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The last round: the General Agreement on Tariffs and Trade in light of the Earth Summit.

I. Introduction

The 1992 United Nations Conference on Environment and Development (UNCED) held in Rio de Janeiro dealt with an unprecedented number of issues. Nevertheless, several important matters were marginalized or ignored. For example, neither population nor agriculture issues were included in the U.N. General Assembly Resolution Betting up UNCED. The importance of other issues for sustainable development, for example the linkages between trade and environment, was not recognized fully in 1989. For this reason - and because governments engaged in what they hoped was the final phase of the "Uruguay Round" were manifestly unwilling to have trade issues considered in a forum dominated by concerns for sustainable development - the relationship between trade and environment was inadequately covered at UNCED.

Nevertheless, the linkages between trade and environment are liable to loom large over the implementation of UNCED decisions in the coming years, over Agenda 21(2) in particular. There can be no development without free trade, however, sustainable development requires important adjustments to the trade regime to ensure that international trade does not undermine the environmental regimes which are being established nationally and internationally.

Because trade and environment linkages were virtually ignored at UNCED, one might reasonably assume that the Earth Summit holds few lessons for trade regimes. Nothing could be further from the truth. The UNCED may come to be seen as a watershed in international relations for two areas: 1) UNCED may mark the eruption of vastly complex issues of environmental management and sustainability into every nook and cranny of international economic relations, and; 2) UNCED may mark a change in the nature of international relations as they shift from the excessive focus on "security" during the Cold War era to the establishment of regimes that ensure the international management of environmental and economic relations. This suggests that dramatic changes will also occur in trade regimes, perhaps necessitating a world conference on the international economy comparable to UNCED in which those concerned with environment and sustainable development must participate but with more emphasis on sustainable development.

For several decades, the General Agreement on Tariffs and Trade (GATT) has worked through a sequence of "Rounds." Rounds are comprehensive trade negotiations in which virtually all current issues concerning international trade are reviewed and negotiated. These Rounds have become increasingly complex as negotiators have sought to secure past gains from the erosion of time and changed circumstances while enlarging the scope of the regime to deal step by step with the limitations of the original Agreement. With every Round, the number of participants has grown markedly as the process of decolonization proceeded in the market economies. The collapse of the Soviet empire promises to bring another fresh crop of members(3) from the Second (formerly socialist) World with entirely new problems in their trading relations. The sheer weight of the negotiations raises the question whether future "Rounds" like the current Uruguay Round will be possible. There are, however, other reasons related to environmental management and sustainable development which also suggest that there will be no further Rounds and that those who formulate trade regimen will need to rethink the manner in which they conduct their business.

II. History of the GATT

The approach to trade negotiations through Rounds reflects the strange institutional character and origin of the GATT.(4) Originally, the Agreement was part of a broader regime for international trade, an International Trade Organization (ITO) as part of the Bretton Woods institutions, to be established by the Havana Convention. The countries concerned with negotiating the Havana Convention met in Geneva in 1948, some months before the scheduled Havana Convention. In addition to continuing preparations for the Convention which was to create the ITO, they drafted "general clauses" concerning tariff obligations. Even at this stage, there were doubts whether the United States ultimately would ratify the agreements which were being reached, so the U.S. nagotiators and other interested parties sought a "fast start" procedure which allowed the trade process to be launched under existing U.S. negotiating authority, without waiting for full ratification of the ITO. As a result, the Protocol of Provisional Application (PPA), which did not require legislative approval, was adopted in Geneva. When it became clear in 1949 that the U.S. Senate would not ratify the Havana Convention - partly because of the PPA - the GATT remained as an intergovernmental agreement not subject to formal ratification procedures. While this has had virtually no impact on the legal force of GATT instruments,(5) it bas had a significant impact on the regime dynamics arising from the Agreement.

