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Free trade and environmental
protection are wholly compatible concepts, fully embraced by the new concept of
sustainable development
Andreia Costa Vieira*
The doctrine of free trade has been accepted as
a maxim for most of the nations worldwide. For its polices of open markets,
growing industrialization and competitiveness, free market may seem a threat to
the global environment. Since the General Agreement on Tariffs and Trade (GATT)
is one of the most important legal supports of free trade, its provisions have
been accused of undermining environmental concerns. Among some of the theories
that try to bring the free market policy and environmental protection as “whole
compatible concepts” is the theory of sustainable development. However,
sustainable does not put an “end” to such a “conflict”. The interpretations
given to GATT provisions by the panel and, more recently, by the Appellate
Body, appear to confirm that although being compatible concepts, free market
and the environment are, in practice, in a sort of dispute.
This
essay aims to explain the possible intersection between the doctrine of free
market and environmental protections through, inter alia, the policy of
sustainable development, without undermining the “not-environmentally friendly”
interpretations of the GATT provisions. The first part of the essay will cover
the introduction and establishment of the doctrine of free market. The second
part will outline some of the main environmentalists’ concerns about free
market and the possible linkages between those two concepts, explaining the
feasibility of a “sustainable development”. Lastly, the essay considers some of
the interpretations given to some of the GATT provisions, assuming that they do
confirm a dispute between free trade and the environment.
Throughout the last centuries of history the
world economy has been shaped by two major policies: protectionism and free
trade. Protectionism may be defined as the policy used by governments to
control their internal and external trade relations in order to protect their
markets from foreign competition and permit their economies to grow. On the
other hand, free trade is the policy that requires the market to be free from
any government intervention.
In the 19th century, David Ricardo advocated in
favor of free trade through the doctrine of comparative advantage. According to
Ricardo, if a country A could produce a product X in an efficient way and a
product Y not so efficiently while country B is not very good in the production
of X but is very efficient in the production of Y, countries A and B could
simply get specialized in the product they have a comparative advantage in
producing and buy the product they do not produce so efficiently. In other
words, the global wealth is maximized by free trade when the global resources
are used in the most efficient way. Moreover, once the market is not closed by
protectionist measures, growing competitiveness is the key for industrial
development. Thus, the consumer appears in the end of the chain as the one who
can feel one of the greatest benefits of free trade: lower prices.
Between the 17th and the 19th century those who had already developed their industries, such as France and the UK, were eager to put their goods in the foreign markets and therefore advocated the doctrine of free trade. By contrast, States such as the US and Germany, whose industries were in a developing stage, adopted very strict measures to protect their home industries.
The 20th century started with great changes in
economic policies. Countries, such as the US, once industrialized, started to
advocate free trade measures and to demand that protectionism should be given
up by foreign countries.
On the other hand, industrialized countries
that had advocated free trade for a long time, in a post-first war period, when
their economies were getting into a deep crises, inverted their trade policies
and adopted rigorous protectionist measures to protect their economies from
foreign competition.
After the Second World War, the American power
was simply overwhelming upon most of the Western European countries’ economies.
Not just the injection of US capital was a common policy accepted everywhere,
but as well the American influence towards its free trade philosophy based on
multilateral agreements was received as a maxim by every “helped” nation. The
protectionist measures adopted during the inter war period were blamed as one
of the causes of the Second World War.
In a conference held in 1944, so called the
Bretton Conference, the International Monetary Fund (IMF) was established, with
the aim of promoting monetary stability, and the International Bank for
Reconstruction and Development (the World Bank) was created - whose aim was
collecting money from private sources to finance the development and
reconstruction of the countries weakened by the war.
In 1945 the United Nations was formed and in
1946 negotiations towards the creation of an international trade organization
(ITO) commenced. The general clauses that became the basis of such organization
were drafted into the form of a General Agreement on Tariffs and Trade (the
GATT). In fact, the ITO never came into being mainly because the US Congress
failed to approve it. Nevertheless, the GATT, which had been drafted with no
aim of becoming an institution, became the main “organization” of international
trade and remains as such up to the present day.
