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The GATT: menace or ally?

The world's free-trade interests seem bent on expanding their commercial powers even if that means jeopardizing any conflicting environmental laws. Can these powers be turned to the Earth's advantage?

From Embassy Row to Capitol Hill in Washingon, D.C., it suddenly seemed as though they were everywhere: in the fall of 1991, posters began popping up around the city showing a "GATTzilla" monster with a dolphin in one hand and a can of pesticides in the other, crushing the U.S. Capitol under its foot. The caption: "What you don't know can hurt you." The posters were soon followed by a series of full-page advertisements in major newspapers around the country signed by a coalition of environmental and consumer groups warning that the General Agreement on Tariffs and Trade (GATT), the international agreement that stipulates world trade rules and arbitrates disputes over its terms, posed little-known but grave environmental threats. The ads called for a grassroots campaign to turn back efforts to expand GATT's powers through the Uruguay Round of negotiations, which had been underway since 1986 and was thought at the time to be nearing completion. (More than two years later, the Uruguay Round is still going around, though predictions are once again rife that a deal is near.)

How could an arcane international agreement to reduce trade barriers among more than 100 countries harm the environment? In a number of ways, according to the advertisements. Most fundamentally, the anti-GATT activists worried that environmental laws would be found to violate world trade rules - and would be overturned. The fear was aroused by a GATT dispute panel ruling that provisions of the U.S. Marine Mammal Protection Act violated the GATT, and it has been further excited by a rash of recent environmental trade disputes. For instance, Austria was recently forced to abandon plans to introduce a 70 percent tax on tropical timber, as well as a requirement that tropical timber be labeled as such, when the Association of Southeast Asian Nations (ASEAN) complained that the law violated GATT. In two ongoing disputes, the United States is charging that a levy imposed by the Canadian province of Ontario on non-refillable alcoholic beverage containers is a disguised trade barrier, and the European Community has formally challenged two U.S. automobile taxes intended to promote fuel efficiency - the Corporate Average Fuel Economy Law and the gas-guzzler tax.

The GATT-alarm ads painted a global conspiracy theory, according to which opponents of U.S. laws on environmental, health, and consumer safety legislation who had tried and failed to roll back decades of progress through the democratic process were now aiming to achieve their goals through the back door of the secretive, corporate-controlled GATT proceedings.

The international trade community was taken aback by this "demonization" of the GATT, which many viewed as a key to the relative prosperity enjoyed by nations in the post-war era - a triumph of efforts to protect the collectivc good over the selfish goals of "protectionist" special interests. Since its creation in 1947, the GATT has indeed been remarkably successful on its own terms. Over the course of seven different negotiating rounds, tariffs have been cut in industrial countries from an average of 40 percent in 1947 to 5 percent in 1990.

The characterization of GATT as an imposing monster bore a certain irony, since many countries look to the multilateral trading system embodied by GATT as a means of protecting their interests against efforts by economic powerhouses, especially the United States, to unilaterally impose their will on the world. Developing countries viewed the environmental campaign against the GATT with particular alarm, both as part of what they saw as an unfortunate tendency on the part of Northern Greens to care more about whales and dolphins than about people, and as a cover for more sinister efforts to keep Third World goods out of northern markets.

In the intervening years, some progress has been made in merging these clashing views. Governments have committed themselves to making trade and the environment "mutually supportive," though they have a long way to go before determining exactly how. The GATT itself, however, remains very much a product of its times. When the original agreement was forged in 1947, protecting the environment was not yet on most national agendas, let alone a pressing international concern. The General Agreement on Tariffs and Trade urgently needs updating and clarification if it is to become an instrument for furthering, rather than undermining, the goal to which governments pledged themselves at the June 1992 Rio "Earth Summit." That goal, the environmentalists like to remind the GATT, is to find a path to development that does not deplete the resource base upon which future economic well-being depends.

