Eco-labelling and the Trade-Environment Debate

ECO-LABELS AND TRADE 49 

Eco-labelling and the 

Trade-Environment Debate 

Daniel Melser and Peter E. Robertson 

University of New South Wales, Australia 

1. INTRODUCTION 

THE purpose of this paper is to consider the potential global environmental 

benefits of eco-labelling programmes, paying attention in particular, to internationally 

traded commodities. This is important for two reasons. First, we shall 

argue that in some instances the impetus behind the introduction of eco-labels is 

that they are seen as an alternative to more trade-restrictive environmental policies, 

such as import bans or tariffs on goods with harmful environmental effects. In 

such cases, however, it is desirable to consider the extent to which eco-labelling 

programmes and trade restrictions might be substitutable with respect to their 

impact on the environment. Second, eco-labelling requirements for traded goods 

may be quite costly due to the potential for abuse of labelling requirements as 

technical trade barriers, and the costs of compliance, such as monitoring foreign 

production methods. In view of these costs, there is a presumption that ecolabelling 

requirements for imported goods should yield significant environmental 

benefits. 

The paper is organised as follows. In the next section we characterise some 

features of eco-labelling programmes and show how these contrast with the more 

common health and safety labels. Section 3 then considers the political economy 

of eco-labelling programmes – specifically the relationship between eco-labelling 

and trade-environment disputes. In Section 4 we discuss the incentive problems 

inherent in eco-labelling policies, and identify their appropriateness as a tool of 

environmental policy. Section 5 considers these issues in the context of the 

debate over GM organisms, and discusses some of the special issues that arise in 

that case, before concluding in Section 6. 

The authors would like to thank two anonymous referees who provided helpful comments on an 

earlier draft of the paper. They are also grateful to Wei-Fang Lin, who provided very helpful 

research assistance. 

© Blackwell Publishing Ltd 2005, 9600 Garsington Road, Oxford, OX4 2DQ, UK 

© and Blackwell 350 Main Publishing Street, Malden, Ltd 2005 MA 02148, USA 49

50 DANIEL MELSER AND PETER E. ROBERTSON 

2. CHARACTERISTICS OF ECO-LABELLING PROGRAMMES 

Eco-labelling is a relatively recent phenomenon having grown in popularity 

world-wide since Germany’s Blue Angel eco-label was introduced in 1977. 1 

By 1992, eco-labelling was explicitly endorsed by the 156 countries who were 

signatories to Agenda 21, at the Earth Summit (United Nations Conference on 

Environment and Development, Rio de Janeiro, 1992); Appleton (1997). These 

eco-labelling programmes are aimed at conserving environmental resources through 

various channels such as promoting consumer awareness, creating markets for 

green goods and providing consumers with the ability to make informed choices. 2 

In some respects the practice of eco-labelling is very similar to the more 

widespread practice of health and safety labelling. Clearly both require producers 

to comply with labelling requirements that help consumers make informed choices. 

With respect to international trade policy, they pose similar problems in that both 

may require an importing country to insist that foreign exporters meet labelling 

requirements, thus having the potential to be misused as technical trade barriers. 3 

A significant amount of attention has focused on the potential for health and 

safety labels to be misused as a technical barrier to trade, and this concern 

remains for eco-labels (OECD, 1997, 2003; and WTO, 1998). 

Nevertheless there are several aspects of eco-labelling policies that make them 

different and more controversial than health and safety labels. First, whereas 

health and safety issues tend to be relatively homogeneous across countries, 

attitudes toward the environment may differ widely. Hence there is often scope 

for disagreement between countries over the validity of a specific requirement. 

Moreover, since demand for environmental quality tends to be income elastic, 

these differences in attitude are often greatest between developed and less 

developed countries. In this sense, the motive for eco-labelling requirements 

on internationally traded commodities may be viewed with more suspicion by 

developing-country exporters than other types of labels. This concern is heightened 

for mandatory eco-labelling requirements describing harmful environmental 

characteristics of the good, but may also hold for voluntary programmes. 4 

1 The Blue Angel was followed by over 30 national eco-labelling programmes with the USA alone 

having over 20 eco-labelling schemes in a wide range of industries (WTO, 2000). 