However, as many of the GATT provisions were
set as a temporary agreement, it lacked an institutional structure. In 1994, at
the end of the Uruguay Round, a new international trade institution was
created: the World Trading System (WTO). In order to bring the WTO about a new
set of rules, known as the GATT 1994, was set to replace the GATT 1947, although
many of the GATT 1947 provisions were preserved in the GATT 1994.
The role of the GATT may have changed over the
years, but its main goal is still to promote free trade. Its free trade speech
aims the promotion of competitiveness, economic growth and industrial
development, which, in the history of our planet, have not been positive at
all. The adoption of such policies have caused drastic consequences to the
global environment. Therefore, environmentalists are afraid that in a time
where environmental protection should be regarded as a primary goal, the
supportive measures of free trade enhance even more the need of damaging the
environment in the name of progress and economic development. As one of the
GATT’s main goals is the promotion of free trade, GATT rules have been accused
by environmentalists of being a powerful supporter of the destruction of the
global environment.
Next section will deal with the concern about
environmental protection and its linkage to international free trade.
II – Environmental
Protection v Free Trade – sustainable development?
The natural resources of our planet have been
devastated to sustain economic development. Nobody doubts that the protection
of the global environment should be a supreme objective. Assuming that the
protection of the environment and the policy of free trade are both ultimate
truths, there should exist a point of intersection between them. Since free
trade promotes maximization of the global wealth, it provides incentive to use
the global natural resources efficiently. However free trade may promote
competitiveness “towards less stringent environmental regulation and
protection”. The consequence is that industries may migrate to countries that
adopt lower environmental standards. Nevertheless, Carbough and Wassink remark
that “empirical studies support the view that trade and relocation have not
been greatly affected by the cost of environmental compliance for two reasons:
(1) environmental compliance costs, in most countries, are a relatively small fraction
of production costs; (2) environmental cost differences, especially among
industrial countries, appear minor as countries have moved toward the adoption
of similar environmental standards”.
On what exactly such empirical studies are
based, Carbough and Wassink do not state. Summers, the chief economist of the
World Bank, encouraged polluting industries to relocate to less-developed
countries once, according to him, therein the costs of pollution are lowest and
the demand for a clean environment has a high income elasticity. Such a speech
makes clear that the concern about the relocation of polluting industries is
not baseless.
Moreover, as free trade improves production and
enhances consumption, the environment may be damaged without the consumer or producer
being required to pay for it. In other words, “the private costs of production
(or consumption) may be lower than the social cost because the cost of the
‘services of Nature’ is not reflected (…) in the prices that producers (or
consumers) have to pay for their inputs and for their harmful byproducts”. As
Faber points out, if prices are based on these “umpriced services of Nature”
comparative advantage ceases to exist, but even so, international free trade
would still be advantageous once the level of prosperity is higher than it
would be in the absence of international trade “as long as there is government
intervention to equalize private and social costs”.
Nowadays a doctrine so called sustainable
development has been introduced to explain the feasibility of an intersection
between trade and protection of the environment.
The
term sustainable development was first given prominence in the World Convention
Strategy (WCS) published in 1980 by the World Conservation Union (IUCN), with
the aim of publicizing the idea of a possible economic development through
environment friendly method.
The doctrine of “sustainable development”
suggests that qualitative as well as quantitative development can be achieved
without undermining the necessity of environmental protection. It encompasses
the idea of respect for the environment in order to achieve not just a current
development but as well as to preserve the same conditions of life and
development to future generations.
In the United Nations Conference on Environment
and Development held in Rio de Janeiro – the Earth Summit 1992 – one of the
commitments made by the participating States was that they should cooperate to
promote an international system capable of supporting economic growth and
sustainable development in order to address the problems of environmental
degradation. Such a declaration makes clear that sustainable development has
become one of the big concerns of this end of century. Thus, it is important to
understand what constitutes a sustainable development policy and the methods
used to achieve its goals.