The Tuna-Dolphin Challenge

What brought the issue to a head in late 1991 was the outrage over a GATT panel's ruling that Mexico had a valid case in arguing that it should be allowed to import tuna to the United States regardless of how it was caught. Mexican fishers use dolphins as markers for tuna swimming below, before setting out purse-seine nets which then ensnare the dolphins as well as the targeted tuna. Though this practice was once also prevalent among U.S. fishers, the 1972 Marine Mammal Protection Act effectively outlawed it by mandating tight dolphin mortality quotas for domestic and imported tuna alike (see "The Tuna Test," World Watch, March-April 1992). The panel ruling sent shockwaves through the environmental community, as it called into question the GATT-compatibility of a gamut of trade measures used to achieve environmental ends.

Though there had been cases in the past in which health and safety laws had been challenged as trade barriers, the tuna-dolphin ruling provoked a far greater backlash. That Mexico had won its case meant that a U.S. law had been not only questioned but struck down - and that could have led to the law's repeal, as bucking GATT's authority would not stand the United States in good stead when its turn came to charge another country with being out of step with world trade rules. As it happened, the U.S. law remains in place because Mexico decided not to press the point, not wanting to antagonize the United States in the midst of negotiations over a North American Free Trade Agreement (NAFTA). Most fundamentally, however, the ruling provoked cries of alarm not because of any nationalistic pride on the part of environmentalists, but because of the reasoning employed by the GATT panelists. If similar logic were applied in future cases, provisions of a large number of national environmental laws and even international treaties could be overturned. The ruling thus focussed attention on shortcomings in the existing GATT text, and provoked an international discussion on what - if anything - should be done to change it.

At the heart of the GATT ruling was the notion that countries should not be allowed to use trade tools to influence practices outside their borders for environmental ends. This, according to the panel, would amount to foisting a country's own environmental laws and values on the rest of the world, thereby riding roughshod over the once-inviolable principle of national sovereignty. More specifically, the panel decreed that the GATT rules, which generally allow countries to apply national laws governing products (such as car emissions standards or pesticide residue limitations) to imported goods at the border, did not cover this case because it was the process by which the tuna was produced (the setting of purse-seine nets on dolphins), rather than the tuna itself, that was being rejected by the United States - and this process took place outside U.S. jurisdiction.

The flaw in this logic, in the eyes of U.S. environmentalists, at least, is that it makes no distinction between environmental issues of purely national concern and those designed to protect the global commons - the oceans and the atmosphere. By applying the "domestic borders" criterion, the judges determined, in effect, that there is virtually no way short of an international agreement for nations to protect the Pacific dolphin, whose habitat is not contained in any country's borders. Actions to reduce the use of harmful drift nets in fishing, protect tropical forests, or stave off ozone depletion or global warning would also be severely circumscribed. Ominously, even provisions of international agreements designed to protect the global commons could be found to be GATT-illegal based on this reasoning.

It was thus particularly exasperating to environmentalists when the GATT judges further argued that the lack of an international agreement on dolphin protection practices in tuna fishing made the U.S. action suspect. Though international agreements widely supported in principle, the process of reaching consensus can take years and even decades - time the world cannot often afford as global ecological decline continues its steady course. Indeed, nations had been trying for some time to reach an agreement on dolphin-friendly fishing practices, through the Inter-American Tropical Tuna Commission. In fact, it is most often a unilateral action by one country, sometimes backed by trade measures against others, that eventually spurs the international community to act collectively. Any challenges to the rights of countries to pursue these kinds of policies thus poses great threats to prospects for successfully heading off the deterioration of the biosphere.

The Implications

Under the logic of the tuna-dolphin ruling, other laws - many of them highly effective at achieving their environmental goals - could well be found to violate GATT if they were challenged. For instance, under a law known as the Pelly Amendment, the United States can prohibit the import of products from countries undermining the effectiveness of international fishery or wildlife agreements. Though the sanctions have never been invoked, the threat that they might be has brought about some significant changes in national behavior. It helped secure the participation of Iceland and Norway in the 1982 international whaling ban and of Japan and Taiwan in the U.N.'s 1993 worldwide moratorium on destructive drift net fishing, and helped convince Japan to stop importing endangered sea turtles for use in jewelry and eyeglass frames.

Though the United States has been the staunchest defender of the right to use unilateral trade tools for environmental goals, it is not alone in the practice. Despite its criticism of unilateral actions by the United States, the European Community has imposed a ban to take effect after 1994 on imports of furs from countries where painful "leghold" traps are permitted.

