COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 02.06.1997 
COM(97) 260 final 
COMMISSION REPORT TO THE COUNCIL PURSUANT TO ARTICLE 7 (2) 
OF COUNCIL REGULATIONS NOS 3281/94 AND 1256/96 
ON THE SCHEME OF GENERALIZED PREFERENCES 
Summary of work conducted within the OECD, ILO and WTO on the link 
between international trade and social standards 
COMMISSION REPORT TO THE COUNCIL PURSUANT TO ARTICLE 8 (2) 
OF COUNCIL REGULATIONS NOS 3281/94 AND 1256/96 
ON THE SCHEME OF GENERALIZED PREFERENCES 
Summary of work undertaken within the ITTO, OECD and WTO on the 
relationship between international trade and the environment 

COMMISSION REPORT TO THE COUNCIL PURSUANT TO ARTICLE 7 (2) 
OF COUNCIL REGULATIONS NOS 3281/94 AND 1256/96 
ON THE SCHEME OF GENERALIZED PREFERENCES 
Summary of work conducted within the OECD, ILO and WTO on the link 
between international trade and social standards 
The increased efficiency offered by the liberalization of trade and international capital 
movements along with technological advances opens up greater possibilities for 
economic growth, job creation and lower levels of poverty. But this is no guarantee of 
a more equitable world. As a result, the EU, following the line it developed at the 
Copenhagen Summit, is lobbying within the international community to try to draw 
more attention to the social aspects of globalization. Since the end of the Uruguay 
Round in 1994, debate has focused increasingly on the social dimension of 
international trade and ways of making good inadequacies in core social standards the 
world over. The EU is striving to make real progress towards this goal. 
The introduction of an incentive social clause into the GSP marked a step in the 
promotion of standards for international trade. The GSP is the first Community legal 
instrument to contain such a clause. From the start of next year, Article 7 of Council 
Regulations (EC) Nos 3281/94 of 19 December 1994 and 1256/96 of 20 June 1996 
will open the way for extra preferences to be granted on request to those countries 
which implement the relevant ELO standards (Nos 87 and 98 on the right of association 
and collective bargaining, and No 138 on a minimum working age). However, before 
the clause actually comes into force, two things need to be done. They are set out in 
Article 7(2) of the Regulations. First, the Council must examine a Commission report 
on work done by the various international organizations like the WTO, ILO and OECD 
on the link between global trade and internationally recognized standards. It must also 
then examine a Commission proposal on the force of special incentive arrangements 
and how to implement them. The present paper represents the requisite Commission 
report. 
Since the Commission's job is to propose implementation of a mechanism which 
already exists in principle, its power of initiative does not depend on the Council 
taking a favourable view of its report. But what the Council has to say on the matter 
will to some extent inform the eventual Commission proposal, which will therefore not 
be drafted until afterwards. Furthermore, the proposal should be examined in the light 
of an appraisal of whether the GSP's impact - especially the combination of graduation 
(including Article 6) and the special measures for the LDCs - is neutral overall. 
OECD 
In June 1994, the Secretariat of the OECD was charged with conducting a study 
into trade, employment and internationally recognized labour standards, including 
basic concepts, empirical data on trade- and investment flows, and current 
mechanisms for promoting the highest labour standards worldwide. 
Discussions were held at joint meetings of the Trade Committee and its ELSA 
(Employment, Labour and Social Affairs) counterpart in close conjunction with other 
relevant OECD committees and directorates and international organizations such as the 
ELO. The highly sensitive and political nature of the subjects raised led to very long 
and heated debate at the meetings. The study, which sets out to investigate the links 
between labour standards enshrining basic human rights and trade/investment flows 
and policies^ also assesses possible ways of promoting social standards globally. It was 
finalized last year and consists of three parts. 
I. CORE RIGHTS 
The first part deals with labour standards in OECD and certain other countries. A 
distinction is made between core and other rights. The core rights are: 
• freedom of association and collective bargaining, i.e. the rights of 
workers to join a trade union of their choice and to negotiate their 
working conditions with their employers freely; 
• the elimination of exploitative child labour, debt bondage and types of 
work which endanger the health and safety of children; 
• a ban on forced labour (slavery and compulsory labour); non­
discrimination in the workplace, i.e. the right of all workers to the 
same respect and treatment. 
These are the most widely ratified of the ILO's standards. They were singled out 
because they embody principles that governments of all countries, whatever their level 
of development, may be expected to espouse. They can directly improve working 
conditions and may also provide the bases for other standards which make a marked 
contribution to social development. In addition, the ILO Conventions make frequent 
mention of these standards. Nos 87, 98, 29, 105 and 1 I 1 all form important points of 
reference for monitoring of, and compliance with, core labour rights, even if they have 
not been ratified by all countries. 
On the issue of child labour, one important change is the shift away from an all-out ban 
towards a prohibition on exploitation alone. The distinction was made in the OECD 
study to bring out the fact that the eradication of child labour is not only a fundamental 
human right but is also to a large extent dependent on a country's level of 
development. As ILO Convention 138 refers to the eventual elimination of child 
labour, it was felt necessary to establish a more immediately applicable standard. The 
concept of exploitation provides a more effective weapon in the fight against the worst 
forms of child labour, irrespective of any country's level of development. This being 
so, the ELO should build on 138 with a new convention to deal with the most 
exploitative types of under-age labour. 
II. LINKS BETWEEN CORE LABOUR STANDARDS AND ECONOMIC 
FACTORS 
The second part of the study looks at the links between core labour standards, trade, 
investment, economic development and employment in an attempt to answer certain 
questions. Is there a link between basic social standards, export competitiveness and 
international specialization ? Could the opening up of international trade and 
investment along with economic growth lead to better wages and social standards ? 
What is the impact of these standards on investment ? And what link do they have with 
employment levels ? 
The factual analysis is limited and deals almost exclusively with the right of 
association and collective bargaining. This is due to a lack of data on other core 
standards and to the technical difficulties of assessing the link between respect for 
basic standards and economic factors. 
