COLLECTION OF

MATERIAL

SUBMITTED BYABHISHT HELA

SECTION-A
ROLL NO. 07

 A.K. KAUL, TRADE AND ENVIRONMENTAL LAW, 1ST ED. 2005, BHARAT LAW
HOUSE, JAIPUR
In this very thorough but highly accessible book an eminent legal scholar clearly explains today s
system of international trade law and international economic relations as it has evolved over the last
six decades. Focusing inevitably on the major innovations that came with the inception in 1994 of the
World Trade Organization (WTO) with its various agreements, the analysis also provides in-depth
commentary on the intense debate over important matters than remain unsettled. Among the
aspects of the subject treated in depth are the following:
the WTO dispute settlement mechanism;
services the General Agreement on Trade in Services (OATS);
investments the Agreement on Trade-Related Investment Measures (TRIMS);
intellectual property rights -the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS):
areas still covered by the General Agreement on Tariffs and Trade (GATT) 1947;
the Most Favoured Nation (MFN) concept;
special provisions relating to agriculture and textiles;
sanitary and phytosanitary measures:
technical barriers to trade;
pre-shipment inspection: and import licensing procedures.
The author describes all the major precedent-setting cases in WTO jurisprudence and analyzes their
effect to date and the trends they have set in motion, particularly as they relate to perceived
discrimination against developing nations which must balance their WTO commitments with the
structural adjustments demanded by the World Bank and International Monetary Fund (IMF)
regimes.
Arguments within the WTO and among scholars over such controversial matters as regulation of
competition, setting of labour standards, and environmental controls as well as thorny concerns
raised by enforcement of intellectual property rights and limitation on investments are held up to
close scrutiny for their legal merits. This rigorous approach, in addition to its uncompromising detail
and revealing clarity, assure this book of a place in the practice library of lawyers, officials, and
policymakers in the field for many years to come.

DANIEL C ESTY, GREENING THE GATT, IIE 1994 JULY , WASHINGTON DC.

The report summarizes the current level of discussion of the central asspects of globalisation. It is
based on a large number of expert's reports and positions which might not altogether be fully
representative but non the less well-chosen. Including the topics of finance-, goods-, service- and
labour markets, the global knowledge society, gender justice, resources, sustainable development,
world population and global governance, it covers the main aspects of globalisation.

The International Forum on Globalization (IFG) answers the question of "Which is the alternative?"
that the movement for an alternative globalisation asks. Which are the visions that could possibly lead
to a democratic globalisation, orientated towards fairness, justice and the environment? And which
institutional changes are necessary in order to move towards a de-globalised world order, towards
responsibility and accountability of companies, resource-saving economic practices, as well as
towards a fair trade regime? Although the text cannot deny giving a certain impression of being "work
in progress", it must be regarded as an indispensable guide to the intellectually orientated globalisation
critique.

The expert's report provides a good example for a concrete and far-reaching reform program of an
Environmental Global Governance. The report suggests not only institutional reforms but also the
improved integration of science into international political processes and a reform of the international
financial and ordinary development assistance flows.

This anthology presents a systematic approach to the WTO. It contains several essays about the
relationship of the WTO to civil society and about multilateral environmental agreements as well as
regional (Latin-America, Africa) and sectorial (agriculture, fisheries) approaches. All essays are
written by authors from developing countries.

This is a good introduction to the legal system of the WTO, its institutional setting and trade
agreements. The chapter also highlights some of the main issues of trade and sustainable development.

The negotiation of the Agreement on Trade-Related Aspects of Intellectual Property Rights

(TRIPS) greatly expands the purview of the World Trade Organization (WTO) into domestic
regulatory standards. The minimum standards required in TRIPS are essentially about production
processes, thereby erasing the traditional "product versus process" distinction in the trading rules.
This evolution immediately raises the question of whether other regulatory and process
standards, including competition policy, environmental standards, and worker rights, should be
placed onto the WTO agenda. Because they evidently no longer may be excluded on the grounds
of the inability of the trading system to discipline process standards, the argument must proceed
on other grounds. In this paper I review the logic and evidence for such inclusion based on
economic arguments for multilateral management of market externalities, policy coordination
problems, and systemic trade issues. The review concludes that, conditional upon the protection

of intellectual property rights in the WTO, a strong case may be made for including competition
rules. The case is weaker for environmental regulation and quite weak for labor rights.

Introduction
With the implementation of the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS), intellectual property rights (IPRs) become, on the part of WTO member states,
obligations of commercial policy that cannot be escaped. Intellectual property rights are thus
enforceable rules governing establishment and treatment of the rights and terms of competition.
Adoption and enforcement of at least the minimum standards required will procure considerably
stronger global protection of intellectual assets.
Observers often write about TRIPS as though the rules it contains are comparable to disciplines
against trade restrictions. While there are certainly parallels, particularly to the extent that weak
IPRs interfere with trade, these two policy regimes differ fundamentally. First, trade restrictions
are border measures that inherently discriminate between home and foreign interests. The same
cannot necessarily be said about the partial harmonization of IPRs standards put forward by
TRIPS. These standards apply without discrimination to domestic and foreign interests, meaning
that the TRIPS Agreement extends the reach of WTO rules into domestic business regulation.
Second, border restrictions amount to inefficient taxes on particular forms of economic activity.
Their reduction or removal via trade liberalization is widely viewed by economists as a
movement toward national and global welfare maximization. Put another way, free trade in
goods and services generates the maximum gains from efficient global resource specialization,
with each country benefiting. Protection of IPRs, in contrast, tilts the balance toward incentives
for innovation while raising the costs of gaining access to the fruits of innovation. This outcome
could raise global efficiency in a dynamic sense but cannot be expected to increase welfare in all
countries. Again, there is no obvious benchmark of optimality against which to measure global
IPRs agreements.
Third, WTO trade rules are aimed at liberalizing trade in products without reference to the
processes by which those products are made. While exceptions to this principle are provided in
GATT Article 20, they are rarely invoked (Hoekman and Kostecki, 1995). Many of the standards
that must be observed in TRIPS, in contrast, are explicitly about production processes. This is
clearly the case with respect to process patents, industrial designs, the use of integrated circuits,
and plant varieties. It holds also for trade secrets and infringement of software copyrights. Weak
protection for these processes produces goods that are not necessarily inferior or dangerous for
consumption relative to good produced under strong protection. Under TRIPS, not only must
such goods be excluded both from domestic production and international trade, but the

underlying processes must also be modified or ended. In effect, TRIPS ushers into the system of
global trading rules an extensive mechanism for disciplining processes (standards) in addition to
products.1
This fact raises the question of whether other standards belong in the WTO. Critics of TRIPS
wonder why, if IPRs are included in the WTO to protect capital, labor standards are not also
needed to protect workers, environmental regulations to protect natural resources, and
competition policy to protect consumers. Whatever the misunderstandings of IPRs implicit in
this question, it is not easily dismissed. In this paper I address the question by comparing IPRs,
competition policy, environmental standards, and labor rights in terms of the logic of including
each within a system of international trade rules.
The TRIPS Agreement makes protection of intellectual property rights a foundation block of the
World Trade Organization. It is natural to ask why IPRs attained this status, while other major
forms of business regulation did not. To a considerable extent, the answer relies on
considerations from political economy (Ryan, 1998). Three powerful and easily organized
industries (pharmaceuticals, recorded entertainment, and software) presciently recognized the
opportunity afforded by the Uruguay Round to protect their intellectual property in the future and
made IPRs a core issue for the United States Trade Representative (USTR). This approach
complemented their efforts to publicize the damages they faced from weak international IPRs
and to push for aggressive unilateral trade actions by the United States under Section 301. As
intellectual property became better recognized as a trade policy issue, more American exportoriented industries signed on to the effort, making TRIPS a required condition for success in the
negotiations. Recognizing this, developing countries were able to use the Uruguay Round to
secure other trade advantages in compensation for agreeing to stronger standards.
In this context, IPRs were simply an issue ripe for inclusion in the WTO, which is consistent
with numerous technical explanations for the rising demand for intellectual property protection
(Maskus, 2000). The other broad issues were not similarly positioned, largely because of
difficulties in organizing the relevant interests. Thus, the proximate answer to the question of
what to include in the next round of negotiations is simply whatever area successfully mounts the
associated pressures. However, this answer is unsatisfying analytically.
The inclusion of intellectual property rights in the WTO suggests that such rights are integral to
the trading system. As shown in recent empirical studies, IPRs are strongly trade-related,
meaning they pass the minimal test for inclusion (Maskus, 2000). Moreover, they significantly
affect investment and licensing decisions, which are distorted by weak and variable IPRs.
Accordingly, a well-designed system of IPRs should support the efficient functioning of
international markets. Conversely, by agreeing to establish and respect standards for intellectual
property protection in the WTO, governments recognize that their existing, separate regimes may

be sub-optimal in some dimensions. Surrendering some discretion to international rules forcing

stronger standards may promote both collective and national welfare.

Other Standards Under Consideration

The foregoing essentially describes the case for negotiating a set of multilateral rules, supported
by dispute settlement procedures and trade sanctions, covering IPRs or any other set of
standards. The logical grounds for such inclusion rest on the severity of inherent trade
impediments posed by varying standards, the ability of stronger standards to support the trading
system, and the role of multilateral regulation in overcoming international market and policy
failures. In this context, it is interesting to compare IPRs to the other types of standards that
might appear in the next round of trade negotiations. In these other areas, proposals for the WTO
exist at various stages of complexity and inclusiveness. Thus, it is difficult to capture what may
be intended in policy terms except in broad brush.
Competition policies refer to laws and regulations designed to maintain market contestability, in
both static and dynamic terms. Indeed, there is a strong relationship between IPRs and
competition regulation, though the latter area covers broader elements, such as merger control,
market dominance, cartels, tied sales, and other forms of behavior that might restrict
competition. As for their inclusion in the trading system, current proposals range from minimalist
concepts of consultation to extensive harmonization and proscriptions of anti-competitive
activity (Graham and Richardson, 1997a). The definition I take here is fairly comprehensive and
focuses on trade-related anti-monopoly precepts. Specifically, countries would be expected to
prevent export cartels, to relax distribution monopolies that deter imports, and to discipline
licensing practices that anti-competitively restrain marketing and product development. Some
policies may require blanket proscriptions while others may be based on a rule-of-reason
approach.
I define environmental standards here as national regulations aimed primarily at influencing the
use of environmental resources by producers and consumers. Such regulations include effluent
taxes, mandated abatement programs, trade in pollution permits, recycling programs, fuel taxes,
and the like. What form a WTO agreement might take is unclear though presumably it would
address standards that are sufficiently weak to permit cross-border environmental damages (Esty,
1994). Borrowing a page from international environmental agreements, such rules could involve
outright bans on production or trade of particular pollutants, such as chloroflourocarbons in the
Montreal Protocol. Or they might set out targeted reductions in emissions, such as those for
carbon dioxide in the Kyoto Agreement. They could also call for national promotion of
internationally agreed environmental goals, such as the preservation of biological varieties in the
Biodiversity Convention. Negotiations would aim at establishing each country's obligation
levels.

A WTO agreement on core labor standards would require each country to agree to recognize and
enforce five general rights that are considered by many to be fundamental human rights. These
include banning exploitative use of child workers, eliminating forced labor (slavery, bonded
labor, and prison labor), preventing discrimination in the workplace, allowing free association of
workers, and permitting workers to undertake collective bargaining (Maskus, 1997). The role of
the WTO would be to permit trade sanctions against countries that fail in these endeavors under
certain circumstances. One variant under discussion would be to allow countries to ban imports
of offending goods (or their equivalent value) under a consensus view of abhorrent practices
(Rodrik, 1997).
As noted above, traditional GATT rules did not include offensive production processes as
actionable practices, preferring instead to focus on the conditions of competition or market
access for products themselves. While GATT allowed countries to exclude imports of goods
produced in ways that violated their own IPRs, it did not extend its reach to outlawing such
practices generally. Ultimately, then, TRIPS will result in trade sanctions imposed against
failures to prevent the use of illegal production processes. Even if one defines such practices as
theft it is difficult to see a distinction in trade policy terms between them and offensive use of
environmental resources or workers. Accordingly, it is hard to maintain that those areas should
remain outside the purview of the WTO on the basis of an unwillingness to define illegal
production processes.

A WTO Ranking of Standards Based on Economic Grounds

Thus, distinctions must be found on other grounds. I consider several criteria that could support
the inclusion of standards into the WTO, and how well the issue areas fit them, in Table 1. These
criteria are divided into five general items and some more specific questions. The first four
general items provide a basis for comparison of IPRs with competition policy, environmental
regulation, and labor standards. They include how trade-related the areas are, the importance of
international externalities that trade rules might overcome, coordination failures of countries to
enforce collective interests through stronger standards, and the ability of dispute settlement to
deal with them effectively. The final general area looks at systemic questions, presuming that
IPRs are already in the WTO and analyzing the other issues conditioned upon that fact.
In each of these areas I assign a qualitative ranking indicating the extent to which the issue may
be supported in theoretical and empirical terms. The word "absent" indicates no relationship or
evidence, "murky" indicates a weak or highly ambiguous relationship, "moderate" indicates a
relationship of medium strength, and "clear" indicates an identifiable and strong relationship.2 To
economists the proper resolution of complex policy questions rests on both theory and empirical
evidence. The qualitative descriptions reflect both the apparent importance of the problem and
the ability of multilateral coordination through enforceable trade rules to deal with it adequately.

Because the rankings are qualitative only they inevitably exhibit a degree of arbitrariness. For
example, some entries under "evidence" are "absent", reflecting an absence of empirical research
devoted to those areas rather than implying that no such evidence could be found. Readers will
differ in their own assessments of how the standards fit the underlying criteria. However, the
criteria and rankings can serve as a basis for discussion about the desirability of extending the
WTO to additional issue areas.

