The Illegal CFC Trade

A R T I C L E S

The Illegal CFC Trade Clapp, Jennifer. 1997. The Illegal CFC Trade: An Unexpected Wrinkle in the Ozone Protection Regime. International Environmental Affairs. Vol. 9 No 4.

An Unexpected Wrinkle in the Ozone Protection Regime JENNIFER

CLAPP

The Montreal Protocol has been widely viewed as an example of a successful international environmental agreement that might prove useful as a model for 1 Negotiation of the protocol was relatively swift, and though other treaties. there was a wide diversity of interests before the agreement was signed, at the time of signing, there was considerable consensus among states, scientists, and industry that production of chlorofluorocarbons (CFCs) and other ozone depleting chemicals needed to be cut back in order to protect the ozone layer. Since the Protocol came into force, the parties have tightened the provisions several times by calling for a complete phase-out of CFCs and other chemicals, and by bringing the phase-out dates closer than those originally agreed upon. Some parties have even met their phase-out targets before they were required to do so. These developments might be interpreted as signs of a high degree of state compliance, or even over-compliance, with the Protocol rules.’ But at the same time that parties agreed to implement more stringent measures for ozone protection under the Protocol, a problem with the regime surfaced. In the mid-1990s, just as the CFC phase-out dates neared in the industrialized countries, a thriving international black market in CFCs emerged. The U.S., the European Union, and a number of other industrialized countries have been the recipients of illegal CFC imports. The problem is reported to have reached significant proportions, with illegal CFC imports being second only to the illegal drug trade in some ports such as Miami, 3 Because of the nature ofillegal activities, however, it is difficult to state Florida. with precision the exact extent of the illicit CFC on a global scale. Industry estimates that ten to twenty thousand metric tonnes of CFCs were illegally imported into the U.S. in both 1994 and 1995. At the same time, estimates of Comparative Development Studies/Environmental and Resource Studies, Trent University, Canada.

260

International Environmental Affairs

illicit imports into Europe have been in the range of six to ten thousand tonnes in 1994, with lesser amounts reported to be illegally imported into Taiwan, Canada, and Australia.’ This is in comparison to legal global production of CFCs of 425,383 tonnes in 1994 and 334,683 tonnes in 1995.6 If these estimates are accurate, the illicit trade in CFCs is in the range of at least 6 to 10 percent of global production in 1995. Industry has estimated that about 20 percent of CFCs in current global use were bought on the black market. 7 The ozone protection regime has been poorly equipped to deal with this new and unexpected problem. Though initial analyses of the ozone protection regime tended to focus on the negotiation and structure of rules, attention must now turn to analyzing implementation, compliance, and effectiveness. Economic incentives have been key in explaining why the illegal CFC trade has occurred. But why did these incentives emerge? On the supply side, the structure of the Montreal Protocol, because it set out different phase-out dates for different sets of countries, has led to a situation where CFC production is being phased out in some countries but not in others. This situation of continued CFC production has been exacerbated because some countries have not been able to keep on target for their phase-out dates. On the demand side, the implementation of phase-outs in the key industrialized countries has created incentives for the import of cheap CFCs as a way to delay the installation of expensive equipment that uses CFC alternatives. These supply and demand factors have created conditions under which price differentials have emerged between rich and poor countries. This, combined with the increased globalization of trade, and the exemption of recycled CFCs from the rules of the Montreal Protocol, has made the illegal trade in CFCs an attractive and feasible business for smugglers. In this article, I argue that although the ozone protection regime has been highly successful in reaching agreement on tough measures to control the production, use, and trade in CFCs and other ozone depleting substances, in practice the economic incentives that foster the illegal CFC trade have made it extremely difficult to ensure that these control measures are actually imple mented. In the first section, I discuss ways in which the structure of rules under the Montreal Protocol has contributed to the problem. In particular, the differentiated CFC phase-out dates have meant that despite CFC phase-outs in some countries, these chemicals have been readily available from other countries. In the second section, I explore the reasons behind the continued demand for CFCs, particularly inexpensive illegally imported CFCs, in those countries that have been required to phase them out. In the next section, I examine how states and other key international actors have attempted to cope with the problem thus far. Finally, in concluding, I argue that as the global trade system becomes ever more liberal, and as environmental treaties increas ingly place controls or restrictions on certain practices that are deemed harmful to the environment, illicit trade in environmentally harmful substances is a problem that will likely continue.

(LkPP:

