RESTRICTEDWORLD TRADE
ORGANIZATIONWT/CTE/M/20
19 March 1999
(99-1169)
Committee on Trade and Environment
REPORT OF THE MEETING HELD ON 18-19 FEBRUARY 1999
Note by the Secretariat
1. The Committee on Trade and Environment (CTE) met on 18-19 February 1999 under the
chairmanship of Ambassador Chak Mun See (Singapore).  The agenda in WTO/AIR/1007 was
adopted.
Observer status for international intergovernmental organizations
2. It was agreed to extend observer status to the South Pacific Forum.
MARKET ACCESS CLUSTER
Item 2 The relationship between environmental policies relevant to trade and environmental
measures with significant trade effects and the provisions of the multilateral trading
system
3. The representative of the European Communities referred to the importance which his
delegation attached to the principles underlying this Item.  The European Commission was awaiting
the results of a study by external experts commissi oned to help the EC to analyse the environmental
impacts of trade measures and agreements.  The Vice President of the EC, Sir Leon Brittan had
announced in November 1998 that, in preparation for the 3rd WTO Ministerial Conference, the EC
would undertake a sustainable impact assessment of the proposed new round, demonstrating the EC's
commitment to sustainable development as the overriding objective of WTO work.  It would be
interesting to hear of similar work on how the WTO can contribute to sustainable development.
4. The representative of Canada referred to her delegation's intervention at a recent informal
meeting of the General Council and solicited the views of others on the possibility of combining
efforts to undertake an environmental review of the next WTO negotiations.  As Canada was required
to perform a national environmental review for these negotiations, as were several other WTO
Members, it may be more efficient to work together.  Canada welcomed suggestions on the scope and
content of a possible collaborative review.  It would also be important to review MEAs from a trade
perspective.  In this respect, domestic policy coordination between trade or economic ministries andenvironment ministries, domestically and internationally was important.  Canada recalled that it had
undertaken an assessment of the Uruguay Round which it would make available to the CTE.
5. The representative of the United States believed that environmental assessments of trade were
useful enterprises for governments to undertake.  The US had prepared a report at the end of the
Uruguay Round which was available from the Secretariat.  She suggested that Governments thatcarried out assessments could make them available through the CTE to share experiences in
preparation for the next round.
6. The representative of India felt that environmental assessments should be undertaken in the
national context and that each Member should draw the appropriate conclusions from their review.WT/CTE/M/20
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7. The representative of the European Commun ities agreed with India that environmental
assessments should be discussed at the national level.  The EC was already discussing sustainability
impact assessments informally with interested parties at home and with others.  It would be difficult to
ask the Secretariat to carry out this assessment as by the time it had been processed through WTO
Bodies, such as the CTE, it might lose the necessary immediacy.  Sustainability, to a certain extent,would need to be defined within each Member's national economic and social contexts.
Item 3(b) The relationship between the provisions of the multilateral trading system and the
requirements for environmental purposes relating to products, including standards
and technical regulations, packaging, labelling and recycling
8. The representative of Brazil introduced her delegation's paper (WT/CTE/W/108) which
contained information on the development of environmental certification programmes for leather and
forestry products.  By presenting this national experience paper, Brazil was following the
recommendations in paragraph 185 of the CTE's 1996 Report (WT/CTE/1) which set out the
importance of WTO Members following the provisions of the TBT Agreement and its Code of Good
Practice.  In this context, the CTE had also underlined the importance of transparency and ensuring
fair access of foreign producers to eco-labelling programmes.
9. The representative of Norway said that cons umer information provided through eco-labelling
was valuable to promote environmentally preferab le consumption and production.  Various proposals
had been suggested to impose disciplines on eco-labels, including those based on life cycle criteria.
Voluntary eco-labelling should be developed as an efficient, market-based instrument to complement
national environmental policies;  it should not contribute to arbitrary or unjustifiable discriminationbetween countries or disguised trade restrictions .  Some "rules of the road" for eco-labelling
programmes and criteria could be considered in the WTO drawing on work in other international
organizations, particularly UNEP and ISO.  These rules should be as simple as possible to achieve
cost-effective application.  Voluntary eco-labelling in combination with possible multilateral rules
should aim to give consumers impartial, accurate and relevant information, thereby enabling choiceswhich had a positive environmental impact.
10. The representative of Canada said that although the Secretariat's paper (WT/CTE/W/101-
G/TBT/W/103) cited recent studies which concluded that environmental requirements need not
restrict market access, the issue may become more sign ificant.  As stated in the Secretariat's paper and
illustrated in Colombia's paper (WT/CTE/W/76-G/TBT/W/60), environmental requirements had a
disproportionately high impact on developing a nd least-developed countries and small and medium
sized enterprises (SMEs).  Canada had expresse d concerns at the CTE's 26-27 October 1998 meeting
on how certification was being applied and recalled the conclusions of the Intergovernmental Panel on
Forests (IPF) that countries support the application of non-discrimination, openness, transparency and
sustainable forest management principles on certification so that these schemes would not become
unjustified trade barriers or negatively impact on sustainable forest management.  For certification to
be effective, schemes must be responsive to internationally and nationally agreed processes onprinciples of sustainable forest management, such as criteria and indicators and national forest
policies.
11. Canada welcomed Brazil's paper, particularly  the description of th e ABNT/CERFLOR forest
certification scheme, which reflected IPF principles.  The IPF had also suggested that comparability
of schemes be promoted and duplication avoided.  Canada would promote discussion on equivalency
for certification in the TBT Committee.  A priority for Canada at the WTO was to ensure that trade
rules responded to business needs;  life cycle considerations were currently used domestically to
manage environmental impacts and non-product-related process and production methods (PPMs)
were already the basis for voluntary eco-labelling and certification.  Canada's focus on these issues
reflected the concerns of companies in many sectors as illustrated by discussions on forest products,WT/CTE/M/20
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textiles and cut flowers.  It was necessary to review how WTO rules should be strengthened to take
into account these developments.
12. The representative of Japan said that developed countries were establishing environmental
standards which could pose burdens on developing countries.  Although to produce environmentally
friendly goods it was necessary to establish certain standards, including production methods.Developed countries should provide information and technical assistance to developing countries.
13. The representative of India said that WT/CTE/W/101-G/TBT/W/103 set out that
environmental requirements were acting as market access barriers in certain cases, particularly for
SME's, and that the issue of PPMs could not be addressed in a transboundary manner.  Environmental
requirements of a particular region should be addressed in that region.  Capacity building and
information were necessary to enable developing countries to maintain and increase market access.
Although the paper referred to a study which suggested that there was no existing empirical evidenceon environmental requirements having widespread market access effects, reference had been made in
the CTE to specific barriers, such as for Colombian cut flowers.  NGOs in WTO Symposia had noted
problems faced due to environmental requirements in developed country markets, particularly for
SMEs.  Studies were being undertaken in India to collect evidence to present to the CTE.  India felt
that environmental requirements, whether voluntary or mandatory, should not impede market accessfor developing countries, that PPMs should be dealt with by national environmental policies, and that
a package of measures was required to enable developing countries to increase market access.
14. India thanked Brazil for its paper;  the voluntary nature of such certification schemes,
particularly those which involved PPMs, was relevant.  On Norway's proposal to develop rules on
voluntary eco-labelling, there was general agreement in the CTE that if possible voluntary schemesshould not impede market access.  To this end, the type of eco-labelling scheme referred to by
Norway would need to be examined from the point of  view of life cycle analysis, as noted by Canada.
A distinction should be made between environmental needs which should be addressed at the local
level through appropriate national environmental policies and those which should be addressed at the
multilateral level.  There also should be an exam ination of the transparency of the development of
eco-labelling, and the extent to which developing country concerns were taken into account.  This
applied to voluntary schemes developed at the national level based on consumer choice and those
developed in international intergovernmental standard s setting organizations.  The effectiveness of the
environmental requirements which emerged from these standards should be assessed on the basis of
the extent to which the needs of all stakeholders were taken into account during their development.
15. The representative of the United States said th at while it was recognized that standards had
market effects on economic actors, including possible impacts on imports and domestic production,
there were benefits, such as for human health, safety and the environment.  For example, while there
were benefits to the countries which maintained the standards, there may also be benefits for
exporting country producers which met these standards, such as a cleaner domestic environment, a
safer domestic food supply, technology transfer and greater marketability of products in third markets.
Although the UNCTAD and ESCAP stud ies showed that developed country standards had not been a
significant impediment to market access of developing country exports, the issues raised in
WT/CTE/W/101-G/TBT/W/103 on potential impacts were important.  As such, the US emphasized
the importance of the TBT Agreement, which suggested  that the way to proceed was in a transparent,
open and non-discriminatory manner to achieve legitimate objectives.
16. The US endorsed the five principles underlying Brazil's forest certification programme.  The
challenge to Brazil was to ensure the credibility of such programmes.  A crucial factor in determining
the credibility of certification was whether all stakeholders could participate in its development.  The
US would welcome hearing from Brazil as to how participation was pursued as its scheme developed.
The US asked which criteria and indicators would be used in the forestry sector;  whether they would
be measured at the national level or at the level of the individual stand of trees;  how the performanceWT/CTE/M/20
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indicators would be quantified so that the scheme  would lead to measurable improvements in the
environmental quality of the industrial process;  and what entities, governmental or private sector,
self-certification or third party, would certify.  The US commended Brazil for undertaking the
challenge of implementing an environmental certif ication programme and looked forward to hearing
more once it had become operational.  The US also  looked forward to Canada's views on how trade
rules should be strengthened on eco-labelling.
17. The representative of New Zealand, commenting on WT/CTE/W/101-G/TBT/W/103, said
that there was a tendency in the WTO to assume that market access barriers were created by
mandatory technical regulations.  Paragraph 10 highlighted this issue in stating that technical
requirements can have an adverse trade impact when products were over-regulated, or when
incompatible requirements were set for the same products by different countries.  As noted by India,
voluntary standards can impede market access.  Problems created in this regard should be examined.Members' contributions highlighted some problem s with voluntary instruments, for example from
Colombia on cut flowers and Canada on forestry.  The way to progress was through the development
of a policy on equivalency of standards, which would facilitate trade and avoid the difficulties that the
often arbitrary requirements of national standard s had on exporters.  New Zealand looked forward to
Members' views on its paper to the TBT Committee (G/TBT/W/88) and was encouraged that otherssaw merit in developing the idea of equivalency.  Further work in this area would be useful.
18. The representative of Hong Kong, China said that while the studies cited in WT/CTE/W/101-
G/TBT/W/103 had not revealed evidence that environmental measures in developed countries had a
significant impact on the market access of developing and least-developed country exports, they
demonstrated that developing country exports may be undermined.  In devising environmentalpolicies, WTO Members should consider possible market access impacts, particularly for developing
and least-developed countries.  On standardization, the literature review set out that developing
countries tended to be standard-takers rather than standard-setters and international standards were
frequently skewed towards developed country interests.  Developing country participation in
international standardization was inadequate;  the development of ISO 14000 was a case in point.There were many barriers limiting developing country participation in standards setting and enhanced
technical assistance was only part of the solution.  Without the full and effective participation of
developing countries, international standardization was not meaningful.  Paragraph 23 noted that India
had experienced difficulties in phasing out AZO dyes in its textile sector pursuant to a new German
regulation.  Hong Kong, China recalled that its textile and clothing industry had expressed similar
concerns when the German regulation was introduced.  His delegation would continue to monitor
developments in this regard, particular ly the proposal of an EU-wide prohibition.
19. The representative of Malaysia, on behalf of ASEAN, requested an up-date from the EC on
the draft legislation of the Netherlands for mandatory labelling of wood products.
