COMMUNICATION FROM THE COMMISSION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT ON TRADE AND ENVIRONMENT
Date: 1996-02-28
Institutions: European Commission
Subjects: environmental protection, liberalisation of trade, multilateral agreement, sustainable development, trade policy

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels,  28.02.1996 
COM(96) 54 final 

COMMUNICATION  FROM THE COMMISSION 
TO THE COUNCIL AND  THE EUROPEAN  PARLIAMENT 

ON TRADE AND  ENVIRONMENT 

COMMUNICATION TO THE COUNCIL AND TO THE PARLIAMENT 
ON TRADE AND ENVIRONMENT 

Executive Summary 

Introduction 

1. 

The Rio Conference: a starting point 

2. 

Interactions between trade and environment 

2.1. 

Environmental  effects  of trade liberalisation 

2.2. 

Environmental  protection  and international  competitiveness 

2.3. 

International trade relations and differences  in national environmental  policies: 
the need for international  co-operation 

3. 

Developing  Countries  and economies  in transition  in the trade and  environment 
debate 

4. 

The Multilateral  Trading System and environmental  protection 

4.1.  GATTAVTO rules and Multilateral Environmental  Agreements  (MEAs) 

4.2. 

Product-related measures and Processes and Production  Methods 

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

4.4. 

Economic  instruments 

4.5.  Dispute Settlement for environment-related  trade measures 

4.6. 

Trade in dangerous substances and the issue of Domestically Prohibited  Goods 
(DPGs) 

4.7. 

Trade in services and the environment 

4.8. 

Intellectual  Property Rights and the environment 

5. 

The way forward  in the international trade and environment  debate 

A  <*• 

5.1.  The WTO Committee on Trade and Environment 

5.2.  Other relevant bodies 

Conclusions 

/ik 

COMMUNICATION TO THE COUNCIL AND 
TO THE PARLIAMENT 
ON TRADE AND ENVIRONMENT 

Executive summary 

The  international  community  is  paying  ever  increasing  attention  to  the  issue  of  trade  and 
environment.  In a world  where concerns  about the environment  are greater  than  ever  before 
and  yet  where  there  has  been  significant  progress  in  the  liberalisation  of  world  trade,  it  is 
inevitable that the relationship between the two will be more closely  analyzed. 

That  process  has  been  given  a particular  stimulus  by  the  creation  of  a Committee  on  Trade 
and  Environment  within  the  WTO.  That  Committee  will  make  its  first  report  to  the  first 
Ministerial  Conference  of the WTO which will be held in Singapore in December  1996. 

Given  the importance  of the issue of trade and environment,  it is vital that  the EU  contribute 
fully  to the debate  and the resulting conclusions.  The purpose  of  this  Communication  to  the 
Council and Parliament is to set out the Commission's views on the main issues which will be 
raised in the context of trade and environment. 

The  Community  is  committed  to  a  high  level  of  environmental  protection  and  to  an  open, 
equitable  and non-discriminatory  multilateral  trading system.  The main thrust  of the paper  is 
that  trade  and  environment  policies  can  play  a  mutually  supportive  role  in  favour  of 
sustainable  development. 

Economic  performance  and  environmental  performance  are  not  necessarily  incompatible. 
While achieving environmental  benefits  may in some cases entail  additional  short-term  costs, 
there  are  a  wide  range  of  "win-win"  opportunities  in  the  design  and  implementation  of 
environmental  policies,  which  could  improve  resource  efficiency,  competitiveness  and 
employment.  Indeed,  high  environmental  standards  can  create  the  conditions  under  which 
businesses  investing  in  cleaner,  more efficient  technologies  could  improve  their  competitive 
their  own 
position.  Countries  have  the  sovereign  right  to  design  and  implement 
environmental  policies  through  the  measures  they  consider  appropriate  to  protect  their 
domestic  environment.  Differences 
in 
introduction  of compensating  duties or export rebates (i.e. so-called  eco-duties)  as a means of 
compensating  for  the  cost  of  imposing  more  rigorous  environmental  requirements  on 
domestic industries than those supported by foreign  competitors. 

in  environmental  policies  should  not  result 

However,  all  countries  have  a  responsibility  to  contribute  to  the  solution  of  international 
environmental  problems.  The  most  effective  way  of  dealing  with  such  problems  is  through 
international  and multilateral  agreements, not by unilateral  trade measures. 

In  accordance  with  the  principles  agreed  at  the  United  Nations  Conference  on  Environment 
and  Development,  particular  account  should  be  taken  of  the  special  situation  and  needs  of 
developing  countries  in the  issue of trade and environment.  Mechanisms  developed  to  solve 

1  c 

environmental  problems  should  not  jeopardise  sustainable  development  prospects  or 
undermine  the  export  performance  of  developing  countries  or  countries  with  economies  in 
transition.  Many  mechanisms  are  available  to help  developing  countries  and  countries  with 
economies in transition to achieve sustainable  development. 

In  order  to  ensure  that  trade  and  environment  issues  can  be  effectively  tackled  at  the 
international  level,  world  trade  and  environment  policies  should  be  not  only  compatible  but 
also mutually  supportive.  This  is particularly  the case  where trade policy  tools  are used  as a 
means to buttress international environmental  standards. 

Identifying  the  relationship  between  trade  measures  and  environmental  measures  in  order  to 
promote  sustainable  development  will  help  to  ensure  the  predictability  essential  for 
environmental  policy  makers  both  at  national  and  international  levels,  and  for  the  industrial 
world  which  has  to  comply  with  environmental  requirements.  Considering  whether  any 
modifications  of the provisions of the multilateral  trading system are required  -on  issues  such 
as  the  WTO  rules  and  Multilateral  Environmental  Agreements,  new  instruments  of 
environmental  policy  like eco-labelling and  trade  in dangerous  substances  - will  be  the  main 
task  of  the WTO  Committee  on  Trade  and  Environment.  It  is  also  necessary  to  ensure  that 
other  relevant  international  bodies, such  as the CSD, UNEP, UNCTAD  and  the  OECD, play 
an effective  role in these discussions. 

Protecting  the  environment  and  maintaining  an  open,  non-discriminatory  and  equitable 
multilateral  trading  system  are  equally  important  objectives.  Provided  that  the  right 
framework  is  in  place  at  international  level, they  need  not  be  mutually  exclusive.  Enhancing 
the  conditions  for  the  effective  achievement  of  both  objectives  will  be  the  main  aim  of  the 
Commission  in discussions  in coming months, an aim which  underlies the approaches  set out 
in this  Communication. 

£ 

COMMUNICATION TO THE COUNCIL 

AND 

TO THE PARLIAMENT 

ON TRADE and ENVIRONMENT 

Introduction 

The  international  community  is  paying  ever  increasing  attention  to  the  issue  of  trade  and 
environment.  In a world where concerns about the environment  are greater than ever before  and yet 
where there has been  significant  progress in the liberalisation  of world trade, it is inevitable that the 
relationship between the two will be more closely analysed. 

A number of important issues have been raised: 

to what extent is trade liberalisation compatible with environmental  protection? 

what effect  do environmental protection policies have on competitiveness? 

what  are  the  best  mechanisms  to  achieve  protection  of  the  environment  while  preserving  an 
open trading system? 

what account should be taken of the interests of developing countries? 

These  are  among the  issues  which  have begun  to be  debated  in  international  fora.  For  example  at 
the  United  Nations  Conference  on  Environment  and  Development  (UNCED)  in  1992,  it  was 
recognised  that  greater  coherence  between  international  trade  and  environment  policies  was 
necessary  to  promote  sustainable  development  and  that  work  should  be  conducted  at  the 
international level to clarify  the relationship between the two sets of policies. 

When  establishing  the  World  Trade  Organisation  (WTO),  the  parties  to  the  multilateral  trading 
system  expressly  recognised  that  their  trade  and  economic  relations  in  the  context  of  the  new 
organisation  should be in accordance with the objective  of sustainable development.  They  therefore 
decided,  at  the  Ministerial  Conference  held  in  April  1994  in  Marrakech  for  the  conclusion  of  the 
Uruguay  Round,  to  establish  a  Committee  on  Trade  and  Environment  (CTE)  in  the  WTO.  The 
CTE, which  began  its  work  early  in  1995, was  given  the  task  "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". 

JL 

Following UNCED, initiatives have also been undertaken  in other international  fora,  in particular in 
the  UN  Commission  on  Sustainable  Development  (CSD),  UNEP,  UNCTAD  and  the  OECD,  to 
examine  the  interface  between  trade  and  environment  policies.  The  involvement  of  these  various 
international  institutions  in  the  discussion  not  only  witnesses  the  importance  the  international 
community  attaches  to  this  issue  but  also  reflects  the  need  for  different  and  complementary 
expertise for the understanding of the whole spectrum of trade and environment issues. 

The result of all these developments has been an increasing awareness in recent years that within the 
field  of trade and environment  lies a complex area of new policy linkages which demands the urgent 
attention of all members of the international community  and of the multilateral trading  system. 

It  is against  this background  that  the Commission  presents  this Communication  to the  Council  and 
to  the  European  Parliament.  It  aims  to  set  out  the  Commission's  views  on  the  main  issues  in  the 
trade and environment debate and on the objectives for further  discussions  at the international  level. 

Of  particular  importance  is the  work  which  will be undertaken  in the  CTE  this  year  in  preparation 
for  the  first  Ministerial  Conference  of  WTO  members  to be  held  in  Singapore  in  December  1996, 
where  one  of  the  main  items  on  the  agenda  will  be  discussions  on  the  relationship  between 
instruments for environmental  protection  and the provisions of the multilateral  trading system. 

The paper is divided into five parts. 

Part 1 sets out the background to the concept of sustainable development, as articulated  at UNCED. 

Part 2 analyses some of the important underlying issues in the debate on trade and environment:  the 
compatibility  of  trade  liberalisation  with  environmental  protection;  the  effect  of  environmental 
protection  policies  on  competitiveness;  and  the  best  mechanisms  for  achieving  protection  of  the 
environment  while preserving an open trading system. 

Part 3 considers the interests of developing countries in the issue. 

Part  4  looks  at  some  of  the  detailed  issues  which  arise  in  the  context  of  environmental  protection 
and  the  rules  of  the  multinational  trading  system.  It  looks  at  the  relationship  between  national 
environmental  legislation  and  the  multilateral  trading  system  before  analysing  some  of  the  issues 
which  arise  at  international  level:  for  example,  WTO  rules  and  multilateral  environmental 
agreements; the question  of  'processes  and production  methods';  new  instruments  of  environmental 
in  dangerous  substances;  and  dispute  settlement 
like  eco-labelling  schemes;  trade 
policy 
mechanisms for environment-related  trade measures. 

