Opinion of the Economic and Social Committee on 'International trade and the environment` (97/C 56/11)

On 28 March 1996 the Economic and Social Committee, acting under Rule 23(3) of its Rules of Procedure, decided to draw up an opinion on International Trade and the Environment.

The Section for External Relations, Trade and Development Policy, which was responsible for preparing the Committee's work on the subject, adopted its opinion on 17 October 1996. The rapporteur was Mr Koopman.

At its 339th plenary session (meeting of 31 October 1996), the Economic and Social Committee adopted the following Opinion by 65 votes to none, with three abstentions.

0. Summary

0.1. The ESC feels that freer world trade serves economic efficiency, offers the consumer more possibility of choice at lower prices and as such can contribute towards sustainable development through a more efficient use of raw materials and natural resources. The primary cause of environmental problems is not liberalized trade but the failure of markets and governments to price the environment appropriately. It is of the utmost importance that the OECD should update its Polluter Pays Principle (PPP) and continue its activities in this area. The PPP offers excellent possibilities for internalizing environmental costs.

0.2. Each country has the right to apply measures governing domestic products, such as the imposition of (national) product standards to imported products. As a result imports of environmentally undesirable goods into the EU can be prevented. Any differences in national environmental policy should not be allowed to lead to compensatory levies or export refunds aimed at offsetting the resulting comparative disadvantages for domestic industries. With transboundary, regional or global environmental problems, countries which are confronted with the same problems must get together to come up with common solutions. In multilateral environmental agreements (MEAs) of this type, complementary trade measures can form an essential component.

0.3. The chapter headings in the communication are: 'Interactions between trade and environment`, 'Developing countries and countries with economies in transition in the trade and environment debate`, 'The multilateral trading system and environmental protection` and finally 'The way forward in the international trade and environment debate`. The communication ends with a number of conclusions.

0.4. The Commission states that it is possible to use international trade as an engine for achieving sustainable development if the proper environmental policy measures are taken at national and international level. The ESC shares this view, but at the same time is aware of the negative environmental effects that world trade can have. It is recognized that more analytical work is needed in order to achieve a better understanding of the 'potential effects of trade liberalization` and that there is a need to conduct environmental reviews of trade instruments and agreements. From the report on the implementation of the procedural guidelines on trade and environment of the OECD it seems that these guidelines have proved their worth. The ESC therefore urges the Commission to encourage all OECD countries to implement these guidelines scrupulously.

0.5. The ESC notes the conclusion drawn in the communication from the report of the OECD Council of Ministers in May 1995 that no systematic relationship can be found between environmental policies and competitiveness impact. This also bears out the view expressed in the report that the advantages of stricter environmental standards on average outweigh the disadvantages, so that 'win-win` situations are possible. It is difficult to assess to what extent the fear of possible competitive disadvantages for firms or the prospects of the efforts which would have to be made to overcome the short-term disadvantages referred to earlier will discourage governments from taking the necessary environmental measures.

0.6. The Commission believes that unilateral action to deal with transboundary or global environmental problems outside the jurisdiction of the importing country should be avoided. The ESC agrees with this view. These problems should be resolved within MEAs, and the starting point should be that the use of trade restrictions should be no more than what is necessary to effectively achieve the objectives sought. MEAs should be drafted by international environmental bodies. The UNEP should be given a leading role in this process.

0.7. The ESC agrees fully with the Commission that the concerns of developing countries and countries with economies in transition must be taken very seriously: trade and environment issues must be approached in ways that do not jeopardize or undermine these countries' economic progress prospects or export opportunities. The proposals and thoughts which the Commission sets out in the communication are supported by the ESC. It would particularly emphasize the positive measures which the Commission mentions, such as training programmes, technological research, etc.

0.8. The ESC can agree with the need to develop an adequate framework within GATT/WTO for trade measures taken pursuant to an MEA. The ESC feels that this would guarantee the integrity of the open trading system and ensure that Community objectives were achieved. The Commission is to be congratulated on preparing a working paper on this matter. What the Commission's proposal says in short is that for measures which are taken pursuant to MEAs there will be a 'lighter` WTO regime than for other measures. The ESC finds that these proposals strike a proper balance between the two interests and considers that trade measures may be taken in MEAs to prevent the so-called 'free rider` problem from occurring. It is also important that more clarity be provided about the operational significance of major provisions from WTO Treaties for the formulation of trade measures in MEAs. The wording of trade measures that are not enacted pursuant to MEAs can benefit from this.

0.9. A special problem is posed by voluntary eco-labelling schemes based on a life-cycle assessment (LCA) approach, since this also places demands on processes and production method-related measures (PPMs) which have no effects on the product in question in the importing country. In view of this obscurity and the trade distortions which might result from it the ESC feels that measures are in order. In the first place no distinction should be drawn between government eco-labelling and non-governmental labelling. In the second place labelling on the basis of LCAs should remain possible, though on the basis of a pragmatic approach. The label's credibility may lead to demands being placed on PPMs which are of less significance for the exporting country and can therefore create a trade disadvantage. Efforts should be made towards reaching international agreement on the transparency requirements, so that it is easier for the producers involved to get information about the criteria and provide some input in their establishment. In the EU the future lies in strengthening the EU eco-label.

0.10. The ESC considers that the treatment of disputes which occur should be as public as possible with possibilities for participation by non-governmental organizations. Panels should call on and be accessible to the views of scientific, technical and environmental experts.