20. The representative of the European Communities said that WT/CTE/W/101-G/TBT/W/103
should be viewed in a broader context.  Alth ough the CTE had been mandated to examine the
environmental aspects of trade, environmental standards were not different from other standards.  Thecosts which developing countries faced in complying with another country's standards were similar in
terms of their causes to the costs faced by firms in the country which set the standard and by firms in
developed countries other than the country setting the standard.  It would be useful to identify if
concerns were specific to the environment and if the environmental objective of certain standards
created problems different to those created by standards making and compliance generally, to whichthe TBT Agreement responded.  The conclusion in the current literature, although some delegations
had further evidence, was that standards setting need not create market access barriers depending on
the way in which standards were developed and implemented.  This conclusion would likely be
reinforced in time.  The concept of proportionality was crucial with respect to mandatory standards;
there may be a higher, but not necessarily disproportionate impact on developing countries and SMEs.WT/CTE/M/20
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There was a need to strike a balance between the costs and benefits of a standard.  As India had noted,
all stakeholders should be involved in the development of standards.
21. Aspects of environmental standards setting, such as PPMs, may not be easily dealt with in a
transboundary manner, but there may be transboundary opportunities.  One of the issues raised by
Brazil's paper was that presumably the industry which had produced the life cycle analysis-basedstandard would want to receive benefits from the fact that it was working to this standard domestically
and in its export markets.  To receive benefits, the standard needed to be recognized among potential
consumers and its value understood.  The relationship between the standard and ISO work was
crucial.  The EC would welcome the inclusion of life cycle analysis in such a standard.  The EC asked
how Brazil had involved foreign stakeholders to ga in international validation of this initiative.
Adherence to the international standards setting process would minimize regulatory divergence and
trade problems in the area of eco-labelling.  It would be useful if ISO would up-date the CTE on itswork.  Technical assistance and capacity building was crucial.  It was also relevant to the upcoming
High Level Symposia in March.  As noted by Hong Kong, China, there was a problem with technical
assistance.  UNCTAD was undertaking work in this area and some MEAs provided for technical
assistance in their fields.  Equivalence was the most ambitious way in which to resolve problems on
standards and certification.  Based on the EC's experience, it was easier to envisage equivalence in aproduct where the implications of putting the product on the market were the same in different
countries.  Equivalence in environmental areas where life cycle analysis was applied to different eco-
systems was more complex.  In response to ASEAN's request, the EC said that the draft regulation on
wood products was still in the U pper House of the Netherlands.
22. The representative of Uruguay said that to up-date WT/CTE/W/101-G/TBT/W/103, Members
should contribute their national experiences, such as Colombia had done in WT/CTE/W/76-
G/TBT/W/60.  Uruguay was interested in the linkage between the CTE and the TBT Committee on
eco-labelling.  Members should be assisted to prepare TBT notifications of environment-related
regulations.  Increased awareness of technical regulations would lessen their trade impact.
23. The representative of Korea said that although eco-labelling may act as a non-tariff barrier to
trade if not well designed, well-designed eco-labels can be effective instruments of environmental
policy.  Korea shared India's comment that comp liance costs and lack of capacity of developing
country industry, particularly SMEs, should be taken into account in designing eco-labelling criteria.
Multilaterally-agreed guidelines on eco-labelling should become the basis for their development.
Korea welcomed the new ISO eco-labelling standards, which would provide general principles based
on which each country could implement the relevant standards considering its environmental
situation.  Korea requested that the Secretariat's paper of the TBT Committee's December 1998Information Session with international standards setting bodies also be circulated in the CTE.
24. The representative of Colombia recalled her delegation's paper (WT/CTE/W/76-
G/TBT/W/60) illustrated the effects of eco-labelling on its flower sector.  Although the studies
reviewed in WT/CTE/W/101-G/TBT/W/103 had not quantified such market access concerns, these
concerns existed, as set out in Colombia's paper.  The CTE would benefit from empirical evidence ofsectors in which market access barriers had occurred.  She asked how many developing countries
participated in ISO and how standards were adopted.
25. The representative of Argentina said that  WT/CTE/W/101-G/TBT/W/103 suggested that to
date eco-labelling had not presented significant market access problems, particularly for developing
countries.  An Argentinian study had reached similar conclusions.  Argentinian industry facedproblems linked to compliance with national legislation, which imposed costs which were difficult to
meet, particularly for SMEs.  Although there was not a serious market access problem at this stage,
did not mean this subject did not deserve attention.  Eco-labels were one way to differentiate products
which could affect prices and market access.  To avoid that eco-labels became non-tariff barriers to
trade, the CTE should examine when it was legitimate to use environmental considerations toWT/CTE/M/20
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differentiate between products.  Argentina suggested that a check-list of steps should be drawn up to
ensure that the use of eco-labels was not discrimina tory;  this check-list should have three elements:
ex ante  transparency during the development of eco-labels, including the participation of all
stakeholders;  equivalency of standards;  and sp ecial and differentiated treatment for developing
countries.  In addition to technical assistance, developing countries should be given longer periods tophase-in standards in order to adapt to emerging environmental requirements.
26. The representative of Egypt felt that although some eco-labelling studies illustrated that
developing countries had not been significantly affected by environmental requirements, these
requirements represented 5 to 20 per cent of additional costs.  This placed a burden on developing
country exporters, particularly SMEs.  An ITC workshop on eco-labelling and other environmental
quality requirements for textiles and clothing exports from developing countries had concluded that
some of the problems faced by developing countries resulted from the multiplicity of eco-labels.  Itwas important to:  (a) allow developing countries to  participate in standards setting to ensure their
interests were taken into account;  (b) provide developing countries with technical assistance to
improve environmental performance;  and (c) increase harmonization and mutual recognition of
eco-labels while ensuring that one country's standards were not imposed on another to obtain
recognition.
27. The representative of Brazil thanked Members for their comments on her delegation's paper.
Although, Brazil's programmes were still in a preliminary phase, her delegation's experts would be
pleased to discuss the questions raised as the criteria were further developed.
28. The observer of the International Organization for Standardization (ISO) commented on
progress in ISO on Environmental Management Systems (EMS) standardization.  Delegations
appointed by National Standards Bodies  from 55 countries participated in the ISO Technical
Committee 207 on EMS;  16 countries were observers and other members had chosen to comment
only on final documents.  Participation in ISO was determined by Members.  As noted at a recent
UNCTAD workshop, developing countries felt that standardization was useful.  The two basic
documents for EMS, ISO 14001 and ISO 14004, published in 1996, were being revised to increasetheir compatibility with Quality Management System standards, ISO 9001 and 9004.  Following the
EC's request, ISO would provide information to th e CTE on ISO standards.  On ISO/TC 207 work on
eco-labels, the definition of Type I labelling had been finalized on 11 February 1999, whereas the
definitions of Type II and Type III were st ill being finalized.  In 1998, ISO had published
Development Manual 10:  Environmental Management , which introduced ISO 14000 and the EMS,
and set out how these standards related to developing countries.  ISO thanked the ITC for helping to
distribute this manual.  On Colombia's questions, at least half of the 55 participating countries in ISOwere developing;  ISO decisions were taken by consensus.
29. The observer of the International Trade Centre (ITC) referred to the upcoming ITC/ESCAP
regional workshop for Asia on textiles and garments where presentations would be made on the
practical effects of eco-labels on exports. The workshop's report would be made available to the CTE.
30. The Chairman said that the discussion on eco-labelling had been useful and had referred
extensively to the impact of eco-labelling on developing countries.  The discussion had raised the
issue of how eco-labelling was different from other forms of labelling in terms of the criteria and
standards set.  It had been suggested that a chec k-list be drawn up in order to address this issue.
Item 4 The provisions of the multilateral tradin g system with respect to the transparency of
trade measures used for environmental purposes and environmental measures and
requirements which have significant trade effects
31. The CTE agreed on the Interim Review of the Glossary of Search Words in WT/CTE/W/102,
which will be used in the preparation of the Environmental Database for 1998.WT/CTE/M/20
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Item 6 The effect of environmental measures on market access, especially in relation to
developing countries, in particular to the least developed among them, and
environmental benefits of removing trade restrictions and distortions
General comments
32. The representative of Australia presented his delegation's paper (WT/CTE/W/105), which
developed the themes set out in Australia's 1996 paper (WT/CTE/W/36) and pointed the way to trade
reforms which should be put to the 3rd Ministerial Conference.  This paper complemented
WT/CTE/W/106 on agricultural export subsidies, which Australia had joined with others in tabling.
The possibility of "win-win" outcomes had frequently been discussed in relation to the potential of
trade liberalization and consequent economic and environmental reform.  Several Members had gonefurther and pointed to the potential for "win-win-w in" outcomes, which recognized that reform also
had consequences for development and social equity.  Awareness of these linkages will be important
in light of the High Level Symposia in March 1999.   The potential for "win-win-win" reforms in this
area was highlighted in the paper with reference to the magnitude of subsidization.  Estimates of the
subsidies to five key sectors, energy, transport, water, agriculture and fisheries ranged from overUS$ 870 billion to US$ 1,000 billion.  Many support policies were ineffective or inefficient,
accelerated the depletion of natural resources and environmental degradation, had a regressive effect
on income distribution, and dampened technological innovation.  This suggested that there must be
scope for reform which would provide extensive economic, trade, environmental and equity benefits.
33. Australia's paper focused on agriculture and fisheries as these sector had high levels of market
distortion, including through high subsidization, and the environmental impacts associated with their
production were of interest.  This was not surprising given their importance as sources of income,
providers of employment and as an essential basis for life, particularly to developing countries.  The
potential of “win-win-win” outcomes was of importance to WTO Members.  Australia's paper also
identified a range of other sectors where tariff peaks and tariff escalation were significant problemsand which should be a priority for trade reform.  These recommendations were the best way to
achieve the “win-win-win” results that the internat ional community had signalled was the end point of
policy reform.  As the CTE should prioritise trade reforms under Item 6, Australia proposed that the
recommendations in its paper form part of the recommendations for the 3
rd Ministerial Conference.
34. The representative of Zimbabwe said that his delegation had hosted the WTO Regional
Seminar on Trade and Environment for Sub-Saharan Africa for officials from the Ministries of
Industry and Commerce, and the Environment from 8-10 February 1999.  This event will prepareAfrica for more active CTE participation.  Zimbabwe had circulated the statement of its Minister of
Mines, Environment and Tourism at that seminar (WT/CTE/W/110) to put on record Africa's
concerns.  The biggest challenge that the continent faced was to strike a balance between trade
liberalization, environmental protection and poverty alleviation.  African governments had adopted
structural economic reforms at great social cost which emphasized the pursuit of export-led growth tofacilitate their integration into the global economic system.  Yet, these reforms, carried out at the
behest of multilateral financial institutions with the support of Africa's development partners, can only
achieve the desired results if they were buttressed by enhanced market access for African exports.
35. Africa was concerned about trade distorting measures such as tariff peaks and tariff
escalation, export subsidies and other unilateral measures that targeted products of export interest todeveloping countries.  Such measures contradicted:  (a) prescriptions for African economic recovery
and integration into the multilateral trading system;  (b) the adoption of appropriate policy instruments
for sustainable development;  (c) the diversification of African exports and realization of its
comparative advantage;  and (d) the essence of the WTO which was to enhance trade liberalization.
This was an area which called for policy coherence between the WTO and the Bretton Woodsinstitutions;  the CTE should not shy away from this challenge.  Zimbabwe recalled that the 1992
UNCED had recognized that "an open, equitable and non-discriminatory multilateral trading systemWT/CTE/M/20
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has a key contribution to make to national and international efforts to better protect and conserve
environmental resources and promote sustainable development".
