RESTRICTED
PREPARATORY COMMITTEE PC/SCTE/W/5
FOR THE 14November 1994
WORLD TRADE ORGANIZATION
(94-2395)
SUB-COMMITTEE ONTRADE AND ENVIRONMENT Original: English
ECO-LABELLING: FRAMEWORK AND ISSUES
Submission bytheUnited States
I. ECONOMIC AND ENVIRONMENTAL FRAMEWORK: WHY LABEL?
A. Theenvironmental perspective
1. Advantages
(a) Provides information about environmental externalities.
- Consumer preferences canaffect extent ofinternalization ofexternalities through
purchasing decisions.
- With accurate information, more environmentally friendly production/consumption
patterns encouraged.
- Market thusreinforces efforts tointernalize environmental costs.
(b) Stimulates eco-interest.
2. Disadvantages/concerns
(a) Would technology-based standards tendtodiscourage innovation (this isnotunique to
eco-labelling)?
- However, itisargued thatincertain circumstances, eco-labelling standards mayserve
asacatalyst totechnological development.
(b) How caneco-labelling schemes involving judgments about environmental friendliness or
preferability bedesigned inawaytoeffectively communicate thepossible trade-offs among
different environmental impacts?
(c) Should eco-labelling schemes takeintoaccount variances inlocalenvironmental situations and
priorities? How?
(d) Could proliferation ofdifferent eco-label schemes harm their credibility andthustheir
effectiveness?PC/SCTE/W/5
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B. Theeconomic perspective
1. Advantages
(a) Importance ofinformation tomarket outcomes.
- Lack ofinformation orfalse/misleading information about traded goods canleadto
inefficient resource allocation andwelfare loss.
- Thus, market outcomes based ondecisions made with key information
deficiencies maybelessthanoptimal.
(b) Market-based policy tool, allows consumers todirectly express environmental
preferences.
2. Disadvantages/concerns
(a) Canconsumers identify themeaning ofthelabel(informational andeducation campaigns)?
(b) Would aproliferation ofeco-labelling contribute togreater market segmentation andlosses
ineconomies ofscale?
(c) Doeslabelreflect objective criteria relative toconsumer preferences anddoesitprovide ameans
forobjectively evaluating theperformance ofproducts orproducers according tothose criteria?
C. Thebusiness perspective
1. Advantages
(a) Management tool: producers 'examination/improvement ofproduct orprocess maystimulate
technological advance, reduce pollution andsavemoney.
(b) Marketing tool: tapintoeco-consumerism.
(c) Business opportunity: certification companies address market information void.
2. Disadvantages/concerns
(a) Towhat extent dothecosts ofcomplying with different eco-labelling schemes inhibit
participation ofacompany interms ofcompeting incertain markets?
(b) Howtohandle situation where there areconflicts between domestic regulatory requirements
andforeign eco-labelling criteria?
(c) What isthepotential fordisguised barriers totrade?PC/SCTE/W/5
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D. Thegovernment perspective
1. Eco-labelling asapossible alternative orsupplement foraddressing environmental effects and
externalities.
(a) Examine environmental/economic aspects ofchoice between policy instruments suchas:
- prohibition onuseofinput xtoinproduction ofgood y;
- taxoninput xusedbyproducers ofgood y;
- labelforgood ytelling whether input xwasusedinproduction process.
2. Environmental impacts/effects existwhether ornotthese arereflected inconsumer/business
preferences.
(a) Eco-labelling depends onthemarket outcome, doesnotcompel adirect environmental course
ofaction.
3. Governments maywant tocontrol certain aspects ofeco-labelling asameans topromote
environmental improvement.
(a) Arecriteria developed inrelative orabsolute terms andwhataretheenvironmental andtrade
implications ofeither choice?
(b) Arecriteria aimed ataddressing domestic environmental issues? Global issues?
4. Governmentswhosecompaniesbelievetheyarebeingunfairlyimpactedbyeco-labellingschemes
mayperceive these tobeforms ofdisguised protectionism, thusleading totrade frictions.
5. What aretheenvironmental credibility, competition policy andconsumer protection issues
involving manufacturers 'useofenvironmental claims?