The Illegal CFC Trade

261

Continued CFC Production under the Montreal Protocol The differentiated sets of rules established by the Montreal Protocol, which came into force in 1989, reflect the different interests of the various sets of 8 The Montreal Protocol’s restrictions on actors involved in its negotiation. CFCs included the imposition of limits on the production and use of these chemicals and other ozone depleting substances. The production and con sumption of CFCs were to he frozen immediately at their 1986 levels and then cut to 50 percent of 1986 levels by 1999. As outlined in Article 5 of the Protocol, however, a ten-year grace period for these phase-outs was granted to those countries that produced less than 0.3 kilograms of CFCs per capita in 9 In the meantime, Article 5 countries 1986, primarily developing countries. were not to produce more than 0.3 kilograms of CFCs per capita per year. In addition to production and consumption provisions, the Protocol also in cluded trade provisions. These provisions required parties to refrain from importing controlled substances from any non-party starting in 1990, and to refrain from exporting controlled substances to non-parties starting in 1993. Parties also agreed to cease exports to any non-party of controlled substances or the technology used to produce controlled substances, and to ban, starting in 1992, the import from non-parties of products containing controlled sub stances. Parties were asked to study the feasibility of trade restrictions on goods produced with CFCs. These trade restrictions against non-parties were not to be applied to those non-parties that were in compliance with the provisions of the treaty.’° Soon after these rules were negotiated, new scientific evidence providing a positive link between CFCs and ozone loss prompted parties to tighten the control provisions of the Protocol. Amendments were made at the 1990 Meeting of the Parties in London and at the 1992 Meeting of the Parties in Copenhagen. The result of these amendments was that the phase-out date for CFC production for non-Article 5 countries was moved to 1 January 1996, and the import of products containing CFCs from non-parties was banned beginning in 1992. A Multilateral Fund was also established to assist develop ing countries in meeting the control provisions of the Protocol, though they kept their ten-year grace period for meeting those provisions that were agreed to in 1992. In effect, this meant that they had until the year 2010 to phase out CFC production and consumption.” In addition, it was agreed at the 1992 Meeting of the Parties that countries would be allowed to produce up to 15 percent oftheir 1986 levels of CFCs and other controlled substances for export 2 It was also decided that countries could apply to after their phase-out date.’ 3 produce or import CFCs for “essential use” after their phase-out date.’ Moreover, parties agreed that recycled or used CFCs would not be included 4 By mid-1996, 157 countries had in the calculation of parties’ consumption.’ become parties to the Montreal Protocol, though fewer than this number had

262


ratified the 1990 London Amendments and the 1992 Copenhagen Amend 1 The Copenhagen Amendments came into force in 1994. ments. While these provisions were established with a view to eventually phasing out CFC production globally, the different target dates for industrialized and developing countries for the implementation of this phase-out has been an important factor behind the emergence of the illegal CFC trade in recent years. Developing countries have retained their right to continue to produce and consume CFCs for at least fourteen years beyond the 1 January 1996 phaseout date for the non-Article 5 countries. Because not all developing countries have signed the London and Copenhagen amendments, some countries have even longer time frames in which to phase out their production. Adding to the problem of delays for phase-outs between developed and developing countries, Russia and other Eastern European countries that were originally scheduled for the 1996 phase-out have announced that they are 6 At the 1995 Meeting of the Parties, the Eastern unable to meet this deadline.’ European countries and Russia requested a five- to ten-year extension for 7 A deal was struck phasing out their production and consumption of CFCs.’ production out CFC by the year 2000 and to phase whereby Russia agreed to 8 Eastern European countries in the meantime.’ to confine its exports of CFCs developing group of countries, mainly significant Because of these delays, a are still able to legally produce and countries, countries and Eastern European primarily the OECD countries, cannot. consume CFCs at a time when others, A number of the countries that have been granted a grace period for the phase-out of CFCs seem to be taking advantage of the opportunity to produce and export CFCs. In the past decade, just as most of the industrialized countries curbed their production and consumption of CFCs, production and use of these chemicals has increased markedly in the developing world. Be tween 1986 and 1993, production of CFCs rose by 87 percent in less-indus trialized countries, and exports from these countries have expanded by a factor 9 This is despite the fact that only eight of seventeen in that same period.’ the capacity to produce CFCs, and that some have developing countries have pledged to phase out CFCs before their countries forty-seven developing expansion in CFC production in the develop the phase-out dates. ° Much of 2 in China and India, both of which are now ing world has been concentrated Production in these countries rose by of CFCs. major producers and exporters 1994.21 It is not clear if and between 1986 respectively eight and five times countries’ production is rising or falling, European Russia and other Eastern production certainly continuing but they are come by, because data are hard to for the time being. A second problem with the structure of the Montreal Protocol rules that has contributed to the illegal trade is the exemption of recycled and used 22 While CFCs from calculations of parties’ consumption of those chemicals. way to encourage reuse this measure was taken as a and recycling, it has created an opportunity for smugglers to disguise CFCs. The continued pro-

CIAPP:

The illegal CFC Trade

263

duction of CFCs and the opportunities for fraud, combined with the ready demand for CFCs in a number of countries, has resulted in a significant black market in CFCs.

Strong Demand for Cheap CFCs At the same time that production, use, and export of CFCs have been steady or rising in those developing countries with the capacity to produce them and in Russia and Eastern Europe, demand for these chemicals in the industrialized countries that were phasing them out has declined, but not disappeared altogether. By 1994, industrialized countries had reduced CFC demand to about one-quarter of its 1986 level, but many acknowledge that the remaining demand in these countries will be both difficult and expensive to eliminate.23 A key reason for the continuation of this demand has been a desire to avoid the high cost of replacing existing equipment designed for CFCs with new equipment that is designed for the more expensive CFC alternatives. While the decrease in CFC supply in theory would raise its price to a level that would eventually create demand for CFC alternatives and the new technology they require, the illegal trade has provided extremely low-cost CFCs, which are in effect delaying the switch over to substitutes. An important factor that has led to a continued demand for low-priced CFCs has been the way in which key countries, the U.S. in particular, have chosen to implement the CFC phase-out at the domestic level. As mentioned above, under the Montreal Protocol, while parties must adhere to the phaseout dates, they are each allowed to work out the specifics of doing so within their own borders. In the U.S., the policy for achieving the phase-out was to control the physical amount of CFCs produced and imported into the country via a system of allowances, as well as to raise the price of CFCs via taxation. As set out in the U.S. Clean Air Act, the allowance system gave chemical firms the right to produce and/or import a certain amount of CFCs. However, these allowances applied only to virgin CFCs, such that reused or recycled CFCs did not count against firms’ allowances. This was because imports and exports of recycled CFCs were not included in parties’ calculation of their consumption under the Montreal Protocol. 24 The attempt to raise the price of CFCs via taxation was carried out through the imposition of a relatively steep excise tax on CFCs, the amount of which increased gradually as the phase-out date neared. The idea was to raise the price of CFCs to roughly the same level as the price of alternatives by the time CFC production and consumption was to cease. 25 In the early 1990s, this tax was set at U.S. $4.00 per pound, rising to $5.30 per pound in the mid-1990s. 26 While this was in theory a reasonable policy, the fact that it only cost about $2.00 per pound to produce CFCs posed a bit of a problem. Any imported or domestically produced CFCs that could escape the excise tax could then be

