RESTRICTED
WORLD TRADE WT/CTE/W/20
15February 1996
ORGANIZATION(96-0582)
Original: English Committee onTrade andEnvironment
ITEM 1:THE RELATIONSHIP BETWEEN THE PROVISIONS OFTHE MULTILATERAL
TRADING SYSTEM AND TRADE MEASURES FOR ENVIRONMENTAL PURPOSES,
INCLUDING THOSE PURSUANT TOMULTILATERAL ENVIRONMENTAL
AGREEMENTS (MEAs)
SUBMISSION BYNEW ZEALAND
1. There hasbeensubstantial discussion andanalysis ofelements ofthisagenda itemin
GATT/WTO overthepastseveral years; bothintheCommittee onTrade andEnvironment and
itspreceding Sub-Committee, andbefore that,withrespect toMEAs, intheWorking Group on
Environmental Measures andInternational Trade (EMIT).
2. NewZealand hasparticipated actively intheon-going debate andcarefully followed the
analytical contributions anddeveloping positions ofother delegations. Drawing onprevious
analysis anddiscussion thispaper suggests apossible wayforward forclarifying therelationship
between theprovisions ofthemultilateral trading system andtrade measures forenvironmental
purposes.
3. NewZealand 'spurpose incontributing thissubmission istoassist theCommittee in
formulating itsreport tothefirstbiennial meeting oftheMinisterial Conference scheduled tobe
heldinSingapore inDecember 1996.
I. INTRODUCTION
4. Agenda Item1covers trade measures usedinMEAs andthose usedinother contexts such
asregional orbilateral agreements andunilateral measures. Italsocovers arange ofpotential
environmental purposes which includes environmental problems ofaglobal, regional, bilateral or
purely domestic nature.
5. Table 1below presents asimple categorization ofthese different contexts. Measures are
divided according towhether theyareunilateral orapplied inthecontext ofacooperative
international agreement, whether bilateral, regional, plurilateral ormultilateral. Environmental
purposes aredivided according towhether theenvironmental problem being addressed ispurely
domestic orisglobal ortransboundary innature. Thisproduces afourcategory matrix (I-IV)
which, forillustrative purposes, willbeusedinsubsequent discussion.
Table 1
Unilateral MEA orother cooperative
Domestic I II
Global orTransboundary III IVWT/CTE/W/20
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6. Thedistinction between whatisaglobal ortransboundary issue andwhatispurely
domestic canbedifficult todetermine. Some environmental problems mayinvolve elements of
both. Totheextent itisargued thatenvironmental issues areglobal ortransboundary thescope
forissues tobeseenasdomestic, andinparticular thescope ofCategory I,islimited. The
implications ofsuchalimitation willbeevident from thefollowing analysis.
II. SCOPE FOR USEOFTRADE MEASURES FOR NON-TRADE OBJECTIVES
7. Asaresult ofprevious discussion andanalysis under thisagenda itemthere isnowa
better understanding among WTO Members thatconsiderable scope exists forcountries touse
trade related policies toprotect national environmental resources under WTO rules. Thisrelates
primarily toCategories IandIIofTable 1.
8. Central GATT obligations include non-discrimination between domestic andimported
products (national treatment), non-discrimination between different sources ofimports (most
favoured nation-MFN), andelimination ofquantitative restrictions (onbothimports andexports).
Measures which areconsistent withthese obligations, whether taken forenvironmental orother
non-trade policy reasons, arenotvulnerable tochallenge under GATT rules.
9. Inaddition GATT Article XXprovides, inexceptional circumstances, forthetaking of
otherwise GATT-inconsistent measures which areeither necessary forprotection ofhuman,
animal, orplant lifeorhealth, orwhich relate toconservation ofexhaustible natural resources if
made effective inconjunction withrestrictions ondomestic consumption orproduction. Such
measures, however, arenotpermitted tobemeans ofarbitrary orunjustifiable discrimination
between countries where thesame conditions prevail, ordisguised restrictions ontrade. Similar
checks andbalances areprovided forspecific types ofmeasures under Agreements onTechnical
Barriers toTrade (TBT) andSanitary andPhytosanitary Measures (SPS).
10. These checks andbalances aredesigned toallow thetaking oflegitimate measures while
guarding against protectionist abuse. Ithasbeenemphasized thattheydonotcallintoquestion
theenvironmental (orother non-trade) policy objective. Thatisamatter ofnational competence
which istaken asagiven. Rather theyrelate towhether themeasures inquestion are
unnecessarily disruptive ofthemultilateral trading system inachieving thechosen non-trade policy
objective. Such anapproach ofpolicy targeting while minimizing spillover effects reflects good
practice inpolicy design.
11. Thisleaves twomain areas ofpossible conflict between GATT provisions and
environmentally-motivated trade measures:
(i) useoftrade measures tohelpprotect environmental resources thatdonotfall
within thenational jurisdiction ofthecountry imposing themeasure, nor
necessarily affect solely ordirectly itsownenvironment;
(ii) discriminatory application oftrade measures between countries, including trade
provisions thatapply separately tonon-Members ofanMEA orother forms of
international agreement.
12. Inrespect ofGATT rules thefirsttypeofpossible conflict primarily relates tothenational
treatment obligation ofnon-discrimination between likeproducts offoreign anddomestic origin
(Article III)and/or totheprohibition onquantitative restrictions ontrade (Article XI). One
particular example ismeasures which discriminate between products onthebasis oftheprocess orWT/CTE/W/20
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production method (PPM) used. Insome cases thePPM maybedescribed as"unembodied"; a
pureprocess element which hasnoeffect onthecharacteristics oftheresulting product. Nobasis
exists inWTO rules fordistinction between whatarelikeproducts onthebasis ofsuchan
"unembodied" PPM.
