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Session 12: Lecture Notes on Trade and Environment D.Sridhar Patnaik Assistant Professor Indian Society of International Law, New Delhi ________________________________________________________________________

The relationship between trade and environment has become an important topic for discussion at both the domestic and international level. With the advent of the World Trade Organization (WTO) agreements leading to free trade and environmental concerns at the same time have made these issues more significant. Growing concerns for protection of environment for a longtime led to the principles of sustainable development and protection and preservation of environment as fundamental goals of the WTO. The objective of such an approach is to achieve a balance between environmental protection and growth of international trade. The link between trade and environmental protection in terms of the impact of environmental policies on trade, and the impact of trade on the environment was recognized as early as 1970. It may be recalled that growing international concern about the impact of economic growth on social development and the environment led to a call for an international conference on how to manage the human environment and the resultant was the 1972 Stockholm Conference. During the preparations of this conference, a study “Industrial Pollution Control and International Trade” was prepared. The study focused on the implications of environmental protection policies on international trade. It reflected the

concern of trade officials at the time and that such policies could become obstacles to trade as well as constitute a new form of protectionism. In the following decades environmental policies began to have an increasing impact on trade, and with increasing trade flows, the effects of trade on the environment had also become more widespread. During the Tokyo Round of trade negotiations (1973– 1979), participants took up the question of the degree to which environmental measures (in the form of technical regulations and standards) could form obstacles to trade. An Agreement on Technical Barriers to Trade (TBT), also known as the “Standards Code”, was negotiated, which called for non-discrimination in the preparation, adoption and application of technical regulations and standards, and for them to be transparent. During the Uruguay Round (1986–1994), trade- related environmental issues were once again taken up and certain environmental issues were addressed in Agreement on Sanitary and Phytosanitary Measures (SPS), Agreement on Subsidies and Countervailing Measures (SCM) and Trade Related Aspects of Intellectual Property Rights Agreement (TRIPS).

The goals of sustainable development and protection and preservation of environment have been outlined in the Marrakesh Agreement, which established the WTO and in turn complement the WTO’s objective to trade barriers and eliminate discriminatory treatment in international trade relations. It may be emphasized here that the objective of WTO is to have a smooth, fair and predictable trading system based on the

principles of Non-Discrimination, Reciprocity, Binding and Enforceable Commitments, Transparency and ensuring Fair Competition. Under the WTO, there is no specific agreement dealing with the environment and Member States can adopt trade related measures as per the WTO rules in order to protect the environment.

An attempt has been made in this primer to provide a comprehensive overview of environment measures in the WTO Agreements. This primer is to be read along with the study material which has been already circulated.

Trade and Environmental Laws: Interface

Environmental Concerns in GATT/WTO Agreements: The fundamental legal principles upon which the present day liberal trade regime rests are to be found in the text of the GATT 1994 as well as its predecessor GATT1947. However GATT 1947 made no express mentioned of the word ‘environment’. Perhaps the reason not to mention the word ‘environment’ was during those days environmentalism as a movement had not attained momentum. Eventually when formation of the WTO took place as a result of the Uruguay round, environmentalists wanted to make sure that environment was included in the WTO working committees. References to the concerns of Environment in the WTO Agreement can be found in

• Preamble of the WTO

In the preamble to the Marrakesh Agreement establishing the WTO, reference was made to the importance of working towards sustainable development. It states that WTO members recognize: That their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development. The WTO takes into account environmental concerns and no longer allows the full use of the world’s resources. Although this was one of the objectives in the preamble of the GATT 1947, it was no longer appropriate to the world trading system in the light of increasing concerns for environmental protection.

• Article XX on General Exceptions of GATT

Exceptions in Article XX of the GATT allow Members to apply measures which do not constitute arbitrary or unjustifiable discrimination between countries or a disguised restriction on international trade, if those measures are necessary to protect

human, animal or plant life or health or relating to the conservation of exhaustible natural resources. Such rules of the WTO are set forth to achieve a balance between rights of the Members to take regulatory measures, including trade restrictions to attain legitimate policy objectives. Here lies the significance of the General Exceptions clause.