Trade Impacts
Inclusion of IPRs in the WTO was originally justified by their relationship to trade in goods.
That IPRs may be closely trade-related is evident. The essential point is that weak IPRs can
operate as a non-tariff barrier to trade by reducing domestic demand for goods imported under
patent or trademark protection. However, a strengthening of IPRs does not necessarily increase
trade volumes because it enhances market power at the same time that it shifts demand toward
imports. Net impacts depend on a variety of factors in each country and product. Empirical
evidence demonstrates that such impacts clearly operate in international trade markets (Maskus
and Penubarti, 1995, Smith, 1999). Accordingly, IPRs are strongly trade-related in both theory
and fact, earning a ranking of "clear" on each scale.
Competition policy also has potentially strong impacts on trade in theory (Levinsohn, 1996), but
has attracted little empirical study. In this case, the ranking of "murky" under evidence reflects
simply the practical attention the issue has drawn in recent years to particular cases (Graham and
Richardson, 1997a). Environmental standards (Levinson, 1996) and labor rights (OECD, 1996)
also affect trade in theory. Evidence is stronger in the former case. Rodrik (1997) produced some
evidence that trade in labor-intensive goods is marginally affected by core labor rights, as
measured by membership in international labor conventions. Other examinations could find no
credible evidence that deficient core labor rights have any impact on trade flows (OECD, 1996;
Maskus, 1997).
Standards might also have important indirect impacts on trade through their influence on FDI
and technology licensing, as noted in the second row. This theory is well established for IPRs,
competition policy, and environmental standards, though clear (but not overwhelming) evidence
of these impacts exists only for IPRs. That competition policies could affect investment decisions
seems clear from historical and descriptive evidence but the issue has attracted little systematic
study. One recent paper could find no impacts (Noland, 1998). Numerous attempts have failed to
discover systematic evidence in the environmental realm (Levinson, 1997; Low and Yeats,
1992). Regarding core labor rights, their absence does not necessarily attract FDI even in theory
because denying such rights is tantamount to cost-increasing distortions in many cases (Maskus,
1997). Neither is there any evidence of such effects (OECD, 1996; Maskus, 1997).

International Externalities
To economists a primary justification for an international policy regime is its ability to
internalize cross-border externalities that are harming global welfare. Policy intervention in each
of the four issue areas is advocated on these grounds by various observers. Externalities may be
static or dynamic and I have listed (non-exhaustive) examples of each kind in Panel B. of Table
1. In IPRs the main static concern is that weak and variable international protection promotes
uncompensated international technology diffusion and product copying, which could slow down
invention and innovation. This case is easily made in theoretical terms, though in fact it is not
clear whether effective diffusion happens more readily under weak or strong IPRs. Moreover, the
impact on global welfare is not easily determined. Evidence exists that diffusion transpires
through a variety of international channels (Coe, Helpman and Hoffmaister, 1997), including the
legitimate use of patented technologies (Eaton and Kortum, 1996). The evidence is not entirely
clear, however, and I assign it a rank of "moderate".
The externality theory in competition policy is essentially that weak rules encourage anticompetitive and exclusionary behavior that permits abuse of monopoly power abroad or in
defending home markets. Export cartels are one example, as is predatory dumping that might
emanate from protected scale. So also are collusive agreements among firms in one set of
jurisdictions to divide markets elsewhere. These concerns are reasonably well established in
theoretical terms, though doubts expressed by industrial organization specialists about the
efficiency losses associated with monopolization and vertical arrangements in closed economies
apply as well at the international level. Evidence on the prevalence of anti-competitive practices
spilling over borders is weak and indirect.
That there are static spillovers in the environmental area is clear theoretically and constitutes the
basic argument for international intervention. There is moderate but convincing evidence on this
point, at least through a wide range of case studies. In core labor rights, the spillover argument is
that consumers in rich nations are made worse off by awareness of exploitative labor conditions
abroad. It is also argued that weak core labor standards may operate to suppress wages of lowskilled workers in countries that import products made by exploited workers. The theoretical
basis for the utility spillovers is sensible, if based on an untested assumption about preferences,
but there is little basis for the wage story even in theory (Maskus, 1997). Evidence is weak in any
case.
The dynamic externality in IPRs is that weak rights may generate inadequate global investment
in R&D. The evidence on this point is mixed and hardly conclusive. A subtler variant is that
weak IPRs in developing countries result in too-little R&D aimed at meeting particular needs of
consumers in those countries, such as tropical medicines. Theory points in this direction (Diwan

and Rodrik, 1991), while evidence in the pharmaceutical sector suggests strongly that global
research efforts suffer from this distortion (Lanjouw, 1997).
In competition policy, dynamic markets are distorted to the extent that weak rules induce
excessive investment in entry deterrence, such as excess capacity and closed distribution
networks. This theory is respectable but I am unaware of any studies of the issue.
Similarly, the issue in environmental regulation is that weak standards generate insufficient
global investment in abatement efforts, causing future generations to suffer excessive pollution.
Again, the theory is well established but evidence is scarce and anecdotal. Finally, in labor rights
the question becomes whether inadequate protection of children results in sub-optimal levels of
education that spills over into lower global growth rates. In theory, low schooling rates are more
closely associated with poverty than with weak proscriptions against child labor, while
strengthening rules against child labor paradoxically could result in less schooling (Maskus,
1997). Evidence on this crucial point is again missing.

Policy Coordination Failures

Economists also justify international policy regimes on the basis of overcoming failures of
countries to advance their long-term interests through collective action. Indeed, the essential
purposes of GATT were to prevent countries from unilaterally raising tariff rates on behalf of
domestic political interests and to establish a multilateral forum for reducing tariffs to the joint
benefit of members. In IPRs, it is argued that countries may choose standards that are weaker
than optimal in an effort to promote local production through copying more rapidly than
neighbor countries (McCalman, 1999). If all nations (or a collection of developing nations) did
this, each country might be caught in a low-level equilibrium set of standards that discourage
growth and technical change. Higher standards in the TRIPS agreement could overcome such a
problem. The theory supporting this claim is weakly established at best in the IPRs area and there
is little evidence that countries compete on these grounds.
In the competition area it may be argued similarly that countries choose individually and
collectively sub-optimal regulations to compete for production and investment that respond to
lax competition maintenance. The absence of competition policies in much of the developing
world may be taken as indirect confirmation of this problem and I assign somewhat higher
rankings in this area. In environmental standards and labor rights the basic argument is the "race
to the bottom", in which countries choose to lower those standards (or not to raise them) despite
the negative impacts on national and global environmental quality and worker protection. The
theory is reasonably defensible in the case of environmental regulation, though evidence remains
mixed and scarce (Levinson, 1996). The theory makes little sense in the labor rights case, though
some point to the proliferation of export processing zones as evidence of standards deterioration.

A second coordination failure that trade rules might address is that forcing higher standards could
help build market-supporting infrastructures, such as a professional judiciary to enforce property
rights, administrative transparency in government agencies, and countervailing power among
economic agents. Such institutions may be underdeveloped in poor countries because of the
difficulty of organizing interests in their behalf. This argument is perhaps the sine qua non for
IPRs, because property rights are at the core of effective market systems. Similarly, competition
policy is a fundamental support for efficient markets; in its absence concentrated interests are
liable to dominate economic systems. There is informal evidence from developing economies
that IPRs support business development and innovation, while it seems clear from case studies of
market deregulation and trade liberalization that entry can proceed rapidly when unblocked.
Hence, IPRs and competition policy score highly on this criterion.
It has been argued that environmental standards help set the stage for cumulative improvements
in protection by raising the demand for environmental inputs and expanding awareness of
environmental problems. The logic in this claim seems somewhat circular and evidence of the
incentive effects of environmental standards is weak. A similar argument does hold water in at
least one area of labor rights, because the establishment of labor unions and collective bargaining
can improve prospects for employee training, eliminate inefficient monopsony hiring practices,
and expand workers' commitments to acquire firm-specific capital (Sengenberger, 1991,
Freeman, 1993). However, evidence suggests that unions frequently do not operate in a manner
that raises market efficiency and growth, especially in developing nations (Rama, 1995; Farber,
1986).

Meaningful Dispute Resolution

That such coordination problems exist does not mean their resolution could readily be made
operational in the WTO. Dispute resolution is more manageable when the issue stems from
commercial damages arising from weak standards rather than from questions of morality. This
task is conceptually most straightforward in the case of IPRs, where copying is aimed at
particular products and technologies that may be identified through court proceedings. It is surely
less straightforward in competition policies, where business practices may exclude particular
identifiable competitors but translating those impacts into consumer costs is daunting.
Nonetheless, a history of enforcement in the United States and the European Union provides
guidelines for calculating and assigning costs, so I assign reasonably high marks in competition
policy.
Such exercises in the environmental and labor rights fields are fraught with conceptual and
practical difficulties, making their inclusion in the WTO questionable. For example, the
immediate losers from exploitative use of child labor are children themselves but it is difficult to
assess these costs in relation to available alternatives. Moreover, trade sanctions easily could

harm those agents they are designed to protect (Maskus, 1997; Freeman, 1994; Elliott, 1998). On
the other side, it is difficult to assign monetary values to the disutility experienced by consumers
of products made under exploitative conditions. Experimentation with product labeling suggests
that consumers may be willing to pay some amount to avoid such products. However,
willingness-to-pay studies have not been systematically performed. One is left with the nebulous
policy of simply banning such imports on the basis of unmeasured psychic costs (Rodrik, 1997),
with potentially damaging impacts on recipients of the sanctions.
Summing up these various effects analyzed, IPRs achieve an unweighted rank of
"clear/moderate", suggesting there are justifiable motivations for its entry into the WTO.
Competition policy ranks next as "moderate" and environmental regulation third as
"moderate/murky". I readily admit that these differences are not significant scientifically. Indeed,
I believe that these areas should be grouped together as issues for which international policy
coordination is sensible. The balance sheet is less favorable to core labor rights, essentially
because the alleged spillovers are questionable and evidence suggests the international trade
effects are minimal.
Because various analysts would emphasize different motivations for developing international
trade rules, the next four rows weight the rankings by each type of argument, with implicitly a
weight of 1.0 for particular designated arguments and 0.5 for the others.3 This exercise makes the
case relatively stronger for IPRs when emphasis is placed on trade-relatedness. It ranks
environmental issues at the top if the focus is on international externalities. In all cases, core
labor standards achieve a low ranking, suggesting it is of questionable value to consider their
incorporation into the WTO.

Conditional Rankings
A final type of justification is that the systemic structure of the WTO invites or repels extension
of its coverage to new issue areas, as shown in Panel E. I do not attempt a distinction between
theory and evidence because these questions are amenable less to empirical confirmation and
more to rhetoric. Because IPRs are already in, I do not rank them on this score. A first question is
whether the WTO rules themselves give rise to clear linkages between existing coverage and the
new issues. This is strongly so in competition policy, which is directly relevant for IPRs (indeed,
the TRIPS agreement invites countries to use competition disciplines in the area) and also
strongly connected to antidumping and subsidies. The linkages are perhaps less clear in
environmental protection, though there are potential synergies with IPRs and agriculture (in
biogenetic technologies) and subsidies. Again, the weakest relationship emerges for labor rights.
A second point is that the WTO may not be an appropriate institution to handle the new issues.
Indeed, this argument was made about IPRs before their introduction via the Uruguay Round.

Although the potential difficulties in managing competition regimes via the WTO are significant,
the focus of competition policy on market access and its intimate linkage to IPRs suggests that
the trading system is the appropriate locus. The case for environmental and labor standards in the
WTO is far shakier on these grounds. Both areas are primarily about domestic regulations with
incidental (if perhaps important) impacts on trade and do not incorporate significant elements of
market access. In this context, if there is a strong case for international coordination in the
environmental area, as these rankings would suggest, it points more toward a separate
institutional structure (Esty, 1994).
Finally, it may be argued that failure to proceed in these issue areas could significantly erode
support for the international trading system, a claim that is often made on behalf of
environmental and labor standards. Competition policy carries considerable importance for the
international business community in this context, but likely arouses less concern among the
general public than environmental policy and labor standards.
Averaging these rankings suggests that competition policy comes in highest on the conditional
entry criterion, largely because of its linkages to existing areas and its potential institutional fit.
Environmental and labor standards fare less well and raise real questions about how their
inclusion would affect the trading system. Overall, the "grand rank" across all five general
criteria provides an advantage to competition policy over environmental regulation. The criteria
adopted here reject core labor rights as an appropriate area for the WTO.

Concluding Remarks
In this paper I have attempted to rank four fundamental areas of commercial regulationIPRs,
competition policy, environmental standards, and core labor standardsin terms of their
suitability for inclusion in the multilateral trading system. The prior introduction of IPRs
invalidates the claim that the WTO must be limited to disciplining measures that solely affect
product trade and has no competence in regulating production processes. Therefore, examination
of the desirability or feasibility of incorporating other standards must proceed on broader
grounds.
By setting out several basic criteria for this purpose, including trade relatedness, international
externalities, policy coordination problems, and systemic appropriateness of the WTO, I find that
IPRs were a reasonable regulatory area for inclusion. Competition policy seems also to be
appropriate for consideration by the WTO. However, environmental regulations fare less well,
unless a high weight is placed on their cross-border externalities. There is little ground for
inclusion of worker rights, either in theory or in terms of available evidence.

Perhaps a useful way to think of these results is along institutional lines. The WTO seems an
appropriate and effective locus for developing coordinated standards in the areas of intellectual
property rights and competition rules, primarily because of their focus on market access and
competition. It is not appropriate for environmental standards because of the systemic problems
that could emerge in using the WTO for this purpose. Nonetheless, the international externalities
(both static and dynamic) in this area are sufficiently in evidence to provide a strong argument
for coordinated international action on environmental protection. This suggests that a separate
institutional structure, such as a World Environmental Organization, is worthy of consideration.
Finally, the weak theory and limited evidence on the externality and coordination aspects of
worker rights, along with potential systemic problems, do not support their inclusion into the
WTO. They could provide an argument for strengthening the existing international structure of
worker rights through the International Labor Organization.