13. Thisfirsttypeofpossible conflict covers whathasbeentermed theextraterritorial or
extrajurisdictional issue. Thisreflects theconcepts ofsovereignty andjurisdiction ofnations
pursuant totheUnited Nations Charter andthegeneral principles ofpublic international law,
which were reaffirmed intheRioDeclaration. Under these principles States havesovereign
jurisdiction overactivities within theirterritory andincertain circumstances overactions oftheir
nationals outside theirterritory. Extraterritorial jurisdiction, however, doesnotextend tothe
activities ofnationals ofother States.
14. Absent specific language tothecontrary inGATT/WTO orspecific agreement otherwise
between theparties concerned therefore, measures taken byanindividual country toaddress the
effects ofother countries 'nationals occurring outside itsjurisdiction cannot becovered byexisting
GATT exceptions.
15. Thesecond typeofpossible conflict concerns breach oftheother fundamental feature of
themultilateral trading system, themost favoured nation (MFN) obligation contained in
GATT Article I.Thiscould involve discriminatory extension oftrade restrictions or
non-extension oftrade preferences.
16. Incases where discrimination between countries istheonlyform ofGATT inconsistency
thechapeau requirement ofArticle XXisthat:
"...suchmeasures arenotapplied inamanner which would constitute ameans of
arbitrary orunjustifiable discrimination between countries where thesame conditions
prevail ...".
Thissuggests themere existence ofdiscrimination isnotsufficient toautomatically render a
measure incapable ofmeeting therequirements tobecovered byaGATT exception. Analysis1
suggests, however, thatitisnotnormally necessary tousediscriminatory measures against
non-parties.
17. These twoareas ofpossible conflict mayariseinrespect ofeither orbothofCategories III
andIVofTable Iand,inthesecond casepossibly alsoinrespect ofCategory II.Thefollowing
analysis willconcentrate initially onCategory IVandinparticular onMEAs addressing global or
transboundary environmental issues.
III. TRADE MEASURES INMEAs AND WTO PROVISIONS
A. USEOFTRADE MEASURES INMEAs
18. Asnoted above, there isconsiderable scope foruseoftrade measures forenvironmental
purposes consistent withGATT rules whether ornottheyarepartofanMEA. Existence ofareas
ofpossible conflict, however, gives risetoconcern thattrade measures inMEAs canconflict with
WTO provisions andthat,because ofthis,WTO provisions could work toinhibit orprevent
1See,forinstance, TRE/W/8.WT/CTE/W/20
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conclusion offuture MEAs orundermine theireffectiveness. However thedetails andnature of
themultilateral trading system, aswellasexperience withexisting MEAs, suggests thisis
unlikely.
19. Oftheapproximately 180MEAs currently inforce, only18contain trade provisions.
Most ofthese areintheareaoffloraandfauna protection. Atpresent noneofthetreaties or
instruments adopted since UNCED (June 1992) contain trade provisions. Moreover, there has
never beenaGATT dispute settlement caseinvolving useoftrade measures pursuant toanMEA
eventhough MEAs containing trade provisions haveexisted formany years.
20. TheWTO asamultilateral treaty welcomes multilateral solutions toglobal and
transboundary environmental problems. Aswasrecognized atUNCED, suchanapproach is
likely tobemore effective anddurable thanunilateral trade measures. Governments atUNCED,
however, alsorecognized theneedforcaution innegotiation ofMEAs before using trade
measures. Theeffectiveness oftrade measures needs tobecarefully considered against their
apparent attractiveness. Thisreflects thefactthattrade measures areseldom thefirst-best policy
tooltoachieve environmental objectives. Ithasalsobeennoted thatitisgenerally undesirable
andnotnormally necessary tousediscriminatory measures against non-parties.
B. PROPOSALS TODATE
21. Against thisbackground andpursuant totheinvitation from governments atUNCED,
WTO Members havebeenconsidering ways tomore clearly define therelationship between useof
trade measures inMEAs andWTO provisions. While there isnotyetaconsensus onaneedto
gobeyond existing WTO provisions, including exceptions, toaccommodate trade provisions taken
inthecontext ofanMEA, suggestions forhowthepotential problems might beaddressed fallinto
twomain groups. These are:
- expostwaiver approach: case-by-case granting ofawaiver from GATT/WTO
obligations; and
- exante"environmental window" approach: defining conditions fortheuseoftrade
measures inthecontext ofanMEA which, ifmet,would ensure thattheWTO would
accommodate themeasures.
22. Anumber ofother suggestions havealsobeenmade, most ofwhich seektocombine
elements ofbothapproaches. These include:
- anapproach combining theexpostandexanteapproaches bydefining criteria which
would, prime facie,make thetrade measures adopted pursuant toanMEA compatible
withtheGATT andthenexamining foreachMEA whether thecriteria were met;
- anapproach which combined theuseofgeneric criteria tocover some situations with
provision forcase-by-case examination ofothers; thethree alternative means provided
under GATT Article XX(h) foraccommodating measures taken pursuant to
intergovernmental commodity agreements wascitedasapossible model;
- anapproach similar tothatinArticle 104oftheNorth American FreeTrade Agreement
(NAFTA) providing thatintheevent ofanyinconsistency between NAFTA andspecific
trade obligations inlisted MEAs, theobligations oftheMEA shallprevail totheextent of
theinconsistency.WT/CTE/W/20
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23. Thislastapproach issubject tothecondition thatwhere aparty hasachoice between
equally effective andreasonably available means ofcomplying withsuchobligations the
alternative thatistheleastinconsistent withtheother provisions ofNAFTA ischosen.
