Environmental labelling schemes are complex, causing concerns about developing countries’ and small businesses’ ability to export. How do you use labelling to inform consumers about environmental protection without jeopardizing these weaker players? Opinions are divided. Two WTO committees are grappling with the question.

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In the Committee’s work programme 

Labelling is one of the subjects assigned to the Committee on Trade and Environment (CTE). It is part of an item (3b) on the committee’s work programme in which the committee is assigned to consider the relationship between the provisions of the WTO’s agreements and the requirements governments make for products in order to protect the environment. (In addition to labelling, this includes standards and technical regulations, and packaging, and recycling requirements.)

In 2001, the Doha Ministerial Conference made this an issue of special focus for the regular CTE (i.e. the regular committee sessions that are not part of the Doha Round negotiations). (See paragraph 32(iii) of the Doha Declaration.)

The use of eco-labels (i.e. labelling products according to environmental criteria) by governments, industry and non-governmental organizations (NGOs) is increasing.

Concerns have been raised about the growing complexity and diversity of environmental labelling schemes. This is especially the case with labelling based on life-cycle analysis, which looks at a product’s environmental effects from the first stages of its production to its final disposal. These requirements could create difficulties for developing countries, and particularly small and medium-sized enterprises in export markets.

WTO members generally agree that labelling schemes can be economically efficient and useful for informing consumers, and tend to restrict trade less than other methods. This is the case if the schemes are voluntary, allow all sides to participate in their design, based on the market, and transparent.

However, these same schemes could be misused to protect domestic producers. For this reason, the schemes should not discriminate between countries and should not create unnecessary barriers or disguised restrictions on international trade.

Recent discussions

At the meeting of May 2007, the United States gave a presentation on the US “Energy Star” energy efficiency programme, a voluntary performance based labelling scheme covering more than 50 product categories. This self-certification scheme was created with the objectives to reduce greenhouse gas emissions and to facilitate consumers to identify and purchase products with enhanced energy efficiency. There is a demand for these products in the market, since energy efficient appliances, equipment, window and doors could cut down consumers' energy bills. Information was provided on how the relevant requirements are developed with guiding principles and involving public notifications as well as stakeholder consultations; how the label is used inside and outside the US; how the integrity of the label can be protected; and how coordination efforts have been made with other WTO Members on harmonization of specifications and testing procedures.

At the meeting of November 2008, Australia informed the CTE of its national experience on minimum energy performance standards and mandatory labelling requirements that had led to an increase in sales of energy efficient appliances in Australia.

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The ‘PPM’ problem 

A particularly thorny issue in the eco-labelling debate has been the use of criteria linked to processes and production methods (PPMs).

WTO Members agree that countries are within their rights under WTO rules to set criteria for the way products are produced, if the production method leaves a trace in the final product, for example cotton grown using pesticides leaving pesticide residue in the cotton itself.

However, they disagree about discriminatory measures based on “unincorporated PPMs” (or “non-product related PPMs”), i.e. process and production methods which leave no trace in the final product. For example you cannot tell whether a table has been produced from sustainably managed wood by simply looking at it.

The key question is: are these measures consistent with WTO agreements? Many countries argue that measures which discriminate between products based on unincorporated PPMs, such as some eco-labels, should be considered inconsistent with WTO agreements.

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Technical barriers too 

The 2001 Doha Declaration (Paragraph 32(iii)) tasked the Trade and Environment Committee to focus on environmental labelling, and some members believe that the results of discussions in the CTE could then be used as an input to the debate in other relevant WTO bodies, particularly the Technical Barriers to Trade (TBT) Committee.

However, many other members argue that the TBT Committee is better suited for the task. “Technical barriers to trade” covers product standards and labelling, and the latter, including environmental labelling, is regularly discussed in the TBT Committee under “specific trade concerns”. Most members believe that existing disciplines on technical barriers to trade are adequate to deal with environmental labelling, and that the TBT Agreement has created the appropriate balance of rights and obligations for both mandatory and voluntary labelling programmes.

For voluntary environmental labelling schemes, the TBT Agreement contains a “Code of Good Practice for the Preparation, Adoption and Application of Standards”. Agencies and organizations that develop labelling requirements are encouraged to accept this code.

One of the TBT’s tasks is to review the TBT Agreement’s implementation. It does this every three years. In the second review, in November 2000, the TBT Committee “reiterated the importance of any such labelling requirements being consistent with the disciplines of the Agreement, and in particular stressed that they should not become disguised restrictions on trade.”

In October 2003, the TBT Committee held a “Learning Event” on labelling to provide members with a better understanding of the preparation, adoption and application of labelling requirements. This took account of both the implementation of the TBT Agreement, and the impact of the requirements on market access. This event was based on real case studies, with a particular focus on developing countries’ concerns. It took into account a range of labelling schemes in different sectors and with varying objectives, including environmental labelling schemes.