0.11. The activities of the WTO's committee for trade and the environment (CTE) must be geared to achieving results, its approach should be a balanced one and it should be open to input from environmental experts and other international organizations. The ESC would like the CTE's activities to be more transparent. Non-governmental organizations, such as environment NGOs, industrial circles, trade unions and consumers can make important contributions to the CTE's work. In view of the concerns it expressed earlier about the consequences for the environment of an inadequate environmental policy and continuing trade liberalization, the ESC fully supports the Commission's suggestion that the CTE should also investigate the negative environmental effects of trade liberalization in its work programme. Finally, the ESC is convinced of the need for the existence of a generally recognized and authoritative international environmental organization which, as it were, can act as the natural counterpart to the WTO. An 'autonomous` body seems to be most suited for this role. However, the ESC feels that it would be undesirable to set up yet another new organization for this purpose. An existing organization, such as the UNEP, may be more suitable.

1. Introduction

1.1. In December 1996 the ministerial conference of the WTO is to be held in Singapore. The agenda includes a report from the committee for trade and the environment (CTE) and a discussion of its mandate. The decision to set up the CTE as a WTO body was taken at the 1994 Marrakesh Conference on the finalization of the Uruguay Round. The CTE's terms of reference include the following: 'to identify the relationship between trade measures and environmental measures in order to promote sustainable development` and 'to make appropriate recommendations on whether any modifications of the provisions of the multilateral trading system are required`. At the same time a concrete work programme was established, which the CTE was to discuss first of all.

1.2. The Commission has sent a communication to the Council and the EP (COM(96) 54) stating that 'given the importance of the issue, it is vital that the EU contributes fully to the debate and the resulting conclusions`. The Commission sets out in the communication its vision on the main issues which have been included in the CTE's work programme.

1.3. The aim of this own-initiative opinion is to make known, before the start of the ministerial conference, the ESC's views on the question of trade and the environment in the light of this communication.

2. The relationship between trade liberalization and environmental policy

2.1. Liberalization of world trade is aimed at increasing and facilitating access to international markets by dismantling measures which hamper trade and by laying down rules which favour the transparency of international trade. The ESC feels that freer world trade serves economic efficiency, offers the consumer more possibility of choice at lower prices () and as such can contribute towards sustainable development through a more efficient use of raw materials and natural resources. This freer world trade operates within a framework which is established by governments. This restriction springs from the responsibility of governments for the social acceptability of the market process and its results. One essential condition for improving efficient allocation on a world scale is that prices really do reflect relative shortages (i.e. including the costs of internalizing negative external environmental effects and future shortage). At present, insufficient account has been taken of this.

2.2. Agreement can also be expressed with the World Bank's position that 'the primary cause of environmental problems is not liberalized trade but the failure of markets and governments to price the environment appropriately` (). The result of this undervaluation is that the price mechanism is not in a proper state to bring about an allocation of scarce resources which can prevent, and then reverse, environmental degradation.

2.3. This misallocation gives rise to distortions of international trade. The extent of these effects varies from country to country and from sector to sector, and is partially dependent on export quotas.

2.4. So, as far as instruments are concerned, it is of the utmost importance that the OECD should update its Polluter Pays Principle (PPP) () and continue its activities in this area. The PPP offers excellent possibilities for internalizing environmental costs, as shown in Principle 16 of the Rio Declaration on Environment and Development. Such an approach, which is geared to achieving 'an acceptable state` of the (national) environment, rejects the use of subsidies and is attractive in terms of international trading policy objectives in that it causes no distortions to trade. PPP deserves a more general application.

The ESC is also pleased with the declaration of the G7 environment ministers that the WTO should be supportive of efforts to promote a positive framework to acknowledge the importance of greater internalization of environmental costs. It also stands by its call to the WTO to examine the relationship between the trade rules and environmental principles, including PPP and the precautionary principle (). The importance of this precautionary principle is recognized in the Rio Declaration, where it has been included as the 15th Principle.

2.5. But it must be recognized that PPP has major limitations as regards solving environmental problems. It provides no solution for over-exploitation or bad management of natural resources and offers little comfort for transboundary or global environmental problems (). All the same, PPP seems to be a useful approach for internalizing the costs of internationally tradeable goods.

2.6. The ESC notes and agrees with the following conclusion of the OECD: 'The relative contribution of trade, trade policies or trade liberalization to environmental degradation is difficult to discern and is usually related to many other variables. The direct environmental effects of trade, both positive and negative, may be limited to certain specified cases. The indirect structural effects of trade in the determination of global prices and market conditions may be environmentally more significant, but are difficult to identify or isolate from other contributing factors.` ().

3. Starting Points

3.1. With national environmental problems, i.e. where the effects are limited to a country's own territory, each country has the right to solve its own problems in its own way, provided that this is not discriminatory and does not lead to hidden protectionism. It is guided here by its environmental objectives, which, for the rest, will vary from country to country. These variations are caused by disparities between initial situations as regards the presence and quality of their environmental goods, as well as by the values which are attributed to these goods and the possibilities which countries (especially developing countries) have of overcoming such problems. Furthermore, the approach to such problems is dependent on the prevailing views in these countries on the suitability of using various instruments.

3.2. Each country has the right to apply measures governing domestic products, such as the imposition of (national) product standards to imported products. As a result imports of environmentally undesirable goods into the EU can be prevented. Such complementary trade measures are aimed at increasing the effectiveness of policy. The ESC agrees fully with the Commission's view that any differences in national environmental policy, including measures which result from a difference in environmental deterioration, should not be allowed to lead to compensatory levies or export refunds (which the Commission calls 'eco-duties`) aimed at offsetting the resulting comparative disadvantages for domestic industries.

