THE WORLD TRADE ORGANIZATION
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The WTO represents a watershed in the process of establishing a truly global economic order. Because it sets out a comprehensive set of rules intended to guide all aspects of the global economic activity, the WTO will undoubtedly exert a profound influence over the future course of human affairs. Indeed it is not unrealistic to regard the WTO as representing effective world government for the first time in human history. There are several reasons that justify such an assessment.
To begin with, we really do now live in an integrated global economy. Transnational corporations control more than one third of worlds’ productive assets, and the organization of their production and distribution systems has little to do with national or even regional boundaries. Decisions about locating factories, sourcing materials, processing information or raising capital are made on a global basis, and any particular product may include components from several countries.3 This explains why nearly 40 per cent of all international trade takes within the same corporate family. The growing dimensions of globally economic integration are also apparent in the rapid growth in international trade itself which routinely exceeds that of even the worlds most robust economies. To consolidate these processes of globalization, the rules upon which it depends needed to be codified in binding international agreements — hence the WTO.
Another factor that explains the importance WTO concerns the way in which it has extended the reach of trade rules into every sphere of economic activity. Historically trade agreements were concerned with the trade of goods eg. manufactured goods and natural resource products, across international borders. But under the WTO the purview of international trade agreements has been dramatically expanded to include investment measures, intellectual property rights, domestic regulations of all kinds, and services. In other words, a great many areas of government policy and law that have very little, if anything to do with trade per se. This explains why it would now be difficult to identify an issue of social, cultural, economic or environmental significance that would not fall within the ambit of these new and very expansive rules of "trade."
But arguably the most important source of WTO authority and influence stems from the powerful enforcement tools it has available to ensure that all governments respect the limits on their authority imposed be its trade rules. Any government found in breach, is vulnerable to sanctions that are too severe for even the wealthiest nation to ignore. For example, in the first trade complaint to be resolved under the WTO, US Clean Air Act Regulations were deemed to violate WTO rules. In consequence the US was given two options — remove the offending provisions of its environmental statute or face retaliatory trade sanctions in the order of $150 million a year.4
While previous trade agreements allowed for similar sanctions, they could only be imposed with the consent of all GATT members, including the offending country. Now WTO rulings are automatically implemented unless blocked by a consensus of WTO members. Moreover, under the rules of cross-retaliation, sanctions can be applied to any aspect of the offending countries international trade — or in other words, where it will be felt the most.
The convergence of these factors explains why the WTO is likely to emerge as the most important international institution to have ever been created.
Many have described WTO rules as representing little more than an international bill of rights for transnational corporations. To appreciate why the WTO might be described in this way, consider the negotiation process that created it.
Because international trade has in the past been considered an arcane subject relevant only to commercial interests, trade negotiations have traditionally been conducted by trade ministers with no apparent awareness that other societal values might be at stake. For example, when the Conservative Government of Brian Mulroney was asked what if any environmental assessment had been carried out of the impending free trade agreement with the United States, it responded somewhat incredulously that its trade deal was entirely a commercial agreement and that the environment had not even come up once5 — an truly astonishing assessment about an agreement that dealt explicitly with energy, agriculture, environmental standards, forests and fisheries. Moreover, even as the ambit of trade negotiations grew to encompass many more spheres of economic activity, such as services or investment, no meaningful effort was made to include others in the negotiation process.
Thus, when government consulted on trade matters, it looked exclusively to the business community, ie. large corporations with a substantial stake in international trade. Trade advisory committees, with very few exceptions, represented an exclusive clubs for multinational corporations.
Another important norm of trade negotiations is secrecy. Because of the strategic nature of the interests at stake, trade negotiations have always been conducted behind closed doors with little being revealed until negotiations are virtually concluded. Not only is there no public input or accountability, but many governments — particularly those from developing countries — are also left guessing about negotiations which take place almost exclusively among a few key players.
When trade agreements finally do emerge, they are presented as an intricate and complex set of strategic compromises that will unravel should amendments be proposed. In this way the normal processes of parliamentary or congressional debate are superceded. Rather, law makers are presented with a virtual ultimatum — except the entire package of trade proposals or suffer the consequences of being isolated in a global economy. It would be difficult to conceive of a less democratic model for negotiating trade agreements.
Because trade agreements are negotiated in this way — it isn’t surprising that they reflect a myopic preoccupation with the interests of large corporations and reveal virtual indifference to the impacts of these commercial interests on other societal goals, such as the environmental protection, democratic processes, worker’s rights, or cultural integrity. If the WTO regime can accurately be considered an economic constitution for the planet, it is most certainly one that has been written by, and almost entirely for, the worlds largest corporations.
In essential terms, the goal of the WTO is to deregulate international trade. To accomplish this (and with one important exception), WTO rules seek to limit the capacity of governments to regulate international trade — or otherwise "interfere" with the activities of large corporations. In fact, WTO Agreements represent little more than extensive lists of policies, laws and regulations that governments cannot establish.
Some of these prohibit measures intended to regulate international commerce such as controls on endangered species trade or bans on tropical timber imports. But many others prohibit regulations that might only indirectly influence trade such as recycling requirements, energy efficiency standards or food safety regulations. Yet other rules go even further by prescribing government measures that have nothing to do with trade at all — see for example prohibitions against government efforts to regulate the activities of foreign investors.
Because the primary goal of trade law is to limit government law making and regulatory authority, serious problems are to arise for progressive environmental law and policy — which of course depend on such public controls. In fact the establishment of free trade agreements has already created substantial new obstacles to progress in areas of environmental protection, food safety regulation, species protection and resource conservation.
While the subject of international trade may be daunting, if we are to achieve critical environmental objectives, we must find a way to convert the WTO into an institution that will foster, rather than undermine, environmental goals. This will clearly be a difficult challenge, but one not unlike the struggle waged several decades ago to inform governments and courts unconcerned with, and uninformed about, environmental protection and conservation goals. That resistance was overcome by informing and then mobilizing public opinion, by fostering scientific research and by a persistent determination that our governments and courts to respond with progressive initiatives. In the process, policy development and law making processed were also made more open, democratic, and accountable.
The emergence of the WTO will require many of these battles to fought again — if we are to stem the a tide of globalization and free trade that is already eroding the hard fought gains we have achieved over the past three decades. There are however, two important reasons to be optimistic.
The first has to do with developing a deeper understanding of the underlying causes of the environmental crsis. The corporate campaign for free trade provides the opportunity to examine a host of environmental issues in their proper context, that is, as symptoms of a more profound and systemic problem — unsustainable economic, resource and trade policies. Thus while pesticides, or even a particular pesticide, can become the target of a national environmental campaign, little attention is paid to the agricultural policies that make the continued use of pesticides inevitable. Of course regulating pesticides, protecting species, creating parks and controlling pollution are important goals — but we need now to move beyond the symptoms to tackle the root causes of these problems.
While we have been making progress shifting the focus of our campaigns from symptoms to causes by promoting more systemic approaches such as pollution prevention, eco-forestry and organic agriculture — we have yet to seriously consider the economic and resource policies that will be needed to make these goals both realizable and durable. Developing strategies to confront the impacts of globalization and deregulated trade will force us to do so.
The other lesson to be learned in this context has to with the need for binding international agreements to confront global ecological problems, such as climate change and biodiversity loss. In this regard the WTO should be seen as offering a model for such international environmental agreements. The WTO reveals that when governments are motivated, they will sign on to forceful, proactive and effective international agreements. The challenge of course will be to force these same governments to adopt similarly enforceable international agreements for the purposes of achieving the goals of global ecological security rather than to guarantee the the narrow interests of large corporations and foreign investors.
Canadian environmentalists were among the first to raise concerns about the relationship between international trade and the environment during the Canada-US free trade negotiations nearly ten years ago. They also played an important role in sounding the alarm that brought these important issues to the attention of environmentalists in the United States, Europe and elsewhere.
As they predicted, trade dispute processes have now become a popular weapon for attacking environmental and conservation measures in Canada, the US, and Europe. Indeed, a GATT challenge to US Marine Mammal Protection Legislation played an important role in gaining the attention of US environmentalists and lawmakers during the NAFTA debates. In fact trade and environment issues actually became so troublesome in the US, that NAFTA was amended to include nominal environmental concerns. The most significant of these amendments provided some protection from free trade rules for certain multilateral environmental agreements. The other accommodation to the environmental groups that were willing to support NAFTA6 was the establishment of the North American Commission on Environmental Cooperation.
During the early nineties similar developments were also taking place in Europe and elsewhere and the the environmental implications of Uruguay Round trade negotiations began to emerge as important issues. However, environmental concerns never achieved the prominence needed in this larger global context to force amendments to the agreement creating the new WTO. Instead, a long dormant GATT Committee on Trade and the Environment was reconstituted as the WTO Committee on Trade and the Environment (CTE). The CTE was given a very broad mandate and in the fall of 19967reported to the first biennial meeting of the WTO in Singapore.
While few environmentalists would know of its existence, a handful of environmental groups became actively engaged in its discussions, which ultimately centred on three issues:
It is telling that the Committee's discussions had little to do with broadening environmental initiatives in the WTO context. In fact, in important ways, the Committee has actually become a forum for further asserting the paramountcy of trade over environmental policy goals. For example, the Committee has asserted the right of a WTO member to challenge measures adopted by another member even when taken in accordance with the provisions of an multilateral environmental agreement to which it is a signatory. While few anticipated that the Committee’s work would actually undermine the integrity of MEAs, this is the likely effect of its deliberations. The same criticism can be made of the Committee’s discussions about eco-labeling where environmentalists have again been on the defensive to justify eco-labeling schemes intended to inform consumers about the environmental impacts associated with harvesting or production processes.
