The international harmonization of environmental policies is not a new issue; its pros and cons have been debated for twenty years or more. The Agreement on Technical Barriers to Trade (the Standards Code) of the General Agreement on Tariffs and Trade (GATT) encourages the harmonization of standards internationally to avoid trade distortions. Similarly, the OECD Guiding Principles Concerning the International Economic Aspects of Environmental Policies of 1972 recommend harmonization of environmental standards where valid reasons for differences do not exist and where there are significant obstacles to trade.
The context for this debate changed in the 1990s with the resurgence of interest in trade and environment linkages. The focus and purpose of environmental policy harmonization have changed, and are posing new policy questions. Previously, harmonization efforts tried to converge health and safety and environmental product standards as a way of facilitating international trade. Now the focus is on increasing the international compatibility of other types of environmental policy instruments--for example, ambient standards, process standards, economic instruments, and eco-labeling schemes. That is, environmental concerns--not trade considerations--are more likely to drive these newer harmonization efforts. So we see environment-trade conflicts emerging now that are far different from those of the previous twenty years.
What Is Harmonization?
The term "harmonization" is inexact and now encompasses the different processes for enhancing the use of policy instruments internationally. For the most part, the purpose of these efforts is not so much to achieve identical regulations or standards, but to converge international methods for developing and administering standards. Such approaches include pre-market harmonization, mutual recognition, equivalency, and reference standards. To date, these approaches have been applied almost solely to product standards (particularly for food and chemicals), and are primarily trade-promoting rather than environment-enhancing concepts. Nevertheless, this does not mean that related environmental benefits do not also sometimes accrue.
Product standards set criteria for the design, content, operation, and disposal of products to minimize health and safety or environmental damage. Because they are interactive, health and safety standards and environmental standards sometimes overlap--as in the ease of pesticide use, which leaves residues in food and drinking water. Generally, environmental product standards try to prescribe, within various tolerance limits, the physical or chemical properties of a product and determine what the maximum permissible pollution emissions are. Examples include the limits on contaminants in food products, noise standards for consumer appliances, and permissible emissions from automobiles.
Pre-market harmonization relates to the coordination of administrative procedures for review, approval, or registration of products before they reach the market. Pre-market harmonization is practiced, for example, in the OECD Chemicals Program, which coordinates commonly accepted procedures for chemical safety testing before it authorizes product marketing. This has resulted in the development of guidelines for testing chemicals, the establishment of principles of good laboratory practice, requirements for a pre-marketing set of data, and the agreement of rules on the mutual acceptance of data. Pre-market harmonization is also designed to converge the risk assessment process with the evaluation of data from the harmonized testing procedures. This can hasten agreement on the criteria for identifying the potential adverse health and environmental effects of a product or process. Despite the soundness of this approach, countries may still differ significantly in their perceptions of risk and the levels of risk they will accept in connection with a product or process. This in turn makes trade disputes possible.
With mutual recognition, products lawfully manufactured and sold in one country may enter other countries--broadly implying the mutual acceptance of one another's standards. Mutual recognition does not try to harmonize standards as much as it tries to ensure the free flow of goods across borders. The most far-reaching application of the mutual recognition and acceptance approach is in the food trade within the European Community. Member states can maintain national product standards, but they cannot prevent the sale within their own boundaries of products that meet the standards in other EC member states. The only exception to this is when the invocation of the national standard is necessary to protect the public health and the consumer. The advantage of mutual recognition is that it can remove trade impediments arising from less essential standards and thus allow harmonization efforts to focus on narrower and better-defined set of standards. However, applying mutual recognition to a broad range of environmental standards and to countries with wide divergences in environmental preferences is not likely to be successful.
Equivalency assumes that if two different standards have an equivalent effect, then a country should allow goods to enter its market based on these standards. Equivalency affords the same degree of protection to each country, but allows regulations or standards to be quantitatively different. It has the advantage of recognizing the different circumstances under which countries protect their consumers and environments, while at the same time recognizing the different conditions and factors that influence standard-setting. Equivalency, for example, is an important element in the U.S.-Canada Free Trade Agreement. The two countries have sought an open-border policy with respect to trade in agricultural and other designated goods, basing that policy partly on "making equivalent" technical regulations and standards. The agreement's chapter on agriculture includes accords to make equivalent and to harmonize, where possible, testing and evaluation procedures, labeling requirements and residue tolerances for certain chemical products. However, there may be considerable national differences of opinion as to whether different standards provide an equivalent guarantee of health and safety protection or environmental protection. For this reason, methodologies for measuring equivalency and dispute settlement procedures are needed.
