CASE NUMBER: 368

CASE NAME: WOODLBL

CASE NAME: EU Wood Labels

A. IDENTIFICATION

The EU ecolabelling program was launched throughout the European Community to encourage the manufacturing of less environmentally damaging products, giving industry an incentive to produce cleaner, greener goods. The program provides consumers with independent information to assist in the purchasing process and the ecolabel is awarded to products which have a reduced impact on the environment. All EU member states participate in the program on a voluntary basis only, however, what makes the EU's ecolabel privy to outside criticism is that it creates the potential for trade discrimentation as consumers become more environmentally conscious. The largest impact of the ecolabelling program effects timber and wood products emanating from the lesser developed countries in Latin American and Africa. With such a huge reliance on exporting such products to a market of over 375 million people, those who choose not to participate in the "voluntary" program may as a result find themselves effectively excluded from the EU market.

2. Description

Representing the largest and most structured regime in the world, the European Union has only in the past decade taken measures which have provided for environmental preservation by sustained, manageable development. The road to such awareness has been a contentious one, however, as environmental policies have evolved into one of the most important and highly regulated areas of Community competence. The origins of the Community's environmental legislation date back to the late 1960s when measures tended to be narrow and technical, justified either as an internal market measure or on the basis of a vague Treaty commitment to improve "the living and working conditions" of the people in the Community (Dinan, 1994, p. 384). However, as the "green" movement gathered momentum on the European continent, member state governments as well as the European Commission began to develop deep, sincere interests in environmental issues.

The environmental movement gained political momentum with two events. The first occurred at the 1972 Paris Summit which was viewed as a significant break from established environmental policies following closely on the heels of the United Nations Conference on the Human Environment. It was in Paris that European leaders took the unprecedented step of calling for the European Community to launch a program of environmental activities, a decision reflecting a political response to a growing public concern (Zaelke, Orbuch, Housman, 1993, pg. 96).

After the limited success of Environmental Action Programs (EAPs) launched between 1973 and 1982, the Community took a crucial second step in the Single European Act (SEA) of 1985 which devoted an entire section (Title VII, Article 130r- 130t) to environmental policy and included a new provision relating specifically to the internal market. According to Konrad van Moltke, the "act introduced a new title addressing the environment and clarified that environmental management within the EC serves not only the defensive purpose of avoiding distortions to international trade but represents a positive goal of improving environmental protection and contributing to the overall aims of the EC, including political integration" (Zaelke, Orbuch, Housman, 1993, pg. 103). The Community thereafter pursued a rather aggressive two-prong strategy on environmental preservation and at the same time assumed a leadership role in the international community as a vanguard for environmental trust. The two-pronged strategy focused its attention first on the macro-level: here, the Commission pursed a new approach, making environmental policy an integral part of all other policies- notably economic, industrial, transport, energy, agriculture, and social- whether at the national or Community level; secondly, at the micro-level, where the Commission worked on priority areas such as atmospheric and marine pollution, waste management, and enforcing environmental legislation (Dinan, 1994, pg. 385). The vigor with which the European Community pursued such actions was merely a harbinger of things to come; as public support for environmental initiatives remained unwavered, there became a growing consensus among governmental leaders that the goals of economic integration were unattainable without particular attention to the environmental dimensions. (Zaleke, Orbuch, Housman, 1993, pg. 96).

In 1992, the European Council (representing the interests of the individual member states) adopted a regulation setting forth environmental standards regulation in the form of an "ecolabel." This ecolabelling program, although a voluntary measure, would authorize standards testing bodies in the individual member states to award seals of compliance to particular products based on uniform, Community-wide criteria for general products groups (Dinan, 1994, pg. 387). The label is meant to "promote sales and products that are less environmentally damaging, giving industry an incentive to produce cleaner, greener goods" (New Scientist, March 23, 1991, pg. 18). Due to the direct effect of European law and regulations, once approval has been set by one member state, it becomes applicable throughout all states within the Community, thus avoiding costly and redundant applications.

