Please find below the scanned text of the discussion paper which the European Commission has sent to the member states (trade experts of Committee 113) in February. As far as I am aware, only the government in Denmark found it useful to distribute it to some NGOs who are in a consultation process. The EC has so far refused to give it (I asked for it in a letter in response to their meeting invitation of 20th April) and it is not on the website (at least not last week)

I have not been able yet to check the scanned text word per word but did a thorough spelling check with the PC. Please bear that in mind.

This paper gives a clear insight of what the thinking of the EC is/has been. It will be up to the governments and thus NGO activities to expose the flaws and perhaps change the views.

Myriam Vander Stichele

EUROPEAN COMMISSION

DIRECTORATE GENERAL 1 EXTERNAL RELATIONS: COMMERCIAL POLICY AND RELATIONS WITH NORTH AMERICA, THE FAR EAST, AUSTRALIA AND NEW ZEALAND WTO, OECD, commercial questions with respect to agriculture and fisheries, export credit policy, and export promotion Multilateral commercial policies and WTO and OECD questions

Brussels, 23 February 1999 I.G. 1/ (99)

NOTE FOR THE ATTENTION OF THE 113 COMMITTEE

SUBJECT. EC Strategy Paper on TRADE AND ENVIRONMENT IN THE NEW WTO ROUND Origin: DG 1/M/3 Objective: for information and discussion

EC STRATEGY PAPER ON TRADE AND ENVIRONMENT IN THE NEW WTO ROUND

Introduction

This paper sets out some preliminary ideas for reflection. lt is not a comprehensive or final policy statement. It should be read in the context of the overall WTO strategy set out before the WTO General Council last September. It does not address issues such as the architecture of the corning negotiations: that is for a horizontal debate at a later stage in the 113 Committee.

1. The Issue

Trade and environment policies can play a mutually supportive role in favour of sustainable development. The relationship between these policies is seen as problematic, however. The problem is partly one of perception but also reflects the need for the WTO to take account of evolving environmental policy worldwide.

Specific problems of perception arise at the trade and environment interface due to differing points of view on the relationship between trade and environment. Some developed country NGOs fear that trade liberalisation will focus on economic growth without taking the environment into account thereby having a negative impact on it. Further, they fear that international trade rules might prevent a country from implementing sound environmental policies.

Some developing countries, on the other hand, fear that environmental standards in developed countries could be used as protectionism in disguise. Furthermore, they argue, developed country priorities may not be the same as those of developing countries.

These concerns are partly the reflection of the fact that when GATT rules were drafted, environmental issues were considered marginal as was the need to allow for measures and rule making techniques which took them into account. The extent to which existing WTO rules accommodate trade measures taken for environmental purposes is still, to a certain degree, despite recent clarifications by Panels and the Appellate Body, in a situation of legal uncertainty. It is in the interests both of the global environment and of the open trading system and hence of all WTO members to clear up this confusion.

Solving either or both of these problems will not be easy: developing countries worry that developed country environmental policies could be used as a pretext for disguised protectionism while European civil society insists that environmental concerns be at the centre of any multilateral trade negotiations. Being protectionist would not be in the Community's interest nor would it be in its interest to sacrifice the global environment to the objective of free trade. The MM experience clearly shows the need to take into account environmental protection and sustainable development concerns in international economic negotiations. Overcoming misperceptions and clarifying the relationship between WTO rules and environment policies are necessary steps if we are to progress towards realising our combined aims of pursuing the liberalisation of international trade in a multilateral framework- and furthering protection of our global environment.

2. General EU Objectives

The integration of environmental considerations into other policy areas is a fundamental requirement currently reflected in Article 130 R of the EC Treaty. The EU's strategy and negotiating stance in the New Round has to be fully consistent with this requirement that has been significantly reinforced in the Amsterdam Treaty.

It is therefore essential, to maximise the potential for positive synergies between trade liberalisation, growth (including in developing countries) and environmental protection in the strengthening of existing WTO Agreements and in the negotiation of new ones and avoid the establishment of requirements which would unduly constrain the development of effective environmental measures by WTO members, the Community should:

i) secure agreement, by the time of the 1999 Ministerial, to the inclusion in the next wave of negotiations of a trade and environment component which meets the concerns of European society at large without undermining the fundamentals of open trade.

ii) achieve by the end of those negotiations an overall outcome where environmentally friendly consequences can be identified in many parts of the final package and where, in particular, WTO rules affecting environmental protection can be seen to have become clearer and more comprehensive and to promote increased mutual supportiveness between trade and environment policies. This will require that environmental concerns be taken into account, along with other important policy objectives, in the definition of the Community's negotiating aims for the New Round.

iii) pursue these objectives without prejudice to European trade interests and environmental legislation or to the legitimate interests of developing countries.

