An eco-label may be described as a label that certifies a product as having a low impact on the environment and thus being environment-friendly. Environment has been included in the framework of the WTO in an oblique way. While the WTO has no specific agreement dealing with environment, different WTO provisions confirm governments’ rights to protect the environment. There are some agreements that include provisions dealing with environmental concerns.

The agreement most directly related to eco-labelling is the Agreement on Technical Barriers to Trade (TBT Agreement). There is no specific mention of eco-labelling in the agreement. The definitions of “technical regulations” and “standards” therein, however, refer to “labelling requirements”. With “protection of the environment” being a policy objective included in the preamble of the TBT Agreement, labelling relating to the environment is thus seen to be covered by the TBT agreement.

Mandatory labelling falling under technical regulations is well-regulated being subject to the provisions of non-discrimination, necessity, proportionality, international standards, notification etc. Mandatory labelling, therefore, is not generally seen as an unnecessary obstacle to trade.

Voluntary labelling, falling under standards, is subject to the TBT provision of the “Code of Good Practice for the Preparation, Adoption and Application of Standards”. It is noteworthy that the code only binds, “standardising bodies” that accept the code. According to the code, such bodies are expected to harmonise standards at the international level. As governmental bodies are not regulated by the code, there is much room for protectionist misuse of voluntary eco-labelling prepared by such private entities.

Private entities taking upon themselves the task of standard setting represent varied and disparate interests ranging from industrial associations to non-profit environmentalists. The standards advanced by a private initiative are not subject to any checks and balances and lack transparency. Yet, such private entities acquire respectability as international standard-setters. The role played by such non-governmental bodies in the formulation of standards has in effect privatised environmental governance.

Privately formulated standards are discriminatory as they disregard the financial burden of compliance placed upon developing country manufacturers visà developed country competitors who usually absorb such costs. Compliance substantially diminishes the competitive advantage of a developing country manufacturer whereas non-compliance with such standards severely restricts its access to those markets where such standards prevail at retail level. Voluntary eco-labelling thus creates market distortions and is anti-competitive in its effect.

In the US private/voluntary standards and certification schemes are subject to scrutiny under the anti-trust law. The underlying logic is that voluntary standards promoted by one industrial group develop into industry standards and are abused to gain edge over competitors, for whom compliance assumes necessity dictated by market requirement.

Developing countries have submitted to the WTO Committee on Trade and Environment (CTE) the problems their producers face as a result of voluntary environmental standards including eco-labelling, which act as disguised restrictions on trade while being immune from WTO regulation by reason of their non-governmental status. After a monitoring of the effect of voluntary eco-labelling on market access to its products, India highlighted to the CTE the prohibitively high cost of compliance with eco-labelling , particularly in textiles and leather (in cases, rising by 33 per cent of the export price) and the problems faced by Indian manufacturers in accessing technologies, developing testing laboratories and verifying compliance.

An example of how a voluntary private standard can affect market access for developing countries is the case of the adverse affect on the Colombian cut flower industry by the introduction of a private, voluntary eco-labelling programme--the Flower Label Programme (FLP). FLP was a German industry-led private initiative that ostensibly aimed to restrict the use of toxic pesticides in the cultivation of such flowers. While Colombia’s global flower exports showed an upward trend, exports to Germany declined significantly which was widely attributed to FLP. The Colombian government pointed out that the criteria used in the FLP eco-label were arbitrary; the scheme itself was applied in a discriminatory manner; imposed significant compliance costs; and was in effect a mandatory measure since anyone who did not accept the FLP scheme was subject to ‘negative pressure’.

A hitherto ignored aspect of voluntary eco-labelling is the far-reaching implications it has on the net outcome of tariff reductions conceded by developing countries in multilateral tariff negotiations. Apart from restricting market access for developing countries, private standards diminish the return value of the concessions made whereby the benefit of tariff reduction obtained by developing countries is nullified. Thus, at times, the use of private standards substantially restricts market access and also renders multilateral tariff reduction ineffective.

Another area where particularly developing countries have to be on guard is with respect to efforts directed at legitimising eco-labels on processing and production methods which are not related to a product’s characteristics i.e. non product related PPMs or NPR-PPMs. In clear terms, the TBT Agreement permits standards and regulations applied in the name of environmental protection only as regards the actual physical properties of goods and not the goods’ production process. An eco-label relating to a NPR-PPM makes an ecological evaluation of the method of production rather than of the product itself and invites consumers to discriminate on the basis of method of production rather than on the basis of product characteristics. The legality of eco-labels relating to PPMs that are not visible in the physical characteristics of a product and relate to the means of production is much contested.

Developing countries are exerting themselves in the Committee on Trade and Development (CTE) at the still ongoing Doha round negotiations. The agreed framework of the negotiations particularly paragraph 32 (i) and (iii) of the Doha Declaration provides opportunity to view the options for the WTO to address market restrictions faced on account of voluntary environmental standards, particularly eco-labelling programmes. It is for developing countries including Pakistan to make the best of the opportunity.

Besides Doha, WTO members have the opportunity under Article 15 of the TBT Agreement to review the operation and implementation of the agreement in its Triennial Review, with a view to ‘recommending an adjustment of the rights and obligations of this agreement…to ensure mutual economic advantage and balance of rights and obligations’. This provides developing countries the opportunity to review contentious areas of the agreement. A prudent negotiation stand would be to press for mutual recognition of eco-labels and eco-standards based on the concept of ecological equivalence rather than for harmonisation of standards. Mutual recognition would be equitable and make it difficult for standards to be put to work as barriers to trade.

(The writer is the chairman, All-Pakistan Textile Mills Association-Punjab)