6.1 Ecolabelling and General International Law
6.2 Ecolabelling and WTO Agreements
6.3 Trade Implications of Seafood Ecolabelling
Fish and fishery products are among the most widely traded natural resource based goods. More than 40 percent of global fish production enters international trade. For many developing countries, foreign exchange revenues from fish exports make a major contribution to their balance of payments and are thus of strategic macro-economic importance. On the other hand, for the three major global fish importers, namely, Japan, the EU and the U.S.A., processing, wholesaling and retailing of imported fish are of considerable economic significance, in addition to satisfying consumer demand not met by domestic production (Cochrane and Willmann, 2000).
The large and increasing trade of global fish production and the fact that much of the trade flow is from developing countries to industrialized countries indicate the potential of ecolabelling to both creating an incentive for improved fisheries management and causing a barrier to trade. Presently, much of the ‘green-conscious’ consumer demand is concentrated in the main fish importing countries, with the exception of China, which has become in recent years a major fish importing country (Cochrane and Willmann, 2000).
The principle of sovereign equality among States is the cornerstone of general international law. In respect to environmental issues, the emphasis is on reciprocal rights and obligations rather than the traditional notions of sovereignty that are incompatible with global environmental interdependence. The principle of reciprocity, however, could cause injustices if rights and obligations are set without reference to economic, social, cultural and environmental differences between States. Appleton notes that “conflicting sovereignty considerations .... suggest that it may be difficult to formulate a rule that is always applicable to judge the legality of environmental labelling schemes pursuant to general international law.” Instead, he lists factors that would seem to influence legality including the voluntary or mandatory nature of the labelling scheme, the stages of the product cycle targeted, whether the environmental problems addressed are of a transboundary or global nature and the risks associated with them, and the development interests of the respective States.
The distinction between voluntary and mandatory schemes is most relevant from a perspective of sovereignty. Voluntary schemes leave it entirely at the discretion of producers to join a scheme and to consumers to choose a labelled product. The State does neither oblige domestic or foreign producers to participate in the scheme nor consumers to purchase them. Appleton notes, however, that the more a government successfully promotes a voluntary scheme, the more complicated the problem becomes, especially if certification criteria include non-product related production methods and processes (NPR-PPMs), i.e., production methods and processes that do not alter the physical characteristics of the product itself but cause less environmental impact in production and/or distribution. In case the environmental impact is entirely restricted to the producing country’s territory, its sovereignty is arguably influenced if the foreign importing State were to promote an ecolabelling programme incorporating such NPR-PPMs, especially if criteria would be established without consultation. This is reflected in Principle 12 of the 1992 Rio Declaration on Environment and Development which states: “Trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Unilateral actions to deal with environmental challenges outside the jurisdiction of the importing country should be avoided. Environmental measures addressing transboundary or global environmental problems should, as far as possible, be based on an international consensus.”
The objective of this section is to clarify what the Agreements of the WTO do and do not say about ecolabelling and to suggest that the respective roles of the WTO and other international organizations could be complementary with regard to ecolabelling.
The issue of the interaction of ecolabelling schemes and international trade rules often confuses international discussions of ecolabelling questions.[65] There appears to be a perception in some quarters that ecolabelling discussions at the World Trade Organization should be concluded prior to the development of international guidelines on this matter in other international fora.[66] However, it should be noted that the WTO does not claim to be the appropriate forum for discussions on the general usefulness of ecolabelling schemes or what constitutes appropriate criteria for assessing sustainability. Indeed, as the discussion below suggests, the WTO explicitly defers such issues to international agreements or bodies with appropriate expertise.
The Agreement on Technical Barriers to Trade
The WTO Agreement that directly addresses ecolabelling is the Agreement on Technical Barriers to Trade (TBT).[67] WTO Members negotiated the TBT Agreement to ensure that members do not use technical regulations or standards as disguised measures to protect domestic industries from foreign competition. The TBT is also intended to reduce the extent to which technical regulations and standards operate as barriers to market access, primarily by encouraging the development of international standards. International standards are expected to reduce the obstacles to international trade that can be created by the proliferation of numerous different standards and regulations in various countries.
The TBT Agreement distinguishes between technical regulations and standards. “Technical regulations” are defined as mandatory requirements for products or related process and production methods (PPMs). “Standards”, in contrast, are defined as voluntary requirements for products or related process and production methods.[68] Both regulations and standards may also relate to “terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or production method” (TBT Agreement, Annex I).