There is no conflict between these objectives and the EU's fundamental goals for the new Round of further expanding international trade and strengthening the multilateral trading system. There should be no conflict either between such objectives and the legitimate interests of developing countries. Trade and environment issues can and should be approached in ways that promote sustainable development prospects in developing countries. Progress in this area will only be possible if developing country concerns are effectively addressed within the framework of the new Round.

In order to lay the groundwork for achieving the objectives and to raise the political profile of the trade, environment and sustainable development debate in the run-up to the 3rd WTO Ministerial Conference, we have to ensure the success of the High Level Symposia on - Trade and Environment and on Trade and Development at the WTO in March 1999. These dialogues have to take place in a climate of transparency involving all interested parts of civil society. In the longer run and as a general objective for the new Round, it will be necessary to promote greater transparency and to ensure that the WTO is responsive to the concerns of the broader civil society, including to environmental concerns.

To underpin our objectives for the New Round in general and in relation to those on the environment component in particular, the Commission will undertake a: sustainability review the outcome of which should be fed into the future process. The result of this review will become an important tool in shaping the Community position for the New Round. The review should provide a basis for a broad policy debate. In addition, a continued dialogue between trade and environment officials, as well as other officials whose work is relevant to the discussions, both in Brussels and in capitals is necessary, especially once the new Round negotiations are initiated.

Specifically, we should seek:

Greater legal clarity between WTO rules and trade measures taken pursuant to MEAs. The EC should define and then seek consensus on the relationship between WTO rules and trade measures taken pursuant to MEAs to ensure that WTO rules are not capable of being used to frustrate the objectives of an MEA.

Review of the relationship between WTO rules and Non-Product Related Process and Production Methods (NPRPPMS) and, in particular, to achieve agreement on the legitimacy of both voluntary eco-labeling schemes based on a life-cycle approach and compulsory labeling schemes. This would undoubtedly inspire agreement on clear and non-discriminatory rules for the creation and administration of such schemes. The aim would be to end the Round with a clear understanding that, subject to procedural safeguards, there is scope within WTO rules to use market based, non-protectionist instruments as a means of achieving environmental objectives.

Clarification of the concept of "proportionality". This is important because proportionality is implicit in Article XX and central to SPS/TBT. lt is also a key to the proper application of the precautionary principle.

Within the context of the EC's policy of comprehensive market opening and without pursuing a sectoral approach, seek the liberalisation of goods, services and technologies whose use is beneficial to the environment, either because' the items in question are directly useful for environmental protection or because they are less polluting than rival products on the market. There are clear gains for EU industry which is well-developed in the environmental protection area which currently accounts for USD 400 bn per annum.

3. Key Substantive Issues

This section describes in greater detail the issues underlying the key objectives set out above.

3.1 Issues related to relationship between WTO rules and provisions of MEAs

Clarification of the scope under WTO rules for trade measures taken pursuant to a NEA could reduce the legal uncertainties in this area. A number of uncertainties exist which have the potential to disrupt trade flows and possibly the implementation of MEAS.

There is already a large number of MEAs which coexist with the WTO; this has not, to date, produced major difficulties. There is, nevertheless, a potential conflict. A WTO Member who does not belong to a particular MEA may face trade restrictions when exporting into countries which are members of that MEA. In such cases, it would be open to the non-member to complain that their WTO rights had been denied them. So far, no WTO member has brought such a case but there is the potential for such complaints. What the outcome would be if there were is not clear.

WTO panels' conclusions and rulings of the Appellate Body have generally moved in a direction supportive of the EU's approach to solving international environmental problems, in particular its emphasis on multilateral solutions. A consensus on the progress to date could help prevent any slippage in the future.

Another possible flank in the Community's policy on the MIA issue could be to propose the reputable presumption (iuris tantum) that Trade Related Environmental Measures (TREMS) taken pursuant to a specific provision of an MEA are justified under GATT Article XX. Such a presumption would be merely procedural and would leave substantive WTO rights and obligations unchanged. As the reversal of the burden of proof does not require amendment of Article XX it should be easier to obtain political consensus for it. This possible avenue for moving forward on the MEA issue should be explored in further detail after which a clear position should be taken on it.

3.2 Issues related to Voluntary labelling and Process and Production Methods

It is generally agreed that discrimination between "like" products based. solely on method of production is not allowed under WTO rules (The only exception exists in the form of Article XX (e) of the original GATT which permits discrimination for measures relating to the products of prison labour) although in the Shrimp/Turtle case, the Appellate Body condemned the measure in question because of the lack of effort to strike a deal rather than because of the PPM nature of the measure.

In the field of the environment, if each WTO member were to take trade measures-based on how products were made in third countries the transparency and predictability of the GATT system would be severely undermined.

Voluntary or compulsory labelling may be the right way to tackle problems posed, in particular, by Non-Product Related Process and Production Methods (NPRPPMs): it is legitimate to inform consumers that particular goods have been produced in a way which meets certain agreed standards or is, at least, more environmentally friendly than other methods.. Compulsory labelling does not prevent access to the market in question. Difficulties may arise, however, in distinguishing goods on the basis of the methods used for producing them, even for labelling purposes.

