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Trade Policy and Global Environmental Change

Introduction

In this guide you can find the following useful information:

The substantive issues arising from the overlap of trade and environmental norms.
International treaties with potential implications for trade and environmental linkages.
Efforts to address trade and environment issues made by the WTO Committee on Trade and the Environment for the first ministerial conference.
How disputes over trade and environmental goals can serve as indicators of trade and environment linkages.
Outline of other potential indicators useful to furthering one's understanding of the issues.
Potential and actual national responses to these conflicts between trade and environmental goals.
The uses and potential influence of remotely sensed data on the linkages between trade and the environment.
A brief list of other web resources on trade and the environment is provided.
Short bibliography on trade and environment research.

Nature of the Trade and Environment Issue

Efforts on the international level to strengthen the international trading regime often spill over into areas of international environmental concerns and vice versa. The norms and rules used to oversee international trade can affect the goals and norms associated with pursuing international environmental issues. The trade and environmental links topic has gained increasing attention due to the continued diversification and integration of the global economy since the creation of the General Agreement on Tariffs and Trade (GATT) in 1947, and due to increasing awareness of environmental issues. Overall this has been described as the "greening of world trade."

Key issues arising from the nexus of international trade and environment include

Trade and Environmental Rule Synergy. This refers to the interaction between international trade regulation or liberalization and domestic environmental regulation; or vice versa. For example, if a law is passed in one country imposing strict environmental standards on the production of a certain good, these standards may unfairly discriminate against foreign producers which is against trading rules.
Harmonization. This issue concerns whether trade agreements contribute to Harmonization of Environmental Standards, and whether harmonization positively or negatively affects the environmental impact of economic activity, a topic addressed by Stevens (1993) in "Harmonization, Trade and the Environment."
Trade and the Internalization of Environmental Costs. Environmental costs can be shifted to other countries using trade measures. Conversely trade agreements can provide an effective forum for internalizing environmental costs not currently accounted for in production and processing of traded goods. Trade and Environment and UNCED Follow-Up Activities in UNCTAD, a report from the United Nations Conference on Trade and Development (1994), examines methods of internalizing environmental costs.
Transparency. This notion is simply the publicizing of governmental laws and regulations, whether trade or environmental. Transparency has two general applications. The first application is in terms of the laws and regulations themselves through notification requirements. For a discussion of this issue in context see WTO Committee on Trade and Environment Bulletin No.3. Second, the question of transparency also arises in the area of dispute resolution mechanisms in multilateral trade agreements if applied to environmental matters, and vice versa. von Moltke (1993) discusses this issue in "Dispute Resolution and Transparency."
Intellectual Property. The application of intellectual property rights and patent regimes, especially as related to biodiversity, can influence trade and environmental outcomes. Groombridge (1992) surveys this issue in "Intellectual Property Rights for Biotechnology," an excerpt from Global Biodiversity: Status of the Earth's Living Resources.
Development. Trade and environmental issues raise questions about potentially disparate effects on economic growth in industrialized countries and developing countries. A U.S. Office of Technology Assessment (1992) report section from Trade and the Environment: Conflicts and Opportunities examines these questions.

It should also be noted that, with the exception of a few concrete examples, the issues outlined above, which manifest the linkages between trade and the environment, are constantly evolving as new challenges arise and the scope of international environmental agreements expands.

International Treaties Affecting the Trade and Environment Linkages

GATT to WTO: The Conclusion of the Uruguay Round

Since GATT's inception in 1947, a number of multilateral trade negotiating rounds have been initiated and concluded. In general these negotiating rounds result in further liberalization of world trade and expansion of the scope of the GATT to new areas such as non-tariff barriers.

The successful conclusion of the Uruguay Round in 1994 addressed a number of important issues which had been notably absent from earlier GATT trade rounds. These issues include, inter alia, agriculture, intellectual property, and trade in services. The Uruguay Round agreements also led to the creation of the World Trade Organizations (WTO).

It is not clear whether the new, more comprehensive trade agreement creating a new international organization with an enhanced status in terms of international law, has complicated the linkages between international environmental law and international trade law. In the past the GATT has been criticized for promoting freer trade at the expense of international environmental efforts. However, pursuant to the Marrakesh ministerial declaration, the WTO, established in January 1995, is working with other key environmental organizations such as the UNEP to clarify these difficulties. Details are outlined in About Trade and Environment in the WTO.

Action by the WTO, since its inception at Marrakesh, has included the creation of a standing committee to address the problems raised by the congruence of international environmental issues and international trade issues. The WTO Committee on Trade and the Environment (CTE) has met regularly since its creation, convening first in March 1995.

The CTE has addressed a number of concerns listed at the outset of this guide. The conclusion of 1995 brought with it the development of a work plan for the Committee to address the salient trade and environment issues. For a listing of the CTE work plan see CTE Bulletin No.6.

Key GATT/WTO Provisions

The primary GATT/WTO provision which is cited most often in reference to trade and environmental norm conflicts is Article XX. This article outlines the allowable exceptions for trade restricting national policies.

