WORLD TRADE
ORGANIZATIONWT/CTE/W/83
10 June 1998
(98-2344)
Committee on Trade and Environment Original:  English
EUROPEAN COMMUNITY COMMENTS ON THE NOTE BY THE SECRETARIAT
OF THE WTO'S COMMITTEE ON TRADE AND ENVIRONMENT
ENVIRONMENTAL BENEFITS OF REMOVING TRADE RESTRICTIONS
AND DISTORTIONS (WT/CTE/W/67)
Note from the European Community
1. The Secretariat drafted the Note WT/CTE/W/67 as a contribution to the CTE's discussions on
"the effect of environmental measures on market access, especially in relation to developing countries,
in particular to the least developed among them, and environmental benefits of removing trade
restrictions and distortions", commonly referred to as "item 6" on the CTE's ten point work
programme.
2. The Community welcomes the Secretariat's Note which was finalized after WTO members
made both oral and written comments on the earlier draft.  The Community notes the efforts made by
the Secretariat to take account of the sometimes diverging views expressed by CTE members and
thanks the Secretariat for having included many of the observations and suggestions made by the
EU delegation.
3. The Secretariat's Note constitutes an informative and helpful contribution to the Committee
on Trade and Environment's discussions on item 6 of its work programme, although, like other
delegations, it does not agree with every point made or all the conclusions.  The following commentsinclude reference to some of the points in the Note  which the Community sees as the most important,
as well as some of the main areas where its views differ from those set out in the Secretariat's Note.
4. Overall, the text represents a generally well-balanced overview of the environmental benefits
of removing trade restrictions and distortions and might provide a useful source of reference.
Accordingly, the Community welcomes the wider availability of the Note arising from itsderestriction.
I. GENERAL COMMENTS
5. Trade and environment policies can be mutually supportive in pursuing the aim of sustainable
development.  Quoting the 1996 Report of the CTE, the Secretariat's Note correctly points out that
trade liberalization in general, including the elimination of trade restrictions and distortions, can yielddevelopmental and environmental benefits by facilitating a more efficient allocation and use of
resources.  Although the paper does identify the downside of some of the aspects of trade
liberalization and correctly notes that flanking measures may sometimes by necessary, it concentrates
- rightly given the CTE's mandate - on the benefits accruing from the removal of restrictions and
distortions.WT/CTE/W/83
Page 2
6. Yet, although trade liberalization has a key contribution to make to sustainable development,
the Community does not agree with the Secretariat's Note that it may be a precondition.  Rather,
sustainable development must be based on sustainable management practices and, as the Secretariat's
Note states, appropriate environmental policies are needed above all at national level if the benefits of
liberalization are to be realized.
7. The Community welcomes the inclusion and generally in depth coverage of the range of
sectors listed in paragraph 198 of the CTE's Final Report to the 1996 Singapore Ministerial.  Although
the Note does not yet include environmental services, the only sector listed in paragraph 198 not dealt
with, the Community understands that the CTE Secretariat is now drafting text on this sector and
looks forward to commenting on it.
II. COMMENTS ON THE PARTICULAR SECTIONS OF THE NOTE
A. THE INTRODUCTION
8. The Community supports the overall direction of the introduction and supports the point made
that the removal of trade restrictions and distortions is rarely synonymous with unambiguous
improvements in environmental quality per se :  there may be positive effects but they are not
automatic.  As the Secretariat's Note correctly points out, the relationship is complex, as is the
measurement of any environmental benefits that may occur as a result.
9. The Community agrees with the general remark made in the Secretariat's Note that the
removal of trade restrictions and distortions improves the overall functioning of the market and, in
particular, that a more open and liberal trading system increases the opportunities for disseminating
environmentally-sound products, services and technologies.
10. The Community agrees with the general conclusion of the introduction but underlines the fact
that adverse production and consumption externalities must be integrated into the decision-making
process for the benefits described to become reality.  Such externalities must also be reflected in the
price of goods and services.
B. AGRICULTURE
11. The section on agriculture constitutes a useful contribution to the subject and the Community
is pleased to see that a number of the Community's earlier comments and suggestions have been taken
into account.  The analysis would have gained, however, from distinguishing between different
agricultural sectors because the environmental effects of liberalization can vary widely between them.
Similarly, it would also have been useful to take  into account the timespan involved for any changes
in production.
12. As is evident from the Secretariat's Note, the linkage between trade liberalization and
environmental benefits is particularly complex as far as agriculture is concerned and not at allautomatic.  As the Secretariat's paper points out, price levels and intensity of agricultural production
depend not only on liberalization but also on mark et developments, demographics and technical
innovation.  As long as market prices do not reflect environmental externalities, whether costs or
benefits, market mechanisms will not lead to the optimal allocation of resources.  Environmental
policy is intended to correct such market imperfections.
