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TRADE AND ENVIRONMENT:
CONCRETE PROGRESS ACHIEVED AND SOME OUTSTANDING ISSUES
Report prepared by the UNCTAD secretariat*
February 12, 1997
(* This report has been prepared in response to paragraph 26 of General
Assembly resolution 50/95 (December 1995), requesting UNCTAD to report,
through the Commission on Sustainable Development (CSD), to the Economic
and Social Council and the General Assembly, at its special session in
1997, on the concrete progress achieved on the issue of trade and
environment. It complements report E/CN.17/WG/1997/2/Add.1, also prepared
by the UNCTAD secretariat, as task manager on trade, environment and
sustainable development, for the Commission on Sustainable Development. )
CONTENTS
Paragraphs
Executive summary.........................................1-15
I. PROGRESS IN PROMOTING SUSTAINABLE DEVELOPMENT
THROUGH TRADE............................................16-44
A. Progress achieved on Agenda 21.....................16-21
B. The post-UNCED debate on trade liberalization
and sustainable development........................22-27
C. Market access......................................28-44
1. Environmental policies and market access.....28-35
2. Trading opportunities for environment
friendly products............................36-38
3. Eco-labelling................................39-44
II. MAKING TRADE AND ENVIRONMENT
MUTUALLY SUPPORTIVE .....................................45-76
A. Progress achieved on Agenda 21.....................45-51
B. Environmental policy and competitiveness...........52-56
C. Multilateral environmental agreements(MEAs)........57-68
1. The relationship between trade measures
pursuant to MEAs and the provisions
of the multilateral trading system...........58-64
2. Trade and economic effects...................65-68
D. Examining certain propositions and principles......69-76
III. OUTSTANDING AND EMERGING ISSUES..........................77-110
A. Access to and diffusion of environmentally sound
technologies and products (EST&P)..................78-89
1. Relationship between intellectual property
rights and the transfer of ESTs..............81-82
2. Provisions for technology transfer
under MEAs...................................83-85
3. The issue of publicly owned technology and
its potential contribution as a source of
ESTs for developing countries................86-89
B. Trade, investment and environment..................90-94
C. Small and medium sized enterprises (SMEs)..........95-98
D. Reflection of environmental costs and resource
scarcities in commodity prices.....................99-106
E. Internalization of positive externalities.........107-110
IV. CONCLUSIONS AND RECOMMENDATIONS.........................110-118
A. Conclusions ......................................110-111
B. Recommendations...................................112
1. Promoting sustainable development through
trade.......................................113-114
2. Making trade and environment mutually
supportive..................................115-117
3. Outstanding and emerging issues.............118
Executive summary
1. This report examines progress achieved on the issue of trade and
environment since United Nations Conference on Environment and Development
(UNCED). It focuses on progress achieved in meeting the objectives of
Agenda 21, Chapter 2, "International cooperation to accelerate sustainable
development in developing countries and related domestic policies", in
particular Programme areas A, "Promoting sustainable development through
trade" and B, "Making trade and environment mutually supportive". The
report also takes into account the decisions on trade, environment and
sustainable development, adopted by the CSD at its second, third and fourth
sessions and highlights some outstanding issues which emerge from the post-
UNCED debate.
2. The report takes into consideration the results of intergovernmental
deliberations on trade and environment conducted in the World Trade
Organization (WTO), in particular in the Committee on Trade and Environment
(CTE), UNCTAD, the CSD and the OECD, as well as work conducted at UNEP. It
also draws from a recent document prepared by the UNCTAD secretariat for
UNCTAD's Commission on Trade in Goods and Services, and Commodities. 1/
3. Agenda 21 called for consensus-building on the intersection of
environment, trade and development areas in international forums as well as
in the domestic policy of each country (paragraph 2.4). This report focuses
on the intergovernmental debate. So far, this debate has been primarily an
educational process. Intensive intergovernmental deliberations have
succeeded in maintaining the momentum generated at UNCED to promote
increased awareness and understanding, greater confidence and mutual
respect between trade, environment and developmental communities, as well
as in reiterating a clear commitment to address trade and environment on
the basis of multilateralism and cooperative approaches.