2 For a broader discussion of eco-labelling see Vossenaar (1997), Childs and Whiting (1998), Dosi 

and Moretto (1998), Shams (1995), Mason (2001) and Mattoo and Singh (1997). 

3 The Technical Barriers to Trade (TBT) Agreement explicitly mentions labelling requirements. As 

stated in the preamble, the aim of the TBT Agreement is, ‘. . . to ensure that technical regulations 

and standards, including packaging, marking and labelling requirements, and procedures for assessment 

of conformity with technical regulations and standards do not create unnecessary obstacles to 

international trade’. 

4 In a voluntary programme the organising body, usually a government agency, sets a standard, and 

products meeting these standards are permitted to use the eco-label. The programmes are typically 

therefore voluntary, in the sense that producers can choose whether or not they want to meet the 

© Blackwell Publishing Ltd 2005


Second, since eco-labels contain information regarding potential environmental 

impacts, they are designed to inform consumers about costs that occur at the 

production and disposal stages of a product’s life-cycle. This contrasts with health 

and safety labels that are typically concerned with costs that are incurred during 

consumption. This difference is important from the perspective of international 

trade, since WTO rules exclude trade policy measures based solely on different 

process and production methods (PPMs). Eco-labelling information, however, 

will often refer to precisely these criteria, and this has implications for the political 

economy of eco-labelling discussed in Section 3 below. 

The third factor is the difference in incentives. Health and safety labels convey 

information about various attributes and effects of the product on the consumer. 

Examples include the possible allergenicity of a food product or the cancercausing 

effects of cigarettes. The effectiveness of health and safety labelling 

therefore depends on a consumer’s willingness to pay a premium to protect their 

own well-being. Eco-labelling, however, depends on consumers’ willingness to 

protect the environment. Thus eco-labelling depends implicitly on consumers’ 

desires to contribute to the wellbeing of others as the environment is a shared 

resource. Clearly the incentives facing the consumers in each case are quite different. 

We will argue in Section 4 that even a perfectly monitored eco-labelling 

scheme cannot be relied upon to prevent excess environmental damage, due to 

the ‘tragedy of the commons’. However, we defer further discussion of this issue 

and first consider the role of eco-labelling in international trade disputes. 

3. BARRIERS TO TRADE, THE WTO AND ECO-LABELS 

a. Trade and Environment Disputes 

Recent environmental disputes brought before the WTO have highlighted 

the conflict faced by governments who wish to pursue domestic environmental 

policies and also comply with WTO rules. 5 First, as mentioned above, the WTO 

principles of non-discrimination require that like products are treated equally 

irrespective of the country of origin. 6 This poses a problem for the environmental 

standard and use the eco-label. In some cases, however, the eco-label may be a mandatory warning 

about negative environmental effects. 

5 For a useful and contemporary discussion of WTO-environment disputes see Kelly (2003). 

6 This principle appears throughout the GATT Agreement; for example, consider Article III, 

Part 4, which reads, ‘The products of the territory of any contracting party imported into the 

territory of any other contracting party shall be accorded treatment no less favourable than that 

accorded to like products of national origin in respect of all laws, regulations and requirements 

affecting their internal sale, offering for sale, purchase, transportation, distribution or use.’ 



lobby since it is often the production method that differentiates an environmentally 

friendly commodity, from one that is not. 

The problem became apparent with the GATT ‘Tuna-Dolphin’ dispute, where 

the harvesting of tuna was associated with the incidental killing of dolphins by 

tuna fishing fleets using purse-seine nets. Under the terms of the Marine Mammal 

Protection Act, the USA placed import restrictions on countries with less stringent 

tuna-fishing rules than its own. This led the EU to file a claim against the USA’s 

ban on imported tuna under the GATT. 

