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TheillegalCFCtrade:Anunexpectedwrinkleintheozoneprotectionregime

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A R T I C L E S

The Illegal CFC Trade

An Unexpected Wrinkle in the OzoneProtection 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

other treaties.1 Negotiation of the protocol was relatively swift, and though

there was a wide diversity of interests before the agreement was signed, at thetime 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,

Florida.3Because of the nature ofillegal activities, however, it is difficult to statewith 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 (LkPP: The Illegal CFC Trade 261

illicit imports into Europe have been in the range ofsix to ten thousand tonnesin 1994, with lesser amounts reported to be illegally imported into Taiwan,Canada, and Australia.’ This is in comparison to legal global production ofCFCs of 425,383 tonnes in 1994 and 334,683 tonnes in 1995.6 If theseestimates are accurate, the illicit trade in CFCs is in the range of at least 6 to 10percent of global production in 1995. Industry has estimated that about 20percent of CFCs in current global use were bought on the black market.7Theozone protection regime has been poorly equipped to deal with this new andunexpected problem. Though initial analyses of the ozone protection regimetended to focus on the negotiation and structure of rules, attention must nowturn to analyzing implementation, compliance, and effectiveness.

Economic incentives have been key in explaining why the illegal CFC tradehas occurred. But why did these incentives emerge? On the supply side, thestructure of the Montreal Protocol, because it set out different phase-out datesfor different sets of countries, has led to a situation where CFC production isbeing phased out in some countries but not in others. This situation ofcontinued CFC production has been exacerbated because some countries havenot 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 hascreated incentives for the import of cheap CFCs as a way to delay theinstallation of expensive equipment that uses CFC alternatives. These supplyand demand factors have created conditions under which price differentialshave emerged between rich and poor countries. This, combined with theincreased globalization of trade, and the exemption of recycled CFCs from therules of the Montreal Protocol, has made the illegal trade in CFCs an attractiveand feasible business for smugglers.

In this article, I argue that although the ozone protection regime has beenhighly successful in reaching agreement on tough measures to control theproduction, use, and trade in CFCs and other ozone depleting substances, inpractice the economic incentives that foster the illegal CFC trade have made it

extremely difficult to ensure that these control measures are actually implemented. In the first section, I discuss ways in which the structure ofrules underthe Montreal Protocol has contributed to the problem. In particular, thedifferentiated CFC phase-out dates have meant that despite CFC phase-outsin some countries, these chemicals have been readily available from othercountries. In the second section, I explore the reasons behind the continueddemand for CFCs, particularly inexpensive illegally imported CFCs, in thosecountries that have been required to phase them out. In the next section, Iexamine how states and other key international actors have attempted to copewith the problem thus far. Finally, in concluding, I argue that as the globaltrade system becomes ever more liberal, and as environmental treaties increasingly place controls or restrictions on certain practices that are deemed harmfulto the environment, illicit trade in environmentally harmful substances is aproblem that will likely continue.

Continued CFC Production under the Montreal Protocol

The differentiated sets of rules established by the Montreal Protocol, whichcame into force in 1989, reflect the different interests of the various sets ofactors involved in its negotiation.8The Montreal Protocol’s restrictions onCFCs included the imposition of limits on the production and use of thesechemicals and other ozone depleting substances. The production and consumption of CFCs were to he frozen immediately at their 1986 levels andthen cut to 50 percent of 1986 levels by 1999. As outlined in Article 5 of theProtocol, however, a ten-year grace period for these phase-outs was grantedto those countries that produced less than 0.3 kilograms of CFCs per capita in1986, primarily developing countries.9 In the meantime, Article 5 countrieswere not to produce more than 0.3 kilograms of CFCs per capita per year. Inaddition to production and consumption provisions, the Protocol also included trade provisions. These provisions required parties to refrain fromimporting controlled substances from any non-party starting in 1990, and torefrain from exporting controlled substances to non-parties starting in 1993.Parties also agreed to cease exports to any non-party of controlled substancesor the technology used to produce controlled substances, and to ban, startingin 1992, the import from non-parties of products containing controlled substances. Parties were asked to study the feasibility of trade restrictions on goodsproduced with CFCs. These trade restrictions against non-parties were not tobe applied to those non-parties that were in compliance with the provisions ofthe treaty.’°