Unfortunately to this point, the debate about trade and environment has been kept at the margins of the WTO, and the incremental approach adopted by some environmental groups has yet to yield any meaningful gains. At the same time, and as the following assessment reveals, trade regimes have emerged as powerful new constraints on the progress of environmental law and policy. Moreover the proliferation of trade disputes concerning environmental, conservation public health measures — all of them successful — has underscored the need to develop a much more aggressive agenda for changing WTO rules. If this goal is to be realized, environmentalists are going to have to play a central role. This will require achieving some measure of trade literacy. The obscurity of WTO rules is a critical and strategic asset for those promoting the globalization agenda. It is for the purpose of demystifying the rules of this new regime that we next turn to its essential elements.
In the fall of 1998 the forward march of global free trade suffered a significant defeat when efforts to establish an Multilateral Agreement on Investment under the auspices of the Organization for Economic Co-operation and Development (OECD) had to be abandoned. The pivotal moment arrived when the Government of France decided to withdraw from negotiations. In making the announcement to abandon OECD negotiations, France released a report explaining its decision. Prominently featured among the reasons cited, were concerns about the impact of the MAI on its sovereign prerogatives to protect culture and the environment. On the subject of the environment, France explicitly acknowledged the critical role that environmental groups had played in exposing the impacts of the MAI on environmental law and policy.7
Indeed the environmental critique of the MAI was among the most powerful exposes of the disastrous consequences that this international treaty for investor rights would have delivered. The importance of the environmental analysis of the free trade and investment agenda lies in both its accessibility and its universal appeal. While the subject of de-regulation may seem obscure to many when its comes to such matters as financial services or airline competition — virtually everyone understands the critical role that law and regulation must play when it comes to protecting the environment and conserving natural resources. Public opinion polling consistently reveals that when it comes to the environment, people expect the government to play a strong and determined role — de-regulation just doesn’t fly.
The defeat of efforts to establish an establish an international treaty for investor rights in the OECD en route to the WTO may mark a turning point in what has been to this point been a headlong, and largely unguided, flight into globalization. Moreover many of the consequences of the "leap of faith" into free trade that was accomplished by the WTO and other trade agreements are now becoming painfully apparent to a growing number of developed and developing countries. This has lead to a much broader and sophisticated understanding of the impacts of this global agenda than existed a scant five years ago when the WTO was created. The challenge now will be to ensure that further progress of the free agenda be halted until there has been an honest assessment of its impacts. As this environmental review indicates, that assessment will reveal that the globalization paradigm that informs virtually all aspects of the WTO is simply irreconcilable with the policies and initiatives that will be needed to deal with this planets ecological crises.
Finally on the subject of the MAI we should note that the prototype upon which it was based is alive and well in Chapter 11 of the North American Free Trade Agreement. Moreover the supporters of this investor rights agenda are determined to enshrine an MAI like regime in the WTO. For these reasons you will find a detailed assessment of this agenda in Part 9 of this Guide.
The WTO is comprised of more than dozen distinct trade agreements.8 Among these, and forming the essential platform upon which the others are established, is the original General Agreement on Tariffs and Trade — the GATT — which was first negotiated in 1947 as part of the Bretton Woods agreements that also established the International Monetary Fund and World Bank. Other agreements of critical importance from an environmental perspective include:
The following offers a very summary description of these key elements of the WTO regime. The impact of these trade agreements on environmental law and policy is explored in greater detail in the sector specific analysis that follows this part of the Guide..
The fundamental infrastructure of the WTO can be found in the GATT which has now been incorporated into the WTO where it is now described as the GATT 1994 (throughout this text, simply as the GATT). For present purposes, the most important substantive provisions of this core trade agreement can be found in three Articles.
The MFN rule requires WTO member countries to treat "like" products from any WTO member as favourably as it does from any other member. In other words, discriminating among foreign producers of a given product is prohibited. This rule raises serious doubts about the validity of international environmental agreements — such as the Montreal Protocol on Ozone Depleting Substances, the Basel Convention on hazardous waste trade, and the Convention on International Trade in Endangered Species — which actually require that less favourable treatment be accorded some WTO members if, for example, they are not living up to their obligations under these environmental conventions. As a recent WTO case involving banana trade between several Caribbean islands and Europe illustrates, the MFN rule also prohibits the use of special trading relationships to support development assistance programs to poorer nations.
The NT rule requires all trading parties to treat "like" products of member nations as favourably as it treats its own domestic products. In other words, discriminating between foreign and domestic producers in prohibited.
As the following sector specific analysis illustrates the way in which these rules have applied by the WTO has fundamentally undercut the capacity of governments to enact legislation that seeks to distinguish among goods — which may be identical physically, but which have very different histories. Thus under the WTO it is unlawful for governments to discriminate against goods because of concerns about the destructive or unethical the processes that may have been used to produce or harvest them. By the same measure it is unlawful under these rules for governments to favor goods on the grounds that they are the product of more sustainable or humane systems of production.
As is discussed is some detail under the heading Investment — when the principle of national treatment or most favoured nation status is applied to foreign investors — read corporations — the result spells disaster for efforts foster domestic economic development. Moreover, in this context, these rules essentially abdicate to international market forces the critical role of allocating precious and often non-renewable natural resources.
Under Article XI WTO members cannot limit impose quantitative controls on exports or imports through quotas or bans. But duties, tariffs and other charges are allowed.
The prohibition against quantitative restrictions is also extremely problematic from an environmental perspective. Consider the implications of such a rule when applied to such measures as an export ban on unprocessed resources such as raw logs, or as an embargo against the export of agricultural commodities from a country suffering food shortages, or as a prohibition against trade in endangered species, or to enjoin the export of hazardous wastes to undeveloped countries entirely ill equipped to manage them safely.
It is telling, that in the jargon of international trade law, all environmental standards and regulations are, prima facie, considered technical barriers to trade. The actual provisions of the TBT agreement are detailed and complex but when reduced to bare bones establishes:
When nations fail to observe these new and pervasive constraints on their law making authority, they are vulnerable to international trade complaints and sanctions. It isn’t surprising then that TBT rules have emerged as important new weapons for challenging government regulatory initiatives. Canada has recently relied upon TBT rules to challenge asbestos regulations in France. And other Casualties of these trade rules include Clean Air Act regulations, marine mammal protection laws, and countless other regulatory initiatives that never got off the ground because the chill cast by the prospect of international trade dispute. Some of the trade cases that illustrate these points are described below.
The provisions of the SPS are very similar to those found in the TBT, but deal with laws and regulations that concern food and food safety, including pesticide regulation and biotechnology. As is true for TBT rules, the SPS has proven a useful device to undo government regulatory initiative that is unpopular with large trading corporations. Among the first casualties of the SPS was Europe’s ban on the importation of beef produced with growth hormone. As interpreted by the WTO in that case, the SPS also precludes the Precautionary Principle as a justifiable basis upon which to establish regulatory controls when the risks warrant action even in the face of scientific uncertainty about the extent and nature of potential impacts.
Another casualty of this particular WTO Agreement has been efforts to negotiate a "Biosafety Protocol" to the Biodiversity Convention, with various countries including the US threatening WTO trade action should the Protocol require that host countries first consent to transborder shipments of genetically modified organisms. Yet another important feature of this WTO agreement seeks to remove decisions about health, food and safety from national governments by delegating them to an international standard setting bodies such as the Codex Alimantarius and elite club of scientists located which is based and operates in Geneva. Because of its location, and composition, Codex is an institution that is singularly inaccessible to all but a handful of international corporations and business associations that are capable of maintaining delegations in Geneva. Not surprisingly Codex standards often fall substantially short of those established by jurisdictions closer and more responsive to the interests and views of consumers and health advocates
By employing the convenient device of simply attaching the prefix "trade related" this WTO agreement transforms an entire domain of domestic policy and law into one that is the fitting subject for WTO regulation. The essential thrust of the TRIPs agreement is to compel all WTO member nations to adopt and implement US style patent protection regimes. The effect of these rules is to virtually provide US and European transnationals with global patent rights which can now be enforced by retaliatory trade sanctions. At the same time the rights of indigenous communities to genetic and biological resources that are held in common are ignored. The result is to facilitate the appropriation of the global genetic commons by corporate interests that can then demand user rents even from the very communities that should be considered the proper "owners" of the genetic resource. The TRIPs has also emerged as an important impediment to the implementation of the Biodiversity Convention, by undermining efforts to negotiate a Biosafey Protocol concerning international trade in genetically modified organisms.
As is true for TRIPs, the TRIMs Agreement has much more to do with domestic investment policy and law than it does with international trade. Thus, and notwithstanding the characterization of these agreements as "trade related," they in fact have little, if anything, to do with trade. They do however, have a great deal to do with asserting the paramountcy of the rights of international investment in any contest that might arise with virtually any public policy goal.
However unlike TRIPs, in the case of investment the WTO negotiations largely failed to engender the investor rights regime that the International Chamber of Commerce was championing. For this reason the TRIMs agreement represents only the bare bones of the investment agreement that was subsequently given full expression in the Multilateral Agreement on Investment (MAI). It is clear however that investment will be back on the WTO agenda and that the MAI, and the investment chapter of NAFTA upon which the MAI is based, offers the template for future WTO negotiations.
