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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."

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