November 1999

       The Millennium Round and its relevance to forests

            1. The agenda setting

The WTO will hold its Third Ministerial Conference from 30 November- 3 December in Seattle, Washington. The European Union wants to expand the powers of the WTO to include investment, competition, government procurement, environment and labour standards. Towards that end, they are supporting a new round of WTO trade negotiations referred to as the Millennium Round.

Most NGOs, many of which were involved in the successful anti-MAI campaign, oppose further liberalisation negotiations, especially those which will bring under the WTO regime new areas such as investment (MAI), competition policy and government procurement. Instead they want an assessment of the existing agreements and their effects on environment, democracy, marginalised communities, human rights and labour rights.

The EU is one of the main proponents of further trade liberalisation and is strongly pushing for the inclusion of the above mentioned issues. There is strong opposition to the EU's position from other countries, however, including the US, as a result of which no agenda for the next WTO meeting has yet been set. The only issues which will certainly be on the agenda (the so-called 'in-built agenda') are agriculture and services.  Industrial tariffs are likely to be included and there is a chance that labour rights and environmental standards will make it on to the agenda as well. There seems to be consensus among the major trading powers that a new trade round should be 'short', to be concluded within three years.

The hot topic is agriculture. For the EU the main battle will be to keep its recently renegotiated Common Agricultural Policy - which includes extensive 'subsidies' - in place. A comprehensive trade round would therefore be advantageous as it could potentially play off any losses in agriculture against other sectors. The US has already dubbed the EU's position towards the next WTO meeting as the 'ABA (Anything but Agriculture) position'.

Apart from the US, the EU's Agricultural Policy is under strong attack from other agricultural exporting countries, the so-called Cairns Group[1], who want to use the upcoming trade negotiations to get rid of all agricultural export subsidies.  At the same time, the EU's Agricultural Commissioner, Franz Fischler, has vowed to keep the agricultural policy in place.

Japan, as another agricultural importing country, is broadly supportive of the EU's position and has stated it will strongly defend its position on agriculture, fisheries and forests, which seeks to protect Japan's resources. Japan, like the EU, is in favour of a comprehensive trade round, including issues like investment.

Another hot topic is labour rights. The EU has now agreed to call for a 'joint standing forum on trade globalisation and labour issues to be set up by the ILO and the WTO'. The US has also strongly promoted labour rights as an agenda item. Most developing countries, however, are strongly opposed to the inclusion of  labour rights, as they see this as a form of protectionism. Both the EU and the US also want to see environmental standards included in a new trade round although this suggestion has also been strongly rejected by many developing countries, which consider such standards as projectionist.

The G77[2] has made several strong statements opposing a new trade round as they feel there has been little benefit from the Uruguay Round thus far, and in some cases outright negative effects. They are thus calling for 'review, repair and reform' of the WTO[3] and have stated that any new round should right existing imbalances. This is understandable since, according to a recent UNCTAD report, developing countries'  losses stemming from the Uruguay Round until the end of this century are estimated at 3 billion US $[4]. More recently, the FAO released a report indicating that the Uruguay Round has led to a surge of food imports into developing countries but not to any increase in their exports[5].

Besides these differences in position, there are also a number of unresolved trade disputes between the EU and the US (hormones in beef, bananas and GMOs), the US and Japan (steel) and the US and Australia/New Zealand (lambs).

These diverging positions and the ongoing trade disputes, combined with a growing 'grass root' opposition to the WTO regime augurs a heated atmosphere in Seattle.

2. The WTO and forests

            2.1. A Free trade agreement on forest products? The ATL proposal.

Apart from the so-called 'in-built agenda', which includes agriculture and services, it is quite likely that industrial tariff liberalisation will be an agenda item. A proposal to reduce tariffs in eight sectors, originally developed by APEC (Asia Pacific Economic Co-operation Forum[6]), has been referred to the WTO[7]. These eight sectors include fish and fish products, gems and jewellery, environmental products and forest products. In almost all cases a zero tariff end point by 2002 is aimed at. The proposal, known as ATL (accelerated tariff liberalisation), will have an impact on forests world wide.

As the current tariffs (or the tariffs agreed on within the Uruguay Round) on all forest products with the exception of manufactured products (i.e. furniture and veneer) are already low, the direct impact of a forest product agreement will not be enormous. It will bring tariff elimination of pulp, paper and paperboard forward by four years to January 2000. The proposal also includes eliminating tariffs on all forest products by 2002, including furniture and veneer. As these are currently the only products, which encounter high tariffs, it would mean that the existing tariff escalation would be eliminated. This would particularly benefit developing countries, i.e. Indonesia and Malaysia.

