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Trade and Environment in the WTO: Achievements and Future Prospects

In the following article, the author, a Minister Plenipotentiary of the Mission of Egypt to the WTO, provides a comprehensive analysis of the Report of the Committee on Trade and Environment (CTE) submitted to the first WTO Ministerial Conference with some critical insights on the debate that took place during the last phases of negotiations in the CTE. She argues that as the issue of environment has established its place in the WTO, the South should take an active role in bringing this debate forward and maintain a proper balance in the future work of the CTE. She further contends that, although the South has taken a keen interest in environment protection, there are fears that this issue could be used as a protectionist device to legitimize inconsistent trade measures within the WTO. by Magda Shahin


Introduction:

Let me state at the outset, that the report of the Committee on Trade and Environment (CTE) reaching 219 paras is certainly out of proportion, if compared with the reports of other WTO Committees and Councils in preparation for the First Ministerial Conference that was held in December 1996 in Singapore (SMC). Having been part of the tedious negotiations on the third chapter of the Trade and Environment report, which contains the Conclusions and Recommendations of a two- year debate in the CTE, the question often raised throughout the last phases of negotiations was: for whose interest and benefit were we undertaking such a lengthy process? A process which has proven to be one of the most difficult and complex ones, and can only be compared with issues such as textiles and the new issues in the preparation for the Singapore Ministerial Conference. To be able, however, to put the report in its right perspective, one needs to make a number of points, that can be summarized in the following:-

Points of perspective

(i) developing countries were not demandeurs and had to succumb to various pressures to acquiesce to discuss the report which is in two parts. A factual and analytical part prepared by the Secretariat and reflecting the convergent and divergent positions and views on all agenda Items and, as mentioned earlier, a Conclusions and Recommendations part prepared by the Chairman. The latter part though, claimed by the Chairman as an "overall balanced text" and hailed by the developed countries' representatives as a good basis for work, was initially refused by the developing countries' representatives as having been "politically over ambitious" and not mirroring the state of play in the Committee's work. Thus, laying the burden of proof on those, who did not believe they ought to go beyond the educational process of a two-year work, in order to make the Committee appear politically attractive to the outside world. Only to say the least, the first draft of the recommendations contained undue emphasis that catered mainly to the interests of developed countries, such as the relationship between multilateral environmental agreements (MEAs) and the WTO, as well as Ecolabelling. I hasten to say, however, that during the last phases of negotiations, which took more than a month, developing countries became more aware of the necessity of reflecting their positions and interests in the report and defending them;

(ii) developed countries' representatives coordinating largely with their NGOs and environmental pressure groups came with a clear agenda to push forward. How much have they succeeded in their endeavours and how far did they get, has certainly to be assessed against their initial expectations and the eventual results, as reflected in the recommendations of the CTE's report.

(iii) The CTE faced major North-South differences on a range of questions, and more particularly on the relationship of the WTO trade rules and multilateral environmental agreements (whose definition remains open, to date), the issues of ecolabelling, market access and intellectual property rights. But, there were also some alliances forged between developed and developing countries, such as between Canada and Brazil on ecolabelling, or on trade liberalization and the removal of trade subsidies in Agriculture.

(iv) No doubt, the report contains a number of important messages, among which was to highlight to the public, the complexity of the issues discussed. It was agreed that the report represents a political statement issued largely to appease the concerns of the environmental community. As such, it was stressed that, the text neither in part nor in its entirety should be considered by panels, or by any other legal instrument that is subsequently developed, as a text that alters or touches upon the rights and obligations of WTO Members.

(v) Another core message, developed and developing countries' Members alike were keen to include in the report was the negation of the wide-spread rumours, that the WTO is environment unfriendly and it became evident that environment was here to stay and will continue to be an important item on the WTO agenda. The report also clearly shows that WTO is ready and willing to cooperate and stresses that both sides, MEA and WTO, should work together for sustainable development. It further draws attention to the fact that complementarities should be strengthened between trade liberalization, economic development and environmental protection.

(vi) The question of who came as a winner out of this long and tedious process, crowned by a two-day around the clock negotiations could be more difficult to answer, than one could have thought. Measuring the results against the extreme positions of both camps, one could easily end by saying there were no winners, and all came as losers. This is, however, far from the truth, as a more careful reading of the report will reveal. Would it have been better without the assessment part on Conclusions and Recommendations? The answer is, in my view, no. In spite of the fact that much of the language of the assessment part remains open for interpretation, it certainly sets the tone and the basis for future negotiations on the various issues. It is better to have some guidance than start everything anew and from a state of flux. This is what we will try to show in our paper.

Against this background, it is worthwhile weighing the expectations raised on both sides against the results reached on the various issues on the agenda, which can be summarized in the following:

The relationship between the provisions of the multilateral trading system and trade measures for environmental purposes, including those pursuant to MEAs:

The main themes addressed in the discussion under this issue were:

* finding the right balance for the relationship between MEAs and WTO;

* the scope for trade measures pursuant to MEAs under WTO provisions and their unilateral application to address environmental problems that lie outside a country's national jurisdiction;

* the hierarchy between the dispute settlement mechanisms of the WTO and MEAs;

Although these issues are very much inter-linked and inter- related, I will try to deal with each of them separately, in order to give a better focus to the discussions of the CTE and the various positions that transpired.

It was a real demanding task to find the right balance to describe the relationship between the MEAs and the WTO in the light of the widely divergent views among countries and group of countries. Some believed, among whom the EC and the US, that the issue should not be treated as a narrow legal problem with the purpose of clarifying the relationship between WTO rules and trade measures in MEAs, but more broadly, as a question of ensuring coherence and complementarity between the WTO and MEAs.

Balancing a policy package in MEAs

Hence looking at the initial positions of both the US and the EC in this regard, and to have as they claimed, a smooth relationship between the WTO and MEAs, the intention was to resolve any threat of conflict between global trade and environmental rules by, what I recently read as, 'grandfathering' the main multilateral environmental agreements concluded until now. The differences between them was rather in the implementation. Whereas the EC felt the need to amend WTO rules to bring environment issues to the mainstream of the trade body or have an "Understanding" in order to ensure that there was no conflict between the trading regime and the environment agreements and conventions, that is, opening what has been known as an "environmental window", the US argued that any trade measures are justified and permissible (trade sanctions, and trade restrictions, defying WTO rules and regulations, if necessary) to protect the environment that lie outside the country's jurisdiction.