C. FEATURES OFCURRENT PROPOSALS
24. These proposals havebeenthesubject ofconsiderable discussion bothintheCommittee
and,forsome, previously intheEMIT Group. Asaresult anumber offeatures ofeachproposal
havebeenidentified, including thefollowing elements.
i. Waiver Approach
25. Insupport ofthisapproach ithasbeennoted thatitisalready possible, through the
provisions ofWTO Article IX,toconsider granting awaiver from GATT obligations orother
obligations ofthemultilateral trading system fortrade measures contained inMEAs ona
case-by-case basis. Given theflexibility which exists under GATT/WTO rules foruseoftrade
measures andthedoubts which existabout thegeneral effectiveness oftrade measures asan
environmental policy toolitwassuggested thatthescale oftheremedy offered bythewaiver
approach (inrespect ofmeasures, notagreements) wasappropriate forthescale oftheproblem.
26. Under thewaiver approach, multilateral consensus would beestablished onthemerits of
thecase. AnMEA reflecting agenuine multilateral consensus among concerned countries should
findbroad support among WTO Members andconsequently there would belittleuncertainty about
thechances ofsecuring awaiver fortrade measures included init.Theonustodemonstrate and
convince others ofthemerits ofthecasewould, however, remain onthose countries seeking the
waiver.
27. Against thisapproach concern wasexpressed thatwaivers aretimelimited anddesigned to
dealwithexceptional situations whereas environmental problems areincreasingly recognized as
requiring long-term global solutions. There wasalsoawidespread feeling thatitwasdesirable to
provide, inadvance, clear guidelines tonegotiators ofMEAs oninclusion oftrade provisions. It
wassuggested thatthiscould notbeachieved bythewaiver approach which, given itsexpost
nature, would alsonotprovide negotiators ofMEAs withthedesirable degree ofsecurity that
inclusion oftrade measures would notsubsequently bechallenged.
28. Ithasalsobeennoted thattheUruguay Round Understanding onwaivers specifies that
WTO "non-violation" dispute settlement action remains available inrespect ofmeasures forwhich
awaiver hasbeengranted. Thus, inthecaseoftwocountries AandB,Country Awhich
considered abenefit accruing toitunder theWTO wasnullified orimpaired byameasure
imposed ormaintained byCountry Bunder awaiver could seekcompensation torestore the
mutual balance ofrights andobligations between them. Given thatCountry Bisnotacting
inconsistently withitsWTO obligations, asdefined bythewaiver, itsrighttoapply themeasure is
notinquestion. IfCountry A'scomplaint wasupheld, however, Country Bwould berequired to
offer compensation orfaceoffsetting withdrawal ofconcessions byCountry A.
29. Thepotential fornon-violation compensation should notnecessarily beseenasanegative
feature ofthewaiver approach. Theopportunity toobtain compensation, ifmerited, mayactto
facilitate thegranting ofawaiver.WT/CTE/W/20
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ii. Environmental Window Approach
30. Asecond approach discussed wasthenotion ofcreating anexante"environmental
window". Thiswould involve defining conditions foruseoftrade measures inthecontext ofan
MEA which, ifmet,would ensure thattheWTO would accommodate themeasures.
31. Insupport ofthisapproach itwasargued thatitsexantenature would givegreater
predictability andcertainty tothenegotiators ofMEAs. However, based onperceptions about the
scale oftheproblem noted above indiscussion ofthewaiver approach, anumber ofquestions
were raised about theimplications oftheenvironmental window approach.
32. Doubts were expressed about whether trade measures exceeding thescope ofexisting
GATT provisions were likely tobeeffective policy tools forinclusion inMEAs. Concern was
alsoraised about whatthisapproach might mean fortheexisting balance ofGATT rights and
obligations, especially inrespect ofsome oftheapparently more open-ended formulations ofthe
window. Itwasthought unlikely thatasingle formula could befound toimplement thisapproach
which would begeneral enough toencompass alllegitimate requirements, present andfuture, for
useoftrade measures inMEAs without opening thedoortoprotectionist abuse.
33. Arising from these concerns, further discussion oftheenvironmental window approach
resulted insuggestions foranumber ofpossible elements orcriteria todefine thescope ofany
window. These cover amixture ofprocess andsubstance considerations including thefollowing:
- ensuring thatanMEA reflects agenuine "multilateral" consensus through requiring:
- negotiation ofandparticipation inanMEA tobeopenonequitable terms toall
interested countries;
- broad participation ofinterested countries inbothgeographical terms and
representing varying levels ofdevelopment;
- adequate representation ofconsumer andproducer nations oftheproducts covered
bytheMEA;
- determining whether, andtowhatextent, thetrade measures must bespecifically
mandated intheMEA;
- ensuring thatthetrade measure isnecessary toachieve theenvironmental objective ofthe
MEA, including through consideration of:
- theeffectiveness ofthetrade measure inachieving theenvironmental objective;
- whether themeasure istheleasttrade-restrictive ordistorting;
- theproportionality ofthemeasure totheneedfortrade restriction toachieve the
environmental objective.
iii. Necessity andSpecificity
34. Theconcept ofnecessity iscommonly seenaspivotal. Since itsinception, andreflecting
previous international practice, GATT asanagreement ontrade hasprovided forMemberWT/CTE/W/20
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countries totakemeasures fornon-trade purposes which areinconsistent withtheirGATT
obligations provided themeasures arenecessary toachieve thestated non-trade objective. As
noted above, suchanapproach isembodied inGATT Article XXand,forparticular types of
measures, hasbeenfurther elaborated through WTO TBTandSPSAgreements.