Part 5 analyses the way in which the debate will be taken forward  at international  level  and  sets out 
some  criteria  for  the  way  in  which  the  work  of  the  WTO  Committee  on  Trade  and  Environment 
should be conducted. 

The  paper  concludes  with  the  Commission's  conviction  that  there  should  not  be,  nor  need  be,  any 
policy  contradiction  between,  on the one hand, upholding  the present  open, non-discriminatory  and 
equitable  multilateral  trading  system  and, on the other,  action  for  the protection  of  the  environment 
and  the  promotion  of  sustainable  development. 
It  is  with  that  conviction  that  the  Commission 
presents this Communication  to the Council and to the European  Parliament. 

1. The  Rio Conference:  the starting  point. 

Confronted  with  the  continued  and  serious  deterioration  of  the  world's  environment  and  the 
emergence of environmental  problems of a new dimension,  it became  apparent  to governments  and 
the  international  community  at large  in the  second  half  of  the  1980s that  there  was  an urgent  need 
for  action  at the international  level  to reverse this  situation.  This  led the  United  Nations,  20  years 
after  the  1972 UN Conference  on the Human Environment in Stockholm, to organise in Rio in  1992 
the Conference  on Environment  and Development (UNCED). 

UNCED  has  been  a  decisive  step  which  gave  a  new  impetus  to  international  dialogue  and  co 
operation  and  allowed  establishment  of  the  bases  necessary  to  tackle  progressively  at  the  various 
relevant  levels the environmental  and developmental  challenges  the world is presently  facing1.  The 
outcomes  resulting  from  Rio  are  based  on  a  general  recognition  that  the  prospects  for  long-term 
economic  development  inevitably  depend  on  the  preservation  of  the  world's  environment  and  that 
sustainable  development  in  all  countries  is  an  imperative  aim  at  both  national  and  international 
level. 

By  promoting  the  concept  of  "sustainable  development",  UNCED  led  to  a fundamental  change  in 
approach.  In contrast  with the  "limits to growth" approach  of the  1970s, the concept  of  sustainable 
development,  although  requiring  the  adoption  of  sound  economic  policies  and  management,  does 
not  assume that economic  growth  necessarily  has a negative  impact  on the environment.  Rather,  it 
takes into account  the resources that trade liberalisation  and economic development  may provide to 
countries  for  supporting  the  costs  of  environment  protection.  This  concept  implies  a  global  and 
integrated  approach  articulated  around  the  three  following  requirements:  (i)  environment  and 
development  concerns  should  be  integrated  into  all  relevant  sectoral  policies  at  national  and 
international  level; (ii) economic development should equitably meet the needs of present  and  future 
generations;  (iii)  a  value  should  be  assigned  to  environmental  resources  in  order  to  identify  and 
assess the environmental  effects  of economic activities. 

An important conclusion  reached  at UNCED was that, in order to achieve  sustainable  development, 
environment,  economic  and  social  development  policy  objectives  should  no  longer  be  considered 
separately.  To  this  end,  besides  adopting  a  number  of  principles  and  instruments,  governments 
agreed  to implement  an  action  programme, Agenda  21, which  covers  a wide  range  of  environment 
and  development  challenges  and provides  an effective  framework  for  the  promotion  of  sustainable 
development  and the establishment  of a global partnership between nations. This global  partnership 
should  be  based,  inter  alia,  on  the  principle  of  common  but  differentiated  responsibility  of 
countries at different  levels of development. As recognised  in the preamble of Agenda 21,  assistance 
to  developing  countries  has  to be  increased  in  order  to  cover  the  incremental  costs  for  the  actions 
and  to 
developing  countries  have  to  undertake  to  deal  with  global  environmental  problems 
accelerate sustainable  development. 

1 
UNCED,  adopted  three  non-legally  binding  texts: the  Rio  Declaration  on  Environment  and  Development, 
which  is a statement  of  twenty-seven  Principles; Agenda  21, which  is an  800-page  document  setting  out  objectives 
and  activities  in  forty  areas;  and  a  non-legally  binding  statement  of  forest  principles.  It  also  opened  for  signature 
two  Environmental  Agreements,  legally  binding  for  the  parties:  the  United  Nations  Framework  Convention  on 
Climate  Change  and  the  Convention  on  Biological  Diversity.  Chapter  2  of  Agenda  21  is  the  most  relevant  to  the 
discussion  on trade and  environment. 

3 

As endorsed  in  Chapter  2 of Agenda 21, an overall  objective  to be pursued by governments  in this 
context is "to make international trade and environment policies mutually supportive".  In particular, 
governments  took  the  commitment  to  promote  a  dialogue  between  the  trade,  development  and 
environment  communities  and to encourage  work  in  the  relevant  international  institutions  in  order 
to reach  a better understanding  of the interface  between  trade and environment  policies.  Given  the 
high  adjustment  costs required  for  achieving  sustainable  development,  Agenda  21  also  emphasised 
the need to take  into  account  the specific  situation  of  developing  countries  undergoing  this  process 
and to ensure the full participation of these countries in international trade. 

In  its  Fifth  Action  Programme  on  the  Environment  ("Towards  Sustainability"),  the  Commission 
considered that the integration of international trade and environmental  policies should be one of the 
main  priorities  of  the  post-Uruguay  Round  agenda  and that  it  was essential  for  the  Community,  in 
order to fulfil  the commitments made in Rio, to take an active part in the discussions in this field.  In 
the  Commission's  view,  this  is  also  in  accordance  with  the  objectives  of  the  external  and 
environmental  policies  of the Community  which explicitly  include, among others, the promotion  of 
sustainable  economic  patterns  as  well  as  the  integration  of  environmental  requirements  into  all 
relevant EC policies, including the Community's commercial and co-operation policies. 

2. Interactions  between Trade  and  the  Environment. 

2.1.  Environmental effects of trade liberalisation 

Agenda  21  states  that  trade  and  environment  policies  can  be  mutually  supportive  in  favour  of 
sustainable  development.  This  view  is  based  on  the  conviction  that  an  open  multilateral  trading 
system  makes  possible  a  more  efficient  use  of  natural  resources  in  both  economic  and 
environmental  terms and contributes to lessening demands on the environment. 

The  removal  of  trade  obstacles  and  distortions  increases  the  overall  efficiency  of  the  world's 
economic  system  by  allowing  countries  to  specialise  in  sectors  in  which  they  enjoy  competitive 
advantage,  including  advantages  based  on  their  environmental  conditions.  Other  positive 
environmental  effects  of  trade  liberalisation  include  facilitation  of  the  international  distribution  of 
environmentally  sound  technologies,  services  and  goods  and  greater  availability  of  resources  for 
environmental  protection  for  both  individual  companies  and  governments. 
In  addition,  by 
increasing  income  levels  and  improving  living  standards,  trade  can  foster  awareness  of,  and 
appreciation  for, environmental  values. 

On the other  hand,  without  effective  measures  to  address  potential  negative  impacts,  the  increased 
economic  activity resulting from  trade liberalisation2 might add to pressure on the environment  and 
on  natural  resources  (e.g.  water,  arable  land,  timber,  fish).  More  important,  in  the  absence  of 
national  sustainable  development  strategies  providing  a  framework  to  ensure  the  integration  of 
environmental  protection  requirements  into  all  relevant  policy  areas  and  the  internalisation  of 
environmental  costs, negative  environmental  impacts  could  be  exacerbated  by  policy  interventions 
aimed  at  obtaining  short-term  economic  benefits  (e.g.  development  of  export-oriented  highly 
polluting  industries). 

According  to some estimates  produced  by  the GATT  Secretariat,  the implementation  of  the Uruguay  Round 

2 
Agreements will result in an increase in world  income of $510 billion by 2005. 

So the impact of trade on the environment depends mainly on the environmental  policies  and 
sustainable  development  strategies  implemented  at  national  and  international  level.  Trade 
liberalisation  can  act  as  a  magnifier  of  policy  failures,  but  such  failures  would  undermine 
sustainable  development  even  in  a  closed  economy.  Conversely,  if  the  policies  necessary  to 
protect  the environment  and  to promote  sustainable  development  are in place,  trade-induced 
growth will be sustainable. 

This  is  consistent  with  the  analysis  provided  by  the  Commission  in  its  1994  Communication  on 
Economic  Growth  and  the  Environment  (COM(94)465  final).  A  basic  conclusion  in  that 
communication  is that there is no simple linear relationship between  economic  growth  and  pressure 
on  the environment  and  that,  on  the contrary,  environmentally  sustainable  development  is  unlikely 
to  be  achieved  in  the  long  run  without  economic  growth.  However,  the  communication  also 
indicates  that  there  is  nothing  automatic  about  such  a  move  towards  environmentally  sustainable 
development.  Although  it is true that economic  growth  by itself  generates  additional  resources  that 
can  be  devoted  to  pollution  abatement  and  environmental  protection,  much  of  this  will  only 
materialise if an appropriate policy framework  is put in place. 

More  analytical  work,  including  country  and  sectoral  case  studies,  is  however  needed  in  order  to 
achieve a better understanding  of the potential  effects  of trade liberalisation.  This  should  remain  an 
important  priority  for  the  work  of  all  relevant  international  institutions,  in  particular  UNEP, 
It  is  also  necessary  to  conduct 
UNCTAD  and  the  OECD  and  a  priority  for  work  in  the  EC. 
environmental  reviews  of  trade  instruments  and  agreements  with  a  view  to  identifying  potential 
environmental  impacts and devising appropriate policy responses3. 

2.2 Environmental protection and international competitiveness 

It has  been  argued  that  the establishment  of  more  stringent  environmental  requirements  at  national 
level  would  damage  the  competitive  position  of  domestic  industries  and  lead  to  relocation  of 
polluting  activities.  Such  concerns  may be one of the causes  of the possible  slow  down  in the pace 
of  new  environmental  legislation  in  OECD  countries  noted  in  some  recent  reports.  The  ongoing 
discussions  on  the  establishment  of  a  C02/energy  tax  in  the  European  Union  show  that  such 
concerns  might  hinder  the  introduction  of  new  environmental  measures  aimed  at  promoting  the 
internalisation  of  environmental  externalities.  However,  as  the  Joint  Session  of  Trade  and 
Environment  Experts  found  in  its  report  to  the  OECD  Ministerial  Council  in  May  1995,  no 
systematic  relationship  between  existing  environmental  policies  and  competitiveness  impacts  has 
been  identified.  Nor  there exists evidence  of  countries  deliberately  resorting  to  low  environmental 
standards  to  gain  competitive  advantages  or  to  attract  investments,  or  evidence  of  significant 
industrial  migration  to countries with  lower environmental  standards4. 