Dealing with a balanced policy package in MEAs was one of the main issues which attracted a lengthy debate. The difficulty was in how to strike the balance in such a package, so as not to give prominence to trade measures taken pursuant to MEAs over the more comprehensive and coordinated policies and actions in the framework of the MEAs, which was essential for developing countries to stress. On one hand, the US and the EC were strong on making recourse to trade measures, and stressing that nothing should be said that could be prejudicial to their use in the future. On the other hand, developing countries wanted to make sure that recourse to trade measures should be part of an integral policy package and conditional to trade being the root cause of environment degradation. They insisted that consistency of the measures with WTO rules should be fully respected. Developing countries stressed time and again that trade measures should be proportionate and directly related to the environmental problems.

The result of these two lines of argument was a very delicate balance between the financial and technological transfers, as well as capacity building as indispensible elements of a coordinated policy package within the framework of MEAs and the "possible" use of trade measures. The three elements - among others - were part of a larger list of cooperation provisions to attract the membership of developing countries and to aid them to tackle the environmental problems which various MEAs are seeking to resolve. It was only after having stated this clearly, that it was agreed that "trade measures", provided they are based on agreed-upon provisions, "may" be needed in certain cases in the future.

Developing countries wanted to state clearly that trade measures should be "consistent" with WTO rules and regulations, however, so far this has proven to be difficult to obtain, in view of the resistance put up by developed countries. Developing countries were mainly afraid that otherwise, this might open a window to accept some kind of inconsistencies. Furthermore, it continues to be valid that if any trade measure is not consistent with WTO rules, it can always be challenged. This is one of the reasons why many developing countries found it difficult to agree to an opening of an environmental window, which would have basically meant legitimizing inconsistent trade measures in WTO.

As mentioned, another safeguard which developing countries were adamant upon stating explicitly, was the linkage of the use of trade measures, only if trade is related directly to the source of an environmental problem. The safeguard against a blank cheque for the usage of trade measures for environmental purposes, particularly if trade is not at the root of the environmental problem was eventually accepted by the CTE. A point that was strongly criticized by the environmentalists, as for them, one of their main targets was to be given a sort of a blank cheque for the use of trade measures for environmental objectives.

Furthermore, developing countries had fought long for having a clear indication that, in considering the use of trade measures in MEAs, whenever other policy options were feasible and equally effective and efficient, they should be used in preference to trade restrictions. Though explicit reference to such a phrase can be found in an OECD Ministerial document, it was rejected by the US, Japan and the EC under the pretext that it was out of context.

Use of trade measures pursuant to MEAs

Following from that, the second basic issue has been the scope that exists under WTO provisions for the use of trade measures pursuant to MEAs. In fact, the issue of scope was a subject matter of large controversies and tense discussion. There was clearly a dire need to debate and clarify the scope that exists under WTO provisions to use trade measures pursuant to MEAs and whether there was any need to enlarge the existing scope with a view to possibly reaching a common ground. An intense debate took place on the ex-ante versus the ex-post approach throughout the two years of work of the Committee.

One can generally say that there were two main camps. One focusing on how trade measures should be at the service of environmental goals, where the US pushed for language ensuring that WTO rules do not hamper the ability of MEAs to achieve their environmental objectives and to continue to use trade measures in the MEAs as an effective tool for environmental protection. The other camp, while supporting the accommodation of legitimate environmental concerns in the WTO, pronounced itself strongly against the use of environment as a pretext for disguised protectionism or allowed the use of extra-jurisdictional application of environmental laws. Between those two camps ranged a number of nuances and varying positions that transpired for the use of trade measures, which we can summarize as follows:

* As said, the EC approach based itself on the fact, that unlike the US, Article XX does not permit unilateral actions to address extra-jurisdictional environmental problems, thus the need arises to legitimize actions in the WTO to allow for the protection of the environment beyond one's own territory.

* Other positions vary between a mixture of status quo, ex- post and ex-ante approaches with strict criteria, such as: (i) the Korean approach indicating that any trade measure not specifically mandated in an MEA should be treated as a unilateral measure; (ii) the Japanese wanting to establish procedural guidelines for MEA negotiators on the WTO- consistency of various trade measures; (iii) the Swiss came up with negotiating a "coherence clause" to accommodate trade measures taken pursuant to certain MEAs under the WTO; (iv) in order for trade measures applied pursuant to an MEA to qualify for additional flexibility under WTO rules, a number of countries among which the developed (New Zealand, Australia and to a certain extent, Canada), as well as a number of developing countries opted for elaborated and strict criteria to be taken into account, such as the necessity and effectiveness of the trade measures, in addition to their being least trade restrictive and not constituting arbitrary or unjustifiable discrimination. This was, however, strongly opposed by the US. In fact, the US was against setting any criteria that went beyond obligations governing measures applied at the national level, as this, for her, would have meant to involve the WTO in activities that lay outside its competence; (v) many developing countries generally felt that GATT Articles III and XX, coupled with the TBT and SPS agreements, were already sufficient to accommodate legitimate environmental measures. Unilateral action that went beyond what was permissible under GATT Article XX should be condemned.

A clear definition of the MEAs

Another trend supported by mainly the developing countries was the importance of having a clear definition of the MEAs. Developing countries have time and again, stressed in the CTE that the term MEAs should cover only those which have the following elements:

* it should have been negotiated under the aegis of the United Nations or its Specialized Agencies;

* its procedures should stipulate that participation in the negotiation was open to all countries;

* there must have been effective participation in the negotiations by countries belonging to different geographical regions and by countries at different stages of economic and social development; and

* the agreement procedures should provide for accession of countries which are not its original members on terms that are equitable in relation to those of its original members. Furthermore, as no agreed definition of an MEA was reached, the point was made by a number of developing countries' delegations upon the adoption of the report, that views related to MEAs would be subject to reaching an agreed definition. In fact, those developing countries pushing for a common definition of the MEAs made explicit that this should be the starting point of setting any clear and sound relationship between WTO and MEAs, the absence of which will keep the discussion turning in a vicious circle without even being able to identify what are the measures taken pursuant to an MEA. They argued, that having an agreed definition of MEAs should be at the basis of distinguishing between unilateral measures and those taken pursuant to MEAs, which is the ultimate objective of establishing such a relationship. Otherwise, the risks remain that countries resort to unilateral actions, especially those capable of doing so, under the pretext that they were measures taken pursuant to an MEA and thus, justify them accordingly. Hence, one of the prime questions that need to be tackled by the CTE - sooner rather than later- is to arrive at a clear and distinct separation of what constitutes a multilateral action in the framework of an agreed definition of MEAs from unilateral and/or plurilateral action. In this context, setting the criteria could be of great use.