36. The representative of Turkey said that the relationship between trade liberalization and the
environment was complex.  The sectoral approach had been useful in exploring the ways in which
trade and environment can be mutually supportive and had avoided cross sectoral and simplisticconclusions.  Secretariat papers and contributions by Members on several sectors had established a
framework for discussion.  As removing trade restrictions and distortions did not automatically lead to
environmental improvements, the sectoral analysis should be carried out in a balanced manner to
capture the positive and negative environmental effects.  A comprehensive analysis could be achieved
by examining the conditions in each sector, which may vary depending on economic, social and
natural conditions.  Non-trade concerns may also differ between countries, for example, economic,
social and political conditions for agricultural support and the environmental effects of its removalwere not the same for developed and developing countries.  The CTE should expand the sectors
examined and include horizontal and vertical divergences.
37. The representation of the European Communiti es welcomed Zimbabwe's contribution, which
pointed to the value of the WTO Regional Seminars on trade and environment and other areas of
WTO policy-making.  The EC hoped that the regional seminars would pave the way for participationfrom trade and environment officials at the WTO High Level Symposia in March 1999.  The EC
noted the tension referred to in paragraph 4 of Zimbabwe's paper on the legitimacy of national
environmental, health and safety goals and the concerns expressed, particularly by developing
countries, that these goals will be misrepresented and used as an excuse for protectionism.  It was
difficult to distinguish between problems created for trading partners by legitimate domestic policiesand those created deliberately on the alleged basis of domestic legislative policies.  This tension had
emerged in the discussion on eco-labelling.  The EC regarded the concerns expressed by Zimbabwe as
key to moving the trade and environment debate  forward.  This year represented a window of
opportunity to build confidence among WTO Members with respect to clarifying the ways in which
legitimate goals in this field should be pursued without exacerbating the concerns over covertprotectionism.  It was in this spirit that the EC was preparing for the 3
rd Ministerial Conference.
38. The EC welcomed the holistic approach in Aust ralia's paper.  The key implication which the
EC drew from this analysis was that there were not any black and white solutions.  National policies
should be conscious of the positive and negative effects on market access of changes in the WTO's
remit.  Agricultural multifunctionality illustrated how a change in trade policy can have positive and
negative effects depending on the perspective.  If the net long term environmental impact of trade
liberalization were uncertain, and as noted by Austra lia, were dependent on flanking measures, there
should be an analysis of these flanking measures.  This explained why the EC was undertaking a
broad impact assessment in the preparation of the next phase of WTO liberalization so as to ensure
that the full benefits of trade liberalization, which were not automatic, can be captured.  This broader
context on which to base liberalization would necessarily be a national political, social and
environmental one;  as such, the EC was sceptical as to the CTE's scope to set priorities as betweeneconomic tools and sectors that should be examined in the next round.  Addressing the issues, even if
it were not possible to arrive at a list of priorities, was precisely the CTE's work.
39. The representative of Switzerland said that the sectoral discussion of environmental issues
had merit.  However, it raised several difficulties.  There were complex and often hidden causalities
between multiple and distant causes and effects and it was difficult, if not impossible, to establish thedirect sources of positive and negative environmental effects.  It was imperative not to limit the
discussion too narrowly to single sectors, but to maintain a broader and multi-sectoral approach taking
into account the causes and effects which transgressed the borders of single sectors.  He agreed with
the EC that the CTE should have a balanced, holistic approach to discussions under this Item.WT/CTE/M/20
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40. The representative of India said his delegation was interested in Part VI of Australia's paper,
which focused on the benefits of examining the linkages between poverty and environmental
degradation.  Increasing market access of devel oping countries would provide them with the
necessary resources to use towards appropriate domestic environmental policies.  The CTE should
examine ways in which to increase market access.  As for Item 3, there were emerging environmentalrequirements which should be addressed on a horizontal basis, particularly those which may erode
market access for developing countries.  These requirements can be examined in the context of
existing disciplines, such as the TBT and SPS Agreements.  A package of measures also may be
necessary to ensure that existing levels were not eroded, and market access was increased.
41. The representative of Argentina supported Australia's paper, which suggested that the WTO's
major contribution was not to identify new trade barriers which were acceptable to protect the
environment, as suggested in some papers, but to identify and eliminate existing trade barriers which
led to environmental and developmental problems.  The advantages of eliminating these trade barriers
for the environment and development rested on the contribution of trade liberalization to better
resource allocation.  Economic and environmental efficiency can go hand-in-hand.  Australia's paper
stressed the development dimension, recognizing th e link between poverty and the environment;  the
more economic resources developing countries had to devote to poverty alleviation, the greater theWTO's contribution would be to environmental protection.  Although trade measures may eventually
be necessary to protect the environment in certain cases, these measures were an exception to WTO
provisions, which had been put in place to promote trade liberalization, not trade restriction.  As
identified by Australia, the WTO's primary cont ribution to environmental protection should be to
identify existing trade barriers which should be removed to protect the environment.
42. The representative of the United States supported Australia's paper and said that subsidy
removal would greatly affect land-use practices.  Environmental impacts could be positive or negative
depending on national infrastructure.  The US welcomed Australia's recommendation that future
WTO negotiations should prioritise trade reforms that directly or indirectly facilitated improved
environmental outcomes, such as the reduction and elimination of support measures which adverselyaffected sustainable development.  The US agreed with Australia on the inefficiency of coupled
support payments for agricultural production which stimulated high levels of resource use and
promoted inefficient production processes that generated high levels of pollution and waste.  While
the US also believed that targeted agricultural policies were the best method to ensure the
implementation of improved environmental practices , there was a distinction to be drawn between
generic coupled support and conservation programmes which, while using a direct payment
mechanism delivered bona fide  environmental amenities.  The US supported Australia's point that
expanded market access for processed products would result through a reduction in tariff peaks and
tariff escalation.  The negative impact of high nominal tariff rates on trade in finished products was
supported by economic theory and empirical research.  Tariff reduction would allow developing
countries to actively participate in the expanding trade in value-added products.  The US appreciated
Zimbabwe's contribution and welcomed the greater participation of developing countries in the CTE,in the preparation of the 3
rd Ministerial Conference, and in the High Level Symposia in March 1999.
43. The representative of Hong Kong, China said that Australia's paper highlighted issues to be
included in a positive agenda for trade reform given their contribution to sustainable development.
While her delegation's trade interest in the agriculture and fisheries sectors was limited, Hong Kong,
China supported initiatives which would remove trade restrictions and distortions.  Australia's paperlisted six sectors where high tariffs or high levels of tariff escalation would remain even with the
implementation of the Uruguay Round, including textiles and clothing.  Reducing these restrictions
can benefit the environment indirectly through enhancing market access opportunities.  Resources can
be used more efficiently and effectively if comparative advantage among countries was permitted.  As
suggested in Australia's paper, trade-supported growth can be an important source of income tofinance environmental improvements, particularly in LDCs.WT/CTE/M/20
Page 10
44. The representative of New Zealand welcomed Zimbabwe's statement which raised several
concerns about how the environment in developing countries was detrimentally affected by trade
distorting policies and how development options were thus inhibited.  New Zealand agreed that trade
liberalization can result in "win-win-win" outcome s, which would benefit the trading system and
contribute to achieving environmental and development objectives.  New Zealand was interested inSection III of Australia's paper, which examined the environmental impact of tariff peaks and tariff
escalation.  There may be significant indirect benefits when countries were able to maximize their
comparative advantage.  Through a more efficient use of resources and increased export earnings,
economies could contribute to sustainable development and poverty alleviation.  The CTE should
pursue practical ways in which to advance work on how the removal of trade distorting policies can
benefit the environment, such as export subsidies.
45. The representative of Canada welcomed Zimbabwe's paper and the inclusion of the
development dimension in Australia's paper.  The CTE should draw conclusions on the environmental
benefits of removing trade distortions.
46. The representative of Japan said that there were obstacles to achieving "win-win-win"
outcomes.  At this stage, Japan preferred a practical approach and supported Turkey's comments in
this respect.  As the preparation of the 3rd Ministerial Conference was underway in the General
Council, the CTE should avoid duplication of work.
47. The representative of the European Communitie s referred to Argentina's preference for
initiatives which would reduce trade barriers and improve environmental protection as a general
principle over measures which may create trade barriers to environmental protection.  What may look
like an increase in a barrier, could lead to increased market access and environmental protection.  TheEC cited the example of the German ban imposed on carcinogenic Azo dyes.  To begin with many
countries had been concerned that a ban imposed on a certain product would create trade problems.
In fact, trade problems had not arisen and, as a result of the German ban, similar bans had been put in
place elsewhere for public health reasons on what was now recognized to be a dangerous substance
more quickly than would have otherwise been the case.  Thus, it was not easy to define in a generalway what would be an increase in trade problems.
48. The representative of the Philippines, on behalf of ASEAN, said that Zimbabwe's contribution
highlighted the concerns of developing countries.  ASEAN shared many of the concerns in Australia's
paper on trade distorting export subsidies, tariff escalation and tariff peaks and welcomed the
inclusion of the development dimension in this debate.
49. The representative of Uganda welcomed Zimbab we's contribution as it shed light on issues
regarding trade and environment from the perspective of Sub-Saharan African countries.  The WTO
Regional Seminars would improve and add value to the CTE.  Australia's paper underscored the
problems posed by subsidies, tariff peaks and tariff escalation to exports of interest to developing and
least-developed countries.  The CTE should work towards improving this situation.
50. The representative of Morocco supported Zimbabwe and Australia's papers, particularly on
the need to eliminate subsidies in agriculture a nd fisheries.  The development dimension raised in
Australia's paper was an important element in the discussions.
Sectoral analysis
Agriculture
51. The representative of Norway introduced his delegation's paper (WT/CTE/W/100), which
identified the environmental benefits provided by Norway's agricultural sector.  These benefits were
mostly related to environmental public goods for which there were no functioning markets.  Given theWT/CTE/M/20
Page 11
fact that some negative environmental effects were, to a greater or lesser extent, related to agricultural
activity in all countries, the paper analyzed if a correlation existed between the extent of
environmental degradation from agricultural production and applied levels of agricultural support.
The analysis was preliminary and was restricted by lack of data for several environmental indicators
and a lack of comparative statistics.  On the possible relationship between the level of agriculturalsupport and environmental degradation from agricultural activities:  (a) environmental degradation
from the agricultural sector varied according to factors such as natural conditions;  (b) a clear
distinction had to be made between the quantity of input use and the qualitative environmental effect
of such inputs;  and (c) there did not appear to be a clear relationship between environmental
degradation and the level of support in different countries.  Norway's analysis did not indicate that the
shift in production from high to low support countries, which would likely result from trade
liberalization, would lead to an overall reduction in environmental degradation.
52. The representative of Uruguay introduced a paper (WT/CTE/W/106), which was cosponsored
by Argentina, Australia, Brazil, Canada, Chil e, Colombia, Indonesia, Malaysia, New Zealand,
Paraguay, the Philippines, Thailand, the United States and Uruguay which set out that the CTE should
analyse the environmental benefits of eliminating trade restrictions and distortions, particularly in the
case of export subsidies.  In the WTO, export subsidies were only permitted for agriculture and wereexplicitly linked to other policies which distorted markets.  For this reason, the paper illustrated the
negative impact of export subsidies on the possibilities of third countries, particularly developing
countries, to promote sustainable development.  A small group of countries, the global economic
weight of which was considerably important, concentrated subsidies on agriculture exports.  While
these subsidies had been used at levels which were lower than those authorized by the WTO
Agreement on Agriculture, their importance and the resulting market distortions were significant.
Accumulating production reserves which were then dumped on the international market at negligible
prices did not serve any environmental objective.  Thus, eliminating export subsidies would make a
significant contribution to environmental protection and should be a priority for the WTO.