Indeed, such problems could be reduced by the conclusion of international agreements on environmental objectives, especially in countries where - roughly speaking - the same conditions prevail, such as in the EU or - wider still - the OECD. The Commission too highlights the importance in its communication of a gradual convergence of environmental policy. In such a situation the comparative disadvantages which will arise for firms in countries which have to combat a higher level of environmental degradation should not be compensated. These differences in starting position as regards the type, quantity and quality of environmental goods must be accepted as part of the assets with which a country is endowed and on which, ideally, the international distribution of labour and international trading system must be based.

3.3. With transboundary, regional or global environmental problems, countries which are confronted with the same problems must get together to come up with common solutions. In multilateral environmental agreements (MEAs) of this type, complementary trade measures () can form an essential component.

3.4. This joint responsibility of countries is expressed in Principle 12 of the Rio Declaration. In this Principle it is stated, among other things, that 'countries should co-operate to promote an open international economic system that would lead to economic growth and sustainable development`, and that 'unilateral actions to deal with environmental problems outside the jurisdiction of the importing country (so-called "extra-territorial trade measures") should be avoided`.

3.5. Special attention should be paid to developing countries and countries with economies in transition. The measures which have to be taken to solve the problems referred to in point 3.3 should allow sufficient room for their economic development. The different responsibilities for countries which result from this are recognized in Principle 7 of the Rio Declaration, which states that countries, because of their differing contributions to the global environmental degradation, have common but differing responsibilities ().

This principle of differentiated responsibilities is reflected in MEAs of more recent date, such as the 1992 UN Framework Convention on Climate Change and the 1987 Montreal Protocol on ozone layer loss. In these conventions the heaviest burdens are placed on the shoulders of the developed countries; developing countries receive financial and technical support, and are allowed a longer transitional period for complying with certain obligations. This basic idea of differentiated responsibilities also finds expression in the Generalized Scheme of Preferences (GSP), which is granted as an autonomous arrangement under the rules of the WTO. The GSP makes it possible to give preferential treatment to developing countries by creating a violation of two fundamental GATT principles: the most-favoured-nation clause and the principle of reciprocity.

4. Items on the agenda for Singapore

4.1. The chapter headings in the communication are to be found in the decision referred to earlier to set up the CTE and the related work programme of the CTE, though not in the same order. These headings are: 'Interactions between trade and environment`, 'Developing countries and countries with economies in transition in the trade and environment debate`, 'The multilateral trading system and environmental protection` and finally 'The way forward in the international trade and environment debate`. The communication ends with a number of conclusions.

4.2. Interactions between trade and environment

4.2.1. Environmental effects of trade liberalization ()

The Commission states that it is possible to use international trade as an engine for achieving sustainable development if the proper environmental policy measures are taken at national and international level. The ESC shares this view, but at the same time is aware of the negative environmental effects which world trade can cause.

These negative effects are brought out in the communication. One example is the negative scale effects which occur in sectors where trade liberalization leads to a growth in volume which is greater than the benefit which occurs from the reduction of emissions per product unit. Such a situation is all the more problematical when this growth is further strengthened by the lack of measures to internalize certain environmental effects in a proper manner. An example is the opposition to an EU CO2 energy tax () and the associated problem of an inadequate passing-on of social costs in transport (), which leads to more mobility than is environmentally desirable ().

The communication does show some awareness of these dangers ('trade liberalization can act as a magnifier of policy failures`), but does not come up with any new ideas for tackling these problems (). It is recognized that more analytical work is needed in order to achieve a better understanding of the 'potential effects of trade liberalization` and that there is a need to conduct environmental reviews of trade instruments and agreements, but concrete proposals are, unfortunately, lacking. From the report on the implementation of the procedural guidelines on trade and environment of the OECD () it seems that these guidelines have proved their worth. The reports from countries which have conducted environmental reviews on trade instruments and agreements at national level show that these provide greater insight into apparent environmental effects and make a useful contribute towards an optimal preparation and integration of environmental and trade policy. The ESC therefore urges the Commission to encourage all OECD countries to implement these guidelines scrupulously. Members should, as part of the preparation of international trade agreements, always make room for environmental research when major environmental effects are expected. Such environmental research, by being disseminated, can serve as an example and also lead to new methodological insights. The other points of attention which the Commission mentions are, of course, also endorsed, such as noting that these activities must be carried out above all, and as a priority, by the UNEP, UNCTAD, the OECD and the EU. It is of the greatest importance that these bodies make their analyses public. These studies should be discussed widely. Progress must be monitored closely.

4.2.2. Environmental protection and international competitiveness

The ESC notes the conclusion drawn in the communication from the report of the OECD Council of Ministers in May 1995 that no systematic relationship can be found between environmental policies and competitiveness impact. This also bears out the view expressed in the report that the advantages of stricter environmental standards on average outweigh the (above all short-term) disadvantages, so that 'win-win` situations are possible. This view is based on the observation that the environmental costs resulting from the EU Member States' environmental policy are relatively low (between 1 and 2 % of firms' production costs). As regards this assertion, it must be borne in mind that such figures are based on averages. In many sectors, and not the least insignificant, the effects are much greater, and so too are the chances of industries relocating to countries with lower environmental standards. There are also concrete examples of firms from vulnerable sectors which have relocated. But the same OECD report notes that it has found no evidence of significant industrial migration. Moreover, due to the influence of international competition, among other things, such countries will be unable to avoid taking further environmental measures, which will erode their possible competitive advantage.