The rejection of "unilateral action"

Based on such a controversy, it came as no surprise to anyone that one of the most contentious points was how to make reference to the rejection of "unilateral action", which the US resisted all along. One has to admit, that reference to this issue in that regard is very weak, in spite of the fact that this was one of the main goals of the entire membership of the CTE. That is also why in the first draft of the factual part of the report, reference was made explicitly that "all delegations except one" stated that they consider that the provisions of GATT Article XX do not permit a Member to impose unilateral trade restrictions that are otherwise inconsistent with the WTO obligations for the purpose of protecting environmental resources that lie outside its jurisdiction. The US has certainly succeeded in diluting and weakening such a reference. In the Conclusions and Recommendations, instead of having clear reference stressing that WTO-inconsistent trade measures applied unilaterally to address extra-jurisdictional environmental problems were unacceptable, the Committee ended by simply restating the commitment to Principle 12 of the Rio Declaration and quoting it in full. One must add, however, that emphasis was made in the same context to the validity of cooperative multilateral solutions to trade measures. Such a linkage should not pass unnoticed.

Relationship between the MEAs and the MTS

Many developing countries also added that no provision in the WTO agreements needed to be changed or interpreted in any manner other than what was so far available in the jurisprudence, in order to accommodate the genuine concerns of environmentalists. It is our understanding, that paragraph 174 confirms this point, though, we expect the paragraph to be subject to different interpretations and will serve certainly as a basis for a more animated debate in the CTE this year.

Paragraph 174 with its various sub-paragraphs has been the heart of the debate and counts among the most complex ones under this issue, as it attempts to reflect the relationship between the MEAs and the multilateral trading system (MTS) in general, and the WTO in particular. The primary objective was to give a clear indication that WTO provisions do not go against the use of trade measures for environmental objectives, on the contrary they "accommodate the use of such measures", a language which was strongly contested by developing countries at the beginning. It was only accepted when it was put into perspective, by clearly linking such accommodation with the relevant criteria of WTO. Let me elaborate on this paragraph, as it is really a crucial one and shows the very delicate balance which the negotiators succeeded to maintain in this context:

Though the paragraph clearly indicates the availability of trade measures in a relatively small number of MEAs, it leaves the whole question of their possible need and usage in the future, open to debate. That, as said, does not prejudge "when and how" trade measures may be needed or used in the future, at the same time, give enough leeway to developing countries to argue for the need of subjecting the trade measures to the relevant criteria of necessity, effectiveness, least trade restrictiveness, as well as proportionality.

The importance of the necessity and effectiveness tests were debated at length. Developing countries argued - among others - that such tests were essential to maintain the credibility of the dispute settlement mechanism within the WTO and to endow it with the useful tools on the basis of which, it can justify the measures taken without any risks of prejudging the rights and obligations of its Members. Such an inclusion was continuously resisted by the developed countries' representatives, who argued that it was very difficult to assess the necessity and effectiveness of trade measures. It becomes, therefore, of utmost importance for developing countries to push for further exploration of such tests in the years ahead, while maintaining their line of thinking and coming up with the necessary arguments with a view to sustaining and strengthening it.

The paragraph then addresses the accommodation of the use of trade-related measures needed for environmental purposes, including measures taken pursuant to MEAs, referring to them as valuable and important ones and should be preserved. This certainly can be argued by some as opening the longed for environmental window. However, such an accommodation was only agreed upon after conditioning it to the defined scope subject to the relevant criteria of the "General Exceptions" provisions of GATT Article XX. For developing countries, this does not in fact go beyond what they have repeatedly said, that Article XX was enough for the accommodations of the use of exceptional trade measures.

Tireless attempts were made by developed countries in general and the US in particular, to refer to the "prudent" use of trade measures and that governments should consider how they intend the measures to relate to the rules of the MTS. Reference to the word "prudent" was unacceptable to developing countries as it was subjective and reminded them too much of the "sparing use of transitional safeguards in textiles", which was certainly abused to a large extent, at least, so far in the implementaton of the Textiles and Clothing Agreeement. Furthermore, leaving open to governments to relate trade measures to the rules of the MTS is contradictory to what developing countries wanted in the first place, to ensure the consistency of these measures with WTO rules. The way it stands now, indicates that once parties agree among themselves in an MEA to certain trade measures, such measures were unlikely to be subject to a dispute in WTO. Some certainly may argue that this is undermining the rights of Members in WTO to challenge inconsistent trade measures, others, however, may argue that it is remote for governments to agree on trade measures in an international fora and question it in another, subsequently. This was further strengthened by addressing the necessity of policy coordination at the national levels to reduce the possibility of legal inconsistencies that may arise between the WTO and the MEAs. Lastly, the paragraph draws attention to the use of trade measures against non-parties, an issue which will certainly necessitate further debate in the future.

In fact, a following paragraph, namely 176, is another testimony for the success of developing countries against the "absolute accomodation" of trade measures for environmental purposes. Developing countries refused any language that could have even mildly insinuated any possibility of modifications of WTO provisions in the future to accommodate trade measures for environmental purposes. It was also for that reason that the EC insisted on keeping the door open for further negotiations in the future, as this issue, for her, is far from closed. This paragraph confined itself to reiterating that views differed in this regard and that further work is needed.

Hierarchy of dispute settlement mechanisms

The third theme which attracted no less interest by the members of the CTE, was the question of hierarchy, regarding the relationship between the dispute settlement mechanisms in the MTS and those found in MEAs. The whole argumentation on this very sensitive topic dealt basically again with finding the right balance in the relationship between these two instruments.

