Reconcilable Differences? Trade and the Environment

1. Reconcilable Differences? Trade and the Environment A Presentation/Discussion Jonathan P. Doh

2. Introduction • Purpose of the Presentation • Personal Background

3. Organization of the Presentation • Impact of Trade on the Environment • Impact of the Environment on Trade • “Unfinished Business” -- Problems with Current Regime • NAFTA as Catalyst to Trade/Environment Debate • Tuna Dolphin as Landmark • EC/EU Experience • Multilateral Efforts under GATT/WTO • Future Solutions • Ontario Beer Case Simulation

4. Some Themes in International Relations and Management • Clash of social issues and costs and neoclassical economics -- “free trade” • Dependency and sovereignty concerns over imposition of first world standards on third • Lack of shared values and systems for resolution of problems • “Stakeholders” and stakeholder management • different views on importance of various stakeholder groups

5. Impact of Trade on the Environment - Negative • Increase business activity = environmental impact • (Prices and markets don’t account for environemtal benefits and costs) • Trade and investment liberalization may result in lower env. Standards • Put pressure on domestic authorities to lower standards/lessen enforcement to preserve/attract jobs and income • Environmentalists argue removal of trade barriers results in equalization of regulatory burdens towards “lowest common denominator”

6. Impact of Trade on the Environment - Positive • Trade can increase economic welfare and provide more resources for environmental protection • World Bank study showed env. quality increases as incomes increase • Elimination of market distortions can lead to more efficient allocation of resources • Trade benefits may provide leverage for achieving env. goals that would not otherwise be attainable • Trade liberalization may provide easier access to env. technologies

7. Impact of Environmental Policy on Trade - Positive/Negative • Use of trade measures for advancing environmental goals • Environmental regulations may be disguised trade barriers • Important to distinguish between production and process regulations and those applying to finished goods • First can affect companies’ international competitiveness (latter should not)

8. “Unfinished Business”- Problems w/Current Regime (Esty) • Environmental Policy failed in two respects: • Economic failure to internalize environmental costs and make consumers and producers pay full price for environmental harm they create • Political failure to override special interests and adopt cost-internalization policies that protect environment while encouraging trade - BTU tax example

9. Further Complications • Tension between traditional trade and environmental goals - restriction of countries ability to take actions to protect environment via “disciplines” • Use of trade restrictions as penalty for cross-border pollution • Competitiveness concerns -- highly problematic

10. NAFTA as Catalyst • Long history of U.S./Mexico Env. Cooperation • 1983 Border Agreement • Integrated Border Plan -- Feb. 1992 • Long history of U.S./Canada Env. Cooperation • 1978 Great Lakes Water Quality Agreement • 1991 Air Quality Agreement

11. NAFTA: NGO Critique • Downward harmonization (lowest common denominator) • Loss of sovereignty over environmental laws and practices • Lack of public participation in env. (and other) policies in Mexico • Lack of public participation in U.S. (suit over no EIS) • Pollution know no boundaries -- Maquilladoras

12. Political Conditions/Environment • Suit over EIS overturned at Court of Appeals for D.C. circuit • Clinton agreed with NGO critique and made changing NAFTA a campaign promise • Hoped to set precedent for GATT • Mexicans wanted NAFTA desperately and were willing to go along • Canadians indifferent

13. Solution: Supplemental Agreement on Environmental Cooperation • Two primary components: Dispute Settlement and Cooperative Program • Three levels of administration: Council, Secretariat, advisory committees • Council comprised of Enviro Ministers from three countries • Secretariat is independent as NGOs wanted • Joint Public and National advisory committees

14. How was NGO critique fulfilled (or not) • Dispute settlement/env. objectives work in tandem • Objective: “encourage high and improved levels of government protection for env.” • Ability to file dispute settlement for persistent pattern of non-enforcement of domestic environmental laws (Article 3) • Process and production methods addressed circuitously

15. Other Environmental Provision of NAFTA • Preamble: Article 103 (environmental agreements take precedent over NAFTA if conflict) • Article 1114: countries agree that using low env. standards to attract investment should not be encouraged • Standards and SPS agreements • Border Environmental Cooperation Commission/North American Develop. Bank

16. Tuna/Dolphin Case: A Landmark • Fundamentally a production/process issue • Also, one of “extraterritoriality” • Marine Mammal Protection Act: • Dolphin Mortality based on U.S. rate (1.25) • Comparability -- no purse seine sets, no matter what kill rate is • How to know what U.S. rate will be? • If fleet out of business, close to zero

17. Mexico takes U.S. to GATT • Two cases: primary and secondary embargo • GATT Panel said measure is • extraterritorial/extrajurisdictional • not predictable • “dolphin safe” label OK as voluntary measure

18. European Experience • Use of standards as way to get at different levels of regulation and different costs of doing business • Greater ability to enforce standards and regulations through Commission and Court of Justice • Two celebrated cases: • Commission v. Italy over biodegradability -- Court found for Commission • Scottish Red Grouse

19. Multilateral Efforts • CAFÉ/Gas guzzler case -- disproportionality • U.S./Canada Beer • Present GATT provisions limited: Can restrict trade only: • To protect domestic health and safety • To conserve scarce resources

20. Green the GATT but how?

21. Limited Changes (Most already accomplished) • Environmental assessments of trade agreements (like NAFTA) • Open up negotiations to NGOs • Change burden of proof in dispute resolution to claimant • More substantial enviro staff at WTO

22. Committee on Trade and Environment (CTE) • Established at end of last GATT Round • Stop-gap to please NGOs/get Round passed • Two main issues under examination: • Eco-labeling: should testing include production processes? • GATT waivers for trade measures in multilateral environmental agreements (MEAs) -- U.S. opposes on grounds that it sets out WTO obligations as “higher order”

23. More Substantive Changes • Global Environmental Organization to reconcile trade/env policies/organizations • Comprehensive Environmental Code (as opposed to individual treaties) • Give treaties precedent (like NAFTA) • Allow trade restrictions for process not just product