It is difficult to assess to what extent the fear of possible competitive disadvantages for firms or the prospects of the efforts which would have to be made to overcome the short-term disadvantages referred to earlier will discourage governments from taking the necessary environmental measures. Be that as it may, the ESC thinks that constant attention should be paid to analyzing the relationship between competitiveness and environmental policy, so as to optimize the attainment of these 'win-win` situations.

4.2.3. International trade relations: the need for multilateral co-operation

4.2.3.1. The Commission believes that unilateral action to deal with transboundary or global environmental problems outside the jurisdiction of the importing country should be avoided. The ESC agrees with this view, as has already been stated in point 3.4. Such a policy seems to be in violation of the rules of the WTO. In the well-known 'tuna case` the GATT panel ruled, after a complaint from Mexico in 1991, that the USA could not justify their embargo as an exception under Article XX () of the Treaty because this Article only applies to activities within the jurisdiction of the country taking the measure, and cannot be used to regulate production and consumption outside that country's borders.

However, the panel report on the same case in 1994 seems to qualify this conclusion somewhat. It should be borne in mind that these reports have never been formally adopted by GATT (). But the practices of the WTO Member States seem to indicate that this extraterritoriality principle is not always followed (). The ESC would like to point here to the tensions which can arise in individual countries if these transboundary environmental problems are of a very serious nature, if they harm the home country to a significant degree or if they have a major ethical impact and solutions for them do not seem possible at international level within a reasonable period of time. Mention should also be made of the indignation within the EU, including the European Parliament and the ESC, at the fact that the so-called 'leghold trap directive` is still not in force ().

4.2.3.2. We can agree with the Commission's express conviction that a multilateral approach is indicated for transboundary and global environmental problems. These problems should be resolved within MEAs, and the starting point should be that the use of trade restrictions should be no more than what is necessary to effectively achieve the objectives sought (see too point 3.3). Any differences which arise out of this last requirement can be settled using the machinery referred to in point 4.4.1.

4.2.3.3. MEAs should be drafted by international environmental bodies. The UNEP should be given a leading role in this process. One delicate point here is how to give form to the different needs of countries (see too point 3.1). It is of great importance to include economic instruments in these MEAs, including those which are based on PPP (). The ESC hopes the OECD will give priority to the further development of the full range of instruments for MEAs that can also gain the confidence of developing countries.

4.3. Developing countries and countries with economies in transition in the trade and environment debate

4.3.1. The ESC agrees fully with the Commission that the concerns of the above-mentioned countries must be taken very seriously: trade and environment issues must be approached in ways that do not jeopardize or undermine these countries' economic progress prospects or export opportunities. Many developing countries are suspicious of 'First World` environmental policies, which they believe are (partially) motivated by protectionist considerations and which they call 'green protectionism` ().

4.3.2. It is of great importance that developing countries and countries with economies in transition be given adequate support for developing their environmental policies. Particular preference should be given here to 'positive` measures, i.e. measures which reward desirable behaviour. The EU has at its disposal sufficient potentially powerful instruments, such as the association agreements with the Central and Eastern European countries, the Euro-Mediterranean Partnership with its MEDA budget entry and the Lomé Convention, to support these countries in their efforts to achieve a more sustainable development of their economics. These intentions should also find expression in efforts towards further market liberalization in the EU in accordance with the EU's development policy. The proposals and thoughts which the Commission sets out in the communication are supported by the ESC. It would particularly emphasize the positive measures which the Commission mentions, such as training programmes, technological research and support for cleaner production processes. Such measures will contribute towards less use being made of (negative) measures which hamper international trade. It is of the utmost importance that the EU and other developed countries present adequate proposals and that a consensus is reached in Singapore on a package of concrete starting points and positive measures which can be applied in environmental and trade agreements concluded with these countries.

4.4. The multilateral trading system and environmental protection

4.4.1. GATT/WTO rules and MEAs

4.4.1.1. We can agree with the need to develop an adequate framework within GATT/WTO for trade measures taken pursuant to an MEA. Although trade measures at present only occur in a limited number of MEAs (18 of the 180 existing conventions), which to date have never been challenged, it is very important to develop a level playing field. The ESC feels that this would be only fair to nations which feel let down by such measures; it would also guarantee the integrity of the open trading system and ensure that Community objectives were achieved through suitable measures.

The Commission is to be congratulated on preparing a working paper on this matter. The Commission's 'Non-Paper` of 19 February 1996 () suggests two possible solutions. The first involves amending the GATT Treaty by adding a paragraph (k) to Article XX regarding the taking of measures pursuant to MEAs, together with an Understanding. The second involves a 'broader` option of amplifying paragraph (b) () of this same Article XX by adding the words 'or the environment` plus the text of paragraph (k) with the same Understanding. The difference between the two options thus boils down to the explicit mention of the environment in paragraph (b).

The extent to which this broader option will really provide more scope depends on how exactly it is worded. Perhaps it offers more and better possibilities in the future for accommodating environmental measures within this 'exceptive article`. Otherwise the present wording of paragraph (b) as it appears from the panel reports has not (yet) hampered the treatment of disputes over environmental measures on the part of signatories to the WTO Treaties, nor has it prevented distinct environmental measures being taken. Discussion still seems possible on the extent to which these reports have taken sufficient account of environmental interests. Moreover, the Commission considers that environmental measures taken on the basis of the addition of the words 'or the environment` to paragraph (b) should also be implemented within the 'necessity requirement` of paragraph (b).