Soon after these rules were negotiated, new scientific evidence providing apositive link between CFCs and ozone loss prompted parties to tighten thecontrol provisions of the Protocol. Amendments were made at the 1990Meeting of the Parties in London and at the 1992 Meeting of the Parties inCopenhagen. The result of these amendments was that the phase-out date forCFC production for non-Article 5 countries was moved to 1 January 1996,and the import of products containing CFCs from non-parties was bannedbeginning in 1992. A Multilateral Fund was also established to assist developing countries in meeting the control provisions of the Protocol, though theykept their ten-year grace period for meeting those provisions that were agreedto in 1992. In effect, this meant that they had until the year 2010 to phase outCFC production and consumption.” In addition, it was agreed at the 1992Meeting of the Parties that countries would be allowed to produce up to 15percent oftheir 1986 levels of CFCs and other controlled substances for exportafter their phase-out date.’2 It was also decided that countries could apply toproduce or import CFCs for “essential use” after their phase-out date.’3Moreover, parties agreed that recycled or used CFCs would not be includedin the calculation of parties’ consumption.’4By mid-1996, 157 countries hadbecome parties to the Montreal Protocol, though fewer than this number had

262 International Environmental Affairs CIAPP: The illegal CFC Trade 263

ratified the 1990 London Amendments and the 1992 Copenhagen Amend

ments.1The Copenhagen Amendments came into force in 1994.

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 andconsume CFCs for at least fourteen years beyond the 1 January 1996 phase-

out date for the non-Article 5 countries. Because not all developing countrieshave signed the London and Copenhagen amendments, some countries haveeven longer time frames in which to phase out their production.

Adding to the problem of delays for phase-outs between developed anddeveloping countries, Russia and other Eastern European countries that wereoriginally scheduled for the 1996 phase-out have announced that they areunable to meet this deadline.’6At the 1995 Meeting of the Parties, the EasternEuropean countries and Russia requested a five- to ten-year extension forphasing out their production and consumption of CFCs.’7A deal was struckwhereby Russia agreed to phase out CFC production by the year 2000 and toconfine its exports of CFCs to Eastern European countries in the meantime.’8Because of these delays, a significant group of countries, mainly developingcountries and Eastern European countries, are still able to legally produce andconsume CFCs at a time when others, primarily the OECD countries, cannot.

A number of the countries that have been granted a grace period for thephase-out of CFCs seem to be taking advantage of the opportunity to produceand export CFCs. In the past decade, just as most of the industrializedcountries curbed their production and consumption of CFCs, production anduse of these chemicals has increased markedly in the developing world. Between 1986 and 1993, production of CFCs rose by 87 percent in less-industrialized countries, and exports from these countries have expanded by a factorof seventeen in that same period.’9 This is despite the fact that only eightdeveloping countries have the capacity to produce CFCs, and that someforty-seven developing countries have pledged to phase out CFCs before theirphase-out dates.2°Much of the expansion in CFC production in the developing world has been concentrated in China and India, both of which are nowmajor producers and exporters of CFCs. Production in these countries rose byeight and five times respectively between 1986 and 1994.21 It is not clear ifRussia and other Eastern European countries’ production is rising or falling,because data are hard to come by, but they are certainly continuing productionfor the time being.

A second problem with the structure of the Montreal Protocol rules thathas contributed to the illegal trade is the exemption of recycled and usedCFCs from calculations of parties’ consumption of those chemicals.22 Whilethis measure was taken as a way to encourage reuse and recycling, it hascreated an opportunity for smugglers to disguise CFCs. The continued pro-

duction of CFCs and the opportunities for fraud, combined with the readydemand for CFCs in a number of countries, has resulted in a significant blackmarket in CFCs.

Strong Demandfor Cheap CFCs

At the same time that production, use, and export of CFCs have been steadyor rising in those developing countries with the capacity to produce them andin Russia and Eastern Europe, demand for these chemicals in the industrializedcountries that were phasing them out has declined, but not disappearedaltogether. By 1994, industrialized countries had reduced CFC demand toabout one-quarter of its 1986 level, but many acknowledge that the remainingdemand in these countries will be both difficult and expensive to eliminate.23A key reason for the continuation of this demand has been a desire to avoidthe high cost of replacing existing equipment designed for CFCs with newequipment that is designed for the more expensive CFC alternatives. While thedecrease in CFC supply in theory would raise its price to a level that wouldeventually create demand for CFC alternatives and the new technology theyrequire, the illegal trade has provided extremely low-cost CFCs, which are ineffect delaying the switch over to substitutes.