In summary terms, the purposes of these investment treaties are virtually the same: to open all sectors of a nation’s economy to foreign investment, prevent governments from favouring domestic corporations, establish the pre-eminence of corporate property rights, and allow foreign investors to enforce their new rights directly. It is also significant to note that some of the key investment rights established under these regimes accrue only to the benefit of corporations that operate multinationally. In other words, there is, under these investment agreements, an enormous advantage to foreign ownership, and corporations that are owned by domestic investors are at a distinct disadvantage.
While the investor rights agenda is constructed on the same platform of National Treatment and Most Favoured Nation treatment that is common to all WTO Agreements, it goes much further in two critical ways. The first is to allow individual investors virtually unqualified access to international enforcement mechanisms that may be invoked by them directly against nation states. It would be difficult to overstate the implications of this radical departure from the norms of international treaty law which, with the exception of international human rights, has never created rights to the benefit of individuals, let alone transnational corporations.
In other words, under NAFTA and MAI prototypes, for the purposes of enforcement, foreign investors are accorded the same status as nation states. The other critical departure of this proposed investment regime from the norms of international trade law, is to be found under the heading Performance Requirements, which actually constrains the implementation of domestic investment regulation even when applied only to domestic investors. Thus under the rubric of negotiating an international treaty, governments would abandon their prerogatives to regulate investment even in the most local context.
The recent use of NAFTA investor protections by foreign based corporations to assail toxic substance regulations, water export controls, hazardous waste treatment facility permitting and even civil court damage regimes provides an excellent indication of what to expect should these investor rights be established globally in the WTO.
The free trade vision expressed by the WTO Agreement on Agriculture is of an integrated global agricultural economy in which all countries produce specialized agricultural commodities, and supply their food needs by shopping in the global marketplace. Food is grown, not by farmers for local consumers, but by corporations for global markets. The consequences of this global model is a disaster for the food security of poor countries as subsistence farms are lost to export producers, but are also extremely problematic for environmental and food safety reasons as well.
Consider for example that the globalization of food production and trade necessarily requires that agricultural commodities be transported long distances, and be processed and packaged to survive the journey. In addition to sacrificing quality and variety for durability, this system of agricultural trade requires enormous inputs of energy. In fact, when account is taken of all energy inputs, global food production and trade probably consumes more fossil fuel than any other industrial sector. That is why international agricultural trade policies are likely to substantially increase greenhouse gas emissions and make climate objectives much harder to achieve.
Other important aspects of the WTO agenda for agriculture can be found in other WTO agreements dealing with food safety standards and biodiversity (these are described under the headings Sanitary and Phytosanitary Standards, and Intellectual Property Rights). When taken together these agreements set the stage for next "green" revolution — the one that spreads biotechnology in the form of genetically modified foods — terminator genes that prevent seeds from reproducing so farmers have to buy rather than grow their own seedstocks — vegetables that are actually lethal to insects that eat them, at least until whole populations of pests develop immunity — and plants that are virtually immune to pesticides so they can be sprayed or applied with impunity. In the process the dominion of the of the world’s largest agricultural corporations is further expanded and assured.
We have already noted the radical transformation of dispute resolution that was accomplished with WTO by transforming a mediation based trade regime into one that is truly binding and enforceable. Prior to the WTO trade dispute resolution had been a matter for negotiation and compromise. While trade panels could pass judgement on whether countries were in breach of their obligations — compliance ultimately depended upon the willingness of each member nation to accept the rulings of trade panels. This was the case because under GATT rules, retaliatory trade sanctions could only be imposed against an offending nation with its consent. With the creation of the WTO, the requirement for that consent has now been removed and trade panel rulings are enforceable virtually as soon as they are rendered.
It is also important here to stress that enforcement under the WTO means recourse to the most potent remedies that exist under international law — retaliatory trade sanctions. Moreover by the norms of conventional legal processes, WTO dispute resolution takes place with blinding speed. Cases are routinely heard, decided, appealed and resolved within a year of being brought. Indeed it would be impossible to find in any other legal regime, either criminal or civil, sanctions as quick and effective as those provided by the WTO. It is the effectiveness of its enforcement regime that ultimately accounts for the enormous influence that trade rules will now exert over the decisions of governments, even of the world’s most powerful trading nations.
Two other features of WTO trade dispute resolution processes should be noted — they are extremely secretive and often erratic. Trade disputes are resolved behind closed doors and only national governments have standing to participate. Opportunities for public interest interventions are simply non existent under WTO rules.
As to the issue of consistency — it is important to note that trade decisions are not binding on subsequent dispute panels which are free to ignore the reasoning and findings of previous panels on similar issues. In fact, when it comes to trade disputes involving environmental or resource issues, trade panels have often adopted inconsistent and contradictory approaches.
This at least is a small blessing because in future trade disputes panels will be free to reject the excessively narrow reading that to this point has been given to the scope for environmental and resource conservation regulation under GATT rules. However, the down side to this lack of consistent or predictable interpretation, is the uncertainty that confronts regulators wishing to craft regulatory solutions that will not run afoul of trade rules. As the trade cases summarized here reveal, would-be regulators are definitely shooting at a moving target, which to this point has been impossible to hit.
However confused the reasoning a review of WTO rulings on environmental or conservation measures reveals two consistent and common themes. The first is the expansive reading given to rules that limit government options that might, even indirectly, interfere with trade. The second is the exceedingly narrow interpretation given trade provisions that might create space for environmental or conservation exceptions to the free trade orthodoxy. This double whammy has spelled disaster for every environmental or conservation regulation that has found itself in the cross hairs of a trade dispute panel. In fact, none have survived the encounter and in every case, trade panels have found several grounds on which to rule against the environmental regulation.
Part of the explanation for the pro trade bias of these decisions has to do with the qualifications of panel members who are chosen from an international roster of trade professionals. Nomination to this roster requires no training, experience or expertise that would qualify adjudicators to judge complex questions of environmental law and policy. In addition, the only parties allowed to participate in trade disputes are National governments — which are inevitably represented by their respective trade departments. These in turn suffer from the same deficiencies. Appreciating this single-minded and myopic perspective is an important aid to understanding the fate of environmental measures at the hands of these panels.
The following analysis examines how the application of WTO rules will effect the capacity of governments to respond to the enormous ecological challenges ahead.
While governments remain reluctant to take environmental problems seriously, there is a growing scientific consensus that a devastating global crisis will develop if remedial measures aren’t taken quickly. This in part explains why, political reluctance notwithstanding, some progress is being made to establish international environmental agreements that at least provide a framework for national initiative.
The most important of these are multilateral environmental agreements (MEAs) that address the problems of global warming, ozone depletion, species protection, biodiversity loss and hazardous waste trade. Several MEAs authorize the use of trade measures, which in some instances are central to MEA goals such as constraints on international trade in endangered species or hazardous waste. In other cases, trade sanctions are simply the most effective way to ensure that domestic measures aren’t undercut by those in jurisdictions willing to ignore international norms. However when the use of such trade measures is considered in the context of WTO rules, several conflicts quickly become apparent.
While no trade dispute has yet challenged actions taken under an MEA, many of the measures that governments will need to adopt to meet international commitments under such agreements, would be unlikely to survive WTO scrutiny. Moreover, unlike NAFTA there is no WTO proviso that insulates these agreements from trade challenge. In fact the WTO has explicitly rejected proposals by the European Union that measures taken in accordance with international environmental agreements override WTO rules. Moreover the primacy of trade policy objectives has actually been written into the provisions of several MEAs.
As noted, there are a number of multilateral environmental agreements that use trade provisions to encourage compliance with and implementation of their provisions. The most important of these are:
The Convention in International Trade in Endangered Species and Wild Fauna and Flora (CITES). This convention established regulations based on the relative vulnerability of a particular species in a specific geographical community. Thus, trade in a species may be prohibited in one area while trade in the same species from other geographic area may be permitted.
The Montreal Protocol on Substances that Deplete the Ozone Layer (The Montreal Protocol). This protocol prescribes measures to limit the manufacture of ozone depleting substances. It also attempts to prevent countries not party to the Protocol from undercutting such measures by prohibiting trade in such substances with governments that are not signatories to the Protocol.
The Basel convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (the Basel Convention). This convention addresses the fact that many countries that might otherwise be recipients of those transboundary(cross-border) shipments are ill-equipped to effectively manage or dispose of hazardous waste. As a counterpart, the Bamako Convention prohibits the importation of hazardous wastes into Africa.
When these agreements are considered against the prohibitions set out in GATT rules, several contradictions are obvious. To begin with, each of these MEAs seek to control or ban trade — in endangered species, ozone depleting substances and hazardous wastes, respectively. But such restrictions are clearly incompatible with Article XI rules disallowing the use of quantitative trade controls.
Secondly, by authorizing the use of trade sanctions against non-parties to these agreements — including countries which nevertheless are parties to WTO — these MEAs allow a form of discrimination that contradicts the Most Favoured Nation (MFN) obligations of GATT Article I. For example, the Montreal Protocol bans ozone-depleting substance trade with non-parties to the Protocol — while allowing trade in the same products with countries that are signatories.
