will have a decisive effect on long-term global environmental and economic security. Recognizing the significance of these threats to the environment, the United States and other nations are taking steps, unilaterally and multilaterally, to encourage and require more prudent stewardship of the environment.

The increasing overlap of trade and environment issues has sometimes resulted in conflict. Trade proponents, for example, have charged that laws such as the Danish bottling law, which requires that all beer and soft drink bottles sold in Denmark be recycled, are protectionist. Environmentalists, on the other hand, have questioned the potential environmental damage which they believe will result from the North American Free Trade Agreement. Many of their concerns are based on problems originating from the Canadian Free Trade Agreement (CFTA). As the circles of both free trade and environmental policy continue to expand, new areas of potential friction are increasingly being revealed. What are the protectionist implications of labelling laws? Do trade rules, for example, prohibit the use of trade measures in international environmental agreements to protect African elephants or whales?

While much of the attention on the intersection of trade and environment has focused on potential areas of conflict, the Committee began to recognize that these two policy spheres are not necessarily conflicting. If properly crafted, trade and environment policies can be mutually reinforcing. For example, the protectionist aspects of certain agricultural policies not only prohibit free trade but also cause environmental degradation. Moreover, in many areas where trade and environment policies appear to be in conflict such apparent conflicts can be attributed to the failure of existing market interventions to internalize complete environmental costs. It is increasingly apparent that the reconciliation of trade and the environment will be largely dependent upon the ability to move the existing trade and environment dialogue of opposition, to one of mutual reinforcement.

Promoting policies that reconcile trade and environment issues is made more complex in the U.S. by the current institutional framework for developing trade and environment policy. Traditionally, trade policy has fallen firmly within the mandate of the United States Trade Representative's Office (USTR). International environmental affairs has been consigned to the Department of State, and domestic environmental protection has been largely delegated to EPA. The international nature of trade and environment policy-making refuses, however, to respect these traditional regulatory boundaries.

For example, the harmonization of environmental standards in trade disputes-the province of USTR— brings into question the protection standards mandated by domestic environmental laws-the province of EPA. The establishment of domestic environmental standards that include trade provisions—the responsibility of EPA-implicates the conduct of international trade policies the responsibility of USTR. Further, the establishment of international obligations by the Department of State can impact upon the mandates imposed upon both the USTR and the EPA. As the agency with the most environmental expertise, the EPA is increasingly being called upon to play a role in international trade negotiations to ensure that these agreements do not adversely impact either domestic environmental protection obligations under U.S. laws, or the obligations of the U.S. under international agreements. The multi-disciplinary character of trade and environment has led, for example, to the significant participation of the EPA within the U.S. interagency participation in the OECD, the GATT and the NAFTA processes.

OVERVIEW AND SUMMARY OF COMMITTEE RECOMMENDATIONS

As a result of the Committee's work, a number of common issues emerged from the three working groups. Perhaps the most important common issue concerned the mechanism for reconciling trade and environment policy objectives. Although all three did so in their own way, the working groups arrived at an understanding that the system of international trade had to make some allowance for environmental goals. Despite this common understanding among the three working groups, there was some difference amongst them as to how this objective should be implemented.

Both the OECD and Western Hemisphere Working Groups determined that, within their own areas of responsibility, the reconciliation of trade and environment could best be accomplished if the system of international trade recognized "sustainable development" as a goal. In relying upon sustainable development as a mechanism for reconciling trade and environmental goals the OECD and Western Hemisphere Working Groups drew from the efforts of the World Commission on Environment and Development.

In 1987, the World Commission on Environment and Development issued its report entitled Our Common Future. The major premise of the report was the attempt to reconcile two global imperatives which until then had been considered conflicting: economic development and environmental protection. The Commission argued that this could occur through "sustainable development." It defined sustainable development as development in the manner that "meets the needs of the present without compromising the ability of future generations to meet their own needs." By contrast, however, the GATT Working Group felt that the term "sustainable development" was too vague, and chose instead to recommend that the U.S. Government should advocate that GATT "add to its major objectives the consideration of environmental concerns."

Public participation and transparency also proved to be common threads of discussion among the three working groups. Both the OECD and the Western Hemisphere Working Groups determined there was a need for greater transparency and public participation in trade decisionmaking. The OECD Working Group recommendations reflect that group's conclusion that "the U.S. Government should seek agreement among the OECD members to allow for greater transparency, public participation and access to information in the OECD's processes and procedures." Similarly, the Western Hemisphere Working Group provided that in order "to achieve sustainable development as a major objective, U.S. domestic and international policies should incorporate...transparency and public participation in environmental and trade processes."

The GATT Working Group also discussed the value of transparency and public participation; however, its conclusions differ somewhat from the path taken by the other two working groups. The GATT Working Group recognized that the "U.S. Government should advocate a review of GATT procedures governing the dispute resolution process, with the objective of providing greater transparency..." and that "the U.S. Government should provide greater transparency and public participation for environmental interests in the development of U.S. trade policy...." The GATT Working Group decided not to recommend enhanced public participation and transparency at this time. It chose instead to recommend that the policies and procedures of the GATT should be reviewed with an eye towards enhancing public participation and transparency.

COMMITTEE AGREES ON A SIGNIFICANT ROLE FOR EPA

Another area of common understanding developed around the role EPA should play in the trade and environment dialogue. Given the responsibilities and expertise of the agency, and drawing from the role EPA has played in the ongoing NAFTA, OECD and GATT trade and the environment processes, each of the three working groups recognized a need for EPA to continue to play a role in the trade and environment dialogue, at both the national and international levels. To this end all three working groups recommended that the EPA should institutionalize trade and the environment within the agency.

