Trade versus the Environment: Strategic Settlement from a Systems Engineering Perspective

1. Trade versus the Environment: Strategic Settlement from a Systems Engineering Perspective KEITH W. HIPEL University Professor, PhD, PEng, FIEEE, FCAE, FINCOSE, FEIC, FRSC, FAWRA Department of Systems Design Engineering University of Waterloo Waterloo, Ontario, Canada N2L 3G1 Telephone (519) 888-4567, ext. 32830 Fax (519) 746-4791 Email: kwhipel@uwaterloo.ca Home Page: www.systems.uwaterloo.ca/Faculty/Hipel/ Conflict Analysis Group: http://www.systems.uwaterloo.ca/Research/CAG/

2. ABSTRACT The key goal of this research is to employ a Systems Engineering approach to conflict resolution to clearly identify the ubiquitous conflict taking place at the local, national and global levels between the basic values underlying trading agreements and those principles providing the foundations for environmental stewardship, and to suggest solutions as to how this most basic of disputes can be responsibly resolved. Subsequent to outlining the current situation involving free trade among nations and associated environmental problems, the positions of both sides in this chronic dispute between trade and the environment are summarized. Supporting the stance of free trade is the fundamental driving forces of profit maximization, while in direct opposition to this market-driven value system are the principles of maintaining a healthy environment and related social welfare objectives. Accordingly, this global clash of values is systematically studied as a game in which the values of the Global Market-Driven Economy (GMDE) are in confrontation with those of a Sustainable Ecosystem (SES) philosophy. A Systems Engineering tool for strategic analysis, called the Graph Model for Conflict, is utilized for realistically capturing the key characteristics of this type of complex conflict and for providing strategic insights regarding its potential resolution. In particular, a systematic Graph Model investigation reveals that the environment and social standards will continue to deteriorate if the entrenched positions and related value systems of both camps persist. However, based on the strategic understanding gained from this formal conflict study, a number of positive proposals are put forward for resolving this conflict from a win/win perspective, at least in the long run. To highlight inherent advantages of employing a formal Systems Engineering tool for addressing strategic conflict problems, the application is used for illustrating how the Graph Model can be conveniently applied to a specific dispute and comments regarding the capabilities and benefits of the conflict methodology are provided at each step in the modeling and analysis procedure.

3. REFERENCES • Hipel, K.W. and Obeidi, A., “Trade versus the Environment: Strategic Settlement from a Systems Engineering Perspective”, Systems Engineering, Vol. 8, No. 3, pp. 211-233, 2005. • See the web page of the Conflict Analysis Group at the University of Waterloo to obtain an extensive list of references. • Conflict Analysis Group: http://www.systems.uwaterloo.ca/Research/CAG/

4. OBJECTIVES • Model the conflict of values between the proponents of the Global Market-Driven Economy (GMDE) and those supporting a sustainable Ecosystem (SES). • Analyze this global conflict using the Graph Model for Conflict Resolution and its associated decision support system GMCR II to gain strategic insights. • Suggest what can be done politically to promote sustainable development, including responsible and equitable utilization of water.

5. RECOMMENDATIONS • Extensive educational and lobbying efforts are required for encouraging market-place proponents to change their value system by putting a higher priority on sustainable development. • International trade agreements such as those of the World Trade Organization (WTO) and North American Free Trade Agreement (NAFTA) must be reformed or replaced to reflect these values.