The economic analysis, on the other hand, comes to the following conclusions: 
1. Developing countries have no reason to fear that the above social standards could in 
any way adversely affect their economic performance or international 
competitiveness. There is nothing to suggest that countries with low standards 
achieve better export results than those with high ones. It is true that many 
governments deliberately bypass core standards as a way of improving trade 
performance. However, the study reveals that any attendant short-term benefits of 
this will most probably be outweighed by the economic costs of ignoring standards. 
2. Compliance with labour standards could help ease protectionist pressures and work 
in favour of free trade. Allowing freedom of association and collective bargaining 
has never been a barrier to trade liberalization. There is in fact a direct link between 
it and the success and sustainability of trade reforms. 
3. Developing countries can improve their social standards without fear of any adverse 
effect on foreign investment flows. The figures show that, in 1993, 73% of direct 
foreign investment went to those OECD countries which generally complied with 
core labour standards both in law and practice. Such standards are not usually a 
factor in the investment decisions of OECD companies. 
4. The study also concludes that trading with developing countries, where labour is 
cheaper, does little to increase either unemployment or the number of low-paid 
workers, in the OECD. However, researchers differ on just how much trade affects 
sectoral employment trends compared with other factors such as technological 
progress and institutional changes. There is also disagreement about how much 
impact changes in the structure of trade have on wage inequalities. 
III. MECHANISMS FOR PROMOTING WORLDWIDE CORE LABOUR 
STANDARDS 
The third part of the study is certainly the most controversial. Starting from the premise 
that market forces alone cannot automatically improve observance of core labour 
standards, it looks in detail at the different procedures and mechanisms currently used 
to do the job. These include multilateral surveillance and persuasion, technical 
cooperation, conditionality for loans, investment guarantees and preferential trade 
agreements, and the rules governing multinationals. 
///./. A greater role for the ILO 
The ILO could oversee the formulation of a social framework for world trade in order 
to achieve wider adoption of related standards in all countries. The Organization is in 
an ideal position to foster core labour standards since it has the surveillance tools to 
ensure international conventions are actually implemented. It also has its own 
committee on freedom of association to examine cases from all its member states. The 
ILO's constitution also includes a complaints procedure to tackle non-compliance with 
ratified conventions. The OECD study outlines a whole range of activities which could 
make the Organization even more effective, viz.: 
• supporting it in its dialogue and direct contacts with governments; 
• supporting compliance with standards as an implicit undertaking; 
• taking a more targeted approach to intolerable forms of exploitative child 
labour; 
improving the ratification rate of conventions. 
111.2. The contribution of development cooperation programmes 
Development cooperation programmes do a great deal to promote certain core labour 
standards, especially those connected with child labour and union rights. 
III.3. Mechanisms proposed within international fora 
HI.3.1. WTO disciplines 
WTO mechanisms are designed to ensure trading policies and practice are complied 
with. WTO members would need to reach agreement on whether and how the 
organization's procedures could be used to ensure core labour standards are respected 
worldwide. This would mean major institutional changes: articles and procedures 
would have to be amended, reinterpreted or made the subject of understandings. No 
such agreement has been reached. *&i 
III. 3.2. Conditional loans from international financial institutions 
Another proposal in the study is to make international financial aid for borrower 
countries subject to observance of basic workers' rights. This is very controversial. The 
first problem is one of consistency: what of rights violations in those countries not 
requesting multilateral loans ? Second, might such a move not hamper the economic 
development of applicant countries, thereby actually hindering an improvement in core 
labour standards ? 
IÎI.4. Regional and unilateral government action 
III.4. J. The North American Labour Cooperation Agreement 
NALCA is designed to improve working conditions and living standards in the US, 
Mexico and Canada. It contains core labour standards and rules on health and safety in 
the workplace and protection for migrant workers. The accord links each country's 
labour code to the regional trade agreement and has a dispute settlement procedure, 
which can lead to trade sanctions. 
III.4.2. Trading preferences 
The Generalized System of Preferences certainly has a central role to play in improving 
core labour standards. Under the US scheme, for example, preferences depend on the 
country in question according workers "internationally recognized" rights. But this 
system is clearly very punitive and works on a system of prior certification, itself based 
on criteria which are not always internationally recognized. This leaves the US 
executive significant powers of discretion in applying the certification system. 
The study also analyses the Community GSP and its two clauses on social standards: 
the incentive and withdrawal clauses. 
III.4.3. Links between trade and workers' rights in the US 
The US has repeatedly attempted to legislate a ban on all imports produced by children, 
political prisoners or other detainees. In addition, under section 301 of the 1974 Trade 
Act, foreign laws and practices thought to be'exploitative, unfair or discriminatory may 
be examined and negotiations conducted with the relevant country to obtain 
compensation. It is, however, very difficult to assess the full force of these mechanisms 
as they have never been used directly. 
IH.5. International standards for business conduct 
111.5.1. ILO tripartite declaration of principles on multinational businesses and social 
policy 
The declaration aims to encourage multinationals, governments, employers and 
workers to respect human rights in the workplace. There are also plans for a dispute 
settlement procedure although this will be non-binding. 
111.5.2. The OECD code of conduct 
In 1976, the OECD drew up a voluntary code of conduct in its Guidelines for 
Multinational Enterprises with a range of recommendations, which member states 
invite firms to adopt. The aim is twofold: to encourage the positive contributions that 
multinationals can make to economic and social progress and to minimize and resolve 
the problems that their business might cause. The code is acknowledged to have a lot 
of advantages. First, it is not addressed to government agencies but direct to firms. 
Second, it does not impose sanctions but rests on voluntary undertakings by the firms 
themselves. Third, each government is involved in promoting and improving the 
recommendations contained in the code. 
In the context of the current debate on the social aspects of international trade, the 
OECD's aim is to be able to use this code to promote the social clause within the 
multilateral system as a way of significantly furthering core labour standards. Once the 
code comes to back up other more general mechanisms, its effectiveness will be 
assured. 
