Source: EURLEX
Language: en
Format: md

**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
position. 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 policies should not result 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.

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
policy like eco-labelling schemes; trade in dangerous substances; and dispute settlement
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 cooperation and allowed establishment of the bases necessary to tackle progressively at the various
relevant levels the environmental and developmental challenges the world is presently facing [1] . 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
developing countries have to undertake to deal with global environmental problems and to
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 liberalisation [2] 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).

2 According to some estimates produced by the GATT Secretariat, the implementation of the Uruguay Round
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,
UNCTAD and the OECD and a priority for work in the EC. It is also necessary to conduct
environmental reviews of trade instruments and agreements with a view to identifying potential
environmental impacts and devising appropriate policy responses [3] .

_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 standards [4] .

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 price [5] . 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._

Apart from potential impacts on international competitiveness, differences in national
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.

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 Agreements [6] 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 Protocol [7], new approaches have been developed for encouraging developing countries to
adopt alternative technologies. These incentives, which acknowledge the differentiated
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:

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.

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 cooperation 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, including by intensifying and deepening the 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
ITTO [8] (International Trade in Timber Organisation) and it might be extended to other products
manufactured in compliance with relevant international environmental standards.

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 nondiscrimination 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 considerations [9] . 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.

1 1

(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 PPMrelated 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 to determine 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.

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**
**Conference.** It is unclear at this stage whether changes will actually be needed since the
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 in environmental policies should not result 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.

**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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