264


sold at a discount compared to the legal CFC market, while at the same time providing a profit for smugglers. For example, the price of CFCs produced legally in Europe was around $70 per 15-kilogram cylinder, while in the U.S. the price was around $242.27 The price differential was undoubtedly greater between the U.S. and the source countries of the contraband CFCs. Moreover, although the tax was to be paid on all CFC sales, there was initially much confusion over whether the tax was to be paid on recycled CFCs, since imports 28 Some of recycled CFCs were not controlled under the Montreal Protocol. attempt to evade the tax smugglers disguised virgin CFCs as “recycled” in an and the rules of the Montreal Protocol.’ The fact that the excise tax exceeded the value of the CFCs and that the rules were vague might not have been a problem if there was little demand for them, but this was not the case. The continued demand for CFCs in the U.S. came mainly from those businesses wishing to save money by recharging existing ’ Small auto 3 refrigeration equipment rather than installing new CFC-free units. mobile repair shops, which used the CFCs to recharge automobile air condition ers, were perhaps the largest source of the continued demand, since refitting old automobile air conditioners with CFC-free technology cost anywhere from ’ Because there are such a large number of small 3 $200 to $800 per automobile. auto-repair shops in the U.S., it has been difficult to trace where the illegal CFCs have been purchased and used. Although all new cars in the U.S. after 1996 were to be equipped with CFC-free air conditioners, it is difficult to say when all the ’ 3 old CFC-based air conditioners will be eliminated or replaced. By 1994, the high excise tax, vague rules, and continued demand came together with continued production in certain countries to create a situation in which the U.S. was ripe for illegal imports of CFCs. Black market imports of these chemicals began to flow into the U.S., and by the mid-1990s they were the second most important illegal import into Miami, Florida, after 33 India, China, Russia, Eastern Europe, and Southeast Asia were the cocaine. main sources of these contraband CFCs. Estimates have ranged from ten to twenty-two thousand tonnes of illegal CFCs per annum entering the U.S. in ’ The tax losses to the U.S. government from these imports have 3 recent years. 36 One been estimated to be in the range of $100 to 200 million per year. claim to and common scam was to import CFCs legally with allowances the reclaim to re-export the chemicals to a developing country in order be would CFCs The allowance, while in fact the CFCs remained in the U.S. (which sand with repackaged and sold locally, and the original containers, filled approximates the weight of CFC-filled containers), would then be re-exported as CFCs. Fly-by-night operations for CFC smuggling using scams such as this 37 Because Miami is have sprung up in a number of ports of entry to the U.S. used as a port for the legitimate export and transshipment of CFCs to devel 38 oping countries, such scams are difficult to detect. The U.S. has also been the recipient of contraband CFCs from Mexico and Canada in recent years. The CFCs entering the country from Mexico, an

CIAPP


265

Article S country that still has the right to produce the chemicals, have come 9 A mainly from the chemical firm Quimobasicos located in Monterrey.’ number of individuals have been caught smuggling varying quantitities of CFCs into the U.S. from Mexico. One-pound cans of CFCs, for example, are available for purchase in Mexico at $1.50 each, whereas the going price for 48 Many of the CFCs that have made these cans in the U.S. is up to $18 each. have been part of a complex smuggling from Canada U.S. the to their way of the chemicals, Canada has not stockpile large it a has Though network. the U.S. As a result, the price of on CFCs as high taxes same imposed the the U.S. price, giving incentive lower markedly than been has CFCs Canadian a thirty-pound canister of example, 1997, In operators. for market to black could fetch up to $800 size canister same the while Canada, in CFCs cost $130 illegal Canadian CFC involving smuggling rings of A number in the U.S. 1996 1997, with CFCs and in uncovered been have the U.S. imports into other Canada has products. and parts auto of shipments in being concealed U.S. from into the illegal CFCs transshipment for of also been used as a point 41 other countries. The European Union has also been the recipient of contraband CFCs in recent years. In implementing the phase-out of ozone depleting chemicals, the EU chose to issue permits for production, consumption, and imports of CFCs, but did not impose an excise tax on CFCs. Demand for CFCs has remained high in the EU countries partly because they have remained relatively inexpen sive, giving incentive to firms to delay switching to CFC-free technologies. However, the EU had agreed to an earlier phase-out date for CFCs, with production, imports, and consumption to cease as of 1 January 1995. Illegal imports of CFCs from Russia have stepped in to help ff1 the demand, in part because of its proximity to the EU and also because it has expanded its exports ’ Russian CFCs also cost only about 50 4 of the chemicals in recent years. percent of the price of CFCs produced in the EU before the latter phased them 43 out. After 1 January 1995, the EU only issued licenses for imports of 500 metric tonnes of virgin CFCs (allowed under the Montreal Protocol for essential use), but according to industry estimates as much as 12,000 metric tonnes have entered the EU from Russia alone in 1995. Other reports suggest that as much as 12,000 tonnes of CFCs have entered France illegally in the first eight months of 1995, and that 4,000 tonnes ofillicit CFCs have entered the United ’ As in the U.S., smugglers have taken 4 Kingdom in that same time period. advantage of a loophole in EU law allowing the import of recycled CFCs even after the phase-out was implemented. This loophole has enabled smugglers to import virgin CFCs as recycled chemicals, which they have done by either bribing border officials or by squirting oil into the canisters to give them a “recycled” look. Other countries, including Canada and Taiwan, have also been plagued with illegal imports of CFCs. Canadian officials have complained that thou-