The USA case for a ban on tuna caught with purse-seine nets, rested on GATT 

Article XX (b) and (g), which provide exemptions in the case of trade policy 

measures, ‘. . . necessary to protect human, animal or plant life or health’ and 

‘relating to the conservation of exhaustible natural resources . . .’. Despite these 

exceptions, the GATT panel found that the restrictions were unjustified. 

In the more recent ‘Shrimp-Turtle’ case, the USA required that local shrimp 

trawlers use nets fitted with trapdoors, known as turtle excluder devices (TEDs), 

to prevent excessive mortality of endangered sea-turtles. 7 The USA attempted to 

ban imports of shrimp from South and East Asia which is harvested without the 

use of TEDs. In this case, the USA was eventually able to have the restrictions 

upheld, but this decision was reached after a protracted six-year dispute where 

both the original WTO panel and appellate body ruled against the USA. 8 

b. Eco-labelling and Trade-environment Disputes 

A legacy of these landmark disputes is a sense of uncertainty surrounding how 

environmental and trade laws are to be reconciled. Over the last decade or more, 

governments have thus sought to adopt environmental policies that might satisfy 

WTO guidelines. It appears that eco-labels may be suitable policy instruments. 

Currently the WTO Committee on Trade and Environment (CTE) has been considering 

the issues surrounding eco-labelling after urging from member states in 

recent submissions (WTO, 2002; and WTO, 2003a). Part of the Doha Ministerial 

Declaration, prepared by the CTE (WTO, 2003b), summarises members’ opinions 

on this issue: 

Most Members agreed that voluntary, participatory, market-based and transparent environmental 

labelling schemes were potentially efficient economic instruments in order to inform consumers 

about environmentally friendly products. As such they could help move consumption on to a 

7 The TEDs cost between US$75 and US$500. It was estimated that shrimp catches fell by around 

two per cent with its introduction and turtle mortality by around 97 per cent; Ranné (1999). 

8 Somewhat ironically, the resolution of this dispute in favour of the US environmental movement 

has been followed by anti-dumping duties of around 100 per cent on Chinese and Vietnamese 

shrimp, and similar duties are likely to be imposed on other East Asian countries; The Economist 

(2004b). 



more sustainable footing. Moreover, they tended, generally, to be less trade restrictive than 

other instruments. [original emphasis] (WTO, 2003b, p. 8). 9 

Thus, whereas WTO rules explicitly try to prevent mandated discrimination on 

the basis of production methods, eco-labels provide an opportunity for consumers 

to discriminate. In view of this, eco-labelling policies, and in particular voluntary 

programmes, potentially offer some room for compromise between the demands 

of the environmental lobby and WTO principles. 

For example, in the Forestry industry, eco-labelling, in the form of forestry 

certification arose in response to numerous calls for trade bans and consumer 

boycotts of the international trade in tropical timber during the 1980s. Timber 

accounts for a large fraction of developing countries’ output, and most of this is 

exported. Hence international trade and growth is seen as a catalyst for deforestation. 

10 In response to these concerns, in 1992 Austria raised tariffs on unsustainably 

managed timber by 70 per cent and also introduced a compulsory eco-labelling 

scheme. Shortly after, however, the tariff was dropped because of concern about its 

GATT legality and the eco-labelling scheme became voluntary; Crossley (1996). 11 

In a similar vein, eco-labelling programmes were introduced as a direct result 

of the USA failure to impose trade measures on imported Mexican tuna; WTO 

(1998). Likewise they were also called for as a resolution to the Shrimp-Turtle 

dispute, and were introduced to a limited extent. These examples suggest, therefore, 

that eco-labelling programmes have been used as a politically expedient 

policy option for governments caught between pressure from national environmental 

lobbies and pressure from exporters and foreign governments to comply 

with WTO rules. 

