WORLD TRADE
ORGANIZATIONWT/CTE/W/133
29 February 2000
(00-0737)
Committee on Trade and Environment Original:  English
METHODOLOGIES FOR ENVIRONMENTAL ASSESSMENT
OF TRADE LIBERALISATION AGREEMENTS
Communication from the Organization for Economic Cooperation and Development (OECD)
Item 2
Attached is the report on the OECD Wo rkshop on "Methodologies for Environmental
Assessment of Trade Liberalisation Agreements" held in Paris on 26-27 October 1999.  It was
prepared by the workshop rapporteur1 and has been de-classified, foll owing review in the OECD Joint
Working Party on Trade and Environment, on the responsibility of the OECD Secretary General.
I. INTRODUCTION
1. A workshop, "Methodologies for Environmental Assessment of Trade Liberalisation
Agreements", was held at the OECD Headquarters in Paris on 26-27 October 1999.2   T h e  f o u r
half-day sessions were chaired by the co-chair s of the OECD Joint Working Party on Trade and
Environment, Oddmund Graham and Skip Jones;  by René Vossenaar, Chief of UNCTAD’s Trade
and Environment Unit;  and by Hussein Abaza, head of UNEP’s Economics and Trade Unit.
Some 90 people attended, including Member country delegations and representatives from
intergovernmental organisations, non-governmental organisations and academia, all in a personal
capacity.  No formal conclusions were adopted by the participants.  This report outlines the main
messages that emerged from the presentations and the discussions.
2. A recurring theme throughout was that the art and science of environmental assessment of
trade agreements are still in their early stages.  Many participants paid tribute to the OECD’s 1994
"Methodologies for Environmental and Trade Reviews" as a useful point of departure and valuable for
its practical guidance.  However, all acknowledged that more work on developing and improving data
and methodologies is needed.  As a result, and owing to the diversity of available approaches andmethodologies, it was considered premature to attempt to develop detailed, multilateral guidelines on
environmental assessment of trade agreements.  It was felt, however, that setting out best practices
and common views on approaches and assumptions would be useful.  In addition, the OECD was
unanimously praised for convening the workshop in order to allow for valuable exchanges and
collective learning.
                                                     
1Richard Tarasofsky, Workshop Rapporteur and international environmental lawyer.
2The workshop was made possible by voluntary contributions from the Governments of Canada,
Finland, Japan, the Netherlands, Norway and Sweden .  The volume of the Workshop Proceedings  is now
available as an OECD publication.WT/CTE/W/133
Page 2
II. GENERAL CONSIDERATIONS
3. A variety of general points regarding environmental assessment of trade liberalization
agreements were made.  In particular, there was an exchange of lessons learned from past and
ongoing environmental reviews of trade agreements, each of which was recognized to have some
limitations.  These experiences include:
• Reviews by the Governments of Canada and the United States of NAFTA and the
Uruguay Round.
• A review by the European Commi ssion of the EU single market.
• A Sustainability Impact Assessment based on EU negotiating proposals for the
Millennium Round, commissioned by the European Commission and carried out by a
consortium led by the University of Manchester.
• A framework for carrying out environmental assessments of trade liberalization
agreements developed by the North American Commission for Environmental
Cooperation.
• A methodology for environmental assessments of trade liberalization agreements
developed by WWF International.
4. A necessary condition for a successful assessment is sufficient political commitment to make
it happen and to carry it out effectively.  In particular, it was argued that if an assessment process was
to occur during the negotiation of a trade agreement, it would need considerable political backing.  At
the same time, however, participants were of the view that the independence of the assessment had to
be ensured in order to maintain its credibility.  In addition, it was emphasized at several points that the
precise purpose of the assessment must be clearly borne in mind when designing and carrying it out.With hindsight, it was apparent that past assessments had two major substantive gaps, in that they had
not covered trade in services, especially as regards sub-sectors which have effects on the environment,
and investment aspects of trade agreements.
5. At the same time, the need for assessments to examine issues relating to scale, technology,
composition and regulatory effects, as noted by the OECD in 1994, was reaffirmed.
6. It was generally recognized that no assessment is a purely technical exercise;  there will
always be an element of policy assumptions and value judgements.  This was considered legitimate,
as long as these are transparent.  In particular, it was suggested that a set of clear hypotheses should be
developed for testing by the assessment, in order to provide a focus for the exercise.  At the same
time, it was noted that the assessment would reveal the necessity of trade-offs.  It was not consideredthe task of the assessor to deal with these trade-offs;  rather, the results of the assessment should be an
input into a transparent political process.
