Understanding Trade and Environment issues Alan Oxley Australian APEC Centre International Trade Strategies May 2002

The presentation The debate The international framework The interface Approaches

The Trade and Environment Debate The Doha WTO mandate The WTO Shrimp Turtle Decision The debate The issues

The WTO Doha Mandate Environment now a mainstream negotiating issue in the WTO - for the first time An EU initiative (demand) This give the EU leverage Essential we understand the implications

The WTO Shrimp/Turtle Decision WTO Appellate Body ruled that the US may restrict imports of shrimp from four countries because they do not apply conservation policies to protect migratory turtles The WTO has approved unilateral trade sanctions to enforce environmental standards A shock result – WTO does not permit unilateral sanctions Implications are unclear

The debate EU and European environmental groups want new rights to restrict trade to protect the environment. The US wants to right to ban imports unilaterally Most countries are opposed

EU environment goals To apply the following environment policies: - to use “The precautionary principle” when regulating the environment - to use “whole of life cycle” management to regulate the environment. - to use ecolabels to certify whole of lifecycle management

What does EU want in trade? To use trade sanctions to secure adoption of environment principles To exempt use of trade restrictions based on the precautionary principle from scientific challenge. To be able to restrict trade on the basis of the environmental impacts of how products are made or processed. To be able to protect EU agricultural producers from cheap exports on environmental grounds.

US interests To protect right to use unilateral sanctions (Under the Clinton Administration) to include environment in trade agreements – NAFTA and Jordan FTA. (not Bush Administration policy, but strong support for linkage among Democrats in the Congress ) To protect science based controls on trade.

The issues Respect for national sovereignty Effective environment policy Effective trade policy The balance of benefits

The International framework The World Trade Organization The United Nations

The WTO The basic activities The WTO Agreements Basic principles of the WTO How WTO provides economic benefit

The Basic activities Create rules to govern trade Reduce barriers to trade

The WTO Agreements Before 1994 (end of the Uruguay Round) - the GATT - a handful of minor agreements After 1994 - GATT, GATS, TRIPs - eleven other agreements - a revised disputes system - a new organization

Economic principles of GATT Promote exchange of goods Reflect comparative advantage - export what you produce best, import what others produce best GATT prevents discrimination - it curbs the powerful

GATT establishes rights in international law The WTO rules are enforceable GATT protects the right to exploit comparative advantage GATT protects right to develop

WTO and developing countries WTO is the only international system which can increase trade and raise living standards in developing countries Until 1994, Industrialized countries denied developing countries their full benefits: - they restricted trade in garment, textiles and agriculture Final barriers are progressively being reduced Concern that US and EU will seek new rights to restrict trade

WTO gives members wide discretion to protect the environment Article XX exemptions are wide - WTO rules can be waived to protect human, animal and plant health and safety Some conditions: - rights are not be abused for economic reasons, - sound science must underpin trade controls

The United Nations Creates a mechanism for global security Fosters collaboration on global problems Promotes and brings into effect global treaties Hosts most environmental treaties

Environment in the UN UNCED is the Supreme body - the UN Conference on Environment and Development (UNCED – a special session of the UN General Assembly UNEP (United Nations Environment Program) a program of ECOSOC - UNEP’s program is limited only to action taken by UN members - key activity is to support several international environment agreements

UNCED Adopted Agenda 21 Endorsed three conventions: - climate change - biodiversity - desertification Adopted trade and environment principles Established the UN Commission on Sustainable Development to oversee Agenda 21

MEA’s supported by the UN -1 CITES (banning trade in endangered species Basle (banning trade in hazardous waste) Montreal/Vienna (to protect the Ozone layer) Cartegena Protocol (restricting trade in certain GMOs)

MEA’s supported by the UN -2 PIC – convention on prior informed consent on trade in chemical POPs – convention banning trade in persistent organic pollutants Kyoto Protocol - limiting greenhouse gases ALL BUT KYOTO HAVE TRADE PROVISIONS

Convention banning trade in endangered species Lists species endangered and at risk Obliges parties not to trade in the products covered with non-parties [Trade bans conflict with WTO]

Basel Convention banning trade in hazardous materials Defines certain products as hazardous Obliges parties to prohibit exports in those products unless the exporting government is satisfied that environmental management in the importing country is satisfactory Oblige parties to ban trade with non-parties A Protocol obliges parties to ban imports from OECD countries [Trade bans conflict with WTO]

Vienna Convention/Montreal Protocol on Chlorofluorocarbons Bans production and consumption of designated chemicals deemed harmful to the Ozone Layer Requires parties to ban trade with non-parties [Trade bans conflict with WTO]

Cartegena Protocol Establishes global notification point for advice on release of Living Modified Organisms (LMOs) Obliges some exporters to secure prior consent to importers to trade Permits parties to ban imports of LMOs Obliges parties to trade with non-parties on terms comparable to trade with parties [Trade bans conflict with WTO]

Agreement on Prior informed consent Obliges parties to secure consent of importers before exporting designated chemical products [No conflict with WTO]

Convention banning Persistent Organic Pollutants (Rotterdam) Bans listed chemicals Obliges parties not to export prohibited products to non-parties [Trade bans conflict with WTO]

Comparing Cartegena and WTO import regimes Restrictions are to contribute to obviating adverse effects on biodiversity * Legal right to impose restrictions without scientific justification ** Exporter have right to request review of import controls - no recourse to independent arbitration SPS Restrictions are to protect human, animal and plant life and health Restrictions based on - international standards,or - science and risk assessment Exporters have right to contest controls in WTO disputes systems - non-complying measures must be removed

Conflict and confusion WTO does not permit discrimination in trade or use of trade sanctions Several MEAs create discrimination and use trade sanctions Countries oppose one thing in the WTO and support it in the UN

The interface MEAs and the WTO The precautionary principle Ecolabelling

MEAs and the WTO The debate is about what should be done in the WTO – amend it permit trade sanctions in MEAs? - this is what the EU wants from the Doha Round NOTE: Why is this question only asked about WTO rules?