The difficulty is that there is very little discussion over what the expected 

benefits of eco-labelling are. The concern must then arise as to whether ecolabelling 

policies might be adopted in place of more mandatory, but less WTOcompliant 

policies, without evaluation of the environmental consequences. In the 

next section we discuss the consequences of using eco-labelling as an environmental 

policy tool. 

9 It is interesting to note that the CTE added, ‘One Member questioned the assumption that 

comprehensive labelling schemes had a positive effect on achieving good environmental outcomes’ 

(WTO, 2003b, p. 8). This is the point that we hope to develop in this paper. 

10 In 1990 Indonesia (60 per cent) and Malaysia (75 per cent) both exported a large proportion of 

their timber. Moreover, Indonesia and Malaysia account for 65 per cent of world tropical timber 

exports. The major importers are Japan and the EU, together accounting for 48 per cent of world 

imports in 1987. Similarly Japan, the EU and the USA account for over 70 per cent of wood 

furniture imports. Thus, although domestic consumption is an important factor in explaining deforestation, 

in particular for fuel, the role of foreign demand is also significant; Crossley et al. (1997). 

11 Crossley et al. (1997) report that there were seven national certification schemes in operation in 

1994, although their coverage is very small relative to total timber trade. Swallow and Sedjo (2000) 

discuss the commercial impact of timber certification on the forestry industry and on developing 

country exports. 



4. THE ENVIRONMENTAL EFFECTS OF ECO-LABELLING 

a. Eco-labels as a Tool to Create Markets for Green Goods 

The potential benefit of eco-labelling policies is put succinctly by The 

Economist: 

The right way to deal with people’s desire to eat turtle-friendly shrimp, hormone-free beef or 

whatever is not to impose one country’s values on another: it is to label the products appropriately. 

Consumers, not governments, can then choose what they eat, and trade can remain free. 

(The Economist, 7 October, 1999). 

To make this argument concrete, consider a consumer’s choice over two brands 

of shrimp, say Brown and Green. Brown involves the incidental killing of sea turtles 

during harvesting and Green is the eco-labelled product which is harvested with 

nets that have TEDs (which, for simplicity, we suppose eliminates turtle deaths). 

We naturally assume that the price of Green exceeds Brown, otherwise there 

would be no demand for Brown. 

For the purpose of this discussion it does not matter whether the label is a 

mandatory requirement on Brown, or a voluntary label on Green, as long as the 

information on the label is credible. The choice facing a consumer is depicted 

in Figure 1. Here the demand curve of the consumer for Brown and Green is 

depicted by dd′, which is the same for both goods as from a consumption 

perspective these goods are indistinguishable. The consumer’s marginal costs of 

consuming Green is simply equal to the price, p G . The marginal costs of consuming 

Brown, however, is the sum of the price of Brown (p B and the private 

disutility the consumer derives from environmental damage, and is given by the 

schedule s. There are two possible reasons why this schedule lies above p B : (i) the 

consumer may correctly perceive that their consumption decision has a small, but 

non-zero, effect on the environment which generates some loss of utility, and (ii) 

the consumer may face some psychic costs of knowingly causing environmental 

damage, such as guilt or peer pressure. 

The horizontal axis in Figure 1 shows the quantity purchased by the consumer, 

and hence also the damage caused by this consumer. In choosing whether to 

purchase Green or Brown the consumer compares the surplus from each commodity. 

For Green this is given by the triangle dfp G and for Brown it is dep B . 

The difference in the two regions is given by the difference between the two 

shaded regions. As drawn in Figure 1, the consumer will choose Brown. It can be 

seen that the decision depends on the position of the marginal cost schedule 

s. This in turn depends on the price of Brown, and the consumer’s dislike for 

killing sea turtles. Environmental preservation thus depends on enough consumers 

having a strong-enough preference for the particular environmental service, and 

on the cost of the Green eco-labelled substitute not being too much greater than 

Brown. 