35. Theplain meaning oftheword necessary is"indispensable" or"essential". Ameasure is
necessary totheachievement ofanobjective onlyiftheobjective cannot (reasonably) beachieved
without it.Thisrequirement forachievement means thatforameasure tobenecessary itmust be
effective, perhaps inconjunction withother measures, inachieving theobjective. Ameasure
which cannot contribute toachieving thestated objective cannot benecessary. However, notall
effective measures canbeseenasnecessary.
36. Itisprecisely thistypeofplain meaning approach which hasunderlined thedevelopment
oftheconcept inGATT/WTO. Several GATT panels2havefound thatameasure inconsistent
withGATT obligations cannot bejustified as"necessary" ifalternative effective measures which
arenotinconsistent withGATT obligations areavailable. Incases where measures consistent with
GATT obligations arenotreasonably available, necessity requires themeasure, among those
reasonably available, which isleastinconsistent withother GATT provisions tobechosen. The
requirements ofleasttrade-restrictiveness andproportionality embodied inWTO TBTand
SPSAgreements havealsodeveloped from previous panel discussion related totheconcept of
necessity.
37. Ineachoftheproposed approaches theissue ofspecificity isalsoimportant. From the
WTO perspective, without sufficient specificity there isriskthatanywindow would provide
excessive scope foruseoftrade measures without sufficient safeguards.
38. From theenvironmental perspective, however, toogreat adegree ofspecificity might not
bedesirable orpossible since inpractice themeasures contained inanMEA mayhavetobe
tailored byindividual signatories toparticular circumstances. Theconditions influencing choice of
trade measures mayalsochange overtheperiod oftimetheMEA isineffect.
39. Reflecting thisreality, eachoftheproposed combination approaches outlined in
paragraph 22above involves some element ofcase-by-case testing. Thenature ofsuchtesting isa
significant consideration. Awaiver-based approach involves whatmight betermed "positive"
testing. Ineachinstance therelevant measures arebrought before theappropriate WTO body for
specific decision about whether ornotawaiver willbegranted. Under anexceptions-based
agreement, oneexpression oftheenvironmental window approach, anytesting is"negative".
Decisions arerequired onlyininstances where measures arequestioned through dispute settlement
procedures available under theagreement.
iv.Policy Context
40. Asisclear from theabove summary ofapproaches andcriteria suggested inGATT/WTO
discussion todate, policy context hasbeenanimportant consideration. Anumber ofdifferent
contexts canbedistinguished:
- trade measures between parties ofanMEA thatarespecifically mandated intheMEA;
2See,forinstance, Panel onUnited States-Section 337oftheTariff Actof1930 (BISD 36S/345) adopted on7November 1989. Panel
onThailand-Restrictions onImportation andInternal Taxes onCigarettes (BISD 37S/200) adopted on7November 1990, andPanel onUnited
States-Measures Affecting Alcoholic andMaltBeverages (DS23/R) adopted on19June1992.WT/CTE/W/20
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- measures between parties ofanMEA which aretaken pursuant totheMEA butarenot
specifically mandated intheMEA;
- measures imposed onnon-parties toanMEA, either specifically mandated intheMEA or
"pursuant" totheMEA.
41. Ineachofthese contexts arange ofpossible measures maybeenvisaged. Thisincludes
extraterritorial orextrajurisdictional measures suchasthose based onunembodied PPMs.
IV. TRADE MEASURES OTHER THAN INMEAs AND WTO PROVISIONS
42. Aside from MEAs, trade measures maybeusedforenvironmental purposes inother
forms ofcooperative international environmental agreement suchasbilateral, regional or
plurilateral agreements. Trade measures mayalsobeusedbyindividual countries. The
discussion inSection IIabove isrelevant alsoformeasures usedinthese situations. The
suggested approach developed inthefollowing section deals initially withuseoftrade measures
forenvironmental purposes inMEAs butalsocovers useofsuchmeasures inother contexts.
V. ASUGGESTED APPROACH
A. TRADE MEASURES INMEAs
43. Inthefollowing section eachoftheabove policy contexts isexamined and,drawing on
previous analysis anddiscussion, apossible wayforward forresolving potential policy conflicts is
suggested. Ineachcaseitisassumed thattheagreement inquestion isanMEA according tothe
procedural criteria specified inparagraph 33above.
i. Measures Between Parties
44. Most discussions onItem1todatehavefocused ontheapplication oftrade measures to
WTO Members whoarenon-parties toanMEA. Thisisonthebasis thatapplication ofmeasures
between WTO Members whoareparty toanMEA isgoverned bygeneral principles ofpublic
international law. When dealing withdistinct international instruments covering thesame subject
matter these principles resolve potential conflicts ofinterpretation through considerations suchas
dates oftherelevant instruments andspecificity oftherespective provisions.
(a) Specific measures
45. Inpractice countries which havereached specific agreement witheachother inone
international forum areunlikely toseektochallenge thatagreement inanother. Inlegalterms,
however, itmaybeuseful tocodify thissituation inorder, forinstance, toguard against
unintended interpretive consequences ofsuccessive renegotiations ofrelevant instruments.
46. Such acodification could besimilar tothatcontained inNAFTA Article 104. Thiswould
provide that,forWTO Member countries party toanMEA, specific trade measures included in
theagreement which were inconsistent withtheWTO would prevail between them totheextent of
themandated inconsistency.