In America, the USTR[8] estimates an increase in world trade in forest products of 2 % by 2010 as a result of the ATL proposal. Although this is a considerable increase, it should be seen within the context of a global estimated increase of timber consumption of 60%[9].

Although the ATL proposal, if adopted, might not have a large impact on net global trade, eliminating tariffs could have a significant impact on some products, particularly manufactured products, and some markets. The main market with currently high tariffs is Asia, and particularly China, which sets tariffs of around 20 percent.  China is set to become a member of the WTO. Countries exporting to Asian markets might therefore see a significant impact from further tariff elimination. It is possible that the battle for liberalisation being fought by the US pulp and paper industry has China's enormous market and growing import of wood products in mind.

Although the direct effects of further tariff liberalisation might be limited, all NGOs strongly believe that the ATL proposal should be opposed. The point of further tariff elimination is to increase consumption. An increase in the consumption of forest products combined with bad forest management is a disastrous recipe for the world's forests. Most forests are already under threat from logging, both in the North and the South, and sustainable forest management is still rare, particularly in the old growth forests of the South, Canada and Russia.

The US, Canada, New Zealand and Indonesia are keen to adopt the ATL at Seattle; other countries are less so. Japan has made clear that, although it is in favour of the ATL proposal, it wants to exclude fisheries and forest products and would like to start a forum to discuss these issues at the next WTO.[10] Korea supports that position[11].

For the EU, further tariff liberalisation is not a priority. Unlike in the US, there does not appear to be a strong pressure from European timber companies in favour of the proposal. The EU does not aim to adopt a position at Seattle but would like to include the issue in a new trade round so it can trade it off against other measures, including agriculture.

Consequently, the EU is opposed to the ATL as a tactic rather than on principle. If the ATL proposal became part of a new trade round, the EU might sign on to it if it was seen to benefit European industries. Nor does the EU make an exception a priori for forest products, as Japan does.

If the ATL proposal for forest products was adopted it would have serious consequences for the EU's newly adopted Regulation[12] to grant additional tariff preferences to countries applying certain social and environmental standards, within the EU's Generalised System of Preferences. Under this GSP Regulation, environmental conditions currently only apply to tropical forests. Countries which manage their forests sustainably are open to negotiate tariff preferences for their forest products. The elimination of tariffs on forest products would therefore totally undermine the environmental aspect of the GSP Regulation.

Table 1: current and post Uruguay import tariffs for selected countries [13]

            2.2. Non tariff measures with impact on forests

A much bigger threat for the world's forests are the so called non-tariff measures (NTMs). Many of the forest protection measures currently in place might be affected if NTMs made it on to the agenda of the upcoming WTO meeting. Activities which could be branded NTMs and subject to reduction or prohibition under WTO rules are eco-labelling and forest certification, import/export quotas, log export bans, requirements for recycling and waste recovery and subsidies.

Some fear that the negotiations on further liberalisation of tariffs on forest products will open the agenda for non-tariff measures. These fears are legitimated by the latest draft of the EU's negotiating mandate,[14] which states that

'tariff negotiations would have to be accompanied by a comprehensive non-tariff initiative to make sure that non-tariff measures do not counter the benefits of further tariff reductions'.

It has become clear that some WTO members are keen to discuss some of these NTMs at the upcoming meeting. A study commissioned by APEC on the trade impact of NTMs will be completed before the WTO meeting. A first draft of this study shows that export bans, quotas and licenses, as well as afforestation subsidies, have had the most obvious impact on forest product trade. All of these are prevalent in a majority of APEC countries[15]. The study further states that there is little evidence that certification has been a significant barrier to trade. Its final conclusion is that environmentally motivated NTMs are not having a significant effect on trade.

Nonetheless, Japan has already made clear in its official position that it wants to challenge log export bans, aiming at the bans in place in parts of the US[16]. Canada has indicated its unhappiness with increasing use of voluntary international standards based on life cycle considerations[17], and the EU is seeking confirmation that its Ecolabel scheme -and all labelling schemes based on production and process methods- is WTO compatible. However, the US and many developing countries are against negotiating Eco-labelling at the upcoming meeting.

