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WTO vis a vis challenge of climate change
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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.)
1
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
2
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.
3
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.
4
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
5
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.
6
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
7
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.
8
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.
10
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
11
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.
12
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
14
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.
15
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
16
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.
17
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
18
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
19
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.
20
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 ]
21
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]
22