4. The post-UNCED debate has had a number of positive results. First,
while the earlier debate was characterized largely by fears of important
contradictions between trade and environment policies, the post-UNCED
debate has focused on exploring the scope of the complementarities between
trade liberalization, economic development and environmental protection,
and has enlarged the development dimension in the discussion on most
issues. Conceptual and empirical analyses and debate have helped to set
aside some of the early fears of incompatibility between trade and
environment policies which could have induced inappropriate policy choices.
5. Secondly, there has been a growing consensus that positive measures
are effective instruments in supporting developing countries in their
efforts to achieve the objectives of sustainable development, including in
the context of multilateral environmental agreements (MEAs). Designing and
implementing such measures constitutes one of the important challenges in
the future trade and environment agenda.
6. Thirdly, it has been possible to build greater confidence in the
ability of the multilateral trading system to respond to environmental
considerations and sustainable development objectives. The CTE has
concluded that "Discussions have demonstrated that the multilateral trading
system has the capacity to further integrate environmental considerations
and enhance its contribution to the promotion of sustainable development
without undermining its open, equitable and non-discriminatory character;
implementation of the results of the Uruguay Round negotiations would
represent already a significant contribution in that regard". 2/
7. There is nevertheless a perception that mutual understanding between
trade, environment and development communities is still evolving, and that
a larger consensus still needs to be built on a common agenda to strengthen
mutual supportiveness of trade, environment and development.
8. With regard to the implementation of Agenda 21, Chapter 2, programme
area A, "Promoting sustainable development through trade", Governments, by
completing the Uruguay Round negotiations have taken an important step
towards meeting the objectives set out in this programme area. Certain
developing countries, however, have benefited little from recent trade
liberalization, particularly those highly dependent on trade preferences
and those dependent on primary commodity exports, particularly in Africa.
Little progress has been made in halting the marginalization of least
developed countries in the world economy.
9. In addition, the report notes that trade liberalization should be
accompanied by environmental and resource management policies if its full
potential contribution to better protecting the environment and promoting
sustainable development through more efficient allocation and use of
resources is to be realized.
10. With regard to the debate on the effects of existing environmental
policies on market access, widespread effects have not been observed, but
there is continued concern with regard to specific products and small and
medium sized enterprises (SMEs), in particular in developing countries.
Market access and competitiveness concerns, however, can be alleviated by
appropriate policies at the national and international levels.
11. The post-UNCED debate has suggested that consumer preferences for
"environment-friendly" products may provide trading opportunities for
developing countries and facilitate the internalization of environmental
costs and benefits by producers. A number of issues (such as the size and
stability of markets for environment-friendly products, possibilities to
obtain price premiums, costs, and questions related to definition and
certification) still need to be examined, in order to assess the potential
contribution that these opportunities can make to sustainable development.
In this context, while eco-labelling may help in moving towards sustainable
consumption patterns, in particular in developed countries, the CSD has
recognized that it may have an impact on trade. Thus, the post-UNCED debate
has increasingly treated eco-labelling as a trade issue.
12. With regard to programme area B, "Making trade and environment
mutually supportive", Governments have taken steps to ensure that the trade
and environment theme is incorporated in the work programmes of the WTO,
UNCTAD, UNEP and other intergovernmental organizations. The debate has also
stressed the need to improve coordination between trade and environment
officials at the national level. The CSD has played an important role in
promoting cooperation and complementarity in the work of WTO, UNCTAD and
UNEP and in identifying gaps.
13. Post-UNCED deliberations have clearly endorsed and supported
multilateral solutions based on international cooperation and consensus as
the best and most effective way for governments to tackle environmental
problems of a transboundary or global nature. In this context, while
endorsing the important role of MEAs, there has been considerable debate on
the policy instruments used to achieve the objectives of an MEA.