264

international Environmrntal Affairs

sold at a discount compared to the legal CFC market, while at the same time providing a profit for smugglers. For example, the price of CFCs produced legally in Europe was around $70 per 15-kilogram cylinder, while in the U.S. the price was around $242.27 The price differential was undoubtedly greater between the U.S. and the source countries of the contraband CFCs. Moreover, although the tax was to be paid on all CFC sales, there was initially much confusion over whether the tax was to be paid on recycled CFCs, since imports 28 Some of recycled CFCs were not controlled under the Montreal Protocol. to evade the tax attempt smugglers disguised virgin CFCs as “recycled” in an 4 Protocol.2 and the rules of the Montreal The fact that the excise tax exceeded the value of the CFCs and that the rules were vague might not have been a problem if there was little demand for them, but this was not the case. The continued demand for CFCs in the U.S. came mainly from those businesses wishing to save money by recharging existing ° Small auto 3 refrigeration equipment rather than installing new CFC-free units. mobile repair shops, which used the CFCs to recharge automobile air condition ers, were perhaps the largest source ofthe continued demand, since refitting old automobile air conditioners with CFC-free technology cost anywhere from 31 Because there are such a large number of small $200 to $800 per automobile. auto-repair shops in the U.S., it has been difficult to trace where the illegal CFCs have been purchased and used. Although all new cars in the U.S. after 1996 were to be equipped with CFC-free air conditioners, it is difficult to say when all the 32 old CFC-based air conditioners will be eliminated or replaced. By 1994, the high excise tax, vague rules, and continued demand came together with continued production in certain countries to create a situation in which the U.S. was ripe for illegal imports of CFCs. Black market imports of these chemicals began to flow into the U.S., and by the mid-1990s they were the second most important illegal import into Miami, Florida, after 33 India, China, Russia, Eastern Europe, and Southeast Asia were the cocaine. 34 Estimates have ranged from ten to main sources of these contraband CFCs. twenty-two thousand tonnes of illegal CFCs per annum entering the U.S. in 35 The tax losses to the U.S. government from these imports have recent years. 36 One been estimated to be in the range of $100 to 200 million per year. claim to and common scam was to import CFCs legally with allowances the reclaim order to re-export the chemicals to a developing country in be would CFCs The allowance, while in fact the CFCs remained in the U.S. (which sand repackaged and sold locally, and the original containers, filled with approximates the weight of CFC-filled containers), would then he re-exported as CFCs. Fly-by-night operations for CFC smuggling using scams such as this have sprung up in a number of ports of entry to the U.S. Because Miami is used as a port for the legitimate export and transshipment of CFCs to devel 38 oping countries, such scams are difficult to detect. The U.S. has also been the recipient of contraband CFCs from Mexico and Canada in recent years. The CFCs entering the country from Mexico, an

CLAN’:


265

Article 5 country that still has the right to produce the chemicals, have come 39 A mainly from the chemical firm Quimobasicos located in Monterrey. number of individuals have been caught smuggling varying quantitities of CFCs into the U.S. from Mexico. One-pound cans of CFCs, for example, are available for purchase in Mexico at $ .50 each, whereas the going price for ° Many of the CFCs that have made 4 these cans in the U.S. is up to $18 each. have been part of a complex smuggling Canada U.S. from the their way to of the chemicals, Canada has not large stockpile has a it network. Though the U.S. As a result, the price of as on CFCs high taxes same imposed the the U.S. price, giving incentive lower than been markedly has Canadian CFCs example, a thirty-pound canister of for Tn 1997, operators. to black market could fetch up to $800 size canister same while the Canada, in CFCs cost $130 involving illegal Canadian CFC rings smuggling number of A in the U.S. and 1997, with CFCs 1996 uncovered have in been U.S. imports into the Canada has products. other parts and of auto in shipments being concealed the into U.S. from CFCs for illegal transshipment point of also been used as a ’ 4 other countries. The European Union has also been the recipient of contraband CFCs in recent years. In implementing the phase-out of ozone depleting chemicals, the EU chose to issue permits for production, consumption, and imports of CFCs, but did not impose an excise tax on CFCs. Demand for CFCs has remained high in the EU countries partly because they have remained relatively inexpen sive, giving incentive to firms to delay switching to CFC-free technologies. However, the EU had agreed to an earlier phase-out date for CFCs, with production, imports, and consumption to cease as of 1 January 1995. Illegal imports of CFCs from Russia have stepped in to help fill the demand, in part because of its proximity to the EU and also because it has expanded its exports 42 Russian CFCs also cost only about 50 of the chemicals in recent years. percent of the price of CFCs produced in the EU before the latter phased them 43 out. After 1 January 1995, the EU only issued licenses for imports of 500 metric tonnes ofvirgin CFCs (allowed under the Montreal Protocol for essential use), but according to industry estimates as much as 12,000 metric tonnes have entered the EU from Russia alone in T995. Other reports suggest that as much as 12,000 tonnes of CFCs have entered France illegally in the first eight months of 1995, and that 4,000 tonnes of illicit CFCs have entered the United 45 As in the U.S., smugglers have taken Kingdom in that same time period. advantage of a loophole in EU law allowing the import of recycled CFCs even after the phase-out was implemented. This loophole has enabled smugglers to import virgin CFCs as recycled chemicals, which they have done by either bribing border officials or by squirting oil into the canisters to give them a 46 “recycled” look. Other countries, including Canada and Taiwan, have also been plagued with illegal imports of CFCs. Canadian officials have complained that thou-