4.4.1.2. What the Commission's proposal says in short is that for measures which are taken pursuant to MEAs there will be a 'lighter` WTO regime than for other measures. The Commission assumes in its proposals that, in drawing up the MEA, there has been a close collaboration between the WTO and MEA secretariats on the content of the trade measures to be taken (see in particular point 15 of the Non-Paper). The simplification of the procedure means that if a measure taken pursuant to an MEA is challenged by a WTO member state which is not an MEA participant, a panel will first consider whether such measures comply with the terms of the Understanding. If that is the case, the 'necessity test` does not apply, the legitimacy of the measures is beyond dispute and the measures are then simply tested against the terms of the headnote of Article XX (). If the measures are not taken pursuant to an MEA, then all WTO rules, including the 'necessity test`, remain in force.

In the Understanding it is stated, among other things, that access to an MEA must remain open to all the countries concerned. Furthermore, the MEA should reflect the interests of all parties through the adequate participation of all such countries in the negotiations. It is recommended that if any trade measures are desired, the WTO secretariat should be invited to the negotiations for an MEA. Disputes between participants in an MEA should be settled by the rules governing disputes contained in the MEA. The ESC agrees with the Commission's remark in the communication that these rules 'are not in general perceived to be very strong` and endorses the Commission's recommendation that proper and efficient dispute settlement mechanisms, including appropriate enforcement mechanisms, be developed for existing and future MEAs.

4.4.1.3. The Commission's proposals seem to strike a proper balance between countries' needs to find a solution together to common environmental problems and the importance of maintaining integrity in the world trading system. However, they did not get an enthusiastic reception in Geneva.

Those who think that the Commission leans more, in its priorities, towards achieving environmental objectives than towards maintaining an open trading system have proposed modifying the Commission's suggestion that rights due to WTO members under the Treaty be withheld (). One proposal is that if a complaint is lodged, the WTO's dispute settlement machinery should always be used. Another is that stricter requirements be laid down for the composition of an MEA if this contemplates introducing an easier regime. Trade measures are assumed to be 'necessary` unless a WTO member objects. If that happens, the burden of proof is reversed: the WTO member concerned will then have to convince the GATT panel that the measure is not 'necessary`. By reserving the right to use the necessity test the MEA negotiators will ensure that a trade measure is not proposed lightly. And this reassures the WTO member that the measure is not based on other than environmental considerations.

Against this it can be pointed out, in the environmental interest, that however 'elegant` this solution is for the problem of dropping the necessity test, there may also be great uncertainty over the validity of the measures, because the requirements for such a test cannot be defined in sufficiently concrete terms beforehand, so the panel's verdict on such a test cannot be predicted.

However, it may be concluded that these various uncertainties which are associated with both options will be less important to the extent that consultations between the WTO and MEA secretariats lead to more agreement over the trade measures to be taken.

Although it can be appreciated that not every eligible country may choose to join an MEA, an undesirable situation may arise if such a country should endanger achievement of the MEA's objectives, or obtain a trading advantage which may lead to the MEA being undermined (the so-called 'free rider` problem). The ESC considers that trade measures may be taken in MEAs to prevent such situations occurring ().

4.4.1.4. One matter which is important is that, irrespective of how the negotiations proceed as regards incorporating trade measures into MEAs, more clarity should be provided about the operational significance of major provisions from WTO Treaties for the formulation of trade measures in MEAs. The wording of trade measures that are not enacted pursuant to MEAs can benefit from this, because such concepts also apply to these measures.

This applies in the first place to the criteria which stand in the headnote of Article XX, such as the expression 'where the same conditions prevail` or the criterion 'necessary` in paragraph (b) of the same Article, and other WTO criteria such as 'like` products and 'least trade restrictive`. Greater certainty about the (uniform) application () of these elements is in the interests of both an open trading system and the effectiveness of trade measures in (international) environmental policy, especially trade measures taken pursuant to MEAs. Finally, it seems useful to get some clarity about the question of whether it is desirable, as is mooted in various circles, to work towards drawing up guidelines for MEA negotiators.

4.4.2. Product-related and processes and production method-related measures

4.4.2.1. The WTO rules give the Member States scope for making the import of goods subject to measures, provided that domestic 'like products` have to comply with the same requirements. If the measures are applied solely in order to resolve a national environmental problem, then the harmonization of measures is not necessary, although there is a strong preference, because of trade considerations, to work towards harmonizing product standards. The agreements on technical barriers to trade (TBT) and sanitary and phytosanitary measures (SPS) provide a good framework for taking measures to combat a local problem. For the rest, these two agreements do place limits on the freedom of countries to take trade measures because of the requirement for scientific evidence.

The ESC feels that this provision may again be at odds with the precautionary principle (), which is recognized to some extent as a principle in the SPS Agreement, though far less so in the TBT Agreement. The application of the precautionary principle can be considered as a form of risk management, whereby each country has the freedom to decide for itself how much of a risk it will take. The assessment of the risk should be based on a sound foundation.

4.4.2.2. This is not the case for the transboundary and global environmental effects of products. Although the aim of TBT and SPS is to harmonize product standards and technical regulations, this is much more difficult to achieve in practice, among other things because of differences in countries' starting positions. TBT and SPS therefore also include provisions for adopting national standards if internationally recognized standards would be inappropriate for achieving the desired objective.

