Between Free Trade and Environmental Protection
we go and what we do tomorrow
In the early
1990s, there were two significant events affected the whole world dramatically.
One was that the completion of the Uruguay Round of the General Agreement
on Tariffs and Trade (GATT) and the establishment of the World Trade
Organization (WTO) in 19941. It is believed that trade liberalization is
important to enhancing world economic welfare. The other was that the
concept of sustainable development was arisen during the United Nations
Conference on Environment and Development in June 1992 and the concept
was stressed in the Rio Declaration. Environmental protection has become
an exceedingly important objective. As time going, people are more and
more concerned with the environmental degradation and tried to find
out the cause. Some believe that free trade leads to depletion of natural
resources and pollution of environment. Some identify poverty as the
primary cause of environment degradation and recognize the need for
a new era of economic growth. Some countries use trade measures to protect
environment, but are opposed by some other countries. The linkage between
trade and environment becomes a major controversial topic in the areas
of both international environment law and international trade law. The
Committee on Trade and Environment (CTE)2
was established aiming to identify the relationship between trade and
environmental measures in order to promote sustainable development.
However, so far the connections between the two fields remain unresolved
and controversial. It is clear that the opinions of those who are primarily
concerned with the environment are completely different from those prefer
free trade, and there are also obvious difference in attitude to the
issue between developed and developing countries.
is to briefly outline different points of view and attitudes, discuss
some important cases in this area, and try to provide our suggestions
based on the different solutions.
Conflicting opinions and attitudes to free trade and environmental protection
above, there are different opinions and attitudes to the relationship
between trade and environment. Those prefer free trade regard environment
factors as part of the comparative advantages that one country may have
to another.3 If all the countries have the same environmental
standards or environmental resources, it will distort the free trade
because it is negative to comparative advantages that are the basis
of the belief of free trade. They believe that a country would only
raise its environmental standards when the marginal benefits of that
protection would be equal to the marginal costs. It is this market-based
idea that determines the efficient allocation of resources between environment
and other concerns. Actually, when the economic growth of the developing
countries has reached the threshold, they begin to take steps to raise
their environmental standards. One example is that Singapore has adopted
its own eco-labelling scheme, the “Green Label?in 1992. In the past,
the eco-labelling scheme was regarded to be used only by the developed
countries to protect environment.
of those in favour of free trade is that there should be no inherent
conflict between trade and environment. The common objective of the
two sides is better life, trade is regarded as a means to attain sustainable
development, and we should use trade measures to further protect the
environment, but not use environmental measures to restrict trade. They
argue that as countries developing, they spend more on environmental
controls and so tend to pollute less than they did when they were less
advanced economically.4 The changed attitude of the developed countries
is the best example. It is the same to the developing countries. China
has 1.3 billion people living in the limited territory. In the past,
peasants had to destroy plenty of forest and grassland for cultivating
to support so many people. Now, some of these peasants are encouraged
to give up cultivating and to plant more trees and grasses because China
central government promises to provide free food to them. And it was
also reported that between 1998 and the end of 2000, China's central
government would have spent a total of RMB 27 billions(US$3.26 billions)
for ecological and environmental project.5
It is incredible and unprecedented in China's history.
especially developing countries argue that economic growth and trade
liberalization have a positive role to play in the achievement of sustainable
development. And an open, equitable and non-discriminatory multinational
trading system has a key contribution to make to national and international
efforts to better protection and conserve environmental resources and
promote sustainable development. Further liberalization of international
trade has a crucial role to play in order to generate revenue that can
be devoted to environmental protection, to allow for a more efficient
allocation of environmental resources and for the removal of trade restrictive
policies. It is also argued that trade restrictions are neither the
only nor necessary policy instruments to use in multilateral environmental
agreements. It is also stated in Principle 21 of the Rio Declaration
that "unilateral measures should be avoided as far as possible".
