United Nations Conference on Trade and Development

TRADE AND ENVIRONMENT REVIEW

2003

United Nations
New York and Geneva, 2004

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Symbols of the United Nations documents are composed of capital letters combined with figures. Mention of such a symbol indicates a reference to a United Nations document.

The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.

Material in this publication may be freely quoted or reprinted, but acknowledgement is requested, together with a reference to the document number. A copy of the publication containing the quotation or reprint should be sent to the UNCTAD secretariat (c/o Administrative Secretary, Division on International Trade in Goods and Services, and Commodities, Palais des Nations, 1211 Geneva 10, Switzerland).

For comments on this review, please contact Mr. Rafe Dent, rafe.dent@unctad.org.

This review is also available at http://www.unctad.org/trade_env/TER

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Foreword

The Doha Ministerial Declaration, and the Johannesburg Plan of Implementation adopted by the World Summit on Sustainable Development, reiterated the major role that trade can play in achieving sustainable development and reducing poverty. At the same time, there has been growing recognition, including in the context of preparations for UNCTAD XI, of the need to integrate environmental and social aspects into development strategies.

Developing countries, however, are apprehensive that the subject of trade and environment issues is driven by developed country Governments and non-governmental organizations from the north, on the basis of developed countries' producer and consumer preferences, circumstances and visions, without sufficient heed being paid to conditions in developing countries and the later's development priorities.

A new annual publication, the Trade and Environment Review, addresses this concern by tackling trade and environment issues from a development perspective. It also attempts to provide developing countries' Governments and civil society with a forum, in which to discuss their most important trade and environment issues and from which to influence the international agenda.

UNCTAD was prompted to launch an annual review dealing with issues at the interface of trade, environment and development for several reasons.

First, as tariff barriers and quantitative restrictions are dismantled, there is concern that product- and process-related requirements, including environmental and health requirements, are being unwittingly or intentionally used as technical barriers to trade, complicating market access and entry for developing country exporters. In many key export markets, environmental requirements are becoming more stringent, frequent and complex. They are increasingly viewed as decisive tools in the international competitiveness race and need to be dealt with as an integral part of both business strategies in companies and economic strategies in developing countries (i.e. eco-positioning in addition to price, quality and brand positioning) in order to defend and expand international market shares. At the same time, enhanced environmental quality and sustainable use of natural resources are key elements in promoting the use of environmentally preferable products and services.

Second, there is a need to identify development-friendly solutions, including through trade incentives, to address the world's growing environmental problems.

Third, for the first time in multilateral trade negotiations, trade and environment issues were included in the round of WTO negotiations launched at Doha in November 2001. This inclusion requires a thorough analysis of those subjects and a clear vision of the objectives of the negotiations for each developing country WTO Member. Furthermore, as trade and environment will be part of the "single undertaking" at the end of the negotiations, developing countries need to examine the role that trade and environment issues could play in the final outcome of the Doha negotiations.

Fourth, although it constitutes a negotiating subject in its own right, trade and environment cuts across many WTO negotiating subjects, such as services, agriculture, non-agricultural market access and trade-related intellectual property rights. As such, these issues must be addressed in the broader context of an agenda for sustainable development, including by focusing on such issues as finance, technology and strengthening productive capacities.

Lastly, creating a mutually supportive relationship between trade and environment requires intensive policy coordination and stakeholder consultations at the national level and greater policy coherence at the international level.

It is hoped that, by addressing these and other core issues, the Trade and Environment Review will contribute to informed national decision-making and intergovernmental discussions on trade, environment and development.

Rubens Ricupero Secretary-General of UNCTAD

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Acknowledgements

The Trade and Environment Review 2003 was compiled — under the overall direction of René Vossenaar — by a team led by Ulrich Hoffmann comprising Nuria Castells, Anna Griggs, Lorenzo Santucci, Sophia Twarog, Alexey Vikhlyaev and Silvina Vilas.

The TER 2003 was prepared for publishing by Rafe Dent and the graphics were done by Diego Oyarzun-Reyes.