FIGURE 1 

Eco-labels and Consumer Choice 

b. Eco-labels and External Environmental Costs 

Despite the beneficial effect of eco-labels in creating markets for green 

goods, there remains a concern whether the self-interest motive provides a strongenough 

impetus for consumers to act to reduce environmental costs. The preceding 

argument implicitly assumes that the production or consumption of the 

commodities in question, create no external costs. In the shrimp example, however, 

the main point of the USA opposition to incidental killing of sea-turtles 

is that they are an endangered species, with all but one species of sea turtle 

currently threatened with extinction; Liebig (1999). In general it has been argued 

that species’ extinction generates significant external costs, through the loss of 

biodiversity and the loss of part of the ‘global heritage of humanity’; Ferrantino 

(1997). 12 

12 Perhaps the best example of the use of eco-labelling for a product where the information concerns 

potentially large external costs, is in Forestry Certification. Specifically this was designed to 

reduce deforestation of tropical hardwoods that are associated with two important trans-national 

externalities: the effect on the carbon cycle and climate change, and bio-diversity; Simula (1997). 

In general, however, the significance of these implied external costs is open to debate, and needs to 

be assessed on a case-by-case basis. 



FIGURE 2 

The Environmental Effects of Eco-labelling 

Viewed in this way it is apparent that the hormone-free-beef and turtle-friendlyshrimp 

problems are actually quite different. Eco-labels in the latter case provide 

consumers with information about the costs or benefits of production that are 

external to the consumer. Since, almost by definition, environmental services are 

public goods, this is a general feature of eco-labels. 

To see this more formally, suppose that the Brown good has an individual 

effect on the environment as perceived by the consumer, and reflected in s, and 

also an effect on the environment which is borne by all consumers. This is 

illustrated in Figure 2 where the social costs of the purchase of the Brown good 

are given by s* and lie above s. 

The analysis is similar to the standard public good model, since purchasing the 

Green good is equivalent to paying a subscription to the maintenance of a public 

good, in this case the environment. However, because individuals only consider 

the benefits of such a subscription on themselves there will be too few consumers 

of the Green good and too many of Brown. 13 Thus it can be seen in Figure 2 that 

13 Robertson (2002) contains a formal analysis of free riding behaviour and finds that the number 

of countries signing onto international eco-labelling agreements may have little or no effect on the 

environment. 



the social surplus from the consumption of Brown is smaller than the private 

surplus, shown in Figure 1. The reduction in the social surplus of Brown relative 

to Green implies that in the free market equilibrium there are too few consumers 

of Green and too many of Brown. Indeed as depicted in Figure 2 the difference 

between the social surplus from consuming the Green and Brown goods is now 

in Green’s favour in contrast to Figure 1. 

c. Policy and Political Implications 

Despite the limitations of eco-labelling programmes, they appear to be increasing 

in popularity. As suggested above, this may be due to the political expedience 

of eco-labelling policies. In particular, when an environmental problem is international 

in scope, the usual policy tools for internalising external costs don’t 

exist. A country is limited to imposing trade measures aimed at minimising 

environmental damage, or to international cooperation, through multilateral environmental 

agreements. The first avenue is likely to violate WTO rules and the 

second is likely to be very costly with a highly uncertain outcome. Thus the 

introduction of eco-labelling regimes that apply to internationally traded goods, 

may simply be a policy of last resort, that avoids WTO conflict and makes some 

concessions to the environmental lobby. 

Our preceding analysis suggests that whether or not a given eco-labelling 

regime is an appropriate policy, or an inappropriate but perhaps politically expedient 

one, depends on the extent of the divergence between social and private 

environmental costs, s* and s, associated with the commodity being subjected to 

eco-labelling requirements. For example, an eco-label on tuna, indicating whether 

it is dolphin friendly, may be a reasonable policy if it is accepted that dolphin 

mortality has no particular external environmental costs, perhaps since they are 

not endangered. Such a label would increase the utility of dolphin-squeamish 

consumers. In this case, the introduction of eco-labelling may be an appropriate 

response to the trade dispute. Nevertheless, since there are no significant external 

environmental costs, this ‘eco-label’ is more akin to a personal health warning. In 

cases where externalities exist, however, it would be desirable to attempt to 

quantify these social costs before determining whether or not eco-labelling is an 

appropriate policy. If the external costs are indeed significant, then eco-labelling 

at best should be part of a broader policy package. 