266


sands of tonnes of illegal CFCs have entered the country, coining mainly from 47 The illicit import of CFCs into Taiwan has come Russia and Eastern Europe. 48 mainly from China. The growth in imports of recycled CFCs from countries that lack the capacity to recycle them indicates that virgin CFCs are being routinely dis guised as “used” or “recycled” in order to bypass regulations.’ Russia, for example, exports a significant amount of “recycled” CFCs, despite the fact that it does not have adequate recycling facilities to account for the volume it exports.” Excessive imports into some countries far beyond their capacity to use them suggest that these countries are being used as points of transshipment for illegal CFCs into the U.S. and Europe. The Netherlands Antilles, for example, has been cited as importing between 1,500 and 2,000 metric tonnes of CFCs in 1994 and 1995, when its maximum consumption is about 99 ’ 5 tonnes per year.

Responses to Black Market CFCs The smuggling of CFCs into countries that are currently phasing them out has 52 become a billion dollar global business, and it appears to be on the increase. The key source countries, Russia, India, and China, have done very little to halt the export of illicit CFCs.” The emergence of this illegal trade has prompted responses from industry, recipient country governments, the Ozone Secretariat, and environmental NGOs. Large CFC-producing chemical firms based in industrialized countries, such as DuPont, ICI, AlfAtochem, and Allied Signal, have been particularly 4 These firms have been phasing upset by the growing illegal trade in CFCs.’ out their production to meet the 1 January 1996 deadline as set out in the Montreal Protocol, and have been developing CFC alternatives. Not only are the chemical industry’s sales of CFC alternatives hurt by this trade, but also hurt are the sale of CFCs that chemical firms are legally allowed to produce for export and for “essential use” at home.” A number of chemical firms have complained about the problem to the U.S. and EU governments, pointing out suspicious shipments that they felt required further investigation.56 The Alli ance for Responsible Atmospheric Policy (formerly the Alliance for Responsi ble CFC Policy) that lobbied in the 1970s and 1980s against CFC regulation in the U.S., began in the 1990s to lobby the U.S. government to crack down 7 The main concern of industry has been that illicit on illegal CFC imports.’ CFCs hurt legitimate CFC sales and delay the switch to CFC alternatives. In response to the growing black market and industry lobbying, the gov ernments of countries that have been recipients of smuggled CFCs have stepped up efforts to halt the illegal trade. The U.S. has taken the most extensive measures to catch and convict CFC smugglers. This is no doubt because the loss of tax revenue provides a large incentive for the government

CLAPP:


267

to address the problem. in October 1994, an interagency task force to deal with the issue was set up in the U.S. This task three includes the U.S. Environmental Protection Agency (EPA), Customs, and the Internal Revenue Service, along with the cooperation of the departments of Commerce and Justice.” This task force, code-named “Operation Cool Breeze,” confiscated 500 tonnes of illegal CFCs and recovered $40 million in taxes in its first year ’ By the end of 1995, over a dozen cases had been tried and 5 of operation. ° 6 eleven convictions were made. has also tightened its regulations in order to control government The U.S. “recycled” CFC imports and the import of CFCs labeled falsely the problem of to developing countries but which were be re-exported that were supposed to include the requirement after May measures These U.S. in fact retained in the the EPA and obtain prior petition CFCs recycled of importers 1995 that all sought by the EPA for is being process similar A ’ 6 approval for shipments. between the cooperation Further 62 re-exported. are to be imports of CFCs that 1996 to crack early in announced was Department EPA and the U.S. Customs up a set also has government U.S. 63 problem. The down on the smuggling U.S. the Since operations.’ tips smuggling on telephone hot line that accepts smuggling the its regulations, tightened and launched Operation Cool Breeze 65 problem seems to have diminished somewhat from its peak in 19941995 trade, CFC illegal counter the to While the U.S. moved relatively quickly there was initially much less action in Europe to do the same, probably because no tax was being evaded that would serve as an incentive for governments to move on the issue. Following pressure from the U.S. and from industry in Europe, in 1995 the EU established a working group made up of both industry representatives and government enforcement authorities. This work ing group, however, is reported to have had much less success than the U.S. operation in catching CFC smugglers.66 But like the U.S., the EU has tight ened its restrictions on imports of used CFCs, even though these are permitted 7 As of 1 January 1995, the EU also began to under the Montreal Protocol.’ 68 require a license for imports of CFCs for re-export. Environmental NGOs in industrialized countries have also been concerned about the illicit CFC trade. But while industry and governments have been keen to crack down on smugglers, Ozone Action, a U.S.-based environmental group, has been suspicious of their motives. In its own report on the illegal CFC trade, the group has accused U.S. industry and the U.S. government of being concerned about the problem not because of the implications for the ozone layer, but because they want to ensure their own sales of CFCs and ’ The Ozone Action report 6 substitutes, and because they want to collect taxes. Cool Breeze were not Operation by pointed out that the CFCs confiscated handed over to the but were manner, ally friendly destroyed in an environment or auctioned off equipment older its U.S. Defense Department for recharging Action has recom Ozone them.° consume to chemical firms allowed to CFCs. In trade in and use, production, on all mended an immediate full ban


