I. STATE OF THE ENVIRONMENT IN MALAYSIA

(M$ million in 1978 prices)

Sustainable development is a common objective, both of environmental and agricultural policies. The goal is to move rapidly toward "environmentally friendlier" sustainable agricultural practices. At the farm level, the analysis includes issues of the environmental benefits of sustainable and lower input agriculture, the adoption of environmentally friendly technologies and practices, and the role of education and farm advisory services. At the policy level, the analysis includes issues concerning the design and implementation of agricultural and environmental policies with the least economic distortions. That implies that policies are more market-oriented and that prices reflect the social value of resources used. The possible use of economic instruments, such as taxes, user charges, pollution charges and tradable permits can provide strong incentives for influencing the behaviour of individual farmers and the sector, and offer good prospects for achieving environmental objectives in a cost-efficient manner. Trade instruments are increasingly being used to achieve environmental objectives at the national and international levels. The most common trade instrument is the imposition of complementary restrictions on imports and exports as counterparts to regulatory controls on domestic production and consumption. Proposals to use trade measures for promoting external environmental objectives, such as sustainable resource use in other countries, are increasing. Trade measures may have a role to play in influencing the price of imports in order to more accurately reflect their resource or environmental costs. Malaysia does not view those proposals negatively as trade barriers since they pose new challenges to shifting national environmental policies from a "regulation-driven" to "incentive-driven" basis.

In recent years, there has been growing recognition that pollution damage costs should be internalized. Getting the price right is probably the most important factor in effectively pursuing sustainable development. Unless prices for raw materials and products properly reflect social costs, and if prices can be assigned to air, water and land resources that currently serve as free inputs and cost-free receptacles for the waste products of society, resources will be used inefficiently and environmental pollution will likely increase. Unfortunately, the prices of many natural resources has historically been set too low to reflect their full cost. Furthermore, the social costs associated with consuming and possibly exhausting the resource are usually ignored in setting prices. The concept of full-cost pricing should prevail for all types of use, with the price set to at least cover the supporting costs of the services, including capital investment, operation and maintenance, and environmental costs.