Developing countries were mainly concerned about any hierarchy being established between the dispute settlement mechanism under the WTO and the MEAs. It was clearly stated by many developing countries, among which were Egypt, India, the members of ASEAN, Hong Kong, Mexico, Nigeria and others, that they were not ready to make any policy recommendations that would undermine their rights in the WTO. Sending out the message that first you settle the dispute amicably and then through the MEA and only as a last resort, use the WTO, was clearly unacceptable. They argued that, the WTO/DSU provides for unalienable rights that cannot be changed by any other body. The WTO embodies legal rights and obligations that should be abided by and should not be undermined. Mexico was one of the strongest proponents of this position and argued forcefully that, the DSU as well as other WTO Agreements provided for rights to invoke the DSU which could not be changed in any fora other than the WTO. Matters which were WTO-related should be dealt with in the WTO; those which were not within the WTO's competence should be dealt with outside the WTO. In cases where there was a possibility to resort to one or another fora, there shall be freedom of choice; there was no relationship in terms of lex specialis or lex posterior concerning which fora prevailed.

It would not be difficult to state the reasons for such a strong position by this group of countries:

(i) the lack of dispute settlement mechanisms in many of the MEAs and, if available, are certainly not enforceable as is the case in the WTO;

(ii) this is an area which will be used more frequently by developing countries against the excessive use of trade measures by the developed countries.

On the other hand, the US, EC and Norway wanted to see the primacy given to dispute settlement mechanisms in MEAs and, if any dispute arose between Parties in an MEA, which were also WTO Members, they should first make full use of all the possibilities available to them under the MEA. And only after failing to resolve the conflict or dispute between WTO Members, Parties to an MEA in the MEA, one should then have recourse to the WTO dispute settlement mechanism.

The US, in fact, saw no legal reason why WTO Members, who were also Parties to an MEA, could not agree, for disputes involving MEA provisions, to foreswear recourse to WTO dispute settlement in favour of settling the dispute within an MEA's provisions.

Paragraph 178 in the report was the outcome of a heated debate in this respect. Nevertheless, the language as it stands, one has to admit that it could be subject to interpretation. For that reason also, developed as well as developing countries' Members reserved their position in respect to its possible interpretation. In my view, the paragraph in its final version makes clear, however, that while no one can undermine WTO Members' right to bring any dispute that has a trade related component to the DSB, they may bring it also elsewhere, if they so agree. It is our understanding that para 178 was drafted as a "best endeavour" type of statement. Whereas it encouraged WTO Members to consider trying to resolve their differences through the dispute settlement mechanisms available under the MEAs, provided they were perceived to be effective enough for this purpose, it did not put into question or tried to dilute the rights of WTO Members to have recourse to its dispute settlement mechanism. Moreover, the paragraph included the disputes arising between two WTO Members, one party to the MEA and the other a non-party. Many delegations were of the view that in such cases, the WTO was the only forum for dispute settlement, as the non-party would not have any rights under the MEAs.

The relationship between environmental policies relevant to trade and environmental measures with significant trade effects and the provisions of the MTS:

The US tabled a paper on the importance of carrying out environmental reviews of trade agreements and proposed that WTO Ministers endorse this approach. Some other delegations questioned the competence of the WTO to enter into the issue of environmental reviews and doubted this would be an appropriate message for WTO Ministers to send. Nevertheless, and in spite of the resistance put to this proposal, reference was made to this issue, though much watered down than the initial proposal by the US.

The relationship between the provisions of the MTS and charges and taxes for environmental purposes:

It was basically agreed that this topic necessitates further examination and analysis. Developing countries had insisted until the 11th hour, that there should be an explicit reference to addressing charges and taxes which only relate to product or product characteristics. Such reference was omitted at the last minute, though mentioning the "scope" existing under WTO provisions was meant to indicate restrictions to the application. By referring to scope, developing countries wanted to make sure that it was only those taxes and charges for environmental purposes which related to products and product-related production and process methods (PPMs) that are covered by WTO provisions, as so far interpreted in regard to the extent of the coverage of WTO under the Technical Barriers to Trade (TBT) Agreement.

Ecolabelling:

Though the agenda item in question was supposed to deal with the relationship between the MTS and a number of requirements for environmental purposes, including standards and technical regulations, such as packaging, labelling and recycling, the CTE in its deliberations focused exclusively on ecolabelling, much at the expense of the other requirements, which are of no less importance. The reason for such an imbalanced treatment of the item was due to the strong push by Canada to stipulate that ecolabelling programmes (voluntary and private)/schemes (governmental) are covered by the TBT Agreement. It became obvious throughout the work of the Committee on this item, that Canada had a specific problem with the EU ecolabelling standard for fine paper and preferred rather than leaving it to panels to decide on the TBT coverage of ecolabelling, to discuss and eventually decide under what circumstances such standards should be used. Canada's objective was eventually to subject the EU ecolabelling standard for fine paper and other programmes to the TBT coverage, which the EU rejected as it would have made its programme much more difficult to defend.

In fact, the CTE was caught in a conflict between three groups with different perspectives and opposite reasons. Canada, US and Brazil standing on one side against the EU on the other, in addition to a number of developing countries arguing against extending the coverage to non-related PPMs.

The issues of ecolabelling

Divergent views were thus expressed from these three groupings on the various issues of ecolabelling, which were the following:

(i) the coverage and applicability of the TBT Agreement, (ii) the transparency aspect and (iii) the trade effects of ecolabelling. (i) With regard to the coverage and applicability of the TBT Agreement, one should distinguish foremost between the views expressed by Canada and those by the US. Whereas the former - mainly to sound more attractive to developing countries - claimed sharing some of the concerns expressed by them about the ambiguous wording of the TBT in extending its scope to cover measures based on non-product related PPMs, though made clear that the TBT Agreement should cover ecolabelling based on life cycle analysis (LCA) and on non- product related PPMs. Hence, Canada proposed a staged approach to ecolabelling, whereby agreement would be reached first on notification requirements and issues related to LCA and non- product-related PPMs would be addressed later, that is, after the Singapore Ministerial Conference. It felt that as an initial step, the Committee's report should reaffirm the TBT Agreement's coverage of ecolabelling programmes, without prejudice to the issue of scope with respect to non-product related PPMs, on which further work should take place in the Committee after Singapore, and jointly with the TBT Committee.