There is no doubt
that the developing countries are the initiators and supporters of above-said
opinions. The developing countries are also concerned with the attitude
of the developed countries. The developing countries argue that developed
countries are seem to be more concerned with environment, but actually
not, because they consume more energy and thus cause more pollution,
but they are unwilling to reduce energy consuming. It seems that they
are more concerned with promoting environmental protection, but actually
not, because environment standards they use are not always for environmental
protection, but for something else. The NAFTA6
is a good example, what the US labour unions wanted to do was that they
want to prevent the loss of job to lower-cost Mexico. It seems that
they are more concerned with environment of the whole world, but actually
not, because they export goods that are domestically prohibited in their
own territory to the developing countries, they even export hazardous
and other wastes to the developing countries. It seems that they are
more concerned with environment of the whole world, but actually not,
because they are more powerful, they use the carrot and the stick to
raise environmental standards, but they are miserly in finance and technology
assistance. The developing countries are left to be lack of information
and technology to change their production methods to meet the environmental
However, on the
other hand, many environmentalists are critical of trade liberalization.
In their view, free trade is responsible for many aspects of environmental
degradation and for the failure of policy makers to protect the environment
They argue that
free trade shifting the production of pollution-intensive goods toward
the low-income, high-polluting South and that will increase global pollution,
because the decrease in northern emissions is insufficient at the margin
to compensate for the increase in southern emissions. They also think
that because pollution is not local but trans-boundary or global in
nature so pollution in one country may affect another country’s environment.
Green house is a good example.
argument that environmentalists hold is that the trade liberalization
can make the developing countries and developed countries lower the
environment standard together. Why? In practice, every businessman wants
to make the great profits in the international business, whereas lowering
the cost is the best and most efficient way. Since WTO agreements require
member states to abolish the tariff barrier so as to make trade flow
free and thus develop the domestic economy, the importation and exportation
became easy. With revoking the tariff barrier, businessman thinks much
more about the other aspects of the investment surroundings than the
tariff. For some pollution-intensive products, the environment requirements
become the most important. The developing countries want to develop
the economy as soon as possible. For them, the first important thing
is to attract the foreign investment to develop domestic economy. The
environment protection undoubtedly including the strong policies and
requirement will increase the cost of some products—high requirements
will improve the cost twice or three times than the cost under lower
requirements so as to impede some pollution intensive industry. So the
developing countries usually lower the environment requirements for
some industries so as to attract the foreign investment. Whereas the
international trading system, actually encourages any participant country,
particularly one that is less wealthy, to relax its environmental standards
to gain a competitive advantage. Once any country does so, other countries,
also struggling to develop sustainable economics, feel compelled to
relax their standards in order to stay competitive in the international
markets. So we can imagine the horrible result. Both the developing
countries and developed countries will lower the environment standards.
Under such circumstance, trade liberalization like a breeze makes the
burned house---already harmed environment---much worse. Countries compete
with each other in a ?race to the bottom?with respect to the environmental
standards to attract or keep capital. Even though competing countries
want environmental protection at high levels, the countries?inability
to agree with (or trust) each other means that each country will opt
for lower levels of protection in order to maximise their market share
in the world economy.
also criticise the world trade organisation plays negative role as to
the environmental protection. It is also a big issue, we will discuss
it in the following part:
The possibility to solve the conflict between environment and trade
under existing WTO framework.
WTO is a trade
organisation, which was founded to limit discriminatory trade practice
and help trade flow as freely as possible. However, there are some environmental
considerations in WTO. The preamble of <Marrakesh Agreement Establishing
The World Trade Organization> states “seeking both to protect and
preserve the environment?/font>7. Actually Article XX of GATT does recognise
the ability of a country to place other concerns ahead of obligations
under the GATT, especially sub-article (b),(g)8.
Such article was regarded as “environmental exception?or “Green Exception?
are black letters in white paper, it is another issue whether they are
working. So next we would like to introduce some of the leading cases
handed down by the Dispute Resolution Panel of the GATT/WTO, which are
specific related to environmental protection. Then we can see whether
the trade organisation really concerns about environmental protection.
