..May 1997
TABLE OF CONTENTS
1.1 THE WTO AND INTERNATIONAL TRADE
1.2 TRADE AND THE ENVIRONMENT
PARTII: ENVIRONMENTAL ISSUES AND INTERNATIONAL TRADE
2.1 THE GLOBAL COMMONS
2.2 NATURAL RESOURCES
2.3 AGRICULTURE
2.4 ENERGY
2.5 ENVIRONMENTAL STANDARDS
2.6 THE FIRST WTO TRADE RULING
2.7 INTELLECTUAL PROPERTY RIGHTS
PART III: TRADERELATED INVESTMENT MEASURES
This environmental guide to the World Trade Organization is intended toprovide an introduction to this new and enormously powerful trade regime.We believe that the establishment of the WTO will have far reaching andlargely adverse impacts on many areas of environmental policy and law,and will make the goals of sustainable development much harder to achieve.We know that our assessment of the impacts of the new rules for globaltrade is a daunting one, but there seemed no virtue in understating theimpacts of trade rules that effectively entrench the very patterns of economicdevelopment that have given rise to the ecological crises we confront.
However we also believe that in the enormous challenges this new traderegime presents, there is also great opportunity to develop models foreconomic and social development that would finally give concrete meaningto the principles sustainable development. If, as environmentalists, weare to respond to these challenges, we will have to move beyond the symptomsof destructive and unsustainable development policies, and confront theunderlying economic, and trade policies that drive them.
For Canadian environmentalists, who were engaged in the debates aboutfree trade with the United States and subsequently NAFTA, much of thisanalysis will be familiar, and indeed in many ways NAFTA represents themodel for the WTO. There are however significant differences between thetwo regimes, and of course the WTO has global application. While this guidefocuses primarily upon the WTO, it does hi-light some of the key distinctionsbetween these trade agreements and also describes how the two often worktogether.
The following assessment touches on the most important areas where thetrade and environment agendas intersect and is organized to allow thosewith particular interests to find those issues, eg. forestry, intellectualproperty, energy, etc. that are most important to them. We begin with anoverview of the WTO, and describe how in a general way its agenda impactsenvironmental law and policy. With this introduction, we continue withthe exploration of how trade rules will affect the specific environmentaland conservation goals that we are working to accomplish.
1.1 THE WTO AND INTERNATIONAL TRADE
The World Trade Organization (WTO), was established on 1 January 1995.The WTO and is comprised of several multilateral trade agreements thatrepresent the culmination of an eight year process of trade negotiation,known as the Uruguay Round{1}. The WTO secretariat is located in Geneva,and on behalf of more than 120 countries that are parties to this traderegime, administers the WTO Agreements{2}, facilitates future trade negotiations,and oversees trade dispute resolution.
The WTO and the Global Economy
The establishment of the WTO, represents a watershed in the processof establishing a truly global economic order and it is likely to exerta more profound influence over the course of human affairs than has anyother institution in history. There are three reasons that justify suchan assessment. The first has to do with the ever increasing importanceof international trade to a global economy. Transnational corporationsnow control more than one third of worlds' productive assets, and the organizationof their production and distribution systems has little to do with nationalor even regional boundaries. Decisions about locating factories, sourcingmaterials, processing information or raising capital are made on a globalbasis, and a particular product may include components from several countries{3}.This explains why nearly 40% of all international trade takes within thesame corporate family. Another measure of the growing dimensions of globallyeconomic integration, is the growth in international trade itself whichaccording the most recent figures published by the WTO increased by a staggering9 1/2 per cent in 1994.
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An Economic Constitution for the Planet
When the Canada-US Free Trade Agreement was concluded, President Reagandescribed it as the "economic constitution of North America",a characterization that was recently echoed by the Director General ofthe WTO, Renato Ruggiero, referring to the WTO. In many ways their assessmentsare appropriate because as traditional constitutions guide the domesticaffairs of the members of national communities, so does the WTO set outcomprehensive rules to guide activities of the members of the global community.Further, trade agreements operate at a super-jurisdictional level and effectivelysupersede the sovereign authority of nation states - very much as nationalconstitutional instruments constrain the exercise of legislative authority.Finally, like constitutions, trade agreements set out the fundamental rightsof their constituents. Unfortunately, under the WTO only corporations arethe beneficiaries of these entrenched rights, and efforts to include social,labour or environmental rights - have been decidedly rejected.
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The second, concerns the way in which the reach of trade rules has extendedinto every field of economic endeavour. Historically trade agreements wereconcerned with the trade of goods eg. manufactured goods and natural resourceproducts, across international borders. With the establishment of the WTO,the purview of trade agreements now includes investment measures, intellectualproperty rights, domestic regulatory initiatives, and services - in factit would be difficult to identify an issue of social, economic or environmentalsignificance that does not have some relationship to trade.
The third, has to do with the enormously powerful enforcement toolsavailable to the WTO to ensure that all governments comply with the dictatesof international trade law. When governments are found to be in breachof their trade obligations, the penalty is retaliatory trade sanction whichwill often represent very substantial financial penalties. For example,in the first trade complaint to be resolved under the WTO, US Clean AirAct Regulations were deemed to violate WTO rules. In consequence the USwas given two options, remove the offending provisions of its environmentalstatute or face retaliatory trade sanctions in the order of $150 milliona year{4}. While previous trade regimes engendered the use of similar sanctions,their imposition required a consensus among all GATT members, includingthe offending country. Now WTO rulings are automatically implemented unlessblocked by a consensus of WTO members. Moreover, under the rules of cross-retaliation,sanctions can be applied to any aspect of the offending countries internationaltrade - or in other words, where it will be felt the most.
A Bill of Rights for Transnational Corporations
It isn't difficult to regard WTO rules as representing an internationalbill of rights for transnational corporations. To appreciate why the WTOmight be described in this way requires an understanding of the negotiationprocess that created it. Because international trade has historically beenconsidered an arcane subject restricted entirely to commercial interests,trade negotiations have traditionally conducted by trade ministers withno apparent awareness that other societal values might be at stake. Forexample, when the Conservative Government of Brian Mulroney was asked whatif any environmental assessment had been carried out of the impending freetrade agreement with the United States, it responded somewhat incredulouslythat its trade deal was entirely a commercial agreement and that the environmenthad not even come up once{5}. This assessment was offered of course, aboutan agreement that dealt explicitly with energy, agriculture, environmentalstandards, forests and fisheries. Moreover, even as the ambit of tradenegotiations grew to encompass many more spheres of human activity, noreal efforts were made to include other facets of governments.
For the same reasons, when governments consulted on trade matters itlooked exclusively to the business community, ie. large corporations witha substantial stake in international trade. Thus trade advisory committeeswere struck which in Canada and other countries were, with very few exceptions,exclusive clubs for multi-national corporations. Of course corporationshardly needed an invitation to make their interests clear to trade bureaucrats,and it is appropriate to regard these corporations as the principal architectsof international trade policy.
The other aspect of trade negotiations that is relevant here, concernsthe very secretive way in which they are carried out. Because of the strategicnature of the interests at stake, and because of the historical norms ofsecrecy that attend virtually all aspects of international trade diplomacyand dispute resolution, trade negotiations are carried on behind closeddoors, with little being revealed until negotiations are virtually concluded.Not only is there little public accountability, but many governments, andparticularly those from developing countries, are also left guessing aboutwhat might be going on among the few key players.
When trade agreements finally do emerge, they are presented as an intricateset of tradeoffs and compromises that will unravel should any governmentimagine that amendments are needed. In this way the normal processes ofdemocratic parliamentary or congressional debate are superseded by this"take it or leave it" presentation of the voluminous and complexagreements that secretive negotiations yield. It would be difficult toconceive of a model for negotiating trade agreements that would be lessdemocratic or accountable.
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THE NEW THEOLOGY
Variously described as liberalizing trade, or free trade, the ideologicalfoundation for these trade policies is the dominant paradigm of sustained,and unconstrained economic growth. In order to assure this growth, governmentsneed only allow market forces to operate unfettered by regulation or othergovernment controls. Thus, a growing international economy will be allowedto produce wealth and prosperity for all.
Of course all this sounds familiar and represents nothing more thanan amplification of the economic and trade policies that have guided globalcommerce for several decades. Absent, as always, is any notion of ecologicallimits, or of the need to address how the proceeds of this growth are tobe distributed.
This paradigm of sustained market driven growth, for developed and developingcountries alike, has virtually achieved the status of a new theology andoperates as a powerful driving force behind global production and trade.However, there is an agenda at operation here that is even more fundamental,and which has only to do with the interests of multi-national corporations.Therefore when the interests of TNCs collide with the ideology of unregulatedglobal markets, the latter is readily abandoned [see Intellectual PropertyRights below].
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Because trade agreements are negotiated in this way - it is hardly surprisingthat they reflect a myopic preoccupation with the interests of large corporationsand reveal an utter indifference to the impact of these commercial interestson other societal goals, such as the environmental protection, democraticprocesses, worker's rights, and cultural integrity. If the WTO regime canaccurately be considered an economic constitution for the planet, it isone that has been written almost entirely by, and for, transnational corporations.
The Agenda: Freeing Corporations from Government Regulation
In the simplest terms the essential goal of WTO rules is to deregulateinternational trade. To accomplish that objective, and with one importantexception{6}, all WTO agreements set out detailed rules intended to constrainthe extent to which governments can regulate international trade, or otherwise"interfere" with the activities of large corporations. Thus WTOAgreements essentially comprise extensive lists of actions that governmentscan't take. Some of these prohibitions apply to measures that would otherwisedirectly regulate international trade eg. such as controls on endangeredspecies trade, limits on resource exports, or bans on tropical timber imports.But many others prohibit regulations or programs that might only indirectlyinfluence trade, eg. recycling regulations, energy efficiency standards,or toxic substance bans. Yet other trade rules go even further by proscribinglaw and regulation that have nothing to do with trade at all, but ratherconcern the right of governments to regulate foreign corporations withintheir jurisdictions, such as by controlling foreign investment.
The Challenges Ahead
It is apparent that if the primary goal of trade law is to limit theability of governments to regulate corporate activity in the public interest,serious problems will ensue for environmental law and policy which of courserest on the premise of such public control. And the establishment of multilateraltrade agreements in accordance with this free trade model, has createdvery substantial new impediments to progress in areas of environmentalprotection, resource conservation and sustainable development. This guideoffers a detailed examination of how the WTO will operate to undermineenvironmental objectives, and it is daunting to realize just how destructiveof environmental goals, these rules of trade will be.
However in one important way, understanding how trade policy undercutsenvironmental goals conveys an important lesson about the need for environmentaliststo identify the economic, resources and trade policies that will be neededto support environmental objectives and sustainable development.
If we are to achieve critical environmental objectives, it will be imperativeto convert the WTO into an institution that will foster rather than underminethe goals of sustainable development. Admittedly this will be a difficultchallenge, but it is not entirely unlike the one that confronted environmentalistsseveral decades ago when governments and courts were uninformed about,and indifferent to, the principles of environmental protection and resourceconservation. We struggled for years to overcome that resistance, but wesucceeded by mobilizing public opinion, by fostering scientific research,and by forcing governments to respond with progressive environmental initiatives.In the process we also persuaded governments of the need to make policydevelopment and legislative processes more open and democratic and wonhard fought battles for accountability in environmental decision making.
It is discouraging to realize that we are going to have fight many ofthese same battles all over again. It has also been difficult to witnessthe erosion of the gains we have made over the past three decades underthe onslaught of globalization and free trade. There are however two importantreasons to be optimistic about the struggle ahead.
The first has to do with having to recognize the underlying causes ofthe environmental problems we have too often failed to identify as merelysymptomatic of a more profound and systemic problem - unsustainable economic,resource and trade policies. Thus while pesticides, or even a particularpesticide, can become the target of a national environmental campaign,little attention is paid to the agricultural policies that make the continueduse of pesticides inevitable. Of course regulating pesticides, saving whales,creating parks and controlling pollution are important goals - but we neednow to move beyond these symptoms to tackle the root causes of these problems,which if left unchecked, will keep us on the defensive forever.
This is not to say that we have not made considerable progress in movingour sights further up the "pipe", and we begun to focus muchmore attention on principles such as pollution prevention, selective harvestingand organic agriculture. However, we have not yet seriously consideredthe economic and resource policies that would make these goals realizable.Understanding and developing strategies to confront the impacts of deregulatingtrade will force us to do so. In the process will need to develop a moreholistic and comprehensive strategy for addressing the increasingly seriousdimensions of the ecological crises before us.
The other reason to be hopeful about the difficult tasks ahead, comesfrom an appreciation of the need to establish strong international regimesto confront global ecological problems. Indeed the WTO represents an excellentmodel for such an international agreement. When corporate interests aredetermined enough, trade agreements can engender incredibly proactive andeffective measures for accomplishing corporate goals. We can therefore,consider these agreements as useful prototypes for agreements that wouldforster truly sustainable trading relationships. We must therefore endeavourto persuade governments that such problems as climate change and biodiversityloss are as important as protecting investment and intellectual propertyrights - if we can then trade agreements may be harnessed as a powerfulforce for bringing about environmental and conservation reforms.
1.2 TRADE AND THE ENVIRONMENT
A Brief History of the Debate about Trade and the Environment
Canadian environmentalists were among the very first to raise concernsabout the relationship between international trade and the environmentduring the debates about the Canada-US Free Trade Agreement [CUSTA] whichtook place nearly ten years ago. We also played a significant role in soundingthe alarm that brought these important issues to the attention of environmentalistsin the United States, Europe and elsewhere.
In the years following the implementation of the CUSTA, trade disputeprocesses have been successfully invoked to challenge, environmental andconservation measures in Canada, the US and Europe - and a GATT challengeto US Marine Mammal Protection Legislation played a particularly importantrole in gaining the attention of US environmentalists and lawmakers duringthe NAFTA debates. In fact trade and environment issues became so prominentin the US that NAFTA was amended to accommodate some of the concerns ofits environmental critics. The most significant of these amendments exemptedcertain multilateral environmental agreements from the strictures of freetrade rules. The other, was the establishment of the North American Commissionon Environmental Cooperation.
The WTO Committee on Trade and the Environment
Because of these and other developments, during the early nineties,the environmental implications of Uruguay Round trade negotiations beganto emerge as important issues, particularly in the United States and Europe.Unfortunately however, these issues never achieved the prominence neededto force amendments to the WTO agreement. Instead, the parties to the WTOagreed to revive a long dormant GATT Committee on Trade and the Environmentwhich has now been reconstituted as the WTO Committee on Trade and theEnvironment (the CTE). The CTE was given a very broad mandate to considertrade and environment interrelationships and was directed to report tothe first biennial meeting of the WTO which took place in Singapore inthe fall of 1996{7}.
While few environmentalists would know of its existence, a handful ofenvironmental groups became actively engaged in its discussions, whichultimately centred on three issues:-
The relationship between WTO and trade measures authorized by severalmultilateral environmental agreements (MEAs), such as the Basel Convention,the Montreal Protocol and CITES.-
The use of eco-labelling, to convey information about the product orabout the production or harvesting processes associated with the product.-
The effects of environmental measures on market access, "consideringthe benefits of removing trade restrictions."
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It is telling of the orientation of the Committee's discussions that theissues upon which most attention settled, had little to do with enlargingthe scope for environmental initiative in the WTO context, but rather withthe prospects for diminishing it. For example, on the subject of MEAs,the Committee's report asserts the right of WTO members to challenge theuse of trade measures taken in accordance with the provisions of a MEAto which it is actually party, under WTO dispute resolution. While fewanticipated that the Committee's work would actually undermine the integrityof MEAs, this is the likely effect of its deliberations.
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Two Strikes
Canada has played an active role in the deliberations of the WTO Tradeand Environment Committee, but it has hardly been a helpful one from anenvironmental perspective. On the status of MEAs under WTO rules, Canadawas prominent among the countries insisting on maintaining its recourseto WTO dispute processes with respect to MEA authorized trade measures,even where it was a party to the MEA.
On the issue of eco-labelling, again Canada played an important rolein trying to extend the reach of WTO rules to constrain the use of sucheco-labelling initiatives even when developed by non-governmental organizations,such as environmental groups.
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The Committee's discussions about eco-labelling reflect a similar biasin favour of establishing the primacy of trade policy over environmentalinitiatives. On this issue the Committee's deliberations concentrated onthe use of eco-labelling schemes intended to inform consumers about theenvironmental impacts associated with harvesting or production processes.Fortunately, given the Committee's inclinations, its report on this pointis ambiguous and inconclusive.
Green Protectionism
The third issue upon which the attention of the Committee focused, concernedthe potential for domestic environmental regulations to create market accessbarriers. Apart from being of interest to free traders, this issue wasalso a major concern for developing countries fearing the use of environmentallaws to limit their access to important northern markets - a practice thathas been described as "green protectionism."
This was perhaps the most serious issue to emerge during the courseof Committee meetings, because it revealed a significant difference ofopinion between northern and southern NGOs on the subject of whether WTOrules should allow greater scope for environmental or resource conservationinitiatives. While the position of groups from developing countries wasnot monolithic of these issues, there was often strong resistance expressedby third world NGOs and governments to proposals for "greening"the WTO.
To a considerable degree the concerns expressed by southern groups arewell founded. Should greater scope for environmental trade measures becreated or recognized under the WTO, it is likely that only developed countrieswould be able to take advantage of them, because poorer countries haveno meaningful bargaining power when it comes to imposing trade sanctionsagainst powerful trading partners. Consider for example, the likelihoodof a trade challenge by a developing country to the enormous environmentalexternalities that underwrite the real costs of northern agricultural production.In addition, while the rule of trade law has been greatly strengthenedby the establishment of the WTO, power-politics is still a very importantdynamic of the trade equation.. A current illustration of this realityis the US Helms-Burton Law, which imposes sanctions against companies doingbusiness with Cuba in blatant violation of WTO rules. From a southern perspectiveit is no coincidence that a third world country is the target of such ameasure.