The precautionary principle Employ “no risk” strategies to protect the environment rather than managed risk strategies Why? So political judgements can be made in favour of environmental arguments Impact on trade? Compare the terms of decision-making in the WTO with the Cartegena Protocol

Article XX of the GATT 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) (b) necessary to protect human, animal or plant life or health;

The Objective of the Cartegena Protocol (Article 1) lays down the criteria for taking decisions to restrict imports: “to contribute to ensuring an adequate level of protection in the field of the safe transfer, handling and use of living modified organisms resulting from biotechnology that may have adverse effects on the conservation and sustainable use biological diversity, taking into account risks to human health and specifically focussing on transboundary movements”

Ecolabelling The Ecolabel certifies that products meet “whole of lifecycle” environmental impacts The product must be made in a way that meets every environmental standard set in the importing economy. If not, its imports is banned. The importer sets the standard

What are the positions of industrialised economies on these issues?

Issue Unilateral measures to protect the environment EU Opposed US Not opposed: defends own measures vigorously Canada Switzerland Australia New Zealand

Issue Legitimize discriminatory trade measures in MEAs EU Wants WTO rules “Clarified”to protect measures from challenge US Opposed: existing provisions in WTO sufficient Canada Generally opposed, favours “clarification” Switzerland Generally supports legitimization Australia Opposed, WTO rules adequate New Zealand Limited support

Issue Restrict trade on product and processing grounds (ppms) EU Wants WTO rules “clarified”to allow whole of life cycle regulation US Canada Want issue examined. Switzerland Same position as EU Australia Opposed New Zealand

Enacting the Precautionary Principle Issue Enacting the Precautionary Principle EU* Favours WTO applying version favoured by EU and in Cartagena US Opposed: support SPS science based measures Canada Same as US Switzerland Australia New Zealand * Position qualified after Doha

Issue Ecolabelling EU Legitimize labels verifying compliance with whole of lifecycle management US Supports transparency, opposes whole of life cycle ecolabelling Canada Supports voluntary whole of life cycle ecolabelling Switzerland Wants clarification of WTO rules Australia New Zealand

Issue Subsidies with environmental impacts EU Examine trade distorting subsidies in energy US Eliminate fishing subsidies, allow subsidies to address environment issues Canada Address distorting impact in fisheries and forests Switzerland Wants clarification of WTO rules Australia Eliminate export subsidies New Zealand Eliminate export & fish subsidies

Issue Environmental impact assessments of trade agreements EU US Support Canada Switzerland Australia New Zealand

Are the MEA’s good environment policy?

Most of the MEA’s breach UNCED principles The trade and environment principles adopted at UNCED urged - respect for national sovereignty - avoidance of use of trade sanctions - members of the UN to enter collaborative international agreements to provide global solutions instead of using trade coercion

Studies show poor environmental value of the trade measures in MEAs UNCTAD and the OECD have both made studies of the environmental value of the trade measures in the MEAs and assessed it as low Many private studies show trade measures are generally ineffective to protect the environment

Review the issue The problem? – conflicting rules The source? - new rules in MEAs Are they desirable rules? If the rules are not desirable, why change the WTO?

The new rules in the MEAs Use trade coercion to secure objectives Allow trade to be restricted according to how a product is made or handled (PPM) NOTE: it is not the norm in international treaties to impose conditions on non-parties

Who wants the new rules. The EU The UNEP Secretariat Who doesn’t Who wants the new rules? The EU The UNEP Secretariat Who doesn’t? UNCED – trade and environment principles UNCTAD – assessment of MEAs OECD – assessment of MEAs Most members of the WTO

What is wrong with the new rules? 1 Trade coercion is the rule of the jungle 2 Restricting trade by how a product is made: - undermines the capacity of the WTO to provide benefits - forces first world environment standards on everyone 3. Why not use instead purpose-made conventions where countries adopt common measures into national law?

Approaches

The basic, global problem Lack of common understanding Lack of effective communication Weak policy processes

Methodical approaches are required What is the environmental problem? What is the best way to address it? Does trade impede the solution? What trade controls currently exist? Is the problem a “trade and environment” problem?

The issue is no longer just conflict between WTO and MEA provisions The issue is restoring respect for national sovereignty and ruling out trade coercion in both the WTO and the UN environmental fora. The Problem is not in the WTO it is poor environment policy in the UN. This problem cannot be fixed by trade officials alone

Action to solve the problem Clear positions are required by governments on each of the following issues: - sovereignty - discrimination - coercion - leverage - precautionary principle - production & process methods/ecolabelling - sound principles in trade policy - sound principles in environment policy The fundamental principles of good international governance need to be restated

Action to solve the problem Specific outcomes must be secured: 1. Achieve domestic coherence on trade and environment policies 2. Re-align environment work in the UN with fundamental UN principles - cease including ineffective and inappropriate provisions in environment agreements 3. Protect fundamental provisions in the WTO