriate—for example, packaging and electricity generation—the environmental manager was approached instead. In some cases both the export and environmental managers were interviewed.

Sectoral experiences

This section presents a summary of the main issues in each sector as they were revealed in the interviews. The discussion focuses on the environmental pressures reported by the exporters in the sample and on their expectations of how these measures are likely to develop in their sectors. For the most part, the sectors are presented in alphabetical order. However, the discussion of the electricity generation sector is presented first because the issues raised with regard to electricity generation provide important background information for a number of other sectors. For the same reason, the discussion of the electricity sector is longer and more complex than the others.

Electricity generation

Eskom, the public utility responsible for generating and distributing electricity, was the company interviewed in this sector. Eskom¹ provides over 95% of the electricity consumed in South Africa, the bulk of which (about 90%) is supplied from coal-fired power stations mostly located on the Mpumalanga (formerly the Eastern Transvaal) Highveld. There is also one nuclear power station and two hydroelectric stations but the latter are only used for peak demand purposes. The nuclear and hydroelectric stations will not be dealt with in this chapter since they contribute such a small percentage of electricity supply.

Electricity provision in South Africa is unusual for two reasons. Firstly, a very high proportion of our energy is provided by coal-fired electricity as opposed to a greater mix of supply. Secondly, our electricity is very cheap. At present Eskom supplies the world’s cheapest electricity to high-load users and has committed itself to lowering the real cost by a further 15% by the year 2000. In addition, Eskom currently has an over-supply of generating capacity. These factors make South Africa an attractive place in which to establish energy-intensive industries. South Africa’s large and fairly easily accessible coal reserves will ensure that cheap, coal-fired electricity is available for many years to come.

But coal-fired generation has an important impact on the environment, especially in terms of air quality, water quality and consumption and waste. Coal-powered stations use large quantities of water and impact on water quality. The stations also generate large quantities of ash (22 million tonnes in 1994) and small quantities of hazardous waste.

All of these clearly impact on the environment and on human health in South and southern Africa. But for the purposes of this chapter we will concentrate on those that are of global concern, since they are most likely to affect trade issues. This means focusing largely on air emissions. The concerns that are currently most strongly on the international agenda are the emission of greenhouse gases (especially CO₂), substances contributing to ozone depletion (chloro-fluorocarbons—CFCs) and substances contributing to acid rain (SO_x, NO_x). Greenhouse gases, in particular, have come under the international spotlight because of concerns about the potential effects of global warming. In 1990 South Africa emitted 1,4% of global CO₂ emissions and Eskom was the single largest contributor to this. In 1994 Eskom power stations emitted 143 million tonnes of CO₂ (Eskom 1994).

Within the context of continued use of coal-fired stations, Eskom has limited options for abatement of CO₂. It is impossible to prevent the emission of CO₂ from a coal-fired station altogether, although it is possible to become more efficient so that less CO₂ is emitted per unit of electricity generated. Even with improvements in efficiency, however, CO2and other gaseous emissions will continue to rise in absolute terms as the demand for electricity rises.

With regard to the emission of SO_x and NO_x (which may contribute to acid rain and respiratory illness), Eskom has taken a decision not to install equipment to remove these substances. Although such technologies are available, they are extremely expensive and they are especially expensive to retrofit to existing stations as opposed to including them in new stations. Eskom argues that:

¹ Although company names are generally not mentioned in this chapter, Eskom’s name is mentioned as it is the only company in the sector. It is, therefore, not subject to the same competitive concerns as companies in other sectors.

In the Eastern Transvaal Highveld, the main power generating region of South Africa, concentrations of ground level pollutants (sulphur oxides, nitrogen oxides and particulates²) are lower than the air quality guidelines recommended by the Department of Health. Whilst the situation will continue to be monitored, Eskom believes that, given the declining concentrations of the pollutants in the general atmosphere, the cost of installing equipment to remove sulphur and nitrogen oxides is not justified (1994:17).

The introduction of environmental abatement technologies is, of course, related to the price of electricity. Cheap electricity is an important comparative advantage for South African industry and, indeed, Eskom is actively promoting the establishment of energy-intensive sectors (such as aluminium) in South Africa. However, as Van Horen has argued, the low electricity price may reflect inadequate environmental investment (see Chapter 2).

Eskom has a clear programme to manage its environmental impact and has identified environmental management as a priority issue at a senior management level. The Eskom environmental report was first published in 1994 and was an important step forward in establishing transparency and providing information on the company’s environmental impact. However, this does not necessarily mean that the environmental impact of electricity supply is being adequately addressed, or that trade pressures will not come to bear as a result.

Eskom’s environmental impact, and the concentration of electricity intensive industries in South Africa, make our electricity-intensive sectors potentially vulnerable to international trade pressures. Eskom has recognised this issue and Eskom chairman John Maree has noted that:

Trading partners are increasingly asking about the environmental credentials of South African products. We must therefore ensure that electrical energy is generated, supplied and used in an environmentally responsible way (Eskom 1994:3).

In our interview, however, Eskom said it had not been under any pressure from its electricity intensive export customers with regard to its environmental performance but that international environmental pressures were reaching the company in other ways. Eskom is acutely aware that greenhouse gas emissions are firmly on the international agenda and have the potential to impact on South Africa’s trade relationships. But so far Eskom seems to be adopting a wait-and-see attitude, arguing that:

Current scientific evidence regarding global warming is inconclusive. However, the changing international position and research on issues such as global warming are being monitored. Eskom also contributes to the development of the South African strategy on the Framework Convention on Climate Change (ibid:16).

² Particulate emissions are not discussed in detail in this chapter because particulates do not fall within the current international agenda. However, it should be noted that particulate emissions are an important contributor to respiratory illness and may, therefore, be seen as a major externality. Some methods are available to reduce emission of fine particulate matter and Escom is experimenting with the introduction of such technologies, including bag filters. A recent failure of bag filters at the Duvha power station has, however, led to concern about the prospects of addressing particulate emissions in this manner (Allen 1995:13). For a fuller discussion, see Van Horen in this volume.

The Framework Convention on Climate Change (FCCC) sets out a programme to limit greenhouse gas (and, in particular, CO₂) emissions internationally. At present, a small number of mostly developed countries contribute the lion’s share of CO₂ emissions. In 1990, for example, the USA alone contributed 23% of global CO₂ emissions. There is, however, no clear relationship between a country’s level of development and its emissions. For example, in 1990 Japan and Germany each contributed 5% of global CO₂ emissions compared with the USA’s 23%. China and Russia each contributed 11% and the UK contributed 3%. South Africa’s emissions were about one-third higher than those of Brazil, which is a much bigger country at a similar level of development.³

The FCCC distinguishes between developed and developing economies and assigns different responsibilities to the two groups. South Africa is now a signatory to the convention and is classified as a developing country.⁴ As such, our immediate responsibilities do not involve setting targets for reductions in emissions but rather commits the country to:

• sharing of information on emissions;
  
  
• tracking carbon sources and sinks; and
  
  
• developing a strategy to reduce emissions.

