TED Case Studies

Montreal Protocol

          CASE NUMBER:          48 
          CASE NAME:          Montreal Protocol on CFCs


1.        The Issue

     The Montreal Protocol on Substances that Deplete the Ozone
Layer is one of the first international environmental agreements
that includes trade sanctions to achieve the stated goals of a
treaty.  It also offers major incentives for non-signatory
nations to sign the agreement.  The treaty negotiators justified
the sanctions because depletion of the ozone layer is an
environmental problem most effectively addressed on the global
level.  Furthermore, without the trade sanctions, there would be
economic incentives for non-signatories to increase production,
damaging the competitiveness of the industries in the signatory
nations as well as decreasing the search for less damaging CFC

2.        Description

     Man-made chlorines, primarily chloroflourobcarbons (CFCs),
contribute to the thinning of the ozone layer and allow larger
quantities of harmful ultraviolet rays to reach the earth.  The
U.S. Environmental Protection Agency (EPA) has estimated that by
the year 2075, the increased ultraviolet rays could result in
over 150 million new cases of skin cancer in the U.S. alone, with
the consequence of 3 million deaths.  Other damage caused by
ultraviolet rays includes increased eye cataracts, and a
weakening of the body's immune system.

     The Montreal Protocol's trade sanctions are a novel approach
to achieving multilateral treaty goals.  Because non-party
nations could negate efforts to reduce use and production of
ozone destroying chemicals, the treaty negotiators included
staged restrictions in the Protocol on imports and exports. 
Developing nations were encouraged to become party to the
Protocol within ten years.

     Several options were considered for CFC and halon emission
control measures.  One option considered was to "allocate
emission rights on the basis of gross national product and
population."  With this option it would be very difficult to
measure emissions, especially due to the time lag between CFC
production and their release into atmosphere.  A second option
was regulating the production of the ozone depleting chemicals. 
This was decided against because of the monopoly rights it would
confer on the producers.  These rights could allow price
increases to the benefit of the producers.

     The consumption controlling formula eventually decided upon
was consumption equals production plus imports minus exports. 
Jamison Koehler and Scott A. Hajost of the U.S. EPA argue:

     First, the formula promotes economic efficiency and
     free trade while achieving the same environmental
     benefit, as Parties adjust production, imports and
     exports of the controlled chemicals to take advantage
     of economies of scale and other market forces.  Second,
     by allowing parties to subtract exports from the
     consumption equation, the formula ensures that non-
     producing nations continue to have access to the
     controlled chemicals until substitute chemicals are
     available, thereby removing production and consumption
     limits, the formula implicitly recognizes the interests
     of a much wider range of Parties -- producers and users
     of the chemicals alike -- in the protection of the
     ozone layer.

     Article IV of the Montreal Protocol addresses Control of
Trade with non-parties.  The measures stipulates that one year
after the Treaty came into force, all imports of "controlled
substances" (see Appendix 1) from any non-party states are banned
and that as of January 1, 1993, none of the signatories are
allowed to export a controlled substance to non-party states. 
Further, a product annex was to be developed listing the
controlled substances which are also banned one year after the
annex was developed.  The parties were to consider the
feasibility of banning or restricting imports produced with
controlled substances and to discourage exports of technology to
produce and use controlled substances to non-parties.  The trade
measures attempt to ensure that there are no economic benefits
from CFC production for non-signatory nations.

     Developing nations, including highly populated China and
India, are expanding their use of products which contain CFCs,
such as refrigerators and air conditioners.  Developing countries
argue that they have the right to enjoy the same conveniences
that developed nations have and that they are not responsible for
the ozone damage.  This debate resulted in Article Five of the
Protocol which allows the signatory developing nations a ten year
delay for implementation of controls.  In June, 1990 a $100
million World Bank fund was set up to aid the developing nations
efforts to reduce CFC usage.  Many fear that the gains in the
treaty will be eroded by the concessions to developing countries
regarding their date of compliance.

     Trade considerations played a major role in the original
negotiation of the Montreal Protocol.  By the late 1970s the U.S.
Congress had reduced U.S. production of CFCs for aerosols by 95
percent, but the European Community (EC) member states (except
for West Germany) were not considering legislation.  The EC
position was that there was not enough scientific evidence to
justify legislation and that CFC substitutes would be extremely
costly to develop.  U.S. industry felt it unfair that EC industry
did not have to face similar economic obstacles, while the
Europeans believed U.S. industry was advocating CFC reductions
because it assisted their competitive advantage.

     The EC supported a production capacity cap, while Canada,
Finland, New Zealand, Norway, Sweden, Switzerland and the United
States (joined later by Belgium, Denmark, Germany and the
Netherlands) supported production cuts.  The EC would have had
a virtual monopoly on CFC production if controls were implemented
at the point of production.  This issue was settled by the
formula mentioned above: consumption equals production plus
imports minus exports.  The final 50 percent reduction, signed in
September 1987, was a compromise between the 95 percent
reductions of ozone depleting gases that the United States called
for and the 10 to 20 percent the EC expected.

