An Introduction to Trade and the Environment

The topic of trade and the environment begins by understanding the international political economy of trade.

In the immediate post-WWII era, the United States and its allies, decided that a prosperous and lasting peace depended not only on the creation of a stable international political order based on principles embedded in the United Nations (UN) Charter, but also on the creation of a stable liberal international economic order.

The twin pillars of the international financial system, the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), emerged as the institutional alternative to the regionalism characteristic of international financial practices in the post-WWI era.

An international trading system, built on free trade principles, was also considered as an alternative to the protectionist global trade regime that evolved in the post-WWI era, especially after the depression. During that time period, state foreign economic policies followed the Smoot-Hawley pattern of the United States, promoting high tariffs on imported goods to make local goods more cost efficient.

Originally the International Trade Organization (ITO) which was negotiated in Havana, Cuba was planned to be the formal trade management global organization in the Post-WWII era. Political disagreements ultimately spelled the end of the ITO as a formal organization, yet participants considered trade issues important enough to resurrect portions of the ITO charter and transform them into a less formal, free standing trade agreement known as the General Agreement on Tariffs and Trade. (GATT). Figure 1 briefly outlines the history of GATT activity.

During the first twenty odd years of its existence, members of GATT focused almost entirely on negotiations aimed at reducing tariffs (taxes on imported goods), one of the traditional barriers states enact to protect their markets from import competition.

Six rounds of negotiations, through the completion of the Kennedy round in 1967, accomplished substantial tariff reductions in the manufacturing sector among the then most industrialized states, the United States, the member states of the European Economic Community (EEC), the UK and Japan.

By the 1970s, with tariffs on most goods substantially reduced, and the world falling into a depression/hyper-inflation cycle due to the twin oil price shocks, states began implementing other non-tariff policies as a way to protect their industries from import competition. Government policies promoting industry subsidization, export credits and legislative codes and standards as import obstructions, collectively came to be known as non-tariff barriers (NTBs) to trade. An agreement on handling those issues was reached during the Tokyo Round.

The World Trade Organization

As the 1980s came and went and the 1990s dawned, GATT members increasingly became convinced that the increasing complexity of the international economy necessitated a more formal, powerful international trade regime. During the final GATT round, the Uruguay Round (1986-1994), member states completed negotiations leading to the creation of The World Trade Organization, a global trade regime complete with a legally binding dispute resolution mechanism.

The roots of the trade and the environment debate often get traced to the start of the 1970s during the transition from tariff reduction talks to talks about non-tariff barriers to trade. It coincided with the first wave of environmentalism in the industrialized states.

At the time, the Organization for Cooperation and Development (OECD), a multilateral organization composed of members from the industrialized nations, served as the lead organization considering the issues. OECD members specific concerns focused on the issue of "competitiveness", or how the new wave of environmental laws requiring corporations to invest in pollution reduction equipment, might harm their competitive standing in the trade arena.

OECD's answer to the problem was to issue a set of guidelines, OECD Guiding Principles Concerning the International Economic Aspects of Environmental Policies (1972), with the hope that all member states could cooperate and thus alleviate any potential competition problems. Without a doubt, the principle receiving the most attention was the Polluter Pays Principle (PPP), which suggested that the effects of competition could be muted if all member states agreed not to subsidize (reimburse) industries, but instead required them to absorb (pay for) the costs of the soon to be required pollution reduction equipment, with the cost eventually being transferred to the consumer and reflecting a more accurate price of production.

Trade and environment issues started gaining mainstream attention in the beginning of the 1990s, in the wake of the now (in)famous General Agreement on Tariffs and Trade (GATT) Tuna/Dolphin decision. In this particular case, the WTO ruled the US policy of banning imports of tuna from states that used purse seine fishing techniques to catch tuna, and subsequently kill dolphins, violated the terms of GATT. The ruling struck a raw nerve among the flipper generation and provided the impetus for bringing the issues associated with trade and the environment to national attention.

The topic stayed inf front of the public throughout the 1990s because in 1998, the WTO again ruled against a US ban on shrimp imports caught without Turtle Excluder Devices (TEDs), equipment developed to help save endangered sea turtles.

These two cases show how process, the issue of how goods are produced, can stir up trade and environmental problems. However, trade and environment issues encompass a much broader and complicated set of issues than merely the issue of process. The competition issues that started in the 1970s still stand high on the environment agenda. Consider the debates surrounding the ratification of the North American Free Trade Agreement (NAFTA), where labor and environmentalists voiced concerns about companies moving their manufacturing operations from the United States to Mexico, the new pollution haven, because of the Mexican government's comparatively minimal environment and labor standards.

The current rules of the game in the international trading arena are also problematic with respect to many international environmental treaties. The Montreal Protocol and Convention on International Trade in Endangered Species, for example, incorporate trade sanctions into their texts as punitive measures for non-complying states. The goal of trade sanction clauses is to provide incentives for states who are party to these treaties to live up to their treaty obligations.

The Relationship Between Trade and Environment Regimes

Since the World Trade Organization (WTO) entered into existence in 1995, member states have been trying to determine the legal relationship between multilateral environmental agreements (MEAs), commonly called environmental regimes, and the now formally institutionalized trade regime embodied by the WTO.

