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GATT, trade, and the environment.

The author discusses recent conflicts between environmentalists and traders. He warns the reader of the dangers of environmental barriers to trade which are not based on sound scientific evidence. After detailing potential future conflicts between trade and the environment, the author recognizes that compromises will have to be made, and finishes with a plea for traders and environmentalists to discuss their differences and find common ground.

To most Americans, GATT(1) is an acronym of anonymity. Few even know what GATT stands for, let alone where it is located, who its members are, or what it does.(2) Considering that the GATT oversees the annual functioning of some five trillion dollars in international trade, such anonymity may or may not be welcome, For too many environmentalists, the GATT is known as the enemy. Some recently named it "GATTzilla," as if this quiet United Nations institution on the shores of Lake Geneva could wreak environmental havoc.

Environmentalists "discovered" the GATT and trade only recently. Even more recently, during the 1991 congressional debate on giving the Bush Administration "fast-track" negotiating authority(3) for the North American Free Trade Agreement (NAFTA), the traders(4) discovered the environmentalists. In that debate, environmentalists tried to impose environmental conditions on the granting of fast-track authority. Although the environmentalists did not totally succeed, they did persuade Congress to require the Administration to submit an "environmental plan" when it submitted the text of the draft trade agreement to Congress.

The Administration's trade officials were surprised and displeased by the environmentalists' limited success. They viewed the "environmental plan" as an unnecessary muddying of the trade waters. At that time, the administration was not only trying to negotiate NAFTA, it was endeavoring to complete the Uruguay Round.(5) The Administration likened the environmentalists' insistence on establishing environmental criteria for trade policy to the mixing of apples and oranges. Only reluctantly, when it appeared the fast-track authority would not otherwise be granted, did the Administration agree to submit the separate "environmental plan."

Environmentalists, on the other hand, especially the more radical and uninformed elements, viewed the Administration's efforts to liberalize international trade as inherently prejudicial to the environment. They feared that NAFTA would further degrade the environment along the U.S.-Mexico border, already heavily populated by the maquiladora or "807" industries.(6) The environmentalists also took an early stance that the GATT and the environment were fundamentally opposed to one another. The GATT advocates the most efficient allocation of resources regardless of origin, and environmentalists believe that such efficient resource allocation almost automatically leads to environmental damage and ignores other, less quantifiable mores.

The "tuna-dolphin" case(7) subsequently heated up the conflict between the traders and the environmentalists. This case was ironically brought to the GATT by Mexico and, equally ironically, put the United States and the Bush Administration on the defensive for enforcing the Marine Mammal Protection Act of 1972 (MMPA).(8) The MMPA bars the import of canned tuna if the tuna are caught in a manner which injures or kills more dolphins than U.S. fishing boats are allowed to injure or kill.(9) The Mexicans used a fishing process which netted dolphins with the tuna, a clear violation of the MMPA. The United States reluctantly enforced the MMPA's provisions, and Mexico took the United States to the GATT on grounds that the MMPA and its enforcement discriminated against foreign exporters. On very narrow grounds, the GATT panel(10) upheld Mexico's claim.(11)

American environmentalists were outraged, saying that the Bush Administration had allowed the GATT to weaken a key environmental law, and that the United States would hereafter be forced to adopt less stringent national environmental standards to satisfy its international GATT obligations. Cooker heads prevailed when environmentalists realized, to their chagrin, that secondary boycotts of non-tuna-fishing countries could also be mandated under the MMPA. The Administration and environmentalists have since moved jointly with Congress in an attempt to clarify certain aspects of the MMPA.

However, the damage was done to the GATT's image. Environmental radicals painted pictures of Geneva trade bureaucrats killing Flipper the dolphin, and plastered Washington, D.C. lamp-posts and the United States Trade Representative's (USTR) building with posters depicting "GATTzilla" destroying the Capitol, spewing the pesticide DDT in its path, and shouting "What You Don't Know Will Hurt You."(12)

As a senior trade official in the Carter and Reagan Administrations, both in Geneva and Washington, I had become increasingly concerned about the linkages between trade and the environment, and the lack of a forum within the federal government for discussing these linkages. The first concrete case where the two disciplines were linked, however indirectly, was perhaps the famous beef hormone case involving the European Community (EC) and the United States.

The beef hormone case dealt with an EC-wide limitation, and ultimately, ban on the sale of beef for human consumption which contained certain beef hormones. Such hormones had been used regularly for a number of years in the United States with full Food and Drug Administration approval. Without any scientific basis, European environmentalists ("greens") persuaded members of the European Parliament to enact legislation limiting sales of beef containing these hormones. Large quantities of such beef just happened to come from the United States ($145 million worth per year); hence, American trading interests would be immediately and negatively impacted by the Parliament's limitation.