There is, therefore, no immediate pressure to substantially reduce our greenhouse gas emissions. Instead, we need to establish information systems and develop a strategy for the future. In the medium-term, however, South Africa is likely to come under some pressure to limit greenhouse gas emissions since targets and other commitments may be set for middle-income developing countries.

South Africa remains vulnerable, then, to potential international action on CO and other greenhouse gas emissions and to potential action on other issues. Already, international development aid is being linked to environmental—and, especially, climate change— issues, and they also have a high profile on the agenda of the multilateral organisations. For these reasons the environmental impacts of South Africa’s energy generation remain on the agenda.

Aluminium

Two companies were interviewed in this sector. The first manufactures primary aluminium and exports about 50% of its product, mainly to Japan, Korea, Malaysia, the Middle East and Africa. The second produces rolled aluminium products and extrusions and exports about one-third of its production, mainly to North America and East Asia.

Both companies were aware of a range of general environmental pressures, including local regulation of emissions and effluent. However, neither company had experienced significant pressures in the export market. Both companies were aware of the discussions on the development of an environmental standard under the ISO⁵ and both expected to apply for accreditation once the standard is in place. One of the companies had been asked to provide information on its environmental management system to one of its customers as part of the customer’s own efforts to qualify for the British environmental standard (BS 7750). The company was able to provide the information required and did not suffer any loss of business, but acknowledged that it may need to re-examine its processes to ensure that this kind of customer requirement can be met. Both companies were aware of a general increase in environmental pressures and perceived the international industry to be increasingly concerned about environmental issues. One of the companies was, for example, in the process of developing a comprehensive environmental policy, partly to prepare for a major new investment. The company felt anxious to “cover our environmental bases” before the investment could be finalised because “we can’t afford to trip up on the environmental question”. Both companies had also experienced pressure from export customers to reduce and redesign their packaging.

³ Figures cited in Escom 1994:16.

⁴ South Africa has signed, but not yet ratified, the convention and, as such, is not yet a member of the Conference of Parties. Government expects to ratify the convention early in 1997.

The aluminium sector is vulnerable to international environmental pressures because it is extremely energy intensive. In the production of primary aluminium, energy costs account for some 35% of unit production costs. This is especially important for one of the companies, since the price it pays for electricity is pegged to the international aluminium price. In this way, its electricity costs remain stable relative to the price of its product, and this is a major advantage. Any attempt to restrict trade access on the basis of “dirty” energy would have a major impact on the aluminium sector. However, neither company seemed to be aware of this possibility and there have been no threats of action or even queries regarding the environmental performance of their electricity suppliers so far. While both companies acknowledged the potential dangers, they argued that the issue had not arisen for them so far and had not been identified as a strategic issue at senior management level.

Chemicals

Two companies were interviewed in this sector. One is a producer of a wide range of chemicals and chemical products. Its exports are concentrated in particular product markets, some of which are exported in large quantities—up to 40% of production—mainly to the EU,North America, Latin America and Australia. The other is a producer of petrochemicals and general chemicals. It is currently attempting to raise export levels and is especially active in the EU, North America, Latin America and East Asia.

Neither company has experienced strong pressures or restrictions to market access. However, both companies have received queries about potential hazards involved in the use and degradation of their products. Both have been asked to fulfil special protection and labelling requirements for the transport of their products, and this has required specialised packaging. Both are aware of or involved in the discussions on the ISO 14000 series and both expect to apply for accreditation. Both companies see environmental issues as increasingly important to their ability to capture and maintain export markets in the long-term. For example, one company said:

⁵ The ISO, which manages the ISO 9000 quality series and other standards, has recently established a standard for environmental management systems called ISO 14001. When these interviews were conducted, ISO 14001 was not yet in place. Other environmental standards will be formulated as part of the ISO 14000 series.

We are looking to cleaner technologies, waste minimisation and utilisation of byproducts. We don’t want to be at a disadvantage in the international market as a result of environmental issues. We are also trying to identify products which may be able to capture markets as a result of special environmental features such as biodegradability. We are also concerned to avoid accidents or other problems which, aside from anything else, would be a major problem in international markets. We don’t want to be seen as irresponsible.

One area where the sector has made a major adjustment is in the process of removing CFCs from their production. Action was taken in the wake of the Montreal Protocol—and in line with national policy—to phase out CFC production. This involved making changes to a variety of processes.

Both companies believe that there will be increasing environmental pressures in the sector and that, internationally, companies will assume more and more responsibility for their products, from cradle to grave. The companies pointed to various environmental initiatives in the sector internationally and argued that South African companies are keeping pace with world trends. One example of this is the trend towards more transparent environmental reporting. New forms of environmental reporting are being considered in the industry, with one of the companies considering producing an annual environmental report in addition to the usual annual report.

But keeping pace with international trends can involve large investments. One of the companies has decided that all new plants in the group will be built to international environmental standards, partly to ensure that products are able to meet the requirements of the export markets. But older plants present more of a problem because of the cost of retrofitting. One of the companies is considering retrofitting electrostatic precipitators and bag filters on some of its older plants in order to control sulphur and particulate emissions. This is, however, “tremendously expensive. The question is whether it will become a cost of staying in business.” Since there are a significant number of old plants in the industry we can assume that the investment requirement for environmental upgrading in this sector will be large. It is by no means clear, however, that in the short-term (and in the absence of stronger local or international pressures) the companies will choose to make these investments. As one environmental manger in the industry put it:

It is difficult to justify environmental projects because they don’t generate any extra income. The accountants just see them as raising our fixed and operating costs without providing any real benefit to the company. We have been most successful in convincing senior management to make an investment when we have been able to recover a by-product which can then be sold. But otherwise it is difficult to make these investments.

The chemical sector, more than most, faces environmental problems both here and internationally and is affected by international conventions and environmental campaigns. Both companies pointed to international conventions and campaigns that affect them, including the Basel and Bamako conventions (which regulate the transport of hazardous waste), the FCCC (which regulate the emission of greenhouse gases) and the Biodiversity Convention. One of the companies is particularly concerned about the potential impact of the FCCC since it produces and emits large quantities of CO₂ and other greenhouse gases. Indeed, the sector as a whole is a major contributor to such emissions. The chemicals industry would have to be integrally involved in any plan to reduce greenhouse gas emissions under the FCCC or any other plan.

The industry is also affected by the international Greenpeace campaign to ban the use of persistent chemicals such as DDT, PCBs and chlorine. According to the companies, the dangers of DDT and PCBs have been widely recognised and their business would not be severely affected by an international ban or restriction on their use. Other persistent chemicals like chlorine and polyvinyl chloride, however, are much more integral to the business of the chemical industry as it is currently structured and severe restriction would have “a major impact on our business”.