An important factor that has led to a continued demand for low-pricedCFCs has been the way in which key countries, the U.S. in particular, havechosen to implement the CFC phase-out at the domestic level. As mentionedabove, under the Montreal Protocol, while parties must adhere to the phase-out dates, they are each allowed to work out the specifics of doing so withintheir own borders. In the U.S., the policy for achieving the phase-out was tocontrol the physical amount of CFCs produced and imported into the countryvia a system of allowances, as well as to raise the price of CFCs via taxation. Asset out in the U.S. Clean Air Act, the allowance system gave chemical firms theright to produce and/or import a certain amount of CFCs. However, theseallowances applied only to virgin CFCs, such that reused or recycled CFCs didnot count against firms’ allowances. This was because imports and exports ofrecycled CFCs were not included in parties’ calculation of their consumptionunder the Montreal Protocol.24

The attempt to raise the price of CFCs via taxation was carried out throughthe imposition of a relatively steep excise tax on CFCs, the amount of whichincreased gradually as the phase-out date neared. The idea was to raise theprice of CFCs to roughly the same level as the price of alternatives by the timeCFC production and consumption was to cease.25 In the early 1990s, this taxwas set at U.S. $4.00 per pound, rising to $5.30 per pound in the mid-1990s.26While 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 ordomestically produced CFCs that could escape the excise tax could then be

264 International Environmental Affairs CIAPP The Illegal CFC Trade 265

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

of recycled CFCs were not controlled under the Montreal Protocol.28 Some

smugglers disguised virgin CFCs as “recycled” in an attempt to evade the tax

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

refrigeration equipment rather than installing new CFC-free units.3’Small auto

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

$200 to $800 per automobile.3’Because there are such a large number of small

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

old CFC-based air conditioners will be eliminated or replaced.3’

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

cocaine.33 India, China, Russia, Eastern Europe, and Southeast Asia were the

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

recent years.3’The tax losses to the U.S. government from these imports have

been estimated to be in the range of $100 to 200 million per year.36 One

common scam was to import CFCs legally with allowances and claim to

re-export the chemicals to a developing country in order to reclaim the

allowance, while in fact the CFCs remained in the U.S. The CFCs would be

repackaged and sold locally, and the original containers, filled with sand (which

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

have sprung up in a number of ports of entry to the U.S.37 Because Miami is

used as a port for the legitimate export and transshipment of CFCs to devel

oping countries, such scams are difficult to detect.38The 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

Article S country that still has the right to produce the chemicals, have comemainly from the chemical firm Quimobasicos located in Monterrey.’9 Anumber of individuals have been caught smuggling varying quantitities ofCFCs into the U.S. from Mexico. One-pound cans of CFCs, for example, areavailable for purchase in Mexico at $1.50 each, whereas the going price forthese cans in the U.S. is up to $18 each.48 Many of the CFCs that have madetheir way to the U.S. from Canada have been part of a complex smugglingnetwork. Though it has a large stockpile of the chemicals, Canada has notimposed the same high taxes on CFCs as the U.S. As a result, the price of

Canadian CFCs has been markedly lower than the U.S. price, giving incentiveto black market operators. In 1997, for example, a thirty-pound canister ofCFCs cost $130 in Canada, while the same size canister could fetch up to $800in the U.S. A number of smuggling rings involving illegal Canadian CFCimports into the U.S. have been uncovered in 1996 and 1997, with CFCsbeing concealed in shipments of auto parts and other products. Canada hasalso been used as a point of transshipment for illegal CFCs into the U.S. fromother countries.41

The European Union has also been the recipient of contraband CFCs in

recent years. In implementing the phase-out of ozone depleting chemicals, theEU 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 inexpensive, giving incentive to firms to delay switching to CFC-free technologies.However, the EU had agreed to an earlier phase-out date for CFCs, withproduction, 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 partbecause of its proximity to the EU and also because it has expanded its exportsof the chemicals in recent years.4’ Russian CFCs also cost only about 50

percent of the price of CFCs produced in the EU before the latter phased themout.43