47. Anysuchprovisions could bejointly notified totheWTO bytheparties totheagreement.
Forthose parties, WTO dispute settlement would thennotbeavailable foranytrade action withinWT/CTE/W/20
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theterms ofthenotified measures. Countries would haveaccess totheMEA'sowndispute
settlement process, however. Toavoid unintended interpretations countries would wishtoensure
thenature ofsuchmeasures wasclearly defined, including terms oftheproduct(s) tobecovered
andtheduration ofthemeasure.
(b) Non-specific measures
48. Ashasbeennoted above there maybeinstances where, forsound environmental reasons,
trade measures included inanMEA maynotbefullyspecified. Insuchcases, measures between
parties ofanMEA maybetaken "pursuant" totheMEA without being specifically mandated in
theMEA.
49. Inthissituation, following theprinciples ofpublic international law,countries 'rights and
obligations under distinct butoverlapping international agreements would begoverned bythe
relative specificity ofrespective relevant provisions. Thus fortwocountries AandBmembers of
bothGATT/WTO andanMEA, Country Acould havegrounds forquestioning the
WTO consistency ofameasure imposed byCountry B"pursuant" totheMEA.
50. Take, forinstance, theexample ofanMEA which mandates thelimitation orphase-out of
production ofanenvironmentally damaging product thatisakeyinput intheproduction process
ofadownstream industry. Ofthetworepresentative countries party totheMEA, Country Bis
soleproducer ofthecontrolled product while thedownstream industry islocated inbothcountries.
Suppose thatinimplementing theMEA mandated controls onproduction oftheenvironmentally
damaging product Country Balsoimposes anexport banontheproduct. Country Amaythen
wishtoquestion theWTO consistency oftheexport banwhich, inthiscase, isnotcontributing to
theenvironmental objective oftheMEA overandabove themandated imposition ofcontrols on
production levels butwhich isdesigned byCountry Btoadvantage itsdomestic downstream
industry.
51. From anenvironmental perspective theprimary consideration insuchasituation isthat
Country Bshould notbeprevented from implementing themeasure ifitisnecessary toachieve
theenvironmental objective oftheMEA. From thetrade perspective Country Aisconcerned to
beabletosafeguard itsinterests against economic ortrade protectionism disguised as
environmental protection.
52. Thissuggests anapproach inWTO ofaccommodating non-specific measures between
parties toanMEA subject totheirmeeting defined criteria covering theaspects ofnecessity
outlined inparagraph 33above suchaseffectiveness, leasttrade-restrictiveness and
proportionality. Such accommodation could beachieved either viathe"positive testing" waiver
approach orthrough the"negative testing" approach using dispute settlement when required. The
latter approach ispreferable aspotentially themore liberal butwould require arenewed political
commitment from allWTO Members torespect andimplement thefindings ofdispute settlement
proceedings ifmeasures arechallenged. Bystating these criteria against which trade measures in
MEAs would betested, theWTO might alsohelptoavoid disputes.
53. Trade measures falling inthiscategory would benotified totheWTO bythecountry
imposing themeasure. Thepossibility would alsoexistforcountries onwhich themeasure was
imposed toexplicitly agree toitsimposition, perhaps reflecting bilateral orplurilateral
negotiations under theauspices oftheMEA. Insuchcases themeasure could again bejointly
notified totheWTO bytheparties which soagreed andtheprocedures outlined inparagraphs 46
and47above forspecific measures would apply.WT/CTE/W/20
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ii. Measures inRespect ofNon-parties
54. Inaddition tomeasures between parties, some MEAs haveincluded provisions regulating
trade between parties totheagreement andnon-parties. Such measures havebeenincluded in
MEAs foravariety ofreasons, including:
- topromote universal participation intheMEA;
- toprevent transferral ofenvironmentally harmful products orpractices tonon-parties to
theMEA;
- toavoid circumvention ofthemeasures applied byparties totheMEA;
- toensure allimporters andexporters aresubject tothesame environmental standards that
apply totheparties; and
- toaddress concerns about theimpact thatuncontrolled production orconsumption in
non-parties would haveontheeffectiveness ofthecontrols agreed byparties.
55. Acommon theme intheapplication oftrade measures tonon-parties appears tobeconcern
about potential for"leakage" when addressing global ortransboundary environmental problems.
Thisrelates tothepossibility thatactivities bynon-parties could seriously weaken orundermine
theenvironmental benefits expected from commitments undertaken bytheparties.
56. Equally there areanumber ofreasons whycountries maydecide nottobecome party to
anMEA. Suggested reasons include:
- differences ofviewoverthepersuasiveness, acceptability orexistence ofrelevant scientific
evidence;
- differences ofviewoverthepriority tobeattached tovarious environmental problems;
- differences inabsorption capacity ofdifferent environments; and
- inability toafford participation intheMEA oradherence tothelevelofenvironmental
standards required ofparties totheMEA.
57. Such differences were acknowledged atUNCED which affirmed theenvironmental
sovereignty ofindividual States along withexplicit recognition oftheconcomitant requirement not
toimpinge ontheenvironmental sovereignty ofother States ortodamage theenvironment beyond
thelimits ofnational jurisdiction.3
58. Under theprinciples ofinternational lawtherights andobligations thatexistbetween
twocountries which aremembers ofoneagreement arenotaffected bytherights andobligations
ofoneofthem pursuant toanother agreement. Thus ifCountry AandCountry Bareboth
Members ofGATT/WTO butonlyCountry Bisaparty toanMEA, Country Awould befreeto
challenge inWTO aGATT-inconsistent measure implemented against itbyCountry Baspartof
thelatter'sobligations under theMEA.