In the mid-1980s, while Deputy U.S., Trade Representative, I raised the hormone issue repeatedly with my EC counterparts on at least two grounds. First, where was the scientific basis supporting such a ban? Second, what guarantees would the United States have that the ban would be carried out in a nondiscriminatory fashion? The latter question was important, because the EC has had a long history of maladministration of sanitary and phytosanitary(13) laws against foreign interests, while the first question dealt with the then-accepted international norm that no environmental or standards barriers should be erected without some scientific or technical justification.(14)

The USTR and the Department of Agriculture knew that the EC had commissioned a study on the effects of the beef hormones in question, that the study had been completed and was in near final draft, and that its conclusions were extremely damaging to the EC position. The study found absolutely no harmful effects from any of the hormones in question. Indeed, according to the study some of the hormones being used might enhance human health! To this day, the EC Commission in Brussels has never allowed that report to surface for fear of angering the European Parliament and the greens who, during that period in the 1980s, exercised important political power throughout Europe.

So what did the United States face in this skirmish over beef hormones? We knew, and the EC Commission knew, that there was no scientific basis to the limited ban on beef hormones, yet this had been kept from the European public by the EC Commission, the very entity charged with fair and honest administration of EC trade rules and regulations. We knew, and the EC Commission know, that the greens had been quietly supported in the campaign against beef hormones by some European beef producers who, although they used the same hormones for their cattle, wanted to stop U.S. producers from increasing their share of the European market. In short, the beef hormone affair had a protectionist undercurrent. Finally, we knew, and the EC Commission knew, that even if the Parliament's ban became the law in each of the twelve member states of the EC, several states (France and Italy in particular) would only lightly, if at all, enforce the ban against domestic cattle. in short, the United States faced a situation where $146 million worth of annual beef exports were threatened by an environmental measure which had no scientific justification. On January 1, 1989, the Parliament"s law went into effect vis-a-vis imports into the EC. U.S. beef exports to Europe dropped to zero overnight, but the law did not simultaneously inhibit the EC domestic beef industry.

The worst of our fears had come true. An environmental action affecting trade had been taken in a discriminatory fashion, inter alia for protectionist reasons, and with no scientific justification. The beef hormone case, which has yet to be resolved despite millions of dollars in lost sales by American beef producers, was USTR's "baptism of fire" on the environmental front, and it should have been a warning to us at USTR that we could ignore environmental issues only at our peril. However, trade people traditionally resist the introduction of new issues into trade matters, believing that trade issues are difficult enough to resolve without inserting new and possibly extraneous factors into already complex trade equations.

The GATT itself, in Article XX, gives broad latitude to participating Parties to deal with environmental concerns, although, at the time the GATT Articles were drafted in 1947, the environment was hardly the political and economic issue it is today,. In essence, Article XX empowers GATT Parties to protect human health, flora, and fauna, provided they do so in a nondiscriminatory manner.(15) Indeed, Parties have negotiated some 127 multilateral environmental agreements since 1933, and ten of the nineteen agreements dealing with flora and fauna have trade enforcement provisions, as do four of the five phytosanitary agreements.(16) However, although Parties have used the trade tool as an environmental enforcement mechanism, they have never used a GATT trade agreement solely to advance an environmental objective.

Article XX, written forty-five rears ago, is not very environmentally relevant or current, which causes environmentalists grave concern. Trade professionals are also increasingly concerned that the GATT is not well equipped to address environmental matters having a trade impact. At the same time, these professionals fear that the delicate GATT structure and balance, painfully built up over the past forty-five years, could be toppled by the environmental question. The traders worry that the environmentalists and their governments will ask the GATT to perform an environmental enforcement function by conditioning trade liberalization measures on conformity to environmental criteria. This in something the current GATT provisions do not envision or do well.

Even if the GATT were to successfully address concerns over human health, flora, fauna, and species preservation, the GATT would face still greater difficulties in trying to address concerns over competitiveness in the manufacturing realm. For example, suppose a foreign government provides financial retooling assistance to a firm because that firm's current production processes are environmentally unsafe (a so-called green subsidy), Furthermore, suppose that as a result of the subsidized retooling, that firm becomes more competitive internationally. Has that government given the firm an unfair advantage in violation of either the GATT or American law? Under U.S. law, if injury to American producers could be shown, the foreign government's assistance would be countervailable. Under GATT subsidy doctrine, the answer is less clear. However, a number of GATT Parties are becoming increasingly sensitive to the green subsidy question.