Thirdly, by allowing different rules to be applied to foreign and domestic producers, these agreements violate the requirement for National Treatment set out in Article III of GATT. For example, the CITES Agreement restricts international trade in endangered species, but doesn’t seek to regulate internal domestic trade or consumption. The same is true of the Basel Convention. Similarly, the Montreal Protocol obviates the need to provide national treatment to ozone depleting substances produced in jurisdictions that are not in full compliance with Protocol. In this way, all three agreements contradict GATT rules by providing more favourable treatment to domestic goods.
Furthermore, the meaning of "like products" in Articles I and III does not distinguish between, nor allow discrimination against, products with the same physical characteristics — but which have very different environmental histories (see discussion of the Tuna Dolphin case below). Yet CITES allows such discrimination between identical animal or plant products depending on whether one comes from a jurisdiction where the species is threatened or not. Similarly, the Montreal protocol discriminates between "like products" depending on whether the exporting jurisdiction is a full party to the Protocol.
In other words, these cornerstone provisions of free trade force us to ignore the differences that exist between the environmental impacts associated with producing goods that may be otherwise identical. Thus, lumber from a clearcut of old growth forest must be treated in precisely the same way as lumber from a selective cut of a managed second growth forest. This enforced blindness makes it impossible for consumers and producers to discriminate in favour of sustainable management. In the jargon of international trade, regulations concerning the way products are made are described as production and process methods or PPMs. Trade bureaucrats and adjudicators have been adamant that such measures not, even indirectly, interfere with trade.
Given the character and extent of these conflicts the viability of MEA based trade measures will depend upon whether they will be accepted as justifiable exceptions to the trade rules with which they clearly conflict. Indeed there is provision made for such exceptions and these can be found in Article XX of GATT which provides in part:
General Exceptions
Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:
(b) necessary to protect human, animal or plant life or health;
(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption.
A plain reading of these provisions suggests that ample scope for environmental regulation would be possible under the Article XX umbrella. However, in numerous disputes these provisions have consistently been accorded very narrow application. No environmental measure challenged under GATT or WTO has ever been sustained and while no trade case has specifically impugned a trade measure taken in accordance with a MEA, it is unlikely that such a case would produce a more favourable result.
The following summarizes two of the first cases to involve Article XX exceptions, and illustrates some of the problems that have arisen when recourse to this provision has been sought.
TUNA, and DOLPHINS During recent years, the trade provisions of US marine mammal protections laws have come under trade fire on several occasions. The first of these (Tuna-Dolphin I) concerned tuna import restrictions authorized by US Marine Mammal Protection Act (MMPA), which regulated the fishing practices used by the US tuna fleet to limit, and ultimately eliminate, the "incidental" killing of dolphins. In order to prevent the regulation of the US fleet from being undercut by foreign producers, the MMPA required the US government to ban the importation of tuna caught by fishing practices lethal to dolphins. In response to a US environmental group’s petition alleging that Mexico and other Latin American countries were exceeding the limits set out by the MMPA, the US imposed an embargo on the importation of commercial tuna from these countries. Mexico, which enjoyed a robust tuna export trade with the US, objected and filed a GATT complaint challenging the embargo. Several other countries intervened, as did Canada, which supported Mexico’s challenge. Products not Processes: In defense of its environmental regulations, the US maintained that it was not discriminating against Mexican tuna imports because it had effectively treated imports from Mexico in the same way as it did the catch of its own fishing fleet. The panel rejected this argument, saying that the regulations at issue "could not be regarded as being applied to tuna products as such because they would not directly regulate the sale of tuna and could not possibly affect tuna as a product." In other words, "national treatment" of "like products" required by Article III of GATT meant that no distinction can be made among products with the same physical composition or characteristics, no matter how different the processes employed to manufacture or harvest them. Open Season on Global Resources: A second important aspect of Tuna I had to do with this trade panel’s narrow reading of Articles XX (b) and (g) of the GATT to preclude measures designed to protect the environment or conserve resources beyond a country’s borders. The panel reasoned that to allow otherwise would be create a situation in which "each contracting party could unilaterally determine the conservation policies from which other contracting partied could not deviate..." The implication for international environmental treaties or conventions is obvious. While this aspect of the panel’s ruling has been criticized by panels in subsequent disputes — the issue of extra-territorial application of domestic measures remains far from settled. However, in the second case arising from the same circumstances (Tuna Dolphin II) a trade challenge was brought by the European Community to a secondary tuna product embargo also imposed under the MMPA. In that case the panel could find nothing in the language of either GATT article that would impose territorial limits on their application. However, having opened the door slightly to the potential use of Article XX exceptions, the panel quickly closed it again. The panel rejected the impugned MMPA restrictions "because they required another country to change their policies and practices to be effective." Yet by encouraging all countries to pursue global environmental goals, this is precisely what multilateral environmental agreements strive to achieve. Amending GATT Rules to Protect the Environment: Perhaps the trade panel’s most important comment came in its concluding remarks. These focused on fundamental contradictions between the free trade principles of GATT on one hand, and trade restrictive environmental measures on the other. The panel reasoned that should GATT parties wish to allow such measures, they should make that intention clear. They should amend the GATT to precisely delineate any environmental exceptions to a trade agreement. In other words, if GATT parties wanted trade agreements to accomplish environmental objectives, they should say so. Unfortunately the notion of making such amendments was flatly rejected during WTO negotiations. |
Asserting the Primacy of International Environmental GoalsAs the Tuna-Dolphin and other trade cases make clear, current interpretations of GATT rules pose serious problems for international environmental agreements and are certain to slow efforts to implement existing multilateral commitments. Also, they are likely to frustrate efforts to devise compliance mechanisms for new environmental conventions and protocols such as the The Convention on Biological Diversity (Biodiversity Convention), the The Framework Convention on Climate Change (Climate Change Convention) or efforts to conclude an International Convention on Persistent Organic Pollutants (the POPs Protocol). Implicit in WTO rules, and explicit in trade panel rulings — is the paramountcy of trade policy objectives over environmental goals. This result is not however due to any public policy debate and few if any countries have encouraged any public discussion about the relative priority of environmental and trade policy objectives respectively. Trade and economic departments, which in many ways now dominate the modern state in all industrialized countries, have simply assumed the primacy of their agendas and proceeded to implement them. This is turn has strengthened the influence of these departments over other spheres government initiative. In fact the trade bureaucrats and lobbyists have done a much better job of grafting their agenda onto the sustainable development paradigm than environmentalists have done in moderating the "grow now, pay later" model of free trade. For example Article 12 of the Rio Declaration, negotiated at the "Earth Summit" in Brazil in 1992, states:
Despite such statements, there is no empirical basis for the dubious proposition that free trade promotes sustainable development. Moreover, any common ground which does exist between trade and environmental policy goals has been consistently overlooked or ignored by trade panels which have considered the two side by side. More to the point, there are good reasons for concluding that free traders have it backwards. Given the potentially devastating consequences of global warming, ozone depletion, biodiversity loss, and unregulated waste trade, it is simply impossible to accept the proposition that efforts to confront these problems should give way to increase international trade. While it is possible to read WTO rules liberally enough to accommodate the trade provisions of MEAs, that reading is exceedingly unlikely and nowhere in evidence. It is therefore senseless to leave the fate MEAs to the mercy of the WTO — especially when there are at least two straightforward ways to assert the authority of the MEAs. The first would be for MEA signatories to prepare amendments asserting the primacy of MEA provisions should conflicts arise with the rules of trade. To further guard against such conflicts, the WTO should also be amended to exempt MEAs from the application of trade disciplines — as is the case with NAFTA. PART 4: NATURAL RESOURCES CONSERVATION UNDER THE WTOConcerns about the environmental implications of international trade have focused almost exclusively on environmental standards. By comparison, little has been done to reveal or address the impacts of global trade rules on our options for achieving sustainable resource management goals, or for preserving biodiversity. In fact, issues concerning trade and natural resources are not even on the agenda of the WTO Committee on Trade and Environment. Yet over the longer term, it is likely to be the impact of free trade on natural resources and biodiversity that will be its most destructive legacy. There are two basic observations that can be made about the character of international trade in natural resources. The first is that most of the worlds natural resources (roughly 80 per cent) are consumed by the 20 per cent of us who live in developed countries. The second is that developing countries have effectively been denied the economic development that comes from processing raw resources, or converting them into manufactured goods. Two aspects of trade law and practice establish and reinforce these inequitable and historic trade patterns. The first can be found in Article XI of the GATT which, as we have seen, prohibits the use of export controls to support domestic manufacturing — or for any other purpose. The second can be found in the practice of tariff escalation adopted by developed countries. These impose higher tariffs on manufactured goods than on the raw materials used to produce them. Export controls have an important role to play as part of a larger strategy to conserve resources and foster local economic development. But as we examine below, WTO rules prohibit use of such controls for these purposes. In addition, the practice of "tariff escalation" which dsicriminates against value added products, similarly undermines sustainable resource management. Export Control as a Resource Conservation ToolOver the years, many governments have imposed raw resource export bans in order to conserve those resources and promote local economic development. Canadian examples include bans on the export of raw logs and unprocessed fish. Such export controls can have an immediate and obvious impact on the rate of resource exploitation. Most often however, the rationale for such controls was the desire to see that value was added (processing or manufacturing) to raw resources before being exported. For resource-based communities this meant a more dynamic and diverse economy, and ultimately a greater stake in sustainable resource management. For government, the result meant more tax revenue from the additional economic activity that now took place within its jurisdiction. This in turn meant having the fiscal resources needed to invest in resource enhancement and conservation measures, and a stronger rationale for doing so, because now such public expenditures would benefit processing, and manufacturing as well as harvesting or extraction industries. From an environmental perspective there is one other important reason to support the notion of processing resources as close to their source as possible and that has to do with reducing the enormous energy and other environmental demands of transporting unprocessed resources over great distances. It is clear that the transportation impacts of global production and trade represents a very substantial and largely uncounted cost of the global economy.9 Conversely, without the ability to ban the export of raw logs and other unprocessed natural resources, resource-based economies become poorer and less diverse. Income, both to the private and public sectors becomes dependent upon the rate at which the resource is extracted, and the viability of local economies becomes far more vulnerable to commodity price swings. When commodity prices decline, enormous pressure is created to increase the rate of resource exploitation, eliminate regulatory controls, reduce royalties, or all three. These dynamics have been played out on many occasions