May 1999

Trade and the environment - Prospects for the Millennium Round of trade talks

This leads to discussions of trade liberalization, the mandate of the WTO (World Trade Organization), and its promise of bringing economic benefits to millions of people worldwide. Yet there is no guarantee that the link between economic growth, and thus wealth, and better environmental protection would be made. Trade liberalization policies are often instituted without taking their full impact on environmental degradation into account. If poverty is in fact a core link between trade and the environment, then these issues must be discussed with concerns of development. More specifically, trade should be considered as inextricably linked to sustainable development. The widely accepted relationship between the two lies in environmentally sound and "sustainable" production processes and the capacity to fulfil basic human need now and in the future.

But this integration of trade and sustainable development has been difficult, since these differ in culture and in the nature of their communities and issues. As recent cases of environmental problems brought to the WTO demonstrate, the conflict between the environment and trade communities is often based on fears and assumptions.

One such fear has been that expanded trade would lead to economic growth and result in environmental degradation. But this fear is based on yesterday's understanding of environmentalism. Today, most environmentalists adhere to sustainable development and recognize the necessity for development along with the importance of environment protection. The problem is not growth per se, but rather the type of growth. Trade and environmental policies must develop concurrently, otherwise environmental policy is likely to lag - as it has in Eastern Europe, where past economic gains are now being offset by environmental damage and costs.

Some environmentalists also fear that countries with high environmental standards will be forced to lower those standards to open trade and compete with other countries. They are concerned that trade agreements may cause a loss of industrial competitiveness, making the enforcement of international environmental agreements more difficult.

Another fear is that "environmental policy" may be used to hide trade barriers. One such example is the recent ruling adopted by the province of Ontario, Canada, requiring beer production in recyclable bottles, which excluded US brewers who use aluminum cans even though can recycling is environmentally better than bottle reuse. And there is concern about the extent to which ill-conceived environmental considerations might hinder trade liberalization and actually impede progress towards environmental agreements and protection.

Dealing with non-trade issues in a trade body

GATT (the General Agreement on Tariffs and Trade) began to consider environmental issues as they pertain to trade in 1971, with the set-up of the Group on Environmental Measures and International Trade. It was not until more than two decades later, however, at the end of the Uruguay Round of trade talks, that trade ministers finally adopted a key decision linking environment and sustainable development issues to WTO work and setting up the committee on trade and the environment.

In 1992, after UNCED (the United Nations Conference on Environment and Development), GATT recognized it has central role in supporting the goals of economic growth and sustainable development, but also acknowledged its lack of competence in dealing with environmental concerns raised in Agenda 21. Thus, the Marrakesh Ministerial Conference in 1994 created the WTO Committee on Trade and Environment, which since then has been working closely with other actors in the environment agenda to find means of minimizing conflicts and fostering better understanding between the trade and environment communities.

While there is a clear overlap between the agendas, just how the various trade and environment agreements relate with each other remains unclear. Also unclear is the functional separation/combination of issues that the various international governmental organizations must tackle.

Key to this enigma is the basic understanding that the GATT - with its rule-based system and effective dispute settlement mechanism - was created to address government failure, not market failure. Cooperative trade policies were perceived to improve the overall situation by improving and harmonizing government policies. The past decade has seen the beginning of steps to broaden the GATT to encompass non-trade issues. By connoting the same government failure to manage social, economic, and environmental conditions, these issues are more and more being thought of in the same context as trade problems.

The inclusion of development in the trade and environment debate is one example of this. Many discussions within WTO include a consideration of development issues, resulting in an apparent partial treatment of trade and environment issues. But rulings interfering with local sustainable development have caused some developing countries to question the WTO's legitimacy in this arena.

There also remain basic questions of whether sustainable development - as with labour and human health - should even be considered by the WTO. When a problem does not draw "broader" international agency response, however, it is common that international organizations such as trade bodies step in. Non-trade issues thus are forced into trade realms by those who seek to exploit the trade-related aspects, including the ability to impose trade sanctions. In this way, the WTO has become more powerful than GATT in the sense that it has now a wider mandate (as in the case of intellectual property law).

But if the WTO is to remain focused, non-trade issues should stay out of its mandate. Instead, the ability of other, more pertinent international bodies to address such problems must be strengthened, such as by the adoption of WTO-like dispute settlement mechanism regimes. Unless other international institutions address non-trade issues effectively, there will continue to be pressure to push them into the WTO forum.

The WTO alone cannot deal with all of these issues. The best solution would be for it to let other relevant institutions that have the mandate examine the non-trade aspects of the issues and work with the WTO to find coherent approaches to solutions. The banana case is a recent example of a dispute treated solely as a trade issue; the development aspect of the dispute, which could have been managed by an organ such as the United Nations Development Programme, was not considered.

While the WTO can keep other concerns in mind, it needs to remain focused on what it does well, which is dispelling protectionist trade policies. Other international organizations should coordinate with the WTO and cooperate to address related issues.

Mitigating North-South conflicts

The relationship between trade and environmental policies is problematic in part because of the differing ways in which the North and South views such policies, and their sense of mutual mistrust.

While developed countries are better able to benefit from trade liberalization, there are potentially significant benefits to developing countries as well. Growth and development of the WTO system will require participation of all members, North and South, even though countries at different stages of development will benefit to different degrees. Developing countries need to be in a position to add value to products and also to add more services. And if they are to realize this potential, then tariff advantage, competitive advantage, etc. must be considered. Some encouraging things can be expected in a future WTO round.

