Southern Agenda on Trade & Environment A project aimed at helping developing countries to determine priorities for promoting and negotiating proactive positions that reflect their own 'Southern Agenda' on environment and trade in the multilateral trading system.

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Trade and Environment: A Resource Book

 

Theoretically, MEA trade measures and WTO rules can and should interact in a positive and synergistic way. In their original intent, both MEAs and the WTO are instruments designed to promote the shared objectives of the international community. As such, both MEAs and the WTO should be mutually supportive. Nevertheless, while there has not been any dispute in the WTO related to MEAbased trade measures to date, concerns about a potential conflict persist. This potential for conflict can stem from multiple sources:

• Inconsistency of legal provisions. Measures taken by an MEA party are inconsistent with its WTO obligations, or vice-versa.

• Competing or overlapping jurisdictions. The dispute settlement mechanisms of both MEAs and the WTO have policy jurisdiction over, or are used to settle disputes relating to, the same policy or legal issue.

• Party/non-party disputes. Countries that are parties to both an MEA and the WTO use trade measures allowed by the MEA against countries that are WTO Members but are not parties to that MEA.

• National policy incoherence. Failures in policy coordination and coherence among national trade and environmental officials result in inconsistent national implementation of MEA trade measures and WTO rules.

Moreover, the current situation of legal uncertainty about the WTO-MEA relationship has led to unease amongst some WTO Members and has motivated the negotiating mandate for clarification of the WTO-MEA relationship in the Doha Round. Importantly, the development of MEAs and the WTO have followed two separate but parallel paths, which reflects fundamental differences in their underlying legal philosophies. Both MEAs and the WTO contain dispute settlement procedures that resort to higher bodies of international law—to the International Court of Justice (ICJ) or the Appellate Body (AB) respectively. However, while dispute settlement is central to the WTO, MEAs generally emphasize compliance through supportive measures (e.g., financial and technical assistance). Thus, resort to formal dispute settlement in international trade relations is more common than in MEAs. While both MEAs and the WTO agreements are the result of multilateral cooperation to pursue mutually beneficial goals, the approach in MEAs is based on mutual cooperation while that in the WTO is rule-based.

Clarifying the MEA-WTO Relationship

As already mentioned, the desire to clarify the MEA-WTO relationship is not a new one. The United Nations Conference on Environment and Development (UNCED) in Rio de Janeiro, Brazil in 1992 and the Uruguay Round trade negotiations from 1986 to 1994 sought to clarify the relationship between MEA trade measures and the rules of the multilateral trading system. At UNCED, countries agreed to a set of principles on sustainable development, including Principle 12 of the Rio Declaration which deals with the trade and environment interface:

“States should cooperate to promote a supportive and open international economic system that would lead to economic growth and sustainable development in all countries, to better address the problems of environmental degradation. Trade policy measures for environmental purposes should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade. Unilateral actions to deal with environmental challenges outside the jurisdiction of the importing country should be avoided. Environmental measures addressing transboundary or global environmental problems should, as far as possible, be based on an international consensus.”

At around the same time, trade negotiators at the Uruguay Round created the WTO with provisions that recognize the objective of sustainable development for the global trade system while seeking to prevent the use of environmental regulations in ways that unnecessarily restrict trade. These include: the “sustainable development” clause in the WTO Agreement’s preamble; the “environmental” exceptions in the General Agreement on Tariffs and Trade (GATT) Article XX(b) and (g) and in the General Agreement on Trade in Services (GATS) Article XIV(b); and various environment-relevant provisions in the Agreements on Technical Barriers to Trade (TBT), the Application of Sanitary and Phytosanitary Measures (SPS), Trade-related Aspects of Intellectual Property Rights (TRIPS) and Agriculture.

Specific MEAs have also included clarifying provisions to reinforce the understanding that nothing in the MEA will adversely affect a country’s right or obligation under other existing international agreements, including WTO agreements. Such provisions are included in the UN Convention on the Law of the Sea (UNCLOS), Article 311(2); the UN Convention on Biological Diversity (CBD), Article 22(1); the Cartagena Protocol on Biosafety (the Biosafety Protocol) to the CBD, Preamble, clauses 9 to 11; the UN Convention to Combat Desertification (UNCCD), Article 8(2); and the UN Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade (the Rotterdam Convention), Preamble, clauses 8 to 10.

Such provisions are considered by some to be “WTO saving” clauses because they suggest that WTO rules may trump MEA trade measures. Additionally, the WTO’s strong compliance mechanism—unmatched by any MEA—has led several governments and environmental non-governmental organizations (NGOs) to raise concerns about the potential for a clash between MEA trade measures and WTO rules. The fear is that these can combine to create a “chilling” effect on environmental policy because of the potential legal challenges to the “WTO-conformity” of MEA trade measures; and that this could discourage the use of trade measures in existing MEAs or the inclusion of trade measures in new MEAs in the future.

