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SEM II (2011-12)
ECONOMICS PROJECT
CONTENTS
Reason to choose this topic Introduction Discussions of the Committee on Trade and Environment Work programme of the Committee on Trade and Environment Market access and environment Trade in domestically prohibited goods Multilateral environmental agreements and trade measures Trade rules versus environmentally sound technologies and products GATT/WTO provisions on environment and market access: implications for developing countries Promoting sustainable development by devising mutually sustainable trade and environmental policies Trade and sustainable development An outline of a South-South agenda for sustainable development Implications of environment-related issues in a future comprehensive round for developing countries of the ESCAP region The environmental agenda of the EU Multilateral environmental agreements and WTO Conclusions Reference
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Introduction
The gradual evolution of the complex issue of linkages between trade and environment has been a subject of intense debate. The central questions of the debate remain how to reconcile the two systems, how to bring the trade and environmental systems closer together, without undermining either of them, knowing that they are not necessarily always compatible. While the environmental regime supports measures that go beyond borders to protect the environment, WTO does not usually allow for extraterritorial measures. However, there are exceptions under GATT Article XX. Nevertheless, the trade and environment debate has gathered increased momentum during the last few years because of increasingly vocal arguments by rich countries that unfair environmental practices may exist in developing countries and these need to be offset by appropriate trade policy measures in order to level the playing field. Environmentalists in these countries argue that international trade rules restrict the legitimate use of trade measures to enforce environmental standards internationally. On the other hand, developing countries argue that neither are trade measures the appropriate tools to address environmental issues, nor is WTO the right platform to raise them. They argue that why should environment belong to the WTO agenda at all when other international organizations, such as the United Nations Environment Programme (UNEP), and multilateral environmental agreements (MEAs), exist to deal with environmental issues. These developing countries, including those of the ESCAP region, are worried about a new form of protectionism that of green protectionism. Their concerns are not baseless; in the past, most of the developed countries have used the environment as a non-tariff barrier to trade in order to protect their domestic markets. The EU has done it and the United States of America has done it, and other developed economies are no exception.
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been grouped into two clusters: the first on market access and the second on linkages between the multilateral environment and trade agenda.
5. The relationship between the dispute settlement mechanisms of WTO and those of MEAs. 6. The potential for environmental measures to impede access to markets for developing country exports, and the potential environmental benefits of removing trade restrictions and distortions. 7. The issue of the export of domestically prohibited goods. 8. The relationship between the environment and the TRIPS Agreement. 9. The relationship between the environment and trade in services. 10. The relations of WTO with other organizations, both non-governmental and intergovernmental. Since its creation in 1995, the Committee has been meeting at least twice a year; however, there is a widespread feeling that so far CTE has not implemented its mandate. The lack of concrete results achieved so far stems from the fact that many of the developed countries want to ensure that areas of interest to them should be addressed and progress made. CTE has been caught in a logjam for some years: some developing countries have been demanding a discussion on issues affecting market access, while other have been insisting on multilateral environment agreements or demanding a focus on all 10 items. The deliberations at CTE, while of limited relevance to the wider trade concerns of developing countries may nevertheless have some implications for their trade promotion programmes. The next few paragraphs summarize the CTE discussions, which have so far been inconclusive, on some items that would be of interest to developing countries in the ESCAP region.
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An international agreement to check the movement of these products across borders is a pressing need. While the issue should be given first priority by those caring for the
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reference to its Preamble. It also has emphasized that the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, which is of mutual advantage to producers and users of technological knowledge, in a manner conducive to social and economic welfare and to a balance of rights and obligations.
