Index

The Evolution of the Trade and Environment Debate at the WTO

Hugo Cameron

“By the close of the 1990s, the field of trade and environment was receiving much more attention than at its start. Among other issues, eco-labelling, trade in genetically modified organisms (GMOs) and perverse subsidies in natural resource sectors were providing policy-makers with a host of new challenges.”

The relationship between trade and environment has evolved over time. The inclusion of environmental issues on the negotiating agenda of the World Trade Organization (WTO) at the Doha Ministerial in 2001 moved this relationship into the spotlight. However, this is by no means a new relationship; indeed, as we will see below, this is a relationship that has gone through many phases and will continue to evolve in the future.

The Early Years

At a fundamental level, the production and exchange of goods and services relies on the environment in the form of natural resources. Trade in everything from shrimp to shampoo implies an environmental impact of some sort. The trade-environment relationship is, in fact, imbedded within the original text of the General Agreement on Tariffs and Trade (GATT), which was adopted in 1947 as the basis for the post-war global trading system. Among the exceptions to the GATT’s core principles were provisions stating that nothing in the GATT would prevent member countries from adopting or enforcing measures either “necessary to protect human, animal or plant life or health” or “relating to the conservation of exhaustible natural resources” (Article XX, paragraphs (b) and (g), respectively). However, Article XX also says that such measures cannot be disguised restrictions on trade applied for protectionist intent. This provision has since become a focal point for the trade and environment debate at the GATT and WTO.

Amidst growing environmental awareness that emerged in the late 1960s and the early 1970s, GATT members established a Group on Environmental Measures and International Trade (EMIT) in 1971. However, without a single request for it to be convened, the EMIT Group lay dormant for 20 years. Nevertheless, trade and environment lingered in the GATT hallways. At the 1972 UN Conference on the Human Environment in Stockholm, the GATT Secretariat presented a paper on the implications of environmental protection policies and how these could become obstacles to trade. Further, discussions during the Tokyo Round of the GATT (1973–79) over traderelated technical regulations and standards implemented for environmental purposes led to the adoption of the Agreement on Technical Barriers to Trade (TBT), or the “Standards Code,” in 1979. The TBT Agreement called for transparency in the application of technical regulations and standards and marked the first reference to the environment in a GATT agreement.

While trade officials were factoring the environment into international trade agreements, trade measures were being used as a tool to advance global environmental goals. In 1975, the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) entered into force, mandating a system of trade bans and restrictions on traffic in endangered species. Trade restrictions subsequently formed key elements of other multilateral environmental agreements (MEAs), including those on trade in ozone-depleting substances (Montreal Protocol, 1987) and hazardous wastes (Basel Convention, 1989). By 2003, according to a paper released by the WTO Secretariat, there were no fewer than 14 MEAs with trade-related provisions, including a number of others with potential trade effects. The two streams of international interaction on environment and trade continued to evolve in parallel until they began coming into increasing contact with each other in the 1990s.

The 1990s: A Rocky Decade

The 1990s marked the coming of age of the trade-environment debate. In 1991, the European Free Trade Association (EFTA) finally prompted the EMIT Group to meet in order to study the trade and environment linkage and provide input to the 1992 Rio Earth Summit. Leaders at the Rio Summit recognized the substantive links between international trade and environment by agreeing to make policies in the two areas mutually supportive in favour of sustainable development. The entry into force and implementation of several major MEAs that included trade restrictions as enforcement measures was starting to draw the concern of the trade community. Meanwhile, Northern environmental groups were increasingly worried that GATT rules could chill or roll back domestic environmental legislation.

Two GATT panel decisions against the United States in the Tuna-Dolphin dispute cases confirmed the fears of environmentalists. These decisions also provoked major concern on the part of developing countries about the environment becoming a barrier to their exports, based on how they were produced or harvested. The first case was brought before the GATT by Mexico, which argued against a United States (U.S.) law imposed in 1990 that prohibited tuna imports from countries lacking appropriate dolphin conservation programs. Mexico believed that the U.S. legislation violated its GATT rights by prescribing extraterritorially how it should catch its exported tuna. The U.S. defended its action on the grounds that its neighbour was taking insufficient measures to prevent the accidental capture of dolphins by its tuna fishers. The GATT panel ruled in 1991 that the U.S. could not suspend Mexico’s trading rights by prescribing unilaterally the process and production methods (PPMs) by which that country harvested tuna. The U.S. eventually lifted its embargo following an extensive domestic “dolphin safe” labelling campaign and negotiations with Mexico. A subsequent case brought against the U.S. tuna embargo by the European Union (EU) on behalf of the Netherlands Antilles in 1992 found that the U.S. dolphin conservation policy was GATT-consistent and could be applied extraterritorially. However, it broadly upheld the first panel decision by ruling that the actual measure used (i.e., the tuna embargo) was neither “necessary” (along the lines of Article XX), nor GATT-consistent. The Tuna- Dolphin cases brought into sharp focus how differing environmental norms between developed and developing countries could prove a source for conflict.