However, it is also true that trade rules must recognize the fundamentalprinciples of environmental policy, such as the internalization of environmentalcosts, and the precautionary principle, rather than work to undermine them.If we cannot reform trade policy to this end, then the prospects for allof humanity are rather bleak. Secondly, it is demonstrable that the rulesof trade, as they have existed in GATT and have now been strengthened inthe WTO, have not fostered anything resembling sustainable developmentfor developing countries, and a defence of the status quo seems dubiousin these circumstances. Finally, by focusing on access to northern markets,the critics of "green protectionism" impliedly subscribe to theparadigm of export lead growth as the path to prosperity for poorer countries.However, in many areas, perhaps the most important of which is agriculturalproduction, this paradigm if extremely problematic (see Agriculture below).
Other than revealing the significant work that needs to be done if NGOsare to arrive at a common position, the Committee made no substantive progressin addressing this issue. Nevertheless its report repeats the same unquestionedfaith that "the prompt and full implementation of the commitmentsof the UR will constitute an important contribution [to ensuring] thattrade induced growth will be sustainable{8}."
Strategies for Environmentalists
It is clear that Canadian environmentalists have work to do in exposingthe regressive positions that the Federal Government has been taking inWTO discussions about trade and the environment. When progressive environmentalproposals are advanced, as they have been by Nordic and European Countries,Canada should be finding ways to support, rather than defeat them. We canwork at home to shed much needed light on what the government is sayingon behalf of Canadians in international trade fora, and we can work withenvironmental groups in other countries to expose the lack of public supportfor the positions Canada has been taking.
As for participation in the discussions of the CTE, there has been significantdebate among environmentalists about the utility of investing scarce resourcesin the work of this WTO committee in light of its limited prospects forachieving any meaningful headway. Experience to date lends considerablesupport to the criticism that the establishment of the Committee representsno more than a strategic ploy to deflect, and neutralize environmentalcriticism of the WTO. Moreover, given the character of the Committee'sdeliberations there is real concern that it will operate to further establishthe primacy of trade over environmental policy, which is clearly the casewith respect to the Committees views on MEAs. On the other hand, it maybe its potential for creating even further damage to environmental lawand policy that argues for the continued participation by environmentalists.
PARTII: ENVIRONMENTAL ISSUES AND INTERNATIONAL TRADE
2.1 THE GLOBAL COMMONS
While there remains an enormous disinclination on the part of most governmentsto take environmental problems seriously - there is a broad and growingscientific consensus that we are confronting ecological crises likely tohave profound, global and devastating consequences if we do not move quicklyto avert them. Thus, notwithstanding the reluctance of political administrationsto take meaningful steps on the domestic front, significant progress isbeing made to establish international environmental agreements that atleast provide a framework for national initiative.
The most important of these are multilateral environmental agreements(MEAs) that address the problems of global warming, ozone depletion, biodiversityprotection, species loss and hazardous waste trade. Several of these MEAsauthorize the use of trade sanctions, which in some instances are centralto the very goal of the MEA, as is the case with respect to internationaltrade in endangered species or hazardous waste. In other cases trade sanctionsare simply the most effective way to ensure that domestic measures aren'tundercut by governments willing to ignore international norms or agreements.However, a reading of the trade provisions adopted by several MEAs againstthe rules of trade set out in the WTO, particularly as those rules havebeen interpreted by several trade dispute panels - reveals several areasof serious conflict.
The Three Bedrock Principles of Free Trade
In order to understand these conflicts, it is helpful to begin by brieflydescribing the core obligations of the WTO regime. While the trade agreementsthat comprise the WTO are now numerous and complex, the essential elementsof the trade agenda can be found in three core GATT articles (rememberthat the original GATT Agreement of 1947 still provides the foundationof the WTO regime).
Article I: Most-Favoured Nation Treatment (MFN): requires all WTO Partiesto treat "like" products from one country as favourably as thosefrom any other. Put another way, Article I prohibits GATT members fromdiscriminating among the products of others.
Article III: National Treatment: requires all GATT member countriesto treat "like" products of all GATT members as favourably asit treats its own domestic products. In other words Article III prohibitsdiscrimination between foreign and domestic producers.
Article XI: Elimination of Quantitative Restrictions: prohibits theuse of import or export restrictions other than duties, tariffs or othercharges. This means that countries cannot seek to restrict imports or exportsby establishing quantitative limits (such as quotas, or bans) to the flowof goods across its borders.
In addition to these basic rules several other GATT provisions and WTOagreements impose significant constraints on the opportunity for environmentalor resource conservation initiatives. For example agreements concerningintellectual property rights, agriculture and technical barriers to tradeare particularly important and will be considered in some detail laterin this guide. To begin with however, it is important to understand howcore GATT rules undercut environmental goals, and in particular how theyare likely to affect the implementation of MEAs.
While no trade dispute has yet challenged a trade measure implementedunder a MEA, it is unlikely that such a measure would survive WTO scrutiny.Unlike NAFTA, which specifically exempts certain MEAs from the applicationof trade disciplines, nothing in WTO regime insulates these agreementsfrom trade challenge. In fact as noted, the CTE has rejected a proposalby the European Union that these MEAs override WTO rules. Moreover theprimacy of trade policy objectives has actually been written into the provisionsof several MEAs{9} although it is highly unlikely that the inclusion ofthese provisos was the product of any informed discussion about their potentialconsequences.
MEAs, Enforcement and Trade Sanctions
The more important multilateral environmental agreements that have adoptedtrade provisions to encourage compliance with, and implementation of theirobjectives, are:
The Convention on International Trade in Endangered Species and WildFauna and Flora (CITES), uses trade measures to restrict internationaltrade in endangered or threatened species because international trade inthese species is often a primary cause of their over exploitation. CITESestablishes a system of trade regulation that is based on the relativevulnerability of a particular species in a specific geographic community.Thus trade in members of a threatened group may be prohibited while tradein members of the same species from other geographic communities, may bepermitted.
The Montreal Protocol on Substances that Deplete the Ozone Layer, (theMontreal Protocol), proscribes trade with non-parties in ozone depletingsubstances and products that contain substances that are harmful to theozone. The purpose of these measures is to prevent collective efforts ateliminating the use of ozone damaging substances, from being undercut bythe practices of countries that are not parties to the Protocol, or bythe movement of production facilities to those jurisdictions.
The Basel Convention on the Control of Transboundary Movements of HazardousWastes and their Disposal (the Basel Convention), restricts internationaltrade in hazardous waste, because that trade itself is dangerous to theenvironment, and because many countries, that might otherwise be the recipientsof those transboundary shipments, are ill-equipped to manage or disposeof such wastes in an environmentally sound manner. As a counterpart tothe Basel Convention, African nations have adopted the Bamako Conventionthat prohibits the importation of hazardous wastes into Africa.
When these trade measures are considered against the prohibitions, setout in core GATT rules, there are several obvious contradictions, someof which were brought to light in the "Tuna-Dolphin` trade disputes(see case note). For example, all three of these MEAs seek to either controlor ban trade in endangered species, ozone depleting substances and hazardouswaste, respectively. But such import and export restrictions are clearlyincompatible with Article XI rules disallowing the use of quantitativetrade controls.
Secondly, by authorizing the use of trade sanctions against non-partiesto these agreements ( ie. countries which nevertheless may be parties toWTO) these MEAs allow a form of discrimination among WTO members that isin direct contradiction to the MFN obligations of Article I. For examplethe Montreal Protocol bans trade in ozone depleting substances with non-partiesto the Protocol while allowing trade to be conducted in the same productswith countries that are observing its provisions.
Third, by allowing for the application in certain circumstances of differentrules to foreign and domestic producers, the requirement for "nationaltreatment" set out in Article III of GATT would be violated. For example,CITES mandates restrictions on international trade in endangered speciesbut doesn't seek to regulate domestic trade or consumption. The same istrue of the Basel Convention. Similarly the Montreal Protocol obviatesthe need to provide national treatment to ozone depleting substances producedin jurisdictions that are not in full compliance with Protocol. In thisway all three agreements offend this GATT rule against providing more favourabletreatment to domestic goods.
Furthermore, according to the Tuna Dolphin and other trade cases, themeaning of "like products" in Articles I and III precludes thepossibility of distinguishing between products with the same physical characteristicsbut with very different environmental histories. Yet CITES would allowcountries to discriminate between identical products where one comes froma jurisdiction where the species is threatened and the other does not.Similarly the Montreal protocol allows for discriminatory trade treatmentof "like products" depending upon whether the exporting jurisdictionis a party to the Protocol and in full compliance with its provisions.
When considered against the goals or sustainable development, thesetrade rules are clearly untenable because they force us to ignore the greatdifferences that often exist between the environmental impacts associatedwith producing goods that may be quite indistinguishable in all other respects.Thus lumber from a liquidation cut of old growth forest, and lumber froma selective cut of a managed second growth forest, must be treated in preciselythe same way under WTO rules. This enforced blindness is obviously irreconcilablewith the goal of encouraging consumers and producers to discriminate infavour of sustainable forms of production and resource management.
Therefore it is not surprising that these concerns have been repeatedlyraised by environmentalists during sessions of the WTO Trade and EnvironmentCommittee. In the arcane jargon of trade speak, the issue is describedas having to do with production and process methods or PPMs. That is, measuresthat are intended to address the way products are made or harvested, butnot necessarily their physical characteristics - regulations such as thoserequired under CITES and the Montreal Protocol. As the case notes includedin this guide consistently reveal however, trade panels and trade bureaucratshave been determined to prevent governments from adopting regulations thatmight even indirectly have some impact on production or harvesting methodsbeyond their borders. It is not surprising then that discussions of thisissue by the CTE quickly bogged down.
General Exceptions
Subject to the requirement that such measures are not applied in a mannerwhich would constitute a means of arbitrary or unjustifiable discriminationbetween countries where the same conditions prevail, or a disguised restrictionon international trade, nothing in this Agreement shall be construed toprevent the adoption or enforcement by any contracting party of measures:
(b)necessary to protect human, animal or plant life or health;
(g)relating to the conservation of exhaustible natural resources ifsuch measures are made effective in conjunction with restrictions on domesticproduction or consumption;
Given the failure of environmentalists to make progress on this front,and in the face of patent contradictions between the provisions of theseMEA and GATT rules, much of the work of the WTO Trade and Environment Committeefocused on the fate of such measures. In particular the Committee consideredwhether the use of trade measures under these MEAs would qualify as exceptionsto the broad proscriptions set out in GATT rules. The key provisions hereare found in Article XX of GATT which provide, in part, as follows:
While a plain reading of these provisions suggests that ample scopefor environmental regulation would be possible under the umbrella thatArticle XX creates, trade dispute panels that have been called upon tointerpret the scope of these exceptions, have given them such narrow readingthat it is difficult to conceive of an environmental regulation that couldmeet the standards these cases have established. While none of these tradecases have specifically considered a trade measure taken in accordancewith a MEA, the interpretation given Article XX strongly suggests thatit would be unlikely to survive the challenge.
The following summary of two of the first cases to consider the ambit ofArticle XX exceptions illustrates some of the problems that have arisenhere.
TUNA, DOLPHINS, GATT and the ENVIRONMENT
During recent years the trade provisions of US marine mammal protectionslaws have come under GATT fire on two different occasions{10}. Tuna-DolphinI was the first of these and concerned tuna import restrictions authorizedby US Marine Mammal Protection Act {11}(MMPA), which regulated the fishingpractices used by the US tuna fleet to limit, and ultimately eliminate,the "incidental" killing of dolphins. In order to prevent itsregulation of the US fleet from being undercut by the activities of foreignproducers, the MMPA required the US government to ban the importation oftuna caught with dolphin lethal fishing practices.
In response to a petition by an US environmental group, alleging thatMexico and other central and south American countries were exceeding thelimits set out by the MMPA, the US imposed an embargo on the importationof commercial tuna from these countries{12}. Mexico, which had enjoyeda robust export trade in tuna to US markets objected, and filed a GATTcomplaint challenging that embargo. Several other countries intervened,as did Canada, which supported Mexico's challenge to the MMPA.
Products not Processes:
In defence of its environmental regulations the US pointed out thatit was not discriminating against Mexican tuna imports, because it hadtreated imports from Mexico effectively in the same way that it would thecatch of its own fishing fleet, should it be in breach of MMPA rules. Inrejecting this argument the panel held that the regulations at issue "couldnot be regarded as being applied to tuna products as such because theywould not directly regulate the sale of tuna and could not possibly affecttuna as a product." In other words, "national treatment"of "like products" required by Article III of GATT means thatno distinction can be made among products with the same physical compositionor characteristics, no matter how different the processes employed to manufactureor harvest them.
Open Season on Global Resources::
A second important aspect of TunaI had to do with this trade panel'snarrow reading of Articles XX (b) and (g) of the GATT to preclude the useof environmental measures intended to protect the environment or conserveresources beyond the country's borders. The panel reasoned that to allowotherwise would be create a situation in which "each contracting partycould unilaterally determine the conservation policies form which othercontracting partied could not deviate ..." The implication for internationalenvironmental treaties or conventions is obvious.
However, in Tuna Dolphin II (this time the trade dispute involved achallenge by the European Community to a secondary embargo against tunaproducts, also imposed under the MMPA), the panel could find nothing inthe language of either GATT article that would impose territorial limitson their application. However, having opened the door slightly to the potentialuse of Article XX exceptions, the panel quickly closed it again by disallowingthe MMPA import restrictions because they "could not by themselvesfurther the United States [conservation] objectives, because they requiredanother country to change their policies and practices to be effective."Yet this is precisely what multilateral environmental agreements striveto achieve in encouraging all countries to reform their policies and practicesto achieve global environmental goals.
Amending GATT Rules to Protect the Environment:
Perhaps the most important thing this trade panel had to say was offeredby way of its concluding remarks when it stressed what it regarded as fundamentalcontradictions between the GATT principles of free trade on the one hand,and resource conservation or environmental measures that might interferewith trade, on the other. Should GATT parties wish to allow such measures,the Panel reasoned, they should make clear that intention by amending theGATT to precisely describe the ambit of any environmental or resource conservationexceptions to the trade agreement. In other words, if GATT parties wantedtrade agreements operate as instruments for accomplishing rather than underminingenvironmental and resource conservations objectives, they would have toclearly say so. Unfortunately GATT parties have been steadfast in refusingsuch reforms.
It is also worth noting the irony of the concern these trade panelsexpress for the sovereign prerogatives of nation states to determine theirown environmental and resource conservation policies, because arguablythe greatest threat to that independence is to be found, not in initiativessuch as the US embargo, but rather in the Panel's decision striking themdown. It is important to note therefore, that the panel's ruling impugnednot only the embargo, but the legislation that authorized it as well.
Under WTO rules such a panel decision would be accepted by the GeneralCouncil, whereupon it would then be incumbent upon the US administrationto remove the offending provisions from the MMPA or face retaliatory trademeasures. However, because both of these cases proceeded under pre WTOGATT rules, the US was able to block their adoption. How the next tradepanel might resolve similar issues, is very uncertain.
A Note About Trade Dispute Resolution
Trade decisions are not binding on subsequent panels which are underno obligation to follow or otherwise adopt the reasoning or findings ofpanels that have previously considered similar issues. In fact, when itcomes to trade disputes involving environmental or resource issues, tradepanels have often adopted inconsistent and contradictory approaches.
Given the vigour with which dispute panels have assailed environmentaland resource conservation initiatives this is a small blessing. At leastfuture trade panels will not be bound by the excessively narrow readingprevious panels have given to the scope for environmental and resourceconservation regulation under GATT rules. However, the down side to thislack of consistent or predictable interpretation, is the uncertainty thatconfronts regulators wishing to craft regulatory solutions that will notrun afoul of trade rules. As the summaries of trade decisions that areincluded in this guide reveal, would-be regulators are definitely shootingat a moving target, which to this point has been impossible to hit.
However inconsistent or confused the reasoning, there are two commonthemes that emerge from the trade dispute rulings that have concerned environmentalor conservation measures. The first is the expansive reading given to WTOrules that limit government regulatory options that might, even indirectly,interfere with trade. Conversely, the other offers an exceedingly narrowinterpretation of those trade provisions that might otherwise have createdsome space for environmental or conservation exceptions to the free tradeorthodoxy. This double whammy has spelled disaster for every environmentalor conservation regulation that has found itself in the cross hairs ofa trade dispute panel, and none have survived the encounter. In fact inevery case, trade panels have found several grounds on which to rule againstthe environmental regulation - the contest hasn't even been close.
Part of the explanation for the apparent bias that pervades these tradedecisions has to do with the qualifications of panel members who are chosenfrom an international roster of trade professionals. However, nominationto this roster requires no background, training or other qualificationthat would in any way equip prospective trade adjudicators with the expertiseneeded to deal with the important and often complex matters of environmentallaw and policy they will be passing judgement on. Moreover the only partieswith standing to participate in trade disputes are National governments,which inevitably are represented by their respective economic or tradedepartments. These in turn suffer from the same deficiencies of mandateand competence that is characteristic of panel members. Appreciating thesingle- minded and myopic perspective that handicaps trade dispute resolutionis an important aid to understanding the contorted and often perverse readingthat trade panels have given GATT rules, when the subject of the disputeconcerns the scope for environmental regulation.