III. 5.3. Codes of conduct for the private sector 
Although not compulsory, the ethical standards adopted by the private sector can help 
ensure core labour standards are respected. They can improve a company's image and 
encourage consumers to buy its products, thereby prompting other firms to adopt the 
same standards so as not to lose their market share. In this way influence can be 
brought to bear on supplier countries as well. 
III.6. Private sector mechanisms 
• Moral pressure: consumers need to be persuaded not to buy on price alone but to 
take into consideration the conditions under which goods are made. Boycott 
campaigns can have an effect on the working conditions prevailing in some sectors. 
• Labelling of consumer goods. One example of this is the "Rugmark" initiative to 
label Indian rugs not made by children. However, the way the initiative is policed 
has come under sharp fire. 
• Investment which is in the collective interest. 
CONCLUSION 
Despite the excellent standard of the research work done by the OECD Secretariat, 
differences between member countries prevented adoption of the study and meant it 
was submitted in the name of the Secretariat itself. However, the Committee on 
Employment, Labour and Social Affairs and the Committee on Trade submitted a joint 
report which, while highlighting disagreements between OECD members on some 
issues, also pointed to some of the positive findings of the study. These included the 
particular importance of certain labour standards, the compatibility between respect for 
these standards, economic development and the expansion of trade, and an 
acknowledgement of the central role of the ILO. The main difference was whether or 
not WTO mechanisms should be used to promote core labour standards. At its meeting 
last November, the ILO working party welcomed the quality of the report, which in 
many places stresses the areas where the OECD and ILO do agree. The report also 
supports the role, mandate and procedures of the ILO in the promotion of basic social 
rights. 
ILO 
The creation of the International Labour Organization in 1919 testifies to a willingness 
on the part of the international community to act together for the advancement of social 
justice and living and working conditions throughout the world. The 180 conventions 
since adopted by the ILO provide the fullest set of international labour standards 
anywhere. The Organization's brief also includes using the means at its disposal to 
encourage exchanges of information and experience and to provide technical assistance 
and training systems. 
Within the working party on the social dimension of international trade set up by the 
Governing Body in June 1994, the ELO launched an investigation into the effects of 
globalization on core labour standards. 
The promotion of international standards and reform of the Organization's regulatory 
policy are other issues under the spotlight. A campaign was launched by the Director 
General of the International Labour Office, Mr Hansenne, in 1995 to promote the seven 
international labour conventions the ILO sees as fundamental (Nos 29 and 105 on 
forced labour, 87 and 98 on freedom of association and collective bargaining, 100 and 
111 on non-discrimination and 138 on the minimum working age). The campaign has 
already led to 29 new ratifications. The ILO has also managed to get the ball rolling on 
the specific problem of child labour, which should lead to the adoption in 1999 of a 
new convention on the most exploitative instances of this practice. 
Also on the Organization's agenda is the problem of how to strengthen the system for 
checking that international labour standards are put into practice. 
I. THE EFFECTS OF ECONOMIC GLOBALIZATION ON CORE LABOUR 
STANDARDS - DELIBERATIONS OF THE WORKING PARTY ON THE 
SOCIAL DIMENSION OF INTERNATIONAL TRADE 
In June 1994, the Governing Body of the International Labour Office decided to set up 
a tripartite working party (made up of employers, workers and governments) to look at 
all the relevant social aspects in the liberalization of international trade. The working 
party is open to all members of the Governing Body. 
Given this rather vague mandate, the working party took a while to come up with a 
framework to guide its future deliberations. However, it did decide not to continue 
dealing with the issue of trade sanctions and to suspend further discussion on creating a 
link between international trade and social standards by means of a social clause and a 
sanctions mechanism. 
The working party seems to be directing its attention more towards the social 
consequences of globalization. A number of proposals have been put forward and some 
of them have already been implemented. It was also jointly agreed that the party should 
take due account of international deadlines and the work done by other international 
bodies such as the WTO and OECD. 
1.1 Questionnaire on the effects of globalization 
This questionnaire on the effects of globalization and trade liberalization on the ILO's 
social objectives was sent out to member states at the International Labour Conference 
last June. Member states were asked to consult the most representative employers' and 
union organizations on the matter. By 30 October, the International Labour Office had 
receive 136 replies from 128 respondents in 76 countries. The least developed 
countries, especially those in Africa, returned fewest questionnaires. 
The initial set of (partial) responses were collated into a report which the Office 
prepared for the working party meeting in November. The report was not due to be 
examined, however, until March 1997. Below are the main findings contained in it. 
/././ Effect of globalization and trade liberalization (1985-1995) 
Overall, workers are more negative than employers and governments, especially when 
it comes to the effect of globalization on jobs. The report shows, however, that the total 
number of jobs between 1985-95 increased by anything from a few percentage points 
in some countries to over 100% in Kenya. Nor does globalization seem to have had any 
major effect on the freedom of association or the level of workplace accidents. 
Differences of opinion do emerge, though, over social security coverage. 
1.1.2 Attitudes towards trade liberalization and globalization 
Disagreement is also apparent over the effects of globalization on national laws 
(especially those to do with export promotion and inward investment) and on 
governments' room for manoeuvre. 
/. 1.3 International action and cooperation 
60% of respondents did not think trade liberalization and globalization have had a 
major effect on a country's ability to ratify and implement the ILO conventions on 
workers' basic rights or other labour standards. Among those who did, however, the 
reasons cited included the constraints imposed by structural adjustment policies and the 
need to attract foreign investment. 
84% of respondents (including nearly all workers) wanted basic rights for workers to 
be universally recognized and adopted. As for how to achieve this, 69% came out in 
favour of action within the ILO. Other desirable main players cited were the WTO and, 
to a lesser extent, the OECD, EU, UN, UNCTAD and other financial bodies or 
regional organizations such as the OAU. Four types of measure were cited for 
promoting compliance with international labour standards: codes of conduct for 
business and industry; the development of a labelling system; import boycotts 
organized by unions, consumers or other non-government groups, and the 
extraterritorial enforcement of national laws. 
