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Environment and Trade: A Handbook Second EditionThe global community has been for some timedebating the linkages between trade andenvironment. It has come to the conclusionthat integrating environmental considerationsinto the trading system is a prerequisite forsustainable development. Decision-makers at alllevels need to fully understand how to do this ifthey are to develop balanced policies thatpromote development, allivate poverty and helpachieve sustainable use of natural resources.This handbook meets this need. It takescomplex subjects and presents them in clearand simple language. This approach enhancesits usefulness as both a practical resource and areference guide.— Mostafa Tolba, Former Executive Director,UNEPEnvironment and TradeA HandbookSecond EditionUNEP/IISDUnited Nations Environment ProgrammeDivision of Technology,Industry and EconomicsEconomics and Trade Branch

Trade & Environ rev059/27/072:39 PMPage iEnvironment and TradeA Handbook2nd EditionThe United Nations Environment ProgrammeDivision of Technology, Industry and EconomicsEconomics and Trade Branchand theInternational Institute for Sustainable DevelopmentUnited Nations Environment ProgrammeDivision of Technology,Industry and EconomicsEconomics and Trade Branch

Trade & Environ rev059/27/072:39 PMPage iiEnvironment and Trade — A HandbookCopyright 2005 United Nations Environment Programme, InternationalInstitute for Sustainable DevelopmentPublished by the International Institute for Sustainable DevelopmentAll rights reservedPrinted in CanadaCopies are available from UNEP and IISD. To order, please contact either ofthe producers of the handbook:Economics and Trade BranchDivision of Technology, Industry and EconomicsUnited Nations Environment ProgrammeInternational Environment House11 – 13, Chemin des AnémonesCH-1219 ChatelaineGeneva, SwitzerlandTel: 41 22 917 8243Fax: 41 22 917 8076E-mail: etb@unep.chInternational Institute for Sustainable Development161 Portage Avenue East, 6th FloorWinnipeg, ManitobaCanada R3B 0Y4Tel.: 1 (204) 958-7700Fax: 1 (204) 985-7710E-mail: info@iisd.caInternet: http://www.iisd.orgISBN 1-895536-85-5Printed on 100% post-consumer recycled paper.ii

Trade & Environ rev059/27/072:39 PMPage iiiEnvironment and Trade — A HandbookThe United Nations Environment ProgrammeThe United Nations Environment Programme (UNEP) is the overall coordinating environmental organization of the United Nations system. Its missionis to provide leadership and encourage partnerships in caring for the environment by inspiring, informing and enabling nations and people to improvetheir quality of life without compromising that of future generations.UNEP’s Economics and Trade Branch (ETB) is one of the units of theDivision of Technology, Industry and Economics (DTIE). ETB’s mission is toenhance the capacities of countries, especially developing countries and countries with economies in transition, to integrate environmental considerationsinto development planning and macroeconomic policies, including trade policies. The trade component of ETB’s work programme focuses on improvingcountries’ understanding of environmental, social and economic impacts oftrade liberalization and the trade impacts of environmental policies. ETB supports countries in building capacity to develop mutually supportive trade andenvironment policies that contribute to sustainable development and povertyreduction. ETB also provides technical input to the trade and environmentdebate through a transparent and broad-based consultative process.For more information, please contact:Hussein AbazaChief, Economics and Trade BranchDivision of Technology, Industry and EconomicsUnited Nations Environment Programme11-13, Chemin des AnemonesCH-1219 ChatelaineGeneva, SwitzerlandTel: 41 22 917 8179Fax: 41 22 917 8076email: hussein.abaza@unep.chhttp://www.unep.ch/etb/iii

Trade & Environ rev059/27/072:39 PMPage ivEnvironment and Trade — A HandbookThe International Institute for SustainableDevelopmentThe International Institute for Sustainable Development contributes to sustainable development by advancing policy recommendations on international tradeand investment, economic policy, climate change, measurement and assessment,and natural resources management. Through the Internet, we report on international negotiations and share knowledge gained through collaborative projectswith global partners, resulting in more rigorous research, capacity building indeveloping countries and better dialogue between North and South.IISD’s vision is better living for all-sustainably; its mission is to championinnovation, enabling societies to live sustainably. IISD is registered as a charitable organization in Canada and has 501(c)(3) status in the United States.IISD receives core operating support from the Government of Canada, provided through the Canadian International Development Agency (CIDA), theInternational Development Research Centre (IDRC) and EnvironmentCanada; and from the Province of Manitoba. The Institute receives projectfunding from numerous governments inside and outside Canada, UnitedNations agencies, foundations and the private sector.IISD’s work in trade, investment and sustainable development seeks to findthose areas of synergy where trade, investment, environment and developmentcan be mutually beneficial, and to help policy-makers exploit those opportunities. It concentrates on two major themes in its work: reform of trade andinvestment rules and institutions, and building capacity in developing countries to address the issues of trade and sustainable development. Since 1991,IISD has worked to broaden the terms of the trade-environment debates toencompass the concerns and objectives of developing countries—to makethem evolve into debates about trade and sustainable development. All ofIISD’s work aims to raise public consciousness about the importance of theissues of sustainable development. This handbook, first produced in 2001 andwidely hailed as a standard for the educated layperson, is part of that tradition.For more information, please contact:Mark HalleDirector, Trade and InvestmentInternational Institute for Sustainable Development161 Portage Avenue East, 6th FloorWinnipeg, ManitobaCanada R3B 0Y4Tel.: 1 (204) 958-7700Fax: 1 (204) 958-7710E-mail: mhalle@iisd.caInternet: http://www.iisd.org/tradeiv

