Trade and the Environment

Background to WTO work on trade and environment

The WTO has explicitly recognized that an open, equitable and non-discriminatory multilateral trading system can help achieve of ecologically sustainable development and can advance its members’ national and international efforts to better protect and conserve environmental resources.

Developing country agricultural exporters, for example, have drawn attention to the environmental benefits of trade liberalization and tighter WTO disciplines. They argue that further liberalization of agricultural trade will reduce the environmental impact of agriculture by increasing resource allocation efficiency. For instance, the removal of agricultural input subsidies should lead to a substantial reduction in the use of marginal agricultural land, which is only productive with high fertilizer, water and other inputs.

“The reality is that trade is a powerful engine of economic growth, and that economic growth is vital to creating conditions which favour advancing environmental protection, improving social conditions, or sustaining ethical values. By opening markets, particularly to exports from developing countries, and by keeping markets open through clear and enforceable rules, the global trading system is a natural ally of sustainable development.”

Speech by Renato Ruggiero, 9 December 1997 - A Shared Responsibility: Global Policy Coherence For Our Global Age

Some environmental considerations were addressed during the Uruguay Round and are reflected in its outcomes.

• The Preamble to the WTO Agreement has a direct reference to the goal of sustainable development as well as explicitly stating the need to protect and preserve the environment.
• The TBT and SPS Agreements allow for the use, under certain circumstances, of measures to protect human, animal and plant life and health and the environment.
• The Agreement on Agriculture contains so-called “green box” exemptions, which allow WTO Members to make direct payments under environmental programmes in order to reduce domestic support for agricultural production, under certain criteria.
• Under the Agreement on Subsidies and Countervailing Measures, government assistance to industry covering up to 20 per cent of the cost of adapting existing facilities to new environmental legislation is a non-actionable subsidy.
• The TRIPS and GATS also have environment-related provisions.

The WTO Committee on Trade and Environment

At the founding of the WTO (Marrakesh, April 1994) Trade Ministers decided to set up a Committee on Trade and Environment (CTE). The overall aim of the CTE is to identify how the WTO can help make trade and environment policies mutually supportive in favour of sustainable development as agreed at the Rio Earth Summit in 1992.

More specifically, the CTE is to examine the relationships between trade and environmental measures and make recommendations on whether any changes are required to WTO rules to further support sustainable development.

The Marrakesh Decision on Trade and Environment mandated a work program covering items of interest to developing and developed country members, such as

• The relationship between the provisions of the multilateral trading system and trade measures for environmental purposes, including those pursuant to multilateral environment agreements (MEAs);
• Eco-labelling, particularly the issue of whether national laws could fairly required the labeling of unembodied processes and production methods, i.e. aspects of goods or services production which are not identifiable in the final product. Many countries are concerned that such eco-labelling could be used as a protectionist measure;
• The effects of environmental measures on market access, particularly for developing countries as a whole and LDCs especially;
• The environmental benefits of removing trade restrictions and distortions;
• WTO transparency provisions, particularly in relation to NGOs;
• The export of domestically prohibited goods not covered under any existing international agreement;
• Trade liberalization and sustainable development – how to maximze the benefits and minimize the disadvantages, particularly in relation to agriculture and natural resource-based industries;
• Trade in Services and TRIPs, particularly the trade in environmentally sound technology and the protection of indigenous knowledge relating to biodiversity conservation.

The CTE’s work is carried out within the framework of two guiding concepts.

17. WTO’s competence in trade and the environment relates only to trade and trade-related aspects of environment policies that could have significant trade effects on its Members.

18. Policy co-ordination on trade and environment is best carried out at the national level, and that if problems are identified in this regard, any solution must uphold and safeguard the principles of the multilateral trading system.

Since the CTE submitted its first report to the Singapore Ministerial meeting, work has focused on improving analytical understanding of the links between trade and the environment across all items on its work program. In 1998, the Committee adopted a cluster approach under two main themes: market access and the linkages between the multilateral trade and environment agendas.

The CTE has carried out some sector specific work of particular interest to developing countries especially in relation to agriculture, energy, fisheries, forestry, textiles and clothing, leather, non-ferrous metals and environmental services. Such discussions have helped to identify the potential economic and environmental benefits of removing trade restrictions and distortions.

The CTE has also

• Held a number of meetings with inter-governmental organizations, including the Secretariats of MEAs;
• Meetings with NGOs encompassing environmental, business, trade and consumer interests;
• Admitted a number of international bodies as observers to the CTE;
• Established a WTO Environmental Database, through which the WTO Secretariat will make a comprehensive annual review of all environment-related notifications under WTO provisions;
• Commissioned regional seminars on trade and environment for developing countries and economies in transition to discuss the trade, environment and sustainable development nexus, and to promote dialogue between trade and environment policymakers.

Generally, developing – and developed – countries consider that the work of the Committee on Trade and Environment has increased understanding of the trade and environment nexus, particularly in relation to WTO provisions and disciplines.

According to commentators (Croome 1998, Robertson 1999, UNCTAD February 1998), however, developing countries believe that the work of the CTE has shown that WTO disciplines on environment and sustainable development issues within the competence of the WTO are adequate. They argue that, as is set out in the 1992 Rio Declaration, trade measures are rarely the first best option to address environmental issues, and that transboundary environmental issues are better addressed in a comprehensive manner through an MEA. This view is also supported by some developed countries.

The active involvement of many developing countries is an acknowledgement that environmental issues will remain high profile in the WTO. It also, according to commentators, reflects their belief that their interests are best served by open discussion on trade and environment issues within the WTO.