Under the U.S. Marine Mammal Protection
Act, countries seeking to export tuna to the U.S. had to show that they
had a tuna fishing regulatory program comparable to that of the U.S. and
the dolphins taken incidentally by their tuna fishing boats was no greater
than 1.25 times the US rate. The U.S. argued the “green exception?allowed
it to do so. However the GATT dispute panel found that the measures in
the Act were not “necessary?to the protection of animal life within the
reservation of ArticleXX(b). The decision was criticised by lots of environmentalists
for its narrow interpretation of Article XX. One commentator felt that
this decision “jeopardised the future efficacy of international environmental
treaties? and argued the decision put free trade a “far higher priority
than environmental protection?10
- Tuna-dolphin case9
In order to protect clean air, the
USA amended the 1990 Clean Air Act. Under the new rule, only “reformulated?gasoline
was allowed to be sold. The dispute stemmed from the fact that domestic
refiners had three different standards that they could use to meet the
requirement of the regulation, whereas foreign refiners has only one.
- Reformulated Gasoline case
the Panel and the Appellate Body ruled against the U.S., the reason
was a bit different. The Panel found that the regulation must be “primary
aimed at"11 the conservation of exhaustible natural resource
in order to be upheld under Article XX. The Appellate Body, on the contrary,
recognised the action was “primary aimed at?protecting the environment
and should be viewed as such for Article XX(g) purposes. But it ruled
the regulation of the U.S. discriminated between domestic and foreign
In the following
case, the decisions between the Panel and Body were much different.
USA regulation, beginning on May 1, 1996, all shipments of shrimp and
shrimp products into the US were required to have a declaration that
the shrimp was harvested in a manner that did not adversely affect sea
turtles. India, Malaysia, Pakistan, Thailand challenged the regulation
was inconsistent with the GATT.
In the first
instance, the Panel ruled against USA, it stated that ?when considering
a measure under Article XX, we must determine not only whether the measure
on its own undermines the WTO multilateral trading system, but also
whether such type of measure, if it were to be adopted by other Members,
would threaten the security and predicability of the multilateral trading
This was a very
bad decision. According to this test, whether an environmental protection
action cold be fallen into Article XX exception or not, firstly it should
pass the “threat to the multilateral trading system?test. In other words,
under the WTO’s dispute settlement system, trade always prevails the
environment in case of conflict.
Appellate Body ruled that the Panel’s legal analysis was in error, noting
that to maintain the multilateral trading system “is not a right or an
obligation, nor is it an interpretative rule which can be employed in
the appraised of a given measure under the chapeau of Article XX?/font>14.
Finally the Appellate
Body found against the U.S. on its discriminatory "implementation"
of the Act, but not the Act itself15. Indeed the Body spent a full paragraph to emphasize
a need to protection for sea turtle:
“We have not
decided that the protection and preservation of the environment is of
no significance to the Members of the WTO. Clearly, it is. We have not
decided that the sovereign nations that are Members of the WTO cannot
adopt effective measures to protect endangered species, such as sea
turtles. Clearly, they can and should. And we have not decided that
sovereign states should not act together bilaterally, plurilaterally
or multilaterally, either within the WTO or in other international organisations,
to protect endangered species or to otherwise protect the environment.
Clearly, they should and do.?/font>16
It is worth noting
that the Appellate Body did not explicitly prohibit US from regulating
production methods for shrimp harvesting outside its own jurisdiction.
So some observers argued that this case opened the theoretical possibility
for extrajurisdictional environmental regulation to be consistent with
WTO rules. However, in practice it would be quite difficult for extrajurisdictional
unilateral environmental regulation to pass scrutiny17.
From above we
can see that under existing WTO dispute settlement system, none of trade
measures to protect environment was successful. Although there were
some environmental points or values recognised, it was far from the
expectations of environmentalists.
