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"Increasing the Benefits of Voluntary Eco-labeling Schemes"
paper was researched and written to fulfill the M.A. project requirement for
completing the Monterey Institute of International Studies’ Master of Arts in
Commercial Diplomacy. It was not commissioned by any government or other
organization. The views and analysis presented are those of the student alone.
more information about the Commercial Diplomacy program and the M.A. project
requirement, please visit www.commercialdiplomacy.org.
For the purposes of this project, I assume the fictitious
role of Vice President of Government Relations for a fictitious American business association, the Green
Producers Association (GPA). In this capacity, I have developed a proposal
for establishing a global voluntary eco-labeling scheme, which will be submitted
to GPA’s Board of Directors and members for approval.
GPA’s members are American producers of environmentally
sound products—producers who use environmental labeling mechanisms to market
their products to environmentally conscious consumers.
GPA’s mission is to address public policy matters that affect eco-friendly
producers, including issues surrounding eco-labels.
I suggest in my proposal that GPA should work with the Global Eco-Labeling Network (GEN) in implementing the proposal. GEN is a real life umbrella organization for national eco-labeling programs. It already includes 25 members, and several programs are currently applying for membership. GEN represents its member programs in international fora. It has observer status with the World Trade Organization (WTO) and remains active in the United Nations Environmental Program (UNEP), the United Nations Conference on Trade and Development (UNCTAD) and the Organization for Economic Cooperation and Development (OECD). GEN provides members with international guidelines for eco-labeling criteria, which are based on the ISO 14000 series of environmental management guidelines. In addition, GEN offers financial and technical aid to countries that wish to develop their own voluntary eco-labeling programs.
Eco-labels have the potential to significantly reduce
environmental degradation associated with resource extraction and manufacturing
processes. By enabling producers to communicate directly with environmentally
conscious consumers about their production process methods (PPMs), eco-labels
enhance the competitiveness of green vis-à-vis other products, and thereby
provide an incentive for manufacturers to use environmentally responsible PPMs.
A number of indicators suggest that the market for green
products is large and growing. Co-op America’s “Green Pages,” for example,
estimates the “green economy” could expand to an annual market of
$1 trillion. In reality, however, producers are experiencing diminishing
returns on green products. There are a number of reasons why the full benefit of
eco-labels has yet to be realized:
To address these problems, the European Union and Canada
have proposed the negotiation of a protocol concerning voluntary eco-labeling
schemes that would become part of the World Trade Organization’s (WTO’s)
Technical Barriers to Trade (TBT) agreement. Developing countries, however, fear
that environmental measures will be used as disguised barriers to trade, and
they have opposed the inclusion of any trade-related environmental issues in the
Given this situation, negotiation of a WTO protocol to address the above listed problems is likely not a realistic near-term goal. Private sector establishment of a global eco-label scheme, however, could go a long way toward realizing the full benefits of eco-labels.
Global Eco-Label Scheme
The following proposal lays out a global eco-labeling
program that could be carried out voluntarily by the private sector (thereby
circumventing the need for international negotiation). The program uses mutual
recognition as a means of consolidating different eco-labeling schemes’
product criteria under one umbrella label. Once the global scheme reviews and
accepts an individual program’s product criteria, producers who meet the
program criteria would gain the right to affix the global eco-seal to their
The global label would be particularly beneficial to developing country producers because it would enable exporting countries to develop their own eco-labeling criteria that reflect their own environmental priorities and technology levels. While these criteria would have to be shown to be “equivalent” to those of other eco-labeling schemes included under the umbrella, they would undoubtedly be much more manageable for developing country producers and relevant developing country environmental problems.
The program also would improve green market opportunities
in Japan and Europe for American producers, and it would:
To facilitate widespread use of the global label, the
Global Eco-labeling Network (GEN) should be asked to offer technical assistance
to developing countries that wish to develop their own eco-labeling schemes
(schemes that could then be incorporated into the global program). Developing
countries are less likely to adamantly oppose future negotiations regarding
eco-labeling if they have a working example of a scheme that increases rather
than diminishes market access for their products. Moreover, developing country
manufacturers are more likely to adopt green production technologies if they
will gain a competitive edge in developed country markets by doing so.