The most comprehensive approach to harmonization is to establish, through multilateral bodies, internationally accepted reference standards for products and processes. For example, the draft GATT Decision on Sanitary and Phytosanitary Measures directs countries to base their sanitary and phytosanitary measures on existing international standards, guidelines, or recommendations. It recommends increased reliance on international standards organizations: the Codex Alimentarius Commission (a joint World Health Organization/Food and Agriculture Organization agency), the International Office of Epizootics, and the International Plant Protection Convention. Countries can adopt standards more stringent than those set by these organizations if they can show a scientific justification for doing so. There is also some allowance for higher standards if they are based on internationally agreed-upon risk-assessment techniques. Arriving at reference environmental standards is difficult because of the ongoing debate about whether such standards should be ceilings or floors for specific national regulations. National differences in establishing standards higher than the international norm and in giving relatively more weight to science or risk assessment can lead to significant disputes.
Beyond the Harmonization of Product Standards
The need for and ways of harmonizing environmental policy instruments other than by establishing product standards have not been extensively evaluated. Most harmonization stems from the desire to reduce potential trade conflicts arising from different product standards rather than from the need to achieve environmental goals. Now, however, we are beginning to see the convergence of ambient and process standards, economic instruments, and life-cycle management approaches--applied particularly to transfrontier and global environmental problems. Because we now recognize the interdependence of the environment with human activity, it may be time for harmonization of different types of environmental policies. Such harmonization is necessary when, for example, activities by one country negatively affect the environment of other countries (for example, transboundary pollution), endanger the global environment (for example, ozone depletion and climate change), or affect the common stock of resources (for example, diminishing wildlife populations).
Ambient standards, which are a type of quality standard, set maximum permissible concentrations of pollutants in environmental media like air, water, and soil. Examples are water quality standards on levels of organic pollution in rivers, standards on unacceptable levels of pesticides in soil, and standards on actionable noise levels in residential areas. As a general rule, it is undesirable to harmonize international ambient standards. Ecological well-being and economic efficiency demand that these standards be suited to local conditions and environmental preferences. However, harmonization of ambient standards may be useful in cases in which the environment to be protected is common to several countries and in situations of transfrontier pollution. In agreeing on general ambient or quality objectives, countries can then individually choose the most cost-effective means for achieving these goals. Thus, countries might set common ambient standards for a shared river or regional atmosphere, but leave attainment methods to the judgment of individual nations.
Process standards are government environmental regulations on production methods, technologies, and practices. They include emission and effluent standards, performance and design standards, and practices prescribed for natural resource sectors. Emission and effluent standards specify permissible levels of pollutants from a process or piece of equipment, usually expressed per unit of product or per unit of time. Process standards for natural resource and agricultural sectors might be prohibitions on certain logging and fisheries practices, or on agricultural chemical run-off. As in the case of ambient standards, the international harmonization of process standards would not generally further environmental goals, since these standards vary most efficiently according to national conditions and preferences. However, making process standards more compatible could be advantageous in cases of transborder and global environmental problems. In certain sectors, international agreement on pollution control levels and techniques or harvesting practices may be essential to coping with global ecological problems.
Economic instruments affect the costs and benefits of alternatives that are open to economic agents, influencing their behavior in a way that is favorable to the environment. They typically involve a financial transfer between polluters and the community, such as charges, fees and taxes, or the actual creation of new markets--as in the case of marketable permits. Examples of economic instruments are emission charges and taxes on the discharge of pollutants into air, water, or soil; user charges for the costs of collective or public treatment of effluents and wastes; and product charges on environmentally harmful goods like chlorofluorocarbons. Marketable permits are environmental quotas, allowances, or ceilings on pollution levels that can be traded. In general, there is no pressing need to harmonize economic instruments when they address local environmental problems. But as with other types of environmental measures, the case for convergence is strongest when dealing with transfrontier or global pollution. Harmonization through marketable permits or taxes may be the key to addressing certain environmental challenges, such as carbon taxes to stem climate change. Because appropriate economic instruments have important implications for relative competitiveness and trade, it is likely that that they will be introduced only through coordinated regional or international agreements.