Asserting the Primacy of Multilateral Environmental Goals
As the Tuna - Dolphin and other trade cases make clear, current interpretationsof GATT rules pose serious problems for the trade provisions adopted byMEAs. If these contradictions are left unresolved, they are sure to slowefforts to implement existing multilateral commitments, and are also likelyto frustrate efforts to devise compliance mechanisms for the most recentenvironmental conventions and protocols. The two most important of thesebeing:
The Convention on Biological Diversity (Biodiversity Convention) whichincludes rules that are specifically address technology transfer and theprotection of intellectual property rights. These are intended to provideeconomic incentives for habitat preservation and to accomplish a more equitabledistribution of the benefits of biotechnology research [both of these issuesare considered further below, see TRIPS Agreement].
The United Nations Framework Convention on Climate Change (Climate ChangeConvention), which while lacking in specific targets or precise measuresthat will be needed to achieve targeted reductions, nevertheless clearlycontemplates the use energy or carbon taxes and other economic instrumentsfor achieving its goals [see Energy below].
Implicit in the discussions of the CTE, and explicit in the jurisprudenceof trade panel decisions that have passed judgment on environmental measures,is the primacy of trade policy objectives over competing environmentalgoals. Yet few if any countries have allowed any opportunity for informedand democratic debate about the relative priority of environmental andtrade policies objectives. Naturally, trade and economic departments orministries have assumed the paramountcy of their agendas, and it has beenthese government institutions that have had virtually unfettered discretionto determine trade policies and law. Because other constituencies havebeen effectively excluded, trade agreements reflect a myopic preoccupationwith economic policy goals to the exclusion of all other and potentiallymoderating influences.
In fact the trade lobby has done a much better job of grafting theiragenda onto the sustainable development paradigm than environmentalistshave been able to accomplish in moderating the "grow now, pay later"model of free trade. For example Article 12 of the Rio Declaration, states:
The international economy should provide a supportive internationalclimate for achieving environment and development goals by:
(a)Promoting sustainable development through trade liberalization;
(b)Making trade and environment mutually supportive;
(c)Providing adequate financial resources to developing countries and dealingwith international debt;
(d)Encouraging macroeconomic policies conducive to environment and development.
But there is no empirical basis for the dubious proposition that freetrade promotes sustainable development. Moreover whatever the extent ofthe common ground that might exist between trade and environmental policygoals, it is very evident that no such compatibility can be found in decisionsof trade dispute panels that have considered the two side by side.
But more to the point - there are very good reasons for concluding thattrade bureaucrats and corporate lobbyists have got it backwards. Giventhe potentially devastating consequences of global warming, ozone depletion,biodiversity loss, and unregulated waste trade it is simply impossibleto accept the proposition that efforts to confront these problems giveway to the goal of increasing international trade.
While it is theoretically possible to read WTO rules liberally enoughto accommodate the trade provisions of MEAs, given the history of tradedisputes, the secretive and undemocratic character of trade dispute resolution,and an institutional myopia that perceives the world only in terms of trade,and growth - that reading is exceedingly unlikely. Rather if the integrityof the enforcement provisions of MEAs are to be sustained, it is not reasonableto leave their fate at the whim of the WTO, when there are at least twostraightforward ways to assert the priority of MEA provisions . . .
The first, would be for the parties to MEAs to prepare amendments thatwould assert the primacy of its provisions should conflict arise with therules of trade. In light of the fact that significantly more governmentsare parties to MEAs than are members of the WTO this should effectivelyresolve most conflicts. To guard against the possibility that MEA trademeasures might be challenged by a non-party, the WTO should also be amendedto exclude MEAs from the application of trade disciplines, as is the caseunder NAFTA.
2.2 NATURAL RESOURCES
Concerns about the environmental implications of international tradehave focused almost exclusively on the impacts of trade rules on environmentalstandards. By comparison very little has been done to reveal, let aloneaddress the impacts of global trade rules on our prospects for achievingsustainable resource management goals and for preserving biodiversity.In fact, issues concerning trade and natural resources have not even foundtheir way onto the agenda of the WTO Trade and Environment. Over the longerterm however, it is likely to be the impacts of free trade on natural resourcesand biodiversity that will be its most destructive legacies.
Export Controls and Tariff Escalation
There are two basic observations that can be made about the characterof international trade in natural resources. The first is that most ofthe worlds natural resources (roughly 80%) are consumed by the 20% of uswho live in developed countries. The second is that developing countrieshave been effectively denied the economic development that comes from processingraw resources, or converting them into manufactured goods.
Two aspects of trade law and practice establish and reinforce theseinequitable and historic trade patterns. The first can be found in ArticleXI of the GATT, which as we have seen prohibits the use of export controls,to support domestic manufacturing or for any other purpose. The secondcan be found in the practice of tariff escalation adopted by developedcountries to impose higher tariffs on manufactured goods than on the rawmaterials used to produce them. The more value added, the higher the tariff.Thus a bale of raw cotton receives more favourable tariff treatment thandoes the same bale woven into textiles, and more favourabl still than garmentsmade with those textiles. Thus while Article XI may preclude the use quantitativebased import restrictions, the use of import tariffs accomplish the sameresult.
The effect of tariff escalation policies has been to ensure that thevalue-added processing of resources harvested, extracted or mined in poorcountries is carried out in the industrial and developed North. This inlarge measure explains why the economies of most developing countries areclosely tied to primary commodities, which account for most of their exportearnings - Latin America (67%) West Asia (84%) and Sub-Saharan Africa (92%){13}.To acerbate this dependence, the real price of commodities has been decliningfor much of period since 1980. This is turn has created more pressure toexploit natural resources as countries struggle to increase productionin order to maintain export earnings.
However, in the world of market-driven and deregulated trade the abilityof developed countries to maintain high tariffs is finally giving way,and under the WTO some progress has been made in easing the tariff escalationpolicies. But as competition for scarce resources increases, securing accessto dwindling supplies, remains a high priority for the North.
Therefore as tariff walls come down, it appears that other means arecoming to the fore to ensure continued access to the energy and raw materialsneeded to support northern processing and manufacturing industries{14}.Thus while the export control prohibitions of Article XI of GATT have beenon the books for years, they are only now becoming the subject of internationaltrade disputes. As developed countries have to abandon policies of tariffescalation, they are now turning to Article XI as the device for assuringthe continued flow of raw materials to its manufacturing industries. Forexample the US has relied on this provision to challenge efforts by Argentinato control the export of unprocessed hides (to support its domestic tanningand leather goods industry), and has gone after Canadian raw log and fishexport controls (see following discussion).
It is undeniable that these trade rules and practices have fundamentallyundercut the development aspirations of developing countries. If sustainabledevelopment is to engender the goal of achieving a more equitable distributionof the world's resources - then current trade rules will need to be fundamentallyrecast or they will simply perpetuate the very patterns of developmentthat have impoverished much of the world and laid waste to its resources.It seems readily apparent that if trade policies are to foster sustainablepatterns of development, one key objective would be to encourage domesticprocessing and manufacturing of indigenous resources, rather than penalizesuch efforts.
Export Control as a Resource Conservation Tool
Several jurisdictions have historically banned the export of unprocessedresources in order to conserve those resources and to promote local economicdevelopment. Canadian examples include bans on the export of raw logs andunprocessed fish. Resource export controls can have an immediate and obviousimpact upon the rate at which forests are logged, or fish stocks harvested.Historically however the more important rationale for such export controlswas the desire by governments to promote economic development by ensuringthat at least some processing took place before resources were exported.
For resource-based communities this meant a more dynamic and diverse economy,and ultimately a greater stake in sustainable resource management. Forgovernment, the result meant more tax revenue from the economic activitythat now took place within its jurisdiction. This in turn meant havingthe fiscal resources needed to invest in resource enhancement and conservationmeasures, and a stronger rationale for doing so, because now such publicexpenditures would benefit processing, manufacturing as well as harvestingor extraction industries. From an environmental perspective there is oneother important reason to support the notion of processing resources asclose to their source as possible and that has to do with reducing theenormous energy and other environmental demands of transporting unprocessedresources over great distances. It is clear that the transportation impactsof global production and trade represents a very substantial and largelyuncounted cost of the global economy{15}.
Conversely, without the ability to ban the export of raw logs and otherunprocessed natural resources, the economies of resource-based communitiesbecome poorer and less diverse. Income becomes entirely dependent uponthe rate at which the resource is extracted, and the viability of localeconomies becomes far more vulnerable to commodity price swings - fluctuationsthat have devastated the economies of many resource dependent countries.Furthermore, when commodity prices decline, and in the absence of otheralternatives, enormous pressure is created to increase the rate of resourceexploitation, however unsustainable those rates may be.
Export Controls and Article XI
Considered in this light, the ability to control resource exports is vitalfor any government seeking to implement sustainable resource managementprograms. Yet it is precisely this prerogative that free trade agreementsremove. Clearly export bans provide no guarantee that governments willimplement sustainable resource management strategies. Indeed the existenceof resource export controls has done little to avert serious resource supplyproblems that are now common in virtually all resource sectors. However,without the authority to regulate exports, governments are simply withoutthe power to implement sustainable resource management programs, no matterhow compelling the environmental or economic imperatives for doing so,may become.
To put this another way, at the very moment when the need to changethe course of resource management policies is clearest, the free tradeagenda seeks to remove from governments the tools they will need to changedirection. While certain large resource industries may benefit from suchpolicies over the short term, we will leave our children very little, ifanything, of the once abundant natural resource heritage we have too easilytaken for granted.
FORESTS
Across Canada, environmentalists have struggled for decades to improveforest operations and establish representative protected areas. Despitethe variations in forest ecosystems and operations nationally, common concernsinclude: unsustainable levels of logging; ecologically damaging forestrypractices; lack of protection for biodiversity through protected areasand in logged areas; poor levels and quality of regeneration; and lackof settlement of First Nations claims to forest lands.
Canadian environmentalists are well aware that policies for use andconservation of natural resources are fundamental to environmental protection.They are also front-line tools for the integration of environmental andeconomic policies. But as we have seen trade rules dramatically curtailthe availability of policy options that may be essential if conservationgoals are to be realized. Moreover, it appears that the few remaining policyprerogatives may fall victim to what amounts to internecine warfare betweenUS and Canadian lumber interests.
Canadian forest management practices have repeatedly come under firefrom the US lumber lobby which has for years been unhappy about havingto compete with cheap Canadian lumber exports. Several trade disputes havebeen initiated on behalf of US producers, challenging Canadian policiesand low stumpage rates as representing unfair subsidies to Canadian mills.With some reservations environmentalists on both sides of the border havewelcomed the attention these cases have given the "fire-sale"rates at which public forests have been assigned to large forest industrycorporations. However, there is one important aspect of these trade disputesthat hasn't garnered much attention, and which has to do with trade treatmentof raw log export controls. The following case summary describes how Canadianraw log exports got caught in the cross fire of Canada-US lumber wars.
This case is also illustrative of the tactical use that can be madeor trade disputes to keep governments from adopting resource export controlseven when specific exemptions would ostensibly allow their use. While thecase is one that proceeded under the dispute provisions of NAFTA, the principlesof trade policy articulated by the Panel would have equal application tothe WTO regime.
Notwithstanding these broader implications however, the most significantconsequences of this interpretation of trade policy will be felt in theresource sector, where governments, including the US government, will haveto assure foreign industries the same access to its resource base as ismade available to its own citizens. Consider for example what this decisionmeans should Canada decline inter-basin water transfers to the US - theargument would then be made that by prohibiting the export of water, Canadahad conferred a countervailable subsidy on Canadian farmers and industry.The value of the subsidy being the difference in cost for US as opposedto Canadian users - moreover the extravagant and unsustainable water resourcepolicies that might have given rise to those price differentials in thefirst place would be entirely irrelevant to the dispute.
This dramatic expansion of the reach of trade remedies into the resourcesector firmly establishes the paramountcy of free trade policies to theexclusion of all other commercial (domestic processing) and noncommercial(resource conservation) policy objectives.
The Case of Canadian Raw Log Export Controls
Because of the contradiction between trade and resource management policies,and because of the importance of log export controls to several statesand provinces, NAFTA explicitly exempts log export controls from the rulesof free trade that apply to all natural resources. (see Annex 301.3). Howeverthe US Commerce Department (DOC) spurred on by the US lumber lobby initiateda challenge to Canadian log export controls under the US Tariff Act.
Because it could not go after these export controls directly, the DOC challengedCanadian log export bans as conferring a countervailable subsidy on theCanadian lumber industry. Subsidies are generally prohibited by the rulesof free trade as representing unfair trade practices. Under the WTO andUS trade law, a countervailing duty can be applied to imports to offsetthe advantage that a foreign subsidy provides.
In this particular case, the DOC argued that log export restrictions artificiallyinflate domestic supply, which in turn lowers prices. In this way Canada'sexport controls had conferred an "indirect subsidy" on its lumberindustries. Under the rules of free trade embodied in NAFTA, the only allowablegovernment subsidies are those for defence spending or oil and gas megaprojects{16}. Therefore within the meaning of US trade law, the "indirectsubsidy" created by log export controls was actionable. That is, itcould be countered with an import, or countervailing duty, equal to valueof the subsidy to Canadian producers.
Canada complained and a dispute panel was constituted under CUSTA. Whileit ultimately rejected the validity of the DOC determination on technicalgrounds, in the process it did accept in principle the argument that exportcontrols could be treated as unfair subsidies to domestic producers. Indoing so the panel endorsed a dramatic departure from past practice thatextends the reach of countervail rules to a broad range of resource policies.Thus the same tactics might be used by the US, or another developed country,to assail a high export tariff on unprocessed resources that would otherwisebe consistent with WTO rules.
But most important, by allowing countervail relief every time some actionby government reduces the cost of production for domestic producers, ahost of environmental programs would become vulnerable to challenge. Forexample, as alluded to in the dissenting opinion by two of the three Canadianmembers of the five person Panel, an emission trading program that wouldallow polluters greater flexibility in meeting environmental goals at lowercosts would constitute a counter-vailable subsidy for the purposes of DOC'sreading of the Tariff Act. Taken to its logical conclusion, all conservationmeasures distort supply and demand and may be vulnerable to attack as unfairtrading practices.
The case is also important for what it reveals about the true valueof exclusions or other exceptions that may be written into the provisionsof trade agreements, but nevertheless run counter to the prevailing orthodoxyof trade deregulation. On the subject of the specific exemptions for rawlog export controls the trade panel had little hesitation endorsing theview that "the Department's determination to countervail B.C.'s logexport restrictions does not prohibit B.C. from continuing to implementand enforce restrictions; the Department is merely imposing a countervailingduty to offset the countervailable benefit enjoyed by the B.C. softwoodlumber produces{17}." But of course the only reason to create an exceptionfor log export controls would be to insulate them from just such tradechallenges.
The Certification Option
The Canadian Standards Association Sustainable Forestry Management Certification
To take advantage of the internationalization of standard-setting andto promote trade in forest products, the Canadian Pulp and Paper Associationand the Canadian Standards Association (CSA) have developed a voluntarycertification system for sustainable forest management (SFM). Essentiallyan eco-labelling scheme, it purports to allow purchasers to identify productsfrom sustainably managed forests controlled by companies whose practiceswill be assessed by independent certifiers.
However, this scheme has been roundly criticized by Canadian environmentalists{18}.It will certify management systems, without requiring actual environmentalprotection performance standards; it will not require a chain of custodyto ensure that products actually come from certified forests; and it wasdeveloped in a flawed, industry-dominated process.
In 1995, the CSA attempted to have its approach adopted for internationalstandard-setting at the ISO, but international environmental oppositionprompted the withdrawal of the proposal. The issue is currently being "studied"by an ISO working group coordinated by New Zealand. If the Canadian forestindustry succeeds in using these GATT-promoted processes to establish itseco-labelling scheme, further barriers to effective forest regulation inCanada will have been created.
The Forest Stewardship Council certification approach
The Forest Stewardship Council (FSC) is an international organization,including environmentalists, social justice groups, industry, and indigenouspeoples. It has also established a voluntary certification scheme for forestproducts based on principles and forest standards environmentalists considercredible. Newly established in Canada, the FSC will require that standardsbe developed here on a regional basis, given the different forest typesin Canada. The FSC "certifies the certifiers" but unlike theCSA process, it includes principles for performance, and a chain of -custodyrequirement to identify products that come from particular managed forests.Although still a small organization, it has become an important playerin international forest trade, being a potentially potent force in providingmarkets for environmentally-preferred forest products.
The role of the Canadian government at the World Trade Organization(WTO)
The federal and provincial governments of Canada have supported theCSA certification scheme. At the WTO Committee on Trade and Environment,which studied policy issues including eco-labelling, the Canadian governmentrepresentatives have promoted the view that voluntary non-governmentaleco-labelling schemes, such as the Forest Stewardship Council, should besubject to the GATT rules. Because trade rules prohibit measures that woulddiscriminate against "like" products, many aspects of the FSCwould likley contravene WTO rules were they to apply. Such a position,which GATT members fortunately have no power to implement, involves a directattack on the environmentally-preferred Forest Stewardship Council eco-labeland further evidence of the extent of dominance of Canadian public policiesby trade concerns.
Strategies for Environmentalists
"Deregulated trade," the goal of the trade agreements, hasbeen accompanied by deregulation of many sectors in Canada, and has includedthe rollback of environmental laws in some provinces. Devolution of federalenvironmental powers to the provinces is reducing the potential for federalleadership in environmental lawmaking. Increasingly, environmentalistsworking for new policies are told that the trade agreements don't permitthem.
The pursuit of certification of sustainably produced forest productsby the FSC and environmentalists has occurred partly because it is a strategythat does not run into the roadblock of the trade agreements. For thisreason, it is important that environmentalists challenge the federal government'sattempt to use the GATT/WTO against the FSC and any other private, crediblecertification schemes. Exposure of the Canadian position in Geneva wouldbe a start. International cooperation among environmentalists stopped theCSA scheme from being accepted as an international standard. We need tomonitor the next round of that process, as the "study" groupproceeds.