In this context, Canada recognized that many delegations had concerns about relaxing the traditional concept of "like product" under GATT/WTO disciplines, and about the precedent that action in relation to LCA in voluntary eco-labelling programmes might set. It was also prepared, particularly for the reason of creating a precedent, to consider extending the scope of the TBT Agreement only for voluntary ecolabelling programmes and not for mandatory schemes.

Countries like Brazil referred to the fact that PPMs, and ecolabelling were having a free ride in the world and that we needed a multilateral approach to discipline them. Brazil also supported the proposal that the TBT Agreement should be considered to cover voluntary ecolabelling programmes based on non-product related PPMs, provided these adhered to multilaterally agreed guidelines based on scientific criteria and were transparent, consensual and non-discriminatory.

Mexico raised, in regard to ecolabelling, the question of legality as to differentiate it from coverage and applicability. Distinction was made between the legality of voluntary ecolabelling standards based inter-alia on criteria of non-product related PPMs and the application or coverage of the provisions of the TBT Agreement. The view was made that regardless of the content of the label, the Agreement is applicable. The crucial point here is the legality and not the consistency of coverage or the applicability. Whether the TBT is applied is something (notification and transparency) and whether TBT allows (legality) is something else. These are two different things. The point Mexico was trying to make was that ecolabelling was covered regardless of the content and the legitimacy. Coverage of PPMs, meaning subjecting it to the WTO provisions for transparency and notification, was in itself not risky. The danger stems from whether the rules apply or not, and here Mexico was clear in saying that the rules do not apply on ecolabelling. Such a view was also supported by countries like Brazil, Switzerland, Nigeria and others which indicated that it was necessary to subject all ecolabelling programmes to the transparency provisions of the TBT Agreement and that these programmes should therefore be notified.

As for the EU position on coverage and applicability, it was quite clear in rejecting the extension of the coverage of the TBT Agreement as well as its Code of Good Practice to ecolabelling. The EU believed that it was necessary to negotiate a new Code that would apply to ecolabelling specifically.

As for Japan's position, it promulgated a cautious examination, whether or not non-product related PPMs were covered by the TBT Agreement. Japan basically supported the Canadian approach on accepting the coverage of the TBT Agreement without prejudicing the position on non-product related PPM ecolabelling.

On the contrary, Egypt, India and the ASEAN argued that, the TBT Agreement does not cover non-related PPMs. And unlike Mexico they doubted whether the TBT transparency provisions cover LCA, since criteria concerning non-product related PPMs do not fall within the definition of standards in Annex I; convinced that acquiescing to such a coverage would only mean allowing non-related PPMs to go through the backdoor of the WTO. They were lucid that preserving the integrity of LCA was not within the mandate of the CTE, the expertise for which lied elsewhere.

Issue of transparency

(ii) The issue of transparency was another issue that attracted a wide range of discussion. On one hand, transparency as one of the principles and main criteria of conducting work in WTO, had to be stressed for ecolabelling programmes/schemes as contained in the transparency provisions in the TBT Agreement, including the Code of Good Practice for standardizing bodies. On the other hand, and as stated above, a number of developing countries had expressed their reservations and doubts about applying the transparency provisions in the TBT on ecolabelling programmes/schemes for fear that this would mean accepting the coverage of the Agreement as such, thus implicitly agreeing that non-product related PPMs were covered by the Agreement as well.

The point was whether and how to refer to the coverage of ecolabelling by transparency provisions, that is, existing WTO disciplines and the insistence particularly, to the reference of LCA or all crucial stages of the production and processing methods in the ecolabelling programmes/ schemes.

It was against this background and due to the scepticism shown by a number of developing countries on the coverage of the TBT transparency provisions including the Code of Good Practice, that it was stated clearly that there was no consensus among Members concerning the coverage and application of the TBT Agreement to certain aspects, including those concerning non-related PPMs.

The point was also made that there were different views on the applicability and coverage as well as on the legality (obligations) of the TBT Agreement to certain aspects, meaning specifically the PPMs aspects. It was also emphasized that uncertainties still prevail regarding WTO Members obligations for ecolabelling programmes under the TBT Agreement to which the US responded, that we don't have uncertainties but conflicting certainties as the US continued to argue that ecolabelling, including LCA was fully covered by the TBT Agreement, as said earlier. Canada, however, maintained its argument on keeping the question of legality as an open issue, though it fully abided by the notification obligations for the ecolabelling programmes/schemes in their entirety.

The non-consensus was limited to the "extent of the coverage" as far as the non-related PPMs was concerned. It was made clear, that existing WTO provisions did not cover non- related PPMs and the issue was to be discussed in the future work of the CTE, without prejudicing the position of countries or prejudging anything, including the transparency requirements. Nevertheless, the importance for the CTE to follow the TBT provisions, in regard to transparency was made.

(iii) The third issue which attracted major attention was the trade effects that ecolabelling programmes/schemes might have. The importance of ecolabelling programmes/schemes as effective tools for environmental policy-making was raised by the EC and insisted upon by Canada and the US which from their side, underlined the fact that ecolabelling programmes based on LCA and on non-product related PPMs were becoming a market reality, and traders were concerned about their transparency and about having the opportunity to consult on their design and implementation. Whereas many developing countries doubted the fact that ecolabelling became a new significant market force. They questioned the relevancy of such sweeping statements, at a time when we can only count about 20 international ecolabelling schemes. Nevertheless, they emphasised that their main fear was regarding the future and the increased tendency to resort to ecolabelling programmes/schemes. They also made the point that ecolabels were environmental and not trade measures, but could have trade effects, if combined with disguised protectionism. In other words, ecolabelling programmes have the potential to raise complex trade issues, particularly in connection with disguised protectionism.

Summary of main points

One can summarize the main points that transpired in the debate and were clearly reflected in the recommendations part of the report in the following points:

- The linkage was made between the importance of ecolabelling schemes and the development of more environmentally conscious consumer public and to assist consumers to make informed choices, as referred to in Agenda 21 rather than considering them in absolute terms as a powerful tool of environment policy-making with significant trade effects. This meant that the importance of ecolabelling programmes/schemes was linked to the consumer and not to their trade effects, as was originally drafted. The extent to which ecolabelling may incur trade effects remains open and subject to empirical and analytical studies.