P.K. Rao, International Environmental Law and Economics, Blackwell

Publishers, 2002

Real People, Real Environments, and Realistic Economics

The wealth and power of humanity in the 21st century can be used to create a
far better world.
We are among the large and growing number of economists who are troubled
by environmental degradation and social injustice, by the wide and growing
inequality of wealth and income in America and in the world, and by the
harmful impacts of the globalized economy on the natural systems that
surround and support human activity.
We believe that humanity in the twenty-first century has the collective
capability to eliminate hunger and poverty worldwide, to attack lethal diseases
instead of each other, and to build societies based on fairness toward others
and sustainable relationships to the natural environment. These goals are
both socially desirable and economically feasible. The question is: how do we
get there from here?
Economics, as it is currently taught and practiced, provides too little guidance
for those seeking to transform society, and too much apology for the
inequitable and unsustainable patterns of resource use that exists today. In

order to change what is wrong with the economy, we have to change what is
wrong with economics and advance our understanding of the relationship
between economy and ecology.
For many like us, the choice of economics as a career reflects a desire to
understand the system of production and consumption, to explain the inner
logic of the workings of markets, and above all to change the economic
system for the better. Yet those who come to economics seeking to improve
the world often end up disappointed. They enter a realm of everescalating abstraction that is increasingly detached from the social problems
they sought to address. They find that economics pretends to bevalueneutral, but it is used again and again to support a conservative antireformagenda.
As economists we are unsatisfied with abstract theorizing for its own sake. We
are not willing to uncritically celebrate the magic of unregulated markets and
the status quo. We face unprecedented crises in the form of climate change,
biodiversity loss, and fresh water scarcity. Conventional economic thinking
falls short in envisioning a way through these crises and through other
fundamental threats to human health and nature. In these times, economists
can and must provide critical skills and new insights. But new economic
thinking will only arise as economists engage with practical realworldproblems.
In 2007, we launched Economics for Equity and the Environment Network
(E3) to promote our vision of an engaged and realistic economics, in which an
understanding of social equity and environmental protection cannot be
separated. Since that time, the E3 Network has grown to included hundreds of
economists in the U.S. and abroad.

Where conventional economics goes wrong

Imagine what it would be like if economics stopped asking the wrong
questions.
Conventional economics traditionally gives priority to the problem of universal scarcity
(which is said to exist everywhere and always, because desires are insatiable), and to the
efficiency of unregulated markets. But these are issues of limited real-world importance. The
ongoing pace of material accumulation would soon eliminate any scarcity of lifes
necessities for affluent societies and even for the world as a whole save for the fact that
economic institutions continually contrive new needs, while systems of unequal distribution
reproduce poverty in the midst of wealth. The efficiency of perfect markets, which should be

one among many interesting topics in economic theory, has enjoyed utterly disproportionate
academic emphasis and relentless exaggeration of its relevance to actually existing,
inherently imperfect markets.
The economic theory of endless scarcity and perfect markets attaches nearly scriptural
significance to Adam Smiths passing mention of the invisible hand. In that nowfamousmetaphor, Smith explained how private greed, channeled through a competitive
market, could contribute to the common good. Much of what is wrong with economics today
comes from the disastrous overextension of that metaphor, far beyond its limited domain of
validity.

While the mathematical sophistication and technical jargon surrounding this

theory have escalated immeasurably since Smiths day, the social content and
context of the theory have stagnated or even regressed. The people who
inhabit the theoretical world of the invisible hand are stick figures: homo econO
micus is motivated only by selfish, insatiable desires for increased private
consumption, lives in a void untouched by social influences and institutions,
and remains unaware of the natural environment. Humanwell-being, in this
most asocial of the social sciences, is judged by a narrow utilitarianism,
presuming that each individual prefers more private consumption and less
work and that these private, individual preferences are all that matters.
For those trapped within the theoretical frame of the invisible hand, it is
virtually impossible to make useful contributions to the discussion of public
policy. The questions that matter to real people living in the real economy are
centered on market imperfections, institutions, and the environmental and
social context within which markets function. Having abstracted away from the
vital core of policy debates, economists all too often drift off in either of two
unhelpful directions.
On the one hand, the theory of abstract market economies provides ample opportunity for
mathematical elaboration. General equilibrium theory, with its rigorous exploration of the
(highly unrealistic) special conditions under which the invisible hand metaphor is valid, and
even more esoteric excursions into game theory, have been followed by waves of abstract
mathematical modeling throughout the top journals in environmental economics and other
applied fields. On the other hand, the attempt to explain actual social behavior in terms of
the theorys selfish stick figures leads at best to quirky insights about micro-effects of market
incentives, in the style of the popular book Freakonomics and at worst to policy analyses
that reject reforms if they threaten to cause even trivial changes in private consumption.

micus is motivated only by selfish, insatiable desires for increased private

consumption, lives in a void untouched by social influences and institutions,

and remains unaware of the natural environment. Humanwell-being, in this

most asocial of the social sciences, is judged by a narrow utilitarianism,

presuming that each individual prefers more private consumption and less
work and that these private, individual preferences are all that matters.
For those trapped within the theoretical frame of the invisible hand, it is
virtually impossible to make useful contributions to the discussion of public
policy. The questions that matter to real people living in the real economy are
centered on market imperfections, institutions, and the environmental and
social context within which markets function. Having abstracted away from the
vital core of policy debates, economists all too often drift off in either of two
unhelpful directions.
On the one hand, the theory of abstract market economies provides ample opportunity for
mathematical elaboration. General equilibrium theory, with its rigorous exploration of the
(highly unrealistic) special conditions under which the invisible hand metaphor is valid, and
even more esoteric excursions into game theory, have been followed by waves of abstract
mathematical modeling throughout the top journals in environmental economics and other
applied fields. On the other hand, the attempt to explain actual social behavior in terms of
the theorys selfish stick figures leads at best to quirky insights about micro-effects of market
incentives, in the style of the popular book Freakonomics and at worst to policy analyses
that reject reforms if they threaten to cause even trivial changes in private consumption.

The greatest policy innovation of 20th-century economics rested on a sharp

break with the classical theory of the market economy. Combining common
sense and elegant logic, John Maynard Keynes created a new
macroeconomics and demonstrated that deficit spending can be a sensible
cure for high unemployment. The modern welfare state, embodying
Keynesian macroeconomics in practice, directly ameliorates economic
inequality, by reducing unemployment and providing other social economic
benefits.
But in the 1980s, as the conservative Reagan and Thatcher counterrevolution attacked the
political legitimacy of the welfare state, economic theory banished the Keynesian
understanding of unemployment and deficit spending to the periphery of academic life. A
new fundamentalism claimed that any intervention in the wondrous mechanics of private
markets was doomed to failure; nave, misguided liberals could only make things worse by
legislating and regulating.
Eclecticism characterizes the leading edges of economic theory today. The fundamentalism
of the 1980s could not be sustained. The simplistic, unrealistic assumptions and the
increasingly caricatured persona of homo economicus have begun to collapse of their own
weight. But there is no clear alternative in sight, no new synthesis with a different message
about the world. The appearance of models with new behavioral postulates, and analyses

of the economics of limited and asymmetric information, may create a misleading

impression of pluralism. General equilibrium theory and the political prescriptions of laissezfaire policy are not simply equal voices in a crowded field of competing frameworks; they
remain considerably more influential than others. While avant-garde theory has moved on to
new complexities, old models and metaphors of perfect market outcomes remain firmly
entrenched in the application of economics to policy problems, including the environment.

Economics and the environment

Imagine that the environment was a central concern of economics.
In the early years of the 21st century, the worsening environmental crisis
cannot be treated as something secondary and external to the
understanding of economics and society. Global climate change threatens
humanity as a whole; toxic hazards are differentially dumped on the poorest
and least powerful; rivers, endangered species, and entire ecosystems are at
risk. We propose to make such issues central to our understanding of the
present and our agenda for the future.
Modern environmental economics began with the early 20th-century work of
Arthur Pigou, who developed the analysis of externalities. His name is
attached to the traditional policy proposal, Pigouvian taxes on polluting
activities, equal to the value of the damages. But Pigou made it sound too
easy to solve the problem. His analysis of a single externality implied that
environmental damages occur one at a time, and that they are rare enough to
allow the creation of individual taxes to address each one. He also assumed
that there was a known or knowable monetary value to each such externality,
and deduced that there was an optimal, frequently non- zero, level of
damages that society should accept.
This Pigouvian analysis is overwhelmed by the real-world complexities of
externalities: in practice, industrial systems cause numerous, interacting
health and environmental damages, many of which are vitally important but
impossible to price. The common but narrow vision of environmental policy,
based on getting the prices right and then letting markets work their magic,
is hopelessly inadequate to the challenge of controlling climate change and
leaving a sustainable world for our children and grandchildren. There are
principles at stake throughout the realm of environmental policy that defy
monetary calculation: many people flatly reject the idea that the optimal level
of extinction of species, or of public exposure to nuclear waste, should be
anything but zero.

Pigouvian taxes do embody the important principle that polluters should pay for the
damages they inflict on society. But in both law and economics, a more conservative
analysis has gained popularity. Legal scholar Ronald Coase argued that taxes and
regulation might be unnecessary, since under some circumstances polluters and those
harmed by pollution could engage in private negotiation to determine the appropriate
compensation. While Pigous examples of externalities often involved simultaneous harms
to large numbers of people, Coases examples tended to be localized, individual nuisances,
where one persons behavior disturbed the immediate neighbors. The image of
environmental externalities as localized nuisances serves to trivialize the real problems of
widespread, collective threats to health and nature. Creative alternative readings of Coase
have been suggested at times, but the dominant interpretation of his work has provided an
intellectual basis for the retreat from regulation.

Two major trends have characterized the ongoing development of mainstream

environmental economics. First, more and more market-oriented policy
instruments and proposals have emerged. The opposing straw
man, command-and-control regulation, has become a moving target.
The market-based critique of regulation originally entailed advocacy of
Pigouvian taxes; now it frequently involves rejection of taxes as well in favor of
tradable emissions allowances, as in the U.S. system for sulfur emissions
trading.
In practice, it has become common for the polluting industries themselves to
receive almost all of the allowances (97% in US sulfur trading; more than 99% in
the EU carbon trading scheme), as a free gift from the public. This is the polluter
pays principle seen through the looking glass: society instead is paying the
polluters to reduce their emissions. Market-based policies can play a useful role
in reducing the costs of environmental protection, and can in principle be
reconciled with equity concerns, but in recent years the adoption of marketbased policies has disguised a further redistribution of resources in favor of
corporate polluters.
Second, a cottage industry of estimating the monetary value of externalities has
emerged out of lawsuits and debates over environmental damages above all,
from litigation over the 1989 Exxon Valdez oil spill. Only a small part of the
valuation process involves goods and services that literally have prices, such as
the loss of fishing and tourism incomes following an oil spill. More often, valuation
rests on very indirect inferences (the value of a park must be at least as great as
the amount of money people spend to visit it) or on questionnaires asking
hypothetical questions about willingness to pay for things that obviously have

no prices (how much would you be willing to spend to protect the existence of
whales?)
Methodological research has highlighted numerous pitfalls and problems with such
estimates. Avoiding the known sources of error in the valuation field has become
increasingly costly and difficult. As a result, it has become common to engage in benefits
transfer, modifying and applying published valuation estimates from more-or-less related
studies in order to avoid the expense of a new state-of-the-art survey. The US
Environmental Protection Agencys cost- benefit analysis of the standards for arsenic in
drinking water assumed, for example, that the value of a nonfatal case of bladder cancer
equaled the value of a case of chronic bronchitis found in an earlier study, merely updated
for inflation since the original research.
Another school of thought, known as ecological economics, has emerged in the last 20
years, creating a helpful but partial alternative to standard environmental economics.
Ecological economists have appropriately insisted that the economy is embedded in, and
cannot escape dependence upon, natural ecosystems. Nature provides many essential
services and inputs to the economy; by analogy with physical capital, ecosystems can be
described as embodying natural capital. Ecosystems include complex webs of
interdependence, and many environmental problems are likewise interdependent. There are
critical thresholds beyond which irreversible damages occur and the world is fast
approaching these thresholds.
Ecological economists have advocated and publicized these thought-provoking ideas, and
they have built an academic society and an important journal. E3 seeks to move these
concepts into the real-world arena, emphasizing analytical links between social equity and
the protection of natural capital, and developing new theory as it arises from practical
applications.

Cost-benefit analysis versus environmental protection

Imagine that economic analyses supported sensible environmental policies.
No example better illustrates how narrow, technocratic, ideologically-driven economic
analysis has supported the agenda of big business than recent federal cost-benefit analysis
of environmental and health and safety regulations. EPA and other agencies have to submit
regulations to the Office of Management and Budget (OMB) to have their economic
analyses approved; the monetized benefits of a proposal have to exceed the economic
costs in order for it to be accepted. OMB can and does reject regulations on grounds of
deficient economic justification, regardless of the environmental or other merits of the
proposals.
This fig leaf of academic authority conceals a naked assault on protection of health and the
environment. There is no economic crisis of unbearable regulatory costs, no trail of jobs and

businesses destroyed by overzealous command-and-control environmental policies. The

Clean Air Act and the Clean Water Act, the signature laws of 1970s environmental
protection, have saved thousands of lives annually, forced an immense reduction in
exposure to lead and other crippling pollutants, and undone much of the previous damage
to the Great Lakes and countless other waterways all at entirely affordable cost, and
despite the total absence ofcost-benefit analysis throughout the drafting and implementation
of the laws.