14. Much of the trade and environment debate has focused on the
relationship between trade measures in MEAs and the provisions of the
multilateral trading system. While views differ on whether any
modifications to the provisions of the multilateral trading system are
required, progress has nevertheless been achieved in building mutual
understanding and respect between trade and environment communities. In
addition, a number of recommendations may help prevent conflicts from
arising, such as policy coordination at the national level and improved
compliance and dispute settlement mechanisms available in MEAs. There has
been increased recognition that positive measures are important and can be
indispensable elements to assist developing countries to become parties to
an MEA and to tackle the environmental problems that the MEA is seeking to
resolve, in keeping with the principle of common but differentiated
responsibility.
15. The debate has shown that a number of outstanding and emerging issues
still need to be addressed in order to continue building a balanced and
integrated approach to the trade, environment and sustainable development
agenda. The focus should be on the promotion of trade and investment,
building on potential synergies between trade liberalization, economic
reform, and improved management of natural resources and the environment.
This requires an examination of the role of investment, economic
instruments, and other initiatives in broadening the options for the
effective implementation of positive measures, including access to and
diffusion of environmentally sound technologies, involving the business
community and the civil society in the design of such measures. The report
suggests some elements which could help to update the environment/trade and
development agenda contained in Agenda 21, paragraph 2.22.
I. PROGRESS IN PROMOTING SUSTAINABLE DEVELOPMENT THROUGH TRADE
A. Progress achieved on Agenda 21
16. Programme area A of Agenda 21, Chapter 2, "Promoting sustainable
development through trade", includes among its policy objectives: (a) to
promote an open, non-discriminatory and equitable multilateral trading
system; (b) to promote access to markets for exports of developing
countries; and (c) to improve the functioning of commodity markets and
achieve sound, compatible and consistent commodity policies at national and
international levels with a view to optimizing the contribution of the
commodity sector to sustainable development, taking into account
environmental considerations.
17. Since UNCED, Governments have taken a major step by completing the
Uruguay Round of multilateral trade negotiations. Implementation of its
results in a balanced way will yield concrete progress with regard to each
of the objectives mentioned above. In addition, many developing countries
have made progress in implementing broad economic reforms which enable them
to take advantage of a more open trading environment. By doing so, in many
respects they have also created better options to move towards sustainable
development.
18. However, a number of outstanding issues still weigh heavily in
meeting the objectives of Agenda 21. First, Governments have continued to
emphasize that the multilateral trading system should not be undermined by
resort to unilateral measures and that environmental and social concerns
should not be used for protectionist purposes. Secondly, some countries
have benefited little from recent trade liberalization. The CSD, at its
second session, noted with concern the situation of "certain developing
countries that will continue to face major difficulties, particularly those
highly dependent on trade preferences, those that are net food-importers
and those dependent on primary commodity exports, particularly in Africa."
3/ Little progress has been made to halt the process of marginalization in
the world economy of the least developed countries. 4/ The Midrand
Declaration, adopted at UNCTAD IX, states that "the least developed
counties (LDCs), particularly those in Africa, and other developing
countries remain marginalized by weak supply capabilities and are unable to
benefit from trade". 5/
19. Thirdly, as regards commodity trade, beyond the positive impacts of
the Uruguay Round Agreement on Agriculture, limited progress has been made.
In particular, since UNCED many developing countries, especially lower-
income countries, have experienced little progress in diversifying their
production away from heavy reliance on a handful of commodities.
20. The emphasis by the CSD "that for all developing countries to benefit
more fully from trade liberalization, the achievement of other objectives
identified in Agenda 21, particularly better functioning of commodity
markets, increasing foreign direct investment (FDI) in developing countries
and financial assistance, including debt relief, are important" 6/
continues to be relevant to policy efforts.
21. During the 1990s, FDI has come to play an increasingly important role
with respect to providing developing countries with sources of long-term
capital. In 1995, FDI flows to developing countries reached record levels
of $100 billion. 7/ In addition, developing countries have become
important outward investors, with flows reaching $47 billion in 1995.