3See,forexample, Principles 2,7,11and14oftheRioDeclaration.WT/CTE/W/20
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59. Therespective concerns ofcountries AandBinthiscasearesimilar tothecaseof
non-specific measures between parties toanMEA outlined above. From theenvironmental
perspective ofCountry Btheprimary consideration isthatitshould notbeprevented from
implementing ameasure which isnecessary toachieve theenvironmental objective oftheMEA.
Country A,however, isconcerned tobeabletosafeguard itsinterests against economic ortrade
protectionism disguised asenvironmental protection.
60. Thisagain suggests anapproach which isdesigned toensure thatmeasures which are
inconsistent withGATT/WTO obligations donotgobeyond whatisnecessary toachieve the
environmental objectives oftheMEA.
61. Inthiscontext itshould benoted thatconcerns havebeenexpressed inWTO discussions
about thepossibility thattrade measures maybeimposed onnon-parties forcompetitiveness
reasons. Thenotion thatprotectionist orWTO-inconsistent trade measures should beintroduced
tocompensate fornegative competitiveness effects ofenvironmental policies, whether realor
perceived, hasbeenfirmly rejected byOECD Governments.4Consistent withthis,the
necessity-based approach suggested herewould notprovide accommodation formeasures unrelated
toachievement oftheenvironmental objective.
62. Country Amayalsodisagree about theenvironmental objective involved buttheWTO,
notbeing anenvironmental organization, must taketheenvironmental objective asagiven. Other
avenues suchastheInternational Court ofJustice areavailable todispute matters ofenvironmental
policy perse.Neither theWTO northemultilateral trading system canbeusedtosubstitute for
failures ininternational environmental policy making processes.
63. Forcountries which maypotentially benon-parties toanMEA andareconcerned about
thepossibilities ofprotectionist abuse, theprocedural criteria attached toaccommodation foruse
oftrade measures inMEAs mayprovide some additional comfort. Inpractice, aswillbefurther
discussed below, procedural criteria areclosely related toquestions ofnecessity. Without
adequate involvement ofconcerned countries representing sources ofproduction orconsumption
related totheenvironmental problem, useoftrade measures, whether consistent withGATT/WTO
obligations ornot,isunlikely tobeeffective inachieving theenvironmental objective.
64. Itwould beappropriated inthisinstance, therefore, torestrict theaccommodation with
respect tonon-parties toinstances where measures arespecifically mandated intherelevant
agreement. Particularly forthose developing countries which mayhavelimited capacity topursue
dispute settlement action intheWTO thiscould provide some additional procedural safeguard
against protectionist abuse. Itshould alsohelpensure thatcases where negotiators of
environmental agreements consider thattrade measures vis-à-vis non-parties arerequired reflect a
genuine consensus thatsuchmeasures willbeeffective inachieving theenvironmental objective.
65. Again, anytrade measures applied would benotified totheWTO bythecountry imposing
themeasure withthepossibility ofjointnotification byaffected parties incases ofconsensual
application. Inthelatter instance theprocedures forspecific measures between parties outlined in
paragraphs 46and47would again befollowed.
66. Ifanindividual country party toanMEA wished toimpose trade measures onnon-parties
going beyond thedegree ofGATT/WTO inconsistency specifically mandated intheagreement,
existing provisions forseeking awaiver from WTO obligations could befollowed. Alternatively,
thecountry could seekanamendment totheMEA specifically authorizing themeasure.
4Report onTrade andEnvironment totheOECD Council atMinisterial Level,May1995.WT/CTE/W/20
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B. TRADE MEASURES INOTHER FORMS OFCOOPERATIVE INTERNATIONAL
AGREEMENTS
67. Itissuggested thatthesame approach befollowed withrespect toaccommodating useof
trade measures inthese forms ofinternational environmental agreements asdiscussed above for
MEAs. While thesame approach maybefollowed, however, theenvironmental context itapplies
towilllikely besomewhat different ascould betheimplications forvarious types oftrade
measures.
68. Theprocedural criteria outlined inparagraph 33above forMEAs aimtoensure
widespread representation ofconcerned countries inboththenegotiation andimplementation of
theagreement. Thisisconsistent withtheadmonition inPrinciple 12oftheRioDeclaration that:
"...Environmental measures addressing transboundary orglobal environmental problems
should, asfaraspossible, bebased onaninternational consensus."
69. Such anapproach reflects thefactthatsolutions toglobal ortransboundary environmental
problems willbemost effective when allcountries which aresources ofrelated production and
consumption, areinvolved inthesolution.
70. Following theprocedural criteria therefore itislikely thatmost forms ofcooperative
international environmental agreement other thanMEAs willbedealing withtransboundary rather
thanglobal environmental issues. Exceptions mayariseincases where onlyalimited number of
countries embody thesources ofrelated production andconsumption contributing toaglobal
environmental problem. Ininstances where suchcountries arenon-regional, aplurilateral
agreement could provide asolution. Inother, likely more raresituations, thesolution toaglobal
environmental problem maybefound through aregional orbilateral agreement.
71. Whatever thecase, however, the"interested" orconcerned countries, meaning the
countries which aresources ofrelated production andconsumption which contribute tothe
environmental problem andwhose "participation" isrequired foranysolutions tobeeffective, will
bealimited andwelldefined group.
72. Interms oftheapplication hereofthepolicy contexts outlined above foraccommodation
oftrade measures usedinMEAs, suchinterested orconcerned countries willthencomprise both
the"parties" totheagreement andthe"non-parties" totheagreement inrespect ofwhich trade
measures maybeabletobejustified under thesubstantive necessity related criteria of
effectiveness, leasttrade restrictiveness andproportionality. Outside thisgroup thebroader
membership oftheWTO would beunaffected bytheproposed accommodation.