Also vital is that developing countries fully understand the WTO tools, rules, and rights they can use to strengthen their positions. Two proposals for accomplishing this are: 1) setting up a foundation of attorneys to help developing countries increase their understanding, and 2) expanding the capacity within the WTO. While the latter proposal seems the most viable, it faces stiff resistance from those who see the role of the WTO as impartial.

Developing countries must recognize, too, that a strong WTO is in their best interests. Without such a system of rules and dispute settlement, decisions boil down to which countries are most powerful.

But there must be confidence in the WTO regarding openness, legitimacy, etc.; dispute settlement must viewed as "judicial" and fair. This could be achieved by allowing NGOs (non-governmental organizations) and the media to observe, for example, since open meetings will help limit corruptive processes and deals. Also, carrying out some sort of environmental impact assessment before negotiations would help alert negotiators to the non-trade issues they need to address.

Trade and environment in the Millennium Round of trade talks

As we head to the Ministerial meeting of the WTO in Seattle, there are three ways to look at opportunities: 1) WTO rules, 2) WTO procedures, and 3) the overlap with environmental rules One key hurdle from an environmental perspective is that "necessary" policy is typically viewed as the "least burdensome" option to WTO rules. The requirement that everyone adhere to the same standard does not always benefit all countries. But because current GATT rules do not recognize that the process and production method (PPM) of one country can adversely impact the environment of another country, for example, a country cannot refuse entry to a product that has been cleaned with CFCs (despite the Montreal Protocol) because doing so would be making a judgement of the PPMs.

The WTO has insisted that its interpretation of the term "like products" is simple: two products of the same quality and make that enter a border are "like products," and how the products are made is immaterial. Nevertheless, it will be hard not discuss PPMs in addressing transboundary or international environmental problems. Such PPMs, however, should be performance, not product, oriented, and they should be as broad as possible.

There is the potential that a portion of the Millennium Round talks could focus on subsidies, which opens a possible opportunity to address the linkage of trade and environment aspects (such as agriculture). Many subsidies - such as fisheries subsidies, which often result in over-capacity and over-fishing - are bad for the environment. Multilateral reduction or phase-out of some subsidies can even result in better economic performance of countries; as fishing stocks grow, for example, it would lead to better fishing opportunities and increased income. In this case, reduction of subsidies would not only make good economic sense, it would also make good environmental sense.

Inefficient subsidies motivated by political rather than substantive concerns must be the primary targets. There are areas where environmental improvement will aid economic and trade development. Building a stronger international environmental regime and achieving coordinated actions among international environmental organizations - including streamlining environmental actions and making them as coherent as the trade sector's - is key to making trade policies more sensitive to the environment.

Another key issue for the upcoming talks is the need to fix Article XX - or the lack thereof. This could be fixed by reinterpreting the "necessary" portion to instead read "technically and scientifically appropriate and proportionate to the environmental goal."

This leads to the question of procedures. Some argue that the capacity of the South (or lack thereof) has been a major problem. Yet, despite varying abilities, there are ways of ensuring even representation and fairness, such as greater openness and transparency in the distribution of documents and representation during hearings. Even the inability of some nations to physically send a delegation to meetings and hearings can be overcome by modern communications means, such as the Internet.

Establishing a GEO The WTO, with its strong rule-based system and an effective dispute resolution mechanism, is far more advanced than most environmental bodies in terms of institutional arrangement. This has meant that most cross-cutting environmental concerns that also deal with trade get pushed towards the WTO. Some experts argue that - instead of bringing environmental concerns to the WTO, which lacks the expertise to deal with such issues - there is a need to create a new international organization. WTO Director General Renato Ruggiero, for example, during the WTO High Level Symposium on trade and the environment, suggested the creation of a Global Environment Organiza-tion (GEO). The roles of and interaction between the WTO and the GEO could be based on specifically defined technical or scientific problems, for starters (in the same manner that the WTO currently asks the IMF for guidance on some technical questions regarding financing). The structure of this GEO would not deviate from existing UN and specialized organizations, but rather would try to harmonize their roles. One suggestion for a GEO involves a three-tiered organization. In the inner tier, UNEP and the WMO might be merged to act as overall overseer of the UN's environmental concerns. The middle layer might comprise all the MEA secretariats, which would share a common compliance and dispute settlement mechanism and be administered integrally while still maintaining autonomy in their decisions. The outer core could encompass other UN agencies, or divisions thereof, that have environmental activities.

Environmental impact assessment for the WTO?

Even avid "free traders" must acknowledge the need to address environmental and resource problems. During the WTO High Level meeting on trade and the environment organized last March, in fact, there was a strong call by the developing world for an assessment of the environmental impacts of the last round of trade talks before even starting the new round.

The proposal that an environmental impact assessment (EIA) be done for the new round was not enough for the South, which cited capacity imbalance as an overriding issue for determining which mechanisms were good.

If there is to be an EIA for a trade round, though, several questions arise. Should it be multilateral, or simply national? Who would assess the global resource? Would the assessor be an independent or government entity? Would the approach be retrospective or prospective? The answer is that both retrospective and prospective EIA should be done, and done in a sound scientific way.