We also need to inform our international allies of our opposition tothe Canadian position on eco-labelling, and build international supportfor the critique. Forest protection will become even more difficult ifgovernments continue to expand the scope of activities covered by the GATT.
FISHERIES:
Two important sets of international trade cases further illustrate theways in which trade rules can undermine resource management and conservationinitiatives. We have already highlighted one of these - the Tuna-Dolphinrulings that reveal the considerable impediments that GATT rules have createdto a broad area of environmental policy and law directed at conservingextraterritorial resources.
The other set of cases concerned fisheries management off Canada's westcoast, and in particular Canadian regulations and export controls for salmonand herring stocks. Of two US trade challenges to these export regulations,the first proceeded under GATT and the second under NAFTA{19}. However,the interpretation of GATT rules that is central to both cases appliesequally to NAFTA and the WTO. Moreover, these cases illustrate how thetwo trade regimes work together, often to deliver a double whammy to resourceconservation policies.
While the Tuna Dolphin decision creates serious impediments to the useof trade measures to implement international fishery agreements, the tradedisputes concerning salmon and herring fisheries reveal how free tradehas imported to domestic fishery management, some the problems that haveplagued efforts to manage extraterritorial and straddling stocks.
Export Controls as a Domestic Fisheries Management Tool
In order to establish sustainable management regimes for coastal fisheries,governments must be able to impose effective controls upon all those exploitingmarine resources within these zones. For the domestic fishing industryserving local markets, the exercise is reasonably straightforward, andgovernments have created a variety of regulatory mechanisms to controlwhat, when, how, and how much is taken from coastal zones. While theseregulatory regimes have failed dismally in many instances, sufficient authoritydid exist to establish sustainable management programs, if it had beenproperly exercised.
However, the activities of foreign fleets in coastal waters presentsa more difficult challenge. It is the ability to regulate foreign companies,and in particular to restrict the export of fish caught within coastalwaters, that free trade has intervened to undermine, as the following casenote illustrates.
Salmon and Herring
In 1908 Canada passed a regulation under the Canadian Fisheries Actthat prohibited the export of unprocessed salmon and herring. Because,salmon and herring fisheries represent such a large share of Canada's westcoast fishery, and the export embargo had created a thriving processingand canning industry which has been an important part of the economy ofBritish Columbia for most of this century. However in 1986, as part ofits continuing efforts to secure a larger share of these valuable fisheriesresources for its own domestic canning industry, the US used GATT rulesto challenge Canada's Fisheries Act Regulations. The challenge appearsto be the first ever taken under GATT rules concerning an export controlmeasure.
In defence of its program Canada argued that its export limits representedan integral element of its longstanding fishery management regime, whichincluded habitat protection, catch limits, international agreements, andthe maintenance of monitoring and enforcement systems. The overall effectof this comprehensive regime was conservation.
However, Canada also readily conceding that its export prohibition wasmulti-purposed and intended as well to ensure the viability of Canada'sfish processing industry. This objective was, it argued, entirely consistentwith conservation goals because it allowed Canada to justify significantpublic expenditures on salmon enhancement programs with the expectationthat benefits would flow to all sectors of the fishing industry not justthe harvesting sector.
Unpersuaded by these arguments, the GATT panel found Canada's exportcontrols to be contrary to GATT rules and indefensible under the "resourceconservation" exception (Art. XXg) of GATT's general prohibition againstexport controls (Art. XI). In response Canada revoked the regulation thathad been a cornerstone of its fishery management regime for the preceding80 years, and substituted a regulation that required that all salmon andherring be landed in Canada for inspection, and biological sampling, beforebeing exported. Canada insisted this measure was also essential if it wasto ensure that foreign fishing boats respected regulatory limits set forthe domestic fishing fleet - thus landing requirements were necessary toeffective monitoring and management. However the landing requirement effectivelymeant that the US catch would have to be processed in Canadian canningfactors before being exported. The US filed another trade complaint.
The dispute that ensued was the first to have been resolved under theCanada US Free Trade Agreement (CUSTA) and was decided in favour of theUS. Undeterred by the fact that Canadian regulations applied equally toUS and Canadian fishers, and ultimately set no limit on the export of fishto the US, the panel unhesitatingly found Canadian landing requirementsto be in breach of Article XI of the GATT.
The Panel then went on to consider whether Canadian regulations mightbe justified under Article XX(g) as a measure "relating to the conservationof exhaustible natural resources if such measures are made effective inconjunction with restrictions on domestic production or consumption."It reasoned that a country could rely upon the "resource conservation"exception of Article XX(g) of GATT (to the general prohibition againstthe use of export controls) only where its export embargo was "primarilyaimed at conservation." Apart from the absence of any textual supportfor such a test, one might be tempted to regard this precondition as areasonable standard for meeting XX(g) requirements. However, "primarily"in the Panel's view, means that: I) "it would have been adopted forconservation reasons alone", and; ii) that the same purpose couldnot have been accomplished by other means. This is a test that few, ifany, environmental regulations could hope to pass, particularly when administeredby trade bureaucrats.
As was true of the GATT decision, the CUSTA panel refused to make anydistinction between the rights of domestic and foreign fishing companies.While this is entirely consistent with the rules of free trade, it is fundamentallyincompatible with the notion that the opportunity to exploit a resourcemust bear some relationship to the responsibility to manage and care forit. While not put in these terms, this was precisely the argument thatCanada made in underscoring the need for domestic benefits if a rationalewas to exist for spending public funds on fisheries management. By givingforeign fishing companies the same right to exploit coastal fish resourcesas those enjoyed by domestic producers - free trade has imported to thedomestic sphere of resource management precisely the dynamic that has plaguedthe global commons - ie. the right of all to exploit, and the responsibilityfor no one to conserve.
The salmon and herring decisions run true to form in asserting the priorityof trade policy objectives and letting natural resource impacts fall wherethey may. While GATT rules may look the villain here, it is really thecombined effect of CUSTA (now NAFTA) and GATT (now the WTO) that togetherclose off every avenue of trade regulation of resource exports. This istrue because under the WTO countries are free to use price - ie. exporttaxes or royalties - to control the export of resources from its jurisdiction.In other words, while GATT Art. XI prohibits the use of quantitative exportcontrols it allows a country to establish a two-price resource policy -one for domestic consumers and another for exporters. We will see (in thediscussion of agricultural trade which follows) how tariffs represent apoor substitute for quantitative controls, nevertheless neither of theSalmon and Herring Cases would have arisen but for Canada's obligationsunder CUSTA and NAFTA to remove any differential taxation of its naturalresources.
Before leaving the subject of export controls, it is also importantto note that CUSTA and NAFTA go much further than GATT, in virtually eliminatingthe authority of governments to restrict exports even in times of criticalshortage. This is because Art. 319 of NAFTA (Art.405 of CUSTA) establishesa regime of proportional access that would allow, for example, the US tohave perpetual access to west coast fisheries resources in the same proportionthat it had historically enjoyed, no matter how severe or permanent thedepletion of natural resource stocks becomes.
Free Trade and Sustainable Resource Management
Ultimately the trade cases summarized above serves to underscore the fundamentalproblems of applying the principles of free trade to the resource sector.If governments are to establish sustainable resource management policies,they must have full control over foreign investment in the resource sector,and must also be able to control the rate at, and conditions under which,vital natural resources are exported. Under WTO rules of trade their abilityto do either is significantly diminished.
For far too long, we have been mining our forests, fisheries, farmlandand other resources as if these were limitless rather than the preciousnatural "capital" upon which future generations must depend.Critical shortages are now apparent in virtually every resource sector,including coastal fisheries, forests, water, and energy. At the very momentwhen the imperatives to change our course could not be clearer, the WTOand the free trade agenda seek to lock in the unsustainable resource managementpractices that have created our present predicament. If rules of tradeare to serve rather than undermine the principles of sustainable development- they must be fundamentally overhauled to make a virtue, rather than asin, of resource conservation.
2.3 AGRICULTURE
The tools with which we have transformed the modern farming industry- heavy machinery, mono-cultures, hybrid crop strains and chemicals - havecaused enormous and often irreversible damage to soil fertility, waterquality, public health and viable farm economies. Moreover the productivityof our farmland has become, year by year, ever more dependent upon massiveinfusions of energy, to produce and operate farm machinery, and in theform of petrochemical-based fertilizers and pesticides. In fact currentestimates are that we expend more than 3 calories of energy to produceevery calorie of food. When the energy associated with processing, packaging,transporting and marketing agricultural products is included, the equationbecomes even more lopsided and roughly equals ten calories of energy in,for every calory of food energy out.
We have in this process of modernizing agricultural production actuallytied the future of what should be a renewable resource, farmland, to anon-renewable resource, fossil fuels. Unfortunately the environmental consequencesof these unsustainable patterns of agricultural production are largelyunrecognized. Neither does there appear to be any recognition that at theroot of these problems is the very economic and trade policies that weare now entrenching in the WTO.
Therefore, juxtaposed against this backdrop, is the free trade visionof an integrated global agricultural economy, in which all regions of theworld are engaged in the production of specialized agricultural commodities,each supplying its needs by shopping in the global marketplace. Food isgrown, not by farmers for local consumers, but by large corporations forglobal markets. The consequences of this global model for farmers in poorcountries who have lost their subsistence farms to export producers, areof course disastrous (see Food Security below), but for the moment considerwhat this model means for the energy intensity of agricultural production.
Agriculture, Trade and Global Warming
The globalization of food production and trade necessarily requiresthat agricultural commodities be transported long distances, and be processedand packaged to survive the journey. In addition to sacrificing qualityand variety for durability, this system of agricultural trade requiresenormous inputs of energy and will substantially increase consumption anduse of fossil fuels When account is taken of all of the energy inputs thatsupport modern agricultural production (just as one example, nearly 50%of all consumer packaging is used for food products), agriculture is probablythe world's biggest business, and in North America has historically usedmore energy and consumed more fossil fuel than any other industrial sector.It is clear then that by encouraging global food production, current tradepolicies will actually increase the energy demands of agricultural production.
The Climate Change Convention exhorts governments to:
take precautionary measures to anticipate, prevent or minimize the causesof climate change and mitigate its adverse effects [Art 3 Principles 3. . . ] and to take "climate change considerations into account, tothe extent feasible, in their relevant social, economic and environmentalpolicies and actions . . . " [Art 4 (f)] all in an effort to "returnby the end of the present decade to earlier levels of anthropogenic emissionsof carbon dioxide and other greenhouse gases . . . " [Art.4 2(a)]
But while governments have come to recognize the imperatives of avertingglobal warming, and have undertaken to stabilize greenhouse gas emissionsat levels that will require substantial reductions in many developed countries,they have at the same time embraced agricultural trade policies that willmake it far more difficult, if not impossible, to achieve those goals.That environmental and agricultural trade policies could be working atsuch cross purposes is a testament to our failure to take seriously theneed to integrate environmental and economic policy.
If governments are going to live up to the commitments they have madeto combat climate change they will have to seriously examine the energyconsequences of resource, industrial and agricultural policies. If agriculturalpolicies are to support less energy intensive production, it seems undeniablethat they will have to promote self reliance in food production - not globaldependence.
Food Security
These deals aren't about free trade. They're about the right of theseguys (US multinationals) to do business the way they want, wherever theywant . . .
Eugene Whelan - Former Federal Agriculture Minister
Another compelling reason to encourage policies of self reliant agriculturalproduction can be found in the severe consequences of being entirely dependentupon global production. This has, to a great degree, become the plightof much of the third world.
For several decades now, the character of global agricultural productionhad been driven by US farm policies, and by the large agribusiness corporationsthat have been the major beneficiaries of those policies, which have soughtto secure the largest share of global markets for US producers. To achievethis goal two primary strategies have been adopted. The first is to keepinternational markets flooded with cheap agricultural commodities thatare often priced well below the cost of production. This has required substantialfarm subsidy programs in the US, as well as in other countries that wishto compete with it for export markets. The result of this competition amongheavily subsidized producers has been enormous surpluses that are thendumped onto international markets.
While many poor countries have occasionally benefited from this abundance,in the bargain they have had to abandon any prospects of establishing theirown agricultural economies and many have become almost entirely dependentupon a continuing flow of subsidized grains and other food from the world'sfew exporters. In this vulnerable condition, supply disruptions, unstablecurrency rates and wild swings in agricultural commodity prices have oftenmeant widespread hunger and starvation.
The other strategy that the US has used to achieve market dominancehas been to assail attempts by other countries to pursue policies of selfreliance in agricultural production that might close markets to US exports.A primary target of these efforts has been supply management systems suchas Canada's which have for decades successfully moderated the impact offluctuating commodity prices in part by restricting US access to domesticmarkets (see "supply management" below).
In large measure these US strategies have succeeded in garnering forUS-based agri corporations the position of dominant players in global foodmarkets. For example in 1994 US exports accounted for 36% of the wheattraded globally, 64% of the corn, barley, sorghum and oats, 40%of the soybeans,17% of the rice and 33% of the cotton. Moreover, in many cases only a handfulof US corporations accounts for this global dominance. For example 50%of US grain exports in 1994 were accounted for by just two corporations{20}.
However, if these large corporations are the big winners, there aremany more losers including: farmers, who have in the hundreds of thousandslost their farms in both the North and the South; taxpayers in developedcountries who have spent billions supporting the profits of the big agri-corporations,and; hundreds of millions of poor people who have been the victims of malnutrition,and hunger.
The other important factor that has undermined food security for muchof this planet's population has been very low commodity prices for thethird world exports. Thus as real prices for many commodities fell duringthe 1980s, pressures grew to increase production particularly for developingcountries dependant on agricultural exports to earn foreign exchange. Caughtin this squeeze between declining commodity prices and increasing debtloads, poor countries have been forced to engage in a cycle desperationproduction. As prices fall, more and more land is appropriated for exportproduction, production for local markets is displaced, farming practicesbecome increasingly intense, and the ranks of landless peasants, no longerable to feed their families, continue to swell.
In response to this crisis developed countries and large agri-corporationshave cast the problem in terms of a shortage of food supplies and haveoffered to fill the breach with more intensive production, biotechnology,pesticides and fertilizers. Ignoring, as always, the fundamental questionof distribution, free trade is again offered as the magic bullet that willbring the prosperity people need to buy food in the global market. Butthere is no evidence to support a positive relationship between trade growthand food security. Indeed as we have seen the root causes of global foodinsecurity can in large part be found in the unregulated internationalmarketplace, which has allowed wholesale export dumping by countries ableto underwrite surplus food production in order to maintain global marketshares, and which in turn has created downward pressure on commodity pricesfor third world exports.
Describing how export agriculture can worsen the position of poor farmers,a document prepared by the FAO put it this way:
"Because small-scale producers often lack the resources necessaryto grow export-oriented crops, they may not be able to participate in thisgrowth. On the contrary, they may find that commercial expansion has aninflationary effect on production costs and on land rent that may evenmake their traditional production less feasible. Small producers may abandontheir land or be bought out by larger commercial interests.{21}"
In fact according to a recent OECD/World Bank study much of the thirdworld will be net losers under new GATT rules, with the GDP of Africanstudies actually dropping by 0.2 to 0.5 per cent. Conversely two thirdsof the expected increase in "global income" attributable to GATTwill accrue to OECD countries which represent about one third of our planet'shuman population{22}.
There are however ways in which agricultural policies can promote foodsecurity, and the most important of these would simply be to make foodsecurity the primary goal of agricultural production, rather than someneo-liberal theory of deregulated trade. Food policies would then encouragefood production first for local consumption and then only secondarily forinternational markets. International trade and the activities of transnationalcorporations would also have to be closely regulated to ensure that theyserved rather than undermined the goal of a secure food supply.
Finally, food security would be defined as a basic human right. An objective,the US stood alone in opposing at the recent World Food Summit organizedby the United Nations Food and Agriculture Organization (the FAO){23}.
The WTO Agreement on Agriculture
For the past 50 years agricultural trade has not been subject to mostGATT disciplines and several GATT rules specifically exempt agriculturalpolicies, including supply management and import controls. This situationreflected the interests of many countries that wished to keep their domesticpolicies free from GATT scrutiny, not the least among these being thosecountries that were providing domestic producers with massive subsidiesto underwrite domestic production and export dumping - practices that areclearly at odds with GATT rules. Moreover, for poorer countries, the impositionof export driven agricultural policies was accomplished through structuraladjustment programs, which effectively denied those countries the opportunityto develop the self reliant agricultural policies that GATT would haveotherwise allowed.
However, as agricultural subsidies continued to escalate in the warto secure export markets, they began to represent a serious drain on publicfinances of food exporting nations. Determined to extricate themselvesfrom this ascending spiral, the US seized upon Uruguay Round negotiationsas the venue to resolve the subsidies imbroglio. In fact agricultural tradereform became such an important issue during the negotiations that it singlehandedlythreatened to scuttle the entire negotiations on more than one occasion.
Agreement was only reached when the US and the European Union were ableto hammer out a deal to reduce agricultural subsidies over a number ofyears.
However, the quid pro quo for tariff reduction was the removal of exemptionsfor import controls and supply management regimes. Moreover, as severaldeveloping country NGOs have pointed out, the reduction of Northern pricesupports will mean little for several reasons, because under the WTO agreementon agriculture:-
Rich countries will still provide direct subsidies to producers formany years to come. Current commitments only foresee a 36% reduction insubsidies over the next six years, and some tariffs may be reduced by aslittle as 15%.-
There is no limit on the use of indirect subsidies to farmers as longas these are not linked to actual production.-
Without the resources to subsidize farmers, the only way poor countriescould support local agricultural production was to use import quotas. WTOrules now prohibit import controls.-
While poor countries can replace import controls and quotas with tariffs,unstable monetary values and sudden currency fluctuations can easily makethose tariffs meaningless.-
Finally, tariffs represent a much less precise or reliable way to balancelocal production with imports, and that balance can be easily disturbedby the same macro-economic factors that poor countries can rarely foreseelet alone influence{24}.