According to the GATT, at least 17 international environmental treaties involve limitations on trade - and could be rendered toothless if the tuna-dolphin reasoning holds up. Yet, in agreements like the Basel Convention on hazardous waste export, or the CITES treaty on endangered species, restricting trade is the very purpose of the agreement. In other cases, such as the landmark Montreal Protocol on depletion of the ozone layer, restrictions are used to try to prevent countries that have not signed the treaty from undermining its effectiveness. In the future, they may be needed to enforce compliance by uncooperative signatories.

This presents the world's governments with a momentous legal problem. With GATT aimed at limiting most restrictions on trade, and most environmental treaties requiring them, two sets of international agreements are in head-on conflict. Which treaty should take precedence? International law is unclear on this question. If the treaties in conflict are on roughly the same subject matter, and both parties to the dispute are signatories to both agreements, the most recent treaty generally prevails - which would tend to protect most environmental treaties. But trade and environmental treaties might not be viewed as sufficiently similar for this formula to apply. Furthermore, problems could develop if a country not party to the environmental treaty were to argue that GATT should rule - though so far, no such cases have arisen. To thicken the plot still further, successful conclusion to the Uruguay Round might mean that GATT would supplant the environmental treaties as the most recent agreement.

The Uruguay Round Threat

It was not just the tuna-dolphin wake-up call that riveted environmentalists' attention on the GATT in late 1991, but the Uruguay Round, which raised some troubling new environmental questions above and beyond the vulnerabilities revealed by the tuna-dolphin ruling. Now, in late 1993, the Uruguay Round is once again keeping taxis busy in Geneva, with governments working toward a December deadline - though longtime GATT-watchers are skeptical. Without considerable revisions, the Uruguay Round will likely meet with considerable environmental opposition if and when a deal is struck.

If completed, the Uruguay Round will expand GATT controls in a number of areas, including agriculture, services, and intellectual property, many of which promise to have wide-ranging environmental implications. Unfortunately, exactly how a given reform would affect the environment is often a complicated question that can cut many different ways - some positive and some negative. And governments seem to be heading toward committing themselves to these changes with little study - or understanding - of their implications. For this reason, three U.S. groups that were prime backers of the late 1991 ad campaign (Friends of the Earth, Public Citizen, and the Sierra Club) filed suit with the U.S. District Court, arguing that trade negotiations should be subject under U.S. law to environmental impact statement procedures. In an important victory, Judge Charles Richey ruled in the groups' favor in June, finding that such an assessment is required for the North American Free Trade Agreement. The Clinton Administration. has announced plans to challenge the ruling. If the ruling holds, it would likely also apply to the GATT negotiations.

Though the environmental implications of a vast agreement like the Uruguay Round are not well understood, a diverse array of interests has raised concerns about aspects of the agreement. Family farm groups worry that the reduction of agricultural subsidies envisioned under the pact will be about as helpful to them as a plague of locusts. They have enlisted some environmental support for their campaign, arguing that smaller farms are often more ecologically sustainable than large ones. (A good example of how these things can cut both ways, however, is that reductions in agricultural subsidies can also mean reductions in production, which means less use of inputs such as toxic pesticides and scarce water.) Another concern is that exports of unsustainably-produced commodities, including agricultural, timber, and mineral products, might be stepped up as a result of tariff reductions on these goods.

Developing countries fear that provisions sought by the North to strengthen intellectual property rights protection in developing countries might impede the transfer of environmentally advanced technologies such as solar photovoltaic cells and energy efficient furnaces. They also fear that this would make it easier for pharmaceutical and agribusiness interests to monopolize products made with biotechnology, while jeopardizing developing countries' rights to remuneration for biological resources extracted from their territories - the recognition of which was viewed by many as the linchpin of the treaty on biological diversity agreed to at the Earth Summit.

