By Alan Oxley
Chairman Australian APEC Study Centre
(Paper to PECC Trade Policy Forum IX, Seoul, September 1996)
Introduction
Signs of philosophical differences are starting to emerge between governments of the Asian Pacific region and governments in Europe and the United States over what sort of international action should be taken to address environmental problems and what the relationship should be between international rules governing trade and environmental issues.
It is generally true that the Asian Pacific economies attach greater importance in national policy to economic growth, and that European governments generally attach greater importance to environmental policies. Some conclude therefore that the differences in approach to trade and environment issues in each region reflect simply the relative balance of priority consciously given to growth and environment in each region. This does not logically follow, nor is it generally true. There are indications that far deeper considerations apply.
Some broad attitudes towards management of the environment are starting to emerge from Europe which would challenge, it not damage, the economic interests of Asian Pacific economies. Some Asian Pacific economies have been active in challenging these attitudes, but overall, these economies have left the European governments to set the pace on international discussion of trade and environment issues.
The purpose of this paper is to examine trends in the global debate on trade and environment and to draw some tentative basic conclusions about those considerations.
Evolution of the trade and environment debate
The issue of trade and environment came onto the international agenda in the closing stages of the Uruguay Round when green groups in a number of countries lobbied to have it made a major issue. The issue was given international prominence in the United States by the ban on imports of tuna which was not caught in a manner which minimised the incidental kill of dolphin.
Principles for managing the inter-relationship between trade and the environment were adopted at the Rio Summit (the UN Conference on Environment and Development - UNCED). Subsequent work has been undertaken in the OECD and in the WTO. There is an expectation that the issue of trade and environment will be a major issue at the Singapore Conference of the WTO to be held in December 1996. The European Union has tabled a proposal that the GATT be amended to give countries a right to restrict trade on environmental grounds.
The issue has arisen in other fora. The Basel Treaty on Transboundary Movement of Hazardous Wastes came into effect in 1992 and a conference of the parties agreed in 1995 to adopt a protocol to that treaty imposing further trade restrictions in that treaty.
There are two other areas where use of trade restrictions for environmental purposes are under consideration. The issue of establishing terms of prior consent before trade in designated products, usually metals with elements of toxicity, is under consideration in several fora. As well, consideration is being given in some fora in Europe to the function of trade measures to supplement measures to restrain emissions of greenhouse gases.
Among economists, the importance of taking into account the economic impact of measures when developing mechanisms to protect the environment is well understood and widely argued. There is ample material available about the economic inadvisability of using trade measures as a tool of environmental management. The result is that there is little real debate about economics in the trade and environment debate. The basic economic principle was reflected reasonably well in the review of trade and environment in the outcome of UNCED.
Agenda 21 sets out the result of the review of trade and environment issues. It is straightforward and provides a workable set of guidelines. (The relevant details are set out in the Annex to this paper.) It concluded that the principle of the open trading system created by the GATT should be maintained. Unilateral trade measures were to be avoided. Where countries wanted to take international action to protect the environment, they should negotiate international agreements for that purpose. Measures to protect the environment should deal with the root cause of environmental problems. The summary conclusion was that measures to open up international trade and measure to protect the environment should be "mutually supportive".
At UNCED, the fact that measures had been used which were inconsistent with the foregoing was recognised. There was no formal reference to them, but they were use by the US of unilateral trade measures for environmental purposes and three key multilateral environmental treaties which contained discriminatory trade provisions. UNCED treated these measures as exceptions or instruments of last resort. Where trade measures were used in environmental agreements, they had to satisfy rigorous criteria, in particular the principle of non-discrimination. Some political loophole like this was necessary to secure consensus at UNCED. But the basic philosophical approach was clear.
The UNCED consensus squarely rested on the fundamental principles for conducting international affairs which are set out in the UN charter. The key principles are that national sovereignty must be respected and that coercion is to be avoided unless it is mandated by one of the supreme organs of the UN.
UNCED proposed a concept for cohabitation between systems for management of the environment and management of an open trading system which can be described as "parallelism". Each system operates independently, but with regard to economic principles which ensured that instruments used did not impede the interests of the other. In the environment systems, instruments should address the root of the environmental problems. The trade system was to support growth to enable sustainable development. Discriminatory restraints on trade were contrary to this philosophy and formally discouraged.
It is important to underline the fact that the UNCED principles on trade and environments were framed in full knowledge that three major international environmental treaties contained discriminatory trade provisions. UNCED produced an informed international consensus about how to deal with the conflicting obligations between these conventions and the GATT.
