Emerging Jurisprudence in Trade and Environment disputes at the WTO: Issues for Developing Countries

Introduction

The relationship between trade and environment at the international level has long been recognised. In 1992, the Earth Summit discussed 'sustainable development' – and as such established the link between development and environmental protection.

At the end of the Uruguay Round in 1994, trade ministers from participating countries decided to begin a comprehensive work programme on trade and environment in the WTO. They created the WTO Committee on Trade and Environment (CTE) that has brought environmental and sustainable development issues into the mainstream of WTO work.

However, even before the WTO was established, conflicts between obligations made to specific international environmental agreements and those made to the international trading system of the GATT came up. These conflicts exist, for example, when a WTO Member exports products that are produced by processes, which are harmful to the environment, and an importing WTO Member places a ban on these products. Some of these disputes went to the GATT panels that have existed since 1947. The GATT system of resolving such disputes was based on diplomacy in the early days. Over the years and indeed in the WTO, it has developed into a ‘rule based’ system.

Under the present two-stage disputes procedure of the WTO, a finding of the dispute panel, which is arrived at after evidence and arguments from all sides; may be appealed against before the Appellate Body (AB). Decisions of the AB are binding unless WTO Members unanimously decide not to adopt them.

In the field of trade and environment, the GATT/WTO dispute settlement system has focused primarily on interpretation of Article XX of the GATT, which allows countries to impose trade-restrictive measures if they are considered necessary to achieve certain objectives, such as measures necessary to protect animals, plants, and humans or relating to the exhaustion of natural resources.

From the various GATT / WTO dispute cases that are considered relevant to environmental issues, it is the findings and decisions in four of these disputes - the Tuna I and II, Reformulated Gasoline, Shrimp/Turtle and Asbestos that are key in developing a perspective on the emerging jurisprudence within the Dispute Settlement body. Much of the below opinion is based on an analysis of the rulings in these four disputes.

Emerging jurisprudence

A reading of trade and environment dispute cases suggests that developing countries need to pay specific attention to the following issues of:

(i) PPM (Process and production methods) and ET (extra-territoriality):

The GATT/WTO rules do not allow Members to take extra-territorial (ET) trade actions (to use trade measures to enforce a Member's own domestic laws in another Member state, with a view to protecting environmental resources situated in that Member state) or discriminate between “like products” (Article III - that mandates “national treatment”).  This is reinforced by an analysis of the Tuna Dolphin cases, which were decided during the GATT era. In both decisions the panels held that the PPM-based import bans (where the focus was not on the product, but on the process and producer) did not qualify for an Article XX exception. In other words, WTO Members cannot, under the GATT's Article XX exceptions, impose trade measures on products based on a their method of production. 

On the ET issue, the panel in Tuna II identified other systems of jurisdiction a country could rely upon to apply its laws outside its territory. Effectively, this ruling opened up the possibility of states applying their policies outside their territories.

Both Tuna panels ruled that products that are intrinsically comparable would be considered as “like”, regardless of differences in the manner in which they have been produced or harvested. However, Shrimp Turtle began to signal a change in this thinking.

For all practical purposes, the findings in Shrimp Turtle reiterated what had been said in the Tuna panels.  However, the AB opened the way to PPM-based trade restrictions as long as they are applied in ways, which do not discriminate between WTO Members.

On the ET issue, the AB accepted the possibility of ET measures where there is sufficient environmental nexus. The key difference in this case is that the AB replaced the prima facie threshold test with a broader set of tests that are more applicable to PPMs, especially those on an extraterritorial basis, than to product related measures.

Therefore while the AB upheld the right of the US to impose trade measures aimed at mandating harvesting standards for shrimp harvested in foreign countries for them to be imported into the US as a justifiable measure under Article XX, the AB found that the manner of implementation of this measure was violative of Article XX. Reformulated gasoline also used the same legal principle.

The earlier panels’ conclusions tended to find against the various trade measures as being violative of either Article XX (b) (necessary to protect human, animal or plant life or health) or Article XX (g) (relating to the conservation of exhaustible natural resources). This was either because the Panels felt that because they there were other measures available to fulfil these objectives or because ET measures were not acceptable.

However, the AB in Reformulated gasoline and Shrimp Turtle accepted that the trade measures could be justified under Article XX (g), though as mentioned above, in both cases they ultimately found against them. The AB ruling in Asbestos laid down a test of “competitiveness” in the determination of “likeness” under Article III.

In the recent Shrimp Turtle implementation review decision (which came after the Asbestos ruling), the AB accepted the “flexible” system introduced by the US. The end result of the Turtle Shrimp dispute is that Members will be able to invoke Article XX to “impose conditions on imports’ PPMs to accomplish environmental objectives both outside their jurisdiction and in the global commons”. (Peter Morici, 2002) This acceptance of a unilateral trade related environmental measure suggests that a wider, multilateral environmental agreement (MEA) could survive a WTO challenge. For developing countries with limited means to achieve the objectives of the MEA, this is an issue of concern.