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 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

Kingdom in that same time period.4’As in the U.S., smugglers have taken

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 eitherbribing 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 CLAN’: The Illegal CFC Trade 265

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

of recycled CFCs were not controlled under the Montreal Protocol.28 Some

smugglers disguised virgin CFCs as “recycled” in an attempt to evade the tax

and the rules of the Montreal Protocol.24

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

refrigeration equipment rather than installing new CFC-free units.3°Small auto

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

$200 to $800 per automobile.31Because there are such a large number ofsmall

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

old CFC-based air conditioners will be eliminated or replaced.32

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

cocaine.33 India, China, Russia, Eastern Europe, and Southeast Asia were the

main sources of these contraband CFCs.34 Estimates have ranged from ten to

twenty-two thousand tonnes of illegal CFCs per annum entering the U.S. in

recent years.35 The tax losses to the U.S. government from these imports have

been estimated to be in the range of $100 to 200 million per year.36 One

common scam was to import CFCs legally with allowances and claim to

re-export the chemicals to a developing country in order to reclaim the

allowance, while in fact the CFCs remained in the U.S. The CFCs would be

repackaged and sold locally, and the original containers, filled with sand (which

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

oping countries, such scams are difficult to detect.38

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

Article 5 country that still has the right to produce the chemicals, have comemainly from the chemical firm Quimobasicos located in Monterrey.39 Anumber of individuals have been caught smuggling varying quantitities ofCFCs into the U.S. from Mexico. One-pound cans of CFCs, for example, areavailable for purchase in Mexico at $ .50 each, whereas the going price forthese cans in the U.S. is up to $18 each.4°Many of the CFCs that have madetheir way to the U.S. from Canada have been part of a complex smugglingnetwork. Though it has a large stockpile of the chemicals, Canada has notimposed the same high taxes on CFCs as the U.S. As a result, the price ofCanadian CFCs has been markedly lower than the U.S. price, giving incentiveto black market operators. Tn 1997, for example, a thirty-pound canister ofCFCs cost $130 in Canada, while the same size canister could fetch up to $800in the U.S. A number of smuggling rings involving illegal Canadian CFCimports into the U.S. have been uncovered in 1996 and 1997, with CFCsbeing concealed in shipments of auto parts and other products. Canada hasalso been used as a point of transshipment for illegal CFCs into the U.S. from

other countries.4’The European Union has also been the recipient of contraband CFCs in

recent years. In implementing the phase-out of ozone depleting chemicals, theEU chose to issue permits for production, consumption, and imports of CFCs,

but did not impose an excise tax on CFCs. Demand for CFCs has remainedhigh in the EU countries partly because they have remained relatively inexpensive, giving incentive to firms to delay switching to CFC-free technologies.

However, the EU had agreed to an earlier phase-out date for CFCs, withproduction, 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 partbecause of its proximity to the EU and also because it has expanded its exports

of the chemicals in recent years.42 Russian CFCs also cost only about 50percent of the price of CFCs produced in the EU before the latter phased themout.43

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

Kingdom in that same time period.45 As in the U.S., smugglers have taken

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.46Other countries, including Canada and Taiwan, have also been plagued

with illegal imports of CFCs. Canadian officials have complained that thou-

266 International Environmental Affairs CLAPP: The Illegal CFC Trade 267

sands of tonnes of illegal CFCs have entered the country, coining mainly from

Russia and Eastern Europe.47The illicit import of CFCs into Taiwan has comemainly from China.48

The growth in imports of recycled CFCs from countries that lack thecapacity to recycle them indicates that virgin CFCs are being routinely disguised as “used” or “recycled” in order to bypass regulations.’ Russia, forexample, exports a significant amount of “recycled” CFCs, despite the fact thatit does not have adequate recycling facilities to account for the volume itexports.” Excessive imports into some countries far beyond their capacity touse them suggest that these countries are being used as points of transshipmentfor illegal CFCs into the U.S. and Europe. The Netherlands Antilles, forexample, has been cited as importing between 1,500 and 2,000 metric tonnesof CFCs in 1994 and 1995, when its maximum consumption is about 99tonnes per year.5’

Responses to Black Market CFCs

The smuggling of CFCs into countries that are currently phasing them out hasbecome a billion dollar global business, and it appears to be on the increase.52The key source countries, Russia, India, and China, have done very little tohalt the export of illicit CFCs.” The emergence of this illegal trade hasprompted responses from industry, recipient country governments, the OzoneSecretariat, and environmental NGOs.