The WTO Dispute Settlement Body (WTODSSB) for example reaffirmed interalia in the Shrimp-Turtle Case (1998), US-Gasoline (1996), Brazil Retreaded Tyres(2007) cases the discretion of the WTO Members to adopt trade related measures aimed at protecting the environment. Since the entry into force of the WTO in 1995, the WTODSSB dealt with a number of disputes concerning environment-related trade measures. Such measures have sought to achieve a variety of policy objectives — from conservation of sea turtles from incidental capture in commercial fishing to the protection of human health from risks posed by air pollution. WTO jurisprudence has affirmed that WTO rules do not take precedence over environmental concerns.

The landmark dispute in the WTO dealing with trade and environment is the Shrimp Turtle Case (1998) a dispute between the United States on one side, and India, Malaysia, Pakistan and Thailand on the other, on the importation of shrimp and shrimp products from the latter countries to the former. It brought to the

surface that trade and environmental interests could clash, and posed the difficult challenge of reconciling this clash with the multilateral trading regime. In this case the WTO pushed members towards a strengthening of their environmental collaboration; it required that a cooperative environmental solution be sought for the protection of sea turtles between the parties to the conflict.

The US-Gasoline case was brought by Venezuela and later Brazil against the US. The panel report was adopted in 1996. The case did not challenge a country’s right to set environmental standards. The central question was about discrimination — whether the US measure discriminated against imported gasoline and in favour of domestic refineries.

At issue in the Brazil-Measures Affecting Import of Retreaded Tyres case (2005-2007) was Brazil’s ban on imports of retreaded tyres. The European Communities (EC) challenged the ban as a violation of WTO rules, whereas Brazil defended the measure as necessary to protect health and the environment. The Panel held that, although the ban was necessary to protect health and the environment, it was applied in a WTO-inconsistent manner because Brazil failed to enforce a similar ban on used tyre imports. Thus, the Panel decision effectively directed Brazil to impose further trade restrictions so as to advance its environmental objective. Previous WTO decisions have not gone this far in safeguarding environmental values. This

case has the potential to become a milestone in the jurisprudence of the WTO on matters relating to trade and environment as previous WTO decisions have not gone this far in safeguarding environmental values.

• Agreement on Sanitary and Phytosanitary Measures (SPS)

The SPS Agreement stipulates general provisions relating to measures taken to protect human, animal and plant life or health from certain specified risks. SPS measures are to be based on a risk assessment conducted pursuant to Article 5 of the Agreement. It deals with Assessment of Risk and Determination of the Appropriate Level of Sanitary or Phytosanitary Protection. In the assessment of risks, Members shall take into account available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest or disease free areas; relevant ecological and environmental conditions; and quarantine or other treatment. The purpose is to ensure that consumers are being supplied with food that is safe to eat and ensuring animal and plant health. Under the WTO rules, the SPS Agreement allows countries to set their own standards. But it also says regulations must be based on science. They should be applied only to the extent necessary to protect human, animal or plant life or health and they should not arbitrarily or unjustifiably discriminate between countries where identical or

similar conditions prevail. The basic aim of the SPS Agreement is to maintain the sovereign right of any government to provide the level of health protection it deems appropriate, but to ensure that these sovereign rights are not misused for protectionist purposes which could result in unnecessary barriers to international trade.

• Agreement on Technical Barriers to Trade (TBT) The WTO Agreement on Technical Barriers to Trade also governs the national laws on the environment. Technical regulations and standards are important, but they vary from country to country. Having too many different standards makes life difficult for producers and exporters. If the standards are set arbitrarily, they could be used as an excuse for protectionism. Standards can become obstacles to trade. But they are also necessary for a range of reasons, from environmental protection, safety, national security to consumer information. In a nutshell, it may be said that the TBT Agreement deals with government regulations on products.
• Agreement on Subsidies and Countervailing Measures (SCM) The objective of this Agreement is to regulate the use of subsidies and to further regulate the actions countries can take to counter the effects of subsidies. In general parlance, subsidy is a form of financial assistance given to a particular sector. Article 1 of the SCM Agreement defines subsidy as involving a financial contribution by a government or any public body within the territory

of a member or any form of income or price support which confer a benefit on the recipient. And the SCM Agreement introduces an environmental subsidy provision which permits Governmental assistance to promote adaptation of existing facilities to new environmental requirements.

• Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS ) , negotiated in the Uruguay Round, introduced intellectual property rules into the multilateral trading system for the first time. Article 27(2) of the TRIPS Agreement states that Members may exclude from patentability, inventions whose prevention within their territory is necessary to protect among other objectives, human, animal or plant life or health or to avoid serious prejudice to the environment. These provisions are specifically designed to address the environmental concerns related to the protection of intellectual property.
• Committee on Trade and Environment (CTE) The WTO also supports sustainable development and the environment through its specialized committees and bodies like the CTE. It is a forum for dialogue on trade and the environment. The 1994 Ministerial Decision (Marrakesh Conference) on Trade and Environment created the WTO’s Committee on Trade and Environment (CTE), which is open to the entire WTO membership,

with some international organizations as observers. The committee’s mandate is broad, and has contributed to identifying and understanding the relationship between trade and the environment in order to promote sustainable development and make appropriate recommendations regarding modifications of the provisions of the multilateral trading system. Although the CTE has not recommended any changes to the rules of the multilateral trading system, its work has led to some trade and environment issues leading to negotiations as key components of the Doha round like for example fisheries, this is an area where eliminating fishery subsidies can help protect fish stock. Some issues first raised in the CTE have become fully-fledged negotiations, for instance the relationship between the WTO and multilateral environmental agreements (MEAs) including the relationship between their dispute settlement mechanisms. Today there are over 500 international treaties and other agreements related to the environment, of which over 320 are regional. Nearly 60 percent date from 1972, the year of the Stockholm Conference, to the present. Since 1972, there has been an accelerated increase in MEAs; over 300 agreements were negotiated.

Other issues of focus according to the 1994 work programme mandate of the CTE are exploring the relationship between environmental policies relevant to trade and environmental measures which can have significant trade effects and the provisions of the

WTO. Further, establishing the relationship between the provisions of the WTO and charges and taxes for environmental purposes; and requirements for environmental purposes relating to products, such as standards and technical regulations, and packaging, labeling and recycling requirements has been part of the CTE’s work programme. For comprehensive provisions of the multilateral trading system dealing with the transparency of trade measures used for environmental purposes an Environmental Database (EDB) was established in 1998 for the WTO Secretariat to compile and update annually all measures related to the environment that Governments have notified to the WTO or that have been noted in trade policy reviews. This followed intensive discussions on transparency in the CTE and the recommendation in the CTE’s 1996 Report to the Singapore Ministerial Conference. Other aspects of relevance are study on how environmental measures affect market access, especially in relation to developing countries and least developed countries; and the environmental benefits of removing trade restrictions and distortions and issue of exports of domestically prohibited goods (DPGs), in particular hazardous waste.

• Doha Declaration 2001 The declaration adopted at the Doha Ministerial Conference^1 of the WTO also reflects the concerns expressed by the Members of the

(^1) The topmost decision-making body of the WTO is the Ministerial Conference, which has to meet at least every two years. It brings together all members of the WTO, all of which are countries or customs

WTO on the issues of environment. For the first time, environmental issues figured openly in the context of a multilateral trade negotiations with an objective of enhancing the interface of trade and environment. The Doha Declaration reaffirmed commitment to the objective of sustainable development, as stated in the Preamble to the Marrakesh Agreement and for 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 is a mutually supportive process. The declaration recognized the efforts by members to conduct national environmental assessments of trade policies on a voluntary basis and 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. In this background, it may be pertinent to note the significant attached to TRIPS Agreement vis a vis protection of environment. The declaration emphasized the importance of the implementation and interpretation of the TRIPS Agreement in a manner supportive of public health and for adopting a separate declaration. Further, the declaration welcomed WTO´s continued cooperation with UNEP and other inter-governmental environmental organizations and identified the need to promote cooperation between the WTO and

unions. The Ministerial Conference can take decisions on all matters under any of the multilateral trade agreements. Some of the Ministerial Conferences: Singapore (1996), Geneva (1998), Doha (2001), Cancun (2003), Hong Kong (2005).

relevant international environmental and developmental organizations, especially in the context of the World Summit on Sustainable Development (WSSD), 2002. Both the trade regime and environment regime will hopefully evolve to accommodate the emerging circumstances. It is therefore important to continue to monitor and analyze the relationships between the two regimes. This will help avoid the perception and reality that environment measures might be used as an excuse for protectionist discrimination.