Additional relevant GATT/WTO provisions depend on the particular trade and environmental conflict at issue. Other GATT/WTO norms which are often mentioned in reference to potential trade and environmental law conflicts are prohibitions against so-called technical barriers to trade (TBTs) and prohibitions against quantitative restrictions on trade.

Key Environmental Treaties with Trade Implications

International environmental treaties promote environmental goals. The requirements of the treaties may lead to actions by national governments or international organizations to implement the treaty prescriptions. These actions, or other aspects of the treaties can lead to the circumstances described in the trade and environment issues section of this document. All of the treaties listed below potentially influence trade whether through restrictions on trade, or through requirements as to notification, or through the fact that countries may implement laws to further the goals of the treaties which have implications for trade. These treaties include, but are not limited to:

As part of its preparation for the first WTO Ministerial meeting held in Singapore, 9-13 December 1996, the CTE prepared a report (downloadable WordPerfect 5.1 file) summarizing its work on trade and environment linkages. The report listed eleven key issues addressed by the CTE which are quoted from the document:

Item I: "The relationship between the provisions of the multilateral trading system and trade measures for environmental purposes, including those pursuant to multilateral environmental agreements."
Item II: "The relationship between environmental policies relevant to trade and environmental measures with significant trade effects and the provisions of the multilateral trading system."
Item IIIA: "The relationship between the provisions of the multilateral trading system and charges and taxes for environmental purposes."
Item IIIB: "The relationship between the provision of the multilateral trading system and requirements for environmental purposes relating to products, including standards and technical regulations, packaging, labelling and recycling."
Item IV: "The provisions of the multilateral trading system with respect to the transparency of trade measures used for environmental purposes and environmental measures and requirements which have significant trade effects."
Item V: "The relationship between the dispute settlement mechanisms in the multilateral trading system and those found in multilateral environmental agreements."
Item VI: "The effect of environmental measures on market access, especially in relation to developing coun tries, in particular to the least developed among them, and environmental benefits of removing trade restrictions and distortions."
Item VII: "The export of domestically prohibited goods."
Item VIII: "The relevant provisions of the Agreement on Trade-related Aspects of Intellectual Property Rights."
Item IX: "The work programme envisaged in the Decision on Trade in Services and the Environment."
Item X: "Input to the relevant bodies in respect of appropriate arrangements for relations with intergovernmental and non-governmental organizations referred to in Article V of the WTO."

While extensive discussions were held on these various items, specific WTO policies were not developed. However, a number of important observations were described in relation to items 1 and 5.

No disputes have been addressed by either the GATT or WTO concerning trade measures used pursuant to an international environmental agreement.
Existing WTO provisions are often adequate to encompass the appropriate use of trade related environmental measures, most notably GATT Article XX applies in this case.
Both trade and environment expertise should be relied on when incorporating a trade provision in an international environmental agreement.
If all concerned have agreed to a trade related measure as part of an international environmental agreement, then disputes over the measure are unlikely to arise.
In future international environmental agreements, consideration should be given to how trade measures affect non-parties to the agreement.
Policy coordination between trade and environment officials at the national level is essential for parties to both trade and environment agreements to uphold their obligations.

The declaration adopted at the ministerial meeting contained a paragraph concerning the general topic of trade and environment. The main trade and environment issues cited in this context were the interactions between trade liberalization, development, and environmental issues. Emphasis in the delcaration was placed on policy coordination at the national level.

Linkages from Trade and the Environment to Key Indicators

Indicators of linkages between trade and the environment are multifaceted. Which indicators are most relevant depend on the question addressed. However, two issues, both related to dispute settlement, are indicators of these linkages: trade disputes with environmental content and comparison of trade dispute settlement and environmental dispute settlement.

Trade Disputes with Environmental Content

Perhaps the clearest indicators of the linkages to be found between the areas of the environment and trade are in the disputes brought before the GATT and the WTO. Two disputes stand out as highlighting the difficulties surrounding the integration of international environmental concerns and the international trading regime. These two disputes are the 1992 US/Mexico Tuna dispute and the more recent 1995 US/Venezuela & Brazil Gasoline dispute.

Resolved through bilateral negotiation, the 1992 US/Mexico Tuna dispute resolution came after the dispute was brought before a GATT dispute settlement panel. The Tuna dispute involved the application of a US embargo on Mexican tuna imports. The embargo was imposed due to Mexican tuna harvesting methods (purse seine driftnet) which violated the US Marine Mammal Protection Act. For more information see US/Mexico Tuna Dispute in the TED database Case 1 and Case 2.

Even though on technical grounds the US lost the 1992 case a second, related case was brought by France and the EC under similar grounds. For a brief description see US/Mexico Tuna Dispute in the TED database Case 1 and Case 2.

The 1995-6 US/Venezuela and Brazil Gasoline case is important for a number of reasons. First, it is the first case brought before the new WTO utilizing the refined dispute settlement process. In addition, the decision by the dispute settlement panel was appealed by the US to the WTO Appellate body. This dispute involved the imposition of US sanctions against Venezuela. Venezuelan gasoline imports violated the restrictions on certain pollutants known as olefins by the Clean Air Act. The US lost the initial dispute and appealed the decision to the WTO dispute settlement Appellate body. The Appellate body upheld the initial decision. For a summary of the dispute see US/Venezuela Gasoline Dispute in the TED database.