A number of experts prepared commentaries on lead articles in the TER 2003. The drafting team would like to gratefully acknowledge the valuable contribution of Mr. Alan Oxley, International Trade Strategies Pty. Ltd.; Mr. Youfu Xia, University of International Business and Economics; Mr. Pierre Portas, Secretariat of the Basel Convention; Mr. Nohyoung Park, Korea University; Mr. Roy Santana-Ott, formerly with the Permanent Mission of Costa Rica to the WTO; Mr. Duncan Brack, Royal Institute of International Affairs; and Mr. Howard Mann, International Institute of Sustainable Development for their review of the lead article on trade measures in MEAs. Thanks also go to Ms. Adriana Suarez, Permanent Mission of Colombia to the WTO; Mr. Scott Vaughan, Carnegie Endowment; Ms. Ulrike Hauer, European Commission; and Mr. Ronald Steenblik, OECD Secretariat for their review of the first lead article on environmental goods and services and also to Mr. P. Jayakumar, Arbutus Computers and Consultants Ltd, India, Mr. Dale Andrew, OECD Secretariat; Mr. Umberto Mazzei, President of the Institute of International Economic Relations; Mr. Juan Mario Martínez Suárez, Cuba Environment Agency; and Mr. Scott Vaughan, Organization for American States for their review of the second article on environmental goods and services.

The drafting team also thanks the UK Department for International Development (DFID) for its financial support to the project Building Capacity for Improved Policy Making and Negotiation on Key Trade and Environment Issues, in the context of which the country-case studies used in the second article on environmental goods and services have been prepared.

All remaining errors are the authors' own. The views expressed in this Review should not be attributed to UNCTAD or its member states.

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Contents

CHAPTER 1

Article 1: Specific trade obligations in multilateral environmental agreements and their relationship with the rules of the multilateral trading system - A developing country perspective ... 1

Article 2:
Environmental goods and services:
Defining negotiations or negotiating definitions? ... 33

Article 3:
Environmental goods and services: Challenges and opportunities for Central American and Caribbean countries ... 61

CHAPTER 2

Commentaries on article 1:
Specific trade obligations in multilateral agreements ... 93

Commentaries on articles 2 and 3:
Environmental goods and services ... 116

CHAPTER 3

Overview:
Overview of technical cooperation/capacity-building activities of the UNCTAD secretariat on trade, environment and development ... 143

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Acronyms

AB Appellate Body (WTO)
ANAM National Environmental Authority, Panama
APC air pollution control
APEC Asia-Pacific Economic Cooperation
APROSAC Asociación para la Promoción del Saneamiento Ambiental en Comunidad
BC Basel Convention on the Control of Transboundary Movement of Hazardous Wastes
BOT build-operate-transfer
BTFP BioTrade Facilitation Programme
CAFTA Central American Free Trade Agreement
CBD Convention on Biological Diversity
CBTF UNEP-UNCTAD Capacity-Building Task Force on Trade, Environment and Development
CCAD Central American Commission for Environment and Development
CDM Clean Development Mechanism
CESIGMA Company Specialized in Engineering, Geographical and Environmental Solutions, Spain
CFCs chlorofluorocarbons
CITES Convention on International Trade in Endangered Species
CITMA Ministry of Science, Technology and Environment, Cuba
CMEC Carbon Market E-Learning Centre
CMP Carbon Market Programme
COPs Conferences of the Parties
CPC (Prov) Provisional Central Product Classification
CTE Committee on Trade and Environment (of the WTO)
CTESS Committee on Trade and Environment Special Session
CTF Consultative Task Force on Environmental Requirements and Trade
CTS Council on Trade in Services
CTSSS Council on Trade in Services Special Session
DFID UK Department for International Development
DITC Division on International Trade in Goods and Services, and Commodities, UNCTAD
DMC Doha Ministerial Conference
DMD Doha Ministerial Declaration
DSM dispute settlement mechanism
EC European Commission
ECLAC Economic Commission for Latin America and the Caribbean
EGS environmental goods and services
EPPs environmentally preferable products
ESM environmentally sound management of hazardous waste
ESTs environmentally sound technologies
EU European Union
Eurostat Statistical Office of the European Communities
EVSL Early Voluntary Sectoral Liberalization
FAO Food and Agriculture Organization of the United Nations
FDI foreign direct investment
FIELD Foundation for International Environmental Law and Development
FTA Free Trade Agreement
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GDP gross domestic product
GEF Global Environment Facility