1.2 Other proposals 
Other proposals along similar lines to those in the questionnaire were also tabled at last 
November's meeting of the working party. These included a general examination of the 
means at the ILO's disposal to help member states tackle the social dimension of trade 
liberalization and consideration of a study into the positive economic effects of 
compliance with core labour standards. 
Another idea was to conduct studies on individual volunteer countries to see how they 
had managed to protect their welfare provision in the face of the good or bad effects of 
globalization. Six countries have already come forward although the practicalities of 
carrying out such a study have yet to be worked out. 
II. MAKING THE ILO'S REGULATORY ACTION MORE EFFECTIVE 
II. 1 Director General's campaign to promote core international labour conventions 
Within the ILO, there is almost total agreement on the "core" nature of the seven 
international labour conventions cited by the Copenhagen Social Summit. These 
conventions are Nos 29 and 105 on forced labour, 87 and 98 on freedom of association 
and collective bargaining, 100 and 111 on non-discrimination and 138 on the minimum 
working age. 
Ratification of these conventions has, however, been far from uniform. As a result, the 
Director General of the International Labour Office decided in March 1995 to send all 
member states a letter on the subject. Every country which had not yet ratified all seven 
conventions was asked to say whether it was planning to do so, and if so, when, or if 
not, why not. 
10 
The effectiveness of this campaign is now regularly examined by the Governing 
Body's committee on legal issues and international labour standards. 
Despite the fact that not all member states have yet replied, the campaign has seen 
some success, with 29 new ratifications. It has also highlighted the difficulties 
encountered by some states' planning to ratify the conventions and the important role 
the Office's technical assistance could play in helping them. 
II.2 The problem of child labour 
Convention No 138 on the minimum working age is one of the seven core conventions 
but the number of countries which have ratified it is quite low. This relatively poor 
performance has often been ascribed to its complexity and unsuitability for some 
developing countries. 
In addition, the International Labour Office has recently published a number of reports 
showing that child labour, particularly of the most exploitative kind, is again on the 
increase. 
As a result, the International Labour Office has decided to include the issue on the 
agenda of the International Labour Conference in June 1998 and June 1999 in a bid to 
get a new convention adopted banning the most extreme forms of child labour 
immediately and unconditionally. The decision has received wide support. 
The aim is not simply to tackle the issue through regulatory measures but to draw on 
technical cooperation too, especially the IPEC programme, which since its creation in 
1991 has worked on the basis of voluntary contributions from member states (soon to 
be joined by the European Commission) to try to abolish child labour. 
II.3 Better policing of the conventions 
Current ILO monitoring consists mainly in examining regular reports from each 
member state on the conventions it has ratified. There is also a complaints mechanism 
but this does not have power to impose real sanctions. 
To make the process more effective, a number of proposals are now being looked at by 
the ILO. One is to extend the existing procedure for freedom of association to all the 
core conventions. Under this procedure, it is possible to examine complaints against 
countries even if they have not ratified the relevant conventions. 
11 
CONCLUSION 
These developments show that the ILO is taking a more proactive attitude to the 
furtherance of international labour standards. Now that the WTO ministerial meeting in 
Singapore has confirmed the Organization's role in setting and promoting these 
standards, the pace of such developments could move up a gear. 
WTO 
Despite pressure from some members, the links between international trade and its 
social aspects, including internationally recognized social standards, have not been 
discussed at any real length by the WTO since the Marrakesh ministerial conference in 
April 1994. 
At the informal meeting of EU trade ministers in Dublin on 18 and 19 September last, 
the Director General of the WTO pointed to four areas of convergence on social 
standards, respect for core labour standards; recognition of the ILO's driving role on 
issues linked to labour and employment; a refusal to jeopardize the comparative 
advantages of low-wage countries and an assurance that trade sanctions would not be 
used as a possible weapon. He did warn, however, that the number of differences 
between delegations and particularly the refusal of some to. have social issues debated 
within the WTO meant it would be very difficult to reach agreement in Singapore on a 
declaration based on these four points. 
Subsequent events have partially borne him out. The failure to set up a working party 
to examine the link between international trade and social standards and look into areas 
where the WTO might join with other international bodies to help promote those 
standards gives little immediate hope of an overall solution being found at WTO level 
or even of any serious discussion on the issue within the Organization. However, as the 
following paragraph from the Singapore ministerial declaration shows, it would also be 
wrong to think no progress had been made: 
« We renew our commitment to the observance of internationally 
recognized core labour standards. The International Labour 
Organization (ILO) is the competent body to set and deal with these 
standards, and we affirm our support for its work in promoting them. We 
believe that economic growth and development fostered by increased 
trade and further trade liberalization contribute to the promotion of these 
12 
standards. We reject the use of labour standards for protectionist 
purposes, and agree that the comparative advantage of countries, 
particularly low-wage developing countries, must in no way be put into 
question. In this regard, we note that the WTO and ILO Secretariats will 
continue their existing cooperation. » 
The wording confirms both the undertaking by each WTO member to respect 
internationally recognized labour standards and support for the ILO as the logical 
choice for setting them. Protectionism is ruled out, leaving the way open for a positive, 
incentive-based approach to the issue which could include greater cooperation between 
the WTO and ILO. 
Far from condemning the Community's approach, particularly with respect to its GSP, 
the Singapore conclusions can be seen as a nod of approval. 
13 
GENERAL CONCLUSIONS 
The link between social standards and international trade has been much debated in a 
number of fora, leading to progress on certain concepts and more in-depth analysis, 
though not on the nature of the link, mainly because of fears over possible trade 
sanctions. 
In the Commission's view two conclusions can be drawn for the purposes of this 
report, which is designed to enable the Council to review the context in which the GSP 
incentive clause will be activated. 
1. First, the disagreements that have emerged have to do with means rather than ends. 
No one, not even in those countries which are wariest of the whole issue, really 
contests the basic objectives as formulated at the Copenhagen Summit and elsewhere. 