Partly as a result of the Tuna-Dolphin cases, trade and environment linkages were also being recognized at the regional level. For instance, in 1994 the U.S., Mexico and Canada signed the North American Free Trade Agreement (NAFTA), which included a sideaccord on regional environmental cooperation. The side-agreement—and the tri-national organization it created—was intended to help ensure the effective implementation of existing environmental laws among signatories. Similar provisions subsequently found their way into bilateral trade agreements signed by the U.S. and Canada with other developing country trading partners, in order to guard against lower environmental standards as a source of comparative advantage. Environmental cooperation elements have since also been included in a number of regional trade arrangements.

The 1990s also saw the conclusion of the eight-year Uruguay Round negotiations and the creation of the WTO on January 1, 1995. By then, the trade body’s ranks had swelled to 128 Members, over three-quarters of which were developing countries. In addition to including preambular language claiming sustainable development as an objective, the WTO agreements established a Committee on Trade and Environment (CTE), included a new Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures, and instituted a strengthened dispute settlement mechanism. The CTE, a regular meeting of all WTO Members, was mandated to identify the relationship between trade and environmental measures and make appropriate recommendations on whether any modifications to WTO rules were required. While the Committee has provided a valuable forum to enhance understanding of the trade-environment relationship, it has struggled to fulfill its mandate, and many have accused it of being little more than a talking shop. The SPS Agreement elaborated on Article XX by setting out parameters for the application of measures to protect human, animal and plant life or health. The new dispute settlement mechanism rules, which made it virtually impossible for losing countries to overturn decisions by panels or the new Appellate Body (AB), were a major concern for environmental groups. They were worried that the WTO now had real teeth to force countries to dismantle environmental laws, should these come under challenge in the multilateral trading system.

A number of WTO disputes added further depth to the trade-environment debate, and underlined the difference in approach to the issue between developing and developed countries, notably the U.S. The 1998 Shrimp-Turtle dispute case, brought by four Asian countries against the U.S., proved a landmark in that it put into doubt the rationale that discrimination based on PPMs was not compatible with WTO rules. The WTO Appellate Body ultimately determined that, while the disputed U.S. law prohibiting shrimp imports caught without the use of “turtle excluder devices” was justifiable under Article XX, it had been implemented in a discriminatory fashion. In other words, the Appellate Body did not require the U.S. to dismantle its law, but only change the way it was implemented. The decision was particularly disturbing to Thailand, India and a number of other developing countries, who were deeply concerned with the approach to interpretation of WTO law applied by the Appellate Body. They felt that the ruling permitted Members to discriminate against “like” products based on non-product-related PPMs, an issue that had not been negotiated in the Uruguay Round. From their perspective, the Shrimp-Turtle decision could be interpreted as allowing Members to take unilateral actions based on the way in which products are produced (i.e., the way in which shrimp are harvested), and that these actions could be justified under Article XX as long as they were not implemented in an arbitrary or discriminatory manner.

By the close of the 1990s, the field of trade and environment was receiving much more attention than at its start. Among other issues, eco-labelling, trade in genetically modified organisms (GMOs) and perverse subsidies in natural resource sectors were providing policy- makers with a host of new challenges. Supply chain issues were gaining prominence, and the use of private-sector green procurement schemes, for instance by European grocery retailers, was leading to a reorganization of international production and of relations between exporters, distributors and consumers. Dramatic street protests by environmental and other groups at the WTO’s failed Seattle Ministerial Conference in 1999 served to remind trade negotiators that the multilateral trading system needed to find a way to address how it dealt with the environment. However, developing countries remained wary, not least because they saw their own trade and environment concerns—such as green protectionism, the export of domestically prohibited goods and the equitable treatment of their biological resources—take a back seat to developed country trade and environment issues at the WTO.

Doha and Beyond

At the Doha Ministerial Conference in 2001, WTO Members decided to launch negotiations that, for the first time, would include trade and environment as part of the negotiating agenda. The negotiating issues agreed under Paragraph 31 of the Doha Ministerial Declaration were primarily those advocated by developed countries: the relationship between WTO rules and specific trade obligations in MEAs; observer status for MEA secretariats; and the liberalization of trade in environmental goods and services. This reflected the perception that accepting an environmental mandate remained a trade-off for developing countries, which have not been demandeurs in these areas.

Paragraphs 32, 33 and 51 make up Doha’s “non-negotiating” trade and environment mandate. Paragraph 32 focuses the work of the CTE on three areas: the effect of environmental measures on market access; the relevant provisions of the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS); and eco-labelling. Paragraph 33 outlines the importance of capacity building and encourages environmental impact assessments. Paragraph 51 instructs the CTE and the Committee on Trade and Development to “each act as a forum to identify and debate developmental and environmental aspects of the negotiations, in order to help achieve the objective of having sustainable development appropriately reflected.”