7. It was noted that assessments in developing countries pose special challenges.  First, there is
the question of the priority accorded to devoting resources to this task.  It was pointed out, for
example, that as countries move along the Kuznets curve (whereby environmental conditions getworse before they get better) some may actually "choose to be dirtier".  Second, even if assessment is
a priority, there is a very real possibility that the necessary resources and information would be
lacking.  Several participants therefore emphasized the need for capacity building in this regard.
Third, methodologies that take into account the realities and perspectives of developing countries
need to be improved.  Fourth, it was argued that the willingness of developing countries to undertake
such assessments would increase, to the extent that the general North-South divide on trade and
environment issues lessens.WT/CTE/W/133
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III. METHODOLOGY
8. Much of the workshop was spent addressing technical and procedural issues of assessment
methodologies.
(i) Technical issues
9. A series of technical issues arose in relation to the economic, environmental/sustainable
development and regulatory/institutional aspects of the assessment process.
(a) Economic aspects
10. In contrast to past assessments, which were largely qualitative, recent initiatives provide more
quantitative tools.  A central point made, however, was that despite considerable advances, it is still
difficult to draw precise economic causal links resulting from trade liberalization and to determine the
correlation between the economic data and the environmental consequences.  In particular, it was
considered important, but also difficult, to distinguish between the effects of trade liberalization andof economic growth.  A key challenge is to determine a baseline for the analysis that would reflect
what would happen had the trade agreement not been concluded.  This challenge is complicated by
the possibility that the future without the trade agreement will not be the same as a continuation of the
status quo.  Given these difficulties, several speakers pointed to the need to develop practical
approaches to deal with these uncertainties.
11. Several specific points were made for improving the economic analysis of environmental
assessments, in particular the need to:
• Improve the analysis of the economic consequences of policy and technology effects,
especially given the changing/diminishing role of government in many economies.
• Make economic analyses more dynamic, especially to take account of the propensity
of affected populations to learn and cope with economic changes.
• Make more realistic estimates of global and regional production shifts.
• Account for variation not only between, but also within, countries.
• Focus the analysis on households in certain assessments.  In doing so, it is useful to
integrate the economic and environmental and social aspects at an early stage.  It is
also useful to recognize that there are cases where the household is both a firm and a
consumer.
12. Various approaches to undertaking such analyses are possible, but several speakers were of
the view that sectoral approaches may be the most feasible.  In such a case, it becomes necessary to
develop clear criteria for selecting the sectors and for identifying the categories of environmentaleffects.  In addition, it must be recognized that a single sector may have a myriad of environmental
impacts.  One disadvantage of the sectoral approach is that intersectoral effects will not be taken into
account.
13. A variety of economic modelling approaches were presented, both generally and in relation to
sectoral experience, in agriculture, forestry and manufacturing, including:
• Computable general equilibrium (CGE) mode ls, including the Global Trade Analysis
Project (GTAP) database and model, with an environment sub-model.
• Partial equilibrium models.WT/CTE/W/133
Page 4
• The extended domestic resource cost (EDRC) approach.
• The comprehensive model for policy assessment.
14. Models were considered useful because they aim to take account of the impact on several
countries of different sources of environmental damage.  To date, however, each approach has
limitations.  For example, while CGE models are attrac tive in principle for their ability to account for
many factors and effects, there are inevitably data and cost limitations.  At the same time, partial
equilibrium approaches may be more feasible but focus on changes in one sector and do not assesseconomy-wide effects.
15. Several key points emerged during the discussion on modelling.  One is that the science of
modelling is still evolving, so that one cannot definitively state that one approach is preferable to any
other.  Indeed, in some cases, the approaches can be complementary and build on each other;  in
particular, partial equilibrium models can feed into general equilibrium models.  Thus, the participants
welcomed the diversity of approaches.
16. Another consideration is that in all cases there are data limitations.  This can force the
modeller to use dummy or proxy variables, although this creates its own problems.  The need to
extend current databases was pointed out, as was the need for more data from developing countries.
Valuation methods also need to be improved.
17. Some speakers urged greater consideration of certain variables, such as:  costs of abatement,
technology transfer, feedback, transition costs, regulatory policy impacts (technology and pricing),and the public sector’s revenue-raising potential.  However, it was also acknowledged that there may
be feasibility limitations to examining these variables.