Recognition of voluntary schemes is necessary to create a sense of legal certainty about their use. Non-discriminatory labelling has been upheld as not incompatible with GATT. The time could now be ripe to turn that rather cautious formula round and seek a clear understanding that voluntary labelling schemes are compatible with GATT. Clearly, such voluntary schemes should be transparent for both producers (how to apply) and consumers (what the label means) and foreign producers should be involved in the development of the schemes.

A clear blueprint for their application which avoids abuse of such schemes for protectionist purposes would also be useful. We need to consider how the work done by the ISO could be used in order to make progress in the WTO. Together, these elements could constitute our objective of a WTO understanding that, subject to procedural safeguards, there is scope within WTO rules to use market based, non-protectionist instruments as a means of achieving environmental objectives.

Compulsory labeling schemes force producers to create separate production arrangements for those markets which require labeling. They fall under the WTO Technical Barriers to Trade Code, and therefore need to satisfy the tests there, including, the avoidance of unnecessary obstacles to trade and the rule that they shall be no more trade restrictive than necessary to fulfil a "legitimate objective", as defined in the Code. A stricter approach is necessary with compulsory labeling than with voluntary labeling because of the dangers of abuse for restrictive purposes. Compulsory labeling, if it meets tough criteria e.g. of non-discrimination and proportionality, should in principle be allowed.

.3.3 Issues related to the application of the precautionary principle and clarification of "proportionality" as a guideline for its application

The WTO Appellate Body on the hormones case noted that the precautionary principle was regarded by some as having crystallised into a general principle of customary international environmental law.

The EC supports the right of governments to take action where there is evidence of environmental damage but also in situations of scientific uncertainty where there is a level of risk which governments consider merits public policy action. This principle is recognised already in the WTO agreement on the application of sanitary and phyto-sanitary measures (the SPS agreement). Article 5 (7) of that agreement states that in a case where relevant scientific evidence is insufficient, a WTO member may provisionally adopt sanitary or phyto-sanitary measures on the basis of available pertinent information. -The article notes, however, that members shall in such circumstances seek to obtain the additional information necessary for a more objective assessment of risk and review the sanitary or phyto-sanitary measure accordingly within a reasonable period of time.

In this context, clarification of the concept of proportionality would be in everyone's interest. A useful starting point could be the jurisprudence of the ECJ which has sought, for example in the Danish 'bottles case, to strike a balance between trade and environmental policies: although the core of the Danish law was upheld, those parts of the regulations which were held to be unnecessarily trade restrictive i.e. disproportionate, were not. The subject should be ripe for discussion at the next informal meeting of the Member States experts on trade and environment. In particular, it is necessary to make clear what the precautionary principle does not mean in order to allay exaggerated fears and preclude protectionist abuse.

3.4 Issues related to the liberalisation of environmental goods and services as part of comprehensive market opening

Any negotiations on the liberalisation of environmental goods, services and technologies will not be separate, sectoral negotiations but dealt with within the comprehensive approach of the New Round. There are a number of issues to consider regarding, such goods and services.

The provision of most services is environmentally friendly. Consequently, liberalisation in trade in environmental services and the related environmental goods which form part of the services package could lead to so-called "win-win" situations (where gains accrue to both trade and environment) bringing advantages to all and providing a substantive a environmental element in the New Round.

As far as liberalisation of environmental goods are concerned, not only would it provide enhanced trade opportunities, it would decrease the cost of environmentally friendly products and, by facilitating their wider distribution, contribute to the transfer of technologies.

4. Key Steps in Preparation of the 1999 Ministerial

The CTE is a useful forum for trade and environment officials to share views and identify where key problems lie. The Commission wants to enhance confidence in the work of the CTE through the High Level Symposium so that it can work more productively.

The fact that the High Level Symposium on Trade and Environment will take place alongside a Symposium on Trade and Development 1 is more than a coincidence. It is becoming increasingly clear that progress on environment related issues will only be possible if the Community is able to persuade its trading partners, in particular developing countries, that progress on these issues is in their own interests both from the viewpoint of sustainable development but also from the viewpoint of their medium and long term export interests. Progress on these matters is also key to securing support from European civil society for a further round of trade negotiations.

An important element of the High Level Symposium on trade and environment will be to try demonstrate to developing countries that the trade and environment debate has positive aspects for them and. on this basis to arouse the interest of developing countries and/or ministries which, up till now, have not been particularly active in the discussions and to convince European civil society that trade liberalisation can go hand in hand with sustainable development.

After Seattle it will be necessary to undertake a reassessment of our trade and environment objectives and to consider how interactions between the various issues on the agenda for the New Round and environmental protection could be more effectively addressed. As noted above, the fundamental goal should be to maximise positive synergies in the strengthening of existing WTO Agreements and in the negotiation of new ones and to prevent undue constraints to the development of environmental policies by WTO Members.