and in communities across Canada. They can also be clearly observed in the forest resource sector of British Columbia, where in response to market pressures, industry is pressuring government to abandon forest harvesting regulations, reduce stumpage fees, and even privatize Crown forest land. Export Controls and Article XIConsidered in this light, the ability to control resource exports seems crucial to the development of sustainable resource management programs. Yet it is precisely this prerogative that free trade agreements remove. Admittedly, export bans provide no guarantee that governments will implement sustainable resource management strategies. Indeed the existence of resource export controls has done little to avert serious problems now common in virtually all resource sectors. However, without the authority to regulate exports, governments simply won’t have the tools needed to shift policy in a more sustainable direction, no matter how compelling the environmental or economic imperatives for doing so. In other words, at the very moment when the need to change the course of resource management policies is clearest, the free trade agenda seeks to remove the tools needed to change our course. Export Controls and Tariff EscalationAs noted, the practice of tariff escalation imposes higher import tariffs on manufactured goods than on the raw materials from which they are made. Thus a bale of raw cotton receives more favourable tariff treatment than does the same bale woven into textiles, and more favourable still than garments made from those textiles. Thus while Article XI may preclude quantitative import restrictions, the use of import tariffs accomplish the same result. The effect of tariff escalation policies has been to ensure that the value-added processing of resources harvested, extracted or mined in poor countries is carried out in the industrial and developed North. This in large measure explains why the economies of most developing countries are closely tied to primary commodities, which account for most of their export earnings — Latin America (67 per cent) West Asia (84 per cent) and Sub-Saharan Africa (92 per cent). To exacerbate this dependence, the real price of commodities has been declining for much of the period since 1980. This in turn has created more pressure to exploit natural resources as countries struggle to increase production in order to maintain export earnings. However, in the world of market-driven and deregulated trade, the ability of developed countries to maintain high tariffs is finally giving way, and under the WTO some progress has been made in easing the tariff escalation policies. But as competition for scarce resources increases, securing access to dwindling supplies remains a high priority for the North. Therefore, other means are emerging to secure access to the energy and raw materials needed to support northern processing and manufacturing industries. As developed countries have to abandon policies of tariff escalation, they are now turning to Article XI as the device for assuring the continued flow of raw materials to its manufacturing industries. For example the US has relied on this provision to challenge efforts by Argentina to control the export of unprocessed hides (to support its domestic tanning and leather goods industry), and has gone after Canadian raw log and fish export controls (see following discussion). It is undeniable that such practices have fundamentally undercut the economic aspirations of developing countries. If sustainable development means a more equitable distribution of the world’s resources, and of the economic benefits derived therefrom, then current trade rules will need to encourage the domestic processing and manufacturing of indigenous resources. Otherwise they will simply perpetuate the patterns of development that have impoverished much of the world and laid waste to its resources. 4.1 ForestsAcross Canada, environmentalists have struggled to protect our forests from unsustainable forestry policies and practices. Despite wide variations in forest ecosystems and operations, common concerns include unsustainable levels of logging; ecologically damaging forestry practices; lack of bio-diversity protection; poor levels and quality of regeneration; and unsettled First Nations’ land claims. Environmentalists are well aware that policies addressing the use and conservation of natural resources are fundamental to environmental protection. They are also front-line tools for the integration of environmental and economic goals. But as we have seen, trade rules dramatically curtail the availability of policy and regulatory options needed to support conservation. Moreover, it appears that the few remaining options may fall victim to what amounts to internecine warfare between US and Canadian lumber interests. Canadian forest management practices have repeatedly come under fire from the US lumber lobby which for years has been unhappy about having to compete with cheap Canadian lumber exports. Several trade disputes have been initiated on behalf of US producers, challenging Canadian policies and low stumpage rates. To US interests, these represent unfair subsidies to Canadian mills. With some reservations, environmentalists on both sides of the border have welcomed the attention, because the trade disputes have brought to light the "fire sale" prices at which public forests have been assigned to large forest industry corporations. However, one important aspect of these disputes — raw log export controls — has been largely overlooked. The following summary describes how Canadian raw log export controls got caught in the cross fire of Canada-US lumber wars. This case also illustrates how trade disputes can be used tactically to keep governments from adopting resource export controls even when specific exemptions from trade agreements would ostensibly allow their use. While the case is one that proceeded under the dispute provisions of NAFTA, the principles of trade policy articulated by the panel would have equal application to the WTO regime.
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The Case of Canadian Raw Log Export Controls Because log export controls are of special importance to the economies of several states and provinces, NAFTA explicitly exempts them from the rules of free trade that normally apply to all natural resources. (see Annex 301.3). However, the US Commerce Department (DOC) — spurred on by the US lumber lobby — initiated a challenge to Canadian log export controls under the US Tariff Act. Because it could not go after these export controls directly, the DOC challenged Canadian log export bans as conferring a subsidy on the Canadian lumber industry. Subsidies are generally prohibited by the rules of free trade as representing unfair trade practices. When this prohibition is ignored, trade rules authorize the use of countervailing import duties to "level the playing field" for domestic producers. In this particular case, the DOC argued that log export restrictions artificially inflate domestic supply, which in turn lowers prices to local mills. Thus, the DOC asserted, Canada’s export controls had conferred an "indirect subsidy" on its lumber industries and could therefore be countervailed. Canada complained and a dispute panel was constituted. While it ultimately rejected the validity of the DOC claim on technical grounds, the trade panel did agree that export controls could be treated as unfair subsidies. In doing so the panel endorsed a dramatic departure from past practice that effectively extended the reach of countervail rules to a broad range of resource policies. Thus the same tactics might be used by the US, or another developed country, to assail a high export tariff on unprocessed resources that would otherwise be consistent with WTO rules. But most important, by allowing countervail relief every time some action by government reduces the cost of production for domestic producers, a host of environmental programs would become vulnerable to challenge. For example, as argued in a dissent to this ruling, an emission trading program that allows polluters greater flexibility in meeting environmental goals at lower costs would constitute a counter-vailable subsidy. Indeed, taken to its logical conclusion, all conservation measures distort supply and demand and may be vulnerable to attack as unfair trading practices. The case is also important because it suggests that exclusions, such as the one in NAFTA for raw log export controls, may not be worth the paper they are written on if they run counter to the prevailing orthodoxy of trade deregulation. Thus even though raw log export controls are specifically identified as an allowable exception to NAFTA prohibitions on export controls — and endorsed as such by the NAFTA partners — the softwood trade panel had little difficulty endorsing an argument that virtually renders this exception meaningless. |
The broad implications of this ruling are clearly disturbing. Consider, for example, what this decision means should Canada decline inter-basin water transfers to the US. The argument would then be made that, by prohibiting the export of water, Canada had conferred a countervailable subsidy on Canadian farmers and industry — the value of the subsidy being the difference in cost between Canadian and free market prices. Moreover, the extravagant and unsustainable US water use and pricing policies, that might have given rise to these price differentials, would be entirely irrelevant. Forest Practices Certification as Eco-labellingThe Canadian Standards Association Sustainable Forestry Management CertificationTo take advantage of the internationalization of standard-setting, and to promote trade in forest products, the Canadian Pulp and Paper Association and the Canadian Standards Association (CSA) have developed a voluntary certification system for sustainable forest management (SFM). Essentially an eco-labeling scheme, it purports to allow purchasers to identify products from sustainably managed forests controlled by companies whose practices will be assessed by independent certifiers. Environmentalists roundly criticized this scheme for several reasons. Firstly, it would certify management systems, without requiring actual environmental protection performance standards. Secondly, it would not require a chain of custody to ensure that products actually come from certified forests. Finally, it was developed in a flawed, industry-dominated process. In 1995, the CSA attempted to have its proposal adopted for international standard-setting by the international standards organization (ISO), but international environmental opposition prompted a withdrawal. The issue is currently being "studied" by an ISO working group coordinated by New Zealand. If the Canadian forest industry succeeds in using these GATT-promoted processes to establish its eco-labeling scheme, further barriers to effective forest regulation in Canada will have been created. The Forest Stewardship CouncilThe Forest Stewardship Council (FSC) is an international organization including environmentalists, social justice groups, industry, and indigenous peoples. It has also established a voluntary certification scheme for forest products based on principles and forest standards that environmentalists consider credible. Newly established in Canada, the FSC will require that standards be developed here on a regional basis, given the different forest types in Canada. The FSC "certifies the certifiers" but unlike the CSA process, it includes principles for performance, and a chain of custody requirement to identify products that come from a given managed forest. Although still a small organization, it has become an important player in international forest trade, being a potentially potent force in providing markets for environmentally-preferred forest products. The federal and provincial governments of Canada have supported the CSA certification scheme. At the WTO Committee on Trade and Environment, Canada has argued that voluntary non-governmental eco-labeling schemes, such as the Forest Stewardship Council, be subject to the GATT disciplines. Because trade rules prohibit measures that would discriminate against "like" products on the basis of how they are produced, the FSC model would clearly contravene WTO rules. Fortunately, environmental groups have been able to frustrate this ambition. Strategies for EnvironmentalistsThe agenda of deregulation that is so apparent in the trade area, is also being played out in other arenas as well. Thus Canada has moved to deregulate many sectors of our domestic economy. Environmental laws are coming under unprecedented attack at both the federal and provincial levels. Devolution of federal environmental powers to the provinces is reducing federal leadership in environmental lawmaking. And now, environmentalists working for new policies are told that the trade agreements don’t allow them. The use of FSC type certification processes is of vital importance because it can side step the roadblocks erected by trade agreements when it comes to government action. For this reason, it is important that environmentalists challenge the federal government’s attempt to use the WTO against the FSC and any other credible certification schemes. International cooperation among environmentalists stopped the CSA scheme from being accepted as an international standard, and it must now work to sustain the FSC alternative. We can help by informing our international allies of our opposition to the Canadian position on eco-labeling. In Canada, we need also to expose our federal governments efforts to defeat such initiatives at the WTO. 4.2 FisheriesFisheries related trade disputes provide further evidence of the clash between trade rules and conservation objectives. The Tuna-Dolphin rulings (discussed above) show how GATT rules create very substantial obstacles to environmental initiatives that seek to protect global or extra-territorial resources. A recent case arising under the WTO provided a test of whether the new regime would be more tolerant of conversation programs directed at global marine resources. The answer, while couched in somewhat different terms, was no decidedly no as the following case note describes.