But many countries refuse to use trade as a way of achieving these goals for fear of 
getting into an uncontrollable protectionist spiral which might, however 
unintentionally, endanger the natural comparative advantages of developing countries. 
Such fears are unsurprising in a debate which is focused primarily on the negative and 
punitive aspects of the social clause and which has done little to cast the issue in a 
positive light. This is despite the fact that the Community GSP is offering incentives to 
developing countries in an approach based on cooperation rather than confrontation. 
Another point is that the social clause has been mainly discussed either in terms of 
economic and commercial policy (competitiveness) or in terms of human rights. Little 
room has been given to the development policy of which the GSP forms part. 
There is therefore nothing in the international debate on the social clause that should 
deter the Community from pressing ahead with the incentives provided for in/its GSP 
scheme. 
2. To implement its incentive system, the Community has a choice: it can opt either for 
achieving its goals on the ground and introducing a genuinely effective clause, or for 
political signalling via a clause which is simpler to implement but potentially less 
effective in practice. 
The social concepts and criteria in the ILO conventions are clear-cut enough to warrant 
the first option. For a real improvement in the social policy of beneficiary countries, 
the extra advantages given to exporters would have to be attractive, meaning that the 
additional preferential margin would have to be substantial. Controls must also be 
possible. This means beneficiaries must apply for the clause by lodging a declaration in 
principle requesting entitlement and guaranteeing in return that every exporter or 
producer will comply with the standards. The resulting knock-on effect would lead to 
all other exporters and producers adopting similar practices. This is the only way real 
14 
progress could be made on the ground. Only through strict control and cooperation 
procedures applicable to exporters can any headway be made and substantial 
concessions secured. 
15 
COMMISSION REPORT TO THE COUNCIL PURSUANT TO ARTICLE 8 (2) 
OF COUNCIL REGULATIONS NOS 3281/94 AND 1256/96 
ON THE SCHEME OF GENERALIZED PREFERENCES 
Summary of work undertaken within the ITTO, OECD and WTO on the 
relationship between international trade and the environment 
Sustainable development has a dual role, to protect the environment and foster social 
progress, and is now the core objective of national development strategies and 
international cooperation. The Rio Conference in June 1992 was a significant step in this 
direction. The Conference adopted Agenda 21, and action programme committing 
national governments to the promotion of sustainable development at national level and 
international cooperation. 
It is against this background that the international community has come to realize the 
importance of forest resources, which are vital not only to ecosystems but also to the 
human race. Their overexploitation is a threat to the environment and hence the 
development of many timber-producing countries. 
The particular problem of tropical forests has been resolutely tackled with a whole range 
of initiatives being taken in the relevant international forums, where significant progress 
has been made in defining environmental criteria. Their objective is not so much to 
restrict logging and prevent complete deforestation as to promote sustainable 
management of natural tropical forests. This underpins the objective of the environmental 
criteria for a Community ecolabel for paper. It is essential that preference be given to 
tropical woods from forests managed on a sustainable basis. 
The European Union has provided large sums of aid for the protection of tropical forests 
in order to promote their sustainable management. Its policy is based on incentives rather 
than coercion. This is the objective of the Community GSP. The purpose of the 
environmental clause provided for in Article 8 of Regulations No 3281/94 of 
19 December 1994 and No 1256/96 of 20 June 1996 is to promote the import of products 
whose characteristics or production methods are internationally approved, as a means of 
attaining the objectives of international environmental agreements. 
The incentive environmental clause offers additional customs preferences to any country 
which applies for them and can demonstrate that it complies with international 
environmental standards, in particular those set by the International Tropical Timber 
Organization for tropical forest management. The environmental clause exists but is not 
yet operational; it does not come into force until 1 January 1998. Before it does, the 
Commission is required to draw up a report on the work of the International Tropical 
Timber Organization, the Organization for European Cooperation and Development and 
the World Trade Organization on the relationship between trade and the environment. 
16 
The report which is hereby submitted focuses on the only area expressly covered at this 
stage by Article 8 of Regulation No 3281/94, i.e. the definition and measurement at 
international level of sustainable forest management, and is based on documents relevant 
to the implementation of the environmental clause. It does not, however, exclude the 
eventual extension of the clause to other international environmental standards. Other 
international conventions such as the Conventions on Biological Diversity (1992) and 
Climatic Change (1992) and the 1989 Basle Convention on Hazardous Waste will have 
to be borne in mind even though none of them provide a practical basis for 
implementation of an environmental clause. 
The Commission will submit a proposal for a decision to the Council on the intensity of 
the special incentive arrangements and the detailed procedures for their implementation 
in the light of this report. 
Council approval of the Commission's report on the work of international organizations 
does not of course preclude the Commission from taking its own initiative in this area 
and proposing the implementation of arrangements which already exist in principle. 
However, since the outcome of the Council's work will form one of the bases of the 
Commission proposal this will not be drawn up until the report has been discussed. The 
Commission proposal will also have to be examined in the light of an evaluation of the 
global neutrality of the GSP's impact and the combined effects of graduation (including 
application of Article 6) and the special measures for less-developed countries. 
>> 
WTO 
The preamble to the Agreement establishing the World Trade Organization recognizes 
the need to preserve the environment and promote sustainable development. One of the 
WTO's fundamental principles discussed during the Uruguay Round multilateral trade 
negotiations was the need to take account of the relationship between the multilateral 
trading system, greater environmental protection and the promotion of sustainable 
development. Article XX of GATT 1997 (points (b) and (g)) authorizes measures to 
conserve exhaustible natural resources provided they do not constitute arbitrary 
discrimination or a disguised restriction on trade. 
The WTO's General Council set up a Committee on Trade and Environment in early 
1995. The Committee has been very active and has met regularly to make a detailed 
assessment of the relationship between the liberalization of international trade and 
environmental protection and to consider all the possible ways of reconciling their 
imperatives. 