     In June, 1990, because scientific evidence demonstrated a
more rapid deterioration of the ozone layer than had been
previously estimated, representatives from 59 countries signed
revised goals committing to the phase-out of most CFCs by the
year 2000 and the creation of a $160 million fund to aid
developing countries in their transition to other less ozone
damaging chemicals.  The EC committed to phasing out CFCs by

     Some argue that the Montreal Protocol trade sanctions may
clash with GATT disciplines.  "The Montreal Protocol...for
example, contains provisions for trade retaliation against states
which do not comply with the protocol.  Such retaliation, as yet
untried, would conflict with the GATT treaty and CFC offenders
could claim the protection of GATT against trade sanctions." 
The protocol may conflict with GATT in several ways: Article XI
generally forbids import and export restrictions except tariffs
and the most favored nation clause which stipulates that tariffs
should be applied equally to all GATT members products. 
Furthermore, the GATT does dictate that nations apply the same
standards to imports that they do to domestic products, and prior
to the phase out of controlled substances, imports from party
nations would be treated differently from the banned imports of
non-party nations.  However, the ultimate goal of the trade
provisions of the revised (in London, 1990) Montreal Protocol are
zero imports, exports and consumption of some of the ozone
depleting substances.

     As the allowed quotas of ozone damaging chemicals move
toward zero and as the ten year delay provided to developing
nations comes to an end, it is likely that some nations will
present arguments to GATT.  It would be extremely difficult to
achieve the goals of the Montreal Protocol without the trade
sanctions; therefore, a GATT ruling against the sanctions would
allow environmental damage that many nations have decided require
drastic actions to address.

     The Montreal Protocol is a landmark environmental treaty. 
It may serve as a model for future multilateral treaties which
confront global issues, although just as the treaty negotiators
selected the trade sanctions only after ruling out other less
optimal alternatives, future negotiators should also weigh all
their options.

     Between 1986 and 1993, world CFC production fell by about 60
percent, from about 0.9 millions tons to about 0.4 million. 
While large companies like DuPont have deeply invested into
alternatives such as HFCs, supposedly that are less damaging to
the ozone.  Negotyiators are also considering the addition of
HCFCs to its banned substances.

     Developing country production, however, has exploded, rising
87 percent over the period, with exports rising 17 fold. 
Furthermore, a huge black market has arisen, with estimates that
20 percent of sales are illegal and originate in developing
countries.  Part of the reason is that promised funding to
developing countries was less than promised, $126 million of $149

3.        Related Cases

     SST case
     BIODIV case
     CLEAN case

     Keyword Clusters         

     (1): Trade Product            = CFCs
     (2): Bio-geography            = GLOBAL
     (3): Environmental Problem    = OZONE loss

4.        Draft Author:  Michelle Dearing
          Completed: 6/1993   Updated: 3/1996

B.        LEGAL Filters

5.        Discourse and Status:  AGReement and COMPlete

6.        Forum and Scope:  UN and GLOBAL

     The Montreal Protocol negotiations were conducted under a
framework agreed to in the 1985 Vienna Convention for the
Protection of the Ozone Layer.  The negotiations were conducted
under the auspices of the United Nations Environment Programme
(UNEP) under Executive Director Mostafa Tolba.

     U.S. Legislation revised Montreal Protocol requirements are
met or exceeded in the U.S. Clean Air Act Amendments of 1990, PL
101-549.  Fiscal 1990 and 1991 budget reconciliation bills, PL
100-239 and PL 101-508 respectively, include excise taxes on
Montreal Protocol controlled substances.

     EC Legislation was set in Council Regulation (EEC) No.
594/91 set quantitative limits on imports from third countries
for controlled substances from 1991 through 2005 when imports
will be zero for all substances covered by the Regulation. 
Commission Decision, 91/359/EEC, dated July 15, 1991, allocated
import quotas of chlorofluorocarbons (CFCs) for the time period
July 1, 1991 to December 31, 1992.

7.        Decision Breadth:   100 (signatories)

8.        Legal Standing:  TREATY

C.        GEOGRAPHIC Filters

9.        Geographic Locations

     a.   Geographic Domain : GLOBAL
     b.   Geographic Site   : GLOBAL
     c.   Geographic Impact : GLOBAL

10.       Sub-National Factors:  NO

11.       Type of Habitat:  GLOBAL

D.        TRADE Filters

12.       Type of Measure:  Import Ban [IMBAN] 

     The primary mode for curtailing CFC use was in production,
but quota enforcement was left to import bans (and phased import
bans) with the possibility of retaliation against violators.  As
of January, 1993, no signatory nations were allowed to import
controlled substances from non-signatories (see Table 48-1). 
These ozone-depleting potentials are estimates based on existing
knowledge and are to be reviewed and revised periodically.