6. CONTENTS • TRADE AND THE ENVIRONMENT • CONCEPTUALIZING THE CONFLICT: A CLASH OF VALUES • CONFLICT MODEL • ANALYTICAL RESULTS AND INSIGHTS • SENSITIVITY ANALYSIS: MODERATE PREFERENCE CHANGE • ACHIEVING GLOBAL SUSTAINABLE DEVELOPMENT • REFORMING GLOBALIZATION

7. WORLD CRISIS • Consumption • Energy • Population growth • Widening gap between rich and poor • Pollution • Extinction of species • Water shortages Encouraged by international trade agreements

8. INNER CONFLICT OF VALUES Basic drive to survive and prosper Versus Desire to pressure environment in a pristine state

9. SOCIETAL LEVEL Cumulative intense economic activities Versus Environmental preservation

10. SUSTAINABLE DEVELOPMENT Economic needs of humanity are balanced against Preserving nature for future generations

11. AWARENESS AND RESPONSIBILITY Society Versus The Environment Humans must come to terms with this chronic conflict of values existing within and among themselves and take responsible actions to resolve it.

12. TRADE AGREEMENTS • BRETTON WOODS AGREEMENTS: • World Bank • International Monetary Fund (IMF) • General Agreement on Tariffs and Trade (GATT) (1947) • OTHER AGREEMENTS • WTO (1995) • NAFTA (1994) • FTAA (Free Trade Area of the Americas will replace NAFTA) • Canada/US Auto Pact (socially responsible) • European Community (EC, integrated agreements)

13. TRANSNATIONAL ENVIRONMENTAL TREATIES • No comprehensive international environmental treaty is in place. • Some treaties exist in specific areas: • Law of the Sea • Montreal Protocol on Substances that Deplete the Ozone Layer • Basel Convention on banning trade in hazardous wastes • Kyoto Protocol for reducing greenhouse gases

14. ENVIRONMENTAL IMPACTS OF TRADE Trade rules are globally operational And No encompassing environmental treaty exists. Many specific cases in which trade-based decisions harmed the environment and human health.

15. CONCEPTUALIZING THE CONFLICT: A CLASH OF VALUES Sustainable Ecosystem (SES) Values GLOBAL MARKET-DRIVEN ECONOMY (GMDE) Values

16. POSITIONS AND VALUE SYSTEMS Global Market-Driven Economy (GMDE) Sustainable Ecosystem (SES) Background information for carrying out a formal conflict study

17. GMDE VALUE SYSTEM Prioritizes free trade and globalization based on the principle of a market driven economy. Many benefits will follow.

18. SES VALUE SYSTEM • Prioritizes environmental stewardship, biodiversity, sustainable development, human rights, democratic principles, and other related issues that are important to societal well-being. • Highly critical of current free trade agreements, such as WTO agreements and NAFTA which are founded on market economics.

20. CONFLICT OF VALUES Trade Versus The Environment Carry out strategic analyses to find ethical and just resolutions.

21. CONFLICT RESOLUTION • Use a formal systems engineering approach called the Graph Model for Conflict Resolution to model and analyze the Conflict of Values: Trade versus the Environment. • This flexible methodology is implemented using the decision support system GMCR II.

22. DECISION MAKERS AND OPTIONS

23. CONFLICT OF VALUES Reflects a generic conflict taking place around the globe. Systematically studying this ubiquitous conflict can provide understanding and wisdom for solving similar, but more complicated realworld disputes over trade and the environment. First time that this generic conflict has been strategically analyzed.

24. CARRYING OUT A CONFLICT STUDY

25. GRAPH MODEL FOR CONFLICT RESOLUTION • Theory is founded upon a rigorous mathematical framework, utilizing concepts from graph theory, set theory and logic—the mathematics of relationships. • Design is mathematically based but completely nonquantitative in nature. • Can handle any finite number of decision makers and options. • Utilizes relative preferences. • Can handle irreversible and common moves.

26. DESIGN FEATURES OF THE DECISION SUPPORT SYSTEM GMCR II • GMCR II is programmed in C++, possesses a carefully designed data structure, and can handle small, medium and large models. • A 32-bit doubleword represents a specific selection of options wherein each digit or bit equals 1 or 0 to indicate whether or not the option it represents is taken or not. • This design can accommodate up to 32 options, which is more than enough for all realworld applications considered to date.

