About the Author Stewart Hudson is the Legislative Representative for the International Affairs Division of the National Wildlife Federation, a position he has held since 1986. Over the course of the past five years he has worked with non-governmental organizations in the U.S., Canada, and the rest of the Americas to push for environmental reform within the multilateral development banks, with a particular focus on improving the environmental performance of the Inter-American Development Bank. In addition to his work on reform of the multilateral development banks, he was one of the architects of the movement to address trade and environmental concerns, and the National Wildlife Federation has been in the forefront on this debate in the United States and internationally. Mr. Hudson holds a Masters Degree in International Development from American University, and a B.A. in History from Yale University. Prior to his employment with the National Wildlife Federation, he served four years as a legislative aide to then U.S. Senator Lowell Weicker, Jr. During that time, he served on the Senate Small Business Committee working to promote exports from small- and medium-sized businesses in the United States. This paper was prepared for a World Bank Symposium on "International Trade and the Environment", Washington, D.C., November 21-22, 1991. The author gratefully acknowledges the assistance of his colleagues at the National Wildlife Federation, and the comments and criticisms of Hal Kane, an outside reader, during the preparation of this paper. Frictions Between International Trade Agreements and Environmental Protections Durwood Zaelke, Robert Housman, and Gary Stanley I. INTRODUCTION The underlying goal of free trade policy is to allow markets to allocate resources to their most efficient uses, while the general goal of environmental policy is to manage efficiently and maintain the earth's resources. Where the same resources are the subject of both trade efforts to allocate and environmental efforts to manage efficiently and maintain, conflicts can and do arise. These conflicts between trade and the environment must be reconciled, because both trade and environmental policies are too important to let conflicts persist. Yet many environmentalists still believe that the economic system, including trade, is the enemy; and many trade and development experts still believe that the environment is not a fundamental part of the economy, but rather a luxury to be added on later, when and if it can be afforded. The trade and environmental communities have different training and professional "cultures." Trade experts are guided largely by economic principles: efficiency and comparative advantage, to name two. Environmental experts are informed more by the biological sciences and ecological principles than by economics. On the other hand, most environmental professionals appreciate the need to internalize environmental costs, and many now see that market-based strategies may be more efficient than command and control in achieving this in many instances. In addition to the common language of cost internalization, both the trade and environmental cultures also use law to help implement their goals and to resolve disputes. Given time, it seems reasonable to expect that sustainable development will be accepted as the legitimate goal of both trade and environmental policy. As the Trade and Environment Committee noted last summer, "[o]n the most fundamental level, trade and environmental policy must meet in the concept of sustainable development. Both trade policy and environmental policy must serve that concept as their ultimate goal." The problem, of course, is that time appears to be running out. World population is expected to double to ten billion by the middle of the 21st century and may not stabilize until it reaches 14 billion in the early part of the 22nd century. Moreover, the world economy of $15 trillion may reach $75 trillion by the middle of the 21st century. Even with the most optimistic projections of technological advancement, these trends in population and the economy are almost certainly not sustainable. Even more troubling, the scale of today's development already appears to be overextending the ecosystem that sustains us all. "Further growth beyond the present scale," according to World Bank senior economist Herman Daly, "is overwhelmingly likely to increase costs more rapidly than it increases benefits, thus ushering in a new era of 'uneconomic growth' that impoverishes rather than enriches." Daly believes that "[t]his is the fundamental wild fact that so far has not found expression in words sufficiently feral to assault successfully the civil stupor of economic discourse." As the critical scientific and policy debate about the limits of the ecosystem goes on, it is necessary for the legal relationships between trade agreements and environmental agreements to be reconciled. Accordingly, this memorandum reviews provisions within the General Agreement on Tariffs and Trade ("GATT") and other trade agreements that may be relevant to environmental concerns. It then reviews several international environmental agreements and domestic laws for possible frictions with those trade provisions. It concludes with a brief discussion of issues and options for reducing or eliminating such frictions. II. PROVISIONS WITHIN TRADE AGREEMENTS RELEVANT TO The GATT is the legal framework under which almost all trade among nations occurs. Co-existing with the GATT are a number of regional trade agreements (e.g. the European Free Trade Association) and bilateral trade agreements (e.g. the United States-Canada Free Trade Agreement). The goal of the GATT and these other agreements is to provide a secure and predictable international trading environment while at the same time fostering greater economic efficiency and growth through trade liberalization. The GATT's preamble, for example, begins with the recognition "that...trade and economic endeavor should be conducted with a view to raising standards of living, ...developing the full use of the resources of the world and expanding the production and exchange of goods...." Free trade proponents argue that utilizing the "comparative advantage" of individual countries leads to maximum welfare for all. However, as Stewart Hudson has noted in his paper for the Trade and Environment Committee, it is important to keep in mind that the economic activity spawned by trade has significant positive and negative consequences for the environment when viewed in the context of sustainable development. A. GATT The GATT consists of three major parts: Part I (Articles I to III) which