According to the interviews, the South African chemical industry, and the large companies in particular, are following international trends and are in no immediate danger of losing export markets as a result of environmental measures. The industry is experiencing a combination of pressures from local sources—regulations, environmental action groups and potential liability—and international sources—export customers, international environmental campaigns and international conventions. These are driving the sector to be increasingly aware of environmental concerns. However, if companies are not able to meet environmental concerns and keep up with international trends, they may face difficulties in export markets in the long-term. This will be especially true of newer or smaller exporters who may have greater difficulties in meeting the investment and administrative requirements that often accompany effective environmental management systems.

Parts of the industry also face particular challenges with regard to greenhouse gas emissions and attention will need to be given to this in the future.

Coal

One company was interviewed in this sector. It is a major coal producer and exports 30% of its production to a variety of markets in the EU, East Asia, North America, Latin America, the Middle East and Africa. The company is aware of growing environmental concerns in the industry:

There is no real pressure at this stage, but from time to time we are asked about our environmental policy. Some customers are beginning to look at our performance in more detail, such as looking at trace elements in our product. There is general desire among companies internationally to demonstrate that their suppliers act responsibly in relation to the environment and this is affecting us. Most of the queries we receive are informal but we have recently received some formal enquiries about our environmental impact.

The company is involved in various task groups looking at the development of the ISO 14000 series of environmental standards and is likely to apply for accreditation under ISO 14001. Internationally, coal is largely used as an input to the electricity sector and coal-fired power has come under some pressure with regard to its environmental impact and, especially, its contribution to greenhouse gas emissions and acid rain. This pressure may, in the long-term, affect international coal consumption. At present, however, international coal consumption is not being negatively affected. The world market for coal is expected to grow by about 30% by the end of the century and South Africa’s coal exports are likely to follow the trend. The world coal market is, however, increasingly demanding low-sulphur coal because of concerns about sulphur emissions and because of regulations such as the USA’s Clean Air Act. South African coal deposits are low in sulphur and this places South Africa at an advantage relative to many competitors. In time, the company expects to earn a premium on the world price because of the low sulphur content.

The coal sector is potentially vulnerable to environmental trade measures, especially in the form of a carbon tax. The company does not, however, expect carbon taxes to be widely introduced in the foreseeable future. It argues that:

The talk of a carbon tax is really more of a stick to beat coal suppliers than a serious environmental initiative. Of course we need to be concerned about carbon levels, but we also have to ask: what real alternatives are there to coal-fired energy, given installed international capacity and price? If you take these factors into account, it seems very unlikely that the use of coal will decline significantly. This is borne out by the fact that international demand for coal is still increasing and there are robust plans for coal-fired plants in East Asia and China in particular. So we are not expecting a decline in demand.

If international coal consumption does decline in the long-term, South Africa could be badly affected since coal is a major export and, indeed, a major employer. However, we would be in a slightly better position than many other coal exporters due to the relatively lower sulphur levels in our coal.

Minerals processing

Two companies were interviewed in this sector. Once produces manganese and exports 85% of its product. The other produces platinum and related products and exports over 90% of its product. Both export to a wide range of markets including the EU, North America and East Asia.

Both companies have received some queries about the environmental performance of their products and processes and both believe that the issue is becoming increasingly important in international markets. Neither company has, however, faced environmentally related market barriers so far. One of the companies was aware of ISO 14000 and expected to apply for ISO 14001 accreditation. This company argued that although there is no significant pressure in export markets so far, it is likely to increase:

We are trying to be proactive. We hope to achieve what we need to long before the pressure becomes visible and certainly before it becomes unbearable. We know that it makes sense for our competitors to jump on the environmental bandwagon and the Greens are also becoming aggressive. Just look at the campaign against Shell in the North Sea. We are, therefore, trying to make sure we have our house in order.

One of the companies has experienced a particular problem with exporting one of its concentrates which contains recycled materials. There has been difficulty in passing through European borders because of intricate regulations relating to this product and its environmental implications. According to the company:

There are lengthy forms for concentrates containing recycled materials and this has led to cost and time delays as well as some consignments not being accepted. We believe that the bureaucratic hurdles are not just for environmental reasons but that our competitors assisted in putting them in place. Also, the forms we have to complete require signatures from officials in government departments and our cause has certainly not been helped by the inexperience and confusion in some of the departments. While these problems are being sorted out here our competitors are outflanking us in this particular market.

Companies in this sector also point to the cost implications of investing in technologies necessary for environmental protection. One of the companies, for example, recently decided to upgrade its effluent systems in order to deal effectively with environmental concerns. This will cost R60 million—R70 million over three years for one plant alone. The investment does, however, allow the company to recover some materials and this will offset the costs to some extent. The company pointed out that if environmental costs “hit all international producers simultaneously, it will just be added to the cost of the product”. If, however, some producers have fallen behind or have special environmental problems, they may be at a disadvantage in international markets. Given the generally old capital stock in South Africa, this could become a major burden.

Environmental issues are becoming more prominent in the industry and, as with the chemical sector, this seems to stem from a combination of local and international pressures. One of the companies pointed out that until two years ago it dealt with environmental issues fairly informally but now it has been identified as a major strategic issue for the next decade, especially with regard to exports. The company has established an inventory of environmental issues and created an action plan to address them.

Perhaps the biggest danger for the industry relates to the energy issue. Like aluminium, energy costs are a large proportion of the cost of minerals processing (around 30%). South Africa’s cheap electricity is currently a major advantage but may also become a disadvantage if there is international action against greenhouse emissions. Only one of the companies was aware of the issue. It felt that there is no immediate danger.

We think that the West is quite embarrassed about its own emissions and is unlikely to push the CO₂ issue too hard. CO₂ is related to a country’s level of industrialisation and ours is much lower per capita than the developed countries. So we are not too concerned. For us, SO_x and NO_x emissions seem much more important but they are not really being driven by an international agenda.

Citrus fruit

One company was interviewed in this sector. It is an export agent that markets South African citrus fruit on behalf of farmers and sells to a wide rage of countries including the EU and North America. According to the company, environmental issues are coming up strongly in the international fruit trade and the company has identified environment as a major issue over the next five years. Fruit is subject to specific sensitivities and to special provisions applicable to food. The major issue in the industry is the use and control of chemicals that are used in growing and transporting the fruit. The regulation of chemicals has become a major issue in the industry internationally and this has had an immediate impact on South Africa since exports constitute some 60% of the crop. South African exports, particularly to Europe, must meet with strict specifications on chemical residues in fruit entering the market. This has meant that South African farmers have had to alter their methods of protecting the fruit both during growing and distribution. This has involved reducing chemical controls:

There have been a number of factors encouraging a move away from certain chemicals and towards more natural controls such as introducing beneficial insects. We are now on the path towards integrated pest management which involves a combination of chemical and biological controls. The issue of chemical residues in fruit entering the export market has probably been the most important factor pushing us in this direction.