It is difficult then to regard the commitments to reduce farm subsidiesas likely to meaningfully impact the enormous market distortions that currentpractices have created. Furthermore, developing countries have lost oneof the few tools that did allow them to support domestic producers. Finallygiven the overall impacts of the new WTO regime, which includes seed patentprotection, and the removal of foreign investment controls, it is likelythat the brave new world of agricultural trade reform will, for poor countries,simply mean another large dose of the medicine that ails them.
Supply Management
When environmentalists have taken an interest in agricultural production,it has largely been to draw attention to the impacts of pesticide use.Rarely has attention focused on the economic and structural underpinningsof agricultural policy that has made the continued and increasing use ofpesticides inevitable. The impacts of trade rules on agricultural productionforces us to examine the underlying economic and trade policies that havegiven rise to, and now seek to entrench, the unsustainable agriculturalpractices that are laying waste to farmland, causing ground and surfacewater pollution on a massive scale, and substantially accelerating ouruse of fossil fuels.
If we are to establish sustainable forms of agricultural production,we must find ways to reshape economic and trade policies so they will supportrather than undermine these efforts. An important place to begin is withthe realization that there is no sustainable agricultural production withoutfarmers. While restoring a stable and viable rural agricultural economyis obviously not a sufficient cause of sustainable agricultural production,it is definitely a necessary one. To further understand what WTO ruleswill mean for efforts to maintain viable rural farm economies we have tounderstand what those rules will do to supply management systems in Canada.
As explained by Lise-Anne Delorme, an Ottawa Valley Dairy Farmer;
The supply-management system is the very foundation of rural Canada.Abandon the system that makes farms like ours viable, and the underpinningsof the entire rural economy are destroyed.{25}
As we have seen is the case in the international context, price instabilityhas been an inherent feature of all commodity markets. Unpredictable commodityprice fluctuations have made farmers captive to international commoditymarkets, and market speculation. To acerbate this vulnerability, farmersmust also negotiate commodity prices with large food processing and distributioncompanies that represent their primary markets. Their relative bargainingin this relationship is negligible.
In this way, many of the dynamics of international agricultural tradethat have wreaked such havoc on third world agricultural economies, havealso had an impact on the farm landscape in developed countries as well.The result has been hundreds of thousands of farm bankruptcies, highlyexploitative and unsustainable farm practices, and the wholesale use ofpublic funds to underwrite the profits of large agri-corporations. Butin Canada, we have been able to significantly moderate the impact of globalmarket forces by adopting and guarding a successful supply management systemfor several agricultural commodities.
Under supply management, farmers must sell to marketing boards whichnegotiate a collective price for those products with domestic and foreignbuyers. In order to create stable prices, marketing Boards also regulatesupply to avoid situations of overproduction. Hence the appellation - supplymanagement. The viability of domestic supply management in turn dependsupon being able to control imports so as not to disrupt the domestic balanceof supply and demand, and there is the rub. Imposing quantitative importrestrictions is of course at odds with general GATT principles that prohibitsuch import controls.
Until the conclusion of the Uruguay Round negotiations however, thespecial circumstances of agricultural production meant that supply managementwas recognized as a valid exception to GATT rules. However, for many yearsthe US has been an outspoken critic of supply management and on numerousoccasions US politicians and agencies have declared their intention tosee Canadian supply management programs dismantled and several trade challengeshave been made to that end. It is not surprising then that as the drivingforce behind the new agricultural trade agreement, the US was able to writeprotection for supply management programs out of the new WTO rules.
The loss is clearly a significant blow, but as yet not fatal to supplymanagement in Canada because of our ability to substitute high tariffsfor import controls. Unfortunately these tariffs will have to be reducedover time, and campaigns by free trade proponents, both within and outsideCanada, continue to pressure governments to abandon these programs.
Intellectual Property Rights and Pesticides Standards
In addition to the impacts of deregulated trade on our hopes for achievingsustainable resource management goals there are two other important aspectsof the WTO agenda that need to be understood. The first has to do withthe impacts of the WTO agreement on intellectual property rights whichis discussed below under its own heading. The second concerns the impactof trade rules that will weaken pesticide and food safety regulations,these are considered in the "standards" section of this guide.
Strategies for Environmentalists
We have over the years displaced farmers with pesticides, energy, heavymachinery, and biotechnology. And have done so at a fabulous cost to theenvironment, food security and to the viability rural communities. If anecological recovery of agricultural lands is to be brought about, threebasic objectives must be accomplished. First, the economic viability offarm communities must be revitalized. There is no better paradigm for thenotion of one generation holding resources in trust for the next, thanthe family farm. Secondly, agricultural policies and practices must seekto reduce the energy required to support every facet of agricultural production,processing, packaging distribution and sale. Finally the overall policygoal of sustainable farm production must be food security and not moretrade.
If we are to reverse present trends we must as environmentalists findways to build alliances with farmers and farm organizations to confrontthe onslaught of global corporations with grand ambitions. We can beginby identifying those policies that will begin to restore agricultural productionand trade to a sustainable footing by:
*reducing the distance between farm and consumer (between garden andtable) which would in turn reduce the need for food processing and packagingand transportation;
*recycling organic wastes, adopting integrative pest control programsand otherwise substituting organic for chemical inputs;
*applying ecologically derived cropping patterns, and other managementtechniques to conserve soil;
*using renewable sources of energy;
*creating stable agricultural economies to keep farmers on the land,and by
*embracing food security as the primary goal of agricultural production.
In other words by making the transition from global dependence to selfreliance.
2.4 ENERGY
When it comes to trade in energy resources, the provisions of NAFTAare far more important for Canada than those found in the WTO Agreements.This is the case because NAFTA provisions go much further in reducing thescope for government regulation of international energy trade, and includethree important trade provisions that cannot be found under the WTO. TheseNAFTA rules have such far reaching implications for North American energydevelopment that they deserve at least brief description.
NAFTA Revisited
The first is the proportional sharing provision of NAFTA which entitlesthe US to a proportional share of Canadian energy resources in perpetuity,or until those resources are entirely exhausted{26}. The exact proportionof Canadian resources to which the US can lay claim, is equal to the relativeshare being exported at the time that export constraints are imposed -or in other words - by the unregulated market. There is no equivalent rulein any of the WTO agreements, and in fact this proportional sharing clausedoes not apply between our other NAFTA partners.
The second unique feature of NAFTA rules for energy trade, prohibitsthe imposition of export taxes that exceed those applicable to domesticconsumption{27}. In contrast, WTO rules allow countries to establish two-priceenergy or resource policies. When coupled with the quantitative controlprohibitions of Article XI of the GATT, this ban on export taxation effectivelyand entirely removes government control of energy exports.
The third significant departure from generally applicable trade rulesthat is found in NAFTA exempts government subsidies for oil and gas explorationand development, from trade challenge{28}. Again nothing in the WTO Agreementon Subsidies or in any other WTO agreement resembles this astonishing inducementto use public funds to support of the extravagant fossil fuel appetitesthat Canada and the US share.
Global Trade's Energy Appetite
This is not to say however that WTO rules are not important to energytrade. They are, and for several reasons. To begin with, all GATT rulesrelating to trade in goods also apply to energy resources trade as well,and as we have seen, these rules impose serious constraints on governmentregulatory options for environmental and resource conservation purposes.However, the most important energy related impacts of WTO rules are probablythose that arise from the enormous transportation demands of a global economy.
In fact, the entire edifice of global production and trade depends inlarge measure upon an unlimited supply of cheap energy that can move anever increasing international flow of goods and materials. But for thecapacity to externalize a large share of the true costs associated withenergy use, the global model would likely unwind under the enormous realcosts of moving more and more, further and further.
As noted, the globalization of agricultural production and trade hasand will continue to increase the energy intensity of agricultural productionand distribution. And it is important to note again that food productionprocessing, packaging, transportation and marketing is arguably the world'slargest industry and likely its largest user of fossil fuels. Exposingthis critical relationship between agricultural policies and energy useprovides a compelling illustration of the importance of developing a muchbroader and holistic strategy for confronting such problems as global warming.It is also revealing of the enormity of the problems that can result fromfailing to integrate environmental analysis with economic, industrial andresource policies. Unfortunately no government has been willing to submitits trade policies to a meaningful environmental assessment. It is obviouslycritical for them to do so.
A Carbon Tax as a Border Tax Adjustment
Another important dimension of the WTO regime has to do with its potentialimpact on efforts to implement carbon or energy taxes as part of a strategyto reduce greenhouse gas emissions, or for other environmental reasons.As noted, the Framework Convention on Climate Change contemplates the useof energy charges or taxes as tools for combatting global warming. Giventhe multitude of causes that have given rise to excessive greenhouse gasemissions, it seems inevitable that economic instruments will play an importantrole if reduction goals are to be achieved.
Because of its pervasive impact on most industrial inputs and processes,a significant carbon tax could have a substantial impact on the internationalcompetitiveness of many sectors of the economy. Over the long term thereis probably no better prescription for a competitive economy than forcingit to become a more efficient user of energy and other resources. Overthe short term however, significant price disadvantages can be createdfor domestic producers by increasing energy costs in the absence of internationalagreements to implement like increases. It is these competitiveness impactsthat presently stand as an important impediment to the implementation ofsuch tax regimes{29}.
It is apparent then, that if the use of energy taxes is to become feasible,governments must find effective ways to ensure that such measures not presentdomestic producers with the choice of either going out of business, ormoving to the nearest pollution haven. One obvious way to ameliorate theadverse trade impacts of a carbon tax would be to apply import taxes and/orexport rebates to level the playing field as between domestic and foreignproducers.
Under WTO rules, the imposition of such taxes would probably be authorizedunder the heading of "border tax adjustments" as defined in ArticlesII, 2(a) and III, 2 of the GATT agreement. A GATT working group that exploredthe meaning of these trade provisions, adopted the following definitionfor such measures:
any fiscal measures which puts into effect, in whole or in part, thedestination principle (ie. which enables exported products to be relievedof some or all of the tax charged in the exporting country in respect ofsimilar domestic products sold to consumers on the home market and whichenables imported products sold to consumers to be charged with some orall of the tax charged in the importing country in respect of similar domesticproducts{30}.
In addition, under these GATT rules, governments can impose border taxadjustments not only goods, but on the materials used to make these goods.
What all of this means for a prospective carbon tax is this - governmentscan impose import taxes on energy goods, if the same tax is applied toenergy goods produced locally and sold into domestic markets. Converselya government is free to provide a tax rebate on energy goods sold ontointernational markets which may equal the tax applied to the same goodssold to domestic consumers. From an environmental perspective, this optionmakes sense only when energy exports are destined to a jurisdiction witha reciprocal system of import taxation.
These same border measures could also be applied to goods that incorporatedenergy products, such as plastics. In this case, the border tax adjustmentwould reflect the value of the energy contained in the product, not thevalue of the product itself - so far so good.
The problem arises however, with respect to the treatment of taxes thatrelate to energy inputs that are not incorporated in the final producteg. energy used to harvest, extract, transport, produce, process and packagethe product. For most products, these tax effects will have the largestimpact on product price. Here trade rules raise serious problems and accordingto the GATT Working Group that considered this issue, the use of bordertax adjustments to address the competitiveness impacts of taxes on energyand other inputs, is unresolved.
To illustrate the potential problems that would confront such an initiative,consider the use of a border tax measure that intended to reflect the energyused to transport goods to market. Such a border tax adjustments wouldnecessarily discriminate against goods that must travel further. In mostcases these will be goods produced in other countries. From an environmentalperspective this is precisely the signal that a carbon tax should provide.From a trade perspective such a measure would offend the "nationaltreatment" requirements of Article III to treat "like goods"in a like manner.
As we have seen, according to trade panel rulings, no distinctions maybe made between products having the same physical characteristics. In thisway trade rules would force governments and consumers to ignore the enormousdifferences that may exist between identical products when account is takenof the environmental impacts associated their production and transportation.
Therefore if a carbon tax border adjustment is to be considered consistentwith GATT restraints, it is imperative that a broader reading be givento "like product" so that account can be taken of all
environmental impacts of making and moving that product. This would givegovernments and consumers the power to favour those products that reflectenvironmentally sound production, and discriminate against products thatfail to meet sustainable standards. There should only be two relevant tradeconsiderations that would apply to such import or export taxes:
Is the measure part of a bone fide domestic program intended to accomplishenvironmental objectives, and;
Is the calculation of the border tax adjustment a reasonable estimateof the taxes that would be applied to goods produced locally, and for domesticmarkets?
Pending such interpretations or reforms, it is incumbent on governmentsto ensure that real or perceived trade impediments not stall much neededaction to address pressing ecological problems. For example, parties tothe International Convention on Climate Change need to make clear theirintention to have the provisions of the Convention prevail, in the caseof conflict with WTO rules. They can accomplish that goal by declaringthat intention as part of any Protocol they may negotiate.
Similarly, should such a multilateral consensus not quickly emerge,it will be important for governments, particularly in countries with extravagantenergy habits such as Canada, to proceed on its own with domestic measuresneeded to reduce greenhouse gas emissions. If needed to address the competitivedisadvantages that such measures might create, border tax adjustments couldbe levied on the premise that a bone fide measure will be sustained bythe WTO should a trade dispute arise.
Should such measures raise concerns for our trading partners, then wewill simply have to address them. In that process we will contribute tothe ultimate narrowing of the chasm that currently divides environmentaland trade policy. Simply acceding the primacy of trade rules, without eventesting them, is simply not a feasible response in light of the potentiallycatastrophic consequences of inaction.
2.5 ENVIRONMENTAL STANDARDS
Environmental Standards and Other Barriers to International Trade
There are many ways in which trade rules limit options for establishingregulatory initiatives for environmental or conservation purposes. Thefollowing assessment hi-lights the more important points of contradictionbetween trade rules and environmental policy goals.
Subsidizing Competitiveness at the Expense of the Environment: To theLowest Common Denominator of Environmental Protection
Under the WTO Agreement on Subsidies and Countervailing Measures, governmentsare not to subsidize domestic producers in ways that enhance their competitivenessinternationally. Such subsidies are regarded as distorting true competition,and therefore at odds with the free market model. Some subsidies are prohibitedunder this WTO Agreement while others are 'actionable" and may justifythe imposition of counter measures, eg. countervailing duties, by a countrywhose producers are prejudiced by the subsidy.
Over the years trade rules have been used on numerous occasions to challengea wide variety of government programs and practices as representing unfairsubsidies. However, trade officials have been steadfast in resisting thenotion that the absence of environmental regulations be treated as an unfairsubsidy, and no trade complaint has ever raised this challenge.
Nevertheless, it is demonstrable that the absence of environmental orresource conservation regulations can make domestic producers more competitivein both domestic and international markets. Because such producers arefree to externalize the environmental costs of production, they are ina very real sense being subsidized at public expense. It should not matterthat the currency of that subsidy is a public natural resource, such asa national forest, or a community's clean air or water, rather than a publicfiscal resource, tax revenue.
In fact, as the Raw Log Export case illustrates, trade panels have nothad great difficulty accepting rather ingenious arguments about governmentregulations (export controls) conferring indirect, but actionable subsidies.Yet no government has initiated a trade complaint to challenge anotherjurisdiction that has neglected or abandoned environmental regulation inorder to attract or keep investment. Because trade complaints are almostalways made at the urging of corporations, it isn't surprising that nocountry has been keen to challenge government inaction on the environmentalregulatory front.
Because environmental regulation can often represent a significant costof doing business, corporations often weigh the presence of such regulationsas a significant factor when deciding where to establish operations. Thereforewhen trade rules ignore the competitiveness effects of absent environmentalregulation, governments are encouraged to compete for investment by offeringto become havens for polluters. Conversely companies are free to whipsawone jurisdiction against another in an effort to drive both down the lowestcommon denominator of environmental protection.
Environmentalists have described the practice of exporting goods fromsuch havens as "ecological dumping." And under Article VI ofthe GATT, dumping is "condemned" as the practice "by whichproducts of one country are introduced into the commerce of another countryat less than the normal value of the products" and normal value isdefined as including "the cost of production." Thus environmentalistshave argued that exports from pollution havens are "dumped" ontointernational markets at prices below the real costs of production. Thedifference in price being the value of environmental externalities. However,notwithstanding Article VI, GATT officials have been no more receptiveto this argument than they have been to the notion that absent environmentalregulations be considered subsidies.
The Big Chill
It would be difficult to identify an environmental regulatory initiativethat was not opposed, often vigorously, by the business sector that wouldbe subject to the new law. At times industry resistance is motivated bya desire to avoid having to make substantial investments in pollution preventionor control. On other occasions liability issues, reporting requirements,or accountability mechanisms are the targets for corporate lobbyists. Evenwhere the environmental program will ultimately reduce the costs of production,or actually improve the competitiveness of the industry over time, effortsto head-off new regulations are often no less determined.
Whether the costs of environmental regulation are real or merely perceived,they are inevitably front and centre when business groups lobby governmentsabout environmental law reform. A ubiquitous feature of these efforts isthe claim that the costs of environmental regulation will put the industryat a competitive disadvantage and force it to relocate or close. Theseare claims that are notoriously difficult for governments to evaluate,and it is usually impossible for public officials to assess their validity.For these reasons, threats of disinvestment or capital flight have alwaysbeen potent weapons in the arsenal of corporate lobbyists seeking to defeatregulatory initiative.