Despite the overall positive trend with respect to international
investment, concerns remain. At the regional level, the marginalization of
Africa with respect to FDI flows remains troubling: foreign direct
investment flows to Africa remained largely stagnant in 1995 at $5 billion.
Given the continent's substantial capital needs and serious environmental
challenges, this trend is of particular concern.
B. The post-UNCED debate on trade liberalization
and sustainable development
22. As post-UNCED progress in other priorities identified in Agenda 21,
such as the provision of additional financial resources and access to and
transfer of technology, has not as yet fulfilled the expectations of Agenda
21, trade liberalization and improved market access have become even more
necessary as a means of generating sources of financing for sustainable
development. 8/
23. In the discussions in the CTE many have considered that the focus of
further work should be on trade and trade-related measures applied by WTO
Members that will remain after the Uruguay Round results are fully
implemented. 9/ Reference has been made in particular to tariff escalation
and tariff peaks, production and export subsidies, high internal taxes
particularly on tropical products, export restrictions and export taxes,
state trading and various non-tariff barriers. The CSD, at its fourth
session, invited UNCTAD, in cooperation with UNEP and other relevant
organizations, such as OECD, taking into account the work already under way
at the WTO, to examine how further trade liberalization can result in
environmental benefits and contribute to sustainable development, including
by examining recent analyses on these topics.
24. While deliberations have focused on agriculture, reference has also
been made to the need to examine the potential environmental benefits which
could accrue from the reduction and removal of remaining trade restrictions
and distortions affecting sectors and products in which developing
countries have a particular export interest, such as textiles and clothing,
leather and leather products, footwear, forest products, fish and fish
products, minerals and mining products, agricultural products, other
natural resource-based products and primary commodities. 10/
25. In the post-UNCED process, progress has been made in better
understanding the relationship between trade liberalization, environmental
benefits and sustainable development. Economic theory suggests that, in the
absence of significant market and policy failures, trade liberalization can
result in reduced negative environmental impacts. Firstly, by improving the
efficiency of resource allocation and use, trade liberalization will result
in the use of fewer inputs (including of environmental resources) for the
same level of output of goods and services. Secondly, by generating growth,
trade liberalization will help to increase demand for environmental quality
and relieve environmental pressures associated with poverty. Opening new
market opportunities for developing countries should reduce the dependence
of such countries on resource-intensive activities. And improving living
standards is likely to enhance both the ability and the willingness of
countries to devote more resources to environmental protection.
26. It has been noted that trade liberalization should be accompanied by
environmental and resource management policies if its full potential
contribution to better protecting the environment and promoting sustainable
development through more efficient allocation and use of resources is to be
realized. In this context, the CSD has stated that "further trade
liberalization is a necessary but not sufficient condition for sustainable
development" and that "trade liberalization needs to be complemented by the
adoption of sound environmental policies". 11/
27. The CSD has noted that "National Governments have an interest in
analysing environmental and social effects of significant changes in the
volume and patterns of composition in production and consumption, including
those resulting from trade policy reforms, and making, if required, the
necessary policy adjustments with a view to correcting market and policy
failures and internalizing environmental costs". 12/ The OECD, as part
of its work on procedural guidelines, has developed a guideline on trade
and environmental reviews. 13/ Environmental reviews may be used by
Governments, at the national level. Further work is needed on conceptual
and methodological aspects. The CSD has stressed "the importance of
developing a framework to facilitate the assessment of the environmental
impact of trade policies, taking into account the special needs of
developing countries and countries with economies in transition" and has
invited UNEP 14/, in cooperation with UNCTAD, was invited to carry out
work in this area.
C. Market Access
1. Environmental policies and market access
28. For the successful implementation of the objectives of Agenda 21, it
is important to ensure that environmental requirements in importing
countries do not result in unnecessary adverse effects on exports, in
particular for developing countries.