The implication of the outcome of UNCED is that the discriminatory trade measures in the agreements should not have been included and that such measures should be avoided in future. In all cases the trade measures are either very inefficient instruments of environmental management, or redundant.
Refining the UNCED Consensus
Since UNCED, most governments in Europe have moved to the position that it is necessary to provide for wider grounds than currently exist in international law to permit trade restrictions on environmental grounds. Since a plain reading of the consensus at UNCED is that the consensus was not to move in that direction, it is a matter of interest that this has occurred.
A year after UNCED, the OECD published guidelines on Trade and the Environment . These were to guide the subsequent work program in the OECD. The guidelines reflect a different approach to that adopted at UNCED. The OECD paper recognised the principle of parallelism: it endorsed the strategy of making trade and environment "mutually supportive". But it also endorsed another strategy - "policy integration". At several points it commends integration of environmental and trade policy as the appropriate strategy. It contains another important point of difference in emphasis. Whereas trade measures are basically eschewed in Agenda 21, the OECD work program treated trade measures as mainstream instruments. Its aims included review of the rationale on the use of trade measures for environmental measures and of their effectiveness. The difference in emphasis between what OECD governments concurred at UNCED and how they subsequently addressed the issues in the OECD is distinct. Subsequent action by European governments showed why. They have promoted proposals which would legitimise use of discriminatory trade measures and which would result in incorporation of environmental objectives into the WTO.
In March 1996, the European Union tabled a proposal to amend the Article XX, the exceptions clause, of the GATT in the WTO Committee on Trade and Environment. It proposed that either the exceptions clause be amended to allow trade restrictions on environmental grounds, and/or that a legal Understanding be agreed which qualified the legal effect of the provisions of the WTO to recognise use of discriminatory trade measures for environmental purposes. This reflected a wider consensus in Europe. Leading international business groups based in Europe supported it.
Since UNCED, European Governments have sponsored a Protocol to the Basle Convention which would oblige industrialised economies not to trade in products specified in the Convention with developing country members of the Convention. Far from making trade and environmental regimes mutually supportive, this proposal brings them further into conflict and is likely to have negative effects on both regimes.
A final indication that trade measures are regarded as legitimate instruments for environmental protection is the fact that there is active consideration being given to use of trade measures to support measures applied by industrialised countries to implement obligations under the Framework Convention on Climate Change to reduce carbon emissions.
Why is policy in Europe moving in this direction since UNCED? The line of reasoning used by most representatives of European Governments is that there are already a number of multilateral environmental agreements in place which have trade measures which appear to conflict with provisions of the WTO. This conflict is undesirable and since more international environmental treaties are in the pipeline, it is better to clarify provisions to reduce the prospect of further conflicts.
The policy response to this in accordance with the UNCED approach of parallelisms is that if there were a particular environmental problem that needed action by a number of governments, the solution is to bring the countries together to negotiate a set of measures to include in a Convention which each would adopt in national law.
European officials would contend that this approach does not address the case where a country does not want to collaborate in such a venture and is a major source of pollution which is damaging other countries. UNCED gives no answer to that except to specify what may not be done. Coercion, in this case discriminatory trade restrictions, may not be used. The UN Charter in fact provides the answer. If a member state of the UN considered that coercion were warranted, it could seek the approval of the UN Security Council or the General Assembly to take coercive action.
UNCED provided grounds to argue a "last resort" case, even if the purpose was to provide a political loophole to secure a consensus. To make this case, the inefficacy of preferred approaches would have to be demonstrated, showing instances where the current parallel structure of systems of management fail. This is one of today's oddities. It is difficult to point to any particular environmental problem which demonstrates the need to use discriminatory trade measures to correct it. The substantive heat has gone out of the trade and environment issue. Of three agreements which existed before UNCED, only the Basle Treaty is the subject of any contention.
Unilateral trade restrictions by the US on tuna imports kept the public spotlight on this issue for a long time. The US measures were challenged twice in the GATT. In both cases, GATT expert panels ruled that the measures were inconsistent with the GATT and that the measures should be removed. While the measures were not removed , it is interesting to review actions take by the US. The trade ban was contrary to UNCED preferences. It is also not generally appreciated that the US also followed the preferred UNCED course. It initiated negotiation of a Convention with other fishing nations to secure voluntarily the same aim - adoption of different fishing methods.
The case to amend the GATT addresses hypothetical situations. It has not been shown that the WTO has systematic flaws which inhibit protection of the environment. To the contrary, the GATT is highly accommodating of the need of governments to act to protect the environment. Given what a fundamental role the WTO plays in supporting and advancing the development of an open world trading system, it is hard to see why proposals might be made to amend it to cater for hypothetical situations. Especially at time when there is pressure to introduce other new terms of exception. The desire of the European governments to continue in this policy direction needs consideration.