Indeed, the company has been key in conducting research and introducing new management techniques to the individual growers. The company assists farmers with introducing these techniques and with managing pesticides and other chemicals. This is especially important since farmers who abide by South African law may still be unable to export their product. According to the company, “you can meet all the requirements of South African law and still not be able to export your fruit”. Part of the difficulty has been that local standards for chemical use do not necessarily take account of maximum residue levels applicable in export markets. In response to this problem, the company issues publications for farmers which specifies restrictions on chemical use for export markets. Since exports are a high percentage of local production, most farmers have introduced these new methods for all their produce and not only for their export fruit. This is an example, then, of international trade driving improvements in local management practices.

In addition to regulations in other countries there are now certain customers who demand standards that are higher than their domestic regulations. For example, there is now a niche market in Japan for fruit which is totally free of chemicals and this has encouraged some South African producers to experiment in this area.

Packaging

Two companies were interviewed in this sector. Both are large packaging groups which provide packaging services to a wide range of exporters in various international markets. Both companies also export some empty packaging, mostly to Latin America and the EU. Both companies have been highly involved in meeting the packaging requirements of their customers in export markets. In particular, they have had to respond to EU packaging regulations and the effects of the German Packaging Ordinance have been especially strong.

The issue of packaging South African exports has been well-documented and will not be covered in detail here. What is important to note, however, is that international (and especially European) packaging legislation has driven significant changes in the local packaging market and has encouraged a trend towards lighter and more easily recycled materials. According to the companies, this trend is now not only evident in packages for export products but also for locally used packaging.

The packaging experience also illustrates the importance of services to exporters. One of the companies gave the example of an exporter who received a 14 - page questionnaire on the environmental consequences of his export packaging.

They got the fright of their life but because we had developed an expertise in the area we were able to assist them. If South African packaging companies had been unable to meet the new packaging requirements, all our exports would have been threatened. But we have been able to meet the challenges and expect to continue to do so. In export markets you have to do as you’re told.

Similarly, the packaging experience illustrates the way in which environmental trade measures can drive company behaviour all the way down the line. “Companies have become more and more demanding of the environmental performance of their suppliers and packaging is certainly part of this trend.”

Pulp and paper

Two companies were interviewed in this sector. They are large producers of pulp and paper and export some 35% of their production. Exports are concentrated in particular product markets and are sent to a wide range of markets including those in the EU, North America, Africa and East Asia. Environmental pressures have been particularly strong in this industry and it serves as an interesting case study of the capacity of international market trends to change the environmental behaviour of South African companies.

There have been two main concerns about the environmental impact of the pulp and paper industry in recent years. The first is the impact of wood demand on world forest resources. Here the concerns have mostly been about logging of old-growth forests and the contribution of the paper-related wood industries to deforestation. The source of pulp producers’ timber supplies and the management of forests have, therefore, come under the international spotlight. The second main concern has been about the use of chlorine—particularly elemental chlorine—for the bleaching of pulp and the subsequent release of organochlorine effluent into inland and marine waterways. As a result, there has been an international campaign to remove chlorine from the paper-making process. In a number of countries, most notably Germany, consumer markets have demanded chlorine-free paper, and certain German retailers have refused to sell paper which contains chlorine. This has had a major impact on pulp and paper production internationally.

The forestry and chlorine campaigns have both affected South African companies. Both companies have had enquiries about their timber sources, with some customers asking for written certification that the wood used in their paper production is not logged from old-growth forests. This has, in fact, been an advantage for South Africa since all pulp wood is drawn from human-planted, managed forests rather than indigenous areas. There are a number of environmental problems associated with plantation forests of this kind— particularly their impact on water supply and biodiversity—but these have not yet come under international scrutiny. The chlorine issue has been more difficult for South African producers. Although a South African paper company invented a technique to remove elemental chlorine from the bleaching process some 20 years ago, elemental chlorine is still being used in some South African plants. The international market is, however, increasingly demanding elemental chlorine-free pulp and, as a result, both companies are moving in this direction. One of the companies commented:

By the end of 1996 all our plants will be elemental chlorine-free and this has been driven entirely by exports. In one case we wanted to delay the transition to elemental chlorine-free by two years but we were forced to move more quickly. Of course, it is incredibly expensive. We have spent R65 million on this already and there is still more to go as we still have to adapt our largest mill. There is no added value as such—in fact, it creates additional operating expenses as well as capital costs. But in this case it is a cost of staying in business.

In fact, some markets are now demanding pulp that is not only free of elemental chlorine but totally chlorine-free. The totally chlorine-free movement is gaining strength in Europe and particularly in Germany and Scandinavia. The USA has, however, strongly resisted this trend and there seems to be little pressure from East Asia. However, since Europe is a large destination for South African pulp exports there is some prospect that South African producers will need to move in this direction.

The chlorine issue is an interesting example of market-based pressure. According to the companies there is no agreement among scientists internationally that chlorine is, in fact, harmful in the quantities in which it is released. However, the market has made a judgement that it is harmful and this has been impossible for pulp producers to ignore. It is also an interesting example of the way in which companies can use environmental performance as a source of competitive advantage and perhaps as a source of protection. One of the companies cited an example of a Scandinavian pulp company which is seeking to push environmental standards as high as possible:

All their pulp is totally chlorine-free and they are trying to make this the standard for the European market. But the truth is that the Scandinavians are high-cost producers and the only way that they can differentiate themselves in the market is through environmental factors. They could end up using this as a trade barrier. For example, some of the companies are moving towards becoming altogether effluent-free, so the goalposts keep moving.

The chlorine case also demonstrates the limited impact of international market-based pressures. There are two reasons for this. Firstly, environmental pressures rise and fall to some extent with supply and demand in the market, especially in relation to commodities. At times of international oversupply, customers are able to exert more pressure on suppliers and can be more insistent about environmental issues. When the market is tighter, customers tend to ask fewer questions about environmental performance as they are under more pressure to assure their supply. Secondly, the international market is concerned only about certain issues, usually those involving global commons. While other, more local, environmental issues may be more urgent, they are unlikely to receive international attention. International pressures must, therefore, be combined with effective local regulation. For example, one of the companies has recently been under pressure to reduce its marine effluent, but his has come from local rather than international sources.