October 14,1999, the Secretariat of the WTO issued a report on “Trade
and Environment?/font>18. The report was widely perceived to be an effort
by the WTO Secretariat to put international trade in a more favourable
light, so-called “Olive branch?/font>19.
But the report asserts without proof that the gains from trade are sufficient
to repair any environmental damage, which made many environmentalists
Solutions to reconcile the environment and trade.
As the existing
WTO dispute settlement system could not deal with the conflict well
in the view from environmental protection, there have a lot of potential
solutions been recommended.
- Exemption of multilateral
environmental agreements in GATT through waiver.
The WTO agreement
explicitly allows parties to waive GATT obligations in exceptional circumstances.
So it is worth considering to exempt multilateral environmental agreements
from GATT rules. Of course, such waiver should be approved by a three-fourths
majority of GATT parties. It is not impossible in some circumstances.
argues that this approach appears to rank the GATT/WTO and trade liberalization
above multilateral environmental protection, it would prove to be useful
in the interim.
2. Amending the
Because of the
vague language used in Article XX of GATT and the narrow interpretation
of these grounds by the Panel and the Appellate Body, it became very
difficult for a country to use it as safeguard to protect environment.
So there are suggestions to amend the GATT and give express provision
to exempt environmental protection action, ie, a real “green exception?
changes to dispute settlement under the GATT/WTO.
a moment that GATT/WTO in the proper forum for adjudication of trade
and environment disputes, there are ways to make future WTO tribunals
more conducive to fair and informed decision-making. For example, the
selection of panellists. The objective of panellists is to create a
sufficiently diverse background and a wide spectrum of experience. So
one can argue the WTO tribunals should include experts in the realm
of environmental protection. The panel member should be recognized by
both trade and environment concerns. Maybe things will be different
in that case.
4. Change of
forum, ie, change the dispute settlement forum from the WTO to other
international body, for example, International Court of Justice(ICJ)
it would be more neutral and more fair to both sides.
include setting up a new global environmental organisation equal to
the WTO regime. Some environmentalist even suggest that “in order to
force a more environmental friendly interpretation of Article XX, one
of the member countries, particularly the United States or the European
Union, may have to start ignoring the WTO’s decisions.21?
However, we think it is not a positive attitude to solve the problem
and the above-said suggestions are either infeasible in some aspects
or difficult to achieve. In our view, the eco-labelling scheme is comparatively
practicable solution. So next we would like to introduce it. It is impossible
for us to introduce all details of the eco-label, so we only discuss
some main points:
also referred to as green-label which means putting labels on products
to inform consumers of their environmentally-friendly character. It
comes into being accompanied with the political awakening and rising
level of public concern with the environment protection. In 1971 the
Germany government put first forward the concept of Eco-label for consumer
products22, and in 1978 the first Eco-label program in
the world was launched in Germany23. Now there are over 20 countries, especial industrilized
countries, including Canada, Japan, Norway, Austria, France, Singapore,
etc, have adopted the Eco-label program in many different forms at local,
national, regional and international level.
Under all programs
currently existing or proposed there are committees with broad representation—with
members from the government department concerned, as well as consumer,
environmental, and industry interests—that determine or suggest to a
government minister which product categories are eligible for labelling.
Within each category the scope of products is defined, and the threshold
criteria a product must meet is established with the help of experts.
Domestic or foreign manufacturers may, if they so wish, submit products
for consideration. If the product meets the criteria of the product
category, a label can be obtained and used when marketing the product,
in accordance with the terms and conditions of the contract concluded
with the committee or administering body.
The main objective
of eco-labelling programs is to harness market forces and channel them
towards promoting more environmentally-friendly patterns of production.
Eco-label provides consumers with easily recognisable symbol, indicating
the product environment friendliness has been assessed and approved
by certain organisations or governments. Thus, it can help consumers,
especial "green consumers" to make informed purchasing decisions.