                           Table 48-1
                      CONTROLLED SUBSTANCES

Group     Substance           Ozone-depleting potential*

Group I   CFCl3     (CFC-11)       1.0
          CF2Cl2    (CFC-12)       1.0
          C2F3Cl3   (CFC-113)      0.8
          C2F4Cl2   (CFC-114)      1.0
          C2F5Cl    (CFC-115)      0.6

Group II  CF2BrCl   (halon-1211)    3.0
          CF3Br     (halon-1301)   10.0
          C2F4Br2   (halon-2402)   na   

* With CFC-11 as base.

13.       Direct vs. Indirect Impacts:  DIRect

14.       Relation of Trade Measure to Resource Impact

     a.  Directly Related     : YES  CFCs
     b.  Indirectly Related   : YES  products using CFCs
     c.  Not Related          : YES  RETALiation
     d.  Process Related      : YES  OZONE depletion

     The measure bans the import of CFCs and permits retaliation
against offenders.  Not only does it directly ban the trade of
CFCs but also products which relate to the CFCs as a component
part (refrigerators and air conditioners) or products which are
used in certain ways, such as the cleaning of computer products.

15.       Trade Product Identification:  CFCs

     CFCs and halons are chemicals used widely as refrigerants,
in aerosols, for cleaning circuit boards and electronic
components, and other industrial applications.

16.       Economic Data

     Production of CFCs increased from 150,000 metric tons in
1960 to over 800,000 metric tons in 1974.  EC exports increased
43 percent from 1976 to 1985 and exports averaged one third of EC
production.  Almost all of U.S. production was consumed in the
United States.  In 1988, the EC countries were responsible for
two thirds of the world's CFC production.

17.       Impact of Trade Restriction:  BAN

18.       Industry Sector:  CHEMical

19.       Exporter and Importer:  MANY and MANY

E.        ENVIRONMENT Filters

20.       Environmental Problem Type:  OZONE depletion

     This is a problem of ozone loss, which in turn leads to a
variety of other problems such as climate change and species
loss, including human beings.

21.       Name, Type, and Diversity of Species

     Name:          MANY
     Type:          MANY
     Diversity:     Global

22.       Resource Impact and Effect:  HIGH and SCALE

     Without steps to control ozone depletion, this problem might
develop rather quickly.  Already there is evidence of a worldwide
increase in skin cancer rates.

23.       Urgency and Lifetime:  HIGH and NA

     Since practically all species will be affected by the
depletion of the ozone layer, it is difficult to estimate the
years to extinction.

24.       Substitutes:  Bio-degradable [BIODG] products 

VI.       OTHER Factors

25.       Culture: NO

26.       Trans-Border: YES

     Although the problem is not directly a trans-border problem,
the air is clearly trans-border due to air circulation.

27.       Rights: NO

28.       Relevant Literature

Benedick, Richard Elliot.  "Ozone Diplomacy."  Issues in Science
     and Technology (Fall 1989): 43-50. 
Bown, William.  "Trade Deals a Blow to the Environment."  New 
     Scientist (November 10, 1990): 20-21.
EC Office of Press and Public Affairs.  "E.C. Ratifies Convention
     on Protecting Ozone Layer."  European Community News
     27/88 (October 19, 1988).
Economist, "Holed Up," 337/7944, December 9, 1995, 63.
Environmental and Energy Study Institute.  "EESC Issue Paper."  
     1991 Members' Briefing Book.  Washington, D.C.
European Community.  Commission Decision of 15 July 1991 
     Allocating Import Quotas for Chlorofluorocarbons for
     the Period 1 July 1991 to 31 December 1992 91/359/EEC. 
     Official Journal of the European Communities, No. L193
     (17 July 1991): L 193/42-L 193/43.
European Community.  Council Regulation (EEC) No 594/91 of 4 
     March 1991 on Substances that Deplete the Ozone Layer. 
     Official Journal of the European Communities, No. L67
     (March 14, 1991): L67/1 - L67/10.
"Hole-stoppers."  Economist (March 7, 1992): 76.
Jachtenfuchs, Markus.  "The European Community and the Protection
     of the Ozone Layer."  Journal of Common Market Studies
     XXVIII/3 (March 1990): 261-277.
Kerr, Richard A.  "Ozone Destruction Worsens."  Science
     (April 12, 1991): 204.
Koehler, Jamison and Scott A. Hajost.  "The Montreal Protocol:  A
     Dynamic Agreement for Protecting the Ozone Layer." 
     Ambio 19/2 (April 1990): 82-86.
Monastersky, R.  "Nations to Ban Ozone-Harming Compounds."
     Science News 138/7 (July 1990): 6. 
Randal, Jonathan C.  "Conference Opens on Ozone."
     Washington Post (March 6, 1989): A9-A10.
Rosencranz, Armin and Reina Milligan.  "CFC Abatement:  The Needs
     of Developing Countries."  Ambio 19/6-7 (October 1990):
Shabecoff, Philip.  "Accord is Reached to Protect Ozone."  New 
     York Times (September 16, 1987): A11.
United Nations Environment Programme.  Montreal Protocol on 
     Substances that Deplete the Ozone Layer.  1987.


1.   Economist, "Holed Up," 337/7944, December 9, 1995, 63.

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