DR. RAM MANOHAR LOHIA NATIONAL LAW UNIVERSITY, LUCKNOW

FINAL DRAFT

Law of Environment

TOPIC

WTO vis-à-vis Challenge of Climate Change: A Critical Analysis of Current Situation.

SUBMITTED TO: SUBMITTED BY: Mr. Amandeep Singh, Aditya Singh

Asstt. Prof. (Law) ROLL NO. 13

Dr. RMLNLU, SECTION: A

Lucknow 7th Sem., B.A.LLB.(Hons.)

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TABLE OF CONTENT

1. Objective of the Study

2. Statement of Problem

3. Introduction

4. WORLD TRADE ORGANISATION

5. Doha Mandate

6. Functions of WTO

7. Principles of Trading System

8. Interface between Trade regime and Environment regime

9. Environmental Exceptions of GATT: MEA’s and GATT Article XX

10. Bibliography

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OBJECTIVE OF STUDY

The aim and objective is to present greater understanding of interaction of trade and climate

change policies interact and how they can be mutually supportive and to provide some

suggestions for policy-makers in this complex policy area. This project shall uniquely examine

the intersection between trade and climate change from various correlated perspectives, like the

science of climate change and trade theory, multilateral efforts to tackle climate change and

national climate change policies and their effect on trade. Moreover, it will highlight that there is

a considerable scope and flexibility under WTO rules for addressing climate change at the

national level, and that mitigation measures should be designed and implemented in a manner

that ensures that trade and climate policies are mutually supportive.

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STATEMENT OF PROBLEM

Climate change is one of the greatest challenges facing the international community. Mitigating

global warming and adapting to its consequences will require major economic investments and,

above all, unequivocal determination on the part of policy-makers. With a challenge of this

magnitude, multilateral cooperation is crucial. Since all efforts to tackle this problem of climate

change come to a stall whenever there is talk of regulation of industrialization and etc. although

there were no specific environmental perspectives in the WTO, but with there are now some

talks going on like Doha round etc.

Also, there are several options possible for how the WTO and UNFCCC can approach trade and

environment issues including acting multilaterally to create norms on trade and climate, going on

a case-by-case basis within the WTO judicial process, and waivers or amendments to current

WTO legal text to accommodate environmental controls.

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INTRODUCTION

The World Trade Organization (WTO) is an intergovernmental organization which

regulates international trade. The WTO officially came into picture on 1 January 1995 under

the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General

Agreement on Tariffs and Trade (GATT), which commenced in 1948. The WTO deals with

regulation of trade between participating countries by providing a framework for negotiating

trade agreements and a dispute resolution process aimed at enforcing participant’s adherence to

WTO agreements, which are signed by representatives of member governments and ratified by

their parliaments.

The WTO is not a global environmental protection agency; its competence is limited to the trade-

related aspects of environmental policies (WTO 2007). However, the international trade regime

has recognized the connection between trade and environment for some time. During the GATT

era, trade-related environmental issues were often discussed in negotiating rounds. The WTO era

has seen important progress in linking trade and environment. The WTO Ministerial Decision on

Trade and Environment, adopted in the Marrakesh Agreement that created the WTO,

acknowledged the importance of sustainable development and called for creation of the

Committee on Trade and Environment (CTE). Since its establishment, the CTE has carried out

significant technical work.1

1 The World Trade Organization and Climate Change: Challenges and Options

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Climate change is the biggest sustainable development challenge the international community

has had to tackle to date. Measures to address climate change need to be fully compatible with

the international community's wider ambitions for economic growth and human advancement. It

is a challenge that transcends borders and requires solutions not only at national levels but at the

international level as well.

The WTO is one part of the architecture of multilateral cooperation. It provides a framework of

disciplines to facilitate global trade and serves as a forum to negotiate further trade openness.

Freer trade is not an end in itself; it is tied to crucially important human values and welfare goals

captured in the WTOs founding charter. Among these goals are raising standards of living,

optimal use of the world's resources in accordance with the objective of sustainable development,

and protection and preservation of the environment. 