C. UNILATERAL MEASURES
73. Lying outside thepolicy contexts discussed above isCategory IIIinTable I;unilateral
actions todealwithglobal andtransboundary environmental problems. AtUNCED itwas
recognized thatglobal andtransboundary environmental problems arebytheirnature beyond the
control ofindividual nations. International cooperation wasendorsed asthemost useful and
effective manner through which toaddress them. Attheother endofthespectrum unilateral
approaches todealing withsuchissues were strongly discouraged, including inPrinciple 12ofthe
RioDeclaration:
"...Unilateral actions todealwithenvironmental challenges outside thejurisdiction ofthe
importing country should beavoided."WT/CTE/W/20
Page13
74. Asnoted above, thisreflects thefactthatsolutions toglobal ortransboundary
environmental problems willbemost effective when allcountries, sources ofrelated production
andconsumption, areinvolved inthesolution. Itwillseldom bethecasethatthiscondition is
metbyasingle country. Incases where itisnotmet,itcannot besaidthatunilateral action
would generally beeffective.
75. Itispossible thatunilateral action could beeffective incases involving asingle country
source ofsupply. Forinstance, inaworld inwhich onlyonecountry wasabletoproduce an
environmentally damaging product, elimination orcontrol ofproduction oftheproduct bythat
country would beeffective inreducing associated environmental degradation.
76. Onthedemand side,however, thesituation isfarlessclear. Fordiscussion purposes an
extreme caseoftwocountries willbeused: Country Awhich produces andexports an
environmentally damaging product andCountry Bwhich imports it.IfCountry Brestricts or
bansimports oftheproduct theeffects onproduction inCountry Awillatfirstdepend onrelative
market sizeinthetwocountries.
77. Iftheexport market issmall relative todomestic consumption inCountry Athere willbe
littlechange inproduction levels. Iftheexport market isrelatively large there maybesome
associated reduction inproduction although theextent ofsuchreduction willdepend firstly onthe
relationship between export price andproduction costs andpossibly alsoonalternative usesof
associated resources. Toillustrate thefirstpoint, iftheexport price significantly exceeded
production costs areduction inexport opportunity could, depending ontheprice responsiveness of
domestic demand, beoffset byexpansion ofconsumption inCountry A.Effectiveness of
unilateral action byCountry Bwould therefore bereduced.
78. Theopportunity costresponse canoccur eveninthecasewhere Country Bconstitutes the
entire market fortheproduct. Apossible example ofthisarises inthecaseoftimber. Insuch
circumstances animport banontimber inCountry Bwould eliminate thevalue offorests in
Country Aasatimber resource. Even without domestic demand inCountry Aforfirewood, the
impaired economic value oftheforest islikely toencourage itsdestruction totakeadvantage of
alternative usesofthepotential landresource.5
79. Ingeneral therefore itisclear thatunilateral action todealwithglobal ortransboundary
environmental problems willseldom beeffective. Inpractice, outside thespecial caseinwhich a
single country comprises theonlysource ofsupply and/or demand, effectiveness ofanyparticular
measure willdepend onrelative market power.
80. Asnoted inSection IIabove, under general public international law,unless there isan
agreement tothecontrary, anindividual country hasnolegalbasis formeasures taken inrespect
oftheactivities ofother countries 'nationals occurring outside itsterritorial jurisdiction. Given
thatGATT/WTO provisions contain noreference tothecontrary itisclear thatameasure to
which another country hasnotspecifically consented andwhich isnotconsistent withGATT
obligations cannot bejustified under GATT exceptions.
5Thatwould notoccur where thehighest alternative economic value involved retaining theintegrity oftheforest, forexample private
bioprospecting rights, orwhere theforest waslegislatively protected inCountry A.Effectiveness inthelatter case, however, would not
arisefrom action byCountry B.WT/CTE/W/20
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81. Thisunderpinned therejection ofUnited States measures inthetworecent tunapanel
cases.6Thesecond panel alsospecifically considered theeffectiveness issue concluding thattrade
measures taken byonecountry toforce other countries tochange theirdomestic policies, and
which would beeffective onlyifsuchchanges occurred, could notmeetthetestsofArticle XX
exceptions.
82. Thepolicy question inrespect ofunilateral extraterritorial orextrajurisdictional measures
todealwithglobal ortransboundary environmental problems iswhether thecurrent GATT/WTO
prohibition onsuchmeasures should berelaxed given (i)thesubstantial international political
consensus opposed tounilateral action inthese circumstances, asevidenced byPrinciple 12ofthe
RioDeclaration citedabove, and(ii)thefactthatingeneral theywillnotbeeffective and
therefore cannot benecessary toachievement ofthestated environmental objective.
83. Forthegreat majority ofGATT/WTO Member countries which aresmaller trading
nations thethreshold ofeffectiveness could notseriously becontemplated. Even ifthere are
circumstances inwhich thecriteria could bemet,however, broader issues ofenvironmental policy
making should beconsidered including thereplicability ofsuccessful unilateral approaches and
theirimpact onprospects forresolution ofinternational environmental problems where
cooperation remains essential.
84. Based onthese considerations, arenewed political commitment torespect existing
provisions onunilateral extraterritorial orextrajurisdictional measures willbeanimportant partof
anyoutcome towork ontrade andenvironment inGATT/WTO designed tofacilitate greater
accommodation ofinternational environmental cooperation. Thismight involve incorporation in
some form ofrelevant UNCED language. Ininstances where countries feltcompelled touse
non-conforming unilateral measures, WTO waiver provisions would remain available.