The greatest focus of concern, however, has been that with many quotas already eliminated and tariffs drastically reduced through previous negotiating rounds, the Uruguay Round now has its guns aimed at the reduction of so-called non-tariff barriers to trade. The problem is that what looks to one country like a non-tariff barrier to trade is often another's hard-won environmental law, as the recent string of environmental trade disputes makes clear. For instance, in the Ontario-U.S. "bottle battle," U.S. negotiators are convinced the tax on non-refillable bottles is really aimed at keeping out U.S. beer, which is mostly sold in cans, while Ontario environmentalists insist that the levy is critical to preserving the province's 99 percent rate of bottle refilling, one of the highest in the world.

The draft text of the Uruguay Round addresses two different categories of product "standards": those designed to protect food safety, such as pesticide residue limits ("phytosanitary standards"), and so-called "technical barriers to trade" - a broad class that could include just about any specification, including car emissions standards, environmental labeling programs, and recycled content requirements, among others. In both cases, the Uruguay Round promotes the "harmonization" of these laws as a way to prevent unnecessary trade barriers. Environmental and consumer advocates fear that the "harmonization" will be downward, creating a least common denominator effect that would jeopardize countless environmental protections at the national and local levels.

The text does allow for nations to exceed the agreed international norm under certain conditions - such as a demonstration of "scientific justification," or a proof that the "least trade-restrictive" approach possible was used to meet a given environmental goal. Some trade specialists argue that these conditions are necessary to ferret out cases in which countries are wrapping what is really protectionism in a green cloak. They point out with suspicion, for example, that the Ontario non-refillable tax applies only to alcoholic beverages, and not to soft drinks, which, unlike beer, Ontario companies sell in cans in abundance.

Though at first glance these tests seem innocuous enough, they may prove a major obstacle to environmental progress. For one thing, scientists hold widely divergent views on questions of major importance to environmental policymaking, and might thus disagree among themselves on the question of "justification." And the messy political fact of the matter is that laws are often passed because of unholy alliances among those who stand to gain. A requirement that a given measure be the "least trade-restrictive" could easily be enough to doom any action at all.

Environmentalists also charge that the "harmonized" standards are set through a secretive, undemocratic process dominated by industrial interests. And if a national law were challenged as a trade barrier, the case would be heard behind closed doors by a panel of professors and bureaucrats steeped in the intricacies of world trade law, but not in the exigencies of the planet. Judgment on whether or not a law was "scientifically justified" would be handed down by an appointed GATT panel, rather than by an elected legislature. To make matters worse, the latest draft of the Uruguay Round would make it far more difficult for a country to block a panel report not to its liking. Under the current rules, adopting a panel report requires unanimous consent; Under the new ones, unanimity would be required to reject a report.

The Uruguay Round also includes plans to create a new Multilateral Trade Organization (MTO) to give institutional form to the GATT, modeled on the International Trade Organization that was originally envisioned in the 1940s, but that was never created, in part due to concerns in the U.S. Congress over the potential invasion of sovereignty. It was a measure of the gulf between the trade and environment communities that just as public concern over possible conflicts between trade and environmental goals was reaching new heights, plans were moving ahead to create a sweeping new institution with little if any attention given to the environmental implications.

No Time Like the Present

As governments work to wrap up the seemingly-endless talks, they, are resistant to introducing too many changes that could unravel the delicate balance achieved in the previous years of arduous bargaining. However, in the face of an international campaign by citizen's groups, some limited changes are likely to be introduced.

The U.S. government is finding itself in a particularly delicate position, as it was able to incorporate into the North American Free Trade Agreement some of the changes that the environmental and consumer activists are also urging for the GATT. It is thus under pressure to include some of these changes in the Uruguay Round discussions. For instance, under the NAFTA, the "scientific justification" test for standards deviating from international norms was loosened to require only the demonstration of a "scientific basis" for the law. In addition, the NAFTA suggests that harmonization should be in an upward direction. In the area of dispute resolution, NAFTA may again pave the way for needed changes. Unlike the GATT process, the NAFTA requires environmental expert advice to be provided if one party to the dispute requests it, and usually places the burden of proof on the country challenging, rather than the one defending, a domestic environmental law.