Cost-benefit analysis adds up costs and benefits to everyone in society,

counting all dollars the same and thus ignoring equity and distributional
questions by design. A $1001 gain for a major corporation at the expense of a
$1000 loss for one of its janitors counts as a desirable improvement in costbenefit terms. (Defenders of this practice point out that the
corporation could compensate the janitor, making everyone better off but
they count it as a net benefit to society even if, as usual, no compensation is
paid to the losers.) Moreover, cost-benefit analysis implicitly values at zero
everything that cannot be monetized, no matter how qualitatively important it
may be. As a result, there is constant pressure to concoct imaginary prices for
even the most inherently priceless values.
Monetized estimates of benefits are complicated and often meaningless distortions of the
true value of human life, health, and the natural environment. What does it mean to say that
a human life saved by regulations should be valued at $6.1 million? That estimate during
the Clinton Administration was based on intricate inferences about small differentials in the
wages paid for dangerous jobs. Was it really appropriate to reduce the value of a life to $3.7
million, as the Bush administration did? That estimate was based on answers to
hypothetical questions about what people would pay to avoid low-probability risks of death
under carefully contrived circumstances. The value of a human life continues to fluctuate
across administrations, demonstrating the fact that the value of human life for regulatory
purposes is driven more by politics than any intrinsic value itself. None of the estimates
begin to convey the way that most religious and ethical beliefs view the sacredness of
human life, nor the way that legal systems hold people responsible when they cause the
deaths of others.

Toward an alternative, in theory and practice

Creating a better economics of the environment, in academia and in public
policy.
The problems that have come into such painfully clear focus in recent will not be
automatically washed away by different election results at the local, state, or national levels.
When the opportunity for new policies arises, the sensible alternative is not just to raise the
benefit estimates and then repeat the cost-benefit analyses. To do so would still leave
environmental protection hostage to technical disputes over the minutiae of valuation.

Recent cost-benefitcontroversies have demonstrated that partisan dispute cloaked in

technical jargon mystifies and excludes almost everyone, but does not reach objective
agreement among the rival analysts. To a remarkable extent, the methodology is the
message and the cost-benefit message, even with better estimates of values, is not a
positive one for people or for nature.

We launched Economics for Equity and the Environment Network (E3) to help
create and promote a more far-reaching alternative approach. We see the
need for better theory and research within the economics profession, and for
more proactive involvement in policy development, through dialogue and
cooperation with environmental advocates.
The creation of a better theory of economics and the environment is a work in
progress, with many questions yet to be answered. Briefly, we propose four
organizing principles for a new, pro-environmental economics.
1. Equal rights to health and environment
A fundamental principle is that everyone has an equal, democratic right to enjoy access to
health and nature. This is a break with the status quo on several levels. In economic theory,
it challenges the narrow utilitarian framework of valuation based on willingness to pay, and
the presumption that valuable resources should always be distributed through the market.
The work of Amartya Sen is particularly relevant here, suggesting standards of welfare that
transcend the boundless acquisitiveness of homo economicus. The theory of public goods,
all but abandoned in recent years, needs to be revived and reoriented to address the core
question of rights.
In political economy, the principle of equal rights raises the question of who benefits from
the existing unequal distribution of resources, and who has the power to shape the debate
over distribution. Would a world of equal rights invest more effort in preventing pollution and
finding safer substitutes for things that no one wants in their own backyard? A new political
economy, rooted in concern for environmental justice, is needed. This will have little in
common with the cynical and misnamed public choice theory with its presumption that the
public sector is inevitably a den of rent seeking and corruption. In fact, it is the public
sectors over-reliance on privatization and deregulation in recent years that allowed the
colossal rent-seeking of the likes of Halliburton and Enron. The remedy is stronger oversight
by a revitalized public sector.

2. Investment, opportunity, and stewardship

The environmental agenda is not just about protection, but also about investment in natural and
human assets. The ecological economics emphasis on natural capital is relevant here, especially
when extended to incorporate an understanding of the crucial role played by low-income rural
communities that depend most directly on nature. Recent work has highlighted development

strategies based on building natural assets, democratizing access, and defending the commons.
While protecting the environment, at the same time such strategies can create individual and
community opportunities for employment growth and poverty reduction.

With well-designed programs and regulations, there is no trade-off between

environmental and economic well-being. This basic finding needs to be elaborated and
widely publicized. Investment should be understood in long-range, socially oriented
terms (think of childrens education, not market speculation); it includes stewardship
over the local, national, and global commons, which must be managed for the benefit of
all, including future generations as well as the present. The well-known and inescapable
paradoxes that result from discounting the future at any fixed, positive rate must be
addressed, and alternative approaches to the economics of the future must be adopted.
The basic algebra of present value, as currently understood and taught to economic
students everywhere, instead dismisses the urgency of long-term concerns such as
climate change.
7
Real People, Real Environments, and Realistic Economics

3. Complexity, uncertainty, and the need for precaution

Our task is to understand the linkages between natural and economic systems, which
exhibit complex threshold effects, dangers of irreversible damages, and interactions
between global changes and place-based, location-specific effects. Complexity and
nonlinear dynamics, areas of important recent innovations in the natural sciences, pose a
challenge to standard economic models that has not yet been fully absorbed. Dependence
on initial conditions, a hallmark of many nonlinear systems, undercuts standard approaches
to econometric analysis and model estimation. The work of the Santa Fe Institute is just
beginning to explore the implications of these methodological paradoxes for economics.
As a result of both natural and economic complexity, policies that address individual
externalities in isolation are typically inadequate. Instead, a systems approach is essential.
Complete knowledge of the economics/environmental system, or even of important major
subsystems, is impossible to achieve. Decision-making under uncertainty is the norm rather
than the exception. Under these conditions, the precautionary principle provides a superior
alternative to the spurious precision of risk assessment and cost-benefit analysis. There is a
rigorous academic case for decisions based on the credible worst-case outcomes, when
as usual probabilities of potential harms are unknown. There is also an intuitive popular
appeal to the precautionary approach: much of the environmental legislation of the 1970s
and 1980s can be interpreted as precaution applied to serious but uncertain risks and
hazards.

4. The good life and the limits of efficiency

What is the economy for, anyway? For many people, the good life is not just about
individual material wealth but also about open space, time, family, community, life
meaning, and stewardship. The theory of public goods is again important to rebuild,
since so many things that matter are not individual commodities. It is absurd to try to
attach monetary valuations to priceless values, or to view all the multiple facets of life
through the distorting lens of the market. Market efficiency, as conventionally defined,
measures only a small subset of the human values related to the economy.
Today there are structural obstacles to securing and enjoying nonmarket values. The
institutionalized rat race of the American economy guarantees insecurity, inequality, and
status rivalry for all. It forces people to produce, earn, and consume more and more in
order to maintain basic levels of security and care for themselves and their families. The
rat race is doubly destructive: it traps and frustrates people who would prefer more
social welfare and less private accumulation; and it damages nature through its everescalatinglevels of resource use, pollution, and waste. The result is a world of too many
lawns and not enough parks, too many health insurance adjusters and not enough
primary care providers a social disease described brilliantly by Thorstein Veblen at
the beginning of the 20th century, and by John Kenneth Galbraith at midcentury, and
now overdue for are-examination.
8
Real People, Real Environments, and Realistic Economics

Cairo A.R. Robb (ed.), Trade and Environment, International

Environmental Law Reports
The first ever compendium of the key international and national decisions relating to
international environmental law, this five-volume set is a valuable resource for all those
interested in this growing field. Students, practitioners, NGOs and government agencies alike
will be grateful to find, at last, the relevant case law easily accessible in one collection. The
collection encompasses decisions from the late nineteenth century to the present day, and is

presented in five themed volumes: Early Decisions, Trade and Environment, Rights and
Environment, Decision of National Courts, and The International Court of Justice. Each case is
accompanied by a full introductory note and, where appropriate, relevant background materials
to facilitate a fuller understanding of the case. The volumes are comprehensively indexed.

Trade and Environment provides a complete set of the major dispute settlement or
judicial decisions on environment-related issues under three international trade
regimes: the General Agreement on Tariffs and Trade (GATT) and its successor the
World Trade Organization (WTO); the Canada-USA Free Trade Agreement (precursor
to the North America Free Trade Agreement); and the European Community. It also
provides extracts from other cases dealing with issues relevant to future trade and
environment controversies. A convenient compendium for policy makers in
government and NGOs, academic researchers, students, and business advisors.

Cairo A. R. Robb, M.A. (Cantab), Lic. spc. dr. eur. (ULB) was called to the Bar of
England and Wales in 1993 and works as a freelance legal researcher and editor.
She currently serves as a legal research fellow with the CISDL. She edited the
International Environmental Law Reports (Cambridge University Press), including
volumes on trade and environment, human rights and environment and international
environmental law in national courts, while she was a Research Fellow at the
Lauterpacht Centre for International Law, University of Cambridge. On secondment
from the University of Cambridge to the UK Department for Environment, Food and
Rural Affairs (DEFRA) in London, Cairo spent two years working as a Policy Advisor
at DEFRAs Sustainable Development Unit. There she worked principally on national
implementation of the Aarhus Convention on Access to Information, Public
Participation in Decision-Making and Access to Justice in Environmental Matters.
She attended committee meetings of the European institutions in Brussels as a
member the UK delegation, and participated in the activities of the UNECE Task
Force on Access to Justice in Environmental Matters. She previously completed a
stage at the International Affairs Unit of DG Environment of the European
Commission, and worked in a pro bono capacity as a caseworker for the UK
Environmental Law Foundation. In more recent times she spent three years
assisting a specialist environmental and public law firm in Cambridge, England with
their caseload. Her current research interests include sustainable food production,
greening the economy, and communication and engagement in a local and global
context.

S. CHARNOVITZ, EXPLORING THE ENVIRONMENTAL EXCEPTIONS

IN GATT.

It would be convenient if the new crop of trade issues wouldwait for the existing fields to get
harvested. But in 1991, the long-dormant topic of "trade and the environment" seems to be
sprouting up everywhere.
In Geneva, the GATT Council is considering a proposal by the European Free Trade Association
countries to convene the Group on Environmental Measures and International Trade. Although
established by the Contracting Parties in 1971, this Group has never met. The environment is
also at issue in a trade dispute between Mexico and the United States now before a GATT panel.
The Mexican complaint stems from the U.S. Marine Mammal Protection Act which bans imports
of tuna from countries whose tuna harvesting methods are more lethal to dolphins than the
American standard permits.
In Washington, the Bush Administration succeeded in gaining Congressional approval for a twoyear extension of "fast track" procedures for the Uruguay Round and a proposed free trade
arrangement with Mexico. Yet this approval came only after the Administration promised to
include environmental issues "related to" trade within the Mexican accord and to invite
environmentalists to participate on six of the official advisory groups to the U.S. Trade
Representative. Many environmental organizations have been critical of the GATT as an
agreement and as an institution. They believe that the GATT views ecosystem protection as a
nettlesome non-tariff barrier instead of an overriding goal.
In Tokyo, the Japanese government recently agreed to cease importing olive ridley and hawksbill
sea turtles. The shells from these two endangered species are fabricated into jewelry, combs, and
eyeglass frames. The Japanese government acted to head off possible trade retaliation by the
Bush Administration against Japanese wildlife products such as furs and aquarium fish.
At the London Economic Summit earlier this year, the Heads of State and Government of the G7 agreed to look to the GATT "to define how trade measures can properly be used for
environmental purposes."
Around the world, planning is underway for the UN Conference on Environment and
Development to be held in Rio de Janeiro in 1992. The use of trade measures is likely to be
discussed in relation to new agreements on global warming, deforestation, and biodiversity.
At this time, opinions differ as to whether the growing interest in the connection between trade
and the environment should be viewed as a blooming of "sustainable development" or a weed of
"eco-protectionism." But one conclusion seems clear. New attitudes about the GATT are
definitely taking root.