contains the most-favored-nation ("MFN") and tariff concession obligations; Part II (Articles III to XXIII) - sometimes referred to as the "code of conduct" - which contains the majority of the GATT's substantive provisions and the exceptions to its obligations; and Part III (Articles XXIX to XXXVIII) which contains the procedural mechanisms for implementing the other obligations and provisions contained within the GATT. 1. GATT'S GENERAL TRADE PRINCIPLES AND THEIR ENVIRONMENTAL IMPLICATIONS a. The Most-Favored-Nation-Principle: Established by Article I, the most-favored-nation principle ("MFN") is intended to ensure that the contracting parties do not discriminate among imported products on the basis of their national origin. The MFN obligation requires that each contracting party extend any privilege or advantage it provides to a product immediately and unconditionally to like products from, or destined for, all GATT contracting parties. Because the MFN obligation requires all like products from contracting parties to be treated equally, it poses an obstacle to a contracting party wishing to use trade restrictions to punish or otherwise attempt to influence a particular exporting country's domestic environmental policies. The MFN obligation has been found to apply to labeling schemes that are not marks of origin, including "eco-labeling" regimes. Therefore, government labeling requirements relating to production process methods ("PPMs") that grant market access or have the effect of providing market advantages may also conflict with this GATT provision.2 b. The National Treatment Principle: Article III's national treatment principle requires that a contracting party treat like foreign and domestic products equally once tariffs and other import requirements have been met. This requirement has been read narrowly by GATT dispute settlement panels to permit parties to subject imports to only those domestic regulations that apply directly to, or affect the physical and/or chemical composition of, the product in question. Thus, as the Tuna/Dolphin Panel Report demonstrated, a contracting party that distinguishes among imported products based on the environmental soundness of the exporting party's PPMs is vulnerable to attack under Article III. c. The Prohibition of Quantitative Restrictions: GATT Article XI prohibits quantitative restrictions such as quotas, bans, and licensing schemes on imported or exported products. Article XI contains several exceptions that allow departure from its general proscription against quantitative restrictions in certain strictly defined circumstances, such as the application of standards to internationally-sold commodities and agricultural products.3 Even when the exceptions permit a quantitative restriction, the contracting parties must still observe the MFN and national treatment obligations in implementing it.4 By broadly prohibiting quantitative restrictions, Article XI arguably conflicts with such environmental measures as conservation bans or limits imposed on exports of resources, unless they can be justified under one of the general exceptions to the GATT contained in Article XX. Examples of environmental measures that may run afoul of Article XI include the United States law banning the exportation of old growth timber harvested from federal lands5 and the proposed EC and Dutch bans on unsustainably harvested timber. 2. OTHER GATT ARTICLES AND THEIR IMPACTS ON ENVIRONMENTAL AGREEMENTS AND CONCERNS In addition to the GATT's general principles, many of the GATT's other Articles could cause frictions to arise between trade and environmental policies. a. Article II: Maximum Tariff Barriers: Article II establishes the negotiated maximum tariff levels, as provided for in the accompanying annexes to the GATT, for national products. This Article also prohibits the imposition of import surcharges by exempting the scheduled items from all other duties and/or charges imposed in connection with importation. Article II(2)(a), however, provides exceptions from the maximum tariff levels for: 1) any charge imposed on an import, consistent with the national treatment principle, that is equivalent to an internal tax imposed on the like domestic product or articles from which the like domestic and imported products are derived; 2) antidumping or countervailing duties applied consistent with the GATT; and 3) fees or charges, in accordance with Article VII (valuations for customs purposes), commensurate with the costs of services rendered. The only deviation from the environmental neutrality of Article II occurs in the case of products which appear on the Article's annexed lists of scheduled items. If a product is listed, such as tropical timber, then a contracting party cannot levy new, additional import taxes or other charges, such as a sustainable use tax, on the products that do not conform with the listed negotiated charges. b. Article VI: Antidumping and Countervailing Duties: Article VI condemns the practice of dumping (the introduction of products by one contracting party into the markets of another contracting party at less than the normal value of the products) if it causes or threatens material harm to a domestic industry or retards the establishment of a domestic industry. Article VI also sets the ground rules for contracting parties to impose antidumping duties on imported products to combat dumping and to apply countervailing duties to offset bounties or subsidies relating to imported products. The scope and details of Article VI were significantly elaborated upon by the Subsidies Code negotiated in the Tokyo Round of Multilateral Trade Negotiations. An analysis of the environmental implications of Article VI, as well as Article XVI regarding subsidies, can be found in section II.3.b. of this memorandum regarding the Subsidies Code. c. Article X: Transparency and Equal Access to Review Processes: Article X requires transparency in the publication and administration of all regulations affecting trade. It does not provide, in reciprocal fashion, affected citizens or consumers access to information or recourse to review procedures when imports or exports allegedly cause them environmental harms. Moreover, the transparency requirements in Article X do not apply to the GATT's own information and review processes. d. Article XIX: Emergency Measures Provisions: Article XIX allows a contracting party to impose emergency trade restrictions to protect a domestic industry that is seriously threatened by imports. If an environmental regulation so burdens a domestic industry as to place it in jeopardy, Article XIX allows the contracting party to adopt measures to protect its |