- In fact, negotiators of developing countries were keen to bring the trade effects of ecolabelling schemes into perspective, insisting to refer to them only in "certain cases" and as a "possibility" . The sentence in its final version read: "The CTE also noted that ecolabelling programmes/schemes have raised, in certain cases, significant concerns about their possible trade effects". The point developing countries wanted to underline was that the right of consumers to information on environmental ecolabelling is not the domain of the WTO. The main concern of WTO should only focus on the trade effects of the environmental labelling, which are yet to be proven. These results were strongly criticized by environmentalists who believed that the WTO rules are watering-down the effectiveness of ecolabelling and restrict its usage as an environmental policy tool.

Before concluding on this issue, it is worth recalling that the controversy surrounding the PPMs debate in international trade circles did not start recently and its risks go much beyond the issue of ecolabelling. It has a long history. International attention became riveted on this particular issue when in 1991, a GATT panel ruled against a US regulation that barred the importation of tuna from certain fishing nations. The panel noted that the US was distinguishing between tuna based on the method by which it was caught, favoring the product that had comparatively less impact on dolphins. International trade law currently views this distinction as illegal, noting that the treatment of the tuna must be the same regardless of how it was harvested. Since that time, environmentalists have criticized this narrow view of the rules of international trade, noting that PPMs are fundamental to minimizing the environmental impact of a product during its life-cycle. Many business groups have a different view. They see trade rules allowing distinctions between products solely on the characteristics of the products themselves. For them, the introduction of PPMs into the trade debate is the beginning of a slippery slope, wherein loosely related production factors become the basis for trade barriers.

What I want to raise here is that the same kind of debate took place in the CTE, basically between developed and a number of developing countries. What we have today on ecolabelling is certainly far from what we had in the original text presented by the Chairman and even further from what Canada aimed to attain under this agenda item. One can even claim that the balance is tilted towards the views of the developing countries which feared the inclusion of PPMs in the WTO and the precedence it could provide in the future for other even more risky topics, notably the coverage of the social clause in WTO. Trade rules in the WTO should continue to make the distinction between products based solely on the characteristics of the products themselves and others related to the products and production methods. For developing countries, the introduction of PPMs into the trade debate, is the beginning of a slippery slope, wherein loosely related production factors would become the basis for trade barriers.

Last but not least, a widely acknowledged view propels that ecolabelling will die a natural death, if left to itself, as yet, the market potential of ecolabelling could not be proven. Such a view only sustains and strengthens further, the position of developing countries in their legitimate concerns and doubts about the essence of triggering such a tedious debate in the CTE, at a time when other issues of more relevancy to the interface between trade and environment are being left aside. Such a view also raises the question whether it is really ecolabelling - as an issue - which is at the heart of our debate, or rather the PPMs are becoming the sole target, as it is increasingly evident from the ongoing debate. Thus, putting into question the basic criteria and characteristics that have so far governed the MTS, and making ecolabelling the litmus test through which the WTO will become deeper and deeper involved in the realm of domestic policy. One can even proclaim that such a tendency was made apparent in the Singapore Ministerial Conference.

Future work of the CTE

Looking into the future work of the CTE, it is all the more important for developing countries that they concentrate on clarifying questions, such as the following:

- Stating the cases and circumstances, if any, in which ecolabelling has proven to be environmentally beneficial;

- the market potential of ecolabelling and its possible trade effects;

- the role envisaged for the WTO in ecolabelling, viewing the underlying controversies in the sphere of competence of WTO regarding the PPMs issue and, whether it becomes justified to alter the very basis of the system for ecolabelling, an issue whose connection with, and relevancy to the trade system remains widely open.

Transparency of trade measures used for environmental purposes and environmental measures and requirements which have significant trade effects:

I believe it would be futile to go into this issue at length, as for the first part of it, the CTE concluded, without further ado, that no modification of the WTO rules were required to ensure adequate transparency for existing trade-related environmental measures. For the latter part, it was largely addressed in relationship with ecolabelling, as clarified above.

The effect of environmental measures on market access, especially in relation to developing countries, and in particular, the least developed among them, and environmental benefits of removing trade restrictions and distortions:

This issue was and continues to be one of the most attractive items for developing countries. Although the coverage of the report on this issue remains relatively short, if compared to the length of the item regarding the relationship between MEAs and WTO, it should nevertheless be assessed positively from the point of view of developing countries, if compared to the initial four paragraphs in the original text proposed by the Chairman. I shall first attempt to address the main concerns of developing countries and how they were then addressed in the final text.

- One of the major concerns for developing countries under this agenda item was how to preserve existing market access, as well as to secure new ones in order to provide them with the necessary resources that would aid them in dealing with their environment.

- The next concern was how to embody in the text the very important linkages between trade, environment and development, as well as the causal link between poverty and environmental degradation and that to replace the direct correlation stressed in the original text between trade liberalization and environmental protection, and to stress the fact that to ensure substantial environmental benefits, trade liberalization had to be complemented by measures to improve and safeguard market access, access to environmentally sound technologies (ESTs), finance and capacity building, as well as rejecting disguised protectionism, while emphasizing better living standards, social awareness and technological knowhow as prerequisites for effective environmental protection.

- Another major issue addressed by developing countries was the effects of environmental measures on the competitiveness of domestic producers, in particular with regard to small and medium scale enterprises (SMEs). It is also worth noting that the EC insisted that if reference was to be made to competitiveness, parallel reference had to be made to the inappropriateness of relaxing environmental standards in order to attract investment. The EC believed that these two notions represented two sides of the same coin. The point stressed, however, by developing countries was that substantial financial and technological resources as well as technical and administrative expertise were required to adapt to new regulations and standards in export markets, and these were frequently not available to developing country producers or were usually at high costs. This could take on an important dimension and have significant trade effects.

- Another issue which attracted long debates was the desire of the developed countries to have reference to the application of the precautionary principle. This was strongly criticized by developing countries, especially if what was meant was equating such a principle to scientific evidence and risk assessment or eventually allowing to replace one by the other.