The pulp and paper industry has certainly been targeted internationally and it seems that the pressure will continue. The companies both perceive various forms of environmental certification to be critical to their ability to export in future. These include ISO 14001 and EMAS (a European standard). There is also a strong possibility that a European eco-label on paper will be developed. Long-term issues for the industry include the possibility of effluent-free production as well as alternative (non-wood) sources for paper-making fibre. Said one of the companies: “Given the way that the international market has gone, I wouldn’t discount either of these as possibilities in the long-term.” If either of these materialised, new costs would be imposed on producers and some of South Africa’s comparative advantage—for example, from fast-growing wood—may be eroded. This suggests a need for South African producers to maintain a competitive advantage in all aspects of their production, including the environmental aspect, rather than simply relying on raw material advantages.

Steel

In this sector an interview was conducted with an environmental representative, who is also a manager at a large steel company, of the industry body.

The steel industry exports some 30% of its production to a range of markets including Latin America, the EU, East Asia and the USA. Exports include mild steel, flat products, profile products and stainless steel. The industry is experiencing increasing environmental pressures from local sources and from the international market. The pressures from the international market, in particular, are expected to grow in coming years. “We have had no formal enquiries so far but we are expecting them any day. We have received some international visitors who have asked questions about our environmental performance and we have also been asked to fill in various forms for some of our customers.”

Recently, representatives of one of the major companies in the industry visited European customers and competitors and gained a clear impression that environmental pressures are growing in the international market. They also concluded that South African companies are largely behind other international producers on the environmental front although some local mills perform better than others on this score. The international industry has already been through major environmental changes but these are still fairly new for South African companies.

It is difficult to generalise about the environmental profile of the industry. Much depends on the age of the mills and the degree to which they have invested in capital equipment which limits their environmental impact. One recently constructed plant is seen as state-of-the-art in all aspects including environmental performance, but many other plants are very old and lack environmental protection technologies. Two of the country’s largest plants are also its oldest. It is these plants that are most vulnerable to environmental pressures. One plant, for example, was built 51 years ago and although it has been upgraded it still lacks sufficient environmental protections. “When this place was built, there was very little concern about pollution and many of our batteries are simply not up to today’s standards.” But the investments required to upgrade these old plants are very costly. At one plant alone, an investment of Rl,5 billion is being considered, largely for environmental reasons although it would also have benefits in terms of efficiency. “We tend to find that the senior management are reluctant to make investments that are purely environmental and have no economic benefits.”

If this and similar investments are not made, it seems that some of South Africa’s mills may face real threats in the export market. In the industry as a whole, environmental investment levels are low at about 5% of operating budget compared with an international average of about 15%.

In the older mills we will probably have to spend something like 30% of our budget for a few years in order to catch up. The way I see it, there is a race against time. Its all right now when there is an international shortage of steel but when the market turns everyone will be trying to sell their steel and then environmental pressures will pop out like soetkoek.⁶ If we can’t improve I think we will probably lose some export markets.

The company is working towards ISO 14001 and believes that accreditation will help in the international market. Although the ISO standard will not necessarily ensure that all environmental problems are addressed, it will impose some pressures. “The ISO 14001 standard is likely to be based on action plans, so in order to qualify you have to be doing something to solve your problems.”

The steel industry is also under some pressure from local sources. This includes pressure from surrounding communities to do something about air emissions. There is also government pressure as a result of the presence of chemicals and heavy metals in plant effluent as well as concern about particulate and sulphur emissions. The international pressure may, however, be more difficult to resist:

The truth is that you can always pay a fine and carry on, especially since our fines are very small. But if your customers are complaining there is nothing you can do. You can survive anything else but you can’t survive without customers.

The steel industry, therefore, faces major environmental challenges and without substantial action and investment may well face constraints in the export market in the coming years. There may be some value in developing an industry-level approach to this problem and some assistance from government may be required. In particular, it may be useful for an organisation like the Industrial Development Corporation to make preferential finance available for exporters who are struggling to make the necessary environmental investments.

Soaps and detergents

Two companies were interviewed in this sector. Both are subsidiaries of major international companies. Each company exports less than 10% of its production, mostly to other African countries and to the Indian Ocean islands. What is interesting about this sector for our purposes is the effect of the policies of the head offices of these multinational companies on the manufacture of products in South Africa. Both companies must abide by the policies set by their mother companies and the environmental performance of their products must match the same standards as a product manufactured in a company plant in another country. One example of this is in packaging. At one of the companies, the international head office set packaging policy guidelines which exceeded local regulation or practice in the South African market. The local subsidiary then had to ensure that its packaging suppliers were able to meet these standards and that its packaging for local and international markets was in line with the company’s international policy.

⁶Sweet cakes.

Both companies pointed to a relative lack of environmental pressures in the local market or through local regulations. “Internationally, environment is a big issue but here there is very little pressure. For us it is more of an issue coming from the global company policies than from the local situation.”

However, the policies of multinationals do not necessarily ensure that environmental standards are equivalent in all cases. One of the companies, for example, displayed a product from a sister company in Europe. Information written on the pack provided a substantial amount of environmental data including information on the biodegradability of the product and on the recycled content of the package. Similar information is not available here although the product itself is almost identical. The companies also have some experience of direct pressure from customers. One of the companies won a United Nations tender to supply products for an aid organisation working in central Africa. The customer required substantial information about the product, including its environmental performance, in order for the tender to be awarded.

In summary, companies in this sector are probably achieving higher environmental standards than they would in the absence of pressures from their multinational head offices and face no immediate threats on the export front.

Textiles

Two companies were interviewed in this sector. One is a large producer of a range of textiles and exports 10% of its product mostly to the EU and Australia. It has only been in the export market for two years and hopes to grow its exports to 20% over the next five years. The second company produces technical and engineering fabrics and exports 70% of its product to the EU, the USA and Australia.

Neither company reports significant environmental pressures on its exports. According to one of the companies, the major effect that environmental issues have had on its exports is the increased demand for niche “environmental fabrics” such as “natural look” unbleached textiles and all natural fibres. Environmental issues do not, however, seem to have affected demand for the traditional textiles which it supplies. The company said, for example:

We use loads of chlorine in our bleaching process but we’ve never had any problem with that from our local or international customers. They are really interested in price, quality and styling. The only ones who worry about our environmental side are the local authorities who set standards for our water effluent and so forth.

This is in stark contrast to the pulp industry where, as we have seen, chlorine has become a major issue. Neither company has experienced pressure to achieve environmental accreditation and neither was aware of the possible introduction of eco-labels on any textiles that would affect its product range. However, one of the companies pointed out that its process involves very little chemical use and that this makes it much less vulnerable to international concerns.

One of the companies argued that the international textile industry is much more involved in a debate about human rights or social clauses in trade agreements than environmental ones. Some countries which have large textile industries have come under fire for their human rights records or for the use of child labour. Trade measures have been threatened against some of these countries and the social clause issue seems set to dominate the debate in the textile industry in the foreseeable future.