More far-reaching reforms are also being contemplated. For instance, governments could agree to open the doors of dispute resolution proceedings to non-governmental observers, mandate environmental expertise for certain cases rather than merely permit it, and make documentation freely available. Meanwhile, hundreds of environmental groups from around the world have joined forces to protest the inclusion of the Multilateral Trade Organization (MTO) in the Uruguay Round. They argue that time should be taken to design an MTO that takes the environment and sustainable development adequately into account.

There are a number of issues that governments still need to take up if the GATT is to be thoroughly greened. With governments resistent to overloading the Uruguay Round agenda, pressure is building for a more extensive environmental negotiation once the current talks are completed. Indeed, governments are already laying the groundwork for such talks in negotiations at the Organization for Economic Cooperation and Development and in a working group of the GATT itself. Former GATT Director-General Arthur Dunkel has called for the next GATT round to be an explicitly "green" one, as has U.S. Senator Max Baucus, chair of the Senate Environment Committee and the Finance Committee's trade subcommittee. The largest U.S.-based environmental group, the National Wildlife Federation, is making its support for the conclusion of the Uruguay Round conditional on a commitment by governments to undertake these more far-reaching negotiations - and on a timetable for doing so in the event the Uruguay Round drags on for some years hence.

Fixing Tuna-Dolphin

The obvious first priority in such a negotiation would be to address the shortcomings of the current GATT agreement that were exposed by the tuna-dolphin ruling - the ominous ambiguity as to whether or not it is (or should be) consistent with GATT for countries to use trade tools to protect the environment outside their borders. Rather than enter into a protracted negotiation to amend the GATT articles in question in the tuna-dolphin case, the GATT member governments could simply clarify their interpretation of the existing text. Contrary to conventional belief, Steve Charnovitz of the Washington, D.C.-based Competitiveness Policy Council argues that at the time the agreement was written, governments were well acquainted with the use of trade tools for conservation purposes, and intended to protect the prerogative of countries to use them. Charnovitz maintains that the tuna-dolphin panel members misread the existing text.

Another panel is currently re-examining the logic behind the earlier ruling, as the European Community - the target of a secondary U.S. embargo imposed on countries that purchase tuna caught in dolphin-killing nets - has now lodged yet another complaint against the disputed provisions of the U.S. Marine Mammal Protection Act. If the members of the new panel were to concur with Charnovitz's interpretation of the existing GATT, there would be far less need to amend the agreement in this area.

Though the unilateral use of environmental trade measures has surprisingly few defenders beyond the United States, there is somewhat greater support for them when undertaken through international environmental agreements. The NAFTA addressed the problem by stipulating that where there are conflicts between the provisions of the NAFTA and those of three international environmental agreements (Montreal, Basel, and CITES), the international environmental agreement shall in most cases prevail. The provision is not as far-reaching as some environmentalists had hoped for (agreements other than these three are not protected), but the provision represents a considerable improvement over the GATT status quo, and could serve as a model. Unfortunately, recent indications are that many GATT members may wish to limit, rather than protect, the use of trade measures even in international agreements.

Green Subsidies

The second priority in an extended "green" round is to address GATT's position on the relationship between subsidies and environmental protection. The GATT generally frowns on subsidies as trade distortions, and in some instances allows countries to impose "countervailing duties" on imports to compensate for them. These rules could threaten some environmentally helpful government programs, such as subsidies for the development of pollution control technology. On the other hand, GATT could also provide a powerful green weapon with which to attack environmentally damaging subsidies such as the $36 billion paid in energy subsidies by U.S. taxpayers, according to a recent report by the Washington, D.C.-based Alliance to Save Energy, or the implicit subsidy provided by granting logging companies cut-rate access to federal lands.

Under current GATT rules, the scope for challenging such subsidies is limited, though in one example of the potential, the European Community has recently listed subsidized water sales in California as an unfair trade practice. A "Green Round" could make a significant environmental contribution by overhauling its subsidy rules so that the harmful ones would be at least as vulnerable to challenge as the beneficial ones - if not more so.