A sustainable development policy considers
first that both trade and environmental policies aim economic efficiency. On
the one hand, environmental policy aims economic growth, which efficiently consumes
fewer natural resources. On the other hand, through the doctrine of comparative
advantage, trade policy supports competitive advantage of more efficient
producers and suppliers whose benefits to economic growth is, inter alia, lower
market prices. The intersection between these two different policies is that an
efficient use of the global natural resources leads to lower prices and
consequently to comparative advantage. At the same time, free trade is enhanced
and the global environment is protected, both of which are achieved in an
efficient way and respecting the rights of present and future generations.
There are distinct methods to introduce
sustainable development policies. Governments can encourage individuals and
enterprises to adopt sustainable development measures through the provision of
mere information, “appealing to the people’s good will or sense of civic
responsibility”. However provision of information may not be sufficient to
promote sustainable development, mainly because it lacks enforcement of
environmental measures. Other methods then have been used and most of them try
to interconnect the protection of the environment with trade measures because
of a more efficient enforcement brought from trade policies. Governments have
used the law to promote environmental protection. Environmental regulation then
can be seen in the fields of pollution control, such as, for example,
specifying permitted omission levels of certain pollutants. The basis of
enforcement may be the payment of fines or prohibitions or restrictions on
trade. Other policy that can be used its that of price incentive, which is
designed to ensure that environmentally friendly activities become relatively
cheaper while environmentally damaging ones become more expensive. Price
incentives may be adopted, inter alia, in the form of taxes and subsidies. This
policy has proved to be more efficient than regulations in some situations. However,
in certain cases, such as the protection of endangered species, price
incentives may be of no use at all. Thus either regulation or price incentive
will be efficient according to the subject of the policy.
For
reasons of transparency, taxes are accepted under the GATT subject to the Most
Favored Nation principle. However, restrictions and prohibitions on trade and
unjustifiable discriminatory regulation are generally outlawed by the GATT. Subsidies
are accepted subject to limited circumstances.
One would say that the GATT is jeopardizing the
methods used to achieve sustainable development. Nevertheless the GATT seems to
accept that free trade is not a supreme and intangible goal. Art. XX (b) and
(g), for example, consider that restrictions on trade are justified when
necessary to protect human, animal or plant life or health, or when the measure
restricting trade is related to the conservation of exhaustible natural
resources, if such measures are made effective in conjunction with restriction
on domestic production or consumption.
Since the GATT sets exceptions permitting the
use of those methods that in other circumstances would constitute a breach of
its provisions, sustainable development is protected under the GATT, and seems
to be efficient in bringing together two different - and as it has been suggested, “almost irreconcilable” – approaches:
free trade and environmental protection. At least under international
agreements and theoretical discussions, free trade and environmental protection
are “wholly compatible concepts”.
In order to achieve the goal of free trade,
there are five fundamental principles under the GATT. First, the principle of
the Most Favored Nation Treatment (MFN), which dictates that once a member
country offers trade concessions to another country, it must offer similar
concessions to all other GATT members. This principle provides that trade must
be conducted on the basis of nondiscrimination. Second, the principle of
National Treatment ensures that once an imported product has entered a country
it is subject to the same legislation and taxation of a domestic product. Third,
protectionism should be banished from the GATT members’ policies, but when it
does exist, it should be in the form of tariffs, in order to promote
transparency among the member countries regulations.. Fourth, negotiations should
be carried out on the basis of a tariff concession principle – that is, if a
country wishes to become member of the GATT, it must submit negotiated tariff
concession schedules, in form of tariff reductions or tariff elimination. Fifth,
reciprocity should be used to balance rights and obligations as well as costs
and benefits of the counties that are party to the GATT.
Art. XX of the GATT sets forth general
exceptions to these principles as well as to the whole agreement provisions. Paragraphs
(b) and (g), although not explicitly related to the protection of the
environment, have been used as justification by member countries to adopt
environmental policies through restrictions and prohibitions on trade. Regarding
such “environmentally friendly” provisions of GATT, Shoenbaum remarks that
there is not a fundamental conflict between the need to protect the environment
and the GATT rules. He points out that free trade in fact helps the
environmentalists’ cause by “1) fostering common standards for environmental
protection that must be observed even by certain developing countries that
currently ignore environmental concerns; 2) terminating subsidies, particularly
in agriculture, that are environmentally destructive, as well as inefficient;
and 3) ensuring economic growth, which will create the financial means,
particularly for developing countries, to control pollution and protect the
environment”.