Despite its two years of work the Committee was unable to make any concrete proposals 
to the Singapore Ministerial Conference in December 1996. However, in its conclusions 
the Committee recognized that "the multilateral trade system has the capacity to further 
integrate environmental considerations and enhance its contribution to the promotion of 
the sustainable development without undermining its open, equitable and non -
discriminatory character". The Committee also strongly endorsed a multilateral 
approach based on international cooperation and consensus as the best and most efficient 
way for governments to tackle environmental problems of a transfrontier or global nature. 
However, its report does not make any recommendations on the relationship between 
international trade and environmental protection. The Singapore Ministerial Conference 
simply refers to the work of the Committee on Trade and Environment, underlining the 
need for greater coordination at national level on trade and environmental protection but 
not drawing any real conclusion other than that the Committee should continue its work. 
This is reflected in the Ministerial Declaration: 
« The Committee on Trade and Environment has made an important contribution 
towards fulfilling its Work Programme. The Committee has been examining and will 
continue to examine, inter alia, the scope of the complementarities between trade 
liberalisation, economic development and environmental protection. Full implementation 
of the WTO Agreements will make an important contribution to achieving the objectives 
of sustainable development. The work of the Committee has underlined the importance of 
is 
policy co-ordination at the national level in the area of trade and environment. In 
thisconnection, the work of the Committee has been enriched by the participation of 
environmental as well as trade experts from Member governments and the further 
participation of such experts in the Committee's deliberations would be welcomed. The 
breadth and complexity of the issues covered by the Committee's Work Programme 
shows that further work needs to be undertaken on all items of its agenda, as contained 
in its report. We intend to build on the work accomplished thus far, and therefore direct 
the Committee to carry out its work, reporting to the General Council, under its existing 
terms of reference. » 
n 
OECD 
The OECD Council adopted a recommendation on environmental indicators and 
information in 1991 calling for the development of a set of core indicators which are 
reliable, legible, measurable and relevant to decision making. A number of indicators 
were drawn up by the OECD Group on the state of the environment. These focus on 
thirteen areas and measure environmental performance and the integration of 
environmental matters into sectoral and economic policies. 
The OECD's core indicators for forest resources can be summarized as follows: 
1. Ratio of logging to production capacity 
2. . Forest distribution volume and area terms 
3. Proportion of forests which have changed or deteriorated within total forest area 
4. Percentage of forests which have been successfully regenerated (including natural 
regeneration) 
5. Percentage of protected forests in total forest area. 
The OECD's criteria are useful for country reports on environmental performance. They 
may also be used to make a global assessment of forestry resources for each OECD 
country. 
At this stage the OECD's work is still primarily of an analytical nature. 
c>Zo 
ITTO 
The International Tropical Timber Organization contributes to the conservation and 
prudent exploitation of tropical forests through their sustainable management. 
Sustainable forest management is "the process of managing permanent forest land to 
achieve one or more clearly specified objectives of management with regard to the 
production of a continuous flow of desired forest products and services without undue 
reduction of its inherent values and future productivity and without undue undesirable 
effects on the physical and social environment." 
At the national level, a forest policy aiming at sustainability is "a policy that guarantees 
the sustainability of all ecological forest types of a country in a balanced way and divided 
over a reasonably sized permanent forest estate." Management of a forest is considered 
to be sustainable when it "guarantees the continuity of all recognized principal functions 
of a particular forest without undue effects on the other functions".1 
I. THE YEAR 2000 OBJECTIVE 
The ITTC adopted the Year 2000 Objective at its 8th session in Bali in May 1990. The 
ITTO's member countries have undertaken to trade only in tropical timber from 
sustainably managed forests by the year 2000. At the ITTC s 20th session on 15 and 
23 May 1996 producers and consumers reached a consensus on the mid-term review to be 
undertaken. Producer countries are aware of the importance of sustainability criteria and 
accepted a decision involving the reconstitution of a panel of experts to examine the 
estimated costs and resources required to attain the Year 2000 Objective, a commitment 
to priority areas for their future action and acceptance of the measures described above. 
II. THE ITTO'S GUIDELINES 
The ITTO has drawn up guidelines for the sustainable management of natural and 
artificial tropical forests and the conservation of biodiversity in tropical production 
forests. These are based on the following principles: 
ILL National forest policy 
The ITTO recommends that national forest policy should form an integral part of national 
land use policy and ensure balanced exploitation of resources. It should cover: 
The present area of forest land 
The needs and aspirations of present and future generations 
Forestry's role in national economic planning 
Forestry policy objectives and their relative importance 
Respective importance of public and private forests 
Programmes to assess the importance of biodiversity in all areas. 
Definition adopted by the International Tropical Timber Council (ITTC) in 1992, Intergovernmental 
seminar on the criteria and indicators for sustainable management of forests, August 1996, Helsinki. 
National policies should be underpinned by appropriate legislation which itself must be 
compatible with that applying to other sectors. A mechanism for national policy review 
should be set up to deal with any new social, economic and ecological eventualities and 
incorporate any new information which becomes available. 
The ITTO underlines the need for studies of all the economic benefits of managed 
forests, the siting and extent of any replanting which is required, environmental 
protection needs, demand for forestry products, the capacity of forest estates, and the 
degree of dependence and demand of local communities in the light of the economic, 
spiritual and cultural values of the land on which replanting is planned. 
II.2. National forestry inventory 
An inventory of forest resources and area should determine the importance of all forests 
irrespective of land ownership and describe, quantify and comment on biodiversity in all 
production forests. Such inventories must be able to incorporate any new information 
which becomes available. 
H.3. Permanent forest estates 
Certain types of land have to be maintained under permanent forest cover. The ITTO 
refers in particular here to protect land, land designated as a nature reserve, land used for 
the production of timber and other forestry products, and land which fulfils more than 
one of these objectives. The many categories which make up permanent forest estates 
must be identified, explored and defined with the local communities concerned in the 
light of their demands. 
The ITTO recommends that natural forest should not be cleared for replanting unless a 
rational analysis can prove that this is necessary to maintain land under forest cover. 
Again according to the ITTO, areas requiring total protection in natural forests should be 
defined and these semi-wild protected forest core areas should be demarcated to prevent 
encroachment and to preserve their ecological function. Erosion of biodiversity should 
also be kept to a minimum by ensuring continuity between undisturbed forests. 