53. The representative of Japan introduced his delegation's paper (WT/CTE/W/107) on the
environmental effects of trade liberalization on agriculture, which had been presented as an informal
paper at the CTE's 26-27 October 1998 meeting.  Multifunctionality of agriculture, particularly the
environmental aspects, had characteristics of joint production, whereby appropriate production had to
be maintained to enhance the environmental benefits  of agriculture.  Multifunctionality of agriculture
was country specific, in accordance with each country's natural and social conditions;  appropriate
policies for multifunctionality would vary based on these conditions.
54. The representative of Brazil introduced her delegation's paper (WT/CTE/W/109), which
reinforced the concept highlighted by Argentina and Australia in the general discussion that
distortions in international agricultural trade had a negative environmental effect.  These distortions
also negatively affected the exports of countries which offered low levels of support for agricultural
production.  Brazil emphasized that the multifunctional character of agriculture, an issue on the
agenda of the WTO Agriculture Committee, must not be used to justify the use of agriculturalsubsidies.  On the contrary, it was the non-trade elements of agriculture which justified agricultural
trade liberalization as a tool to promote sustainable development as set out in Agenda 21 .  The paper
illustrated the close connection between trade liberalization and environmental protection as the
former depended to a great extent on higher revenues provided by market access to incorporate
environmentally sound production technologies.
55. The representative of Korea welcomed the contributions from Members on this sector.  Korea
appreciated that Australia's paper highlighted the development dimension;  however, stages of
economic development, industrial structures and policy priorities were not homogeneous amongst
developing countries.  Without regard to distinct social, historical and cultural situations, it could not
be assumed that liberalization would have positive environmental effects.  Korea shared manyconcerns raised in Japan's paper (WT/CTE/W/107).  Like Japan, Korea belonged to the AsianWT/CTE/M/20
Page 12
Monsoon climate zone.  Out of the total arable land available rice paddies accounted for about 60 per
cent, most of which were located between steep mountains.  As 50-60 per cent of rainfall took place
in the summer, irrigation and flood control was a high priority in Korea.  Paddy fields were organized
so as to retain a large quantity of water by keeping rainfall on the surface as well as to contain floods
and prevent soil erosion and landslides.  A recent study by a Korean Institute estimated that thevolume of water retention of paddy fields per hectare was over 18 times the reservoir capacity of the
Chun Cheon Dam, one of Korea's largest.  The value of flood control provided by Korean rice paddies
was over US$ 10 billion, far exceeding the value of total rice production.  Japan's analysis on this
point reflected the realities in Korea.  Hydro-electric dams, for example, could substitute the positive
effects of paddy fields, but they also altered the climate and eco-systems, and destroyed the habitat of
indigenous species and biodiversity.
56. Farmlands acted as buffer zones against the intrusion of residential and industrial
development into rural areas.  Abandoned agricultural areas resulting from trade liberalization were
likely to be converted into less environmentally friendly areas, such as residential or industrial zones.
The CTE should not overlook the relationship between increasing migration from rural to urban areas
due to decreased agricultural activities.  Korea emphasized that a more balanced and integrated
approach was needed when analyzing the aggreg ate environmental effects of agricultural trade
liberalization.  The CTE should consider the OECD's agri-environmental indicators, which would
facilitate a statistical analysis of the effects of agriculture on landscape, wildlife habitats and
associated social factors.  The CTE also should not overlook the effects of the current economic
turmoil in countries like Korea for agricultural libera lization.  At least in the short to medium term, it
could be assumed that expedited agricultural liberalization would exacerbate social problems as anypossible dislocation in this sector would have adverse effects on Korea's social fabric.
57. Regarding Norway's paper (WT/CTE/W/100), Korea agreed that valuation of public goods
was essential to analyse the environmental effects of agriculture.  Korea also agreed with the global
approach in Norway's paper, which found that high support countries' pesticide restrictions were more
stringent and enforcement capacity more developed.  Norway had proven that high support countrieshad generally reduced nitrogen and phosphate fertilizer use in comparison with low support countries
and that agricultural expansion, most probably in low support countries, as a result of trade
liberalization, might have a negative impact on biodiversity.  Higher environmental protection was not
necessarily linked to low agricultural support.
58. The representative of the Philippines, on behalf of Indonesia, Malaysia, Thailand and the
Philippines, joined others in submitting WT/CTE/W/106 which clarified the trade distorting effects of
agricultural export subsidies.  Economic and environmental benefits of trade liberalization would only
be cemented if market forces reflected the true costs of production.  At present, this was not the case
for agriculture.  The lowering of agricultural commodity prices in the world market as a result of
surpluses from the use of export subsidies had been transmitted to developing countries in several
ways, including through the closure of the markets of subsidized countries and through making
competition in third markets more difficult.  Perhaps the worst situation was when products fromnon-subsidized producers had to compete with subsidized products in the domestic market.  Export
subsidies in high support countries served to force developed countries to intensify their extractive
production, which had a greater environmental impact.  Thus, the adverse environmental impact of the
practices encouraged by trade distortions affected efficient, non-subsidizing developing country
producers.  Agenda 21  recognized that an open, equitable, secure, non-discriminating and predictable
multilateral trading system was a benefit to all trading partners.  Subscribing to this idea, many
developing countries had liberalized agricultural trade, and anchored their agricultural policies on the
basis of comparative advantage, notwithstanding the structural imbalances in this sector between
developed and developing countries.  If these imbalances were not eliminated, but exacerbated by the
continued use of export subsidies in developed countries, linking trade and environment would be tothe detriment of poor countries.  The CTE should address the call in WT/CTE/W/106 for the
elimination of export subsidies to be a priority in future WTO negotiations.WT/CTE/M/20
Page 13
59. The representative of Argentina said that Norway's paper (WT/CTE/W/100) shared
similarities with the paper his delegation had contributed (WT/CTE/W/97).  Argentina agreed with
paragraph 1 of Norway's paper that market forces alone could not lead to optimal resource allocation
if prices did not reflect private and social costs of production.  Argentina's paper argued that in order
to remedy market failures, policy failures that prevented prices from reflecting full private costs ofproduction should be removed.  This indispensable first step would enable environmental policies to
build on this basis, adding the environmental costs and benefits that were otherwise externalised.
Norway's paper argued that "a certain level of agricultural production is necessary to produce (some)
positive environmental effects", such as outdoor recreational activities, landscape and biodiversity
protection.  Since Norway's geographic position ma y not be the most favourable for agricultural
activities, the paper concluded that support policies were needed "including a certain level of support
coupled to agricultural production".  Argentina had very little to argue with this conclusion.  TheAgreement on Agriculture tolerated this "certain level of coupled support" if it did not exceed
5 per cent of the value of production for developed countries and 10 per cent in developing countries.
What Argentina found inconsistent with this argument was that Norway was using export subsidies.
60. Although in 1997 developing countries had been striving to cope with the economic crisis that
had depressed commodity prices, Norway had subsid ized exports of bovine, swine, sheep, and lamb
meat, as well as eggs, butter, cheese and processed agricultural products.  Norway had dumped a total
of 32,335.4 tonnes of subsidized agricultural exports on the international market in 1997.  This
practice should be tested against the statement in paragraph 1 of Norway's paper that only if prices
reflected all costs of production could markets lead to optimal resource allocation.  Was the use of
export subsidies helping to get prices right?  No.  Was this necessary to protect Norway'senvironment?  No.  Was this necessary to provide for Norway's stated "certain level of agricultural
production" that enabled Norwegian citizens to enjo y recreational activities?  No.  Was this helping
developing countries to adopt the environmental policies necessary to protect their natural resources,
prevent impoverished rural population from depleting forests for firewood or abandoning land to
migrate to overcrowded cities?  No.  Norway should  not use the environment to disguise protectionist
practices.  After three years of CTE discussions, Norway should know that there were areas in which
the complexities of the relationship between trade and environment had impeded progress.  Given the
public frustration about the supposed lack of environmental sensitivity in the WTO, this subject
presented an opportunity.  The CTE should deliver a clear recommendation to the next agricultural
negotiations:  remove export subsidies for the sake of trade and the environment.  Argentina proposed
that the CTE should contribute this message to the preparation of the 3rd Ministerial Conference.
61. Paragraph 6 of Japan's paper (WT/CTE/W/107) referred to a “study” indicating that the
annual monetary value of conservation by paddy fields amounted to over 4.6 trillion yen.  Argentina
had found identical figures in a publication from the Ministry of Agriculture, Forestry and Fisheries of
Japan, which indicated that the most important positive externality from paddy fields was the
"function of preventing floods" (this amounted to almost 2 trillion yen, compared with 4.6 trillion yen
referred to in WT/CTE/W/107), however "paddy fields on flat and low ground are excluded from thiscalculation due to their low flood preventing function ".  Most of Japan's rice production took place in
low lands.  As paddy fields located in low lands had a "low flood preventing function", as stated in the
Japanese study Argentina had quoted, it was not possible to justify production support subsidies on
the grounds of this "multifunctional" cover.
62. In paragraph 23, Argentina did not see how Japan could argue (without figures) that:
"[a]gricultural trade liberalization leads to a concentrated production in agricultural exporting
countries".  Agricultural trade was far from being liberalized and world production was highly
concentrated in countries that had sufficient resources to boost artificially production and exportation.
This was not the case of developing countries.  When rich countries subsidized their production they
accumulated enormous surpluses that were then dumped on the international market at unfair prices.This was what actually concentrated production and acted against self reliance of developing country
producers, whether in Argentina or in any other developing country that may not have the sameWT/CTE/M/20
Page 14
comparative advantages in agriculture, but still had a rural population striving for a living.  Argentina
found some common ground with Japan's statements in paragraphs 26 and 28.  Markets can only
allocate resources optimally when prices reflected full costs of production, including environmental
externalities.  However, markets did not even reflect private production costs due to government
interventions, such as price support and export subsidies.  Argentina agreed with Japan's argumentthat governments had to intervene to offset the inability of markets to capture the value of some
environmental externalities, but this in no case justified price distorting policies.  Government
intervention had to be targeted to the root of the environmental problem;  therefore, price support or
export subsidies could never be justified on these grounds.
63. The representative of New Zealand said that his delegation was a cosponsor of
WT/CTE/W/106, which proposed that eliminating export subsidies would result in "win-win-win"
benefits.  In addition to the economic and trade arguments which favoured their removal, there werecompelling environmental and developmental arguments.  As noted in the paper, there were no
environmental benefits associated with the provision of export subsidies.  Such policies used
substantial amounts of money which could otherwise be channelled to public priorities, including
environmental protection.  Export subsidies, mainly used by certain developed countries, impeded the
ability of efficient producers in other parts of the world to pursue sustainable development.  He askedhow development assistance goals could be pursued by developed countries effectively when some of
their trade policies undermined the developmental potential of aid recipients.  New Zealand noted the
concerns presented to the British House of Commons, and the statement of Maurice Strong, noting the
contribution of eliminating subsidies to the implementation of Agenda 21 .  The empirical studies
concluded that consumers and taxpayers would gain substantially more from subsidy removal thanfarmers would lose.  The economic, social and environmental benefits of breaking the link between
support payments and agricultural production were set out in the Earth Council's 1997 Report,
Subsidizing Unsustainable Development:  undermining the earth with public funds .  Eliminating
agricultural export subsidies must be a priority for the WTO in the forthcoming negotiations and the
environmental benefits of their elimination should additionally encourage countries concerned aboutthe environment to engage positively in this endeavour.