The need for more clarity about the relationship between trade and environment regimes builds on the fact that the WTO has a formal dispute mechanism built into the system for member states with trade conflicts. When these conflicts are related to an existing multilateral environmental agreement that also has trade related clauses, the legal issue becomes one of assigning weight to each set of laws in a dispute settlement procedure. Generally dispute settlement procedures can be weighted to either trade considerations, environmental considerations or a combination of both.

The lack of a formal agreement on the issue to date is indicative of the general tensions in the international trade arena in the early years of the WTO era. Since its inception, member states have been unsuccessful at reaching a broad multilateral trade agreement. The Doha round, started in 1991, will reach the end of its time limit as far as United States law is concerned, when President Bush's fast track authority expires on June 30, 2007. Reaching agreement on agriculture trade issues has always been a major hurdle throughout the combined GATT-WTO post-WWII trading era. The Doha round has thus far not proved to be an exception to that general trade rule of thumb.

Despite the lack of a formal agreement on the nature of the relationship between MEAs and the WTO, member states have made substantial progress outlining the facts and guiding principles for organizing their thinking about the issue.

As far as the facts go, the most recent list presented by the Trade and Environment Committee of the WTO, outlines fourteen different environment agreements in which trade is at least tangentially discussed.

  • INTERNATIONAL PLANT PROTECTION CONVENTION
  • INTERNATIONAL CONVENTION FOR THE CONSERVATION OF ATLANTIC TUNAS
  • CONVENTION ON INTERNATIONAL TRADE IN ENDANGERED SPECIES OF WILD FAUNA AND FLORA (CITES)
  • MONTREAL PROTOCOL ON SUBSTANCES THAT DEPLETE THE OZONE LAYER
  • BASEL CONVENTION ON THE CONTROL OF TRANSBOUNDARY MOVEMENTS OF HAZARDOUS WASTES AND THEIR DISPOSAL
  • CONVENTION ON BIOLOGICAL DIVERSITY
  • CARTAGENA PROTOCOL ON BIOSAFETY
  • UNITED NATIONS FRAMEWORK CONVENTION ON CLIMATE CHANGE
  • KYOTO PROTOCOL
  • INTERNATIONAL TROPICAL TIMBER AGREEMENT
  • UN FISH STOCKS AGREEMENT
  • ROTTERDAM CONVENTION ON THE PRIOR INFORMED CONSENT PROCEDURE FOR CERTAIN HAZARDOUS CHEMICALS AND PESTICIDES IN INTERNATIONAL TRADE (PIC)
  • STOCKHOLM CONVENTION ON PERSISTENT ORGANIC POLLUTANTS (POPS)

The International Tropical Timber Agreement is among the most trade friendly MEAs listed. It generally sets out an agenda to promote sustainable development of member states' forest lands as the basis for their trade policies. However, member states take note in article 36,

Nothing in this Agreement authorizes the use of measures to restrict or ban international trade in, and in particular as they concern imports of and utilization of, timber and timber products".

Almost by definition, The Convention on Trade in Endangered Species (CITES) stands at the other end of the trade friendly spectrum, in the sense that its purpose is to regulate trade in all wildlife, plants and fauna that the global scientific community considers endangered or threatened.

The International Institute for Sustainable Development notes the appearance of two different interpretive approaches (narrow and broad) to the problem of assigning the weight given to MEAs vs. trade agreements in any specific trade dispute. The narrow approach, supported by the United States, generally begins with a review of U.S. regulatory history in three different MEAs, (CITES, POPs and PIC) and proposes that the success of these regimes can be traced to their limited and focused use of export restrictions.

The European Community (EC) submitted the most recent broad interpretative proposal (WORLD TRADE ORGANIZATION TN/TE/W/68 30 June 2006 (06-3162)) in instances where trade law conflicts with environmental law. These views had been circulating for a couple of years and follow four basic principles, no-hierarchy, mutual supportiveness, deference and transparency. The text of the proposal is as follows:

"2. With a view to pursuing sound multilateral governance, the following principles shall govern the relationship between MEAs and WTO rules:

(a) Mutual supportiveness: Under WTO rules, no country shall be prevented from taking measures for the protection of human, animal or plant life or health, or of the environment ensuring the level of protection it considers appropriate. Efforts to safeguard the non-discriminatory multilateral trading system must go hand-in-hand with the commitment to sustainable development. All WTO bodies shall ensure that the interpretation and application of WTO rules takes due account of, and is mutually supportive with, the provisions of MEAs.

(b) No subordination: Both MEAs and WTO Agreement constitute legitimate bodies of international law of equal standing. Due respect must be accorded to each.

(c) Deference: MEAs and the WTO have distinct competences within a mutually supportive multilateral governance framework. Their respective expertise in environment and trade matters shall be valued and utilised.

(d) Transparency: with a view to enhancing the mutual supportiveness of trade and the environment, a mechanism for regular information exchange between the WTO and MEAs shall be implemented."

© 1999-2014 Patricia A. Michaels. All rights reserved.