Importantly, Paragraph 6 of the Preamble to the Doha Declaration makes a detailed case for the trade and environment linkage:

"We strongly reaffirm our commitment to the objective of sustainable development, as stated in the Preamble to the Marrakech Agreement. We are convinced that the aims of upholding and safeguarding an open and non-discriminatory multilateral trading system, and acting for the protection of the environment and the promotion of sustainable development can and must be mutually supportive. We take note of the efforts by Members to conduct national environmental assessments of trade policies on a voluntary basis. We recognize that under WTO rules no country should be prevented from taking measures for the protection of human, animal or plant life or health, or of the environment at the levels it considers appropriate, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, and are otherwise in accordance with the provisions of the WTO Agreements. We welcome the WTO’s continued cooperation with UNEP and other inter-governmental environmental organizations."

The Doha Declaration also makes the linkage in other key areas. For example, on agriculture, the Declaration highlights “the need to protect the environment” as one of the non-trade concerns that should be taken into account in the negotiations. On intellectual property rights, the Doha Declaration instructs the TRIPS Council to examine the relationship between the TRIPS Agreement and the Convention on Biological Diversity (CBD), the protection of traditional knowledge and folklore. On fisheries, Paragraph 28 of the Declaration mandates Members to “clarify and improve WTO disciplines on fisheries subsidies, taking into account the importance of this sector to developing countries.”

Less than a year after the launch of the Doha negotiations, leaders at the 2002 World Summit on Sustainable Development (WSSD) sent a clear message to WTO negotiators to step up their efforts to integrate sustainable development objectives into the trade round. Amongst other commitments, the Plan emphasized the phase-out of harmful fisheries and energy subsidies and discouraged the use of unilateral actions to deal with environmental challenges outside countries’ jurisdictions.

Since Doha, Members have met several times in the CTE in Special Session to address the negotiating mandate. European countries have remained the most active supporters of the MEA-WTO relationship discussions. Some of the larger developing countries have engaged actively on different aspects of the mandate, for instance by analyzing the potential benefits (and pitfalls) for their economies of further trade liberalization in environmental goods and services. However, modest progress has continued over this time and, slowly but surely, the trade and environment agenda has started digging in its roots within the corridors of the WTO.

Interests and Fault Lines

The major players in the debate on the tradeenvironment relationship have traditionally been European countries and the U.S. Developing countries have recently become more engaged, particularly around specific issue-areas, such as the relationship between the TRIPS Agreement and the CBD. North-South alliances around certain issues, such as fisheries subsidies, have also emerged. In addition, non-governmental and inter-governmental bodies have made invaluable contributions to the field. Table 1 summarizes the involvement of these actors from before 1990 to the present.

The European Union, frequently supported by “like-minded” countries such as Switzerland and Norway, has been the central proponent of including environmental issues in trade discussions at the multilateral level. This position is informed, to a great extent, by the EU’s support for multilateral environmental solutions and the influence of environmental groups. However, most other countries have remained suspicious of Europe’s enthusiasm for environmental issues at the WTO, particularly its support for the precautionary principle in instances of scientific uncertainty. Developing countries, in particular, are wary of European efforts to push eco-labelling and the clarification of the MEA-WTO relationship. They view these efforts as an attempt by the EU to seek additional space to block imports in sensitive sectors and obtain trade-offs for concessions in other areas, such as agriculture.

The EU has made increasing efforts to integrate its trade strategy with the principles of sustainable development. In addition to conducting sustainability impact assessments (SIAs) of all its new trade arrangements, the EU has launched initiatives to help developing countries gain from sustainable trade. These include the promotion of trade in sustainably produced products, funding for technical assistance on trade and environment and an online “help desk” for developing country exporters to navigate Europe’s often cumbersome import standards. However, many remain unconvinced and some developing countries have expressed concern that SIAs could enable hidden protectionism under the guise of environmental and social concerns.

The United States has a mixed track record on trade and environment. On the one hand, its support for PPM-based trade measures at the WTO, reform of fisheries subsidies rules, and inclusion of environmental provisions in regional and bilateral trade arrangements points to an appreciation for balancing trade policy with effective implementation of environmental regulations. On the other hand, its refusal to “play by the rules” in key MEAs with trade-related elements—such as those on biodiversity, climate change and biosafety— has made its trading partners skeptical of its environmental intentions. At Doha, the U.S. was less enthusiastic than the EU about including trade and environment on the negotiating agenda. Indeed, the U.S. ensured that the negotiations would not open up more space for consideration of the precautionary principle in WTO rules, and has since sided with developing countries in advocating a limited interpretation of the MEA-WTO mandate.