In thinking about whether the GATT needs to be "greened," as some environmentalists have
urged, one might start by exploring the environmental provisions currently in the GATT. Article
XX (General Exceptions) states that
Subject to the requirement that such measures are not applied in a manner which
would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on
international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
. . .(b) necessary to protect human, animal or plant life or health;
. . .(g) relating to the conservation of exhaustible natural resources if such
measures are made effective in conjunction with restrictions on domestic
production or consumption; . . .
What does this Article have to do with environmental protection, it could be asked. The word
"environment" is not even mentioned. According to one treatise on the "trade and environment"
linkage, "Environmental protection was simply not a public issue in 1947" when Article XX was
drafted "nor was this provision intended for that purpose."
This study will offer a different interpretation of what the GATT says about the environment.
Part I will review the history of Article XX to see what might have been the intention of those
who wrote it. Part II will analyze some of the issues that arise in the adjudication of Article XX -in light of the handful of pertinent decisions by the Contracting Parties.
I. History of GATT Article XX
Trade regulations to protect human, animal, or plant life began a long time ago, but it was not
until the 1870s that major commercial disputes broke out over veterinary and quarantine
restrictions. While this article will not attempt to cover sanitary and phytosanitary laws as such,
one cannot always differentiate them from laws aimed at ecological protection. In a sense, all
sanitary restrictions are environmental too. As used here, however, the term "environment" will
not include trade measures primarily designed to promote agriculture or enhance food safety.
Early Environmental Efforts
Utilizing trade tools to achieve environmental objectives is not a new idea. From the advent of
international environmental cooperation, governments have recognized how efficacious import
and export measures could be in dealing with problems that flow beyond national borders. For
example, one of the earliest multilateral treaties concerning the environment -- the 1900

Convention for the Preservation of Wild Animals, Birds and Fish in Africa -- called for a system
of export licenses for certain species "because of their rarity and danger of disappearance."
In 1906, an international conference convened by Switzerland adopted a treaty to stop the
production and importation of matches made with white phosphorus, a chemical causing a
loathsome occupational disease. This convention proved effective in allowing manufacturers to
switch to safer, but more expensive, methods of match production without fear of being undercut
by less scrupulous competitors. It is important to note that the objection to phosphorus matches
was not that the product itself was unsafe in its normal use. The objection was that the
production process constituted a health danger to domestic and foreign workers.
Following two decades of consultation, arbitration, and unsuccessful unilateral action, the
nations engaged in seal hunting -- Great Britain, Japan, Russia, and the United States -- signed a
treaty in 1911 for the "preservation and protection" of fur seals and sea otters. The convention
outlawed "pelagic" sealing (i.e., hunting in the water) because this method endangered females
disproportionately and left many wounded seals. To enhance enforcement, the treaty pledged all
four parties to prohibit the importation of seal skins taken in the North Pacific ocean in violation
of the convention. This agreement was the first successful realization of the principle that
multilateral action was needed to protect marine resources which roam in and out of national
jurisdiction.
In 1916, following the precipitous extinction of the passenger pigeon, Great Britain (for Canada)
and the United States concluded a treaty to protect migratory birds that "are either useful to man
or are harmless." This convention established specific closed seasons for bird hunting and
prohibited the export of birds during such times. The treaty also banned "international traffic" in
birds taken in violation of provincial or state law. In 1921, Italy and the Kingdom of the Serbs,
Croats and Slovenes (Yugoslavia) signed a convention to prohibit trade in fish caught by
methods having "an injurious effect upon the spawning and preservation" of fisheries. Among
the proscribed methods were fishing with mechanically-propelled dragnets and the use of
explosives "calculated to stun or stupefy" fish.
In addition to supporting multilateral efforts, some nations took action alone. Consider the
United States for example. By 1927, there were about a dozen federal laws that used trade
instruments for environmental purposes. The Lacey Act of 1900 proscribed the importation of
wild animals or birds except under permit. A law passed in 1905 prohibited the importation of
insect pests injurious to crops, forests, or "shade trees." The Underwood Tariff of 1913 forbade
the importation of plumes, aigrettes, and feathers coming from specified wild birds.(Great
Britain passed similar legislation in 1921 to prevent the loss of birds to millinery.) The Alaska
Fisheries Act of 1926 authorized federal regulation of the nets, boats, traps and other gear used in
fishing, and made it unlawful to import salmon from waters outside American jurisdiction in
violation of such regulations.

Although most of these laws were aimed at imports, a few focused on exports. For example in
1891, the Secretary of Agriculture was authorized to establish rules for shipping cattle to foreign
countries in order to assure the "humane treatment of such animals." Vessel owners failing to
meet the ventilation, space and related requirements could be denied export clearances for up to a
year.
There were also laws aimed at safeguarding the public. For example in 1902, the Congress
required a license to import (or export) any virus, serum, or toxin for the prevention or cure of
human disease. The Pure Food Act of 1906 established a new principle by prohibiting the
importation of any food or drug forbidden to be sold in the producing or exporting country.
Since each nation applied different sanitary and conservation standards to its imports, these
inconsistencies became an issue in the negotiation of bilateral trade agreements granting mostfavored-nation treatment and forswearing import and export restrictions. The initial approach -devised as early as the 1882 Commercial and Maritime treaty between France and Great Britain
-- was a declaration that each party "reserves to itself to decide" what restrictions are necessary
for "sanitary reasons" or to prevent cattle disease or the destruction of crops. Within a few years,
this type of exception became customary in full-scale commercial agreements. The term
"sanitary" was used in many but not all treaties. For instance, the International Customs
Simplification convention of 1923 excluded measures "which Contracting States may take to
ensure the health of human beings, animals or plants."
Unfortunately, these unconditional exceptions led to abuse. "Under the guise of biological
protection," Percy Bidwell later observed, "it is very easy to introduce economic protection." By
the mid-1920s, many treaties began to impose conditions on their exceptions. For instance, the
commercial treaty between Japan and Mexico of 1924 required animal and plant laws to be
"applicable to all countries or to countries in similar circumstances." The treaty between
Czechoslovakia and Sweden of 1925 required animal and plant measures to be "in conformity
with the universally recognized international regulations." (This enigmatic standard was not
defined.) As the need for greater international discipline on "Administrative protection" became
more apparent, the League of Nations decided to convene a multilateral conference to examine
these and other import restrictions.
International Convention of 1927
The International Convention for the Abolition of Import and Export Prohibitions and
Restrictions was the worlds first trade round. Though nearly forgotten today, the Convention is
important not only for its influence on the GATT (particularly Article XX), but also for the
lessons it leaves on the difficulty of achieving a liberal trading system. The treaty called for no
less than the abolition of all import and export restrictions (excluding tariffs) within six months.

To be sure, the treaty did leave a loophole by permitting nations to maintain restrictions
protecting "vital interests." Recourse to this exception, however, was to occur only in
"extraordinary and abnormal circumstances." The treaty also allowed nations to grandfather in
existing restrictions temporarily, which many of the 29 signatories did. (For example, Japan
reserved on rice.) Nevertheless, the Convention was a significant achievement in international
law which might have cooled off the protectionist impulses of the era had the agreement gone
into full force. Although 21 nations ratified it, including the United States, the refusal of Poland
to accede doomed the treaty because so many of the ratifications were contingent on Polands
approval.
Eight types of restrictions did not have to be abolished under the Convention. According to the
Leagues Economic committee, these were the "exceptions which have been admitted through
long-established international practice . . . to be indispensable and compatible with the principle
of freedom of trade." One of these exceptions covered restrictions "for the protection of public
health or for the protection of animals or plants against disease, insects and harmful
parasites." According to a report by the U.S. delegation, this particular exception "aroused almost
as much discussion as any topic in the whole treaty." While most of this discussion revolved
around sanitary matters, the debate did result in an addendum being added to the Treatys
Protocol which clarified that "the protection of animals and plants against disease also refers to
measures taken to preserve them from degeneration or extinction."
Although the Convention permitted the traditional exceptions, it made them subject to this
condition:
. . . that they are not applied in such a manner as to constitute a means of arbitrary
discrimination between foreign countries where the same conditions prevail, or a
disguised restriction on international trade.
Before the "disguised restriction" proviso was agreed to, the draft convention had required that
measures not be "applied in such a way as to constitute a form of economic protection in favour
of national production."
To summarize, three principles from the 1927 Convention are especially noteworthy. First, even
at a conference called to achieve the "final suppression" of import prohibitions, there was general
agreement that legitimate action to protect public health, animals or plants was entirely proper.
Second, in a break with the past practice of most trade treaties, the customary exceptions for
national laws were no longer unqualified. Although dispute settlement remained voluntary, a
multilateral standard for conditionality was established. Third, because of their interrelationships,
the sanitary, veterinary, phytopathological and nature preservation objectives were encompassed
under the same exemption.

In the 20 years following the International Convention, trade measures were regularly employed
in pursuit of environmental goals. In 1929, a multilateral treaty pledged parties "to supervise the
importation of plants" in order to prevent the spread of plant diseases or pests. In 1933, the
London Convention for the Preservation of Fauna and Flora in Their Natural State prohibited
importing and exporting specified animals, trophies, or ivory horns from African territories
without a certificate.
In the United States, the Tariff Act of 1930 banned the importation of "any part or product of any
wild animal or bird, whether raw or manufactured" if taken in violation of the laws of the
exporting country. After U.S. ratification of the Halibut Fishery treaty with Canada in 1937, the
Congress banned the importation of halibut caught in violation of the treaty, and established
penalties for possessing halibut "caught incidentally to fishing for other species." The penalties
included forfeiture of cargo and, after a second offense, the vessel itself.
The vast majority of bilateral trade agreements of the period included an exemption for animal or
plant laws. For example, the Sweden-Turkey commercial agreement of 1928 exempted
"prophylactic measures against. . . diseases, deterioration or disappearance of useful plants." The
Canada-Mexico trade agreement of 1946 exempted restrictions "imposed for the protection of
plants or animals, including measures for protection against disease, degeneration or
extinction . . ." Out of the 28 reciprocal trade agreements negotiated by the United States
between 1934 and 1946, two used the "degeneration or extinction" language, fifteen exempted
restrictions "designed to protect human, animal or plant life or health," ten did not include the
word "health," and one had no exemption. There was also wide variation with respect to
disciplining national actions. Although some trade treaties after 1927 applied both the nondiscrimination and disguised restriction conditions, most agreements applied only nondiscrimination, and a few applied neither condition.
International Trade Organization
GATT Article XX is based on Article 43 of the draft charter for the International Trade
Organization (ITO) approved at the second session of the preparatory committee of the UN
Conference on Trade and Employment. A brief review of the chronology may be helpful. The
first preparatory session produced the "London Draft" in November 1946. A special committee
developed the "New York Draft" in February 1947. The second preparatory session approved the
"Geneva Draft" in August 1947. The GATT was signed in October 1947. Finally, the UN
Conference in Havana adopted the ITO Charter in March 1948.
Although there is no "legislative history" specifically for GATT Article XX, one can gain insight
from the ITO deliberations regarding the same General Exceptions. Because the provisions of
Article XX(b) and (g) are identical to the Geneva draft except for technical points, a review of
the evolution of the ITO charter is quite relevant in ascertaining preparatory intent.

Article XX Preamble - The first draft charter for the ITO came in the U.S.-British proposal of
December 1945 which provided for the customary trade exceptions but permitted them
unconditionally. At the London session, several delegates suggested applying conditions to the
exceptions in order to guard against "indirect protection." The British delegate offered a specific
amendment -- that trade measures could not be "applied in such a manner as to constitute a
means of arbitrary discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade." Although this proposal was accepted at the
subcommittee level, no agreement was reached on the General Exceptions as a whole in London.
At New York, the two conditions were incorporated into the preamble, which then remained
intact (except for technical conformity) through Geneva and Havana. It should be noted that the
"arbitrary discrimination" proviso no longer applied to just foreign countries, as it did in 1927.
This suggests that the proviso may incorporate the principle of national treatment as well as nondiscrimination.
Article XX(b)- The U.S.-British proposal included an exception for measures "necessary to
protect human, animal or plant life or health." Based on a suggestion by the delegate from
Belgium-Luxemburg, this provision was modified in the New York Draft to require
"corresponding safeguards under similar conditions" in the importing country. At Geneva,
however, this modification (and a proposed explanatory note) was reconsidered and abandoned
on the grounds that the language was confusing and that the preamble accomplished the same
purpose. At Havana, no other changes were considered.
By looking narrowly at the drafting process for Article XX(b) between 1946 and 1948, one could
reach the conclusion that the intent was to cover only sanitary restrictions. During the limited
debate on this provision, there was no explicit avowal of an environmental purpose. Moreover,
the term "sanitary" was commonly used to characterize Article XX(b) and appeared in that
context in the original GATT Article XXII (Consultation).
But drawing such a conclusion from the ITO deliberations alone would neglect the historical
background that so clearly shaped Article XX(b). The reason why there was no comprehensive
debate on the scope of this exception at the UN Conference is that the debate had already taken
place -- 20 years earlier. Since the exception in the ITO charter was equivalent to what the 1927
Convention and many bilateral treaties had, there would have been little point in rehashing the
obvious. ("Almost boilerplate" was the way that Clair Wilcox once described the exceptions.)
Certainly, no delegate argued that existing environmental treaties and laws should not be covered
by the General Exceptions. Moreover, the United States -- the author of the language ultimately
adopted -- clearly believed that Article XX(b) would countenance existing U.S. trade laws, which
included environmental as well as sanitary measures.
Article XX(g)- The United States "Suggested Charter" of September 1946 provided an exception
for measures

relating to the conservation of exhaustible natural resources if such measures are

taken pursuant to international agreements or are made effective in conjunction
with restrictions on domestic production or consumption.
The origin of this exception is obscure; it did not appear in any previous trade agreement. While
there is some indication that it may have been drafted with oil in mind, there is no official
statement of purpose. No change was made in this provision at London or New York. At Geneva,
a proposal by Brazil was adopted to delete the words "taken pursuant to international
agreements."
Throughout the preparatory meetings, this exception was discussed in the context
of export rather than import restrictions. The natural resource to be conserved was typically
described as a "raw material" or "mineral." As a matter of definition, the term "exhaustible"
natural resources meant stock resources, like metals, in contrast to "renewable" or flow resources
like animals, plants, soil, and water. While renewable resources can be exhausted if misused,
categorizing them as "exhaustible" robs that term of any meaning. In other words, if exhaustible
includes both renewable and non-renewable resources, what is left for the
"inexhaustible"category?
Fish and Wildlife- The issue of fishery agreements arose several times in the drafting of the
chapter on Intergovernmental Commodity Arrangements. While this chapter was not included in
the GATT, the debate on exceptions to commodity rules merits examination because of its
bearing on Article XX. The first provision came in the New York Draft which added a complete
exception for "international fisheries or wildlife conservation agreements with the sole objective
of conserving and developing these resources."
At Geneva, this exemption went through several versions -- at one point applying to agreements
relating "solely to the conservation of exhaustible natural resources such as fisheries or wildlife."
Near the end of the Geneva meeting, the British delegate proposed dropping the words "such as
fisheries or wildlife." Although the Norwegian representative had spoken in favor of retaining
these examples, the temporary chairman of the working group (Eric Wyndham White) suggested
that the examples be deleted with the understanding that "fisheries and wild life were in fact
covered by the language conservation of exhaustible natural resources." This change was made
in the Geneva text. Unlike the exception in the New York Draft, this conservation exception
applied to only one section of the commodities chapter.
At Havana, Norway reintroduced the issue by pointing out that the Geneva Draft could be
viewed as contradictory. On the one hand, the commodities chapter provided a complete
exemption for agreements protecting animal life or health. On the other hand, agreements to
conserve exhaustible natural resources were exempt from just one part of the chapter and
regulated in the remainder. Under which of the two exemptions did fisheries fit, Norway