(a) Case study: Joint FTC-EPA guidelines
II. QUALITY, UTILITY, RELEVANCE OFINFORMATION PROVIDED?
A. Basic principle -information about fullenvironmental impact ofproducts would enable better
decision-making byconsumers
1. However, currently there arekeymethodological shortcomings thatmake theobjective
determination ofthefullenvironmental impact ofproducts difficult.
(a) Eco-labelling schemes thatassess theenvironmental preferability ofoneproduct/process versus
others must dealwithtrade-offs between differing environmental impacts andmust involve
assumptions andjudgments.PC/SCTE/W/5
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B. Different types ofeco-labelling programmes, different goals
1. Sealofapproval-identifiesproductsorservicesasbeingoveralllessharmfultotheenvironment
thansimilar products orservices withthesame function.
2. Report card-information about aproduct orcompany 'senvironmental performance inmultiple
impact categories. Mayormaynotinvolve anexplicit attempt todraw overall assessment ofone
product/company versus another.
3. Single attribute certification -validates truthfulness ofanenvironmental claim made bythe
manufacturer orcertifies thataproduct hascertain environmental attributes.
4. Informationdisclosure-neutralinformationgivingfactsaboutproductthatmightnototherwise
bedisclosed bythemanufacturer, usually mandatory.
- Multi-issue, information disclosure labels aresimilar inconcept tonutrition labels in
theUnited States.
Another wayoflooking atthedifference between programmes istoexamine whether they
merely aimatproviding quantifiable information about theproduct orwhether theyattempt todraw
some judgments about therelative merits ofoneproduct versus other, competing products.
C. Life-cycle assessment (LCA)
1. Fundamental toschemes thatattempt toassess theoverall environmental friendliness or
preferability.
(a) Widespread agreement ontheneedforrigorous, scientifically justifiable examination ofall
aspects ofaproduct 'slifecycle inorder toprovide credible andcomplete inventory ofa
product 'senvironmental effects.
(b) Manufacturers findLCA very useful asaninternal tooltodetermine theenergy and
environmental impacts ofaparticular process orproduction method foragiven product.
2. Current limitations intheuse/interpretation ofLCA
(a) LCA isnotyetwellenough developed asatechnical tooltoallow specific comparisons
promoting oneproduct asbetter fortheenvironment thananother.
- While accepted models forsuchinternal LCA inventories areavailable, there isno
international consensus onanacceptable model onwhich tobasecomparisons between
companies, processes orproducts, noristheiragreement ontheroleofLCAasapublic
policy tool.
- Certain countries arecommitted tousing LCAasabasisforeco-labelling regimes and
significant work isbeing undertaken tostrengthen andimprove LCA asananalytical
tool.
(b) Given these methodological issues, theuseofLCA results tosetcriteria foreco-labelling or
tosubstantiate environmental claims iscause fordebate.PC/SCTE/W/5
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- Caution isurged thatLCA must usevalidated scientific methods, avoid arbitrary
hierarchies, evaluate trade-offs andcomplexities among various environmental
parameters, andadequately dealwithdifficult questions ofenvironmental resource
valuation.
- Thelimits ontheuseofLCA havegiven risetoquestions whether LCA provides a
clearbasisforjudging overall "environmental friendliness". There isaneedforfurther
analysis ofLCA methodology.
- Analternative useofLCA thatmaybelessproblematic involves theidentification of
specific ranges ofimpacts orproviding thebasis fordisclosure ofinformation ona
product 'smultiple environmental impacts.
D. What environmental impact istheeco-label addressing?
1. Local, regional ornational environmental impact.
(a) Towhatextent should criteria reflect local, regional ornational environmental priorities and
endowments, aswellasconsumer preferences?
(b) What stages intheproduct life-cycle areimportant (e.g., production, transportation,
consumption, disposal)?
- Should theeco-label address production-related concerns withregard toimported
products?
2. Environmental impact bothincountry applying eco-label andincountry oforigin oftheproduct.
(a) Again, whatstages intheproduct life-cycle areimportant? Doesthisdiffer asbetween domestic
andimported products?
(b) Whose environmental situation would beusedasbasis forcriteria? Arecriteria based on
domesticprioritiesandendowmentsappropriateforapplicationtoproductionabroad,particularly
ifthose criteria arerelated toprocess andproduction methods (PPMs)?
3. Transboundary, regional orglobal environmental impacts
(a) Towhat extent should criteria bedetermined nationally orbased oninternational
standards/agreement?