The issue of climate change, per se, is not part of the WTO's ongoing work program and there

are no WTO rules specific to climate change. However, the WTO is relevant because climate

change measures and policies intersect with international trade in a number of different ways.

Trade openness can help efforts to mitigate and adapt to climate change, for example by

promoting an efficient allocation of the world's resources (including natural resources), raising

standards of living (and hence the demand for better environmental quality) and improving

access to environmental goods and services.

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WORLD TRADE ORGANISATION

The WTO is not a global environmental protection agency; its competence is limited to the trade-

related aspects of environmental policies (WTO 2007). However, the international trade regime

has recognized the connection between trade and environment for some time. During the GATT

era, trade-related environmental issues were often discussed in negotiating rounds. The WTO era

has seen important progress in linking trade and environment. The WTO Ministerial Decision on

Trade and Environment, adopted in the Marrakesh Agreement that created the WTO,

acknowledged the importance of sustainable development and called for creation of the

Committee on Trade and Environment (CTE). Since its establishment, the CTE has carried out

significant technical work.2

The General Agreement on Tariffs and Trade (GATT) was established after World War II in the

wake of other new multilateral institutions dedicated to international economic cooperation –

notably the Bretton Woods institutions known as the World Bank and the International Monetary

Fund. A comparable international institution for trade, named the International Trade

Organization was successfully negotiated. The ITO was to be a United Nations specialized

agency and would address not only trade barriers but other issues indirectly related to trade,

including employment, investment, restrictive business practices, and commodity agreements.

2 The World Trade Organization and Climate Change:Challenges and Options

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But the ITO treaty was not approved by the U.S. and a few other signatories and never went into

effect.

In the absence of an international organization for trade, the GATT would over the years

"transform itself" into a de facto international organization.

WTO officially came into picture on 1 January 1995 under the Marrakesh Agreement, signed by

123 nations on 15 April 1994, replacing the General Agreement on Tariffs and Trade (GATT).

The WTO deals with regulation of trade between participating countries by providing a

framework for negotiating trade agreements and a dispute resolution process aimed at enforcing

participant’s adherence to WTO agreements.

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THE DOHA MANDATE

At the Doha Ministerial Conference in 2001, WTO members agreed to launch negotiations that

would address the nexus between trade and environment.1 The Doha Declaration includes a

negotiating mandate on clarifying the relationship between MEA and WTO rules. Also, to

improve market access

to environmental goods and services, the declaration called for negotiations on “the reduction or,

as appropriate, elimination of tariff and nontariff barriers to environmental goods and services.”2

While WTO members have devoted considerable effort to fulfilling these mandates, like much

else in the Doha Declaration, results are yet to be achieved.

Diving into the details, the Doha Declaration, adopted on November 14, 2001, lists several

objectives concerning trade and environment. Paragraph 31 of the declaration mandates

negotiations on three issues: (1) the relationship between WTO rules and specific trade

obligations set out in MEAs; (2) procedures for regular information exchange between MEA

secretariats and the relevant WTO committees; and (3) the reduction or elimination of tariff and

nontariff barriers to environmental goods of tariff and nontariff barriers to environmental goods.

Paragraph 32 of the declaration instructs the CTE to work on: (1) the effect of environmental

measures on market access, especially in relation to developing countries; (2) the relevant

provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);

and (3) labeling requirements for environmental purposes.4 As mentioned, results are yet to be

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seen. But gatherings of world leaders, most recently the Group of 20 London Summit in April

2009 and the Group of Eight L’Aquila Summit in July 2009, urgently call for the conclusion of

the Doha negotiations.

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FUNCTIONS OF WTO

Among the various functions of the WTO, these are regarded by analysts as the most important:

It oversees the implementation, administration and operation of the covered agreements.

It provides a forum for negotiations and for settling disputes.

