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International Trade and the Environment: The WTO and the New Beginning

Robert Page

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The Agenda

The work in preparation for the 1995 Halifax Summit demonstrates the leaders' clear interest in following up on the central question posed at the 1994 Naples Summit: how to reform international institutions so as to best foster sustainable development, growth, and expanded trade. A serious evaluation of international institutions is particularly timely in this, the 50th anniversary of the Bretton Woods and UN systems. Indeed, in sharp contrast to the year before, the Naples communiqué welcomed "the work on the relation between trade and environment in the new WTO." As well, in April 1995, two months prior to the Summit, the G7 environment ministers will meet in Hamilton, Ontario, to consider their own common concerns. Thus, in the first six months of 1995, there will be two major meetings which could advance the agenda with regard to the relationships between economic institutions ¾ including the new World Trade Organization ¾ and environmentally sustainable economic development.

It is essential at this point to go back and look briefly at the birth and evolution of these institutions. The context for the founding of GATT is important in understanding both its strengths and its limitations as an institution. Following the intense protectionism of the 1930s and the economic dislocations of World War II, the founders sought to create an international environment for economic recovery and stability through trade liberalization. The most pressing concerns about currency stability and capital flows for reconstruction were addressed at Bretton Woods with the creation of two key institutions, the International Monetary Fund, and the International Bank for Reconstruction and Development (the World Bank). The establishment of an international trade regime proved more difficult.

To govern trade, American officials proposed the creation of the International Trade Organization (ITO) under the United Nations, which eventually emerged in the ambitious model of the Havana Charter. While many recognized the need for a strong trade organization, there were also entrenched critics. In the United States, the proposal triggered strong isolationist and protectionist forces in Congress. Eventually, President Truman abandoned the effort to secure Senate ratification in 1950 and the ITO died. As a result, the main postwar instrument for managing international trade remained the General Agreement on Tariffs and Trade ¾ a trade agreement, not an institution. The focus for the work of the GATT was trade as it was defined in 1948, and it was not to overlap with related social issues which were assigned to various international agencies such as the International Labour Organization or United Nations Educational, Scientific and Cultural Organization (UNESCO). Trade was a narrow, technical field involving primarily the export and import of natural and manufactured products. The environment was not yet a formal area of study, let alone part of the context for trade negotiations.

Under its basic mandate for trade liberalization and tariff reduction, the GATT achieved solid progress through a series of comprehensive multilateral rounds of negotiations. The last three, the Kennedy Round (196467), the Tokyo Round (197379), and the Uruguay Round (198693)[1] demonstrated the growing complexity of the trade field with increasing emphasis in the negotiations on nontariff barriers to trade and the steadily widening aspects of trade into investments, services, and other areas. As tariff barriers declined, imaginative protectionists sought other means to restrict trade, and the nature of trade disputes changed. A whole series of new acronyms entered the trade vocabulary, such as PPM, TRIMS and TRIPS. The Uruguay Round negotiations proved profoundly difficult, stalling many times with intransigence over agricultural or other issues where politics and economics combined to defy progress. While the final agreement signed in Marrakech demonstrated significant progress in some areas, such as trade dispute resolution, it fell short of some expectations by excluding key areas such as environment and trade. To complete the Round, certain matters had to be postponed, and in the face of divided opinion, it was the correct decision.

Outside the GATT negotiations there has been a growing chorus of concerned interests demanding institutional change to cope with environmental and trade issues. The Brundtland Commission on environment and development had laid out the basic NorthSouth confrontation on the environment and the weakness of international institutions in dealing with the trade aspirations of the developing world. There were several serious trade disputes, such as the US efforts to restrict Mexican tuna imports because of fishing methods which trapped dolphins as well as tuna. The GATT panel handled the issue on the basis of traditional GATT law and practice, and their decisions infuriated some environmentalists, who saw the dispute resolution process as biased against the nature of environmental scientific evidence. According to these environmentalists, trade rules had become a major barrier to global environmental protection because of the protection they afforded to recalcitrant states.

The momentum of this movement against GATT increased in 1992 with deliberations at the United Nations Conference on Environment and Development (UNCED) in Rio. The feeling of some environmentalists was that trade sanctions had to be written into more environmental agreements, and that GATT rules and structures had to be changed fundamentally to achieve global environmental goals. Many trade officials reacted in horror and anger that the carefully negotiated progress through GATT would be put into jeopardy by the Trojan horse of the environment. Given the other challenges faced by the trade fraternity, there was great reluctance to make changes which, while addressing environmental concerns, would open the way for similar demands from labour, civil liberties, and other special interest groups. Besides, how did one determine what was legitimately environmental science and what was merely disguised protectionism? Many feared that to open the way for one was to open the way for the other.

Also, UNCED had shown that there was enormous suspicion in the South about environmental standards, which they feared were only a new barrier to trade designed to slow down the industrialized North. By adding environmental costs, southern products might be made less competitive in northern markets. Some countries of the South view lower environmental and labour costs as a comparative advantage to be protected.

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