D. SANCTIONS
85. Theabove discussion deals withmeasures directly related toproducts, theproduction or
consumption ofwhich iscontributing toanidentified environmental problem. Insome isolated
types ofglobal ortransboundary environmental problem while itmaybenecessary toinfluence
thebehaviour ofnon-parties toaninternational environmental agreement inorder tobeableto
achieve theenvironmental objective oftheagreement itmaynotbepossible todosothrough
measures directly related toproduction orconsumption oftheproduct concerned.
86. Insuchcases parties totheagreement mayneedtogiveconsideration touseoftrade
sanctions vis-à-vis non-parties ornon-complying parties which areunrelated totrade inthe
product concerned. Given thedifficult international legalandpolitical dimensions ofthistypeof
approach andthelikelihood thatitwould onlyrarely berequired, itisnotsuggested thatspecific
accommodation beyond current GATT/WTO provisions bemade. IfWTO Members considered it
appropriate, existing provisions inGATT Article XXIandGATS Article XIVbiscovering actions
mandated under theUnited Nations Charter could benoted.
6Reports ofthePanels onUnited States: Restrictions onImports ofTuna from Mexico.WT/CTE/W/20
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E. FORM OFACCOMMODATION
87. TheCommittee onTrade andEnvironment wasestablished bytheGeneral Council and
directed toreport tothefirstbiennial meeting oftheMinisterial Conference. TheCommittee 's
terms ofreference andthespecific language ofAgenda ItemIrelate totheprovisions ofthe
multilateral trading system, asembodied intheWTO, asawhole.
88. Itistherefore appropriate thatanyaccommodation fortrade measures forenvironmental
purposes alsoapply across theprovisions ofthemultilateral trading system asawhole, atleastin
respect ofAnnex IoftheWTO. Such anaccommodation might taketheform ofan
Understanding withspecific references toother WTO Agreements asappropriate, forinstance
GATT Article XXexceptions andassociated Agreements onTechnical Barriers toTrade and
Sanitary andPhytosanitary Measures, GATS Article XIVexceptions andrelevant provisions ofthe
Agreement onTrade-Related Aspects ofIntellectual Property Rights (TRIPs). AnyUnderstanding
alsoneednotencompass theoutcome oftheCommittee 'swork onlyinrespect ofAgenda Item1.
VI. CONCLUSION
89. Thispaper hasoutlined arecommended approach forformulating anUnderstanding within
theWTO which would provide greater accommodation under WTO provisions (rules and
associated exceptions) foruseoftrade measures forenvironmental purposes. Reflecting the
considerable scope which exists under WTO rules forMember countries tousetrade-related
policies toprotect national environmental resources, theUnderstanding would focus onuseof
trade measures incases ofglobal andtransboundary environmental problems.
90. Such anUnderstanding would beapplicable across theWTO asawhole andwould build
onexisting approaches todealing withmeasures taken fornon-trade objectives contained in
GATT Article XXexceptions andassociated Agreements onTBTandSPSmeasures,
GATS Article XIVexceptions andthevarious exceptions provisions oftheTRIPs Agreement.
91. Reflecting theoverarching international objective ofmaking trade andenvironment
mutually supportive ofsustainable development, including attheglobal level, accommodation
would bedependent onconformity ofmeasures withbothsubstantive criteria andprocedural
criteria reflecting thepolicy context inwhich themeasures were taken.
92. Theprocedural criteria would helpensure thatmeasures tobeaccommodated would be
taken inthecontext ofcooperative international agreements between concerned countries
contributing totheenvironmental problem anditspossible solution. Thesubstantive criteria
would helpensure thatmeasures necessary forenvironmental purposes were notunnecessarily
disruptive ofthemultilateral trading system inachieving theenvironmental objective. Together
thecriteria should ensure thatlegitimate environmental protection measures canbetaken while
safeguarding against protectionist abuse.
93. Under theproposed accommodation, within thecontext ofaqualifying cooperative
international environmental agreement, jointly notified specific measures applying between
WTO Member countries parties totheagreement would prevail overWTO obligations between
them totheextent ofthemandated inconsistency. Thesame accommodation would apply in
respect ofother consensually applied andjointly notified measures.WT/CTE/W/20
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94. Inthecaseofnon-consensual measures theaccommodation would cover measures
vis-à-vis non-parties specifically mandated intheagreement andmeasures between parties taken
pursuant totheagreement butnotspecifically mandated init.Thiscould involve extraterritorial
orextrajurisdictional measures including those based onunembodied PPMs. Allsuchmeasures,
however, would betestable through dispute settlement, ifrequired, against thevarious necessity
criteria including effectiveness, leasttrade-restrictiveness andproportionality. Trade measures
against non-parties would alsobetested against procedural criteria toensure thattheMEA
represents agenuine international consensus.
95. Theaccommodation would notcover measures currently inconsistent withWTO
obligations which areapplied either unilaterally orvis-à-vis non-members toanagreement without
being specifically mandated intheagreement. Ifcountries wished toimpose suchmeasures,
existing provisions forseeking awaiver form WTO obligations could befollowed.
96. Such anoutcome should beseennotonlyasanimportant safeguard forthemultilateral
trading system butalsoasbeneficial forinternational environmental policy making andakey
element inensuring thattrade andenvironment policies aremutually supportive inpromoting
sustainable development.
97. NewZealand looks forward tohearing theviews ofother delegations onthissuggested
approach andtoworking intheCommittee todevelop aconsensus report fortheSingapore
Ministerial Conference Meeting.