Additionally, it is the WTO's duty to review and propagate the national trade policies, and to

ensure the coherence and transparency of trade policies through surveillance in global economic

policy-making. Another priority of the WTO is the assistance of developing, least-developed and

low-income countries in transition to adjust to WTO rules and disciplines through technical

cooperation and training.3

1. The WTO shall facilitate the implementation, administration and operation and further

the objectives of this Agreement and of the Multilateral Trade Agreements, and shall

also provide the frame work for the implementation, administration and operation of the

multilateral Trade Agreements.

2. The WTO shall provide the forum for negotiations among its members concerning their

multilateral trade relations in matters dealt with under the Agreement in the Annexes to

this Agreement.

3. The WTO shall administer the Understanding on Rules and Procedures Governing the

Settlement of Disputes.

4. The WTO shall administer Trade Policy Review Mechanism.

3  WTO Assistance for Developing Countries, WTO official site Archived 12 June 2015 at the Wayback Machine

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5. With a view to achieving greater coherence in global economic policy making, the WTO

shall cooperate, as appropriate, with the international Monetary Fund (IMF) and with the

International Bank for Reconstruction and Development (IBRD) and its affiliated

agencies.

The above five listings are the additional functions of the World Trade Organization. As

globalization proceeds in today's society, the necessity of an International Organization to

manage the trading systems has been of vital importance. As the trade volume increases, issues

such as protectionism, trade barriers, subsidies, violation of intellectual property arise due to the

differences in the trading rules of every nation. The World Trade Organization serves as the

mediator between the nations when such problems arise. WTO could be referred to as the

product of globalization and also as one of the most important organizations in today's globalized

society.

The WTO is also a centre of economic research and analysis: regular assessments of the global

trade picture in its annual publications and research reports on specific topics are produced by

the organization. Finally, the WTO cooperates closely with the two other components of the

Bretton Woods system, the IMF and the World Bank.

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PRINCIPLES OF TRADING SYSTEM

The WTO establishes a framework for trade policies; it does not define or specify outcomes.

That is, it is concerned with setting the rules of the trade policy games. Five principles are of

particular importance in understanding both the pre-1994 GATT and the WTO:

1. Non-discrimination

It has two major components: the most favoured nation (MFN) rule, and the national

treatment policy. Both are embedded in the main WTO rules on goods, services, and

intellectual property, but their precise scope and nature differ across these areas. The

MFN rule requires that a WTO member must apply the same conditions on all trade with

other WTO members, i.e. a WTO member has to grant the most favorable conditions

under which it allows trade in a certain product type to all other WTO members. "Grant

someone a special favour and you have to do the same for all other WTO

members." National treatment means that imported goods should be treated no less

favorably than domestically produced goods (at least after the foreign goods have

entered the market) and was introduced to tackle non-tariff barriers to trade (e.g.

technical standards, security standards et al. discriminating against imported goods).

2. Reciprocity

It reflects both a desire to limit the scope of free-riding that may arise because of the

MFN rule, and a desire to obtain better access to foreign markets. A related point is that

for a nation to negotiate, it is necessary that the gain from doing so be greater than the

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gain available from unilateral liberalization; reciprocal concessions intend to ensure that

such gains will materialize.

3. Binding and enforceable commitments

The tariff commitments made by WTO members in a multilateral trade negotiation and

on accession are enumerated in a schedule (list) of concessions. These schedules

establish "ceiling bindings": a country can change its bindings, but only after negotiating

with its trading partners, which could mean compensating them for loss of trade. If

satisfaction is not obtained, the complaining country may invoke the WTO dispute

settlement procedures.

4. Transparency

The WTO members are required to publish their trade regulations, to maintain

institutions allowing for the review of administrative decisions affecting trade, to

respond to requests for information by other members, and to notify changes in trade

policies to the WTO. These internal transparency requirements are supplemented and

facilitated by periodic country-specific reports (trade policy reviews) through the Trade

Policy Review Mechanism (TPRM). The WTO system tries also to improve

predictability and stability, discouraging the use of quotas and other measures used to set

limits on quantities of imports.