29. Environmental requirements take the form of standards and technical
regulations, product-content requirements (such as regulations limiting the
amount of hazardous substances that can be traced in a product), recycled
content requirements, labelling and packaging requirements, taxes and
charges as well as a range of voluntary measures, such as eco-labelling.
Apart from voluntary standards and mandatory technical regulations
implemented by Governments, private firms or importers may impose certain
requirements on their foreign suppliers. Finally, NGO campaigns may
influence market access conditions.
30. In addressing the question whether existing trade rules provide
sufficient safeguards (including through their transparency provisions), to
deal with environmental policies which have significant trade effects,
discussions have focused on two sets of issues: (a) are environmental
requirements different from other measures covered by provisions in the
WTO? and (b) how have environmental policies affected market access,
particularly for exports from developing countries?
31. With regard to question (a) some argue that environmental
requirements are no different from other standards and technical
regulations covered by the Technical Barriers to Trade Agreement (TBT).
Others argue that environmental standards and technical regulations are
different in that they comprise measures: (i) which are largely voluntary;
(ii) which may be based upon non-product related process and production
methods (PPMs); (iii) for which channels of information dissemination are
less clearly established; and (iv) based on the precautionary principle.
32. However, the CTE concluded that no modifications to WTO rules are
required to ensure adequate transparency for existing trade-related
environmental measures. 15/ Howver, the CTE noted that some WTO members
are dealing with some notifications differently.
33. On the question of market access, there is no evidence to suggest
that existing environmental policies have generalized effects on market
access for developing countries. This is in part due to the fact that
product-related environmental requirements are not yet widespread. UNCTAD
studies indicate, however, that environmental requirements are more
frequent in certain sectors, including sectors of export interest to
developing countries, and that market access and competitiveness concerns
appear larger in the case of SMEs. 16/ Unilateral and extra-territorial
measures continue to generate concern.
34. UNCTAD's studies indicate, that market access concerns may be
alleviated by the timely provision of information, capacity-building,
support for access to and transfer of technology, testing and certification
facilities, and other policies and measures.
35. Furthermore, in Agenda 21 and in the post-UNCED deliberations in
UNCTAD it has been proposed to further develop certain concepts and
propositions that could be considered when designing and implementing
environmental policies with potentially significant trade effects, such as
transparency, least trade restrictiveness, and the need to take account of
the special conditions and development needs of developing countries. 17/
2. Trading opportunities for environment-friendly products
36. The CSD has noted that consumer preferences for "environment-
friendly" products may create trading opportunities, including for
developing countries. 18/ On the other hand, environmental claims may at
times create informal obstacles to trade. Surveys of various categories of
environmentally-preferable products have been made, but a better
understanding is still needed of the potential role that the promotion of
trading opportunities for environment-friendly products can make to
sustainable development requires further analysis of the size and stability
of markets for environment-friendly products, possibilities to obtain price
premiums, costs of producing, certifying and marketing these products,
problems related to the definition and identification of environment-
friendly products, and certification issues. 19/ In UNCTAD, CTE and other
forums, some have noted that such opportunities are not always easy to
exploit and require expertise, technology and resources which may not
always be available to developing countries.
37. Governments, international agencies, including the International
Trade Centre (ITC), and the private sector could assist developing
countries in entering niche markets for environmentally preferable
products. Capacity-building could be geared towards identifying markets for
environment-friendly products, raising awareness of these opportunities
among producers, providing information to consumers, increasing the supply
and improving the marketing of such products.
38. Conceptually and practically, there can be synergies between trade in
environment-friendly products and internalization of environmental costs by
producers, to the extent that product differentiation may help in passing
increased costs to consumers.
3. Eco-labelling
39. At UNCED, eco-labelling was considered in the context of changing
consumption patterns, 20/ but not as a major trade issue. In the post-
UNCED period, however, there have been intensive intergovernmental
deliberations in UNCTAD, OECD, the CTE and other forums on the relationship
between eco-labelling and international trade.