III. Regime Analysis of the GATT

The field of "regime analysis" grew out of attempts to understand the complex relationships arising in the area of international security, many of which are difficult to describe in terms of classic international relations theory.(6) Regime analysis has found extensive application in relation to the international management of natural resources and the environment.(7) It has rarely been applied to trade regimes, although these regimes lend themselves to such an analysis. One advantage of regime analysis is its focus on the structural relations, rather than on the formal character, of an international regime. Treaties, international organizations, and formal and informal agreements may be examined under regime analysis provided they can be categorized under a very broad definition as "social institutions governing the actions of those involved in specifiable activities."(8) The analysis focuses on "an agenda of questions that require consideration in the analysis of any international regime":(9) institutional charter, jurisdictional boundaries, conditions for operation, consequences of operation and regime dynamics.(10)

Applying regime analysis to the GATT is particularly appropriate because the GATT is not an international organization. It lacks a formal charter that would establish the organization, define its aims and activities, and provide standard diplomatic recognition to its Secretariat and staff. In practical terms, this means that while the GATT is part of the U.N. system, its staff are not U.N. employees and do not carry international passports. More significantly, this means that the GATT Secretariat in even more a creature of the contracting parties than the secretariat of regular international organizations. Thus, the issues of institutional character, operation and the existence of transformation rules are particularly critical to understanding GATT operations.

The GATT's management Council was created by a simple resolution of the contracting parties rather than the Agreement or the PPA. The Council is composed of ambassadorial representatives of all contracting parties and controls the institution. Unlike the governing bodies of international organizations which meet at most twice a year (for example, the United Nations Development Programme), and in some instances only every two years (for example, the United Nations Environment Programme), the GATT Council meets monthly for most of the year and has numerous committees which meet in the interim. Further, because the GATT is an intergovernmental institution rather than an international organization, it is closer to the executive branch than it is to the legislative, branch in those countries which have independent legislatures. It is the only international institution where the Commission of the European Communities, rather than the Council, represents the European Community. Consequently, it is hardly surprising that the GATT has a reputation for being secretive and is viewed with some suspicion by many in the legislature.

Another important consequence of the institutional character of the GATT has been its inability to adapt its rules and operations in a continuous fashion to changing conditions. In other words, it has an almost total lack of effective rules for regime transformation. Indeed, one commentator has argued that the Agreement itself can hardly be amended;(11) neither the Council nor the Secretariat have the authority to amend because no charter grants such authority. The Agreement includes no rules for transformation, therefore, the Rounds cannot reasonably do so.

The result is a long history of change by subterfuge. The only available approach for open transformation is a radical one: the creation of an entirely new regime incorporating the GATT. The lack of transformation rules has contributed to a tendency to use dispute resolution procedures as a means of reinterpreting the Agreement in a fashion which must be described as surreptitious.(12) It has also been a major reason for packaging trade negotiations into massive Rounds.

Despite these shortcomings, the GATT has been a remarkably successful institution, presumably because it has served the broader needs of international society. To many in the international arena, the GATT's accomplishments are self-evident. The Rounds have been successful at identifying overt barriers to trade. They have contributed to a dramatic reduction in such barriers and thereby have been an essential element in the growth of international trade over the past decades which in turn has been a salient feature of the economic successes of the market economies.

However, as decisions become more complex, the defects of the regime become significant obstacles. The Rounds have been much less successful at tackling more subtle barriers to trade. These subtle barriers have proliferated for both good and bad reasons and have become more important as tariff barriers are lowered. That modern technologically based economies require an extraordinary amount of regulation and standard-setting is a necessary condition for maintaining open and dynamic economies. Uncoordinated regulations and standards, however, represent an open invitation to favor one country's industry over others, which effectively creates nontariff barriers to trade. It is one of the paradoxes of international trade regimes that opening markets to trade - a classic act of deregulation - sets up a situation where significantly increased levels of international regulation are required to protect free trade from the well-known excesses of insufficiently regulated markets.

The Rounds have failed to give international trade regimes a system of governance that corresponds to the dimension of issues and reflects current best practice in international organization. The Rounds have failed because they have not had the authority to establish such a system. Because the GATT is the defining frame of reference for most regional trade agreements, these agreements tend to reflect many of GATT's institutional weaknesses. This is certainly true for the Canada-United States Free Trade Agreement and promises to hold for the North American Free Trade Agreement and other agreements currently being considered in the Western Hemisphere. The major exception to this general observation is the European Community which, as a customs union and regional integration organization, transcends the framework set out by the GATT.

IV. Environmental Imperatives and the GATT

A. Past Actions

Among the many issues confronting the international trade regime is the problem of integrating the environmental imperative into the structure of trade. It is hard to imagine a forum less suited to dealing with the challenge of environmental management than the GATT, The environment is a complex natural system which is inadequately understood. Measures for environmental management are taken under the pressure of stress signals from the environment and frequently turn out to be inadequate, perhaps excessive, and sometimes even incorrect. Thus, environmental management requires continuous and flexible adjustment within a structure of rules which are procedurally complex to ensure due process but whose outcomes can be quite unpredictable. This is the antithesis of what trade negotiators have been striving to achieve for their area. Therefore, it is hardly surprising that they view environmental regulation as an area rife with potential for undermining hard-won gains in the reduction of obstacles to trade and in the increase of predictability of trading conditions under a rule-based trading system.

