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.
Pages 259-273.
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
International Environmental Affairs
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
International Environmental 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.
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
The Illegal CFC Trade
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’:
The Illegal CFC Trade
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
International Environmental Affairs
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:
The Illegal CFC Trade
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
International Environmental Affairs
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
International Environmental Affairs
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,” <http://www.ozone.org/frio.html>.
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
International Environmental Affairs
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.