The global program should also launch marketing and education campaigns to build recognition of the global label (which will be crucial to the label’s success) and to increase consumer awareness of environmental issues and demand for environmentally sound products.
BACKGROUND: CONSUMER DEMAND FOR GREEN PRODUCTS
During the 1990s, consumers—particularly American and European consumers—became increasingly concerned with the environmental affects of their purchasing decisions, and they began demanding significant quantities of “environmentally friendly” products. It is this demand that has spurred both manufacturers’ interest in making green products and the worldwide proliferation of eco-labels.
U.S. Demand for
In 1999, 52 percent, over half, of American consumers bought at least one
product that was advertised as “environmentally safe.” While this number
appears impressive, it is significantly lower than the number of consumers who
have indicated a preference for eco-friendly products. (For more information on
American consumer demand for green products, see Appendix 2.) Unfortunately,
U.S. consumers have become somewhat skeptical about eco-labels—largely because
of the sheer number of eco-labels and the fact that, because eco-labels are
voluntary and unregulated, some producers have used them to make exaggerated or
even fraudulent claims.
for Green Products
The European market has tremendous potential for green producers because Europeans tend to be relatively well informed about environmental issues and their purchasing decisions reflect this knowledge. Forty-two percent of EU consumers are considered loyal green consumers, and 75 percent of consumers are willing to pay a premium for green products. Like the United States, however, the EU has problems with consumer confidence because of the overwhelming number of eco-labeled products on the market.
for Green Products
Japanese consumers have recently become more aware of environmental issues, and their demand for eco-labeled products has increased accordingly. Sixty percent of consumers now recognize environmental claims, and companies are using green products to improve their corporate images with consumers. If administrative and adaptive costs associated with eco-labels were reduced, both Japan and Europe would become good export markets for American green producers.
Producers from lesser developed countries (LDC) generally
have not been considered to be large markets for environmentally friendly
products. According to a survey by Environics International, however, many
consumers in these countries are willing to pay a 10 percent premium for green
Researchers believe this results from increasing concerns about local air
and water pollution in developing countries. Over 50 percent of respondents to
the survey said they believe their health has been seriously harmed as a direct
result of pollution and are therefore willing to buy green products at a
By contrast, only 25 percent of consumers from industrialized countries reported believing that their health has been harmed by pollution. The following chart illustrates the findings of the study. The chart does not representative the total number of nations that participated in the study. Rather, it displays developing countries in which consumers were found to have a notable concern for their environmental purchasing decisions, as well as a few developed countries for comparison purposes. The study findings suggest that many of these countries could become emerging eco-markets. Education campaigns will be important to further build this potential.
Eco-labels are product labels that inform consumers about
the environmental impact of a product. They encourage producers to switch to
environmentally sound production process methods (PPMs) because they can give a product an advantage in the marketplace. Eco-labels allow producers to
differentiate their products from products that are less environmentally
and thus to reach environmentally conscious consumers.
Voluntary eco-labeling programs certify products that meet set product criteria that are usually based on life cycle analysis (LCA)—an analysis of the full environmental impact of a product, including impacts associated with the initial extraction of natural resources used in the product, the production process methods (PPM’s) used in manufacturing the product, and the use and disposal of the product.
Unfortunately, the full environmental benefit of eco-labels has yet to be realized:
ATTEMPTS TO NEGOTIATE A PROTOCOL ON
ECO-LABELS IN THE WTO
European Union (EU) has suggested that member nations should negotiate an ad
hoc code of conduct under the auspices of the TBT agreement in order to
provide clarification of this agreement as it relates to voluntary
eco-labeling schemes. As the EU sees it, negotiators need to clarify the legal
questions regarding the spirit and purpose of the TBT agreement and to
establish criteria for such schemes in order to limit their impact on trade
United States has remained neutral on this specific issue. However it, along
with the EU, Canada, and Japan have been working towards creating a political
climate within the WTO that is receptive to the trade and environment agenda.