Eco-labeling and eco-packaging programs are examples of the trend to life-cycle management approaches. These primarily cover the environmental costs associated with the disposal of goods, but will increasingly pertain to production. Eco-labeling programs are mostly voluntary, and help the consumer choose products on environmental grounds. Such labels include those identifying biodegradable detergents, recycled paper products, environmentally safe batteries, and dolphin-safe tuna. New government programs, including deposit refunds and mandatory packaging rules, promote the return or recycling of products and containers. Well-coordinated national eco-labeling and eco- packaging programs will reinforce their underlying ecological soundness. At the same time, they can maximize the potential for changing practices that endanger shared ecosystems, plant supply, and animal populations. Proposals to increase the compatibility of national programs range from systems of mutual recognition to harmonizing labeling and recycling procedures. Such harmonization would imply a significant degree of international agreement on the underlying criteria for awarding eco-labels and regulating eco-packaging.
Harmonization for Environmental Purposes
In general, the scope for harmonization of product standards is greater than for other types of environmental policy instruments. That is, product standards are less subject to variation because of geographic or environmental conditions. The significant economic and trade advantages derived from similar product standards have prompted international organizations to engage in harmonization not just in the environmental arena.
Harmonization reduces the non-tariff barriers posed by testing and certification of products and the administration of standards. The private sector promotes harmonization of product standards, because it is expensive for producers to diversify products enough to meet the requirements of different importing countries. And uniformity of products usually benefits consumers.
Harmonization of environmental ambient and process standards also yields trade advantages. Such convergence keeps the costs of complying with different national regulations from modifying the relative industrial competition in international trade. It helps neutralize inter-country differences in environmental regulations and the shifts in foreign investment from varying environmental costs. Regulatory and cost differences allegedly promote environmentally unfriendly foreign investment, reducing job opportunities at home and creating pollution havens abroad. Earlier studies have failed to substantiate these effects, largely because environmental expenditures constitute a relatively small share of the overall investment costs of firms. However, environment-related competitiveness and investment concerns may warrant reexamination in natural resources sectors and regional trade arrangements among countries with widely divergent environmental standards.
The disadvantages of harmonization are most often enumerated by environmentalists. Harmonization of product standards may lead to lower levels of environmental protection through the ' lowest common denominator" effect. And environmentalists find fault with harmonization of ambient and process standards because of the variations in environmental endowments and national environmental preferences. For reasons of both ecology and national sovereignty, environmental policies and standards will differ from country to country, reflecting each nation's relative situation and their collective choices.
Nevertheless, an environmental imperative for harmonization does exist, and stems from emerging global and transboundary pollution and resource problems. Cooperative efforts addressing global warming, stratospheric ozone depletion, preservation of biodiversity, and similar problems will involve more harmonized international environmental policy approaches. These efforts will no doubt be based on increased convergence of product standards, ambient standards, process standards, economic instruments, and life-cycle management approaches. Processes such as pre-market harmonization, mutual recognition, equivalency, and reference standards will play a role. However, we will need more innovative approaches to harmonization as convergence activities extend beyond product standards. Multilateral attempts to redress and prevent damage to the global ecosystem will require a substantial array of policy instruments and harmonization methods.
The new global consciousness will feed the trend toward identifying the environmental character of products in terms of their entire life-cycle from production to disposal. Such initiatives will put into question the definition of "like product" under international trade rules. Numerous issues have already arisen when trade restrictions, either unilateral or multilateral, are linked to the standards under which a product is made or harvested. Yet in the long term, given the worsening state of the global environment, discrimination against traded products on the basis of production method is probably inevitable.
This will pose new challenges for harmonization, as well as new and difficult questions for the multilateral trading system. In the future, the purpose of harmonization will be twofold: to preserve the global environment, and to facilitate global trade. Designing harmonization processes that balance trade and environmental objectives to optimize overall social welfare will not be an easy task. Because harmonizing environmental policy instruments and evaluating their legitimacy in trade disputes are difficult tasks, institutional and procedural questions are extremely important. It is generally agreed that the GATT is not the appropriate forum for setting or harmonizing environmental standards, yet it currently has sole responsibility for determining the legitimacy of these standards when they are challenged under multilateral trade rules.
Environment-trade disputes will become more complicated as harmonization of international environmental policies continues. New dispute settlement mechanisms will be crucial to balancing the environment and trade facets of harmonization. Flaws in current mechanisms for resolving international environment-related disputes are already multifold. Now we need new international approaches to harmonization (beyond the ad hoc treaty approach), new institutional arrangements for implementing and monitoring harmonized policies, and new mechanisms for resolving the inevitable disputes. Current mechanisms are geared to resolving problems relating to the harmonization of product standards for trade reasons. As the purpose of harmonization changes from trade facilitation to environmental preservation, new ways of thinking about trade and environment relationships are essential.
Principal Administrator, Environment Division, Environment Directorate, Organization for Economic Cooperation and Development, Paris
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