Another potential source of conflict occurs when a foreign government has less stringent environmental laws than, say, the United States. Is that alone a disguised subsidy, countervailable under U.S. law? Some in Congress deem it so, and have introduced legislation in the past two or three years to make it clear that lax environmental standards overseas are potentially vulnerable to U.S. countervail action.(17) One can readily imagine - and shudder at - the impact of such unilateral, extraterritorial applications of a nation's law. The potential for protectionist mischief boggles the mind.

The competitiveness question arose during the negotiation of the Montreal Protocol on Substances that Deplete the Ozone Layer.(18) The substances in question are largely chlorofluoro-carbons (CFCs) and, inter alia, are important in semiconductor production. If Japan, for example, does not subject its semiconductor producers to the same stringent disposal regimes the United States imposes, then the Japanese producers have a slight but real competitive advantage over other producers in semiconductors, when even minute differences in price can mean the difference between winning or losing a major contract. Happily, the world's major producers of semiconductors all agreed on the need to phase out CFCs in their production processes, and both trading and environmental interests were accommodated. Unfortunately, consumer costs will probably increase because the new processes will cost more than the old - another sticky problem when dealing with trade and the environment.

The same issue may soon arise with refrigerators, because U.S. producers are required by a certain data to use non-CFC, more-expensive gases as refrigerants, and a nonsignatory to the Montreal Protocol may permit its refrigerator producers to use cheaper CFC gases such as freon. This becomes a very large trade issue in dollar terms when dealing with a nation such as China, a nonsignatory to the Montreal Protocol, which is determined to provide a refrigerator in every Chinese home by the year 2000. What has the world gained if one part of the globe does the "right thing" and another part does not? The competitive position of the U.S. refrigerator producers has been hurt, the consumer of the U.S. product faces a higher cost, and there may be no net improvement to the world's environment because of Chinese inaction.

Another sticky question is whether one GATT member can take trade enforcement action against another GATT member, when the latter does not abide by the same environmental agreements as the former. For example, can the United States take trade action against another GATT member's products which are inconsistent with the provisions of an environmental agreement, when the United States is a Party to the agreement but the other GATT member is not? It is clear that the United States can take much action against a non-GATT member.

The problem of competitiveness in the trade-environment debate will, in my view, become the most divisive issue as that debate continues. Policy-makers will often have to choose between measures that improve the environment and measures that improve the nation's competitiveness. In some cases the two will intertwine, but often the two will conflict. Choices will sometimes have to be made between the environment and jobs, not unlike the ongoing debate in the Pacific Northwest over the fate of the spotted owl and old-growth timber.

The good news for traders is that cleaning up the environment can be profitable. Western, and particularly American, environmental technologies are advanced, and a growing market exists for such technologies. Will environmentalists accept the concept that a profit should be made from "doing the right thing?" Until recently, environmentalists tended to take an anti-business point of view, expecting businesses to clean up the environment at their own expense, when, in reality, "their" expense is everybody's expense. Domestically or internationally, the key to cleaning up the environment and preserving the "good earth" As to make it profitable to do so. The private sector is responsible for most of the environmental degradation now, and the private sector will do most of the cleaning up.

In the developed world, one of the major problems for traders and environmentalists alike is that developing countries fear the recent emphasis on the environment. Many less developed countries (LDCs) believe that the environmental movement of the Organization for Economic Co-operation and Development (OECD)(19) countries is it manifestation of their protectionist tendencies. Such suspicions tend to be confirmed when, for example, the LDCs see U.S. environmentalists team up with the AFL-CIO to oppose the NAFTA trade negotiations. Even more ominous for Asian and African LDCs is the sight of American environmentalists joining hands with American labor unions and heavily protected American industries (such as the steel, sugar, and textile industries) in opposing the GATT Uruguay Round negotiations. This teaming tip of the environmental and labor movements on the international trade question, while perhaps understandable in U.S. political terms, is seen abroad as further evidence that American concern for the environment is protectionist driven. Hence, it is understandable that LDC GATT parties are reluctant to see the GATT become overly involved in environmental matters. They fear that the GATT will devise trade measures intended to benefit the environment, but which are against the economic interests of the LDCs. This partially explains why, from its inception in 1971 until 1991, the GATT's own Group on Environmental Measures and International Trade never met.