Large CFC-producing chemical firms based in industrialized countries,such as DuPont, ICI, AlfAtochem, and Allied Signal, have been particularlyupset by the growing illegal trade in CFCs.’4 These firms have been phasingout their production to meet the 1 January 1996 deadline as set out in theMontreal Protocol, and have been developing CFC alternatives. Not only arethe chemical industry’s sales of CFC alternatives hurt by this trade, but alsohurt are the sale of CFCs that chemical firms are legally allowed to produce forexport and for “essential use” at home.” A number of chemical firms havecomplained about the problem to the U.S. and EU governments, pointing outsuspicious shipments that they felt required further investigation.56 The Alliance for Responsible Atmospheric Policy (formerly the Alliance for Responsible CFC Policy) that lobbied in the 1970s and 1980s against CFC regulationin the U.S., began in the 1990s to lobby the U.S. government to crack downon illegal CFC imports.’7The main concern of industry has been that illicitCFCs hurt legitimate CFC sales and delay the switch to CFC alternatives.

In response to the growing black market and industry lobbying, the governments of countries that have been recipients of smuggled CFCs havestepped up efforts to halt the illegal trade. The U.S. has taken the mostextensive measures to catch and convict CFC smugglers. This is no doubtbecause the loss of tax revenue provides a large incentive for the government

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

of operation.5’By the end of 1995, over a dozen cases had been tried and

eleven convictions were made.6°The U.S. government has also tightened its regulations in order to control

the problem of falsely labeled “recycled” CFC imports and the import of CFCs

that were supposed to be re-exported to developing countries but which were

in fact retained in the U.S. These measures include the requirement after May

1995 that all importers of recycled CFCs petition the EPA and obtain prior

approval for shipments.6’A similar process is being sought by the EPA for

imports of CFCs that are to be re-exported.62Further cooperation between the

EPA and the U.S. Customs Department was announced in early 1996 to crack

down on the smuggling problem.63 The U.S. government has also set up a

telephone hot line that accepts tips on smuggling operations.’ Since the U.S.

launched Operation Cool Breeze and tightened its regulations, the smuggling

problem seems to have diminished somewhat from its peak in 19941995 65

While the U.S. moved relatively quickly to counter the illegal CFC trade,

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

under the Montreal Protocol.’7As of 1 January 1995, the EU also began to

require a license for imports of CFCs for re-export.68Environmental 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

substitutes, and because they want to collect taxes.6’The Ozone Action report

pointed out that the CFCs confiscated by Operation Cool Breeze were not

destroyed in an environmentally friendly manner, but were handed over to the

U.S. Defense Department for recharging its older equipment or auctioned off

to chemical firms allowed to consume them.° Ozone Action has recom

mended an immediate full ban on all production, use, and trade in CFCs. In

268 International Environmental Affairs

addition, it has called for Montreal Protocol Multilateral Fund project moneyto be withheld from countries that do not submit annual consumption,production, and trade data to the ozone secretariat. These measures, the groupargues, are the only way to halt the illegal and legal CFC trade, and ultimatelythe only way to protect the ozone layer.

The meeting of the parties to the Montreal Protocol has recognized thegrowing problem of illegal CFC transfers. At the Sixth Meeting of the Partiesheld in Nairobi in 1994, both the U.S. and the EU countries called forinternational regulation and registration of CFC-recycling facilities to ensurethat the CFCs they export are legitimately recycled.72 The issue was discussedagain 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 astudy of the illegal CFC trade to be discussed at the 1996 Meeting of theParties.73 The secretariat sent out requests for information on the illegal CFCtrade to all parties and selected NGOs in February of 1996, and its reportincluded input from governments as well as the Alliance for ResponsibleAtmospheric Policy.