The rules of the TBT Agreement, including its Code of Good Practice for the Preparation, Adoption and Application of Standards (the Code of Good Practice), prohibit both regulations and standards from discriminating between domestic products and foreign products that are alike (the national treatment principle) and between ‘like products’ from different WTO Members (the ‘most-favoured-nation’ principle).[69] ‘Like products’ has been defined in past GATT and WTO dispute panel decisions to mean products with the same or similar physical characteristics or end uses. As a result, environmental trade measures based on distinctions between products based on their production or processing methods (PPMs) that do not in any way influence the physical characteristics of the products themselves have been found to violate these obligations (See Section 1.6.4.).[70]
The rules of the TBT also stipulate that Members shall ensure that technical regulations and standards do not create unnecessary obstacles to trade (TBT Article 2.2 and Annex 3). Furthermore, States are required to ensure that technical regulations use international standards that already exist (or that are near completion), or relevant parts of them, as a basis for their technical regulations, except when the international standards would be an ineffective or inappropriate means for the fulfilment of the regulations objectives.[71] In the case of technical regulations, if a regulation is applied in accordance with a relevant international standard, it is presumed not to create an unnecessary obstacle to trade (TBT Article 2.5).[72]
International standards that could be recognised by the TBT include those set by central government, local government or non-governmental standardising bodies.[73] International voluntary certification/labelling schemes and industry-led initiatives could possibly evolve to the point of serving as de facto international standards, without intervention from any inter-governmental process. The International Federation of Organic Agricultural Movements (IFOAM), a non-governmental body, for example, has established standards that are the basis for national organic labelling in several countries, and has publicly accepted the TBT’s Code of Good Practice.
In terms of standards, Members must ensure that standardising schemes operated by national governmental or intergovernmental agencies accept and comply with the Code of Good Practice (TBT Article 4.1). The extent to which the Code of Good Practice applies to local government and non-governmental standardising bodies depends on them accepting and complying with it.[74] However, Members are required to take such reasonable measures as may be available to them to ensure that local government and non-governmental standardising bodies as well as regional standardising bodies accept and comply with the Code of Good Practice, irrespective of whether or not those standardising bodies have accepted it (TBT Article 4.1).
The Code of Good Practice’s substantive provisions require a standardising body to, inter alia, 1) adopt existing or imminent international standards, except where they would be ineffective or inappropriate, 2) make reasonable efforts to harmonise standards at the international level, 3) make every effort to avoid duplication or overlap with the work of other standardising bodies and achieve a national consensus on the standards they develop,[75] and 4) make available to any interested party within the territory of a Member a copy of a draft standard submitted for comments, its most recent work programme and standards which it has produced (TBT Annex 3). While the TBT includes a specific statement that a technical regulation is applied in accordance with a relevant international standard is presumed not to create an unnecessary obstacle to trade (TBT Article 2.5), there is no similarly specific statement in the TBT or its Annexes on this issue with respect to standards.[76]
Finally, the TBT includes several specific provisions calling on all countries to ensure transparency in the development and application of standards and regulations in particular through the open dissemination of information about them.[77] It also calls on developed countries to recognize difficulties that developing countries may encounter in the formulation and application of technical regulations and standards, and to provide them advice and technical assistance for their endeavours in this regard (TBT, Article 11.). Developing country members are also to be provided differential and more favourable treatment given their special development, financial and trade needs (TBT, Article 12).[78]
The TBT Agreement and the Environment
The text of the GATT clearly states that some trade restrictions in the interest of conservation and animal and plant health are permissible, even though they violate the general principles of the GATT. The key Article of the GATT/WTO Agreements in terms of environmental issues is Article XX.[79] Article XX (b) of the GATT permits trade actions that are “necessary to protect human, animal or plant life or health”. Article XX (g) provides for actions “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption”. To qualify for any of these exceptions, a measure must also satisfy the requirements of the chapeau to Article XX.
