EXECUTIVE SUMMARY

　　1. INTRODUCTION

　　The Working Group on Trade and Environment continues to work under its mandate " to assist China in developing and implementing long-term, comprehensive and integrated trade and environmental policies and measures that are supportive of sustainable development".

　　In November 1996, the Working Group co-sponsored and co-organized an international conference on ISO 14000 environmental management standards in Beijing with NEPA, the China Centre for Environmental Management Systems and UNEP.

　　The Working Group met this year from 21 - 23 April, 1997, in Calgary, Alberta, Canada. Four international members, six Chinese members and seven of their associates and assistants attended the meeting. The Working Group reviewed and discussed the two major research projects that had been undertaken since that last Council meeting. The Working Group developed its work plan for the next three years. Final decisions on the Working Group's future plan, its report to the Council and details of the next meeting were also discussed.

　　2. 1996-1997 RESEARCH AND ACHIEVEMENTS

　　2.1 Pollution Havens and Ozone Depleting Substances Control in China

　　This project examined the possible existence of "pollution havens" in China with respect to ozone-depleting substances (ODS) control and their relationship to China's obligations under the Montreal Protocol and to China's policies related to foreign direct investment.

　　2.2.1 Evaluation of China's Existing Policies, Regulations and Measures

　　As a party to the Montreal Protocol and its amendments, the Chinese government h as been serious in fulfilling its international obligations in controlling and gradually phasing out ODS. China has established an institutional framework and a technical support system. The China Leading Group for Ozone Layer Protection was established in July 1991, and a Technical Information Clearinghouse and a Project Management Office were set up for supervision on data collection, information exchange, proposal submission, program coordination and project implementation,

　　However, the Working Group's research found some shortcomings in the existing regulations and policies:

　　(1) The importance of the shift of ODS production and consumption to China through foreign direct investment (FDI) has not been fully realized in China's Country Program for Phasing Out Ozone Depleting Substances.

　　(2) Current environmental laws (such as the Law of Air Pollution Prevention and Control) and environmental policies do not include requirements for ODS control. There are no specific stipulations to control FDI in ODS production and consumption in China's current guidelines for the use of FDI.

　　(3) China's current policy towards foreign funded enterprises (FFEs) is that foreign investors must take responsibility in accordance with their equity share in the FFE; the Chinese government is only responsible for the Chinese portions (such as in a joint ventures).

　　It is very difficult for small and medium size FFEs, especially small and medium sized enterprises (SMEs) from Hong Kong, Taiwan Province and Macao, to carry out this policy.

　　2.2.2 Reconmmendations

　　Although the study as a whole indicates that there is an increase in the number of FFEs related to ODS production and consumption in recent years, it is difficult to say with certainty whether the growth in the number of such enterprises ha s resulted in a significant increase in ODS production and consumption in China because of the complexity of the issue and the difficulties in conducting a thorough investigation.

　　Nevertheless, the present study reveals some major problems with the Montreal Protocol and the Multilateral Fund, and problems with China's policies and institutional coordination.

　　The Working Group would like to present the following recommendations to the Council for immediate actions:

　　1) China's policies for the implementation of the Montreal Protocol should be further strengthened and integrated policies and measures for ODS control and management should be formulated. ODS control should be included in the existing environmental legislation and other environmental management policies, and requirements for not producing and using more ODS should be included in FDI approval.

　　2) It is essential to establish an effective coordination mechanism among relate d governmental agencies and between the central and local governments, and set u p a sound management system throughout the country.

　　3) It is very important to strengthen public education and to provide training t o related personnel and enterprises.

　　4) It is necessary to provide enterprises with technical support.

　　5) There is a need to further enhance international cooperation. China should seek to change the guidelines for expenditure under the Montreal Protocol fund so that they are not restricted entirely to the procurement of foreign goods and expertise.

　　2.2 Strategies for China's Implementation of Activities Implemented Jointly (AIJ)

　　The Second Conference of the Parties to the UN Framework Convention on Climate Change in 1995 initiated a pilot phase of AIJ (formerly known as Joint Implementation) which will last until 1999. It endorses AIJ between Annex I parties (developed countries and economies in transition) and non-Annex I parties (developing countries) on a voluntary basis under a set of defined criteria. Progress in the pilot phase of AIJ has been rather slow, largely because of the lack of incentives for projects between Annex I and non-Annex I countries.

　　The Working Group began work on AIJ in 1996 and has now completed its First Phase. The study assesses how AIJ could be made acceptable to China. The study outlines the wide range of perspectives on AIJ and the reasons why AIJ has not yet be en successful. The research also tries to identify potential disadvantages and benefits for Chinese participation in AIJ, and provides some thoughts on the basis and preconditions for China to implement AIJ.

　　The report has been submitted to the Council as background in hope that it would provide some useful considerations for the Chinese Government while it formulates its position for the upcoming COP3 meeting to be held in Kyoto, Japan in December this year. The Working Group plans to continue its work on AIJ after the Kyoto meeting when the function of AIJ will be more clearly defined.

　　3. GENERAL RECOMMENDATIONS OF THE WORKING GROUP TO CCICED

　　The Working Group has identified some common issues throughout its research projects during the past two years and would like to present to this Council some general recommendations with respect to coordinating trade and sustainable development.

　　The Working Group recommends that China:

　　(1) To improve legislation in all sectors related to trade in goods and services, investment, and the transfer of technology, taking environmental concerns into consideration;

　　(2) Enhance institution building and coordination at the national level relating to trade and environmental matters. In addition to NEPA and MOFTEC, governmental bodies such as the State Planning Commission, the State Economic and Trade Commission, the State Science and Technology Commission, the General Customs Administration and relevant sectoral ministries need to coordinate effectively in dealing with trade and sustainable development issues. Such institutional coordination should also take place between the central government and local governments as well as among relevant local governmental agencies;

　　(3) Raise awareness on trade and environment of governmental officials in charge of both foreign trade and environmental protection, and of entrepreneurs. Capacity building should be provided not only at national level but also at local and grassroots level; and

　　(4) Follow closely the development of concerns with trade and environment in international and regional organizations as well as in individual countries or groups of countries.

　　4. WORK PLAN OF THE WORING GROUP FOR THE NEXT THREE YEARS

　　The Working Group will undertake a series of research and other activities addressing issues related to China in the areas of trade, environment and sustainable development during the next three years.

　　This series of activities include the following:

　　(1) Policy research on the interaction between China's foreign trade and environmental protection.

　　(2) International agreements and domestic laws on foreign direct investment and sustainable development: China's perspective.

　　(3) A study on the impacts of selected foreign environmental standards on China's trade.

　　(4) Monitoring and assessing trade and sustainable development activities and is sues related to China in various international and regional organizations such as WTO, UNEP, UNCTAD, OECD and APEC.

　　(5) A study on environmental technology and international trade.

　　(6) A workshop on trade and development for governmental trade and environmental officials, trade companies, and trade-oriented enterprises.

　　5. PUBLICATIONS OF THE WORKING GROUP IN CHINESE

　　● Ecolabelling and its Implications for China

　　● Green Food Development and Environmental Protection in China

　　● ISO 14000 Standards and China: A Trade and Sustainable Development Perspective

　　● Global Green Standards: ISO 14000 and Sustainable Development