Of the three steps, the ecolabel has proven to be a major problem for the Community's trading partners. As mentioned earlier, the ecolabel is merely a voluntary regulation, however, the term "voluntary" masks a hidden truth. As consumers become increasingly more environmentally conscious and begin to purchase goods that are less environmentally damaging, the ecolabel in itself becomes a non-tariff trade barrier. What originates as an altruistic attempt to thwart degradation of the environment turns into a trade barrier of magnanimous proportions. The countries most heavily impacted by such policies are the developing countries of Latin America, Asia, and Africa in particular their exports of wood products such as tropical timber.

The ACP countries (Africa, Carribean, Pacific) have always enjoyed a special relationship with the European Union. Due to the fact that many are former colonies, the Community feels a significant responsibility to provide them with certain preferential policies and has thus implemented extensive development assistance programs. These close ties are exemplified by trade favoritism toward ACP products and the availability of Cohesion Funds to offset loss of trade caused by such things as environmental regulations. It is understandably, therefore, that many developing countries harbor such suspicion toward these policies, especially since many of their products exported to the European Union are in the form of timber and wood products.

In 1990, the total area of natural tropical forests was estimated to be 1,714,900 million hectares, of which Africa and Latin America contain the most at 35 and 56 percent respectively. According to FAO statistics, the extent of tropical deforestation reached 16.9 million hectares per annum throughout the 1980s. Deforestation was most concentrated in Latin America (8.3 mn ha pa) and Africa (3.6 mn ha pa) with Brazil (3.2) and Zaire (.2) accounting for a significant portion of such losses. Although exports from tropical developing countries account for a modest share of the total value of world exports ($11 billion) it nevertheless represents a significant amount of GNP for these countries. With the implementation of ecolabelling on an EU wide- basis in 1992, it is clear why these countries are concerned. Between 1985 and 1991, imports (majority of which are timber products) increased 43.7%, while after 1991, imports began a precipitous decline, from 96.3 billion to 91.8 billion in just two years with significant decreases expected to follow. Forest products represetn a sizeable portion of exports for the developing world. Countries such as Columbia, Malaysia, and the Phillipines would suffer considerable losses if the Community decides to implement the ecolabel accord on a mandatory basis. Some developing countries will have no problem with reshifting the focus of their timber exports to other markets: Columbia to North America and Malaysia to its ASEAN partners, for example. But for countries lying on the African continent, redirecting trade flows will be extremely difficult due to the fact that their major market, and the one in which they harbor a historic bond, is the same one which is cutting them off.

The European Union faces a paradoxical dilemma. The Community recognizes the importance of maintaining the environment, but at what costs? This import barrier places a downward pressure on raw log prices casing alternative uses of forest land, such as plantation agriculture or ranching, to seem relatively more economically attractive by comparison. Suppressing the timber industry has the potential of "leading to the permanent conversion of even larger areas of tropical forest land to more environmentally destructive uses" (Barbier, et al, 1994, pg. 105).

The EU began to address this situation in the past few years. The Community, while not abandoning its strident efforts to curb environmental degradation, has narrowed its efforts to allow LDCs to maintain the strength of its import sector. The Community has done this through a process of sustainable management which includes among other things, the introduction of national and regional policies, the development of long-term responsibility on the part of various countries by modifying the ways in which land a nd forest products are appropriated, and the implementation of a sustainable form of managing natural forests which would involve fulfilling the legitimate needs of tropical countries and their populations and preserving natural resources for future generations. As the EU seeks to import timber only from sustainable managed forests by the year 2000 (New Scientist, June 26, 1993, pg. 9), Cameroon (whose tropical timber logs represent 28% of Europe's total imports in 1992) has already evolved into a benchmark country for sustainable management programs which other developing countries have been quick to emulate.

As an environmentally conscious union, the Community faces likely retribution from countries negatively effected by these programs. The GATT and the WTO have become instruments in which the developing countries can open up markets that are closed due to environmental restrictions, such as Mexico did against the United States over dolphin-safe tuna. The GATT usually frowns upon such restrictions, however, the EU ecolabel is decidedly voluntary labeling which is certainly GATT-legal. If the ecolabel, however, moves into a mandatory system, the EU will come under intense pressures from the WTO "as it is clearly intended to deter people from buying tropical timber" (The Economist, January 30, 1993, p. 61). The other question posed to these regulations is one of extraterritoriality: what right has one country to dictate the environmental standards of another (The Economist, February 27, 1993, pg. 25). As Austria found out in 1992 (Austria did not become a member of the EU until 1995) when it attempted to implement a labeling scheme on imported timber, such measures are not favorable in the eyes of the World Trade Organization. Austria's attempts were thwarted by concerned officials in Malaysia and Indonesia, which between them account for 80% of all tropical timber exports. The GATT panel in this case relied on the principles that: first, imported products must be treated as favorably as identical domestic ones, and the way the import is produced is not good reason to discriminate against it; secondly, although a country can restrain trade to protect animal health or natural resources in its own territory, this exemption does not apply to such things elsewhere; and lastly, a country cannot restrict trade on one product to enforce unrelated environmental policies (The Economist, February 27, 1993).