Deeper European Values?
The position of the European governments on a number of trade and environmental issues demonstrates a certain consistency of approach which permits some generalisations to be drawn.
In summary, integration of trade and environmental policy is favoured, the attitude to use of discriminatory trade measures to protect the environment is permissive, and the need for states to act collectively to safeguard the environment is asserted.
The first broad implication to draw from these approaches is that the concept that countries have the right to set the terms of trade with trading partners is being given currency. This challenges one of the basic precepts of the WTO.
The EU proposal to qualify the provisions of the WTO to permit restrictions on trade on environmental grounds would extend the right of countries to determine the terms of trade with others. The EU has also been the strongest advocate of the Basle Treaty which grants industrialised parties to the treaty the right to determine the terms of trade with other countries.
The consequence of moving in this direction is that the doctrine of respect for national sovereignty increasingly is being set aside when trade and environment issues are addressed.
There is a deep irony here. The EU is one of the most vocal critics of the US for its regular assertion of the doctrine of extraterritorial application of its law. It has recently asserted the doctrine strongly to criticise US law which penalises companies which trade in designated middle eastern countries. The EU has been a leading critic of the use by the US of unilateral trade measures for environmental purposes, even taking a GATT case against the US on this score. The judgement of the GATT disputes panel in this case was that members of the GATT may not set unilaterally the terms of trade with trading partners. Yet this is the very principle which the EU is supporting in the Basle Treaty.
There is a basic dysfunction in the policies of European Governments on the application of the doctrine of respect for national sovereignty. There is no indication that the EU has formally adopted a position at odds with the UN on the issue of respect for national sovereignty. Green groups have been arguing for several years that environmental issues are of such a special character that the traditional notions of the sovereign state can impede protection of the environment. The drift of EU policy in this direction is more likely to be the consequence of incremental adjustment at the margins to provide for political accommodation of pressure from green groups rather than a conscious embrace of a new doctrine on sovereignty, although there is likely to be sympathy with it in environmental ministries in Europe.
There are serious consequences however, even if unintended. Given the nature of the process of legal interpretation, once a number of positions which represent a departure from an established doctrine are given legal form, legal academics will make cases that the doctrine ie being amended or that a new doctrine is emerging.
Finally there is a coincidence of interest between the effect of use of discriminatory trade measures which are based on these concepts and the economic interest of industrial sectors in Europe.
A standard critique of European positions is that they are a manifestation of the assertion of an economic interest. Trade restrictions on environmental grounds simply serve as another instrument to protect European producers from more efficient producers outside Europe. It is generally true that European industries are pressuring governments to seek to internationalise standards for environmental protection which have become European domestic standards. The Scandinavian paper industry is one case in point.
The Basle Treaty serves to demonstrate how the economic effect of discriminatory trade measures can be used to protect and advance the interests of the industries in one set of countries, in this case industrialised parties to the Treaty. The International Council for Minerals and the Environment (ICME) sponsored an analysis by UNCTAD of global trade in recyclable metals. The clear conclusion to draw is that the proposed ban on trade between OECD and non-OECD countries which is contained in the latest protocol to the Basle Treaty is likely to deny access to developing economies to the industry of metal recycling. OECD countries will be obliged to send material for recycling only to other OECD countries.
Asian Pacific responses
The Asian Pacific economies in general have not been particularly vocal about the trend among European governments to justify the use of trade restrictions on environmental grounds. Groups of countries, or individual members have been active on a number of particular issues.
The ASEAN countries have been firm in opposition to proposals to amend Article XX of the GATT. The focus of their opposition has been more on proposals from Europe and the US to legitimise labor rights as a condition for trade. However, they have also opposed changes on environmental grounds. This is a more substantive position than just concern that expanding exceptions on environmental grounds might create a precedent for other exceptions such as labor rights.
The environmental interest at least for Malaysia and Indonesia has been stimulated by European campaigns to restrict trade in tropical timbers on environmental grounds. This lead those countries to threaten action in the GATT against Austria which contemplated trade measures which would have discriminated against timber imports from those countries. The prospect of other European governments mandating schemes, such as ecolabels which indicate source of origin or nature of forestry management, is being closely watched.
The United States has recently imposed trade bans on imports of shrimp unless the exporting nation applies a specified fishing method which protects turtles from being incidentally slaughtered when shrimp are netted. It appears to be re-run of the tuna/dolphin issue. Thailand is a major shrimp exporter to the US and is reportedly considering a challenge in the WTO to the US ban.