While the TBT Agreement does not contain an explicit environmental exception, its preamble contains language paralleling that found in Article XX of the GATT. The preamble of the TBT Agreement recognises that “no country should be prevented from taking measures necessary to ensure... the protection of human, animal or plant life or health, [or] of the environment... at the levels it considers appropriate.”[80] In addition, Article 2.2 of the TBT Agreement provides that the “legitimate objectives” of technical regulations include “protection of human health or safety, animal or plant life or health, or the environment.”[81]
The TBT Agreement and Ecolabelling
There is ongoing debate about how the TBT Agreement’s different but related obligations on technical regulations and standards apply to ecolabelling initiatives. The WTO Secretariat suggests that the TBT agreement exerts “stronger control” over mandatory labels (those required by governments) than on voluntary or private ecolabelling schemes. However, the extent of control on each type of scheme is unclear.[82]
Ecolabelling schemes that are mandated by governments come clearly within the TBT’s rules on technical regulations and other relevant WTO rules.[83] Voluntary, government and non-governmental labelling schemes also appear to be indirect targets of certain trade disciplines.[84] Members are required to take ‘reasonable’ measures to ensure that voluntary standardising initiatives (which could include both government or non-governmental voluntary ecolabelling schemes) within its territory comply with the Code of Good Practice. (Analogous language found in the GATT requiring countries to take such ‘reasonable’ measures as are available to them has, in the past, been interpreted by dispute panels to require governments to take all constitutionally-available measures.[85])
Voluntary ecolabelling schemes for fisheries products do not appear, in principle, to contravene existing multilateral trade rules. The 1991 Tuna Dolphin decision of the GATT Arbitration Panel is instructive in this regard. While the panel found U.S. import restrictions adopted by the United States on tuna caught in association with dolphin to be GATT-illegal, it accepted the U.S. voluntary ‘dolphin safe’ tuna labelling scheme.[86] The panel noted that the voluntary label did not illegally restrict the sale of tuna since tuna products could be freely sold both with or without the ‘dolphin safe’ label, and because any competitive advantage conferred by the label depended on the free choice of consumers to give preference to tuna carrying the “Dolphin Safe” label.[87] While one could assume that a similar logic would apply to voluntary transnational ecolabelling schemes, to date, there is no similar precedent regarding the application of WTO rules to them.
The TBT Agreement and PPMs
Another unresolved issue is how the TBT Agreement applies to regulations or standards that invite consumers to discriminate not only on the basis of product characteristics, but also according to PPMs.
Two kinds of PPMs with significant environmental impacts can be distinguished. First, a process or production method can affect the characteristics of a product so that the product itself may pollute or degrade the environment when it is consumed or used (product-related PPMs). Alternatively, a process or method itself can have negative impact on the environment through, for example, the manner in which natural resources are harvested or extracted in the production phase (non-product-related PPMs).[88] These production externalities do not affect the product characteristics.
Under WTO rules, the sovereign power of countries to restrict imports if they fail to meet domestic product regulations and standards relating to the physical characteristics of a product is left undisturbed. However, the power to make distinctions based on standards and regulations pertaining to PPMs, which do not show up in the physical characteristics of the product, is contested. This is important because, in the context of ecolabelling, the most relevant regulations or standards are those relating to PPMs and their environmental impacts. Criteria for ecolabels for fisheries products are likely to be based on life-cycle analysis, whereby assessments of sustainability consider all phases of a product-production, processing, use and disposal. That is, ecolabels in the fisheries sector are likely to be predominantly awarded based on non-product-related criteria, particularly those related to harvesting methods (including type of gear used, level of by-catch, impacts on the marine habitats, compliance with management system and health of the stock of origin).[89]
At present, the applicability of the provisions of the TBT Agreement to either mandatory or voluntary ecolabelling schemes that are based on non-product-related PPMs is also unclear, at best ambiguous and continues to be hotly debated.[90] Indeed, this has been an issue of much discussion in the WTO’s Committee on Trade and Environment and Committee on Technical Barriers to Trade.[91] One issue on which there is broad agreement is that transparency plays a pivotal role in avoiding potential trade difficulties and increasing the legitimacy of such programmes and participation in them by parties interested in their development.
Opposition to distinctions between products based on PPMs is often a strategy to guard against disguised protectionism. Within the CTE, there is recognition that standards related to non-product related PPMs will differ between countries due to a variety of factors. However, there are concerns that distinctions between products based on PPMs could be based on: a) arbitrary rationales that could undercut the principle of comparative advantage (for instance, regulations prohibiting products produced by workers earning less than a certain minimum wage); and b) well-intended but parochial understandings of what is environmentally sound that are derived from domestic ecological conditions which may not apply to conditions in distant countries. The prospect of distinctions based on PPMs also raises fears that some countries will be able to impose unfair economic pressure on other countries (frequently less developed than the importer) to match domestic environmental standards in their own jurisdiction or lose market access.[92] Developing countries, in particular, are often concerned that by broadening the scope of the GATT to permit distinctions based on environmental PPMs, they could be venturing toward a slippery slope whereby pressures for discrimination between products based on social PPM considerations (such as labour standards and human rights) might also intensify with even more significant potential trade ramifications.