There is some danger, however, that local producers may have insufficient access to information about environmental requirements in export markets, especially in light of the current discussions on establishing a European eco-label for textiles. There are already draft criteria for a European eco-label on T-shirts and bedlinen. These criteria indicate the adoption of a life-cycle approach and, therefore, take account of the use of pesticides on the growing of cotton as well as elements of the textile production process such as energy and water use, chemical use and noise (United Nations Conference on Trade and Development—UNCTAD 1995:27). There are also a number of privately issued textile eco-labels that are already in place, including labels in the Netherlands and Germany. Some of these labels relate to the process of production and others relate to the presence of substances in the product itself.

It is imperative that South African companies have access to proper information about these developments and that they are involved in discussions about the criteria for such schemes. If the companies and/or the industry federation fail to remain informed and involved in these discussions, there could be negative consequences for South African exports in the longer-term.

Timber

Two companies were interviewed in this sector. Between them they export some 1,3 million tonnes of logs and wood chips mostly to the Japanese market. One of the companies also exports sawn timber products. Both companies have experienced some environmental enquiries from customers, including being asked to submit verification—and in one case independent accreditation—that the wood is all sourced from plantation rather than old-growth forests. Like in the pulp industry, this has been a source of advantage for South Africa since all forests are managed plantations. Companies which are unable to provide assurances about the source of their timber are apparently being forced out of certain markets, particularly in Europe.

One of the companies is exploring an accreditation system for its timber and timber products which involves applying for the right to use a privately issued eco-label which assures the customer that the product has been produced in an environmentally responsible manner. These labels are issued by environmental groups such as the World Wide Fund for Nature and Friends of the Earth. In order to win approval from these groupings— and attach their label to the product—certain environmental requirements must be met. These labels are particular to the wood industry and are mostly aimed at tropical hardwoods since these are most important with regard to deforestation. Nevertheless, the labels would be available to South African exporters and are being explored.

However, environmental issues which are specific to forestry in South Africa—such as the water-supply and biodiversity issues mentioned above—have not come under international pressure. While there is now some attention being given to these issues locally, it seems that they are currently of limited relevance to the international debate. This may change, however, especially with the increasing market share of other plantation-based timber industries such as Brazil and Argentina (UNCTAD 1995:25).

Understanding the trends

As we have seen, South African exporters have experienced international environmental pressures of different kinds. These pressures may be classified as follows:

• direct customer pressure;
  
• standards, accreditation and eco-labels;
  
• domestic regulations;
  
• multilateral environmental agreements;
  
• campaigns against particular products or substances; and
  
• multinational company policies.

Direct customer pressure

This already quite widespread and companies in many sectors are expecting this to grow. In various forms it has been evident in the following sectors:

• coal (sulphur content);
  
• chemicals (potential hazards);
  
• fruit (chemical residues);
  
• packaging (recycled content and weight);
  
• pulp and paper (chlorine bleaching);
  
• steel (overall environmental policy); and
  
• timber (wood sources).

In some cases, international customers’ interests reflect domestic regulations—for example, packaging—or the requirements of a management standard. In other cases, however, queries reflect the environmental policies of the consumers themselves.

Standards, accreditation and environmental labels

These are also growing as a form of pressure on exporters. The majority of companies interviewed in this study were aware of the development of management standards such as the ISO 14001 standard and most expect to apply for accreditation. A number of companies had been involved in the discussions about the development of the standard. Companies in the following sectors are considering applying for the standard:

• aluminium;
  
• coal;
  
• chemicals;
  
• minerals processing;
  
• packaging;
  
• pulp and paper;
  
• steel;
  
• soaps and detergents; and
  
• timber.

Fewer companies were aware of eco-labels—as opposed to management standards—although it is clear that there is increasing discussion of these in the international debate. At present they are concentrated in sectors such as pulp and paper, textiles, footwear and timber, but they may well spread to other sectors (UNCTAD 1995). In some sectors such as textiles and pulp, eco-labels have the potential to affect upstream suppliers such as cotton or timber farmers and cooperation is, therefore, needed across the pipeline.⁷

It is imperative that South African companies and industry organisations involve themselves in these discussions and remain informed. There may also be a role for government and government-supported organisations to provide the necessary information to companies.

Domestic regulations

The enforcement of domestic environmental regulations has affected companies in a number of sectors. In most cases exporters must provide documentation proving their adherence to these regulations. In the experience of the companies the regulations tend to relate to the following issues:

• potential hazards(chemicals and minerals processing);
  
• chemical residues (fruit); and
  
• packaging (range of sectors).

South African government departments have a key role to play in servicing exporters who are attempting to meet other countries’ regulations. Exporters frequently require documentation from government departments and it is important that they are able to provide these competently and timeously.

Multinational environmental agreements

The provisions of multinational environmental agreements have affected some sectors and have the potential to affect many others. So far, the chemical industry has been most affected—mostly by the provisions of the Basel Convention (trade in hazardous waste) and the Montreal Protocol (CFCs). The FCCC has the potential to affect a number of sectors including electricity generation, aluminium, chemicals, coal, minerals processing, paper and steel.

It is important that the government departments that negotiate South Africa’s participation in these conventions are in touch with the needs of companies and other interested parties such as trade unions. It is also important that, in addition to the role played by government departments such as Foreign Affairs and Environmental Affairs, the Department of Trade and Industry also participates in such discussions.

⁷For a full discussion of the developmental implications of eco-labels see UNCTAD 1995.

Campaigns against the use of particular products or substances

The pulp and paper industry is the clearest example of an international campaign targeting a particular product or process—in this case chlorine-bleached pulp. The chemical industry may face similar campaigns with the Greenpeace campaign against persistent chemicals including chlorine. This campaign has not mustered the strength of the pulp campaign but may do so in future. It is likely that publicly driven campaigns will continue to play a vital role in setting the international environmental agenda.

Multinational company policies

The soaps and detergents sector is an example of the power of multinational companies to spread their environmental policies worldwide. As we have seen, South African subsidiaries of companies in that sector have adopted the environmental policies of their mother companies in ways which may well ensure that they have better environmental policies than they would otherwise. Multinationals do, of course, impose limits on their subsidiaries and there is a substantial international literature on the restrictive developmental effects of multinationals. Restrictions include limits on potential exports since subsidiaries are restricted to limited geographical areas. This is an example, however, of a more positive outcome of multinationals’ global reach.

The impact of international environmental pressures

At the beginning of this chapter we noted that international environmental pressures may be a double-edged sword. On the one hand, they may constrain companies’ ability to export and may act as a form of protection for more developed economies; on the other hand, they may serve as a source of pressure for companies to raise their levels of environmental performance. Having presented the evidence from the study, what conclusions can we draw about these two possibilities?