In the new global economy, where corporations can establish or relocateoperations and trade freely throughout the world, arguments about the costsof regulation have been made significantly more powerful. Moreover forreluctant politicians and public officials, trade constraints (often moreperceived than real), become the convenient excuse for not tabling environmentalinitiatives at all. The overall impact of this WTO spectre hovering inthe shadows is to cast a chill over incipient environmental regulationsand it is no coincidence that since the advent of free trade regimes, environmentalistsnow spend almost as much time defending existing laws, as they do fightingfor new ones.
"Technical Barriers to Trade"
While the absence of environmental regulation is off limits under theWTO regime, the presence of environmental standards and other "technicalregulations" is considered a real impediment to free trade, and anentire WTO Agreement on Technical Barriers to Trade (the TBT Agreement)is devoted to making sure that no environmental regulation interferes,even indirectly, with the realization of trade policy goals. It is of coursetelling of the purpose of this Agreement that it defines environmentallaws as technical barriers to trade.
Harmonizing Environmental Regulations
From the perspective of multinational corporations, if environmentalregulations must be endured, it is critical to the viability of globalproduction and trade, that such standards are homogeneous from one jurisdictionto another. Thus, the essential thrusts of the TBT Agreement are two-fold.First, to create substantial impediments to the introduction of environmentalregulations. Second, to force the international harmonization of environmentalregulation when public demand for these measures cannot be resisted.
Under Article 2.4 of the TBTAgreement, where international standardshave been established, governments that can demonstrate the need for regulatoryinitiative, are directed to adopt them. Further, under this rule, wheninternational standards exist, a regulation that adopts that standard ispresumed to be in accord with WTO rules. While this would not prevent atrade challenge to the regulation - it does shift the burden of proof tothe challenger to show that the regulation is in breach of WTO rules. However,even where an international consensus exists, governments must still beprepared to demonstrate under Article 2.2 that their environmental standardis "necessary" and "the least trade restrictive" wayto achieve the conservation or environmental goal it is seeking. As tradedispute panels have interpreted these requirements, this burden of proofhas become so onerous that no environmental initiative has ever survivedthe challenge.
Creating a Ceiling but no Floor for Environmental Regulation
While the TBT requires no minimal level of environmental regulation- and in fact discourages it - it does create very substantial obstaclesfor governments that are willing to regulate where no international standardexists, or go further than international norms. For governments that havethe courage to proceed in these circumstances, onerous administrative hurdlesmust be overcome.
These include the duty to: notify other WTO members of its initiative;provide copies and supporting documentation when requested; provide anopportunity for comment, and; demonstrate how those comments have beentaken into account. Should governments still be determined to proceed withtheir initiative, they must then provide "a reasonable interval"so foreign producers can adapt. Moreover the TBT agreement extends theseobligations to cover Provincial regulatory initiatives, and even seeksto bind some municipal and even non governmental measures as well.
The administrative costs associated with these obligations are obviouslybeyond the capacity of all but the most affluent developed nations, yetthe failure to comply with them would be grounds for trade challenge.
It is also noteworthy that the rights of notice and comment that theserules provide foreign governments and corporations, are rarely availableto local citizens.
Finally, because international standards require a consensus among governments,they often reflect a lower common denominator of environmental regulation.Yet it is this standard that then becomes the de facto ceiling for domesticinitiatives.
Following the Leader
By trying to make an international consensus an effective preconditionto regulation, the TBT Agreement threatens the underlying "followthe leader" dynamic of law reform which has for years provided a criticalimpetus to regulatory initiative.
Thus as soon as one jurisdiction is persuaded to blaze a trail, othersare then encouraged to follow. In this way environmentalists can pointto California's auto exhaust standards, Sweden's air pollution laws forwaste incinerators, Ontario's curbside recycling programs or Germany'spackaging laws as demonstrable evidence that tougher environmental lawsare possible and practical. The effect of WTO harmonization rules is tostop, or substantially slow, jurisdictions that might otherwise be willingto establish internationally precedents.
For corporations that oppose environmental regulation the importanceof preventing the trend setting initiative is well understood - as thefollowing case study illustrates.
Canadian Asbestos Exports
In 1989, the US Environmental Protection Agency announced that it wasintroducing regulations to phase out the production, import and use ofasbestos. The ban represented the culmination of more than ten years ofstruggle that had involved several Congressional investigations, and thousandsof lives{31}. The EPA estimated that the ban on this cancer causing materialcould save 1900 lives by the turn of the century{32}. No sooner was theprogram announced than it was angrily denounced as insincere and politicallymotivated. Leading the charge was the government of Quebec, which has asubstantial stake in asbestos mining. A Quebec labour leader went so faras to warn other countries "not be duped by the phoney concerns"of the US administration{33}.
Intervening to assert the interests of the Quebec asbestos mining industry,the government of Canada joined in a legal challenge to the US EPA initiative.In its brief to the US Court of Appeals, Canada argued that the US asbestosregulations violated its obligations under GATT and FTA. Repeating theproscriptions of international trade agreements, Canada argued that becausethe EPA had banned asbestos when no international scientific consensussupported the need to do so, that it must therefore be taken to have doneso for trade protection reasons rather than for a legitimate domestic objective.
Even more significant however was the motive that inspired Canada's challengeto regulations in a jurisdiction that did not represent an important marketfor Canadian asbestos exports. As explained by the Minister of Mines forthe Province of Quebec:
" (the) biggest fear is that other countries will follow the USexample. The European Community . . . could following the US decision,adopt analogous regulation. We also fear the impact of the EPA decisionon development projects in countries receiving American economic aid"{34}
The US Court of Appeals ultimately upheld the challenge to the EPA banon the grounds that the Agency had rejected alternatives less burdensometo the industry, and failed to observe proper rule-making procedures.
More recently similar concerns have been expressed by Canada and Quebecabout the decision by the French Government last year, to follow the leadof several other European nations and implement a ban on the use of asbestos.Again Canada was quick to respond by launching a campaign to persuade theFrench Government to reconsider its decision{35}. In fact the Federal Governmentis funding these efforts to ensure that European initiatives not spreadto the developing countries that represent Quebec's most important exportmarket for this hazardous and carcinogenic substance{36}.
Thus the TBT Agreement sets out detailed rules for eliminating any constraintthat regulatory initiatives might create to free trade. In doing so, itconsistently betrays an utter indifference to the administrative, economicor political realities of environmental regulation. As do all elementsof the WTO regime it unquestioningly assumes, the priority of trade policyobjectives, even when on rare occasions it reveals some awareness thatother public policy objectives might exist.
Food Safety and Pesticide Regulation
Unlike other regulations, food safety and pesticide standards are subjectto the special provisions of the WTO Agreement on the Application of Sanitaryand Phytosanitary Measures.[SPS]. Again trade jargon obscures the factthat this agreement primarily deals with food safety, biotechnology, pesticidesand other regulations concerning plants and animals. While in some waysthe SPS mirrors the provision of the TBT Agreement, it goes much furtherin constraining the scope for federal or provincial regulation.
To begin with, the SPS places much greater emphasis on the need to harmonizefood safety and pesticide regulations internationally and includes severalprovisions compelling governments to adopt such standards on the one hand,while dramatically circumscribing the scope for national or local initiativeson the other. While the development of an international consensus aroundenvironmental standards may be a desirable objective, the effect of SPSharmonization rules (as we have seen with respect to the TBT Agreement)is to create a ceiling but no floor for such regulations.
Another unique feature of the SPS regime that is very problematic canbe found in several articles that explicitly seek to reduce food safety,and pesticide standards to scientific propositions to be determined byinternational science panels. A consensus of international scientific opinionthen becomes the necessary precondition for environmental regulation. Aswe have seen in the Asbestos case, the absence of such a consensus canthen be asserted as prima facie proof that trade protection motives mustunderlie a purported concern for the environment or food safety. Not onlyare such rules fundamentally at odds with the precautionary principle,but they attempt to exclude ethical, social, and economic considerationsfrom the equation. Furthermore, by assigning the task of standard-settingto international technical bodies, such as the Codex Alimentarius, theprerogatives of elected and accountable institutions are greatly diminished.
Strategies for Environmentalists
As the case notes reproduced here reveals, governments at the behestof large corporations have increasingly resorted to trade challenges toassail environmental and resource conservation initiatives. Unfortunatelythe TBT and SPS Agreement will now provide substantial new grounds uponwhich to launch such complaints. It is clear then that the establishmentof these trade rules represents a significant step backwards for environmentalprotection and resource conservation. It is imperative that we work toexpose the environmental consequences of these trade rules, and expandthe scope for environmental initiatives even in the face of these apparentconstraints.
It will be helpful in this regard, that language in both the TBT andSPS Agreements speaks of the rights of countries to pursue "legitimatedomestic objectives" including the "protection of human healthor safety, animal plant life or health, or the environment." If givenbroad reading, these provisions allow greater scope for the exercise ofsovereign and democratic decisions making when it comes to public healthand environmental protection. Unfortunately, as we have seen, the interpretationthat has been given to similar language and terms in Article XX of GATThas rendered these exceptions all but meaningless. Therefore we must pressureour governments to support a much broader and more balanced reading ofWTO rules, and to act accordingly in their sphere of domestic regulation.
In addition, for Canada, it is provincial constitutional authority thatis most important for environmental and resource conservation initiatives,and the Federal government does not have the power to unilaterally amendCanada's constitution simply by signing an international trade agreement.We must ensure therefore that provincial government's stand their constitutionalground and reject the purported limits of WTO rules.
2.6 THE FIRST WTO TRADE RULING
The following case study has been left to this point because of itscomplexity. However, given the fact that the very first case to be resolvedunder WTO rules involved a successful challenge to an important environmentalprogram, it seemed appropriate to describe the trade panel ruling in somedetail. While it repeats many of the conclusions of earlier trade paneldecisions concerning environmental or conservation initiatives, it is unfortunatelylikely to be given greater weight in light of having the benefit of theWTO imprimatur.
Reformulated Gasoline
In the first decision to be handed down by the WTO{37}, US Clean AirRegulations were ruled to be inconsistent with GATT rules, and the US "requested"to amend its regulations or face retaliatory trade sanctions - in the orderof $150 million per year. At issue in this landmark case were regulationsdeveloped by the US Environmental Protection Agencies for tackling theserious air quality problems, including excessively high levels of groundlevel ozone, that persist is certain areas of the US. As part of that strategythe EPA developed regulations intended to reduce pollution by going aftera primary cause of air quality problems - gasoline combustion.
Known as the "Gasoline Rule" these regulations establishedcertain compositional and performance specifications intended to reduceVOC and Nox emissions from gasoline combustion in "non-attainment"areas, where levels of pollution exceeded air quality objectives. In searchingfor an effective, and economically feasible regulatory approach, the USEPA had opted for a program that required gradual improvement based onpast performance{38}. In this way it had sought to create the flexibilityneeded to allow an orderly transition by domestic and foreign producersthat would avoid supply disruptions and other economic distortions. Thedifficulty of this approach arose in having to determine reliable baselinelevels for both domestic and foreign sources of gasoline products.
To do so, various approaches were authorized for determining these baselinesthat reflected the degree to which information was available about theperformance and composition of gasoline sold in the baseline year. Wherereliable information was not available, the industry would have to sellgasoline no more contaminated than the industry average for 1990. For corporationsthat could produce accurate records a more precise determination was allowed.However, in light of the difficulties associated with trying to elicitaccurate information from all of the potential foreign sources of US gasimports, the Gasoline Rule held all imported gasoline to the 1990 industryaverage. In the result, some domestic and foreign producers was treatedidentically, some domestic producers were held to higher standards thanforeign suppliers, some to a lower one.
Predictably, some foreign refiners objected to the costs associated withupgrading their refineries in order to produce cleaner gasoline. Thosecorporations complained and prompted their governments to file a tradecomplaint taking issue with the methodology established by the Clean AirRegulations for establishing baseline performance. Thus in early 1995 Braziland Venezuela filed a formal trade complaint with the WTO claiming thattheir gasoline products were being held to a higher standard than was beingapplied to US refiners.
The decision of the trade panel convened to hear the dispute, and subsequentlyof the WTO's Appellate Body concluded that US Clean Air Regulations werein violation of the national treatment provisions set out in Article IIIof GATT. Furthermore the US could not rely on the environmental and resourceconservation exceptions set out in Article XX to sustain its regulatoryapproach.
Before getting into the details of the panel's decision, it's importantto make an important preliminary point. This is to underscore the factthat the regulations at issue in this case were not established to regulategasoline trade, nor were they created to improve the competitive positionof US fuel refiners. Rather Clean Air Act initiative clearly representeda bone fide effort to achieve important domestic environmental policy goalsby addressing serious air quality problems caused by gasoline combustion,particularly in regions of the country suffering from significant levelsof air pollution. Whatever the impacts of these Clean Air Act Regulationson foreign gas producers, it is undeniable that those effects were incidentalto the environmental goals the EPA was endeavouring to achieve. It is importantto keep this context in mind when considering the esoteric reasoning ofthis trade case.
Because the US declined to appeal several of the findings of the initialtrade panel convened to hear the case, it is important to read its decisiontogether with that of the Appellate body. The first finding of the tradepanel was that the EPA's Gasoline Rule violated GATT Article III whichrequires all countries to treat imports no less favourably than "like"domestic products. This requirement of "national treatment" isas we know, one of the cornerstones of GATT law. Thus notwithstanding thefact that the Gasoline Rule applied in precisely the same manner to atleast some domestic producers, the Panel had no difficulty in finding theUS to be in breach of Article III. Having found this fundamental breachof GATT rules, the panel declined to consider a number of other potentialviolations that might also have spelled disaster for these Clean Air ActRegulations.
Once it had been found in breach of its obligations under GATT, it wasthen necessary for the US to demonstrate that its regulations fell withinone of the exceptions to GATT rules that are set out in Article XX, whichprovides in part:
General Exceptions
Subject to the requirement that such measures are not applied in a mannerwhich would constitute a means of arbitrary or unjustifiable discriminationbetween countries where the same conditions prevail, or a disguised restrictionon international trade, nothing in this Agreement shall be construed toprevent the adoption or enforcement by any contracting party of measures:
(b)necessary to protect human, animal or plant life or health;
(g)relating to the conservation of exhaustible natural resources if suchmeasures are made effective in conjunction with restrictions on domesticproduction or consumption;
As to the application of these exceptions, both the decisions of thePanel and the Appelate Body are quite lengthy and filled with convolutedand often contradictory reasoning. Deducing the common and essential conclusionsfrom this murky logic is difficult, but some points clearly emerge. Onthe essential point there was no disagreement - US EPA regulations didnot qualify for protection under Article XX exceptions. As to preciselywhy Article XX was of no avail, the Panel and Appelate Body had somewhatdiffering views.
According to the Panel, to qualify under the umbrella created by ArticleXX (b) a country seeking to defend environmental or resource conservationmeasures as "necessary to protect human, animal or plant life health",must pass a threefold test and establish:
1. that it had reviewed all reasonably available alternatives for accomplishingits environmental or resource policy objectives and determined that nonewas consistent with GATT provisions;
2. that it had "adequately" explored the possibility of negotiatingmultilateral agreements with all of its trading partners that might beaffected by the regulatory initiative, in order to find some consensualresolution, and that failing which; .
3. it had chosen the least trade restrictive measure for achieving itsgoals.
The Panel concluded that these were tests the US had failed to meet,and as was true of the Panel's ruling on violation of Article III, theUS chose not to appeal from these findings.
As for the requirements of Article XX(g), the Panel and Appelate Bodyagreed that a party seeking to rely upon this exception must be able todemonstrate that its regulations were "primarily aimed at" theconservation of exhaustible natural resource. On this point the AppellateBody parted company with the dispute panel and found that the GasolineRule did meet this criterion. However it then went on to find that, inany even, Article XX(g) was of no avail in this case because the GasolineRule failed to meet the additional burden of satisfying the requirementsengendered by the Preamble to Article XX. Moreover, in reading the Preambleas imposing burdens additional to those set out in the subparagraphs, theAppellate Board actually imported the "necessity" test used toevaluate XX(b) claims. In the result, the rigour of proving "necessity"now qualifies recourse to any of the sub-categories of Article XX eventhough no other subparagraph actually articulates this threshold requirement.
Finally the appellate tribunal concluded that in order to satisfy therequirements expressed in the preamble to Article XX a country must alsobe able to demonstrate that it had taken into account the cost of compliancefor all foreign producers that may be affected by its regulations.
As is now the practice of dispute panels in these cases, Panel membershad no hesitation in second guessing environmental officials on the detailsof complex administrative, economic and policy matters related to theirregulatory agendas. Neither did these trade panels have any reluctanceto articulate ill defined, subjective and open-ended criteria such as "leasttrade restrictive" or "reasonably available" alternativesas the necessary preconditions for compliance with Article XX. Nor didthey hesitate to impose administrative burdens, such as determining thecost of compliance for foreign corporations, that are clearly impossibleto meet.
As preposterous as these interpretations are from an environmental policyperspective, they are almost as questionable as exercises in judicial interpretation.Often guilty of logically flawed reasoning that ignores the plain meaningof GATT provisions, these panels have established compliance tests andother obligations without any textual support from the GATT text, whatsoever.For example, there is nothing in Article XX or in any other GATT provisionthat speaks of the need to seek international agreement, in order to establishthat a bone fide environmental regulation represented a justifiable exceptionto GATT strictures. Neither is there any GATT language to support severalof the other tests that trade panels have articulated to determine whethera measure is "primarily aimed" at conservation, or that it isthe "least trade restrictive" of "reasonably available alternatives."Nor have the trade panels that have enunciated these tests felt under anyobligation to reveal the authority upon which they relied in developingthem.