40. This development can be explained by several factors. Firstly, since
UNCED, the coverage of eco-labelling programmes has been extended to
include highly-traded products. Secondly, eco-labelling has increasingly
incorporated the life cycle analysis (LCA), which may lead to the use of
criteria related to non-product-related processes and production methods
(PPMs). Thirdly, specific cases, such as a proposed eco-label for tropical
timber in Austria and a European Union eco-label for paper, fuelled
concerns about the trade effects of eco-labels. Finally, conceptually eco-
labelling touches upon several aspects of the trade and environment
interface, particularly the issue of non-product-related PPMs and the legal
definition of like products.
41. The CSD has recognized that eco-labelling can have an impact on
trade. 21/ Several proposals have been put forward that aim at
strengthening the compatibility between the environmental objectives of
eco-labelling and trade interests. The International Organization for
Standardization (ISO) has been developing international standards for eco-
labelling, as part of the 14000 series, to which eco-labelling bodies can
adhere on a voluntary basis. These standards provide useful guiding
principles for the operation of eco-labelling programmes, covering, inter
alia, product environmental criteria, transparency, trade aspects,
accessibility and mutual recognition.
42. Little progress has been made in building consensus on how to deal
with the issue of non-product-related PPMs. The relevant ISO standards,
while recognizing and, to some extent, encouraging the use of LCA, do not
specifically address the trade aspects of the use of PPM related criteria
in eco-labelling programmes. 22/ The only tool referred to in the
corresponding ISO standards which can help to address such aspects is
mutual recognition.
43. Mutual recognition, which in practice is a complex issue, requires
that an eco-labelling programme is first established in the exporting
country, something that has proved to be difficult in several developing
countries. The concept of equivalency provides more flexibility in that it
does not imply such requirement. Although several fora have recommended the
exploration of the concept of equivalency, little progress has been made.
Attempts to reflect this concept in the ISO guidelines has turned out to be
a highly complex issue.
44. Deliberations in the CTE, have focused on the question whether or not
eco-labelling programmes based on LCA are covered by the TBT Agreement.
Views differ among WTO Members. The CTE has stressed the importance of WTO
Members following the provisions of the TBT Agreement and its Code of Good
Practice, including those on transparency, "without prejudice to the views
of WTO Members concerning the coverage and application of the TBT Agreement
to certain aspects of such voluntary eco-labelling schemes/programmes and
criteria, i.e. those aspects concerning non-product-related PPMs, and
therefore to the obligations of Members under this Agreement regarding
those aspects". 23/
II. MAKING TRADE AND ENVIRONMENT MUTUALLY SUPPORTIVE
A. Progress achieved on Agenda 21
45. Programme area B, "Making trade and environment mutually supportive",
inter alia includes the following objectives:
(a) To make international trade and environment policies mutually
supportive in favour of sustainable development;
(b) To clarify the role of GATT, UNCTAD and other international
organizations in dealing with trade and environment issues;
(c) To encourage a constructive role on the part of industry in
dealing with environment and development issues.
46. With regard to (a), several governments have taken steps, including
through institutional mechanisms, to achieve greater integration of trade
and environment at the national level, e.g. by promoting better
coordination between trade and environment ministries. In a number of cases
there has been a larger involvement of non-governmental organizations.
Debates in several fora including CSD, UNCTAD, WTO, UNEP, and OECD have
stressed that better coordination between the relevant Ministries at the
national level 24/ can help to prevent conflicts between trade,
environment and development. Building institutional capacity is of key
importance in this context.
47. Concerning objective (b), Governments have taken steps to include
Agenda 21 follow-up activities, particularly in the area of trade and
environment, firmly in the work programmes of GATT/WTO, UNCTAD and other
relevant international organizations.
48. In the case of GATT/WTO, the Preamble to the Agreement Establishing
the World Trade Organization (WTO) includes, for the first time in the
context of the multilateral trading system, reference to the objective of
sustainable development and to the need to protect and preserve the
environment. In addition, WTO included several references to environment
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