The discussion of the sectors has revealed a number of trends regarding the environmental pressures on South African exporters. The experience of most sectors is that environmental pressures are building up in export markets but that there are no experiences of actual trade restrictions or barriers to foreign markets. There are a number of examples of sectors which have had to adapt to meet the environmental requirements of the market and this is especially the case in the pulp and paper, packaging, fruit and, to a lesser extent, chemical sectors. A number of sectors expect to make major adjustments in the near future, especially the steel and chemical sectors.

In some sectors, companies have found that they have a competitive advantage as a result of international environmental concerns. This is the case in the coal, timber and pulp industries. In all of these industries the advantage is based more on natural endowments than on a conscious environmental policy. Nevertheless, South Africa’s low-sulphur coal and plantation forests—which were established as a result of a lack of natural forests—give our exporters some advantages.

This evidence creates a clear impression that international environmental pressures are having a positive impact on the environmental performance of South African exporters. Although this pressure is difficult to quantify, all the companies interviewed listed international pressures as an important influence on their environmental performance. In many cases it was seen as the key influence. It is clear that in sectors like pulp and paper, chemicals and fruit, international pressures have had a decisive influence. As we have seen above, these pressures are sometimes based on international agreements or on foreign regulations, but often they are based on the demands of the market.

It is important to note, however, that international pressures are almost always combined with local pressures, whether these are in the form of regulations or community and other initiatives. At present local environmental pressures in South Africa are relatively weak although environmental lobby groups are certainly growing in strength. Environmental regulatory authorities are generally weak and under-resourced and this makes it difficult for the government to monitor individual plants’ compliance with environmental regulations. International pressures may, therefore, play an important complementary role in encouraging companies to raise their environmental performance.

We have seen, however, that international pressures largely relate to global issues such as ozone depletion, global warming, deforestation and chemical build-up in marine waterways. Local environmental issues such as waste management, particulate emissions and local water quality are generally not addressed by international measures.⁸ It should also be remembered that international measures are often subject to the ups and downs of the market and to changes in international sentiment. They should, therefore, not be seen in any way as a substitute for proper national environmental policies.

It is also worth remembering that international environmental movements are largely publicly driven. The pressure that has built up in international markets is mostly due to strong public and political support for environmental causes. The role played by non-governmental environmental groupings has been important. Continued pressure from these groupings will continue to help shape the international agenda.

Management and policy implications

The experience of exporters reflected in this study raises a number of important issues for environmental management and policy in South Africa. Some relate to the actions of specific firms or industrial sectors whereas others require action from government. Specific policy issues are discussed below.

Energy supply

Many of the exports discussed above are energy intensive. This is particularly true of the aluminium and minerals-processing sectors as well as certain types of steel and paper. Other sectors related to the energy debates are electricity generation, chemicals and coal. As noted above, low electricity prices are a major source of comparative advantage for South African exporters, but also makes them vulnerable to international trade measures. If significant action were to be taken against energy-intensive exports because of the environmental impact of our electricity generation, exports from a number of sectors would be affected. Similarly, if energy prices were to rise considerably as a result of investments in environmental abatement technologies, the comparative advantage of a number of exports could be affected. Of course, the energy generation sector is not the only contributor to co₂ and other greenhouse gas emissions. The chemical sector is also key and should be taken into consideration in the debate. But the management of the energy sector’s environmental impact is key to the trade and environment debate. It is possible that trade pressures could be applied to South Africa if we do not comply with environmental targets. South Africa is particularly vulnerable in this regard because of our very high proportion of coal-fired generation and because of the low cost of electricity. The market may apply direct pressures to our energy intensive exports by fostering an image of South Africa as a dirty energy producer. It is also possible that trade measures may be applied in the longer-term if South Africa is unable to fulfil its obligations under the FCCC. While the convention does not involve any trade measures at present, it is conceivable that these may be introduced in future.

⁸Eco-labels may be an exception. Current draft criteria on textile eco-labels, for example, give attention to local issues including factory conditions such as control of cotton dust.

However, there does not seem to be major concern about this among the companies interviewed. Eskom is keeping a close watch on the issue but so far has not committed itself to major initiatives regarding greenhouse gas emissions. Similarly, the minerals processing companies do not believe that strong action will be taken. Companies in a number of other industries, such as aluminium, did not seem aware of the issue and have certainly not identified it as a strategic issue.

It may be that the companies are well in touch with international trends and with their markets and that the energy greenhouse gas issue is unlikely to become a threat to our exports. Given the magnitude of the danger, however, perhaps more attention needs to be given to this issue. There is a clear need for coordination between Eskom, the energy intensive exporters and government on this issue. There is also a need to ensure that South Africa’s position is well-represented at international negotiations on trade and environment in general and at the FCCC in particular. It will be important to include a range of government departments in these discussions including Foreign Affairs, Mineral and Energy Affairs and Trade and Industry.

Investment

A second major issue arising from the interviews is the importance of investments in environmental abatement technologies. In a number of sectors—notably pulp and paper—very large environmental investments have already been made and managers interviewed in the electricity, chemicals, minerals processing, steel and paper industries pointed to the need for further environmental investments. In some cases these investments have economic benefits as well as environmental ones, but in others the investments would be purely environmental. In some industries—notably electricity, steel and chemicals—the required investments would be very large and the companies have not yet committed themselves to spending the necessary resources.

The problem is especially severe in old plants and in industries where the capital stock is generally old. The costs of reinvesting are already high and the need for environmental investments adds to the cost.

A failure to make the appropriate investments in clean technology may constrain the ability of companies to export in the long-term—to say nothing of the environmental consequences. A number of environmental managers interviewed for this study expressed frustration with senior management who they perceived as unwilling to make investments for purely environmental reasons. In certain sectors, however, such investments clearly are being made. In many cases major environmental investments are driven by the requirements of the international market rather than by local pressures or regulations. It seems, however, that such investments are made only when international pressures are very strong and quite unambiguous.

The steel industry is a case where large investments have to be made in a number of plants if environmental performance is to be raised to international levels. It seems that although environmental issues are not posing a danger to exports at present, they may well in the future. There is no guarantee, however, that the companies concerned will make the investments in good time. In the context of relatively old capital stock in much of the industry, companies may also have real difficulty in committing the required funds over the next few years. There may, therefore, be a role for government in helping to finance such investments where necessary. One possibility would be to make finance available through an institution such as the Industrial Development Corporation, or possibly through taking advantage of concessionary global finance for the environment. Government and private sector organisations also need to explore the possibility of getting finance through the Global Environmental Facility⁹ and other finance schemes specific to the environment.

Access to information

A third area arising from the interviews is the importance of information on environmental trends. Information on issues such as the FCCC and the potential development of eco-labels on particular products should be easily available to exporters. In this study we have seen a number of cases where companies seem unaware of initiatives that could affect their ability to export in the long-term. This includes textile companies which are unaware of the possible development of an eco-label on textiles and energy intensive companies which seemed unaware of the potential affects of global action against co₂ emissions. There is a clear role for government here—as well as for private sector organisations such as the Industrial Environmental Forum—to provide information to companies. UNCTAD could also play a useful role in this regard. However, attempts to ensure proper access to information are only likely to succeed if there is proper coordination between various government departments and between government, the private sector and non-governmental organisations.