268

addition, it has called for Montreal Protocol Multilateral Fund project money to be withheld from countries that do not submit annual consumption, production, and trade data to the ozone secretariat. These measures, the group argues, are the only way to halt the illegal and legal CFC trade, and ultimately the only way to protect the ozone layer. The meeting of the parties to the Montreal Protocol has recognized the growing problem of illegal CFC transfers. At the Sixth Meeting of the Parties held in Nairobi in 1994, both the U.S. and the EU countries called for international regulation and registration of CFC-recycling facilities to ensure that the CFCs they export are legitimately recycled.72 The issue was discussed again at the Seventh Meeting of the Parties held in Vienna in November 1995. The parties adopted Decision VII/33, calling on the secretariat to conduct a study of the illegal CFC trade to be discussed at the 1996 Meeting of the 73 The secretariat sent out requests for information on the illegal CFC Parties. trade to all parties and selected NGOs in February of 1996, and its report included input from governments as well as the Alliance for Responsible Atmospheric Policy. Not all parties responded to the secretariat’s request, but of those that did a number reported that they lacked information or were not aware of the illegal CFC trade taking place in their country. Others, such as Australia and the EU, did not provide figures, but did express concern over the issue and outlined the measures taken thus far to stop the illicit trade. The Alliance for Respon sible Atmospheric Policy gave specific recommendations to the secretariat, which were outlined in the report, such as the establishment of an international petition system similar to that currently adopted by the United States, and a requirement that all imports and exports be reported to the secretariat. It also suggested using the Multilateral Fund to help developing countries increase border patrols, enforce their laws, and track imports and exports, as well as to fund the purchase of pressure gauges for use at major entry ports and to expand CFC-recycling operations in countries without a recycling infrastruc ture. It further recommended that developed countries should be requested to institute border controls, impose stricter penalties for those convicted of illicit CFC trade, and report regularly to the secretariat on their activities to halt the 75 trade. At the Eighth Meeting of the Parties held in November 1996 in San Jose, Costa Rica, the parties adopted Decision VIII/20 on fllegal Imports and Exports on Controlled Substances. This decision requests non-Article 5 coun tries to report to the Ninth Meeting of the Parties with respect to actions taken to establish a system for validating and approving imports, before they are imported, of all used, reclaimed, or recycled ozone depleting substances. It also stated that importers of such substances should be able to sufficiently demonstrate to approving authorities that they genuinely had been previously used. It remains to be seen whether this step will be enough to halt the trade. 76 The issue will again he discussed at the Ninth Meeting of the Parties in 1997. -

CLAPP:

The illegal CFC Trade

269

Conclusion The emergence of the illegal CFC trade in recent years has clearly been a thorn in the side of the ozone protection regime. While the Montreal Protocol was heralded as a model environmental agreement because strong commitments were made, in practice the measures to keep these commitments have been extremely difficult to implement and enforce. Thus far the problem has been dealt with at the level of the importing state, and the measures taken have focused on enforcing national laws against such imports. This approach may have caught some smugglers, but it is not clear if it will be enough. As ICI’s head of external affairs Mike Harris puts it, “as long as people are making the 77 Meanwhile, new evi stuff, it will be traded across international borders.” dence has shown that the hole in the ozone layer has continued to grow, giving 78 new impetus to end illegal CFC transfers. The problem of illicit trade in environmentally harmful substances experi enced in the ozone protection regime is not unique. There have been problems with the illicit transfer of hazardous wastes and endangered species in recent years as well. Two trends that have emerged in recent decades seem to be at odds with one another, and have contributed to the problem of illicit trade in environmental “bads.” On the one hand, there has been a rapid globalization of trade, facilitated by the reduction of trade barriers. On the other hand, a growing number of international environmental treaties have incorporated ° These increased opportunities for 8 trade restrictions and bans into their rules. increased restrictions on selected types of trade, alongside trade, international ally harmful illicit trade. It seems environment for spaces appear to have created trade, will be reduced in globalized of that highly unlikely that the first trend, CFC trade problem. illegal the reduce it will that the near future to the extent potentially growing this with for dealing Thus it appears that the mechanisms or with specific agree individually, states with problem of illicit trade will lie For these prohi activities. certain prohibit ments among states, to selectively environ , international environment the bitions to be effective in protecting those assisting on emphasis greater place need to mental agreements will likely rules and harmonizing on and rules, states that lack capacity to enforce such easier. eliminating loopholes so as to make enforcement In the case of the ozone protection regime, such steps may help to root out the problem of the illegal CFC trade. Since a large part of the problem is linked to the differences in the phase-out dates between Article 5 and non-Article 5 countries, a solution that aims to harmonize the phase-out dates might be effective. This would entail speeding up phase-outs for CFCs in Article 5 countries, and gradually reducing their grace period for phase-outs of other controlled substances as well. Along with such measures, loopholes such as exemptions for recycled CFCs would also need to be closed. Such an approach would require extraordinary cooperation on the part of both Article 5 and

270


non-Article 5 countries. The Article 5 countries would be giving up a key concession, the ten-year delay for the phase-out of CFCs and other ozone depleting substances, which they won in the initial negotiation of the Montreal Protocol. The only likely scenario under which they might be willing to entertain such a compromise would be if the non-Article 5 countries were to substantially increase their contributions to the Multilateral Fund to enable Article 5 countries to switch over to non-ozone depleting technologies. While the non-Article 5 countries have been reluctant to take such measures, this may be the most effective way to deal with the illicit CFC problem.