II.4. Land ownership 
The ITTO's principles and recommendations apply to all forests irrespective of whether 
they are under national, private or common ownership. They can be applied only if local 
communities accept the land use changes and the uses proposed. 
U.S. National forest department 
There should be a national forest department with the necessary mandate capability to 
ensure that forests are managed in an integrated way to preserve all their values including 
biodiversity. 
°& 
11.6. Feasibility studies 
The ITTO recommends that feasibility studies be made of the ecological impact, 
socio-economic implications (better access to resources, job creation, investment 
opportunities, industrial development, increased income but also, impact on land 
ownership, deterioration of natural values, etc.) and institutional aspects of sustainable 
reforestation. 
11.7. Forest management 
11.7.1. Planning 
A management plan is essential for sustainable forest management and the creation and 
management of replanted areas. It should form the basis of all management practice or 
forecasting. Plans should cover the following subjects: areas to be excluded from 
reforestation and logging, form of management, regulation of output and achievable 
annual targets, layout of roads, hauling tracks and fire strips, management inventories and 
maps, methods of land preparation, planting, maintenance, erosion control, soil 
compaction, fire protection and control, biological control of pests and spraying, disease 
and climatic disaster prevention, development of marketing outlets and a logging plan, 
measures to ensure local communities benefit from all the benefits of forests and 
recognition of common law rights. 
11.7.2. Logging and extraction 
Logging rules are essential as they will ensure extraction and management practices are 
harmonized. According to the ITTO, detailed rules should be laid down on edging, 
marking of trees to be felled or retained, indications of felling direction and skidding. 
The size of openings should be reduced and the use of machinery and damage to 
remaining stands kept to a minimum. After logging an inventory should be drawn up of 
any management measures which need to be taken. 
11.7.3. Protection 
Permanent production forests should be protected against activities which are 
incompatible with sustained timber production. Forest infrastructure work should be 
carried out in a way which reduces as far as possible erosion risks and other damage to 
habitats and the environment in general. A fire control plan should be drawn up as fire is 
a serious threat to productivity, ecological stability and the quality of reforestation and 
instructions should be given on the handling and storage of chemicals. 
11.7.4. Legal provisions 
The ITTO's guidelines contain legal provisions on concession agreements, cutting 
concessions on lands under private or common law ownership and reclamation 
concessions. 
11.7.5. Research and monitoring 
The objective is to provide information on the compatibility of forest management 
practices with the objectives of sustainable timber production and other forest uses. 
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II.8. Socio-economic aspects 
At the socio-economic and financial level there must be a fair distribution of costs and 
benefits between regulatory authorities, owners, concession holders and local 
communities. The ITTO underlines that the success of forest management and 
reforestation depends on the relationships established with the local population. 
Economic viability is essential. The ITTO also plans to exploit the financial benefits to 
maintain the productive capacity of forest resources and to review forests taxes and 
charges. 
III. THE ITTO'S CRITERIA AND INDICATORS1 
The ITTO defines these criteria as instrumental to the establishment of a basis on which 
to assess sustainable forest management. An indicator is a qualitative, quantitative or 
descriptive measurement of the direction of change. Criteria and indicators will help 
improve existing forest policies or lead to the development of quite new policies. They 
can be used to aid research or to guide forest practices towards sustainable management. 
They can also be used to highlight threats and weaknesses. 
The ITTO has defined a number of criteria for its Year 2000 Objective. Their purpose is 
to measure sustainable tropical forest management. According to the ITTO's definition 
they can be used to focus on present management weaknesses and to identify 
improvements which can be made in management practices. They can also provide a 
basis for a standard reporting system to facilitate comparison and discussion for 
cooperation and assistance. They are another demonstration of the ITTO's commitment 
to achieve sustainable management of tropical forests. The criteria have been identified 
to help producer member countries of the ITTO to both assess and report on their own 
progress towards achieving tropical forest management and the Year 2000 Objective. 
The ITTO has drawn up five criteria and 27 indicators for use at national level. The five 
criteria are: 
1. The forest resource base 
2. The continuity of flow 
3. The level of environmental control 
4. Socio-economic effects 
5. Institutional frameworks. 
The possible indicators are: 
1. Comprehensive land use planning and provision for the Permanent Forest Estate 
(PFE). 
2. Present area of the PFE in relation to national goals and targets. 
3. Plantation establishment targets, present age class distributions, and annual planting 
regimes. 
4. Areas of Protection Forests and Production Forests within the PFE. 
5. The representativeness of the protected areas network and the current or planned 
reservation programme. 
Criteria for the measurement of sustainable forest management, ITTO - Policy Development Series 
No 3, March 1992 
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6. National production statistics of Forest Products over time. 
7. Documentation of logging (area) histories over time. 
8. Proposed cutting cycle lengths for major forest types, and standard concession 
lengths. 
9. Regulation of initial harvesting rates in relation to defined cutting cycles and net 
area of production forest. 
10. Regulation of subsequent harvesting in relation to increment data and the net area 
of production forest. 
11. Steps taken to harmonize the first and subsequent cutting cycles and manage the 
transition from the first to the second cutting cycle. 
12. Wood production targets over time for various sources. 
13. The availability of silvicultural prescriptions for the major forest types. 
14. Management prescriptions for other non-production components of the PFE. 
15. The availability of engineering, watershed protection and other environmental 
management prescriptions for production forests. 
16. Availability of environmental assessment procedures. 
17. Employment patterns and trends. 
18. Income generation and distribution patterns. 
19. National revenue and expenditure budgets for forest management. 
20. Availability of environmental assessment procedures. 
21. Existence of a national forest policy. 
22. The relationship of national policy to ITTO Guidelines. 
23. Adequacy of the legislative framework to implement national forest policies and 
management plans. 
Adequacy of legislation to regulate- harvesting and specific agreements, e.g. 24 
25 
26 
27 concession agreements. 