Based on the seminal 1996 report of the WTO’s Committee on Trade and Environment (CTE) to the Singapore Ministerial Conference, WTO Members agreed that: (a) MEAs are as the best solution to transboundary environmental problems; (b) trade measures, while not necessarily the most effective policy instruments for MEAs, can in some cases play an important role in carrying out their objectives; (c) existing WTO rules provide enough leeway for WTO Members to apply MEA trade measures in a WTO-consistent manner; (d) better national-level trade and environmental policy coordination was the best solution to prevent WTO disputes over the use of MEA trade measures; and (e) in case of such a dispute, especially where one of the parties is not a party to the MEA concerned, the WTO dispute settlement system would be able to handle the dispute.

Indeed, the WTO dispute settlement system has already played a significant role in defining the relationship between MEAs and the WTO. For example, in its decisions on the U.S.-Reformulated Gasoline and U.S.- Shrimp-Turtle cases, the WTO Appellate Body recognized the legal inter-relationship between trade law and public international law. The sentiment of the Appellate Body has been that WTO law is “not to be interpreted in clinical isolation from” public international law; when relevant, international environmental law can be a legitimate source of applicable legal principles for the interpretation and application of WTO provisions.

Interests and Fault Lines

This environmental mandate was placed on the “Doha Development Agenda” at the insistence of the European Union (EU) and Switzerland. For their part, developing countries— which have broadly supported the objective of sustainable development and the protection and preservation of the environment in a manner consistent with their development needs—were hesitant in accepting this inclusion, especially the clause related to the WTO-MEA linkage. From the outset, developing countries have stressed that current WTO provisions are adequate to deal with any possible conflicts between MEA trade measures and WTO rules and, therefore, it is not necessary to alter current WTO rules or to elaborate new rules to address hypothetical legal conflicts between MEAs and the WTO. Instead, many developing countries have suggested that the “first-best” solution is to devote additional financial resources and capacity building towards meeting the objectives of MEAs. This concern notwithstanding, developing countries acquiesced to these negotiations hoping that—in exchange for and in the context of the overall Doha negotiating agenda—broader developmental and trade interests in agriculture, services, special and differential treatment, and other areas would be addressed effectively.

The CTE in Special Session, which has been the venue of recent trade and environment negotiations, has dealt with five aspects of the MEA-WTO linkage: (a) definition of an MEA; (b) definition of specific trade obligations (STOs) in an MEA; (c) legal relationship or hierarchy between MEAs and the WTO; (d) “party versus non-party” issue; and (e) possible outcomes of the negotiations.

In terms of MEA definition, countries are examining various criteria, including the legal effect of the agreement, the multilateral character of the MEA, “openness” of the MEA to participation by all WTO Members; and substantive environmental content or objective of the agreement. Most developing countries favour a narrower definition, which would encompass only those MEAs currently in force. Moreover, these MEAs should have been negotiated under United Nations auspices, and must be open to effective participation by all WTO Members.

Proponents of the WTO-MEA negotiations— including the EC and Switzerland—favour a broader definition of MEAs. For example, the EC would like to include regional agreements, as well as treaties between at least three parties that have the main aim of protecting the environment or are relevant to the environmental exceptions in GATT Article XX(b) or (g), and which were negotiated under the UN or under procedures for negotiation open to all WTO Members. Japan has suggested that MEAs that have not yet entered into force should also be covered by the negotiations.

Specifically on the question of which MEAs to focus upon, there has been some convergence amongst WTO Members. The following MEAs are frequently mentioned in this context: CITES; the Montreal Protocol; the Basel Convention; the Rotterdam Convention; the Stockholm Convention on Persistent Organic Pollutants (the Stockholm Convention); and the Biosafety Protocol.

However, there has been less agreement as to which specific trade measures in these MEAs should be the subject of discussion. On the question of defining specific trade obligations, some countries (for example, the United States and Hong Kong) would like to limit STOs to include trade measures that are mandatory and specific, with negotiations based on the list of MEAs with trade measures provided by the WTO Secretariat. Others, including the EC, advocate pursuing a general approach that would establish the principles governing the MEA-WTO relationship, including what constitutes an STO.

In this regard, the EC has identified four categories of measures arising from MEA trade obligations: (a) trade measures explicitly provided for and mandatory under MEAs (e.g., CITES, the Stockholm Convention, the Biosafety Protocol); (b) trade measures not explicitly provided for nor mandatory under the MEA itself but consequential of the “obligation de résultat” of the MEA; (c) trade measures not identified in the MEA which has only an “obligation de résultat” but that Parties could decide to implement in order to comply with their obligations; and (d) trade measures not required in the MEA but which Parties can decide to implement if the MEA contains a general provision stating that parties can adopt stringent measures in accordance with international law (e.g., the Montreal Protocol, the Rotterdam Convention).

Some countries—including Argentina, Chinese Taipei, India, Korea and Norway—have attempted to define relevant terms in the phrase “specific trade obligations set out in MEAs” in order to develop criteria. India, for example, has suggested that relevant STOs should be: mandatory (i.e., MEA trade obligations that are general or rely upon the discretion of the MEA parties for their adoption or implementation should not be considered to be STOs); clearly defined in the MEA (i.e., whereby the MEA sets out the result to be achieved and measures to be used); or related to the import or export of a tangible item and to which MEA parties have to adopt or comply with.