The attitude of the individual member states concedes the usefulness of the ecolabel which guarantees that the timber comes from properly managed forests, and to leave implementation of such measures to individual local or regional authorities. Clearly, the EU must invoke strategies that while helping preserve the forests, protects the native populations' way of life simultaneously. Awarding the ecolabel to timber from forests which are managed on a sustainable basis is an excellent start, that way it would be the forest management, and not the product itself, which would be guaranteed (An Integral European Strategy in the Forest Sector, http://www.europa.eu).

3. Related Cases

AFRICA case
AUSTRIA case
BENDL case
BRAZIL case
DUTCHWD case
EULABEL case
GHANA case
INDONES case
MALAY case
MERCK case
NEMATODE case
SOLOMON case
TEAK case
THAILOG case
TUNA case
TUNA2 case

Keyword Clusters

(1): Trade Product = WOOD
(2): Bio-Geography = TROPical
(3): Environmental Problem = DEFORestation

4. Author: Shawn Lee Bryant
Date: November 26, 1996

B. LEGAL Filters

5. Discourse and Status: DISagreement and INPROGress

6. Forum and Scope: EUROCOM and TROPical

The ecolabelling scheme as implemented by EU legislation has direct effect upon the individual member states. As the Cassis de Dijon case (1979) shows, the principle of mutual recognition underpins the single market program avoiding costly testing procedures in each of the individual states. Although still a voluntary measure, many countries are concerned that the ecolabelling regulations will create non-tariff barriers closing the EU markets to environmentally unfriendly goods. Such schemes are GATT-legal, but do create trade disparities as the statistics show. If the EU decides to implement these measures on a mandatory measure, they are sure to come under heavy pressure from the GATT, WTO, and the lesser developed countries who are more detrimentally effected than most other countries since their export strength lies with their timber and wood products. As Austria and the Netherlands discovered, mandatory environmental restrictions have the potential to create numerous legal complications.

7. Decision Breadth: 15 (European Union)

8. Legal Standing: Treaty

The 1992 Maastricht Treaty (or Treaty on European Union) exemplified the magnitude with which environmental concerns had come to maneuvered its way into the realm of high politics. The Treaty made significant steps in three ways. First, it addressed the concerns of the limited number of ACP (African, Caribbean, Pacific) countries who believed that strict environmental policies would have a negative effect on their economies in terms of technological adjustment and loss of markets. This scepticism was soon allayed by the granting of temporary derogations or financial support from the Community's Cohesion Fund involving environmental measures with significantly high costs. Secondly, the Community implemented another EAP within a framework outlined in the Treaty which advocated "sustainable development" to "meet the needs of the present without compromising the ability of future generations to meet their own needs" (Dinan, 1994, pg. 385). The report also targeted five sector areas: industry, tourism, energy, transport, and agriculture.

Community law has a binding and direct effect on the individual member states. When regulations and laws are passed on the Community level, they directly go into effect on the federal level as well. Although interpretation may differ from country to country, the European Court of Justice has the final judgement on such matters.

9. Geographic Locations

a. Geographic Domain: Developing Countries
b. Geographic Site: TROPical Wood Exporters
c. Geographic Impact: European Union (Western Europe)

10. Sub-National Factors: NO

Timber producing countries such as Finland, Sweden, Austria, and Germany will likely see an increase in demand as non-compliant timber from Asia, Africa, and Latin America are subsequently shut out of the European markets, therefore such ecolabelling regulations would have a more positive impact on their industries than any other. Compliance to such regulations is much easier for them to abide by as well.