(b) Towhat extent would broadly-based international criteria render eco-labels ineffective in
promoting thedesired environmental outcomes atthenational level?
4. Does thelabelcover thepackaging, contents, both?
III. TRADE-RELATED ISSUES RAISED
A. Coverage under multilateral trade rules
1. Towhatextent areeco-labelling requirements covered byTBTdisciplines?PC/SCTE/W/5
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(a) TBTrules appear toapply lessstrictly tovoluntary standards.
(b) Towhatextent doeseco-labelling orcurrent TBTrulesraiselegalandpolicy questions about
thedistinction between "voluntary" and"mandatory" eco-labelling programmes.
- Does thedegree ofgovernment involvement inthedevelopment orimplementation
ofaneco-labelling scheme affect thisvoluntary-mandatory distinction?
(c) Towhatextent dothetradeimplications ofeco-labelling schemes thatinvolve sealofapproval
labels oroverall lifecycle assessments andjudgments about "environmentally preferable"
products differ from those aimed atinformation disclosure only?
(d) Theoperational effect ofnewUruguay Round TBTdisciplines andCode ofGood Practice
hasyettobedemonstrated.
B. Discrimination
1. Eco-labelling isdesigned toallow market participants todiscriminate asbetween products in
making purchasing decisions.
2. Important toavoid discrimination between domestic andforeign applicants foreco-labels or
asbetween different foreign applicants. Questions toconsider:
(a) Isthere openaccess todevelopment ofcriteria?
(b) Areallqualifying products allowed toreceive label?
(c) Arecriteria neutral, objective andvalidly related toenvironmental protection?
(d) Onwhatbasis, ifany,arethecriteria revised?
3. Environmental conditions andpreferences reflected intheeco-labelling criteria
(a) Localities maywishtogivemarket expression totheirenvironmental conditions andpreferences
through eco-labelling criteria.
- Arethecriteriabasedonnationalenvironmentalendowments,preferencesandregulatory
regimes, andtowhatextent arethese applicable to/compatible withsituations existing
inother producing areas?.
- Towhatextent should consideration begiven tosimilar orequivalent standards applied
inother countries?
- What isthepotential forlocalinterests to"capture" thechoice ofproducts, criteria
andthreshold levels totheirownadvantage?
4. Focus ofcriteria onphysical product characteristics and/or process andproduction methods.
(a) Considerable difference ofviews.PC/SCTE/W/5
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C. Adverse trade effects/transparency
1. What arethepotential technical/administrative barriers?
(a) Lackoftransparency ofproduct selection, criteria development andthreshold setting processes.
(b) Difficulty forexporters togaininformation about schemes, failure tounderstand criteria.
(c) Process ofobtaining labelorensuring compliance might posegreater difficulties forforeign
producers.
(d) Potential formarket fragmentation arising from different eco-labelling regimes.
(e) Differentials incosts andaccess tomarks.
2. Towhatextent isharmonization ofeco-labelling programmes ormutual recognition ofcredible
national programmes appropriate?
(a) Canharmonizationbesensitivetonationalneedsandpoliciesforlocalenvironmentalprotection?
(b) Towhatextent willharmonization/mutual recognition helpavoid technical trade barriers?
(c) Howdependent istheviability ofharmonization ormutual recognition oncredible certification
toavoid misleading consumers?
3. AreGATT/WTO transparency requirements foreco-labelling programmes sufficient?
Disagreement inEMIT.
D. Costs andcompetitiveness
1. What arethedirect costs tofirms ofparticipation ineco-labelling schemes andhowableare
firms toabsorb these costs?
(a) Application forproduct certification
(b) Annual feesforuseoflabel
(c) Petitions tohavenewproduct categories covered
(d) Delay inintroducing newproducts, additional barrier toentry inamarket.
2. Towhatextent doexporting firms mayfacehigher coststomeetavariety ofdifferent labelling
requirements indifferent markets?
(Theissues listed intheabove sections ondiscrimination andtechnical barriers totrade can
alsoraisecompetitiveness concerns.)PC/SCTE/W/5
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IV. ENVIRONMENTAL PERSPECTIVE ONRELATIONSHIP WITH TRADE RULES
A. Development oflabelling programmes isatanearly stage. Different ideas, methods being
tested
1. Towhatextent doweneedtoprovide forfurther flexibility intraderulesforentities todevelop
effective labelling systems?