This  finding  is  consistent  with  the  fact  that  costs  of  compliance  with  environmental  regulatory 
requirements  are  not  a  significant  factor  in  the  cost  structure  of  most  industries.  In  the  European 
Union,  typically  they  only  represent  between  1 and  2%  of  overall  production  costs.  Accordingly, 
environmental  costs  are  not  a decisive  parameter  for  most  companies.  Environmental  policies  can 
have  negative  impact  on  the  competitive  position  in  specific  sectors,  but  this  tends  to  be  where 

Methodologies  for  environmental  reviews  of  trade  policies  and  agreements  have  been  developed  by  the 
OECD Joint  Session  of Trade and Environment  Experts  (see document  OECD/GD(94)103). 

Cf.  OECD Report  to Ministers on Trade and Environment,  p. 5. 

5 

profit  margins  are  narrow  or  there  are  long  term  structural  problems  or  where  processes  have  a 
particular  heavy  environmental  impact.  So,  in  most  cases,  other  factors  like  access  to  markets, 
availability  of  raw  materials,  transport  and  communication  infrastructure, 
labour  costs  and 
availability  of  skilled  workers, political  stability  etc. are more influential  on location  decisions  and 
have a more significant  impact on industrial competitiveness than environmental  standards. 

It  is  also  important  to  bear  in  mind  that  rather  than  being  a  burden,  environmental  policies  can 
provide an incentive for technological innovation, promote economic efficiency  and improve overall 
productivity.  The experience  of countries  in Central  and Eastern Europe  in the past  decades  shows 
that loose environmental policies and economic inefficiency  very often  go hand in hand. 

Secondly,  the  drive  towards  higher  environmental  standards  is  generating  a  global  market  for  the 
environmental  industry presently worth around $250 billion per year, with a high annual growth rate 
(8%).  Therefore,  in  the  present  context  of  rapid  expansion  of  trade  in  environmental  services, 
equipment  and  technologies,  environmental  policies  can  have  a  positive  impact  on  international 
competitiveness by giving early movers a competitive advantage. 

Markets  for  ecologically  sound  products  are  also  growing.  For  example,  it  results  from  a  survey 
carried  out  in  the  European  Union  in  1995  that  67%  of  people  have  already  purchased  or  are 
prepared  to buy products  with  an environmental  bonus, even  at a higher price5.  This  consumer-led 
demand  for  more environmentally  friendly  products  is an important  element  which  has  to be taken 
into  account  when  considering  the  relationship  between  environment  policies, competitiveness  and 
economic  performance. 

These factors lead the Commission to conclude that economic performance and  environmental 
performance  are  not  necessarily  incompatible.  While  achieving  environmental  benefits  can 
entail  additional  short-term  costs,  there  are  a  wide  range  of  "win-win"  opportunities  in  the 
design  and  implementation  of  environmental  policies,  which  could  improve  resource 
efficiency,  competitiveness and employment. 

Countries  have  the  sovereign  right  to  design  and  implement  their  own  environmental  policies 
through  the measures  they  consider  appropriate  to protect  their  domestic  environment.  Differences 
in environmental  standards  can be due to a variety  of reasons, including  differences  in  the  capacity 
of  absorption  of  eco-systems,  which  constitute  an  entirely  legitimate  source  of  comparative 
advantage.  So  differences  in  environmental  policies  should  not  result  in  the  introduction  of 
compensating  levies  or export  rebates, or measures  having  an equivalent  effect  (i.e.  so-called 
eco-duties)  as a means of compensating  for the cost of imposing more rigorous  environmental 
requirements on domestic industries than those supported by foreign  competitors. 

Where  there  are  concerns  about  competitiveness,  they  can  often  be  effectively  addressed  by 
international  harmonisation  or co-ordination  of environmental  policies.  While recognising that total 
uniformity  of  environmental  policies  is  not  possible  or  even  desirable  in  view  of  the  different 
conditions,  values  and  priorities  prevailing  in  each  country,  international  environmental  law  has 
indeed  experienced  a significant  development  over the past twenty  years  and this  should  result  in a 
progressive  convergence  of  environmental  policies  and  regulations  at  regional  and  international 
level. 

Europeans and the Environment: Eurobarometer 43.1 bis, report produced for the European 
Commission  by INRA (Europe)-E.C.O, November 1995. 

6 

2.3  International  trade  relations and differences  in national  environmental policies:  the  need  for 
multilateral  co-operation. 

from  potential 

in  national 
Apart 
environmental  policies  can  result  in  trade  frictions  owing  to  the  use  of  trade  measures  for 
environmental purposes or to the adoption of environmental  measures with significant  trade  effects. 

international  competitiveness,  differences 

impacts  on 

Firstly,  even  when  environmental  problems  are  purely  domestic,  tensions  can  arise  if  a  domestic 
regulation  either  discriminates  against  or has  a particularly  burdensome  effect  on  imports.  In  other 
words,  it  is  essential  to  ensure  respect  for  trade  principles  and  provisions  in  the  design  and 
implementation  of environmental  measures when such measures can have a significant  trade impact. 

It  is widely  recognised  that  the  margin  of  manoeuvre  available  to countries  is  already  large.  WTO 
members  are  allowed  to  take  measures  necessary  to  protect  the  environment  within  their  own 
territory  provided  that  such  measures  are  not  discriminatory  or  arbitrary  and  do  not  result  in  a 
disguised restriction to international trade. 

A  second  type  of  tension  arises  when  environmental  policies  deal  with  global  or  transboundary 
environmental  problems. 
In  these  cases,  countries  might  resort  to  trade  restrictions  to  tackle 
environmental  problems  which  have  an  impact,  partly  or  totally,  outside  their jurisdiction.  When 
this  is done outside  the context  of  an Multilateral  Environmental  Agreement  (MEA)  this  can  result 
in an attempt to influence  unilaterally  the environmental policies and practices of another country. 

The  Commission  believes  that  the  EU  should  remain  strongly  committed  to  a  multilateral 
approach  as  the  most  effective  way  to  tackle  global  and  transboundary  environmental 
problems.  As recognised in Principle  12 of the Rio Declaration, unilateral actions to deal with 
environmental  problems  outside  the jurisdiction  of  the  importing  country  should  be  avoided 
and  environmental  measures  addressing  transboundary  or  global  environmental  problems 
should, as far as possible, be based on an international  consensus. 

Furthermore,  the use  of  trade  restrictions  within  MEAs  should  not  go beyond  what  is  necessary  to 
ensure the effectiveness  of  such  agreements  and the achievement  of their environmental  objectives. 
If  a  different  rationale  was  to  be  accepted,  the  scope  for  applying  trade  measures  under  an 
environmental  agreement would be practically  limitless. 

Existing  MEAs,  like  the  Montreal  Protocol  on  Substance  that  Deplete  the  Ozone  Layer,  the  Basel 
Convention  on  the  Control  of  Transboundary  Movements  of  Hazardous  Wastes  and  their  Disposal 
and the CITES  (Convention  on International  Trade in Endangered  Species of Wild Flora and Fauna) 
show  that,  under  the  right  conditions,  trade  measures  can  be  a  useful  instrument  to  enforce 
internationally  agreed  standards  or MEAs.  The  Commission  is  of  the  view  that,  in  order  to  avoid 
legal  uncertainties,  the establishment  of  a clear  and predictable  framework  to  accommodate  within 
the multilateral  trading  system the use of trade measures under MEAs must be an important  priority 
for the newly created WTO Committee on Trade and Environment. 

3.  Developing  countries  and  economies  in  transition  in  the  trade  and  environment 

debate 

Developing countries  and countries with economies in transition have specific  concerns in the trade 
and environment  debate.  While, as a result  of the United  Nations  Conference  on Environment  and 
Development,  much  progress  has  been  made  in  reaching  a  better  understanding  of 
the 
trade/environment/development  interface,  many  developing  countries  and  economies  in  transition 
still  view  the  growing  demand  in  industrial  countries  for  higher  environmental  standards  with 
apprehension.  While they expect production  and consumption patterns of the developed  world to be 
modified,  they  also  fear  that  its  high  environmental  standards  and  regulations  could  hinder  their 
market  access  opportunities.  Furthermore,  lower  environmental  standards  in  developing  countries 
may expose them to the charge of enjoying  "unfair"  trade advantages, on the grounds of  insufficient 
internalisation  of cost.  Developing countries are obviously opposed to such an approach, as it might 
result in the imposition of  "eco-duties" on their exports. 

The  Commission  is  fully  sensitive  to  these  concerns:  trade  and  environment  issues  must  be 
approached  in ways  that  do not jeopardise  sustainable  development  prospects  or  undermine 
overall  export  performance  of  developing  countries  and  countries  with  economies  transition. 
Implementing the concept of sustainable development implies respect for the Rio principles, notably 
for  those  affirming  "the  need  for  giving  special  attention  to  the  special  situation  and  needs  of 
developing  countries,  particularly  the  least  developed  and  those  environmentally  vulnerable",  and 
recognising  that  standards  applied  by  industrialised  countries  may  be  inappropriate  and  of 
unwarranted economic and social cost to developing countries. 

This  leads  to the recognition  that  environmental  issues  of  common  concern  require  discussion  and 
negotiation  among  countries  about  priorities  and  commitments,  as  well  as  an  equitable  burden 
sharing,  so  as  to  take  into  account  the  common  but  differentiated  responsibilities  of  countries  at 
different  levels  of  development.  Optimal  environmental  policies  might  require  differentiated 
environmental  standards  among  countries.  These  different  standards  or  objectives  should  be 
considered  an  acceptable  cause  of  comparative  advantage.  Hence,  the  very  clear  stance  of  the 
Commission  against the notion of  "eco-dumping". 

The following  two examples, already existing  in WTO Agreements6  are indicative  of how  a special 
and  differentiated  treatment  of  developing  countries  could  reflect  the  principle  of  "common  but 
differentiated  responsibilities" : 

different  schedules  for  compliance  (time-limited  exception,  phase-in/out  periods),  or 
exemption  from  certain  disciplines  for  environmental  purposes  under  well  defined 
conditions,  provided  that  the  underlying  environmental  goal  for  which  the  measures  are 
taken does not risk being undermined; 

application  of  a  de  minimis  clause  if  developing  countries'  market  share  only  causes  a 
minimal part of the environmental damage. 