18. The importance and difficulty of calibration of data was emphasized.
19. Finally, models allowing for a bottom-up approach, e.g.  focusing on domestic circumstances
and firm-level data, were seen as particularly valuable.
(b) Environmental/sustainable development issues
20. Several challenges relating to environment and sustainable development emerged from the
discussion.
21. A key problem raised at several points is the lack of definition and precision of the concept of
sustainable development.  Without this, the ap propriate balance between environmental, economic
and social impacts remains elusive and may affect the carrying out and interpretation of assessments.
22. Another challenge arises from the fact that environmental data are most credible when they
relate to the local, or micro, level.  By contrast, some of the economic analysis needed in carrying out
assessments is at the macro level, and political decisions are also made at the macro level.  Therefore,
it is important to find ways to link the micro and macro levels of analysis.
23. A third issue relates to the general lack of environmental methodologies available for
measuring certain kinds of impacts.  In particular, there is a dearth of data and indicators on
biodiversity and land use which hampers assessments in those areas.
24. In addition, it was argued that the precautionary and preventive approaches needed to be
made operational, so as to make them applicable to the purposes of assessments.WT/CTE/W/133
Page 5
25. A final issue relates to whether a distinction exists between undertaking environmental
assessments and sustainable development assessments, and if so which is preferable.
(c) Regulatory effects
26. The need to address the regulatory effects of trade liberalization agreements arises from the
legal nature of such agreements, and the fact that as barriers to trade are lowered, trade liberalization
increasingly affects domestic regulation.  Although this may be self-evident, there are no agreed
methodologies for assessing regulatory effects from the legal point of view.  This is in part because
the process of legal interpretation is not always predictable, but also because the agreements
themselves may contain a degree of ambiguity.
27. Two speakers made some methodological proposals to help assess regulatory effects which
included suggestions in relation to frameworks, checklists and baselines.  They presented two
approaches:  sectoral and rule-by-rule.  The first is based on the methods used to carry out strategicenvironmental assessments and includes a pre-negotiation phase, the assessment itself and a follow-up
phase.  The pre-negotiation phase identifies concerns and objectives and carries out screening and
scoping of issues.  The assessment itself includes assembling baseline data on the existing body of
instruments, scenario building based on an integrated examination of all measures affecting a sector,
linking scenarios with relevant instruments and objectives and aggregation of information.  Thefollow-up phase involves examining the effectiv eness of the new instruments and assessing the
constraints placed on countries when introducing new measures.
28. The rule-by-rule approach involves examining the constraints on environmental policy
making posed by international trade agreements.  Although a taxonomy of constraints can be
identified, these are fraught with legal uncertainties, such as the definition of "like product" in theWTO Agreements.
29. Challenges in developing methodologies for assessing regulatory effects include:
• Developing a more detailed taxonomy of possible constraints from trade agreements
on environmental regulation.
• Assessing the impacts of trade liberalization on international environmental standards
and multilateral environmental agreements.
30. It was also suggested that it would be useful for litigation specialists to anticipate possible
interpretations of textual proposals to discover possible unintended applications.
(ii) Procedural issues
31. Procedural issues relating to how and when assessments should be carried out were discussed
extensively during the workshop.   Key points that emerged were the importance of:
• Taking an interdisciplinary approach to carrying out the assessments.
• Consulting a broad group of stakeholders , including environmental NGOs, consumer
groups, trade unions, farmers, etc.
• Building on and sharing information on past experience with assessments.
32. It was emphasized that different types of assessment call for different levels of public
participation.  Public participation was seen as adding legitimacy to the process of making trade-
policy choices and as ensuring that as many actor s as possible feel some ownership of the process.
Decisions on precisely what level of public participation is appropriate should be made in accordanceWT/CTE/W/133
Page 6
with the objectives of the assessment.  The potential for the Internet as an effective vehicle for
obtaining public views was also emphasized.
33. An environmental assessment can be undertaken prior to negotiation of the trade agreement,
during the negotiation of the trade agreement, after the agreement is signed, but not yet ratified, and
after the agreement is implemented.  It was argued  that assessments carried out during the first two
phases would be the most effective.  During the first phase, public participation acts to ensure that all
environmental issues are brought into the process,  thereby allowing policy makers to assess their
relative importance.  It was argued that this type of assessment calls for broad public participation.
34. Assessments carried out during negotiations can be significant, particularly when the
negotiations are protracted.  In this case, the objective of such assessments is to address issues not
foreseen during the pre-negotiation phase.  It was argued that at this point, limited public participation
would be sufficient, e.g . through an advisory group reporting to the responsible minister or trade
negotiators.