Shoenbaum may be absolutely right in
saying that there is no fundamental conflict between the GATT and environmental
protection. Nowhere in the GATT is found any rule prohibiting the use of
environmental protection regulations. In fact, the GATT sets exceptions to its
fundamental principles to accommodate, inter alia, environmental policies. However,
the same cannot be said in the light of the interpretations given to the GATT
provisions. GATT rules have been interpreted in a way that make some
environmental regulations “unjustifiable and arbitrary” restrictions on trade
and, as such, the principle of unrestricted trade has been considered much more
important than environmental protection
.
Environmental measures that have
impact on international trade are likely to be issues of discussion in a WTO
panel. Many measures taken by some States to protect their environment have
been objected by another GATT party and have been ruled against the GATT’s
obligations. Next section will examine two out of the most important cases that
have involved the issue of interpreting environmental protection regulations
within the GATT provisions.
The Tuna – Dolphin case
The United States based on the Marine Mammal
Protection Act (hereafter, MMPA) imposed an embargo on imports of yellowfin
tuna, and yellowfin tuna products, harvested with purse-seine nets in the ETP
from countries that have a higher rate of dolphin mortality in the catching of
tuna than 25% above the US level. Such embargo affected, inter alia, Mexico.
Pursuant to a complaint filed by Mexico, the GATT panel found, inter alia,
that: a) the internal regulations permitted under Art. III:4 of GATT does not
apply to the means of production (such as the harvesting of tuna), but to the
product itself – that is, products cannot be distinguished on the basis of the
way they are produced to satisfy the rule of like products of Art. III ; b) the
treatment the US had given to Mexican tuna was less favorable than US tuna; c)
the embargo and the provisions of the MMPA were inconsistent with Art. XI:1.
Therefore, the US measures were in breach of GATT rules.
The panel then went on to analyze the
exceptions of Art. XX. The panel said the burden of proof should be on the
party invoking Art. XX. to justify its measures. In relation to Art. XX (b) the panel found that the
extrajurisdictional effect of the US measure could not be accommodated within
Art. XX (b), since this provision had been drafted to apply only to domestic
life of health, although the provision did not expressly stated so. Moreover,
even if Art. XX could be interpreted to apply to extrajurisdictional protection
of life and health, the US had not demonstrated the requirement of necessity
set out in that provision since it had not exhausted all options available to
it to protect dolphins, such as to reach an international agreement. Finally,
in interpreting Art. XX (g) the panel found that the US measure was not
primarily intended to protect dolphins, and that this was a requirement for
applying that provision, as it had been found in an earlier case.
When environmentalists complained about this
finding, the focus point was not on whether either Mexico or the US was right. The
focus point was on the interpretations given by the panel to the GATT
provisions “related” to environmental protection that seemed to cut off any
possibility of protecting the environment through the GATT exceptions of Art.
XX. First, from the perspective of environmentally sustainable development, the
means by which products are produced is as important as the product itself. As
Weiss remarks, “without the ability to ban products produced by environmentally
unsustainable practices, countries will be lacking an essential measure for
achieving environmentally sustainable developments, since the measure is
precisely tailored to deterring the unwanted practice”.
Second, in accordance with the panel findings
on this case, Art. 12 of the Rio Declaration on Environment and Development
provides that no unilateral action should be taken to deal with environmental
issues outside the jurisdiction of the importing country. Instead,
international consensus should be the basis for addressing such issues.
This principle enhances the protection of the
sovereign right of a state to determine its own environmental policies. However
it is difficult to deal with a situation where no international consensus has
been reached on a issue that is a serious threat to the global environment. Charnovitz
suggests that extrajurisdictional effect should be permitted within the limits
set by the GATT itself - that is, in a non-discriminatory and non-protectionist
manner.
Third, since sustainable development is the
goal, why should the burden of proof be on the party invoking Art. XX to
justify its measures? Such a finding clearly sets free trade above any
environmental concern. Fourth, it seems that every time an environmental measure
threatens a free trade measure, other alternatives to apply the environmental
protection goal will be required and the environmental measure itself will not
acquire the status of “necessary” to reach its goals.