If one of the crucial elements in addressing the global environmental crisis is the need to act globally, with all the trading nations of the world participating, then the very tricky question of technology transfer from rich countries to poor countries will have to be addressed. Forced technology transfer is a difficult political matter at best; the United Nations Conference on Trade and Development (UNCTAD) has tried unsuccessfully to mandate such transfers. Yet without liberal access to environmentally safe technologies, poorer developing countries will continue to use outdated and environmentally unsafe chemicals, processes, and materials, employing their competitive advantage in labor costs to overcome whatever efficiencies the newer and cleaner technologies might have offered. Although not a GATT issue per se, the question of technology transfer is certainly a trade question. How the trading world deals with this nagging problem will, in substantial measure, determine how successfully the environmental movement enlists the developing nations.

Although many other trade-environment questions could be explored in this paper, one deserves special mention - the question of standards. As noted above, in 1979 the GATT negotiated a Standards Code designed to eliminate the nontariff trade barrier aspects of individual GATT parties' standards laws.(20) The evidence is overwhelming that standards rules and regulations can be as effective a barrier to free trade as the most onerous tariff or quota. The 1979 Code set forth certain basic principles regarding standards as they affect trade, such as transparency, equivalency, Most-Favored-Nation application and the like. In pure trade terms, the Standards Code has been an overwhelming success - one of the real achievements of post-war trade negotiation.

But with the environment now a major issue on the trade scene, the standards question has taken on a new note of urgency. Consider, for example, the American situation. Often, state and local jurisdictions enact the majority of the environmental rules. California is a prime example. If you want to do business in California, you have to abide by that State's environmental laws. The same is true in Minnesota, Massachusetts, and a growing number of other states. The Reagan and Bush Administrations, under the Federalism doctrine they embraced, did little to counter this trend, believing on philosophical grounds that state and local jurisdictions can best handle their own affairs without the heavy hand of Washington.

But, if you were a foreign manufacturer of widgets, and your widgets met all the federal environmental standards, you might naturally believe your product could be sold anywhere, in the United States. Wrong. If your product didn't meet California's standards, you could sell it everywhere but in California or, alternatively, you could create a separate production line for your product destined for the California market. But what if twenty states all had different environmental standards for the same widgets? Then a real nontariff trade barrier has been created, your legitimate trade interests have been negatively impacted, and trade will inevitably suffer.

Although this example may seem far-fetched, it is not. In 1990, California almost passed Proposition 65, which would have established a whole galaxy of California product standards, few if any based on the slightest scientific evidence, but, rather, on what some Hollywood movie stars considered helpful or harmful to the environment. The voters in California defeated the proposed law, and spared the United States a major GATT challenge by nearly every trading nation in the,world.

Still, the dilemma remains. The environment is a middle-America issue now, and local jurisdictions, to say nothing of states and the federal government, want to "do the right thing." But we can't have 30,000 localities all passing their own environmental standards and still expect the global trading system to function. National governments must create uniform national standards to which all state and local jurisdictions have to conform. Otherwise, France could retaliate by allowing each of its over one-hundred departments to enact its own environmental standards, or Germany could allow each of its landers to do the same. The trade implications are enormous and pressing. Unless political leaders and environmentalists understand this, we will surely see our trading interests impaired.

In the end, traders and environmentalists will have to work out their differences. Neither side can have everything. Compromises will have to be made on a number of fronts, and occasionally, hard choices will have to be made in favor of one side or the other. And there will be costs, either to our trading interests or to our environmental interests, or both. The GATT can provide a forum where rules of the road on trade and the environment can be worked out. Indeed, it may be highly appropriate that as soon as the Uruguay Round is completed, the GATT and its contracting parties seriously consider a new, Green Round to address environmental issues as they relate to trade. To be sure, some of the rules emerging from such a Round would suffer from the ailment of the "lowest common denominator"; not all the new rules will reach the highest environmental standards. But in this case, something is better than nothing, especially if the trading world can come together and reach new trade agreements which protect and enhance the global environment.

Repairing the environmental damage to our planet is not just the job of a few wealthy countries. It is the task of every nation, and hence, solutions acceptable to all must be found. The GATT is a logical forum to do this. Trade is the lifeblood of many nations; it cannot be crucified on an environmental cross. Too many jobs are at stake, and the politics are too large.