As far  as market access is concerned, LDCs are potentially a rich source of environmentally  friendly 
products  and  technologies.  Export  products  from  LDCs  are,  in  certain  cases,  produced  in  an 
environmentally  sound  manner,  making  use,  for  instance,  of  organic  rather  than  synthetic  inputs. 

Cf.  TBT Agreement art.  12 and SPS Agreement art.  10 for  special and differentiated  treatment and art. 9 
of the Agreement on Safeguards  for the "de minimis" clause. 

Efforts  should  be made to ensure  that,  when  products  originating  from  LDCs  have  a  well-assessed 
environmental  advantage  on  other  products,  developing  countries  are  able  to  benefit  from  the 
"market premiums" granted by the increasingly environmentally  concerned  consumption  patterns in 
developed  countries.  A  number  of  Uruguay  Round  agreements  provide  the  basis  for  a  special 
treatment  of developing countries, in particular  the least developed  ones, both  as regards  improving 
market access and continuing preferential  access. 

It should  also be noted that the strategy defined  in Rio, in particular Agenda 21, emphasises  that the 
integration  of  environmental  requirements  into  all relevant  policy  areas  is indispensable  to  achieve 
sustainable  development  and  is  essential  to  enhance  the  development  prospects  of  developing 
countries and countries with economies in transition  in the long run. 

As  a  result  of  the  Uruguay  Round,  but  also  within  existing  Environmental  Agreements  e.g.  the 
Montreal  Protocol7,  new  approaches  have been  developed  for  encouraging  developing  countries  to 
the  differentiated 
adopt  alternative 
responsibility  of  developing  countries  could  play  an  important  role  in  facilitating  adjustment  in 
these  countries.  Technical  and  financial  assistance  should,  in  accordance  with  the  commitments 
taken in Rio play the main role in this task of facilitation  which can include: 

incentives,  which  acknowledge 

technologies.  These 

Ensuring the regular flow  of information  about environmental  legislation; 

Training  schemes to help developing countries and economies  in transition  to interpret  trade 
and  environment-related  information,  in  order  for  them  to  develop  appropriate  policy 
responses; 

Improvement  of the capacity of developing countries  and economies  in transition  in the area 
of product verification,  certification  and other quality controls for environmental  purposes; 

Improvement  of  the  institutional  and  technical  capacity  to  control  the  movement  of 
dangerous substances such as dangerous wastes and chemicals; 

Exploitation  of market opportunities and the promotion  of environment-friendly  products. 

Technology  research and development  co-operation; 

Technical  assistance  to  improve  the  environmental  performance  of  key  polluting  sectors 
(e.g. mining industries). 

In  ah  ihese fields,  considerable  scope exists  for  regional  co-operation  both  within  and  between  the 
various  regional  trading  arrangements  among  developing  countries  (e.g.  MERCOSUR  and 
ASEAN).  Regional  agreements,  concluded  in  conformity  with  the  WTO,  with  the  aim  of 

The  Montreal  Protocol  on  Substances  that  Deplete  the  Ozone  Layer  contains  special  implementation 
provisions  for  developing  countries  whose  consumption  of  substances  controlled  by  the protocol  is below  a 
certain  level.  Moreover,  the  Protocol  commits  signatories  to  facilitate  access  of  developing  countries  to 
environmentally  safe  alternative  substances  and  technology,  while  Parties  to  the  Protocol  also  undertake  to 
facilitate,  bilaterally  or  multilaterally,  the  provision  of  subsidies,  aid  credits  etc.  for  the  use  of  alternative 
technology  and  for  substitute  products.  Trade  sanctions  are  foreseen  for  those  not  complying  with  the 
provisions  of the Protocol. 

liberalising  trade  between  parties,  can  generate  additional  resources  which  are  needed  for 
investments  in  developing  countries,  including  in  the  area  of  environmental  protection  and 
sustainable development.  Similarly the Association Agreements with Central and Eastern  European 
Countries provide the basis for environmental co-operation and lay the foundations  for preparing the 
Associated  countries  for  EU membership  through  a pre-accession  strategy  which  includes  training, 
research, the exchange of information  on environmental policy and forms of co-operation. 

including  by 

intensifying  and  deepening 

The  process  of  adjustment  to  sustainable  development  also  goes  beyond  the  mandate  of  the  WTO 
and  the  dialogue  on  trade  and  environment.  The  Community's  development  and  economic  co 
operation  programmes,  as well  as those of  other bilateral  donors provide  the means  to  support  and 
encourage  developing  countries  and  economies  in  transition  to  adjust  to  sustainable  ways  of 
production  and consumption.  The same is true for  the multilateral  donors  (i.e. World  Bank),  which 
will  have  to  ensure  to  "make  sustainable  development  a  central  goal  of  their  policies  and 
programmes, 
integration  of  environmental 
considerations  into  all  aspects  of  their  programmes"  (Communiqué  of  the  G 7  Summit  in  Halifax, 
June  1995,  point  26).  Also,  standard  setting  bodies  like  the  ISO  (International  Standards 
Organisation),  currently  developing  new  environmental  standards,  should  be  encouraged  to  extend 
support  to  developing  countries  and  economies  in  transition  in  the  implementation  of  these  new 
standards.  Moreover,  positive  incentives  such  as  the  Community's  new  GSP  regulation  for 
industrial  products,  will  help  to  encourage,  from  1998  onwards,  sound  environmental  production; 
there might be scope to broaden  the application  of this approach.  The incentive  regime  established 
under  the  new  regulation  will  initially  apply  to  timber  products  meeting  the  standards  set  by  the 
ITTO8  (International  Trade  in  Timber  Organisation)  and  it  might  be  extended  to  other  products 
manufactured  in compliance with relevant international environmental  standards. 

the 

Finally,  the  removal  of  trade  restrictions  and  distortions  is  particularly  important  for  developing 
countries  and  countries  with  economies  in  transition,  as  a  means  to  promote  their  effective 
integration  into  the  world's  economy  which  is  an  essential  condition  for  achieving  sustainable 
development.  From this perspective, the successful  conclusion  of the  Uruguay  Round  negotiations 
constitutes  a major  achievement. 

4.  The Multilateral  Trading  System  and environmental  protection 

Tensions  between  trade rules  and  environment  policies  might  arise  due,  inter  alia,  to  the  fact  that, 
while  the  international  trade  regime  seeks  the  substantial  reduction  of  tariffs  and  barriers  to  trade, 
the  achievement  of  environmental  protection  objectives  requires  the  control  of  trade  in  certain 
categories  of products.  It would,  however,  be inappropriate  to draw  the conclusion  that  trade  rules 
constitute an obstacle to the implementation  of effective  environmental policies at national level. 

Trade-related  environmental  measures  are  not  inconsistent  with  the  provisions  of  the  multilateral 
trading system if they conform  to certain basic trade requirements, particularly the principles  of non 
discrimination  between  exporting  countries  (GATT  Article  I)  and between  domestic  and  imported 
products  (GATT  Article  IE).  Furthermore,  although  protecting  the  environment  was  not  a  major 
concern  when the Agreement  was drafted  in  1947, GATT Article XX permits  trade restrictions  that 
are  "necessary  to  protect  human,  animal  or  plant  life  or  health"  or  "relate  to  the  conservation  of 

The ITTO has as a primary  aim the attainment of trade only in products derived from  sustainable  forest 
management by the year 2000. This is the so-called  "Target 2000". 

10 

exhaustible natural resources".  These exceptions virtually encompass  all objectives  of  environment 
policy.  However,  it  might  be  appropriate  to  further  clarify  the  status  of  measures  necessary  to 
protect the environment under GATT Article XX. 

In  the  report  on  trade  and  environment  issued  in  1992 by  the  GATT  Secretariat,  it  was  noted  that 
"GATT rules place essentially no constraint  on the ability of countries to use appropriate policies to 
protect  their  environment  from  damage  from  domestic  production  activities  or  from 
the 
consumption  of  domestically  produced  or imported  products".  Similarly,  from  the  analytical  work 
carried  out  to  date  (mainly  by  the  GATT  Group  on  Environmental  Measures  and  International 
Trade,  known  as  the  EMIT  Group,  and  by  the  OECD  Joint  Session  of  Trade  and  Environment 
Experts)  the  conclusion  can  be  drawn  that  trade  rules  allow  countries  to  take  any  measures 
necessary  for  protecting  the  environment  within  their  own  territory  if  they  are  not  discriminatory, 
arbitrary and do not result in disguised restriction on international trade. 

Moreover,  the  multilateral  trading  system  already  includes  extensive  provision  for  environmental 
concerns.  Positive  steps  aimed  at  accommodating  environmental  concerns  into  the  multilateral 
trading  system  were  agreed  in  the  Uruguay  Round  negotiations.  In  the  first  place,  the  Agreement 
establishing  the WTO provides  in its preamble that the relations  among WTO members  in the  field 
of  trade  and  economic  endeavour  "should  be conducted  with  a view  to raising  standards  of  living, 
and expanding  the production  of  and  trade  in goods  and  services,  while  allowing  for  the  optimal 
use of  resources  in accordance  with the objective of sustainable  development,  seeking  both to 
protect and preserve the environment  and to enhance the means of doing  so".  Secondly,  several 
Uruguay  Round  Agreements  explicitly  take  into  account  environmental  considerations9.  Finally  -
and  most  importantly  - at  the  Marrakech  Ministerial  Conference  concluding  the  Uruguay  Round  it 
was decided to establish  a Committee on Trade and Environment  (CTE) with  a very  comprehensive 
mandate within the WTO. 

The  CTE  must  address  a  number  of  specific  issues  in  the  trade  and  environment  debate.  This 
chapter  summarises  the  most  important.  The  timetable  for  dealing  with  these  issues  will  vary. 
Some  -  the  GATTAVTO  rules  and  Multilateral  Environment  Agreements,  new  instruments  of 
environmental  policy,  trade  in  dangerous  substances,  dispute  settlement  for  environment-related 
trade  measures  - may  be  ready  for  detailed  consideration  at  the  WTO  Ministerial  in  Singapore  in 
December  1996.  Others - for  instance, product-related  measures  and PPMs, economic  instruments, 
trade  in  services  and  the  environment  and  intellectually  property  rights  and  the  environment  - will 
require a longer time  frame. 