GATT/WTO provisions on environment and market access: implications for developing countries
Under GATT, the usual focus of trade and environment discussions is on Articles I (mostfavored-nation treatment), III (national treatment) and XX (general exception clause). In addition, the Uruguay Round agreement on TBT (the standard code), SPS measures and TRIPs have environmental implications and, in turn, market access implications. 1. GATT Articles I and III Article I, which codifies the MFN treatment principle, states, among other things, that any advantage, favor, privilege or immunity granted by any contracting party to any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. Article III calls for national treatment on internal taxation and regulation between imported and domestic products so as not to afford protection to domestic production. Both of these articles categorically mention non-discrimination in terms of like products; however, the concept of like products itself has become a matter of debate. Environmentalists argue that it is possible to produce like products using different process and production methods (PPMs), including environmentally damaging one s . Therefore, some environmental groups are demanding discrimination
among products based on PPMs, and a clause for the same in WTO. Currently, WTO does not permit countries to impose trade restrictions on the basis of PPM standards. However, developing countries are opposing any such effort to include PPMs within the preview of WTO, as they are concerned about possibility of PPMs becoming non-tariff trade barriers. Exporters in developing countries are apprehensive that their products may be denied access to overseas markets or they may incur high adjustment costs in order to maintain such access to markets. Allowing PPM-based trade practices would give many countries a greater
opportunity to protect their industries unfairly against foreign competition. Under the pretext of environmental concerns, some countries might penalize other countries which do not import certain goods from their domestic industries by enacting new regulations.
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In fact, in the famous trade and environment dispute (tuna-dolphin) between the Mexico and United States, the GATT Dispute Settlement Panel in 1991 concluded that the ban on Mexican tuna by its northern neighbor violated the national treatment requirement of GATT Article III, which pre-empts trade measures based on production practices. The United States had previously banned Mexican tuna imports because the Government of Mexico was not taking steps to prevent the killing of dolphins while catching tuna. Mexico argued that its right to sell tuna in the United States had been violated, and had asked for the GATT Dispute Settlement Panel to adjudicate the matter. In September 1991, the GATT Panel concluded that the United States was in violation of its GATT obligations. However, Mexico decided not to pursue the case further and the Panels report was not adopted.
GATT Article XX Article XX, entitled General exceptions, allows States, subject to certain conditions, to depart from GATT obligations in order to serve legitimate policy objectives, that is, circumstances in which countries can impose trade restrictions, which would otherwise be in breach of the terms of GATT. Two of the general exceptions with the greatest potential relevance to the environment are as follows: Exception (b) is concerned with the necessity to protect human, animal or plant life or health, and exception (g) is related to the conservation of exhaustible natural resources, if such measures are made effective in conjunction with restrictions on domestic production or consumption. However, the chapeau of Article XX was designed in such a manner that the GATT-inconsistent measures do not result in arbitrary or unjustifiable discrimination or constitute a disguised restriction on international trade. In the shrimp-turtle case, a ban by the United States on shrimp and shrimp products from some developing countries was justified under Article XX by the WTO Appellate Body.
The shrimp-turtle case In January 1997, India, Malaysia, Pakistan and Thailand took the United States to the Dispute Settlement Panel of WTO, arguing that countrys ban on the import of shrimp and shrimp products, pursuant to Section 609 of US Public Law 101-162, was in violation of WTO obligations. In 1996, the United States had imposed a unilateral ban on shrimp and shrimp products from countries which did not meet the criteria required under its national law.
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According to Section 609, the Department of State of the United States was asked to certify countries that had a sea turtle protection programme comparable to that of the United States. The certification process also demanded that turtle kills of exporting countries not exceed the turtle kills of American fisher folk, and recommended that fisher folk use turtle excluder devices (TEDs) to minimize turtle kills. The rulings of the WTO Dispute Settlement Panel in this case were against the United States, but subsequently their intensity was diluted. In April 1998, the Panel held that the import ban on shrimp and shrimp products was clearly a threat to the multilateral trading system and consequently was not within the scope of measures permitted under the chapeau of Article XX. On 12 October 1998, the WTO Appellate Body overruled the initial Panel in its reasoning, but not in its result. Judicially, the Appellate Body did not criticize the Congress of the United States, but rather that countrys implementing agency, the Department of State, which drafted the applicable guidelines. The Body held that the ban was discriminatory only in the manner in which it had been imposed, and reversed the Dispute Settlement Panels ruling that the action was not justified under GATT Article XX. In a way, the Body accepted that shrimps could be differentiated on the basis of the process by which they are caught: in aquaculture, in the wild, in boats equipped with TEDs. This differentiation opened the door to new trade disputes based on processes or production methods. The ruling implied that countries could impose trade bans on the basis of PPMs.