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HS Harmonized Commodity Coding and Description System
IDB Inter-American Development Bank
IFOAM International Federation of Organic Agriculture Movements
ILO International Labour Organization
IPRs intellectual property rights
ISCO International Standard Classification of Occupation
ISO International Organization for Standardization
ITA Information Technology Agreement
JICA Japan International Cooperation Agency
JWPTE OECD Joint Working Party on Trade and Environment
LDCs least developed countries
MARENA Ministry of Environment and Natural Resources, Nicaragua
MEA multilateral environmental agreement
MFN most favoured nation
MIFIC Ministry of Development, Industry and Commerce, Nicaragua
MINCEX Ministry of External Trade, Cuba
MoP Meeting of Parties
MP Montreal Protocol on Substances that Deplete the Ozone Layer
NGMA Negotiating Group on Market Access
NGO non-governmental organization
NTBs non-tariff barriers
NWFPs non-wood forest products
ODS ozone depleting substances
OECD Organisation for Economic Co-operation and Development
OPEC Organization of the Petroleum Exporting Countries
PIC Prior Informed Consent (Rotterdam Convention on)
PMAA Programa de Manejo y Adecuación Ambiental
POPs persistent organic pollutants
PPM process and production method
PPPs public-private partnerships
R&D research and development
S&D special and differential (treatment)
SANAA Servicio Nacional de Acueductos y Alcantarillados
SEMARN Secretaría de Estado de Medio Ambiente y Recursos Naturales
SEREX Secretaría de Estado de Relaciones Exteriores
SPS sanitary and phytosanitary measures
STOs specific trade obligations
Sui generis Option for protecting plant varieties (allowed under the exceptions to rules on systems IPRs in Article 27.3 (b) of the WTO TRIPs Agreement) or traditional knowledge and practices
TBT technical barriers to trade
TED TC/CB UNCTAD Trade, Environment and Development Technical Cooperation and Capacity- Building Programme.
TK traditional knowledge
TNCs transnational corporations
TRIMs trade-related investment measures
TRIPS trade-related aspects of intellectual property rights
UAE United Arab Emirates
UNCED United Nations Conference on Environment and Development
UNCTAD United Nations Conference on Trade and Development

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UNEP United Nations Environment Programme
UNFCCC United Nations Framework Convention for Climate Change
USTR United States Trade Representative
WCO World Customs Organization
WIPO World International Property Organization
WSSD World Summit on Sustainable Development
WTO World Trade Organization

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Introductory Observations

Lakshmi Puri
Director, Division of International Trade in Goods and Services, and Commodities.

This is a new publication on a new subject and in a new format.

Trade and environment emerged as an issue of academic and public concern in the 1980s and has gained prominence in national policy-making and international conferences since the 1990s, in particular since the 1992 Rio Earth Summit, which adopted Agenda 21 and the Rio principles.

Trade and environment is a complex and cross-cutting subject, which is still relatively new. In recent years, the international trade and environment debate has moved from emphasis on a situation of inherent conflict between these two areas to a greater political preparedness to identify and seize synergies and to make trade an engine of sustainable development. This is reflected in the Doha Ministerial Declaration (DMD) of the WTO and the World Summit on Sustainable Development (WSSD).

Nevertheless, in the WTO context, the subject is still perceived by many developing countries as being driven by the developed countries. This impression has been reinforced rather than diffused by, on the one hand, the last-minute inclusion of some specific trade and environment issues in the negotiating mandate of the DMD. On the other hand, many developing countries are wary of the intent of the subject's proponents to "mainstream" trade and environment and make the issue an integral part of the WTO negotiations and discussions on agriculture, services, market access for non-agricultural products and trade-related intellectual property rights.

It is now widely recognized that trade and environment are inextricably linked. International trade drives changes in national patterns of production of goods and services, which in turn impact on the domestic environment (through scale, structural and dynamic efficiency effects of trade). This impact is further influenced by domestic environmental regulations. As an engine of growth, trade can also provide the necessary resources for environmental conservation.