13. Trade liberalization may thus need to be accompanied by environmental and resource
management policies if it is to give effect to its full potential for contributing to improved
environmental protection and the promotion of sustainable development.  The importance of this
aspect could have been given further emphasis in the Secretariat's Note.  In developing countries, forWT/CTE/W/83
Page 3
example, trade liberalization and the resulting price changes could, under certain conditions, lead to
an intensification of production and soil degradation particularly if, as mentioned in the Secretariat's
Note, production shifts from food crops to export crops.  Intensity of agricultural production may also
be affected by growth in the demand for food, especially in developing countries.
14. More attention could have been given to the positive environmental externalities which can be
associated with agricultural practices, such as the preservation of biodiversity, the adjustment of
micro-climates, the prevention of soil erosion and floods, as well as maintaining local cultures and
communities, which can be of substantial value.
C. ENERGY
15. In this section, the emphasis in the Secretariat's Note is on the effects of subsidies and taxes
related to fossil fuels and the contribution th eir reduction could make to the quality of the
environment.  This is important, but the Secretariat's assessment might need some furtherqualification.  In particular, although removal of subsidies for some energy sources, such as coal,
could bring automatic environmental benefits, other accompanying measures are very often necessary
to promote the internalization of environmental externalities in energy prices.
16. Internalizing environmental externalities arising from energy production and use is a
fundamental requirement but the role that taxation can play in achieving this objective is notsufficiently emphasized in the Secretariat's note.
17. It would also have been worthwhile to give greater consideration to the positive
environmental effects that could arise from reducing trade restrictions and distortions which have an
impact upon renewables and environmentally friendly technologies related to energy.
18. The increasing importance of global environmental problems, in particular climate change,
resulting from the use of fossil fuels is not adequate ly addressed in the paper.  It would have been
useful to refer to the Kyoto Protocol to the Climate Change Convention under which the so-called
Annex I countries accepted quantified emission limitation and reduction commitments for six
greenhouse gases.  It is also important to note that these countries have agreed progressively to reduce
or phase out market imperfections, fiscal incentives, tax and duty exemptions and subsidies in allgreenhouse gas emitting sectors that run counter the objective of the Climate Change Convention and
to apply market instruments (art. 2.1.(a).(v) of the Protocol).  Annex I Parties have also agreed to
cooperate with each other to enhance the individual and combined effectiveness of their policies and
measures in this and other areas.
19. It would have been useful to refer in this section to the phased opening and liberalization of
the energy market within the EU.
D. F
ISHERIES
20. The section on fisheries looks at a number of elements which have an impact on the industry
and on fish stocks.  The Community agrees with the point made in the Secretariat's Note that the key
issue in determining sustainable resource exploitation is fisheries management rather than trade.
Indeed, fisheries is a sector in which it is particularly important that trade liberalization be
accompanied by sustainable resource management both at national and international level.  Regionalfisheries organizations can play a key role to this end.
21. The Community also agrees with the point made in the Secretariat's text, and which the
Community itself has in the past evoked, that subsidies are not inherently good or bad for fish stocks.WT/CTE/W/83
Page 4
Subsidies which correct environmental externalitie s, for example, are not trade distorting, whereas
those which subsidise the fishing process directly will distort the allocation of resources.
22. The Community would question, however, the unqu alified assertion in the Secretariat's Note
that "it has been widely recognized that fish ing subsidies are a major contributor to ... the
mismanagement of fisheries resources".  Although in some international organizations it has beensuggested that certain subsidies are not resource management neutral, this is far from a political
consensus condemning a priori all forms of subsidies.
23. On the subject of non-tariff measures, it would have been useful to have made reference to the
role of non-tariff measures relating to transit and access to ports, factors which can have a significant
impact on the conservation of resources, especially when they are used to prevent illicit fishing.
Reference could also have been made to trade measures used against countries unwilling to cooperate
in the responsible management of fisheries resources on the high seas.
E. F
ORESTRY
24. This section might more usefully have been entitled "The Forestry Sector", a term which
would have more clearly included both forest resources and downstream processing industries.  The
section provides a useful basis for further discussions but would have gained from more specific
examples to support the general arguments put forward.
25. The Community agrees with the Secretariat's Note that deforestation has little to do with
international trade directly and more to do with expanding demand for food, land tenure patterns,
expansion of subsistence agriculture and demand for fuel wood.  Nevertheless, it is important to
recognize the indirect, initiating effect of even selective logging which can be fundamental in
triggering other causative agents, especially when concentrated locally.  Indeed, although overallfigures for the percentage of, for example, roundwood from developing countries entering world trade
may be low, they mask both the situation in individual countries where trade in forest products may
be economically important and the follow-on effects of trade-related logging.
26. It is important to note that in the case of wood the basic premise of the Secretariat's Note that
"in well-functioning market-based economies, prices register the relative scarcity of resources andconsumer preferences" does not always apply to wood.  In this context the Secretariat's Note makes
no distinction between national stumpage values set by governments, often for (semi-) natural forest
resources, and the growing costs incurred by private forest owners.  The price mechanism is unable to
register wood's scarcity or take into account non-wood services, including its value for carbon storage.
The long period between the production and harv esting of wood (50-100 years or more) means the
wood production period may exceed the time horizon of private owners or even some governments.