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Shrimp-Turtles — Tuna-Dolphins revisited In January of 1997 a India and a number of countries from Southeast Asia invoked the dispute resolution procedures of the WTO to challenge a ban imposed by the United States on the importation of shrimp and shrimp products. In a case with many similarities to the Tuna-Dolphin disputes, the heart of this dispute again involved US marine mammal protection legislation. In this case the environmental regulation at issue was a requirement that commercial shrimp trawlers operating in sea turtle habitat employ "turtle excluder devices" which would permit sea turtles to escape from shrimp nets before drowning. Again the US argued that it was doing no more than level the playing field for domestic shrimpers who were subject to the same regulations. And again third world countries complained about the imperial character of US law, and argued that the way it was implemented unfairly discriminated against foreign producers. In April 1998 a WTO dispute settlement panel wasted little time in concluding that the US import ban was "clearly a threat to the multilateral trading system" and consequently could not seek shelter under Article XX of the GATT. In fact the panel appears to have been so offended by the US legislation that it obliged to repeat the criticism that it represented a "threat" or "put at risk" or "undermined" the world trading system on no less than nine occasions. But as has now become the norm in such cases, and in a manner that further undermines any expectation for consistent reasoning in trade cases involving environmental measures, a subsequent review of the panels ruling by the WTO Appelate Body (AB) rejected its reasoning — but not its conclusion. In an apparent effort to calm some the waters that had been stirred up by the panel’s intemperate language — the AB adopted a much more measured and even somewhat conciliatory approach. It also took the unprecedented step of receiving three amicus briefs submitted by NGOs and included as part of the submissions to the panel. However on the actual merits of the case the AB found no less than seven distinct grounds upon which to find the US import ban to be in violation of WTO rules. As has been the situation in all other trade cases involving environmental initiatives, the AB had no hesitation in wading into the detailed substantive and procedural elements of this particular regulatory regime and substituting its judgment for that of legislators and public officials. Nor was the AB apparently troubled by the impracticality of its proscriptions when it concluded that in order to satisfy WTO requirements the US would have to provide foreign producers with the same standing and rights of judicial appeal against regulatory initiatives as would be available to its own citizens. In other words, to guard against potential future trade challenges governments must effectively invite any and all foreign producers that might in some way be effected by its initiative to take it to court. The notion that a national government provide an unknown universe of potentially effected foreign parties the right to invoke domestic administrative and judicial remedies should they feel aggrieved by some environmental or conservation initiative, would surely be dismissed as preposterous if introduced in any other context. But cloaked in the mystique of the WTO and offered as the infallible logic of globalization — the AB had no apparent qualms in stating such a requirement as the necessary test of WTO compatibility. Finally it should be noted that notwithstanding the complex and often convoluted reasoning of these trade decisions, it is important not to lose sight of the basic fact that what is essentially at issue in these disputes are environmental measures that were established, not for purpose of interfering with trade, but in good faith, and for the purpose of achieving important conservation and biodiversity objectives. |
Export Controls as a Domestic Fisheries Management ToolCloser to home and equally revealing if the impacts of free trade on fisheries conservation measures are two trade cases concerning salmon and herring fisheries off Canada’s west coast. Each case involved US challenges to Canadian fisheries regulations. The first of these disputes proceeded under GATT, and the second under the Canada US Free Trade Agreement However, the GATT rules that are central to both cases applies equally to NAFTA and the WTO as well. Moreover, these cases illustrate how the two trade regimes work together, often to deliver a one-two punch to resource conservation policies. As the Tuna-Dolphin decisions illustrate, WTO trade rules create impediments to international marine conservation. The salmon and herring cases show how the same rules work to undermine efforts to manage domestic fisheries and marine ecosystems. In order to establish sustainable management regimes for coastal fisheries, governments must be able to impose effective controls upon all those exploiting marine resources within these zones. For the domestic fishing industry serving local markets, the exercise is reasonably straightforward, and governments have created a variety of regulatory mechanisms to control what, when, how, and how much is taken from coastal zones. While these regulatory regimes have failed dismally in many instances, sufficient authority did exist to establish sustainable management programs, had it been properly exercised. As the following case illustrates, free trade has intervened to undermine the ability of governments to regulate their fisheries.
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The Salmon and Herring Cases In 1908, Canada passed a regulation under the Canadian Fisheries Act prohibiting the export of unprocessed salmon and herring. The salmon and herring fisheries represented a large share of Canada’s west coast fishery, and the export embargo created a thriving processing and canning industry which has been an important part of the economy of British Columbia for most of this century. However in 1986, the US used GATT rules to challenge Canada’s Fisheries Act Regulations as part of its continuing efforts to secure a larger share of these valuable fisheries resources for its own domestic canning industry. The challenge appears to be the first ever taken under GATT rules concerning an export control measure. In defense of its program, Canada argued that its export limits represented an integral element of its longstanding fishery management regime. This included habitat protection, catch limits, international agreements, and the maintenance of monitoring and enforcement systems. The overall effect of this comprehensive regime was conservation. However, Canada is also readily conceding that its export prohibition was multi-purposed and intended to ensure the viability of Canada’s fish processing industry. This objective was, it argued, entirely consistent with conservation goals. It allowed Canada to justify significant public expenditures on salmon enhancement programs with the expectation that benefits would flow to all sectors of the fishing industry and not just the harvesting sector. Unpersuaded by these arguments, the GATT panel found Canada’s export controls to be contrary to GATT rules and indefensible under the "resource conservation" exception (Art. XX(g)) of GATT’s general prohibition against export controls (Art. XI). In response, Canada revoked the regulation that had been a cornerstone of its fishery management regime for 80 years, and substituted one that required that all salmon and herring be landed in Canada for inspection and biological sampling before being exported. Canada insisted that this measure was necessary to ensure that fishing limits were respected. For the salmon fishery, biological sampling was also critical to the success of species conservation and management goals. However, landing requirements also meant that this Canadian catch would be processed in Canadian canning factories. The US filed another trade complaint. The ensuing dispute was the first to be decided under the Canada-US Free Trade Agreement (FTA), and ruled in favour of the US. Undeterred by the fact that Canadian regulations ultimately set no limit on the export of fish to the US, the panel didn’t hesitate in finding Canadian landing requirements to be in breach of the prohibition on export controls set out in GATT Article XI (as is true for the WTO, GATT rules are incorporated as a base line for the FTA and NAFTA). The Panel then needed to consider whether Canadian regulations might be justified as an exception under GATT Article XX(g), as a measure "relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption." It reasoned that to qualify as an exception under this rule, an export embargo would have to be "primarily aimed at conservation." Apart from the absence of any textual support for such a test, one might regard this precondition as a reasonable standard. However in the Panel’s view, "primarily" means that such a measure "would have been adopted for conservation reasons alone." Moreover, the same purpose could not have been accomplished by other means. This is a test that few — if any — environmental regulations could hope to pass, particularly when administered by trade bureaucrats. As was true of the GATT decision, the FTA panel refused to make any distinction between the rights of domestic and foreign fish processing industries. While this is entirely consistent with the rules of free trade, it is fundamentally incompatible with the notion that the opportunity to exploit a resource must bear some relationship to the responsibility to manage and care for it. By giving foreign resource companies the same access to coastal fish resources as that enjoyed by domestic producers, free trade has imported into the sphere of domestic resource management the very same problem that has plagued the global commons — that is, opportunity for all to exploit, and responsibility for none to conserve. |
| The salmon and herring decisions run true to form in asserting the priority of trade policy objectives and letting natural resource impacts fall where they may. While GATT rules may look the villain here, it is really the combined effect of FTA(now NAFTA) and GATT (now the WTO) that together Deliver a one-two punch to close off every avenue of trade regulation of resource exports. Under the WTO, countries are free to use price — ie. export taxes or royalties — to control the export of resources from their jurisdiction. In other words, while GATT Art. XI prohibits the use of quantitative export controls, it allows a country to establish a two-price resource policy — one for domestic consumers and another for exporters. But the FTA and NAFTA specifically close off this public policy option. Neither of the Salmon and Herring Cases would have arisen but for Canada’s obligations under the FTA and NAFTA to remove any differential taxation of its natural resources. Before leaving the subject of export controls, it is also important to note that CUSTA and NAFTA go much further than GATT, in virtually eliminating the authority of governments to restrict exports even in times of critical shortage. This is because Art. 319 of NAFTA (Art.405 of CUSTA) establishes a regime of proportional access that would allow, for example, the US to have perpetual access to west coast fisheries resources in the same proportion that it had historically enjoyed, no matter how severe or permanent the depletion of natural resource stocks becomes. Free Trade and Sustainable Resource ManagementThe trade cases summarized above expose some of the problems that arise when the principles of free trade are applied to the resources sector. If governments are to establish sustainable resource management policies, they must have full control over foreign investment in the resource sector. They must also be able to control exports, both for the purposes of conservation, and to create value added and more diverse resource economies. Under WTO rules, these prerogatives are fundamentally undermined. For far too long, we have been mining our forests, fisheries, farmland and other resources as if these were