2. How canthisbestbeaccomplished while taking dueaccount oftrade concerns?
B. Eco-labelling standards asapotential catalyst toimproved environmental protection and
technological development
1. Howcaneco-labelling schemes bedesigned tohaveapositive effect inimproving standards
andbestpromote thedevelopment ofnewprocesses andtechnology thatarelessresource intensive?
2. How caneco-labels bedesigned toencourage flexibility andinnovation inpursuit of
environmental improvement?
C. Eco-labelling asabasis tohelpcorrect market imperfections andpromote internalization of
environmental costs, which willhelptoensure thattrade isconsistent withandsupports
environmental protection andsustainable development
D. Cooperative work oneco-labelling asameans topromote bothenvironmental andtrade
objectives
E. Development ofinternational environmental standards orcriteria/indicators forsustainable
development tostrengthen thebasisforeco-labelling andhelpidentify environmental impacts
linked totraded products
V. INTERNATIONAL FOCUS ONECO-LABELLING METHODOLOGY ISSUES
A. Berlin Statement onEnvironmental Labelling (1990)
1. Products and/or product groups mustbelooked atinacomprehensive andtechnically sound
way.
2. Requires thorough assessment, where possible comprising theentire life-cycle ofaproduct
andtherelevant environmental aspects which apply.
B. Lesvos Statement onEnvironmental Labelling (UNEP -1991)
1. Determination ofcriteria based onlife-cycle review ofaproduct category.
2. Criterialevelsestablishedtoencouragethedevelopmentofproducts/servicesthataresignificantly
lessdamaging totheenvironment.PC/SCTE/W/5
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C. International Organization forStandardization (ISO)
1. Draft principles oneco-labelling, TC207Sub-Committee oneco-labelling, asofSummer 1994.
(Subject tochange)
(a) Environmental labelling shallbetruthful andnon-deceptive.
(b) Environmental labelling should, wherever appropriate andpossible, incorporate life-cycle
thinking.
(c) Information usedtoassess theenvironmental impact ofaproduct orservice shallbemeaningful,
accurate, verifiable (thatis,collected using methodology thatisbased onprevailing scientific
principles andthathasbeenshown toberepeatable andreproducible).
(d) Testing methods should follow ISOorother recognized standards wherever appropriate and
possible.
(e) Theprocessandmethodologyusedinanenvironmentallabellingprogrammeshallbetransparent
toallpotentially affected parties.
(f) Environmental labelling programmes andschemes should beaccessible toallinterested parties.
(g) Effective communication ofinformation onenvironmental attributes ofproducts andservices
should beprovided byenvironmental labelling claims, programmes andschemes.
(h) Environmental labelling should benon-discriminatory initstreatment ofdomestic andforeign
products andservices (i.e., eco-labelling schemes should notgiverisetotrade barriers.)
(i) Environmental labelling criteria should notinhibit but,where appropriate, should encourage
technology innovation andimproved environmental product design andperformance.
D. Intergovernmental Organizations (UNCTAD, UNEP, OECD)
1. United Nations Conference onTrade andDevelopment (UNCTAD) andUnited Nations
Environmental Programme (UNEP)
(a) UNCTAD hasbegun analysis ofeco-labelling asanenvironmental policy tool.Thishasresulted
inanumber ofpapers.
- "Green Consumerism, Eco-labelling andTrade"
- Adiscussion paper entitled "Eco-labelling andInternational Trade", (May 1993)
describes theprocedures foreco-labelling programmes andthepotential effects ofsuch
programmes ondeveloping countries.
(b) UNCTAD andUNEP areconsidering jointaction todevelop initiatives oncertification for
"environmentally friendly" productsPC/SCTE/W/5
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2. Organization forEconomic Cooperation andDevelopment (OECD)
(a) TheOECD developed apaper entitled "Environmental Labelling inOECD Countries" (1991)
(b) More recently, OECD hosted aworkshop onLife Cycle Management andTrade
(20-21 July1993) toexplore various usesoflifecycle assessment andtheenvironmental and
tradeconcerns associated withthem. Thisworkshop, asummary report ofwhich isavailable,
included discussion ofthetrade implications ofeco-labelling.
(c) TheOECDalsosponsoredaworkshopinLondon(6-7October1994)explicitlyoneco-labelling.
Asummary report ofthisworkshop willbeproduced.