Notes 1. See, for example, Peter Haas, “Banning Chlorofluorocarbons: Epistemic Commu nity Efforts to Protect Stratospheric Ozone,” International Organization 46, no. 1 (1992); Richard Benedick, Ozone Diplomacy (Cambridge, Mass.: Harvard Uni versity Press, 1991); David Leonard Downie, “Road Map or False Trail? Evaluating the ‘Precedence’ of the Ozone Regime as a Model and Strategy for Global Climate Change,” International Environmental Affairs 7, no. 4 (Fall 1995): 321-45. 2. Edward Parson and Owen Greene, “The Complex Chemistry of the International Ozone Agreements,” Environment 7, no, 2 (1995): 37. 3. Vincent Kiernan, “CFCs Chase Coke as Miami’s Latest Vice,” New Scientist 147, no. 1997 (30 September 1995): 8. 4. UNEP, Lesuesfor Consideration by the Open-Ended Working Group of the Parties to the Montreal Protocol, UNEP/OzL.Pro.WG.1/13/2, Thirteenth Meeting, Ge neva, 26—29 August 1996 (31 May 1996), p. 15. The U.S. government seized only 1 million pounds (or approximately 450—500 tonnes) of illicit CFCs in that same period (personal communication with Tom Land, USEPA Stratospheric Protection Division, Washington, D.C., 6 January 1997). 5. See Duncan Brack, International Trade and the Montreal Protocol (London: Earthscan, 1996), pp. 109—110; UNEP, Issues for Consideration, p. 14; Terry Pedwell, “Import of Ozone Depleting CFCs Probed,” Chronicle Herald (Canada), 9 December 1994, p. A14. 6. Jim Vallette, “Deadly Complacency, U.S. CFC Production, the Black Market, and Ozone Depletion,” Ozone Action Report (September 1995): 26. 7. “Holed Up: CFC Smuggling in Rich Countries and Fast-growing Production in the Developing World,” The Economist 337 (9 December 1995): 63. 8. For an analysis of the negotiations, see Richard Benedick, Ozone Diplomacy, Karen Litfin, Ozone Discourses: Science and Politics in Global Environmental Cooperation (New York: Columbia University Press, 1994); Ian Rowlands, The Politics of Global Atmospheric Change (Manchester, U.K.: Manchester University Press, 1995). 9. See the Montreal Protocol on Substances that Deplete the Ozone Layer (Geneva: UNEP, 1987). 10. Edward Parson, “Protecting the Ozone Layer,” in Institutions for the Earth, ed. Peter Haas, Robert Keohane, and Marc Levy (Cambridge, Mass.: MIT Press, 1993), pp. 44—45. 11. Katya Jestin, “International Efforts to Abate the Depletion of the Ozone Layer,” Georgetown International Environmental Law Review 7, no. 3 (1995): 834. 12. Jim Vallette, “Deadly Complacency,” p. 10. 13. Katya Jestin, “International Efforts,” p. 831.

cii’v The Illegal CPC Trade

271

14. Duncan Brack, International Trade, p. 17. 15. Ozone Secretariat, “The Task of Protecting the Ozone Layer is Far From Over,” UNEP News Release 1996/49, 16 September 1996. 16. Michael Roberts, “Montreal Protocol Speeds Phaseout of HCFCs and Methyl Bromide,” (hemical Week 157, no. 23 (13 December 1995): 20. 17. Ibid. 18. Sean Milmo, “Russian Agreement on CFCs Seen Shaky,” Chemical Marketing Reporter 248, no. 26 (25 December 1995): 9; “The Vienna Meeting,” Environ mental Policy and Law 26, no. 2/3 (1996): 68. 19. The Economist, “Holed Up,” p. 63. 20. The Ozone Secretariat internet homepage, “Non Article 5 Countries Data on Production of Ozone Depleting Substances,” .zhttp://www.uncp.ch/ozone/ sumna5p.htm>; Pamela Zurer, “Delayed CFC Phaseout in Developing Countries Raises Growing Concern,” Chemical and Engineering News 73 (8 May 1995): 25—26. 21. The Ozone Secretariat internet homepage. 22. Duncan Brack, International Trade, p. 17. 23. Ronald Begley, Allison Lucas, and Michael Roberts, “Producers Set for CFC Phaseout,” Chemical Week 155, no. 19 (16 November 1994): 40. 24. Duncan Brack, International Trade, pp. 17 and 42. 25. Edward Parson and Owen Greene, “Complex Chemistry,” p. 36. 26. All monetary amounts are in U.S. dollars. Kristine Chin, “Customs, EPA Crack down on CFC Crooks,” Chemical Engineering 103, no. 4 (April 1996): 43. 27. Vincent Kiernan, “CFCs Chase Coke,” p. 8. 28. Thomas Mahoney, “Imported CFC-12 Bypasses Tax, Sells for Less, Say Produc ers,” Air Conditioning, Heating, and Refrigeration News 192, no. 3 (16 May 1994): 1—2. 29. “Illegal Imports of CFCs Increase as Production Ban Nears, U.S. Officials Say,” International Environment Reporter 17, no. 22 (2 November 1994): 884. 30. Sharon Begley, “Holes in the Ozone Treaty,” Newsweek 126, no. 13 (25 Septem ber 1995): 70; Duncan Brack, International Trade, p. 105. 31. Duncan Brack, International Trade, p. 105. 32. Ronald Begley et a!., “Producers Set,” p. 40. 33. “EPA, Customs Service Cracking Down on Smuggling of CFCs, Hazardous Waste,” International EnvironmentReporter 19, no, 6 (20 March 1996): 221—22. 34. Kristine Chin, “Customs,” p. 43. 35. Matthew Wald, “Group Sees Ozone Danger in Illicit Chemical Trade,” New York Times, 17 September 1995, p. 30. 36. International Environment Reporter, “Illegal Imports of CFCs Increase.” 37. Ibid., p. 884. 38. Duncan Brack, International Trade, p. 108. 39. Ozone Action, “Allied Signal, Quimobasicos and the Frio Banditos: A Case Study of the Black Market in CFCs,” . 40. US EPA HQ Press Release, “PA Two Texas Men Indicted on CFC Smuggling Charges,” 20 December 1996; US EPA HQ Press Release, “Texas Man Sentenced for Smuggling CFCs,” 3 January 1997. 41. Canadian Broadcast Corporation, “Contraband Cool,” The National, aired 16 September 1997. 42. Ian Young and Michael Roberts, “Rise in Illegal CFCs Dogs HFC Producers,” Chemical Week 157, no. 20 (22 November 1995): 18. 43. Sean Milmo, “EU Shifts Position on Imports of CFCs,” Chemical Marketing Reporter, 18 April 1994, p. 13.