In trying to define the relationship between MEAs and the WTO, there has been general agreement that MEAs and the WTO represent equal bodies of international law and their implementation should be mutually supportive. Countries, however, diverge on how to operationalize this relationship. The EC, Switzerland and some other, mostly developed, countries favour developing commonly agreed general principles, such as “no hierarchy” and “mutual supportiveness and deference” in order to clarify the MEA-WTO relationship. Other countries, such as Japan, have suggested that mandatory trade measures explicitly provided for in an MEA should be presumed to be WTO-consistent.

Most developing countries, however, oppose suggestions for new WTO rules on the MEAWTO relationship, arguing that these could alter existing WTO rights and obligations. Interestingly, many of these same countries were often leading proponents for trade measures to be incorporated into MEAs during their negotiation. However, these countries have since sought to retain the right to question the implementation of MEA trade measures at the WTO, if such implementation adversely affects their WTO rights. Accordingly, these countries have raised concerns about proposals to recognize a priori those MEA trade measures as WTO consistent.

It is generally understood that, as stipulated in the mandate, the party vs. non-party issue is excluded from the Doha negotiations. Hence, MEA obligations which may require MEA parties to take trade actions against MEA non-parties and the relationship between such measures with WTO rules is not part of the current negotiations.

Finally, in discussions on the possible outcomes of the negotiations, some countries, such as Japan and Switzerland, propose that the negotiations should result in an interpretative decision or understanding. This would set out general principles to clarify the MEAWTO relationship in order to provide guidance for WTO dispute settlement panels in the event of a dispute. The introduction of an “MEA exceptions clause” by amending GATT Article XX has also been suggested. However, most developing countries, along with the U.S. and Australia, have stated that the negotiated outcome should not change the existing balance of WTO rights and obligations.

Trends and Future Directions

Together with enhancing national policy coherence and coordination, negotiations on criteria for the granting of observer status to MEA secretariats and on procedures to facilitate information exchange between MEA secretariats and the WTO may be amongst the most cost effective and least controversial ways to advance this issue. Currently, only some (albeit the main) MEA secretariats have observer status in the CTE regular sessions and their participation in the CTE Special (negotiating) Sessions as observers is ad hoc and limited. This issue has become linked to the broader but stalled debate in the WTO on the granting of observer status to other international organizations. Future headway on this issue could provide useful opportunities to strengthen the WTO-MEA linkage.

The increasing number of trade disputes with environmental implications shows that the likelihood of WTO trade disputes involving MEA trade measures exists. The dispute resolution system would can be expected to continue to play an important role in defining the WTOMEA relationship. To the extent that this is necessary, relevant environmental organizations— including MEA secretariats and environmental NGOs—should be consulted by the WTO dispute resolution panels on an ad hoc basis, following the Appellate Body’s guidelines for the submission of amicus curiae briefs. However, many WTO Members have stressed that the WTO dispute settlement mechanism is not the ideal venue for dealing with MEA issues; rather, MEA issues should be resolved in MEA fora. Hence, it would be much more desirable if MEA dispute settlement mechanisms were strengthened and spillover of MEA disputes into the WTO be minimized.

Negotiations on the MEA-WTO relationship have prompted MEA secretariats, together with the United Nations Environment Programme (UNEP), to look at how WTO rules could interact in a mutually supportive way with MEA trade provisions. MEA decision- making bodies may need to review their own activities and strengthen the implementation of their respective obligations. Furthermore, changes in global economic and environmental conditions will require a strong multilateral framework for coordinated action. These conditions could push countries to strengthen and reaffirm the role of the UN as the primary global governance institution.

The CTE and the WTO Committee on Trade and Development (CTD) have held discussions relating to the integration of sustainable development into the Doha negotiations pursuant to Paragraph 51 of the Doha Declaration. However, both the CTE and the CTD have encountered difficulties implementing this mandate. Indeed, sustainable development remains a difficult concept to translate into concrete policy. However, there is an opportunity embedded within this CTE-CTD dialogue to meaningfully operationalize the WTO’s preambular emphasis on sustainable development as an overarching goal for trade policy.

In general, developing countries recognize that environmental protection is an important policy objective within the context of sustainable development and is essential to the development process. However, they remain vigilant to disguised protectionism in the form of unjustified environmental measures. In this respect, improving market access and guarding against eco-protectionism remains a critical issue for developing countries in the trade and environment debate. The role of the WTO, developing countries argue, is to ensure market access and prevent abusive trade protectionism. This unease is unlikely to disappear soon and future developments related to the WTO-MEA relationship will have to continue grappling with this.

Finally, the importance of countries undertaking policies that are coherent and consistent with the objective of sustainable development is well recognized. However, in practice, much remains to be accomplished in this regard. The most important future challenge for both the WTO and for MEAs is how to meet the sustainable development objective which, theoretically, is the principal motivator of both regimes. In terms of trends and challenges, this means that the future of the WTO-MEA relationship will be determined not only by how the WTO relates to trade measures contained in MEAs, but also by how MEAs evolve to relate to global trade policy in general, including but not limited to WTO agreements.

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