64. New Zealand agreed with one of the points in Norway's paper (WT/CTE/W/100) that the
market alone cannot address all environmental problems.  This was where the role of domestic
environmental policies came into play.  Focused and effective domestic resource management
policies, which need not be trade distorting, should be adopted to maximize public goods.  The
Agriculture Agreement recognized Members' right to introduce Green Box policies without any limit
for a range of concerns.  New Zealand agreed with Argentina that the environment should not be usedas an excuse to maintain trade distortions.  Referring to Norway's suggestion that trade in agricultural
goods can lead to the spread of disease, he noted that so can tourism but that this was not banned.
Concerns in this regard were addressed in the SPS Agreement, the provisions of which, as confirmed
by the Appellate Body, were based on sound science.  New Zealand, like Norway, aimed to prevent
the spread of diseases, particularly those which were not already present, however this could beachieved without unduly inhibiting trade by relying on the scientifically justified rules in the SPS
Agreement.  Thus, it was unclear to his delegation where Norway's paper was headed in relation to
this area.  While most of Norway's paper focused on its experience, it made general observations
about other countries, including New Zealand.  New Z ealand agreed with Norway that its data should
be treated with caution.  In contrast to Table 2 of Norway's paper, the 1996 OECD Environmental
Report set New Zealand's nitrogen use at 4.29 metric tonnes per km
2.  The 1996 OECD Performance
Review set  New Zealand's level at 0.7 metric tonnes per km2, i.e. one sixth of Norway's estimate.
65. The representative of Switzerland said that all the submissions by Members on this Item had
advanced the CTE's discussions.  To be adequately appreciated, papers should be submitted in
sufficient time prior to the meeting.  Switzerland noted with interest Norway's evidence whichquestioned claims that there was always a direct correlation between levels of agricultural support and
environmental damage.  Certain methods of production produced positive environmental externalitiesWT/CTE/M/20
Page 15
for which there was no compensation and, without adequate government activity would result in
market failure.
66. The representative of Australia welcomed the attempt in Norway's paper (WT/CTE/W/100) to
collect relevant data.  The paper itself pointed to the shortfalls in the data, particularly its small sample
size and its basing of ratios for pesticide and fertiliser use on arable land, which was defineddifferently across countries.  The exclusion of pastoral land was also likely to skew the results,
particularly for countries like Australia and New Zealand where the proportion of farm land given
over to pastoral activity was high.  Despite these shortfalls, Australia saw some useful results coming
from Norway's analysis, i.e. there was a notable co rrelation between the use of some key inputs which
were associated with environmental impact and levels of support as measured by the Producer
Subsidy Equivalent (PSE).  The paper underlined the rates of change in recent years whereby high
support countries had reduced the intensity of the use of some of these inputs per land area.  Australiawelcomed Norway's conclusion that changing policies in high support countries which had increased
input-output price ratios and improved environment policies had been responsible for this.  Australia
advocated this rationale for continuing the reform of market distorting policies and complementary
improvements in environmental policy.  Australia no ted a gap between the analysis in Norway's paper
and its conclusions.  If some agricultural activity had positive environmental effects which were notrewarded by the market, this did not justify the existence of those policy measures which primarily
aimed at artificially raising agricultural production levels overall.  This was because those same
measures also resulted in negative environmental effects.  Even if the assessment were based only on
environmental grounds, it was inefficient.  This assessment was compounded when the added costs of
international economic inefficiency and social inequity were considered.
67. Australia supported the conclusions on Item 6 in paragraph 197 of the 1996 CTE Report
(WT/CTE/1).  Australia shared Norway's concern about threats to biodiversity.  Agriculture had been
an important factor in the loss of habitat and the spread of feral animals, the key threats to
biodiversity.  Yet, no one in Australia was advocating that agriculture should be cut back to meet this
threat;  it would be ineffective and economically disastrous.  Protection and rehabilitation of habitatand direct control of feral animals had been partially successful in meeting this problem and was an
example of the economic and environmental efficiency of targeted policies.  This approach would be
optimal in a high support country where movement b ack to an efficient level of production would free
resources to rehabilitate habitat and foster species protection.  Scaling back would also directly
address some of the environmental problems identifi ed in Norway's paper as correlated to support
levels.  Norway's paper raised several environmental problems external to the market and associated
with agricultural production and trade, including soil erosion, transmission of pests and biodiversityloss.  These problems should be addressed, but not by forgoing the benefits of a more efficient global
distribution of agriculture.  The point was that trade liberalization was not incompatible with, and can
contribute to solving environmental problems in high and low support countries.
68. Australia commented on Japan's paper (WT/CT E/W/107), focusing on Section V which drew
unwarranted conclusions on the likely environmental effects of agricultural liberalization based onprejudgements on the environmental conditions and productive responses to liberalization of different
countries and their policy responses to liberalization.  Japan's analysis went against the general view
in the CTE, not just about the complexity of the linkages between agricultural trade, production and
the environment, but about the interaction of these factors with environmental policymaking.  This
Section also confused the issue by claiming that trade liberalization will lead to “concentratedproduction in agricultural exporting countries”;  it may lead to some increase in production in low
support countries, but this had great potential to provide benefits, especially if these countries applied
appropriate environmental policies.  Reductions in the quantity of agricultural production in high
support countries also had the potential to produ ce “win-win” outcomes in these countries and can be
complemented by targeted environmental policies which could directly and more efficiently obtainthe benefits that Japan associated with rice paddies.WT/CTE/M/20
Page 16
69. Australia endorsed Brazil's views in WT/CTE/W/109 on the negative externalities associated
with direct agricultural support, including intensive resource use and increased concentration of
production and associated pollution.  Australia agreed that targeted, mutually supportive trade and
environmental policies, which achieved environmental benefits with lower costs in terms of
associated negative externalities, were superior to those which generated significant negative effects,often with counter-productive results to the original  policy intent with respect to the environment.
70. In signing on to WT/CTE/W106, Australia had b een motivated by the view that it was time
for the debate under Item 6 to progress to a more detailed analysis.  The CTE had useful discussions
on general issues related to the market access effects of environmental measures, as exemplified by
WT/CTE/W/67.  WTO treatment of export subsidies was such that they were prohibited except for
agriculture.  WT/CTE/W/106 highlighted the environmental consequences of export subsidies to
agriculture.  Since environment was closely tied to  development, the paper also noted the impact of
export subsidies in agriculture for the pursuit of sustainable development policies by developing
countries.  Export subsidies can have indirect envi ronmental impacts through their implications for
export opportunities of other countries.  Subsidies can reduce trading opportunities for countries with
efficient industries with low levels of support and, moreover, they can harm economic development in
those countries and adversely affect their ability to adopt appropriate environmental and socialpolicies.  Although these impacts can be felt in all countries, their effects had a significant impact on
the persistence of rural poverty in developing countries, particularly given that the rural poor
comprised as much as 80 per cent of the poor in these countries.  As illustrated in the paper, the
accumulation of surplus stocks which were then dumped on international markets did not serve any
environmental objective.  Thus, improved environmental outcomes were another reason to eliminateexport subsidies, a goal which the CTE should support in clear terms.
71. The representative of Canada recalled his delegation's support for Brazil's request for a
Secretariat paper on agricultural subsidies.  Given the CTE's role to discuss the environmental impact
of agricultural subsidies, this work would not duplicate work in the Agriculture Committee.  While
Canada was disappointed that the CTE had not been able to reach agreement on this paper, it waspleased to be among the sponsors of WT/CTE/W/106.  Canada believed that valid non-trade
objectives, including environmental protection, should be addressed wherever possible by non-trade
distorting measures.  While not questioning the tradition of agriculture in certain countries, including
Canada, in many countries, particularly developed countries, the type and intensity of agricultural
production had shifted over the past thirty years.  This shift could partly be attributed to the increased
level of support for arable crops.  Canada questioned the assumption that agricultural landscape was a
higher public good or provided greater environmental protection than wild or natural landscape.Canada supported the central argument in Brazil's paper (WT/CTE/W/109) that non-trade concerns
should not be used to justify trade distortions.  To ensure that trade and environment were mutually
supportive, trade liberalization should always be accompanied by sound environmental policies.
72. Canada agreed with Norway's paper (WT/CT/W/100) that market mechanisms may
undervalue environmental services produced by agriculture and thus that these may be under-suppliedrelative to the social optimal.  Norway's analysis  on the relationship between trade liberalization and
the environment was, by its own admission, not exhaustive and should not be used as a basis for a
complete understanding of how trade may be used to affect environmental conditions.  Regardless of
the extent to which environmental goods were pro duced jointly with agricultural products, the case
had not been made that production support was the most efficient way to ensure net agriculturalbenefits;  adverse market distortions and trade effects would result from oversupply of commodities
as well pollution and other forms of environmental degradation may increase as agricultural
production intensified.  In countries where the public paid producers for the positive environmental
externalities of agriculture, this payment should be decoupled from production and linked directly to
the desired benefit.  If production intensity was reduced, this would lead to a lower level ofenvironmental risk.  The case that indirect instruments, such as production support, were more
efficient than instruments targeted directly to the desired environmental benefit remained to be made.WT/CTE/M/20
Page 17
If the retention of stone fences in agricultural landscape were desired, it would be more efficient to
pay a farmer to maintain them than to subsidize the food the farmer produced.
73. The representative of Thailand, on behalf of ASEAN, commenting on Japan's paper
(WT/CTE/W/107), said that agriculture played a crucia l role in all countries.  However, the concept of
multifunctionality of agriculture should not be used as a justification for the maintenance ofagricultural protection.  Agricultural subsidies should be decoupled from domestic production and
international trade.  Given that Japan had stated that the value of multifunctionality, such as land
conservation through paddy fields in Japan was over 4.6 trillion yen per year, which far exceeded the
total output value of rice production, ASEAN asked what the primary objective of rice planting was in
Japan.  ASEAN shared Argentina's view that low land rice paddies cannot protect against flooding.
74. The representative of the United States said that her delegation was one of the cosponsors of
WT/CTE/W/106, which called for agricultural export subsidies to be eliminated.  The inefficiency and
trade distorting impact of these subsidies had been well documented and the environmental problems
which flowed from their use were obvious.  The US  agreed with Brazil's paper (WT/CTE/W/109) that
trade liberalization did not automatically lead to environmental protection, but was a step in the right
direction.  Concerns over the externalities set out in Norway's paper (WT/CTE/W/100) were valid and
were identified in Article 20 of the Agriculture Agreement.  However, the methods Norway proposedto meet these concerns distorted trade and increased environmental degradation.  The US was
disappointed by Norway's insistence on the use of direct payments to agricultural producers coupled
to production, which encouraged overproduction that could lead to trade distorting export subsidies
and to more intensive input use in the agricultural production process.  This increased environmental
degradation.  Effective policies should be targeted and limited in scope.  For example, Norway's paperargued that agricultural activity can contribute to soil erosion and poor water quality.  To address this
production pattern, the US provided incentives to farmers and ranchers to adopt more environmentally
friendly farming and to take highly eroded land out of production.  The US noted an environmental
benefit of trade liberalization, not noted in Norway's paper, was the almost complete elimination of
government input subsidies for pesticides and fertilizers, for example in Hungary and Poland whichwere low PSE countries with comparable levels of  pesticide reduction to Norway.  Recognizing the
importance of supporting rural sectors and the need to minimize trade distortions, the US supported
the application of Green Box policies which had no trade impact or minimally distorted trade;  their
proper application was set out in Annex 2 of the Agriculture Agreement.
75. The US was dismayed by Japan's view in WT/CTE/W/107 that trade liberalization would
disrupt Japan's rice production and limit the beneficial impact of rice paddies.  Many countries had
experience with programmes to conserve water and soil and to address agricultural multifunctionalityin a way that only minimally distorted trade.  As for Norway's paper, Annex 2 of the Agriculture
Agreement described how countries could protect their environment through programmes that did not
have a trade impact.  As stated by Vice President Gore at the Davos Economic Forum, the US hoped
that export subsidies would be eliminated in the next round of negotiations.