⁹The Global Environmental Facility funds abatement of global environmental externalities.

In addition to the three priorities outlined above, there are a number of other policy issues arising from this study, namely:

International management standards

One of the strongest trends to emerge in the interviews was the intention of a wide range of companies to apply for accreditation under the iso 14000 environmental series. The iso 9000 series of standards already have a strong following in South Africa and iso 14000 is likely to become well-established among South African producers. A standard like iso could play an important role in complementing regulatory work and in supporting national environmental and economic objectives.

ISO 14001 measures conformity to an environmental management system rather than the actual environmental performance of an organisation or its products.

The standard requires an organisation to identify its environmental policy and objectives and then build a system to ensure that it is able to meet those objectives. However, companies must meet certain minimum standards such as identifying and meeting its legal obligations, providing appropriate training for employees, maintaining proper environmental information systems and creating a procedure to deal with environmental emergencies.

Given this model, it is clear that the standard establishes a process for environmental management rather than measuring actual environmental performance. Accordingly, the ISO states:

It should be noted that this standard does not establish absolute requirements for environmental performance beyond commitment, in the policy, to compliance with applicable legislation and regulations, and to continual improvement. Thus, two organisations carrying out similar activities but having different environmental performance may both comply with its requirements... [AJdoption of this specification will not in itself guarantee optimal environmental outcomes (ISO 1995:5).

The ISO 14001 standard could be very useful, however, in ensuring that companies have environmental policies and action plans in place. The standard may also ensure that companies are more aware of and responsive to their legal obligations. This may help with the problem of enforcing regulations described above. This may provide more of an incentive to abide by environmental laws than the current system which relies on under-resourced government departments wielding very small sticks. While management standards cannot and should not substitute proper monitoring of the law, they may play a useful complementary role given our current regulatory weaknesses. Care should be taken, however, not to use market-based instruments such as ISO 14000 as an excuse to avoid beefing up our regulatory systems.

Institutions

There may be certain institutional arrangements within the private sector and between the private sector, government and other organisations that foster more successful approaches to international environmental pressures.

The first of these is a set of institutions within sectors which provide environmental information, services and research for companies in the sector as a whole. The citrus fruit sector is a good example of how a central organisation can assist individual producers by gathering information on environmental requirements in export markets and conducting research to assist producers in meeting these requirements. Similarly, companies in the steel sector have established an industry environmental committee to cooperate on developing an environmental strategy for the sector as a whole. There may be economies of scale which make it easier to gather information or conduct research jointly. In this way, positive elements of competition can be introduced into an otherwise competitive environment.

It may also be helpful to establish some joint structures between government and business on issues such as the FCCC. Joint committees may also be useful in looking at issues like investment in environmental abatement technologies or in establishing a set of environmental targets for a sector as a whole. Such structures may also facilitate improvements in the services offered by government departments by providing clear information to government on the kind of assistance required by exporters.

Small, medium and micro-sized exporters

The sample for this study did not include any small, medium or micro-sized companies and it is, therefore, impossible to comment in detail on the issues that may face such companies. However, it is clear from the experience of the large companies and from international literature (UNCTAD1995) that successful management of international environmental pressures requires skills, information, systems and resources. It is reasonable to assume that all of these are in shorter supply in small firms than they are in large ones. There may be a special role, therefore, for government or for sectoral organisations to assist small and medium-sized exporters to manage their environmental performance.¹⁰

Government-level negotiations

We have seen that the South African exporters interviewed for this study have not yet been subject to formal trade restrictions. South Africa has also not been involved in any environment-related trade dispute with other countries. However, given the potential that exists for environment-related trade disputes, it is likely that South Africa will be involved in such disputes in future. The international rules of the trade and environment game are currently being debated in World Trade Organisation committees, UNCTAD seminars and academic articles. It is imperative that South Africa is active in this debate and that government participates in negotiations over trade measures. This will require an acute understanding of the debates as well as a strong link with business and other interested parties such as trade unions.

¹⁰ For a full discussion of the environmental issues faring small, medium and micro-sized enterprises, see Coleman in this volume.

Conclusion

This study was based on a small but significant sample of exporters. The experience of the companies shows that while exporters are not facing environment-related trade restrictions, they are more and more affected by international environmental pressures. These pressures are largely market-based. Companies are increasingly having to show that their products are produced in an environmentally responsible way and that their use will not cause environmental damage in their final destination. Some companies are also affected by environmental regulations in other countries and by international environmental agreements.

In most sectors, companies have been able to meet the new environmental requirements and expect to continue to do so. In other sectors, however, compliance will be more difficult and will require very substantial investments. The study also demonstrates that many companies are raising their environmental performance in response to international pressures and that this is helping to raise environmental standards in South Africa. The road ahead, however, is long and will require significant adjustments from companies. Government will also have to play a strong role in negotiating the conditions under which environment-based trade measures may be applied. Much will be required in the way of investment, information and skills if the potential benefits of environmental pressures can be realised while the dangers of protectionism are avoided.

References

Allen, A., “They all say Eskom you’re a star”, The Star, 2 November 1995.

Beghin, J., Roland-Hoist, D., and van der Mensbrugghe, D., A survey of the trade and environment nexus: global dimensions, Organisation for Economic Cooperation and Development Development Centre, Paris, 1994.

Eskom, Eskom Environmental Report 1994, Eskom, Sandton, 1995.

Eskom, Eskom Environmental Report 1995, Eskom, Sandton, 1996.

General Agreement on Tariffs and Trade (GATT), Trade and the environment: papers presented at the GATT Symposium on Trade, Environment and Sustainable Development, GATT Secretariat, Geneva, 1994.

International Standards Organisation, Environmental management systems— specification with guidance for use, 1995.

Markandya, A., Reconciliation of environmental and trade policies: synthesis of country case studies, UNCTAD, Geneva, 1994.

McKenzie, C., and Foster, S., International trade and the environment: a South African perspective, Development Bank of Southern Africa, Midrand, 1995.

Tussie, D., and Vasquez, P, Towards a new green round: a survey of issues and questions for research, Facultad Latinoamericana de Ciencias Sociales, Buenos Aires, 1994.

United Nations Conference on Trade and Development, Trade, environment and development aspects of establishing and operating eco-labeling programs, Geneva, 1995.

United Nations Conference on Trade and Development, Environmental policies, trade and competitiveness: conceptual and empirical issues, Geneva, 1995a.

World Trade Organisation, Trade and the environment, various issues, 1995.

Zarsky, L., Borders and the biosphere: environment, development and global trade, Island Press, Washington, 1994.

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