limitless. Critical shortages are now apparent in virtually every resource sector, including coastal fisheries, forests, water, and energy. But now that the imperatives to change our course are clear, the WTO and the free trade agenda would entrench the unsustainable resource management practices that have created our present predicament. If rules of trade are to serve rather than undermine the principles of sustainable development, they must be fundamentally overhauled to make a virtue, rather than a sin, of resource conservation. PART 5: AGRICULTUREThe tools with which we have transformed the modern farming industry — heavy machinery, mono-cultures, hybrid crop strains and chemicals — have caused enormous and often irreversible damage to soil fertility, water quality, public health and viable farm economies. Moreover the productivity of our farmland has become, year by year, ever more dependent upon massive infusions of energy, to produce and operate farm machinery, and in the form of petrochemical-based fertilizers and pesticides. In fact current estimates are that we expend more than 3 calories of energy to produce every calorie of food. When the energy associated with processing, packaging, transporting and marketing agricultural products is included, the equation becomes even more lopsided and roughly equals ten calories of energy in, for every calorie of food energy out. We have in this process of modernizing agricultural production actually tied the future of what should be a renewable resource, farmland, to a non-renewable resource, fossil fuels. Unfortunately the environmental consequences of these unsustainable patterns of agricultural production are largely unrecognized. Neither does there appear to be any recognition that at the root of these problems is the very economic and trade policies that we are now entrenching in the WTO. Therefore, juxtaposed against this backdrop, is the free trade vision of an integrated global agricultural economy, in which all regions of the world are engaged in the production of specialized agricultural commodities, each supplying its needs by shopping in the global marketplace. Food is grown, not by farmers for local consumers, but by large corporations for global markets. The consequences of this global model for farmers in poor countries who have lost their subsistence farms to export producers, are of course disastrous (see Food Security below), but for the moment consider what this model means for the energy intensity of agricultural production. 5.1 Agriculture, Trade and Global WarmingThe globalization of food production and trade necessarily requires that agricultural commodities be transported long distances, and be processed and packaged to survive the journey. In addition to sacrificing quality and variety for durability, this system of agricultural trade requires enormous inputs of energy and will substantially increase consumption and use of fossil fuels. When account is taken of all of the energy inputs that support modern agricultural production (just as one example, nearly 50 per cent of all consumer packaging is used for food products), agriculture is probably the world’s biggest business, and in North America has historically used more energy and consumed more fossil fuel than any other industrial sector. It is clear then that by encouraging global food production, current trade policies will actually increase the energy demands of agricultural production and trade. The Climate Change Convention exhorts governments to:
But while governments have come to recognize the imperatives of averting global warming, and have undertaken to stabilize greenhouse gas emissions at levels that will require substantial emissions reductions in many developed countries, they have at the same time embraced agricultural trade policies that will make it far more difficult, if not impossible, to achieve those goals. That environmental and agricultural trade policies could be working at such cross purposes is a testament to our failure to take seriously the need to integrate environmental and economic policy. If governments are going to live up to the commitments they have made to combat climate change they will have to seriously examine the energy consequences of resource, industrial and agricultural policies. And if agricultural policies are to support less energy intensive production, it seems evident that they will have to promote self reliance in food production — not global dependence. 5.2 Food Security
Another compelling reason to encourage policies of self reliant agricultural production can be found in the severe consequences of being entirely dependent upon global production. This has, to a great degree, become the plight of much of the third world. For several decades now, the character of global agricultural production had been driven by EU and US farm policies, and by the large agribusiness corporations that have been the major beneficiaries of those policies which have sought to secure the largest share of global markets for US and European producers. To achieve this goal two primary strategies have been adopted. The first is to keep international markets flooded with cheap agricultural commodities that are often priced well below the cost of production. This has required massive farm subsidy programs in the US, the EU, as well as in other countries that wish to compete with them for export markets. The result of this competition among heavily subsidized producers has resulted in enormous surpluses that are then dumped onto international markets. While many poor countries have occasionally benefited from this abundance, in the bargain they have had to abandon any hope of establishing their own indigenous agricultural economies leaving many entirely dependent upon a continuing flow of subsidized grains and other food from the world’s few exporters. In this vulnerable condition, supply disruptions, unstable currency rates and wild swings in agricultural commodity prices have often meant widespread hunger and starvation. The other strategy that the US has used to achieve market dominance for its domestic producers has been to attack efforts by countries seeking self reliance in agricultural production that might close their markets to US exports. A primary target of these attacks has been supply management systems, such as those in place in Canada (see "supply management" below). In large measure these strategies have succeeded in garnering for US-based agri-corporations the position of dominant players in global food markets. For example in 1994 US exports accounted for 36 per cent of the wheat traded globally, 64 per cent of the corn, barley, sorghum and oats, 40 per cent of the soybeans, 17 per cent of the rice and 33 per cent of the cotton. Moreover, in many cases only a handful of US corporations accounts for this global market dominance. For example 50 per cent of US grain exports in 1994 were accounted for by just two corporations. The other important factor that has undermined food security for much of this planet’s population has been very low commodity prices for the third world exports. Thus as real prices for many commodities fell during the 1980s, pressures grew to increase production particularly for developing countries dependant on agricultural exports to earn foreign exchange. Caught in this squeeze between declining commodity prices and increasing debt loads, poor countries have been forced to engage in a cycle desperation production. As prices fall, more and more land is appropriated for export production, production for local markets is displaced, and the ranks of landless peasants, no longer able to feed their families, continues to swell. In response to this crisis developed countries and large agri-corporations have cast the problem in terms of a shortage of food supplies and have offered to fill the breach with more intensive production, biotechnology, pesticides and fertilizers. Ignoring, as always, the fundamental question of distribution, free trade is again offered as the magic bullet that will bring the prosperity people need to buy food in the global market. But there is no evidence to support a positive relationship between trade growth and food security. Indeed as we have seen the root causes of global food insecurity can in large part be found in the unregulated international marketplace, which has allowed wholesale export dumping by countries able to underwrite surplus food production in order to maintain global market shares. In fact, it is this very dynamic that has played a key role in creating downward pressure on commodity prices for third world exports. Describing how export agriculture can worsen the position of poor farmers, a document prepared by the FAO put it this way:
In fact according to a recent OECD/World Bank study much of the third world will be net losers under new WTO rules, with the GDP of African countries actually dropping by 0.2 to 0.5 per cent. Conversely two thirds of the expected increase in "global income" attributable to GATT will accrue to OECD countries which represent about one third of our planet’s human population. There are however ways in which agricultural policies can promote food security, and the most important of these would simply be to make food security the primary goal of agricultural production. Food policies, both international and national would then encourage food production for local consumption first, and only secondarily for international markets. International trade and the activities of transnational corporations would also have to be closely regulated to ensure that they served rather than undermined the goal of a secure food supply. Finally, food security would be defined as a basic human right. An objective, the US stood alone in opposing at the recent World Food Summit organized by the United Nations Food and Agriculture Organization (the FAO). 5.3 Food SafetyFood safety and pesticide standards are subject to the provisions of the WTO Agreement on the Application of Sanitary and Phytosanitary Measures.[SPS]. Again trade jargon obscures the fact that this agreement primarily deals with food safety, biotechnology, pesticides and other regulations concerning plants and animals. In many ways the SPS Agreement mirrors the provisions of the other WTO on standards — the Agreement on Technical Barriers to Trade (TBT) which is discussed in some detail in Part 7. But the SPS Agreement actually goes further in constraining the scope for federal or provincial regulation. To begin with, the SPS places a great emphasis on the need to harmonize food safety and pesticide regulations internationally and includes several provisions compelling governments to adopt such standards on the one hand, while dramatically circumscribing the scope for national or local initiatives on the other. While the development of an international consensus around environmental standards may be a desirable objective, the effect of SPS harmonization rules is to create a ceiling but no floor for such regulations (see discussion on the TBT). Another unique feature of the SPS regime that is very problematic can be found in several articles that explicitly seek to reduce food safety, and pesticide standards to scientific propositions to be determined by international science panels. A consensus of international scientific opinion then becomes the necessary precondition for environmental regulation. The absence of such a consensus can then be asserted as prima facie proof that trade protection motives must underlie a purported concern for the environment or food safety. Not only are such rules fundamentally at odds with the precautionary principle, but they attempt to exclude ethical, social, and economic considerations from the equation. Furthermore, by assigning the task of standard-setting to international technical bodies, such as the Codex Alimentarius, the prerogatives of elected and accountable institutions are greatly diminished. The first trade case to consider these new WTO rules concerned a challenge to a European ban on the importation of beef contaminated with hormone residues. The following case note illustrates the problems for food safety regulation created by this WTO Agreement.