The answer is for traders and environmentalists to seek out common ground and build on that. One has to hope that at heart, all traders are environmentalists, and all environmentalists want higher living standards for the world's citizens, which is what increased trade and the GATT are all about. We should welcome the fact the environment has entered the trade scene, and we should do all we can to bring trade and environmental interests together in a common cause, an environmentally better world enjoying the fruits of increased trade and international competition. (1.) The General Agreement on Tariffs and Trade, Oct. 30, 1947, 61 Stat, Part 5, 55 U.N.T.S. 187. The United States was an original signatory and has, in the four decades since 1947, been the driving force behind the trade liberalization negotiations, or "rounds of the GATT." (2.) One scholar said in 1951 before the Senate Finance Committee that "only the learned can communicate with it, and then only in code." Another witness before that 1951 hearing, himself one of the drafters of the GATT, said in what must be one of history's most candid statements, "I must admit I am thoroughly confused." Finally, a Senator was driven to state, "Anyone who reads GATT is likely to have his sanity impaired." John H. Jackson, World Trade and the Law OF GATT at vii (1969). (3.) "Fast-track" negotiating authority means that Congress grants the Administration the authority to negotiate a trade agreement, which is then submitted to Congress for approval on an "up-or-down" basis only no amendments permitted from the floor), and within a specified time frame. (4.) "Traders" in this essay refers to government officials who practice the art of international trade policy. (5.) The Uruguay Round, launched in Punta del Este, Uruguay, in September 1986, is the eighth multilateral trade negotiation conducted under the GATT's auspices. As of this writing, the Round is still under negotiation. (6.) The maquiladora or "807" industries are located on the Mexican side of the Rio Grande River. These industries import parts from U.S. sources in bond, assemble them into final products, and ship them back to the United States. The duty is assessed on the value added by Mexican assemblers. The term "807" refers to that section of the U.S. Customs Regulations permitting such traffic. Tariff Schedules of the United States Annotated, Schedule 8, Part I, [section 807 (1982) (currently found at 19 C.F.R. [sub-section] 10.171-.178 (1990)). Needless to say, American organized labor opposes this provision of U.S. trade. (7.) United States - Restrictions on Imports of Tuna, GATT Doc. DS21/R (Sept. 3, 1991). (8.) See 16 U.S.C. [sub-section] 1361-1407 (1988 and Supp. 1990). (9.) 16 U.S.C. [sections] 1371(a)(2). (10.) When two or more GATT parties take trade disputes to the GATT, a panel is formed (usually three people but sometimes five) to rule on the case. The panel's decision must be approved by the GATT Council before it becomes "law." Once approval is accorded, the "guilty" party must get rid of the offending trade practice or risk retaliation by the "winning" party. (11.) See United States - Restrictions on Imports of Tuna, supra note 7. (12.) Nancy Dunne, Fears Over "Gattzilla the Trade Monster," Financial Times, Jan. 30, 1992, at 3. (13.) Phytosanitary laws are plant sanitation and health measures. (14.) Agreement on Technical Barriers to Trade, in General Agreement on Tariffs and Trade, Basic Instruments and Selected Documents 8 (26th Supp. 1980) [hereinafter Standards Code]. (15.) An important type of nondiscriminatory treatment is called "Most-Favored-Nation." Most-Favored-Nation is the fundamental concept of the GATT, whereby a concession given by, one GATT member to another is granted automatically to all GATT members, without those latter members having to pay for the concession. (16.) United States Congress, Office of Technology Assessment, Trade and the Environment: Conflicts and Opportunities 16 Table 2.1 (1992). (17.) See, e.g., S. 1204, 101st Cong., 1st sess. (1989). (18.) The Montreal Protocol, signed in September 1987 and amended in 1990, is based on the 1985 Vienna Convention for the Protection of the Ozone Layer. The 1990 amendments speeded up the CFC phase-out schedule. See Montreal Protocol on Substances that Deplete the Ozone Layer, Sept. 16, 1987, S. Treaty Doc. No. 10, 100th Cong., 1st Sess., 26 I.L.M. 1541; S. Treaty Doc. No, 4, 102d Cong., 1st Sess. (1991), 30 I.L.M. 537; Vienna Convention for the Protection of the Ozone Layer, May 22, 1985, S. Treaty Doc. No. 9, 99th Cong., 1st Sess., 26 I.L.M. 1516; Report of the Second Meeting of the Parties to the Montreal Protocol on Substances that Deplete the Ozone Layer, U.N., Environment Programme, U.N. Doc. UNEP/OzL.Pro.2/3 (1990). (19.) The OECD is a grouping of 26 largely developed nations, headquartered in Paris. See Candice Stevens, The OECD Guiding Principles Revisited, 23 Envtl. L. 607 (1993). (20.) See supra note 14.
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Title Annotation:Trade and the Environment
Author:Smith, Michael B.
Publication:Environmental Law
Date:Apr 1, 1993
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