4.4.2.3. Before possible PPM-related measures are placed on the agenda, a distinction should be drawn between the various types of PPMs. First, a distinction should be drawn between PPMs which have or do not have an environmental effect on the product itself. Then a PPM can have a direct impact on the environment, which can be of a local or transboundary nature. If a PPM has an environmental effect on a product, then the remark made in point 4.4.2.1 applies: a country can take certain measures as regards imports of products manufactured with such a PPM. But if a PPM has no effect on the product in the importing country, the WTO rules do not allow for any measures against such products. Nor is unilateral action permitted regarding the importing of products for which the PPM causes environmental effects solely in the producing country. If the manufacture of a product has direct transboundary or global effects, then, as argued earlier, these effects should be tackled in MEAs.

The Commission wonders whether a country, in such a case and under strictly defined conditions, may not still take trade measures against 'the offender` (on the grounds of violation of Principle 2 of the Rio Declaration regarding the obligation to cause no damage to third parties) when there is the threat of very serious environmental consequences for itself, or if there is talk of global environmental problems. The Commission does not wish to rule out such situations completely and says that such trade measures should be based (among other things) on rigorous scientific evidence. Although we can generally agree with the Commission's view that such measures are only permissible as a very rare exception, it must once again be pointed out that this principle of scientific evidence can run counter to the precautionary principle (see too point 4.4.2.1). Animal welfare could be included among the grounds for permitting measures.

4.4.3. New instruments of environmental policy, including eco-labelling schemes

4.4.3.1. A special problem is posed by voluntary eco-labelling schemes based on a life-cycle assessment (LCA) approach. In this 'cradle to the grave` approach, demands are also placed on PPMs which have no effects on the product in question in the importing country. Requirements which may be very meaningful in the importing country, for environmental reasons, may, however, be of little or no significance in the exporting country because of its environmental objectives (see too point 3.1).

4.4.3.2. There is no consensus on the question of whether such eco-labelling schemes are completely covered under the provisions of the TBT Agreement, seeing that such schemes are voluntary: no-one has to apply for an eco-label for his product, and products which do not satisfy the requirements of the eco-label are not withdrawn from markets. It also seems to be doubtful whether the TBT Agreement does in fact apply to non-product related PPMs of labels on a voluntary footing. It cannot be denied that successful eco-labels can influence trade (), and governments, including those of the EU, exercise a certain influence on the choice of product groups and the adoption of criteria for awarding such labels.

4.4.3.3. An additional problem is that views differ from country to country on how environmental requirements should be determined: in the EU there is a strong preference for labels showing that the criteria have been adopted by independent and neutral bodies, called 'type I` marks by the ISO. But in the USA there is a strong preference for labels awarded by producers themselves to their products (type II), or systems which merely provide technical information about products and leave it to the consumer to decide which product causes the most environmental damage (type III). The transparency of these last-named methods leaves something to be desired.

The ESC realizes that the information provided by the third type of label is the most complete and the most devoid of value judgements. Ideally, this gives consumers greatest scope for forming their own judgements on the environment-friendliness of a product. But such a presentation fails to appreciate the possibilities which consumers themselves have of forming a 'balanced` judgement about this technical information, which is often difficult to assess, and the 'time` which they want to devote to forming such a judgement. It therefore prefers type I labels, because these provide, in an efficient way, more objective information for the consumer than other types of label. Consumers can allow themselves to take such an attitude because of the independent and incorruptible status of the European eco-labelling authorities.

4.4.3.4. In view of this obscurity and the trade distortions which might result from it the ESC feels that measures are in order. In principle there are two ways open here: the development of a code of conduct or the regulation of these labels under the regime of the TBT Agreement (). At this stage the ESC merely wishes to formulate requirements with which eco-labelling should comply.

In the first place no distinction should be drawn between government eco-labelling (such as the EU eco-label and the Scandinavian 'swan`) and non-governmental labelling (such as the Dutch eco-label). In the second place labelling on the basis of LCAs should remain possible, though on the basis of a pragmatic approach, since for many elements no clear and reproducible results can be derived from LCAs. At the same time we can agree with the call for a transparent labelling system. The ESC feels that efforts should be made towards reaching international agreement on the transparency requirements, so that it is easier for the producers involved to get information about the criteria and provide some input in their establishment. The TBT Agreement can be a model for the establishment of transparency requirements. In addition, adequate possibilities for appeal should be provided for parties who feel they have been wronged by such labels. In this way the establishment of standards which are a hidden form of protection of domestic producers can be avoided as far as possible. Such requirements must be justifiable from an environmental standpoint and be based, where possible, on the best existing scientific and technical information.

This danger is potentially present if the proportion of products produced in the territory of the labelling authority is small compared with imports of 'like` products. Because labels are introduced above all to solve one's 'own` environmental problems, there is less reason in such a situation to impose stringent requirements on non-product related PPMs which have little or no relevance for the home market of these exporters.

In the EU the future lies in strengthening the EU eco-label. On the way there, an effort should be made to harmonize as much as possible the criteria of the various national eco-labelling schemes in the EU. In the end, such efforts will lead to national labels being developed only for products of national significance. In the EU, the position of the competent bodies should be strengthened vis-à-vis that of the Commission as regards the establishment of environmental criteria ().