wondered, particularly since "fisheries might be considered rather as renewable than as

exhaustible resources." To remedy this ambiguity, the commodities committee inserted a total
exemption for "any inter-governmental agreement relating solely to the conservation of fisheries
resources, migratory birds or wild animals." The committee also recommended adding an
analogous exception to the Commercial policy chapter. This change was made in the ITO charter.
In summary, three points should be highlighted. First, since the very purpose of the GATT was to
bring trade restrictions under international discipline, extreme caution is required in using such
restrictions to limn the intention of GATTs authors. Yet if there are any GATT provisions whose
scope and meaning can be inferred inductively by the national laws in existence at the time,
surely it would be the General Exceptions. This approach seems particularly justified for
subparagraph (b) of Article XX which appears in the GATT in exactly the same language as was
proposed in 1945. While the UN Conference did seek to make it harder for countries to abuse the
General Exceptions, the new discipline was attained by attaching two conditions to the preamble
of Article XX, not by narrowing the scope of the biological exception.
Second, while the term "exhaustible natural resources" appears to have started out as a reference
to minerals, a good case can be made that since the commodity drafting group at Geneva
intended the term to cover living resources also, this same interpretation should carry over to the
Commercial chapter. (The opposite conclusion could also be supported -- that the authors of
Article XX(g) understood "exhaustible natural resources" to be finite raw materials.)
Third, it is sometimes contended that the decision in Havana to add a fishery and wildlife
exception implies that the GATT lacks such an exception. But this line of argument fails to take
into account the fact that the Havana amendment on fisheries was the culmination of a long
debate over the proper wording of the commodities exemption. While the United States did not
object to inserting an explicit fisheries exception in the Commercial policy chapter, the American
delegation believed that the Geneva Draft (and hence the GATT) already included that exception
implicitly.
II. INTERPRETING Article XX
In the first 30 years of the GATT, almost nothing happened regarding Article XX(b) and (g).
Although parties adopted new treaties and laws (and continued enforcing existing ones) that used
trade tools to achieve environmental objectives, these actions engendered no controversy in the
GATT. For example in 1973, the Washington Convention on International Trade in Endangered
Species of Wild Fauna and Flora (CITES) restricted imports and exports of certain species.
The "environment" entered the GATT regime in 1979 in the Agreement on Technical Barriers to
Trade (the Standards Code). The protection of the environment was listed as one justification for
not using relevant international standards. It was not until the early 1980s, however, that trade

disputes led to decisions by the Contracting Parties which delineated the meaning of the
environmental exceptions. Part II will explore the main issues of Article XX(b) and (g) in light of
these recent GATT panel reports.
Preamble
"Discrimination"- Article XX provides for exceptions that permit GATT violations. To qualify
for any of these exceptions, however, national measures must not involve "arbitrary or
unjustifiable discrimination between countries where the same conditions prevail." So far, no
measure has been found in breach of this condition.
"Disguised Restriction"- The history of this condition suggests that it was intended as a check
against attempts to mask protectionist pursuits in sanitary or environmental guise. A less
stringent interpretation, however, has emerged in GATT conciliation. In the 1982 case "United
States- Prohibition of Imports of Tuna and Tuna Products from Canada," the panel found that
since the U.S. restrictions "were taken as a trade measure and publicly announced as such," they
should not be considered disguised. In the 1983 case "United States- Imports of Certain
Automotive Spring Assemblies," the panel found that what needed to be examined was not the
"trade measure itself, but rather the application of the measure." The panel then concluded that
since the exclusion order in question was "published in the Federal Register" and based on a
valid patent whose infringement had been clearly established, there was no disguised restriction.
By leaning so heavily on one connotation of "disguised," these GATT decisions suggest that the
transparency of a trade measure can be an exonerating factor. In other words, a blatantly
protectionist measure might pass the "disguised restriction" test precisely because of such
blatancy. The United States has voiced disagreement with the interpretation that "a measure
could not be considered to be a disguised restriction simply because it had been publicly
announced."
A more strictly interpreted "disguised restriction" condition would be an important bulwark
against abuse of Article XX. Determining when an environmental measure is really a
protectionist measure is not an easy task. (Perhaps that is why the panels avoided it.) But having
a multilateral organization make such judgments was certainly an expectation of the authors of
the GATT.
Article XX(b)
"Necessary"- Although the term "necessary" appears in many bilateral treaties in the context
that it is used in Article XX(b), there is little historical evidence that helps in defining the term.
Over the past few years, however, two GATT panels have constructed a far-reaching
interpretation that could nullify this exception.

In a case decided in 1989 regarding "Section 337 of the Tariff Act of 1930," the United States
cited Article XX(d) to defend its enforcement of patent laws. Article XX(d) exempts measures
necessary to secure compliance with laws or regulations which are not
inconsistent with provisions of this Agreement, including those relating to. . . the
protection of patents, trade marks and copyrights, and the prevention of deceptive
practices.
In reaching its decision the panel established the following test: A measure would not be
considered necessary under Article XX(d) if an "alternative measure" were "available" which
was not inconsistent with other GATT provisions and which a contracting party "could
reasonably be expected to employ." Furthermore, if no GATT consistent measure were
reasonably available, the contracting party would have to use the measure that "entails the least
degree of inconsistency with other GATT provisions." The panel did concede, however, that "this
does not mean that a contracting party could be asked to change its substantive patent law or its
desired level of enforcement . . ." But the panel did not spell out the type of modifications that a
contracting party could reasonably be asked to make.
Article XX(b) was a central issue in the 1990 case "Thailand- Restrictions on Importation of and
Internal Taxes on Cigarettes." The panel concluded that "necessary" in Article XX(b) should be
interpreted the way the Section 337 panel did for Article XX(d). Because other measures "were
reasonably available to Thailand to control the quality and quantity of cigarettes smoked. . . ," the
panel found that Thailands practice of permitting the sale of domestic cigarettes while not
permitting the importation of foreign cigarettes was not "necessary" within the meaning of
Article XX(b).
Several observations can be made about this interpretation of "necessary." First, while a
requirement that parties use the measure that entails the least degree of GATT inconsistency may
be a worthy objective, it is unclear how such a condition could so casually be read into the
GATT. Although the 1927 Convention included a provision requiring parties to frame any
restriction "in such a way as to cause the least possible injury to the trade of the other
Contracting Parties," a rule of this type was never considered for Article XX. A better way to
introduce the "least trade restrictive" condition into the GATT would be through new codes, as is
currently being done in the negotiations on Sanitary and Phytosanitary measures and on
Technical Barriers.
Second, the Section 337 decision raises a question of how a contracting party can predictably
determine what method entails the "least degree of inconsistency" with other GATT provisions.
All GATT provisions presumably would count in such a calculation. But how should one weigh
an action inconsistent with Article XI, for example, against an alternative inconsistent with

Article XIII? Moreover, if the "nothing in this Agreement" clause in Article XX means what it
says, why are any conditions outside of the preamble relevant?
Third, a new standard which states that only the least GATT-inconsistent method is "necessary"
can lead to many kinds of mischievous results. Take Article XX(b) for example. Bans on
importing ivory could be challenged on the grounds that a more effective (and more GATT
consistent) way to save African elephants is to privatize them. Any quarantine could be
vulnerable to the argument that domestic programs could yield equivalent or greater increments
in improved public health. Or consider Article XX(a) which permits measures necessary "to
protect public morals." Bans on importing pornography could be challenged on the grounds that
public morals could be better protected by inculcating "proper" values.
If the new rule leads to challenges like these, there would be dangers to the GATT from inside
and out. Attempts by the Contracting Parties to specify substantive standards for the "adoption or
enforcement" of environmental measures could easily lead to internal deadlock. Conversely, if
GATT succeeds in overruling any legitimate environmental restriction, the institution could find
itself embroiled in controversy.
Fourth, although the Thai cigarette panel saw no reason why "necessary" should not mean the
same in Article XX(b) as in Article XX(d), there is a distinction which can be drawn. Since
Article XX(d) applies to measures "necessary to secure compliance with laws or regulations. . . ,"
considering other means of securing compliance seems appropriate. By contrast, Article XX(b)
does not say "necessary to secure compliance with health regulations." It says necessary to
protect health.
Fifth, it should be noted that the most straightforward mode of disqualifying the Thai law from
Article XX -- the "disguised restriction" condition -- could not easily be used because earlier
GATT decisions had taken the teeth out of it. Had that mode been available, the panel might not
have perceived the need to extrapolate from Article XX(d).
Article XX(g)
"Relating to the conservation"- The landmark case for this provision was "Canada- Measures
Affecting Exports of Unprocessed Herring and Salmon," decided in 1988. In adjudicating this
dispute, the panel defined "relating to the conservation of exhaustible natural resources" to mean
that a trade measure had to be "primarily aimed at" such conservation. While the panel did not
offer any specific evidence from preparatory history to justify this definition, the new test does
provide a constructive way to screen out measures with only a collateral relationship to
conservation.

Unfortunately, this definition has had a potentially inimical influence on dispute settlement under
the Canada-U.S. Free Trade Agreement (which incorporates GATT Article XX by reference). In
a 1989 case involving "Canadas Landing Requirement for Pacific Coast Salmon and Herring,"
the binational panel -- inspired no doubt by the GATT Herring and Salmon panel -- decided that
the time had come to write a definition for "primarily aimed at." Starting with the idealistic but
dubious proposition that "governments do not adopt conservation measures unless the benefits to
conservation are worth the costs involved," the panel hypothesized that Canada would not have
employed the landing requirement if its own nationals had to bear the full costs of that measure.
For this reason, the panel determined that the requirement was not primarily aimed at
conservation. By applying a mode of analysis so inherently subjective, however, the panel leaves
environmental regulations vulnerable to a broad array of challenges.
"Domestic production or consumption"- This proviso has been applied in two GATT cases
involving the United States and Canada. In both disputes, the parties agreed that the fish stocks
in question were an "exhaustible" natural resource. In the Tuna case, the panel found that an
Article XX exception was not justified because the United States did not have restrictions on
domestic consumption of tuna and because its restrictions on production did not extend to every
kind of tuna being barred from Canada. In the Herring and Salmon case, the panel interpreted the
proviso to mean that a trade measure had to be "primarily aimed at rendering effective" the
domestic restrictions. In the opinion of the panel, the Canadian export prohibition at issue failed
to meet this test.
The panel offered no rationale for why it looked for trade measures to bolster domestic
restrictions rather than for trade and domestic measures to be complementary. But in requiring
that trade measures facilitate a domestic program, the panel adds to the existing difficulties in
utilizing Article XX(g) for renewable resources. One problem occurs when there is no domestic
production or consumption to restrict. Consider, for example, a ban on importing wild exotic
birds into a country that has no tropical forests. Or a marine mammal protection law in a country
that does no fishing. How can such bans possibly render a domestic program effective? Other
problems arise when the product being prohibited (e.g., tuna) is not the same as the product
being conserved (e.g., dolphins). In a strict sense, neither tuna nor dolphins are being
"produced." Dolphins are not being consumed and tuna are not being conserved. Certainly, the
facts of that case can be fitted on to the Article XX(g) framework. But not without a little
contortion.
Different Products
One of the key legal issues facing the tuna-dolphin panel is whether the imported product must
be the same one needing "protection" or "conservation." For Article XX(b), an extensive history
shows that the products can be entirely different. Long before the 1927 Convention, the United
States had import restrictions on animals for the purpose of protecting the life or health of

humans, plants, or other animals. Moreover, there were also treaties and laws that restricted the
importation of dead animals or animal parts (e.g., trophies). Since an import restriction cannot
protect the life or health of a dead animal, Article XX(b) must logically be read as enabling
restrictions that serve as a disincentive for animals to be killed.
Foreign vs. Domestic
Another key question being raised in the tuna-dolphin dispute is whether a trade measure can be
used to protect foreign life or health. After noting the ambiguity in the GATT, most
commentators have leaned toward the view that Article XX is limited to domestic life or health.
But it is hard to reconcile a reading of domestic-only with the long history of environmental laws
and treaties concerned with seals, match workers, fisheries, etc. -- in other countries as well as in
the international "commons." In addition, foreign health has been protected with sanitary
restrictions (e.g., inspection of meat exports), although many of these laws had commercial
objectives too. At the Geneva meeting in 1947, an explanatory note was considered that might
have limited the reach of Article XX(b) to domestic life or health, but this note was not adopted.
With regard to conservation, it can be observed that intergovernmental fishery and wildlife
agreements were made an exception to the Commodities chapter. Since these agreements, by
definition, demonstrated a concern for foreign as well as domestic resources, this same concern,
one could argue, applied to Article XX(g).
Quite apart from these legal points, the foreign-domestic distinction is being rendered obsolete
by the increasing number of trans-border and global environmental problems. As it becomes
more apparent that mankind shares one biosphere, the line between paternalism and domestic
interests continues to fade away. One consequence has been a more frequent recourse to intrusive
trade legislation.
During the early years of ecological awareness, the import restrictions were usually designed to
assist foreign conservation efforts (e.g, the U.S. Tariff Act of 1930). In a few instances, nations
did act unilaterally to stop environmentally harmful trade (e.g., feathers) or did act collectively
against non-parties (e.g., the phosphorus match treaty). But most environmental efforts were
premised on cooperation.
Beginning in the 1960s, however, there has been a growing willingness to use trade instruments
to influence foreign environmental policies. For example, under the U.S. Trade Expansion Act of
1962, the President is empowered to raise duties on fish in order to pressure foreign governments
to participate in good faith in negotiations on fishery conservation. The Pelly Amendment of
1971 authorizes trade retaliation against foreign actions which diminish the effectiveness of an
international fishery program (but only if such retaliation is "sanctioned" by the GATT). More
recently, the Montreal Protocol of 1987 obliges signatories to ban imports of chlorofluorocarbons

(and by 1993 of products containing CFCs) from nations that have neither ratified nor complied
with the treaty.
Assuming that the GATT does allow import restrictions to protect a foreign environment, it has
been suggested that limitations will be needed. Otherwise, what would prevent a nation from
banning all timber imports to save forests, or all meat imports to save animals, or all energyintensive imports to save fossil fuels? If environmentalism runs rampant, the trading system may
be put in jeopardy.
Of course, Article XX does set limits now. Any ban on imports must be done in a nondiscriminatory and non-protectionist manner. If a country of vegetarians wants to prohibit all
meat imports, that should not present any GATT problems. It is not GATTs role to insist on trade
or to judge the appropriateness of a herbivorous lifestyle. GATTs role is to help prevent
environmentally-framed trade restrictions from being used for commercial purposes.