- A most controversial issue was the one promoted by members of the Cairns group (a group that represents the interests of agricultural exporters) concerning the reduction of subsidies in the agricultural sector, as representing a win-win situation for trade and environment. It came as no surprise that this was totally rejected by the EC, Japan and Korea, who argued that the WTO Committee on Agriculture remained the best suited forum for the consideration of agricultural liberalization and the CTE should not be exposed to inherent problems and contentions dealt with elsewhere, which would overburden and complicate even more, the relationship between trade and environment, which in its turn will have negative repercussions on the work of the CTE in general. In addition, some Net Food Importing Countries (NFICs) were also of the view, that the CTE should not be used to advance some narrow interests. Further trade liberalization in the agricultural sector should not be dealt with as a panacea and in fact, further trade liberalization and additional market access were required on a widespread basis to further trade and environmental goals, notably in sectors, such as textiles and clothing, commodities, leather and footwear, and so on.

Against this background and looking at the final text, it is worth noting the following:

(i) This is the only item which stresses the link between trade, environment and development and the close linkage between poverty and environmental degradation. Such linkages were vital for developing countries, which refused any automatic linkage between trade liberalization and environmental protection that is, environmental protection is not a direct result of trade liberalization, but via market openings and generation of adequate resources to combating and eradicating poverty which is at the end, in the interest of achieving sustainable development. Furthermore, the marginalization of many countries in the world trading system was considered as a serious limitation to promote sustainable development and that the CTE should identify trade policy actions to enhance the participation of these countries in the trading system with a view to enabling them to promote environmental protection.

(ii) With regard to the point raised above concerning the competitiveness aspects, it is worth noting, that attention was drawn in the conclusions, to the concern that environmental measures and requirements could adversely affect the competitiveness and market access opportunities of small and medium-sized enterprises especially in developing countries. The prompt and full implementation of the commitments in the UR was stressed as an important contribution in order not to nullify or circumvent the gains developing countries were able to achieve in the market access area through new opportunities or undermining the existing ones. Needless to point that such achievements were reached after long and tedious discussions, where developing countries were cognizant of their interests and defended them.

(iii) In response to the position long fought for by the Cairns group by solely focusing on the agricultural sector, it was stressed that work on this item should be more comprehensive in nature, as to include sectors of interest to developing countries in general. Such work should be based on analytical studies and empirical evidence and should take into account different country-specific and socio-economic conditions, as well as the specificity of the sectors and measures involved. It was also stressed that further work was needed to ensure that the implementation of environmental measures did not result in disguised restrictions on trade, particularly those that have adverse effects on existing market access opportunities of developing countries.

On that basis, Japan and Korea strongly argued against complementarity or positive synergies existing between trade liberalization and environmental preservation or protection. They stressed the fact that such complementarity should exist, but were not necessarily always evident in the relationship between trade and the environment, referring that there were many situations where you could have one affecting the other adversely. The point was made that although the CTE has gone a long way into looking at the scope of complementarities between trade liberalization, economic development and environmental protection, much yet remains to be examined in this very complex area.

(iv) Developing countries were keen not to establish any kind of direct linkages between promoting environmental protection and additional market access for fear of using such a linkage in the future as an additional conditionality. They have to remain alert, especially in light of the fact that developed countries have succeeded to introduce covertly such a notion in further work by the CTE. The paragraph dealing with future work establishes in a sense, the environmental conditionality. It states that further work should also focus on the environmental benefits that may arise from enhancing existing market access opportunities for developing countries, and the contribution that improved market access opportunities could make in assisting developing countries in implementing adequate environmental policies determined at the national level, thus conditioning market access to the environmental policies. The point that should be made, however, is that trade liberalization can have positive as well as negative effects on the environment. Trade liberalization is not a sine qua non for environmental benefits and WTO is not the organization that should - ipso facto - ensure the acquisition of such benefits, as this certainly goes beyond its competence. For trade liberalization to bring environmental benefits, it should be accompanied by appropriate domestic policies of the countries concerned. It is therefore important to delineate the role and competence of WTO in the context of trade liberalization policies from the environmental impact of such policies as this is not a linear kind of relationship, as many would like to proclaim. Trade liberalization has to be unconditional and market access should not become an added conditionality for environment protective policies. Hence, in the future work of the Committee, developing countries should assert their position once again and at the same time ask for the additional market access offers to promote economic growth in order to improve their capabilities to implement sustainable development, including environmental reforms. In this context, work of the CTE should focus on identifying the sectors of export interest to developing countries.

Issues of domestically prohibited goods and the relevant provisions of the Trade-Related Aspects of Intellectual Property Rights attracted limited attention in the two-year debate on the part of the membership of the Committee as a whole. Nevertheless, some useful conclusions were reached.

In respect to the issue of the export of domestically prohibited goods, the main conclusion reached by the CTE is in regard to recognizing the important role technical assistance and transfer of technology can play in this field and consenting to encourage its Members to provide technical assistance to developing country Members, either bilaterally or through appropriate inter-governmental organizations to assist them in strengthening their technical capacity to monitor and control imports of domestically prohibited goods. This conclusion has yet to be made operational, which will certainly necessitate intensified discussion as of this year.

The TRIPs Agreement

As for the debate on the relevant provisions of the TRIPs Agreement affecting the environment, the bulk of it took place between India and the US and culminated in a few paragraphs, where the emphasis was rather put on further work to be done by the CTE in this respect. India focused throughout the debate on the necessity of looking into the relevant provisions of the TRIPs Agreement as they relate to the protection of the environment and the promotion of sustainable development, by pointing mainly to the following issues:

* the generation of environmentally-sound technologies and access to and the transfer of these technologies,

* the treatment of environmentally-unsound technologies,

* the provision of incentives for the conservation and sustainable use of biological resources and the equitable sharing of their use, including in relation to the knowledge, innovations and practices of indigenous peoples and local communities.

The categoric and unrelenting refusal by the US to address the issue in any way that might even remotely look as if we were re-opening the TRIPs Agreement, stopped short of giving any chance to the Committee to look substantively into the issue. That, however, did not unswerve India's determination. An acceptable compromise reached between the two was put to the Committee at the eleventh hour to which it lent its approval. The main elements of India's concern were enumerated to be taken up in the future work of the CTE, which was explicitly required to develop a common appreciation, that is, a common interpretation of the relationship of the relevant provisions of the TRIPs Agreement to the protection of the environment.

