Eco-labelling and the Trade-Environment Debate

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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
ECO-LABELS AND TRADE 51 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.’ © Blackwell Publishing Ltd 2005
Page 1: ECO-LABELS AND TRADE 49 Eco-labelli
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Page 13 and 14: ECO-LABELS AND TRADE 61 REFERENCES

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