The problems of the GATT are illustrated by its response to the growing environmental challenge. Initially, the GATT sought to avoid the environmental issue. In 1972, the Council established a Working Group on the Environment, but the group was not convened until 1992. It is reasonable to interpret the original decision to establish the Working Group as primarily a ploy to ensure that the 1972 U.N. Conference on Man and the Environment in Stockholm did not interfere with the perceived priorities trade.

Over the years, however, the environmental imperative has become more pressing. Some countries have begun to develop environmental policies which are not just marginal adjustments to economic policy but are designed to launch a broad restructuring of the economy. The international structure of conservation and environmental management has evolved steadily and increasingly incorporates rules which are based on controlling trade.(13) With UNCED, this movement began to focus on the need to restructure economies into a more sustainable pattern of development for developed and developing countries alike. Such restructuring has broad implications for trade regimes.

While this was happening, the GATT struggled to find an interpretation of its underlying Agreement that would deal with environmental issues that kept cropping up in trade disputes.(14) It is widely assumed that Article XX(g) of the Agreement encapsulates the issues relating to the environment in the regime.(15) The GATT has interpreted Article XX(g) in an extremely restrictive manner. It has been argued that this interpretation is contrary to the negotiating history(16), and constitutes an abuse of powers on the part of the GATT.(17) Certainly restrictive interpretation of Article XX(g) by the GATT is seriously at odds with the interpretation of similar, arguably weaker, language in the European Community.(18) Through a series of canes,(19) the GATT has created new criteria for application of Article XX(g), some of which have a weak foundation in the Agreement itself. Occasionally, panel reports which were never formally adopted by the Council are cited as precedent, an indication of the extraordinary lack of institutional identity of the GATT(20) It is hard to imagine that a properly constituted institution would elide the fundamental distinction between formally adopted and unadopted reports. In the GATT, the lack of institutional structure coupled with a sense of community of purpose allows this to occur.

This process of reinterpretation of the Agreement reached extreme proportion in the panel report on the U.S. ban on tuna imports from Mexico.(21) The underlying case is highly complex, but the GATT Panel took the opportunity presented by the case to rule on a range of highly sensitive environmental management issues, and effectively extended the reach of the Agreement to ban practices that may be essential to environmental management.(22) The Council has not adopted the Tuna Panel report yet. Nevertheless, environmentalists fear that the report will sooner or later be cited as precedent. While the United States case in this instance was weak, and the rulings of the Panel were not without foundation, this seems an unacceptable procedure for changing the rules governing trade - even if an overwhelming majority of GATT countries appear to be in favor of the Panel's findings.

B. Future Challenges

In the past two years, environmental issues have resurfaced in relation to trade and there has been talk of an "environmental round" to follow the Uruguay Round. Unfortunately, the environment cannot be packaged and isolated in a single conference. The environment in unpredictable, and even the best science cannot remove the resulting uncertainties. Good environmental policy must accept this fact, and trade rules will have to be subjected to it as well. Over the years, we have learned the hard way that good environmental management is process, first and foremost. Sound science, public information, environmental assessment, and public participation are among the most important instruments of environmental policy because they allow institutions to respond flexibly to changing circumstances and create conditions for public participation. These policy instruments reflect the uncertainties of environmental management, the need to achieve broad public consensus and the difficulty in settling any environmental issue "once and for all."

One of the major lessons from UNCED and Rio is that international relations concerning the environment and other issues will require an unprecedented level of direct involvement of interested parties. After Rio, a large area of international relations has ceased to be the exclusive domain of governments. The degree of participation of a wide range of private interests, ranging from grassroots environmental organizations to multinational corporations and from indigenous peoples to environmental scientists, in the preparations for UNCED is unprecedented. Presumably, the interest manifested by the presence of twelve, thousand nongovernmental and eight thousand media representatives will not end with the Conference.

None of this lends itself to the traditional negotiating techniques of the GATT. A different approach will be needed. Fortunately, the new approach fits the need for major changes in GATT governance which is becoming manifest. The GATT is an institution of the 1940s, created by diplomatic subterfuge, confronting some of the most important economic issues of the end of the 20th century. Surreptitious change, which has characterized the GATT over the years, will not suffice to create a trade institution capable of bringing discipline to international markets, or of dealing with the interface between environment and trade.

