V. MULTILATERAL TRADE AND ENVIRONMENT AGREEMENTS

[ V | V-A | V-B | V-C | V-D | V-E ]

E. International Commodity-Related Environmental Agreement

[ E | E-1 | E-2 | E-3 | E-4 ]

3. Compatibility of International Commodity-Related Environmental Agreements with GATT/WTO

The main international institution governing trade is GATT, which came into being in the late 1940s. Its purpose is to set out the rules and procedures to be followed by nations in their international trade relationships. It is especially aimed at reducing trade barriers, in order to constrain nations from imposing tariffs and quotas on imports or subsidies on exports, and in general to ensure the move toward conditions of free trade. One section of the GATT agreement prohibits what are called non-tariff barriers, such as excessive inspection requirements, excessive product specifications etc. But there are exceptions to the rules: for example, under articles XXb and XXg, governments are allowed to set restrictions in order to achieve the protection of human, animal or plant life and health, and the conservation of natural resources, respectively.

The two types of ICREA, Type A (standard setting) and Type B (financial transfer) can be designed to be compatible with GATT rules. For Type A, exporting countries should be free to apply, on a voluntary basis, standards for processing and production methods and eco-labelling in the context of international agreements, provided that neither discriminate against non-parties to the agreement. Type A will not be compatible with existing GATT rules if mandatory processing and production methods standards and eco-labelling are unilaterally imposed by importing countries. Type B ICREAs can be made consistent with the GATT system of trade rules in several aspects (Kox, 1994), as discussed below.

Import tariffs should not be created as trade barriers to protect domestic producers. For several primary products exported from tropical countries, the commodity does not compete with a similar commodity in the importing countries. Moreover, import tariffs would be created only in the context of an international agreement under which exporting countries participate voluntarily. Revenues from import tariffs would be fed into an ICREA fund and would be channelled back to the exporting countries to finance their environmental programmes. Thus, import tariffs for the sake of an ICREA fund would likely be seen by exporting countries as trade barriers.

Exceptions to GATT rules on non-tariff barriers allow governments to take measures which deviate from the general provisions of the agreement. In addition to exemptions XXb and XXg, under which ICREA should qualify, waiver XXh allows trade-related measures under an intergovernmental commodity agreement. That exemption could also be relevant to ICREAs provided that there is broad country participation to the agreement.

One of the major disadvantages of ICREA is the "free rider" problem. Non-participating producer countries could enjoy higher cocoa bean prices and/or perhaps could offer lower prices and gain a higher market share of the product. Trade sanctions against free riders will be avoided as far as possible. Instead, participation and compliance by exporting countries can be stimulated through positive incentives of financial transfer and technology cooperation.

An ICREA of Type B does not prescribe the formulation of a country's national environmental policy measures. Countries have sovereign discretion in determining their environmental targets and in implementing measures in relation to the environmental impacts of commodity production, technological options and national priorities.

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