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Beef, Hormones and the SPS In early 1998 the WTO Appellate Body (AB) upheld a landmark decision which had found that European Community (EC) was not entitled to maintain a ban on hormone-treated beef because it had failed to meet the requirements of the WTO including the Agreement on Sanitary and Phytosanitary Standards (SPS). The trade complaints which had given rise to the ruling had been brought by Canada and United States and were the first to invoke WTO rules as weapon to challenge food safety and health protection measures. True to form whenever trade rules have collided with other policy objectives, the AB had little difficulty in concluding that European concerns about public health would have to give way to trade objectives. In what has become a consistent pattern of trade dispute resolution under WTO rules, the trade dispute panel that was convened to hear the complaint at first instance came down hard in favour of trade liberalization goals — in this case even holding that the burden of proof in the case lay with the EU. On appeal however, the AB was more circumspect and measured in its critique, but not to the point of actually upholding the environmental and health protection measure at issue. The EC ban on the importation of beef treated with hormones had been established in response to widespread consumer concern about the health risks associated with hormone residues in meat. Risks that were difficult to quantify. But Canada and the US argued that the ban was not consistent with the standard-setting requirements of either the TBT, SPS or GATT 1994 Agreements of the WTO. Both a dispute panel (in a 472 page decision) and the AB agreed. Among the most troubling aspects of the AB decision is its rejection of the precautionary principle as a justifiable basis upon which health protection measures might be established. The precautionary principle is a common principle of domestic and international environmental law that recognizes the importance of regulatory action to avoid certain risks even in advance of being able to prove them. The principle is enshrined in several international environmental agreements and has even been accepted by the International Chamber of Commerce. For example the Convention on Biological Diversity adopts the principle by recognizing that it is vital to anticipate and prevent environmental harm. Where significant threat of harm exists, lack of full scientific certainty should not be used as s reason for postponing measures to avoid or minimize the harm. PCBs, cigarette smoking, leaded gasoline, thalidomide, and asbestos are a few among many examples of the wisdom of being safe rather than sorry. But according to the AB, the precautionary principle must give way to the explicit wording of the SPS when conflicts arise. The decision should sound alarm bells for any government contemplating food safety measures without being able to offer demonstrable proof by way of an international scientific consensus that its action is warranted. Almost as problematic was the AB’s ruling that under the SPS decisions about food safety will also now have to based on formal risk assessment processes. But while risk assessment is offered by the AB as a reliable and scientific basis for regulation, many observers doubt the validity of this approach — on both scientific and ethical grounds — for estimating the risks associated with human exposure to substances about which very little is known. The ruling also greatly elevates the importance of the standards established by the Codex Alimentarius Commission an international standard setting body located in Europe. According to the panels, Codex standards operate as an effective ceiling for all food safety or health protection measures. Yet Codex, which is based and operates in Geneva is an institution that is singularly inaccessible to all but a handful of international corporations and business associations that are capable of maintaining delegations in Geneva. Not surprisingly Codex standards often fall substantially short of those established by jurisdictions closer and more responsive to the interests and views of consumers and health advocates. The beef hormone case now casts a long shadow over any standard that goes further than the international norms Codex establishes. |
5.4 The WTO Agreement on AgricultureFor the past 50 years agricultural trade has not been subject to most GATT disciplines and several GATT rules specifically exempt agricultural policies, including supply management and import controls. These exceptions reflected the interests of many countries that wished to keep their domestic policies free from GATT scrutiny. Among them are countries providing domestic producers with massive subsidies that inevitably result in overproduction and export dumping — practices that are clearly at odds with GATT rules. For poorer countries, the imposition of export driven agricultural policies was accomplished through other means. For example, structural adjustment programs imposed by international banking institutions have often denied developing countries the opportunity to establish the self-reliant agricultural policies that GATT exceptions would have otherwise allowed. However, as agricultural subsidies continued to escalate in the war to secure export markets, they began to represent a serious drain on public finances of food exporting nations. Determined to extricate themselves from this ascending spiral, the US seized upon Uruguay Round negotiations as the venue to resolve the subsidies imbroglio. In fact agricultural trade reform became such an important issue during the negotiations that it threatened to scuttle the entire negotiations on more than one occasion. Thus the WTO final agreement was only reached when the US and the European Union were able to hammer out a deal to gradually reduce farm subsidies over time. As part of their arrangement to submit agricultural policies to the full constraint of trade disciplines, the agreement on agriculture also called for the removal of exemptions for import controls and supply management regimes. Moreover, as several developing country NGOs have pointed out, the reduction of Northern price supports will mean little for several reasons, because under the WTO agreement on agriculture: Rich countries will still provide direct subsidies to producers for many years to come. Current commitments only foresee a 36 per cent reduction in subsidies over the next six years, and some tariffs may be reduced by as little as 15 per cent. There is no limit on the use of indirect subsidies to farmers as long as these are not linked to actual production. Without the resources to subsidize farmers, the only way poor countries could support local agricultural production was to use import quotas. WTO rules now prohibit import controls. While poor countries can replace import controls and quotas with tariffs, unstable monetary values and sudden currency fluctuations can easily make those tariffs meaningless. Finally, tariffs represent a much less precise or reliable way to
balance local production with imports, and that balance can be easily disturbed by
macro-economic factors that poor countries can rarely foresee let alone influence. For
these reasons the commitment to reduce farm subsidies Supply ManagementWhen environmentalists have taken an interest in agricultural production, it has largely been to draw attention to the impacts of pesticide use. Rarely has attention focused on the economic and structural underpinnings of agricultural policy that has made the continued and increasing use of pesticides inevitable. The impacts of trade rules on agricultural production obliges us to examine the underlying economic and trade policies that have given rise to, and now seek to entrench, the unsustainable agricultural practices that are laying waste to farmland, causing ground and surface water pollution on a massive scale, and substantially accelerating our use of fossil fuels. If we are to establish sustainable forms of agricultural production, we must find ways to reshape economic and trade policies so they will support rather than undermine these efforts. An important place to begin is with the realization that there is no sustainable agricultural production without farmers. While restoring a stable and viable rural agricultural economy is obviously not a sufficient condition for sustainable agricultural production, it is definitely a necessary one. To assess the impact of WTO rules on rural farm economies we have to consider what those rules will do to supply management systems in Canada. Stable prices and predictable demand are essential to the viability of relatively small scale agricultural producers. But as noted, price instability is an inherent feature of all commodity markets. Thus unpredictable commodity prices, and market speculation have overwhelmed the capacity of millions of farmers to withstand the shock of wildly fluctuating revenues and steadily increasing costs. To aggravate these pressures, farmers must also negotiate commodity prices with large food processing and distribution companies that represent their primary markets. Their relative bargaining power in this relationship is negligible. In this way, many of the dynamics that have wreaked such havoc with third world agricultural economies, have also had severe impacts on the rural farm economies of developed countries. The result has been hundreds of thousands of farm bankruptcies, highly exploitative and unsustainable farm practices, and the wholesale use of public funds to underwrite the profits of large agri-corporations. In Canada however, we have been able to significantly moderate the impact of global market forces by adopting and guarding a successful supply management system for several agricultural commodities. As explained by Lise-Anne Delorme, an Ottawa Valley dairy farmer;
Under supply management, farmers must sell to marketing boards which negotiate a collective price for those products with domestic and foreign buyers. In order to create stable prices, marketing Boards also regulate supply to avoid situations of overproduction. Hence the appellation — supply management. The viability of domestic supply management in turn depends upon being able to control imports so as not to disrupt the domestic balance of supply and demand, and there is the rub. Imposing quantitative import restrictions is at odds with general GATT principles that prohibit such import controls. Until the establishment of the WTO, the special circumstances of agricultural production meant that supply management was recognized as a valid exception to GATT rules. However, for many years the US has been an outspoken critic of supply management and on numerous occasions US politicians and agencies have declared their intention to see these Canadian programs dismantled. Several trade challenges have been made to that end. It is not surprising then that as the driving force behind the new agricultural trade agreement, the US was able to insist that protection for supply management programs be removed from WTO rules. The loss is clearly a significant, but not yet fatal, blow to supply management in Canada. Because high tariffs can still be substituted for import controls, Canada will be able to maintain its supply management systems for some time yet. By using tariffs to regulate the inflow of agricultural commodities, Canada can take some steps to protect supply management systems and preserve an ongoing role for the marketing boards that oversee the system. But without an explicit exception in WTO rules, supply management is certainly more vulnerable to trade |