Economic Interests
3.2 Regulatory Integration: the Traditional Trade Approach
3.2.2 Environmental protection and trade
To date, much of the discussion on GM crops and trade has focused on the relationship between food-safety measures and the rights and oblig- ations of trade agreements (Isaac and Woolcock, 1999b; Perdikis et al., 1999). Yet environmental-biodiversity concerns are a big part of current
consumer concerns about GM crops, and they create pressures to impose environmental-protection measures, which become social regu- latory barriers. The trade concern is that the use of environmental- protection measures is less disciplined under international agreements than that of food-safety measures. Hence, it is important to understand how environmental-protection measures are dealt with at the WTO. It will be argued that, in general, economic interests underlying the inter- national trade regime support a rules-based and science-based approach to the development and integration of environmental regulations.
Environmental-protection rules have been less rules-based and science-based under international agreements. Perhaps the most important reason for this situation is that the science of food toxicol- ogy is more advanced than the science of predictive ecology, essen- tially limiting the extent to which environmental regulatory development could rely upon science. However, with the Uruguay Round Agreement, economic interests have, in fact, begun to formal- ize environmental-protection measures under science-based trade rules, in a manner similar to the formalization of food-safety rules.
This has come about in two distinct ways. First, there has been an attempt to clarify safety-related environmental measures under the SPS Agreement’s link to the IPPC and to clarify non-safety-related environmental measures under the TBT Agreement. Secondly, there has been an attempt to demarcate the line between trade agreements and multilateral environmental agreements.
A. Processing and production methods
The traditional focus of GATT 1948 was on products, not PPMs, because products, not processes, are traded and cross international borders. Increasingly, however, it became clear that the manner in which a product was processed or produced was relevant to domestic regulations and hence was relevant for the access of foreign products to domestic markets. While recognizing the importance of PPMs in domestic environmental regulations, the international trade regime sought to clarify their legitimate use according to the two-pronged approach used in dealing with food-safety regulations (Table 3.3).
Safety-related PPM-based environmental measures are addressed under the SPS Agreement through the IPPC, similarly to the way food- safety measures are addressed under the SPS Agreement through the Codex. Non-safety-related PPM-based measures are generally addressed under the TBT Agreement, although some clarification is required. The key point is that, similarly to food-trade regulations, the aim has been to disentangle safety measures from non-safety measures and make the former science-based and the latter subject to the tradi- tional trade principle of non-discrimination.
Under the SPS Agreement, the use of safety-related phytosanitary PPM-based environmental measures are subject to either the phy- tosanitary standards developed by the IPPC or the IPPC risk-analysis framework to standard-setting – that is, the phytosanitary standards and standard-setting procedures of the IPPC must be considered as the parameters for the permissible phytosanitary measures that WTO members can legitimately adopt. This creates a rules-based and science-based approach to safety-related environmental-protection regulation, similar to the Codex approach to food-safety regulation.
Non-safety-related PPM-based environmental measures are not subject to the same degree of scientific justification as safety-related measures. Without this scientific basis, non-safety-related measures are disciplined under the TBT Agreement, according to the traditional trade principle of non-discrimination. With respect to environmental measures pertaining to GM crops, the main TBT issue is the permissi- ble use of non-safety trade-restriction measures, based on the PPMs.
The relationship between non-safety-related PPMs and interna- tional trade was investigated in both the Tokyo and the Uruguay Rounds of multilateral trade negotiations. In the Tokyo Round, Contracting Parties differed as to how they thought PPMs should be dealt with. On the one hand, some Contracting Parties, including major agricultural exporters, sought to have PPMs included in the TBT Code to prevent circumvention of the GATT trade principles by technical regulations. The aim was not to prevent the use of PPMs in product standards, such as labelling requirements, but to have some discipline on their use. Other Contracting Parties, such as developing countries, did not want to have PPMs included in the Code at all, so that any PPMs used to ban trade would be in violation of the TBT Code. Most developing countries did not want any linking of trade and the envi- ronment, because often PPMs are considered to be a source of compar- ative advantage. They point out, with some justification, that the industrialized countries developed without environmental controls.
Table 3.3. Categories of environmental PPMs.
Safety-related PPMs Non-safety-related PPMs
SPS Agreement: TBT Agreement:
Compliance requires: Compliance requires that the 1. IPPC standards on phytosanitary environmental measures meet the
measures principle of non-discrimination
2. Scientific evidence of risk to deviate from the non-discrimination principles according to the IPPC approach to the risk-analysis framework
Now that they have all the benefits conferred by industrialization, especially higher incomes, they can afford to demand more income- elastic environmental protection through PPM-based trade measures.
This makes the industrialization process harder for the South. Such measures may favour particular PPMs or technologies that are not employed by and/or not available to developing-country producers.
Also, products crucial to developing countries (i.e. paper products/tim- ber) are disproportionately covered by PPM measures. In other words, if PPMs favour new technologies, then the capacity gap means that the less technologically advanced will continue to lag behind.
In order to deal with the differing views on the legitimate use of PPMs in the trading system, an important compromise was struck.