4.1 GATTAVTO rules and Multilateral Environmental Agreements 

International  co-operation  in the field  of  environmental  protection  has to date  led  to  180 treaties  or 
agreements  for  the protection  of the global environment  and conservation  of natural  resources.  Not 
all  these  agreements  have an impact  on trade and therefore  fall  outside the context  of the debate on 
trade  and  environment.  Specifically,  only  18  of  these  Multilateral  Environment  Agreements 

9  The  environment  is  mentioned  in  the  Agreements  on  Technical  Barriers  to  Trade,  on  Sanitary  and 
Phytosanitary  Measures,  on  Agriculture,  on  Trade-Related  Intellectual  Property  Rights  and  on  Subsidies  and 
Countervailing  Measures.  For  example,  under  the  latter,  "assistance  to promote  adaptation  of  existing  facilities  to 
new  environmental  requirements  imposed  by  law",  if  provided  under  certain  conditions,  may  be  considered  as  a 
non-actionable  subsidy  (so  called  "green  list"). This  shows  that  the  WTO  has  given  special  attention  to  measures 
intended  to improve environmental  protection. 

11 

(MEAs) contain trade provisions, that is they envisage the possibility of limiting trade in some  form 
or another for the effective  achievement of their environmental goal. 

The three main examples of MEAs containing trade restrictions  are the Convention  on  International 
Trade  in  Endangered  Species  of  Wild  Fauna  and  Flora  (CITES)  (1973),  the Montreal  Protocol  on 
Substances  that  Deplete  the  Ozone  Layer  (1987),  and  the  Basel  Convention  on  the  Control  of 
Transboundary  Movements of Hazardous Wastes and their Disposal  (1989). 

CITES  entered  into  force  in  1975  and  has  now  been  ratified  by  130  countries.  CITES  regulates 
trade  in endangered  species by defining  conditions  under  which  import  and  export  permits  may be 
issued. 

The Montreal  Protocol  entered  into force  in  1989 and has been  ratified  by  149 Parties.  It  contains 
detailed  provisions  governing  the  production  and  consumption  of  ozone  depleting  chemicals. 
Unregulated  trade  in  ozone-depleting  substances  would  probably  result  in  the  relocation  of 
production  facilities  to  countries  not  party  to  the  Protocol  and  re-exportation  of  chemicals  or 
products manufactured  from them to countries which are parties to the Protocol.  As a result of these 
concerns, the Montreal Protocol contains various provisions which affect  international  trade. 

The  Basel  Convention  entered  into  force  in  May  1992  and  has  been  ratified  by  92  parties.  Each 
party  has  the  right  to  prohibit  the  import  of  hazardous  wastes.  Exports  are  permitted  when  the 
importing country has given permission in writing.  Trade with countries which are not parties to the 
convention  is generally not allowed. 

The relationship between  the provisions of the multilateral  trading system  and trade measures  taken 
pursuant  to  multilateral  environmental  agreements  (MEAs)  lies  at  the  heart  of  the  discussion  on 
trade  and  environment  and  represents  a core-issue  of  the  international  agenda.  Any  decision  and 
recommendation  on this issue should be taken also with a view to possible future  MEAs. 

It  is  generally  recognised  that  the  multilateral  trading  system  should  consider  favourably  trade 
restrictive measures  which are taken pursuant to MEAs.  As stated in Principles  7 and  12 of the Rio 
Declaration,  international  co-operation  (versus  unilateral  measures)  should  be  supported  to  protect 
global commons and solve transboundary environmental problems. 

International  co-operation  is most  effective  from  an environmental  point  of  view, because  the joint 
effort  of all countries concerned is necessary to tackle environmental problems of transboundary  and 
global  nature.  Moreover,  it  is likely to prevent  the use  of  unilateral  trade restrictions,  which  could 
be tempting in cases where no multilateral action is taken. 

In  the  light  of  this,  the  Commission  considers  that  the  multilateral  trading  system  should 
accommodate,  under  clear  and  predictable  rules,  the  use  of  trade  measures  taken  in  the 
framework  of  Multilateral  Environmental  Agreements.  Such  measures  can  be  necessary  to 
achieve  the  objectives  of  an  MEA,  and  the  fact  that  they  are  negotiated  and  agreed 
multilaterally is the best guarantee against the risk of protectionist abuses. 

With  this aim in mind, the Commission  will continue to play a leading role in the discussions  in the 
WTO  in  an  effort  to  reach  agreement  on  a  system  which  is  geared  to  accommodating  within  the 
WTO  rules  trade  measures  taken  pursuant  to  an  MEA.  Any  agreed  solution  should  provide 
flexibility  for  environmental  negotiations  in terms of judgement  on the legitimacy  of  environmental 

12 

objectives  and  on  the  trade  measures  needed  to  achieve  them.  Similarly,  the  relationship  between 
trade provisions  in  MEAs  and WTO  Agreements  should  be  articulated  in  such  a way  to  avoid  the 
perception that the latter might take precedence over the former. The challenge is therefore  to design 
a system which  essentially allows  the WTO system to accommodate trade measures taken  pursuant 
to the provisions  of  an MEA  while at the same time establishing  safeguards  against  the  application 
of unnecessary  restrictions  on WTO Members, especially  those which  are not parties  to the MEA, 
preserving  their  right  to  discourage  any  protectionist  abuse  through  the  Dispute  Settlement 
mechanism  of the WTO.  On the other hand, WTO Members  parties to the MEA  should  not  resort 
to  the  WTO  Dispute  Settlement  mechanism  with  the  aim  of  circumventing  or  impairing  the 
obligations they have accepted by becoming parties  to the MEA. 

4.2  Product-related  and Processes and Production Method-related measures 

The  rules  of  the  multilateral  trading  system  make  a  basic  distinction  between  product-related 
measures and non-product-related  measures. Product-related  measures are trade measures relating to 
the nature or quality of the product itself, for example a ban on the importation  of brakes  containing 
asbestos.  Non-product  related  measures  are  trade  measures  which  relate  to  the  way  in  which  a 
product is produced  or processed, that is to say to its processes and production  methods (PPMs). An 
example would be an import ban on paper bleached with chlorine. 

It should, however, be noted that the distinction between product-related  and PPM-related  measures 
is becoming  increasingly  diffuse.  In the first  place, PPMs  can  sometimes  affect  the  characteristics 
of the product  (e.g. pesticides can be present  in agricultural  products  and be detrimental  for  human 
health).  Accordingly,  the  notion  of  product-related  requirements  encompasses  also  measures 
relating to PPMs which have an effect  on the final  characteristics of the product.  Secondly, some of 
the new instruments  of environmental  policy (e.g. eco-labelling  schemes)  are based  on the  so-called 
"life-cycle  approach",  used  to assess  the environmental  impact  of  a product  from  "cradle to grave". 
Therefore  they include criteria relating to both the environmental characteristics  of a product and the 
PPMs used. 

As  far  as  product-related  measures  are  concerned,  the  GATTAVTO  rules  place  very  limited 
constraints  on  the  rights  of  members  to  protect  their  own  environment  against  damage  from 
domestic  production  and  consumption  of  domestic  and  imported  products. 
Product-related 
environmental  requirements,  under  the  form  of  technical  regulations  and  standards,  are  one  of  the 
traditional  instruments  of environment  policy.  GATT Article III allows  each  country  to impose on 
imported  products  the  same  requirements  in  force  for  domestic  'like  products'  as  long  as  this  does 
not result  in treatment  less favourable  for  imports.  A comprehensive  regime, basically  contained  in 
the  Agreement  on  Technical  Barriers  to  Trade  (TBT)  and  in  the  Agreement  on  Sanitary  and 
Phytosanitary measures  (SPS), has also been developed.  This regime is primarily aimed  at ensuring 
transparency  in the preparation,  adoption  and application  of technical  regulations  and  standards  and 
conformity  assessment  procedures, but  some substantive  provisions, concerning  non-discrimination 
and the notion of least trade-restrictiveness  are also included. 

Promoting  international  harmonisation  of  standards  and  technical  regulations  is  one  of  the  main 
objectives  of  the  TBT  and  SPS  regimes.  However,  harmonisation  towards  the  highest  level  of 
environmental  protection  is  very  difficult  to  achieve  because  of  the  different  conditions,  priorities 
and  levels  of  economic  development  prevailing  in  each  country.  A  certain  flexibility  is  therefore 
necessary  in  order  to  enable  countries  to  adopt  product-related  environmental  requirements  more 
stringent  than  those  agreed  at  international  level,  while  ensuring  at  the  same  time  that  this 

13 

possibility  is  not  used  for  protectionist  purposes.  Accordingly,  the  TBT  and  SPS  Agreements 
contain  provisions  allowing  countries  not  to  apply  international  standards  if  they  would  be 
ineffective  or inappropriate to achieve an environmental  objective. 

Processes  and  Production  Methods  raise  more  complex  issues.  Certain  PPMs  may  lead  to 
environmental  degradation  to  air,  water,  or  land  in  a  bordering  country  or  in  a  shared  region. 
Industrial  production  can  be  the  source  of  air  pollution  near  a frontier  at  a shared  river  or  lake. A 
PPM  may  lead  to  the  loss  of  migratory  species  and  shared  living  resources  due  to  inappropriate 
conservation  measures  (e.g.  depletion  of  high  seas  fisheries  or  the  threatening  or  endangering  of 
migratory  marine  mammals).  A  PPM  may  lead  to  environmental  degradation  of  the  "global 
commons", that is to say, of assets or resources commonly shared by all countries  (e.g. the  depletion 
of the ozone layer, climate change, loss of biodiversity). 

Although  it  is  undisputed  that  countries  have  the  sovereign  right  to  determine  their  own 
environmental  policies,  the  extent  to  which,  under  WTO  rules,  one  country  can  enforce  its 
environmental  policies  to  deal  with  transboundary  and  global  problems  in  a  way  that  affects 
international  trade remains open to question. 

It  is  clear  that  quantitative  import  and  export  prohibitions  or  restrictions  related  to  Processes  and 
Production  Methods  (PPMs),  imposed  on  products  whose  characteristics  do  not  cause  themselves 
environmental  harm,  are  inconsistent  with  GATTAVTO  rules,  as  presently  interpreted  by  recent 
(unadopted) jurisprudence.  The  most  important  consequence  of  this  interpretation  is  that  a  WTO 
Member  cannot  unilaterally  ban  or  restrict  the  import  of  products  because  of  the  environmental 
effects  of processes and production  methods (PPMs) used in the exporting (producing)  country. 