4.4.3.5. It is also important that the bodies which establish the criteria take sufficient account of the interests and capabilities of producers from developing countries and countries with an economy in transition (see too point 4.3). However, it will not always be possible for such LCA-based labelling schemes to take proper account of the - on the face of it - reasonable wishes of these countries, since the label's credibility may be at stake if, subject to the reservation expressed in point 4.4.3.4, the environmental requirements in non-product related PPMs are set too low. Neither does a differential approach seem possible, whereby products from these countries can obtain the label with lower PPM requirements.

The credibility problem is caused by the fact that the consumer only wishes to buy products bearing the label because it is based on high environmental standards. In other words, for the consumer a product which is produced in accordance with lower, non-product related PPM standards than one which is identical as regards composition and qualities is not a like product. And as the whole aim of trade liberalization now is to provide the consumer with a wider rather than a narrower range of choice, an open trading system should be geared to the realization of these possibilities of choice desired by consumers.

4.4.4. Economic instruments

The ESC can agree with the Commission's view that clarification is required as to whether present rules on border tax adjustments (BTAs) are conducive to the most efficient choice of fiscal instrument.

4.4.5. Dispute settlement for environment-related trade measures

We can also agree with the Commission's view that proper dispute settlement machinery must be developed for existing and future MEAs. It is worth recommending that the treatment of disputes which occur should be as public as possible with possibilities for participation by non-governmental organizations, bearing in mind society's interest in such matters.

The new WTO rules for settling disputes make it possible for panel members not to be drawn exclusively from GATT and lawyers' circles. As yet, there has been insufficient experience gained from this new possibility for an opinion to be expressed on it. Such a desire is all the more appropriate now that the concept of sustainable development has been included in the preamble to the WTO Treaty. Expertise should be brought in from other fields. Panels should, where appropriate, call on and be accessible to the views of scientific, technical and environmental experts ().

4.4.6. Trade in dangerous substances and the issue of domestically prohibited goods (DPGs)

The ESC can agree with the Commission's suggestion that the WTO should establish a notification system for trade in DPGs that are not already covered by existing international agreements and exports from WTO members which are not parties to those agreements.

The ESC also feels that the decision taken in 1995 at the initiative of the rich countries by the signatories to the Basle Convention () to prohibit trade between OECD and non-OECD countries in all waste destined for final disposal as well as waste destined for processing and recycling requires further clarification. This measure is indeed a very blunt instrument for preventing the 'developing countries` being saddled with the waste problems of the rich countries. The ESC recently criticised the Basle Convention and other rules in its Opinion on the Commission's proposal for a Regulation on the supervision and control of shipments of waste within, into and out of the European Community () and would refer to the comments it made there. It hopes that now measures can speedily be taken which, in terms of the objectives of an efficient environmental and international trading policy, are superior to the 1995 decisions.

4.5. The way forward in the international trade and environment debate

4.5.1. The ESC agrees completely with the Commission's views on the CTE's task and working methods: the CTE's activities must be geared to achieving results, its approach should be a balanced one and it should be open to input from environmental experts and other international organizations. The ESC would emphasize the importance which the Commission attaches to the CTE's activities being more transparent. In fact non-governmental organizations, such as environment NGOs, industrial circles, trade unions and consumers can make important contributions to the CTE's work.

The ESC also agrees with the Commission that such contacts, which still need to have a better infrastructure, must not take the place of dialogue at national level. The Commission must realize that over time international level non-governmental organizations have sprung up. For these organizations the CTE, and the other public multilateral bodies in the debate, should be the obvious platform.

4.5.2. In view of the concerns it expressed earlier about the consequences for the environment of an inadequate environmental policy and continuing trade liberalization, the ESC fully supports the Commission's suggestion that the CTE should also investigate the negative environmental effects of trade liberalization in its work programme. The ESC has already drawn attention to the importance of strengthening co-operation with other international organizations.

The ESC agrees with the Commission's views on the tasks assigned to these international organizations. But it would just like to make the following small point. It is convinced of the need for the existence of a generally recognized and authoritative international environmental organization which, as it were, can act as the natural counterpart to the WTO. Up to now, responsibilities for various international environmental matters seem to be somewhat fragmented, and it is not always clear which organization should take the lead, or be the contact point for dealing with environmental issues on the interface between trade and the environment. An 'autonomous` body seems to be most suited for this role. However, the ESC feels that it would be undesirable to set up yet another new organization for this purpose. An existing organization, such as the UNEP, may be more suitable. The ESC is also aware of the limited possibilities which a UN body has of taking the action required. But it hopes that the UNEP, which is aware of what is at stake, can develop into an effective body for carrying out these tasks.

4.5.3. Finally, the ESC would stress the Commission's concern that the trade and environment issue is too heavy an agenda item, and priorities need to be established. The ESC agrees with the Commission that the incorporation of MEAs into the multilateral trading system should be given the highest priority. It is surprised at the high priority which the Commission is giving to a subject such as eco-labelling bearing in mind the marginal role that such labels now play in international trade. For the moment it does not seem necessary to do much more than indicate in which direction improvements should be sought.

The ESC would welcome it if instead more attention were paid to the call of the G7 environment ministers mentioned earlier that the relationship between trade rules and environmental principles should be further examined, especially the PPP and the precautionary principle. This would provide more insight into real environmental costs and the choices which have to be made as a basis for framing and implementing an effective (international) environmental policy. Solving this problem, which of course belongs on more agendas than just that of the CTE, would to a large extent bear out the Commission's position that trade policy and environmental policy can provide each other with mutual support for promoting sustainable development.

