Index

Expert Opinion: PPMs, Trade Law and the Environment

By Robert Howse

A widely held assumption is that international trade law, especially the law of the World Trade Organization (WTO), prohibits states from regulating imported products based on the environmental impacts of their process and production methods (PPMs). This assumption has had a profound influence on the debate on trade and environment. However, the text of the WTO treaties contains no such prohibition. It is an invention of practice under the General Agreement on Tariffs and Trade (GATT)—the WTO’s predecessor regime; by contrast, the recent case law of international trade in the WTO does not support the notion of a prohibition on PPM-based environmental regulations that affect imported products.

The only textual reference to the PPMs concept in the WTO treaties is in the Agreement on Technical Barriers to Trade (TBT), establishing that technical regulations for purposes of the Agreement include regulations that address not only the characteristics of products but their “related” process and production methods. The word “related” here indicates that since the TBT Agreement deals with trade in goods, regulation of process and production methods apart from the goods that are there as a result is not a TBT issue. Such regulation may well be a services or intellectual property matter and thus fall under some WTO Agreement not concerned with trade in goods as such.

The PPMs notion was brought into being in the context of the notorious GATT era Tuna-Dolphin dispute. The United States had imposed a ban on sale in the U.S. of both domestic and imported tuna that was fished in a manner that led to excessive incidental killing of dolphins. In theory, assuming that the ban were imposed evenhandedly on both domestic and imported tuna, under the law of the GATT it would be viewed as an “internal law, regulation or requirement” that met the National Treatment obligation in Art. III:4 of the GATT that such measures provide “no less favourable” treatment to imports than to “like” domestic products.

The GATT dispute panel found such a consequence unacceptable. The underlying thinking was apparently that such a measure, even if evenhanded, imposed unilaterally on the country of export American environmental standards, which would be an illegitimate exercise of extraterritoriality. The panel considered it intuitively obvious that such measures could not be consistent with the GATT regime. In order to create a legal foundation for this intuition, the panel suggested that the National Treatment obligation in Article III:4 of the GATT pertained only to measures that directly regulated the imported “product” as a physical commodity, in this case tuna; measures that purported to regulate how a “product” was produced would need to be assessed, not as “internal laws, regulations or requirements” under Article III:4, but rather as quantitative restrictions under Article XI. While Article III:4 allows evenhanded measures that fall within its ambit, Article XI operates differently; once a measure is determined to fall within Article XI, then it is per se illegal under GATT, subject only to certain exceptions. The panel also found that the ban could not be justified under either the animal health and life (Article XX(b)) or conservation (Article XX(g)) exceptions in the GATT. Here, the panel was more direct in its reasoning, asserting the view that measures that are somehow “extraterritorial” cannot be justified under GATT Article XX exceptions.

As jurisprudence, the panel’s approach was clearly wrong. From the early Italian Agricultural Machinery case on, GATT panels had, in fact, rejected the notion that a measure did not fall under Article III because it did not regulate directly the imported product as a physical commodity. After all, the text of Article III did not apply to measures regulating products, but to any internal law, regulation, or requirement affecting, inter alia, the marketing and sale of the product.

Perhaps for these reasons, an alternative theory of the PPM doctrine was already visible even from the second panel in the Tuna-Dolphin case. This theory was that, even if Article III:4 were applicable, domestic and imported products are “like” even if they have different PPMs. Only different physical characteristics can distinguish products as not “like.” Thus, dolphin-unfriendly imported tuna is “like” dolphin-friendly domestic tuna and must be treated the same.

The Tuna-Dolphin rulings were controversial and never adopted, but the idea of PPMs as illegal in the GATT stuck and became conventional wisdom. In the WTO era, a case came before the dispute settlement system not dissimilar to Tuna-Dolphin. The Shrimp-Turtle dispute concerned a U.S. ban on shrimp fished without technologies that prevented killings of endangered species of sea turtles. In that case, the U.S. did not challenge the PPM construction, but instead invited the WTO Appellate Body to reject the GATT notion that measures directed at other countries’ PPM policies could not be justified under Article XX. In broad measure, the Appellate Body agreed with the United States, but addressed concerns of unilateralism and inequity (particularly where measures were targeted at developing countries) through its interpretation of the chapeau of Article XX, i.e., the requirement that justified measures not arbitrarily or unjustifiable discriminate between different countries. The impact of the Shrimp-Turtle case is to blunt the importance of the PPM assumption, since the very kinds of measures supposedly prohibited through that assumption may well be justifiable under the conservation or life and health exceptions in Article XX.

The assumption has also been bypassed by recent jurisprudence of the WTO Appellate Body on “like” products in Article III:4 (the Asbestos case); consumer habits and tastes may be of decisive importance in determining whether products are “like,” thus belying the notion that only physical differences in themselves count in the analysis. In sum, from a legal perspective, the PPM assumption has not been overruled, but made largely irrelevant jurisprudentially. At the same time, the policy concerns remain—i.e., the meaning of unilateralism and its acceptability in addressing global environmental commons issues, as well as equity between developed and developing countries and worries about green protectionism.

Robert Howse, from Canada, is the Alene and Allan F. Smith Professor of Law at the University of Michigan Law School and a former Canadian diplomat.