Another argument presented against PPMs is that whereas conformity with product characteristic based standards can be assessed in either the producing country or the importing country, PPM-based requirements could be evaluated only on the site of production which could make this kind of assessment more expensive. Finally, there are concerns that PPM-based regulations might compel producers to use less efficient or costly technologies/methodologies, and/or restrict foreign suppliers’ choice of technology.[93]
From a conservation perspective, the reluctance to permit PPM-based measures is problematic due to the increasing importance of PPM-based standards and regulations for effective environmental management. Domestic PPM-related measures are aimed at preventing environmental degradation caused by production processes, and as noted in a 1997 OECD Report, Domestic PPM-related requirements are important policy tools for promoting sustainable development.[94] Indeed, the conservation and sustainable use of fisheries depends on regulatory and management methods in the production phase (e.g., harvesting), as this is when considerable environmental impact occurs. PPM-related regulations and measures can be essential for controlling the environmental impact of consumption decisions. They also respond to the right of consumers to be informed about products they buy.[95] Finally, they offer the chance for greater efficiency because producers can compete to comply with standards in the most efficient way.
Trade implications of voluntary non-regulatory initiatives are related to efficiency, market share, and new market opportunities. Increased efficiency stems from the ability of individual companies to make cost-effective decisions regarding methods used to achieve objectives. If consumers easily recognize the certification, and subsequent label, then companies may protect and even enhance their market share (Mullett, 1997). New markets can come about. For example, the Body Shop International company, through their ethics of fair trade and community development, have led to a number of new product lines sourced out of developing nations (Kerr, 1998). In Germany, for example, the environmental label criteria are being increasingly included in specifications set by the public procurement agencies of the Federation, Laender and local authorities when tendering offers (OECD, 1992). Thus, significant positive trade implications are possible under ecolabelling programmes.
“Non-discrimination is the cornerstone of secure and predictable market access and undistorted competition: it guarantees consumer choice and it gives producers access to the full range of market opportunities. Subject to that requirement being met, WTO rules place essentially no constraints on the policy choice available to a country to protect its own environment against damage either from domestic production or from the consumption of domestically produced or imported products,” (WTO 1998). Most trade concerns can be met by ensuring transparency and non-discrimination in the preparation, adoption and application of ecolabelling schemes.
The Committee on Trade and the Environment of the WTO produced a report on ecolabelling, which endorsed the use of ecolabels as a means to encourage the development of environmentally conscious consumers (WTO/CTE 1996). It was recommended that all ecolabelling programmes, even private programmes, should maintain transparency. In addition, harmonization across nations is highly desirable to ensure non-discrimination. Achieving credibility as an ecolabel requires several things be true in international trading with a diversity of potential suppliers (MacMullen, 1999). These include:
If the above criteria for credibility are not achieved, and harmonization and transparency of ecolabelling programmes for marine capture fisheries are not achieved because of stakeholder disenchantment, then it is likely that there will be a growth in the number of ecolabelling programmes worldwide. If this occurs, there are additional implications for trade (Morris and Scarlett, 1996):
Larger firms in developed countries may possess an unfair advantage in the practice of ecolabelling seafood products from marine capture fisheries because they may absorb more readily the compliance costs and licensing fees associated with ecolabelling programmes. Many types of costs are incurred, including the cost of certification, costs of chain of custody certification, as well as possibly maintaining two separate inventories of ecolabelled and non-ecolabelled products.
Furthermore, developed countries may be in a position to make significant and costly changes to management systems as required by the principles and criteria. A significant concern arises from the fear that developing countries are not able to meet the environmental standards other countries set for product groups, afford the costs of certification, or find it more difficult to comply with all of the ecolabelling programmes’ chain of custody requirements. Imports from countries that cannot meet the labelling standards may sell their products in other developing nations where there are fewer consumers willing to pay more for environmentally friendly seafood. In addition, in developed nations where consumers have higher average incomes, and may have a willingness to pay additional for products with an ecolabel, products without an ecolabel will be de facto discriminated against. This certainly seems to be the case with organic agriculture products. The majority of the production and consumption of organic produce is in developed nations.