(ii) Mainstreaming non-trade issues under Article III:

The ruling in Asbestos is very relevant. Though it does not deal with environment, it is nevertheless related because it deals with health or more specifically carcinogenicity as a distinguishing physical characteristic. The panel's conclusion that the products in question should be seen as “like products” was very favourable to trade interests (i.e., market access) and required the ban to be justified under the exceptions of GATT Article XX. The AB, however, reversed the ruling by taking into account health issues under Article III. This interpretation suggests, “countries are now allowed to make more nuanced product differentiations and might in the future even base these on environmental reasons or PPMs.”  (Thomas Cottier, 2001)

Importantly, most developing countries should be concerned that the AB decision has now brought non-trade concerns to the centre stage in Article III.

Therefore while Shrimp Turtle ended the prima facie barrier to including PPM and ET issues in a GATT/WTO law analysis, Asbestos allows the inclusion of non-trade issues like human health aspects relating to a product, previously through inadmissible for like product purposes.

However, WTO jurisprudence has not yet clarified whether Article III covers PPM-type issues. This is primarily because at the WTO, evaluating “like products” and deciding whether a given trade measure is discriminatory or not, is considered as an issue of policy rather than an issue of fact. "Likeness" is seen as “contingent on the aim and effect of the measure” and “whether it is such as to afford protection to domestic product against a backdrop of consideration of the overall legitimacy of the measure in terms of its regulatory purpose or protectionist aim or effect.” (Alexey Vikhlyaev, 2001)

Despite the lack of conclusive findings, the AB rulings in Shrimp Turtle and Asbestos have promoted apprehensions that the concept of a “like product” has been opened to accommodate non-trade concerns, including environment, labour and other human rights.

The WTO Dispute Settlement mechanism in trade-environment disputes: current trends

One of the most discernible trends that emerge is that disputes relating to the international trade and environmental protection will continue to come up before the WTO Panels and AB in the foreseeable future.

Several commentators argue that with increased global economic integration, the potential for conflict will increase. Therefore, “public health standards, food safety requirements, emissions limits, waste management and disposal rules, packaging and recycling regulations, and labelling policies may all shape trade flows.” (Daniel C. Esty, 2001) The WTO dispute settlement mechanism thus has the task of reconciling international environmental policy with the promotion of free trade.

Strictly speaking, the WTO’s Dispute Settlement Mechanism is a system that is not expected to operate on precedents. However, their precedent setting value is becoming increasingly significant, another issue of concern for most developing countries.

The WTO Dispute Settlement Mechanism is being seen as taking on the role of “judicial activists”, arriving at decisions that do not necessarily take account of discussions in the Committee on Trade and Environment (CTE) or reflect the positions of all Member states.

Developing countries have consistently had a problem with this “judicial activism”, and argue that it is for the Members themselves to decide how to proceed, on the basis of consensus. The AB in particular is being questioned for accepting amicus briefs from NGO’s and non-Members and for authorising Panels to do the same. Developing countries in fact led the opposition to the AB’s decision in the Asbestos case to publish procedures for NGOs to file such amicus briefs.

However, given the slow progress at the CTE, the findings of panels and the AB will continue to determine how the WTO treats environmental issues. Further, where efforts to have a negotiating process solve some of the particularly difficult environmental conflicts with trade (for example, the issue of extra-territorial applicability of PPMs) have failed; there is a strong move to push those issues in the direction of resolution by the Dispute Settlement body. This situation is likely to continue.

On the other hand, there continues to be developing country suspicion on calls for expanding the scope of environmental issues within the WTO, though there is an “acceptance” on these issues in the Doha Declaration. Having said this, it is significant to note that there is also a growing understanding of environmental and human health concerns of developing countries within the WTO.  The trade and environment debate is therefore no longer just a north-south issue (for example, on GM foods). This is not to say that the concern that most trade-related environmental measures are actually disguised protectionist measures is misguided. However, some developing countries do recognise that there may be some benefits for them, if they are able to guide the discussions on these issues at the WTO.

Conclusion

In conclusion, there are two distinct trends emerging on trade and environment disputes at the WTO: (a) a shift from applying environmental protection or human health protection only nationally to include protection outside a country's territory and; (b) a shift from using Article XX exceptions to mainstreaming non-trade concerns under Article III

These findings are situated in a broader WTO institutional reform taking place aimed at making its workings more transparent, including the dispute settlement mechanism. The WTO law is no longer an impermeable system, resistant to other issues of international law. On the contrary, the Panels and the AB are very clearly moving towards situating WTO trade law within the precincts of regular international law, irrespective of what developing countries think of this change.

Overall, these disputes are likely to increase in numbers, scope and importance.  Challenges to environmentally related constraints will be increasingly made under both the GATT and the TBT and SPS Agreements - that apply to restrictions and technical regulations establishing requirements for products in trade. 

One last word, and this is about a ‘developing country perspective’ or ‘southern agenda’ at the WTO. This is a misnomer since there is no one Southern view at the WTO. On the contrary, the agendas of Southern countries at the WTO reflect their different priorities. As such therefore, their issues concerning trade and environment at the WTO are not necessarily similar.

Further, developed countries continue to be able to push their agendas, by selectively offering carrots to developing countries and LDCs. For example, the LDCs signed on to the Doha Declaration, when they were given the ACP waiver. This lack of a common agenda is likely to only become more distinctive in the future. Southern countries could do well to develop policy coherence between their own national and international agendas, and find common ground with other countries (developed or developing) where common interests lie.