Meanwhile eco-label also leads to higher and higher environment consciousness
of consumers. Eventually, the manufacturers will be forced to change
their product process into a more environmental friendly process. If
the manufacturers don’t improve the image of their product, they will
lose their market. Because of its market function, Eco-label is regarded
as less trade restrictive measures than bans or outright product regulation.
Eco-label has increasingly become an effective instrument for harmonizing
the conflict between the free trade and environment protection.
eco-labelling scheme is an effective method to protect the environment
with more compatible with the WTO, and most of the labelling scheme
is voluntary, it is still argued that it may act as de facto trade barriers.
Especially the developing countries think that the labelling scheme
may often result in discrimination against foreign producers and is
a non-tariff barrier to free trade in fact. They argue that the nature
of the labelling scheme is discriminatory because its goal is to select
only those product that have significantly less environmental impact
compared with other products in their category. And also whether certain
processes and production methods are, or not, environmentally sound
would depend on how a national label awarding body defines the criteria
for a product to be eligible for a label. Another reason for labelling
program being viewed as a trade barrier is that it involves requirements
that put small and foreign producers at a disadvantage because of the
costs involved or other reasons.
In the past years,
some disputes have arisen from the labelling schemes. We would like
to introduce the dispute of Austria Mandatory Labelling Law. In 1992
in order to protect the tropical forest, the Austria parliament introduced
new legislation with the aim of stopping all imports of tropical timber
and tropical timber products from areas that were not sustainable managed.
It requires all tropical timber and products sale in Austria must carry
a label identifying them. The ASEAN24
complained to the GATT's Committee that the law did not required mandatory
labelling of other types of wood and wood products imported into Austria
or produced domestically. They charged the Austria law was in violation
of both the "most-favoured-nation" (MFN) and "National
Treatment" provisions of the GATT and was discriminatory, unjustifiable
and an unnecessary obstacle to trade. While Austria argued that the
labelling requirement did not constitute an obstacle to trade since
product labelling per se was not a trade restriction and the law did
not impose any quantitative or qualitative restriction on imports from
any destination. It also alleged the law was not discriminatory in nature
because it applied to any tropical timber or tropical timber product,
irrespective of the country of export or origin. However, faced with
likelihood of losing the case if it were to be referred to the GATT
Panel, Austria amended its law. Under the amended law the labelling
requirement is (like any other eco-labelling program) voluntary, and
the quality mark can now be issued to all kinds of timber and timber
products from sustainable managed forest.
From the discussion
above we can see that the eco-label is an effective way to protect environment
and has less negative implication to free trade. In order to avoid dispute
the key issue is that the trade impact of ever-growing environmental
labelling programs will depend substantially on how the schemes are
administered. This is also recognised by the CTE, which stated "well-designed
eco-labelling schemes/programs can be effective instruments of environmental
policy to encourage the development of an environmentally-conscious
Aiming to the
effectiveness of eco-labelling schemes, the following proposals should
be incorporated into the Eco-labelling program in the future:
There are many different Eco-labelling scheme standards among different
labelling scheme countries in the world, even some are diverse. At the
same time, different standards increase costs for producers if they
have to meet a variety of labelling requirements in different countries.
Harmonisation can help mitigate the adverse effects and decrease the
cost of products while maintaining environmental goal. It is important
to small foreign suppliers and those from the developing countries.
It means to recognise the validity of divergent environmental criteria
and ensures that trade interests are not unduly affected by this diversity.
It can escape the condemn of discrimination and extrajurisdiction. Mutual
Recognition will be much easier between countries having compatible
levels of economic development.
Because eco-labelling scheme primarily focus on domestic condition,
it is difficult for foreign producers to gain access to the information
to comply with those schemes. Promoting transparency to all interested
parties, including exporting and developing countries, can help the
interest of other countries, and facilitate environmental objectives
and trade. It also can alleviate political pressure from other countries.