Trade & Environ rev059/27/072:39 PMPage vEnvironment and Trade — A HandbookMutually supportive trade and environment policies are at the core ofachieving sustainable development goals. The expansion of trade is creating great opportunities but also tremendous challenges. Maximizing thebenefits of trade requires a deeper understanding of the complex web linking trade and environment issues.Dr. Klaus TöpferExecutive Director, UNEPv

Trade & Environ rev059/27/072:39 PMPage viEnvironment and Trade — A Handbookvi

Trade & Environ rev059/27/072:39 PMPage viiEnvironment and Trade — A HandbookPrefaceAll around the world, the growth and liberalization of international trade ischanging the way we live and work. At 11 trillion a year, trade flows and therules that govern them are a massive force for economic, environmental andsocial change. International trade is becoming an increasingly important driverof economic development, as it has been expanding at almost twice the paceof total global economic activity for the past 15 years. A growing number ofdeveloping countries look to trade and investment as a central part of theirstrategies for development, and trade considerations are increasingly important in shaping economic policy in all countries, developed as well as developing.At the same time, however, most of the world’s environmental indicators havebeen steadily deteriorating, and the global achievement of such importantobjectives as the Millennium Development Goals remains very much indoubt. It is possible, but by no means automatic, that trade and investmentflows and liberalization might support the achievement of environment anddevelopment goals. But this will require close integration of policies in all threeareas.That integration can take place in the context of international negotiations,such as the WTO’s Doha program of work, and the many ongoing regionaland bilateral trade and investment negotiations, or it can occur at the nationallevel, in policies and measures aimed at economic, social and environmentalprogress. In either case, wider understanding of the linkages is key.This handbook aims to foster that sort of understanding, describing in detailhow trade can affect the environment, for better and for worse, and how environmental concern can work through the trading system to foster or frustratedevelopment, in both rich and poor countries. It is aimed mainly at those withsome knowledge about trade, environment or development, but who are notexpert on the intersection of the three. It should serve as a practical referencetool for policy-makers and practitioners, and be equally useful to the mediaand civil society. With this in mind, the handbook uses clear language and aminimum of jargon to foster a greater understanding by all segments of thepublic.The handbook is available online at www.unep.ch/etb and www.iisd.org/trade/handbook.vii

Trade & Environ rev059/27/072:39 PMPage viiiEnvironment and Trade — A HandbookAcknowledgementsThis handbook is the product of many hands. The inspiration and energy forthe project come from both the Economics and Trade Branch of UNEP’sDivision of Technology, Industry and Economics, and IISD’s team workingon trade and investment. Aaron Cosbey from IISD served as the project manager and Hussein Abaza and Benjamin Simmons led the project for UNEPwith invaluable support from their colleagues Charles Arden-Clarke, CristinaGueco, Anushika Karunaratne, Desiree Leon, Emily Lydgate, Maria CeciliaPineda and Vera Weick. The contributors were Aaron Cosbey, Howard Mann,Konrad von Moltke, Sophia Murphy, Luke Peterson, Tom Rotherham, ScottSinclair, David Vivas-Eugui and Matthew Walls. and Don Berg worked ondesign and layout. David Boyer, Clarita Martinet and Fabienne Turner provided management and administrative support.Thanks are due to a number of generous and capable reviewers. These includeMatthias Buck, Chantal Line Carpentier, Robin Rosenberg and MatthewStilwell, who read and commented on the document in their capacity as theproject’s peer review group. They also include the many members of the project peer review group from the first edition, which constitutes the foundationfor this revision. Maria Julia Oliva and Elisabeth Tuerk also provided essentialcomments. While the help of the various reviewers was invaluable in shapingthis book, neither they nor the organizations they represent should bearresponsibility for any errors in the final product.This revised edition of the environment and trade handbook is dedicated tothe memory of our friend and colleague Konrad von Moltke—a pioneer inthis area as in many others. His compassion and energy, his sense of humourand his ability to see what those before him could not see, make that memory acontinuing inspiration.viii