The Eco-labelling discussion

The WTO has been discussing eo-labelling for some time now. Its Committee on Trade and Environment has considered the issue extensively, including the role of the Forest Stewardship Council. A proposal for the development of a set of guidelines for voluntary certification schemes has been made. However, the legal position of eco-labels and forest certification under trade law is still unclear. The WTO text dealing with environmental measures does not specify ecolabels. Labels are covered within WTO rules under the Technical Barriers of Trade Agreement (TBT). There is disagreement, however, as to whether TBT is applicable to ecolabels and certification. The APEC study on NTMs notes that:

" measures such as certification are probably outside the influence of GATT/WTO. In the  language of trade negotiators, trade restrictions are confined to formal institutional measures that restrict trade and are the subject of normal international trade negotiations such as those of the WTO. Certification appears to fall outside this ambit."[18]

According to the EC's position paper at the WTO's High Level meeting on trade and environment:

"The EC remains of the view that voluntary eco-labelling schemes based on a life cycle approach are compatible with trade disciplines provided that they run in a transparent open and non-discriminatory manner. However the EC is also firmly of the opinion that a general recognition of the legitimacy of enforcing PPM (Product and Production Method) through trade measures should be excluded. In particular the unilateral use of trade measures to force other countries to comply with a policy unilaterally prescribed by the importing country should a priori be ruled out"[19]

A WTO ruling in relation to the Forest Stewardship Council’s certification scheme would be important for forests. One would expect the FSC scheme to fall outside the remit of the TBT (see above). Even so, if challenged, the FSC should be accepted under WTO rules as an international standard-setting body, since it would fulfil all the requirements on transparency and verification of standards. However, the FSC might run into trouble with its social criteria, as the TBT deals with standards and regulations for health, safety, environmental protection and product quality, but not with standards relating to working conditions or equality of benefits[20]. The latter issues are essential elements of the FSC's Principles and Criteria.

            2.3. Other issues

Liberalisation of the agriculture sector.

There will definitely be negotiations on agriculture, as it is part of the ‘built-in agenda’. Although some agricultural liberalisation could be environmentally and socially beneficial (i.e. reducing production-related subsidies), other measures are expected to have a major impact on forests. For example, tariff reductions in sectors like palm oil could increase pressure to convert forests to oil palm plantations. This highlights the need for a much better understanding of the impacts of agricultural liberalisation on forests.

Investment

There is already a limited WTO agreement on investment measures and the EU is pressing for the negotiation of further investment rules. If a wide-ranging agreement is reached on investment, it could further restrict the ability of Governments to place conditions and restrictions on inward investment in the forest sector. For example, requiring inward investors to undertake a joint venture with a local forest firm (in order to improve accountability and facilitate technology and skills transfer) could be prohibited.

Government procurement.

The EU is also pressing for government procurement rules to be on the negotiating agenda. Governments and local councils can currently use their purchasing power to help alleviate forest problems. This includes specifying the use of sustainably produced timber and buying recycled paper. Such actions could be deemed discriminatory and thus become illegal if government procurement disciplines are introduced into the WTO.

          2.4. The sustainability impact assessment

The EU as well as the US and Canada have all planned to carry out a sustainability impact assessment of the new round. The EU has just presented its methodology for a preliminary sustainability impact assessment and has commissioned its consultants to start the second phase of the project, which includes making a broad qualitative assessment of the impact upon sustainability of a new round. One conclusion of the project’s first phase is that all trade agreement measures which might be on the agenda, including tariffs, trade and environment, and Technical Barriers to Trade require a SIA.[21] It is expected that the EU will ask the consultants to include forests as part of the third phase of the SIA, which will be undertaken in the second half of 2000. The EU' sustainability impact assessment has attracted a range of criticisms from NGOs. These vary from the narrow scope of the Terms of Reference which focuses on 'how to liberalise' and not 'whether to liberalise' to the lack of a clear baseline.

No sustainability impact assessment of the current trade regime has been carried out, despite demands from several NGOs and Governments that an assessment is presented at the VIIIth meeting of the CSD in April 2000.

WRI, together with CIFOR and CIEL, has presented a compilation of research on the impact of further trade liberalisation on forests[22]. The study is clear in its conclusion that further trade liberalisation is not recommended as long as true sustainable forest management is not in place. The study includes case studies of three major exporting countries: the US, Canada and Indonesia. These case studies clearly show that these countries are currently not managing their forests in a sustainable way. There is thus every reason to expect that further trade liberalisation would lead to degradation of the world's forests.

Environment and the WTO

Although the WTO's Director General, Mike Moore, stated at the presentation of the WTO's report on trade and environment that poverty ­ not trade - is responsible for environmental degradation, the report itself clearly states that some aspects of trade such as transport and uncontrolled logging can damage the environment[23].  The report also observes that trade can magnify the effects of bad policies, for instance if governments permit unsustainable logging. This should lead to the obvious conclusion that WTO members must strengthen environmental regulations before seeking greater trade liberalisation[24]. Unfortunately, the report fails to draw this conclusion.

