Unit 10 - Background & Issues

Here we examine the overlap between trade and the environment as one of the most important areas of on-going trade law negotiations and jurisprudence.  The bottom line is that as climate change has begun to affect us all on a worldwide basis, international trade and environmental law are starting much more to overlap.  Meanwhile, opinions differ here too between traditional developed and developing state positions.  And there traditionally has been a sharp cultural division between trade law directed towards economic growth and development, versus environmental law directed towards saving the earth.  So how to reconcile discussions among chamber of commerce trade law-types wearing suits, with those of environmentalist climate change law-types wearing birkenstocks?  

The underlying problem is that the environment generally was simply not an overwhelming concern in 1947 when the GATT was created, and the 1994 WTO treaty essentially just adopted the GATT approach in this area.  Meanwhile, modern climate change treaty law came into being essentially in the same 1990s setting, as with the UN Framework Convention on Climate Change (UNFCCC) and Convention on Biological Diversity (CBD) being negotiated at the 1992 Rio Conference on the Environment and Development, which came into force in 1994.  (Look closely at the 1994 WTO Agreement, however, and you will see its acknowledgement of "sustainable development" and Rio in its preface.)  

Meanwhile, the idea of approaching environment and trade issues through developing principles via dispute panel resolution has not been entirely successful (which is much of what we look at in this unit, leaving the climate change treaty details largely to international environmental law courses).  Currently, the focus along this trade law path seems towards asking what would constitute functionally equivalent regulation, and requiring negotiations, since the DSB jurisprudence is seemingly clear that an importing country cannot simply require another, exporting country to adopt its environmental standards as a condition to allow the import of its goods (deeming such an approach discriminatory and arbitrary).  On the international environmental law side, however, efforts to develop a green economy have the EU in particular pursuing carbon border adjustment tariffs (CBAMs) for implementation soon as part of their climate change response, which are essentially tariffs levied based upon carbon generated in the production process for goods.

So as example, CBAMs would assign materially higher tariffs to steel produced the old-fashioned way in coal-fired smelters, as opposed to in carbon-free, electric smelters powered by renewable energy.  The problem is that newly industrialized economies (NIEs) like China, Brazil, South Africa, or India see this as an attack on them as developing economies more willing to trade jobs for pollution, meanwhile developed countries and some climate changed-threatened states like small island developing states just see this as putting too much carbon into the atmosphere, resulting in unacceptable temperature increases in terms of the 2015 Paris Agreement's climate change goals.  (NIEs are economically successful developing countries in development terms.)  These kinds of disagreements, however, are now popping up in the periodic UNFCCC meetings to flesh out the details of climate change treaty arrangements, not in trade law venues per se, and are increasingly fought out over the details of mitigation versus adaptation issues and finance in the climate change context.

But by the same token, developing the environmental side of things via international environmental treaty law has not been an unlimited success, so there remain difficult problems.  There were some limited efforts to incorporate environmental concerns into economic integration instruments (FTAs), for example with “green funding” provisions in NAFTA as carrot for individual environmentally oriented projects.  However, they have not made much progress beyond the individual project level, and there was considerably greater push back particularly under NAFTA 1.0 on the issue whether treaty-based investment protections for foreign investors enabled lively challenges of local and state environmental regulation on indirect takings theories in investor-state arbitrations.

There are some basic “cultural” differences between the trade community, typically oriented towards economic growth, GDP targets and the private sector, meanwhile the environmental community is oriented more towards quality of life, regulation and NGOs.  And further, there is a centralized multilateral trade law institution in the form of the WTO, while environmental concerns tend to be dealt with at the national level as a regulatory matter (which this is why this all tends to come up under 1947 GATT/WTO Art XX (b) & (g) as exceptions to general GATT/WTO obligations), leading to significant coordination problems.  The UNFCCC process with its annual conferences of the parties (COPs) as negotiating fora resemble more earlier trade negotiating rounds of the 1950s-1970s, rather than centralized administrative agencies applying agreed-to principles.

Even though the environment has been pursued since the 1992 Rio meeting via a focus on greenhouse gases (climate change), biodiversity and development in UN fora, things have not developed correspondingly well. There were earlier some concerns about whether trade principles might impinge too deeply on general regulatory authority of states, although the France-Canada Asbestos case seems to have laid that concern to rest.  Bottom line, in the absence of much concrete progress under the environmental treaties, or on the trade law side in the Doha round itself or more recent FTAs, thus far there has been some lip service to sustainability, but not much movement on the trade and environment overlap in a legal sense.  In the Doha round, discussions have aimed to exclude from tariffs “green” or environmentally helpful goods, with the result that individual member countries strive to have their own products characterized as green (for example, seeking designation of palm oil as a biodiesel fuel, alongside its use as cooking oil, for soap, and in various food products).

Then there is the problem of climate change, and the complication of the US’ rejection of the Kyoto Protocol under the Bush Administration and withdrawal from the 2015 Paris Agreement under the Trump Administration (as proposed implementation amendments to the 1992 UN Framework on Climate Change Agreement, aka the Greenhouse Gas Convention) and failure to ever join in the Convention on Biodiversity (all reaching back to the 1992 Rio meeting that produced the modern environmental framework conventions).  The problem is that in the absence of an universally accepted climate change or similar treaty scheme, the result would be unilateral regulatory actions in different states, which spawn technically complex domestic offset attempts to preserve competitiveness, particularly in the energy area (the CBAM issue).  So the current state of the art on the trade law side is directed particularly towards carbon/energy and how to preserve national progress in terms of emissions/carbon reductions in a world where only coordinated national action plans are the rule on the environmental side, linked with competitiveness questions.