As a result, some countries have established compulsory forest regimes or public ownership toprevent land from being cleared and used for the most profitable purpose from the private owner's
shorter term perspective.
27. Furthermore, a high proportion of benefits  from forests are non-wood, many are public goods
and some of the services provided by forests are global, such as regulating climate or maintaining
biodiversity.  When examining the forestry sector, it is thus important to bear in mind that, as regardsthe "forest resources" aspect, prices cannot reflect their optimal use because some of the benefits
which arise do not accrue to private owners, the pres ent generation or solely to the country where the
forest resources are situated and, moreover, such benefits are difficult to quantify in market terms.
28. When examining the role of subsidies to the fo restry sector it is important to distinguish
between the different steps in the wood production and processing chain.  Subsidies related toproducts "closer to the market" such as in the wooden furniture industry might be more distorting thanWT/CTE/W/83
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those for forestry measures related to the production of wood which may be granted 50-100 years
before the wood is marketed.  A distinction should also be made regarding subsidies granted for social
amenity or environmental reasons which may have only limited or localized distortional effects, but
which may be justified by the non-market benefits accruing.
29. The reference to "tariff peaks" in the Secretariat's Note is not substantiated and it is thus
difficult to know to which countries this refers.  The reductions in tariffs cited do not accord with the
claims about tariff escalation made elsewhere in the text.  This is particularly the case for the EU
where paper tariffs are being phased out over 10 years, while those for wood products persist at lower
rates than before the Uruguay Round.  Furthermore, the FAO report quoted on trade in forest products
is still based on (loose) estimates, but in any case the analysis does not distinguish trade increases due
to liberalization from those driven by other factors such as increasing wealth, literacy, press freedom,
hygiene standards and industrialization, especially computerization.
30. In the section on non-tariff measures, it would have been useful to examine the effect of
import restrictions on environmental technologies which could contribute to reducing energy
consumption by and pollution from forest-based industries.
31. The Community agrees with the Secretariat's Note that certification of sustainable forest
management and the labelling of forest products are complementary to forest management.  It doesnot agree that schemes of this nature necessarily create uncertainty or additional costs for exporters
thus constituting barriers to trade.  Indeed, the principles for certification schemes agreed by the
Intergovernmental Panel on Forests (IPF) are designed to ensure that they do not.  The IPF principles
call for open access and non-discrimination, credibility, non-deceptiveness, cost-effectiveness,
participation of all interested parties, sustainable forest management and transparency.
32. It is important to look at how and under which conditions certification and labelling could
contribute to alleviating market failures in forestry, for example when sustainably produced wood is
in competition with wood exploited from natural resources without consideration to the natural rate of
regeneration.  The guidelines agreed in the proposals for actions of the IPF provide a useful reference
point.
33. It would have been appropriate to look at the sort of conditions required to make trade and
environment mutually supportive and to give greater emphasis to the contribution that Multilateral
Environmental Agreements (MEAs) can make to this end.
F. N
ON-FERROUS METALS
34. The Community agrees with the points made concerning the potential benefits to be gained
from trade policy reform in the non-ferrous metals sector.
35. The claim that rising waste disposal costs, in particular in OECD countries, have gradually
encouraged recovery and recycling of non-ferrous metals is not altogether accurate.  Rather, the
intrinsic value of metals contained in end of life products, scrap and residues, as well as rising waste
disposal costs, have always encouraged recovery and recycling of non-ferrous metals so that
secondary non-ferrous metals now meet about 40-50 per cent of global demands for most metals.
36. With regard to the extent and pattern of intern ational trade in scrap and residues referred to at
the end of the section on copper, in order to present a fuller picture reference ought also to have been
made to the tariff structures and domestic pricing which create trade distortions.WT/CTE/W/83
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G. TEXTILES AND CLOTHING
37. This section refers mostly to cotton whereas the inclusion of synthetic fibres and wool would
have resulted in broader, more balanced and more informative coverage.
38. The analysis in this section underestimates developing countries' share of world trade in
textiles because it measures trade in value rather than by volume even though it is the volume of tradewhich is of interest from an environmental perspective.
39. Given that the dyeing and the chemical finish  of products are the most important individual
factors in the textile and clothing sector which have an impact on the environment, the Secretariat's
Note could have devoted greater attention to this aspect.  Indeed, the fact that liberalization in this
sector has not yet resulted in an increased use in developing countries of environmentally friendly
technologies is an element which would have merited further analysis.
40. In conclusion, the Community believes the Secretariat's Note provides an informative and
reasonably broad overview of the environmental benefits of removing trade restrictions and
distortions in a number of selected economic sectors.  The Community continues to underline that
trade and environment policies can be mutually supportive in striving towards sustainable
development but recalls that the removal of trade restrictions and distortions is not automatically and
in practice is rarely synonymous with unambiguous improvements in environmental quality.Appropriate environmental policies at national level are needed if the benefits of liberalization,
including the environmental ones, are to be realized.
41. The Community congratulates the Secretariat on its efforts to produce a balanced text which
takes into account comments made CTE delegations during earlier discussions.
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