Processing Standards
Another issue involved in the tuna-dolphin case is whether a contracting party may establish
standards for how products should be processed or manufactured, and then prohibit imports of
"like products" not meeting these standards. For example, a law that discriminates between tuna
harvested in a "dolphin-safe" manner and tuna harvested using dolphin encirclement techniques
-- when the tuna itself is otherwise indistinguishable -- raises questions of conformity with the
GATT obligations in Articles I, III, XI, and XIII. Presumably, Article XX could override these
obligations if the specific processing standard meets the conditions in any of the General
Exceptions.
There does not appear to be any ITO preparatory documentation on the question of whether
Article XX(b) or (g) can sustain a processing standard. In view of the long history of trade
measures that rely on processing standards, however, it would seem difficult to argue that the
GATT precludes them. As noted above, there were many environmental treaties and laws predating the GATT that conditioned animal imports on whether a product had (1) received an
export license, (2) been hunted pelagically, (3) been taken in season, or (4) been caught with
prohibited dragnets or traps. Certainly, the ITO authors were aware of fishery and wildlife
treaties.
The question of using processing standards in environmental trade measures goes far beyond the
tuna-dolphin dispute. Earlier this year, the European Community outlawed fur imports
(beginning in 1995) from countries that permit the use of painful "leghold" traps. In July, a new

U.S. law went into effect to ban the importation of fish from nations that allow "large-scale
driftnet fishing."
Processing standards are also being used for pollution control. Under the Montreal Protocol, the
parties have agreed to determine the feasibility of an import ban on articles produced with (but
not containing) CFCs. The ban would apply to nations that have neither ratified nor complied
with the treaty. If determined feasible, this ban would go into effect by 1995. Another proposal
being advocated by environmentalists is an import embargo on logs from countries that do not
require "sustainable" forest management practices.
Similar issues would arise with regard to recycling and packaging laws under consideration by
several governments. For example, an importing nation might establish a "recycled content"
requirement for newsprint, bottles, or automobile parts.
International Agreements
One classic study suggests that although the GATT may not allow individual governments to set
pollution control standards for imports, "action taken on the basis of an intergovernmental
agreement concerning maintenance of quality standards in a production process would be a
different matter entirely. . ." It is true that the Contracting Parties could grant a waiver under
Article XXV for an intergovernmental environmental agreement like the Montreal Protocol. The
Contracting Parties could also recognize that certain conventions of wide application (e.g.,
CITES with 110 parties) have precedence over the GATT as a more recent treaty. But aside from
these avenues, there does not seem to be any other basis for asserting that environmental trade
restrictions pursuant to an international agreement have greater GATT blessing than restrictions
conceived and carried out unilaterally.
It should be noted that some of the provisions in Article 43 of the Geneva Draft were linked to
international agreement. For instance, the commodity exception had to be "undertaken in
pursuance of obligations under inter-governmental commodity agreements." The short supply
exception required such measures to be "consistent with any multilateral arrangements." So it
would appear that the lack of any comparable linkage in Article XX(b) and (g) was not
inadvertent. Indeed, the original reference to "international agreements" in Article XX(g) was
dropped in the Geneva Draft. Although the new exception for fisheries, birds, and animals added
at Havana did apply only to inter-governmental agreements, it would be hard to explain how a
post-1947 amendment to the ITO charter could delimit the GATT.
Conclusion
A review of the history of Article XX demonstrates that it was designed to encompass
environmental measures. There may be a few issues that do not fit the Article XX framework --

the preservation of scenic vistas perhaps. But just about everything else relates squarely either to
the life or health of living organisms or to the conservation of truly exhaustible resources like
clean air, fossil fuels, and stratospheric ozone. Whether Article XX achieves its intended purpose
will depend upon how the Contracting Parties administer the exceptions vis-a-vis increasingly
vigorous tools of enforcement. There is a danger that Article XX will be eviscerated through
interpretation and that this myopic stance will backfire by making the GATT appear to be an
obstacle to environmental progress.
If the "greening" of the GATT means that the Contracting Parties should respect environmental
objectives in administering Article XX, then greening is a good idea. But if greening means that
the Contracting Parties should subordinate economic goals to ecological imperatives, then
greening is a bad idea -- for the environment and for the GATT. It is a bad idea for the
environment because the GATT does not have the scientific expertise to judge what ecological
measures are appropriate. It is a bad idea for the GATT because environmental policy would be
too divisive for GATTs current decisionmaking structure.
The best thing the GATT can do for the cause of a more sustainable environment is to perform
capably the function in which the GATT as an institution has a comparative advantage. That is,
judging the legitimacy of non-tariff barriers proclaimed under the banner of the environment.
Certainly, the Contracting Parties cannot turn freer trade into an antidote against an unhealthy
environment. But they can attempt to identify protectionist policies that squander resources and
diminish a societys capacity to pay for environmental rehabilitation. The challenge for the
GATT in the 1990s will be to carry out this difficult role in the face of enormous scientific
uncertainty, intense public scrutiny, and an awareness that there is no appeal from irreversible
deterioration of our planet, save to God.

Environmental disputes in GATT/WTO

Under the GATT (194894), six panel proceedings involving an examination of
environmental measures or human health-related measures under GATT Article 20
(i.e. XX) were completed. Of the six reports, three were not adopted. In 1995, the
WTOs dispute settlement procedure took over from GATT. Since then, three such
proceedings have been completed.

Under the WTO

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> European Communities Measures affecting asbestos and asbestos-

containing products. WTO case No. 135. Ruling adopted on 5 April 2001.
Case brought by Canada.
The Panel and the Appellate Body in this case both rejected
Canada's challenge to France import ban on asbestos and
asbestos-containing products, reinforcing the view that the WTO
Agreements support members' ability to protect human health
and safety at the level of protection they deem appropriate.

> United States Import Prohibition of Certain Shrimp and Shrimp

Products, the shrimp-turtle case. WTO case Nos. 58 and
61. Rulingadopted on 6 November 1998. Case brought by India, Malaysia,
Pakistan and Thailand.
Recourse to Article 21.5 of the DSU. Ruling adopted on 21 November
2001. Case brought by Malaysia.
Many have missed the importance of the Appellate Bodys ruling
on this case. It recognized that under WTO rules governments
have every right to protect human, animal or plant life and
health and to take measures to conserve exhaustible resources.
The WTO does not have to allow them this right. Initially, the
US lost the case because it applied its import measures in a
discriminatory manner; it then revised its measures to introduce
flexibilities in favour of developing countries. The Appellate
Body subsequently concluded that the US ban was consistent
with WTO rules. The ruling also said WTO panels may accept
amicus briefs (friends of the court submissions) from NGOs or
other interested parties.

> United States Standards for Reformulated and Conventional

Gasoline, WTO case Nos. 2 and 4. Ruling adopted on 20 May 1996. Case
brought by Venezuela and Brazil.
The case affirmed that the US had every right to adopt the
highest possible standard to protect its air quality so long as it
did not discriminate against foreign imports. The US lost the
case because it discriminated its requirement on domestic
producers was less stringent than that imposed on imported
gasoline (in this case from Venezuela and Brazil).

Conflict between Free Trade and Environment Protection

Introduction

In the early 1990s, there were two significant events affected the whole world dramatically. One
was that the completion of the Uruguay Round of the General Agreement on Tariffs and Trade
(GATT) and the establishment of the World Trade Organization (WTO) in 19941. It is believed
that trade liberalization is important to enhancing world economic welfare. The other was that
the concept of sustainable development was arisen during the United Nations Conference on
Environment and Development in June 1992 and the concept was stressed in the Rio
Declaration. Environmental protection has become an exceedingly important objective. As time
going, people are more and more concerned with the environmental degradation and tried to find
out the cause. Some believe that free trade leads to depletion of natural resources and pollution
of environment. Some identify poverty as the primary cause of environment degradation and
recognize the need for a new era of economic growth. Some countries use trade measures to
protect environment, but are opposed by some other countries. The linkage between trade and
environment becomes a major controversial topic in the areas of both international environment
law and international trade law. The Committee on Trade and Environment (CTE)2 was
established aiming to identify the relationship between trade and environmental measures in
order to promote sustainable development. However, so far the connections between the two
fields remain unresolved and controversial. It is clear that the opinions of those who are
primarily concerned with the environment are completely different from those prefer free trade,
and there are also obvious difference in attitude to the issue between developed and developing
countries.
This article is to briefly outline different points of view and attitudes, discuss some important
cases in this area, and try to provide our suggestions based on the different solutions.
Part One: Conflicting opinions and attitudes to free trade and environmental protection
As mentioned above, there are different opinions and attitudes to the relationship between trade
and environment. Those prefer free trade regard environment factors as part of the comparative
advantages that one country may have to another.3 If all the countries have the same
environmental standards or environmental resources, it will distort the free trade because it is
negative to comparative advantages that are the basis of the belief of free trade. They believe that
a country would only raise its environmental standards when the marginal benefits of that
protection would be equal to the marginal costs. It is this market-based idea that determines the
efficient allocation of resources between environment and other concerns. Actually, when the
economic growth of the developing countries has reached the threshold, they begin to take steps
to raise their environmental standards. One example is that Singapore has adopted its own ecolabelling scheme, the Green Label?in 1992. In the past, the eco-labelling scheme was regarded
to be used only by the developed countries to protect environment.
Another point of those in favour of free trade is that there should be no inherent conflict between
trade and environment. The common objective of the two sides is better life, trade is regarded as
a means to attain sustainable development, and we should use trade measures to further protect

the environment, but not use environmental measures to restrict trade. They argue that as
countries developing, they spend more on environmental controls and so tend to pollute less than
they did when they were less advanced economically.4 The changed attitude of the developed
countries is the best example. It is the same to the developing countries. China has 1.3 billion
people living in the limited territory. In the past, peasants had to destroy plenty of forest and
grassland for cultivating to support so many people. Now, some of these peasants are encouraged
to give up cultivating and to plant more trees and grasses because China central government
promises to provide free food to them. And it was also reported that between 1998 and the end of
2000, China's central government would have spent a total of RMB 27 billions(US$3.26 billions)
for ecological and environmental project.5 It is incredible and unprecedented in China's history.
So countries especially developing countries argue that economic growth and trade liberalization
have a positive role to play in the achievement of sustainable development. And an open,
equitable and non-discriminatory multinational trading system has a key contribution to make to
national and international efforts to better protection and conserve environmental resources and
promote sustainable development. Further liberalization of international trade has a crucial role
to play in order to generate revenue that can be devoted to environmental protection, to allow for
a more efficient allocation of environmental resources and for the removal of trade restrictive
policies. It is also argued that trade restrictions are neither the only nor necessary policy
instruments to use in multilateral environmental agreements. It is also stated in Principle 21 of
the Rio Declaration that "unilateral measures should be avoided as far as possible".
There is no doubt that the developing countries are the initiators and supporters of above-said
opinions. The developing countries are also concerned with the attitude of the developed
countries. The developing countries argue that developed countries are seem to be more
concerned with environment, but actually not, because they consume more energy and thus cause
more pollution, but they are unwilling to reduce energy consuming. It seems that they are more
concerned with promoting environmental protection, but actually not, because environment
standards they use are not always for environmental protection, but for something else. The
NAFTA6 is a good example, what the US labour unions wanted to do was that they want to
prevent the loss of job to lower-cost Mexico. It seems that they are more concerned with
environment of the whole world, but actually not, because they export goods that are
domestically prohibited in their own territory to the developing countries, they even export
hazardous and other wastes to the developing countries. It seems that they are more concerned
with environment of the whole world, but actually not, because they are more powerful, they use
the carrot and the stick to raise environmental standards, but they are miserly in finance and
technology assistance. The developing countries are left to be lack of information and technology
to change their production methods to meet the environmental standards.
However, on the other hand, many environmentalists are critical of trade liberalization. In their
view, free trade is responsible for many aspects of environmental degradation and for the failure
of policy makers to protect the environment adequately.