The  main  argument  against  the  use  of  unilateral  trade  measures  is  that  they  would  run  counter  to 
sovereignty  over domestic  production  processes.  However,  in the case of  environmental  harm  to a 
neighbouring  state,  this  may  be  counteracted  by  the  argument  that  States  also  have  an  obligation 
under  Principle  2  of  the  Rio  Declaration  "to  ensure  that  activities  within  their jurisdiction  do  not 
cause  damage  to  the  environment  of  other  States  or  of  areas  beyond  the  limits  of  national 
jurisdiction". 

The  need  to  ensure  that  environmental  protection  can  be enforced  when  there  is  the  risk  of 
irreparable  harm  to  the  environment  of  another  state  or  the  global  commons,  while  at  the 
same  time  dispelling  the  risk  of  giving  leeway  to  possible  protectionist  abuses,  is  the  most 
challenging  task  of  the international  community  in the debate on trade  and  the  environment. 
The  Commission  considers  that there may be specific  exceptional  circumstances  in which  the 
rules  of  the  multilateral  trading  system  should  not  preclude  the  adoption  of  relevant  trade 
measures  against  a  country  which  is  violating  some  fundamental 
legal  duties  under 
international  environmental  law,  such  as  the  obligation  to  ensure  that  activities  within  its 
jurisdiction  do not cause damage  to the environment  of other States and the obligation  to co 
operate  to  conserve,  protect  and  restore  the  health  and  integrity  of  the  Earth's  ecosystem 
(Principles  2 and  7  of  the  Rio  Declaration).  But  trade  measures  must  be  based  on  rigorous 
scientific  evidence, be proportional  to the objectives sought and implemented  in a  transparent 
manner:  they  should  be  considered  as  last  resort  measures,  once  attempts  to  find  other 
bilateral and multilateral  solution have been exhausted. 

14 

4.3 New  instruments of environmental policy, including eco-labelling schemes 

It is increasingly being realised that, in order to be effective,  environmental  policies have to rely on 
a  multiplicity  of  innovative  measures,  instruments  and  approaches  and  not  solely  depend  on 
traditional  regulatory  measures.  Among  the  new  instruments  of  environmental  policy,  voluntary 
eco-labelling  schemes based  on a life-cycle  approach  have attracted much  attention.  There  are  also 
a  variety  of  other  new  instruments  and  measures,  particularly  relating  to  packaging  and  recycling 
(e.g.  voluntary  agreements,  mandatory  recovery  schemes  and  deposit-refund  systems),  which  in 
principle  cannot  be  assimilated  to  any  of  the  traditional  categories  of  product-related  and  PPM-
related measures. 

From  a  trade  perspective,  the  evolution  towards  a  greater  diversification  of  environmental 
instruments  is,  in  general  terms,  positive.  The  new  instruments  of  environmental  policy  are  very 
often  voluntary  and  rely  basically  on  market  mechanisms.  Therefore,  they  do  not  result  in  the 
establishment  of  direct  border  trade  restrictions.  However,  such  instruments  can  have  indirect 
effects  on  trade.  The  potential  trade  impact  of  instruments  based  on  a  "life-cycle"  approach  has 
given  rise  to  specific  concerns,  particularly  as  regards  the  application  of  PPM-related  criteria  to 
imported products. 

Some  work  has  already  been  done  to  analyse  the  relationship  between  the  new  instruments  of 
environmental  policy  and  the  WTO  Agreements  and  to  identify  their  potential  trade  effects. 
Although  more  analytical  work  is  still  required,  the preliminary  findings  have  shown  that,  because 
of  their  innovative  character,  some  instruments  might  not  be  adequately  covered  by  the  present 
provisions  of  the  multilateral  trading  system.  Accordingly,  the  need  to  extend  the  scope  of 
existing rules and mechanisms or to develop new ones should be considered, particularly  with 
a view to ensuring transparency  and non-discrimination  in the operation of such instruments, 
while  at  the  same  time  avoiding  the  creation  of  excessive  constraints  or  burdensome 
mechanisms. 

The Commission's  analysis  has particularly  focused  on voluntary  eco-labelling  schemes  based  on a 
life-cycle  approach.  This analysis has shown that, while a WTO regime aimed at ensuring  increased 
transparency  in  the operation  of  eco-labelling  schemes  is desirable,  at present  such  schemes  do not 
seem to be fully  covered by the WTO/TBT  Agreement. 

The Commission  is also of the view that  a possible WTO transparency  regime  should  include  some 
substantive  provisions  to  avoid  discrimination  and  trade  distortions  in  the  whole  process  of  the 
operation  of  eco-labelling  schemes.  Similarly,  it  would  be  necessary  to  ensure  that  the  same 
requirements  apply  to  both  governmental  and  non-governmental  schemes  and  to  preserve  the 
integrity of the life-cycle  approach. 

International  harmonisation  might be an effective  response to minimise the potential trade effects  of 
the new instruments  of environmental  policy, particularly eco-labelling  schemes.  However,  in view 
of  the  difficulties  involved  (e.g.  lack  of  sufficient  experience  at  national  level,  differing  national 
characteristics  and  priorities),  it  would  be  preferable  to  follow  a  step-by-step  approach,  focusing 
first  on the transparency  issue, and to examine at a later stage whether further  measures  are needed, 
especially concerning the harmonisation  of the life-cycle  analysis. 

15 

4.4  Economie instruments 

The  use  of  economic  instruments  for  environmental  purposes,  including  environmental  taxes  and 
charges, is increasingly  advocated as a complement to traditional  "command  and control" measures, 
since  these  instruments,  if  properly  designed  and  implemented,  are  particularly  efficient  and 
transparent.  However,  the trade effects  of  economic  instruments  such  as  tradable  permits,  deposit 
refund  schemes  and environmental  taxes  are still  to be fully  understood,  given  the  limited  role that 
these instruments have so far played in the overall implementation  of environmental policies. 

The issue which has so far  drawn  most  attention  in the trade and environment  debate  as regards the 
use  of  economic  instruments  is that  of  the trade  rules  on Border  Tax  Adjustments  (BTAs).  These 
allow  for  the  application  of  domestic  taxes  on  imports  and  the  remission  of  domestic  taxes  on 
exports.  The rules on BTAs are designed to equalise the burden of taxation  on domestic and  foreign 
products  and  at the  same time to avoid  protection  of  domestic  production  through  taxation.  These 
objectives  need  to be  upheld  when  discussing  environmental  taxation;  it  should  not  be possible  to 
discriminate or act in a protectionist manner simply by labelling a tax as 'environmental'. 

There  are two  aspects  of  the rules  on BTAs  which particularly  need  to be  addressed  in  discussions 
on trade  and environment.  In the first  place, it has been  argued  that  present  GATT  rules  on  BTAs 
might  determine  the  choice  of  environmental  fiscal  instruments  in  view  of  the  fact  that  taxes  on 
products  are eligible for BTAs, while taxes on production  processes  (e.g. emission  charges)  are not. 
Countries  might,  as a result,  tend  to establish  product  taxes for  environmental  purposes  rather  than 
production  taxes which, in some cases, might be a more effective  instrument. 

Another problem which  needs to be addressed relates to the eligibility for  BTAs of  "taxes  occultes" 
(i.e.  taxes  on  capital  equipment,  auxiliary  materials  and  services  used  in  the  production  of  other 
taxable  goods, including taxes on energy).  This problem  arises because WTO  rules  on  BTAs  seem 
to be more elaborated  on  the export  than  on the  import  side  and  there  is therefore  a need  to  assess 
whether  the  system  is  meant  to be  symmetrical.  For  example,  the  Uruguay  Round  Agreement  on 
Subsidies  and  Countervailing  Measures  includes  a  special  reference  to  the  possibility  of  rebating 
certain  indirect  taxes  on  energy,  fuels  and  oil  used  and  consumed  in  the  production  of  exported 
goods, while there is not a similar provision for imports. 

The  Commission  believes  that  clarification  of  these  issues  is  required,  in  particular  as  to 
whether present  rules on BTAs are conducive  to the most efficient  choice of fiscal  instrument 
(i.e.  taxes  on  products  and  taxes  on  production  processes)  and  whether  "taxes  occultes", 
including taxes on energy, are eligible for BTAs. 

4.5 Dispute Settlement for  environment-related trade measures 

One important  aspect of the trade-environment  interconnection  is the necessity to ensure that in case 
of disputes  concerning  environment-related  trade measures, the interests  and the  specific  objectives 
of  the  two  disciplines  be  taken  into  account  and  that  one  does  not jeopardise  the  fulfilment  of  the 
legitimate objectives  of the other.  In this respect, two main issues deserve  attention: 

the  need  to  develop  proper  and  efficient  dispute  settlement  mechanisms  for  Multilateral 
Environmental  Agreements (MEAs). 

Although  MEAs  contain  provisions  on  dispute  avoidance,  consultation,  meditation,  conciliation, 

16 

arbitration  and  judicial  settlement,  dispute  settlement  provisions  in  MEAs  are  not  in  general 
perceived to be very strong. 

The  Commission  favours  the  development  of  proper  and  efficient  dispute  settlement 
mechanisms including appropriate enforcement  mechanisms for existing and future MEAs, in 
particular for those including trade provisions. 

the need  to determine  the most  appropriate  ways to channel  into WTO  environment-related 
dispute settlement procedures the necessary environmental  expertise. 

The  Commission  is  of  the  view  that  environmental  expertise  will  prove  essential  to  test  whether 
environment-related  trade  measures  are  necessary  and  for  the  assessment  of  scientific  evidence 
requested  in  support  of  trade  measures  taken  for  environmental  reasons.  The  Commission 
therefore  believes  that  the  current  provisions  of  the  Uruguay  Round  understanding  on 
Dispute  Settlement  should  be  applied  in  respect  of  the  use  of  relevant  legal  and  technical 
environmental expertise in environment-related disputes. 

4.6. Trade in dangerous substances and the issue of Domestically Prohibited  Goods (DPGs) 

This  issue  is  particularly  important  for  developing  countries.  They  have  expressed  concern  that 
goods  whose  marketing  and  consumption  is  prohibited  or  severely  restricted  by  industrialised 
countries within their territory might be exported without control towards developing countries. 