In consequence, if an environmental or resource conservation regulationis to survive the gauntlet of a trade dispute challenge, it must be ableto negotiate its way through a shifting minefield of highly subjectivecriteria and tests. Moreover the absence of consistent, or logically soundinterpretation has meant that the trip must be taken blindfolded. It isvery difficult to imagine any environmental initiative surviving this challenge- and none have.
After all of this then, it is important to remember that what was astake here was the right of foreign gas refiners to export gasoline tothe US that is more contaminated than the 1990 industry average. The coststhen of this victory for trade policy goals will be measured in increasedlevels of ground level ozone and other hazardous air pollutants in alreadypolluted urban and industrial areas. The other casualty is the enormousinvestment of time, resources and political capital that were needed toestablish this regulatory regime in the first place, and that must nowbe arduously repeated.
Strategies for Environmentalists
We must pressure our government to recognize the need to challenge themyopic reading given WTO trade provisions and to proceed with domesticlaw initiatives that would challenge this status quo. While trade disputepanels have shown a great resistance to such arguments, the positions theyhave expressed are quite vulnerable to challenge. Not only have these panelsbetrayed a sublime indifference to environmental policy, but their conclusionsoften rest on questionable and often unsupported interpretations of traderules. Fortunately future trade panels are under no formal obligation toadopt the reasoning of these dispute panels, and can come to their ownconclusions about the ambit of the GATT subsidies code, or proscriptionsagainst export dumping, or indeed about what constitutes a "like product."It would be a great mistake then for governments to feel constrained bythe excessively narrow interpretation that has to this point been givento the scope for environmental regulation in the WTO context.
2.7 INTELLECTUAL PROPERTY RIGHTS
At law, property ownership can be described as the right to excludeothers from use or enjoyment. Accordingly intellectual property rights[IPRs] allow authors, inventors and others to monopolize the fruits oftheir creative efforts, and many countries have established domestic regimesfor creating intellectual property by way of patents, trademarks or copyright.In granting these rights of exclusive ownership, society seeks to rewardinvention in order to foster further innovation. By denying others in societythe right to take immediate advantage new products, technologies or ideas,society is seeking to create a balance with the rights of innovators thatwill ultimately serve societal goals by assuring the continued flow ofnew products and processes from which all will benefit.
Historically the extent to which intellectual property rights were recognizedand protected was considered to be entirely the prerogative of domesticpolicy. Seeking to establish the appropriate balance between the rightsof innovators and of other citizens was considered best left to those whocould judge the particular and often unique needs of their communities.
With the advent of globalization, and the introduction technologies(VCRS, drug manufacturing techniques) that allowed intellectual productsto be easily copied or reproduced - the originators of those products,and in particular US based pharmaceutical and media corporations, beganto exert pressure on other governments to adopt US style patent protectionlaws. A principal device for exerting that pressure was the threat of unilateraltrade sanctions against governments who were seen to be turning a blindeye to the "unauthorized" use of intellectual products withintheir jurisdiction.
The next logical step of course was to establish an intellectual propertyrights regime in GATT, where it would benefit from the powerful compliancemechanisms engendered in trade agreements. Thus these same corporationsspearheaded an international campaign that culminated with the inclusionof the Agreement on Trade Related Aspects of Intellectual Property Rights[TRIPS Agreement] as part of the WTO. In the simplest terms the TRIPs Agreementrequires all WTO parties to adopt, as their own domestic law, a systemof intellectual property rights protection based on the US model.
Accordingly the TRIPs Agreement sets out comprehensive rules for copyright,trademark and patent protection. Of these intellectual property rights,patent protection is the most important from an environmental perspective.Patent rights for example apply to virtually all technological innovationincluding environmentally sound technologies and many forms of biotechnology.As we will see, the implementation of this global patent protection regimewill have considerable impact upon our ability to achieve the environmentalgoals relating technology transfer, and biodiversity protection.
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Under the IPR rules of the WTO:
*All countries must establish domestic IPR legislation, as well as theadministrative and judicial mechanisms that are necessary to give themeffect.
*Patent rights must be made "available for any invention, whetherproducts or processes, in all fields of technology provided that they arenew, involve an inventive step and are capable of industrial application."
*Patent rights must also be made available for micro-organisms and forthe protection of plant varieties, however, plants and animals may be excludedfrom these patent regimes.
*The minimum period of patent protection is to be 20 years.
*Various judicial and border inspection rights must exist to allow patentholders the effective means to enforce their IPRs.
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TRIPS vs Free Trade
Before examining the impacts that this new trade regime is likely tohave on environmental policy and law, there are two general observationsthat are worth making.
The first is that the essential thrust of the TRIPS agreement standsin stark contrast with the ideology of free markets and deregulated trade.Where virtually every other aspect of the WTO regime seeks to limit theregulatory prerogatives of governments, this regime imposes a positiveobligation to legislate, and to do so in very precise terms. This is strongevidence that while the ideology of free trade is important, it is at root,little more than a rationale for the growth and profit maximization imperativesof large corporations. When those corporate interests conflict with theideology of unregulated markets, the latter will give way.
The second noteworthy aspect of the TRIPS agreement is that, notwithstandingthe qualification that it is about "trade related" IPRs, theprovisions of this agreement apply to all products and processes whetherthese are traded or not. In fact in very large measure this "tradeagreement" will apply to goods that are entirely produced and consumedlocally. In this way the TRIPS agreement extends the reach of internationaltrade rules directly into a critical sphere of domestic policy and law.In doing so to it represents an unprecedented incursion into the sovereignauthority of nation states to determine the conduct of affairs within theirnational borders.
With this introduction, there are two aspects of the TRIPs agreementthat are particularly relevant to environmental policy.
Biodiversity, Farmers Rights and IPRs
Under the provisions of the TRIPs agreement, governments may excludevarious inventions from patentability. These include "plants and animalsother than micro-organisms, and essentially biological processes for theproduction of plants and animals other than non biological and microbioligalprocesses." But countries must provide "patent protection forplant varieties either by patents or by an effective sui generis (of theirown kind) system."{39}
The likely impact of these provisions on biodiversity and third-worldagricultural production has raised considerable concern. In fact, severalnon-governmental organizations have assailed these rules as authorizingthe wholesale piracy of genetic resources from developing countries andthe appropriation, without compensation, of traditional and indigenousknowledge. Thus Southern NGOs point to the practices of certain pharmaceuticaland agri- corporations which have taken out patents on products and processesderived from genetic resources they have simply appropriated from developedcountries. Having thus acquired a global mandate to monopolise the useof these "innovations", those same corporations can then enforcetheir new proprietary rights even in those countries from which the geneticresources were originally taken.
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The New Frontier
Because traditional or indigenous knowledge is not recognized as intellectualproperty, and because the collective innovation of generations of farmersis similarly alien to the technological and industrial model inherent inmodern patent law, multi-national corporations feel free to appropriatesuch genetic resources without any recognition of the rights of communal,but non-proprietary ownership. In important ways this exploitation of thegenetic frontier parallels the process of colonization and conquest ofthe Americas that similarly disregarded the collective or communal characterof "ownership" in cultures that have not defined the world entirelyin terms of proprietary interests.
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It is also apparent that in practice, the innovation for which patentprotection is acquired is often the product of very modest investment oreffort. For example the HR Grace company has been granted a process patentfor extracting the active ingredient of the Neem tree which has provideda source of medicine and other products to indigenous cultures for millennia{40}.In fact it is unlikely that the process it has patented represents anyreal innovation of indigenous extractive techniques. However by virtueof having acquired this patent, and because of the TRIPs agreement, thiscorporation can acquire a global monopoly that can be worth truly astronomicalsums and for the twenty years for which protection is guaranteed. If thepolicy rational for patent protection is creating some balance betweenthe interests of society and those of inventors, that balance would appearto be wildly out of proportion in many of the cases where patents havebeen issued.
Another area of concern relates to the adverse impacts these rules willhave on the diversity of cultivated crops and on farmers in the developingcountries. Because informal innovation is not accorded any protection,the genetically diverse resources of wild germplasm or "land races"are excluded from the proprietary regimes of the TRIPS agreement. Not onlydoes this mean that these resources can be appropriated without compensationbut it also means that no financial incentive exists to conserve theseresourse{41}. This is but one, but nevertheless an important, factor inhastening the abandonment of traditional plants in favour of hybrid varietiesthat are very much part of the high yield, and even higher input, modelof modern agricultural production.
Finally on this subject, it is important to note that this provisionof theTRIPS agreement actually requires that it be reviewed in four years.While all aspects of the WTO are amenable to further negotiation and amendment,the potential enormity of the impacts associated with these types of patentswere considered sufficient to warrant mandatory review.
Technology Transfer
The need to ensure the transfer of environmentally sound technology[EST] is a particularly important priority for the goals of sustainabledevelopment. That is why for example, the provisions of the Montreal Protocol,the Biodiversity Convention and the Climate Change Convention each includeprovisions that make technology transfer a critical element of the strategiesthose agreements establish{42}. It is easy then to see how the provisionsof the TRIPs agreement would interfere with this objective, because byits very intent it seeks to constrain the availability, and increase thecost, of using new products and innovations which might for example providebetter pollution prevention techniques, improve the efficiency of technology,or represent breakthroughs in solar energy, or photovoltaics.
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Mandatory Patent Licenses
Under Section 308 of the US Clean Air Act
On occasion, a party attempting to comply with a standard of the CleanAir Act [CAA] may be unable to meet the standard without resort to a patentedtechnology. CAA section 308 provides a mechanism by which such a non-complyingparty may obtain a patent license where it has been unsuccessful in itsattempts to obtain a license on its own. Under CAA section 308, the UnitedStates may require the owner of the patented technology to grant the noncomplying party a patent license in exchange for a reasonable royalty ifthe patented technology is necessary to meet the requirements in certainsections of the CAA.
The North American Free Trade Agreement (NAFTA) imposes certain limitson the ability of the United States to force patent owners to grant licensesunder their patents [as does now the WTO TRIPS Agreement]. Therefore theEPA issued this rule to ensure that implementation of CAA section 308 conformedwith the requirements of NAFTA article 1709(10) [WTO TRIPS article 31].The rule established the policies and procedures that EPA would followprior to applying to the Attorney General for a mandatory license undera patent covering a technology necessary to enable compliance with thenew stationary sources standards, hazardous air pollutants standards, ormotor vehicle emission standards of the CAA. [Environmental ProtectionAgency 40 CFR Part 95, [FRL-5131-5]
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Thus, the TRIPS agreement will likely slow the transfer of environmentallybeneficial technologies to developing countries. However, there is oneimportant way in which these adverse impacts can be ameliorated becauseof an important exception to IPR protection that can be found into Article31of the TRIPS agreement. Under this rule, governments can license theuse of patented products and processes without the consent of the patentholder for use either by government or by third parties (ie. individualsand corporations). In order to issue such compulsory licenses, governmentsmust observe certain conditions. The most important of these is the obligationto ensure that the patent holder is "paid adequate remuneration inthe circumstances of each case, taking into account the economic valueof the authorization," in other words, royalties.
In fact just such a compulsory licensing regime has been established underthe US Clean Air Act which is described the box above.
Strategies for Environmentalists
It is very likely that the compulsory licensing provisions of the TRIPSagreement will be tested as governments take advantage of the opportunityto issue such licenses, and the assessment of what represents "adequatecompensation" in this context will largely determine the extent towhich the IPR rules interfere with technology transfer objectives. Forthese reasons it will be important for environmental and development groupsto pressure governments to establish compulsory licensing rules to aidtechnology transfer, and to support a liberal interpretation of this exceptionto the monopoly protections accorded under the TRIPS agreement. Moreover,compulsory licensing rules should also become the subject of protocolsto the MEAs that include technology transfer provisions.
In the context of Parliamentary Committee Hearings on Canadian drugpatent protection legislation, the government has taken the position thatNAFTA and the WTO preclude the adoption of compulsory licensing regimes,such as the one maintained by the US EPA. Indeed many other countries haveand maintain compulsory licensing systems for patent medicines{43}. Theprotests of powerlessness by Canada's federal government provided an unfortunateexample of how imaginary trade constraints can serve as a smoke screenfor politicians to hide behind.
Developing literacy in trade matters seems to be the only sure way toknow whether governments are bluffing or not. The provisions of the TRIPSagreement are not particularly lengthy or obtuse, but the government isbetting that no one will make the effort to see whether its claims of powerlessnessare justified. Environmentalists must prove them wrong.
The Trips Agreement as a Prototype
Finally, perhaps the most noteworthy aspect of the TRIPS agreement hasto do with what it reveals about the extent to which a trade regime canbe used to accomplish key priorities. Imagine if environmental goals weretaken as seriously as patent rights. When one does consider using the TRIPSAgreement as a prototype for international agreements for protecting biodiversity,or for confronting climate change, it becomes easy to understand the enormouspotential those trade agreements have for accomplishing the goals of environmentalprotection, and resource conservation.
For example, if the WTO was transformed into an organization that wasas concerned about the impacts of climate change, as it is currently aboutthe profits of multinational pharmaceutical companies, then we would havean Agreement on Trade Related Measures for Combatting Climate Change. Suchan agreement would require all WTO members to:-
Adopt domestic laws (which would be delineated with some specificity)to stabilize greenhouse gas emissions at 1990 levels; -
Provide for customs inspection, seizure and even the disposal of goodsthat have characteristics or that were produced in ways that violate theprovisions of the Agreement;-
Establish administrative, civil remedies and criminal sanctions withrespect to any breach of the legislation or regulations mandated by theAgreement, and; -
Authorize the use of trade sanctions, including cross-retaliatory measuressuch as prohibiting the export of energy or energy products to any jurisdictionthat was in breach of its obligations under the Agreement.
If these provisions seem rather ambitious, it is important to recognizethat each merely translates the actual requirements and rights that havebeen established by the TRIPS Agreement into terms that are relevant toconfronting climate change. It is an important measure of how much workis ahead of us, that a proposal to treat the goal of addressing climatechange as seriously as pharmaceutical patents would no doubt be greetedwith great incredulity by the WTO.
Environmentalists can take important steps toward overcoming this resistanceby demanding that government's publicly explain why they consider patentprotection a much higher priority than global warming, biodiversity loss,or any number of other pressing ecological crises.
PARTIII: TRADE RELATED INVESTMENT MEASURES
A Bad Dream?
Imagine, if you can, the Government of Canada tabling legislation thatwould give corporations a new legal right to challenge Canadian environmentallaws and regulations, whether Federal, Provincial or Municipal in origin.Oh yes, this new legal right would only be available to subsidiaries offoreign corporations and foreign investors.
According to the rules of this proposed legislation, when a foreignowned corporation challenged a Canadian environmental law, the claim wouldbe decided by an international arbitration panel, not by a Canadian court.Moreover, unlike Canadian judicial processes, no notice would be givenof this litigation other than to the Federal Government, and proceedingswould take place without any opportunity for public or media access.
Furthermore, no other party would have any right to participate in thecase - that means no right to be joined as party if the interested partymight be for example, a Provincial government whose laws were actuallythe subject of the challenge, or a domestic corporation with a direct interestin the environmental statute. Nor would any opportunity be allowed to interveneas a friend of the court or to file an Amicus Brief, if for example theinterested party happened to be and environmental or public interest group,with an established record of advocacy on the environmental initiativeat stake.
In addition, this new legal right of action accorded under this proposedlaw, would allow a foreign-owned corporation to assert a claim for compensationsimply on the basis that it has suffered a loss in profits, real or potential,because of some action (regulation) or inaction (a refusal to issue a permit)that had been taken by government. Nor would it be necessary for a corporationlaunching such a challenge to demonstrate that the environmental initiativewas unjustified, taken in bad faith, or applied in some discriminatorymanner. Rather to succeed with its claim, such a corporation would needonly to demonstrate that regulation of regulatory decision, had the effectof taking away, if only indirectly, some aspect of its business or prospectivebusiness - ie. that it was tantamount to having expropriated some aspectof, or all of its business activity.
Should the corporation's complaint be upheld, the tribunal would havethe authority to order the Federal Government to pay compensation to theforeign corporation in an amount that would represent the value of thebusiness (assets, plus present and future profits) that was effected bythe environmental regulation. That order would be enforceable, as if anorder of the highest Canadian Court .......
As preposterous as such a scenario may seem, these are precisely therules set out under the Investment Chapter of NAFTA. And the hypotheticalcorporate litigation sketched above, isn't hypothetical at all, but ratherthe real life circumstances of Ethyl Corporations challenge to a ban bythe Federal Government on the importation and interprovincial transportationof MMT, a controversial manganese fuel additive that has been linked toadverse human health effects (see case notes below). Whether that claimsucceeds will depend upon an international arbitration process that secretiveand non-participatory.
In any other context, a proposal that represented such a profound departurefrom virtually every tenet of democratic legislative or judicial process,would be completely unthinkable. But cloak the proposal in the mystiqueof international trade, and the unthinkable becomes enshrined as a super-jurisdictionalconstraint on the legislative prerogatives of all Canadian Governments.It is truly a testament to the effectiveness of international trade negotiationsas a vehicle for asserting the interests of multi-national corporationsthat such a regime could have been established.
On the Road to the WTO
In what arguably represents the ultimate ambition of multi-nationalcorporations, international agreements on foreign investment, based onthe NAFTA model, are currently and actively being pursued under the auspicesof the OECD and APEC. The choice of these venues was largely dictated bythe fact that concerted resistance by developing countries prevented theincorporation of a NAFTA styled investment agreement as part of the WTOregime. Therefore the current strategy is to extend the NAFTA precedentto OECD and APEC countries, and then incrementally from there, until incorporationwithin the WTO becomes irresistible{44}.