Of the Asian Pacific economies, only New Zealand has shown an inclination to move in the directions of the Europeans. It tabled a proposal in the WTO to allow trade restrictions on very narrow environmental grounds. It was less radical than the EU position, but in nonetheless sought to create more leeway than currently is provided for in GATT rules. The New Zealand position is opposed by business in New Zealand.
Korea, Australia and Canada have been the most prominent critics of the provisions of the Basle Treaty. Asian Pacific economies are more divided over this treaty. The Philippines has been an advocate of the Basle Treaty and a number of governments have gone along with the African group which has lead the formulation of G77 positions in support of the Treaty. The bridge between the Europeans and the Africans over this issue has been Greenpeace who have made the Basle Treaty one of their international cause celebres.
As a generality, Asian Pacific economies have not take a leading role on international trade and environment issues. They appear to share in common the perspective that informed the consensus at UNCED and do not concur in the preparedness of the Europeans to set aside the doctrine of respect for national sovereignty and to take a permissive attitude to exceptions to the provisions of the WTO.
Future Issues
There a number of international environmental issues under consideration in which the prospect of restricting trade as an instrument to further the environmental objectives is likely to arise. These include biodiversity, prior informed consent (PIC) for trade in minerals and, in particular, climate change.
The Climate Change Convention is another issue which has been strongly pushed by European Governments. The balance of obligations under the treaty means that developing counties face the immediate prospect of an economic cost from the terms of the treaty. A great deal of work needs to be done to establish how industrialised countries will act to meet those obligations. Because of their preponderance in the industrialised country group, European interests tend to hold sway. For example, because Europe is not as great a user of coal to generate energy compared to other sources, the inclination of Europeans is to lean to measures which will have a preponderant impact on coal. This is one reason why Australia, a major coal exporter, has been a notable dissenter among industrialised countries about the current approaches to greenhouse management.
However, there are significant issues for Asian Pacific economies in the impact of current UN strategies on greenhouse management upon which the Framework Convention on Climate Change is based. Asian Pacific economies will be major users and producers of energy over the next half century. Evidence is emerging that the current strategy would have a more negative effect on countries in the Asian Pacific region than anywhere else. A recent study by the Australian Bureau of Agricultural and Resource Economics (ABARE) concluded that the Convention will cause economic losses to the global economy which would negate the benefits to global trade and growth which were achieved in the Uruguay Round. ABARE has also assessed that proposed measures for the Convention on Climate Change would retard growth in key economies in the region. ASEAN and China would be among the worst affected among developing countries. The Convention would cause prices of exports from these countries to fall and slowdown in growth in the OECD countries, the latter effect also restricting markets for exports from developing countries.
ABARE has also assessed that the Convention would have an insignificant effect on world greenhouse gas emissions. The reason is that over the next 25 years, emissions from non-OECD countries will greatly outstrip the cuts which would be envisaged by OECD countries under the UN Strategy. Up until now, European Governments have supported the balance of obligations in the treaty which lead to this result. However, there is recognition among policy analysts in Europe that restrictions on the use of energy in Europe, but not in the developing world, could put European industries at a strategic disadvantage. This is one reason the utility of trade measures for reinforcing domestic restrictions on energy consumption is under consideration in research institutes in Europe.
ABARE has also
The Convention is likely to impede plans among APEC economies to develop the region. It most adversely affects ASEAN, China, Australia, New Zealand and Canada. Co-operation to develop energy in the region and to utilise efficient methods of energy generation is a major APEC priority. The Convention will create tensions among parties because the burden for reducing greenhouse gases is not evenly shared.
In this analyst's view, the UN greenhouse strategy will not work because it represents a political assessment of the problem and does not adequately cater for the economic interests of all constituent elements of the global economy. However, the lesson to draw from the foregoing is that where environmental issues are concerned, governments among industrialised economies, especially in Europe, are inclined to give preponderance to the domestic politics of environmentalism over other issues. The coincidence of the politics of environmentalism with pressure to protect domestic industry is a powerful cocktail and a dangerous one for trading partners.
Economies in the Asian Pacific region need to play a larger role in international debate on these issues. Environmental priorities and economic interests in the Asian Pacific economies are different to those in Europe. But unless they are defined and the implications of them are drawn out, the international debate will continue to be dominated by European interests and conceptions.
The Author.
Alan Oxley is Chairman of the Australian APEC Study Centre and Director of International Trade Strategies, Melbourne. He is a former Ambassador of Australia to the GATT and served as Chairman of the GATT Contracting Parties. He was a member of the GATT disputes panel for the second tuna/dolphin case/
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