HE packaging industry is irate.com

alarmed by Germany's new law on packaging which crosses, in industry's eyes, the indistinct line between national environmental protection and protection of a more reprehensible sort. The European Commission's response-a packaging directive of its own-is causing so much uproar that, even though the first draft has just gone out for consultation, commissioners will take the rare step of discussing the issue next week.

The EC draft directive calls for 60% of Europe's packaging to be recycled within five years, and for a freeze on packaging output. The commission has been bounced into this nonsense by Germany, which took advantage of a ruling by the European Court in 1988 that Denmark could insist that drinks were sold in refillable bottles. Since then, European countries have been busily drawing up their own rules on recycling and on eco-labelling, while the EC has struggled to resolve the clash between the interests of trade and the environment.

The tension is greatest in the EC, because the building of the internal market requires that if a product meets standards set in its home market, it should generally be deemed to meet standards in other member states. But the General Agreement on Tariffs and Trade (GATT), which insists only that a country apply the same standards to imports and to domestic products, also worries that environmental goals will conflict with those of free trade.

GATT'S northern European members have been pushing for the revival of a special committee which was set up in 1971 to discuss environmental-trade issues but has never met. They are opposed by some thirdworld countries, which rightly fear the industrial countries will sometimes use the environment as one more excuse to

exclude their products. The OECD is also concerned: in May a meeting of officials from environment and trade minis

THE ECONOMIST JUNE 15TH 1991

tries agreed to set up a research programme on the issue.

Increasingly, countries specify green characteristics for products: cars must have catalytic converters, say, or a kind of plastic must not be used. As long as such standards, whether set by law or by eco-labelling, apply to all producers equally, they do not infringe GATT rules. Indeed, two years ago a GATT panel ruled that an American tax on certain chemicals, imposed to pay for cleaning up toxic-waste dumps, was legitimate because it was levied at the same rate on domestic and foreign producers. A second American tax, on petroleum products, was imposed at a higher rate on foreign producers: the panel ruled against it.

Playing dirty

Arguably, environmental product standards are no different from others designed to codify local-market requirements. But sometimes their effect is discriminatory. A

Canadian deposit scheme on beer bottles has been attacked by the United States as protectionist: the dispute (part of a larger row about Canada's state liquor boards) is now before a GATT panel. With Germany's packaging law, importers complain to the EC that it includes a provision, inserted at the last minute, to insist that only 28% of all beer and softdrinks containers can be "onetrip" (ie, disposable). Packag

ers suspect that this clause was inserted for the benefit of small brewers in politically sensitive Bavaria, who will find it easier to collect and refill the empties. Packagers also dislike the new law's insistence that companies collect their used packaging for recy cling. The fact that this will be easier for local manufacturers may prejudice retailers in favour of domestically produced goods.

Germany, with its large market and belligerent environmentalists, may increasingly use standards of this sort to support its own manufacturers. For example, the main German car makers are now installing plants to recycle cars; Ron McLean, of Arthur D. Little, a firm of management consultants, expects that Germany will soon make recycling of car parts compulsory. If so, car manufacturers in other countries may find themselves having to build disassembly plants of their own in Germany.

More blatant trade problems arise when countries try to ensure that their trading partners meet the same environmental constraints as their own producers. If companies in one country have to tighten pollution standards, they are apt to demand that imports should not be allowed to compete unless they meet the same rules. Just such an issue is currently before a GATT panel. American legislation bans imports of tuna from countries that kill 25% more dolphins than American fishermen do. Protection of American tuna fishermen, says Mexico. A necessary measure of environmental protection, says America, cheered on by the campaigners of Greenpeace, who recently

61

anchored a balloon over Lake Geneva inscribed "GATT save the dolphins".

CATT has tended to capose attempts by any onc country to impose its production standards on its trading partners. If one country's laws ban the employment of women at night, it cannot under GATT rules ban the import of goods produced by women working at night in other countrics. That principle is sensible, though it may be dismal for dolphins.

American environmentalists fret that the free-trade agreement under negotiation between Mexico and the United States will encourage dirty American companies to flce south to escape American pollution controls. In mid-May several large environmental organisations met President Bush. They wanted assurances that the free-trade agreement would not force individual states to repeal environmental standards (on, for instance, which pesticides could be used on fruit) that might otherwise continue to keep out Mexican foods. They also wanted the environmental impacts of the agreement, especially along the border, to be closely watched. Mr Bush said the ad

Garbage sans frontières

ministration would accept both points.

In fact, as Jeffrey Leonard, an expert on the effect of pollution controis on investment decisions, argues, the free-trade arca may reduce pollution along the Mexican

border. Once tariffs come down,companies will have less reason to move south for nonenvironmental reasons. And as free trade enriches Mexico, so domestic pressure will drive up environmental standards.

Cicarly, governments should choose the level of pollution their voters want, but not try to inflict their choice on others. But what if the pollution is inflicted on others? In that case, standards are not just a matter of national interest. The United States (inspired by the Mutant Ninja Heroes of that ilk) threatened to restrict imports of other animal products from Japan, including pearls, unless it stopped trade in goods made from the shells of the rare Hawksbill turtle. In May Japan caved in to American pressure.

The most difficult issues will be raised by international agreements like the Montrcal Protocol to phase out ozone-holing chlorofluorocarbons (CFCS). The protocol allows countries to ban not just imports of CFCS, but products containing them-and products whose manufacturing process uses them. The justification is that a holed ozone layer threatens all countries, whether or not they are phasing out CFCS; conversely, polluters cannot be excluded from the gains carmed by the virtuous.

But if trade sanctions can be used to punish defaulters from such global environmental agreements, that has alarming im plications for the current talks on global warming. As with cres, the damage done if some countries do nothing to curb their output of greenhouse gases may affect the cli mate in cry country in the world. Indeed, if the sea level rises, some countries may vanish. Even in such cases, coaxing and shaming a polluter into action are usually more likely to be effective than trade sanc tions. Only in the last resort, with careful in ternational policing, should countries think of penalising their trading partners for harming the world's environment.