First, PPMs were divided into two types; product-related PPMs and non-product-related PPMs (OECD, 1997c). This was done in order to reclaim some of the traditional division between products and processes under the GATT. Secondly, the use of product-related PPMs was subjected to the dispute-settlement provisions of the TBT Code (TBT Code, Article 14:25).
In the Uruguay Round, the USA, along with other agricultural exporters, again tried to have product- and non-product-related PPMs disciplined, this time under the binding TBT Agreement. Yet, at the end of the Round, the only change was that product-related PPMs would be covered by the TBT Agreement, not non-product-related PPMs. This means that the rights and obligations of the TBT Agreement only apply to those PPM measures that have an effect on the safety or quality attributes of the final product. Accordingly, there are no permissible circumstances for employing non-product-related PPMs. As will be shown below (Chapter 5), GATT and WTO dispute decisions have consistently concluded that trade restrictions based on the non-product-related PPMs of traded goods violate the trade princi- ples of non-discrimination and that they result in an unjustifiable extraterritorial extension of one member’s environmental preferences upon another member (Table 3.4).
In respect of food trade, non-safety product-related PPMs can include, for instance, the type of veterinary practices and quality- assurance systems that may be employed in a beef production system, because these PPMs may affect the safety and quality of the final beef products. That is, product-related PPMs are associated with the con- sumption or use stage of the product and may cause negative con- sumption externalities. According to the TBT Agreement, coverage includes ‘product characteristics or their related processes and pro- duction methods’, but only in so far as they involve ‘consumption externalities’ (TBT Agreement, Annex 1). Therefore, only consump- tion externalities associated with product-related PPMs are within the scope of the TBT Agreement. Further, and similarly to the SPS
Agreement, there are limits to the permissible use of product-related PPM-based measures that members may enact. Under the TBT Agreement, the legitimate deviations are not as precise as those in the SPS Agreement and can include ‘different social objectives and priori- ties attached to environmental protection’ (OECD, 1997c).
On the other hand, non-safety, non-product-related PPMs in the trade of agricultural crops are generally associated with the agronomic system, but have no influence on the end-product. For instance, the technologies employed or the soil cultivation or conservation strate- gies used are non-product-related PPMs. Although not responsible for consumption externalities, these PPMs may cause negative-produc- tion environmental externalities. Yet these PPMs are outside the scope of the TBT Agreement and are the sovereign domain of the member government. From a trade perspective, such measures must follow the principles of non-discrimination.
From an environmental-protection perspective, the problem with the fact that non-safety, non-product-related PPMs are outside the scope of the Agreement is that the pursuit of sustainable development and the protection of biodiversity often focus on production extern- alities and result in pressures on domestic governments to establish such measures pertaining to non-product-related PPMs, which can become regulatory market-access barriers. Specifically, GM crops are associated with concerns about their impact upon the environment and this concern has led to opposition in member states to the domestic environmental release of GM crops. It is reasonable to suppose, however, that this may even lead to a member enacting trade measures based on the non-product-related PPMs of GM crops grown elsewhere and imported into the member country.
Table 3.4. Further categories of environmental PPMs.
Safety-related PPMs
Non-safety-related PPMs
Product-related Non-product-related
SPS Agreement: TBT Agreement: within scope TBT Agreement: outside scope Compliance requires: Compliance requires that No legitimate use according 1. IPPC standards on the environmental to international trade rules phytosanitary measures meet the
measures principle of non-
2. Scientific evidence of discrimination risk to deviate from the
non-discrimination principles according to the IPPC approach to the risk-analysis framework
Despite the importance of the issue, the compatibility of PPM- based environmental measures with the rights and obligations of the TBT Agreement remains uncertain (Caldwell, 1998). The fragmentation of PPMs into various categories based on vague criteria makes it diffi- cult to understand which environmental regulations are in compliance with international trade obligations and which are in contravention.
Moreover, in respect of GM crops, an additional unresolved issue exacerbates the trade uncertainty. It can be expected that this issue will be an important focus of the TBT Committee, as trade issues asso- ciated with GM crops arise. The unresolved issue is whether or not GM crops can even be categorized as having different PPMs from con- ventional, non-GM crops. Consider that genetic modifications are made to the cells of the crop, which are then cultured into seeds. In the case of production-trait varieties, the GM crops are then grown in exactly the same agronomic system as the conventional varieties.
Then the crops are harvested and sold into the same processing and distribution system as non-GM varieties. Accordingly, GM crops that do not require new or different agronomic or processing systems would not be grown under process or production methods different from those for conventional crops and it appears that there would be no difference between the non-product-related PPMs of GM crops and non-GM crops. Furthermore, as many of the approved GM varieties to date have been approved as like products or as substantially equiva- lent to conventional varieties, there are no differences in product- related PPMs either and there are no consumption externalities to consider. In this case, the TBT Committee will have to decide, first, on the applicability of PPMs to GM crops and, secondly, on the legiti- macy of the principle of substantial equivalence.