Brussels, 31 October 1996.

The President of the Economic and Social Committee

Tom JENKINS

() See too the ESC Opinion on priorities for consumer policy, OJ No C 295, 7. 10. 1996, p. 14, points 1.5 and 2.2.4.

() The World Bank, World Development Report 1992, p. 67.

() OECD. The Polluter Pays Principle: Definition, Analysis, Implementation, Paris, 1975.

() See the summary by the chairman of the meeting in Carbourg, France, 9-10 May 1996, point 29.

() Kuik, O.J., H. Verbruggen, International Trade and Nature Conservation: the Polluter Pays Principle, R-95/02, VU boekhandel, 1995.

() OECD, 'The Environmental Effects of Trade`, p. 17, Paris, 1994.

() It is recommended here that there is sufficient policy co-ordination at national level to provide for solutions which do justice to both environmental and international trading interests.

() This responsibility is further spelt out by the contents of the second principle of the Rio Declaration, which states that the activities of one country may not cause damage to the environment of third countries.

() The OECD has identified three types of effect which international trade can have on the environment, and which can be both positive and negative. First, there are product effects: positive effects may occur through, for example, technological progress, negative effects may result from trade in dangerous substances. Scale effects result from the contribution which international trade makes to economic growth: the positive effects have already been mentioned in point 2.1. Inadequate environmental policy magnifies the negative effects. Finally, structural effects are linked to the use of production factors and production models, see too point 2.6. For source, see footnote 4, p. 55 (pages 12-14).

() And the lack of such an instrument in the UN Framework Convention on Climate Change.

() Which in the EU accounts for around a quarter of all CO2 emissions, see COM(96) 217, point 4.6.

() See: Towards proper and efficient pricing in transport, COM(95) 691 final and the 'Citizen's Network`, COM(95) 601 and the relevant ESC Opinion, (OJ No C 212, 22. 7. 1996).

() See too, once again, OECD, 'The Environmental Effects of Trade`, Paris, 1994. In this study the environmental effects of international trade are examined in five sectors. In the agricultural, fisheries and transport sectors, negative effects predominate because the protectionist policy pursued has led to inadequate internalisation of environmental costs. Positive effects are expected when an adequate sector policy is introduced. Solutions should in any case be compatible with the point of departure that trade liberalisation and environmental protection are equally important objectives, see previously quoted summary of the chairman of G7 environment ministers, point 27.

() See OECD/GD(96) 98.

() This Article regulates - subject to conditions - the areas (set out in paragraphs (a) to (j)) in which the Member States have the freedom to adopt or enforce measures irrespective of the other provisions of the Gatt Treaty.

() Because of US opposition. Under the old dispute settlement's procedure, unanimity was required for adoption.

() E.g. the Cuban Liberty and Democratic Solidarity Act enacted by President Clinton in July 1996.

() See the ESC Opinion, especially point 2.6 (OJ No C 212, 22. 7. 1996) and the EP's amendments to COM(95) 737 (OJ No C 198, 19. 6. 1996).

() See: Candice Stevens, Synthesis Report in: OECD Documents, Environmental Policies and Industrial Competitiveness, Paris 1993, page 9: 'Because they are market-based measures, the economic costs of achieving environmental standards should be generally less under systems of economic instruments (than under regulatory instruments)`. The BIAC too says something similar in its statement of 2 February 1996 on MEAs: 'Recognising that the benefits to be achieved by encouraging the use of market instruments....MEAs generally should contain rules to implement PPP as applicable to the circumstances of each specific agreement.`.

() Thus the Africa Resources Trust (ART), an NGO from Zimbabwe, has complained in a letter to the ESC that the USA hampers exports of crocodile skins obtained in a sustainable way with legislation that is stricter than the requirements of the CITES Convention (on endangered species of wild fauna and flora), while General Motors can penetrate their markets. But ART can go along with the approach in the Commission's communication.

() This document deals with the central theme of item 1 on the CTE's agenda: 'The relationship between the provisions of the multilateral trading system and trade measures for environmental purposes, including those pursuant to MEAs`.

() The present text of which states: 'necessary to protect human, animal or plant life or health;`.

() It is stated here that measures may be taken on condition that they 'are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade`.

() See, for example, UNICE's view of 17. 7. 1996 on Item 1 of the CTE agenda.

() See too the EP Resolution along these lines (point 12) (OJ No C 166, 10. 6. 1996, p. 261).

() See the contribution of Steve Charnovitz to a high level round table conference on the relationship between the multilateral trading system and the use of trade measures in MEAs. The author cites a large number of international trade agreements which flesh out important criteria on the environment debate agenda and conflict with the rules of the international trading system, see Report p. 19, 22-23 January 1996, Den Haag. Earlier Charnovitz remarked that such criteria should be applied in a non-discriminatory manner in trade agreements.

() See for example the EU stance in the discussion with the USA on the import of meat with added hormones.

() No one mentions this, either in the EU or elsewhere.

() UNICE is in favour of applying the TBT Agreement.

() See too the Opinion on the consumer policy priorities of the ESC, points 2.7.5. to 2.7.7 (OJ No C 295, 7. 10. 1996, p. 14).

() See too OECD, Report on Trade and Environment to the OECD (ministerial) Council, p. 31, Paris 1995.

() On the control of transboundary movements of hazardous wastes and their disposal, 1989.

() See in particular points 2.3 to 2.5 of this unanimously adopted Opinion (OJ No C 18, 22. 1. 1996).