THE JOURNAL OF COMMERCE - July 13, 1998

WTO and the Environment

by Peter Morici

Three recent World Trade Organization rulings involving environmental and health issues have been decried by by activists as further evidence that the WTO is concerned only with trade and has no interest orplace in protecting the environment. These cases involve U.S. attempts to protect sea turtles (now under appeal) and prohit importation of polluting gasoline, and a European Union ban on beef produced with growth stimulating hormones.

Despite the plaintive pleas of environmental groups, the WTO is still one of the best hopes for securing sustainable development.

GATT Article XX, which the WTO administers, recognizes the right of national governments to protect domestic health and safety. This article allows the United States to exclude, for example, cars and trucks that fail to meet U.S. air pollution standards or children’s pajamas that fail to meet fire safety standards.

A key distinction, however, is that the WTO does not permit member governments to exclude products merely becuase of the way they are made. This is seen as unnecessary for protecting domestic health and safety, a way to unilaterally apply domestic laws on foreign countries, and an opening for all kinds of protectionist mischief.

Hence, these three laws were struck down by the WTO dispute settlement panels. Years ago, when the adverse consequences of production, such as noxious emissions, were viewed as largely domestic concerns, this distinction wasn’t important. However, increasing awareness of the threat of trasborder air and water pollution, global warming, and threats to biodiversity has clarified why the difference is important.

Today, the WTO recognizes that member countries may exclude imports manufactured or harvested in ways that violate an international environmental agreement if both the restricting and offending countries are signatories to agreements, such as the Montreal Protocol for the protection of the ozone layer and the Convention on International Trade in Endangered Species.

Despite this, the WTO sees the establishment and enforcement of international environmental agreements as outside its purview, and this poses considerable peril.

Consider, for example, the much maligned Kyoto Global Climate Accord. As initialed last December, it requires industrialized countries to reduce emissions by specific amounts below 1990 levels. However, it only urges developing countries to establish voluntary limits and it provides for enforcement only through monitoring. Furthermore, it does not take into account that many products are made with fewer emissions and more cheaply in industrialized countries.

Even if commitments ot limit developing country emissions were obtained, this framework would likely cause industries that are inherently more polluting to move from industrialized to developint countries where emission standards would remain less stringent and enforcement less certain. In the end, global carbon dioxide emissions would continue to rise and global GDP growth and living standards would be needlessly reduced by more inefficient patterns of international trade and specialization.

In contrast, reducing global carbon dioxide emissions through a multilateral agreement that sets global standards for both product characteristics and production processes in industries such as steel and electrical generation, and enforces standards through inspections and trade restrictions on products that either pollute too much or are produced in polluting ways, would yield benefits. These include encouraging inherently dirtier activities to locate where emissions technologies are best and economic costs are lowest; providing a powerful incentive for developing countries to assimilate the cleanest technology and establish credible enforcement structures; and doing more to promote both a secure environment and efficient patterns of international specialization.

Negotiating global product and production process standards would require the careful balancing of economic and environmental objectives, and such balancing is generally best achieved through incentives for upward harmonization among national standards. The WTO has a good track record in dealing with such issues – the recently implemented intellectual property agreement is a notable example.

Enforcement of global standards through trade restrictions creates the likelihood of vigorous conflicts among nations over what constitutes substantive violations, and ultimately the clear hazard for protectionist abuse. Again, the WTO has a good track record for dispute settlement in such areas as, evidenced by its efforts to evaluate the scientific basis of health and safety product standards in the agriculture trade.

An emphasis on requiring best environmental practices and bringing environmental practices and bringing environmental negotiations under the auspices of the WTO may be the most reliable way for assuring that the objectives of both environmentalists (sustainable development) and free traders (growth through trade) are served.