5. ECO-LABELS AND GM FOOD 

The preceding analysis also has implications for the current debate over trade 

in GM food products and products derived from GM crops. The production of 

GM crops has increased rapidly over the last decade, particularly in the USA, 



Canada and Argentina. 14 This has been associated with fears about the effects of 

GM products, resulting in trade bans by the EU in particular. Thus, aspects of 

this debate are strongly reminiscent of the forestry and fishing examples we cite 

above. Nevertheless, there are also some important differences which we explore 

in this section. 

a. Background: GMOs and the Trade Conflict Between the USA and the EU 

In 1999 the EU introduced a moratorium on the importation of new GMOs 

into its territories. In a formal complaint with the WTO in May 2003, the USA, 

Canada and Argentina cited two objections to the EU policy. Firstly, they claim 

there is a lack of scientific evidence that GM foods are harmful to people or the 

environment, which means in turn that the moratorium cannot be justified under 

the Agreement on Sanitary and Phytosanitary Measures (SPS) or Article XX. 

Secondly, the moratorium violates the PPM rules. According to the USA, GM 

foods and non-GM foods are like products, or ‘substantially equivalent’, and the 

EU moratorium discriminates according to PPMs. 15 

As in our preceding examples, the EU responded to this political pressure by 

introducing a requirement that all products which contain an ingredient which 

includes more than 0.9 per cent GMOs, be labelled. 16 With this extended labelling 

policy in place since late 2003, the moratorium was then allowed to expire in 

May 2004 (Greenpeace, 2003; and The Economist, 2004a). Thus in terms of the 

political pressure for labelling, the GM case is very similar to the shrimp, tuna 

and forestry examples. 

b. Aspects of the GM Debate 

There are, however, several peculiarities with the current GM debate. First, the 

labelling programme is a mandatory policy – all producers of GM foods must 

comply with the label. This is contentious since it means the policy places the 

burden of compliance on foreign producers. Arguably, therefore, it has greater 

potential to be used as a technical trade barrier than, say, a voluntary ‘GM Free’ 

label would. Nevertheless, from the perspective of the GM-producing countries, 

it is more desirable than the moratorium. In this sense the policy can therefore 

14 In 1995 there were virtually no GM crops. In 2002, there were 59 million hectares of transgenic 

crops grown globally. Most of this was grown in only four countries: USA (66 per cent), Argentina 

(23 per cent), Canada (6 per cent) and China (4 per cent) and is dominated by just three crops, 

soybean (62 per cent), maize (21 per cent) and cotton (12 per cent); James (2002). 

15 For further discussion of the issues see Sheldon (2002). 

16 In fact labelling of GM products is widespread with 26 countries either having labelling regimes 

or planning to introduce them; Phillips and McNeil (2000). 



still be viewed as an attempted political compromise between the interests of GM 

producers and the environmental lobby. 

The second aspect of this debate concerns the factors that are driving consumer 

demands for labelling. Though the consumers’ ‘right to know’ might be 

cited as the direct reason, the question remains as to what extent the demand for 

information is being driven by fears for personal safety, and to what extent they 

are driven by concerns for the environment. 17 The extensive consultation undertaken 

by the UK’s GM Science Review Panel (2003) suggests that the principle 

demand for labelling of GM products is due to a concern for personal health. 