Conclusion:

After this account, one might wonder why the work of the CTE was so much denounced and attacked by the environmental NGOs and pressure groups in general.

The Ministers in Singapore have approved upon recommendation by the CTE that work continues in the Committee with the mandate and terms of reference contained in the Ministerial Decision on Trade and Environment of April 1994. The interface between international trade policy and international environmental policy has thus become an integral and regular part of WTO's work load. After two years of exploratory work in the CTE having helped to identify and clarify the topics and their inter-relatedness, a more intensive, specific and focused type of work is expected in the years ahead.

As stressed at the beginning, environment is here to stay, and that by itself should prove to be positive to both sides. For the environmentalists, who felt that the UN bodies lacked the clout, resources and power to enforce environmental protection and having been the ones to push for integrating environment in the WTO, and as well, for the developing countries. Developing countries had initially strongly rejected such a notion in the WTO, however, they are now willing and ready to enter into an open negotiation for applying WTO rules and regulations to promote environmental protection, but also to discipline the use of trade measures for environmental purposes.

Yet, the case is far from settled. The debate in the CTE has left one of the main questions widely open. How to strengthen not only environmental but also developmental aspects to have an even and equitable discussion on trade, environment and development. Developing countries have to continue to be alert in this respect, so that they do not end up by having a power struggle between international institutions dealing with trade, environment and development issues, where WTO could become the most powerful institution to the detriment of the developmental concerns in this complex equation. How to coordinate and ensure that developmental aspects are part and parcel of the overall consideration of this complex relationship is not to be overlooked.

One can say that on the whole, the report is delicately balanced and leaves enough scope for all WTO Members to pursue items of particular interest to them in the future work programme of the CTE, within the original mandate and terms of reference as set out in the Ministerial Decision of April 1994.

Continuity of work

The work of the CTE over the last two years has been reflected in the 219 para report. It provides continuity for the work of the Committee in WTO. To highlight the fact that the report is not a legal document and does not modify the rights and obligations of any WTO Member under the WTO Agreements, the Chairman, heeding the request by the Members, included in his final statement that it was essential to stress that the report reflected the initial stages of the development of consensus and as such, did not create legal obligations or alter any Member rights, thus making the point on behalf of the Committee that this was a report and not a negotiated text of contractual obligations. In other words, the report was not a document which had been negotiated with a view to contractual undertakings; and as Mexico then rightly put it, it had no legal implications concerning the substantial or procedural rights and obligations of WTO Members, either collectively or individually under the WTO Agreement and it did not prejudge Members' positions with respect to future CTE work. Consequently, no element in the report could be used as a basis for action under the DSU.

Before concluding it might be worthwhile to look closer at the criticism addressed by the environmentalists to the report at hand. They say that what the CTE was able to agree to was to simply have more discussion in the future.

On issues such as MEAs and ecolabelling, which are of more interest to them, they tend to read what is not in the report and thus fail to appreciate what is in it.

The report, as said, was balanced and cautious, in the sense that it did not prejudge the position of any country or group of countries. It was not meant to reach final conclusions. The fact that further work is being mandated to the CTE is in and by itself a positive thing. What has been achieved should be looked at in the light of what was initially mandated to the CTE. We were in an educational phase, what was aimed at was the establishment of an appropriate forum and the work of the CTE has succeeded in achieving a better understanding of the relationship between trade and environment.

Furthermore, the report contained elements which demonstrated that the WTO was not closed to further exploration of how to enhance the relationship between trade and environment with a view to ensuring a positive interaction between them, without prejudging anyone's position for the next round of negotiations. That is also why developed countries felt necessary to go along - although as they proclaimed - the report fell in many instances, below their expectations.

Perhaps a last point to the environmentalists would be to ask them to compare the CTE report with other reports in terms of length and substance. Without the faintest doubt, the report of the Trade and Environment Committee presented to the first Ministerial Conference of the WTO held in Singapore (9- 13 December) is by far the longest. In addition, the chapter on conclusions and recommendations which does not exceed a few paragraphs in the reports of the committees and councils, counts nearly 50 paragraphs for the Trade and Environment Report. Such a difference between the various reports and that of the Trade and Environment Report be it in the factual part or that of addressing conclusions and recommendations, can certainly not pass unnoticed.

Environment has established its place in WTO. It has become incumbent upon developing countries to maintain the balance in the future work of the Committee on Trade and Environment, which is certainly going to be much more complex and challenging, as we will enter into the negotiating phase as compared to the educational phase of the last two years.

Developing countries have shown and proven their interest and their positive approach towards the protection of the environment. What they have argued against is the inclination of some to use environment as a protectionist device. If developing countries are portrayed as being hostile to the environment, it is more for the purpose of concealing the real intentions to use environment as a means of disguised protectionism, to legitimize inconsistent trade measures within the WTO and to undermine multilateral cooperation, together with the inclusion of positive measures as agreed by the international community in the Earth Summit in Rio.

To stand up to such a challenge, developing countries need to take a pro-active role in bringing this debate forward. The interest of developing countries in safeguarding their environment should not be doubted. What should be put in doubt, however, is whether the ways and means proposed are truly for the purpose of safeguarding the environment and at whose expense should that be achieved. It is unfortunate to say that the debate in the CTE throughout these two years had demonstrated, as I have tried to show, the built-in inequities and the inherent imbalances in dealing with the environmental issues, which have not proven to be the best for the environment. It would perhaps be good to question what would be more beneficial to the environment to tackle non-issues, such as ecolabelling or to argue for making measures taken pursuant to MEAs consistent with WTO, which so far have never been contested or proven to be a genuine problem, or rather to cease using developing countries as a dumping ground for DPGs or to enable developing countries to have access to clean technology to protect and preserve their environment without being handicapped by provisions in the TRIPs Agreement. These are questions that will need answers and which can only be provided if environmentalists and traders, developed and developing countries work together in good faith, as concerns and interests are shared by all. (TWE No. 156, 1-15 March 1997)

(Magda Shahin is the Minister Plenipotentiary of the Egyptian Mission to the WTO.)

 

 

 

 


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