35. The purpose of assessments carried out after signing, but prior to ratification, is to determine
the necessity of flanking measures.  It was argued that a wide level of public participation should take
place to ensure that the most effective flanking measures are adopted.
36. Assessments carried out after implementation are designed to measure physical impacts.  It
was argued that such assessments can involve more limited public participation, perhaps through a
continuous channel.
37. The discussion revealed that key threshold issues relate to how decisions are made as to when
public participation is appropriate and in relation to what issues and hypotheses.  It was noted that
public participation issues become more complex once one moves from national to international level,since the international debate on public participation is clouded by other political considerations.
IV. USES OF THE ASSESSMENTS
38. Participants stated at several points that environmental assessments of trade agreements
should not be purely theoretical exercises, but should lead to practical and policy-relevant results.  In
the stages prior to the implementation of a ne w international trade agreement, environmental
assessments should be aimed at influencing the policy-making process by contributing to the:
• Determination of a country’s priorities.
• Determination of a country’s negotiating position.
• Determination of necessary environmental and possible flanking measures,
particularly when transposing the intern ational trade agreement into domestic law.
The point was made that when assessments point to possible negative environmental
effects arising from trade agreements, the appropriate response is not to halt the
process of liberalization but rather to develop appropriate environmental policyresponses.
39. Once a trade agreement has been implemented, assessments should be used to assess the
actual environmental impacts, including from the social, economic and regulatory perspectives.
Because liberalization may present "win-win" opportunities, this does not mean that there will be no
losers.  And because no assessment process will be perfect, an iterative cycle should be aimed for, so
that ex post  assessments can be the basis for future ex ante  assessments.WT/CTE/W/133
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V. SUMMARY OF PROPOSALS FOR FUTURE RESEARCH AND ACTION
40. This section highlights the main action points emerging from the workshop, which followed
from the identification of gaps in current methodologies.
(i) General matters
• Keep the 1994 OECD Methodologies  under consideration for possible review and for
their potential application to areas not yet assessed, such as services.
• Develop methodologies to assess the environmental impacts of the GATS and
investment provisions in trade agreements.
• Develop assessment methodologies for the effect of trade liberalization agreements
on international environmental standards and multilateral environmental agreements.
• Develop frameworks for identifying the necessary trade-offs when considering the
economic, environmental and social impacts of trade agreements.
• Provide a forum, such as the Joint Workin g Party, to enable Member countries to
share experience with methodologies and economic/trade/environment models,
particularly as regards practical aspects, and to explore the possibility of commonapproaches (e.g.  between North and South).
• Increase capacity building in developing countries so as to facilitate the carrying out
of more reviews and sharing assessment experience with observers working in
developing countries, such as UNEP.
(ii) Specific matters
(a) Economic issues
41. In addition to consistent calls to improve the quantity and quality of data, several proposals
were made in respect of CGE models, particularly in relation to forests and agriculture.
For forests:
• Incorporate insights from the household agricultural literature into CGE models,
e.g. joint production of agricultural goods and fuelwood by the household, the wide
variety of prices affected by trade liberalization which impact on land clearing and
the effect of land tenure on land clearing.
• Further evaluate the effect of off-farm wages on deforestation.
For agriculture:
• Update estimates of the global shifts in agricultural production, given the slow
progress in policy reform and liberalization and factoring in new price, cost andtechnology conditions.
• Provide more inclusive coverage of environmental effects, including biodiversity,
genetically modified organisms, transport, concentrated animal operations andlandscape values.
• Include cross-country and temporal analys es of agriculture-environmental policy
change.WT/CTE/W/133
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• Analyse business-led environmental management strategies, including the pattern of
diffusion of "green" technologies.
• Analyse factors shaping technology innovation and adoption for agriculture-
environmental management.
(iii) Regulatory effects
• Develop comprehensive and detailed checklists of issues to be considered when
reviewing actual and potential effects of trade liberalization agreements on domestic
environmental law, in consultation with NGOs and academics.
• Develop a full catalogue of possible uses, including potential unintended effects, to
which a trade liberalization agreement might be put, by involving litigation lawyers inthe review.
• Develop commentaries on proposed trade agreements to explain regulatory effects.
(iv) Environmental/sustainable development issues
• Improve the development of indicators for environmental impacts, especially damage
to biological diversity.
• Intensify research so as to consider a wider range of environmental impacts of trade
agreements than has been examined to date.
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