While the nomenclature varies somewhat, these multi-lateral investmentagreements (MIAs) literally represent an international bill of rights fortransnational corporations. In summary terms, the purpose of these agreementsis to open all sectors of a nation's economy to foreign investment, preventgovernments from favouring domestic corporations, establish the pre-eminenceof corporate property rights, and allow foreign investors to enforce theirnew rights directly. It is also significant to note that the investmentrights established under these regimes, accrue only to the benefit of corporationsthat operate multi-nationally. In other words, there is, under these investmentagreements, an enormous advantage to foreign ownership, and corporationsthat are owned by domestic investors are at a distinct disadvantage.
In at least two fundamental respects these agreements go much furtherthan do any of the provisions of the WTO in establishing the primacy ofthe interests of multi-national corporations. The first, elevates multi-nationalcorporations to the same status as nation states in so far as foreign ownedcorporations are accorded the right to enforce investment rights underthe MIA directly. In contrast, under the WTO, only another national governmenthas the right to invoke binding dispute resolution. If the rules of liberalizedtrade can be considered a concerted assault of the prerogatives of sovereigngovernments, the MIA takes this agenda the next step by establishing thestatus of private investors as equivalent to that of elected governments.
The second, prohibits an extensive list of regulatory measures, thatwould require foreign owned corporations to meet certain performance requirements,such as technology transfer, local sourcing, domestic processing or content,or export quotas. And these prohibitions apply, even when the very sameobligations are imposed on domestic investors and corporations. Yet whileforeign owned corporations may not be required to meet the same responsibilitiesas domestic corporations, they are entitled to all of the privileges -such as R&D allowances or employee training programs - that are availableto domestic businesses. Such proscriptions of course, go far beyond thenational treatment and MFN obligations of the WTO.
Finally, and notwithstanding the characterization of these agreementsas "trade related", they in fact have little, if anything, todo with trade. They do however, have a great deal to do with assertingthe paramountcy of the rights of international investment in any contestthat might arise with virtually any public policy goal.
Ethyl Corp, a US multi-national corporation, is the only North Americanmanufacturer of MMT, a controversial manganese fuel additive. MMT causesirreparable damage to automotive pollution control systems, thereby increasingemissions of VOCs, CO2, and Carbon Monoxide. Like other heavy metals, MMTis also a neurotoxin, and its impacts on human health have not yet beenadequately assessed. All of which explains why, most other OECD countriesban the use of MMT as a fuel additive.
For these and other reasons, Environment Canada introduced legislationin April of 1996 that banned the importation and inter-provincial transportof MMT. In September of 1996, Ethyl, which has a manufacturing facilityin Canada, filed notice of intent to take Canada to arbitration under NAFTAfor hundreds of $millions if the bill were passed. Ethyl claims that thebill violates national treatment by barring the import and transport, butnot manufacture, of MMT; that the bill is a forbidden performance requirementbecause it would force Ethyl to build a facility in every Canadian province;and that the bill is an expropriation of Ethyl's Canadian investments{45}.
True to its threat, no sooner was the Bill proclaimed by Parliamentthan Ethyl Corp. filed a claim with the Justice Department claiming $350million in damages{46}. In its claim Ethyl asserts that Canada's regulationscould effectively force it out of business and is therefore tantamountto expropriation under the investment provisions of NAFTA. Ethyl will nowhave the opportunity to makes its case behind closed doors before an internationalarbitration panel convened under NAFTA rules. No environmentalists willhave notice of or be given any opportunity to participate in these proceedings.Nor will Canadian automobile manufacturers, which have strongly supportedthe MMT ban as being critical to their ability to meet Federal pollutionstandards.
If the arbitral panel accepts this claim, every time a country bansa toxic substance, a foreign owned corporation in the business of manufacturingthat substance, may claim compensation. In fact, Ethyl has raised an evenmore insidious argument: claiming that by introducing and debating thebill, Canada has effectively expropriated some portion of its future businessby harming ots international business reputation.
According to a trade lawyer, who represents large corporations, Canadiansshould regard the Ethyl suit as a harbinger of things to come, as corporationsmake more frequent use of investment treaties to "harass" governmentscontemplating regulatory initiatives those corporations oppose{47}. Becausethere is no threshold for invoking dispute resolution, and because corporationsneed not persuade governments to argue a case on their behalf, as is truewith respect to all other "trading" rights, corporate challengesto state initiative under the rubric of asserting investment rights shouldbecome popular vehicle for warding off environmental and other regulations.
Metalclad vs. the Government of Mexico
Metalclad is a US corporation which owns Mexican subsidiaries engagedin the business of waste treatment and disposal. In 1993, one of thesesubsidiaries bought a Mexican hazardous waste disposal facility in thestate of San Luis Potosi. That Mexican disposal facility had a long historyof serious pollution problems and environmental impacts. Not suprisinglythis has caused serious conflict with the local community. Because of persistantconcerns over the safety of the site, Metalclad did not receive federalgovernment approval to operate until December of 1995. However, the stategovernment continues to block the project. Metalclad dismisses local environmentalconcerns about the site, and attributes the State's reluctance to grantit a permit, to corruption.
Unable to convince local regulators that its operations would be environmentallysafe, Metaclad filed investor-state claim under NAFTA's investment chapter,seeking damages on the grounds that Mexico had expropriated Metalclad'sinvestment by not granting it a license to operate the hazardous wastefacility. However, Metalclad is not claiming that its investment has beenpermanently expropriated, but rather is seeking damages related to delaysin the approvals process, fully expecting that it will ultimately obtainthe approvals it is seeking. The case will therefore require an arbitrationpanel to decide whether environmental concerns about the site are valid,and whether regulatory or procedural delays operations amount to expropriation.
Again the dispute will be resolved behind closed doors, and withoutthe benefit of public input. While the arbitration panel may wish to havethe benefit of independent expert evidence, it can seek out such evidenceonly with Metalclad's consent. Anything short of an unequivocal rejectionof Metalclad's arguments would surely have a profound effect on regulatoryapprovals processes in all NAFTA countries. Any willingness of the partof the arbitration panel to consider such a claim will put all regulatoryofficials under enormous pressure, not only to grant approvals applications,but to do so very quickly. The ease with which a foreign controlled corporationcan threaten,or invoke binding arbitration, should intimidate any publicofficial inclined to think twice about the wisdom of granting regulatorylicenses, in precisely the terms sought. Becoming embroiled in an internationaltrade dispute that might assess $millions in damages against their employers,will not be regarded by most civil servants as a good way to further theircareers in the public service.
Finally while Metalclad's action is against the Mexican national government,its real dispute is with local state authorities. In a federal system thisof course may raise serious constitutional issues as it would in Canada.Moreover, the local Mexican state government has no right to participatein the proceedings that will determine the viability of its regulatorydecision. It will have to rely upon the Federal Government (which in thiscase appears not to share its views) to defend its position{48}. It isno wonder that the case appears to have inspired a new willingness on thepart of local authorities to rethink their commitment to protecting theinterests of residents living near this hazardous waste disposal facility{49}.
*Require all foreign investment to comply with the highest standardsprevailing in either the home or host jurisdiction.
*Require that all claims arising under an investment agreements proceedonly at the instance of nation states.
*Require that disputes concerning international investment be conductedin a manner that respects the norms of notice, participation and accountability,that attend judicial dispute resolution in democratic societies.
*Stipulate that in the event of any conflict with between the provisionsof an MIA and those of multi-lateral environmental agreements - the latterwill prevail.
*Provide that in no case are the rights of foreign investors to takeprecedence over the public policy goals of environmental protection, resourceconservation, and sustainable development - including requirements concerningenvironmental performance guarantees, bonding requirements, domestic processingrequirements and technology transfer.
This list is intended to be illustrative, rather than exhaustive ofthe types of measures that it may be necessary for government's to adoptin order to achieve environmental policy goals. Each is impossible underthe investment provisions of NAFTA, and the proposed elements of the investmentagreements being pursued at the OECD and APEC.
Strategies for environmentalists.
Because the investment provisions of NAFTA were truly unprecedented,because Canadians were weary of debates about free trade, because of theesoteric and technical character of these agreements, and because our owngovernment was determined to keep the implications of these arrangementobscure, we must now ensure that no public policy initiative interfere,even if indirectly, with prerogatives of foreign investors to maximizereturns from their Canadian investments. However, we now have an opportunity,which is quickly closing, to defeat proposals to extend these draconianinvestment regimes throughout the world.
The Canadian Federal government is a leading proponent of the MIA proposalsthat are proceeding at the OECD and in APEC, we must expose its positionand make clear to Canadians what the consequences of these regimes arelikely to be.
Decoding trade speak - a glossary of trade and environment terminology
GATT General Agreement on Tariffs and Trade, originally negotiated in 1947,and now included as part of the WTO.
TBT s
Technical Barriers to Trade, this is GATT speak for all types of governmentregulation, from labelling standards to workplace health and safety regulation.Because such regulations can interfere directly, or indirectly with trade,under the WTO all regulations, including all environmental regulations,are characterized in this way!
SPS
Sanitary and Phytosanitary Measures, this is GATT speak for agriculturalstandards that includes all pesticide and food-safety regulation.
PPMs
Production and Process Measures, this means standards that address howthings are made, rather than to their physical characteristics. Most environmentalstandards fall into this category, as do all workplace health and safetyregulations.
Countervail
Duties or tariffs that are imposed on imports to compensate for foreignsubsidies that have provided imports with an unfair competitive advantage.
MEAs
Multi-lateral Environmental Agreements, such as the Montreal Protocol onOzone Depleting Substances, the Basel Convention on the Transboundary Shipmentsof Hazardous Waste and Convention on International Trade in EndangeredSpeicies.
TRIPs
Trade Related Intellectual Property Righs - these include trademarks, copyrightand patents.
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NGOs working on international trade
The following groups and organizations maintain Web sites which often provideeasy access to publications and other useful materials.
The Canadian Environmental Law Association (CELA), Toronto Canada.
The Sierra Club of Canada, Ottawa Canada.
Rural Advancement Foundation International (RAFI), Brandon Manitoba.
World Wildlife Fund for Nature, Gland Switzerland.
Public Citizen, Washington, D.C.
Centre for International Environmental Law, Washington D.C.
International Forum on Globalization, San Francisco California.
Third World Network, Penang Malaysia.
Foundation for International Environmental Law and Development (FIELD),London England.
Institute for Agriculture and Trade Policy, Minneapolis Minnesota.
Greenpeace International, Amsterdam, Netherlands.
Community Nutrition Insititute, Washington, D.C.
Friends of the Earth, both the International (London England) and US(Washington D.C.) Offices
Other Organizations and Resources
International Institute for Sustainable Development, Winnipeg Manitoba
United Nations Environment Program, Nairobi Kenya.
The World Trade Organization, Geneva Switzerland.
The United Nations Centre on Trade and Development, New York, New York.
FOOTNOTES
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{1} See, the WTO, The Results of the Uruguay Round of the MultilateralTrade Negotiations: the Legal Texts.
{2} Among the various trade agreements for which the WTO has responsibilityis the original General Agreements on Tariffs and Trade (GATT) as thatagreement has been amended, and a number of other agreements that are specificto various aspects of international trade such as agriculture, technicalregulation, investment, services and intellectual property.
{3} See for example, Robert Reich, The Work of Nations: Preparing Ourselvesfor the 21st Century Capitalism 113 (1992).
{4} See "Reformulated Gasoline" case note under 2.6 below.
{5} The Federal Minister for International Trade in response to a questionposed on the House of Commons Order Paper, see Frank Tester, "FreeTrading the Environment," in Duncan Cameron, ed., The Free Trade Deal(Toronto: Lorimer and Company, 1988).
{6} The exception to this rule is the Agreement on Intellectual PropertyRights which actually mandates a number of legislative and procedural measuresthat all countries must establish..
{7} Supra fn. 1, Ministerial Decisions adopted by Ministers at the Meetingof the Trade Negotiations Committee in Marrakesh on 14 April 1994: Decisionon Trade and Environment.
{8} Para 197 "Report of the Committee on Trade and the Environment,Nov.8 1996.
{9} Cite See for example Articles 3.5 of the United Nations FrameworkConvention on Climate Change, and Article 16.2 of the Convention on BiologicalDiversity (1992).
{10} See United States - Restrictions on Imports of Tuna, GATT Doc.DS21/R, B.I.S.D. (39th Supp.) and United States - Restrictions on the Importsof Tuna, GATT Doc. DS/29R (June 1994), unadopted.
{11} . 16 U.S.C. 1361-1421 (1994)
{12} Those familiar with the circumstances of this dispute will knowthat concerns have been raised about the motivation or appropriatenessof the US embargo.Like most resource conservation or environmental lawsthe MMPA is an imperfect instrument for achieving its environmental / conservationobjectives. For example, the MMPA still allows the "incidentally"killing of dolphins by the US fleet. For this and other reasons the caseis regarded by many third world
However, and perhaps unfortunately, the GATT panel expressed no reservationabout the intent or effectiveness of US marine mammal protection laws.Had the panel done so, and resolved the dispute on that basis, then thecase would have little relevance to other environmental initiatives. Instead,the panel embarked on a broad ranging interpretation of GATT rules thatwould, if followed, create an onerous series of obstacles for environmentalor resource conservation initiatives to overcome, several of which hasparticular relevance to MEAs.
{13} Fortin,c.(1991) Commodity Issues at UNCTAD VIII. Paper given atUNCTAD/NGLS consultation on UNCTAD VIII. Geneva, Dec. 1991.
{14} See Raw Log export case, infra.
{15} See agriculture below.
{16} See NAFTA, Articles 608.2 and 2102.
{17} See US Federal Register, FR 57 2261(On).
{18} See for example, " An Environmentalist and First Nations Responseto the Canadian Standards Association Proposed Certification System forSustainable Forest Management", October, 1995, issued by twenty-fivegroups, available at the Canadian Environmental Law Association.
{19} See Canada - Measures Affecting Exports of Unprocessed Herringand Salmon, GATT Doc. L/6268, B.I.S.D. (35th Supp.) 98 (adopted Mar. 22,1988).
{20} Lehman and Krebs, "Control of the World's Food Supply"in The Case Against the Global Economy 1996, Sierra Club Books, San Francisco.
{21} United Nations, Food and International Trade, World Food Summit,1996/TECH, Section 3.28.
{22} Goldin Knudsen and van der Mensbrugghe "Trade Liberalisation:Global Economic Implications, OECD/World Bank, Paris, 1993.
{23} Mark Ritchie; "Reflections on the World Food Summit",Dec. 1996, The Institute for Agriculture and Trade Policy.
{24} GATT and Third World Agriculture; the Ecologist, Vol.23, No.6,Nov/Dec 1993.
{25} Globe and Mail (Aug.12, 1995).
{26} NAFTA Article 605.
{27} Idem.
{28} NAFTA Article 608.2.
{29} See Arden-Clark, Environmental Taxes and Charges and Border TaxAdjustment - GATT Rules and Energy Taxes, World Wildlife Fund for Nature,Gland Switzerland, 1994.
{30} The Working Party on "Border Tax Adjustments" 1968-1970.
{31} Wall Street Journal, Johnathan Dahl, "Perilous Policy: CanadaPromotes Asbestos Mining, Sells Carcinogenic Mineral Heavily in Third World",Dec.9, 1989.
{32}. Globe and Mail, Report on Business; Andre Picard and Harvey Enchin,"Quebec planning to fight US asbestos ban", July 7, 1989:
{33}. Idem.
{34}. Mines Minister Raymond Savoie, supra fn. 25.
{35} French asbestos ban blow to Quebec - Chain reaction in other countriesfeared" Globe and Mail July4, 1996]
{36}Government fo Canada Stepping up Action to Fight French AsbestosBan, McLellan and Eggleton say, Natural Resources Canada & ForeignAffairs and International Trade, October 8,1996.
{37} United States - Standards for Reformulated and Conventional Gasoline,WTO Doc. WT/DSR/R (Jan. 29, 1996), 35 I.L.M. 274
{38} The Gasoline Rule prohibited the sale of conventional gasolinein these areas and mandated a 15% reduction in VOC and Nox emissions fromreformulated gasoline products, as measured against a 1990 baseline year.For conventional gasoline sold elsewhere, levels of contaminants neededto be held at levels no worse than 1990 baseline levels.
{39} Agreement on Trade-Related Aspects of Intellectual Property Rights,Article 27.
{40} Vandana Shiva and Radha Holla-Bhar, Piracy by Patent: The Caseof the Neem Tree, in the Case Against the Global Economy, Ed. Jerry Manderand Edward Goldsmith, Sierra Club Books, San Francisco, 1996.
{41} Aaron Cosbey, The Sustainable Development Effects of the WTO TripsAgreement: A Focus on Developing Countries, the International Institutefor Sustainable Development, Feb. 1997.
{42} See for example the Convention on Biological Diversity (1992) Article16: Access to and Transfer of Technology.
{43}. Laura Eggerton, Ministers Reject use of Loopholes to Cut DrugPatents, Globe and Mail, Mar. 6, 1997.
{44} Tony Clarke, The Corporate Rule Treaty: A Preliminary Analysisof the Multilateral Agreement on Investments (MAI) which Seeks to ConsolidateCorporate Rule, Canadian Centre for Policy Alternatives, Ottawa 1997.
{45} The Federal government explains its approach to effectively banningMMT as being necessary given the limits of the Canadian Environmental ProtectionAct, which was at the time in the process of being over-hauled.
{46} Laura Eggerton, "Ethyl sues Ottawa over MMT law", Globeand Mail, April 15, 1997.
{47} Idem.
{48} Mark Vallianatos, Analysis of the Draft Multilateral Agreementon Investment Negotiated by the OECD, Friends of the Earth US, April 20,1997.
{49} Idem.
Common Front on the World Trade Organization
c/o Sierra Club of Canada
412-1 Nicholas Street, Ottawa, Ontario K1N 7B7
Tel: 613-241-4611
Fax: 613-241-2292
e-mail: [email protected]