Conversely, the environment and environmental concerns impact on trade. The natural environment is the basis of production for many exported products, particularly from developing countries, and an important input to their long-term sustainable development. Growing environmental concerns, as enshrined at the international level in multilateral environmental agreements (MEAs) and at the national and local level in environmental regulations and standards as well as consumer preferences for "greener" products, increasingly influence trade patterns.

It is important to give the trade and environment debate in the United Nations, at the WTO and elsewhere a constructive and practical spin that increasingly focuses on issues of key developmental concern to developing countries, such as market access; sustainable resource management, including material and energy efficiency, trading opportunities for environmentally preferable products and services; the protection of biodiversity and traditional knowledge; and the management of hazardous substances through an effective package of enabling, and where necessary, trade measures in MEAs.

This new annual Trade and Environment Review will make a specific contribution in this regard by focusing on themes that are of particular developmental interest to developing countries. Over the years, the Review intends to provide UN member countries with a forum for dialogue aimed at assisting developing countries in shaping their specific interest in the international trade and environment debate and becoming more proactive

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on specific subjects. By way of illustration, some of the key issues that might bear on the selection of themes for the Review in the next few years include the five described below.

First, changing market exigencies will increasingly make eco-positioning of companies as important in international markets as price- and brand-positioning. Effectively responding to, or even better, anticipating ever more stringent environmental and health requirements in export markets will be a key challenge for developing country exporters. Success or failure in this regard will determine whether shares in export markets can be maintained. The complexity of environmental and health standards increasingly requires a strategic and proactive response by exporting developing countries, rather than a piecemeal, reactive and short-term approach. This raises a number of policy issues, both at the national and international level, and supply capacity constraints such as poor insitutional, technical and infra-structural facilities. Consumer preferences may also offer opportunities for the export of environmentally preferable products from developing countries, although these markets may remain promising niches for some time.

Second, many developing countries rely on resource-based products or raw materials for their exports. Some developing countries are both key producers and consumers of commodities. Rapidly industrializing countries have become key global consumers of raw materials and natural resources, and this makes their economic growth very material-intensive and also potentially pollution-intensive. Sustainable resource and cost-efficient material management are of key importance, not only for exports, but also for sustainable national development.

Third, access to environmentally sound technology and knowledge to use it effectively is increasingly becoming a very important factor of sustainable national development and export competitiveness. International rules on intellectual property rights and foreign investment should not disadvantage developing countries in gaining access to important technological achievements. Developing countries also need assistance to evaluate the risk posed by recent technological advances in areas such as agricultural biotechnology, aimed at enhancing transparency in international trade of such products.

Fourth, global environmental problems such as climate change, desertification or loss of biodiversity have a higher relative impact on developing countries and in particular the poor. Poverty, in turn, fuels environmental degradation, for example in areas such as desertification and biodiversity loss. Developing countries therefore have a great interest in fruitful international cooperation on addressing global environmental problems as well as on practical steps in combating poverty. The preservation, protection and use of traditional knowledge for sustainable development is but one area that deserves urgent attention in this regard.

Fifth, the DMD, for the first time in WTO negotiations, called for immediate negotiations on certain trade and environment issues (i.e. the relationship between specific trade obligations in MEAs and WTO rules; procedures for regular information exchange between the secretariats of MEAs and relevant WTO committees, and the criteria for granting observer status; and trade liberalization in environmental goods and services). The DMD also asked the WTO Committee on Trade and Environment to pay particular attention to three other issues and make recommendations, where appropriate, with respect to future action, including the desirability of negotiations. These three issues are: (i) the effect of environmental measures on market access, and those situations in which the elimination or reduction of trade restrictions and distortions would benefit trade, the environment and development; (ii) the relevant provisions of the TRIPS Agreement; and (iii) labelling requirements for environmental purposes. In the near future, the Trade and Environment Review will be a forum to discuss these issues and assist developing countries in the further WTO negotiations and discussions. This first issue of the Review already focuses on two of the above-mentioned negotiating subjects.

In short, the Review intends to make a contribution to enhance developing countries' awareness, empirical and conceptual knowledge of trade, environment and development issues and thereby enable them to put their stamp on the international trade and environment debate, giving it the developmental spin and direction it deserves. To help achieve this objective, the Review also provides policy makers and civil society in developing countries with an opportunity to contribute to the international debate.