Many DPGs  are already  covered  by international  instruments  like  the Montreal  Protocol  on  Ozone 
Depleting  Substances  and  the  Basel  Convention  on  the  Control  of  Transboundary  Movements  of 
Hazardous  Wastes  and their Disposal.  Furthermore,  a voluntary  system  of  Prior  Informed  Consent 
(PIC)  for  exports  of  dangerous  chemicals  and  pesticides  has  been  established  by  the  London 
guidelines  on  the  Exchange  of  Information  on  Chemicals  in  International  Trade  and  the  FAO's 
International  Code  of  Conduct  on  the  Distribution  and  the  Use  of  Pesticides.  The  EU  has  already 
made  the  prior  informed  consent  principle  mandatory  through  Regulation  2455/92  and  is  actively 
participating in the work undertaken  under the auspices of UNEP and the FAO to negotiate a legally 
binding PIC convention. 

The  Commission  considers  that  the  WTO  could  take  complementary  action  in  this  area  by 
establishing  a  notification  system  which  could  act  as  a  "safety  net". 
In  order  to  avoid 
unnecessary  duplication  of  work  and  regulatory  confusion,  this  notification  system  should  only 
apply  to  DPGs  not  covered  by  existing  international  agreements  and/or  to  exports  from  WTO 
Members  which  are  not  parties  to  those  agreements.  It  is  however  important 
to  ensure  that  the 
establishment  of  a  notification  system  in  the  WTO  do  not  discourage  WTO  Members  from 
participating in relevant existing and future  environmental  agreements. 

4.7 Trade in services and the environment 

Until  recently  the  relationship  between  trade  in  services  and  the  environment  has  hardly  been 
considered,  mainly  because  of  the  relative  lack  of  sufficient  attention  and  understanding  in  public, 
private  and  academic  circles  and  more  importantly,  due  to  the  absence  of  a  common  set  of 
multilateral rules and disciplines  in the field  of trade in services. 

With  the entry  into  force  of  the  Uruguay  Round  General  Agreement  on  Trade  in  Services  (GATS) 

17 

and  the  Decision  on  Trade  in  Services  and  the  Environment  this  situation  is  changing.  Since  the 
process is starting from  zero, a working programme has to be set up.  An important first  step will be 
to  analyse  the  possible  interference  between  all  service  sectors  covered  by  the  GATS  and  the 
environment.  Although  a  careful  analysis  will  be  necessary 
the  possible 
interconnections,  it  could  be  worthwhile  focusing  first  on  a  limited  number  of  sectors  whose 
intrinsic  nature  is  of  significance  in  the  field  of  environment.  The  most  obvious  example  is  the 
transport  sector  in  which  significant  progress  has  already  been  made  towards  incorporating 
environmental  considerations  into  transport  policy  developments  as  well  as  towards  elaborating 
substantive programmes and projects  in this regards. Work in the WTO CTE will need to look at the 
relationship between existing international co-operation  and the WTO. 

to  determine 

Other important services sectors which inevitably have some direct or indirect environmental  impact 
are  the  tourism  and  travel  sector,  the  construction  sector  and  several  professional  services  like 
architecture, engineering  and urban planning services. 

Next  to  the  sectoral-based  analysis,  the  need  exists  to  address  the  relationship  between  the 
provisions  of  the  new  multilateral  framework  on  services  and  environmental  agreements,  policies 
and measures.  While acknowledging the obvious differences  between  trade in services and trade in 
goods, much  of  the  existing  expertise  on the  relationship  between  the  GATT  and  the  environment 
could be used in this context. 

4.8 Intellectual Property Rights and the Environment 

The  successful  conclusion  of  the  Agreement  on  Trade  Related  Aspects  of  Intellectual  Property 
Rights  (TRIPs)  constitutes  a major  milestone  in  the  efforts  of  the  industrial  countries  to  bring  the 
level  of  IPR  protection,  namely  in  developing  countries  (with  certain  transitional  periods),  to  a 
world  class  level.  This  will  greatly  further  investment  in  new  technologies,  including  those  which 
can  be beneficial  to the environment,  and constitutes  the  basis  for  technology  transfer.  The  TRIPs 
agreement  also  allows  necessary  measures  to  be  taken  under  certain  conditions  against  the  use  of 
technologies detrimental  to the environment. 

Alongside  the  TRIPS  agreement  in  the  WTO,  the  issue  of  intellectual  property  rights  has  been 
addressed  in  a number  of  fora,  the  most  prominent  being  the  Convention  on  Biological  Diversity. 
Access to and transfer  of technology  are important aspects covered by Article  16 of the  Convention. 
Article  16-5  states  that  contracting  parties, recognising  that  patents  and  other  intellectual  property 
rights  may  have  an  influence  on  the  implementation  of  this  Convention,  should  co-operate  in  this 
regard  , subject  to  national  legislation  and  international  law,  in  order  to ensure  that  such  rights  are 
supportive of and do not run counter to its objectives. This, in view of the Commission,  includes the 
WTO  agreement  and  its TRIPS  provisions. Furthermore, Article  16-2 of the Convention  recognises 
that transfer  and access to technology  shall be provided on terms which recognise  and are consistent 
with the adequate and effective  protection  of intellectual property rights. 

The  Community  and  its  Member  States  have  made  it  clear  in  a  ratification  declaration  on  the 
Convention  that  in  relation  to  the  implementation  of  the  Convention,  the  compliance  with 
intellectual  property  constitutes  an  essential  element  for  the  implementation  of  policies  for 
technology  transfer  and  co-investment.  According  to  this  declaration,  the  European  Union  will 
encourage  the  use  of  the  financial  mechanism  established  by  the  Convention  to  promote  the 
voluntary transfer  of intellectual  property rights  held by European  operators, in particular  as regards 
granting  of  licenses,  through  normal  commercial  mechanisms  and  decisions,  while  ensuring 

18 

adequate and effective  protection of property rights. 

The  Commission  believes  that  it  is  of  paramount  importance  that  the  Community  should 
defend  this  position  in  the  field  of  environment  and  intellectual  property  rights  in  the 
Convention, and also in other relevant fora. 

While  it  is  Governments  which  have  subscribed  to  the  obligations  under  the  Convention  on 
Biological  Diversity,  most  of the relevant  technology  and related  intellectual  property  rights  which 
could  be  transferred  to  developing  countries  in  order  to  solve  the  problems  addressed  by  the 
Convention  resides  within  the private  sector.  It is therefore  worth  considering  how  to  involve  the 
private  sector  efficiently  in  order  to  address  the  issues  which  arise,  taking  also  into  account  the 
supportive  role  that  the  Governments  of  industrialised  countries  have  to  play  in  particular  in  the 
framework  of their development co-operation programmes. 

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

As noted  in  part  I of  this  communication,  trade  and  environment  emerged  as  a major  international 
issue  at  the  Rio  Conference  on  Environment  and  Development  (UNCED).  Since  then,  some 
significant  steps  have  been  taken  at  international  level  to  examine  the  links  between  trade  and 
environmental  protection  and  to  promote  the  integration  of  environmental  requirements  into  the 
multilateral  trading  system,  with  a  view  to  achieving  a  better  interaction  between  trade  and 
environment policies in favour  of sustainable  development. 

The  obstacles  to  be  overcome  at  international  level  in  order  to  fulfil  this  objective  are,  in  some 
respects, similar to those the European Union  is facing  to integrate environmental  requirements  into 
other policy  areas, including the establishment  and functioning  of the internal  market.  However,  at 
international  level  there  is  no  integrated  institutional  framework,  as  in  the  EU,  but  a multitude  of 
bodies and institutions with specialised tasks, different  composition  and varying structures. 

In  order  to  improve  the  complementarity  and  mutual  supportiveness  of  trade  and  environment 
policies  in  favour  of  sustainable  development,  it  is  therefore  necessary  to  bring  together  the  work 
conducted  in  various  international  fora.  These  include  notably  the WTO  Committee  on  Trade  and 
Environment  (CTE), the CSD, UNEP, UNCTAD's Ad Hoc Working Group  on Trade,  Environment 
and Development  and the OECD Joint Session of Trade and Environment Experts (JSTE). 

5.1 The WTO Committee on Trade and Environment 

By virtue  of  its  mandate  and work  programme, the CTE will  be the  main  forum  for  addressing  the 
relationship  between  trade  and  environment.  The  Committee  has  been  given  both  analytical  and 
prescriptive  functions:  to  consider  the  inter  linkages  between  trade  and  environment  needed  to 
promote  sustainable  development,  and  to make  recommendations  on  whether  any modifications  to 
the provisions of the multilateral  trading system are required. 

In  order  to  perform  effectively  its  tasks  and  harmoniously  articulate  its  role  with  those  of  other 
relevant fora,  the CTE has to meet certain basic parameters  and conditions: 

(i)  The CTE's work has to be result-oriented. 

19 

The deliberations on trade and environment in the GATT were initiated in  1991 in the Working 
Group  on  Environmental  Measures  and  International  Trade  (EMIT),  and  since  then  the 
analytical work on some of the items in the CTE's work programme has advanced  significantly. 

Trade  and  environment  will  be  on  the  agenda  of  the  first  WTO  Ministerial  Conference 
(Singapore,  December  1996)  and,  in  order  to  build  up  the  CTE's  credibility,  its  report  to  the 
Conference  should contain specific  recommendations. 

(ii)  The CTE's approach should be balanced. 

In  accordance  with  the  terms  of  reference  agreed  at  Marrakech,  the  recommendations  of  the 
CTE  should  address  three  fundamental  aspects:  (a)  the  need  for  rules  to  enhance  the  positive 
interaction  between  trade  and  environmental  measures  for  the  promotion  of  sustainable 
development;  (b)  the  avoidance  of  protectionist  trade  measures;  and  (c)  surveillance  of  trade 
measures used for environmental  purposes. 

These three aspects have to be duly integrated  in the CTE's work  and should each be given  the 
same  level  of  priority.  The  CTE  should  not  just  operate  as  a  trade  watchdog  to  scrutinise 
potential  trade  effects  of  environmental  measures,  but  should  also  consider  positive  steps  to 
promote the integration of environmental requirements into the multilateral trading  system. 

(iii)  The CTE would usefully  benefit  from  receiving  an effective  input from  environmental 
experts and from other international organisations. 

In order to best perform  its tasks, the CTE would  benefit  from  having environmental  expertise 
and scientific  and technical  advice.  To this end, the CTE should  improve its co-operation  links 
with  all  relevant 
international  organisations,  including  UNEP  and  the  Secretariats  of 
multilateral  environmental  agreements. 

(iv)  Increased transparency  in the work of the CTE is needed. 