To date, they have made little progress.
Developing countries remain concerned that an ad hoc
agreement regarding voluntary eco-labeling will allow industrialized countries
to set up disguised barriers to trade on the basis of dubious scientific
evidence. Although the trade effects of voluntary eco-labeling schemes are
largely unknown (because researchers do not have access to confidential
corporate data regarding increases or decreases in sales),
there is at least some evidence that eco-labels can act as trade barriers. In
Columbia, exporters have cited the high costs of obtaining foreign eco-labels
as the primary reason for diverting exports from several developed countries.
Columbian textile companies reportedly ceased exporting products to
certain developed countries due to these costs and the consideration that,
without the eco-label, the products could not compete. Similarly, Columbian
banana exporters have indicated that adaptation costs to fulfill eco-labeling
requirements exceeded the benefits of getting a label.
Developing countries are also concerned that a WTO
eco-label agreement would establish a legal precedent for consideration of
non-product related production process methods (PPM’s) as a legitimate means
of discriminating between products. Developing countries argue that voluntary
eco-labeling schemes are outside the text and spirit of the TBT agreement and
are not WTO-compliant because labeling mechanisms allow consumers to
discriminate between products based on non-product related
Moreover, developing countries are particularly
concerned that harmonized global environmental standards will impose
ineffective environmental standards and needless economic burdens on
developing nations. They argue that the environmental problems of developing
countries are often linked to economic development, such as wastewater
treatment, deforestation, biodiversity, and population burdens, and that
environmental standards for developing countries need to reflect their level
of development and particular environmental challenges.
nations believe the industrialized countries have already asked the developing
world to sacrifice too much for the sake of free trade. They are also
frustrated by industrialized countries’ unwillingness to lower barriers to
trade in textiles and commodities, which are traditional export industries for
developing countries. There is a general sense among developing countries that
they must stand up to developed countries on issues that threaten their
Eco-labels are product labels that inform consumers about the environmental impacts of their purchasing decisions. They enable producers to differentiate their environmentally friendly products from other products and thereby create a market incentive for producers to switch to environmentally sound products. During the 1990s, interest in eco-labels grew in tandem with demand for environmentally friendly products.
 Dorothy MacKenzie, “You can still shop to save the world,” New Statesman, 10 January 2000.
 Mary Haffenberg, “Report from Tokyo: Net, leisure, green products hot in Japan,” Marketing News, 25 May 1998.
 “How Green Is Your Market?” The Economist, 8 January 2000, p. 66.
 According to the World
Trade Organization (WTO), “Most environmental problems result from
polluting production processes, certain kinds of consumption and the
disposal of waste products.” “Trade
Liberalization Reinforces the Need for Environmental Cooperation,” World
Trade Organization, http://www.wto.org/wto/environ.htm.
 The WTO has considered the issue of voluntary eco-labeling within the Committee on Trade and the Environment (CTE) and the Committee on Technical Barriers to Trade (CTBT). The CTE is responsible for identifying the relationship between trade measures and environmental measures in order to promote sustainable development. To date, it has researched the trade-related aspects of voluntary eco-labeling schemes (including transparency concerns), eco-labeling schemes’ conflicts with the TBT agreement, the limitations of life cycle analysis (LCA), and the environmental impact of production process methods (PPMs). It has given a great deal of attention to the question of how to bring voluntary eco-labeling systems into compliance with both the text and spirit of the TBT agreement. Now, however, the Committee has exhausted its mandate for further research; the issue has reached the point at which it needs to be addressed within the text of the TBT agreement.
OECD, p. 6.
 “WTO Committee on Trade and Environment Discusses…Eco-labelling and Packaging.” World Trade Organization, 13 Aug 1997, http://www.wto.org.