Assistance. Providing technical assistance to developing countries
may help reduce the potential negative trade effects of environmental
labelling on developing countries. Technical assistance can play an
important role in helping developing countries establish their own programs
and will consequently lead to international deliberations.
is conflict or not between free trade and environmental protection in
theory, in practice there is controversy between the two issues which
are both important to us. However, WTO is a trade organization anyway,
so environmentalists are concerned with and disappointed to the approach
of WTO existing system. Hence, more and more countries prefer eco-label
program, especially voluntary scheme to protect environment. The idea
behind is to encourage more and more people to care about environmental
protection. If more and more consumers are concerned with the environment,
we can have more and more clean water, clean air, clean everything.
We have only one earth, so what we do tomorrow? Where we go tomorrow?
Let’s do something!----“Heal the world!?song by Michael Jackson)
<The Marrakesh Agreement establishing the World Trade orgnization>
was concluded on 15 April 1994, in Marrakesh, and entered into force
on 1 January 1995, see http://www.wto.org
It was set up by the 1994 Ministerial Decision on Trade and Environment.
It came into being with the WTO on 1 January 1995. See http://www.wto.org/english/tratop_e/envir_e/issu1_e.htm
The theory of the comparative advantages was established by David Ricardo
in his book The Principles of Political Economy published in
1817. It continues to form the basis of conventional international trade
Phillip Evans & James Walsh, The EIU Guide to the New GATT 128 (1994)
Aug.22 2000, Hua Sheng Bao, also see http://www.chinaonline.com/topstories/000831/1/C00082202.asp
North American Free Trade Agreement
WTO Agreement, Marrakesh, 15 April 1994, see http://www.wto.org
8 Article XX of GATT:
Subject to the
requirement that such measure 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:
to protect human, animal or plant life or health;
to the conservation of exhaustible natural resources if such measures
are made effective in conjunction with restrictions on domestic production
Panel Report: United States--Restrictions on Imports of Tuna, Aug 16,
1991 30 I.L.M. 1598 (1992)
Janect McDonald, Trade and the Environment: Greening the GATT: Harmonizing
Free Trade and Environmental Protection in the New World Order,
23. ENVTL.L. 402,438 (1992)
WTO, Panel Report: United States--Standard for Reformulated and Conventional
Gasoline, Jan 29, 1996, 35 I.L.M 274 (1996)
WTO, Appellate Body Report: United States--Standard for Reformulated
and Conventional Gasoline, Jan 29, 1996, 35 I.L.M 603 (1996)
WTO Panel Report: United States--Import Prohibition of Certain Shrimp
and Shrimp Products 37 I.LM 832 (1998)
WTO, Appellate Body Report: United States--Import Prohibition of Certain
Shrimp and Shrimp Products 38 I.L.M 118 (1998)
In response to the ruling the U.S. has proposed to alter the way it
implements the Act but it has not changed the Act itself.
16 see supra note 14 para 185
For example, in the shrimp case, the U.S. would have had to engage in
bilateral or multilateral negotiation with shrimp harvesting countries.
Only if these had proven to be unsuccessful could the U.S. have introduced
unilateral measures. These unilateral measures would have needed to
be designed such that differing conditions in different countries are
taken into account, that all countries are granted the same “phase-in?
periods, that the U.S. undertakes the same effort in transferring sea
turtle safe-harvesting technology to all relevant parties, and that
the certification process is transparent and allows affected countries
to be heard and to appeal against non-certification. see supra note
14 para 163-180
Embracing Greenery, Economist, Oct.9, 1999, at 89-90
see Steve Charnovitz: World Trade and the Environment: A Review of
the New WTO Report, Georgetown International Environmental Law Review,
Craig A.A.Dixon: Environmental survey of WTO dispute panel resolution
panel decision since 1995:”Trade at all costs?? William and Mary
Environmental Law and Policy Review, Winter 2000
See Organisation for Economic Co-operation and Development (OECD), Environmental
labelling in OECD Countries 43 (1991)