For the past twelve months, the GATT has struggled to complete the latest Round, the "Uruguay Round." There are signs that the Uruguay Round may not only be the latest of the rounds, it is probably the last. The GATT will need to enter the modern world and give up its attempt to negotiate trade deals in big packages. Indeed, the need to confront the environmental imperative, among other issues, highlights the inadequacies of the approach which has historically been used and suggests some of the ways in which it may need to be modified.

The world of the 1990s barely resembles that of the 19408. The modern world is marked by the environmental imperative, decolonization and the impact of technology. The era of decolonization has ended. Some sixty formally colonized countries have entered the world scene as independent actors. Until now, the consequences could be avoided because of the overwhelming priorities of the Cold War. The impact of decolonization will become inescapable in the 1990s, particularly when the former colonies of the Western World are joined by the former Soviet colonies. The impact of technology on all aspects of the economy has become inescapable, creating global markets which require global management and bringing environmental risks which require new forms of regulation.

The GATT has been an institution which reflects industrial interests first and foremost. The founders of the GATT were industrialized nations which, at the time, still maintained an extensive network of colonies to provide the natural resources which they required.(23) These colonized countries were not viewed as sovereign nations and remained unrepresented until their independence. Thus, the original structure and the earliest Rounds all focussed on the needs of the industrial sector. Commodities including agricultural products, were exempted from GATT discipline or given much less attention. Commodities are, however, of particular significance from the point of view of sustainable development because commodities represent economic goods taken directly from the natural environment. Some environmental impact is unavoidable in producing commodities. The concept of sustainability applies directly to the ability of the environment to provide needed natural resources on a sustainable basis, in particular those natural resources which have market value. Indeed, over the past years an important thrust of environmental policy has been to establish market prices for many natural resources which previously did not have them, including air, water and certain species requiring protection. The regimes that will be needed for commodities in a sustainable economy will be far different from those that currently exist.(24) The challenge will be to conserve the efficiencies of international commodities markets while ensuring through appropriate public policies that sustainable practices are not undermined by international economic pressures. One possible approach is a system of "mutual tariffs" where exporting and importing countries agree to joint measures to provide a margin for the full internalization of environmental Costs.[25] Certainly, greater integration of trade regimes and commodities markets will be needed, including the development of appropriate international policies, on a commodity-by-commodity basis, to guarantee sustainability.

These challenges call for major changes in trade regimes. The Uruguay Round includes a proposal for the creation of a Multilateral Trade Organization (MTO). This represents a unique opportunity to tackle the many institutional problems of the GATT. It is an opportunity that is being missed, largely because the surreptitious approach to its creation deprives the GATT of the benefits of full consideration of all relevant issues, as was the situation at UNCED. The MTO proposal has not been debated by the GATT Council or contracting parties. It was not part of any previous negotiating texts in the Uruguay Round and it is questionable whether the terms of reference for the Round agreed at Punta del Este in 1986 cover the proposal; yet it was made part of the final package presented to contracting parties by GATT Director General Arthur Dunkel, This extraordinary proceeding reflects the institutional weaknesses of the GATT; a new international organization should not be proposed without the benefit of public discussion or international negotiation.

The MTO proposal reflects the procedural inadequacies of its development. It is flawed as a blueprint for an international organization(26) and it does not adequately reflect the changing environment of international trade. Effectively, the MTO would transform the GATT into a formal international organization, however, this organization would lack both clear terms of reference and an institutional structure capable of guiding the trade regime through the coming transformations. Furthermore, the MTO proposal continues to view the trade regime in isolation from the many other international regimes which will impinge on it in the coming years. The MTO does not even begin to address the problems which will arise when international regimes pursue legitimate but conflicting goals. These problems may prove the most crucial in the coming years.

V. Conclusion

It may be too much to say the international trade regimes are at a crossroads. Certainly the pain and acrimony of the Uruguay Round itself will contribute, to making governments hesitant about launching another such undertaking soon. It is yet too early to say whether the Round will be completed. From the perspective of the environment, its inadequacies are such that failure of the Round would create welcome opportunities to remedy some of the mistakes that have already been made.