Non-governmental  actors,  including  environmental  NGOs,  industry,  consumers,  etc.,  can 
provide a valuable input to the CTE's work.  It is urgent to put in place effective  mechanisms to 
ensure that NGOs receive timely and adequate information  on the CTE's activities  and  are able 
to  submit  their  comments,  views  and  suggestions  to  the  CTE.  This  can  be  done,  without 
diminishing  the  value of  intergovernmental  dialogue, through  early  derestriction  of  documents 
and  regular  informal  meetings  with  the  participation  of  the WTO  Secretariat,  delegations  and 
NGOs. It is also necessary to establish  channels to give NGOs the possibility to make their own 
submissions. 

However,  transparency  within  the CTE should  not  be regarded  as a substitute  for  transparency 
within  individual  WTO  Members.  The  responsibility  for  dialogue  with  non-governmental 
actors lies primarily  at the national level. 

According  to  the  Marrakech  ministerial  decision  on  trade  and  environment,  the  initial  work 
programme and terms of reference of the CTE should be reviewed at the first  WTO  Ministerial 
It  is  unclear  at  this  stage  whether  changes  will  actually  be  needed  since  the 
Conference. 
implementation  of the present  programme  of  work  has just  been  initiated.  However,  the  Singapore 
Ministerial  Conference  might  provide  an  opportunity  to  address  some  imbalances  present  in  the 

20 

Marrakech Ministerial  Decision  on Trade and Environment.  For example, while under item 6 of its 
work  programme,  the  CTE  has  to  consider  "the  environmental  benefits  of  removing  trade 
restrictions  and distortions", it would be more appropriate to address in more comprehensive terms, 
the environmental  effects,  both positive and negative, of such removal.  The need  to reinforce  co 
operation links with all relevant international  organisations could also be explicitly  mentioned. 

5.2 Other relevant bodies 

The  role  of  the  Commission  on  Sustainable  Development  (CSD),  as  the  body  in  charge  of 
monitoring  the  implementation  of  Agenda  21  and  other  outcomes  of  the  Rio  Conference,  will 
remain  increasingly important in the run-up to the  1997 special session of the UN General  Assembly 
on  UNCED  follow-up.  The  CSD  reviews  annually  developments  in  the  field  of  trade  and 
environment  with  a  view  to  identifying  gaps  and  promoting  co-ordination  and  its  decisions  have 
significantly  contributed to giving shape to the trade and environment  agenda. 

For example, at its second  session  (May  1994) the CSD adopted  a resolution  recognising,  inter alia, 
the  need  to  assess  the  environmental  impact  of  trade  and  to  promote  the  integration  of  some 
environmental  principles  and  concepts  (e.g.  the  polluter-pays  principle  and  the  precautionary 
approach)  into  the  trading  system.  Similarly,  an  EU  proposal  for  a  study  on  the  relationship 
between  environmental  protection, competitiveness, job  creation  and development  was  approved  at 
the third  session. 

In the conclusions  adopted by the Council  in April  last year in preparation  for  the 3rd session  of the 
CSD,  the  useful  role  played  by  the  UNEP/UNCTAD  initiative  on  trade,  environment  and 
sustainable  development  and  by  the  UNCTAD  ad  hoc  working  group  to  complement  the  work  of 
the CTE  was  noted.  It was  stressed  that  UNEP and  UNCTAD  should  continue  to provide  input  to 
the  work  of  the  CSD  and  address  some  important  issues  not  covered  by  the  CTE  programme  of 
work,  notably  the environmental  impact of trade policies, the internalisation  of environmental  costs 
and the implementation  of the polluter-pays principle. 

It was  also  noted  by the Council  that  a stronger  role for  UNEP was  needed,  as the  environmental 
counterpart  of  the  trade  side  represented  by  the  WTO,  as  facilitator  of  co-operation  between 
secretariats  of  different  environmental  agreements  and  as  creator  of  a  model  for  MEAs.  In  this 
context,  the Commission  welcomes  the outcome  of the  18th session  of UNEP's  Governing  Council 
(Nairobi,  May  1995)  and,  in  particular,  the  inclusion  of  a  new  programme  area  on  trade  and 
environment  in the programme  of work  for  the biennium  1996/97.  It should  however  be noted that 
the  financial  resources  budgeted  for  this  new  programme  area  might  be  insufficient  to  build-up  a 
stronger role for UNEP in the international  debate on trade and environment. 

Finally,  the  OECD  Joint  Session  of  Trade  and  Environment  Experts  (JSTE)  has  carried  out 
extensive  analytical  work  on  various  trade  and  environment  issues. 
In  accordance  with  the 
recommendations contained  in the report endorsed by the OECD Council  at Ministerial  level  in May 
1995, the JSTE  should continue  its multidisciplinary  work  on trade and environment  with  a view to 
providing  analytical  material  and  inputs  for  negotiations  in  other  international  fora,  particularly  in 
the CTE. 

21 

Conclusions 

In the on-going work in international fora on trade and environment, the Commission  will be guided 
by some fundamental  orientations. 

The  Commission  is  committed  to  a  high  level  of  environmental  protection  and  to  an  open, 
equitable  and  non-discriminatory  multilateral  trading  system.  Trade  and environment  policies 
can play a mutually supportive role in favour  of sustainable  development. 

Economic  performance  and  environmental  performance  are  not  necessarily  incompatible. 
While achieving  environmental  benefits  may in some cases entail  additional  short-term  costs, 
there  are  a  wide  range  of  "win-win"  opportunities  in  the  design  and  implementation  of 
environmental  policies,  which  could  improve  resource  efficiency,  competitiveness  and 
employment.  Differences 
introduction  of 
compensating  duties or export rebates (i.e. so-called eco-duties)  as a means of compensating  for  the 
cost  of  imposing  more  rigorous  environmental  requirements  on  domestic  industries  than  those 
supported by foreign  competitors. 

in  environmental  policies  should  not  result 

in 

The  most  effective  way  of  dealing  with  international  environmental  problems  is  through 
international and multilateral agreements, not by unilateral trade measures. 

The Commission  believes  that particular  account  should  be taken  of the  special  situation  and  needs 
of  developing  countries  in  the  issue  of  trade  and  environment.  Mechanisms  developed  to  solve 
environmental  problems should not jeopardise  sustainable development prospects or  undermine the 
export  performance  of  developing  countries  or  countries  with  economies  in  transition.  Many 
mechanisms  are available  to help  developing  countries  and  countries  with  economies  in  transition 
to achieve sustainable  development. 

Identifying  the  relationship  between  trade  measures  and  environmental  measures  in  order  to 
promote  sustainable  development  will  help  to ensure  the  predictability  essential  for  environmental 
policy  makers  both  at  national  and  international  levels,  and  for  the  industrial  world  which  has  to 
comply with environmental  requirements.  Considering whether any modifications  of the provisions 
of  the  multilateral  trading  system  are  required  -on  issues  such  as  the  WTO  rules  and  Multilateral 
Environmental  Agreements,  new  instruments  of  environmental  policy  like eco-labelling  and  trade 
in dangerous  substances  - will be the main task of the WTO Committee  on Trade  and  Environment. 
It  is  also  necessary  to  ensure  that  other  relevant  international  bodies,  such  as  the  CSD,  UNEP, 
UNCTAD and the OECD, play an effective  role in these discussions. The agenda for the WTO CTE 
is  a  large  one,  but  among  the  key  issues  to  be  addressed  with  a  view  to  the  Singapore  WTO 
Ministerial  meeting in December will be: 

Multilateral  Environment  Agreements.  In  some circumstances,  trade  restrictions  may  be 
considered  necessary  for  the  achievement  of  the  environmental  goals  of  MEAs.  In  such 
circumstances,  the  multilateral  trade  rules  should  not  act  as  an  impediment  but  rather 
accommodate  as compatible  with  the  multilateral  trade  system,  under  clear  and  predictable 
rules,  the use of justifiable  trade restrictions adopted under MEAs.. 

New  instruments  of  environmental  policy.  The  relationship  between  trade  rules  and 
innovative  instruments  of  environment  policy  needs  to  be  clarified  in  order  to  encompass 
instruments like eco-labelling. 

22 

Dispute Settlement.  The best ways to ensure co-operation  and exchange of expertise  in the 
settlement of trade and environment related disputes should be explored. 

Trade in dangerous substances.  Consideration  should be given to the establishment  by the 
WTO of a notification  system as a complement to existing international  instruments on trade 
in dangerous substances. 

Other issues which must be addressed, but which may require a longer time frame  include: 

Processes  and  production  methods.  The existing  GATT  rules  are clear  in  preventing  the 
unilateral  imposition  by one country of its standards on another through  restrictions  on trade 
in  products  subject  to  certain  processes  and  production  methods.  But  there  is  a  need  to 
address the question of how such rules should apply when there is evidence of real and direct 
damage  to  the  environment  of  one  state  or  to  the  global  commons  through  the  use  of 
particular processes and production methods in another. 

Economic instruments and trade rules.  Clarification  of this issue is required, in particular 
as  to  whether  present  rules  on  BTAs  are  conducive  to  the  most  efficient  choice  of  fiscal 
instrument  (i.e.  taxes  on  products  and  taxes  on  production  processes)  and  whether  "taxes 
occultes", including taxes on energy, are eligible for BTAs. 

While these and other  issues need  to be  addressed  at international  level, the Commission  is  also of 
the  view  that,  in  general  terms,  the  multilateral  trade  rules  do  not  compromise  the  ability  of 
countries to take measures necessary to protect their own environments.  WTO rules do not  prevent 
the adoption  of  national  measures  aimed  at domestic production  activities  or at the consumption  of 
domestically  produced  or  imported  goods,  provided  that  measures  impacting  on  trade  are  not 
discriminatory  and do not go beyond what is necessary to achieve the environmental goal. 

Protecting  the environment  and maintaining  an open, non-discriminatory  and  equitable  multilateral 
trading  system  are  equally  important  objectives.  Provided  that  the  right  framework  is  in  place  at 
international  level, they  should  be mutually  supportive.  Enhancing  the conditions  for  the  effective 
achievement  of  both  objectives  will  be  the  main  aim  of  the  Commission  in  discussions  in  coming 
months, an aim which underlies the approached  set out in this Communication. 

23 

ISSN 0254-1475 

COM(96) 54  final 

DOCUMENTS 

EN 

02  14 

Catalogue number  : CB-CO-96-Q92-EN-C 

ISBN 92-78-01182-7 

Office for Official Publications of the European Communities 

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