The Gasoline Case
This is the first ruling by the WTO Appellate
Body. The dispute between US and Venezuela & Brazil was related to the
implementation of the US Clean Air Act 1990 (the CAA) and a correlated
regulation to control pollution caused by combustion of gasoline. This
regulation set two kinds of baselines for establishing purity levels of
gasoline in the US that clearly discriminated between the methods to be used by
domestic and foreign suppliers. Acting on a complaint filed by Venezuela and
Brazil, the panel found that the baseline methods were inconsistent with Art. III:4
and could not be justified under paragraphs (b) and (d) of Art. XX of the GATT
because it had not fulfilled the requirement of necessity; nor could it be
justified under para. (g) since it was not a measure primarily aimed at the
conservation of exhaustible natural resources.
The US then appeals to the WTO Appellate Body which concluded that the
panel had erred its findings – the measure was indeed related to the
conservation of exhaustible natural resources and the term “primarily aimed at”
was not treaty language. Nevertheless, the Appellate Body concluded that the US
measure could not be accommodated within the chapeau of Art. XX – the baseline
rules constitute “unjustifiable discrimination” and a “disguised restriction on
international trade”.
In interpreting the Chapeau of Art. XX, the
Appellate Body made more difficult the acceptance of environmental exceptions,
saying that a “disguised restriction” within the chapeau was set to avoid abuse
or illegitimate use of Art. XX exceptions. As McRae remarks, “the Appellate
Body has come…close to saying that all environmental measures that discriminate
have to be shown to be ‘necessary’…The Appellate Body may have established a
standard that makes it next to impossible for environmental measures ever to
meet the requirements of Art. XX”. To say otherwise is almost to say against
evidence.
A. Cassese.
International law in a divided world. (Oxford: Clarendon Press) (1st. ed.:
1986), 318.
B.
Hoekman and M. Kostecki. The Political Economy of the World Trading System:
from GATT to WTO (Oxford: Oxford Press) (1st. ed.: 1995), at 12 - 20.
D.
Anderson, ‘The Green Guide to GATT’ ( July, 1992) Green Magazine, 38.
United States – Restrictions on Imports of
tuna, Report of the GATT Panel (Aug. 16, 1991), reprinted in 30 ILM (1991), 1594.
D.
Reid, Sustainable Development: an introductory guide. (London: Earthscan) (1st.
ed.: 1995).
E.
B. Weiss, Environment and Trade as partness in sustainable development: a
comentary. (1992) 86:4 American Journal of International Law, 728, 729.
Ibid., at 729.
G.
Faber, International Trade and Environemntal Policies, in A. Blowers and P.
Glasbergen (eds.), Environmental Policiy in an International Context: Prospects
for Environemntal Change (1996).
J.
N. Jackson, The World Trading System. Law and Policy of International Economic
Relations. (Massachussets: the MTI Press) (2nd. ed.: 1997), 14.
K.
Moltke, Must Environmental Policy be Protectionist? (1993) NY University Journal of International Law and Politics,
323, 327.
M.
Jacobs. Sustainable Development: greening the economy. (London: The Fabian Society) (1st. ed.: 1995), 02.
R. Carbough & D. Wassink. Environmental
Standards and International Competitiveness. (1992) 16:1 World Competiton 81,
89.
T. J. Shoenbaum, “Free International Trade
and Protection of the Environment: Irreconcilable Conflict? (1992) 86:4 AJIL
700, 701.
Panel
report on “Canada – Measures Affecting Exports of Unprocessed herring and
Salmon”, adopted 22 March 1988, BISD 35S/98, 114, para. 4.6.
Thailand – Restrictions on Importation of and
Internal Taxes on Cigarettes, GATT Doc. DS 10/R (1990) (adopted by GATT Council
Nov. 7, 1990).
United States – Standards for Reformulated
and conventional Gasoline, Report of the Appellate body of 29 April 1996,
WT/DS2/AB/R, at 603.
*L.L.M
in International Commercial Law,
University
of Nottingham, Nottingham, UK