            3. WTO reform

The most worrying aspect of the debate that may take place at Seattle is one about the nature of the WTO itself.  As stated above, the European Union in particular, wants to use Seattle as a springboard for a wide-reaching so-called "Millennium round" of further trade liberalisation. This would mean expanding the powers of the WTO beyond purely trade matters to include issues such as investment decisions, competition policies and government procurement, environment and labour standards. The impact of these measures on forests and forest peoples could be much bigger than the direct impact of further trade liberalisation of forest products.

The WTO has a perfect anti-environmental record. Every environmental law challenged before the WTO has been found to be WTO illegal[25]. The WTO has also been clearly biased towards vested interests[26], opaque in its operations and unwilling to consider anything but the narrow agenda of extending trade liberalisation. It is therefore difficult to see how the inclusion of new issues into the competence of the WTO, without any structural reform, would be beneficial for the environment, democracy, marginalised communities, human rights and labour rights[27].

3.1 The dispute panel

Arguably, the influence of the WTO stems from the power of its dispute panels to make binding decisions. The WTO settles disputes among its Members by means of a Dispute Settlement Body (DSB), under the rules set out in the Dispute Settlement Understanding (DSU) Agreement. According to the DSU, the main aim of the dispute settlement system is to provide security and predictability to the multilateral trading system. In practice, however, the system is secretive, inconsistent and unpredictable rather than the reverse.

This reflects the pre-WTO history of the GATT. The original GATT 1947 never entered into force, because several countries were afraid they could not push its substantive provisions through their legislatures. Instead, it was applied through a Protocol of Provisional Application, by which Contracting Parties agreed to implement Most Favoured Nation and procedural provisions. Substantive obligations were applied only to the extent that they did not supersede or interfere with existing national legislation.

Reflecting this informal contractual arrangement, the dispute settlement procedure was minimalist and ad hoc. It has neither a legal text nor full-time judges. Its central requirement was certainty ­ that is, ensuring that conditions of competition remain fixed and clear.

With the establishment of the WTO, these procedures became fixed. The Dispute Settlement Body may establish panels, adopt panel reports, control the implementation of rulings and authorise suspension of concessions. Its decisions are binding. However, the legality of this system has been challenged by many, including trade lawyers.

Calls are increasing for changes to the WTO system in general, and the Panel system in particular. One important point to keep in mind about a change to the dispute settlement system is that of what disputes we want to see the DSB being allowed to settle - those including environment, health, labour, etc. concerns, or purely trade issues. For an overview of current positions and possibilities see Fern's briefing sheet on the Dispute Panel[28].

3.2. WTO reform

Most social, environmental and development NGOs are in agreement that:

1) there is a need for an assessment of the Uruguay Round,

2)  there is a need to ensure that WTO agreements do not harm human rights, labour rights, the environment or development

3)  there is a need for greater transparency in the WTO processes.

A majority of environmental NGOs strongly believes that there should be no expansion of the powers of the WTO. What the Millennium round should be considering is how to stop the WTO from expanding its powers beyond trade matters, opening it to public scrutiny by ensuring proper participation of all major societal groups, ensuring due process within the dispute mechanism, and restructuring and possibly relocating that mechanism. However, the EU is pushing for expanding the powers of the WTO without sufficient reform, and has been arguing for the inclusion within the WTO system of investment, competition and government procurement. The texts of some of these proposals, particularly Trade and Competition[29], show that the EU advocates a considerable shift in power from the national to the corporate level.

Although the EU has stated in its official position that transparency within the WTO should be improved, it has failed to produce concrete proposals to address this issue. The current text of the WTO's draft Seattle declaration on transparency looks more like an attempt to 'greenwash the WTO' than a serious attempt to improve transparency[30]. Transparency could also be improved in the development of the EU’s own negotiation mandate for the new trade round.

While the EC has been seen to reach out to NGOs (it has organised several meetings with NGOs to discuss its position), it has become apparent that there is a parallel, qualitatively different process being transacted with business within the Investment Correspondence Network (ICN). No NGOs participate in this network, which clearly supports a continued push to include investment in the new negotiations round[31].

NGOs and the European Parliament have called upon the Commission to give the Parliament a say in the negotiations by changing its procedures, as well as by including NGOs in the official delegation. Commissioner Lamy has told NGOs that he will look into these issues. Although this might be seen as a positive move, the fact remains that the EU's current negotiation position, consisting of 13 separate documents, has not been thoroughly discussed by national Parliaments and often not even by relevant Government departments, including those dealing with environment and development.

To expand the powers of the WTO without demanding a fundamental reform of the WTO as put forward by NGOs and many developing nations, and without a proper independent sustainability impact assessment of both past and future trade negotiations, is therefore not acceptable.