76. The representative of Japan welcomed Norway's paper (WT/CTE/W/107), which noted that
agricultural landscape conservation and biodiversity preservation were public goods provided by
agriculture.  These comments were similar to Japan's arguments concerning the functions of flood
control, landslide prevention and enrichment of water resources of agriculture as important factors of
multifunctionality.  Environmental impacts of agriculture were dependent on natural and social
conditions of countries and, in many cases, appropriate management through farming activities wasessential to maintain and enhance environmenta l benefits.  Japan echoed Norway's view on the
environmental impacts of changes in the transpor t of agricultural products resulting from trade
liberalization.  Further analysis on this issue was required.  Japan noted the need for a long term
assessment of the environmental impacts of agricultural production shifts caused by trade
liberalization, including the effect of changes in land use in importing and exporting countries.Non-trade concerns should be appropriately reflected in the process of agricultural reform.WT/CTE/M/20
Page 18
77. Japan appreciated Australia's paper (WT/CTE/W/105), which encompassed the possibility of
measures to enhance the environmental benefits from agriculture.  Japan was concerned that the paper
did not properly address varying natural conditions, nor analyse sufficiently the long term
environmental effects associated with production shifts.  Japan was concerned about Australia's
reference that removing distorting policies was generally more effective and believed that there werecases in which certain environmental measures should be used, regardless of their efficiency, if
appropriate alternative measures were not available.  The efficiency of the measure and how clearly it
was targeted to a given objective should be discussed separately.  Japan noted that new dimensions of
the issue had arisen in the OECD's discussion of multifunctionality which suggested that discussion
related to multifunctionality and trade distortions was not as simple as had been initially considered.
In the Communique of the 1998 OECD Ministerial Meeting of the Agriculture Committee, Ministers
had acknowledged that "there can be a role for policy where there is an absence of effective marketsfor such public goods, where all costs and benefits are not internalised."  Japan felt that a certain
degree of production linked domestic support was necessary to the extent that multifunctionality was
jointly provided with appropriate agricultural production.  The combination of policy measures
including appropriate re-coupled support was crucial to maintain agricultural multifunctionality.
78. Japan appreciated that Brazil's national experience paper (WT/CTE/W/109) recognized the
need to address agricultural multifunctionality and  noted that the level of agricultural support was not
relevant to the environmental performance of agriculture.  The paper illustrated that Brazil was
addressing conservation tillage or non-tillage in soya cultivation through environmentally sustainable
agriculture.  However, it was incorrect to argue that all agricultural subsidies were environmentally
harmful;  there were environmentally well-targeted subsidies, including those inducing crop rotationor conservation tillage.  Japan stressed the importance of site-specificity of agricultural
multifunctionality.  On WT/CTE/W/106, Japan felt that the CTE should not focus only on the trade
distortions caused by certain agricultural policies, such as export subsidies, but should consider the
overall effects and objectives taking into account agricultural multifunctionality.  Responding to
several comments on rice paddy farming, Japan said that paddy fields in both low and high lands inJapan contributed to flood prevention.
79. The representative of India made preliminary comments on the four papers on agriculture.
Norway's paper (WT/CTE/W/100) provided one insight into the issues under Item 6 and gave a good
analysis of agricultural public goods.  In countries  like India, where three quarters of the population
lived in rural areas and depended on agriculture, supportive domestic policy measures were necessary
to ensure agricultural returns and poverty allevia tion.  The agricultural community in such countries
could benefit from increased market access, which need not result in more intensive agriculturalpractices as there will be significant trade diversion in agricultural production in countries such as
India.  Another benefit will be the value-added on agricultural products created when marketed to
developed countries, which would lead to increased resources for agri-producers, alleviation of
poverty and installation of better domestic environmental policies as a result of the resources
generated from increased exports.  Value-added in India may not be more than ten per cent from thefarmgate level, whereas in some developed countries it can be as high as fifteen times this figure.
80. Gaps currently existed in some developing countries, like India, between the performance and
the potential of crop productivity;  increased productivity of existing agricultural lands would be
environmentally friendly in India.  There was scope in India to expand agriculture to barren lands
where environmentally degrading practices may not be necessary.  In India, the net sown area wasabout 142 million hectares, while there was identified arable land available up to at least 24 million
more hectares.  Increased agricultural produ ction would also create employment and render
sustainable development more effective.  In sum, environmental costs in the agricultural sector were
lower in developing countries whether low or high support and trade liberalization in intensive
agricultural practices in developed countries can produce a "win-win" situation.  India felt that largearable lands, including barren lands in developing countries could lend themselves to organic farming
and, thus, to better phytosanitary and public health standards.  India supported Argentina's distinctionWT/CTE/M/20
Page 19
between the appropriate level of agricultural production and the harm that export subsidies could
cause to global environmental objectives, including those of increasing developing countries' market
access.  A shift in production to developing countries with large agricultural lands should create
environmental benefits, particularly given the increased resource availability, the value-added
possibilities and the diversion of trade to more environmentally beneficial practices.
81. India supported the arguments in WT/CTE/W/106 on the need to eliminate agricultural export
subsidies in developed countries, where internalisation of externalities would lead to greater market
access for developing countries' agricultural products.  India supported reducing export subsidies, but
linked with issues of market access, quotas and tariffs.  Poor resource-based, low per capita income
and negative current account balances of some developing countries, such as India, may inhibit the
opening of economies to imports, but this situation did not exist in many developed countries.
Agricultural production processes were linked to domestic conditions, which varied among countries.
82. India felt that Japan's paper (WT/CTE/W/107) dealt with an environmental problem which
can better be addressed through domestic environmental policies, not through trade distortions.  WTO
rules permitted countries to take measures, including subsidies, to comply with domestic
environmental regulations.  As noted by Canada and others, non-trade concerns should not impede
trade liberalization.  India noted Brazil's conclusions in WT/CTE/W/109 that agricultural subsidieshad a negative effect on reducing rural poverty and that a shift to new production methods which took
into account agronomic, social, economic and ecological aspects could be more conducive to
sustainable development.  An important point made by Brazil was that an increase in agricultural
income was directly linked to the introduction of sustainable agricultural management systems.  These
income increases would enable, through appropriate domestic environmental policies, environmentalprotection and trade liberalization to be mutually supportive.
83. The representative of Bolivia referred to the concern expressed in WT/CTE/W/106 on the
negative impact of agricultural subsidies on trade, agricultural investment and the environment,
particularly given that Bolivia's main non-traditional exports were agricultural.  The importance of
environmental issues in Bolivia was illustrated by  the fact that Bolivia had been among the first
developing countries to set up a Ministry for Sustainable Development and Environment following
Agenda 21 .  Bolivia welcomed WT/CTE/W/106 as it had supported Brazil's request for a Secretariat
paper on export subsidies, which would not have duplicated work in other WTO Committees.  Bolivia
asked that all papers submitted to the CTE be translated to all official WTO languages promptly.
84. The representative of Norway said that trade reform should offer opportunities for "win-win"
outcomes, which was a difficult and long term undertaking due to the complexities in the interface
between trade liberalization and environment protection.  In an overall evaluation, sector specificanalysis was required as the linkages between trade and environment differed among sectors.
However, sector specificity made it difficult to  draw broad, cross-sectoral conclusions.  Norway
agreed with Australia's paper (WT/CTE/W/105) that some subsidies may be justified on efficiency or
equity grounds to address market failures, reward positive externalities or meet social objectives, an
aspect which was described in Norway's paper (WT/ CTE/W/100).  These benefits were mostly related
to environmental public goods which had no functioning market and for which providers should be
paid to achieve the desired resource allocation.  In  recognizing the need for targeting agricultural
policy measures as far as possible to minimize tr ade distortions and avoid possible inconsistencies
among measures, Norway cautioned against restricting the scope and flexibility of environmental
policy measures. The possibilities for policy targeting and agricultural decoupling had been discussedat the OECD, although not for jointly supplied services.  There was a growing awareness that
complete decoupling from food production will not be possible in the presence of joint products.   In
practise, a close relationship existed between certain environmental objectives and the maintenance of
a certain level of agricultural production.  Thus, a combination of policy measures including a certain
degree of coupled support was the most efficient way to achieve environmental objectives.WT/CTE/M/20
Page 20
85. Norway agreed with Japan's paper (WT/CTE/W/107) that the relation between the
environment and agricultural trade liberalization was complex.  The role of paddy fields in food
production, flood control, soil erosion prevention, and water storage was illustrative of the
multifunctionality of rice production, which varied between countries and regions.  Factors, including
varying natural conditions and production methods, should be taken into account when consideringappropriate measures to maintain and enhance the environmental benefits jointly produced with
agriculture.  In expanding the scope of the discussions, aspects of agricultural multifunctionality
which provided environmental benefits should be emphasized.
86. Norway agreed with Brazil's paper (WT/CTE/W/109) that the multifunctional character of
agriculture could pave the way to sustainable development.  Brazil's conclusion that negative
externalities could occur in high and low support countries supported Norway's findings.  Brazil's
paper highlighted trade liberalization and economic development as means to economic rehabilitationand sustainable development.  Poverty should be addressed in future trade reforms.  However, the
linkages between trade liberalization, economic development, environmental benefits and sustainable
resource use were more complex than suggested by Brazil.  In response to Argentina, Norway's paper
did not defend export subsidies as part of its long term strategy to safeguard the environmental
benefits produced by multifunctional agriculture.  On New Zealand's comment, Norway had obtaineddata from neutral sources.  As stated in paragraph 45 of Norway's paper, the definition of arable land
may vary between countries and permanent pasture had not been included.  As recognized by
biodiversity experts, the introduction of alien species was a concern linked to increased trade.
87. The representative of Mexico said that given that most of the papers had been submitted in
English and were not yet available in Spanish, Mexico reserved the right to comment at a later stage.
Mexico felt that Australia's paper (WT/CTE/W/105) traced out the path that the CTE should pursue.
As Argentina had noted, the CTE's task was not to seek how to justify imposing new restrictions or
distortions on trade, but to determine how the WTO could contribute to sustainable development.  The
paper on agricultural export subsidies (WT/CTE/ W/106) was a good basis on which to discuss this
issue.  However, Mexico was not convinced that discussions on the elimination of export subsidiesshould necessarily be based on the argument that these subsidies harmed the environment, given that
their elimination was desirable and necessary irrespective of the fact that there may be environmental
reasons to eliminate them.  There was an addi tional reason for eliminating agricultural export
subsidies as illustrated by several papers which had been submitted in the CTE.  The CTE should
continue to discuss export subsidies in order to identify the synergies between trade and environment.
88. The representative of Hungary agreed with many of the critical remarks on Norway and
Japan's papers.  Paragraph 74 of Norway's paper (WT/CTE/W/100) dealt with the negative
environmental effects related to transport which could increase when trade in agricultural goods was
liberalized.  Although this argument held for the process of liberalization of trade in industrial goods,
Hungary was not aware of objections on these grounds.  A differential treatment of trade liberalization
in these two categories of goods was not  justified.  Although WT/CTE/W/106 raised valid points
which would be relevant for the next round of agricultural negotiations, other measures which hadsimilar negative environmental effects should have been included, such as export credits and certain
export-related activities of state trading enterprises.
89. The representative of Malaysia, on behalf of ASEAN, supported the main points in Brazil's
paper (WT/CTE/W/109) with respect to the multifunctionality of agriculture, the need to ensure sound
environmental management, poverty eradication, a nd food security.  Non-trade concerns could be
addressed through agricultural trade liberalization.  Liberalization in this sector would only enhance
efficient resource use and decrease the environmental burden.  Removing trade distortions, such as
tariff escalation, would have a direct impact on addressing non-trade concerns, such as poverty.