Not all parties responded to the secretariat’s request, but of those that dida number reported that they lacked information or were not aware of the illegalCFC 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 outlinedthe measures taken thus far to stop the illicit trade. The Alliance for Responsible Atmospheric Policy gave specific recommendations to the secretariat,which were outlined in the report, such as the establishment ofan internationalpetition system similar to that currently adopted by the United States, and arequirement that all imports and exports be reported to the secretariat. It alsosuggested using the Multilateral Fund to help developing countries increaseborder patrols, enforce their laws, and track imports and exports, as well as tofund the purchase of pressure gauges for use at major entry ports and toexpand CFC-recycling operations in countries without a recycling infrastructure. It further recommended that developed countries should be requested toinstitute border controls, impose stricter penalties for those convicted of illicitCFC trade, and report regularly to the secretariat on their activities to halt thetrade.75 -

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 andExports on Controlled Substances. This decision requests non-Article 5 countries to report to the Ninth Meeting of the Parties with respect to actions takento establish a system for validating and approving imports, before they areimported, of all used, reclaimed, or recycled ozone depleting substances. Italso stated that importers of such substances should be able to sufficientlydemonstrate to approving authorities that they genuinely had been previouslyused. It remains to be seen whether this step will be enough to halt the trade.76The 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 washeralded 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 mayhave caught some smugglers, but it is not clear if it will be enough. As ICI’shead of external affairs Mike Harris puts it, “as long as people are making the

stuff, it will be traded across international borders.”77 Meanwhile, new evidence has shown that the hole in the ozone layer has continued to grow, giving

new impetus to end illegal CFC transfers.78The 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

trade restrictions and bans into their rules.8°These increased opportunities for

international trade, alongside increased restrictions on selected types of trade,

appear to have created spaces for environmentally harmful illicit trade. It seems

highly unlikely that the first trend, that of globalized trade, will be reduced in

the near future to the extent that it will reduce the illegal CFC trade problem.

Thus it appears that the mechanisms for dealing with this potentially growing

problem of illicit trade will lie with states individually, or with specific agree

ments among states, to selectively prohibit certain activities. For these prohi

bitions to be effective in protecting the environment, international environ

mental agreements will likely need to place greater emphasis on assisting those

states that lack capacity to enforce such rules, and on harmonizing rules and

eliminating loopholes so as to make enforcement easier.

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 cii’v The Illegal CPC Trade 271

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 Community Efforts to Protect Stratospheric Ozone,” International Organization 46, no.1 (1992); Richard Benedick, Ozone Diplomacy (Cambridge, Mass.: Harvard University Press, 1991); David Leonard Downie, “Road Map or False Trail? Evaluatingthe ‘Precedence’ of the Ozone Regime as a Model and Strategy for Global ClimateChange,” International Environmental Affairs 7, no. 4 (Fall 1995): 321-45.

2. Edward Parson and Owen Greene, “The Complex Chemistry of the InternationalOzone 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 tothe Montreal Protocol, UNEP/OzL.Pro.WG.1/13/2, Thirteenth Meeting, Geneva, 26—29 August 1996 (31 May 1996), p. 15. The U.S. government seized only1 million pounds (or approximately 450—500 tonnes) of illicit CFCs in that sameperiod (personal communication with Tom Land, USEPA Stratospheric ProtectionDivision, 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; TerryPedwell, “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, andOzone Depletion,” Ozone Action Report (September 1995): 26.

7. “Holed Up: CFC Smuggling in Rich Countries and Fast-growing Production inthe Developing World,” The Economist 337 (9 December 1995): 63.

8. For an analysis of the negotiations, see Richard Benedick, Ozone Diplomacy, KarenLitfin, Ozone Discourses: Science and Politics in Global Environmental Cooperation(New York: Columbia University Press, 1994); Ian Rowlands, The Politics ofGlobalAtmospheric 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.

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,” Environmental 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 CountriesRaises 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 May1994): 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 September 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 Sentencedfor Smuggling CFCs,” 3 January 1997.

41. Canadian Broadcast Corporation, “Contraband Cool,” The National, aired 16September 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 MarketingReporter, 18 April 1994, p. 13.

272 International Environmental Affairs ct.i’i’: The Illegal CFC Trade 273

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 January1995): 20; “More Shipments of CFCs Said Entering Global Market as PhaseoutDeadline 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 inInternational Environmental Politics,” International Environmental Affairs 8, no.2 (Spring 1996): 147—76.

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