11. Type of Habitat: TROPical

D. TRADE Filters:

13. Direct vs. Indirect Impacts: DIRect

The ecolabelling program was initiated as a voluntary measure, although, as consumers become more environmentally aware, such voluntary regulations can potentially evolve into lofty trade barriers directly impacting the economies of tropical wood exporting countries in Latin America and Africa.

14. Relation of Measure to Environmental Impact

a. Directly Related: YES WOOD
b. Indirectly Related: NO
c. Not Related: YES RETALiation
d. Process Related: YES DEFORestation

15. Trade Product Identification: WOOD

16. Economic Data

From 1985 to 1991, imports from less developing countries to the European Union (made up largely of tropical wood products) increased 43.7%, while from 1991 to 1993, imports began a systemic decline from 96.3 billion to 91.8 billion. Even though the ecolabelling program was not implemented until 1992, in anticipation of such regulations, many member states began to impose this standard ahead of time. With a combined population of close to 375 million people, the closing of such a huge market to LDCs will greatly impact their economies. See Graph 1.

17. Impact of Measure on Trade Competitiveness: HIGH

18. Industry Sector: WOOD

19. Exporter and Importer: Latin America, Africa and European Union

E. ENVIRONMENT Filters

The ecolabel on timber products sprung from environmental concerns such as deforestation, increased emissions of carbon dioxide into the atmosphere, and the depleting ozone layer. Its intended effect is to promote sustainable development: environmental preservation while simultaneously maintaining the standard of living for the exporting countries.

21. Name, Type, and Diversity of Species

Name: Tropical Hardwoods
Type: Plant/ Angiospermae/ Dicots
Diversity: Africa: 600,100 (mn ha) Latin America: 839,900 (mn ha)

22. Resource Impact and Effect: HIGH and SCALE

23. Urgency and Lifetime: Long and 100s of years

The impact of deforestation on the Latin American and African regions is tremendous. Each region respectively loses .99 and .83 percent annually. Without programs that would generate environmentally friendly harvesting, the losses will compound and detrimentally effect the climates of each particular region.

24. Substitutes: RECYCling

VI. OTHER Factors

25. Culture: No

26. Trans-Border: No

27. Rights: YES

Apart from the destrution of valuable natural resources and the extinction of countless plants and animals species, the high rate of logging in the tropical timber countries has led to a negative impact on many indigenous populations. In Burma, for example, these enthnic peoples have been rounded up and sent to camps if they failed to agree with the state's logging policies including imprisonment for some of the tribal leaders who most vehemently protested such policies.

Malyasia's logging practices have also infringed upon the rights of its enthnic populations. One tribe, the Penan, has invoked upon an intense battle to combat state encroachment including the barricading of roads and trails which lead into the forests.

The European Union has routinely stipulated that human rights violations need to be addressed, but when it comes to levying definitive legal or punitive actions on blatant violations, the Community more often than not bows to economic pressures.

28. Relevant Literature

"An Integral European Strategy in the Forest Sector: Guidelines For the Future." http://europa.eu.int/europarl/ecrofor/ch1-4.htm.

Barbier, Edward B., Joanne C. Burgess, Joshua Bishop and Bruce Aylward. The Economics of the Tropical Timber Trade. London: Earthscan Publications, Ltd., 1994.

Dinan, Desmond. An Ever Closer Union? Boulder, Colorado: Lynne Rienner Publishers, 1994.

Haddon, Matt. "Making Green Labels Stick." New Scientist (June 20, 1992): 23-24.

MacKenzie, Debora. "Timber: The Beam in Europe's Eye." New Scientist (June 26, 1993): 9.

Misser, Francois. " Green' Timber Wins EU Approval." African Business (May 1996): 35.

Pearce, Fred. "Tropical Countries Veto Rainforest Protection Scheme." New Scientist (April 3, 1993): 11.

"Report Fuels Timber Tantrums." African Business (June 1996): 35.

"The Greening of Protectionism." The Economist (February 27, 1993): 25-28.

"Trade in Tropical Timber: For the Chop." The Economist (January 30, 1993): 61.

"Will None but the Greenest Qualify for Europe's Ecolabel?" New Scientist (March 23, 1991): 18.

Zaelke, Durwood, Paul Orbuch, and Robert F. Housman, editors. Trade and the Environment: Law, Economics, and Policy. Washington, DC: Island Press, 1993.