Agreement on Technical Barriers to Trade The Uruguay Round Agreement on Technical Barriers to Trade seeks to ensure that technical regulation and standards, and their testing and certification processes, do not create unnecessary obstacles to trade. It encourages countries to use international standards, except when such standards are ineffective or inappropriate means for the fulfillment of the legitimate objective being pursued. In such cases, member countries are required to post their standards regulations, if the regulations are likely to have significant trade effects. Another important point made in the text is that voluntary standards would also be subject to the transparency/notification obligations. This requirement would be of particular importance in the case of eco-labeling schemes. Another important feature of the agreement for developing countries in the ESCAP region is Article 12.1, which provides for special and differential treatment for developing countries.
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In the transition towards specified goals of environmental development, developed countries are obliged to provide necessary technical assistance to developing countries on concessional terms, according to several stipulations of international public law in general and international environmental law in particular. However, in practice this requirement is very rarely followed.
Agreement on Sanitary and Phytosanitary Measures The SPS agreement compliments the TBT agreement and includes, among others, any measure to protect human or animal life or health within the territory of the importing country, from risks arising from additives, contaminants, toxins or disease-causing organisms in foods, beverages and feedstuff, as well as to prevent the establishment or the spread of pests. SPS provisions differ from those of the TBT agreement in three important aspects: (a) While the TBT agreement requires that product regulations be applied on an MFN basis, the SPS agreement permits measures to be applied on a selective basis, provided that they do not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail; (b) The provisions of the SPS agreement provide a greater degree of flexibility to countries to deviate from international standards than is permitted under the TBT agreement; (c) The SPS agreement introduces a precautionary principle and permits member countries to adopt SPS measures on a provisional basis in cases where relevant scientific evidence is insufficient, by taking into account pertinent information that may be available to them or to relevant international organizations. For example, the European Unions decision to ban beef treated with hormones imported from the United States was taken under the precautionary principle.
Agreement on Trade-related Aspects of Intellectual Property Rights TRIPs refer explicitly to the environment in Section 5, which deals with patents. Articles 27.2 and 27.3 of this Section state that members can make certain inventions ineligible for patenting in order to protect human, animal or plant life or health, and to prevent serious harm to the environment. These provisions are designed to address the environmental
concerns related to the protection of intellectual property. Further, the TRIPs agreement emphasizes more research and innovation and better access to new technology, including EST&Ps for all countries. The provisions of Article 40 (8) enable all member countries to
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special rules excluding the patentability of some specific processes may not provide balance with regard to obligations undertaken by developing countries.
Agreement on Agriculture Adopted during the Uruguay Round, the Agreement on Agriculture (AoA) seeks to reform trade in agricultural products and provides the basis for market-oriented policies. In its preamble, the Agreement reiterates the commitment of members to reform agriculture in a manner which protects the environment. Under the Agreement, domestic support measures with a minimal impact on trade (known as Green Box policies) are excluded from reduction commitments. These include expenditures under environmental programmes, provided that they meet certain conditions. The exemption enables members to capture positive environmental externalities.
Promoting sustainable development by devising mutually sustainable trade and environmental policies
Why sustainable development? The term sustainable development means different things to different persons. The major difference is between environmentalists and developmentalists. The former believe that, for development to be sustainable, the environment must occupy the top place in the hierarchy of priorities. Developmentalists believe that, in the face of
underdevelopment, environmental protection measures have a lower priority than development per se. It is also said that poverty is the biggest polluter.
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(b) Ecology (i) The transfer of environmentally sound technologies and practices. In this regard,
provisions for technology transfer and financial assistance under different multilateral environmental agreements (for example, the Montreal Protocol and Basel Convention) should be explored in detail; (ii) A ban on the export of domestically prohibited goods. In the case of toxic waste, regulation under the framework of the Basel Convention and Prior Informed Consent Procedure should be followed strictly. Furthermore, inter-governmental agencies (such as UNEP) should assist the developing and least developed countries in formulating, enforcing and monitoring regulatory mechanisms vis--vis trade in toxic wastes; (iii) When there is a conflict between the conservation of natural resources and their commercial exploitation (even in the public interest), provisions under the Convention on Biological Diversity should be preferred over those of the WTO agreement on TRIPs. (c) Equity (i) The developed countries should adhere to their commitment to provide 0.7 per cent of their GNP per annum in overseas development assistance (ODA). UNDP, in association with national NGOs, should monitor the utilization of such assistance, and develop an evaluation index to distinguish between bad performers and good performers with regard to implementation of ODA- funded development programmes; (ii) As for heavily indebted poor countries, there should be a once and for all amortization of their existing debts. Furthermore, the financial resources generated under this scheme should be used for human resources development, such as education and health care, and a proper monitoring mechanism should be developed under the aegis of UNDP and national NGOs; (iii) As poverty is one of the most important causes of pollution, direct poverty alleviation programmes should be developed as people-centered programmes. In other words, citizens right to development should be given top priority; (iv) Countries should adopt policies regarding social safety-nets while opening their economy to international trade. Stated simply, policies on liberalization and globalization should be accompanied by necessary social and economic policies directed towards safeguarding the interests of the poor and minimizing social exclusion.