Thus, though these concerns were strongly rejected by the Panel, it appears that, 

for many consumers, the labelling of GM products is akin to a health and safety 

warning. 18 

Nevertheless, there is also considerable discussion of the possible negative 

effects on the environment of GM crops. These include (i) the potential dispersal 

of the genetically modified organisms in the environment – for example through 

invasiveness; (ii) the potential transfer of the inserted genetic material to other 

organisms – for example through cross-pollination; (iii) potential impacts on 

non-target species; and (iv) potential impacts on soil bacteria and the nitrogen 

cycle (European Environment Agency, 2002; and Mackenzie et al., 2003). 

Similar concerns about the irreversible effects of cross-contamination have been 

voiced by groups such as Greenpeace, Friends of the Earth and GeneWatch 

UK (Greenpeace, 2003; Friends of the Earth, 2004; and GeneWatch UK, 2001). 19 

Though the GM Science Review Panel downplays such fears, it also warns that 

environmental risk factors of GM crops may prove to be more challenging in 

future, as more GM crops are developed; GM Science Review Panel (2003). 

In conclusion, therefore, though personal safety issues, such as exposure to 

unknown allergens, remain perhaps the principal source of consumer concern 

over GM foods, the environmental factors cannot be ignored. This means that 

labels on GM foods serve two purposes – a potential health and safety label as 

well as an eco-label. 

17 One striking example of the depth of consumer concern can be seen in Europe where a 

Eurobarometer (2001) survey of 16,029 people in the 15 member states reported that 94.6 per cent 

of people believed they should have the right to choose with regard to GM foods – implying that 

these foods should be labelled. 

18 The GM Science Review Panel (2003, p. 22) noted that, ‘. . . for human health to date there is no 

evidence currently commercialised GM crop varieties or foods made from them, are toxic, allergenic 

or nutritionally deleterious’. 

19 According to Greenpeace (2003), ‘GM crops pose irreversible long-term risks to the environment. 

It is possible for GM crops to transfer modified genes to closely related plant species ...This 

is particularly worrying because GM oilseed rape and sugar beet have wild relatives in the UK – 

any contamination of these wild species would be irreversible.’ 



c. An Appropriate Policy Regime for GM Products 

Though the moratorium on GM foods in the EU has been lifted, decisions on 

individual GM crops are now made on a case-by-case basis by the European 

Commission; The Economist (2004a). Thus the EU still remains a long way from 

‘free trade’ in GM products. The analysis above suggests that labelling requirements 

on GM products are an appropriate response for the health and safety 

concerns of consumers, but not for the environmental concerns expressed by 

lobby groups. In principle, therefore, an informed discussion on these issues 

should consider the environmental and personal health concerns separately, and 

form policies based on the perceived attributes of each product. If the concerns 

over a GM product extend only as far as personal health issues associated with its 

consumption or disposal, then labelling policies may be all that is required. If 

concerns extend to local or global environmental costs, then alternative regulations 

need to be considered. 

6. CONCLUSION 

Understanding the potential benefits of eco-labelling policies is particularly 

important for internationally traded goods, where the potential exists for the 

misuse of labelling as a technical trade barrier. Moreover, in several high-profile 

cases, eco-labelling was adopted as a substitute for more trade-restrictive measures. 

Thus we have argued that eco-labelling policies may, in some cases, be 

simply a politically expedient way of avoiding the difficulties that have arisen 

between trade and environmental policy objectives. This is a concern, however, 

since we have also argued that there are grounds to be pessimistic about the 

ability of eco-labels to solve environmental problems. 

Specifically we showed that, while eco-labels can benefit consumers, the market 

for the labelled good will be characterised by damage levels that exceed the 

social optimum, because eco-labels only provide information about costs and 

benefits that are external to each consumer. In some cases, such as the GM food 

debate, labelling information about environmental costs may be only part of the 

objective of a labelling programme. Nevertheless, if there are external costs 

associated with the decision to consume the product, even a perfectly monitored 

labelling scheme will not force consumers to internalise these costs. Hence ecolabelling 

should only be seen as a part of a range of policies for environmental 

management. 



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Eco-labelling and the Trade-Environment Debate

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