Trade in environmental goods plays a central role in addressing global environmental challenges. It facilitates the advancement, adoption, and dissemination of environmental technologies to mitigate environmental risks, reduce pollution, and optimize resource utilization. In ATC’s previous Policy Brief (23-02), we discussed two main categories of environmental goods: 1) products that are supportive of environmental protection or yield positive environmental outcomes and 2) products that are comparatively more “environmentally friendly” than similar products serving the same purpose.
The latter category presents particular challenges for the trading system, as identifying environmentally friendly goods necessitates clear criteria and standards, which can be complex to define. Moreover, establishing interoperable standards and labelling criteria for environmental goods requires a delicate balance between setting ambitious environmental objectives and ensuring feasibility and cost-effectiveness for manufacturers.
The absence of universally accepted standards and labels for environmental goods leads to variability across countries and regions, which can hinder trade and create disparities in the assessment of product environmental performance. Despite the challenges, institutional and country-level initiatives have gained momentum in developing internationally recognized standards, particularly in areas such as carbon footprint measurement, energy efficiency, water efficiency, and greenhouse gas emissions.
Quantification of such production emissions and performance outputs provide increased knowledge base and data to promote international cooperation in the exchange of environmental and trade policy-relevant technical and scientific information, and support work to harmonize product standards and labels relevant to achieving environmental objectives.
Our newest Policy Brief, released today, discusses two types of environmental standards and labels – mandatory or voluntary. Mandatory standards and labels are imposed by government regulations and can be considered non-tariff measures (NTMs). Voluntary standards, on the other hand, are typically developed by non-governmental entities or corporations and are not regulated by laws. Both approaches have their advantages and disadvantages, and their selection depends on industry-specific objectives and regulatory environments.
Technical regulations, including standards and labels, are essential policy tools to achieve environmental outcomes. The World Trade Organization (WTO) Agreement on Technical Barriers to Trade (TBT) requires member countries to notify proposed technical regulations and conformity assessment procedures that may significantly impact trade. Climate-related TBTs encompass technical regulations, standards, and labelling related to environmental performance, energy efficiency, emissions reduction, and other measures to address climate change. While these measures aim to achieve important environmental goals, they can also affect trade if they create unnecessary burdens or are protectionist in nature.
Trade concerns related to environmental regulations can be raised by WTO members in the respective committees to seek discussions and clarifications. Environment-related concerns constitute a significant share of all TBT concerns raised by WTO members, reflecting a multifaceted landscape of trade considerations intertwined with environmental objectives and reinforces the relevance of technical regulations as an important policy tool to achieve environmental outcomes.
Share of TBT Notifications with Environmental Protection Objectives (%)
Source: Author’s compilation using WTO ePing SPS&TBT Platform
The WTO Trade Report 2023 highlighted concerns about unilateral environmental measures adopted by various countries, such as export restrictions, carbon border adjustment mechanisms, and other measures. These actions, while driven by environmental objectives, raise issues of potential policy fragmentation and their impact on trade and environmental sustainability.
To address these concerns, it is important that we consider WTO rules, including the Agreement on Technical Barriers to Trade which provide a framework to ensure that technical regulations, standards and conformity assessment procedures on environmental goods do not create unnecessary trade obstacles. Many bilateral and regional trade agreements replicate this language and, in some instances, strengthen the commitments for participating members.
The development of environmental standards and labels should be based on available international standards and frameworks to avoid fragmentation, which can hinder the free flow of environmental goods and technologies needed to combat climate change and promote sustainability. Different standards may yield slightly different results due to variations in methodologies and parameters, which can pose challenges for businesses, especially micro, small, and medium enterprises (MSMEs).
Transparency in reporting and adherence to recognized standards are essential to ensure credibility and comparability of product assessments and ensure that environmental standards do not become market access barriers for smaller businesses or put them at a disadvantage compared to larger firms.
Efforts to improve consistency across environmental standards and labelling programs have emerged. For example, the ISO/TS 14029 (2022) specifies requirements for mutual recognition arrangements (MRAs) and gives guidance on how to initiate developments on MRAs between environmental product declaration (EPD) and footprint communication programme operators.
Digital technologies can enable businesses to exchange information on environmental initiatives and standards, enhancing interoperability and data sharing. For instance, the Ecolabel Index tracks 456 ecolabels in 199 countries and digital material passports can show all material composition and origins of products and even information on their environmental performance.
In addition to industry stakeholders, governments play a crucial role in standard-setting processes. Bilateral and plurilateral agreements could foster collaboration on standards and conformance to promote trade in green goods, services, and technologies. The Singapore-Australia Green Economy Agreement contains provisions on standards and conformance to foster adoption and development of common rules and standards that promote trade and investment in green goods, services and technologies and promote collaborations to facilitate the acceptance of conformity assessment results. The Agreement on Climate Change, Trade, and Sustainability (ACCTS) launched by New Zealand with Costa Rica, Fiji, Iceland, Norway and Switzerland includes a chapter on eco-labelling which develops guidelines on voluntary eco-labelling programmes to ensure that such labels serve environmental purposes without creating trade barriers.
Climate change is a global challenge, and addressing it requires collective action that considers the interests of all countries. Coordination between multilateral institutions for climate change and trade, such as the United Nations Framework Convention on Climate Change (UNFCCC), Intergovernmental Panel on Climate Change (IPCC), and WTO, can provide an inclusive platform for developing countries to participate in climate-related scientific knowledge exchange and international standard-setting processes.
Many countries are part of the global value chains (GVCs) and the emergence of environment-related standards and regulations, such as quantification of embedded carbon emissions in traded products, impact all producers in the value chains, particularly high-emissions sectors and goods. Developing countries may lack the technical expertise and certification mechanisms to assess carbon footprint of manufactured products with complex supply chains, necessitating greater support and capacity-building opportunities.
Harmonizing environmental standards, promoting interoperability, and ensuring mutual recognition at an international level are essential to facilitate the trade of environmentally friendly products, build consumer trust, and achieve global sustainability goals. Collaboration among governments, industry stakeholders, and multilateral institutions is crucial to address the complex challenges at the intersection of trade and the environment.
***This Talking Trade is a shorter version of our new Policy Brief (23-03). Setting clear criteria and standards for environmental goods is one area of trade and climate challenge that requires collective action. If you would like to sponsor our work or discuss this further, please contact us today at info@asiantradecentre.org***