Adequacy of human and financial resources to meet legislative and administrative 
responsibilities in sustainable forest management. 
Community consultation. 
Existence of management plans and provisions for their implementation. 
Six other criteria have been defined at forest management unit level: &* 
1. Resource security 
2. The continuity of timber production 
3. The conservation of flora and fauna 
4. An acceptable level of environmental impact 
5. Socio-economic benefits 
6. Planning and adjustment to experience. 
There are 23 indicators at forest management unit level: 
1. The legal establishment of forest areas or management units. 
2. Existence of a management plan. 
3. Clear demarcation of boundaries in the field. 
4. The presence or absence of illegal exploitation and encroachment. 
5. The duration of concession agreements. 
6. The presence of clear, official harvesting rules. 
7. Long-term soil productivity. 
8. A pie-logging stand inventory. 
9. The number of trees and/or volume of timber per hectare harvested. 
10. Provision for monitoring the residual growing stock after logging. 5r 
11. Records of annual product outputs over time. 
12. Net productive area. 
13. Records of annual areas cut over time. 
14. Protection of eco-systems in the concession or management unit. 
15. The extent of vegetation disturbance after logging. 
16. Extent of soil disturbance. 
17. Extent and spatial distribution of riparian and other watershed protection areas. 
18. The extent and severity of soil erosion. 
19. Provision for protection of bodies of water. 
20. The number of people employed. 
21. The nature and extent of benefits from forestry activities. 
22. Community consultation. 
23. Arrangements for Forest Management to take into account traditional forest 
utilization. 
The ITTO has demonstration areas in a number of producer countries where projects are 
being carried out to test and define sustainable management of tropical forests. The 
criteria adopted are not, however, binding on its member countries. Their purpose is 
simply to help identify improvements to management practices. 
These criteria and indicators are extremely valuable instruments which can be used to 
improve the quality of forest management as an integral part of sustainable development 
in the countries in which they are used. 
The criteria have not, however, won universal favour. While they can be used to assess 
the overall policy of a country or forest management body they do not measure the degree 
to which individual loggers comply with standards. This does not facilitate the 
implementation of the GSP incentive clause as no correlation can be made between the 
products exported and products processed according to sustainable forest management 
standards. Without a measurable correlation application of environmental standards can 
be enforced only at the broadest country-by-country level. 
IV. CONCLUSIONS 
The ITTO is one of the international leaders on trade and the environment. Its standards 
aimed at improving national environmental policy and assessing forest management 
practices are probably the only internationally acceptable ones at the present time. Its 
criteria are not, however, designed to assess practices at local level. They cannot 
therefore be used for product certification. The problem of certification was discussed at 
length at the ITTO's 20th session in May 1996. The ITTO decided to examine this 
matter in more detail and deferred its discussion to the ITTC s 23rd session in November. 
Parallel to the ITTO's work in this area, the Intergovernmental Panel on Forests set up in 
1995 by the UN Economic and Social Council on the recommendation of the 
Commission on Sustainable Development has also made proposals for coordinated 
international action on the conservation and sustainable management of forests. These 
include criteria and indicators for sustainable forest management to be developed at 
national and regional level. 
&£ 
GENERAL CONCLUSIONS 
A number of conclusions can be drawn from the foregoing on the direction of the general 
debate and on the implementation of the environmental clause in the GSP: 
1. The development of criteria and indicators has brought about a number of changes in 
forestry practices aimed at sustainable management. International initiatives may provide 
a catalyst. The many contacts established between countries have promoted espousal of 
principles of interaction, openness, information, transparency, participation and 
consultation. The work undertaken under these initiatives is evidence of a political will 
to obtain practical results. The development of criteria and indicators has had a positive 
impact at international level which can be summarized as follows: 
• greater participation in international dialogue on forests 
• greater globalization of the debate without any dilution of national sovereignty over 
forest resources 
• promotion of cooperation and greater mutual understanding 
• gradual establishment of clearly defined objectives 
• movement towards consensus 
• promotion of information 
• establishment of a basic model for similar exercises. 
2. The work which has been done on this issue should encourage .the Community to 
press ahead with implementation of the clause. There are, however, still some problems 
in the technical identification of internationally approved standards which might be used 
for application of such an incentive clause. With the exception of the work of non­
governmental organizations, which cannot be used as an objective and incontestable 
yardstick, the relevant international bodies and the ITTO in particular have not produced 
standards which can be used to measure the environmental progress made by the logging 
industry, since the criteria adopted are in effect guidelines for national forest policy but 
do not lay down any benchmark against which to assess whether they are actually 
applied. 
As things stand it would therefore be impossible to implement an export-monitoring 
based system. This means that either the Community itself must impose its own 
interpretation of the application of ITTO guidelines, which is contrary to Article 8 of the 
GSP Regulation, or it must recognize the differing interpretations of each beneficiary 
country, and this would be unmanageable. Consequently the option proposed is for 
global verification at country level of countries' compliance with the ITTO's guidelines 
or the efforts they have made in this direction. With such an approach the emphasis 
would be on dialogue and progress towards standardization rather than strict compliance 
with standards. Such a scenario of course allows a very simple monitoring mechanism. 
On the other hand, the benefits must not be so nebulous that beneficiaries consider the 
whole exercise pointless. Here, therefore, in contrast to the option adopted for the social 
clause, we are going for a political signal rather than practical impact on the ground. 
«?> 
3. One final point. For some time the Community will have to confine itself to applying 
a clause limited to tropical forest-based products only. This is a pity as needs, 
particularly in the agriculture sector, are huge.1 The need for internationally recognized 
criteria to apply this clause must, however, be born in mind. Only the tropical forests 
sector has made any progress in this direction. It is up to the Community to promote the 
definition of criteria for other sectors within international forums. 
The possibility of using this clause for certain products (e.g., shrimps) might be considered if they arc 
farmed under conditions consistent with the principles of sustainable management of mangrove-type 
forests. 
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COM(97) 260 final 
DOCUMENTS 
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ISBN 92-78-20615-6 
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