Agricultural trade liberalization coupled with sound domestic environmental management policies
could lead to "win-win" situations for both exporters and importers.  Pursuing agricultural protectionunder the guise of addressing non-trade concerns or environmental protection was an enigma toWT/CTE/M/20
Page 21
ASEAN.  Although Table 5 of Norway's paper (W T/CTE/W/100) showed that Malaysia and Thailand
had a high percentage of annual deforestation, other sources showed that between 1980 and 1985
these countries had expanded tree plantations for oil palm and other crops to alleviate poverty and
redress socio-economic concerns, as well as contribute to export-led growth.  Table 5 showed that
there were no forests to exploit in Norway and ot her countries compared with the virgin forests in
ASEAN.  Although the annual rate of deforestation appeared to be relatively high, the important fact
was that ASEAN would ensure that forest exploitation was carried out in a sustainable manner.
90. The representative of Panama supported the concerns expressed on the need for
environmental measures to be applied in a manner which was transparent, equitable and did not cause
trade distortions.  As pointed out by Zimbabwe, countries faced the challenge of creating a
constructive relationship between trade and the environment which would benefit from an open,
equitable, multilateral and non-discriminatory trading system.  Panama asked when the CTE wouldfocus its analytical work in preparation for the 3
rd Ministerial Conference.
91. The representative of Egypt attached importance to the development dimension in Australia's
paper (WT/CTE/W/105) and noted the case for net food importing developing countries, which none
of the papers addressed.  Egypt supported most of the arguments for eliminating agricultural subsidies
given the possible environmental benefits of their elimination.  However, the accumulation ofagricultural surplus provided net food importing developing countries with a means to satisfy their
food security with the little purchasing power  they had and bearing in mind the inadequate
implementation of the Decision on Ne t Food Importing Developing Countries.
92. The representative of Turkey saw a close relationship between agriculture and the
environment, which was not predicable a priori .  Whether agriculture affected the environment
depended on production techniques, soil and water ma nagement, fertilizer and other chemical use, and
government policies.  The positive environmental effects of agriculture can be enhanced through
appropriate agricultural and environmental policie s.  Turkey shared the view in the OECD 1998
Report that "environment measures in agriculture s hould be transparent, targeted to the objective,
tailored to the environmental situation, and subject to regular monitoring and evaluation to ensure thatthey were effective and cost efficient and did not distort production and trade."  Agricultural export
subsidies may be environmentally harmful due to their distorting effects on market structure,
production, prices and market access opportunities of non-subsidizing countries.  Their removal
would reduce over-production and result in a more efficient use of resources.  The prices of goods
should reflect the private cost of production and the environmental externalities at each stage of the
production process to maintain sustainable production and resource management policies.  Turkey felt
that the CTE's findings should be taken into account in the upcoming agricultural negotiations.
93. The representative of the European Communities sa id that after such a rich debate it was not
necessary to comment on the details of the papers.  Also, many of the issues raised were being
discussed in other fora with greater expertise in this area.  The relationship between agricultural
activity and environmental protection was a subject where the understanding of the global community
had evolved rapidly in the past twenty years.  When the Uruguay Round was been launched, this
concern had been less than prominent.  By the end of the round, there had been some commitments to
reduce support and protection which were firmly based on a recognition of the need to act to protect
the environment.  At the end of the Uruguay Round, the EC had recognized that environmental
protection would be part of renewed negotiations.  It was worth noting that existing commitments
were being revisited to reduce domestic support, and increase market access and export competition,which encompassed export credits as well as export subsidies.
94. Discussion under Item 6 confirmed the fear that it may be easier to examine market access
issues when all the economic tools which had an environmental impact had been put together.
Focusing on one sector could lead to a false debate where it was tempting to argue that this was the
only problem and that its elimination was a panacea for all the difficulties faced.  This would not beWT/CTE/M/20
Page 22
accurate.  There was an elegant glissando of evidence from the proposition that reducing agricultural
support would have an environmental impact which would need to be analysed by each country in a
balanced way, to the proposition that there was one particular form of agricultural support which
deserved attention.  The countries which advanced the latter view were not necessarily those that
indulged in that form of agricultural support.  As the CTE assessed the environmental impact of
agricultural activity, even low support countries a nd those that did not have export subsidies could
have high rates of biodiversity loss, soil erosion and deforestation as a result of export oriented
activities.  It was difficult to be as black and white as some delegations would wish.  There was
evidence which reinforced the view that sustainability should be given greater weight in the upcoming
negotiations in all sectors.  If the evidence were overloaded, its usefulness would be undermined.
95. The representative of Australia recalled that the CTE's role was to focus on environmental
issues.  Although the EC had suggested that it was best to approach the issues more generally, in light
of the CTE's work so far, a general approach had not facilitated progress.  It was thus appropriate to
move from the general, as at Singapore, to the more specific.  As there were different effects of trade
and environment policies on different countries, Australia's paper (WT/CTE/W/105) highlighted the
impact particularly on developing countries and the inequities which arose for both trade and
environment from distinctions between low and high  agricultural support countries.  These inequities
did not lead to "win-win-win" outcomes.  Issues which were worthy of attention under Item 6 were
the elimination of agricultural export subsidies and fisheries subsidies, and the examination of tariff
peaks and escalation.  Net food importing countries had domestic producers which were affected by
lower prices even if they were not exporting.  Egyp t's concerns in this regard appeared to relate to
food security, an issue which was primarily about poverty.  To the extent that export subsidiescontributed to poverty, they could not ensure ongoing food security.  Australia was a major supplier
of wheat to Egypt presumably as this wheat was available at a fair price;  Australia did not have any
export subsidies.  The CTE should examine aspects of Item 6, including those identified in Australia's
paper, with a view to the 3
rd Ministerial Conference.
96. The representative of Argentina said that, as Mexico had noted, the purpose of the WTO was
to facilitate trade.  Therefore, the CTE's contribution to the environment should be done through trade
facilitation;  an environmental pretext was not necessary to facilitate trade.  The WTO can contribute
to enhancing trade and the environment through identifying which existing trade barriers prevented or
were detrimental to the implementation of appropri ate environmental or development policies.  Most
Members were sensitive to the problems caused by export subsidies, which represented an example of
a sector in which the WTO could contribute to trade and environment in the forthcoming negotiations.
Argentina supported Brazil's paper and its focus on the relationship between poverty, developmentand environment.  Discussion on non-trade concerns should not only be on protecting recreational
areas, but on alleviating poverty, which was a legitimate non-trade concern.
97. The Chairman said that there were two broad views with respect to the environmental impact
of trade liberalization.  While delegations might wish to ponder as to where and how to go from here,
it might be useful to consider whether it could be agreed that there were areas or sectors where tradeliberalization had clear and agreed trade benefits.
Energy
98. The representative of Turkey said that anothe r area of potential environmental impact was the
energy sector, which had direct environmental effects on production, transportation, conservation and
use, and indirect effects through its use in other sectors.  Internalisation of environmental externalitiesin this sector was crucial to put in place environmentally sound policies.  Fiscal incentives, taxes and
charges should be restructured to promote such policies.  Turkey appreciated efforts to develop
alternative and renewable energy sources, which will reduce the effects on climate change and
environmental degradation caused by polluting energy sources.WT/CTE/M/20
Page 23
Fisheries
99. The representative of Iceland introduced his delegation's paper (WT/CTE/W/103 and Corr.1)
on Iceland's fisheries management system.  To atta in ecological and economic efficiency, Iceland's
fisheries management system rested on the three pillars of sustainable development:  environmental,
economic and social.  Although the Icelandic fisheries management system was still under
development, the results were in line with the general positive experience from the application of
Individual Transferable Quotas in fisheries in other countries.  There had been a decline in fishing
efforts;  the growth of the fishing fleet had stopped and in some cases contracted;  fish stocks had
recovered and the quality of landed catch had increased;  profitability had increased;  and total
employment in the industry had not contracted significantly due to the emphasis on product quality.
The success of Iceland's fisheries management system resulted from the fact that it was not only based
on rigid ecological requirements with respect to science and catch levels, but on economic efficiency.The system was both market-driven and free from government subsidies.  Yet it was difficult for any
country to maintain sustainable fisheries management regime in a world market characterized by
overcapacity.  Such circumstances provided for constant pressure on the domestic fisheries sector and
through it on the government to increase supply, notably by allowing more fishing, to the detriment of
fish stocks and marine biodiversity.  Overcapacity of the global fishing fleet was the predominantcause of the depletion of fish stocks in many regions.  It was generally recognized that government
subsidies and other market distortions were primary factors in causing this overcapacity.  Thus,
eliminating government subsidies and other trade distortions and restrictions would facilitate
sustainable development in fisheries.
100. The representative of New Zealand said that Iceland's national experience paper provided a
concrete example of the environmental benefits from sustainable management policies without resort
to trade distorting measures, such as subsidies.  New Zealand agreed with Iceland that such
sustainable policies were difficult to maintain in the face of overcapacity in global fishing fleets.
New Zealand also appreciated Australia's reference in WT/CTE/W/105 to recent studies undertaken
on the environmental impact of fish subsidies.  As  empirical work in this area was undertaken, the
pressing need to remove all trade distorting fish subsidies became increasingly apparent.
New Zealand supported Iceland's comment that no single action could bring about such positive
results towards achieving sustainable development in fisheries as would the elimination of subsidies.
As for agricultural export subsidies, eliminating s ubsidies would result in significant environmental
and economic benefits.  In this International Year of Oceans, New Zealand called on those countries
which used trade distorting subsidies to eliminate them.  A commitment in this regard at the WTO
High Level Symposium on Trade and Environment in March 1999 would be timely.
101. The representative of Canada said that Iceland' s paper provided a useful overview of Iceland's
fisheries management.  Australia's paper (WT/CTE/W/105) identified subsidies as promoting excess
levels of effort and capacity.  Canada agreed that subsidies could result in overcapacity, but noted the
environmental benefits of eliminating tariffs and non-tariff measures.  Removal of barriers which
supported artificially high price levels would increase import competition in the market and place adownward pressure on prices.  This would bring a bout rationalization in the domestic industry forcing
inefficient players out and reducing the size of domestic fleets.  This would also have a positive effect
on harvesting capacity and resource sustainability.  Canada also emphasized Australia's point that
certain subsidies can have positive environmental impacts if subsidies were used to adjust fishing
activities and restructure the fisheries sector.  Canada supported this type of subsidy provided that iteffectively promoted sustainable exploitation of fisheries resources.  Increased transparency and
greater monitoring of the size and forms of fisher ies subsidies was a first step to address concerns
about their environmental and trade impact.  Canada supported further research by the FAO and
others to improve data on the value and form of global fisheries subsidies.  Canada noted that excess
vessel capacity cannot be resolved by shifting the problem to others.  This practice, if it led tounsustainable catches, will contribute to fish stock depletion.WT/CTE/M/20
Page 24
102. The representative of Japan said that his delegation was concerned about Iceland's
conclusions and the neutrality of its data.  It was inappropriate for Australia's paper (WT/CTE/W/105)
to conclude that fisheries subsidies promoted over-fishing and that their reduction would lead to the
protection of fish resources.  Rather, over-fishing  was caused by poor fisheries management systems.
Certain support measures were indispensable to encourage the conservation of fish resources andensure sustainable fishing.  Australia's paper indicated that subsidized fishing operations of distant
water fleets may reduce the fishing opportunities availa ble for local fishing.  Japan believed that the
management and distribution of fisheries resources should be resolved through coordination in the
appropriate regional fisheries management organizations.