5. Safety valves. In specific circumstances, governments are able to restrict trade. The

WTO's agreements permit members to take measures to protect not only the environment

but also public health, animal health and plant health

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INTERFACE BETWEEN TRADE REGIME AND ENVIRONMENT

REGIME

Pro-Environmentalists’ view and its Evaluation

Environmentalists argue that the environment represents a higher order concern than trade. Trade

liberalization creates new market opportunities and enhances economic activity. Trade also

generates wealth which allows the consumers to acquire the benefit of a higher economic output.

It this activity is not properly priced, free trade and economic growth will lead to increased

pollution and threaten the environment. Thus trade penalties to enforce environmental standards,

whether embodied under multilateral agreements or unilateral agreements imposed are justified,

without regard to the disruption of the trade or any cost/benefit analysis. Accordingly, the

protection of the environment should have priority over free trade issues. The environmental

community is fearful that international trade will magnify the effects of poor environmental

policies in the world. For example, high demands from the world market may encourage

unsustainable logging, when no proper management scheme is in the place. A survey indicates

that increased economic activity in the manufacturing sector is likely to lead to increased

environmental degradation, if it is not accompanied by strong environmental regulations

inducing innovation and the adoption of cleaner technology.

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Trade liberalization will cause greater harm if significant environ-mental externalities exist. The

negative environmental effects &trade liberalization become exacerbated if pollution is trans-

boundary in nature and property rights over resources are badly defined. In the first case,

incentives to internalize the environmental externality are low, as the costs arc borne by the rest

of the world. The most conspicuous example is the case of greenhouse gases and the release of

ozone unfriendly substances. In the second case, trade liberalization can lead to the export of the

resource mis-allocation to other countries and thereby to deterioration in environmental quality.

For example ill-defined property rights over natural resources in the South lead to the

overproduction of environmentally intensive goods and their export.

Extreme Pro-Trade Views and their Evaluation

It is important to understand the various opinions on trade and to view them in the right

perspective. Free traders feel that if a country's environmental resources are correctly priced,

liberal trade improves the country's overall welfare and leads to a more efficient use of natural

resources. Therefore, increased economic growth stimulates the demand for environmental

protection, generates additional in-come to pay for it which in turn leads to improved

environmental standards. The advocates of the free trade principle expect potentially positive

environmental effects from increasing growth rates especially in the developing countries and

argue that an increase in economic growth will increase their scope for environment protection.

The exchange of goods makes possible, a more rapid spread of innovative technologies which

reduce emissions and save raw materials. Finally, the transfer of knowledge associated with the

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goods and factor exchange also means that a higher environment consciousness will take hold. In

their extremist way they think that any sort of trade-related environmental measures are

unwarranted and protectionist in character. The basic premise is that no matter what

environmental problem confronts the Earth, free trade will take care of it. However, trade

extremism results in too many resources being invested in economic activity because of a high

demand for goods, thus ignoring the increasing environmental degradation resulting thereby. For

example, a demand from the world market may magnify the tendency of over-fishing. If anyone,

without restriction, can harvest the riches of the seas, extract the resources of forests, graze

animals or collect firewood on common land, or tap water freely from municipal wells, the result

would be overexploitation, a phenomenon known as the 'tragedy of commons'.5 The sad truth is

that economic growth driven by trade concerns may speed up the process of environmental

degradation unless sufficient environmental safeguards are put in place. Indeed, at least some

evidence suggests that pollution increases a. the early stages of development but later decreases

after a certain income level has been reached. This finding has become known academic circles

as the Environmental Kuznets Curve (EKC).6 Evidence suggests that the EKC hypothesis may

be valid for some type.

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ENVIRONMENTAL EXCEPTIONS OF GATT: MEAs AND GATT

ARTICLE XX

One of the most crucial aspects of the international trading system is the relationship between

GATT Article XX and trade provisions of multilateral environmental agreements (MEAs).

MEAs often employ regulations in their respective specific concerns which have certain trade

impacts. Such regulations are required because the subjects of the MEAs tend to be traded across

national borders. MEAs do not generally employ trade measures as mere sanctions; rather, the

trade measures are integral to their purpose, which is either to preserve an environmental benefit

or to protect against an environmental harm. The measures are accordingly used to prevent trade

in the targeted products themselves and to make the treaty regime more effective by encouraging

governments to join, by discouraging 'free riders' who would otherwise gain benefits without

participating, and by preventing circumvention. In this regard, the debate has been focused on

whether or not it is appropriate to include trade mechanisms within the scope of an MEA.