273


ct.i’i’: The Illegal CFC Trade

44. Sean Milmo, “Illicit Russian CFCs Plague Europe,” Chemical Marketing Reporter, 25 September 1995, p. 9. 45. Ian Young and Michael Roberts, “Rise in Illegal CFCs,” p. 18. 46. The Economist, “Holed Up,” p. 63. 47. Terry Pedwell, “Import of Ozone Depleting CFCs Probed,” p. A14. 48. Duncan Brack, International Trade, p. 113. 49. Edward Parson and Owen Greene, “Complex Chemistry,” p. 38. 50. Duncan Brack, International Trade, p. 111. 51. Jim Vallette, “Deadly Complacency,” pp. 16—17. 52. UNEP, Report of the Thirteenth Meeting of the Open-ended Working Group of the Parties to the Montreal Protocol, UNEP/OzL.Pro/WG.1/13/6, 26—29 August 1996, para. 169. 53. Duncan Brack, International Trade, p. 112. 54. W. Wayt Gibbs, “The Treaty that Worked, Almost,” Scientflc American 273, no. 3 (September 1995): 18. 55. Jim Vallette, “Deadly Complacency,” p. 5. 56. See W. Wayt Gibbs, “The Treaty that Worked,” p. 18; Michael Roberts, “Ei.irope’s CFC Ban Not Fully Enforced,” Chemical Week 156, no. 3 (25 January 1995): 20; “More Shipments of CFCs Said Entering Global Market as Phaseout Deadline Nears,” International Environment Reporter 17, no. 12 (15 June 1994): 542. 57. Michael Roberts, “Europe’s CFC Ban,” p. 12. 58. Duncan Brack, International Trade, p. 106. Jim Vallette claims that the CIA and Interpol are also involved in this operation (“Deadly Complacency,” p. 4). 59. Kristine Chin, “Customs,” p. 43; Jim Vallette, “Deadly Complacency,” p. 4. 60. Kristine Chin, “Customs,” p. 43; Duncan Brack, International Trade, p. 107. 61. Duncan Brack, International Trade, pp. 108—109. 62. “Curb on illegal Imports of CFCs Sought by EPA in Proposal for Petition Process,” International Environment Reporter 18, no. 10 (17 May 1995): 377—78. 63. International Environment Reporter, “EPA, Customs Service Cracking Down,” pp. 221—22. 64. W. Wayt Gibbs, “The Treaty that Worked,” p. 20. 65. Kristine Chin, “Customs,” p. 43. 66. Duncan Brack, International Trade, p. 112. 67. Edward Parson and Owen Greene, “Complex Chemistry,” p. 38. 68. Michael Roberts, “Europe’s CFC Ban,” p. 20. 69. Jim Vallette, “Deadly Complacency.” 70. W. Wayt Gibbs, “The Treaty that Worked,” p. 30. 71. Jim Vallette, “Deadly Complacency,” p. 7. 72. Edward Parson and Owen Greene, “Complex Chemistry,” p. 38. 73. “The Vienna Meeting,” Environmental Policy and Law 26, no. 2/3 (1996): 68. 74. UNEP, Issuesfor Consideration, pp. 14—18. 75. Ibid., pp. 16—17. 76. UNEP, Report ofthe Eighth Meeting ofParties to the Montreal Protocol on Substances that Deplete the Ozone Layer, UNEP/OzL.Pro. 8/12, 19 December 1996, pp. 28—28. 77. Sean Milmo, “Russian Agreement on CFCs,” p. 18. 78. John Stackhouse, “Meeting Addresses Ozone Damage,” Toronto Globe and Mail, 23 November 1996. 79. See, for example, Jennifer Clapp, “Africa, NGOs and the International Toxic Waste Trade,” Journal ofEnvironment and Development 3, no. 2 (1994); Tom Princen, “The Ivory Trade Ban: NGOs and International Conservation,” in Environmental

NGOs in World Politics, ed. Tom Princen and Mattias Finger (London: Routledge, 1994). 80. See, for example, Tom Princen, “The Zero Option and Ecological Rationality in International Environmental Politics,” International Environmental Affairs 8, no. 2 (Spring 1996): 147—76.

272

ACKNOWLEDGMENTS. The Social Science and Humanities Research Council of Canada, for financial support. Nancy Palardy, for research assistance.