If it is true that the traditional approach to trade negotiations is about to end, failure of the Round may prove less disastrous from a trade perspective, than most of those directly concerned with it currently indicate. It could create the necessary political environment to undertake needed regime changes. (1.) The Uruguay Round in the eighth and current round of trade negotiations under the General Agreement on Tariffs and Trade launched in 1986. (2.) Agenda 21 is a nonbinding and wide-ranging plan for environmental clean-up. See Agenda 21 and the UNCED Proceedings (Nicholas A. Robinson ed., 1992). (3.) Since the GATT is not formally an "organization," it does not formally have any "members." Members of GATT are normally called "contracting parties." John H. Jackson, The World Trading System: Law and Policy of Inter-National Economic Relations 45-46 (1989). (4.) See John H. Jackson, World Trade and the Law of GATT (1969). (5.) See id. (6.) See Robert O. Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (1984). (7.) See Oran JR. Young, International Cooperation: Building Regime for Natural Resource and the Environment (1989). (8.) Id. at 12. (9.) Id. at 29. (10.) Id. (11.) See Changing GATT Rules Memorandum from John H. Jackson to the Trade and Environment Committee of the U.S. National Council of Environmental Policy and Technology Transfer (Nov. 7, 1991) (on file with the author). (12.) See Konrad von Moltke, Trade and the Environment: Issues in Dispute Settlement (Mar. 1992) (paper prepared for the Office of Technology Assessment, U.S. Congress); Steve Charnovitz, Gatt and the Environment: Examining the Issues, 4 Int'l Envtl. Aff. 203 (1992). (13.) E.g., Convention on International Trade in Endangered Species of Wild Fauna and Flora, Mar. 3, 1973, 27 U.S.T. 1087, 993 U.N.T.S. 243; 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 (1987). (14.) See generally General Agreement on Tariffs and Trade, Trade and the Environment, in International Trade 1990-91 (1992); Charles Arden-Clarke, The General Agreement on Tariffs and Trade, Environmental Protection and Sustainable Development (World Wildlife Fund Position Paper, (1992). (15.) Article XX(g) reads:

Subject to the requirement that such measures are not applied in manner which would constitute a means of arbitrary or unjustifiable discrimintion between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: ... (b) necessary to protect human, animal or plant life or health;... [or] (g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; .... Text of the General Agreement, in General Agreement on Tariffs and Trade, Basic Instruments and Selected Documents 37-38 (Vol. IV 1969). (16.) See Steve Charnovitz, Exploring the Environmental Exceptions in Gatt Article XX, 25 J. of World Trade, Oct. 1991, at 37. (17.) See Charnovitz supra note 12. (18.) Article 36 of the Treaty of Rome reads:

The provisions of Articles 30 to 34 [on the elimination of quantitive restrictions between member states] shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified an ground on of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction between Member States. Treaty Establishing the European Economic Community [Treaty of Rome] art. 36, reprinted in 298 U.N.T.S. 11, 29. For an application of this language, see Pascale Kromarek, Environmental Protection and Free Movement of Goods: the Danish Bottles Case, 2 J. Envtl. L. 89 (1990). (19.) See generally von Moltke supra note 12. (20.) See Charnovitz supra note 12. (21.) See Special Report: GATT Tuna Ruling Spawns Environmentalist, Congressional Backlash, Inside U.S. Trade, Sept. 6, 1991 at 1. (22.) Among other issues covered was the "mode of production" (The Panel claimed that it was not permissible to make distinctions concerning the environmental impacts of the production of goods traded internationally.), "extraterritoriality" (The Panel ruled that the United States could not act to protect natural resources outside its jurisdiction, that is, resources in international waters.) and "unilateralism" (The Panel postulated a rule that multilateral approaches are to be favored over unilateral ones.). (23.) See Robert Hudec, Developing Countries in the GATT Legal System (1990). (24.) See Charles Arden-Clarke, South-North Terms of Trade, Environmental Protection and Sustainable Development (World Wildlife Fund Discussion Paper, 1992), reprinted in 4 Int'l Envtl. Aff. 122 (1992). (25.) See Konrad von Moltke, Free Trade and Mutual Tariffs: A Practical Approach to Sustainable Development, Ecodecision, June 1992, at 45-46. (26.) See James Cameron & Helena Ward, The multilateral Trade Organization: A Legal and Environmental Assessment (World Wildlife Fund International Research Report, 1992).
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Title Annotation:Trade and the Environment
Author:von Moltke, Konrad
Publication:Environmental Law
Date:Apr 1, 1993
Previous Article:Beyond Rio.
Next Article:GATT, trade, and the environment.

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