Following the logic of the Tuna/Dolphin I dispute, there is a general view that the potential

conflict exists between the GATT and certain environmental treaties that rely on trade

discrimination, such as the Montreal Protocol, CITES or the Basel convention. Although the

debate as to the 'environmental application' of GATT Article XX is settled, especially after

Shrimp/turtle case, however, the question is still open " as the how to GATT/WTO system with,

accommodate employ trade restrictions as none of the several international environmental

agreements has ever been challenged in a GATT/WTO settlement proceeding. Since the United

Nations Stockholm Conference of 1972, the world community has placed major emphasis on

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dispute MEAs to deal with international environmental problems. Trade provisions used in major

environmental agreements are for the protection of the environment of the importing country

from hazardous products (such as the Basel Convention), the protection of global commons

(such as the 1987 Montreal Protocol), and the protection of wildlife (such as the CITES). Trade

restrictions necessary for the protection of the environment of the importing country from direct

imports of harmful products, or from indirect damage resulting from the pollution of global

commons (such as the depletion of the ozone layer harmful to the health of domestic citizens),

are justifiable under Article XX of GATT. The GATT 1992 Report on international trade

emphasized that non-discriminatory GATT-consistent sales restrictions of the endangered

animals or plants, not just import or for the protection of the environment of the importing

country from direct imports of harmful products, or from indirect damage resulting from the

pollution of global commons (such as the depletion of the ozone layer harmful to the health of

domestic citizens), are justifiable under Article XX of GATT. The GATT 1992 Report on

international trade emphasized that non-discriminatory GATT-consistent sales restrictions of the

endangered animals or plants, not just import or export restriction, are likely to be the most

effective way of achieving the environmental goals of these agreements.' In respect of those

environmental agreements which require member countries to apply more restrictive trade

provisions to non-parties than to parties in order to prevent undermining of the agreement by

imports from non-members countries—such as the 1987 Montreal Protocol, the Basel

Convention and the CITES–GATT's 1992 Report finds it unclear whether such departures from

the non-discrimination principle are always necessary to achieve the environmental goal of the

agreements. Among GATT contracting parties, the freedom of countries to modify- or

supplement multilateral treaties between certain parties only, including their freedom to

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collectively prevent trans-boundary pollution and protect the global environment, must be taken

into account in interpreting Article XX. Article XX, thus construed would seem to justify the

trade provisions in most of these agreements.

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BIBLIOGRAPHY

As Follows: [ Tentative ]

PRIMARY SOURCES:

1. GATT Agreement, 1948

2. WTO/ Uruguay Round, 1995

3. UNEP Draft, 1972 And UNFCCC

SECONDARY SOURCES:

1. Gary Clyde Hufbauer, The World Trade Organization and Climate Change: Challenges

and options, [http://www.iie.com/publications/interstitial.cfm?ResearchID=1301

Accessed on 9th sept.2014 18:23]

2. Report: Is world trade law a barrier to saving our climate?

[http://www.ciel.org/Publications/ClimateTradeReport_foee-ciel_sep09.pdf ; Accessed

on 9th sept.2014 18:33]

3. Report: WTO–Compatibility of Four Categories of U.S. Climate Change Policy

[http://www.nftc.org/default/trade/WTO/Climate%20Change%20Paper.pdf ; Accessed

on 9th sept.2014 18:39 ]

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4. Report: Conflicts between International Trade Law and International Environmental

Protection Efforts [ http://www.ucar.edu/communications/gcip/m3elaw/m3pdfc4.pdf;

Accessed on 9th sept.2014 18:46 ]

5. Report: Chapter Fifteen: Environmental Law and International Trade

[http://www.wcl.american.edu/environment/iel/fifteen.cfm. ; Accessed on 9th sept.2014

18:50]

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