Of course, the TBT Committee does not have to make this decision proactively. Instead, it could allow differences of opinions among mem- bers to escalate from social regulatory barriers to trade tensions, fol- lowed by trade disputes brought to the WTO’s dispute-settlement body.
In Chapter 5, several WTO disputes based on food-safety and environ- mental-protection measures are examined, in order to extrapolate how the dispute-settlement body may deal with such GM-crop controversies.
B. Trade and multilateral environmental agreements
Another crucial issue for environmental protection and trade deals with the often difficult relationship between the international trade regime and multilateral environmental agreements. In November 1999, the WTO’s Committee on Trade and the Environment (CTE) published a report on the environmental effects of trade (WTO, 1999a). The report argues that, although trade, per se, is not harmful to the environment, it is not beneficial in all cases. The report concurs
with environmental concerns on four issues. First, subsidies for export-orientated commercial activities, such as farming and fisheries, and subsidies for fossil-fuel-driven activities create incentives for eco- nomic activities that are not congruent with sustainable development.
Secondly, voluntary third-party eco-labels are a valuable tool for pro- viding consumer information about the use of acceptable non-safety, non-product-related PPMs. Thirdly, the CTE supports a comprehen- sive review by members on the environmental effects of trade in order to increase the transparency of environmental impacts. Fourthly, the CTE recognizes that the WTO, although accountable to member gov- ernments, is not accountable to or transparent or accessible for non- members, such as environmental organizations. The report suggests that the WTO must address these four areas if it is to address the harsh criticisms levelled against it by environmental organizations.
The report argues, however, that the primary goal of the WTO is to enhance trade liberalization and that the WTO is not the proper venue for environmental concerns. For instance, first-best environmental policies, not second-best trade policies, must tackle negative environ- mental effects at source. Consequently, the report concludes that trade rules, in pursuit of free trade, cannot be altered to accommodate envi- ronmental objectives. In this sense, there is only so much that the WTO is able and willing to do to meet environmental objectives.
These limitations often give rise to negotiations for multilateral envi- ronmental agreements (MEAs) outside the WTO framework.
MEAs are intergovernmental agreements on environmental objec- tives that reflect a regulatory coordination strategy of social regulatory integration. It is crucial to understand their relationship with the tra- ditional trade approach, because generally the social-rationality approach prefers the deeper social integration of the MEAs over the shallow, economic integration of trade agreements.
MEAs or the smaller regional environmental agreements (REAs) gen- erally focus on the non-product-related PPMs that are outside the TBT Agreement. There are about 180 and they include the Kyoto Protocol, the Basle Convention on the Transboundary Movement of Hazardous and Toxic Waste and the Montreal Protocol. Generally, MEAs are agree- ments between like-minded countries. It has been argued that MEAs require a shared view of environmental harm that is often based on
‘moral values, ethical or cultural preferences or environmental choices which lack a scientific basis’ (OECD, 1997c). Also, as the demand for environmental-protection measures is income-elastic, such measures tend to be supported by higher-income, developed countries, while lower-income, less developed countries generally view them as a threat.
As mentioned, the reason for this is comparative advantage, where many developing countries view their PPMs as a source of advantage and resist the idea of limiting this advantage through MEAs (OECD, 1993).
MEAs aim to focus domestic environmental policies on agreed global objectives, such as ozone depletion. MEAs tend to come into conflict with trade only when non-signatories are affected by the obligations that have been negotiated by signatories. For instance, a trade dispute requires a complaint to the WTO. Members can have and keep policies that contravene the rights and obligations of WTO agreements, provided no other member complains. Signatories to an MEA would all share the same environmental-protection philosophy, so that, even if domestic environmental regulations in one signatory are trade-restricting, other signatories would not complain because they appreciate the broader environmental objective. A non-signatory, however, who does not share the same environmental-protection phi- losophy but is affected by the trade-restricting measure is more likely to complain about the measure to the WTO.
Yet the problem with MEAs is not always between signatories and non-signatories. The Cartagena Protocol on Biosafety (discussed in Chapter 4) is an example of the difficulties that arise when MEAs encroach upon international trade. During negotiations, the Cartagena Protocol threatened to have a significant impact upon the trade of GM crops (Isaac and Phillips, 1999c). As a result, the Miami Group of agri- cultural exporting signatories effectively blocked agreement of the protocol in February 1999, indicating the dominance of trade con- cerns over environmental concerns.
In terms of the regulatory integration strategy, MEAs consistently follow a regulatory-coordination approach based on consensual nego- tiations involving wide participation, which is a time-intensive process. It is unlikely that an MEA can be negotiated rapidly enough to deal with the environment and trade concerns arising from PPM- based environmental measures in order to curtail the pressure for uni- lateral action and a trade complaint to the WTO.
As mentioned, the CTE has investigated the relationship between MEAs and the rights and obligations of the trade agreements.
Specifically, it has examined the permissibility of non-product-related PPM-based measures that differentiate between physically or func- tionally similar products that exhibit no consumption externalities.
Currently, no judgement has been made.