Each of the three working groups also dealt with a number of issues that were particular to its area of expertise. For example, the GATT Working Group struggled with the complex interactions between the use of trade measures, both unilaterally and in multilateral agreements, for environmental objectives and the GATT's obligations. The group recommended that efforts be undertaken "to reconcile the GATT and multilateral environmental agreements, when they are in conflict." Additionally, the GATT Working Group also recommended that "criteria" be developed for "reconciling the objectives of both future multilateral trade agreements and future multilateral environmental agreements.”

The OECD Working Group discussed at length the harmonization of environmental standards. It focused on both the benefits to international trade from the international harmonization of environmental standards, and the dangers inherent in a downward harmonization of such standards. Another key issue addressed by the working group included the role of science in both domestic and international standardsetting processes, and the impact, both positive and negative, of domestic environmental standards and regulations on U.S. competitiveness.

The OECD Working Group was unable to perform the Herculean task of recommending a singular formula by which all environmental standards could be harmonized without compromising existing protections. The discussions did, however, result in a framework of issues to be looked at when identifying appropriate environmental standards for harmonization and in carrying out such harmonization. It also recommended the harmonization of "protocols for developing and evaluating scientific data and performing risk assessments in standard setting processes."

While recognizing that the term "competitiveness" is not precisely defined, the OECD Working Group used the definition adopted by the Young Commission: "Competitiveness is the degree to which a nation can, under free and fair market conditions, produce goods and services that meet the test of international markets while simultaneously maintaining or expanding the real incomes of its citizens." In that context, the Working Group recommended that criteria be developed for evaluating the impacts, both positive and negative, of domestic environmental standards and requirements on U.S. competitiveness.

The Working Group discussed not only the measures for flexibility and incentives to encourage efficiency and innovation generally in the market, but the need for the U.S.government to more aggressively promote the environmental goods and services market internationally. Both the Western Hemisphere and the GATT Working Groups had corollary discussions with respect to the competitiveness position of the U.S., knowing the OECD Working Group was focused on it.

The Western Hemisphere Working Group dealt principally with the interplay of regional trade

agreements, investment, and environmental protection, particularly those raised by the NAFTA. Although the group's focus was not limited to issues that had been raised in the NAFTA, these issues were obviously significant topics in both the group's discussions and its recommendations. The issues raised in the context of the NAFTA negotiations also provided a touchstone for the working group's discussions of other potential free trade agreements, such as the agreement with Chile currently under discussion.

The Working Group concentrated on the need to evaluate the environmental impacts of future free trade agreements in the hemisphere. Members determined that criteria for evaluating such impacts were necessary. While time constraints prohibited the Working Group from developing a more inclusive list of such criteria, it was successful in providing a general framework. The Working Group agreed that environmental protection should be integrated into all future trade agreements.

The Working Group also discussed at great length the interplay between the need for increased North/ South cooperation and a preference for incentives for environmentally sound actions, weighed against the need of nations to, under certain circumstances, resort to "trade and other sanctions. . .as necessary mechanisms for advancing environmental objectives." The recommendations of the Western Hemisphere Working Group reflect this difficult balance.

THE FUTURE OF THE TRADE/ENVIRONMENT INTERSECT

The one underlying theme that emerged from the Committee's deliberations was significant recognition that the two policy spheres of trade and environment are not necessarily conflictual. Thus, while the interplay of trade and environment may offer many complex challenges, these challenges are by no means insurmountable. Moreover, the degree of difficulty inherent in reconciling trade and environment policies offers the opportunity for a transition from degradative commerce to restorative commerce; and the inclusion of environmental costs and benefits into the calculations that determine comparative advantage in the international division of labor. The Committee's recommendations reflect the understanding that trade and environment policies can and should be mutually reinforcing.

Building upon these recommendations, the Committee looks forward to further providing assistance in the challenge of harmonizing the interplay of trade and environment policies in Phase II of its efforts. Among the areas which the Committee and the three respective working groups have targeted for future efforts are: 1) the development of specific criteria for harmonizing environmental standards; 2) the development of specific criteria for reconciling conflicting goals of specific trade and environment agreements; 3) the consideration of the complex interaction of subsidies and standards within the GATT; 4) the evaluation of the role of investment in the trade and environment dynamic; 5) the linkages between debt reduction modalities, environmental protection, and trade flows; and 6) the development of a greater understanding of the interactions between environmental protection, trade and competitiveness.

TRADE AND ENVIRONMENT COMMITTEE

RECOMMENDATIONS

The Trade and Environment Committee of the National Advisory Council on Environmental Policy and Technology, and its working groups on the General Agreements on Tariffs and Trade (GATT), the Organization for Economic Cooperation and Development (OECD), and the Western Hemisphere (WH), are honored to present the following Phase I recommendations on trade and the environment to the EPA Administrator. These recommendations are intended solely as guidance to the EPA Administrator in formulating the trade and environment policies of EPA, and in participating in the development of U.S.government policy on trade and the environment as a member of the staff of the Executive Branch.

The Committee believes that these Phase I recommendations, in conjunction with the future efforts described above, are an important component of the management and informational infrastructure necessary for the EPA to successfully address the issue of trade and the environment in formulating the policies of EPA and its participation in the development of U.S. government policies on trade and the environment.