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Implications of environment-related issues in a future comprehensive round for developing countries of the ESCAP region
In the near future comprehensive round, it is unlikely that the environment as an issue will be discussed; however, some countries, including those in the EU, supported by others such as Japan, Norway, Republic of Korea and Switzerland might try to raise it. These countries have a three-point agenda including MEAs, eco-labeling and the precautionary principle. However, the EU proposal in this regard has some inherent weaknesses, which include not having an agreed definition of what constitutes an MEA and the effectiveness and necessity of trade measures. Such proposals could affect the balance of rights and obligations in the system. Developing countries, including those in the ESCAP region, have been arguing that even in those MEAs which do have trade measures, these are to be chosen only when alternative measures become ineffective. The first alternative should be positive measures, such as a financial mechanism for the transfer of technology and the sale of final products. Therefore, there seems to be no urgent need to discuss the issue of MEAs in trade negotiations. On ecolabeling, many countries, including developing ones, feel that the issue is a complex one and the labeling requirements place a disproportionate burden on the trade of developing countries. The issue raises many questions, for which there are not adequate answers; further, it cuts across other items, such as transparency, competitiveness, market access and the relationship between environmental policies having significant trade effects and WTO provisions. Similarly, the precautionary principle, with its potential for misuse without appropriate balances, will prove particularly difficult to put into operation at the international level. In many respects, the tradition of risk assessment, with its emphasis on a carefully constructed record, is more appropriate for international organizations than for national economies. Nevertheless, it is critical to recognize that risk assessment as practiced in the international arena will never be the same as risk assessment practiced in a single country. Although the United States has criticized the EUs proposal on the environment as an issue, claiming that it extends far beyond health protection for consumers and in fact creates onerous and impractical regulatory barriers, that country does not seem to promote anything which could run counter to WTO rules.
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Conclusions
Some people argue that liberal trade is adversely affecting the environment; however, the fact of the matter is that generally it is not trade that is at the root of environmental degradation, but rather unsustainable production and consumption patterns. Therefore, the key to the achievement of environmental benefits is the development of more sustainable patterns of production and consumption. As far as WTO is concerned, it has formulated the single most important set of rules governing international trade and is therefore at the centre of the global debate seeking to define the relationship between trade and the environment. WTO/GATT agreements do not prevent any country from imposing necessary measures to safeguard the environment, as detailed in Article XX (b) and (g). In such cases, the rules and regulations that apply to imported commodities must be the same as those applied to domestically produced commodities. However, in any case, WTO does not allow application of unilateral measures to address global environmental issues. Poverty is the basic cause of environmental degradation in many member countries. The contribution that trade can make to the
eradication of poverty by raising income levels is an indispensable requirement for the promotion of sustainable development. There is a need to ensure that environmental protection is not used as a cover for protectionism, and that trade, environmental and development policies are mutually supportive. Before specifying any environmental
requirements in international agreements, clear and strong provisions for technology transfer and financial assistance should be made. Additionally, the principle of common but differentiated responsibility should also be kept in mind. Some feel this principle should be applied to an examination of the introduction of new trade-related environmental measures, which could create high adjustment costs for developing country exporters. Others have noted that all countries have the sovereign right to make their own judgement on the standards which they apply within their own territory and that, in this regard; there is a need to ensure flexibility and fairness in the implementation of sustainable development strategies in all countries.
Reference
http://www.wto.org http://www.apec.org.au http://www.citizen.org http://www.unescap.org http://www.cid.harvard.edu
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