103. The representative of Korea said that his delegation was monitoring the discussion on
subsidies and over-capacity in the OECD and FAO.  Korea welcomed Iceland's paper as it illustrated
that rigid governmental enforcement accounted for the success of sustainable fisheries management.Korea inquired as to the extent Iceland's succes s was the direct consequence of the absence of
fisheries subsidies.  Korea felt that fisheries conservation cannot be achieved only by reducing
subsidies given that the main cause of overexploitation was the lack of sustainable fisheries
management.  To improve the situation in global fisheries, all factors should be considered
comprehensively, not only subsidies.  More empirical studies were needed on fisheries subsidies andtheir effects on trade and environment as the linkages between the two were not clear.  The distinction
between different forms of subsidies should be made and their net impacts analyzed.  Certain
subsidies could have positive environmental impacts by reducing fleet capacity, for example those
aimed at sustainable fisheries use and management and those for restructuring the fisheries industry.
Seasonal variations in which different species were caught made it difficult to identify if a particularsubsidy supported the catch of traded or non-traded species.  Given the uncertainties in identifying the
right level of capacity to achieve the right level of fisheries, it was doubtful whether the withdrawal of
catch enhancing financial support was an adequate response.
104. The representative of the United States congratulated Iceland on its apparent success with
fisheries management as set out in its national experience paper.  The US agreed that over-capacity
played an important role in many regions in the depletion of fish stocks and that subsidies contributed
to this problem.  The US supported international efforts to assess, monitor and control excess capacity
in the fisheries sector.  Sound management practices were a central component of sustainable
fisheries.  Although the US respected the sovereig n right of countries to manage their own natural
resources in keeping with the Convention on the Law of the Sea, the US agreed with Australia that the
international community should cooperate to ensure the sustainable use of global fish stocks.
105. The representative of Norway appreciated Iceland's national experience paper on fisheries
conservation.  Norway agreed with Australia's paper that excess capacity in global fishing fleets was
closely linked to inadequate management regimes and that subsidies were not the only problem facing
global fisheries.  Some subsidies may have negative effects on resources and lead to capacity
problems, while others may act to reduce fishing fleets with the aim of restoring fish stocks.
Reducing trade barriers will only, to a limited extent, contribute to reducing excess capacity comparedto the effects of improvements in resource management systems and reductions in certain subsidies.
106. The representative of Australia said that Iceland's paper demonstrated the benefits of fisheries
management.  Given that there was more research on this sector than any other under Item 6, it was
difficult to accept that some linkages were unclear or at an early stage of analysis.  The issues of
subsidization and fisheries management could not be dealt with separately.  Distant water fishing wasthe best example of where over-capacity and over-fishing domestically reinforced each other by
forcing fleets into international waters or illegal fishing.
107. The representative of Iceland, responding to Korea's question on the extent to which Iceland's
success was based on its fisheries management system or the absence of subsidies, said that these
issues could not be separated.  As noted in Icel and's paper, a fisheries management system was aWT/CTE/M/20
Page 25
necessary, but not sufficient condition for sustainable fisheries.  While Iceland had set up a rigid
fisheries management system, there had been a lack of economic incentive to get the stakeholders to
participate in building sustainable fisheries.  The incentive to reduce catch and concentrate on its
quality, not quantity occurred if the sector were based on competition.
108. The observer of the Food and Agriculture Organization (FAO) said that, subject to
endorsement of the FAO Committee on Fisheries, FAO would undertake a follow-up to its 1997
assessment of fisheries subsidies, including cost and methodological questions on measuring trade
distorting effects from subsidies on production and trade as well as the distribution of the effects
across countries.  This study should be concluded by the March 2000 meeting of the Sub-Committee
on Fish Trade and would be made available to the CT E.  The FAO said that at the recent consultations
on developing non-discriminatory, technical guidelines for eco-labelling of products from marine
capture fisheries in October 1998, concern had been expressed about the effect of eco-labelling onmarket opportunities, particularly for developing countries.  Although no agreement had been reached
at that meeting on the feasibility of FAO drafting guidelines, there had been a consensus that any
agreement should be consistent with the Code of Conduct for Responsible Fisheries and take into
account certain principles.  Development of these guidelines should also be consistent with related
work in other intergovernmental organizations, pa rticularly the WTO, ISO and Codex Alimentarius.
Forestry
109. The representative of Canada supported Australia's reference to the potential environmental
benefits of removing tariff escalation and tariff peaks in several sectors, including forestry.  A key
objective of Canada was to achieve the elimination of tariff escalation in key sectors.  The "zero for
zero" and harmonization initiatives of the Urugua y Round were important achievements in allowing
companies to exploit their comparative advantage without the distortion of tariff escalation.  Canada's
national experience paper (WT/CTE/W/81-G/TBT/W/61) supported Australia's analysis of trade
diversion caused by tariff escalation as in the case of the elimination of tariff escalation between
Canada and the US following the implementation of the Canada-US Free Trade Agreement.
Although it was difficult to isolate the direct impact of one factor during changes in tradecomposition, the trend was interesting to note.  Not only had overall volume increased, but the
composition of Canada's trade with the US had shifted toward paper products which had been subject
to tariffs.  The overall tendency had resulted in a relative shift of Canada's comparative advantage to
paper production and to other paper products.  In addition to an increase in economic efficiencies,
shipping paper rather than pulp resulted in redu ced energy requirements as pulp exports required that
the pulp be dried before shipping, then remoistened for paper manufacturing and redried as paper.
The elimination of one industrial process, a second drying stage, increased efficiency.  Canada calledfor the accelerated elimination of tariff peaks and tariff escalation, particularly on forest products.
Leather
110. The representative of Brazil said that the best approach for deepening the sectoral analysis
under Item 6 was to contribute national experiences setting out “win-win” situations.  The
Secretariat’s Note, WT/CTE/W/67, was a good basis upon which to identify situations where tradeliberalization and environmental protection can be mutually supportive.  A WTO Secretariat paper,
Trade and Tariffs in the Leather Sector , dated November 1998, also contributed to discussions on
market access.  Leather and leather products covered in this study fell into three groups according to
the degree of processing:  raw leather;  prepared leather;  and finished leather products.  Between
1990 and 1996, global demand for leather and leather products increased from US$ 13.3 billion toUS$ 41.5 billion.  While world trade in raw leather was US$ 4.3 billion, prepared leather accounted
for US$ 12.6 billion and finished leather US$ 24.5 billion.  Asia and the Middle East accounted for
51 per cent of world leather exports, followed by Europe (32.2 per cent).  As importers, the same
regions had the greatest market share (43.5 per cent and 32.9 per cent, respectively).  Although the
Uruguay Round had resulted in a general reduction of tariffs on leather, the weighted average tariffWT/CTE/M/20
Page 26
rate was 7.3 per cent, the second highest after textiles and clothing, at 12.1 per cent.  Tariff escalation
was evident in most leather producers, whether developed or developing countries.  Most importing
countries imposed zero or low tariffs on raw leather to encourage the purchase of less-processed
leather, which was used in the processing industries.  For prepared leather products, tariffs in some
selected markets ranged from 3 to 10 per cent.  The highest tariffs were applied for most finished,value-added leather products, ranging from 5 to 24 per cent.  Thus, most WTO Members still applied
high tariffs to protect their local leather industries.
111. CTE discussions on leather were important for Brazil.  The Brazilian leather sector was
composed of around 400 tanneries, among which 80 per cent were small enterprises, providing jobs
for around 60 000 people.  This sector yielded US$ 1.5 billion per year with half of its production
exported.  In 1998, Brazilian leather exports represented US$ 651 million.  The increase in exports by
433 per cent since 1984 demonstrated the industry's competitiveness.  Brazil provided around11.5 per cent of the international bovine leather market (260 million units), the value of which had
grown from 3.7 per cent in 1990 to 9.1 per cent in 1997.  To increase its competitiveness, Brazil's
leather industry had invested US$ 300 million in te chnological improvements until 2002.  A priority
of Brazil's leather sector was to add value to ex ports.  Despite these efforts, Brazilian exports of
finished leather products had witnessed only small variations, with a short decrease between 1994 and1998.  Raw and prepared leather exports, however, had increased considerably in that period:
respectively 623 per cent and 123 per cent.  As less processed leather exports had experienced such a
significant increase, the average price of Brazilian leather had dropped by 33 per cent.
112. Conventional methods of production of raw and prepared leather had a high environmental
impact.  However, production of finished leather products was not associated with environmentaldamage, since cleaner technological methods had been incorporated.  Strict environmental regulations
were required to prevent pollution in leather production.  Leather producers could only comply with
environmental legislation if they had sufficient revenues to invest in cleaner technologies.  Tariff
escalation discouraged leather producers from investing in more environmentally sustainable
technologies.  Thus, a positive outcome for trade and environment would be to eliminate tariffs onfinished leather products;  improved market access in this sector would permit increased production of
value-added, thereby increasing the potential for inve stment in cleaner technologies.  Given that trade
liberalization should be accompanied by sound environmental policies, additional measures could be
applied, such as taxes on raw leather production, which would be based on the Polluter Pays Principle
and would create funds for the development of cleaner technologies.
Other Items
Item 8 The relevant provisions of the Agreement on Trade-Related Aspects of Intellectual
Property Rights
113. The representative of India recalled previous discussions in which one delegation had
commented on India and Colombia's suggestions at the 23-24 July 1998 meeting to look at the
objectives of the Convention on Biological Diversity and the TRIPS Agreement to examine the means
to ensure environmental protection.  The issue was not that there was a conflict between the TRIPSAgreement and MEAs, nor that one agreement would be used to enforce another.  There were
provisions in each agreement which would be enforced domestically through laws.  The idea behind
the suggestions at the July meeting concerned the intentions of the international community to
implement these agreements in a manner which was mutually compatible.  There was nothing
incompatible with the suggestion that when an applicant applied for a patent, the source of the
material used to create the invention could be indicated, thereby enabling the owners of the original
source to share in the benefits arising out of its commercial use.WT/CTE/M/20
Page 27
Other matters
114. The observer of the United Nations Environment Programme (UNEP) said that based on the
renewed mandate from the recent session of the UNEP Governing Council, UNEP will reinforce its
work on trade and environment to:  (a) build coherence within the UNEP-Administered Conventions;
(b) develop methodologies for environmental review s of trade liberalization;  and (c) enhance the
capacity of developing countries to integrate environmental consideration in trade policies, especially
through country specific work.  UNEP was preparing a draft agreement on cooperation between the
WTO and UNEP Secretariats.  UNEP was looking forw ard to jointly organizing a meeting between
UNEP-Administered Conventions and the WTO Se cretariat on 28 June 1999.  UNEP will also
continue to participate in the WTO Regional Seminars on Trade and Environment, such as for
Sub-Saharan Africa in February 1999.  UNEP was looking forward to working with the WTO, other
international organizations and civil society to advance discussions on trade and environment and willconvene a briefing session for Geneva-based Missions on 9 March 1999 to solicit input on the
direction of UNEP's activities and its collaboration with the WTO and other organizations.
115. The CTE agreed on the following Secretariats to invite to the MEA Information Session at the
28-29 June 1999 meeting of the CTE:  the Conventi on on Biological Diversity;  the Convention for
the Conservation of Antarctic Marine Living Resources;  the Convention on International Trade inEndangered Species of Wild Flora and Fauna;  the Framework Convention on Climate Change;  the
Intergovernmental Forum on Forests;  and the Montreal Protocol on Substances That Deplete the
Oyone Layer.
116. The CTE expressed its appreciation for the excellent guidance provided by
Ambassador Chak Mun See throughout his Chairmanship of the Committee, and for the substantive
contribution of Ms. Sabrina Shaw as Secretary.
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