Developing countries have engaged in trade and environment issues at the GATT at least since the 1980s. In 1982, a number of developing countries at the GATT expressed concern that products prohibited in developed countries due to environmental hazards, health or safety concerns—such as certain chemicals and pesticides—continued to be exported to them. With limited information on these products, developing countries made the case that they were unable to make informed decisions regarding their import. Domestically prohibited goods (DPGs) subsequently became a standing item on the agenda of the CTE, though the issue has received less attention since 2001 due to the focus of CTE discussions around the Doha issues.

While developing countries have been active contributors on trade and environment at the WTO, they have traditionally taken a defensive position. This is due primarily to concerns that trade-related environmental measures could be used as barriers to their exports. Developing countries have also strongly objected to any leeway in WTO rules for the use of unilateral or extraterritorial trade measures to enforce environmental norms. They argue that countries should be able to set their own environmental priorities, taking into account their level of development, and that they should not be subject to the domestic environmental standards set in other countries. At the same time, developing countries have advocated a range of issues that reflect Southern trade and environment interests. In addition to concerns surrounding trade in DPGs, many developing countries have sought to reconcile the TRIPS Agreement with the CBD. For their part, the least developed countries (LDCs) have emphasized the importance of financial resources for technical assistance to meet Northern environmental and health standards.

Developing countries have also joined North-South coalitions. These include the “Friends of Fish” which, in pushing for disciplines on fisheries subsidies, groups Argentina, Chile, Ecuador, Peru and the Philippines together with Australia, Iceland, New Zealand, Norway and the U.S. North- South cooperation has further emerged on environmental aspects of agriculture, with a wide coalition of developing and developed agriculture-exporting countries (the Cairns Group) denouncing the environmentallyharmful effects of agricultural subsidies. Argentina, Chile and Uruguay have joined Australia, Canada and the U.S. in opposing restrictions on transboundary movements of GMOs under the CBD’s Biosafety Protocol, while some African countries have voiced support for the EU’s precautionary approach to GMO imports.

Developing countries agreed to the MEA-WTO linkage mandate from Doha, but only as part of a wider package that contained other trade-off issues, including reductions in agricultural subsidies. Since Doha, many developing countries have participated actively in the negotiations, for the most part preferring a narrow approach to the mandate to ensure talks do not result in further regulatory space for environmental provisions that could restrict their exports. Some developing countries are also cautiously exploring potential benefits from liberalization of trade in environmental goods and services.

Intergovernmental organizations have played a key role alongside WTO Members in the discussions on the trade-environment relationship. Secretariats from relevant MEAs have been regular invitees to the CTE and have participated in a limited fashion in the environment negotiations in the Doha Round. The United Nations Environment Programme (UNEP) has played a useful role in highlighting synergies and mutual supportiveness between MEAs and the WTO. UNEP has been an observer at the CTE since 1995 and, as host of the 1992 Rio Summit, was instrumental in elaborating the links between the trade and environment regimes. Together with the UN Conference on Trade and Development (UNCTAD), UNEP has engaged in extensive capacity building and research activities for developing countries on trade and environment.

Many non-governmental groups have emerged in both the North and South to follow the multifaceted issues around trade and environment. The number of these groups mushroomed in the mid-to-late 1990s, due in large part to the coming into force of the WTO and to the growing public interest in pursuing sustainable development. The fields of expertise of NGOs active in trade and environment are varied, and their impact can be substantial, especially through interaction with trade policy-makers. In particular, these groups have contributed significantly as monitors of the trade policy-making process, as knowledge providers, information disseminators and capacity builders.

Trends and Future Directions

Over the next five to 10 years, the environment is likely to remain on the trade agenda, but in different ways than it is now. Once WTO Members come closer to mutuallyagreed terms around the relationship between WTO rules and MEAs, further space could open up to address areas of trade and environment concern to developing countries. China, India and Brazil—all members of the Group of Twenty (G20) of developing countries opposed to Northern agriculture subsidies— can be expected to bring their own trade-environment priorities to the table, including the environmental benefits of reductions in agricultural support. The question of GMOs is also likely to challenge the trade-environment relationship for years to come. Changes in modes of international production, partly as a result of trade negotiations, are likely to shift issues of priority in trade and environment to more concrete areas, such as negotiating mutual recognition agreements for different product standards in different countries. Global supply chains and consumer preferences can also be expected to play an increasingly important role. Some developing countries, which can afford to, have already adopted their own domestic labelling and certification schemes in response to consumer preferences in the North. To continue meeting these challenges and to advance sustainable development, all countries will have to resist pressures to build protectionist fences and instead promote cooperation on green spaces. As neighbours in a globalized world economy, trade and environment cannot afford not to get along.