An on-line database of cases involving trade and environment issues can be found at the Trade and Environment Database (TED) project sponsored by the US Environmental Protections Agency and implemented by Dr. James R. Lee of The School of International Service at American University.

Comparison of Trade Dispute Settlement and Environmental Dispute Settlement

For a detailed discussion comparing trade dispute settlement and environmental dispute settlement see Stacking the Deck: Compliance and Dispute Settlement in International Environmental Agreements. This paper argues that dispute settlement procedures are the keys to linkages between trade policy goals and environmental policy goals. Given the difficulty of enforcement in international law and in international organizations, dispute settlement procedures are arguably very important. Additionally, this paper makes the observation that dispute settlement in international environmental agreements is not as developed as is the case with dispute settlement in international trade.

Key Indicators on Environment and Trade

In addition to the trade and environment disputes listed above which have far reaching implications for the trade and environment, indicators of the linkages between trade and the environment can be thought of in other ways. For example, when the conception of linkages between trade and the environment is expanded to include notions of development and sustainable development it is useful to think of indicators for these kinds of issues.

For information on indicators on trade and trade by commodities see the following resources.

For a description of data on aggregate trade and other economic indicators see the CIESIN page on the World Bank World Tables

For development related issues see:

For World Bank data on development see descriptions of the Social Indicators of Development (SID) or Trends in Developing Economies (TIDE).
For other data and information related to development see Food and Agriculture Organization and FAO databases.

National Response Indicators on Trade and the Environment

Given the often indirect nature of conflicts between trade and environmental goals, it is not surprising that national responses to these difficulties are at times difficult to identify. However, those countries with the most at stake either in terms of trade or environmental concerns are likely to address these problems to the greatest extent.

National responses to trade and environmental linkages can take place in a number of ways, recommendations for action, specific legislation or directives leading to specific actions, or reactions to other trade and environment related events such as dispute settlement.

The Office of the United States Trade Representative (USTR), is responsible for overseeing the implementation of US trade policy. The US Trade Representative is an U.S. Government, Executive Branch position with ambassadorial rank. The USTR is working to implement the various provisions called for by the establishment of the WTO. For a report on these efforts see the USTR WTO implementation page. This report also contains an appendix submitted to the USTR on issues pertaining to trade and the environment.

Remote Sensing Data and Linkages Between Trade and the Environment

At present, there is an uneasy relationship between the promulgation of environmental goals and trade goals in the international arena. The ability to gather and use remotely sensed data may substantially influence this relationship.

On the one hand, remote sensing is used to promote productivity and trade. For example, the Southeast Asian Fisheries Development Center uses data gathered from remote sensing to aid operators of fishing vessels in their quest to harvest fish. Commercial uses of remote sensing data are also available to promote tuna fishing.

On the other hand, remote sensing also can be used as an important resource management tool. Remote sensing has been used to monitor yellowfin tuna stocks in the Pacific.

Information gleaned from remote sensing can also influence the course of international agreements. As the history of the Montreal Protocol illustrates, remotely sensed data and the analytical conclusions drawn from that data have the potential to influence the course of an international environmental agreement. As the understanding grew of the damage inflicted on stratospheric ozone by ozone depleting substances (ODS) and the potential hazards raised for human life on earth, the timetable for eliminating ODS from day-to-day commerce was shortened. This is a rare but illustrative example in the field of international agreements.

Applying the Montreal Protocol history to trade and the environment suggests that remotely sensed data may have the potential to shift the balance away from trade goals and towards environmental goals. Using the US/Mexico tuna dispute as an example, it is possible to say that remotely sensed data of tuna stocks or fishing fleets, had it been available, might have influenced the GATT trade dispute panel adjudicating the dispute.

To date, trade disputes which arise from environmental goals have ruled in favor of trade norms to the detriment of environmental goals. Remotely sensed data carries with it the potential to influence this balance.

Selected Bibliography

Agriculture, trade, and the environment : discovering and measuring the critical linkages / edited by Maury E. Bredahl, et al. Boulder, Colo.: Westview Press, 1996.

Reconciling trade, environment and development policies : the role of development co-operation. Paris: Organisation for Economic Co-operation and Development. Washington, D.C.: OECD Publications and Information Center, c1996.

Esty, Daniel C. Greening the GATT (BOOK REVIEW) trade, environment, and the future. Institute for Int. Economics, 1994.

Low, Patrick, ed. International Trade and the Environment. World Bank Discussion Papers, 159. Washington, DC: The World Bank, 1992.

Siebert, Horst. Trade policy and environmental protection. World Economy 183-94 '96 Global Trade Policy Issue.

Ulph, Alistair. Environmental policy and international trade when governments and producers act strategically. Journal of Environmental Economics and Management 30:265-81 May '96.

Treaty Texts

Summaries

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