They argue that free trade shifting the production of pollution-intensive goods toward the lowincome, high-polluting South and that will increase global pollution, because the decrease in
northern emissions is insufficient at the margin to compensate for the increase in southern
emissions. They also think that because pollution is not local but trans-boundary or global in
nature so pollution in one country may affect another countrys environment. Green house is a
good example.
Another important argument that environmentalists hold is that the trade liberalization can make
the developing countries and developed countries lower the environment standard together.
Why? In practice, every businessman wants to make the great profits in the international
business, whereas lowering the cost is the best and most efficient way. Since WTO agreements
require member states to abolish the tariff barrier so as to make trade flow free and thus develop
the domestic economy, the importation and exportation became easy. With revoking the tariff
barrier, businessman thinks much more about the other aspects of the investment surroundings
than the tariff. For some pollution-intensive products, the environment requirements become the
most important. The developing countries want to develop the economy as soon as possible. For
them, the first important thing is to attract the foreign investment to develop domestic economy.
The environment protection undoubtedly including the strong policies and requirement will
increase the cost of some products high requirements will improve the cost twice or three times
than the cost under lower requirements so as to impede some pollution intensive industry. So the
developing countries usually lower the environment requirements for some industries so as to
attract the foreign investment. Whereas the international trading system, actually encourages any
participant country, particularly one that is less wealthy, to relax its environmental standards to
gain a competitive advantage. Once any country does so, other countries, also struggling to
develop sustainable economics, feel compelled to relax their standards in order to stay
competitive in the international markets. So we can imagine the horrible result. Both the
developing countries and developed countries will lower the environment standards. Under such
circumstance, trade liberalization like a breeze makes the burned house---already harmed
environment---much worse. Countries compete with each other in a ?race to the bottom?with
respect to the environmental standards to attract or keep capital. Even though competing
countries want environmental protection at high levels, the countries?inability to agree with (or
trust) each other means that each country will opt for lower levels of protection in order to
maximise their market share in the world economy.
The environmentalists also criticise the world trade organisation plays negative role as to the
environmental protection. It is also a big issue, we will discuss it in the following part:
Part Two: The possibility to solve the conflict between environment and trade under existing
WTO framework.
WTO is a trade organisation, which was founded to limit discriminatory trade practice and help
trade flow as freely as possible. However, there are some environmental considerations in WTO.

The preamble of <Marrakesh Agreement Establishing The World Trade Organization> states
seeking both to protect and preserve the environment? Actually Article XX of GATT does
recognise the ability of a country to place other concerns ahead of obligations under the GATT,
especially sub-article (b),(g)8. Such article was regarded as environmental exception?or Green
Exception?
Although there are black letters in white paper, it is another issue whether they are working. So
next we would like to introduce some of the leading cases handed down by the Dispute
Resolution Panel of the GATT/WTO, which are specific related to environmental protection.
Then we can see whether the trade organisation really concerns about environmental protection.
Tuna-dolphin case9
Under the U.S. Marine Mammal Protection Act, countries seeking to export tuna to the U.S. had
to show that they had a tuna fishing regulatory program comparable to that of the U.S. and the
dolphins taken incidentally by their tuna fishing boats was no greater than 1.25 times the US rate.
The U.S. argued the green exception?allowed it to do so. However the GATT dispute panel
found that the measures in the Act were not necessary?to the protection of animal life within the
reservation of ArticleXX(b). The decision was criticised by lots of environmentalists for its
narrow interpretation of Article XX. One commentator felt that this decision jeopardised the
future efficacy of international environmental treaties? and argued the decision put free trade a
far higher priority than environmental protection?10
Reformulated Gasoline case
In order to protect clean air, the USA amended the 1990 Clean Air Act. Under the new rule, only
reformulated?gasoline was allowed to be sold. The dispute stemmed from the fact that
domestic refiners had three different standards that they could use to meet the requirement of the
regulation, whereas foreign refiners has only one.
Although both the Panel and the Appellate Body ruled against the U.S., the reason was a bit
different. The Panel found that the regulation must be primary aimed at"11 the conservation of
exhaustible natural resource in order to be upheld under Article XX. The Appellate Body, on the
contrary, recognised the action was primary aimed at?protecting the environment and should
be viewed as such for Article XX(g) purposes. But it ruled the regulation of the U.S.
discriminated between domestic and foreign producers12.
In the following case, the decisions between the Panel and Body were much different.
3. ShrimpTurtle case
According to USA regulation, beginning on May 1, 1996, all shipments of shrimp and shrimp
products into the US were required to have a declaration that the shrimp was harvested in a

manner that did not adversely affect sea turtles. India, Malaysia, Pakistan, Thailand challenged
the regulation was inconsistent with the GATT.
In the first instance, the Panel ruled against USA, it stated that ?when considering a measure
under Article XX, we must determine not only whether the measure on its own undermines the
WTO multilateral trading system, but also whether such type of measure, if it were to be adopted
by other Members, would threaten the security and predicability of the multilateral trading
system.?/font>13
This was a very bad decision. According to this test, whether an environmental protection action
cold be fallen into Article XX exception or not, firstly it should pass the threat to the
multilateral trading system?test. In other words, under the WTOs dispute settlement system,
trade always prevails the environment in case of conflict.
However, the Appellate Body ruled that the Panels legal analysis was in error, noting that to
maintain the multilateral trading system is not a right or an obligation, nor is it an
interpretative rule which can be employed in the appraised of a given measure under the chapeau
of Article XX?/font>14.
Finally the Appellate Body found against the U.S. on its discriminatory "implementation" of the
Act, but not the Act itself15. Indeed the Body spent a full paragraph to emphasize a need to
protection for sea turtle:
We have not decided that the protection and preservation of the environment is of no
significance to the Members of the WTO. Clearly, it is. We have not decided that the sovereign
nations that are Members of the WTO cannot adopt effective measures to protect endangered
species, such as sea turtles. Clearly, they can and should. And we have not decided that sovereign
states should not act together bilaterally, plurilaterally or multilaterally, either within the WTO or
in other international organisations, to protect endangered species or to otherwise protect the
environment. Clearly, they should and do.?/font>16
It is worth noting that the Appellate Body did not explicitly prohibit US from regulating
production methods for shrimp harvesting outside its own jurisdiction. So some observers argued
that this case opened the theoretical possibility for extrajurisdictional environmental regulation to
be consistent with WTO rules. However, in practice it would be quite difficult for
extrajurisdictional unilateral environmental regulation to pass scrutiny17.
From above we can see that under existing WTO dispute settlement system, none of trade
measures to protect environment was successful. Although there were some environmental points
or values recognised, it was far from the expectations of environmentalists.
Meanwhile, On October 14,1999, the Secretariat of the WTO issued a report on Trade and
Environment?/font>18. The report was widely perceived to be an effort by the WTO Secretariat to

put international trade in a more favourable light, so-called Olive branch?/font>19. But the
report asserts without proof that the gains from trade are sufficient to repair any environmental
damage, which made many environmentalists unhappy20.
Part Three: Solutions to reconcile the environment and trade.
As the existing WTO dispute settlement system could not deal with the conflict well in the view
from environmental protection, there have a lot of potential solutions been recommended.
Exemption of multilateral environmental agreements in GATT through waiver.
The WTO agreement explicitly allows parties to waive GATT obligations in exceptional
circumstances. So it is worth considering to exempt multilateral environmental agreements from
GATT rules. Of course, such waiver should be approved by a three-fourths majority of GATT
parties. It is not impossible in some circumstances.
Although someone argues that this approach appears to rank the GATT/WTO and trade
liberalization above multilateral environmental protection, it would prove to be useful in the
interim.
2. Amending the GATT.
Because of the vague language used in Article XX of GATT and the narrow interpretation of
these grounds by the Panel and the Appellate Body, it became very difficult for a country to use it
as safeguard to protect environment. So there are suggestions to amend the GATT and give
express provision to exempt environmental protection action, ie, a real green exception?
3. Procedural changes to dispute settlement under the GATT/WTO.
Assuming for a moment that GATT/WTO in the proper forum for adjudication of trade and
environment disputes, there are ways to make future WTO tribunals more conducive to fair and
informed decision-making. For example, the selection of panellists. The objective of panellists is
to create a sufficiently diverse background and a wide spectrum of experience. So one can argue
the WTO tribunals should include experts in the realm of environmental protection. The panel
member should be recognized by both trade and environment concerns. Maybe things will be
different in that case.
4. Change of forum, ie, change the dispute settlement forum from the WTO to other international
body, for example, International Court of Justice(ICJ) it would be more neutral and more fair to
both sides.
Other suggestions include setting up a new global environmental organisation equal to the WTO
regime. Some environmentalist even suggest that in order to force a more environmental
friendly interpretation of Article XX, one of the member countries, particularly the United States
or the European Union, may have to start ignoring the WTOs decisions.21? However, we think

it is not a positive attitude to solve the problem and the above-said suggestions are either
infeasible in some aspects or difficult to achieve. In our view, the eco-labelling scheme is
comparatively practicable solution. So next we would like to introduce it. It is impossible for us
to introduce all details of the eco-label, so we only discuss some main points:
Eco-label is also referred to as green-label which means putting labels on products to inform
consumers of their environmentally-friendly character. It comes into being accompanied with the
political awakening and rising level of public concern with the environment protection. In 1971
the Germany government put first forward the concept of Eco-label for consumer products22, and
in 1978 the first Eco-label program in the world was launched in Germany23. Now there are over
20 countries, especial industrilized countries, including Canada, Japan, Norway, Austria, France,
Singapore, etc, have adopted the Eco-label program in many different forms at local, national,
regional and international level.
Under all programs currently existing or proposed there are committees with broad
representationwith members from the government department concerned, as well as consumer,
environmental, and industry intereststhat determine or suggest to a government minister which
product categories are eligible for labelling. Within each category the scope of products is
defined, and the threshold criteria a product must meet is established with the help of experts.
Domestic or foreign manufacturers may, if they so wish, submit products for consideration. If the
product meets the criteria of the product category, a label can be obtained and used when
marketing the product, in accordance with the terms and conditions of the contract concluded
with the committee or administering body.
The main objective of eco-labelling programs is to harness market forces and channel them
towards promoting more environmentally-friendly patterns of production. Eco-label provides
consumers with easily recognisable symbol, indicating the product environment friendliness has
been assessed and approved by certain organisations or governments. Thus, it can help
consumers, especial "green consumers" to make informed purchasing decisions. Meanwhile ecolabel also leads to higher and higher environment consciousness of consumers. Eventually, the
manufacturers will be forced to change their product process into a more environmental friendly
process. If the manufacturers dont improve the image of their product, they will lose their
market. Because of its market function, Eco-label is regarded as less trade restrictive measures
than bans or outright product regulation. Eco-label has increasingly become an effective
instrument for harmonizing the conflict between the free trade and environment protection.
Although the eco-labelling scheme is an effective method to protect the environment with more
compatible with the WTO, and most of the labelling scheme is voluntary, it is still argued that it
may act as de facto trade barriers. Especially the developing countries think that the labelling
scheme may often result in discrimination against foreign producers and is a non-tariff barrier to
free trade in fact. They argue that the nature of the labelling scheme is discriminatory because its
goal is to select only those product that have significantly less environmental impact compared

with other products in their category. And also whether certain processes and production methods
are, or not, environmentally sound would depend on how a national label awarding body defines
the criteria for a product to be eligible for a label. Another reason for labelling program being
viewed as a trade barrier is that it involves requirements that put small and foreign producers at a
disadvantage because of the costs involved or other reasons.
In the past years, some disputes have arisen from the labelling schemes. We would like to
introduce the dispute of Austria Mandatory Labelling Law. In 1992 in order to protect the
tropical forest, the Austria parliament introduced new legislation with the aim of stopping all
imports of tropical timber and tropical timber products from areas that were not sustainable
managed. It requires all tropical timber and products sale in Austria must carry a label identifying
them. The ASEAN24 complained to the GATT's Committee that the law did not required
mandatory labelling of other types of wood and wood products imported into Austria or
produced domestically. They charged the Austria law was in violation of both the "mostfavoured-nation" (MFN) and "National Treatment" provisions of the GATT and was
discriminatory, unjustifiable and an unnecessary obstacle to trade. While Austria argued that the
labelling requirement did not constitute an obstacle to trade since product labelling per se was
not a trade restriction and the law did not impose any quantitative or qualitative restriction on
imports from any destination. It also alleged the law was not discriminatory in nature because it
applied to any tropical timber or tropical timber product, irrespective of the country of export or
origin. However, faced with likelihood of losing the case if it were to be referred to the GATT
Panel, Austria amended its law. Under the amended law the labelling requirement is (like any
other eco-labelling program) voluntary, and the quality mark can now be issued to all kinds of
timber and timber products from sustainable managed forest.
From the discussion above we can see that the eco-label is an effective way to protect
environment and has less negative implication to free trade. In order to avoid dispute the key
issue is that the trade impact of ever-growing environmental labelling programs will depend
substantially on how the schemes are administered. This is also recognised by the CTE, which
stated "well-designed eco-labelling schemes/programs can be effective instruments of
environmental policy to encourage the development of an environmentally-conscious
consumer."25
Aiming to the effectiveness of eco-labelling schemes, the following proposals should be
incorporated into the Eco-labelling program in the future:
Harmonisation. There are many different Eco-labelling scheme standards among different
labelling scheme countries in the world, even some are diverse. At the same time, different
standards increase costs for producers if they have to meet a variety of labelling requirements in
different countries. Harmonisation can help mitigate the adverse effects and decrease the cost of
products while maintaining environmental goal. It is important to small foreign suppliers and
those from the developing countries.

Mutual Recognition. It means to recognise the validity of divergent environmental criteria and
ensures that trade interests are not unduly affected by this diversity. It can escape the condemn of
discrimination and extrajurisdiction. Mutual Recognition will be much easier between countries
having compatible levels of economic development.
Transparency. Because eco-labelling scheme primarily focus on domestic condition, it is difficult
for foreign producers to gain access to the information to comply with those schemes. Promoting
transparency to all interested parties, including exporting and developing countries, can help the
interest of other countries, and facilitate environmental objectives and trade. It also can alleviate
political pressure from other countries.
Technical Assistance. Providing technical assistance to developing countries may help reduce the
potential negative trade effects of environmental labelling on developing countries. Technical
assistance can play an important role in helping developing countries establish their own
programs and will consequently lead to international deliberations.

Conclusion:
Whether there is conflict or not between free trade and environmental protection in theory, in
practice there is controversy between the two issues which are both important to us. However,
WTO is a trade organization anyway, so environmentalists are concerned with and disappointed
to the approach of WTO existing system. Hence, more and more countries prefer eco-label
program, especially voluntary scheme to protect environment. The idea behind is to encourage
more and more people to care about environmental protection. If more and more consumers are
concerned with the environment, we can have more and more clean water, clean air, clean
everything.