Another idea gaining support is to define lax environmental protection or enforcement as an unfair subsidy, making it possible to levy countervailing duties or take other compensating action. Lower standards do add up to a sizable hidden subsidy, according to the World Commission on Environment and Development, which estimated that developing countries exporting to the OECD countries in 1980 would have incurred pollution control costs of at least $5.5 billion if they had been required to meet the requirements then prevailing in the United States. Both Senator Baucus and Vice President Al Gore (before taking his current office) have endorsed this idea.

Such tariffs would ensure that a country is not penalized in international markets for internalizing environmental costs more than its trading partners do. Without such measures, there is a danger that industrial production might increasingly locate in so-called "pollution havens" - areas where regulation or enforcement is lax. Fears of losing out to foreign competition in the global marketplace might also deter countries from adopting strict domestic environmental laws - as in fact happened recently in the debate over energy taxes both in the United States and in the European Community. However, proposals for levying border tariffs for this purpose raise a number of difficulties, such as that of evaluating exactly how much trade advantage is being gained (how large the countervailing duty should be), and whether such duties might create an opening for hidden protectionism.

There are ways, however, for governments to make such levies more politically palatable - particularly to developing countries. For instance, proceeds from these duties might be channeled into upgrading the environmental standards of those countries that fail to measure up. Or, if international standards were established, the duty could be based on the extent of deviation from the international minimum.

The NAFTA is likely to create some important precedents in this area. In one of its more innovative provisions, it will be considered "inappropriate" under the agreement to relax a nation's own environmental laws or enforcement of them in order to gain a trade advantage. The North American Commission on the Environment (NACE) now being negotiated to accompany the NAFTA will likely be charged with ensuring that domestic environmental laws are enforced, and perhaps with gradually negotiating harmonized production standards, particularly for industries in which environmental costs are high, such as paper manufacturing.

One highly controversial question in negotiations is whether consistently lax enforcement of domestic environmental laws should be punishable by economic sanctions - whether, for example, the United States could levy a tariff or impose a fine on imports of Canadian wood pulp if it is produced in violation of laws regulating dioxins dumped into rivers by bleaching mills. Under heavy pressure from non-governmental groups, the United States is maintaining that some form of sanction should be available, but Canada and Mexico - as well as business groups in the United States and their backers in Congress - are far from enthusiastic about the idea.

Finally, there is the possibility of granting trade concessions such as preferential tariff treatment for environmentally sound goods, rather than simply penalizing the bad. Already, the United States makes tariff reductions on developing country imports under the Generalized System of Preferences program contingent on respect for internationally recognized worker rights. In one example of how this idea could be applied to environmental concerns, the government of Colombia has requested exemption from E.C. import duties for oils produced from certain organically grown plants such as lemon grass. The GATT could endorse this sort of initiative, and encourage its wider application.

The Greening of GATT

A historian combing the record several centuries hence may find the tuna-dolphin episode to be a revealing symbol of the passing of an era when nations could provide for the needs of their citizens by acting alone.

With security increasingly defined in economic and environmental rather than military terms, governments are coming to recognize that protecting their citizens from threats as diverse as sea-level rise induced by global warming, and unemployment created by industries migrating in search of pollution havens, will require an unprecedented level of international coordination.

If governments can work together to devise minimum rules of environmental conduct, it will greatly reduce the potential for trade conflict to erupt over environmental matters. Just as the International Labor Organization has formulated hundreds of workplace rules covering matters like child labor and occupational exposure to toxic chemicals, so could a U.N. environment agency be given the mandate to begin enunciating minimal standards of environmental behavior and generating the funds required for poorer nations to meet them. This process is already well underway in the European Community, and beginning to be developed under the NAFTA. Internationally, the more than 170 international environmental treaties that governments have agreed to constitute a decisive move in this direction.

In the meantime, if the GATT wishes to restore its tarnished reputation, it will need to be updated to reflect today's environmental imperatives. The buying power of consumers and nations is a powerful force that can be harnessed to encourage economic production that protects rather than ravages the earth's natural resource base. GATT should be a leader in this effort, rather than an obstacle to it.

Hilary F French is a senior researcher at the Worldwatch Institute, and co-author of State of the World 1993.
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Title Annotation:General Agreement of Tariffs and Trade may pose a threat to environment
Author:French, Hilary F.
Publication:World Watch
Date:Sep 1, 1993
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