27. GMCR II STRUCTURE

28. CONFLICT MODEL

29. INFEASIBLE STATES • Each option can be selected or not taken. • Hence, there exist states. • Remove states that cannot occur in real world. • Reform and influence are mutually exclusive. • Reform and promote are mutually exclusive. • Reform and pressure are mutually exclusive. • 36 feasible states remain after removing the infeasible ones.

30. FEASIBLE STATES

31. EXECUTING A CONFLICT STUDY

32. PREFERENCES • Rank states from most to least preferred for each decision maker (DM) where ties are allowed. • In option prioritization, preferences of a DM are expressed using preference statements about options that are listed in a hierarchical fashion from most important at the top to least important at the bottom. • The preference statements follow the rules of first order logic.

33. PREFERENCES • Assuming transitivity, an algorithm uses the preference statements to rank the states for the DM. • States can be subsequently sorted manually using direct ranking.

34. REFERENCE STATEMENTS

35. GMDE PREFERENCE STATEMENTS

36. SES PREFERENCE STATEMENTS

37. RANKING OF STATES

38. COMMENTS ON PREFERENCE ELICITATION • GMCR II only requires relative preferences for each decision maker. • The problem of obtaining cardinal preference information, such as utility values, is avoided. • GMCR II develops an ordinal ranking of states from most to least preferred and allows for ties. • The graph theory methodology can handle intransitive preferences.

39. TYPES OF VALUES • Held or protected value: an enduring, moral principle • Example: Protecting the environment from unwarranted economic activity. • A held value should not be traded off with other values. • Assigned value: worth of something to an individual or organization within a given context • Illustration: aesthetics may be valued less if it becomes too expensive.

40. CONFLICT, ETHICS AND VALUE SYSTEMS • Conflicts arise because of differences of objectives or value systems among participants. • Each participant or decision maker has his or her criteria for deciding upon its preferences among states or possible scenarios. • An ethical or moral environmentalist would prioritize criteria or objectives such as minimizing environmental impacts, as well as maximizing fairness and societal well being. However, ethics is measured relative to a specific value system. A participant's ethics is reflected in the choices he or she make in a given situation.

41. PREFERENCE ELICITATION IN GMCR II

42. EXECUTING A CONFLICT STUDY

43. INPUT INTERFACE • Decision Makers • Options • Feasible States • State Transitions • Preferences

44. OUTPUT • Input information • Individual stability results • Equilibria • Coalition analysis • Sensitivity analysis • Tracing the evolution of the conflict

45. STABILITY ANALYSIS • A state is stable for a DM if it is not advantageous for the DM to unilaterally move away from it. • Because people may behave differently under conflict, stability can brought about in a variety of ways. • A solution concept is a mathematical description of how a DM may behave in a dispute. • Table 5 lists a range of solution concepts.

46. SOLUTION CONCEPTS

47. COMMENTS ON REALISTICALLY DESCRIBING HUMAN BEHAVIOUR IN CONFLICT SITUATIONS • People can behave in different ways under conditions of conflict. • A range of solution concepts mathematically define different types of human behaviour. • Solution concepts are precisely stated using set theory, logic and graph theory-the mathematics of relationships. • Directed graphs or reachable lists keep track of movements when decision makers dynamically interact. The graph model methodology is entirely nonquantitative yet completely mathematical and axiomatic.

48. ANALYTICAL INSIGHTS • Predict possible compromise resolutions. • Determine how a given DM may wish to respond in an optimal fashion within the social constraints of the conflict. • Ascertain if and when it is advantageous to cooperate with others in order to jointly reach a more preferred outcome. • Find out how the conflict could dynamically evolve from a status quo state to an eventual resolution.

49. STABILITY ANALYSIS • GMCR II analyzes each state for stability for each DM according to each solution concept. • An equilibrium is stable for all DMs with respect to a given solution concept. An equilibrium constitutes a possible compromise resolution since the conflict will stop when it reaches an equilibrium during the evolution of the dispute.

50. EQUILIBRIA